When it comes to managing the finances of a nonprofit, cash flow is essential to both operations and future-facing decision-making. Understanding cash flow reporting, however, can be challenging for accounting teams, boards of directors, and leadership for many reasons.

Cashflow at its most simple is the inflow and outflow of cash. Cash flow reporting means income is only reported when it is in hand. That is different than accrual-based accounting in which reports are based on accounts receivable and accounts payable. Accrual-based reporting recognizes income when it is earned, and expenses when they are incurred, not when the income is received and the expenses are paid.

An accounting team that is used to reporting accrual-based income would book income when a donation is pledged, for example. If, however, that donation is delayed for any reason, a fiscal year or quarter can end without those funds being received, significantly skewing the nonprofit’s cash flow reports. Because the structure of nonprofits is different than that of for-profit companies, using cash flow management as a tool for a deeper understanding of the organization’s financial standing can be especially helpful.

Endowments, restricted funds, and cash reserves are best tracked with cash flow reporting and not accrual-based accounting for this reason. For many nonprofits, their accounting departments and leadership teams find the complexities of cash flow management challenging and time-consuming. Reports can be data-intensive and difficult to understand. For other nonprofits, the level of reporting can be too basic for more sophisticated boards of directors, such as those with high-powered CEOs and former business leaders of large for-profit companies.

As valuable as the insights that come from reviewing a trailing twelve-month cash flow report can be to forecasting and budget creation, many nonprofit organizations find that the overwhelming amount of data involved in reviewing a year of cash flow reporting makes it difficult to base intelligent decisions on cash flow numbers. For each nonprofit, the right amount of cash flow reporting will vary in order to meet the needs of leadership teams and boards of directors while still remaining accountable to donors, grantors, governments, and charity watchdog agencies.

The big question for donors, watchdogs, government auditors, and grantors is: Where did the money go? If you can’t answer that question, fundraising will likely be increasingly difficult. Because of this elevated level of scrutiny, it is essential that nonprofits manage cash flow with great attention to detail and to the highest standards of grant and government accounting.

 

Should you run your nonprofit like a for-profit?

It’s a common refrain: you should run your nonprofit like a for-profit. But is it accurate? Despite what many high-powered businesspeople suggest, nonprofits are not merely under-developed for-profits. There are key considerations that nonprofits must weigh, especially when it comes to cash flow.

  • Nonprofits are not focused on asset accumulation, and they cannot use net assets as leverage to raise cash.
  • Nonprofits exist at the mercy of the IRS. The 501c3 designation is a tax charter bestowed upon organizations by the IRS allowing tax-deductible contributions in exchange for their good works. Regular audits are required in order to retain that coveted status.
  • Nonprofits do not always have access to the cash in their bank accounts. With certain donations earmarked for certain programs, restricted donor funds are not counted the same as unrestricted donor funds.
  • Nonprofits are contractually obliged to spend funds in the way in which their charter was formed.
  • A for-profit business’ annual fiscal cycle takes into account year-end distributions, dividends, and taxes while a nonprofit’s fiscal cycles are focused on expenditures and donations, tracked with cash flow management.
  • Nonprofits file annual 990 reports that compare operational expenses and program expenses. Those reports are made public, and donors use them to discern the efficacy of the organization. Without impeccable cash flow reporting, those 990s can show inaccurate spending.

Leaders in nonprofits pay close attention to assets and liabilities. But sometimes that leads to complex fiscal questions. Statements of Financial Positions can look very strong because of endowments, whereas access to those funds can be highly restricted for operational expenses. Impeccable, accessible, and easy-to-read cash flow reporting is paramount to communicating the realities of a nonprofit’s fiscal situation to a board, donor or to government entities.

Donor-restricted funding

Nonprofits often have inflows of cash that are earmarked for specific initiatives, either by the donor or a grant, making accurate management and reporting of cash flow even more important.

To make matters more complex, all nonprofits over $2M have to be audited annually in order to retain their 503c status. Managing cash flow is therefore highly consequential to the day-to-day running of a not-for-profit as well as to the future funding of the organization. For nonprofit accounting departments, the importance of good cash management, and a strong understanding of your cash flow cannot be overstated.

What are some nonprofit pitfalls?

Challenge: Sophisticated BODs require extensive reporting:

A really savvy board of directors (BOD) can be demanding. Your BOD may be made up of CEOs of $50M companies who know what they need in order to make informed decisions about the future of the nonprofit. When not-for-profit accounting teams are asked to adhere to elevated standards of accounting and, additionally, asked to provide sophisticated financial reporting, they can become overburdened, or burned out. Hiring a full, in-house finance and accounting team, however, can be prohibitively expensive especially as reported in operating expenses on the 990. This is one of the reasons that a fractional accounting team is such a powerful and flexible tool for nonprofits.

Challenge: Hiring increases operational expenses

Implementing a leveraged accounting team that fits into an annual budget means that your report on your 990 shows a healthy balance between overhead and project spend. With deep knowledge of 990 preparation, a Signature Analytics team can assist your organization in reporting spending accurately and to the highest possible standards expected by auditors, grantors, Boards of Directors, and donors.

Challenge: Tracking earmarked funds is complex and time-consuming

Due to significant changes in accounting regulation, the accounting departments of nonprofits are under increased pressure to manage their finances with transparency and impeccable reporting practices. New Financial Accounting Standards Board (FASB) standards require nonprofits to report finances in a way that makes it clear which funds have donor restrictions and which funds come without donor restrictions. The updated requirements dictate that nonprofits show these categories on financial statements by having separate columns for “without donor restrictions” and “with donor restrictions.” or by showing separate line items in the revenue section of the Statement of Activities.

Cash Flow Management for Nonprofits in 3 Simple Steps

1. Anticipate and Plan for Future Cash Needs

Having accurate, timely, and relevant (ART) reporting helps build a cash flow management system based on accurate historical data. Looking at a trailing twelve-month (TTM) cash flow statement can give crucial insights into the patterns you have in spending and the ebbs and flows of fundraising. A rolling cash forecast tracks estimated inflows, such as donations and fundraising, and outflows, such as vendor payments and payroll. With accurate data, you can better plan for program expenses and avoid cash flow surprises.

2. Allocate Funds Intentionally

With accurate cash flow reporting, you can make strategic decisions about where to allocate your organization’s funds. It can be much clearer which programs have the highest return on investment (ROI), and which make the greatest impact in your community with the least investment. Cutting underperforming or ineffective programs can improve outcomes for your participants, your donors, and your statement of financial position.

3. Keep funds safe from fraud.

Nonprofits have increased susceptibility to fraud. The greatest risk of fraud stems from internal stakeholders who, through poor internal controls or long tenures, no longer have oversight of their financial dealings. With the additional oversight your organization is under, all it takes is one mistake to compromise the future of your organization. The best way to eliminate fraud and unauthorized use of your company bank accounts is to have an outsourced partner who keeps tabs on the people who have access to your financial systems.

How Signature Analytics Can Help Your Nonprofit

Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.

For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.

Quarter four is the time for annual planning and budget development (if not before). It’s also the time of year when some CEOs realize that their budget last year might not have been entirely based in reality. If you have looked at your budget vs reality and realized that the two are only distantly related, the first step to take is to gather the troops and do a strategic budgeting exercise.

Unlike in the BCE years (Before COVID Era), 2023 budgets can’t be a roll-over exercise. With rising inflation, interest rates, and costs, as well as the threat of a potential recession, your 2023 budget will need to be well-thought-out and, as the title of this article suggests, strategic.

“A business needs to have both a strategic plan and a budget.”

What is a Strategic Budget?

A strategic budget provides the tools to set up a dynamic financial model and lay out clear goals for future success. A strategic budget is made up of two elements: A strategic plan and a budget.

A strategic plan lays out the future direction and goals for your business’s overall vision while outlining clear actions to achieve them.

A budget is used to identify financial and key performance indicators to ensure your business is meeting its goals.

When the strategic plan works hand in hand with your annual budget, the combination ensures that your company’s vision is clear and on track throughout the year.

How Do I Build a Strategic Budget?

Your strategic budget starts with a plan. You need to lay out your business goals and what must be done to achieve them. It’s important to take your time on this step, as it’s the foundation for the whole process and will set the tone for your financial year.

Assemble your leadership team, review goals per department, examine the budget from the previous year and discuss discrepancies between reality and that historical budget. This is how you’ll be able to forecast what funds will be needed to implement your plan over the next 12 months and what the expected impact of your vision will be.

As you operate your business throughout the upcoming year, the strategic budget will be your source for identifying financial and operational key performance indicators (KPIs). It will be a guide to give you a clear tool to gauge your business’s financial health as the year progresses.

Why Do You Need a Strategic Budget?

Running a business without a strategic plan and a strategic budget is inadvisable.  Doing so, especially in financially volatile times, is borderline reckless. A strategic budget gives your business the financial intelligence to understand and define its needs from its wants. With those insights, decisions can be made to optimally invest available cash and have more available for future needs.

In addition to providing a framework for financial decisions throughout the year and an understanding of predicted cash flow, strategic budgets can provide stability during major events such as mergers, acquisitions, and turn-arounds.

A well-constructed strategic budget, built to support your strategic business plan, gives your business greater stability and puts your business in a position to improve margins, increase profits and make better business decisions.

Download this in-depth e-guide on strategic budgeting and set yourself up for success in the coming year.

If you need help in developing the financial insights and reporting to use in your strategic planning and budget efforts, an outsourced accounting and CFO services team can help. In addition to the free resources, you can find on our blog Signature Analytics provides premium outsourced accounting services with a proven track record of success for our clients. Need forward-facing financial expertise? See how our CFO and business advisory services provide greater visibility into your business financials.

Business owners need both accounting and finance to effectively run a profitable company. Many companies find that they have one or the other well in hand but are missing critical parts of a complete accounting and finance department. In this article, we outline the roles and responsibilities of accounting and finance teams, why they are both essential parts of a well-run organization, and how to evaluate whether your company has all of the necessary players in place.

A brief overview of the Accounting and Finance functions:

Accounting focuses on capturing a snapshot in time of a business’s financials. An accounting team looks back at a company’s past financial transactions to keep score (think: month-end close, historically-facing data).

Finance is focused on strategic financial decisions for the future (think: forecasting, debt-structuring, financial strategies, and analysis).

To have a complete picture of your business, you want the accounting team’s historical-facing data to support the finance team’s future-facing decisions. Let’s look at the Accounting Team first:

What are the key metrics an accounting team should provide?

Inaccurate or incomplete data leads to uninformed decisions. For a business to make intelligent choices, accurate accounting metrics must be available in a timely fashion. In addition to accuracy and timeliness, that data must be understandable.

Here are some of the key metrics every accounting team should track:

Operating cash flow:

An “at-a-glance” view of cash flow in and out of the business.

Working capital:

Accessible liquid capital vs short-term debts, operating costs, or loans.

AP (Accounts Payable/AR (Accounts Receivable):

The formal way of tracking what you are owed and what you owe.

Direct Cost & Operating Margins:

The amount of profit that is made through sales after subtracting costs of production, wages, & raw materials.

Operating Income

The sum total of a company’s profit after subtracting its regular, recurring costs and expenses.

Net Profit

Operating income minus taxes and interest.

Return on Equity

Return on Equity (ROE) is the measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity, expressed as a percentage.

All of these metrics are compiled monthly into what we all know as a month-end close in which the accounting team reviews, records, and reconciles all account information.

Read: The top 5 reports every business owner should review

Understanding these documents helps you and your leadership team make strategic decisions for hiring, inventory management, cash flow, debt structure, future initiatives, and other critical business decisions.

As the CEO, you need experienced people onboard to handle both accounting (the day-to-day and historical-facing) and finance (the future-facing) functions. Without a strong, experienced team, you may find yourself wearing the CFO, controller and even the bookkeeper hat in addition to your role as leader of your organization.

What expertise do you need in your finance and accounting departments?

As the size and complexity of your business increases, the expertise and experience level of your finance team will need to keep pace. While your bookkeeper may have grown with the business, bringing in accounting roles and finance roles to support your staff can directly benefit your business.

As you audit your existing team, think of the following roles and how they can support accurate, timely and relevant financial data to drive your business forward:

Your accounting team should have a staff accountant, accounting manager, and controller. Note: the controller bridges the divide between accounting and finance departments, acting as a liaison between the accounting (historical-facing) and finance (future-acing) roles.

Your finance team should have a controller, possibly a finance manager who oversees AR/AP and Payroll, and a CFO or finance leader in that executive role of CFO.

When you think of the role of the CFO and the finance department, the larger the organization, the more important the strategic business advisory role of the CFO is.  The CFO is responsible for financial strategy, investor relations, shareholder reports, and strategic shifts made to increase profitability. As a business owner, their insights will help guide major business decisions.

How can I tell if I have the right people on my accounting and finance teams?

If your business has grown, if you find that you are not getting the insights you need to make the right decisions at the right time, you may need a more experienced accounting and finance team.

At Signature Analytics, we begin every engagement with a 30-day assessment during which we take a deep dive into a company’s people, processes, and technology.  Because we provide a flexible and scalable outsourced accounting solution, we can recommend a team that will not only provide what a business owner needs today to address issues that are pressing

Want to find out more?

Read our article “10 Tips to Help Improve Your Company’s Cash Flow” or view our guide to learn what successful businesses should expect out of their finance and accounting departments.

Signature Analytics is honored to have been named a 2022 ‘Best Place to Work’ by the San Diego Business Journal, and to be recognized amongst so many great companies in San Diego.

Each year, the San Diego Business Journal’s Best Places to Work Awards program recognizes outstanding companies whose benefits, policies, and practices are among the best in the region.

Now more than ever, companies have to be more thoughtful, creative, and purposeful about keeping their employees engaged and motivated. Companies that have made the 2022 list have done exactly that.

CEO, Peter Heald says, “We are so honored to have received this award as one of San Diego Business Journal’s Best Places to Work in 2022, marking the third year we have received this accolade. I am grateful to our entire team for their hard work, dedication, and continuous improvement in making Signature Analytics such an incredible place to work.”

How Is a Company Deemed a Best Place to Work?

Each year, San Diego Business Journal partners with Best Companies Group, which manages over 50 Best Places to Work Awards programs on the regional, state, national, and international levels.

Best Places to Work is open to all public and privately held companies for both for-profit and nonprofit to be eligible for consideration. To qualify, however, companies must have a facility here in San Diego as well as a minimum of 15 local employees.

The Best Places to Work Awards program includes 100 San Diego companies. Each San Diego company that applies to be recognized encounters a two-part assessment process, which considers an anonymous employee engagement survey (75%) and the benefits a company offers (25%).

Why is Signature Analytics One of the Best Places to Work?

At Signature Analytics, we pride ourselves on our strong company culture and dedication to our employee growth. Hear it best from our team.

Anthony Sands, Senior Vice President Business Development and Regional Manager at Signature Analytics says, “Working at SA is exciting, engaging with co-workers across multiple clients allows us to be connected in a virtual workspace. The flexibility continues to be a benefit, as our accounting experts work remotely to support clients’ needs. Of course, connecting in-person, during quarterly events contributes to building the culture at Signature Analytics.”

Nancy Wilson, Accounting Manager at Signature Analytics says, “I love working at Signature Analytics because of the flexibility and the support. I work from home, but I don’t work alone. The team is engaging, and I know I always have someone to reach out for help. I am regularly asked by leadership if there is anything I need or any way I can be better supported so I can succeed.”

About Signature Analytics

Founded in 2008, Signature Analytics was created to fill a critical function for CEOs and business owners in small to mid-size companies.

Jason Kruger, Founder and President of Signature Analytics, recognized that many companies required more sophisticated accounting and financial planning services, but not their own full-time accounting staff or full-time CFO.

Signature Analytics provides outsourced accounting solutions that work with businesses’ existing accounting resources to guide leadership and support increased profits and productivity.

Signature Analytics works with a variety of companies with specific expertise in these industries:

  • Non-Profits
  • Professional Services and B2B Service Companies
  • Technology
  • Manufacturing and Distribution
  • Life Sciences
  • Rehab, Recovery, and Wellness Centers

Learn more about Signature Analytics.

The U.S Small Business Administration (SBA) announced changes to the Economic Injury Disaster Loan (EIDL) program. Effective September 8, 2021, small businesses can apply for support until December 31 or deplete the available funds. Furthermore, small businesses can borrow up to $2 million and update existing funds to cope with COVID-related financial disruptions.

What Are The Key Changes To the EIDL Program?

The SBA released the Interim Final Rule to implement the changes to the Disaster Loan Program. These changes apply to all applications submitted on or after September 8 or COVID EIDL applications submitted before but approved on or after September 8.

  • The loan cap has been increased: The SBA has increased the loan cap from $500,000 to $2 million. Businesses that also applied for a loan before the changes can also apply for a loan increase. In addition, businesses under a single corporate group can apply for up to $10 million.
  • Interest: The interest rate for for-profit small businesses is 3.75% and 2.75% for nonprofit organizations over 30 years.
  • Amortization: While the amortization period is fixed, businesses can now defer payments for the first 24 months from the original closing date. During this period, interest and payments shall accrue. The borrower shall then make loan prepayments over the next 28 years. Fortunately, there are no prepayment fees or penalties.
  • Use of funds: The SBA has expanded the use of funds for expenditures and debts. For example, working capital, rent, maintenance, commercial debt, federal business debt, cards, payroll, and healthcare benefits. However, small businesses cannot use the funds to expand their business.
  • Amount: For businesses requesting $500,000 or less, the SBA considers if the business was operational before January 2019. In its calculation, the SBA considers double the business’s 2019 gross revenue and subtracts the cost of goods in 2019 to find the loan amount.

For loans above $500,000, the SBA will calculate the loan amount and conduct a cash flow analysis.

  • Exclusivity Period: From September 8, 2021, the SBA started accepting loan applications. Loan approvals are underway for loans below $500,000. Other loans will be disbursed from October 8, 2021. The thirty-day exclusivity period (September 8 to October 8) ensures that the smallest businesses access relief first.

The SBA is also optimistic about reviewing loan applications above $500,000 within six weeks to expedite the fund distribution. Businesses can also apply for extra fund amounts, but they should prepare for a long waiting period, approximately nine months, if the first loan is below $500,000 and the second above $500,000.

  • Guaranty: No personal guaranty is required for loans below $200,000. A personal guaranty from all individuals and entities that own more than 20% of the business is required for loans above this amount. The same rule applies to corporations and partnerships where an individual or an entity owns more than 20%.

If no one owns more than 20% of the business, at least one person must provide a full guaranty. Sole proprietors, independent contractors should also provide a personal guaranty. For general partnerships and limited liability partnerships, all partners should provide a personal guarantee.

  • Collateral: You do not require collateral for loans below $25,000. However, for loans above this amount, the SBA uses business assets such as furniture, fixtures, equipment, and machinery. Also, if you qualify for a $2 million loan but only have $500,000 collateral, you don’t have to fund the collateral gap.

In addition, if your business owns real estate and qualifies for more than $500,000, the real estate and property should be listed as collateral.

  • Loan forgiving: EIDL loans are not forgivable. However, businesses can also apply for advances under the COVID EIDL program. Fortunately, businesses do not have to repay these advances.
  • Fees: There are no application fees for loans below $25,000. However, for loans greater than $25,000, there is a one-time $100 fee. A one-time $100 fee for loans above $500,000 also applies when the SBA accepts real estate as collateral. The applicant shall also cover any associated costs with recording the real estate lien.

EIDL Program Background

The COVID EIDL program provides businesses with relief funds to alleviate the adverse effects of the pandemic. The fund aims to provide working capital and operating expenses to help keep small businesses afloat.

EIDL loans are different from other disaster recovery loans. This program allows the SBA to provide low-interest, fixed-rate, and long-term loans for small businesses to help them recover from the effects of the pandemic. The relief ends on December 31, 2021, or when the funds deplete, or whichever comes first.

The funds come at a critical time following a report by Goldman Sachs that shows 44% of small businesses have less than three months of cash reserves. As such, small businesses are likely to collapse if another COVID-related emergency should arise.

The research further revealed that the pandemic affected small businesses disproportionately. More than 51% of black-owned small businesses have less than three months of cash reserves.

Keep in mind that businesses cannot specify the loan amount. Enterprises can send their applications, but the SBA calculates the loan amount based on the economic injury. Economic injury is the change in the financial situation of a small business because of an effect of a disaster. In this case, the economic injury funds, EIDL, are being distributed following the COVID pandemic.

Am I Eligible for COVID EIDL Funds?

  • A small business qualifies if it has less than 500 employees. This includes businesses and their affiliates. However, the business must not have more than 20 locations.
  • Agricultural enterprises qualify if they have less than 500 employees.
  • An individual or sole proprietorship that operates without staff or as an independent contractor.
  • A corporative and its affiliates with any, with less than 500 employees.
  • A small tribal business with less than 500 employees.
  • An affiliate can apply for the loan if the qualifying entity has an equity interest or profit share of 50% and above.

Applicants must show “substantial economic injury” caused by the pandemic. The injury includes events that cause the small business:

  • Be unable to meet its obligations as it matures
  • Fail to pay its operating expenses
  • Market or produce services as marketed

The fund further emphasizes support to hard-hit industries. These include:

  • Accommodation and food services
  • Apparel manufacturing
  • Arts, entertainment, and fitness facilities
  • Clothing and clothing accessory stores
  • Educational services
  • Mining
  • Non-internet broadcasting
  • Non-internet publishing services
  • Personal laundry services
  • Rental and leasing services
  • Site seeing and scenic transportation
  • Sporting goods, books, and music stores
  • Transit and ground transportation

Who Is Not Eligible For COVID EIDL Loans?

  • Small businesses that were not in business before January 31, 2020
  • Businesses that do not meet the program’s size limitations. Employees are capped at 500 and 20 for physical locations for companies with multiple locations and affiliates.
  • Businesses engaged in illegal activity at the federal or state level.

What Can I Use The EIDL Funds For?

If you have applied and qualified for the EIDL funds, you need to channel the money to allowable uses. Many business owners are concerned about spending the funds incorrectly. Generally, it’s best to have a strong accounting program to track your spending for business visibility and future scrutiny by government agencies.

Working capital

Businesses have both to-date and future expenses. Usually, to-date expenses are reported as liabilities in the accounting books and which a business cannot fulfill due to the pandemic. In this case, the business can use the EIDL funds to pay debts and bring the working capital to normal levels.

Future expenses are business needs the entity cannot fulfill throughout the injury period. This refers to payments such as fixed debt payments and fixed payments such as rent, insurance, and utilities. In addition, businesses can use the funds to pay commercial debt such as credit card debts, lease payments and mortgage payments, and federal debt, including payments to the SBA. Debt payments can include monthly installments, prepayments, and deferred interest.

What Can’t I Use EIDL Funds For?

  • The payment of dividends and bonuses.
  • Payments to directors, partners, directors, stockholders, and officers.
  • Payment of stockholder or principal loans except when non-payment would result in hardship to the stockholder and when the stockholder injected the fund due to the disaster.
  • Expanding the business and acquiring fixed assets.
  • Repair physical damage to the business.
  • Payment for relocation.
  • Penalties for non-compliance with laws.

How to Apply

If you have already applied for a loan with the SBA, sign into your portal and find Form 4506-T to apply for the new revised loans. New applicants can submit the same form by visiting here. In addition, applicants should be ready to release tax forms to the SBA for revenue verification.

How to Make the Best Use of EIDL Funds

As a small business owner, it’s crucial to apply for the EIDL funds to recover from the COVID pandemic. However, once your loan is approved, the next step begins- spending the funds. Therefore, it’s essential to plan your finances and account for all the spending for compliance reasons.

Talk to one of our financial experts to discuss how Signature Analytics can help improve your financial decisions.

At Signature Analytics, we’re excited to offer a warm welcome to Bill Ness and Zak Higson, who recently joined the team in two essential leadership roles. These executives bring several years of business expertise and experience to our one-of-a-kind group, and we wanted to take the opportunity to better introduce them to the local markets that they will be supporting along with our extended services team.

While welcoming these two to our team, we also want to highlight a recent and well-deserved promotion for our existing team member, Tony Sands, who’s been an integral part of the company’s success over the last several years.

“As Signature Analytics looks toward our next phase of growth, we were searching for leaders and team members that reflected our core values as a customer-centric company. With these new leaders, we not only found decades of business expertise at some of the region’s most respected companies but also a deep commitment to Signature Analytics’ mission to help business owners improve performance and achieve their goals.”

– Pete Heald, CEO

Please read below to find more about these recent additions and promotions and what they mean for the future ahead.

 

Bill Ness in San Diego

Meet Bill Ness, EVP & San Diego Market Leader

Bill recently joined the Signature Analytics team as our Executive Vice President & San Diego Market Leader. In this role, he’ll be leading our accounting, financial, and business advisory services team with his comprehensive operations expertise.

His experience is both extensive and impressive in the San Diego market and has served startups to Fortune 500 companies. He has a deep understanding of building service models, strategic operational planning, mentoring and developing team members, while also contributing to company expansion and growth, and is excited to put this knowledge towards helping business owners and company leaders improve and grow their businesses. He aims to foster a culture of team excellence and exceptional customer care and maximizing team resources to reach important business goals.

Whether you think you can, or you think you can’t – you’re right,”
– Henry Ford

Bill is originally from the East coast (Maryland) but has also done time in NC, AZ, and UT. A fan of crab cakes, Bill still connects to Maryland by shipping crab cakes to CA each month. Outside of work often you’ll find Bill at the gym, on a run, trying to find fun on the golf course, or helping watch his new grandson Cole.

 


 

Zak Higson as EVP

Meet Zak Higson, EVP & New Market Leader

This past month, Zak also recently joined the team as our new Executive Vice President and New Market Leader. He has over two decades of finance, operations, and business consulting experience and was also a Co-Founder of several successful restaurants throughout San Diego County over the last decade.

Like many of our clients, he’s been a serial entrepreneur with a strong work ethic and has a great deal of experience in the food and beverage, hospitality, distribution, and manufacturing industries. His strong people skills, financial acumen, and deep understanding of our customer needs and challenges let us know that our clients will be in very good hands. As we look to further expand our reach in 2022, Zak will play an integral role in guiding the organization into new markets.

Zak and Bill will work alongside existing company leadership to take Signature Analytics to new heights. Their knowledge of our current marketplace and our customers is plentiful, and their presence is valued here.

It’s always ok to not know, but it’s never ok to not care.
– Zak Higson, Executive Vice President & New Market Leader

Zak is an avid hockey fan and a true-blooded Canadian at heart. He spends a lot of time with his three kids; Clark (11), Merara (3), and Rowena (1). Zak is involved in numerous food banks, has a passion for improving the food system, and even has a small hobby farm of his own.

 


 

Tony Sands in San Diego

Tony Sands, SVP – Business Development & Regional Sales Manager

Tony recently accepted the promotion to Regional Sales Manager for the Signature Analytics team. In this role, he’ll be leading our business development efforts within the Southern California markets of San Diego, Orange County, and Los Angeles. Throughout his 6+ years at Signature Analytics, Tony has continued to drive tremendous client success through listening to the needs of the clients and developing a custom solution to meet and exceed their goals.

His experience stretches throughout San Diego & Orange County markets since 2001. Always focused on middle-market businesses, starting with credit training at a regional commercial bank to portfolio management with a start-up bank and business development with a high-growth bank.

Tony’s passion for building relationships in the marketplace among partners and clients has been key to his success. He’ll continue to support current business development efforts to drive new business and company revenue growth. In his new role, his vast client expertise and consultative approach will be essential in developing, mentoring, and training our growing team. Tony is excited about the new challenge and has set ambitious goals for team success while fostering a culture of continuous growth.

“Luck Is What Happens When Preparation Meets Opportunity”
-Seneca

Tony is an alumnus of SDSU and has family throughout the Southern California area. He takes pride in using his finance degree daily. In his personal life, he enjoys spending time outdoors with his wife, Ashley, and daughter, Irelynn. He is committed to CrossFit, football fields, home improvement projects, winter sports, most importantly – he likes to be challenged!

Looking Ahead to the Future

At Signature Analytics, we know that every business leader we work with is faced with critical choices that impact their companies’ future, and they need good visibility to make the right decisions. Looking ahead, we’re still focused on delivering accurate, relevant, and timely financial information each month, enabling business leaders to make better decisions about their company’s future.

Having Zak and Bill join the company’s leadership team along with Tony’s new executive role is both exciting and pivotal for the next phase of Signature Analytics, which includes growing our team, improving our product and service offerings, and looking to expand into new markets.

Our vision is to help business owners and leaders improve performance to achieve their goals. This statement is essential to the values we embody as a consulting-based organization and why our culture focuses on driving continuous improvement, results, and growth for companies. We do this by providing a team of expert accountants and financial advisors who take your business beyond the numbers with actionable insights and recommendations that focus on forward-looking activities, direction, and strategy.

 


 

Do you know your numbers?

Most often, when you start a business venture, money is tight. You are usually focused on pouring your savings to get the business up and running. While you’re busy managing the day-to-day aspects of running a business, you may overlook other tasks like developing sound processes and workflows that aid in the management of the finances of your business. It happens a lot. However, once your business starts growing, the importance of having a sound accounting and financial management foundation is highlighted.

Most business owners then begin to consider better, more efficient, and accessible ways of understanding their numbers to grow their business. They start to assess the different roles that make up the accounting and finance function. They start asking questions such as; will a bookkeeper be able to take care of the financial functions of my business, how do I find a good accountant, or do I need a CFO? Below we’ll address these questions to help you better understand the financial management team you need to grow your business.

Bookkeeper vs. Strategic CFO

Depending on how big your business is and its lifecycle, there are various options for managing its financial operations. There are internal and external roles that can help with day-to-day financial processes, such as reporting and strategic advisory functions, that have to be considered when choosing a team to manage your business’s finances.

The financial management team you choose will depend on your goals, resources, and the expertise of the people you already have on your staff. Below, we will further explain who strategic CFOs and bookkeepers are to help you determine which of your organization’s needs.

While we understand that these are two VERY different roles within the accounting and finance function of your business, so if you get that, great. However, you’d be surprised how common it is for the duties tied to these two roles (and others) to be very misaligned with excepted responsibilities and skills. We want to clear that up as both are crucial to your growing business.

What is a Bookkeeper and What Do They Do?

A Bookkeeper is tasked with recording and maintaining financial transactions such as sales revenue, expenses, and purchases. These professionals record these financial data into ledgers and financial software such as QuickBooks Online. Bookkeepers are usually most sought after by small business owners to assist with financial management tasks. A good bookkeeper should be able to perform the following tasks:

  • Record expenses, sales, accounts receivables, and accounts payable.
  • Reconcile bank statements to detect any accounting errors, achieve accurate balance, and record the reconciled bank statements in your accounting system.
  • Paying bills: After recording the purchase transactions, the bookkeeper is responsible for ensuring that bills for supplies and inventory purchases are offset.
  • Sending invoices: Bookkeepers prepare invoices and send them to clients so that your business can receive payments on time.
  • Organizing and maintaining various documents such as purchase receipts.
  • Tracking inventory: Bookkeepers track inventory using various accounts to ensure that the stock is neither insufficient nor above the required capacity.

You should expect that a good Bookkeeper or a Junior or Staff Accountant to provide you with basic monthly financial statements such as income statements, cash flow statements, and balance sheets. However, you shouldn’t expect your bookkeeper to perform the following tasks:

  • Provide guidance on how to improve your finances
  • Analyze your financial results
  • Create financial projections of profit or cash
  • Make decisions about the financial directions that your business will take

Making such decisions is where a Strategic CFO comes in.

First Things First, What is a CFO and What do They do?

