To stay in good shape, your finances need TLC. An assessment of your net worth is a good starting point, says Steve Garrett, an investment manager at St. Louis-based A.G. Edwards. "You need to take an initial reading so you can compare from year to year and uncover problems."
While the net worth equation--assets minus liabilities--sounds simple, you should avoid common mistakes such as overstating the value of a home. "You want to be conservative, not give yourself a false sense of security," says Garrett.
An accurate assessment will reveal any financial faux pas, such as lack of liquidity. "If everything is in IRA and 401K plans, you don't have access to your money," says Garrett, who advises putting 20 to 25 percent of assets in a nonretirement savings account.
An undiversified stock portfolio is another red flag. "With stocks, the rule of thumb is no more than 15 percent in any one industry and no more than 5 percent in any one stock," says Garrett, who adds that portfolio management varies by individual goals. "You have to know your own risk tolerance."
Economists have long heralded a paperless world where invoices cross the Internet in a heartbeat and payments fly back, saving payer and payee costly paper processing and time-consuming data entry. Yet widespread electronic billing presentment and paying (EBPP) has remained a theoretical concept.
The transition from paper to Internet recently got a push from an unlikely source: terrorists. Gartner Group recently reported a 20 percent uptick in enrollment in EBPP programs since the nation's anthrax scares.
And with software programs such as QuickBooks coming bundled with electronic invoicing functions, it's also easier for small businesses to make the transition, says Peter Fader, associate professor of marketing at the University of Pennsylvania's Wharton School.
Are the benefits worth the payoff? "It depends on your business," says Jim Bruene, founder and editor of Seattle-based Online Banking Report. "If you send enough invoices, the savings in paper and time can be real."
But timing is everything. "Unless your client base is also wired, you'll have to retrofit their system as well," Bruene warns. "It's a c hicken-and-egg thing."
It was bound to happen. After years of a corporate mania for using pro forma earnings to gloss over lackluster financial performance, their rosy glow is waning. In the wake of the Enron debacle, pro forma reporting came under heavy fire from all quarters. Even the Securities and Exchange Commission decried the use of company-issued pro forma reports to inflate earnings figures by excluding multiple "one-time expenses"-a vague term that included anything that management felt fit the bill.
"[Pro forma] became prevalent when companies, particularly new high-tech start-ups, didn't have any earnings or had bad losses and wanted to demonstrate that their operations were better than they appeared to be," explains Ed Jenkins, chairman of the Financial Accounting Standards Board (FASB), a private-sector organization that works with the SEC to establish standards for financial accounting and reporting. "A lot of pro forma earnings were driven by sell-side analysts who were trying to portray a company a certain way."
FASB is now developing performance-reporting guidelines. "Companies should explain how they arrive at their pro forma number and reconcile that number back to reported earnings so investors [can decide] whether it makes sense," says Jenkins.
Eventually, FASB hopes to eliminate pro forma reports altogether. "If we do a good job on performance reporting guidelines, there might not be a need for pro forma numbers," says Jenkins, who expects guidelines to be ready by year-end. "Of course, the proof will be what actually happens."
Jennifer Pellet is a freelance writer in New York City specializing in business and finance.
- A.G. Edwards & Sons Inc.
(877) 835-7877, www.agedwards.com
- Online Banking Report
- University of Pennsylvania
(215) 898-5000, http://www.wharton.upenn.edu