Financial Minute with Robert Seid: Preparing for a Season of Uncertainty

Preparing for a season of uncertainty

As the effects of COVID-19 reverberate through all businesses in our economy, fishermen must also buckle down on their finances.  Now is the time to do some extra financial planning to make sure you can ride the wave of uncertainty that may affect your fishery and your profits from upcoming seasons.  Below are some items that you DO have control over that can help prepare you for any instability that lies ahead.

• Review your upcoming expenses – Be sure to understand your upcoming boat projects and prioritize based on necessity.  You may find you can shave off some pre-season expenses that may ease your finances.

• Review your cash amounts – If your off-season income has been adversely affected by COVID-19, get an idea of where that will put your cash balances as you head into the season.  Make sure you have enough set aside for necessary costs, emergencies and 2019 taxes.

• Processor Credit – some processors offer credit cards or loans pre-season.  Leverage these to cover costs if your cash balances will be thin.

• Review and compare insurance – Insurance policies can be unnecessarily high and go unreviewed for years.  Do your diligence and reach out to a different insurance company to get comparisons. There may be more competitive rates.  Ask other fishermen with similar vessels what they are paying for their coverages.  If you are a second year skipper with your first season behind you, it’s possible that more favorable options are now available to you as you are seen as having lower risk.

• Extended tax filing – recent government action extended the tax deadline from April 15th 2020 to July 15th 2020.  You can also extend (as usual) until October 15th.  You should always keep enough in cash from the prior season to cover that year’s tax bill.   If you are expecting to need fishing income from Spring/Summer 2020 to cover your 2019 tax bill or maximize retirement account contributions, especially those for a Solo 401k, extending to October 15th may be wise to give yourself flexibility.

• If you are a home owner, consider a refinance of your mortgage – Rates are at all-time lows.  You could speed up paying off your house, or pay less per month by locking in a lower interest rate.  If your current rate is above 4%, it would be wise to get a quote from your mortgage broker.

About Robert

Robert Seid is a financial advisor and Partner at Blue Summit Wealth Management, an independent wealth advisory firm in San Diego, CA. He also captains an Alaska commercial fishing vessel in Bristol Bay. His experience in both industries provides him the perspective to share financial guidance specifically geared for commercial fishermen. To learn more about how Robert and Blue Summit can help you and your operation succeed, please visit www.bluesummitwealth.com or email him at robert@bluesummitwealth.com.

Robert started in the Bristol Bay fishery in 2011 as a green crew member, walking the yards to find his first opportunity. His love for nature and adventure found a home in Bristol Bay and, after his first year on the water, he was hooked. He has returned every year since and purchased his own vessel in 2019. As a skipper, his dedication to commercial fishing has only continued to grow.

Alaska Small Community Travel Order

Please click to the button below to read the Alaska Small Community Emergency Travel Order (Attachment B) updated April 9, 2020.

Where are They Now: Former Young Fishing Fellow Madeline Jovanovich

What was your Young Fishing Fellowship project? 

I worked with Catch 49 distributing Alaskan caught and processed seafood to community members of Fairbanks. As AMCC’s direct-market seafood distributer that is based on a Community Supported Fishery model, Catch 49 is a means of getting Alaskan seafood to Alaskan people. In Fairbanks, I have been distributing shares to the community for the past year. I will continue to do this indefinitely. Working with Catch 49 has allowed me to stay connected to the commercial fishing community while pursuing a career in the medical field. 

What was your most meaningful takeaway from the fellowship? 

Despite having a full-time winter job that is entirely unrelated to fisheries, I always seem to find myself pulled back to the water one way or another. While in school, I was invited to the British Columbia Young Fishermen’s Network Gathering in Victoria, Canada. Here I connected with fellows from our AK Network that continue to be friends and colleagues. Listening to the elder and youth perspectives of Canadian fishermen solidified the fact that people of the water are connected despite working and living in different ecosystems and government structures. We all share in an intrinsic connection and adoration for the ocean’s wealth.  

What are you working on now? 

The wintertime financial challenges inherent in seasonal commercial fishing convinced me to return to school to start a career in medicine. Today I am a paramedic and firefighter at the City of Fairbanks Fire Department and look forward to crafting a balance of fishing and medicine. As a side project, I am working on providing medical kits to fishermen that are catered to their boat size and specific needs. 

