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The Effects of Inflation and Roaring Economy On Businesses

The Effects of Inflation and Roaring Economy On Businesses

As the world seemingly gets the coronavirus problem under control, the United States is at the front line of anticipating a new post-pandemic future. With the lockdowns and business shutdowns being a thing of the past, the next problem we have to deal with is nurturing the economy back up.

Everyone is excited that the cases of COVID-19 are coming to a stop. According to an analysis by Deloitte, the next phase in this recovery is the gross domestic product, which is poised to boom beyond the pre-pandemic period.

However, despite the expectations, inflation is real, and it is coming at the US and global economy fast. The cost of goods and services has gone up and has stayed there, and it may worsen before it gets better. There will be a lull before the storm, and small businesses are presently weathering its greatest brunt.

If you run a business, you must anticipate the economy’s performance and appreciate the long-term effects of inflation and a roaring economy. This post will dive deep to analyze the most likely long-term effects of the post-pandemic economy and how your business can manage through it. Read on to discover.

What is Inflation?

Inflation is a period when the cost of goods and services shoot up. Inflation often begins with a shortage of service or product, leading to businesses increasing their prices and overall costs of the product. This upward price adjustment triggers a cycle of rising costs, in the process making it harder for businesses to reach their margins and profitability over time.

Forbes has the most straightforward clear definition of inflation. It defines inflation as a rise in prices and a decline in the currency’s purchasing power over time. Therefore, if you feel like your dollar does not take you as far as it used to before the pandemic, you are not imagining it. The effect of inflation on small to medium-sized businesses may seem somewhat insignificant in the short term but can quickly make an impact.

Reduced purchasing power means that businesses will sell less and potentially lower profits. Lower profits mean decreased ability to grow or invest in the business. Since most companies with fewer than 500 employees are started with the owner’s savings, it puts them at significant financial risk as inflation rises.

eGuide: What Businesses Should Expect From Their Accounting Department

Effects of Inflation on SMEs

Here are the three most notable effects of the post-pandemic economy on US businesses every entrepreneur should expect.

Erosion of Purchasing Power

We have already noted it, but it is worth repeating: the first effect of inflation is often just a different way of describing inflation. Inflation hurts the purchasing power of a currency as prices of goods and services go up. Interestingly, prices go up fast during inflation but are gradual in coming back down, if ever.

Shortages of Finished Products in the Market

You may already feel the pressure of inflation as an entrepreneur, but its full impact is yet to be felt. Inflation is not linear; it ripples through an economy differently, at different times, and affects businesses differently. One of the most immediate impacts is a shortage of supplies that may prevent the completion of production goods.

When manufacturers cannot get all the raw materials they need to produce finished products, the entire market hurts. While Just In Time (JIT) manufacturing was developed to address such a potential problem, the inter-connected market leaves many entrepreneur’s funds tied up in inventory-in-process, accumulating losses and driving demand and prices higher.

Inflation Raises the Cost of Borrowing

So the economy isn’t doing so well. But optimists paint a rosy and colorful picture of the economy once the pandemic problems are dealt with. If your business is hurting financially, why not just take a small loan to insulate it in these challenging times? During inflation, the cost and availability of loans can cause major problems down the road. This may not be an issue today, but it could be a bigger issue in the future.

eGuide: What Businesses Should Expect From Their Accounting Department

How SMEs Can Manage Post-Pandemic Inflation

No matter what industry you do business in, your business must make the right strategic decisions in a time of inflation. The decisions that you make to manage inflation may determine whether the business sees its next anniversary or not. Here are five steps your business can take to forestall the effects of inflation in 2022.

Evaluate Product or Revenue Mix

There is never a better time to scrutinize and optimize the products your business deals in than during inflation.. The most effective approach is to analyze product or service streams, compare performance over time, and get a good picture of the business and available options in different geographical markets, client types, and distribution channels.

The whole idea behind streamlining your business during inflation is to cut costs and maintain profitability in a slowing market. To this end, a business may shift its production to focus on higher-margin products and services and protect the business’ bottom line. Analyze potential short and long-term effects of the shift and understand how it will affect the future of the business before implementing it.

Strengthen Your Products’ Pricing

The prices of almost every product go up during inflation. Your business, too, will have to consider price hikes to stay in alignment with the rising costs in the market. Even if economic inflation does not immediately impact your industry, it pays to be proactive by strengthening your product’s pricing and improve your business’ competitive market position.

Before increasing prices, analyze the competition and let their prices be one of your guiding points. You will also need to be upfront with customers about the price increases and why they are necessary. Transparency will help customers adapt to the new situation, and it helps them prepare for higher costs without compromising their loyalty to the business.

Evaluate Risks to Your Supply Chain

A modern business supply chain can be long and complex. Contrary to popular belief, the process by which a product moves from raw materials through manufacture to retail is riddled with risks. One effective way to prepare your business for inflation is to protect the supply chain, especially if you deal in physical goods.

