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Who is afraid of a high maximum? And more questions from self-employed towards the end of the year - voila! Of money

2022-12-10T06:09:34.318Z


With the help of CPA Yulia Levy, we also looked at whether it's worth transferring deposits, when it's better to use them as collateral - and why you shouldn't be afraid of taking a loan even in an environment of rising interest rates


The end of the year is approaching and with it the challenges of those who control companies and business owners.

We tried to make order (Photo: ShutterStock)

The end of the year is upon us, and this is the time when many business organizations get into the atmosphere of the end of the year and initiate a wave of discounts and promotions as part of the last effort to increase income towards the end of the year (in contrast to some of the smaller businesses who actually try to increase expenses, in order to pay less taxes for next year).

"Black Friday", "Cyber ​​Monday" and a host of other publications about discounts and promotions that will not return again.

And the consumers?



Of course you are tempted.

"The goal of these entities at this time of the year, as mentioned, is to reach the sales targets set at the beginning of the year, and perhaps even to surpass the forecasts," explains Yulia Levy, CPA, founder and owner of the company Finally Control, which provides financial and business support to companies and organizations. "This process actually serves the sales people in organizations who want to reach the bonuses they were promised, to managers who also receive performance-based compensation, to investors and shareholders who want to see a return and increasing sales serves this purpose."

Yulia Levy CPA, founder and owner of Finally Control (Photo: Assaf Spector)

You have arrived

Levy adds that this phenomenon is not the property of business organizations only, but also affects credit providers, "banks, institutional entities such as insurance companies, credit card companies, and non-bank credit institutions. They also have to meet the target, their employees also want to receive the bonuses for good performance. The demand for credit also increased during this period."



But it is also impossible to ignore the fact that the interest rates are rising


"True, for the past six months the Bank of Israel has chosen to raise the interest rate in the economy in order to fight inflation which has reached 5.1% in the past 12 months. Today, in October 2022, the prime interest rate stands at 4.25% - representing 1.5 % addition to the interest set by the Bank of Israel, which is 2.75%.



We see that there are a lot of people who come and take credit in November and December, and this is the best time to go to banks and take a loan.

It's mani time.

The interest rates have increased, indeed, but as a general rule, the end of the year is an excellent time to reorganize loans.

When is it critical?

In a situation where the business took out several loans that it pays back at the same time, and as soon as the interest rates are high, all the loan repayments add up together.

This can be a great time to say wait, let's go to the bank and take out a consolidation loan.

To pay one loan that will limit the monthly repayment and in this way I am preparing for a situation where the interest rate may be raised again."



Looking at the Knesset website regarding the distribution of credit by months between the years 2018-2020, one can clearly see the trend according to which in the last month of the year, more is always given Credit compared to previous months.



"The fact that there is also an expectation of increased consumption during this period in Israel and in the world naturally encourages this trend - Chinese Singles' Day, Black Friday, Christmas, Hanukkah and New Year's Eve are catalysts for larger purchases among the consumer public - both private and business, and here is a very interesting situation in the field of credit" she says Levy, "On the one hand there is the supply side that wants to sell more credit and on the other side there is more demand from private and business consumers (who also want to take advantage of the suppliers' promotions on the one hand and sell more goods that require working capital that requires financing on the other hand)".



So where does this meet all the business organizations and those who control companies as consumers of credit and perhaps also as owners of capital who can take advantage of opportunities and make good investments?


"At the point where there is an opportunity to take out credit on attractive terms, if this process is managed correctly. They say that luck is a situation where opportunity meets willingness."



Levy claims that in order to properly prepare for the year-end credit liquidation sales, two main areas should be considered.

The first with regard to business organizations that consume a lot of credit: "Business organizations that consume a lot of credit from several credit providers, at the same time found themselves in this period in a challenging flow situation where the total repayments increased significantly because the prime loans became significantly more expensive in the last six months. Their repayment capacity was damaged, the



stability Their finances have weakened and a small blow of a temporary drop in demand for their products/services or a management operational challenge that harms revenue is enough and they already find themselves in a challenging situation. Such organizations should use this period to reorganize credits, consolidate loans and re-strategize their risk management and that First of all, to survive."



You are basically saying that in this context, the main difficulty for those who use credit to survive is a lack of flow, and the credit crunch.

But what is the cause of the collapse, is it bad management?

Neglected areas such as collection, controls that falter and can collapse a business?


"First of all, you have to take into account that those organizations must recruit the right people to their side. People who specialize in recovery and regulating processes so that those businesses will continue to provide for their owners and so on.



In addition, the brutal statistics of the reasons for the closure of businesses show that the main reason for the closure of 40,000 businesses in Israel is incorrect financial management, which includes the lack of management of cash flow forecasts, the lack of accurate analysis for the organization's periodic credit needs, incorrect management of the obligation in the banks, the lack of bargaining over interest rates in the banks, Erosion of profits due to high financing expenses, incorrect distribution of credits over too short periods or failure to take Grace which ultimately stifles the flow and more."



