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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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Law Firm Bookkeeping Services | How to Handle Client Trusts

December 21, 2015 / by Mary Sue Renfro posted in Rochester

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Mary-Sue-Renfro-for-webAny bookkeeping services professional familiar with law firms will tell you that bookkeeping for a law firm is subject to its own set of rules and guidelines. One important thing to understand, as a legal professional or a bookkeeping services professional working with a law firm or practice, is how to handle client trust accounts. Set up properly, QuickBooks is very well suited for handling client trust accounts. If you’re wondering how to do it, here are some tips:

Know What an IOLTA is and How it Works

An IOLTA account is used by lawyers to transfer client funds when they are to be held for a short period of time, and/or they are too small to generate income for the client independently. This is a trust separate from the firm’s own money and all interest is transferred to the state. This system generates income to provide legal services to the financially disadvantaged at no cost to the client, lawyer or taxpayer and has proved to be very successful program.

Understand the Details

Rules and regulation surrounding IOLTA client trusts vary from state to state. Mishandling these regulations could lead to serious fines and, at worst, disbarment. It’s always a good idea to check with both your bookkeeping services provider and your local Bar Association to make sure you’re up to date on the local regulations.

Set Up Your QuickBooks Chart of Accounts Properly

In QuickBooks you’ll have to set accounts not just for tracking revenue and expenses, but also for client trust activity. Make an account in your Chart of Accounts for each IOLTA trust connected to your firm or practice. It can be helpful to set-up two Accounts Payable accounts to differentiate disbursements due for firm operations vs.client activities. You can set-up an "Operating Accounts Payable" account and a "Client Trust Accounts Payable" account to help you in the process of segregating these transactions.

Bank Accounts & IOLTA Tracking

You should also create a bank account and title it “Client Trust Checking” to monitor deposits of client funds into the IOLTA accounts. When accounting for these transactions in QuickBooks, record these against an "Other Current Liability" account called "Client Trust Account". The balance in the “Client Trust Checking” must always equal the balance in “Other Current Liability.” It’s important to remember that most states do not allow overdraft protection or ATM access for IOLTA trusts.

Remember also that you can check in with your bookkeeping services provider to make sure that your chart of accounts and business processes has been set-up for success in following these guidelines. Also, make sure that they are reconciling both the IOLTA bank accounts, as well as the associated liability accounts on your firm's balance sheet for accuracy.

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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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