Do you have advice to future Young Fishing Fellows? 

Gaining connections and getting jobs doesn’t always happen in standard ways. Continue networking with those around you and pursue working relationships with people you don’t know. This community has a lot of opportunity to offer, and you never know where you will end up. Before my first season in Bristol Bay, my father reminded me to “keep an open mind and experience everything you can. People are different in Alaska; you never know where you’re going to end up.” My fellowship project took some unexpected turns that in the end got me working in a sector that I truly love being a part of. 

You can apply to the 2020-2021 cohort of Young Fishing Fellows here. The application deadline is May 4th.

Madeline Jovanovich at work in Fairbanks

Where are They Now: Former Young Fishing Fellow Jamie O'Connor

Did you know that AMCC’s Working Waterfronts Director, Jamie O’Connor, started out with us as a Young Fishing Fellow? She’s here to kick off our interview series with former fellows!

What was your Young Fishing Fellowship project? 

I worked with the commercial fishing trade association down here in Homer, North Pacific Fisheries Association (NPFA), on a membership audit and community outreach. I called all of their members and got to interview them about their fishing lives, impacts on the community, and what they needed from NPFA. We then presented what we found to the Homer City Council and to the NPFA Annual Meeting. They also introduced me to the North Pacific Fisheries Management Council Process and took me to my first Alaska Young Fishermen’s Summit, and United Fishermen of Alaska meeting. 

What was your most meaningful takeaway from the fellowship? 

I made what I know to be lifelong friendships during my time as a fellow. For me it was really an aha moment. I’ve been fishing my whole life believing that I’d have to grow up and hang up my slickers during the winter to support my habit. There was an uncomfortable duality there, being entirely fishy in the summer and then barely talking about it all winter as I went to school and worked in other industries. The fellowship showed me a winter gig where I could bridge my education and experience in communications and politics with my heart and life in coastal Alaska fisheries.  

What are you working on now? 

Now I run AMCC’s Working Waterfronts program working on fisheries access and policy and attend every NPFMC meeting to advocate for small-boat fishermen and conservation. You never know where the connections you make will lead. 

Do you have advice to future Young Fishing Fellows? 

The fellowships are really flexible so, once you’re hired, work with your mentor to make the most of your skill set. Also, learn as much as you can from the host organization. There are many groups doing important and fascinating work on behalf of our coastal communities and fisheries. Once you’re in you may never get out!

The application period for the 2020-2021 cohort of Young Fishing Fellows is open until May 4, 2020. Click the button to learn more about this year’s hosts and how to apply.

Financial Minute with Robert Seid - The Value of Depreciation

The Value of Depreciation

Commercial fishermen have financial landscapes containing both unique challenges and opportunities.  From seasonal cash flow & large, unpredictable boat expenses to corporate tax structures & small business ownership, our financial situations are far from the norm.  The following tips have been compiled by a skipper, for skippers.  Creating wealth as a fisherman takes skill.  Preserving and advancing that wealth takes wisdom.  I hope that the below gets your gears turning on how you can achieve the best financial future for your operation, your family and yourself. 

“Depreciating an asset means deducting the cost of something you bought for your business, like a vessel, a permit or large machinery purchases. ”

What does it mean? 

Depreciation is an often misunderstood topic, but extremely valuable to commercial fishermen.  We have many opportunities to use this financial planning tool.  In fact, it’s more like deducting or expensing, which is a topic that brings a smile to every business owner.  Depreciating an asset means deducting the cost of something you bought for your business, like a vessel, a permit or large machinery purchases.  Particularly relevant to fisherman is Section 179 of the tax code which allows for accelerated depreciation/expensing of up to $250,000 of an asset in a single year.  Also of direct relevance, is the ability to depreciate fishing permits or quota.  These are classified as intangible assets and can only be depreciated (via amortization) over a 15 year period.  We will go over these figures in a case study below.

Why does this matter? 