A CFO is the Chief Financial Officer of a business. As such, a CFO will focus on your financial strategies and overall financial management. But what makes a strategic CFO? A CFO can be a pragmatic strategist by addressing vital uncertainties, constraints, and performance issues and taking tangible, realistic actions geared toward moving the company forward. The CFO accomplishes this by performing the following tasks:

  • Developing strategies and detailed plans for achieving your business financial goals: It is imperative that CFOs up their game strategically. A CFO’s development strategy should entail performing tasks such as assessing the business environment, confirming the objectives of the business, identifying the resources needed to attain these objectives, and then designing ways of achieving them.
  • Providing comprehensive guidance to help you make financial decisions: A good CFO should assess the market conditions, check the viability of different financial investment projects, and advise you whether to invest in them.
  • Preparing annual budgets and financial forecasts: The CFO should be able to create annual budgets that make a baseline to compare actual results to projected results, determine how the results vary, and come up with ways of remedying the variances, especially if they are negative. Also, they should prepare financial projections that tell you whether the company is heading in the right direction and the expected income that the business will achieve in the future. These budgets and their activities should also align with your greater business goals for that year and beyond. Learn more about strategic budgeting here.
  • Measuring and improving financial performance: They should use different measurement metrics such as current ratio, quick ratio, operating cash flow, return on equity, accounts payable turnover, EBITDA & EBITDA growth to measure the financial performance of your business and develop ways of improving the performance.
  • Maximizing profits: The CFO should perform tasks such as controlling costs, improving productivity, and analyzing the pricing strategies to help you maximize your business profits.
  • Assessing and minimizing financial risks: Suppose a given project is not doing well financially as was projected, the CFO should be able to establish exit goals, evaluate exit readiness, promote exit options, provide analysis of the value of exit options, and execute a strategic exit plan. You can learn more about exit planning here.
  • Managing cash: When it comes to cash management, the CFO is tasked with figuring out how to make payrolls and ensuring that the business does not run losses. Most CFOs manage cash challenges by focusing on cash outflows and stemming the amount of money that leaves the organization.
  • Establishing policies and procedures that ensure smooth financial operations: Your CFO should create accounting and financial processes, procedures, and policies that clarify roles, authority, and responsibilities that help align your F&A operations with your financial goals. They should also understand the scope of financial risks that an organization faces and develop mitigation strategies against these risks.
  • Raising capital: A CFO should be able to source investors, shorten the time required to raise capital, ensure that you get the best investors, and negotiate the best price and terms for the equity.
  • Handling mergers and acquisitions: For companies selling or acquiring smaller businesses for growth, a CFO plays a crucial role in the merger process. For starters, they are the ones who create a transactional plan and maximize the synergy with the potential acquisition targets. They also ensure that the integration between your company and the company you’ve merged with is smooth.
  • Managing relationships with shareholders, lenders, and investors: CFOs are also tasked with ensuring smooth relations with various parties such as shareholders, lenders, and investors. They do this by reporting the financial position of the business or paying dividends and loans.
  • Overseeing all accounting and finance staff and coordinating activities among them: A Chief Financial Officer is responsible for controlling the financial activities of a business and coordinating the activities of accountants and financial managers to ensure that they are geared towards ensuring that the company attains its financial goals.

Read more: The CFO of the Future: Why You Need One On Your Team

Can Your Bookkeeper Just Become Your CFO?

As we noted earlier, if you own a small business or a startup, hiring a bookkeeper would be a smart move. The Bookkeeper will help you keep accurate records and ensure that various transactions, such as cashing checks to pay vendors, are handled on time.

However, after your company has grown exponentially, you’ve hired more employees and attracted more clients. Maybe you’re in the stages of making the next big move like an exit strategy, PE/VC investment, M&A, or hypergrowth to an IPO; then it might be time to include a CFO position within your finance functions.

Free Download: Our guide to the Exit Planning process & what every owner needs to know

Given that your Bookkeeper was the one handling your finances during the growth period, you may be tempted to elevate them to a Controller or CFO position. Frankly, that wouldn’t be the most advisable move. For starters, the Bookkeeper or any other lower-level accountant will now be well in over their head. Moreover, given their lack of or limited knowledge on the responsibilities of a higher level and strategic financial position, like a CFO, they won’t be able to provide you with accurate and relevant information on time, if they do this at all. You, therefore, won’t likely get the accurate or deep visibility and analysis needed to understand how well your business is performing financially.

So, does that mean your Bookkeeper will be unable to perform the tasks of a CFO because they are incompetent? Not at all. While this person may be a stellar Bookkeeper or Staff Accountant, performing the tasks of a senior financial officer such as a financial Controller or a CFO is a different beast altogether. Sure, they all perform the accounting and financial functions for the company, but that doesn’t mean that a Bookkeeper’s experience prepares them for senior financial position rigors, challenges, and responsibilities.

That said, there are instances when you can promote your Bookkeeper to a CFO or a financial Controller. You should only take that step if they have the specific accounting, management, finance experience, and applicable degrees needed to be a CFO. Tasking them with the CFO job with limited or no qualifications is unfair to them and puts your company’s future in jeopardy.

In What Ways Can Your Business Benefit from Hiring a CFO?

While most small businesses benefit from having a CFO or Controller on their accounting and financial management team, not all of them need those roles on a full-time basis. Moreover, hiring a CFO on a full-time basis is costly. According to Salary.com, hiring a full-time CFO or Controller employee costs $170-$350K per year in California. As such, fractional CFO services is a more cost-friendly option for small businesses that need strategic financial guidance on a part-time basis. Opting for fractional services ensures that you avoid hefty salaries, bonuses, benefits, and employers’ taxes that accrue from hiring a full-time CFO.

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

Most business leaders usually question whether they need one or the other, or both a CFO and a bookkeeper? Well, the question you should be asking yourself is how much your business is suffering or open to unforeseen risks because of not having a proper financial management team?

It would be best if you had a bookkeeper if you’re questioning the quality and meaning of numbers in your QuickBooks. That way, you get to have more time focusing on the core functions of your business. However, if you and your management team are looking at your numbers and using those figures to make data-driven business decisions, yet you’re not sure whether your operations are running well, then you need a CFO.

Whatever your answers are, you have plenty of options to choose from. One excellent choice you can make is partnering with an outsourced accounting and finance team that has the mindset of solving your pain points while helping you meet your current and future accounting and financial objectives. They can also support you in building a roadmap to reach big business goals, taking your business from point A to point B and beyond.

There are numerous reasons to hire a comprehensive accounting and finance team. Some of the reasons why many businesses come to us include the fact that they are experiencing exponential growth, rapid change, preparing for a significant transactional event, or need better management, reporting, and improved visibility in their businesses. They may realize that maintaining the status quo or operating on gut feelings without access to solid, reliable data hasn’t allowed them to grow and improve their businesses, and this is where we swoop in.

Our comprehensive solutions allow for greater scalability and flexibility while your company is experiencing periods of growth or change. Working with Signature Analytics provides all clients with full access to your immediate team and anyone on our staff or within our partner network who can add value or solve problems for your business. Your staff gets the benefit of having the additional support and training they might need, and you reap the rewards of having excellent accounting and financial leadership and expertise joining you at the table. Book a consultation to learn more about our services.

 


 

Discover how outsourced accounting can provide more visibility into your business

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?

Few people have the accountant’s touch when it comes to handling a business’s finances, and that’s okay. While you, as the executive, have likely spearheaded aspects of your accounting strategy out of pure necessity at this point, it may be time to update your processes and hand the strategy over to the experts.

Instead of scrambling to tackle finances in-house, consider outsourcing. You’ll receive unparalleled accounting support and strategy while gaining a flexible team of accounting experts so you can go back to focusing on your business growth.

Before focusing your attention on growth, let’s cover the three main benefits of accounting outsourcing for your business so you can make an informed decision.

Some main benefits we’ll cover in more detail below, include:

  1. Letting your outsourced team own the accounting process
  2. Having the right, qualified people on your side & managing through turnover
  3. Gaining access to an entire team and extended network of experts

Let’s dive in.

#1 Owning the entire accounting process

While your business expertise is valuable to inform financial decisions, one of the benefits of outsourcing accounting is that the experts provide you with the best and latest processes and technologies to help you efficiently and effectively accomplish your goals.

First, the experts will evaluate your processes. Understanding your current processes is an essential part of your accounting strategy. By outsourcing, your new partner isn’t trying to reinvent the wheel or overhaul your operations.

Outsourced accountants will come in with a fresh set of eyes and use their expertise and experience to offer suggestions on ways to update and improve your processes. They are looking to make things better by adding efficiencies and ensuring new processes and workflows remain scalable to fit your company’s needs as it changes or grows.

They’ll likely evaluate:

  • The current team and their skill sets
  • Information and structure
  • Current processes and technology uses
  • Data cleanup protocols

Next, the team will evaluate your current technology in the same way. Since automating manual processes is imperative to time-saving, updating your technology may be the key to saving valuable time and money.

By eliminating manual processes and implementing automated solutions, you take the hours of manual (typically low-level work) work off your employees’ plate, giving them more time to work on goal-oriented tasks that add value to the business.

Automation also takes human error out of the equation, which reduces the risk or the possibility of fraud.

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

From there, it’s time to implement the new processes and technology. Your outsourced experts will document all new processes and provide training to your existing employees. They continue to be accountable for maintaining those processes and managing the team, taking the burden of management off the CEO or Owner’s shoulders while also empowering the current team to stay accountable and perform at their best.

After your processes and technology are optimized, it’s important to hire the right people in the right roles to drive your business into the future.

Read more: What is Outsourced Accounting? 

#2 Hire qualified people & reduce turnover

Turnover is inevitable at any company and is even more common at a rapidly growing company.

Common mistakes we see are:

  1. Companies hire lower-level employees and expect high-level output
  2. Companies hire high-level employees with high pay but they focus on low-level work
  3. Companies do not know how to manage or structure an accounting department

In all scenarios, both lead to frustrated employees and subpar results – which frustrates executive management and leaves employees feeling dissatisfied. Employees feel blamed, and oftentimes, you have good people already; they likely need a little training oversight to be more effective in their role.

So do you hire more people? Can you commit to affording to hire more people or the people you need full-time?

With growth or change, outsourcing becomes an ideal solution. One reason is that an outsourced team can provide scalability and flexibility as you grow and provide continuity if you experience turnover.

If you experience internal turnover, the outsourced team is there to fill those gaps temporarily or permanently. If you’re looking to hire for the internal role, your accounting experts can support you with the hiring, onboarding, and training process.

Suppose you experience turnover within your outsourced team. In that case, the good news is that multiple positions are supporting your company within the outsourced team. And there’s always someone who is being training by your outsourced team before the departure. This is why continuity is such a big deal for many.

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

Overall, your company will experience lower turnover even in times of high demand, cash flow problems, or special projects with an outsourced partner by your side who is helping to manage this process.

Read more: When Should You Consider Outsourcing Your Accounting Operations?

#3 Direct access to a team of experts

Another benefit of outsourcing to an accounting firm is that you gain an immediate team of trusted experts but also have access to the entire team within the company – should you need it.

What’s important is that your outsourced team will integrate themselves into the fabric of your business. They are always looking for new ways to help, offer ideas and insights they’ve seen in the market, and keep you posted on the latest trends, strategies, and technologies.

Since they are always thinking about your business’s well-being and future direction, if they should ever need to bring in another in-house export or provide an introduction to an outside one, you can bet they’ll do it helps your business. They are well connected with many experts outside of accounting, such as advisors in HR, marketing, banking, and various other reliable partners to support you.

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Ultimately, the level of sophistication a team of outsourced experts can bring to your business is unmatched. With a plethora of experts acting as part of your team and sitting in the driver’s seat of your strategy, problem solvers are consistently a phone call away. Plus, they’re committed to helping your company grow.

Take the burden of accounting off your shoulders and let your outsourced accounting team manage the process for you. You’ll gain a fantastic partnership, improve your business, and gain better insights than you were likely previously capable of doing alone.


Discover how outsourced accounting can provide more visibility into your business

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

Strong leaders are always thinking about the future. Forward-thinking is an essential part of business leadership to guide your employees and steer your company in the right direction.

In uncertain times, it is important to understand many different outcomes that could take place. Trying to build a model based on multiple possible outcomes is challenging.  You may find that you need help.

Finance and accounting leaders within an organization frequently need assistance predicting their cash needs, drawing a mental picture of potential profitability, and learning how to make better data-based decisions for the company.

To plan for the future effectively, a leader must develop a financial model whose aim is to forecast a business’s results over a set time frame.

Read More: Financial Tips From Successful Leaders

Given the current environment, we recommend creating a nine-month cash flow forecast to support your business through whatever comes your way.

We recommend keeping three possible business scenarios in mind:

  1. Your original plan
  2. A probable case based on current data
  3. The worst case

To help you, we suggest brushing up on those Excel skills to create more elaborate and complex financial models. These models will enable you to modify assumptions giving you the ability to see the outcomes immediately. If you are not an Excel guru, don’t worry, even a simple financial model will provide you with better insights into your business.

3 Scenarios And What They Tell You

  • The original plan scenario should be your current strategic business plan and budget for the year. If you do not have a budget, you can create this model, as outlined below. This scenario acts as the baseline for the other two scenarios.
  • The probable case scenario is what you expect to happen based on current information. For some businesses, this could mean growth, and for others, it may mean a reduction in revenue.
  • The worst-case scenario should depict what the business would look like if revenues drop, are delayed, and/or unforeseen expenses occur. This scenario reflects the most serious or severe outcome. In this scenario, forecasting in this way is critical, so preparations can be made to ensure the business can still operate under adverse circumstances.

Read More: How to Develop a Strategic Financial Plan for Your Business

Original Plan Scenario

The best approach to building these scenarios is to start with the original plan. Your original plan scenario should be the easiest to forecast, and you might already have it if you created a strategic business budget for the year ahead. The numbers used in the original business plan will act as the baseline for creating the other two scenarios.

A quick way to get started building the financial model is to calculate a monthly average of the last 12 months for each expense category. At Signature Analytics, we recommend companies break down their expenses into categories or buckets to understand their business expenses better.

Once you have that data, use this average as the baseline amount for each expense account. Then ask yourself, is this baseline still a reasonable estimate to help forecast for the next nine months?

Depending on your income channels, revenue can be forecasted using the 12-month average. If you have more accurate data, then, by all means, use it. For both revenues and expenses, look back at the same months in the previous year to see if any seasonal patterns or trends should be reflected in the forecast and make adjustments where necessary.

Lastly, if you never created a strategic business plan and budget for the year, there’s no time like the present to get that started, so you are not flying blind over the next several months.

Read more: Download our Strategic Budgeting eGuide

Probable Case Scenario

Once the Original Plan has been created, determine what percentages (these would be increases or decreases) of revenue and expenses should be applied.

Manual adjustments can be made to any of the monthly numbers based on knowing future activities within the business. Think through possible disruptions to your employees, your supply chain, and your clients.

Worst Case Scenario

The final scenario is weighing in the negative impact of disruptions to your employees, your supply chain, and your clients. You might approach this as a broad decrease in revenue (15%, 25%, or even higher) to understand how that would affect your business and your liquidity.

Scenario planning should bring to light any warning signs that can trigger major strategic pivots to decrease a company’s risk.

One other helpful tool in scenario planning is to utilize storytelling. The Wall Street Journal reports that “data-driven stories enable a team to picture the various futures the organization might face; strong narratives challenge conventional wisdom and management’s assumptions, but should be logical and plausible.”

Remember, forecasts by nature are not factual; but, having the ability to use available forecasts to develop scenarios can provide some relief.

Final Thoughts: 

Simple scenario analysis allows you, as the business leader, to work through the assumptions and influences that directly affect your business. This creative and focused thought process can support you in times of high stress when making thoughtful, yet data-driven decisions for your business beyond that “gut feeling.”

If you need help with creating different financial models to support various scenarios, Signature Analytics has a full staff of CFOs and accounting experts to support you and your business. When you are ready, contact us to get started.

How utilized are your employees? What percent of their time is being spent working on projects that are not billable to the client? How much is that costing your company in productive capacity? If you do not know the answer to these questions, you could be missing out on potential revenue benefits.

For service-based organizations, analyzing employee utilization is imperative. Knowing where and how employees are spending their time enables professional services firms to:

  • Appropriately set their rates
  • Properly assess how much to invoice clients accounts
  • Decide what to pay their employees
  • Determine if they are over or understaffed

Calculating Employee Utilization Rates

The resource utilization rate is a balanced relationship between billable hours and working hours available and is a key metric of employee productivity.

For example, if there are 168 eligible working hours in the month of May and Penny spends 100.80 hours on billable client projects then Penny’s utilization rate is 60%.

Billable Hours / Eligible Working Hours = Utilization Rate

Now let’s say that Penny’s annual salary is $50,000, or $4,167 per month. In the month of May, she spends the remaining 40% of her productivity time on business development efforts (10%) and general and administrative (G&A) tasks (30%). That would mean the company is paying Penny $1,250 in May to work on non-revenue generating processes.

Monthly Salary x Time Spent on G&A (%) = Employee Cost

If this general and administrative time is benefiting the company then it may be worthwhile. Otherwise, this time could be used for other work, clients, or spent attending networking and other events to help grow the productive capacity of the business.

If Penny were to increase her utilization from 60% to 80%, her general and administrative employee cost would decrease to $417 per month – increasing efficiencies AND generating additional revenue.

Improving Employee Utilization Increases Profitability

From a revenue perspective, let’s assume that clients are billed at an hourly rate of $150. At 60% utilization the company is making $15,120 in May; however, 80% utilization would bring in $20,160, or $5,040 of additional revenue. Furthermore, if you have 5 employees who can each increase their employee utilization rate from 60% to 80%, you could generate an additional $25,020 of revenue per month.

Higher Utilization = Increased Profitability

Using Utilization Rates to Guide Business Decisions, A Case Study

Earlier this year, Signature Analytics was hired by a professional services firm in San Diego to provide outsourced accounting services. In addition to performing monthly accounting maintenance and bookkeeping services (preparing financial statements, balance sheets, income statements, cash flow statements, etc.), we put together a Utilization Summary Report so the client would have visibility into their employee utilization rates month over month.

The metrics report revealed that in the month of January the company’s average utilization rate for billable employees was 60% resulting in a $95k loss for the month. In February, average utilization was 63% indicating a consistent low utilization rate for the company. To show how utilization rates impacted the bottom line, we also compiled an “if-then” summary report which revealed that increasing average utilization to 75% would generate a profit of $130k for the month.

Using this utilization percentage information, the company decided to make personnel changes in the month of March that would increase their profitability. This included letting go of an underperforming non-billable sales associate. They also replaced a billable-time employee with consistently low utilization with a new billable employee whose skills capacity could be better utilized by the company. Additionally, the firm set personal billable utilization goals for every employee to help encourage the staff to improve productivity and maximize billable projects and hours.

Following the changes, average employee utilization increased to 76%, resulting in a profit increase of $230k for the month of March.

Read another case study: Unknown employee utilization causing unknown or inaccurate client profitability.

Improve Your Firm’s Utilization

At Signature Analytics, we have helped several professional services firms use utilization rates to make key strategic decisions that drive profitability. Preparing utilization summary reports and “if-then” analyses are one way we enable our clients to visualize the effect of increased utilization rates. We are also able to show the company key metrics for unbilled general & administrative time by applying utilization rates to salaries and separating these wages on the financial statements. Furthermore, we have helped clients implement time tracking systems – which is the first step in determining utilization rates – and assisted with the development of company policies to ensure time is accurately entered by employees.

Want to learn more about using utilization rates to drive profitability for your firm? Contact us for a free consultation.

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Do you know your numbers?

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.

  • 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.

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

Businesses still seeking relief from the impact of COVID-19 may be able to find it in the second round of PPP loan legislation passed by Congress in late December of 2020. The Consolidated Appropriations Act, 2021 seeks to overcome some flaws of the first round of the Paycheck Protection Program (PPP) while providing additional assistance to businesses still suffering in the wake of the COVID-19 pandemic.

Even those who were unable to get funding during the first round of PPP loans can apply for their first-draw under the new guidance. With relaxed rules on which expenses are eligible for forgiveness and specific funding set aside for lenders who operate in lower-income areas, businesses owned by POC, and small businesses, this round of PPP loans is better suited to serve the American population as a whole equally.

Since the program’s initial launch, our team of experts have had a chance to review the program in greater detail and want to provide our findings below. We know navigating through this legislation can be tricky, just know we are here to provide support and guidance to business leaders in need.

Quick Overview of Changes:

  • Dramatically expanded payroll and non-payroll expenses eligible for forgiveness
  • Additional clarity on loan terms
  • Updated limits on loan amounts
  • Clarity on forgiveness and tax savings opportunities
  • Flexibility on the covered period of the loan
  • Revenue reduction proof requirements
  • PPP Loans: The Changes for Round 2

Covered Expenses

To be eligible for PPP loan forgiveness, borrowers must use the funds on approved, covered expenses. Under the new legislation, the 40/60 split is still required: borrowers must use 60% of the funds on payroll expenses and can use up to 40% on approved, non-payroll expenses.

However, covered expenses in both categories have been expanded. Existing payroll costs included:

  • Salary, wages, commissions, tips
  • State and local payroll taxes
  • Paid leave
  • Healthcare payments
  • Retirement plan contributions

Expanded payroll costs now include:

  • Group life insurance
  • Group disability insurance
  • Group vision insurance
  • Group dental insurance

Existing covered non-payroll expenses included:

  • Interest on mortgage payments, excluding prepayments
  • Rent
  • Utilities
  • Interest on debt obligations incurred before the covered period

Additionally, the new legislation expanded forgivable non-payroll expenses to include:

  • Certain operational expenditures like software and cloud computing service payments used to facilitate business operations, accounting, service or product delivery, payroll processing, billing, inventory, and HR functions
  • Property damage costs incurred during public disturbances that happened in 2020 and were not covered by insurance
  • Select supplier costs including payments to suppliers of goods that are essential to operations
  • PPE equipment and other worker protection expenses incurred to comply with CDC, HHS, OSHA, or state and local government authority after March 1, 2020, until the president’s national emergency declaration expires

Note that expenses for HSAs, QSEHRA, and Commuter Benefits like mileage reimbursement are still not covered under the new PPP guidance.

PPP Loan Terms

The new legislation brings additional clarity to the terms of PPP loans. Here are some of the highlights:

  • Interest rates are fixed at 1%
  • Interest is non-compounding and non-adjustable
  • No yearly fees
  • No guaranteed fees
  • No prepayment penalty
  • Borrowers are not required to provide collateral or a personal guarantee

Providing this guidance ensures that lenders cannot take advantage of borrowers seeking PPP loans. Additionally, while the maturity for PPP loans is five years, payments aren’t required until borrowers know how much of the loan will be forgiven.

Borrowers who do not apply for PPP loan forgiveness, however, will have to make payments within 10 months of the last day of their covered period.

eGuide: What Business Should Expect From Their Accounting Department

Loan Funding Limitations

For first-draw borrowers, there is a limit of $10 million or 2.5 times the average monthly payroll and healthcare costs; whichever is less. Some exceptions may exist for restaurants and other hospitality businesses.

The loan limit for second-draw borrowers is $2 million and includes a stricter method of calculation, which is:

  • 2.5 times the average monthly payroll and healthcare costs in the year prior to when the loan was received or the 12-month period prior to when the loan was made
  • Most hospitality and entertainment businesses, including hotels and restaurants, are eligible for up to 3.5 times the average monthly payroll and healthcare costs using the same methodology as above

If borrowers with an outstanding, unforgiven PPP loan would have been eligible for more resources under the new, expanded covered costs, they may amend their loan application and request a higher amount. Loans that have already been forgiven are not eligible to be amended.

Forgiveness and Tax Deductibility

With the expanded eligible expenses, forgiveness is much easier to receive. Additionally, the SBA has simplified the forgiveness process so that borrowers with loans of $150,000 or less may utilize a one-page application.

Tax benefits also exist for PPP loans. The funds are not included in any gross income that a business is required to report. Better yet, expenses that are paid for using the funding from a PPP loan are tax-deductible. That creates a double tax benefit as no taxes are due on the amount received and business can deduct expenses paid using the funds.

The Covered Period

New legislation has provided additional flexibility as to when borrowers use their PPP loan funds. While the covered period for the first-draw remains unchanged, second-draw borrowers can choose a covered period anywhere between 8 to 24 weeks after receiving the loan. This provides much-needed freedom to utilize the funds as necessary and eliminates the restrictions faced during the first-draw covered period.

Updated Eligibility Requirements

First- and second-draw loan recipients each have specific eligibility requirements. Both types of applications require that a business was operational before February 15, 2020, and remains operational. The first difference occurs in the required number of full-time, part-time, or seasonal employees:

  • First-draw applicants: Must have less than 500 employees
  • Second-draw applicants: Must have less than 300 employees or less than 300 employees per business location

Additional Eligibility Requirements for Second-Draw PPP Loans

Proof of 25% Revenue Reduction
One of the more stringent expectations of second-draw borrowers is the required proof of revenue reduction. In order to qualify, borrowers must show a revenue reduction of at least 25% in the first, second, or third quarter of 2020 when compared to that same quarter in 2019. The following are all required to be included in the revenue calculation:

  • Fees
  • Dividends
  • Commissions
  • Sales of products or services
  • All revenue from every source in whatever form received or accrued by the borrower and any affiliates

The funding from first-draw PPP loans is, however, excluded from this revenue calculation.

Only loans totaling over $150,000 will require borrowers to submit documentation to prove revenue decline during the application process. However, all borrowers will need to submit this information when applying for forgiveness. Here are some forms that will help provide the proper documentation:

  • Relevant tax forms
  • Quarterly financial statements
  • Bank statements

Fully Used First-Draw PPP Loan
In order to be eligible for a second-draw PPP loan, borrowers must have already used or will use their entire first-draw PPP loan.

Eligible Businesses

The following are eligible businesses for both first- and second-draw PPP loans:

  • Sole proprietors
  • Independent contractors
  • Self-employed individuals
  • Certain 501(c)(6) non-profit organizations
  • Seasonal employers
  • Faith-based organizations that have less than 150 employees
  • Housing cooperatives that employ less than 300 people

For further information on which businesses are eligible, visit the SBA website.

Ready to Apply?

Applications are ready for borrowers now and will remain live until March 31, 2021. Funds are first come, first serve so it’s best to apply as soon as possible. Finding lenders is easier than ever using the SBA’s Lender Match website.

Before applying, it’s best to gather these documents for both 2019 and 2020:

  • Tax returns, if available
  • Financial statements, including profit & loss
  • Bank statements
  • Payroll records and reports

Borrowers can also review the first-draw application and second-draw application when preparing to apply. When in doubt, hiring a professional accountant can help borrowers get the maximum amount from their PPP loans.

Make your strategic budget a priority

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.

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

This article was originally written on May 1 and portions have been updated on July 7, 2020, in accordance with the PPP Flexibility Act signed into law on June 5 by President Trump. Additionally, the PPP application extension period being moved to August 8, 2020, for small businesses to apply for the remaining $130 billion of PPP lending capacity. 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.

Many business owners are feeling the pressure the coronavirus has put on the market and their companies. Many have their workforce operating remotely, some with only a skeleton staff, and others having to layoff their workers due to the impact of COVID-19.

In response to the economic hit many business owners are currently facing, the U.S. government responded with the CARES Act, a bill designed to bring health care assistance and financial aid to those individuals, families, and businesses hit hardest by the pandemic.

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

One of the significant benefits of the CARES Act for business owners to take advantage of to protect their workforce is the Payment Protection Program (or PPP). With the chaotic rollout of the Payment Protection Program (PPP), many business owners have already scrambled to file the necessary paperwork with their banks, credit unions, and other financial institutions to secure funding. All of which are all backed by the Small Business Administration (SBA). This aid will be critical in helping owners pay their employee’s salaries, benefits, company bills, and make other vital financial payments to keep afloat.

Despite the initial rush to submit the necessary paperwork, there is a waiting period that takes place once all the required documents are filed to when the aid finally comes through. Some owners have already received their funding, while others are still in that waiting period fueling more feelings of uncertainty.

Millions of companies are applying for this aid and loan forgiveness all once. As a result, funding approval is taking much longer than initially anticipated. Not only is the sheer volume of applicants incredibly high, but the process for going through each application is quite lengthy. We recommend being prepared for a waiting period of 90 days or longer.

No matter which scenario an establishment is facing, this growing uncertainty is leaving many business owners wondering what additional steps they should be preparing to take next to solidify the future of their companies while maximizing the benefits of the PPP program.

While millions of eligible companies are applying for forgiveness on their loans during this time, in the meantime, they must utilize these funds the correct way so these companies can maximize forgiveness.

If at any point during this process you have questions or would like to speak to an expert, please don’t hesitate to reach out. Our CFO task force, a highly skilled team comprised of accounting and finance experts, is working diligently to help small to medium-sized businesses navigate their way successfully through this process.

The Signature Analytics promise is to manage your accounting and financial reporting, so you don’t have to. However, during this confusing and stressful time, we are going beyond the numbers to help improve your business performance and help drive strategy and direction.

Critical Next Steps

The experts at Signature Analytics are recommending the following next steps to help comply with the PPP and obtain the most significant company benefits:

1. Have a plan. The 24-week clock will start ticking as soon as those funds are received. What you do with the money during these weeks determines your loan forgiveness, so it’s best to come prepared with a spend-down plan for the PPP funds. Signature Analytics has developed a template to help you plan and track funds used.

Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

2. Documentation. Your lender will require documentation to apply for loan forgiveness, so it will be imperative that you carefully track using the funds for qualified expenses. The better documentation and support, the easier the process will be for forgiveness. There are several methods you can use to track your funds. Some recommended ideas include:

  • Creating a separate class in your Quickbooks file
  • Creating a separate balance sheet to track the use of the PPP loan
  • Opening a dedicated bank account used solely for eligible expenses
  • Review and update cashflow scenarios to ensure they are still valid

The Signature Analytics team can discuss which options will be best for your situation to maintain records to substantiate expenses.

3. Monitor. During the 24 weeks, the actual use of the funds must be carefully monitored. In order to qualify for loan forgiveness, at least 60% of the loan must be used for payroll costs. Keeping in mind that various restrictions need to be considered here for highly compensated employees. It is important to stay diligent on the rules for forgiveness and the tracking of the proceeds of the loan.

4. Be cautious. Loan forgiveness can be reduced if either of the following occurs:

a. Employees who make less than $100,000 (annualize) have their comp reduced by 25% or more may cause a dollar for dollar reduction in your forgiveness amount.

– OR –

b. If the number of full-time employees is equal to or less than the same number from February 14, 2019 to June 30, 2019, or January 1, 2020 to February 29, 2020, among other criteria. The Treasury website has the most current information regarding these criteria.

5. Avoid other CARES Programs. Some programs may nullify participating in the PPP, including the Employee Retention Credit and Deferral of Payroll Taxes. It is essential to get guidance from your tax and HR professional in regards to all areas of the CARES ACT.

6. Consider timing. You will want to maximize the payment of qualifying expenses during the eight-week loan forgiveness window. For strategies on how best to pay your bills, please reach out to the Signature Analytics team for guidance.

7. Don’t misuse the funds. While specific guidelines for misappropriation of funds are not currently available, we do know that business owners using the funds for fraudulent purposes will be subject to criminal charges. Additionally, businesses that misrepresent or do not accurately portray their information submitted may be subject to criminal penalties.

8. Even if it’s not forgiven. You are still left with a reasonably good loan. If you received the 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. Both options come with a 1% interest with no prepayment penalty. Keep in mind that even though interest and principal payments are deferred for six months, the interest will still need to be accrued during the deferral period for any portion of the loan not forgiven.

9. Contact your lender. Communicating with your lender during this time is a critical step, to ensure both parties understand all of the forgiveness guidelines. Ideally, you will complete the loan forgiveness application found here and submit it to your lender before the October 31, 2020 deadline.

10. Consider the MSLP. The Main Street Lending Program is another new program available for small and medium-sized businesses that were financially stable before COVID-19 took effect. A few of the eligibility requirements include being a U.S. based business with an establishment date before March 13, 2020. You can read more about the criteria through the link below.

Read More: Your Guide To The Main Street Lending Program

Final Thoughts

It is valuable to note that since the PPP was initially launched, guidance from the Treasury Department has continued to evolve, including signing the PPP Flexibility Act on June 5. This is a very fast-paced pandemic and is requiring government agencies and those who support it to think on their feet and provide businesses with relief fast.

For this reason, the information outlined above may change in response to additional guidance. We will do our best to keep you up to date, and you can always contact us at any time for support.

Related Resources:

Most up-to-date resources as of 05-27-2020:

This article was originally published on 6.11.20  and contains the new program guidelines that were released on 6.8.20. We will continue updating as new information becomes available.

During the last few months, the Coronavirus has created an incredible impact on the world. As a result of this unforeseen occurrence, many individuals and businesses were negatively affected and continue to struggle today.

The Federal Reserve announced in April that a new lending program was in the process of being established for small and medium-sized businesses that were financially stable pre-pandemic. The creation was a result that stemmed from the CARES Act as an avenue to make $600 billion accessible in aid. It complements the aid available through the Small Business Association and other funding options.

Below, we breakdown the essential facts of the program, as well as answer some commonly asked questions our team of experts is receiving. This breakdown includes the newly released guidelines from the Federal Reserve that were announced on 6.8.20.

“Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” Powell said in Monday’s announcement. “I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period,” Fed Chairman Jerome Powell recently said of the revamped program.

We hope this will serve as a starting point to understanding the plan, but in no way should one financial leader opt to manage all of this information for their business on their own. You can call our expert financial team at any time so we can help you throughout this process. Continue reading for all of the insights.

What Is The Main Street Lending Program?

As mentioned above, the Main Street Lending program is the government’s additional solution to providing funding for small and mid-sized businesses.

The program operates through three facilities:

For information regarding each of these facilities and answers to questions on the terms and conditions, please visit the Federal Reserve resource here.

Other key takeaways from the Main Street Loan Program update: 

The federal research expanded its Main Street Loan Program with a few major changes to allow more small and medium-sized businesses to be able to receive support. The changes include:

  • Lowering the minimum loan size for certain loans to $250,000 from $500,000.
  • Increasing the maximin loan size for all facilities (Maximums for each type will be $35 million, $50 million, and $300 million). Loan caps are based on outstanding credit and adjusted EBITDA of the borrower.
  • Increasing the term of the loan option to 5 years, from 4 years.
  • Extending the repayment period for all loans by delaying principal payment for 2 years, rather than 1 year.
  • Raising the Reserve Bank’s participation to 95% for all loans.

