Business in Science and General Truth

The simple reality is that life insurance is a business. A profitable business. Profit generally means that the entity that is profiting does so by taking more money than they return to policyholders. A lot more. Generally speaking, most people don’t need life insurance. Those are folks that are typically single, young, and have no children. Young married couples, as a rule, are wasting their money.

The problem with life insurance is that those who sell it, love to prey on the fears of their customers. They’ll spin incredible yarns about how your poor family will suffer the consequences, go broke paying your bills. If in fact you are liable, bankruptcy protection has always been available.

Here’s the plain truth. If you were worried about someone picking up burial expenses, you could obtain a small policy. If you are involved in a business and the death of your partner might put your business in the hands of an uneducated estate, or if you already have so much money that you need to protect the inheritance from tax loss, you might get a policy to approximate the loss as part of estate planning. There are some other unique situations where obtaining life insurance might be a good idea but those are tailored and situation specific to an individual. For the vast majority of healthy people, particularly those who can live on one income if they absolutely had to, life insurance is simply a waste of money. An obligation that once you start paying premiums, you can never stop or you’ll lose what you’ve invested.

I used to be a licensed life insurance agent, selling primarily term life. Once, I had a client who had died. His spouse was unaware that he even had a policy because the premiums were being dutifully paid for by his mother for nearly a year after his death. The credit life was part of the loan she was paying. I stumbled onto the situation and eventually the guy’s wife was paid the 25,000 that the policy called for. I often wondered after that episode with what frequency that situation happens. I can’t imagine it happens very often.

Life insurance has a few applications. As a general rule, most people simply don’t need it. It is not a good investment unless you have some spare money laying aound and no idea what to do with it. The next time a life insurance agent comes calling, tell him you want some death insurance instead. Ask him if the high divorce rate has contributed to the growth of his company. Most folks would be far better off setting aside their own money, investing it, have control over it, and let the power of time and compounding do the rest. And if you run short of cash, you’ll still have your investment-unlike many policyholders who let the coverage lapse and discover that insurance companies don’t give refunds.

Regardless of their qualification, there are two types of accounting functions that you need performed for you business: (1) The compliance accounting function and the (2) management accounting function.

A compliance accountant is only interested in you completing the task required under the law whilst a management accountant will also be vitally interested in the financial performance of your business and in providing appropriate correctional advice where necessary.

The compliance side of accounting deals with such issues as:
- Your business structure (i.e to trade as a sole proprietor or as a company)
- The status of your workers (i.e. contractors or employees)
- Taxation registration and lodgment including any value added tax like a Goods and Services Tax
- Licenses and permits required
- Business name registration
- Bank account setting up
- Your tax invoice layout and substance
- Your full and lawful taxation claims
- Workers Compensation Insurance (if applicable)
- Public Liability Insurance (if applicable)
- Your bookkeeping system (i.e MYOB)
- Your asset register for depreciation expense claims

The managerial side of accounting deals with such issues as:
Your cashflow management - To set you up with a rolling 13 week cashflow plan that predicts shortfalls in cash and offers advice on ways to deal with those shortfalls long before it becomes a crisis.
Your pricing management - Ensuring that you are protecting and increasing your gross profit margin through strategies like merchandising your margins, subjective margins, price increase strategies and cost controls.
Sales analysis - Ensuring changes in sales are quickly identified and responded to, that identified opportunities are exploited and that multiple sales are being properly achieved via sales person’s efforts and product layout and positioning.
Cost control - Ensuring that costs remain in line with expectation and that they are responded to immediately when there is a blow-out. This can be done via a monthly spreadsheet showing the costs each month and via variances to preceding averages.
Loan support - Ensuring that you can present the best possible case when applying for bank loans. Good managerial accountants know how to make a case for funding by presenting your figures in the best possible light. They take the time to separate out the one-off payments from the on-going expenses, they capitalize formation costs rather than expense them against a fledgling enterprise and they are prepared to produce realistic budgets in terms of future earnings

it is vital to select an accounting firm that can do both your compliance and managerial work which is why we always select a second tier firm (rather than the one-man-band) that have the expertise and depth in personnel to do both.