The most common risks to small business’ supply chains are:

  • Over-dependence on a single supplier
  • Using long-lead-time suppliers such as imports
  • Heavy, bulky, hazardous, or perishable products that are hard to store
  • Materials that are passed through a JIT supply chain

There are many steps you can take to mitigate supply chain-related risks in your business in a time of inflation. Some of these steps may include:

  • Setting up an alternate supply chain – not merely finding an alternate supplier
  • Stockpiling critical supplies that have a low holding cost
  • Putting in place an expedited supply strategy
  • Reviewing stock levels at every stage of the JIT supply chain

Each business has different supply chain risks and now is the time to critically look at yours. What changes can impact the near-term and long-term health of your supply chain?

Understand Your Inventory

When prices start going up, a healthy inventory can be a competitive advantage. By the same principle, it is more profitable to keep a minimum inventory when prices are going down. Understanding your inventory levels and keeping them in line with market demand will help you make better decisions to maximize profitability. It also helps to improve internal accounting control, business oversight, and inventory management processes and accuracy while you’re at it.

Read More: 5 Ways to Improve Internal Accounting Controls and Oversight in Your Business

Cash is King; Keep It

Proactive entrepreneurs take the time to anticipate potential scenarios of inflation. You can use the ‘What If’ technique to consider various possible scenarios that will affect your business. For instance, you can anticipate wage increases, higher material prices, and disruptions in the supply chain. Any time you forecast a scenario make sure to consider the amount of money your business needs to get through each scenario.

Cash is always king. More than ever, in inflationary times, you should not let your customers use your business as a bank. A high inflation rate will pile risks on a business, and it hurts more when its receivables become uncollectible.

Read More: 10 Tips To Help Improve Your Company’s Cash Flow

Prepare your Business for Inflation

During inflationary times, you need efficient systems and processes to drive greater visibility into your business, so you can act fast and stay ahead of the competition. The real question is, do you know your numbers?

Post-pandemic inflation is already with us, and businesses are taking a hit. No matter your industry, you need a solid financial and operational strategy to evaluate the risks to your business and put measures in place to minimize them. Contact Signature Analytics and let us help you get visibility into your financial performance so that you can achieve your goals.

 


 

Do you know your numbers?

What is Outsourced Accounting?

What is Outsourced Accounting?

Managing the accounting function and financial reporting in a small or medium-sized business is an enormous undertaking for a growing team. Outsourcing your accounting needs gives you expert-level financial service and support to achieve your business goals.

When you identify the need for a partner in your financial department and begin the accounting outsourcing process, your business agrees to let a team of trusted experts come in and help you evaluate everything you currently do. Doing this can maximize your company’s potential whether you’re in a growth or transition period.

What does an outsourced accounting team do?

The experts you outsource should help you define, develop, and achieve your business goals. To begin that process, some firms will assess your current situation. For instance, we like to review four major pillars of your business which are your people, processes, technology, and reporting.

We’ll also take some time to outline your business goals. If you haven’t gone through this process before, a good financial expert can help guide you through various Q&A sessions with the company stakeholders.

From there, it’s essential you bring all of those elements together and design not only a roadmap for improving your accounting function, processes, and financial reporting but ensure that the right metrics, analysis, and KPIs are developed in relationship to the overall business goals. Whether that be raising capital, improving profitability, scenario planning, or managing hypergrowth. This is really bridging the gap between the day-to-day and the big picture stuff.

Free Download: Discover how outsourced accounting can provide more visibility into your business

The onboarding approach your outsourced accountants use may include:

  • Structuring goal development and building a roadmap
  • Validating your information and process optimization
  • Structuring your financial reporting and conducting deep analysis
  • Managing the day-to-day accounting function
  • Focusing on business advisory & forward-looking activities

Structuring your company’s financial and overall business goals is an essential first step in creating alignment between your business and your outsourced experts.

Goal development and building a roadmap to achieve them

Although your outsourced experts are accounting and financial gurus, they are new to your business even if they have previous industry experience. To develop business goals, they’ll start by reviewing and understanding your business by doing an assessment.

This may be looking into your:

  • Industry
  • Business goals and major drivers
  • Current business concerns
  • Immediate needs and priorities

With the combined industry and business knowledge under your outsourced team’s belt, they can begin gathering information and validating your current processes.

Understanding your information and processes

One of the advantages of accounting experts at your business is evaluating all of your current accounting processes and your financial reporting (including accuracy and consistency), so you and your team don’t have to think about it. Additionally, this allows a new team to come in and see things from a fresh, unbiased perspective and make an impact.

The reason they do this is to:

  • Understand your team’s roles, current capabilities and skills, and development goals
  • Review and validate your existing information and structure
  • Perform data clean up to ensure historical accuracy
  • Validate processes, make recommendations for optimization, and implementing new ones where needed
  • Refine how they integrate with your existing team and where they need to fill the gaps

After this evaluation, the experts can seamlessly integrate into your company, your current team structure and are then able to set a foundation for accurate, relevant, and timely reporting.

Delivering sound financial reports and analysis

Now that your business leaders have had an opportunity to build trust with the experts and have reviewed their recommendations, the next step is to give you the information you need to make sound financial decisions.

That information is typically provided in the form of:

  • Expense management
  • P&L statements
  • Accounts receivables and payables
  • Cash flow management and reporting
  • Month-end closing
  • Financial metrics, reporting, and KPIs
  • Business and financial analysis
  • Board meeting support

Not only will your outsourced experts provide the above reports regularly, but they may also take this reporting one step further by providing business modeling and deeper financial analysis to help you reach your business goals.