The Fed says the facility will open registration to potential lenders “soon.” More details can be found on the Federal Reserve website.

main street loan program updated details

How Do I Know If I Am Eligible?

To participate in the Main Street Lending Program, a borrower must meet the list of criteria below. Most importantly, the business that is attempting to securing the loan must have an establishment date before March 13, 2020, and be based within the United States.

Secondly, eligibility requirements also include having either:

  1. less than $5 billion in 2019 revenues or
  2. less than 15,000 employees.

Non-profit applications should note that a separate program is in the works for their unique circumstances.

A few more eligibility details of importance include:

  • being a partnership, limited liability company, corporation, association, trust, cooperative, a joint venture (with no more than 49 percent participation by foreign entities); or a tribal business concern
  • not being an “Ineligible Business” under the Small Business Administration (SBA) definition, as applied to the Paycheck Protection Program (PPP)
  • not participating in the Primary Market Corporate Credit Facility or receive specific support provided by the CARES Act made available to air carriers and businesses critical to national security

If your business has applied for or already received Paycheck Protection Program (PPP) funds, the Federal Reserve has made it clear these do not make a business ineligible for a loan from the Main Street Lending Program.

How Do I Apply For The Program?

Business leaders can visit or call any U.S. bank to apply for a Main Street Lending program loan. It may be easiest to select where you already have established your banking relationship; however, there are no restrictions.

The bank you choose to work with will first assess the risks and then will offer you an interest rate. Our recommendation is to apply with two separate banks and make your selection based on the most competitive interest rate you are offered. Since bank lenders are now only required to take on 5% of the loan, more competitive rates will become available.

It is important to note that there will be fees associated with your loan, so understanding this upfront can help you make your final decision.

Is There A Limit or Minimum To How Much Aid I Can Borrow?

Yes, there are restraints on how much a business can borrow. Loans offered through the Main Street Lending Program range from $250,000 to $300 million.

Depending on the type of loan, each will have a 5% to 15% risk retention rate. What this means is that for banks, they are guaranteed in this amount by the federal government.

What Else Should I Know About The Program?

We cannot stress this enough, but once you receive your funding and in your account, there is no separation between those funds and your other finances. With that, it is critical to use a tracking method, so you have documentation of where the funds are allocated.

Two Tips From Our Expert CFO’s

Here are two questions to ask yourself or your company’s financial leaders:

  1. Have you developed a 13-week cash flow plan? Even better if you can create a plan through the end of the year. Having this type of cash flow forecast will allow you to plan for all revenue and expenses while still providing visibility to make strategic decisions.
    Read More: Actionable Advice from Our Founder to Improve Your Cash Flow
  2. Have you gone through the appropriate steps for scenario planning? You likely need assistance projecting your cash needs, figuring out potential profitability, and determining how best to make data-driven decisions. Using the scenario planning model, you can forecast your business results over an extended period.
    Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

If the answer to either of these questions is no, now is the time to get started. We are asking our clients to develop and execute these plans to help them plan for their future as much as possible.

Our CFO team is already supporting these initiatives and are happy to help you dive deeper into the best decisions for your company using limited resources.

Do Not Navigate This Alone

There are many programs designed to help businesses impacted by COVID-19, and this is only one of them. As a business leader, you are a decision-maker in your company, and you must be armed with accurate information to lead your company to success.

You can call us with any questions you have or advice you are looking for while navigating the Main Street Lending program or other programs out there. We also work with a number of banks that are part of the lending program. It is our promise to go beyond the numbers to help improve your business performance and achieve your goals. Our team of experts is ready to help you lead your business into the new normal with funding in your bank account.

Important Resources:

 

“It’s not what you pay a man, but what he costs you that counts.” —Will Rogers

Good business leaders understand that having insight and control over the company costs is vital. Low overhead and a surplus of cash is a recipe for a financially successful business, but when an unforeseen global pandemic steals customers away from your business model, what is your response?

If you are like J.Crew, Neiman Marcus, or Souplantation, the solution is to cut employees loose, shut your doors, and hope that the financial aid from the federal government is enough to pay your essentials bills until the mess dies down.

However, if you are a smarter leader with an insightful team by your side, you can reduce your cost structure and keep your business alive during the midst of it all.

We want to take some time to be that insightful team for you. Below, we highlight the key ways you can proactively reduce and control overhead rather than making severe deep cuts.

During the uncertainty of this current economic environment, there is no better time to address leaning your company. Taking an intellectual dive into the inner workings of your company using the following ideas is one way to evaluate what is working and what is not.

Idea 1: Speak With Lenders

Fostering a better relationship with each of your lenders is one of the first steps we recommend taking during this time. A simple phone call to your banks, credit unions, and other money lenders will help to keep lines of communication open.

Not only that, but it will help you establish a relationship of trust if you initiation the call. When you have the lender on the phone, also be sure to ask about some of the following:

  • A detailed review of the terms for all your business loan agreements and lines of credit
  • The option of refinancing debt to extend terms and reduce payments
  • Ask about reducing interest rates on loans and credit cards
  • Try requesting a credit line increase for credit cards
  • Consider negotiating a way to pay only interest on the debt if finances become too tight

You don’t know what the lenders will say until you ask, so try and negotiate the best terms for your business and see what options are presented to you.

Idea 2: Seek Financial Aid

The federal government has been rolling out a variety of financial aid packages for businesses to choose from during the COVID-19 pandemic.

The three large government options available include PPP, EIDL, and Main Street Lending program.

The Paycheck Protection Program stems from the CARES Act as a way for business owners to help pay employee salaries, benefits, company bills, and make other vital financial payments to keep afloat.

Read More: What Should Your Next Steps Be When Applying for the PPP?

The Economic Injury Disaster Loan Program is part of the Small Business Administration’s federal assistance for the private sector. It can provide up to $2 million to small or private businesses and non-profit organizations regardless of whether the applicant sustained physical damage from the pandemic.

The Main Street Lending Program is the newest program announced by the federal reserve and was specifically established for small and mid-sized businesses that were financially stable before the coronavirus pandemic. Roughly $600 billion of aid is accessible for these companies.

Read More: Your Guide To The Main Street Lending Program

Another option is to seek private grants from big organizations. Please do some research on grants.gov or reach out to our team for a few suggestions.

Idea 3: Review Your Contracts

This might be one of the easier ideas on our list! With that, you should make efforts to understand how your business is using the space you are in and how it might need to expand or trim in the future.

If your lease is nearing its end, consider this as an ideal time to renegotiate on the original terms. Some options include subleasing the space, taking over a new and less expensive commercial real estate location, or taking advantage of a shorter-term lease from your landlord.

Idea 4: Boost Incentives

Now more than ever, your customers have a reason to zip up their wallets and pour over their credit card billing statements. The best thing you can do to ensure your services are billed continuously is to show their value. If your customers understand why they need your products or services, then you are appealing to the financial side of their rationale.

Once you feel you have established a customer relationship based on trust and necessity, consider rewarding or incentivizing them by discounting early payments, offering special pricing on new product launches, or giving coupons to loyal customers.

You can expect that each of your customers is struggling in their own way, and so your overall goal is to ensure they feel valued and that you are continually providing real value. Take this time to look beyond the numbers and understand your customer’s business strategy and how you can further support them in reaching their goals. Need more help in this area? Call our team of experts for even more advice.

Idea 5: Look Beyond The Obvious

Unfortunately, one of the first places scared leaders will choose to cut back is by way of their employees. We don’t believe this action is the ideal way to reduce your cost structure.

Layoffs are harmful to the remaining employee’s morale and productivity. They are working in fear rather than working to continue the mission of the company.

While there are times when addressing your labor force is a crucial factor for your business’ survival, it is crucial to look beyond that channel at the beginning. Before heading down the path of layoffs, consider these other roads first:

-a reduction to working hours
-furloughs
-decrease or eliminate bonuses and performance pay

Consider modifying the benefits and compensation plans as a way to minimize costs. Ultimately, many of these considerations will positively or negatively impact your business. Think through your plan and communicate your strategy with your other business leaders before taking action.

Final Thoughts

With the right information, leadership, and choices, reducing your business’s cost structure doesn’t have to be incredibly painful. The best outcome is when you can lean out, keep your incredible team, and envision a successful future.

Remember, communication is essential during this time. Answer all the questions, quell all the fears, boost everyone’s morale, and be as proactive and transparent as possible.

If you are looking for more ideas on how to trim down the excess costs of your company and how to recession-proof your business, you can read one of our most successful blogs linked below.

Read More: How to Proactively Recession-Proof Your Business During COVID-19

Call us for help taking these ideas and putting them into action. Our team of experts has helped countless businesses trim down their costs and can answer any questions you have about this process.

 

Presenting financial information in an easily digestible format is essential when communicating with external stakeholders such as lenders, investors, and other strategic partners. These communications are vital to the long-term success of a business; however, it can be a struggle for many small and mid-size businesses. To help, below are three keys to successfully communicating the financial state of your business with external stakeholders.

#1 Be Concise

The easier it is for an external stakeholder to interpret results, the easier it will be for the company to achieve its desires from that stakeholder.

  • Banks. If you’re seeking a line of credit from a bank, it is important to distill the financial results of the company into a simple format that shows them they should lend to you. They want to know you have the cash to pay your bills. They want to know you have proven you can collect from customers. They want to see profitability that is consistent and stable. If any of these things require explanation, provide it.
  • Investors. Investors want to understand why and how your business can generate a return for them and provide comfort that their capital is reasonably safe.
  • Strategic Partners. A key strategic partner will want an understanding that they can commit resources to work with you in a manner that will be fruitful.

These stakeholders do not want to weed through a book. Furthermore, simply exporting your income statement and balance sheet directly from your accounting software is not enough. Summary narratives, graphs, charts, and reports can be very effective as they will enable the stakeholder to better interpret the financials of the business, as opposed to allowing them to develop their own conclusions.

At the same time, you do not want to show too much or too little financial information. Voluminous information will likely go unread. While not providing enough information can result in the investor or lender making incorrect assumptions about the business. If more detail is sought, it can be provided.

By making it easier to understand your business on paper, you are far more likely to get the answer that you want.

Case Study: How we improved investor reporting for a biotech client to increase board meeting efficiency.

#2 Clearly State Objectives

What is the business is trying to accomplish with the external stakeholder? You will have a higher rate of success if you anticipate and address the stakeholder’s questions upfront.

For banks, you need to clearly communicate why the money is being sought from the bank. What are the uses of the funds? For example, oftentimes an expansion won’t just require capital to purchase equipment, but could also necessitate additional staff, office space, etc.

The same applies to investors. Can an investor interpret in a quick read the high-level goal(s) the business is trying to achieve? Also, what are the risks involved for the business?

It is also best to take objections off the table proactively. If new competition is coming to the market, what is your plan to combat it? If opening a new market, what makes you think you can be successful there? Laying out potential obstacles tells the stakeholder that you have thought about them and gives them confidence in your business.

#3 Be Honest and Direct

This can often be the toughest of all. No one likes to share bad news. Far too many businesses choose not to communicate at all when this happens; however, when things are not going as well as planned, this is perhaps the most important time to communicate with external stakeholders. Don’t hide a bad quarter; explain what happened and what you are doing about it. Again, this demonstrates that you have a handle on the business and that there is no cause for undue worry. Every business will experience some hard times, but having your key allies informed and confident in your abilities will greatly enhance your ability to weather the storm.

We Can Help

Presenting financial information in an easily digestible format is essential in communicating with external and internal stakeholders. If you’re seeking an increased line of credit, looking for potential investors or strategic partners, or want to improve your internal reporting to management and/or board members, Signature Analytics can help. Contact us today for a free consultation with one of our CFOs.

As a business owner, if you are asking yourself, “when is the best time to prepare my business for a negative economic impact?” the answer is now.

The coronavirus pandemic has made an incredible impact across our world over the last few months and has caused many U.S. business leaders to wonder this very question. Once the second quarter of economic decline is reported, our country will technically be inside of a recession.

The good news is that you can take steps now as a business leader that will make a positive impact on where to lead your company and weather the storm ahead.

If you sell products like hand sanitizer, toilet paper, and various other home goods, you may be experiencing a record quarter in sales. If your company books travel experiences, however, you might be concerned about paying your bills. No matter which camp you find yourself in, know that almost every company can find a way to be successful and maybe even thrive inside a recession—it just might take some creativity and critical thinking.

Where Do I Start?

When considering what your next steps should be, start asking questions. Consider how your business could benefit from the current market based on the services or products you sell.

The best place to start this process is to review the expert tips below so that you can confidently make decisions that will affect your company.

Mind Over Matter

This saying might be a bit cliche, but having the right mindset when it comes to challenging and difficult times is an essential starting place. It allows you to see the good in situations, find the best in people, and put trust in the decisions you make.

The power of positive thinking isn’t entirely new; Norman Vincent Peale wrote a book about it in the 1950s, and it’s a message that is frequently circulated today. The idea is that by thinking positively, you can achieve a permanent and optimistic attitude.

With this positive attitude, you can be forward-thinking and envision how you want to come out on the other side of the recession. The mindset that you cultivate for yourself today will very likely be adopted by your employees who will take actions to define your company’s future.

Leading your staff with a positive focus on the future can help you make decisions to keep your business alive and maybe even turn a profit.

If you think that your staff is struggling with the work and personal life adjustment COVID-19 is requiring of us, consider establishing an internal mentorship team. Ask for a volunteer to head up this kind of team and try out check-in conversations, productivity task lists, and a lightened workload for those who are struggling. You can read more ideas here.

Liquidity

After you have mentally armed yourself for the road ahead, the first place to look inside of your business is at your finances.

Without cash, it will be impossible to run your business. During a crisis, access to cash will be the most critical aspect of not only surviving but thriving through the recession.

Read More: Part 1: Why Cash Flow Is More Important Than Ever Before

After reviewing your savings and cash flow, you will need to determine if you have enough savings on hand for the next several months. If not, do not shy away from liquidating some of your assets. You can speak with an expert from the Signature Analytics team if you need advice here, but the key will be ensuring you have enough accessible funds to make payments on the unexpected.

There are plenty of other tangible ways to free up cash, such as:

  • building up cash reserves
  • refinancing loans or lease terms
  • looking into private equity or outside investment

If you’d like to dive deeper into this area, be sure to read our blog which covers a variety of liquidity options for your business and do your research to ensure you understand the terms before signing any contracts.

Read More: 10 Liquidity Options for Businesses During COVID-19 Outbreak

Break Into New Markets

It may be that your financials and cash flow are already in a great position. If that is the case, our experts recommend looking to other markets to break into as a next tangible step.

Host a Zoom meeting with your team to discuss any product or service expansion areas. If you already have a concrete understanding of your current market, why not expand your visionary thinking? Once you have a list of ideas, go through the following questions to gain a better understanding of the right opportunities for your business:

  • Where does it make sense for your business to head to next?
  • Is there a need for those products and services in a recession?
  • Will it be something customers will want to spend their money on?
  • Who are the direct and indirect competitors?
  • What advantages do you have over them?
  • Could you potentially acquire a company already doing this idea?

These are just a handful of questions to use as a starting place. We encourage you to conduct as much market research as possible during this exploratory phase to see what makes the most sense for the future of your business.

If you have mentors, you can reach out to those who have weathered an economic storm before, ask them for advice based on their knowledge of your business.

Who Is On Your Team?

If you don’t have anyone to reach out to bounce ideas off of or ask questions to, the team of experts at Signature Analytics is here. Every day we are helping our clients make critical business decisions like these.

While you may have an internal team working diligently to review your finances and accounting, we can work alongside them and aid in supporting your business to flush out any inconsistencies and help drive strategy beyond the numbers. .

This is also an excellent opportunity to look to leadership within your company and ask them to weigh in on the direction you are considering. They will have much insight into if the decision not only makes sense for the future of the company, but if prospective clients will utilize and pay for this service or product.

Read More: When Should You Consider Outsourcing Your Accounting Operations?

Final Thoughts

Remember, the goal isn’t just to get through this time, but to come out the other side with something to show for it. We are looking forward to hearing about how your company not only survived the coming recession, the lessons you learned along the way, and how you hopefully thrived through it.

Read More: How to Recession-Proof Your Business: 7 Tips to Thrive in an Economic Downturn

At Signature Analytics, our company promise is to go beyond the numbers to improve business strategy and help you reach your goals. We encourage you to reach out to us with any questions you have as you navigate this challenging process.

As any good business leader knows, planning for the future is a necessary step to help ensure the company heads in the right direction and reaches success along the way. Now more than ever before, this practice is a necessary step to even ensure its survival. Part of forward-thinking is reasoning through different paths your company could take and visualizing what outcomes would come from those directions.

Being able to draw up a mental picture of this future can enable a leader to make the right choices without spending unnecessary time or money going in the wrong direction. To plan effectively, the best place to start is by creating a plan, a type of financial model, to make predictions on your business’s results over a specific period.

This strategic thinking is what the industry refers to as scenario planning, as Forbes defines “alternate futures in which today’s decisions may play out.” By planning through your scenarios and stress-testing them, you should ultimately end with a clear direction that is best for your business to take. Below, we will walk you through how to scenario plan and then how to effectively stress test your scenarios.

eGuide: What Business Should Expect From Their Accounting Department

How To Start Scenario Planning

To effectively navigate the scenario planning process, you must first create a cash flow forecast to support your business. With your numbers in place, you will be better able to make accurate predictions to take your company in the right direction. We suggest starting here or here to learn more about this process. Once you have a better understanding of your business financials, then you can dive into the three types of models for scenario planning explained below.

Here Are 3 Models For Scenario Planning

  • Original plan – This should be the most straightforward scenario to create, and it utilizes your strategic business plan and budget for the year. The original plan scenario is a jumping-off point for the two scenario types below.
  • Probable case – Given the information you currently have, you should have an expectation for your business’s future. Your expectations could be positive or negative, depending on how you are fairing the current economic climate. Companies with more seasonality should refer to the quarters in the past to draw up a better picture.
  • Worst-case – As the company leader, you know your business better than anyone else. If revenues were to decline and unexpected expenses were to arise, how would those happenings affect your company? The worst-case scenario takes all of the “bad things” that could happen into account, so there are no surprises. Forecasting in this way allows you to take action now so your business can survive later.

Once you have developed each of these scenarios, the next step in the process is to stress-test them to ensure you know what will or won’t work for your company. If you are looking to first dive deeper into each of the individual scenarios, you can read the blog linked below.

Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

5 Questions To Stress Test Your Scenarios

Knowledge is power, and with your scenarios mapped out, you can feel more confident as to the direction your business is headed. However, what happens when the unexpected happens? When what you planned for and accounted for may no longer be valid options? By stress-testing with a few proven fundamentals, you can discover any shortcomings or weak points in your business strategy to ensure it is executed to the best possible ability no matter the pulse of the economic climate. Ask yourself and other company leaders involved in this process the following questions:

1. Who Is Your Ideal Customer?

Knowing your primary customer will allow you to allocate resources the right way without being sidetracked. Earmarking funds to multiple types of customers or clients will result in underperformance and less than ideal service. Your ideal customer may change over time, which is ok, but recognize that it may take restructuring to make this happen. For now, focus on one customer and ensure your scenarios cater to them.

2. Who Do Your Core Values Speak To?

Every company is different, and its core values may speak to clients, employees, or investors. Knowing who your values speak to will be necessary when making one business decision over another and having clear company messaging and direction.

3. Are You Tracking Key Performance Indicators?

Not only is it essential to track KPIs, but knowing which KPIs to follow is also critical. Creating a company scorecard is helpful so long as there are specific variables you are reviewing consistently. We recommend tracking six key performance indicators which you can read more about here. Remember, tracking too many variables will drive out innovation, so go with a less is more mentality here.

4. Are Employees Willing To Help One Another?

To effectively build an organization like a well-oiled machine, all the parts need to work well together. In business, this means that while your employees will have individual goals, they must be willing to help one another to drive strategy, collaboration, and communication, all while working toward reaching company goals.

5. What Unknowns Keep You Awake At Night?

Being scared or worried about the unknown is nothing new—as every business leader experiences these feelings. Take a tip from other failed business strategies, as those leaders made assumptions about the future and were wrong. The business strategy you are working so hard to create will not be a blanket strategy you can use for the lifetime of your business. To be successful, you must continually monitor the uncertainties that you are accounting for in your scenarios. Try and stress-test your scenarios annually to address changes and ensure you are successful in any economic climate. Depending on the industry your business is in, you may need to adjust this timeline more frequently.

Read More: Why You Need Financial Scenario Planning for What Ifs

Final Thoughts

Remember, scenario planning alone will not help you find an effective strategy for your business. Strategically thinking through and testing your plan to see where the weaknesses and strengths lie will be vital to come to the right decision. Even after all this planning, remember that life can still throw some unexpected curveballs (COVID-19 anyone?), and adjusting to those unforeseen circumstances will be necessary. While this may feel like a lot of information, this is just a starting point.

If, at any point in the process, you or your team feel overwhelmed with financial reporting, business strategy, defining your KPIs, or need some guidance when facing the difficult business decisions that lie ahead – please reach out to our team of experts.

eGuide: What Business Should Expect From Their Accounting Department

The Signature Analytics promise is to help with all of these areas and go beyond the numbers to improve your business performance and assist you in achieving your goals. Contact our team of experts for business and financial analysis and any other questions you may have during this challenging time.

Resources: https://www.smestrategy.net/blog/what-is-scenario-planning-and-how-to-use-it https://hbr.org/2010/11/stress-test-your-strategy-the-7-questions-to-ask


Do you know your numbers?

News headlines involving embezzlement, fraud, data breaches, and other scandals may have you nervous, especially during the current economic climate. “What is happening within my organization?” might be a thought regularly occurring in your head. After all, fraud is one of the most common ways that companies lose money.

To protect your business from fraud, you must continually evaluate internal controls. These protocols help keep a business safe from specific types of company risk.

Incorporating internal controls can ensure the effectiveness and efficiency of operations and support reliable reporting.

Read More: This Is How To Protect Your Company From Employee Fraud

These Internal Controls Can Protect Your Company

According to the Association of Certified Fraud Examiners (ACFE), organizations can reduce the impact of fraud by pursuing internal controls and policies that actively detect fraud. Some examples may include management review, account reconciliation, and surveillance/monitoring.

Here are four other simple and straightforward internal controls for your company to consider:

1. ACH Payments
Do you have a custom signature stamp for your office? If you do, we advise against this option. Even if you keep it locked up or only allowed specific employees to use it, there are still issues with this kind of system.

A better option is to implement an electronic system such as Automated Clearing House (ACH) payments. By sending payments through ACH, businesses can use fewer resources than traditional paper checks, and they can more easily track income and expenses with electronic records.

eGuide: What Business Should Expect From Their Accounting Department

2. Separation of Powers
Separation of powers is as crucial to your business as it is to the government. When one person has all the power, the system is likely to fail. Just like a system of checks and balances, having dual control in place is ideal for any business.

One employee can be responsible for setting up ACH payments and wire transfers, while another employee can be responsible for approving these numbers.

Reviewing and catching critical errors is a vital part of this process. If there is oversight by more than one person, the possibility of theft and fraud significantly decreases. When dual control is in place, the system can often be effective in combating asset misappropriation.

By practicing the separation of powers, three main functions are able to occur:

1. Custody of assets
2. Authorized use of assets
3. Record keeping of these assets

It might seem that having two employees dedicated to managing assets is overkill for your small business. While it might be challenging to achieve, it should be implemented whenever possible to improve the overall performance of the organization.

3. Single User/Password
Every day you and your employees access websites to conduct business as usual. Many companies share one login to their bank, accounting software, credit card, and other financial accounts. Where do you store your vital login information? In a spreadsheet? On your phone? Printed out and next to your computer?

Either way, these are not secure ways to save your password information. These logins are so easy to hack and steal that it is up to your company to protect itself.

Make sure each user/employee is set up as an authorized user, and you can set the rights for each person. You can also research inexpensive and secure apps or websites to hold your logins, ensuring that the hacking rate drops significantly. When people leave the organization, make sure to delete the username and change common passwords.

4. Expense Reimbursement
Implement a process for all employees to follow regardless of hierarchy. Make sure to have an annually updated policy and require receipts/invoices over a certain dollar amount.

If you have corporate credit cards, you can utilize merchant category codes to restrict the types of goods/services for which they are used. For more information on this process, you can reach out to your card company for assistance.

Read More: The Three Main Internal Controls for Accounting and How They Protect Your Assets

How Should Internal Controls Be Implemented?

Has your business ever completed an internal control audit? If not, this is a great place to start. By completing an audit, the effectiveness of any current controls is tested, and the audit can also highlight weak points for the company.

When your organization takes part in an audit, there are essential processes and paperwork that need to be reviewed by a CPA. Having a set of eyes outside of your organization can be vital to the success of this audit.

While it might require preparation and a lot of documentation, the result will provide your organization with information that is consolidated all in one place, making it easy to access financial reports and statements in the future.

The implementation process itself can be quite an undertaking for a company to manage itself. For this reason, we recommend you find an expert to take on and manage this audit.

eGuide: What Business Should Expect From Their Accounting Department

How Often Should Internal Controls Be Updated?

All of your company’s internal controls should be updated yearly. One easy way to remember to do this is to make it part of your annual shareholder meeting where the control details can be documented and voted on.

While these are examples of simple internal controls to implement, the Signature Analytics team of experts can make recommendations based on your industry and the nuances of your business.

If you need assistance, please contact us to have internal controls set in place or feel free to ask us any other accounting and finance questions.

 


 

Discover how outsourced accounting can provide more visibility into your business

The onslaught and massive outbreak of Coronavirus causing COVID-19 in the last two months has caused the world to turn upside down. Economies have tanked and the DOW has seen the most highs and lows since the 1930s. In this blog, we provide a breakdown to support:

    • The current state of affairs given COVID-19
    • Key things we learned from the great recession and what we can apply today
    • The official definition of a recession and are we headed there?
    • And 10 tips to consider to get through this and come out on the other side

Prior to COVID-19, Economists around the world had been warning that another recession was possible in late 2020. Along with those warnings, there have been many articles to suggest businesses should start preparing given the looming economic downturn. While Economists might feel somewhat vindicated, most (if not all) were definitely not prepared for a downturn of this magnitude.

To say that a coming recession wasn’t written on the wall would be inaccurate. Forbes reported back in January that there were causes for concern for 2020 being a recession year. The two significant indications cited included:

  • an inverted yield curve in 2019
  • slow growth in the manufacturing industry

When on the lookout for a recession, the unemployment rate is another major area to consider. In February, the U.S. Bureau of Labor Statistics noted the unemployment rate was at 3.5% or roughly 5.8 million people.

The Los Angeles Times just recently reported in late March 2020 on California’s numbers citing, “The state’s Employment Development Department processed 186,809 claims for unemployment benefits last week, up from 57,606 the week before… The total last week was 363% higher than the number of claims processed during the same week last year.”

In an article from March, Forbes reported that this is the quickest peak to bear market in history. The decline only took a record 22 days.

With all of these statistics and influx of information coming to light, indicators make it seem that the United States is on its way to entering another recession. However, it requires two consecutive quarters of economic decline to meet the technical definition of a recession, and only the experts can officially declare we are in one.

With what seems like mostly all bad news, we wonder if there is anything hopeful we can latch on to for the future?

International Monetary Fund Managing Director, Kristalina Georgieva, released a statement following the G20 Ministerial Call on the Coronavirus Emergency where she said, “First, the outlook for global growth: for 2020 it is negative—a recession at least as bad as during the global financial crisis or worse. But we expect recovery in 2021.”

If we know going into this period that there is a light at the end of the tunnel, we can have the stamina to survive. Looking back at our last recession can provide some learning lessons too.

What We Learned From The Great Recession

Remember the story of Lehman Brothers? Before the 2007 recession, Lehman was the fourth-largest bank in the U.S.

Since its inception in 1850, Lehman had weathered many economic changes. The company survived the Great Depression, two world wars, and the near-collapse of hedge fund Long-Term Capital Management in 1998. But Lehman’s rush into the subprime mortgage market proved to be its downfall. To make matters worse, the bank paid little heed to the signs of the oncoming Great Recession. Lehman was still confident about the firm’s record revenues even in March 2007 as the market was beginning to collapse.

Five months later, as the credit crisis took hold, Lehman’s shares took a sudden dive. Throughout 2007, Lehman had underwritten more mortgages than any other financer, leading the firm to accumulate a portfolio of around $85 billion. In the fourth quarter of 2007, despite the cracks in the housing market, Lehman’s stock briefly regained buoyancy.

However, the company failed to cut back its mortgage portfolio while it had the chance, and it would never have the opportunity to do so again. On September 15th, 2008, the firm was forced to declare bankruptcy, wiping out more than $46 billion of its market value.

The greatest thing Lehman Brothers ever did was go through this experience to be a learning lesson for future generations. We can confidently say, don’t be like Lehman. Take actionable steps now for the oncoming recession to protect the future of your company. The first step is educating yourself and the other financial leaders of your company on what an economic slowdown truly means.

What is an Economic Recession?

As we mentioned earlier, an economic recession is defined as two consecutive quarters of negative economic growth. It is usually accompanied by a significant drop in the stock market, increased unemployment, and a slump in the housing market. Some factors for a recession include:

  • Falling interest rates
  • Rises in bankruptcies, defaults, foreclosures
  • Falling assets and dip in stock market
  • Reduced wages and rising in unemployment
  • Reduced consumer spending and confidence

Some recessions occur back-to-back, while others may occur up to ten years apart. Since World War II, recessions have lasted, on average, for eleven months each. A notable exception was the so-called “Great Recession”, which occurred toward the end of 2007 after the housing bubble burst and lasted for 18 months.

Fast forward to today, and we are faced with what individuals are already considering a recession. Technically, the committee who decides these matters could not formally state we have hit a recession until two quarters have passed.

Until then, we must consider how to forge ahead of this impending hardship. If you want your business to survive the next economic downturn, you will need to take tangible steps to make it recession-proof. Here are some ways you can protect your company from tough economic times that may be coming.

10 Tips to Recession-Proof Your Business

So, with a recession on the imminent horizon, where does that leave businesses today? Planning for your company’s future seems impossible in these times of uncertainty. What we do know is that an economic recession can wreak havoc on business leaders, companies, employees, vendors, and customers.

These are the ten tips our team of experts has compiled to help you navigate through these uncertainties:

1. Financially Prepare for a Downturn Before It Happens

Whether now or in the future, don’t wait for the first signs of a recession before you start to do something about it. By then, it may be much too late. If you don’t have a strategic financial plan, it’s time to get one.

Your strategic plan will help you understand how financially sound your company is today, so you can start saving to weather the next storm.

If you already have an updated financial plan, it’s time to start building a cash reserve. This may be the most crucial step you take. Start saving money in a bank account. Consider building enough reserve cash to cover at least six months’ worth of essential business expenses. Doing so will help you to sustain your company, and the longer you can maintain your company through the recession, the more likely you are to survive in the long-term, through good times and bad.

And if you’re unable to do this now, keep reading below.

Read More: Download our Strategic Budgeting eGuide

2. Develop a 13-Week Cash Flow Forecast

When faced with the unknown, the best way to set your company up for success is with an actionable plan. The critical steps here are to understand where your incoming cash is coming from, how much of it you are receiving, and how it is spent.

Having a grasp on this information can help to visualize the future from a cash perspective. Creating a 13-week plan will allow company leadership to account for all money, make adjustments where needed, and see where to adjust strategically. Be sure to review this document weekly.

Read More: Part 2: Actionable Advice from Our Founder to Improve Your Cash Flow

3. Scenario Planning

Preparing for an uncertain future is possible with tools like scenario planning. Taking a few different visions on what your company’s future could look like enables you to think through those possibilities and understand which outcome best sets up the business for success.

The three main scenarios to plan through would be the original plan, the probable plan, and the worst-case plan. As a business leader, working through each of these scenarios can bring forth thought driven data that should put forth solutions better than any reactive, gut feelings you might have during stressful situations.

Read More: Your Guide To Financial Modeling and Scenario Planning

4. Talk To Your Bank Today

Taking control of your finances today might be the single most crucial step you can make for your business. By proactively communicating with your banker and setting up a conversation with them, you are illustrating that your company is reliable.

You will first want to stay informed on how the bank currently views your business in three areas.

Ask which loans have been downgraded and what industries are being impacted the most. Is your sector secure or not? Honest conversations like these can help you understand how the bank will treat you going forward.

Ask about your business’s risk rating. If the bank decides to downgrade your loans, they will receive a higher risk rating, which ultimately means the bank will try and pass along costly expenses to you if you’re forced to leave the bank.

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

In that same vein, you will want to maintain good credit. If you are asked to leave the bank and need to find another one, a high credit score is essential to borrow money. If you maintain good personal and business credit, you stand a much better chance of being able to take out a loan when you need it most.

5. Know Your Liquidity Options

One of the most important aspects of your business is its liquidity. It’s critical for paying employees and company bills, but it’s also crucial if you are conducting scenario analysis to help with decision making at your company.

There are many options to choose from when it comes to freeing up liquidity. Your best bet right now is to take advantage of special government programs that have been developed during the COVID-19 outbreak. Other options can range from alternative financing solutions, to using business assets, or even considering private equity investors who can give you cash in return for a partial stake in your business.

