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Why Budgeting and Forecasting Are Vital for Your Business

February 2, 2017 / by Jim Rice posted in Rochester, Orlando

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Jim-Rice-for-web.jpgRecently, a client in the financial services industry decided to open up several new locations over a 12-month span. I asked if they had a budget in place and a definitive timeline for opening up each location. Nothing concrete, they told me.

This isn't unusual. Many companies make up their budgets and forecasts as they go along. But this is like setting out on a long drive with no map, no GPS, no credit cards and no idea how much gas you have in the tank. Where you'll wind up is anyone's guess.

Plan Ahead by Looking Back
The next company that correctly forecasts its annual budget right down to the penny will be the first. Still, just because you don't know your exact operating expenses is no excuse not to come up with a reasonable estimate.

The best way to determine how much money you'll need in the next year is to carefully track how much you spent in past years. It's important not only to calculate the total amount you spent, but also to analyze seasonal highs and lows. Doing so will allow you to anticipate lean months and set aside additional funds as needed. Also, the more closely you scrutinize your spending, the more likely you are to find ways to cut costs and eliminate unnecessary expenses.

Typically, companies forecast budgets over a 12-month period. Depending on the nature of your business, however, you might want to forecast for six months, or even 30 days at a time. This will provide your employees with a detailed roadmap of exactly where you're headed and the resources you have to get there.

Does Budget Forecasting Work in the Real World?
So how did my client's planned expansion turn out? Very well, I'm happy to say. Together we looked at their sales trends over the two previous years. Then we analyzed the current market and economic conditions and came up with a reasonable sales forecast.

Next, we drilled down and looked at the costs of goods sold (COGS). We also calculated their business expenses over the past few years, noting increases in rent, insurances, advertising, employee expenses, accounting costs and legal fees. That provided the basis for a cash flow analysis, giving us an idea of the money coming in and money going out, including projected income and expenses. And that, in turn, gave us a reliable indicator of when extra cash was going to be available and when revenue would be light.

Based on this solid data, the client was able to proceed with their plan to open up additional locations.

Now, as the client moves forward, we carefully compare their actual cash flow against their forecast. By monitoring their finances on a regular basis, we've been able to identify potential problems at an early stage and formulate a strategy to correct them before they become major issues.

In other words, the client has been able to get where they want to go by carefully studying where they've been.

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New Year, New IRS Rules

December 30, 2016 / by Mary Sue Renfro posted in Rochester, Orlando

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Mary-Sue-Renfro-for-web-square.jpgFor accounting services professionals, the New Year always brings new regulations. Here's an overview of some of the key ones up ahead.

Mandatory New I-9 Form
This one's coming fast. Employers must start using the new I-9 form, a.k.a. the Employment Eligibility Verification Form, by January 22. The form is designed to verify compliance with the 1986 Immigration Control and Reform Act, which requires employers to confirm each employee's identity. Among the changes to the form, last updated in 2013, are a supplemental page for the preparer/translator.

Access the new form here.

New Filing Deadlines for W-2 and 1099 Forms
Under terms of the Protecting Americans from Tax Hikes Act of December 2015, employers must now submit their copies of W-2 forms to the Social Security Administration by January 31. Previously, employers had until either the last day of February (for paper copies) or the last day of March (for digital copies). In addition, employers can now file for only one 30-day extension, and they must file the required form (8809) by January 31.

The new deadline also applies to 1099 forms covering payments to independent contractors and certain other forms of compensation for non-employees. The current deadline for employers to furnish copies of W-2 forms to their employees, January 31, is unchanged.

According to an agency bulletin, the earlier deadlines "will make it easier for the IRS to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them."

New Filing Deadlines for 1065 and 1120C Forms
The filing dates for these two forms have essentially flip-flopped, per the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. Form 1065, pertaining to partnership income, has changed from April 15 to March 15. Form 1120C, pertaining to C corporations, has changed from March 15 to April 15. (Form 1120S, for S corporations, remains March 15.)

The idea is that putting the partnership filing deadline (including Schedule K-1 "pass-through" taxes) ahead of the C corporation deadline would make it less likely that corporations would be forced to seek extensions for their tax returns.

The American Institute of CPAs has posted this handy guide summarizing original and extended tax return due dates.

One Significant Postponement
A quick reminder: The new revenue recognition standard set by the Financial Accounting Standard Board, originally slated to go into effect on December 15, 2016, has been postponed for accounting periods beginning after December 15, 2017, for most public companies and a year later for nonpublic companies. Among the reasons for the delay cited by the Journal of Accountancy was "a lack of available IT solutions for the new standard."