This reporting may include:

  • Utilization analysis
  • Breakeven analysis
  • Margin analysis
  • Client profitability
  • Annual budgeting & benchmark reporting
  • Business-specific metrics & KPIs

With this measurable data provided consistently, you will create additional value by taking actionable steps to improve your business.

Supporting your day-to-day needs

Not only do your outsourced experts help you achieve your financial business goals, but they also support your day-to-day accounting and financial operations.

Some of that support includes:

  • Payroll processing
  • Manage A/R and A/P
  • Month-end close
  • Workflow documentation
  • Staff mentoring and supervision
  • Inventory process development and setup
  • Bank and credit card reconciliations

Whatever daily accounting operations help your business desires, your outsourced experts are there to ensure everything is getting done on time and there’s a clear delegation of duties and responsibilities, so you don’t have to.

Why would you need to outsource?

Outsourcing your accounting may be a need because of:

  • rapid company growth
  • cashflow has become a challenge
  • you’re not getting the reporting you need
  • you may have just lost a valuable member(s) of your financial department
  • you’re not quite ready to take on the financial risk of employing a full-time accountant
  • you’re having issues getting financial backing from a bank or investor

These are all valid reasons. Whatever the case is, enabling expert accounting, financial, and advisory help in your business – takes some of this burden off your plate. This team truly partners with you and your business leaders so you can focus on other areas of your business.

It’s a classic case of allowing you to start working on your business again instead of working in it.

Free Download: Discover how outsourced accounting can provide more visibility into your business

Outsourcing for growth

As your revenue increase, so do your daily business demands. As a result, your financial needs or the complexities of your finances will also increase. When you’re scaling your business, it’s often helpful to outsource specific back-office operations, such as your finance and accounting department.

Doing so allows you to hire a team of consultants who specialize in going beyond the numbers and meet your growth needs. As a result, this may include implementing new processes, reporting methods, or technology to match your scaling business needs.

Outsourcing due to turnover

When a prominent part of your financial team, like a senior accountant, controller, or CFO, leaves your business, it can be challenging to fill their shoes immediately, and doing their work on top of your own in the interim could lead to burnout.

Additionally, hiring a replacement may not solve the issues that ultimately led to them leaving the company. Many common reasons we see:

  • they feel unsupported by management and have no career path
  • they tend to have too much on their plates and are feeling burned out
  • they are constantly burdened by either doing too low level or work or even too high-level beyond their skillset

By outsourcing, you’re able to fill these gaps with vetted experts who are in the right role because financial experts hired them.

Even if these employees haven’t left your company, we’re able to come in and provide supplemental support, oversight, training, and career path development for your team.

And as you grow, you may eventually need to hire more in-house employees full-time, and your outsource team will still be to support the onboarding or transition of duties when necessary.

Outsourcing because you desire flexibility

If your accounting needs are becoming more complex, you might find yourself spending a lot of time managing them, taking away from other parts of your business. You may also feel uneasy about taking on the financial risk of building out a finance team or are unsure if it’s the right time to do so or who you should hire next.

By outsourcing to a team of experts, you gain the same benefits of having a full finance and accounting team that you usually see are a larger company; however, you pay for fractional support instead of paying for full-time salaries.

And as the business grows or contracts, so can the flexibility of your team. The model is designed to work for your business based on its needs, unlike a full-time staff or staffing agency.

If your business needs accounting and financial expertise and could use a trusted partner as an advisor, consider outsourcing an ideal solution.

Over the years, we’ve worked with several types and sizes of businesses and have seen so much success using this model – that, in many cases, we’ve made lasting relationships as a result.

Contact us for a free consultation and to learn more about outsourcing.

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Discover how outsourced accounting can provide more visibility into your business

10 Tips to Help Improve Your Company’s Cash Flow

10 Tips to Help Improve Your Company’s Cash Flow

As a business owner, you run the risk of bankruptcy if you’re not on top of cash flow management. A full 82 percent of business failures are caused by poor cash management, according to a US Bank study.

So, is it easy enough to bring in more money than your business is spending? Although it sounds simple in theory, having a positive cash flow encompasses much more than profitability. Even if your company is currently profitable, it is still at risk for negative cash flow. One common example of this is if you have obligations for future payments that you cannot meet because you’ve mistimed incoming funds.

By maximizing your company’s cash flow, you can help your company receive profits faster, meet targets in a shorter time frame, and lower your operating expenses. Wondering how to improve cash flow in your small business? These 10 tips can help you improve cash flow for your company.

1. Anticipate and Plan for Future Cash Needs

Keeping accurate, timely, and relevant (ART) accounting records allows you to build a forecast for your business based on historical results. At the very least, businesses should be reviewing their cash flow monthly.

Being proactive with your cash flow enables you to forecast your anticipated funds and help prepare for historically painful periods or seasonal trends.

For example, if you find that you are anticipating a future need for extra cash, you may want to start talking to lenders about a bridge loan to help pave the way for future financing. Similarly, if you can anticipate large expenses ahead of payout, you’ll be able to plan your other obligations accordingly to avoid cash flow surprises.