Don’t be afraid to think outside of the box and to negotiate for the best possible terms and options. To get ten more liquidity tips, be sure to check out our recent blog below.

Read More: 10 Liquidity Options for Businesses During COVID-19 Outbreak

6. Communicate With Your Vendors

With the current state-of-affairs, we do not know when things will get back to “normal.” If you’re lucky, your business and customers have not been affected at all by COVID-19. What’s more likely is you have. The question to be asking is, how has the Coronavirus impacted your company?

The only way to answer this question is through communication with your vendors and your customers to be sure your cash-flow is not compromised. Start by reviewing your contracts, then talking to your clients and customers. Analyze where the risks are and make decisions from there.

Obtain a full understanding of the bigger picture and create a strategic plan to maintain positive cash flow.

Read More:  The Importance of Proactive Communication & Talking to Your Vendors In This Crisis

7. Strengthen Your Customer Relationships

Your customer base is the most significant source of income. You can’t afford to lose them, especially during a recession, so make them your number one priority. Now is the time to make sure that your customer service is the best it can be. This will give you a higher chance of retaining your current customers and attracting new ones, even during a recession.

Show your customers they’re a priority by adapting your products and services to suit their needs better, as well as offering them incentive programs. During a recession, it’s more important than ever to keep your customers loyal by providing excellent after-sales service.

Read More: Determining Profitability Within Your Business: Analyzing Profits by Employee, Product and Customer

8. Master What Your Company Does Best

When you’re preparing for a recession, don’t stray away from your strengths and start something new.

Diversifying your business is not necessarily a bad thing, even if your company is small. But adding on products or services just to try something new isn’t a good way to protect yourself from an economic downturn.

Experimentation is making you more vulnerable. Instead, analyze the industries of your customers. If you have a decent number in recession-resistant sectors, focus on catering to their needs. How can you save them money, or even better, time? Can your services alleviate something on their plate that will give them peace of mind knowing you are handling it?

Focus on what your company does best and do it even better. This will ensure that you will have a stable foundation when the economy shifts.

Read More: Challenges of aggressive growth and how it can destroy your business

9. Beat Out the Competition

Not every company within your industry is going to ride out a recession. Make sure your company is the one that does.

To gain a lead on your competition, you will first need to research them. What areas are they outperforming you, and how can your company step up to the plate? Doing your research now can save your business in the long run.

With your out-of-the-box thinking, you may need to bring in the help of some automated software to help you drive more leads. Spending a little money now can help secure an active pipeline of good prospects in the right industry to carry you through the recession.

Implement more robust strategies into your business and hone them until they become second nature. Go beyond expectations and offer products or services that they don’t have on hand. During an economic recession, this will put your company ahead of your competitors in the eyes of your target market.

10. Don’t Let Marketing Fall Through the Cracks

It’s always good to review your marketing practices from time to time. If you’re expecting an economic downturn, it’s even more critical. Most companies will cut back on their marketing, creating an opportunity for you to gain more brand awareness and stand out from the competition.

In a recent article from Entrepreneur.com, the idea of perfecting your copywriting was a critical aspect of upping your marketing game. As more remote work is being implemented to cut down on social distancing, more individuals are looking for research and data on the novel Coronavirus. This creates an opportunity for your company to leverage its marketing materials, copy on the website, advertisements, and social media, and gain more engagement from your audience. Persuasive copywriting is the only way this can happen.

Brainstorm with your team other ideas to boost sales and maximize how you use your marketing dollars for the future. Identify your competitive advantage – what separates you from your competitors – and develop a unique selling proposition to push your company’s unique qualities.

Another idea is to productize service-based businesses. If you’re a service, identify how to productize some of what you do. Keep things simple to start and pick one area of focus. Products come in all shapes and sizes, from digital SaaS products to courses, to e-books, to anything that can be purchased and paid for online. Products can bring in additional sources of revenue, and if the customers are happy, they can drive word of mouth sales as well.

These strategies will help to keep your customers loyal through an economic recession while ensuring that you are making the most out of your marketing budget.

11. Bonus Tip from Chief Outsiders

Chief Outsiders recommends launching new offerings to help capitalize on delivery services to your clients in fresh ways. This could be through virtual offerings, digital assets like teaching, training, or coaching, free or limited subscriptions, or other services you can provide. Finding unique and creative ways to meet your clients where they are can keep your business on their mind while supporting them in their new work environments and compiling with government-mandated behavior.

Final Thoughts

Although we can’t be 100% certain that the Coronavirus will lead the US into a proper recession, it’s essential to prepare now. Don’t be caught off-guard in the event of an economic downturn.

While nothing can guarantee your business will make it through a recession, strategic planning can help to give you a fighting chance and may help you keep your head above water while your competitors may sink.

Need help taking the steps to recession-proof your business? Our team of experts can help! Contact us when it is most appropriate for your organization, and we can help give your company a fighting chance to ride out the looming economic storm.

As COVID-19 continues to impact the global economy for the second month, we still have more questions than answers.

We still don’t know how long we’ll need to maintain social distancing to halt the spread of the virus, nor how long entire industries will be shut down. We also don’t know how the actions we take to preserve public health will impact the global economy in the months — and perhaps years — to come.

What we do know is that taking control of your company’s cash flow is more important than ever to ensure your business survives the storm. Whether your business is currently in crisis-mode or has a large rainy day fund, we recommend all companies review their financial situation and make strategic adjustments to navigate the rough waters ahead.

In Part 1 of this series, we explored why your cash flow is even more critical now, and strategies you can take if you lack the cash flow to minimize the damage to your business. If you missed it, you can read it here.

For Part 2, we’re sharing how the Signature Analytics team is working with our clients to be sure they have full visibility into their financial situation, spot any risks, understand all available options and make strategic plans for the future. Read on for actionable advice your business can use to take control of your cash flow and position yourself for future success.

Read More: How to Recession-Proof Your Business: 7 Tips to Thrive in an Economic Downturn

Develop a 13-Week Cash Flow Forecast

The first step in facing an uncertain future is creating a plan. You’ll need a thorough understanding of how much incoming cash you can expect for your business, and how much your organization is spending. You’ll also want to prioritize your accounts payable in case of an emergency.

We recommend that every business immediately create and follow a strict 13-week plan — regardless of your current financial situation. This 13-week cash flow forecast will account for all expected revenue and expenses for the next quarter, and give your company’s leadership the visibility it needs to make strategic decisions. Your team should review the forecast weekly and make adjustments as necessary.

Even if you intend to apply for a disaster relief program, your expenses are continuing to build daily. You might also find yourself waiting several weeks until those funds become available. Having that critical visibility into your cash flow situation empowers you to make the strategic decisions necessary to keep your company in the best possible shape through this uncertain time.

Plan for Various Scenarios

Just as it’s critical to understand your company’s cash flow situation, it’s just as important to understand what to do with that information. Scenario planning is exactly what it sounds like — a detailed gameplan for what to do, should your circumstances change.

As you create your plan, we recommend focusing on each of these scenarios:

  1. Your original plan – This is the plan you sketched out in advance, based on your anticipated revenue and budget.
  2. A probable case based on current data – Based on the information you have today, this scenario represents what’s most likely to happen to your company
  3. The worst-case – Should your company face an extreme disruption to revenue, this plan will guide you through the challenge.

When you’re determining how your business will operate through COVID-19, your plan should consider both near-term and longer-term responses. Forbes notes that this crisis will have four distinct phases: Awaiting the impact, withstanding the impact, returning to normal, and sorting out the new industry dynamics. As you create your gameplan, consider each phase of the cycle.

In the weeks to come, as your company awaits and withstands the impact of COVID-19, you may need to implement layoffs or furloughs or consider any tax credits available. How will each option impact your cash flow in the short-term?

If those weeks turn to months, you’ll need to consider how each of those options will impact your business beyond the balance sheet, and adjust your plans accordingly. You’ll also need to think about how much of the pent-up demand will return, and how your industry might change as companies get back to business as usual.

Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

Communicate With Your Bank

We cannot stress the importance of proactive communication enough. Regular updates build trust in your organization and keep your employees, customers, and strategic partners in the loop on what to expect from you.

While you’ve probably already crafted a plan to communicate with your employees, customers, and vendors, there’s one strategic partner you might have overlooked — your bank.

Proving your business is reliable will cement your bank’s trust in your organization, which can help you gain their support in this time of crisis. Craft your communication plan by thinking of these four key areas:

  1. Stay informed – Understanding the issues your bank may be facing will give you a stronger perspective into how the institution will react.
  2. Keep your paperwork up-to-date – Being transparent with your bank, even if your financials are not where you’d like them to be, will build trust in your company. As you review your 13-week cash flow forecast, consider sharing this with your bank to show your company has a plan to navigate the crisis.
  3. Proactive communication – Most business loans have a default clause that allows banks to consider insecurity to be an event of default. This means that if your bank has any doubts about your ability to repay your loans, it can demand immediate repayment. Keeping your bank informed about your situation and operating with transparency will keep your financial institution from becoming insecure about your ability to repay loans.
  4. Modify existing finance terms – If your business is facing a cash flow crunch, you may benefit from modifying your existing payment agreements. Be prepared to present your case, show documentation to show your financial situation, and provide a 12-month budget to show how your company will continue to pay its obligation.

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

Review Any Government Relief Programs Related to COVID-19

As a response to the crisis posed by COVID-19, the federal government implemented new programs aimed at cushioning the virus’s impact on businesses and workers. If your business needs support, consider the following programs.

CARES Act

The CARES Act is probably the most well-known piece of legislation in response to COVID-19. While the details of how relief funds are still being worked out, here are a few key highlights of the bill:

  1. Direct payments to American who pay taxes
  2. Unemployment program increases and expansion
  3. Use of retirement funds without penalty up to 100,000
  4. 401k loan limit increase from $50k to $100k
  5. IRAs and 401ks required minimum distribution suspended

For businesses, the CARES Act includes the following key provisions:

  1. Payroll tax defermentUnder this law, employers can delay paying their 2020 payroll taxes, and instead opt to pay over the next two years.
  2. Small business relief – This law dedicates $350 billion to prevent business closures and layoffs during the social distancing period. The federal government will provide up to eight weeks of cash flow assistance to help companies with less than 500 employees keep their workers. If companies meet the requirement by maintaining their payroll, portions of this loan would be forgiven.
  3. Large corporation relief – For companies with more than 500 employees, the federal government will dedicate $500 billion to provide loans, loan guarantees, and other strategic investments with oversight from the Treasury Department. Unlike loans available to small businesses, these loans will not be forgiven and repayment cannot last longer than five years.

Small Business Association Disaster Relief

The CARES Act includes $350 billion dedicated to helping small businesses mitigate the effects of COVID-19, which makes it worthy of detailing further. We know that at least 220,000 applications have already been submitted just days after the program launched. Now, Treasury Secretary Mnuchin has requested another $250 billion to be dedicated to the program to help support the growing demand. If that additional money is granted, businesses must meet the following criteria to be eligible:

  • Small businesses with less than 500 employees affected by COVID-19
  • Companies larger than 500 employees that meet the Small Business Association’s industry-specific size standards
  • Hospitality and food-industry businesses that have multiple locations may also be eligible if individual locations employ less than 500 people.

This federal program provides four critical areas of relief:

  • Paycheck protection – Designed to help companies keep their employees on the payroll, this program offers loan forgiveness if all employees are on the payroll for eight weeks, and the money is used for payroll, rent, mortgage interest, or utilities.
  • Emergency cash advance – For companies experiencing temporary difficulties, this program will provide up to $10,000 of funding that won’t have to be repaid.
  • SBA bridge loans – This provision provides up to $25,000 for small businesses that have an existing relationship with an SBA Express Lender.
  • SBA debt relief – Businesses that have existing SBA loans are eligible for automatic deferral and/or payment of principal, interest, and fees for eligible loans.

Specific eligibility requirements for each of these areas is available on the U.S. Small Business Association website.

To apply for these programs, visit the SBA website and check the requirements. Some require you to fill out an application directly from the website, while other programs will refer you to specific lenders for assistance.

For applications on the SBA’s website, you’ll need to provide detailed information on your company, including revenue, losses due to COVID-19, and bank information on where to send the funds.

As the COVID-19 crisis continues to unfold, new support is becoming available daily. Even if you’re not sure that your business has suffered “substantial economic injury,” we recommend applying proactively to ensure those funds are available to you when and if you need them.

Analyze Operations for Risks and Cash Impact

Once you have a thorough understanding of your business’s cash flow situation, it’s time to take a closer look at any potential risks and how they may impact your cash flow. We recommend starting by focusing on these three areas: revenue and expenses, supply chain, and employees.

Supply Chain Risks and Cash Impact

As businesses and governments look to mitigate the economic impact of COVID-19, analyzing your supply chain has never been more important. To make sure you’re delivering the best possible product or service to your customers, you’ll need to know how reliable your supply chain is.

For example, consider how the crisis impacts your key suppliers. Will they be able to reliably supply the resources your company needs? Are any of your suppliers at risk of disruption — or worse?

To mitigate any potential supply chain disruptions, we recommend communicating with your partners early and plan for any cash flow impacts.

Employee Risks and the Cash Impact

For many companies, their most significant expenses are tied to employees. Whether it’s payroll, office perks, or discretionary spending, expenses related to labor are often the first to cut when times get tough. Of course, this doesn’t mean you necessarily need to reduce staff right away. Consider these tips to cut costs:

  • Reduce travel costs and non-essential meetings
  • Impose hiring freezes
  • Cut discretionary spending, like happy hours or training conferences
  • Shift work from contractors to permanent employees
  • Implement furloughs or voluntary unpaid leave

Revenue and Expenses

If you’re not already creating detailed revenue and expense reports, now is the time to start. As you review your reports, pay special attention to customers who may stop using your product or service. We also recommend looking for other expenses you can defer in the event of a cash flow crunch.

If you need additional support in this area, Signature Analytics can help your team by providing:

  • Operational Accounting Support
  • Technical Accounting & Reporting
  • Actionable Financial Analysis
  • Financial Consulting
  • Cash Management and Forecasting

Whether you need help with basic accounting or higher-level analysis and strategic planning, our expert-level team will look beyond the numbers and provide the support you need to navigate the current period of economic uncertainty. Reach out today to discover how Signature Analytics can position your company for brighter days ahead.

As COVID-19 rampages through the global economy, many businesses are trying to weather the storm. Several businesses have shut their doors in the name of public health, and others that remain open have seen a staggering drop in revenue as their former customers stay home. For others, some businesses have been able to quickly adapt and are even booming.

Nobody knows just yet how long this crisis will last, which leaves many businesses vulnerable. Even companies with solid disaster plans are finding themselves caught off-guard by the sudden and massive economic disruption. For business owners looking for guidance, the best thing you can do to survive a crisis is to take control of your cash flow — if you run out of cash, your business fails. It’s that simple.

If you find your business in crisis, there are steps you can take to minimize the damage. Analyzing your current situation, optimizing your payments, and reducing your cash to conversion cycle are three ways you can help your company make it through this uncertain business cycle.

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

Know Where You Stand

Understanding the full picture of your current situation is critical for managing your company’s cash flow. Start by reviewing your expenses, such as payroll and benefits, marketing costs, research and development, cost of goods sold, and any other general expenses.

Next, track the timing and amounts of cash inflows and outflows. Cash inflow happens when you get paid from customers purchasing your product or service, loans and borrowing, and asset sales. Cash outflows are payments you make, such as payroll, facilities expenses, and payments on debts.

Then, take a look at your bank balance and get the answers to the following:

  1. How much cash is in your account?
  2. Are you expecting any accounts receivable in the next week?
  3. How much is due for accounts payable?
  4. Are there any outstanding payments that haven’t cleared?

Conversely, if you are one of the businesses is weathering the storm successfully and experiencing high growth as a result, we still can’t stress the importance of knowing and understanding where your cash is flowing in and out of your business. If this goes unmanaged properly with the right processes and controls, you can find yourself in a challenging situation, especially as the banks become more conservative.

Review Reports Weekly

After you know your company’s cash status, the next step is keeping tabs on your financial situation with regular reporting. Consistent and accurate reporting gives you visibility to forecast future revenue and ultimately improve profitability.

If you typically generate monthly reports, consider shortening the duration to weekly during a crisis. The more often you review the numbers, the faster you can react to any swings in the market.

Look at your income and cash flow statements to create a projection, and combine this with key metrics from your balance sheet, such as:

  • DIO (days inventory on-hand)
  • DSO (days sales outstanding)
  • DPO (days payables outstanding)

Next, take a look at your expenditures. Record the amount your company pays for capital expenditures, debt repayments, and other operating expenses. As you’re recording this information weekly, pay special attention to how actual results differ from your projections. Analyze the differences and use your findings to refine and improve the accuracy of your forecasts.

Get a Handle on Payments

Your business has both short-term and long-term obligations that impact your cash flow. Short-term commitments are what keep you operating each day, such as payroll and inventory. Long-term commitments are typically capital investments and debts.

As you review your weekly reports, make sure your incoming funds exceed your outgoing obligations. If they don’t, look for ways to cut your expenses. Having funds that exceed expenses will ensure your otherwise profitable business has the cash on hand it needs to handle this and future crises.

Triage Accounts Payable

If you’re struggling with cash flow, the first order of business is to limit the amount of cash that goes out the door. Review your accounts payable and determine which invoices are most important.

Pay your invoices in order of priority, with the most critical payments going out first. Next, communicate with your vendors and try to negotiate new payment terms. If you’ve been a loyal client, you may find your vendors are willing to extend some flexibility.

Maximize Accounts Receivable

In addition to increasing sales, you can optimize your accounts receivable to boost your short-term cash flow. If you send out invoices on a set day each month, try sending them out early. Even if your payment deadline remains the same, your customers may wish to send in their payments in advance — adding an infusion of cash.

Another option is to encourage your customers to pay early. Consider creating incentives for early payment, such as a credit for future months or extra services.

You could also turn to technology for help. By delivering invoices electronically, you can shorten the time between billing and collection. You may also want to implement a vendor portal, which gives your vendors electronic access to view their invoices, make payments, and it streamlines communication.

As a bonus, new technology solutions also typically provide timely and robust reporting that arms you with the information you need to proactively resolve delinquent accounts or take full advantage of any discounts.

Optimize Operations

After reviewing your accounts payable and accounts receivable, look for efficiencies within your finance department. Implement new practices to reduce error rates on invoices and make sure collections are followed up upon promptly. Your team should also make sure you’re receiving all available volume rebates and trade spend initiatives.

Regularly review your supplier contracts and look for opportunities to negotiate more favorable terms and rebates. Benchmark your agreements against others in the industry and make sure they meet established standards.

Streamline Your Cash Conversion Cycle

Businesses with strong cash flow management policies and procedures in place typically have a shorter cash conversion cycle (CCC). The longer your CCC, the more working capital you’ll need to manage your operations. The shorter the CCC, the more manageable your cash flow through current operations.

Knowing this number will help you understand how long it takes to bring in cash. Knowing where you stand is the first step to improving your situation.

To calculate your CCC, use this equation:
Cash Conversion Cycle (CCC) = DIO (Days Inventory Outstanding) – DPO (Days Payable Outstanding) + DSO (Days Sales Outstanding)

One of the fastest ways a company can reduce its cash conversion cycle is to turn over inventory faster. It’s simple math. The quicker a business sells goods, the sooner it receives the cash influx from sales. Analyze your accounts and product offerings to identify products and services that aren’t profitable and reduce any slow-moving or obsolete profits so you can reduce your inventory.

For items you plan to discontinue, consider cutting your losses — even if it means selling them at a substantial discount. Selling these items at a loss will still bring in cash that can help you through a disruption.

You may also consider adopting a just-in-time strategy for inventory management. With this approach, supplies are delivered as they’re needed, instead of weeks, or even months, in advance.

One word of caution: If you’re adjusting your supply chain strategy, consider the cash-flow implications before making any changes.

For example, if your company sources products from low-cost countries, your price may be lower on a per-unit basis. But, you may also need to purchase a higher volume or stock up earlier to account for longer shipping time.

If you switch to a more local supplier, you may pay more on a per-unit basis, but you can purchase a lower volume of product on an as-needed basis. The ideal strategy depends on your company’s unique product mix, clientele, and financial situation. Make sure you understand the implications of each approach to make a more informed decision.

Make It Through Uncertain Times

How your business makes it through the COVID-19 crisis depends directly on your cash flow. Understanding where your business stands, streamlining your accounts payable and receivable, and reducing your order to cash cycle will give you the best possible chance you have to make it through these uncertain times.

If you need additional help with cash flow management, including developing detailed financial projections, reducing your order-to-cash cycle, or strategic disaster planning, contact Signature Analytics.

Read More: Why You Need Financial Scenario Planning for What Ifs

Our team of accounting and finance experts has a wealth of knowledge and experience in a variety of industries so that we can provide the best level of expertise and service to support your business during these trying times.

As COVID-19 spreads across the globe, bringing with it shelter-in-place orders, shuttered businesses, and widespread economic uncertainty, many businesses are operating in crisis mode.

Nobody knows whether we’ll be back to business as usual by summer, or if the effects will ripple through the economy for a year or more. But there are steps you can take to keep your business solvent in the coming weeks and months.

  • Step 1: The first step to weathering the storm is to take control of your cash-flow situation. And do it now. After all, if you don’t have enough cash to maintain your operations, your business fails.
  • Step 2: Ask yourself, but what happens after that? Not only are businesses unsure of their day-to-day operations, but it’s also unclear how their supply chains and clients are handling the disruption.
  • Step 3: Find out if will you still be able to receive the supplies you need for your operations. Are your customers cutting back on your product or service as they create their crisis plans?

The only way to gain a better understanding is through proactive communication. Reach out to your vendors and customers to understand the issues they’re facing. Knowing the effects on your partners will help you get ahead of problems, understand the impact on your market and supply chain, and position your business to alleviate some of their challenges.

Here we have created a tangible guide on what to ask your vendors and customers, and what steps you should take to preserve your cash flow and secure your business.

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

Review Vendors and Contracts

The first thing to do is to review your vendors and take action to preserve your cash flow. Make a list of each vendor you work with and determine which partners are essential — and which are not. Next, review all of your contracts and agreements to find the payment terms for your major vendors, suppliers, and other expenses.

Once you know which vendors are essential and the payment terms of your contracts, it’s time to make a plan. If you’re amid a cash flow crunch, use the list you created to determine how you’ll manage your accounts payable.

From there, prioritize payments to your major suppliers and vendors, because these people will keep your business open. For non-essential vendors, slow payments to prevent valuable cash from going out the door. If you’re struggling to pay vendors, the next step is to negotiate payment terms. Talk to your key vendors and explain your situation. If you’ve been a long-term partner, you might find that they’ll offer you flexibility. If your vendors are struggling with their cash flow crisis, they may be willing to take partial payments or negotiate another arrangement to bring cash in the door.

When it comes to expenses such as office leases and facilities, reach out to your building’s owner or property manager to proactively offer a payment plan that aligns with your adjusted cash flow. By communicating potential issues in advance, your landlord will be more confident that they will continue to receive payments — and preserve their cash flow. If you need help structuring a payment plan or working with property managers, a real estate broker can assist.

Learn How COVID-19 Impacts Your Vendors

As you talk to your vendors and make plans to preserve your cash flow, find out how the virus is impacting their businesses. To minimize disruption, assess whether your vendors can continue to provide service, at what level, and for how long. If you’re not entirely confident that your vendors can continue to supply critical goods or services, it’s time to create a contingency plan.

If your business is in a strong position to endure the economic downturn, look for opportunities to increase your revenue after the crisis. A profitable acquisition for your company could be subcontractors or other partners who are struggling to make it through.

In addition to understanding how Coronavirus is impacting your vendors, be proactive about the effects your business is facing. Tell them how your company is handling the virus, how you’re affected, and any other relevant information. Just as your vendors impact your cash flow, your business impacts their cash flow. Being proactive and upfront with your status creates goodwill, but more importantly, gives your partners information to forecast their revenue and devise contingency plans.

Read More: Why You Need Financial Scenario Planning for What Ifs

Know Your Market: Talk to Clients and Customers

Your vendors are not your only priority. Reviewing your clients and customers is critical to find potential risks to your cash flow. Evaluate your key accounts and determine who may be likely to cancel or delay their orders or service contracts. For those who may be at risk of cancelation, reach out to those clients about delaying or pausing service. While your cash flow will still be impacted in the short-term, delaying contracts makes it more likely your business will recover in the long-term.

Additionally, consider restructuring the payment terms of your contracts or working with your clients to create other short-term solutions. When it comes to maximizing your emergency cash flow, maintaining some level of accounts receivable is still preferable to none at all. When business returns to normal, it will be easier to resume payment from clients who pause or modify their payments than it would be to repeat the sales process.

Learn How COVID-19 Impacts Your Clients

After you’ve analyzed which clients are the most affected, learn how the virus is affecting the rest of your customers. In particular, determine which clients may struggle to make on-time payments. Proactively work with them to create a plan that benefits both of you. Negotiate payment plans that encourage payment instead of default — even if that means a short-term delay.

For those clients who are in a strong position to navigate the crisis, take advantage of their position to bolster your cash flow. Send invoices earlier than you typically do to encourage early payment. Consider offering discounts to those who pay in advance, so your business can benefit from the infusion of cash.

Don’t forget to update your clients on how Coronavirus impacts your business. Provide transparency on what changes will affect their service, communicate flexibility with payment terms, and speak to other ways your business can help them navigate through this period. This information will give your clients peace of mind while building long-term goodwill that will last long after this pandemic.

Minimize Disruption With Proactive Communication

The sudden, drastic disruption to daily life caused by the COVID-19 pandemic is unlike anything most of us have ever seen. By proactively communicating with vendors and customers, you’ll have a clearer picture of how their business is affected, and in turn, how your business will be affected. Having a full understanding of the effects will give you the information you need to create a strategic plan, maintain positive cash flow, and weather the storm.

If you need help analyzing the risk to your business, improving your cash flow, or disaster planning, contact Signature Analytics for a free consultation. Our expert team of finance and accounting professionals has experience with a wide variety of industries and business sizes, providing us the expertise to guide your business through these challenging times.

Liquidity is one of the most important factors in your business. It means whether you can pay your current obligations using your existing assets. In simpler terms, can you pay your bills and make payroll this month? It’s easy to see that liquidity is a key factor in keeping your doors open over the next few months of uncertainty.

Even if you aren’t worried about making your payments in the short-term, should you be looking into liquidity options now?

The short answer is: yes, especially if you’re conducting some scenario analysis to help with decision making. We’ve gathered 10 great ways to increase your liquidity and cover expenses during the current economic conditions. Whether you need them today or may need them in the future, it’s a great idea to freshen up on your options.

1. Reduce Overhead

Reducing overhead can help get your business through tough times. It’s best to be proactive with this and begin taking steps to reduce costs before you’re faced with financial trouble. Here are some ways you can start:

  • Eliminate non-essential expenses
  • Freeze hiring for open positions
  • Cancel business travel and opt for video conferencing
  • Reduce hours of part-time staff where possible
  • Eliminate non-essential part-time and salaried workers as a last resort

2. Negotiate with Lenders

As the COVID-19 outbreak continues, it’s important to nurture your relationship with your current bank and credit card companies to strengthen their trust in your business. Remember that everything is negotiable. Here are some things you can consider:

  • Review the terms for all business loan agreements and revolving lines of credit (RLOC)
  • Consider refinancing debt to extend terms and reduce payments
  • Negotiate reduced interest rates on loans and credit cards
  • Request a credit line increase for credit cards and ROLC
  • Negotiate to pay only interest on the debt if finances become tight

The best way to start this is to request a meeting with your banker and the decision-maker at your bank. A face-to-face meeting is ideal, but with the COVID-19 restrictions, you’ll need to stay 6-ft apart. Or, opt for a video conference as a last resort.

Plan ahead and make sure to have up-to-date financials ready to present to them. Outline your plan to pay back the debt and steps you’re taking to reduce costs in the immediate future. All of this will help build the bank’s confidence in your business.

You should be prepared to offer a personal guarantee or additional collateral in order to secure additional financing. This will show that you’re committed to the business and are stepping up as an owner.

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

3. Special Government Programs for COVID-19

There are special programs being developed through the government for COVID-19. It could take a while to receive funds because the programs are still being created, but it’s good to start the process now.

We’ll be posting government programs as they become available in our: Coronavirus Business Resource Center.

Business owners can apply directly to the SBA for an economic injury loan. You will need to document the loss of revenue from the COVID-19 disaster, which your representative at Signature Analytics can help with.

Check out additional information here: https://business.ca.gov/coronavirus-2019/.

In the meantime, you should prepare for submitting a full lending package to the SBA, including all the information listed here:

  • 3-year federal business tax returns
  • Current interim (end of last month)
  • AR & AP agings (end of last month)
  • 12-month projection prior to COVID-19
  • Reforecasted 12-month projections
  • Spreadsheet of the loss of revenues calculation along with fixed expenses for the same period
  • Updated Personal Financial statement for all owners, greater than 20%
  • 3-years federal personal tax returns

All of the above items will be required. The SBA will make credit decisions based on a complete package for each and every business. Get a head start gathering these items and put them in a secure drop-box or data room (current best practice)

If you need help putting your lending package together for the SBA, Signature Analytics can help. We have experts available to help you get the funding your business deserves.  Contact us today to get started on this process.

4. Financing Options

Check your terms with current vendors and negotiate an extended payment period. Increasing your payable terms out to 30-180 days, depending on your relationship with the suppliers, can help you cover urgent invoices.

You can also look at financing companies to secure additional funding. They may offer more flexible terms than traditional lending sources, but they’ll also look at your collateral in much greater detail. Consider some of these options:

If you choose to use a financing company, make sure you look at the total cost of the funds. They will have more fees and higher rates to offset the increased risk.

5. Use Business Assets

Your accounts receivable and equipment can help you get cash in a pinch.

An asset-based lender will provide your financing based on your monthly AR. This is a great option for businesses with creditworthy customers. Furthermore, factoring your accounts receivable might be a solution too. Selling your accounts receivable can increase your cash fast, but you won’t receive as much as if you were to collect the invoices in full yourself. You’ll incur a fee, plus the receivables you sell will only be sold at a percentage of their full value. Make sure you know the down-side to each available solution.

In addition, you can use existing equipment as collateral for loans. Companies like Ford Financial and LendSpark will arrange an appraisal of the equipment and could grant you a loan based on its value. Always, understand the full cost of this type of financing before committing.

6. Use Real Estate

Real estate is one of the best forms of collateral that a business owner may have available. Know that the process could take a while, so try to prepare in advance as best as you can. Here are some things to know:

  • Underwriting, appraisals, environmental reporting, and other due diligence can take 30-60 days
  • Loan-to-value (LTV) ratio is generally less than 85% of the appraised value, meaning you can’t count on the full value of the real estate
  • Some SBA lending programs allow an LTV ratio of up to 90%

If you choose SBA options, make sure you’re working directly with someone who has done hundreds of SBA loans in their career. There are lots of requirements and specific paperwork to complete because SBA is a government guarantee of the loan. The process will take quite a bit of time and having the help of an expert is crucial. Harvest CRE is an option.

You can choose to work with banks. They may have more conservative terms and will likely want you to have a deposit account at the institution.

Non-bank lenders, such as Harvest Small Business Finance, may be more flexible with terms. Plus, you will not have to move your deposits to them in order to receive the loan. However, they can be more expensive. Just check your options before you commit to anything.

What about home equity?

Home equity is another great option to add liquidity if your owners have this option available. Owners can refinance their personal properties for potentially lower rates right now.

7. Friends and Family

Your friends and family know you and understand your business. You can lean on your existing relationship with them to secure funds. Be transparent with them and provide a solid plan on repayment, including a return on their investment. Sign and document the terms of the loan just like you were dealing with a bank or private equity.

Mixing personal and business relationships, especially with money involved, can be tricky. Be prepared for this to affect your personal relationship, whether for better or worse.

8. Merchant Card Advance

(Warning Read the Details) A merchant card advance can be helpful in a pinch. If you receive most of your revenues by credit card payment, you can secure an advance from the merchant card. In return, the merchant will take a percentage of your future sales until the loan is paid, or you can arrange daily or weekly payments instead. It’s an easy way to get money, but it also comes with higher rates and fees, so look closely at the repayment plan. Make sure you have a dedicated way and plan to pay this debt off.

9. Mezzanine Finance

Mezzanine financing is an industry-specific, strategic capital that can be used for growth. This unsecured debt is usually subordinate to senior lenders. HCAP Partners is a solid option.

10. Private Equity

Private equity can give you cash in return for a stake in your business. Beware of investors who are looking to take advantage of the current situation. On option during this pandemic, ask for convertible note terms so you can refinance the note and protect your ownership position.

Final Thoughts

As you navigate through the COVID-19 outbreak, you can think outside the box for ideas on liquidity. Remember that everything is negotiable. With the uncertainty ahead, make sure you’re asking questions and preparing your financials. When you do need financing, you’ll want to let your numbers tell your story and show how your business is performing.

