Wednesday, December 7, 2016

Fire Truck Financing: This is the Big Mistake

This is an actual account of a real fire department.  They called just this week.

Here's what happened to them

A new president called because a truck payment was due in a couple of months and they don't have enough money for the payment.  He called to lower the payment.  But there was no relief because of the decisions the previous administration made.


When the fire department financed their truck, they made 3 crucial errors.  Errors which will probably mean they will lose their truck in a couple of months.

Here's the mistake they made

The mistake has 3 parts.

First, they did not properly plan for the truck.  They had saved little money so they financed almost the entire purchase.

Second, they choose the longest financing term.  So now, a couple of years later, they owe a lot of money on a truck that has depreciated in value and they have no wriggle room to extend the term to lower their payments today.

Finally, they never had a plan.  They did not see beyond the excitement of a new truck.  They did not put this purchase as part of a bigger overall operational and financial picture.

So, they now have a truck that is a couple of years old that they can't pay.

Summary

It's easy to lost sight of the bigger picture in the excitement of a new truck.  But I get calls like this often, where the consequences of a poor decision come home to roost.


P.S.  Next week, I'll share why this department could not get relief from a lower interest rate


Stay safe!
John R. Hill
President
First Bankers

Wednesday, November 30, 2016

Is your fire department being embezzled?

It's always sad to read a news story about a fire department who had money embezzled.

It's a stain not only on the department itself but also the fire service in whole because it implies a lack of stewardship.

Financial practices can prevent embezzlement

Here are some best practices that your fire department could take to ensure it reduces the risk of theft.

  1. Use a 2 party check signature system.  Checks that require 2 signatures will reduce the risk of theft.  And make sure the signers are not friends, spouses, or family members.  The signers should be separate from each other.
  2. Have the person who writes the checks not be a signatory to the account.  Separate duties so that 1 person does not handle every aspect of financial transactions.
  3. Have and enforce an approval process for all bills, credit cards payments, and checks.  All financial transactions should be approved and the approval noted on the invoice or bill.  Ideally, a board would approve all transactions each month.
  4. Have or develop board members who understand accounting and financial practices.  I have talked with many board members who don't understand what all those numbers mean.  So they just trust the person who does the books. Scary!
  5. Get an outside audit each year.  Yes, it costs money but it's an insurance policy against the loss of money, reputation, and good will in the community by having an outside firm audit your books each year.

Summary

Embezzlement always happens when someone sees an opening in your system and has to exploit it.  Usually, the thief is not a "bad person", just someone who got caught up in a bad situation.  Watch your bookkeeper for health (for them and their family), gambling, expensive hobbies, failing business issues. 

Embezzlement happens when a person caught up in these kind of issues takes money to cover their problems.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, November 23, 2016

Happy Thanksgiving

We are blessed to live in a country where we have the opportunity to choose our leaders.  That is why people from around the world want to come to the United States.

Regardless of who wins, they are not the victors by virtue of having more power or weapons.  They are victors because they have been chosen by a free election.

I am thankful for working with the tireless people who serve their communities without fail.  Many will leave their families and homes this holiday to help a stranger.

It is this dedication and service that should be applauded.

Thank you!

Stay safe!
John R. Hill
President
First Bankers

Wednesday, November 16, 2016

How to not financially justify a fire truck purchase

I get this call every week.  A chief will call and say:

"I'm trying to get our council to purchase a new truck, can you send me a financial proposal?"


Here's why that is exactly the wrong thing to ask

As I've said in past week's column, the key question to answer to justify a fire apparatus purchase is:
"Is it cheaper to buy a new truck now rather than later?"

The nature of this question is to compare the costs of buying versus not buying.  And that is the only question a chief should help the council to answer.

They will want to ask - "How much will this cost (can we afford it)?" and "How will we pay for the truck?".

Those are budgeting and financing questions, not justifying questions.  And the smart chief avoids answering those questions at this time.  Those questions will be answered later in the purchase process when the discussion gets into the budgeting and then the financing decisions.

Why a financing proposal is a loser

When a chief provides a financing proposal, the conversation changes from the comparison of buying versus not buying.  Then the chief has to answer questions about finding the budget for a payment of this size or is this a good rate or is this the right financing term.  All discussions that lead away from the justification decision.

Summary

There is a natural progression in making a major financial decision. And smart chiefs focus only on the question at hand and doesn't provide information or allow the conversation to drift to budgeting and financing discussions.

Stay safe!
John R. Hill
President
First Bankers