We haven't covered every change in IRS regulations, of course. Some, like the Transportation Mainline Pipeline Construction Industry Optional 62(c) Expense Substantiation Rules for Payments to Employees under Accountable Plans, cited in the IRS's Revenue Procedure 2016-55 bulletin, are incredibly arcane.

Be sure to stay tuned for an update on other changes going into effect in 2017. And if you're looking for the latest on the new Fair Labor Standards Act overtime regulations, I've also blogged on that topic.

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Legal and Tax Disclaimer
This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal and accounting advisors, and you should consult with a tax, legal or accounting professional before engaging in any transaction.

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Are You in Compliance with New FLSA Overtime Regulations?

November 18, 2016 / by Mary Sue Renfro posted in Rochester, Orlando

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Important Update:

Days before the new FLSA policy was to be implemented, a U.S. District Court Judge issued a temporary injunction blocking implementation.

What should employers do as a result?  ADP posted a helpful article about how to respond to the block of the overtime rule.

Whatever happens regarding this law, it's good business practice to make sure your employees are classified and compensated properly. Read the blog below to learn more.

Mary-Sue-Renfro-for-web-square.jpgOn Dec. 1, 2016, new regulations go into effect under the Fair Labor Standards Act (FLSA) regarding the minimum threshold for classifying salaried employees. The purpose of the threshold is to determine whether or not non-exempt salaried employees should be entitled to overtime pay for working over 40 hours in a week.

Nervous employers are asking questions about the changes. Here are some answers.

This is just a minor tweak, right? Wrong. The basic benchmark that defines a salaried employee is taking a huge leap. As of now, the minimum annual pay for salaried employees is $23,600, a standard set by the U.S. Department of Labor (DOL). On Dec. 1, that figure will jump to $47,476.

Yikes! So let's say I'm paying my salaried employees $40K a year. The government is making me give them each a $7,476 raise? No — although that might not be a bad idea in some cases. It all depends on a) if the employee is considered non-exempt (see FLSA duties test for exemption), and b) how much overtime your salaried employees put in.

If they are non-exempt and all work 40 hours a week (or less), then you're fine. But if any of your non-exempt $40K salaried employees work overtime, you'll have to pay them the equivalent of time-and-a-half for every hour beyond the 40-hour threshold. So it's a simple math problem. If you end up paying a salaried employee $15,000 a year in overtime, then suddenly that $7,476 raise doesn't look so bad.

Further, you need to be aware that commissions and bonuses paid less than quarterly are not included in the minimum annual pay calculation. So if you're an employer who pays $10,000 in commissions and bonuses annually to a non-exempt employee who makes $40,000 per year, you may be required to pay overtime.

Do I have any other options? Maybe, but you need to tread carefully. You might be able to reclassify some salaried employees as hourly employees — but either way, you have to document hours and pay time-and-a-half for anything over 40 hours a week. So that could amount to six of one, half a dozen of the other. It could also have unintended consequences that lead to morale problems.

You might also be tempted to shift salaried employees to "independent contractor" status. However, that's extremely risky. If it's obvious that you made the switch just to circumvent the law and you continue to treat those "independent contractors" as if they were salaried employees, you may open yourself up to serious consequences

Here's how complicated these compliance issues can be: The DOL itself was hit with a $7 million judgment involving unpaid overtime for its own employees. So this isn't something to mess around with. Consult a professional.

Why do we need these changes, anyway? Basically, they're designed to bring the salary threshold in line with the times. (It has increased just once since the 1970s.) The current minimum salary, $23,600, works out to about $11.35 an hour for a 40-hour week.

More to the point, the so-called "white-collar exemption" means employers don't have to pay salaried employees overtime. So a salaried employee at the current minimum threshold who worked a 50-hour week would make just $9.08 per hour. Clearly that's not the scenario Congress had in mind when the exemption first went into effect.

Anything else I should know? Of course! This is a government regulation, after all. We've barely scratched the surface. Get a broader overview here or check out this video.

And be sure to set up an appointment with your accounting services provider today. Don't wait until Dec. 1 to discover you're not in compliance.

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Five Signs That You Should Outsource Your Nonprofit's Accounting Functions

October 27, 2016 / by Jim Rice posted in Rochester, Orlando

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Jim-Rice-for-web.jpgMany nonprofits try to do more with a smaller budget. This is a challenge when it comes to accounting and bookkeeping, as there are specific regulations and tracking and filing requirements for nonprofits.