And if you want a trusted advisory by your side to help guide you along the way, contact us today.

The recent outbreak of COVID-19 has drummed up feelings of uncertainty among individuals and businesses alike. With each passing day, new developments paint bleak pictures of future finances on both personal and organizational levels. We can all agree that everyone has more questions than answers about the best way to move forward into the uncharted waters ahead.

However, there are plenty of actions that you can take today that will help relieve financial stress and set you on a path to continued success. Most of these require very little extra effort on your part, but the payoff can be tremendous. In fact, whether you take action on your finances now could mean the difference between your business thriving into this next decade or closing its doors by the end of the year.

We’ve gathered some of the best ways to ensure your business stays successful through this difficult time and we’re ready to share them with you today.

Our biggest piece of advice to you: be proactive and drive the communication with your banking relationships starting today. You may need to lean on your bank through this time. As you move through these next few months, show your bank that you are prepared by keeping up-to-date with your business finances. You’ll gain the bank’s confidence and prove that your business is reliable, which will help you gain their support during the crisis.

Stay Informed

The best way to start managing your banking relationships right now is to stay informed on what’s happening. You can take some steps to learn how your business appears in the eyes of the bank. That will help you anticipate what the bank may do with your financing in the future.

Ask About Problem Loans in Your Industry

Ask your bank if there are loans in their portfolio that have been downgraded. What industries are being impacted? If other businesses in your industry are at risk of defaulting on loans, your bank may take extra precautions with any/all clients who touch that industry.

The bank could evaluate all the loans from businesses in the “bad/tainted” industry. Unfortunately, this can mean that your business is asked to exit the bank entirely.

Check Risk Ratings on Loans

Every business and real estate loan with the bank has a risk rating. The risk rating determines how much capital the bank must allocate to its loan loss reserve in case the loan goes bad. For example, if a $1 million term loan is assigned a passing risk rating, the bank may only have to reserve 1% of the loan ($10,000). That means the bank would have $10,000 expensed on their income statement for that particular loan in the month the loan is funded.

If that same term loan is downgraded to a “Watch” risk rating, the bank would increase the loan loss reserve to 10%. In that case, the bank would have an additional $90,000 expensed through its income statement during the month of the downgrade.

Why is this important for you?

If the bank begins downgrading your loans and assigns them a higher risk rating, this means the loans are more expensive to the bank and greater risk of write-off. The bank will attempt to pass those costs onto you along with asking you to exit the bank.

Know What Assets are Worth

If you need to apply for additional financing, the bank most likely will ask for collateral. Each bank is different given their credit appetite, but here’s a quick look at what your assets could be worth:

  • Accounts Receivable: 60-80% advanced rate
  • Inventory: 15-50% advanced rate for raw materials and finished goods, though it’s tough to finance inventory unless it’s a commodity
  • Fixed Assets: 50-90% advanced rate, but will require an appraisal
  • New Equipment: 80-95% advanced rate based on the Purchase Order (hard costs)
  • Real Estate: 60-85% advanced rate

Proactive Communication

We can’t stress this enough. Most business loan agreements have a default clause regarding “Insecure” to be an Event of Default. If the bank considers your loan in default because of insecurity, they can demand immediate repayment.

How do you prevent this?

The best way to keep the bank from feeling insecure about your business is to communicate with them. You can request a one-on-one meeting with your banker and their supervisor. Under the current conditions, it may be best to use a video conference technology instead of having a face-to-face meeting.

Talk with your banker about the state of your industry, business and how you’re handling any financial changes. If you plan to draw on your revolving line of credit (RLOC), make sure you communicate your plans to your banker and explain your plan for repayment. Keeping them in the loop will help them feel more secure about your relationship and could prevent them from putting your loan(s) into default.

You may consider inviting your banker to a virtual meeting with some of your other trusted advisors. This could include your CPA, attorney, fractional CFO, and board members. If you work with us already, we should be included as well. If your banker is there, they will further understand what’s happening in your business and how your leadership is taking action.

Read more: Renewing your business line of credit

Update Your Bank Often

Keeping your bank updated on your business financials can help them have confidence in your business. Even if your numbers aren’t where you’d like them to be, being upfront about where your business is can help ease any doubt that the bank has. If a business isn’t willing to share what’s happening, that could mean they’re in trouble.

As you move through uncertainty, continue reporting on a timely basis and within the financial covenant(s). Be proactive with your communication if something is going to be delayed. Instead of reporting information late, request a waiver from the bank ahead of time. It’s a simple step that can help improve the bank’s confidence in your business.

Here are some things you can consider updating with your bank as you move through the next several months:

  • Monthly financial statements, including balance sheets, income statements, inventory reports, budgets and forecasts, AR and AP aging reports
  • Weekly cash flow statements and forecasts
  • Updated personal financial statements on all owners with more than 20% stake in the business

Above all, make sure you’re providing any information that the bank requests in a timely manner.

Update Financing

The need for additional financing, or to modify existing terms, might arise as you move through the next several months. Even if you don’t believe it will, it can be a good idea to request extended loan terms now in order to prepare. The banks could get overwhelmed with requests over the next several months. If you can be proactive and start requesting amended loan terms or additional financing now, it can help you secure funds that may be unavailable to you later in the year.

What’s the best way to do this?

Before you approach your bank with the request, make sure you’ve built a strong case. Doing your homework and preparing for the meeting will help communicate that you are leading your business to your banker. You’ll build trust and credibility with the extra effort, which can increase your chances of being approved.

When you do have the meeting, request that the decision-maker attend the meeting. That may be the credit officer, bank president, or other executives at the bank. Present your case to them, including your cash flow and repayment sources. Explain your plan for debt servicing the additional debt and also provide a 12-month budget to further demonstrate how your business will be able to cover the financing.

Read More: How to create the perfect budget for your business

Take Action and Plan for the Future

As you move through the next several months, there are a few things your business can do to keep things moving smoothly.

Rely on Owner(s)

The owner(s) of your business may have some personal funds/ assets available that they could loan the business in order to keep the doors open. You can either consider this as paid-in capital or subordinated debt (consultant your tax CPA).

If you choose to use the funds as a subordinated debt, make sure you properly document it. Allow the bank to subordinate it to the bank’s debt, which shows that your business is willing to do what it takes to strengthen your relationship with the bank.

Reduce Cash Outflows

This can seem like an obvious, yet difficult, solution to financing problems. Reducing cash flows should be done carefully and cautiously.

What’s the best place to start?

Determine how much cash your owner(s) need to live each month. Then, you can defer their salary and/or distributions until later in order to cover more urgent cash outflows today. Just make sure you have this properly documented on the balance sheet so there are no questions later. Don’t forget to communicate this plan of action with your lenders.

Reach Out for Help

If you feel uncertain during these times, you’re not alone. Know that you can enlist the help of a specialized business partner to get you through all of this. A business advisor can help guide your business on the right path and help you keep your doors open during this uncertain time.

What could Signature Analytics do for your business?

  • Evaluate your current financial state
  • Forecasting to understand future financing needs
  • Assistance with budgeting
  • Help secure additional financing
  • Negotiate loan terms
  • Strengthen your relationship with the bank

SA can help you understand what kind of changes you need to make today in order to stay ahead of the game. Having a team of strategic thinkers in your corner will help steer your business toward a path of success.

Final Thoughts

Being proactive is essential during uncertainty. Banking relationships will be crucial as you move through the next several months. In order to stay on good terms, you can take a few extra steps in order to strengthen trust with the bank.

Communicate with your bank often and update them on what’s happening in your business. Request extended terms or additional financing now to beat the rush in the coming months. As always, lean on experts when you feel unsure of what to do next.

If you need support getting your financial information in order, contact us right away. We can be your partner in communicating with your bank and other financial relationships ensuring the right information is provided when the bank needs it.

On March 18, 2020, H.R.6201 The Families First Coronavirus Response Act was signed into law to provide economic relief to businesses and individuals during the COVID-19 pandemic. The legislation provides paid sick leave, free coronavirus testing, expands food assistance programs, extends unemployment benefits, and requires employers to provide additional protections for health care workers. The law takes effect on April 2, 2020, and will remain effective until December 31, 2020.

The legislation is broad and includes relief acts in a number of areas including:

  • Supplemental appropriations to the Department of Agriculture (USDA) for nutrition and food assistance programs and appropriations to the Department of Health and Human Services for nutrition programs that assist the elderly
  • Requires the Occupational Safety and Health Administration (OSHA) to issue an emergency temporary standard for infectious disease exposure control plan to protect health care workers
  • Establishes a federal emergency paid leave benefits program to provide payments to employees taking unpaid leave due to the coronavirus outbreak
  • Expands unemployment benefits and provide grants to states for processing and paying claims
  • Requires employers to provide paid sick leave to employees
  • Establishes requirements for providing coronavirus diagnostic testing at no cost to consumers
  • Treats personal respiratory protective devices as covered countermeasures that are eligible for certain liability protections
  • Temporarily increases the Medicaid federal medical assistance percentage

Read the full summary of the Families First Coronavirus Response Act here

The main changes that businesses should be aware of are the federal emergency paid leave benefits program and the requirement for employers to provide paid sick leave to employees.

Emergency Family and Medical Leave Expansion Act (the “FMLA Expansion Act”)

H.R. 6201 expands the existing Family and Medical Leave Act (FMLA) to include job-protected leave for employees that are unable to work due to child’s school or daycare closure due to COVID-19. Employers with less than 500 employees must offer up to 12 weeks of job-protected leave to employees unable to work (or telework) because they must care for a child (under 18 years old) whose school or care provider is closed due to COVID-19 emergency declared by a federal, state, or local authority. Employers can seek reimbursement for the wages paid to employees taking emergency family and medical leave through tax credits applicable to the employer’s portion of Social Security taxes.

Employees must have been working for the company for at least 30 days to be eligible. The first 10 days of leave may be unpaid. After 10 days of unpaid leave, employers are required to provide paid leave of not less than two-thirds of an employee’s regular rate up to $200 per day or $10,000 total. Pay for hourly employees whose schedules vary is calculated using the average number of hours worked for the prior six months, or the “reasonable expectation” of the number of hours when hired if they’ve been with the employer for less than six months. The employer can require the employee to utilize any accrued vacation leave, personal leave, or other medical or sick leave first.

Generally, after the leave period, the employee is eligible to return to the same or equivalent position with their employer. Certain exemptions to this requirement are available for employers with less than 25 employees.
Small businesses with less than 50 employees may be exempted from the leave requirement by the Secretary of Labor if the requirements would jeopardize the viability of the business.

Emergency Paid Sick Leave Act

This requires employers with fewer than 500 employees to provide paid sick leave to employees if they are unable to work (including telework) due to COVID-19. Employers can seek reimbursement for the wages paid to employees taking emergency paid sick leave through tax credits applicable to the employer’s portion of Social Security taxes.

Full-time employees are to receive 80 hours of paid sick leave. Part-time employees are to receive the equivalent of the number of hours they would work, on average, during a two-week period.

The requirement applies to all employees, regardless of their tenure with the employer and paid sick leave time does not carry over into the next year. The emergency paid sick leave is in addition to any other paid sick leave or PTO already offered by the employer and does not require other paid sick leave or PTO to be used first.

Emergency paid sick leave applies to employees who meet one of the following requirements:

  1. The employee is subject to a quarantine or isolation order for COVID-19
  2. A health care provider advised the employee to self-quarantine due to COVID-19
  3. The employee is experiencing symptoms of COVID-19 and seeking medical diagnosis
  4. The employee is caring for an individual who is subject to quarantine or isolation order for COVID-19
  5. The employee is caring for their child whose school has been closed or place of care is unavailable due to COVID-19 precautions
  6. The employee is experiencing any other substantially similar condition (to be defined by the Secretary of Health and Human Services)

For reasons 1 – 3 above, employees will receive paid sick leave at their regular rate, not to exceed $511 per day and $5,110 total.

For reasons 4 – 6 above, employees will receive paid sick leave at two-thirds of their regular rate, not to exceed $200 per day and $2,000 total.

The Secretary of Labor is required to issue guidelines and additional clarification to assist employers in calculating leave benefits by April 2nd. Additionally, employers must post a notice to employees and The Secretary of Labor is required to create a notice by March 25th.

Small businesses with less than 50 employees may be exempted from the leave requirement by the Secretary of Labor if the requirements would jeopardize the viability of the business.

Employer Tax Credits

H.R. 6201 provides for employer tax credits to offset the costs associated with the new paid public health emergency leave and sick leave required for employees. Employers can seek reimbursement for the wages paid to employees for emergency paid leave and emergency paid sick leave through tax credits applicable to the employer’s portion of Social Security taxes. The amount of the paid sick leave credit that is allowed for any calendar quarter cannot exceed the total employer payroll tax obligations on all wages for all employees. The amount over this limitation is refundable to the employer.

Final Thoughts

We recommend that you work with your employment lawyer and tax CPA on the implications applicable to your unique situation. Signature Analytics is here to support you and can provide references to our partner network of legal and tax experts.

What you need to know

Income Tax Filing and Payment Deadline Extended to July 15, 2020

On March 18, 2020 the U.S. Treasury Department and Internal Revenue Service (IRS) issued guidance that will allow most individuals and businesses to delay federal income tax filing and payments due on April 15, 2020, until July 15, 2020, without penalties or interest. This emergency declaration will allow more liquidity for individuals and businesses during the COVID-19 pandemic.

How the guidance applies:

Individuals and other non-corporate tax filers

  • May defer up to $1 million of federal income tax (including self-employment tax) payments due on April 15, 2020, until July 15, 2020, without penalties or interest

Corporate tax filers

  • May defer of up to $10 million of federal income tax payments that would be due on April 15, 2020, until July 15, 2020, without penalties or interest

If you will be receiving a refund, it is in your interest to file as soon as possible to get your refund sooner. The guidance is unclear if the deferment applies to trusts or upcoming quarterly tax payments.

On March 18, 2020 the California Franchise Tax Board (FTB) also announced that it will be postponing the filing and payment deadlines for all individuals and business entities until July 15, 2020. The change in deadline applies to the following California state returns and payments:

  • 2019 tax returns
  • 2019 tax return payments
  • 2020 1st and 2nd quarter estimate payments
  • 2020 LLC taxes and fees
  • 2020 Non-wage withholding payments

Final Thoughts

We recommend that you consult with your tax CPA on how the guidance applies to your unique situation. Signature Analytics is here to support you and can provide references to our partner network of tax experts.

Resources:

View the IRS Notice
View the California FTB Notice

 

“Cash is King.” We hear this phrase time and time again, but why is it so important for small and mid-size businesses? The short answer – if you run out of cash, your business fails. Seems obvious, right? However, what may not be as obvious is that being profitable is not the same thing as being cash flow positive. In fact, many businesses that show profitability within their financial statements have ended up in bankruptcy because the amount of cash coming in does not exceed the amount of cash going out.

As an example, consider a service company that just started with a new customer. In January, the company provides the service and invoices the customer on January 31st. The company recognizes the revenue from that customer in January, but probably does not collect the cash until February or March. Meanwhile the company had to pay its’ employees on January 15th and the 31st. Thus cash outflow exceeded cash inflow in January. When you multiply this scenario by hundreds of customers, or consider a month with significant customer growth, you can see how the company could run into cash flow issues.

If a company cannot balance the cash inflows with the proper cash outflows then their profits on paper or supposed net-income are meaningless. Firms must exercise good cash management otherwise they may not be able to make the investments needed to compete, or might have to pay more to borrow the money they need to function.

What the Experts Say About Cash Management

Several industry leaders and associations have all found that cash flow problems can be one of the leading causes of failure for businesses…

82% of businesses fail due to poor cash flow management / poor understanding of cash flow.
— Jessie Hagen of US Bank

Despite the fact that cash is the lifeblood of a business — the fuel that keeps the engine running — most business owners don’t truly have a handle on their cash flow. Poor cash flow management is causing more business failures today than ever before.
— Philip Campbell, author of Never Run Out of Cash (Grow & Succeed Publishing 2004)

Insufficient capital is one of the main reasons for small business failure, coupled with lack of experience, poor location, poor inventory management and over-investment in fixed assets.
— U.S. Small Business Association (SBA)

A Case Study: Importance of Monitoring & Analyzing Cash Flow

One of our clients, a media company, believed they needed a significant capital infusion to support their growth plans, but were uncertain when and how much capital would be required. So we generated a detailed five year cash flow projection to forecast and identify all the time periods in which the company’s cash balance would become negative.

Analyzing the company’s cash flow projections revealed that they would require additional capital even after reaching profitability which is actually typical for early-stage companies, or companies in a high-growth mode. The projections also revealed that the amount of capital required to remain cash flow positive was 50 percent higher than they had initially anticipated.

Knowing their true capital needs allowed the company to raise the appropriate amount of capital required to support their growth plans and, more importantly, ensured they would not run out of cash.

Read the full case study here.

Monitoring Cash Flow for Your Business

Achieving a positive cash flow does not come by chance. You have to work at it. Companies need to analyze and manage their cash flow to more effectively control the inflow and outflow of cash. The Small Business Association recommends monitoring cash flow on a monthly basis to make sure you have enough cash to cover your obligations in the coming month.

By proactively getting in front of your future cash needs, you can make the right business decisions to solidify your cash position, and establish a foundation for growth.

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

 

We Can Help

The process of creating and managing to an operating cash flow budget is not intuitive or easy for most small and mid-size business owners. If you need assistance managing your company’s cash flows, developing detailed financial projections, or identifying capital requirements, contact Signature Analytics today for a free consultation.

Download our latest e-book:

If you’re not familiar with “what-if” scenario analysis, it’s time you familiarize yourself and jump on board. This type of planning can reveal unanticipated difficulties that can destabilize a project, making it a valuable analytical tool.

By helping you prepare for such adversities, financial scenario planning gives you a proactive edge on the situation. What-if analysis might seem like a daunting process, but it will help you make decisions to help your company thrive – or become more prepared – especially during more undesirable times.

Why You Need To Plan For What Ifs

What-if scenario planning can give you a distinct edge over the competition because your company will be prepared for a quick response and viable solution for problematic situations.

Once you incorporate scenario planning into your operations, you will have strategies on hand for virtually any situation.

For example, let’s say you want to see how a supply delivery at a later date will affect your project costs. You create a scenario around this idea and add in the appropriate circumstances that could impact your business, whether positive or negative. Running through the scenario will show you the potential outcome, and help you determine the best course of action.

Financial scenario planning is also a vital part of the business decision-making process. It helps you figure out the best and worst-case scenarios so you can anticipate possible profits or losses.

eGuide: What Business Should Expect From Their Accounting Department

What are the Three Stages of Scenario Planning?

When you’re planning for various financial scenarios, you will generate several probable future contexts for your company, the industry you are in, and also the economy. These possibilities will include individual scenarios, like variables such as operating costs, product pricing, inflation, customer metrics, and interest rates.

Typically, you will begin with three separate scenarios:

  • Base case scenario: You can use your data from the previous year in this situation, as this is a good predictor for the next twelve months. If you saw growth within your company during the last year, say 10%, you can assume the same growth rate will follow in the next year.
  • Best-case scenario: The best-case is to think outside the box and try to imagine a situation in which your sales projections turn out as you hope over the next year. For example, holding onto your current customers, adding new ones, or making an acquisition. Although you are creating a best-case scenario, the data you use should still be realistic. For example, if your company is experiencing an 85% monthly retention rate, you could increase it to 90% for the sake of this scenario.
  • Worst-case scenario: The worst-case will prepare you for potential problems. It can help you avoid issues or at least prepare for them by creating an action plan.

Read More: How to Effectively Communicate Your Company’s Financials with Internal Stakeholders

How to do Financial Scenario Planning

It’s crucial that you build scenarios into your company’s financial model so you have a full understanding of how different variables can impact your company. Here are some steps you can follow to get started with financial scenario planning:

  • Make a list of all the potential occurrences you want to develop scenarios for
  • Flesh out the details for each scenario
  • Make sure to include the three stages for each scenario: average case, best case, and worst case
  • Make sure you are consistent throughout the planning of each scenario

What are the Benefits of Scenario Planning?

Analyzing your company and predicting its future is a risky business. Financial scenario planning can give you the edge on different possibilities and you and your company can benefit in many ways, including:

  • Planning for the future: Scenario planning allows you to give investors a preview of the potential returns and risks involved in future investments. Your goal is to increase your company’s revenue, and the best way to do so is by using up-to-date calculations.
  • Avoiding risks and failures: Financial scenario planning can help you avoid making poor investment decisions. As you are taking the best and worst possible case scenarios into account, you can make more informed decisions.
  • Keeping you proactive: By being proactive and staying on your toes, you can minimize potential losses from factors beyond your control. Creating worst-case scenarios allows you to assess possible damage and avoid these circumstances, or at least prepare for them.
  • Enabling you to project investment returns or losses: Financial scenario planning gives you the tools to calculate potential investment gains and losses and provides you with measurable data. You can use this data to maximize the outcome.

Read More: Creating the Perfect Annual Budget for Your Business

Who Can Help With Financial Scenario Planning

A CFO is an ideal person to help with financial scenario planning. They can play an important part in this process because they are a successful executive who is an expert in strategic financial management. As an expert, they are responsible for managing short-term assets and available resources and developing strategies to leverage these resources.

Furthermore, a CFO should be able to maintain the company’s long-term financial health and profitability. A good CFO will analyze the cash flow, income statements, and balance sheet to monitor the company’s well-being while simultaneously making the most of the assets.

To do this, they need to have certain information at hand. Financial scenario planning can help them acquire this information by answering the following questions:

  • How can the company combine short and long-term assets to maximize profitability?
  • How can the company best finance upcoming projects?
  • How can the company maintain a healthy balance between debt and equity?
  • How can older assets generate future revenue?

What are the Benefits of a Fractional CFO

If you’re running a small- to medium-sized company, you may believe hiring a CFO is out of the realm of your budget. However, this is not the case. If you hire a fractional CFO, you can reap all the benefits of their financial expertise without it costing a small fortune. Here are a few of the benefits:

  • You’ll save money because you won’t have to pay a salary or benefits
  • You’ll save time because you won’t have to advertise, interview, or train
  • You can ensure that you have a CFO who is qualified and experienced

No matter how effective your company is, it won’t be able to maintain steady growth phases if future projections and developed strategies are not made for when issues arise. Your business potential relies on your ability to evaluate your company honestly daily. This ability includes the evaluation for ways to improve efficiency, minimize waste, boost performance, and develop solutions for how your company can succeed through positive and negative economic conditions.

eGuide: What Business Should Expect From Their Accounting Department

Hiring an outsourced CFO can make a big difference to your company when it comes to these endeavors and securing a financial plan to ensure you’re making the right business decisions.

Having an experienced financial business advisor to run through scenario planning and caution you of the possible outcomes can make the difference between a successful organization and a failing business.

If you are considering hiring a fractional CFO, contact Signature Analytics today. We can provide you with qualified and experienced CFOs, regardless of your industry.


Do you know your numbers?

The CFO’s role within an organization depends on several factors. These components may include the expectations coming from the CEO and board of directors, and may also vary depending on the industry, corporate strategy, and the goals of the business. A company’s size can also have a significant influence on the CFO’s role.

Below, the Signature Analytics team has outlined some general responsibilities that every business should expect from their CFO.

The Importance of Forward-Looking Financial Analysis

The foundation of any company’s accounting and finance function is to produce timely and accurate financial information for the business. The CFO oversees these accounting and finance functions, but their true value comes from the ability to provide forward-looking financial analysis. This analysis should be focused on driving additional profitability and value to the company.

Read More: Outsourced CFO Services – Benefits of a Part-Time CFO

Whether you have a full-time, part-time, or outsourced CFO, below are some examples of the forward-looking financial analysis you should expect from the CFO role:

1. Cash Management & Forecasting

Can you predict when your business will have a surplus of cash that needs to be managed or when you will have a shortage of money that requires financing?

Cash flow problems can kill businesses that might otherwise survive. Your CFO should be monitoring cash flow and analyzing cash flow projections regularly to ensure your business does not run out of cash.

2. Budgeting & Expense Control

Does your business have a budget? Do you receive an analysis comparing prior year actual, current year actual, and current-year forecast on a regular basis?

Your CFO should own the budgeting process by incorporating input from each department for the most accurate and complete projections. They should also be monitoring budgeted versus actual results on a quarterly or monthly basis and reforecasting accordingly.

Read More: How CFOs Add Value To Your Business

3. Compensation Plan Development

Is the compensation of your employees aligned with the goals of the company?

The CFO of a company should help to structure employee compensation plans that incentivize efficiency and align with the financial goals of the company.

eGuide: What Business Should Expect From Their Accounting Department

4. KPI Development & Analysis

Are you maximizing margins? Are profits analyzed by revenue stream? Are employees being utilized appropriately to maximize profitability?

KPIs (Key Performance Indicators) are different for every business. They should act as the company’s compass, and the CFO serves as the navigator.

It is the responsibility of the CFO to work with those in operations to help develop KPIs applicable to the company and support the analysis of those KPIs regularly. The CFO should be using the data from the KPIs to assess business performance in real-time. Making changes that directly improve KPIs can help build the future value of the company.

Read More: What Are Key Performance Indicators and Why Are They Important?

5. Board & Investor Communications

Are you providing valuable financial information to your Board of Directors so they can review the trends of the company’s operations and assist in making appropriate decisions? Is the information presented professionally?

Your CFO should be preparing presentations for your board members that effectively communicate the company’s financial information in an organized manner. The information should illustrate trends to visualize projections so the data can help drive business decisions.

6. Securing Financing & Raising Capital

Do you review your banking relationships regularly? Are you confident you have access to financing on the best possible terms for your business? What are the capital needs of the company now and in the future? What is the best way to meet those needs?

Your CFO should play a key role in identifying and securing investment and financing. They should identify capital requirements before approaching financial institutions and investors to ensure you raise the appropriate amount of capital required to support your growth plans.

A successful CFO should also prepare presentations of the company’s financial information, allowing potential investors or lenders to understand the data and the companies performance.

7. Tax Planning

How often are communications occurring with the company’s tax advisor to maximize all tax-related strategies?

Your CFO should maintain consistent communication with tax preparers to minimize your company’s potential tax liability.

8. Ongoing Analysis & Review

All of these responsibilities should be considered ongoing processes that are revisited on a regular pre-determined schedule and modified based on the most recent financial information available.

Furthermore, all of the results should be measurable to track the success of the performed analysis.

eGuide: What Business Should Expect From Their Accounting Department

A Solution That’s Right For You

If your CFO is providing forward-thinking analysis, they are providing infinite value to your company.

Each of the outlined goals above can help maximize profitability and value for the business, and, if managed appropriately and adequately, companies with the correct financial infrastructure can witness significant operational improvements and growth. Having this kind of efficiency will allow you to think about your business in new ways and likely uncover new possibilities for what’s next.

If your business requires any (or all) of the forward-looking financial analysis mentioned above, but you’re not in a position to hire a full-time CFO or may have a team that just needs additional support, the team of experts at Signature Analytics can help.

Our highly experienced accountants can act as your entire accounting department (CFO to staff accountant). If that solution isn’t the right fit, our team can complement your internal accounting staff, to provide the ongoing accounting support, training, and forward-looking financial analysis necessary to effectively run your company, analyze operations, and guide business decisions.

Have questions about our process? Contact us today for a free consultation.

 


 

Do you know your numbers?

As a business owner, financial data is critical to your success — but only if you know how to interpret the meaning behind the numbers correctly. Most owners or leaders within an organization rely on the aid of an accounting team to accurately analyze and organize financial data. Still, when it comes time to make a big decision, it’s up to you to do so based on the gathered information.

There are at least three primary financial statements your accounting team will (read: most definitely should) be presenting to you regularly: income statements, balance sheets, and statements of cash flow.

With a solid understanding of each financial statement, you can unlock powerful insights to help you compete more effectively in the marketplace, achieve better terms from vendors and suppliers, and offer accurate projections to both internal stakeholders and lending companies alike.

Income Statement

The income statement (also called a profit and loss statement or P&L statement) measures the profitability of your business during a specified accounting period. This statement assesses all of your business’ revenue and expenses, and then reports a net profit or net loss.

By industry standards, this is the most influential of the three significant statements. This report shows where the money is allocated and breaks down business costs into categories.

Importantly notated are costs directly related to goods and services. It also calculates your company’s earnings from multiple viewpoints, reporting not only the net earnings (your bottom line) but also an assessment of the business’ productive efficiency before the impact of taxes and financing.

Read More: Understanding Your Financial Statements

It’s helpful to compare multiple income statements from different accounting periods to monitor whether your business is becoming more or less profitable over time — allowing you to adjust your spending and production processes accordingly.

Balance Sheet

The information on the balance sheet is monumentally more valuable when viewed in conjunction with your income statement. For instance, you can use the data from the balance sheet to determine how many investments are required to support the bottom line shown on your income statement.

While the income statement focuses on one specific accounting period, the balance sheet shows a snapshot of your overall financial health on a particular day by using a simple equation: liabilities + equity = assets.

These factors give you an idea of what the business owns (assets), what it owes (liabilities, including short-term expenses and long-term debt), and how much capital shareholders have invested (equity). As the name suggests, the two sides of the equation in your balance sheet should balance out.

Read More: Financial Tips From Successful Leaders

Statement of Cash Flows

The cash flow statement does just what the name implies — it reports on the flow of cash into and out of your business. Unlike the income statement, which breaks down earnings and expenses into more specific categories, the statement of cash flows focuses on the overall amount of money coming in (inflow), compared to the amount of money going out (outflow).

To find this data, it takes precise calculations using the following equation: starting cash balance + cash inflows – cash outflows = ending cash balance.

Cash inflows include sales, loans, and accounts receivable collections. Alternatively, cash outflows include equipment costs, inventory, and expenses paid. The statement of cash flows presents the most transparent view of a company’s cash variation. In other words, what caused the balance in your bank account to increase or decrease.

Read More: 10 Tips To Help Improve Your Company Cash Flows

Even Harvard Business School agrees that the number one finance skill a leader needs is an understanding of their financial statements and you can’t argue with Harvard right?

Once you have an understanding of these top three financial reports, we encourage you to have your accounting team run the Accounts Receivable and Accounts Payable, as well as Net Profit Margin Over Time.

Comprehensive knowledge of the financial side of your company will be incredibly helpful when it comes to making smart business decisions.

If your accounting team needs help or are not sure how to gather the information for these reports, have them contact us. Our expert team of accountants and business advisors are here for help in situations just like these.

As a business owner, you are used to facing never-ending checklists to help get your new ventures up and running. Before the first customer walks through the door, the new owner has already tackled seller’s permits, licensing, zoning, and registration, among other hurdles. Even after these boxes have been meticulously checked, businesses selling tangible personal property, and even some providing services, have another primary consideration – sales tax.

Depending on your business model, the idea of staying compliant with sales tax regulations can be overwhelming; however, if you get your shop set up correctly, compliance is relatively simple.

The following are answers to the most common questions business owners have about sales tax.

1. What is sales tax?

Typically, sales tax is an amount of money that is calculated as a percentage and added to the cost of a product or service. Retail sales receive tax, and 45 of the 50 United States enforce this rule.

2. Do I have to collect sales tax on all of my sales?

Not necessarily. If you make a sale to a customer to resides in the same state as your business, you collect sales tax. If the customer purchases from outside the state, you do not collect sales tax. For example, if your California business makes sales to California residents, you would need to collect sales tax.

Deliveries made to a state in which you do not have a physical location are generally not subject to state sales tax. However, the purchased product must be shipped directly to the purchaser’s out-of-state location and must be intended to be used outside the state. In this case, neither the purchaser nor its agent may pick up the purchased property within the state.

Read more: Top 10 IRS Tax Issues

3. What rate do I charge my customers?

The state or other governing municipality determines the rate.

For example, California’s sales tax varies depending on the district. It can range from as little as 7.25% (the statewide minimum) to as much as 10.5% in the Los Angeles County suburb of Santa Fe Springs.

4. Am I supposed to charge a rate based on where the customer is located?

When determining the rate to charge, you must first learn whether you are operating in an origin- or destination-based state. California is a hybrid, modified-origin-based state where taxes of the state, county, and city are based on the source of the sale, while district taxes are based on the destination of the sale. California gives you two options in applying this; both are acceptable.

  1. The first option is to charge the state rate plus your district rate on sales shipped within your district. For sales shipped outside your district, collect the state rate only. If you choose this option, the customer is technically liable to remit the omitted district tax to the state.
  2. The second option is to charge the state plus the district rate for every single sale shipped to a customer in California. This process ensures that the local district tax always gets collected.
    It is worth noting that collecting the same sales tax rate from every customer in California is technically wrong. If you do this, you are most likely not collecting the correct rate on every sale.

5. If the customer does not pay the sales tax, do I still have a liability?

Yes. The seller is responsible for the sales tax, not the purchaser. The law allows that the retailer may be reimbursed by charging the sales tax to their customer. However, even if the customer does not give an extra amount of money intended as “sales tax,” you are still liable for remitting the full amount of the tax.

6. If the tax I withhold is higher than the tax owed, what do I do with the difference?

Technically, if you collect more than the amount of tax due, you must either return the excess amount to the customer or pay it to the state.

