Accounting News and Notes

Gwinnett CPA Teaches Utilization of Promissory Notes to Protect Your Georgia Based Business

Recently I received the below inquiry seeking advice on setting up a Promissory Note:

Is there a “normal or required” period that a Loan To Shareholder needs to be repaid?

The below is my response:

The “normal amount” would be what a bank would routinely do as a practical matter of doing business. With all loans you will want to ensure that you have a promissory note signed by all parties confirming the terms and conditions. Frequently businesses and individuals alike may extend, grant or receive credit in the furtherance of their business and personal interests.  A basic understanding of promissory notes and their use and application are critical to protecting company assets, cash flow issues, as well as profit maximization.  These initial parameters of review prior to signing a promissory note will be essential to their final agreement.  These issues will be key to helping ensure the business deal you get is actually the one intended. To read more about Promissory Notes visit http://www.hiscpa.com/promissory-notes.html

Also you can see what a Sample Promissory Note might look like:

SAMPLE PROMISSORY NOTE

FOR VALUE RECEIVED, [borrower] promises to pay to the order of [lender] the principal sum of [loan amount] in legal tender of the United States, with interest thereon from [loan date] at the rate of seven (7%) percent per annum, on the unpaid balance until paid.  Principal and interest shall be payable at the office of the note holder, [office location], or at such other place as the holder hereof may designate in writing according to the following terms:

1. The payments will be [monthly payment amount] and due on the first day of each month beginning [date] and ending on the first day of [month and year].
2. A current Financial Statement will be submitted by [date]
3. The following assets will be assessed as collateral until the entire debt is retired:

   [list of assets]

Should any installment not be paid when due, or should the maker fail to comply with any of the terms or requirements, the entire unpaid principal sum evidenced by this Note, with all accrued interest, shall, at the option of the holder, and without notice to the undersigned, become due and may be collected forthwith or any and all collateral sold by most expedient means, time being of essence of this contract.  It is further agreed that failure of the holder to exercise this right of accelerating the maturity of the debt, or indulgence granted from time to time, shall in no event be considered as a waiver of such right of acceleration or stop the holder from exercising such right.

Installments not paid when due shall bear interest at the rate of seven (7%) percent, per month, from maturity.  Should this Note, or any part of the indebtedness, evidenced hereby, be collected by law or through an Attorney at Law, the holder shall be entitled to collect Attorneys’ fees in an amount equal to fifteen (15%) percent of the principal and interests, and all costs of collection.

Undersigned guarantor, endorser or other party, waives demand, protest, notice of demand, protests and non-payment.

Privilege is reserved by the maker of this note to pay all or any part of this indebtedness prior to maturity without penalty.

Signed: [signature of borrower]
Company: [company name]
Title: [title of signatory]
Date: [date signed]

Professional Advice 

Never go it alone.  Your CPA is a critical part of the loan procurement process, as his wisdom, knowledge, and insight will help guide you to the best loan.  Frequently a little tweaking or good negotiation skills will save tens of thousands of dollars resulting in an improved bottom line and a smoother cash flow for your business. All promissory notes should be drafted in light of the business deal, current economic conditions, credit collateral, negotiation, etc. Utilizing a business attorney to draft a Promissory Note specific to your unique circumstances and needs is essential to having your wishes, needs and desires capable of being fully addressed and enforced. 

John Dillard is an Christian Speaker/Author and Certified Public Accountant in Duluth, GA. To See how he takes Christ along with him to work visit http://www.hiscpa.com/ and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and a Voice of One: Nehemiah’s Prayer visit http://www.john-dillard.com/ or call John Dillard CPA today at 770.814.9304 (All Rights Reserved) Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!  

Contact HIS CPA PC (A Christian CPA Firm) today.

We advise clients on: IRS representation, Offer in Compromise, Tax Problems, Incorporation in Georgia, Corporate and Personal Income Tax Returns, Part-time CFO, Virtual Controller, Business Planning, Offer in Compromise, Back Taxes, Bookkeeping.

During these uncertain economic times you will be well-poised to watch every dollar you spend as well as a great time to consider the hiring of a part-time Chief Financial Officer or Controller for your business. By doing so you gain the advantage of not having a full-time CPA on your staff whose salary would be the equivalent of your Vice-Presidents while also allowing you to pay only for the time that you use. A seasoned and experienced CPA whose background includes financial experience in CPA firms as well as working in private industry sector will avail you to procure talent, which is most suited to your needs. As your business grows exponentially, you will want to bring in a consultant  who can both serve with the financial and regulatory planning issues but also those involving management advisory services. A Virtual/CFO can help with:

-Development of Internal Control Procedures. Having appropriate checks and balances, segregation of assets, and asset protection is a critical component of a sound business model.

-Business Plan Development . Business Plans will help serve as a road map to take your business to the next level, while also serving as a guide to critical business, hiring, and operational decisions.

-Cash Flow Forecasting. Being prepared might be a good motto for a Boy Scout but it is also your best defense to ensure that one day you do not open the cash drawer to find out you are woefully short of operational needs

-Management Advisory. Negotiating a contract, buy-sell agreements, mergers & acquisitions, adding a partner, and shareholder agreements are all examples of critical agreements that will dramatically affect your business future viability and profitability.

-Tax Compliance and Reporting. Staying on the good side of the tax man is a critical path component to ensure your business is not unduly surprised by unexpected reporting and payment issues.

As your business continues to emerge and grow you will be best served by hiring a full-time Chief Financial Officer but a part-time Virtual consultant will serve well for those companies in the one to fifty million sales range seeking competent insightful advice.