For these nonprofits, the simplest, most cost-effective solution may well be to outsource their accounting functions. Does your organization fit this description? Here are five signs to look for.

  1. You Suffer from "I've Got It/You Take It"
    Businesses with limited budgets may decide to add accounting and bookkeeping tasks to people who were hired to do other jobs. This may be expedient in the short-term, but it can be problematic to have people who aren't trained in or knowledgeable about accounting and bookkeeping for nonprofits serving in this role.

  2.  You Have No Backup Plan
    Maybe you do have a single competent staff member in charge of all financials. But what if he or she gets seriously ill? Or quits without notice? Or leaves on a two-week cruise just when you get hit with an audit notification?

  3.  You've Become Too Big to Act Small
    Growth is good — up to a point. And that point arrives much sooner for a nonprofit. "The compliance and administrative burden for a small nonprofit organization is far greater than for a similar sized for-profit company," authors Murray Dropkin and James Halpin write in Bookkeeping for Nonprofits (Jossey-Bass, 2005). According to the authors, "In some states, a nonprofit organization with $250,000 or less per year in support and revenue is required to file an audit with the state attorney general and pay a filing fee based on income or net assets."

  4. You Can't Afford to Hire a Professional
    Budgets are unforgiving. If you've priced out the cost of a full-time accountant or bookkeeper and can't afford the salary and benefits, your options are limited. You'll just have to keep spreading out those financial responsibilities among existing staff. What other choice do you have?

  5.  You Can't Afford Not to Hire a Professional
    Actually, you do have a choice. You can take away your worry by outsourcing your nonprofit's accounting and bookkeeping needs. If you work with a vendor that provides multiple services, you'll be able to set up a solution that fits your particular needs. That will allow your staff to get back to doing what you hired them to do. They'll be able to refocus on the goals that attracted them to nonprofit work in the first place, without enduring the time-consuming and stressful process of navigating nonprofit financial regulations.
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Why Auto Dealers Should Outsource Bank Reconciliations

September 15, 2016 / by Jim Rice posted in Small Business Advice, Orlando

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Jim-Rice-for-web-2.jpgIt was an expensive lesson for California auto dealer Danny McKenna. He found that two of his most trusted employees had systematically drained $600,000 from his five dealerships.

The guilty parties "had been there a long time and had earned this immense trust," McKenna told Automotive News. "Now I don't dog-pile all this trust on one person all the time anymore."

McKenna's losses could have been even more catastrophic. One of the co-conspirators, who worked in McKenna's accounting department, had taken a medical leave. It was only then that a temporary employee uncovered the fraud, which had gone undetected for years.

Auto dealers everywhere should heed the lessons that McKenna learned the hard way. As a small-business owner, you want to build an atmosphere of mutual trust with your employees. But while it might seem counterintuitive, the best way to accomplish this is to outsource your bank reconciliations — if not all of your accounting and bookkeeping services.

Detection and Deterrence

Regular bank reconciliations performed by an outside firm can not only detect fraud that has already occurred, but also deter future fraud.

With their high annual turnover rate — a recent study pegs it at 39.4% industry-wide — auto dealerships are particularly susceptible to fraud and outright theft. One survey found that 88% of dealership fraud was committed by first-time perpetrators. Moreover, up to 40% of employees could be tempted to commit fraud if they thought they could get away with it, according to the same survey. An employee who knows a third-party reconciliation is coming, however, will be less likely to try to cook the books.

Beyond the obvious benefit of saving you money, keeping your employees honest helps maintain morale. McKenna says that the fraud he experienced "affected everyone's life" at the dealership and "was awful." He now uses certified third-party auditors.

Another benefit of third-party reconciliations is that they can uncover irregularities resulting from honest mistakes or faulty practices. That can keep you from casting a suspicious eye on an innocent employee and promote a healthier working relationship. It can also help you streamline procedures and eliminate inefficiencies.

Spreading out the Responsibilities

With multiple streams of debits and credits, auto dealerships can be an accounting nightmare. New cars, used cars, leased cars and loaners all require separate bookkeeping. Most dealerships also have a parts-and-service department, with fluctuating inventory and multiple vendors. A dishonest employee who knows the system can easily play a shell game with your money.

Industry experts recommend dividing accounting responsibilities and building in crosschecks and redundancies to avoid concentrating too much responsibility — and too much information — in one person's hands. It's a simple safeguard against fraud. In addition, a distribution of responsibilities keeps a dealer from being left high and dry if a key accounting employee leaves or has an extended absence.