7. What if the customer does not ultimately pay for the product provided?

Sales tax is imposed on completed sales, not collections. Even if the customer account becomes uncollectible, the retailer is still responsible for tax on that sale. Keep this in mind when preparing sales tax returns. If an account is not yet collected, gross receipts from the sale must be included in the tax base for sales tax purposes.

8. Are any sales exempt from sales tax?

Yes. Some common examples of exemptions and deductions include:

  • Sales for Resale (if supported by resale certificate or purchase order)
  • Some Food Products (for example, cold food sold to-go)
  • Labor (Repair and installation)
  • Sales of prescription medication
  • Sales to the U.S. Government

9. When are my taxes due?

Businesses are assigned a filing frequency based on the total sales tax collected. Your business may need to file monthly, quarterly, or yearly.

10. Is a sales tax return required even if my liability for the period is zero?

Yes. Every business with a sales tax license is required to file a return even though no sales were made during the period covered by the return. However, if you have seasonal sales or your sales tax liability has declined, you may request less frequent filing from the state.

Read more: How To Reduce Your Tax Liability

This Is The Bottom Line

Sales tax is an essential source of revenue for the state, and you should strive for full compliance in this area to avoid costly penalties and fees that result from a sales tax audit. By setting up your business early with a system that ensures correct collection and remittance of sales tax, you can avoid unnecessary expenses and fees in the future. Contact us if you need help.

Are you running a business that is earning a profit this year? If this sounds like you, you’re likely pretty happy with the financials of your company. After all, being profitable means you have created a thriving entity and are doing well. But don’t kid yourself if you think you are the only one excited about the performance of your business.

Enter in, the IRS. Owning and operating a profitable business means that you must pay taxes. And no one likes your tax dollars more than the IRS—no one except you.

So unless you like the idea of the IRS doing a Scrooge McDuck dive into the tax dollars you have to pay out, it’s in your financial interest to take advantage of the tax breaks that are available to reduce the amount of taxes your business owes.

 

This Is How Tax Credits And Tax Deductions Are Different

While both tax credits and tax deductions can help minimize a company’s income tax liability, there are differences between the two. Tax credits are 1:1 reduction of taxes, whereas tax deductions are a percentage of dollars spent based on the tax rates and cut down your taxable income.

There are many tax credits your businesses may be able to take advantage of, below we have selected a handful you might not know about:

1. Federal Research and Design Tax Credit

Your business may be performing research and design (R&D) qualifying activities without you realizing it. The R&D tax credit (not to be mistaken with the R&D Tax Deduction) is a 1:1 reduction against taxes owed or paid.

Nearly every state also has its own R&D credit programs, most resemble federal rules and come in varying incentive amounts. So if your company is developing new or improved products or technologies, you could qualify for substantial tax savings.

Common industries we see qualify for these types of credits include manufacturing, engineering, IT, medical device, biotechnology, software development, and more. Reach out to us if you want to know if your business qualifies.

2. Alternative Motor Vehicle Credit

If your business has purchased vehicles with fuel cells (e.g., electric cars that use fuel cells with, or instead of, a battery), you could qualify for this tax credit. Many of these credits have been reduced since their initial rollout, with phase-out rules based upon the vehicle’s model and year. So even if your business has purchased alternative fuel vehicles, automatic eligibility for this credit is not guaranteed. Keep in mind, there are a many other benefits to driving clean in CA.

3. Employer-Provided Child Care Facilities and Services

Did your company acquire, construct, rehabilitate, or expand property that is used as part of a qualified childcare facility for your employees? Or maybe you chose to begin a scholarship program or provide employees with higher levels of childcare training some kind of compensation. If any of these circumstances sound like something your business was part of this year, be sure to check out the Form 8882 or ask your tax advisor about the rules for claiming this credit.

Read More: Tax Planning Strategies: What You Need To Know For 2020

 

What Deductions Are Right For My Business?

Like tax credits, there are various tax deductions available for small and midsize businesses to claim. The key is to research which ones your company is eligible for to ensure you take full advantage of them.

Tax deductions help to lower your taxable income and then can reduce your taxable liability. These activities can be anything from purchasing new assets or having various benefits to offer employees. The amount of the tax deduction will be taken from your income, therefore lowering your taxable income, and in turn, lowering your tax bill.

Tax deductions your business could be able to take advantage of:

 

Employee benefit programs and retirement contributions

Setting up your employees with retirement accounts is a great way to maximize tax savings for your company. Other qualifying employee benefits include education assistance and dependent care assistance programs.

 

Make charitable contributions

Any individual or company can make a charitable contribution, but there may be limitations on these deductions under the Tax Cuts and Jobs Act (TCJA). Your business can still deduct cash contributions and gifts, but can no longer deduct the time spent volunteering.

 

Hire contract (or fractional) employees

If your company hires contract labor (1099 employees), this cost could be deductible for your business.

Not only can contract, or fractional employees, reduce your tax liability, it can also reduce overhead costs for things like payroll, benefits, training, and other additional employee expenses. Hiring fractional employees also offers your company flexibility and greater cost control during slow months or ramping up staff during times of growth.

Read More: What Your Business Needs to Know About Fractional Hiring

 

Save by spending

The cost of business-related supplies such as new equipment, software, and technologies, or furniture for the office, are deductible expenses that can reduce your company’s tax liability.

 

Business interest expenses

If your business makes a profit, there are expenses you may be able to write off. For an expense to qualify as a deductible, your business expenses must be ordinary and necessary, as defined by the IRS. Meaning, if the expense applies directly to running your business, it may be ordinary and necessary. In any case, it’s best to save your receipts for every expense you deduct on your taxes.

As a business owner, it benefits you to see what you can do to reduce your potential tax liability now instead of waiting until the end of the year when it may be too late to do anything. For instance, how much money will your company bring in at the beginning of the year? Forecasting can help your company develop a tentative plan to maximize your expenses, which can be adjusted as the year progresses.

Read More: How To Organize Your Finances To Grow Your Business

Your taxes can have a severe financial impact on your business – but with some proactive planning – they shouldn’t. Contact us today to find out how our services can help your team reduce your tax liability for your business.

It’s been over 7,000 miles since your last oil change, so you drive to the mechanic for a service. You’re a few pages through a magazine when the mechanic informs you that your car is on its last legs unless you permit them to fix one specific part.

The good news: they can replace the part for you today. The bad news? It’s going to cost $2,000. While the last thing you want is for your car to fall apart, you can’t help but wonder: are they manipulating the situation to their monetary advantage?

For the average person, knowledge of auto mechanics doesn’t exceed our gas tank, so we make the assumption and leap of faith that the mechanic has our best interests at heart. Without expertise in a given industry, we lack the competency to ask the right questions to ensure we get the best service and keep us from being deceived.

Your tax advisor shouldn’t be an exception.

Whether you have been working with the same tax advisor for years or if this is your first year with a new CPA firm, there are a few key things to expect from your tax accountant to ensure your company is getting the best service.

Your CPA is good if they do this

Working with a CPA who is proactive will prevent problems way before they happen. Most clients assume their tax advisor will not only be proactive but is comprehensive in their knowledge of the client’s business. Unfortunately, it’s more common for the tax accountant to wait until the end of the year to get involved and before asking for all your information and processing it.

So how do you know if you’re working with a proactive tax firm? One sign is they maintain contact with clients quarterly to inquire about the health of the business. With more frequent contact, proactive advisors can make adjustments to payments to ensure accuracy throughout the year, rather than surprising clients with a large and unexpected tax bill at year-end.

What makes a tax firm a good fit for your business? It is helpful if the CPA working with your company has had experience working with other clients within the same industry since they have most likely learned from working with those clients. For instance, if a similar client qualified for something like the domestic production deduction, the CPA will be more apt to see if their other clients qualify as well.

Essential qualities to look for in a CPA firm

It’s a good idea to start by identifying the qualities of the CPA firm you are working with or are planning to work with in the future. Here are a few things to be on the lookout for:

  • The integrity of the firm

The integrity of a CPA firm is critical. It doesn’t matter whether the firm is large or small; what matters is the individual working on your account. You may choose a well-known firm with an excellent reputation, but if the accountant working on your stuff isn’t attentive, or overloaded with clients, you’re more likely to endure poor service.

  • The sophistication of the firm

Some firms specialize in certain things. If your business is involved in a particular industry, work with a CPA with that specific knowledge and who has clients in the same field. It’s essential to find a CPA firm that fits the level of what your business is doing.

  • The competency of the firm

The time may come when a client outgrows the skill set of their CPA firm and are unaware of it. It’s important to work with a firm that can handle your growth and the complexities that come with it, as well as one that can provide the level of service you need.

Is it time to find a new firm?

How do you know if a CPA firm is delivering exceptional service or if it’s time to move on? Here are three red flags to consider:

  • Response time

If your CPA doesn’t get back to you within an appropriate response time (most would agree within 24 hours), responds abruptly, or is just not helpful, these are all signs of a bad relationship.

  • Poor working relationship

A CPA who only corresponds via email, despite you asking to speak with them over the phone, is another bad sign. Whether the CPA is is overworked, too busy, or has too many clients, they are not acting in the client’s best interest and will not serve their clients well.

  • Avoidance

You will inevitably have questions for your CPA firm. Those questions may revolve around everything from the paperwork that needs to complete to deductions for your business. If your tax CPA is avoiding or unwilling to answer your questions, or answers your questions in a way that you don’t understand, this could mean the CPA is getting away with doing as little or as much as they want without you knowing.

Read More: Filing 1099s: Best Practices and Mistakes to Avoid

How to avoid the wrong advice

Even if your tax CPA is proactive and is well-versed in your industry, it may be beneficial for your company to partner with a business advisor. A good business advisor has the expertise to advise clients based on their strategic partnerships, ensuring that your tax accountant is working in your best interest and avoiding any bad advice that may lead you down a costly path.

Read More: Accountability Partners and Why You Need One

If you’re overwhelmed or unsure where to start, contact us today. Signature Analytics has a history of vetting and partnering with several CPA firms in a variety of industries. In doing so, we can help your tax CPA focus on getting more done by adding more value this season.

The beginning of the year is anything but dull, but after the holiday celebrations, it’s time to settle down and get organized for tax season. While employees might not have taxes on the brain until April, businesses, and employers are busy preparing early on. It’s crucial to start this process sooner rather than later, so no paperwork is forgotten. One essential form to remember is 1099.

What Is A 1099 IRS Form?

A 1099 IRS form is a record of a person or an entity providing payment to someone. There are several types of IRS 1099 forms, such as 1099-MISC, 1099-INT, 1099-CAP, and more. These informational returns are used to record payments to individuals or partnerships for interest, services, bonuses, and other types of income paid during the year.

Please note that business owners must file 1099 forms with the IRS and send a copy to the individual each year by January 31st, the same as the W2 filing deadline.

What Are Examples Of The 1099 Form?

  • If you paid more than $600 to a freelance website designer, you must file Form 1099-MISC
  • If you have convertible notes payable that accrue interest during the year, you must file Form 1099-INT
  • If you paid dividends to inventors, you must file Form 1099-DIV
  • If you forgave an outstanding debt during the year, you must submit form 1099-C
  • All amounts paid to law firms must be reported on a 1099, regardless if the law firm is categorized as a corporation and even if the amounts are less than $600

Here Are The Accounting Best Practices for 1099s

Good recordkeeping is key to fulfilling this requirement and meeting the January 31st deadline:
Payments to vendors should be categorized in your books and records by vendor and not merely by category or expense line item.
Small businesses should always request a form W9 from any vendor with whom they conduct business. A W9 will tell you if the vendor is a Corporation (excluded from 1099 requirement) and what their federal tax ID number is (needed for the 1099).
Read More: Financial Tips From Successful Leaders

These Are Common Mistakes To Avoid

Below are some examples of mistakes commonly made by small business owners when it comes to 1099 rules:

  • Classifying employees as a 1099 vendor when they meet the IRS definition of a W2 full-time employee.
  • Giving expensive gifts or prizes to sales representatives or others without issuing a 1099 for the value of the gift.
  • Not filing a 1099 for interest accrued on convertible notes or other bonds.
  • Not keeping proper records or requiring a W9, so when it comes time to prepare the 1099s they are filed late due to trying to collect all the necessary data from each vendor.

Read More: Tax Planning Strategies: What You Need To Know For 2020

Get Started On The Forms Today

Do not wait until the last minute. Reduce the January time crunch by reviewing your vendor list with your accountant in December if you can remember. Find and address issues early and make sure you have a plan to get the 1099s filed by the January 31st deadline.

Signature Analytics Can Help

If you need help preparing the data necessary to complete your 1099s, have questions about who you should be sending this form to, or any other financial paperwork inquiries, please contact us today.

 

 

Every morning, you walk to the Starbucks on the corner and order your usual: a grande drip coffee. You get to the counter where the barista tells you that Starbucks now only serves bubble tea. Alarmed, you walk out away without fueling your caffeine addiction and feeling confused.

There’s something about taking comfort in habits and consistency. It’s for this reason, we create routines for ourselves, retail chains design their layouts to be nearly identical from store to store, and In-N-Out basically hasn’t changed its menu in over 70 years.

As humans, we are averse to change. When we feel out of our element, we resist change and seek comfort.

These same principles apply to the world of accounting as well. Years ago, accounting was a tedious job; there were manual entries that resulted in errors and missing money. Once computer programs were created to automate accounting tasks, the margin for error decreased, work was faster, and the overall accounting industry became more efficient.

Change is not an easy feat; not for people and especially not for companies. However, when it comes to technology, change is the only constant. As technology touches every area in a business, companies must embrace technology to maintain a competitive advantage.

How Technology Can Improve Accounting

Newer technologies used in accounting can impact software, methods, capabilities, and ultimately produces improved processes and results for the clients we’ve worked with and those who rely on us for technical accounting solutions.

For example, with the right technologies in place, companies can improve the efficiency of both their accounts payable and receivable, saving time and creating scalability, which is valuable for any company experiencing growth.

Read More: Which Version of the Accounting Software is Best for Your Business?

What Are The Benefits Of An Accounts Payable Solution?

Many technology tools help create accounts payable processes and get your vendors paid faster, including:

Improved invoicing

Cloud-based programs such as QuickBooks, Netsuite, Sage Intacct, and Xero, are great for invoicing. Cloud-based technologies are beneficial to a company because they allow employees to do work anytime, anywhere.

Creating payment approval processes

Another key benefit is in creating a payment approval process. While approving invoices, you can use a predefined workflow through the cloud-base service and set up rules allowing you to define your AP process, offer one-click payment options, and improve organization.

This process can eliminate the chance of late invoices, along with the risk of sensitive information not reaching the public eye. With cloud-based technology solutions, all data is secure and available only to authorized users.

Integrations

Integrations with cloud-based software provide the opportunity to set up an Automated Clearing House (ACH) payments or checks that get generated and mailed. Setting up an automated payment process like Bill.com is an excellent way of managing AR/AP to receive, route, and pay invoices electronically in real-time while integrating with popular accounting software, like Quickbooks.

Integrations can catch mistakes by setting up audit trails, being able to search and find transactions and payments, and run custom accounting reports. This eliminates the risk of double paying, incorrect entry, and other human errors, which are harder to detect and can cause issues down the road.

Accounts Receivable Solution (AR)
For a company to remain successful, they must bill and collect payments from clients or customers promptly.

Cloud-based invoicing gives you the ability to accept payments online through ACH, credit card, or PayPal. You can set up branded customer portals where they can view their invoices, statements, and past payments. They are then able to use self-service options to make payments.

There are many additional benefits to having a comprehensive and cohesive accounts receivable solution:

      • Bank-vetted, leading-edge security
      • Automation of business rules for payment approvals – allows strict enforcement and accountability
      • No need for check stock in the office
      • Clear separation of duties with defined roles and system access
      • Detailed audit trails show who did what with the date and time stamping
      • Automated to-do list reminders
      • Cloud-based documentation storage

Advantages Of Accounting And Technology Integration
In one of our online webinars, our client SkyriverIT shared how they used the integration of technology and accounting to get paid faster. The average time was 60 days to collect payment. After integrating technology and accounting recommendations, they improved their process, and the average payment time was reduced to 7-10 days!

How was this possible? SkyriverIT used part of their marketing department’s technology, a drip campaign, and created automated accounting payment reminders in conjunction with marketing autoresponders. The benefits of using drip campaigns for accounting can be phenomenal, and here’s why:

      • Use email marketing for payments
      • Through the drip campaign, you can see who has and hasn’t opened invoices
      • You can set up specific autoresponders based on their engagement (email opens, links clicked, downloaded invoices, etc.)
      • Engage with the customers as often as you’d like
      • Customized communications based on customer engagement reduced payment time from 60 days to 7-10 days on average

Read More: Modernizing Your Accounting And Why It’s Beneficial To Your Business

We Can Help

If you need assistance in taking advantage of the right accounting technology to run your business, contact Signature Analytics. We can set up a consultation to learn about your specific business needs and advise on the proper accounting technology to benefit your business.

There are many other accounting technology solutions available with tons of features that will save you valuable time and help move cash forward. Make an impact on managing your business and contact us today.

You might have wondered how to increase profits by adding a CFO to your C-Suite. First off, you likely view your business as your baby. It doesn’t matter how you acquired it, whether you built the company from the ground up or purchased it after it was making some profit. You have spent countless hours training employees, improving processes, and making adjustments to keep your customers happy. And as your company grows and matures, you realize it has many needs such as new skills, resources, and roles to make it the best it can be.

What if after putting in all the hard work, your business doesn’t perform as well as you would like? What if profits aren’t where they should be? What if you don’t have the leadership that the company requires?

A chief financial officer (CFO) might be the person you consider bringing on to your team. This role can help turn your company around and make other significantly impactful changes. Below, we break down how a CFO can add value, provide leadership, and ways to increase profits doing all this at your company.

1. CFOs Can Offer Value to Your Team

If this is the first time you have considered adding a CFO to your leadership team, you should know they can provide immense value. If the CFO has been successful in previous financial or leadership roles within your industry or using similar technologies, then they are likely an ideal candidate to help your business. You should expect the CFO’s daily tasks to improve cash flow and the balance sheet. As a bonus, if they make all of these improvements, the amount of money they save the company should cover the cost of their salary and more.

The following are just a few ways that a well-versed CFO can add value to your company:

Cash Flow and Management: Every business has cash flow and needs to understand how to manage it. A CFO can assist in this area by making recommendations and putting in place an effective system. The management of cash flow ultimately means the company will be able to make improvements to all-cash resources and increase liquidity. Now you no longer need to worry about who is overseeing the management of capital, debt obligations, and the opportunities to invest in new projects.

Restore Order to the Balance Sheet: The balance sheet is the number one indicator of a business’s health. This critical part of the CFO’s role will essentially allow other company leaders, as well as bankers and investors, to understand how the liabilities and equity compare to the assets. If the balance sheet isn’t balanced (and a strategic CFO will know), then likely there are specific areas causing inconsistencies. For example, these areas may include retained earnings, loan amortization issues, paid capital, and inventory changes.

Read More: Operational or Strategic CFO

2. CFOs Provide Financial Leadership

When a CFO comes into a new business environment, they often face numerous challenges. Deciding what red flags to tackle first is a critical component of their daily tasks.

Often, sales and operations departments distance themselves from company finances. But, an effective CFO will bring financial insight and leadership to help maximize profits through the increase of cash flow and minimization of costs.

These are a few ways that a CFO will provide financial leadership to the company:

Act as a Liaison: The knowledge and experience a CFO will bring to your business can be incredibly valuable. It means they have credibility within the finance community and may be able to act as a liaison with the bank to secure funding for your growing company. Not only will a CFOs expertise help them make financial decisions for the company, but it will help them give insight into the advantages or disadvantages of operational and capital expenditures. Mostly, they will have a stronger position when negotiating with vendors, which at the end of the day, is an asset for your business.

Implement New Technology: The main difference between a CFO today and 20 years ago is the amount of technology that is available. By adopting new platforms, the company will be more streamlined, reach higher levels of success, and upskill team members to take on new roles. If automated financial technology is available, why not use it? Work smarter, not harder.

Read More: Signs Your Company Needs to Hire a CFO

3. CFOs Can Increase Profit Margins at the Company

There are proven and dependable ways a CFO can increase profit margins at a company by improving productivity and analyzing pricing strategies. Not only can these strategies affect the bottom line, but they provide oversight for the CFO and allows them to manage critical roles within the financial department.

Improve Productivity: There are a few ways that a CFO can improve and hopefully increase productivity. By executing an initial review of employees and their job descriptions, the CFO can tell if everyone is in the role that will be most beneficial to the company. If not, they may put training sessions in place to ensure all employees are up-to-date on best practices and information systems. Another standard process for a CFO to implement is working with other team members to come up with Key Performance Indicators. These can help the company to measure and track KPIs through reports and set goals based around these company-specific metrics.

Read More: Understanding Key Performance Indicators: KPI Examples & Their Importance

Analyze Pricing Strategies: Improving a pricing strategy is much more than tracking the pricing performance at a 10,000-foot view. An effective CFO will be able to evaluate the current pricing strategies and couple that with their knowledge of both the customer and product at an economical value. With this information, the CFO can then propose an updated plan (cost-based, value pricing, teaser pricing, strategic pricing, or other kinds) for the business. Remember, the pricing strategy may change more than once, which is normal and expected as the market also makes changes.

If you are looking for a gross profit increase at your company, a CFO will be able to help. Today, the role of the CFO is so much more than a number cruncher. While their experience in the books will be beneficial, their financial vision and strategic advice can benefit the business as well. These traits, alongside their ability to work with the operations team, will have an enormous impact on the business’ profitability.

While you may believe that a CFO is out of your company’s budget, there are options like outsourced accounting services and fractional CFOs through Signature Analytics. Not only can you get your company back on track, but you won’t be paying a full-time salary either.

Read More: Benefits of a Part-Time CFO

If you are interested in hearing more about either of these services, please contact our team today.

As a leader within your organization, you may have found yourself thinking of ways to make your company more valuable. If you thought that bringing on a chief financial officer (CFO) might be a good decision, we are here to validate this thought process.

While this leadership role may not have been on the top of your list (due to budgeting and other financial reasons) a CFO can help your company grow and improve in numerous ways. Below we outline how a CFO adds value to a company.

1. With Their Background

A CFO will add value based on their type of background. Most commonly, a traditional CFO will have an accounting or finance education, which sets them up to be extremely numbers-oriented. This type of training will save you big bucks on when it comes to your books, as the CFO will be overseeing record keeping, reporting, and financial planning.

Not only will these skills be necessary for the company’s health, but they will lend themselves well to improving the cash flow of the business. As the CFO manages the cash conversion cycle, the business will ultimately improve its collections, pricing, and terms. Through this cycle, the company will be able to increase liquid assets, making it possible for the CFO to make financial projections that will be imperative to the companies growth.

2. With Their Strong Leadership

CFO’s can add value to a company with their leadership skills. When looking for the right CFO candidate, the candidate will likely need a wide range of skills and capabilities to prepare for the opportunities and challenges ahead in relation to your business. Whether you are a current CFO or a future finance leader, continuing your personal and professional development will be critical for continued success.

While not every CFO will be able to bring this trait to the table, it is crucial to find one who can. During the interview process, you will want to ask questions to discover if this individual has what it takes to lead the company. Some of these topics could include:

  • What tangible operational experience they have
  • How they have thought strategically in the past
  • Teaching you something you don’t know
  • How they reached their long-term goals in a previous position
  • How they would pitch the company if they were in a sales meeting

You will also want to be on the lookout on their resume for broader business acumen (even beyond finance), leadership roles and qualities, and strong and effective communication skills. Having all of this knowledge will help you determine if this candidate has what it takes to be a leader in your company.

Read More: Outsourced CFO Services – Benefits of a Part-Time CFO

Bonus Tip: If you can find a CFO with experience in the finance community, chances are they have connections that can be beneficial to the company. If you have a larger company, the CFO will be maintaining the relationship between the business and the various departments within the company. It will be necessary for the individual in this role to be able to communicate the business’s finances with the banks effectively and efficiently. By keeping the lines of communication open between the two entities, the company’s chances of accessing funds to grow will be more significant. Ask the CFO candidate if they’ve acted as a liaison between a company and a bank during the interview process.

Read More: The CFO of the Future: Why You Need One

3. With Their Ability to Increase Profits

Timing is everything when it comes to hiring a CFO. If your company is going through growing pains and is looking to increase profits to make the changes necessary for success, hiring a CFO could be a great decision. There are numerous ways that a CFO can help increase gross profits, but the most common is by managing the cash flow.

By handling the cash flow of the company, a CFO can boost profits. It’s possible your company has never had a CFO. Therefore, the individual in this role would need to establish processes and put effective procedures into place for collecting payments as well as paying vendors.

What is most important to understand is that cash and liquid assets are going to be the most valuable to your business. With this knowledge, a CFO will oversee the operating cycle to understand better how long it takes for the thing being sold to convert to cash in the bank. Once this financial leader can see the sore points in the cycle, they can make suggestions on how to collect cash quicker, to increase company profits.

If you are looking for a way to add value to your business, employing a CFO is an ideal solution. How a CFO can add value is one of the many questions our team receives from prospective clients. What do we tell them? The role of the CFO encompasses more than the finances of the company, but they must be a leader with the experience and foresight to help add the most value.

If you think a CFO would be beneficial to your company but are concerned about budgeting for their salary and benefits, consider fractional hiring before making that major investment. At Signature Analytics, we can help place fractional, part-time employees that work in or outside of your office. This is a great solution to get the benefits of a CFO without the price point of a full-time role.

Read more: Signs Your Company Needs to Hire a CFO

To hear more about this kind of service, please contact our team today.

The dreaded word “taxes” conjures up images of bottomless piles of paperwork, lengthy meetings with tax professionals, and sending hard-earned money off to the government. While it’s not possible to escape taxes (that would be fraud), this season can be much more bearable with some tax planning strategies.

Ever heard the phrase, “the sooner, the better?” This phrase applies directly to tax preparation, and what we mean is that the sooner you can begin this process, the better it will be for you later in the year. Remember, it is never too early to implement tax planning strategies to set you up for a successful end of the year.

It doesn’t matter if you are part of a small business or a large corporation; every company is responsible for filing taxes each year.

With this in mind, tax planning can help you avoid stress when the deadline comes around to file your taxes. If you have a plan in place and the help of a trusted and experienced advisor, you can file your business taxes with confidence.

This is a year-round process of tax preparation and can be segmented into manageable steps. Let’s breakdown how taxes affect businesses and what benefits may apply to your company.

What Is New For 2020 & Beyond

For the past two years, the IRS worked to implement the Tax Cuts and Jobs Act (TCJA), and now it is in full effect. Therefore, it is crucial for business professionals to understand how this tax legislation can impact their companies.

If you own a service business or employ consultants who travel to clients, these work-related expenses are no longer deductible. Since the implementation of TCJA, there has been a loss of miscellaneous itemized deductions like home office costs, work-related legal fees, and business expenses such as travel costs. These changes may negatively impact small businesses, as employees migrate to more prominent companies who can afford to cover these expenses.

In Sec. 199A business income deduction which provides business owners, other than C-corporations, with a 20 percent deduction on qualified business income. Exclusions include wage-earning, investment income, and guaranteed payments. However, this could be a large deduction for many business owners.

By starting your tax planning now, you have ample time to find tax credits and deductions for your business.

What You Need To Know: Tax Planning Tips For 2020

Apart from the obvious (aka tax returns due in April 2020), there are a few other key points to remember:

  1. Arm yourself with good information. A business may be required to pay several types of taxes depending on the industry they are in and what specifics apply to their company.
  2. Money in the bank. It is crucial to understand that having money in the business account is imperative when it comes time to pay taxes. Insufficient funds will be penalized by the IRS.
  3. Have the appropriate paperwork. This paperwork should include the proper reports that have been analyzed by an advisor. All of this should be organized so that in the chance of an audit, everything is easily accessible for reference.
  4. Ask for help. If any of this advice seems daunting, there are qualified professionals, like those at Signature Analytics, who can help in the tax planning and execution process.

Read More: Resolution to Organize Your Finances and Grow Your Business

According to Fundera, in 2019, the small business tax rate is a flat 21% for a C-corporation, down from a schedule in when the highest corporate tax rate was 39.6%. The average small business tax rate is 19.8%. Based on their entities, businesses will pay different amounts in taxes. Here is a sample breakdown:

  • Sole proprietorships pay a 13.3% tax rate
  • Small partnerships pay a 23.6% tax rate
  • Small S corporations pay a 26.9% tax rate
  • C corporations pay 17.5%

The IRS has stated there are other changes to tax law, including standard mileage rate. In 2019, each mile of business use is 58 cents per mile to operate a car, van, pickup, or panel truck.

There are a few different small business taxes that will vary based on the structure of your business.

  • What types of taxes that will need to be paid
  • The amount of money to be paid to these taxes
  • When the payment for these taxes is due
  • How you will pay the taxes

You have time to plan and research all of the details or reach out for professional guidance as well.

Tax Planning Strategies: What To Know And What To Avoid

Not only is it essential to have tax planning strategies in place, but it’s vital to have a trusted advisor to turn to for questions, accurate reporting, and detailed information on tax laws. This will be different for every person based on their business and goals, so make sure to have a good idea of what yours are.

Part of planning out your strategy should include knowing what your tax deductions, what taxes are due quarterly, and mistakes to avoid.

The most common tax deductions include vehicle expenses, insurance, and rent. If you are a new company, you may also qualify for a startup cost deduction. Depending on the accounting system your company has in place, you may also be eligible for inventory or business loan interest deductions. Arm yourself with information so you can capitalize on any deductions possible.

Read More: End of Year Checklist

Knowing what strategies are to avoid is just as, if not more, knowledgeable that knowing what to execute. Below are some tax planning mistakes to steer clear from:

Failing to have enough cash
One of the most common mistakes we see businesses make is not having enough cash in the bank to cover their taxes when they are due. The company may then be assessed penalties, resulting in owing more than your business initially planned for and tapping further into your well.

Failing to report trackable income
Companies that employ or operate as independent contractors must report trackable income. If you have done more than $600 in business for a client, they are obligated to send you a 1099. And since this number also gets sent to the IRS, you are obligated to report it when filing your taxes. Don’t try to fudge numbers on how much you’ve made – the IRS takes this seriously.

Missing deductions
There is a fine line between maximizing your deductions and going overboard. With the Tax Cuts and Jobs Act, fringe benefits like team outgoings, travel, and work-related entertainment are 100 percent non-deductible. The last thing you want is to owe the IRS more money or pay the penalty for any mistakes.

While claiming too many expenses can signal a red flag to the IRS, you don’t want to miss deductions that you are entitled to claiming. Here are some common examples of deductions that you don’t want to miss out on:

  • Startup costs: You can claim up to $5,000 for expenses related to getting the business up and running.
  • Lifetime Learning Credit: This allows you to deduct up to $2,000 a year based on 20% off the first
  • Education: $10,000 spent on education after high school. You don’t have to be working on a degree to claim a deduction – it can be for classes related to your business.
  • Business services: Anything that helps your business run, from PayPal to your Wi-Fi plan can be deducted.
  • Inventory: Owners can claim deductions for unpaid goods. This does not apply to services, unfortunately.
  • Loans and credit cards: If you rack up interest for business purposes, it can be deducted.

Get In Touch With A Professional Tax Advisor

Getting to the tax planning party early is recommended. The more mindful you are throughout the year will reduce your stress and help keep your business organized. We highly suggest this to all of our partners.

If your company does not currently have a tax advisor and trusted CPA, now is the time to find one who is well-versed in your industry. Since your taxes can make a financial impact on your business, it’s critical to go to someone with experience.

If you have any questions or uncertainties regarding what you should expect from your tax advisor, you should read our guide.

Contact us today to find out how our services can help your team build a tax planning strategy.

Sources: Harvard Business Review. (2018). End the Corporate Health Care Tax.

The chief financial officer (CFO) is an executive role that oversees or executes cash flow and financial planning, among a myriad of other financial efforts within an organization. While a CFO of the future has multiple duties, it is imperative to the company’s health that the person within this role reports accurate and up-to-date figures.

While the role of CFO arrived during the early 1960s, it’s clear there is incredible value in position and therefore isn’t going away anytime soon. There are noticeable trends within the role’s evolution, enforcing the importance of understanding the nuances of expectations in decades past.

The Traditional CFO

In the past, the CFO role was very technical and somewhat isolated from the rest of the company. The path of becoming a CFO typically began with an accounting or finance background. Typically, requirements would include an MBA, MFA, CFA, or experience as a CPA. From there, it would have required working up the corporate structure and serving long periods at the desk. This numbers-only role required the chief financial officer to manage financial planning, risks, and reporting, along with record keeping. Likely, they would report directly to the CEO but may have assisted the chief operating officer (COO) with matters relating to the company’s budget.

However, there has been an increasing amount of pressure put on the CFO due to a competitive and continuously changing business world. Just a few examples of these pressures include new technologies, globalization, emerging markets, and business models – all that affect how to reach customers and win deals. Amid streams of corporate scandals and continued backlash from the Great Recession, these instances have caused the role of the CFO to evolve, requiring a brand new set of skills.