As mentioned, all of this can be prevented by careful financial planning, risk management, consolidating loans and examining alternatives while negotiating terms that are suitable for the current timing and taking into account the needs and limitations of the business for the coming period.

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The end of the year is a great time to shop in the credit market, especially for those who consume it from several sources at the same time (Photo: ShutterStock)

Owner withdrawals

The second area that requires consideration when it comes to year-end credit liquidation sales is business organizations that consume little targeted credit and have liquid balances for investment.



"Such organizations in many cases hold excess cash in various liquid investments and most of the time the reason they took the credit was due to the cheap price of the credit in the last decade."

Levy explains.

"In most cases, this strategy is indeed correct, because holding deposits as collateral for loans taken does lower the interest rate. The problem is that in these days of interest rate hikes, the banks immediately apply it to the loans but do not take care to reflect the increases in the interest rates of the deposits as well. What is the right move these



days goddess?


"If you don't want to change the essence, then you should examine the possibility of using credit at banks that give "cheap" credit relative to the industry average, such as One Zero, Discount and International - where the interest rates today stand at 4.73%-5.74% and stay away from banks that are above the industry average ( 6.57-7.23%) such as Hapoal Leumi and Mizrahi who today give interest rates on loans in the range of 7.5%-7.6%.



Do you think it is worthwhile to transfer deposits


? , such as the Bank of Jerusalem which offers an interest rate of 1.79%, International which offers 1.34%, Mercantil which offers 1.27% and the Po'aleim with 1.23%.



Of course, if there is a willingness to examine additional options, such as the possibility of transferring the funds to financial funds or investing in PTP loan platforms in Israel and around the world that give much higher returns than those of bank deposits and usually also allow for greater liquidity, the results can be even better, but that's already Requires a more in-depth strategic discussion and the approval of the management and the board of directors."



Another point is a reference to companies and business organizations from the side of the controlling owners. "Ultimately, those who stand behind these organizations are people like me and you with two legs and two hands who want to take care of their financial well-being and that of their families.

Everything that has been said about credit also applies to them.

An important point that less people are aware of, and many of them wake up too late, is the withdrawal of owners from the company."



Levy explains that towards the end of the year it is always a good idea to check whether there were any withdrawals by owners from the company during the year and whether the cumulative amounts of the withdrawals exceed NIS 100,000 as of December 31st.

"If yes, there is a taxation exposure with the tax authorities who may interpret the withdrawals as dividend withdrawals subject to high tax rates (25% if it is a non-material shareholder or 30% if the shareholder is a material one) and this is a situation in which taking credit on a personal level by the shareholder and returning The withdrawal amount to the company can solve the problem.



Such a move may require the use of personal credit and here, as in all the previous alternatives, it is useful to prepare for this in advance, examine alternatives, conduct negotiations and examine the possibility of creating exit points and early repayment of the credit in case the interest rates continue to rise."

Don't say one day will come, take care of your pension now (Photo: ShutterStock)

Take care of pension

Before concluding, Levy wishes to refer to a field that is not necessarily her main field of activity, but is no less important towards the end of the year as far as controlling and independent owners are concerned.



"This is a population that cares about everyone, taxes, employees except themselves. Therefore, I recommend at the end of the year right now, in the months of November and December, to make an appointment with your insurance agent or pension agent, where with all the reports, check what you have deposited, what else you can deposit .

Am I covered in terms of disability insurance, do I know what my pension will be in retirement, and if not, now is the time to generate it.

As far as the other things are concerned, it's a must."



What about controlling owners who retire and discover that the fund is empty?


"This happens a lot, especially to those who retire today.

Owners of control who reach a situation where they retire and discover that they have nothing to rely on.

That's why you should know that there is such a thing as a budget pension in companies.

As you retire,



It's all well and good when the company continues to work, but what will a controlling owner do when the company is not working and he has no continuing generation?

So there is a solution to this too.

Already now that the company is two or three years old, it's worth starting to see how we transfer sums of money to equity, take additional leverage, buy yielding real estate that will return the investment in the first years, but then I won't be interested in whether I have a next generation or not, I will have my pension fund."



So don't be afraid of lenders


"In the house where I grew up, a mortgage was a derogatory word. My parents bought a house and to this day they are paying it off and all I heard all my life was 'just don't have loans.' Leverage down if not done correctly Even in a high interest environment it is important to know this tool and know how to use it correctly.



That is why there are many relevant professionals that you should consult with and they will also cost money.

It's not how much it costs, it's how much it does.

And it is enough to have the right person who will give you along the way the route that will help you create some kind of asset for security for the future."

  • Of money

  • consumption

  • financial decisions

Tags

  • end of the year

  • independent

  • Loans

Source: walla

All business articles on 2022-12-10

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