Cash flow is the lifeblood of any business. For some auto dealerships, the best way to monitor that lifeblood is to use a third-party accounting service. At the very least, a conscientious auto dealer should perform monthly bank reconciliations, according to the Houston Chronicle. "When bank statements are not monitored and reconciled, the potential for undetected loss is high," the Chronicle reports. "Keeping an eye on bank statements can help you keep your finger on the pulse of your company."

 

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Five Reasons to Outsource Your Bookkeeping Services

September 7, 2015 / by Jim Rice posted in Orlando, Bookkeeping Services

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If you’re like many other small business owners across the States, you’ve probably considered outsourcing your bookkeeping processes to an outside firm. As a provider of outsourced bookkeeping services, I’ve advised many potential clients on this issue before. Here are the top five reasons to make the switch.

1. A Bookkeeper Will Save You Time & Money

Outsourcing your bookkeeping will allow you to pay only for the time you actually need. Rather than paying an in-house full-timer, an outsourced bookkeeping services firm will bill you a fraction of the cost of a full-time employee. In addition to this, if you’ve been trying to do your books on your own, you’ll probably find that those in the bookkeeping business will do the same work faster and more effectively than you can do yourself. 

2. Bookkeepers Do More Than Just the Books

Your bookkeeper will be doing more than just logging transactions for you and giving you a bottom line at the end of the quarter. Your bookkeeper is there to provide you with valuable financial metrics on your business allowing you to see how you’re progressing financially.

3. Bookkeepers Have The Latest Knowledge

Your bookkeeping services provider is the first to know about the latest regulatory changes and how to handle them. This will ensure that all your financial operations are in compliance with the most up-to-date regulatory changes affecting payroll, hiring, and other vital processes. Without this expertise, you could end up having to do the same work twice to make sure you’re in line with the latest compliance standards.

4. Bookkeepers Provide Up-To-Date Records

Your outsourced bookkeeper should be providing you with up-to-date financial records on a monthly basis at the very least. This will be extremely helpful when it gets to be every CPA's favorite time of the year: tax season. Having up-to-date records will make it very easy for your accountant to file your tax return, and this way you can avoid staying up till 4:00 AM the night before with two filing cabinets and a shoebox of receipts.

5. A Bookkeeper Can Help You Understand Your Business

Most importantly of all, a bookkeeper is an outside eye on your business. Your provider of bookkeeping services is especially valuable for this because, while they’re on your team, they’re also on the outside, which gives an invaluable outsider perspective. Your provider will be well versed in the most vital financial processes of your business, and will be able to help you examine your profits and losses when making your financial plans and business strategies. Remember, your bookkeeper isn’t just there to crunch the numbers. They’re there to help your business thrive.

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Taking Control of Your Supply Chain

January 26, 2015 / by Scott Gerken posted in Rochester, Orlando

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Scott-Gerken-for-Web-2Second only to labor costs, supply chain management can eat up a hearty chunk of your operating expense budget. The process of negotiating with suppliers can also take up a hefty amount of another valuable resource: time.

Don’t let your supply chain manage your time and money. Take back control!

It's no surprise that businesses in control of supply chains are those who build management strategies into their long-term operations plans. Small businesses tend to struggle when they neglect to manage the chains individually.

Also keep in mind these tips for supply chain management:

  1. Track all materials in the manufacturing process. Detailed sourcing reports can enable investigation into the lowest-cost, highest-quality options.
  1. Identify risk and note key components to the chain. This detailed visibility will provide a safety net in case things start to fall through the cracks.
  1. Allow for participation at all levels. Adequate employee training and an established level of trust in their abilities will allow the chain to flourish. Strengthening each link individually increases the overall power of the chain.

A few final strategies include improving supplier performance, compressing cycle time and increasing inventory speed. Also consider utilizing supply chain management systems, such as online software programs.

These changes, even if made incrementally, are sure to have an impact in the long run.

Scott Gerken, BS, CPA, is general manager of Supporting Strategies' Orlando and Rochester offices.

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Protecting Your Cash Flow

January 19, 2015 / by Scott Gerken posted in Rochester, Orlando

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Scott-Gerken-for-Web-2Cash flow refers to the balance available after allowing for all receipts and payments from your business. This includes rent, payroll, taxes, supplier invoices, loan payments and asset purchases — the lot.

Most of us know that managing and protecting cash flow is pivotal to long-term success as a small business owner. The inability to manage the ebb and flow of cash can cripple inventory, negatively impact growth and create a backup in bills that can be hard to overcome.