Read more: Five Key Traits of Successful Leaders and How They Can Benefit Your Company

Evolution of the CFO

The CFO role has continued to change, especially in the last few years. More and more companies want to add broader skill sets and leadership abilities to their management teams and are looking to future CFOs to help. As the financial gatekeeper at the company, they are being asked to evolve and expand whether they have been in this C-suite level role for years or are newly appointed. Meaning any aspiring CFO should expect to add some new tools to their belt to get the job done right.

It is imperative to have the unmatched financial expertise to rise to the executive level within an organization as a CFO. This expertise can aid in the company’s success in sales, technology, marketing, and operations.

Depending on the breadth of the business, the CFO may also be required to oversee particular functions that generally may have landed outside of their scope. Such duties include IT and legal. Therefore, the expansion of the role requires the CFO to be financially savvy, but it also means they will need to tap into their operational and visionary sides as well. More on that to come.

Why a Business Needs a CFO

Naturally, a valid question is why a business needs this kind of role. Well, bringing on a CFO at the right time can elevate a business’ profits and, ultimately, its success. As they champion the most up-to-date financial information for the company, they are an incredibly powerful asset to have on any team. By having the most accurate information at the right moment, a decision-maker can feel confident in making better business decisions. These choices include investment type decisions around such things as increasing staff, budgets, acquisitions, or even purchase or leasing of new equipment.

There is an incredible value of having a CFO who truly understands the ins and outs of the business. It is with this depth of knowledge that they can make a difference and hopefully enact positive change and growth within the company.

Read more: Tips for Businesses Experiencing Fast-Paced Growth

Finding the Modern CFO

The importance and breadth of the CFO’s role continues to grow, shaping a future CFO looks very different from that of years past. Meaning, the Chief Financial Officer [of the Future] will need a wide range of skills and capabilities to prepare for the opportunities and challenges ahead. Whether you are a current CFO or a future finance leader, continuing your personal and professional development will be critical for success.

Most importantly, you don’t need to let go of your current CFO to attain the CFO of the future. If they are willing and eager to learn the tools required to take your business into the future, then train them. However, if your company has yet to hire a CFO or has been looking to replace the current employee, then be sure to look for these qualifications in your applicants:

  • Broad business knowledge
  • Operational experience
  • Leadership qualities
  • Strategic mindset
  • Strong communication skills…and all the traits mentioned earlier!

Remember, for a CFO to be successful in the future, they will need to be a leader in a workplace that is continuously changing. They must be more than “the finance guy,” “the numbers gal,” or “the Excel wizard.” As technology grows and cybersecurity becomes more of a threat, the CFO must be adaptable and utilize the technologies that will help their company to grow. If the company’s CFO can understand that communication will get them farther than keeping their nose in the books, you may have a modern CFO on your team.

If your company is searching for a CFO, Signature Analytics can provide part-time CFO’s of the future at a fraction of the cost of hiring a full-time CFO. Not only is this a budget-friendly option for any company, but a part-time CFO can help to refine policies and procedures, and even implement better tech tools for the accounting department to utilize. To find out more about our fractional modern CFO services contact us today.

Many people often think that the Chief Financial Officer (CFO) and controller are the same. However, these two roles have different expectations and responsibilities.

Financial controllers and financial executives tend to work with similar types of companies. However, smaller businesses often will only hire one of these roles. To determine if your company would benefit from a controller, CFO, or both, here are a few things to consider.

Let’s start by taking a look at exactly what the different roles entail with a brief, high-level overview.

A CFO’s role includes:

  • Predicting future scenarios and identifying risks
  • Finding areas where money can be saved
  • Sourcing the best investments for the company
  • Overseeing the company’s treasury responsibilities
  • Forecasting the company’s financial future

A controller’s role includes:

  • Implementing and supervising all accounting operations
  • Supervising payroll
  • Managing bank reconciliations and company budgets
  • Preparing financial reports

When is it Time to Hire a Controller?

It’s a good idea to bring a controller to your team if your company is expanding quickly. This rapid growth likely means you have reached the level where your business requires accounting records based on Generally Accepted Accounting Principles (GAAP).

Hiring a controller is usually necessary when your company has a revenue of $10 million and above. At this point, you need more advanced accounting strategies than basic bookkeeping. As your company continues to grow, it’s worth maintaining the controller function because he or she will be an invaluable asset for reporting to the CEO.

The complexity of your company may have increased due to expanded lines of business or from opening new locations. Despite the reason, your operations are likely to become more isolated, but a controller can prevent this from happening.

They will be able to generate data and interpret it so you have a clear understanding of how and why business changes have occurred over time. The controller can also help you make decisions on saving money and using capital.

When do you need a CFO?

There will come a time when you need better accounting records which are based on past actions and previous cash flow. At this point, you should consider hiring a CFO.

You will benefit from a CFO because they will be able to analyze past accounting reports and use this data to forecast future revenue and cash flow.

If you are in a transitory growth stage, such as mergers and acquisitions or managing debt covenants, a CFO can provide a deeper understanding of capital structure management and financial statements. They will also play a valuable role in liaising with banks and investors to make your company public.

When you are making the transition from a small or medium-sized business to a large organization, you need a financial professional who has the experience of a CFO. However, you may not have the budget to hire one full-time.

This situation is when a fractional CFO makes sense. Before hiring a part-time executive, make sure you complete your due diligence. As the demand for CFOs has become increasingly popular, it has created a market in which many people have entered without any authentic experience. This common scenario is possible as individuals do not need a degree or license to call themselves a CFO.

To avoid pitfalls such as these, we recommend hiring a fractional CFO from a reputable company – such as Signature Analytics. As a service provider, we only employ qualified and experienced CFOs and Controllers as well as other financial and accounting services.

What are the Benefits of Outsourcing Financial Experts?

It’s easy to see that there are numerous benefits to outsourcing a controller or CFO. These include:

  • Saving money: Hiring new staff members can be expensive, and your company budget may not have the room for a full-time controller or CFO. Regardless of your budget, your company still needs financial expertise. Hiring a fractional controller or CFO gives you much more flexibility with costs. You can hire a financial expert for as much time as required, without having to worry about paying a full-time salary or the additional costs of benefits and vacation time.
  • Reducing complexity: Don’t underestimate the complexity of in-house financial management as most CEOs are not financial experts. Furthermore, a business owner who tries to take on these financial tasks may simply be wasting time and money. You are much better off hiring a fractional CFO or Controller and spending your valuable time doing what you do best – such as growing your business. Outsourcing financial experts can reduce the complexity of your internal finances and giving you back the time you once spent worrying.
  • Accessing professional services: One of the benefits of outsourcing your financial services is that you can feel confident your candidate is qualified, professional, and experienced. Fractional CFOs, Controllers, and supporting staff have already been vetted, and their credentials have been checked. Meaning they can efficiently take care of your financial needs. Not only that, these financial experts keep their fingers on the pulse of the latest financial industry trends, so you are getting experts in the field.
  • Improving internal controls: By outsourcing, you will have professionals on your team who are equipped to improve internal controls by applying better practices. Doing this is important because if you have in-house financial procedures that are less than 100% effective, you are putting yourself at financial risks for costly errors and employee fraud. Outsourced professionals can look at a company with fresh eyes and train your existing employees to do their jobs effectively and efficiently.

What are the Qualities to Look for in a CFO?

If you’re going to outsource a CFO, here are some of the key qualities you should look for:

  • Strong communication skills: Your CFO needs to be able to communicate with people on all levels, from in-house employees to investors. This skill is essential so that they can supervise and negotiate as needed.
  • Flexibility and versatility: A top-notch CFO is always prepared to push for change that will boost company growth. This skill will prevent you from missing out on opportunities for expansion, growth, or change.
  • The ability to influence: A CFO must be both a team player and an enforcer to help everyone understand the implications of their decisions for the company. This skill will prevent any animosity or reluctance towards changes within the company.
  • Financial strategies: Your CFO must be an expert financial strategist who can create a vision for your company. Without the ability to strategize, your CFO will be unable to help you plan for the future of your business.
  • A good cultural fit: Even if you found the most proficient CFO in the world, but they do not match the company culture, they won’t work out. Like any employee, a CFO must be able to adopt the company culture to avoid clashes with other staff members.

What are the Qualities to Look for in a Controller?

If you’re going to outsource a controller, here are a few key qualities you should look for:

  • Industry experience: It may seem obvious, but it can be essential to find a controller who has experience within your specific industry. Reason being, is some verticals experience unique challenges. For example, if your company is in the healthcare industry, you will have to deal with particular accounting rules. If your controller does not have healthcare experience, they may not be aware of all these nuances.
  • Technical accounting: Your controller will be managing your accounting team. To do this adequately, they need a strong background in technical accounting and a firm grounding in GAAP.
  • Functional knowledge: Your controller has to be more than just a number cruncher. They must have expertise in all functions of finance. These include insurance policies, financial contracts, invoicing, as well as tax and auditing.
  • A passion for detail: A successful controller must have the ability to stay organized. They are responsible for keeping up-to-date with a lot of information and must be able to live and breathe the financial details of your company. Your controller must also be able to relay complex information to upper management in an easy-to-understand way.
  • An amenable personality: While it’s important to consider all of the technical skills don’t discount personality requirements. If your controller is unable to work with a team and get along with the rest of your staff, then likely they will not last long. Your controller has a lot of responsibility, and they must be able to collaborate with many departments throughout the company, including employees of all levels and upper management.

When it’s time to look for a quality controller or CFO, you don’t have to compromise your budget. You can have the benefit of this type of financial expertise by hiring outsourced staff. Doing so will save you time and money. You can also rest assured you will have authentic financial experts on your team that have access to a wider network of knowledge when necessary.

Contact Signature Analytics today to find out more about our fractional financial services. Our fractional CFOs and controllers are talented and experienced and can complement your existing accounting team or be your F&A team.

CEOs don’t have many people they can turn to when they need advice with financial management, honest answers, and space to discuss doubts about their company. That’s why they need a good chief financial officer on hand.

Just like a quarterback directs his team to score as many points as they possibly can, a CFO guides the CEO to make the most revenue from the company.

Of course, not all CFOs are created equal. The right person must earn the trust of their CEO for the relationship to work both ways. To do that, a CEO must look for certain skills and competencies when they’re hiring a financial executive.

What Key Skills Do CEOs Need from Their CFO?

A CEO needs a CFO who has many vital skills to help grow the company. When it comes to breaking down the skills and abilities that CEOs require most from their CFOs, they generally fall into two categories. Those categories are hard and soft skills, both of which we will outline below.

Hard Skills

Hard skills come directly from years of training and experience with business finances and strategic planning.

  • Tracking and analyzing cash flow management: This is one of the CFO’s most important roles, and it is essential for the CEO. A CFO is trained to assess cash flow and monitor the company’s finance and accounting department to instantly spot — and fix — any problems.
  • Data and analytics management: Gathering and interpreting the company’s financial data raises the CFO from an accountant to an analytical strategist. Strategic use of financial data enables the CFO to keep the CEO informed of the viability of current and future business strategies. The CFO’s strategic ability will transform analytics-based insights into measurable results.
  • Risk management: The CFO should be highly skilled at risk management to prevent the company from the influence of outside forces such as competitors or inside forces such as bad business decisions. The CFO should make sure that the business model is strong and resilient enough to withstand predictable threats.
  • Technological expertise: The CFO must be tech-savvy to push business performance to new levels. According to Gartner, global IT spending within the business industry is set to reach $3.8 trillion this year. Meaning the CFO must recognize their role as an agent who drives technological transformation throughout their company.
  • Financial planning and budgeting: A good CFO has the company’s most current financial data ready to create realistic budgets and short and long-term financial plans. The CFO must also keep abreast of continuous budgeting to stay ahead of changes within the company.
  • Management of finance, HR, and IT procedures: The CFO should not only be in tune with the management of these procedures, but he or she should also be fully up-to-date with the technologies they are using. Access to this information gives the CFO the tools he or she needs to work across departments and divisions. For example, many CFOs take on budgeting for compensation and benefits as well as IT expenditure.

Soft Skills

In today’s business environment, CFOs need more than financial and analytical skills. They also need to excel at forming and maintaining business partnerships.

  • Management and leadership of the finance/accounting team: Leadership and people skills are integral parts of the CFO’s function. Leading CFOs have the soft skills required to drive creative thinking and engagement. For this reason, excellent communication skills are a top priority if they’re going to be leaders in a company.
  • A strategic relationship with the CEO: The CFO needs to be a strategic partner but also a reliable accountability partner to the CEO. Meaning, they continually help the CEO drive progress for the company. The CFO must continually bring reality to the company’s management team, identify and measure the risks of their decision-making, and ultimately make sure that the CEO is accountable for meeting company goals and objectives.
  • A deep understanding of company strategy: Each company has a unique business strategy based on the size of the business, budget, industry, and goals. An efficient CFO will know the company’s strategy inside and out. This strategic understanding allows him or her to prioritize business tasks and processes for the CEO and advise the CEO on strategies to get their goals while hopefully getting the best return on investment.
  • An effective decision maker: A top-line CFO has the skills and experience to develop strategic planning and forward-thinking. The CFO must always be ready to implement changes within the company to prevent loss and produce growth. Adaptability is key to good decision making and will build trust with the CEO. At the end of the day, a strategic CFO plays a very crucial role in the CEO’s ability to make more informed and insightful [read: better] decisions, which is crucial during times of economic strain and uncertainty.

Read more: Outsourced CFO Services – Benefits of a Part-Time CFO

If you’re looking for a top-performing CFO but don’t have the time, budget, or desire to hire in-house, Signature Analytics is the go-to resource for outsourced CFOs. We provide professional, part-time CFO services, supplying your company with a Chief Financial Officer who is a leading expert in their field. We’ll match you with a CFO you can trust to provide the following: actionable financial analysis, cash management, forecasting, accurate reporting, high-quality business advice, and company risk management.

Contact us today to find out more about our finance professionals.

 

In all industries, Controllers are the people who supervise all accounting functions in a business. These financial experts steer the ship to keep the company’s finances on track. As you can imagine, a Controller has many responsibilities, including:

  • Supervising accounting teams
  • Managing and maintaining cash flow of all accounts
  • Managing controls to ensure assets are used appropriately
  • Creating the policies and procedures to manage all accounting processes
  • Providing data for audits
  • Compiling financial statements and reports
  • Determining appropriate budgets for the company
  • Overseeing accounts payable
  • Preventing fraud or misuse of company assets

In short, a Controller is in charge of managing the accounting department. The right person must have multitasking skills and highly developed communication skills to work closely with business leaders and their team.

4 ways a Controller can grow your business

A professional Controller can help your business grow in several ways, including:

1. Taking accountability for your company finances

Your financial Controller will take full responsibility and accountability for your company’s financial systems. This person is typically so in tune with your finances and business operations that are aware of every number crunched and have a thorough understanding of your business expenses.

A Controller will also be able to explain any fluctuations in your cash flow, strategize your finances, and optimize them. Your Controller will play a big role in every financial decision you make on behalf of your company, from purchasing new equipment to hiring new staff. Also, they will likely be the primary point of contact for your legal, insurance, and banking alliances. With all these major responsibilities taken off your plate, you are left free to do what you do best — further developing and running your company.

2. Finding areas where you could be saving on costs

One of the most critical parts of the Controller’s job is to get to know the business inside out and find ways to improve profitability and budgeting. A proactive Controller will know if your company’s sales are hitting targets, and they will be aware of ways to decrease expenses and improve product margins.

Your company can benefit from a controller who is an expert at finding and launching cost-saving initiatives to increase your profitability and allow your business to flourish.

3. Creating value as a business partner

A Controller who is worth their salt should manage vendor relationships, so the business receives the best available terms and contracts. The right Controller must also feel comfortable to talk to you if they disagree with your company’s spending habits.

If you are patient and listen to your Controller, you will find their opinion not only valuable, but their professional point of view can save you money that can be reinvested in your business.

4. Managing your company data

A financial Controller plays an important role when it comes to managing your company data. If you’re going to invest money in hiring a Controller, you need to understand his or her exact role in this critical area.

Your Controller will not deal with financial data entry but will supervise the process and make sure it’s carried out accurately, efficiently, and securely. Within this role, the Controller should be up-to-date on current accounting and finance technology. This person should always be on the lookout for new and innovative technology to help streamline the running of your accounting department.

When does your Business need a Controller?

Hiring a Controller sounds like a big job — and it is. So, when does it make sense to hire a high-level financial professional? If any of these situations sound familiar, it might be time to hire a Controller:

  • Your company is growing rapidly, and you need help in making financial decisions, such as evaluating new revenue streams or purchasing a new facility
  • You need someone to lead your company’s accounting operations so you can spend more time managing your business’s development
  • You need regular, consistent reporting on your company’s financial position
  • You want to ensure that your company is fully compliant with tax codes
  • You need help managing significant amounts of receivables and inventory

Read more: What Does a Controller Do and Should You Hire One?

What are the benefits of outsourcing a Controller position?

If you are running a small or medium-sized business, you may not have the budget or need for a full-time, in-house controller. But that doesn’t mean you don’t need someone to fill this role and the duties associated with this being a successful hire.

You can still benefit from a Controller’s experience and expertise by outsourcing this role. An outsourced Controller will give you benefits you would not get with an in-house Controller, such as:

  • No lag in operations: When you hire an outside source for financial work there are multiple benefits. If they are sick, take vacation time, or there is turnover there is always a well-suitable candidate on the team who can pick up the work uninterrupted or step in where needed. This way, your business won’t feel the burden. Furthermore, you won’t have to spend time and money hiring and training another employee. When you outsource your Controller, they are already vetted, so you can be sure the job is completed with efficiency and expertise.
  • Expertise on demand: When you hire a professional outsourced Controller, they should have an accounting degree, several years of experience working for other companies, and in-depth knowledge within a specific industry. Outsourced Controllers should come with a high standard of financial expertise and knowledge. Bringing on an outsourced Controller who knows your industry inside and out can make you more money and help your company grow. And in the event additional support or expertise is needed, your outsourced firm should have access to an entire team of experts so you are really getting access to the entire company of experts.
  • Reliable reporting: As a business owner, you need access to accurate financial reports at the end of each month to help you see where your business is doing well, and to highlight problem areas. An outsourced Controller can create monthly reports tailored to your preferences, whether you need general or more in-depth reporting.

Read more: 5 Signs Your Business is Ready for Outsourced Accounting

Don’t wait until it’s too late to hire a Controller. If your company is growing quickly and you feel that your financials are out of control, now is the time to get expert help before the company starts to suffer. Even if you can’t afford to hire a full-time Controller, you can still reap the benefits of outsourced Controller services. And it might even be a better fit until you really need to hire for a full-time role.

If you’re thinking of hiring an outsourcing Controller or even considering an in-house role, Signature Analytics can provide you with the best advice and direction on how to build your internal team and where outsourcing might benefit your company.

A Signature Analytics financial expert will collaborate with you and your company leadership to oversee the implementation of a financial plan designed to suit your company. They will streamline your current accounting process and provide you with ongoing financial reports and metrics for review. Signature Analytics also offers part-time CFO services, should your business plans require one – which most do at some point.

At Signature Analytics, we work together with our clients to provide them with the benefits of a large firm, coupled with the close relationship of working with a local team daily. Contact us today so we can help you take charge of your business finances and make your company grow.

The role of the chief financial officer (CFO) role has changed significantly over time.

Traditionally, a CFO’s role was comprised of reporting, controlling the accounting department, preparing for an audit, supervising capital structure, and overseeing all elements of compliance.

Today not only does the CFO handle all of those responsibilities, but the role has evolved to include duties such as capital allocation and portfolio management, taking the lead in relations with company investors, and being in charge of performance management.

While the role of a finance and accounting leader has many responsibilities, we’ll look at two broad categories: “operational CFO” and “strategic CFO.”  Having strategic financial insights is essential, as all business owners already know. First, let’s define these roles, then, let’s address what a business owner can do when a C-Suite hire is not within reach.

What is an Operational Chief Financial Officer?

An operational CFO role is much more than a number cruncher. This person develops a much more holistic understanding of how the company operates, rather than merely focusing on cash flow.

Why? Because an operational CFO typically has a deeper understanding of company processes and systems, which gives them a stronger grasp on what the cash flow figures mean. They also have a firm grasp on operational risk, reporting, and other accounting functions.

These financial management skills make a significant difference in the long-term success of the company.

For example, imagine your company sold suitcases. A traditional CFO could tell you the exact cost to manufacture each suitcase, and how much profit you’d make each time you sell one.

An operational CFO could give you more context into exactly what these figures mean for your business. They might check for inefficiencies in the way the suitcases are manufactured and look for expenses that could be reduced. In the long run, this added layer of analysis would save your suitcase company a lot of money.

What is a Strategic Chief Financial Officer?

Like an operational CFO, the strategic CFO will understand the financial operations of your business inside and out. Beyond this, strategic and operational CFOs have different objectives. Where an operational CFO is concerned with past and present financial analysis, a strategic CFO must be forward-thinking with their strategy, providing valuable insights that can initiate positive changes within the company.

For example, imagine you want to increase revenue for your suitcase company. The strategic CFO will play a major role in how you grow your company. They will work closely with the Chief Executive Officer (CEO) to develop a goal for where the company should be in the next three, five, and even ten years. The executives will work together on a plan to reach these goals, perhaps by launching a new product or redesigning its flagship suitcase.

How Are Operational and Strategic CFOs Different?

Although an operational and a strategic CFO do have some shared responsibilities, there are some differences:

An operational CFO can help you to:

  • Fully understand the operational functions of the company
  • Long-term financial planning
  • Eliminate unnecessary spending
  • Increase ROI
  • Identify and improve inefficient operations
  • Understand the full financial functioning of your company

A strategic CFO can help you to:

  • Understand your company’s profit trends and how these will impact the future of the business
  • Determine areas where your business should expand or trim for future growth
  • Provide information and analysis regarding all strategic decisions
  • Assess the benefits and disadvantages of alternative models and distribution channels
  • Analyze areas for further expansion
  • Develop predictions for the company’s future growth

When Do You Need to Hire an Operational CFO?

The most obvious reason to hire an operational CFO is if you need someone to help you assess your company’s efficiency and make changes to improve production and save money.

An operational CFO will provide you with business intelligence, which can help you mitigate financial risks. They will also help you if you are dealing with a merger or acquisition.

Dealing with liquidation, or equity and debt negotiations are two other scenarios where an operational CFO is the right choice.

When Do You Need to Hire a Strategic CFO?

The most obvious reason to hire a strategic CFO is that they will be able to project your company’s future, provide a strategy for the CEO to run with, and focus on improving profitability.

Your company will also benefit from strategic CFO services because, among their other responsibilities, they will provide stakeholders with assurance that your business finance is in safe hands.

This level of trust means existing stakeholders will want to invest more money into the company, and it will also help to acquire new investors.

What Can You Do If You Are Not Ready for A Full-Time CFO?

It’s clear to see the advantages of hiring an operational or strategic CFO, but if you are running a small to medium-sized business, you may feel an executive is beyond your budget. You may not want to give away equity or, you may simply already know that outsourcing is a great way to scale a business.

At Signature Analytics, our Business Advisory CFO services provide the boots-on-the-ground operational CFO service with the forward-thinking strategic CFO guidance all rolled into one. Working with us as a fractional resource has many benefits, including:

  • Avoiding the expense of advertising, interviewing, vetting, and training a new staff member
  • A faster, more efficient hiring timetable
  • The knowledge that you are working with a fully qualified, experienced finance professional
  • Always having Business Advisory CFO services available, even in August when most in-house C-Suite professionals are on vacation

High-level CFO insights are essential to growth, scalability, profitability and even succession and exit planning.  If your business is ready to take planning and finance to the next level, contact us today to discuss how our expert team can help your company succeed.

Whatever industry you’re in, whatever the size of your organization, the Chief Financial Officer plays a vital role in your company’s success. If you run a small company, you may not have the workload or funds to support a full-time financial executive. If this sounds familiar, a part-time CFO could be a viable solution to reap the benefits of a financial executive without breaking the bank.

Read on to explore why your company needs a part-time CFO, what this fractional executive does, and how to hire for this critical role.

This is Why Your Company Needs a Part-Time CFO

In many small and growing companies, an accountant or maybe even the owner picks up CFO duties. While the owner may know the business inside and out, they often don’t have a lot of experience managing finance and accounting or don’t enjoy dealing with it. In many cases, accountants don’t have the proper training to provide strategy and forecasts the way a CFO does.

A CFO measures the success of your business in dollars and cents to help your company grow as quickly and as profitably as possible, while providing these key benefits:

  • You’ll have a personal advisor: Your CFO will always be there to guide your financial decisions. They come with a wealth of knowledge and will have a grasp on the ins and outs of your business financially.
  • You’ll have help raising capital: Your CFO will play a critical role in managing your business funds and equity. They will help you to raise enough capital to expand and ensure that your revenue is collected on time.
  • You’ll have an expert in financial data: Currently, data is one of the most significant driving forces behind a company. The expectation is that a CFO with experience will know how to analyze Big Data, pair it down, and report the most important facts and figures to the CEO.
  • You’ll have more time to do what you do best: As your CFO brings in-depth knowledge of all things financing and capital, they can manage relationships with partners, shareholders, lenders, and investors. This help will open up your calendar, giving you more time to concentrate on running your company.

Which Kind of Background Should I Look for in a CFO Candidate?

As you’re searching for the right CFO, it will be imperative to consider your company’s short-term and long-term goals. Your goals will help shape the qualifications you are looking for in your next finance leader.

While all CFOs have qualifications and experience in business finance, each has their area of expertise that can serve as a bonus to your company.

The KPI Wizard: This type of CFO loves metrics. They can step into your business and quickly see how you are scoring on performance. If you are not up to par, they will be very swift to tell you where and how to make improvements.

The Numbers Champion: This type of CFO is a leader that feels comfortable wearing many hats. Within the finance department, their role may include handling treasury, controllership, financial planning, and auditing. They won’t let a single figure slip by without notice, and they will keep you informed of all significant financial occurrences.

The Strategy Ace: This type of CFO usually has experience working on other aspects of a company such as general management, marketing, and operations. These experiences give CFOs the ability to effectively communicate with practically anyone on the team to ensure accurate procedures are followed. The results are streamlined business strategies and employees who are prepared to handle any issue that may arise.

The Development Expert: This is a new breed of CFO. Chief financial officers who are experts in growth and development usually have several years of experience dealing with venture capitalism, private equity, and mergers and acquisitions. They will help you grow your business in ways you may not have thought of yourself.

Read More: The CFO of the Future: Why You Need One

These are the Reasons Why Your Company Needs a Part-Time CFO

Small to middle-market companies who range in $40 million in annual revenue, and who may have a small accounting team, may not need an in-house, full-time CFO. Of course, this is dependant upon a variety of factors. However, they likely still need the advice of a financial leader, especially when it comes to the following:

  • Improving your financial awareness: Accounting departments rarely have the knowledge and experience of a CFO. They cannot provide the same level of financial forecasting or strategy development and implementation as a CFO.
  • Reaching solutions fast: While it’s true that you know the business best, a CFO brings a fresh perspective. They can help find solutions to recurring problems and work with you directly to streamline all the financial aspects of the business.
  • Creating cash flow forecasts: A thorough understanding of economics is essential to anyone in the role of CFO. This knowledge enables them to develop accurate cash flow forecasts based on the company’s finances and its standing within the industry.
  • Staying aligned with your financial department: A qualified CFO has a firm understanding of the latest financial software solutions and cloud-based tools. Knowledge such as this provides the company with ways to more easily access important business information.

Read More: Signs Your Company Needs to Hire a CFO

What You Get with a Part-Time CFO

A CFO’s responsibilities are broad and will vary somewhat depending on your company’s industry and size. Regardless of sector, there are a few essential functions they can use to help any company:

  • Providing a thorough understanding of your company’s financial situation
  • Helping you make necessary financial decisions based on that knowledge
  • Taking steps to reduce financial risks now and in the future
  • Forecasting budgets and developing strategies to grow your business
  • Implementing an economic growth plan
  • Managing or supporting multiple departments:
    • Accounting: tracking cash flow and financial planning
    • HR: managing payroll and flexible benefits
    • Legal: overseeing taxation issues
    • Treasury: deciding how to invest the company’s money
  • Monitoring different transactions:
    • Benefit plans: optimizing price and value
    • Acquisitions: managing a merger or acquisition strategy
    • Insurance: making sure that the company has adequate protection

When is it Time to Engage a Part-Time CFO?

There are a few significant signs that it might be time to consider a part-time CFO for your company. Some of these include:

  • Periods of rapid growth: A CFO can help scale your business by focusing on capital, liquidity, and free cash flow. Their expertise can ensure your rapid growth is fiscally sound and sustainable in the long-term.
  • New product development: You can benefit from a CFO’s market assessment skills and their ability to work with marketing and sales partners. Their analytical ability will help you get the best return on investment when it comes time to launch your new product.
  • You want to boost profitability: In this instance, a CFO can understand the cost of various projects, track the right metrics, and use data to streamline the company. When the CFO understands the bigger picture, they can set your company on the right track towards long-term growth. They can even get you back on track if your business has become stagnant after several years of maintaining the status quo with less successful results.

Filling the CFO seat can be beneficial for numerous reasons, including quantifying and reducing risk to the organization, lowering costs to increase profitability and cash flow, and ensuring your long-term company strategy is executed and results realized.

By bringing on a part-time CFO, business owners and managers can realize these benefits at an earlier stage and save on costs, rather than waiting for a full-time CFO role to develop.

If your business could benefit from a part-time CFO, contact Signature Analytics. We are happy to discuss our outsourced CFO services. We can set up a consultation to learn about your specific business needs and can discuss the best, outsourced CFO services for you.

 

Though the CFO and the financial controller work closely together, they have significantly different roles within a company. The biggest distinctions can best be described by breaking down the operations and responsibilities that come with each role. Another important aspect is the ongoing relationship between a controller and CFO, which is what leads to their success.

1. Scope of Roles: Strategy vs. Tactic

The CFO plays a significant role in strategizing for the company’s future, pushing the organization forward, and advising stakeholders about important business decisions. The controller, on the other hand, tends to carry out tactics that help with the day-to-day financial operations of the accounting department. These tactics enable the CFO to meet the company’s strategic goals.

The strategic planning of a Chief Financial Officer is often illustrated by their ability to identify business risks and make appropriate decisions to mitigate those risks. Meanwhile, the controller implements their tactics to strengthen the company’s accounting procedures.

The CFO’s strategizing is significant because it is their responsibility to help the CEO convince executive management of new ideas. Once those new ideas have been communicated to employees, they begin measuring results against the company’s goals. It is the CFO’s strategic leadership that steers the company in the right financial direction while creating greater company-wide accountability.

The controller, however, looks for ways to improve the company’s profitability and primarily reviews the company expenses. A good financial controller will develop efficient and effective strategies to increase profit margins, increase employee productivity, and find cost savings.

Read More: Benefits of a Part-Time CFO.

2. Daily Responsibilities: Management vs. Forecasting

Although both roles oversee the financial aspects of the company, the CFO and the financial controller have very different day-to-day responsibilities. Here’s a look at the difference between the two:

What are the Daily Responsibilities of a Controller?

A financial controller has four tiers of accountability, each with its own set of responsibilities. These include:

Management

  • Implementing and maintaining accounting procedures, processes, and policies
  • Supervising all accounting department operations
  • Overseeing control of accounting within subsidiary companies

Transactions

  • Maintaining an up-to-date data storage system
  • Ensuring accounts payable and receivable are on time
  • Ensuring payroll is on time
  • Supervising bank reconciliations
  • Keeping an updated chart of accounts

Reporting

  • Preparing relevant and timely financial reports
  • Preparing the company’s annual budget and annual report
  • Suggesting ways to improve company performance
  • Generating and reporting financial operating metrics
  • Reporting budget variances to management
  • Generating financial analysis for management decisions

Compliance

  • Monitoring debts and compliance
  • Providing information to external auditors
  • Providing financial information for tax filing

What are the Daily Responsibilities of a CFO?

A CFO is less directly involved in the financial department’s day-to-day operations compared to the controller. The two tiers of accountability that a CFO has are:

Economic Strategy and Forecasting

  • Reviewing and comparing the company’s past and present financial situation
  • Generating forecasts for the company’s financial future
  • Reporting on where the company is most financially efficient and where improvements can be made
  • Predicting future scenarios and analyzing the best direction for the company’s success

Treasury Responsibilities

  • Deciding the best ways for the company to invest money
  • Overseeing the company’s capital structure
  • Determining the best options regarding debt and equity
  • Analyzing issues related to the company’s capital structure

Read More: What Should Small and Mid-size Businesses Expect From Their CFO?

3. Hierarchy: Director vs. Executive

The accounting department may be missing critical opportunities if there is no one in the role of controller. Not only that, but the CFO may be working overtime to get all the information they need to make accurate decisions. Likewise, without a CFO, the larger fiscal picture is at stake and the company may not have an accurate forecast of future finances.

The combined efforts of the CFO and financial controller can help the company realize the CEO’s vision.

