Wednesday, August 20, 2014

Fire Truck: Justify the 2nd Truck

Everyone's in agreement to buy a new fire truck.  The problem is:  You need 2 trucks right now.  Or 3. Or 4. Or even more.

How do you get the council/board to buy the 2nd truck?

It can be simple and we'll break down the steps how to create a financial case for buying more than 1 truck.

We'll only discuss the financial parts.  You are more prepared to explain the operational reasons to replace the 2nd truck.

First, understand the financial decision for what it is

This is a justification decision, not a budgeting or financing decision.

The key question you should be helping your board to understand is:

Does it cost less to buy the 2nd truck now rather than buying the 2nd truck later?
When you understand that this is the question that needs to be answered at this point of the purchase process, the rest becomes easier.

In the next few weeks, we'll talk about how to do the math and how to handle the financial objections.  Stay tuned...

Summary

The first step to successfully justify a multi-truck purchase is to diagnose correctly what you are trying to do.  And that means knowing what question you are really answering at this time (you'll get other questions that should be answered later).  The key is to guide your council or board with the right information at the right time.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, August 13, 2014

Fire Department IRS Form 8038

Last week, I wrote about the IRS report 990 that affects many fire departments.

If you want to borrow money for a new fire truck, the IRS form 8038 will be involved.


The form 8038 is the form that is filed to alert the IRS that you borrowed money on a tax-exempt basis.  The form includes certain information about your borrowing transaction.  The IRS will select transactions from the pool of filed form 8038 for review.

Here's what is very important about this form

You, as the borrower, are liable for the accuracy of the information on the form 8038, even if you do not complete the form.

That means you want to be sure the information is accurate and follows the IRS rules.  Failure to do so could cause you to lose the exemption and you would pay a higher interest rate.

The IRS has allowed certain individuals to receive a Preparer Tax Identification Number.  This means the person with this number will identify themselves as the person who completed the form 8038.  And, they should carry errors and omissions insurance to cover any mistakes they make but you are liable for the form.

Summary

If you aren't aware of the IRS form 8038, you will be when you borrow on a tax-exempt loan or lease for your new fire truck.  You are liable for the accuracy of the information in the form.  It always helps to have a professional prepare this form to protect you.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, August 6, 2014

Fire Department IRS Form 990

Does your department file its annual IRS form 990 report?

If you are a not-for-profit, 501c3 or 4, or "private" volunteer fire department, you are probably breaking the IRS rules and may lose your tax-exempt status.

In 2007, the rules changed so that all not for profit entities are required to file the appropriate version of a 990.  Back then, there were thousands of departments who lost their exempt status because they did not file. 

Since then, most have come back into compliance with the rules but I still encounter departments monthly who do not file their IRS 990 report.

To learn more about this, the IRS website offers a great deal of information:

http://www.irs.gov/Charities-&-Non-Profits/Political-Organizations/Political-Organization-Annual-Reporting-Requirements:-Political-Organizations-Required-to-File-Form-990

Summary

The rules have changed.  And if you are a separate legal entity (ask your legal or accounting professional for more specific guidance), you must meet the 990 reporting requirements.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, July 30, 2014

Is your fire truck manufacturer financially sound?

Bankruptcy's, shut downs, recalls, and rumors 

With all the news about fire apparatus manufacturers these days, who do you trust?

Why is this important?

You already know that buying a fire apparatus is a long term decision.  And things get tougher when the party on the other end of the relationship is no longer around.  Things like getting parts, having warranty work completed, correcting systematic errors.

How can you confirm the financial health of your manufacturer?

If you can understand financial statements or D&B reports, get them from the company you are considering and read them thoroughly.  Ask tough questions. And don't settle for less than full answers.

But there is a simple to compare health among manufacturers you are considering if you don't know much about corporate financial reporting. 

Simply ask for their performance bond cost.  Their rating is a measure of their financial health completed by a financial expert.

A lower score is better, just like golf.  So, a manufacturer with a bond cost of $5 per thousand is more financially healthy than one with a $9 per thousand.

Now, the difference between a $5 and a $6 is probably not much but the financial health between a $5 and a $10 company is substantial.  The bonding company is saying the $10 is twice as likely to fail than the $5.

Summary

Buying a fire truck is a huge investment in money and time.  And the rewards of a new fire truck are expected for years to come but are based on continued support from the manufacturer.  It's important to know your partner will be around.

Stay safe!
John R. Hill
President
First Bankers