Even a business that's "good on paper" can suffer from negative cash flow. So how do you stay ahead of the curve?

It's All in the Planning

Begin by mapping out the financial year. Call upon past years to build a realistic timeline of financial peaks and valleys. Pay attention to when your business tends to experience a fluctuation in cash flow. Just being aware of this timeline in advance can help you withstand tight times.

Once you've mapped out this timeline, use it to create financial projections on a weekly, monthly and yearly basis. These projections should be an inherent part of your business plan, but remember that they'll require frequent reviews.

Next, define your cash cycle. Examine how much cash is generated in each cycle. Then determine how much of your resources are tied up in these cycles and what they're tied up on. Incorporate this knowledge into your projections.

Know Your Business' Pitfalls

Beware of cash flow black holes! Plan well in advance for any expansion, heavy business-to- business sales or inventory purchases. If you're planning on acquiring new equipment, consider using leases or long-term funding to ease the burden of major purchases.

Next, understand your fixed and variable costs. See how you may be able to improve the return on each.

You should also note your most "difficult" customers, including late payers. Billing those customers early (when possible) can help improve cash flow during tight times. Offering incentives for early payment can be extremely helpful for banking receipts a lot earlier than usual.

Finally, examine these three vitals as identified by business experts:

  1. Collection days: the length of time customers have to pay invoices
  2. Inventory turnover: how long inventory sits on the shelves waiting to be converted into sales.
  3. Payment days: the length of time you wait to pay your own bills

In order to maintain a lifeline of cash in the long run, these items should also be monitored at each step of your projection phase.

Scott Gerken, BS, CPA, is general manager of Supporting Strategies' Orlando and Rochester offices.

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Understanding the Tax Increase Prevention Act of 2014

January 13, 2015 / by Scott Gerken posted in Rochester, Orlando

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Scott-Gerken-for-Web-2Congress finished up 2014 with a bang, passing the mammoth HR 5771, Tax Increase Prevention Act of 2014. The bill extends several dozen tax breaks retroactively for one year, through 2014.

The new regulations affect both individuals and businesses. Highlights include extensions for state and local sales tax deductions, mortgage debt forgiveness exclusions, and 50 percent bonus depreciations.

Check out this publication from Wolters Kluwer for an analysis of this bill. There's a lot to absorb, but — as always — feel free to get in touch with us for help sorting it all out.

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Sales Savvy: Six Quick Tips to Boost Your Confidence

January 12, 2015 / by Scott Gerken posted in Rochester, Orlando

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Scott-Gerken-for-Web-2It's official! Working in sales is one tough gig. The constant up-and-down rollercoaster ride can be stressful — and can really test your motivation.

Keep your confidence up with these six tips:

1. Remember that confidence is a state of mind. 
Your own belief in your abilities is one of your strongest allies. Knowing you have gotten the job done in the past and and are perfectly capable of doing so again works wonders for your confidence. Paired with a big dose of positivity, belief and determination do a lot of the work for you.

2. Define yourself as an expert in your field. 
Just as it's important for you to believe in what you're selling, your clients need to feel this faith you have in yourself. Sales can be an intimate process, and the more your clients trust your abilities and knowledge, the more likely they are to take the purchase plunge.

3. Create an arsenal of testimonials to be called upon at any time. 
The more you can prove your track record of success, the more likely the prospect will feel inclined toward the sale. Keep track of your wins, be ready to point customers to client praise and remind yourself of your successes when you're feeling doubtful.

4. Set weekly goals and strive to accomplish them quickly. 
The faster you rack up accomplishments, the more confidence you'll feel. One step at a time? Absolutely. Make daily lists and keep track of your progress. Ticking things off "to-do" lists has a way of fueling drive and motivation while also boosting confidence.

5. Keep your eye on long-term goals and see challenges as opportunities.
Think back to a stressful point in the past. Look how far you may have come since then! The power of positive reflection is often understated. Apply it forward for an extra boost to get you through the times that test you.

6. Work constantly on your communication skills.Improving your ways of interacting with others is an ongoing job. Learning to become a stronger speaker — and especially a better listener — will boost your confidence when going into new and unique situations.

Even the most skilled salespeople have moments of doubt. Some are just better at hiding it than others. Finding ways to boost your confidence, and learning to fake it in the meantime, really can make all the difference.

Scott Gerken, BS, CPA, is general manager of Supporting Strategies' Orlando and Rochester offices.

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