2. Improve your Accounts Receivable

By actively managing your accounts receivable, you can stay on top of outstanding invoices and decrease the time it takes to get paid.

One way you can do this is by encouraging customers to pay early. For example, if your payment terms are net 30 days, consider offering a slight discount for customers paying net 10 days.

Are you currently waiting for checks to arrive? Offering a variety of payment options will make it as easy as possible for a customer to pay you, such as ACH or credit card payments. While these options may come with processing fees, getting money faster is better for your business if cash flow is tight and eliminates time & labor spent on collection. These options can help prevent you from stacking up credit card debt to cover expenses.

3. Manage your Accounts Payable Process

Establishing and organizing your accounts payable process will be essential to improving your company’s cash flow. If your accounting department doesn’t already use software to help manage your accounts, it is a good idea to invest in one. Next, you should communicate with your team which invoices are most important so they can be paid first. Remember, do not let unpaid invoices slip through the cracks.

Another tip? Try to get to know your vendors and extend payment terms as long as possible. Most vendors will ask businesses for net 30, but once you build up a positive relationship, they may be more inclined to offer net 45 or net 60. After all, the longer you have to pay, the more time you have to get money in. You can use a simple payment agreement template to help you when creating your financial contracts.

4. Put Idle Cash to Work 

Another way to improve business cash flow is by putting idle cash to work. Your idle cash is money that is not earning any income.

Chances are if you have large balances sitting in non-interest-bearing accounts, you can find a better place for them to live. You could consider moving them to an interest-bearing account that may earn .5% or 1% APY. Another option is to invest the money in expanding your business, use it to decrease your debts and lower your interest payments, invest in new technology, or prepay some expenses.

Read more: 5 barriers of growth every company hits and how you can break through them

5. Utilize a Sweep Account

Most commercial banks offer a sweep account, a type of account to help maximize earnings on your income by automatically transferring money from your business checking account to your savings account. The sweeps happen at the close of business each day, and you can set the amount, typically in $500 increments.

Should your checking account dip below your minimum requirement, the funds will be automatically transferred back into your checking account to cover the outlay. This risk-free option makes it easy to build your savings for a rainy day or your next major investment.

6. Utilize Cheap and/or Free Financing Options

If you are looking to invest in your company through low to medium-cost purchases such as upgrading your computer system, buying new furniture, or replacing your company vehicles, you should take advantage of financing options that have low or no interest for the initial period of the loan.

Using this strategy for a business loan will help you save money by cushioning the cash hit to your business. If you pay off the full loan upfront before the interest rates kick in, you will save even more, therefore, making the most of your investment.

7. Control Access to Bank Accounts

To maintain positive cash flow, it is crucial to protect your assets. The best way to eliminate fraud and unauthorized use of your company bank accounts is to make sure the proper safeguards are in place.

Common safeguards include keeping the number of people who can access these accounts to a minimum, securing your IT infrastructure, frequently updating passwords, protecting your credit and debit card information and bank accounts, and using a dedicated computer for banking.

8. Outsource Certain Business Functions

It’s not necessary to hire full-time employees for every business function. You should evaluate your business needs and identify areas where it may be more cost-effective to outsource. IT management, human resources, accounting, payroll, and marketing are all functions that could be outsourced.

There are many firms, including Signature Analytics, that specialize in providing experienced professionals to handle specific business functions and manage cash flow issues. Outsourcing can save your business money, offers a flexible staffing model during the ebbs and flows of your business cycle, and it can also increase your efficiency.

9. Renegotiate Existing Service Contracts

Another tip to increase business cash flow is to review service plans and contracts regularly. Start by looking at your internet, phone bills, copiers, software support, and janitorial/building maintenance contracts to pinpoint opportunities to save.

Improved technologies and increased market competition have driven prices down on many services, so it’s worth taking the time to shop around for a better deal.

10. Maintain a Weekly Rolling Cash Forecast

A rolling cash forecast is a good practice for improving cash flow overall. You don’t need expensive programs to do this; Excel will easily allow you to project a weekly rolling cash forecast. You should include all estimated inflows, such as customer receipts, and outflows, such as vendor payments and payroll. Record this data on a weekly basis at least.

Your rolling cash forecast will help you plan staffing needs, commit to new vendors, and ensure funds will always be available to make payroll and vendor payments. As a bonus, your forecasting will help you estimate and understand your company’s sales cycle.

Read More: The Top 5 Financial Reports Every Business Owner Should Review

How Signature Analytics Can Help Your Company 

By implementing these strategies when managing cash flow, you will quickly get the upper hand on your company’s finances and learn how to increase cash flow within your business — so you will soon reap the benefits.

At Signature Analytics, we have a team of expert accounting and financial professionals including accountants, controllers, financial analysts, and CFOs; all dedicated to providing the best level of service at a price that makes sense for your business.

For additional assistance with cash flow management, developing detailed financial projections, or identifying capital requirements, contact Signature Analytics today for a free consultation.

When Should You Consider Outsourcing Your Accounting Operations?

When Should You Consider Outsourcing Your Accounting Operations?

