Determining Customer Objectives - Client Balance Sheet
Of course, an income statement is not enough to determine a potential client's financial situation. You also need an individual balance sheet that shows assets, liabilities and net worth:
|Individual Balance Sheet as of 01 JULY 20xx|
|Marketable securities (stocks, mutual funds)||$28,000|
|Furnishings and collectibles||$22,000|
|Certificates of deposit||$7,000|
|Total current assets||$87,000|
|Mortgage (current portion)||$25,000|
|Taxes and penalties payable||$5,000|
|Auto lease payments payable (current portion)||$3,000|
|Other current obligations||$2,000|
|Total current liabilities||$28,000|
|Liquid net worth||(Total current assets minus total current liabilities)||$59,000|
|Life insurance value||$60,000|
|Retirement accounts and savings bonds||$470,000|
|Total deferred assets||$650,000|
|Mortgage payments (non-current portion)||$200,000|
|Auto lease payments (non-current portion)||$3,000|
|Total deferred liabilities||$203,000|
|Deferred net worth||(Deferred assets minus deferred liabilities)||$447,000|
|Net worth||(Liquid net worth plus deferred net worth)||$506,000|
- Current assets are those things of value that can be turned to cash within the year. Current liabilities are those obligations that must be paid within the year.
- Deferred assets are all those assets that are not current and, likewise, deferred liabilities are those liabilities that are not current.
- Liquid net worth is current assets minus current liabilities.
- Deferred net worth is deferred assets minus deferred liabilities.
- Total net worth is liquid net worth plus deferred net worth.
When looking at the balance sheet, it is prudent to ensure the prospective client has a cash reserve of at least half a year's pay before suggesting she lock into any long-term investments. In this case, the prospect makes $55,000 in half a year (income statement: half of annual salary plus bonus) and has $58,000 in cash and marketable securities, so she appears to be a genuine candidate for a registered representative's services.
You do not know when the CDs or bonds can be cashed in without penalty, so it is best to assume they are not cash-equivalent. Furnishings and collectibles, although they represent a significant amount of current assets, are not cash equivalents.
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