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
Current Assets
Checking/savings $30,000
Marketable securities (stocks, mutual funds) $28,000
Furnishings and collectibles $22,000
Certificates of deposit $7,000
Total current assets $87,000
Current Liabilities
Mortgage (current portion) $25,000
Consumer debt $18,000
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
Deferred assets
Home equity $120,000
Life insurance value $60,000
Retirement accounts and savings bonds $470,000
Total deferred assets $650,000
Deferred liabilities
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

Item Details

  • 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.

Cash Reserve
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.

Financial Considerations
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