  • Do you spend late nights and weekends struggling to keep up with your company’s accounting records? Or worse, does this time intervene with the time spent running the operations of your business?
  • Are you unable to assess the profitability of your business or perhaps have difficulty understanding the cash requirements for the next 60, 90, or 365 days?
  • Do you feel your margins could be improved but aren’t sure how to evaluate them when looking at your financial statements?
  • Would some assistance in projecting your business operations over the next few years help you establish priorities with your employees?

If you answered yes to any of these questions, then you are in good company. Many business owners and executives feel the same way and there are ways you can get the support you need to move your business ahead.

Free Download: Discover how outsourced accounting can provide more visibility into your business

The first step is acknowledging that, although operations are the most key aspect of any business, accurate financial information is vital to making important business decisions. Having visibility into cash flow and knowing where your margins can be improved will enable you to take your company to the next level.

Now the next step is determining if hiring a full-time accounting resource to get your company’s financials in order makes sense from a cost and expertise standpoint.

  • Is there enough work for a full-time accountant? For many companies, a 40-hour a week accountant would be in excess of the time required to perform the basic accounting functions they may need, e.g., monthly close process, issuing invoices, entering and paying bills, performing payroll, etc.
  • Is there too much work for your current full-time resource? And are you asking them to do things beyond or below their skill set? This is a very common occurrence with any role in a growing business. This is a lose-lose situation for everyone involved and can lead to internal turnover.
  • What level of experience will they need to have – CFO, controller, staff accountant? If you are not in a position to support the costs of more than one accounting resource, will you hire a CFO and then over-pay them to do basic staff-level accounting? Alternatively, you could hire a staff accountant and task them with CFO responsibilities; however, both of these options can cost your company significantly and lead to ineffective decision-making.

If your company needs the resources of a complete accounting team but is not in a position to support the costs and management time of that entire, full-time team, then outsourcing your accounting functions is a very viable, flexible, and turn-key option for your business. 

Read more: 3 Ways Outsourcing Accounting Can Improve Your Business

Outsourced accounting companies such as Signature Analytics provide you with flexibility in terms of the number of hours of service to receive, provide a higher level of experience through oversight by more senior-level individuals, and ensure efficient service by experienced accountants (staff accountants through CFO level expertise). The accounting teams at outsourced accounting companies work with multiple clients so they have identified time-saving methods that allow them to complete challenging tasks in significantly less time than a typical bookkeeper.

In addition to acting as the financial arm of your business by providing the resources of a highly experienced accounting department on an outsourced basis, there are a number of other situations in which hiring an outsourced accounting company to handle your financial information might make sense for your business:

Preparing for a financial statement audit or review

Many business owners believe that a financial statement audit is a healthy process for their business and provides confidence to their investors in the financial information; however, most do not realize the resource drain that an audit can have on their business due to the significant number of requests for supporting information and the technical accounting expertise which must be applied to the financial statements. Due to independence restrictions, audit firms cannot assist in performing the accounting functions at the companies they audit and therefore must rely on management to determine proper accounting rules. These issues tend to cause significant overrun bills from the audit firm due to the inefficiencies experienced and can be extremely costly for a business. Engaging an outsourced accounting company can provide management with the peace of mind that they have a team of accounting experts – most of which have previous experience performing audits – that understand what audit firms are asking for and know how to produce that information in a timely manner.

Investors requesting financial projections

Investors love to see what the future of their capital will produce so that they can assist in both financial and operational decisions; however, many business owners do not have the expertise to prepare financial projections and therefore may provide information at a level not detailed enough for the purpose or may be missing significant costs which need to be considered. Outsourced accounting firms that provide support with cash flow management and projections have CFO-level experts who are experienced in understanding a business operation in a very timely fashion and can translate such information into the future potential results of the organization.[gap height=”10″]

Missing out on potential tax savings

When a tax provider receives your financial information they may not search into all of the accounts to find tax deductions. If transactions have been classified to incorrect accounts, tax preparers may not be aware of their existence and therefore not consider simple deductions. A simple example would be meals & entertainment expenses, often a deductible expense, in which some transactions may end up recorded in office expense categories or supplies or miscellaneous. Unless the tax preparer knows that such expenses may be improperly classified, the deduction will go unreported resulting in higher income tax. An outsourced accounting company can organize accounting information and work directly with tax professionals to help identify as many tax savings as possible.

Looking for capital investment from financial institutions

Perhaps you have a capital requirement in the near future and plan to approach different financial institutions. Providing financial information with obvious errors, inconsistencies, or lack of organization could severely impact your ability to raise capital as it may be challenging for the lenders to truly understand the results of the business without transparent financial information. When hiring an outsourced accounting company, you can be confident that the financial statements are timely and accurate. Furthermore, they will provide you with a high-level financial resource that can assist in preparing analyses of the financial information in a professional manner making the lender proposal process less arduous. These statements may be used as a resource to assist in conversations with those providing capital assistance to ensure a complete understanding of the business’s results of operations.

Free Download: Discover how outsourced accounting can provide more visibility into your business

If you think your company could benefit from outsourcing your accounting services, contact Signature Analytics for a free consultation.

 


 

Discover how outsourced accounting can provide more visibility into your business

How To Protect Your Small Business From Employee Fraud

How To Protect Your Small Business From Employee Fraud

Whenever a high-ranking executive from a prominent organization gets involved in a case of embezzlement or employee fraud, it makes headlines around the world.

