In 2004, I was part of a team that conducted a pre-published reviewed of Driving Your Company's Value, Strategic Benchmarking for Value, by Mard, Dunne, Osborne, and Rigby. One approach used by these authors was combining the DuPont Model and the Mobley Index to gauge the health of a business.

The DuPont Model was created in 1919 by a finance executive at E.I. du Pont de Nemours & Company. It demonstrated that a company's Return on Equity was actually a summary of the company's profitability, turnover, and leverage.
The Mobley Matrix was created in the fifties by Lou Mobley, who became the founding director of the IBM Executive School. He discovered the relationship between cash flow and financial statements.

This is better shown in ROE-Mobley Example. (See above)

As you can see, there is a correlation between the two tools displaying many metrics that gauge the health of your business. These measures can open your eyes to operating cash problems, excessive debt, and many other hidden ailments.

However, this could be a little overwhelming to the business owner who is an expert in his/her business and did not have time to go to business school. So, we place the model, and matrix, in an interactive graphical format. The measures are presented in a concise format for the owner to utilize. Please click here:

Business owners need to have a complete handle on their operations. Just knowing Sales and whether you have enough cash to make payroll is not enough. In fact, by time a business owner discovers what was obvious from out tools, it is usually too late.

We're here to help.

Be careful how you fund your S-corporations if you expect a loss. You may not be able to take the deduction due to a lack of basis.

An S-corporation owner may unwarily fund their S-corporation in a way that does not give them a tax basis to deduct a loss. A shareholder borrowed money from a partnership to lend to the S-corporation. The S-corporation paid the partnership rent in a circular flow of money. A Tax Court decision stated that that the owner didn't make any economic outlay so the loans did not increase his basis in the company. (Kerzner, TC Memo. 2009-76).

There are other mishaps I have seen over the years. Consult your tax advisor before funding your S-corporation. It could cost you quite a lot in loss deductions if you don't.

If you own an S-corporation and take little or no salary, the proposed tax legislation is aimed at you.

One advantage an S-corporation has over an LLC is that the profits are not treated as self-employment income. This omission in the tax law allows S-corporation owners to escape the extra 15.3% of income up to a base of $106,800. Partnerships, too, have this luxury.

Some S-corporation owners take little of no salary thinking that they will escape the clutches of this extra tax. However, if caught, the IRS imposes the taxes with penalties and interest. The proper strategy is for the owner to pay him/herself a reasonable salary, one that would match what they would receive if they were not the owner.

The proposed tax legislation may abolish this perk by requiring any shareholder of an S-corporation, and limited partner to pay self-employment tax on his/her share of the firm's income that comes from the shareholder's services. This would result in these owners skirting the self-employment tax on draws and dividends.

Consult your tax advisor about the specific challenges that face you as an owner.