The first and primary benefit is a direct reduction in taxable income for the years you depreciate, and thus a direct reduction in your tax burden for that year.  The second reason to depreciate is because money has a time value.  Money now is always more valuable than the same amount of money in the future.  Depreciation means you have more capital at your disposal now, which means you can invest and reap returns in your operation, or in more traditional investments like stocks, bonds or real estate. The flip side to depreciation is that the cost basis of the asset is also reduced by how much you depreciate it, meaning that upon sale of said asset, your capital gain will be higher.  Again, even though you have to pay later, the fact that you were able to use this capital sooner is extremely valuable. 

Case Study: 

To start his operation, Tom buys a boat for $250,000 and a permit for $150,000 in 2020.  During his first season, his net income (after expensing and deducting smaller business items and paying crew) is $200,000.  On his 2020 tax return, Tom can use Section 179 to accelerate depreciation on the boat for the dollar amount of $185,000, and amortize his permit for $15,000.  This brings his taxable income down to zero.  In future years, he still has $65,000 of boat value to depreciate (which could all be utilized in 2021 if desired) and can depreciate his permit $15,000 each year for the next fourteen years.  Reducing his season’s net income of $200,000 down to zero saved Tom approximately $50,000 this year (if taxed at 25%).

Overall, having more money in the near term allows you to invest in your operation and continue to strengthen the Alaska economy.  Perhaps the refrigeration system you can now afford also contributes to a higher market price for your product, thus improving the wider economic system.

About Robert

Robert Seid is a financial advisor and Partner at Blue Summit Wealth Management, an independent wealth advisory firm in San Diego, CA. He also captains an Alaska commercial fishing vessel in Bristol Bay. His experience in both industries provides him the perspective to share financial guidance specifically geared for commercial fishermen. To learn more about how Robert and Blue Summit can help you and your operation succeed, please visit www.bluesummitwealth.com.

Robert started in the Bristol Bay fishery in 2011 as a green crew member, walking the yards to find his first opportunity. His love for nature and adventure found a home in Bristol Bay and, after his first year on the water, he was hooked. He has retuned every year since and purchased his own vessel in 2019. As a skipper, his dedication to commercial fishing has only continued to grow.

Fishing Fellow Spotlight - Fisheries Business Resilience

Grace Allan

As a young fisherman the question of how to successfully invest in Alaska’s commercial fishing industry is constantly on my mind. I grew up longlining for halibut alongside my family and have continued to embrace the industry as a central part of my life. I still treasure my parents’ stories of how they first made their way to Alaska, bought a rickety boat, and started fishing for whatever the canneries were buying. However, the industry fishermen are facing today is very different. Higher entry costs and the uncertain effects of climate change are making entering the industry a high-risk endeavor. The young fishermen of today must be more strategic when it comes to reducing their risk and planning for the future of their business.

My Fishing Fellowship with the Alaska Marine Conservation Council was focused on addressing this need for fisheries business planning tools and resources. I worked with the Kachemak Bay National Estuarine Research Reserve (KBNERR) to create a business planning tool called the Alaska Fisheries Resilience Index. This is a self-assessment fishermen can complete on their own to help identify the strengths and weaknesses of their business, especially when it comes to withstanding and adapting to change. It is comprised of a series of questions relating to business planning, disaster preparedness, marketing, workforce, disaster response, and resource advocacy. Paired with these questions is a comprehensive list of Alaska-specific resources to help fishermen to take the next step and make the necessary changes to strengthen their business. It is intended as a one-stop shop to help Alaskan fishermen with resilient business planning.

While developing the Alaskan Fisheries Resilience Index I was challenged to step outside my comfort zone and become a source of knowledge on the challenges facing Alaskan fishermen. We held focus groups with local industry professionals to get their feedback on how to make the AKFRI better suited to their needs. Through this I learned to guide discussions with fishing industry leaders, and how to use their feedback to improve our product. By hosting these discussions, I gained a better understanding of the challenges facing our industry and the possible solutions.  I also grew confident in advocating for sustainable fisheries management and development of resources for our fishing communities.

Most importantly I helped develop a tool that will benefit my community, and I learned how to increase my own fishing business’ resilience along the way. For other fishermen looking to expand their skill set and get opportunities to advocate for their fishing communities, I highly recommend applying for a Fishing Fellowship with AMCC.

More resources and information about the Alaska Fisheries Resilience Index can be found at the NERR Science Collaborative Website.