These are a few more well-known examples of fraud:

  • Dane Cook, an American comedian, whose brother who was his business manager and took advantage of him for about $12 million
  • Girl Scout parents who were caught stealing money from their daughter’s cookie sales (average estimates of $10,000)
  • Bernie Madoff, an American market maker, investor, and financial advisor, who committed the highest financial fraud in US history worth almost $65 billion

These examples might seem unlikely to happen to your company, and as a small business owner, you may believe your organization is immune to theft and fraud.

After all, who else knows and understands their employees best if not for you? In your heart of hearts, you likely believe they would never do something like embezzling money. If anything, you have a rigorous hiring manager who conducts thorough background checks, so, therefore, no potentially malicious individual could be brought on to your team.

Unfortunately, your thinking would be flawed.

Read More: 5 Ways to Improve Internal Accounting Controls and Oversight in Your Business

What Advice Do Fraud Experts Give?

Any employee, when presented with the right set of circumstances, is capable of committing fraud.

According to the Association of Certified Fraud Examiners’ (ACFE) 2018 Report to the Nations, asset misappropriation was by far the most common form of occupational fraud, occurring in more than 89% of cases and leading to losses upwards of $110,000.

Small businesses can be especially devastated by fraud, as these companies often have fewer resources to prevent and recover from malicious acts.

Organizations with less than 100 people often must trust their employees with more information compared to businesses with many more workers with the ability to have anti-fraud controls in place.

While employee fraud prevention may not be top of mind for you, consider that the median loss for small organizations was almost twice as high as those incurred by organizations with more than 100 employees.

The ACFE reports two key reasons why small businesses have an increased risk of employee fraud:

  1. a lack of basic accounting controls
  2. a higher degree of misplaced or assumed trust

In a small to medium-sized business, the employee handling the bookkeeping is most likely to be the one to commit a crime as they can see all of the numbers, and they have your trust. However, in small businesses, there is a 29% chance that the owner or executive is the one who will commit fraud.

Read More: How To Spot Employee Fraud

How Basic Accounting Controls Can Make A Difference

Often, company leaders believe that spending an excessive amount of money on implementing complex systems of controls will save their company from employee fraud. This is not the case.

Complex controls can surely make a positive impact, but most often, starting with the basics can set you ahead of the curve.

In the ACFE 2018 report, it was noted that internal control weaknesses were responsible for nearly half of all frauds committed. Businesses that had implemented anti-fraud controls had lower losses overall, which means that these controls are working to keep the company safe.

The report also found that when businesses routinely monitor and audit their back-office functions, fraud is reduced. Even with the information found on how these controls can make a difference, only 37 percent of businesses polled had these internal controls in place.

If you would like help implementing internal controls, even at the most basic level, you can reach our team of experts at any time. Our experienced team can make recommendations based on the industry you are in, the size of your company, and the budget you have in place. Protecting your business from fraud is imperative.

What Can You Do To Protect Your Business From Employee Fraud?

Don’t wait for a fraud to occur. It is essential to be proactive and preventative and put processes in place.

Studies show that the more employees believe they will get caught, the less likely they are to commit fraud. Below we have outlined some practical tips for small business owners to reduce the risk of loss due to employee fraud:

  1. Don’t depend solely on external audits: External audits are usually performed once per year and months after the year ends. Even if the audit uncovers fraudulent activity, it may have been occurring for 12 months or longer before being discovered.
  2. Segregate accounting duties: Avoid allowing the accounting function to be controlled by a single individual and segregate accounting duties in key areas instead. Such duties and responsibilities may include:
    -Recording and processing transactions
    -Sending out invoices
    -Collecting cash
    -Making deposits
  3. Routinely review financial information: If you have a small team and complete segregation is not possible, the business owner or an outside accounting firm should review the bank statements (preferably online or before the accountant has opened them) and bank reconciliations every month. Vendor payments should also be periodically reviewed. A common scheme is to set up fictitious vendors and manipulate bank statements with photo editing software before printing and filing them for review.
  4. Ensure accounting oversight: Hire an outsourced accounting firm to provide oversight, support, and possibly management of the in-house staff. They will start by reviewing your current accounting controls, workflows, and processes to make recommendations for improvements, implementing best practices, or even take on some of the accounting activities.
  5. Get fraud insurance: Purchase a bond or fraud insurance to protect your business if a theft does occur and/or have trusted employees who handle the finances bonded.
  6. Require your bookkeeper to take a vacation: Embezzlement and other types of fraud require a constant paper trail to go undetected. Therefore, business owners should insist that employees who perform the company’s accounting/bookkeeping duties take a vacation every year and designate a backup person to cover their responsibilities during that leave. Ideally, the vacation should be at least a week-long and occur over a month-end when the books are being closed. Assuming your books are closed monthly, this is not an easy request with a small team and another reason to build a trusted relationship with an outside firm.

According to the ACFE’s 2019 Benchmarking Report, 58% of organizations have inadequate levels of anti-fraud staffing and resources. For your company, this may mean conducting background checks will not be enough to protect your company from in-house fraud.

How Can I Protect My Company?

By partnering with the Signature Analytics team, we can recommend industry-specific suggestions for your company. We help our clients put preventative controls in place and provide an appropriate level of oversight of their financial books and records to ensure accuracy.

