Calculating ROI on Partner Business Development Time
Partners are expected to generate new business, but they don't have the time or desire to bring in new files. It's essential that the time actually spent on business development shows a worthy return-on-investment. The July issue of Inside Public Accounting published a handy formula to determine if a business development initiative is really paying for itself:
Use average partner income plus a factor for partner expenses on the financial statement. Take that cost times the number of hours you spend with growth activities. Compute a 20% return on that investment and then consider the margin on the average dollar of revenue the firm produces to determine the revenue that must be generated from the time investment in business development activities.
Here's an example:
* 300 hours per year on growth @ $150/hour
* Cost per partner = $45,000
* 20% ROI on partner time = $54,000 ($45K + 20% of $45,000)
* Revenue at 30% margin = $180,000
In law firms, partners may bill much more than $150 per hour, and a law firm's margin is typically 40%. However, typical lawyers spend much less than 300 hours per year on business development.
What should we do with this information? This scenario demonstrates how important it is to focus on the right activities. Once a partner sees the need to bring in $180,000 in sales this year, he or she will likely concentrate on activities that produce results. After thinking of ROI on business development in this way, partners should ask themselves:
* Am I spending too much time but not getting the results? If so, maybe I need training.
* Am I positioned with the right centers of influence to attract this much annual volume?
* How am I going to accomplish this goal? Should I spend all of my time promoting one-time project work, such as single transactions or litigation, instead of pursuing clients who will pay $25,000 per year for an average of 10 years?
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Capital Gains Tax Going Down
The capital gains tax rates in the new budget go from a bottom rate of 5% for the low income bracket, up to 15%. In the year 2008 the bottom bracket is slated to go down to zero. The amount of capital gains tax you pay varies depending on your tax bracket and how long you have been holding an investment. Capital gains taxes become lower, if you hold an investment for more than one year. So if you are in the 35% tax bracket, you pay the same percentage tax on an investment, if you hold it less than a year, but if you hold it for more than a year, your capital gains tax is only 15%. However, taxes are not the same for all sorts of investment. Taxes of 28% apply to those who make profits on investments in coins, bullion, and art works. You must report all capital gains, but you are allowed to deduct capital losses only on your investment property, not your personal property.
When understanding capital gains and losses, you also need to understand what is meant by "basis". Basis is the original cost of property adjusted for factors such as depreciation and refers to the amount of your investment in an asset. You will need to calculate both your initial basis and adjusted basis in the asset. Initial basis commonly equals the cost of you asset. However there could be some special cases where the cost differs from the initial basis, for example if you did not purchase an asset but rather received it as inheritance. Adjust basis is the cost of an asset plus the value of any expenditures for improvements minus any depreciation taken. For example, if you buy a house for $80,000, the initial basis in the house will be $80,000. If you later improve your home by constructing a second floor for $20,000, your adjusted basis in the house will be $100,000. You should be aware of which items increase the basis of your asset, and which items decrease the basis of your asset. For more information check IRS Publication 551. You'll need to calculate your short-term and long-term capital gains and losses in Schedule D of your income tax return, and figure the tax due, if any.
There are complaints about the lowering of taxes on corporate profits. By lowering the capital gains tax that is the effect. Corporate profits are taxed once when they are issued by the corporation, and a second time when they are taxed as dividends to the people who receive them. Fears continue over the total evasions of capital gains taxes, both through offshore tax shelters and underreporting of capital gains. A Senate and a House bill both seek to make brokerage houses report more tax information to the Government. The goal of the bills is to stop investor's ability to inflate their losses or minimize their gains when filing their taxes. In a report by the House Congressional Budget Office, there is concern that even though these tax cuts will increase spending and consumption in the short term; they will have negative long-term effects. They will lower long-term investment and savings, by diverting funds to consumption.
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