Signature Analytics provides small and mid-sized businesses with the resources of a full finance and accounting team. We utilize a fractional accounting model so clients can effectively segregate accounting duties without having to hire additional full-time accounting staff.

To learn more about how we can help ensure your business has fraud prevention, contact us for a free consultation.

A Summary: Coronavirus Aid, Relief, and Economic Security (CARES) Act

A Summary: Coronavirus Aid, Relief, and Economic Security (CARES) Act

This article was originally written on April 8 and portions have been updated on July 7, 2020. The following information is what we know to be accurate, and it is very likely new information will evolve over time as we learn intricate details of this bill. We will continue to update this article as we learn more.

On March 27, 2020, S.3548 the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law to give emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.

As the most massive stimulus bill in American history ($2.2 trillion), it includes several relief areas for individuals and businesses including:

  • Direct payments to tax-paying Americans
  • Enhanced unemployment aid
  • Small business loans and grants
  • Loans for the airline industry and other big businesses
  • Money for individual states, hospitals, and education systems
  • Tax cuts
  • An increase in safety net spending
  • A temporary ban on foreclosures

Read the entire bill in all of its detail here.

There are some aspects of this bill that will directly affect our customers and their businesses, which we have broken down in detail below.

Direct Payments To Tax Paying Americans

Part of the $2.2 trillion of aid this bill brings includes an estimated $290 billion set aside for payments to the American people. Citizens who pay taxes are reported to receive a direct payment from the U.S. government. The amounts of those direct payments vary based on household size and income level. These figures are represented below:

  • Single individuals are expected to receive a one-time payment of $1,200
  • Married couples are expected to receive a one-time payment of $2,400
  • Families with children under the age of 17 are expected to receive an extra $500 per child.

There are some stipulations for these monetary amounts. Those are for Americans earning more than $75,000 per year, the number of direct payments may be lower. Individuals earning more than $99,000 per year are not eligible for these payments. Another important note is one that affects child support payments. If an individual is behind on child support payments, they will not be eligible for this direct payment.

Small Business Payroll Protection Program

The CARES Act should also help many small companies and 501(c)(3) nonprofits who have suffered from little-to-no business during the COVID-19 pandemic.

Through the Payroll Protection Program (PPP), businesses with less than 500 employees have the ability to secure loans up to 2.5 times the average months of its payroll costs or up to $10,000,000.

If a small business, with employees located in the United States, were to secure this loan, they could use it to help cover some of the following needs:

  • Salaries
  • Rent
  • Healthcare benefits
  • Debt obligations
  • Mortgage interest
  • Utility costs

It should be noted that securing a loan under the PPP can only cover expenses from February 15 to June 30. There is an estimated allocation of $350 billion set aside for loans and emergency grants.

If you think your small business or nonprofit organization could capitalize on this opportunity, call your Small Business Administration lender to begin the process as soon as possible. If you are not sure who your SBA lender is, start by contacting your local banks within your area or try the SBA Eligible Lender locator found here.

Read More: Planning and Managing Your Banking Relationship During COVID-19

It might take some time to organize essential information like tax records and other important documents. The sooner all of these items are organized, the sooner the loan will come through. Be aware the first day to apply for these loans is April 3, 2020. 

To help you get started, here are some great resources from the U.S. Treasury office:

For more information and details on the PPP (there are a lot of them), but the above resources can help you get started right away. Continue checking our internal resource center under the “Employer Resources” tab. Additionally, there are many on-demand webinars that can provide additional insight.

As always, do not hesitate to reach out to us for assistance.

Read More: COVID-19 Resource Center

Paycheck Protection Program Flexibility Act of 2020: Amendments to the PPP

On June 5, 2020, President Trump signed into law the PPP Flexibility Act, with amendments to the previous PPP.

Below we have outlined the main takeaways to help you understand the most significant changes.

  • The new legislation alters the existing PPP, giving borrowers more time to spend loan funds with the ability to obtain forgiveness.
  • Loan borrowers now have 24 weeks to spend their loans.
  • There is a reduction in mandatory payroll spending from a previous 75% down to 60%.
  • Businesses can now delay paying payroll taxes even if they took a PPP loan.
  • Borrows can now receive full loan forgiveness if they have yet to restore their workforce fully.
  • The loan repayment schedule extends from two years to five years.

New updates 07.07.20:

The original (but newly released) PPP Loan Forgiveness Form was a little too complicated for smaller business owners that may not have immediate access to an accountant or lawyer, therefore, the SBA released the Paycheck Protection Program Loan Forgiveness Application Form 3508EZ. The 3508EZ Form can also be ideal for:

  • the self-employed or businesses that have no employees OR
  • businesses that did no reduce the salaries or wages of their employee by more than 25%; and did not reduce the number of hours of their employees OR
  • businesses that experienced reductions in business activity as a result of health directives related to COVID-19 and did no reduce the salaries or wages of their employees by more than 25%.

Also, the payroll calculation used in the loan application still applies to the forgivable amount, meaning the employee compensation eligible for forgiveness is capped at $100,000.  However, they are increasing the max forgiveness per employee (non-owners):

  • Originally $15,384.61 for the eight-week period ($100,000 pro-rated)
  • It is now $46,153.85 for the 25-week period.

For Owners, Sole Proprietors, Independent Contractors, or General Partners: 

  • For the 8-week period, forgiveness for owner compensation is calculated as 8 / 25 X 2019 compensation, up to a maximum of $15,385 in total for all businesses.
  • For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 / 12) of 2019 compensation, up to $20,833, also in total for all businesses.

The final day to apply for the PPP loan has been extended to August 8, 2020, allowing eligible small businesses more time to apply for the remaining $130 million of PPP lending capacity. 

PPP recipients can apply early for forgiveness? We’ve had many clients ask us whether they can apply for PPP loan forgiveness before their covered period expires. By doing so, they forfeit a safe-harbor provision allowing them to restore salaries or wages by Dec. 31st and avoid reductions in the loan forgiveness they receive. So for now as things are evolving, we say hold off on doing this. Most banks will start accepting loan forgiveness applications in mid-August.

There is still much to learn about relaxing guidelines, we will do our best to keep this updated.

More Time to Spend Loan

One of the most significant changes with the PPP Flexibility Act is now borrowers have more time to spend the amount of their loan. Previously, only eight weeks were allotted to spend this money, which put a considerable amount of pressure on the borrower to ensure the funds were spent on forgivable expenditures. The time frame has been increased to 24 weeks after the origination of the loan or to December 31, 2020, whichever is earlier.

Payroll Spending

A reduction has been made to the mandatory payroll spending. This means the amount of money from the loan that was required to go toward payroll costs has been reduced from 75% to 60%.

What this change allows is for forgivable non-payroll expenses to be as high as 40%, enabling small business owners to put that money toward other costs they were struggling to pay. For example, for businesses that covered their payroll costs but still didn’t have enough to pay bills like rent, this helps free up some of the money for this purpose.

Repayment Period

The repayment period has been extended. Previously, the repayment period was for two years, and now the extension goes to five years while retaining a 1% interest rate. Ultimately, this allows borrowers extra time to pay off the unforgiven portion of their loan.

If a borrower received their loan prior to June 5, 2020, there is a 2-year maturity. If the loan was made after this date, it has a five-year maturity.

Would you like to read the new law? You can access it through congress.gov here.

Tax Cuts For Businesses

One of the other significant aspects of the CARES Act is the tax cuts for businesses. There have been modifications made to the Tax Cuts and Jobs Act (TCJA) of 2017. These modifications directly affect the net operating loss rule, lifting the 80% rule, and ensuring losses are carried back five years.

There is other positive news for businesses and their payroll. A refundable 50 percent payroll tax credit for businesses directly affected by the novel Coronavirus is available to help employee retention.

A few other areas of significance include:

  • Any distilleries who are helping to create hand sanitizer in their facilities will have federal tax waived
  • Businesses are able to write off donations of goodwill and student loan payments for their employees
  • Suspension of penalties for those who must tap into their retirement funds

Every business finds itself in a unique situation during this time; therefore, if you are not already partnered with us, we recommend that you work with a tax CPA or Small Business Administration lender on how to navigate this bill and how it impacts your company.

Signature Analytics is here to support you and can provide references to our partner network upon request. Feel free to contact us to get started.

New Updates For Consideration

It is important to understand the CARES Act is on a “first-come, first-serve” basis, so if your organization needs funding, we urge you to get your paperwork submitted as quickly as possible.

  • Based on how many employees you have, the limit used when calculating payroll costs is $100,000 and includes insurance, benefits, and taxes.
  • Eligibility for PPP for self-employed or independent contractors is based on self-employment net income, but cannot be counted for payroll costs.
  • Any federally illegal businesses will not receive funding and cannot participate in this program.

ppp flexibility program update 06.08.20

*updated 06.08.20

Nearly $500 Billion More In Aid

As of the evening of April 21, the Senate has approved $484 billion in aid for the stimulus package. On April 23, the bill will go to the House to pass as a complete package and make this funding available.

This additional funding is to support the small businesses, hospitals, and many other businesses negatively impacted by the coronavirus. However, $310 billion of this aid is considered being allocated for the Paycheck Protection Program, $60 billion of which will likely be set aside for smaller lending facilities and credit unions.

Under the emergency Economic Injury Disaster Loan program, there should be roughly $410 billion in grants, $50 billion for disaster recovery loans, and 42.1 billion for salaries and other expenses for the SBA.

Hospitals and health care providers are looking at a likely $75 billion and an additional $25 billion for COVID-19 testing.

All of these amounts are part of what the House will take into consideration later this week.

Resources:

https://www.forbes.com/sites/leonlabrecque/2020/03/29/the-cares-act-has-passed-here-are-the-highlights/#c2e55d268cd2
https://www.reuters.com/article/us-health-coronavirus-usa-bill-contents-idUSKBN21D2CQ
https://www.cpapracticeadvisor.com/tax-compliance/news/21131709/summary-of-the-coronavirus-aid-relief-and-economic-security-cares-act
https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/
https://www.congress.gov/bill/116th-congress/senate-bill/3548/text
https://www.cohnreznick.com/insights/sba-amends-requirements-for-its-paycheck-protection-program