Read More: Signs Your Company Needs to Hire a CFO

Does Your Company Need a Controller or a CFO?

If you’re struggling to decide on whether your company needs a financial controller, a CFO, or both, here are some things to consider:

Controller
You may consider hiring a controller if:

  • Your company is growing rapidly, and you require accounting records based on Generally Accepted Accounting Principles (GAAP)
  • Your accountant can’t keep up with all the financial data
  • You need to develop a budget and cash flow forecast
  • You need financial management reporting

CFO
You may want to consider hiring a CFO if:

  • You need more than just accounting records
  • You’re in a transition stage, such as going through a merger, acquisition, or relocation
  • You need financial forecasts for your company
  • You need someone to help you make decisions on investments

Outsourcing: For companies who don’t have enough work or enough money for a full-time, in-house CFO or controller, outsourcing is the way to go. Companies like Signature Analytics can provide you with top-notch financial professionals who can help you make the most of your company’s current and future finances. Outsourcing these roles has several advantages:

  • You get high-quality professionals without having to go through the whole advertising and hiring process
  • You only pay for the work that’s being done for your company
  • You save on salary, benefits, bonuses, and raises
  • You have the ultimate flexibility to scale up or down depending on your needs

You can feel confident that the professionals you outsource are experienced as they are vetted by Signature Analytics.

If you have a small or medium-sized business and think it could benefit from a CFO or controller, please reach out to our team of experts. Even if the company doesn’t have the financial resources to bring these positions in-house, you can outsource these roles. Contact Signature Analytics today to find out how we can help you optimize your company’s financial future.

 

An accountability partner is your right-hand supporter who will stand by your side through your company’s ups and downs and who will work with you to achieve your goals.

Often a CFO can act as an accountability partner to a CEO. They can help hold you to your business goals while also keeping you responsible for your actions.

Think of having an executive accountability partner similar to having a gym buddy. They are there to help motivate and encourage you, to remind you to stick to your exercise and nutrition goals, to help you set realistic expectations, and ultimately push you to reach your fitness goals.

What is the Role of an Accountability Partner?

Business accountability partners are similar to a mentor, with a few significant differences. Your mentor is an experienced and trusted advisor who can teach you from their knowledge and experiences.

Your relationship with a mentor is typically hierarchical, but an accountability partner is a peer-to-peer. Having someone who you feel can be candid with you and can keep you on track and ultimately make it easier to achieve your goals.

One modern-day example is Oprah Winfrey stating Maya Angelou (poet and author) was her mentor. Winfrey described Angelou as being “…there for me always, guiding me through some of the most important years of my life.” Winfrey has also spoken of her accountability partners for her personal life, her buddies at Weight Watchers who help her to meet her weight loss goals.

While both relationships benefit Oprah’s personal and professional growth, they fill different roles. When it comes to your business, an accountability partner can prevent you from running your company off the rails and guide you towards success.

Read more: 5 Key traits of successful leaders and how they can benefit your company

What are the Benefits of an Accountability Partner?

We are not meant to do everything on our own, especially when it comes to business. If you can find someone to hold you accountable for your lofty goals, you can achieve those targets much more quickly.

To get the most out of your relationship, consider the following:

  • How your accountability partner measures and reports your progress
  • How your accountability partner reacts when you go off-track
  • How much ownership you assume for your actions

The way in which your company utilizes accountability will determine how you implement your strategy and achieve your goals. Having an accountability partner will affect every goal, task, and action-no matter how big or small.

The benefits that you can reap from your relationship with an accountability partner include:

  • Your performance will improve: When people know they are being held accountable by others for their actions, they will work harder. Research shows that when someone publicly shares their goals, they have around a 65% chance of success. However, having a specific accountability partner boosts that chance to 95%.
  • You receive honest feedback: Just as you are committed to your goals, your accountability partner must be committed to giving you honest feedback, both positive and negative. Consider implementing consequences when specific goals are not met. These could be in the form of financial penalties or admitting you let your partner down. On the other hand, brainstorm rewards that your partner can provide when you reach your goals.
  • You stay on track: Having an accountability partner can keep you on track and improve your productivity. With this structure, it is unlikely you would become distracted from your goals. To avoid any feelings of overwhelm, an accountability partner can help you break down your goals into actionable and attainable steps.
  • You will be able to create deadlines: Your accountability partner will help you in reaching your goals by setting fixed and public deadlines. Sharing your goals with a partner will help ensure that you reach your deadlines.
  • You stay grounded: Accountability enables you to reinforce your goals regularly. It prevents you from becoming too optimistic and lets you to keep your feet on the ground, even when day-to-day tasks can seem mundane. Your partner helps you stay mindful of the present so that you can achieve your short-term goals.
  • You will keep problems in perspective: If you don’t address small problems right away, they can quickly grow into bigger issues. There may be times when you inadvertently overlook concerns that need to be addressed. An accountability partner will provide you with a second pair of eyes, therefore, helping you prevent these instances from occurring.
  • You can learn from others’ successes and mistakes: Having a conversation with your accountability partner can give you new perspectives on business through real-life examples. You can learn from other people’s successes as well as their mistakes in business. Having this type of partnership can help you identify challenges in your business that you may not have thought about before.

How to Choose Your Accountability Partner

To get the most out of this relationship, you’ll need to choose someone who compliments your personality and knows how to motivate you to reach your goals. Here are some tips on selecting an accountability partner who can help you with your professional growth journey:

  • Find someone who has incredible self-discipline
  • Choose an objective partner — not a friend or family member
  • Choose a partner you want to impress
  • Define your goals, your plan to achieve them, and how you’ll share and measure progress
  • Develop a growth plan and timeline with your accountability partner

Do you Have the Wrong Accountability Partner?

After you choose the person who will fill this role, check for any red flags that you may have chosen the wrong partner. A few common signs include:

  • Compatibility: Do your viewpoints and goals differ widely? Do you frequently clash when you communicate? Is your relationship becoming too much of a distraction?
  • Mutuality: Do you feel that your relationship is one-sided? Are both of you benefitting from this relationship? Is your accountability partner fulfilling their commitments?
  • Scheduling: Are you having problems agreeing on a time to meet? Are your schedules clashing? Is your accountability partner not showing up for appointments?

How Signature Analytics Can Help with Your Accountability

Signature Analytics can provide your company with an outsourced CFO to act as your accountability partner through our Financial Performance System. The CFOs function as your strategic partner and will help you develop a financial roadmap specific to your organizational goals in relation to your ultimate vision for your business.

By focusing on your company’s metrics, they will help you to create a realistic, future-focused plan of action, help you in achieving your goals, and make better, informed decisions, leading to several benefits:

  • You are guaranteed an experienced and fully vetted accountability partner
  • You can take advantage of a committed accountability partner without paying a full-time salary
  • Your CFO can help your company grow and maximize your profitability
  • Your CFO can provide an accountability partner who can work on or off-site to suit your schedule

When it comes to growing your business, don’t try to go it alone. Having a partner to hold you accountable can be the difference between developing a successful financial plan opening the possibility to expand your company, and losing sight of your goals or even losing your business. Contact Signature Analytics to discuss how we can help you stay accountable to your strategic business plan.

Are you wondering what does a controller do? The financial aspects of running a company are vital and complex. They include forecasting and planning, accounting and measuring results, and monitoring cash flow. Having this information at hand can help you as a company owner to make better decisions. While managing a business is nothing short of overwhelming, the good news is you don’t have to handle all these processes yourself. You can set up a financial team within your business to help you.

Common Accounting & Finance Positions Within a Business

There are a few key positions within the accounting and finance departments that you should be aware of:

Bookkeeper/Accounting Clerk: Duties include the day-to-day recording and assessment of basic accounting information.

Accountant: Duties include handling money in and money out, payroll, preparing financial reports, and maintaining financial controls.

Financial Controller: Duties include working alongside the CFO and sometimes financial director to provide financial leadership. They are responsible for accounting, reporting, analysis, budgeting, and more. 

Chief Financial Officer (CFO): Responsible for overseeing the financial operations of a large business. A CFO leads companies through growth cycles and business downturns. Duties include identifying the best investment opportunities, developing relations in banking, and minimizing finance costs.

The Valuable Role of a Controller

A controller is one of the most influential people within your company’s accounting and finance department. Controllers help everyone within the department work together. Some of their specific duties include:

  • Ensuring the integrity of all accounting functions
  • Performing meaningful financial analysis
  • Facilitation of tax information to your CPA<
  • Providing financial information to company executives
  • Assisting management with financial decisions
  • Helping the accounting team with cash flow management
  • Provide job training and mentoring ton the accounting department

When Does Your Company Need a Controller?

It takes effective leadership to handle your accounting so that your business can flourish. A financial controller can benefit your company by offering skills and experience that you may not be able to get from other people on your team.

Here are three specific situations where a controller would be a perfect addition to your team:

  • Your business is expanding: If you are scaling your business and your company is becoming more complex as you add lines of business or open new locations, you run the risk of your operations becoming splintered. When you reach this point, you need someone who can help you generate your financial data and make recommendations to help you use your capital wisely and save money wherever possible. This is where a controller comes in.
  • You need to supplement your accountant:There is a significant difference between an accountant and a controller. A controller can supervise your accounting team and streamline your financial processes. They can also assist with hiring new members for your accounting department while making sure you have the most qualified professionals.
  • Your CFO is overwhelmed: If you don’t have a controller, your CFO could possibly handle those duties. However, if your CFO is struggling to handle their role as chief strategist while also supervising the accounting team, you need a controller to step in. A controller can take the load off your CFO by focusing on the day-to-day supervision of the accounting team and providing the CFO with the necessary information to help them make accurate financial forecasts to support future strategic decisions for the business.

Is It Better to Outsource a Controller?

Many small or medium-sized businesses do not have the budget to hire a full-time, in-house financial controller. Nor does it make sense for them to do so. However, this doesn’t mean your business wouldn’t benefit from one. You can take advantage of the numerous benefits of fractional hiring by employing an outsourced controller. These may include:

  • You may not have enough work to employ a full-time controller: One of the main reasons companies don’t hire a controller is because they do not have enough work to keep them busy full-time. Often, when a business employs a fractional controller, they haven’t had one on their team before. An outsourced solution offers an excellent opportunity to bring a controller onboard while your company is in growth mode.
  • You may wish to supplement your existing financial team: You might already have an accounting team in place, but if you notice the books are getting out of hand or that things are not as organized as you’d like them to be, an outsourced controller can help. Their role would be to manage the current team. Part of the role includes the streamlining processes and implementing best practices to ensure there is consistent reporting, including an extra layer of review.
  • You wish to support your outsourced CFO: Not all financial challenges can be met by reorganizing your accounts or creating accurate financial reports. In some cases, you may need the strategic experience and expertise of a CFO. When you combine an outsourced CFO with an outsourced controller, you create a pretty dynamic team. The CFO can analyze your financial data, make financial forecasts, and offer strategic advice on how to change, improve, or grow your business. Meanwhile, the controller can keep the accounting team performing at peak efficiency.
  • You are preparing for a transaction: You may find having an outsourced controller on your team advantageous if you are planning a transaction such as an acquisition or merger, or if you are attempting to raise capital. As these are typically shorter-term transactions, you may not want to hire a full-time controller, and this might not be a good time to add another full-time employee to your staff.
  • You want professional confidence: When you outsource a financial controller (or any F&A role), you immediately reduce your hiring process and staffing overhead. You will also simultaneously obtain more immediate professional confidence and experience with this option than you would by going the traditional route of hiring an in-house role.

The credit given here is to the professional service provider’s ability to thoroughly vet the depth of their experience and test their knowledge within this role in a variety of scenarios.  Meaning, you can rest assured that you are getting a top-notch professional who has the skillset and experience you need for your team.

  • You want to save money: Hiring an outsourced controller means you can avoid a full-time salary and save resources on raises, bonuses, and benefits at the same time. As you are only paying for the work you need the outsourced controller to do, you are maximizing your ROI.  This model allows for flexibility to scale up and down with the ebbs and flows of your business.

Fractional Controller Services

A professional fractional controller can offer your company a wide range of services such as:

  • Cash flow management
  • Drawing up budgets and financial plans
  • Creating monthly financial reports
  • Producing industry-specific analysis
  • Implementing internal financial policies and controls
  • Supervising preparations for an audit
  • Training and supervising accounting staff
  • Expertise with accounting software systems

If you want to take advantage of the experience and expertise of an outsourced financial controller, Signature Analytics can match you with a professional controller who is just right for your company’s needs.

Don’t let a weak or underqualified accounting team let your company down. Contact Signature Analytics today; we’ll help you find a professional controller who can manage your accounting team and take the pressure of your CFO.

Do you find yourself struggling to manage your business and accounting? Are you concerned about data security? Is it taking significantly longer to handle invoicing and payroll?

You may not have considered outsourcing your accounting, but that might be because you don’t recognize the warning signs that your company needs it.

If you find yourself answering the questions below with an emphatic “yes,” it might be time to start thinking about outsourced accounting services.

  • Are you spending way too much time on your accounting?
  • Are you worried about data security?
  • Are you experiencing delays in accounting and payroll?
  • Are you having difficulty finding records quickly when you need them?
  • Is your business growing too fast for you to keep up with your finances?

The Ultimate Guide to Scalable Accounting for Your Growing Business

Are you’re still unsure whether outsourcing services for financial management is feasible for your business? Let’s take a closer look at the key signs indicating that you might be heading in that direction.

1. Your time is being taken up by accounting, and you can’t focus on running your business 

Indicators: Whether you are handling accounts by yourself, or you have other team members helping you, if accounting is keeping you from other important business, it’s time to outsource this job. If you have staff members pulling double duties, and your accounting is taking up too much of their time, you need someone to deal specifically with these tasks.

Warning: When you designate this task to other staff members who are not qualified or equipped to deal with accounts, you run the risk of errors in your bookkeeping, which can cause major problems during an audit.

Solution: Outsource your accounting to a professional team who will be able to dedicate their time to the task without making mistakes.

Benefits: Delegating accounting to a professional team means you can give your time to other areas of the business. Another benefit, you won’t have to put pressure on employees to do a job they may not be comfortable handling.

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

2. You’re concerned about your data security.

Indicators: This should be a top priority. Have you ever heard that your security is only as strong as the software you use and the servers or networks where you store it? If you’re concerned that your systems are not up to par, then it’s time to consider outsourcing your accounting to professionals.

Warning: Failing to maintain high levels of security can not only hurt your business but can have negative impacts on your clients. By storing your account details on a less-than-secure server, you risk hackers accessing the system and ransoming — or even worse — using or selling your data.

Solution: Outsource your accounting to a company that guarantees secure data storage. Meaning your accounting team should be implementing the most up-to-date encryption technology and software so that you can have peace of mind.

Benefits: Your data is much more secure, and any risk of financial information being compromised is now significantly decreased. An outsourced team of experts can also help to reduce your overhead costs because you will not have to invest in high-tech security and bookkeeping software.

Read more: Evaluate These 5 Internal Controls to Protect Your Business

3. You’re experiencing delays in payroll and accounting.

Indicators: It’s vacation time again, and the one member of your staff who knows how to deal with the accounts is taking a week off. Does your accounting suddenly grind to a halt? If you begin to backslide on your accounting and payroll every year at this time, you need outside help.

Warning: Not only a problem for you as a business owner, but it will also create difficulties for your employees who are counting on their paychecks.

Solution: Outsource some or all of your accounting and payroll. You may not need to outsource everything; some remote accounting services will work alongside your staff to help them with finance functions as they need it.

Benefits: Outsourcing your accounting and payroll makes sure invoices and paychecks are always paid on time, keeping you from dealing with angry clients or disgruntled employees. You will always have peace of mind, even when staff members you count on are on vacation or out sick.

4. You’d be worried if you received an IRS audit. 

Indicators: All your documents, invoices, receipts, and payroll information is in a filing cabinet, gathering dust. If you were to receive an IRS audit, can you be sure you’d find the necessary documents easily? If not, you must consider outsourcing your accounting.

Warning: If your accounting and payroll information is disorganized, this can cause serious problems. Documents may go missing or information may easily be stolen or changed, which leaves you vulnerable to IRS actions and penalties.

Solution: Outsource your accounting and payroll to a professional remote service. By doing so, this ensures that all your data is stored in an organized fashion, making it easily accessible whenever you need it. Should the IRS audit you and require you to hand over certain information, your outsourced accounting service will be able to provide the exact data you need when you need it.

Benefits: With an accounting team, there will be no more worrying about how to handle an audit. There won’t even be a need to search for files from several years ago while wasting time in the process. When you outsource your accounts, the possibility of an audit will no longer be equal to stress.

5. You’re scaling your business.

Indicators: Every business owner’s dream is for a successful company, with increasing growth and cash flow. When you’re ready to scale your business, this is the perfect time to outsource your accounting.

Warning: Don’t try to take on too many roles when your business is expanding. This is the time you need to focus on doing what you do best—running the company.

Solution: Make the most of outsourced accounting services to free up as much of your time as possible. Allow yourself one less thing to worry about at a time when everything is moving quickly.

Benefits: Outsourcing your accounting and payroll while you’re scaling your business will allow you to focus your energy on company growth and planning, increasing revenue, boosting your brand image, reinforcing your relationships with customers, and achieving company goals.

Why Choose Signature Analytics?

Here at Signature Analytics, we have been providing small and medium-sized businesses with outsourced accounting services since 2008. We have given hundreds of companies high-quality accounting solutions from our team of professionals, including; experienced accountants, controllers, and CFOs.

We enable businesses to receive superior services at a lower cost than hiring in-house accounting employees. We can work to complement your existing staff, or we can handle your entire finance and accounting functions.

Don’t wait until it’s too late to outsource your accounting. Doing so can cost you valuable resources and could ultimately result in the downfall of your company. Contact Signature Analytics today and let us provide you with an accurate, safe, and cost-effective outsourced accounting solution.


Discover how outsourced accounting can provide more visibility into your business

As an entrepreneur, you likely have a never-ending to-do list that includes meeting with employees, calling disgruntled customers, reviewing company finances, and more. While the list of to-dos never seems to end, you might have an idea in the back of your mind to someday exit the business you have built.

If you have plans to sell your company or a portion of it, anytime within the next 2 to 3 years, the time to start preparing is now. Do not wait until you receive your first letter of intent from a potential buyer. The more effort and time that you can give to preparing for your eventual exit, the smoother the transition can be when the time comes. You’ll likely feel that more work is piling onto your plate, but this is expected as exiting a business, via acquisition or liquidity event is always time-consuming.

Think of it as more effort now, less stress later. The more you can prepare your business for the possibility of an acquisition, the more value you are adding to the company today. Keeping in mind that the business will be better off when the time comes to transition.

Below are a few steps you can take to prepare your business from a financial perspective.

1. Allow Time to Maximize the Potential Value of the Company

From a financial standpoint, it is advised to begin preparing for a liquidity event at least two years before the potential exit. Doing so will ensure you have ample time to make changes that are necessary to improve the business and maximize the future value of your company.

While it is always important to optimize your company’s profitability and value, it is even more so if you are planning to sell. This can be accomplished by streamlining financial statements to ensure management can review them effectively.

For example, simplified and organized financials will enable you to evaluate profit margins by individual revenue stream, develop Key Performance Indicators (KPIs) and ratios applicable to your company, as well as identify and consistently report on the metrics that drive profitability and value. It is vital to begin this process in advance of any sale or liquidity event, as your management will need time to identify, implement, and benefit from the changes made.

2. Get Your Financial Records in Order

When preparing your company for an acquisition, it is critical that your financial records are well maintained. Keeping pristine financial records helps avoid any pitfalls that may be uncovered through the due diligence process.

If you believe your accounting department may not be technically strong, it is encouraged to hire an outside accounting consultant to help sort through the critical information. An independent consultant or team can ensure you’re fully prepared for the financial due diligence process. They do this by gathering information and creating a strong package of financial information that clearly explains the results of your business operations. Even if you believe your accounting department can handle this process, we recommend having a qualified consultant perform the initial review to provide an outsider’s perspective.

3. Plan Ahead with Sell-Side Due Diligence

While certainly not required, engaging an outsourced accounting firm to perform what is known as a “sell-side” due diligence (or a quality of earnings report) process could save you from significant headaches and distractions during this already stressful time.

Sell-side due diligence allows you the opportunity to go through the due diligence process in a more reasonable timeframe. Proactively doing this allows your management team more time to find, organize, and interpret the financial information. Throughout this process, leaders should identify questions that may be raised by potential buyers, so they are better prepared to respond to items in an organized manner.

The sell-side due diligence team will also identify what are known as “add-backs.” These are described as non-recurring or unrecorded revenues or expenses that are added back to the Earnings before interest, tax, depreciation and amortization (EBITDA) to generate a normalized figure. Add-backs can be subjective in nature; therefore, it’s valuable to identify them before the buyer brings them up so you can prepare how to argue for or against those items in question.

Having a prepared sell-side due diligence report could also limit the amount of investigative work that the buyer determines necessary as they may be willing to rely on some, or all, of the results of the report.

Next Step: Due Diligence

You are ready to sell your business, your financials are in order, and you have just received your first letter of intent from a potential buyer. Next, it’s time to prepare for what many believe is a terrifyingly brutal process – due diligence. Read our blog post on the financial due diligence process to learn what is required and how to prepare your business to ensure a successful acquisition.

Prepare Your Business for an Acquisition or Liquidity Event

If you have plans to sell your company, Signature Analytics can provide ongoing accounting support and forward-looking financial analysis to ensure you get the highest value for your business. Contact us for more information or a free consultation.




What is petty cash in accounting? Petty cash, also referred to as a petty cash fund, is a small amount of funds that are kept available for companies to use for small purchases which come up from time to time in the course of business operations. That’s a long way of saying it’s “shoebox money” for expenses which are usually too small to bother using a credit card or writing a check.

Need some postage stamps? Go to the petty cash. Stapler broken? Petty cash. Reimbursing an interview candidate who needed to pay for parking? Petty cash. Pizza for the team working after-hours? Petty cash.

Petty cash funds are small, but they do need to be managed properly. You’ll want to ensure that the money isn’t mishandled, and you’ll want to make sure that those little expenses are accounted for when tax time rolls around. Here’s how you can set up an effective, easy-to-manage petty cash system.

The Advantages of a Petty Cash Fund

Keeping a certain amount of money—say $100—on hand in the form of petty cash is a good idea. A small petty cash fund:

  • Limits discretionary spending and preventing small purchases from snowballing into a significant annual expense
  • Allows staff members to make small, authorized purchases without filling out an expense report
  • Reduces the need for managers to pay for purchases out of pocket
  • Cuts down bookkeeping
  • Provides a convenient source of funds

How to Set Up Petty Cash Funds

Typically, one employee is responsible for controlling petty cash funds. This person is known as the petty cash custodian. The custodian will maintain and document all expenses from the petty cash. By giving this responsibility to one custodian, it means that you will retain internal control over the money.

You can set up your petty cash float – the maximum, fixed amount of on-hand cash – by cashing a check, usually ranging from $100 to $500 depending on the size of your business. Larger companies often have a petty cash fund for each department. The amount you select for your petty cash fund must be sufficient to cover small expenses over a designated period, usually one month. You will also need to set up a petty cash account in the asset section of your financial reports.

The custodian is responsible for keeping the petty cash funds in a safe place such as a lockable box only to be accessed when needed. Even though the petty cash account is small, it needs oversight. When the custodian disburses money from the petty cash fund, he or she will write out a petty cash receipt which will be signed by the employee who is receiving the funds. The receipt will also show the amount disbursed and what the fund is being used to purchase.

Establishing Internal Controls for Petty Cash Funds

When you are setting up a petty cash system for your business, you must establish clear and concise conditions so that the funds are not misappropriated. It’s a good idea to specify what things petty cash can be used for; the petty cash policy should be in writing, and available for review by your management team and your employees. Typically, you will want to limit the number of individuals who have access to petty cash funds.

You don’t need to give every employee access to petty cash, and your petty cash custodian should be the only person permitted to disburse it. It should be up to the custodian to decide whether each expense is appropriate based on your company’s petty cash policy.

Make sure that there is a reasonable amount of money in the petty cash fund and that it is enough to meet your company’s needs. Always make sure that the custodian replenishes the fund when it is getting low – making sure, of course, that you know where and how that money has been spent.

How to Manage Petty Cash Funds

Even though the expenses running through your petty cash funds are small, they will still need to be managed properly. Tracking all of your petty cash expenses as part of your bookkeeping system ensures that all tax-deductible expenses are captured.

Managing your petty cash funds begins as soon as the first check has been cashed to create the petty cash float. For example, if you have decided on a petty cash fund for $100, your petty cash account book entry will show a debit of $100 to your petty cash fund and a credit of $100 to your bank account. Every time your custodian disburses money, he or she will fill out a receipt so that at any point in time, the total of the money and receipts in the petty cash box will add up to the initial amount of the petty cash fund.

As the balance remaining in the petty cash fund becomes too small to be of use, the custodian should tally and summarize the receipts and exchange them for a new check made out to cash to equal the total of the receipts. When the check is cashed, the funds will be added to petty cash so that its original level is restored.

If the custodian finds that the petty cash fund is too small—this is the case if the fund needs replenishing every few days—then he or she may increase the float. This would then be recorded in the petty cash accounts. On the other hand, the custodian may find that the fund amount is excessive. In this case, the surplus petty cash should be taken from the fund and deposited in the company bank account.

Petty Cash and Taxes

If this sounds like a lot of work just to maintain a $100 fund, there are good reasons for it. Typically, all or most of your petty cash purchases will be for business expenses, which means they will be deductible from your business taxes. That is why it’s important to keep a record of each expense. If you fail to document them all, you will not be able to deduct them from your business expenses for a purchase. You can find out more information about the requirements for petty cash and recordkeeping by reading IRS Publication 583.

Petty cash is a useful tool for small and medium-sized businesses as it keeps money available for small expenses. Recording those expenses helps to budget for future ones, and even though those might be small, they add up. When all disbursements are recorded diligently by the petty cash custodian and the money is replenished on a regular basis, using petty cash can be a real timesaver.

We Can Help

Of course, overseeing a petty cash fund is still going to add another layer — albeit a small one — to your accounting function. Contact us if you need help establishing a petty cash fund and its conditions.

Mergers and acquisitions are a common and occasionally disruptive feature of the corporate landscape these days. Some mergers and acquisitions even transcend the business world – think about the reaction of many Marvel fans when they learned that Disney was acquiring Marvel Studios.

Although a merger and acquisition (M&A) involves the transaction of making two companies into one, a merger is different than an acquisition. These terms, often used interchangeably, have clear differences that you should understand before going through the M&A planning process.

An acquisition occurs when one company buys another company and obtains more than 50% ownership. Legally, the original company (target company) no longer exists and is absorbed by the acquiring company. A merger occurs when two companies, usually of equal size, sign a contract to move forward as a single entity. Each company surrenders its stock, which is replaced with new company stock. Mergers can provide benefits for both companies — like cutting costs, increasing profits, and boosting shareholder values.

What are the Different Types of M&A Transactions?

There are several different types of M&A transactions, including:

Vertical Mergers
A vertical merger occurs when two companies that are operating at different stages but share the same industry combine. An example of this would be a pottery store taking over a ceramics factory. This deal increases synergy in the process and will allow the pottery store to gain more control of the ceramics process and grow the business. The purpose of a vertical merger is to secure a consistent supply of goods, increase efficiency, to save on costs, and to increase the profit margin.

Horizontal Mergers
A horizontal merger occurs when one company takes over another company that produces or offers the same products or services and is at the same stage of production. Typically, the two companies are in direct competition with each other. For example, when Hewlett-Packard merged with competing computer hardware producer Compaq – a move that ultimately helped put HP at the top of that particular industry. The purpose of a horizontal merger is to eliminate competition, increase market share, and boost revenue.

Concentric Mergers
A concentric merger, also called a congeneric merger, happens between two companies that are complementary to one another, but not directly competitive. An example might be a company that sells rock climbing helmets that merges with a company that sells rock climbing shoes. The purpose of a concentric merger is to offer a better service to customers, help the company diversify, and increase profits.

Conglomerate Merger
A conglomerate merger involves the combination of two different companies that are operating in different industries, offering various products and services, and are operating at different stages. The recent purchase of Whole Foods by Amazon is a good example. As businesses go, the two could not be more different, but the merger seems to have benefitted both brands, as well as their customers. The purpose of a conglomerate merger is to diversify industries and lower investment risk.

Why You Need to Reprocess Your Financials After an M&A

An essential part of the integration process is reprocessing your company’s financials after an M&A is complete. It can be a useful means of finding new value in the new company. This type of reorganization allows all the business units from the two companies to be united and standardized in a seamless process.

If you are interested in merging your company with another, here are five critical steps to pulling off a successful merger:

  • Develop a statement of profit and loss: Don’t underestimate the importance of an accurate profit and loss statement. You should have an annual or quarterly snapshot of your revenue, costs, and expenses.
  • Understand your company’s strengths and weaknesses: It can be a challenge to assess the weaknesses and strengths of your company before the M&A process begins. Ask yourself: What does your company do well? What areas need improvement? Be honest and upfront about the areas where you and your business need to improve and what hope you have for the future.
  • Research the company that is acquiring you beforehand: Make sure to do your due diligence ahead of time —search the acquiring company’s website or publications and talk with their employees. You want to have a full understanding of the acquiring company as you begin the process. Why? This company is going to have a considerable influence on how your company runs in the future. Are you interested in maintaining your legacy after the M&A? Ask past sellers if their legacy was left intact or overhauled after the sale.
  • Considering several different options: While it’s smart to consider the outward appearance and impression of the organization, it’s also crucial to think about the underpinnings and how they work. You should be able to put together a solid understanding of what the new company will look like after the M&A, including the new company culture and the individuals within it. Think about the daily processes of running the company and how these will change as well.
  • Make the structure fit: You might have developed a detailed plan on how you envision the new company should be structured. Try to remember you will likely need to review that plan multiple times and make necessary changes after the deal closes. Doing an ongoing review enables you to confirm which areas are sound and which need to be reconfigured and refined, including outlining new org charts, writing updated job descriptions, and mapping out how things will operate. This may change during the M&A process, but you will have a vision and roadmap of how things fit together prior to the merger.
  • Be open to the unknown: No matter how much forethought and strategic financial planning you put into the M&A, it is unreasonable to expect the organization to run perfectly after the merger. For almost all M&As, but particularly with vertical mergers and conglomerate mergers, this is entirely normal. However, that doesn’t mean you have to redesign your whole system from scratch when a challenge arises. You do need to encourage your team to indicate and discuss problems when they arise. But you do need to encourage your team to indicate and discuss problems when they arise. After you’ve completed one or two financial cycles, it’s a good idea to conduct a formal assessment. Doing so will illustrate what condition your financials are in and where more changes should be made.

What are the Steps to Streamline Financials in the M&A Process?

Integrating the financials after the M&A is a crucial part of the process. Finances can get tricky when you combine two companies, so you must ensure financial controls are in place. Be proactive and plan out the following steps.

    • Create a timeline: Develop a timeline to show which activities need to be addressed. Provide deadlines for when they should be accomplished. For example, in the first week following the M&A, establish benchmarks, identify key personnel, and review bank relations. By the end of the first month, meet with management, distribute a code of ethics, and address any employee concerns. Within the first six months, aim for full integration of IT systems, established reporting conventions, and identified high-potential individuals. If you don’t have these things done according to your timeline, don’t panic. Adjust accordingly and make sure you come back to them.
    • Evaluate finance and accounting personnel: One of the first things an acquiring firm should do is assess the skills and capabilities of the financial team. Doing so will help determine which members can stay, which need to be reassigned to a new department or position, and who needs to be let go. This process is also a good time to address any employee concerns and questions. The remaining staff will be entering a strange new world and will look to you for guidance and assurance. Management should meet with the team as soon as possible and communicate everything about the M&A.
    • Safeguard business assets: When two companies merge, members in the financial departments should identify and safeguard existing assets and ones that have been acquired. This process also involves assessing any potential areas of concern.
    • Ensure the adequacy of financial controls: First, management should assess financial controls to ensure that they are compliant with regulations and laws. The regulatory framework and its operations must be thoroughly examined. Draw up a list of all the scheduled authorities, including areas such as hiring and firing, investment decisions, bank mandates, etc.
    • Review IT systems: It can be a big challenge to integrate two or more different IT systems, and the process can be tricky. In some cases, it may not even be possible, and an entirely new system may have to be implemented. It’s critical to understand and assess the current systems’ strengths and weaknesses. The acquiring company should also identify the existing and future state of the IT architecture.

M&As require close attention to contracts and due diligence. It is equally important to maintain communication and transparency throughout the whole process to build trust with all parties involved, from stockholders to employees. Reprocessing your financials after a merger will help you to integrate business operations effectively and achieve new, streamlined processes throughout the organization.

We Can Help

Contact us if you need help with strategic financial planning after an M&A. Signature Analytics is an outsourced accounting firm providing ongoing accounting support and financial analysis to small and mid-size businesses.

Clear, concise and regular reporting of financial information to all the internal stakeholders of your business is a vital, yet often overlooked, component of long-term business success. These internal stakeholders can include your management team and board of directors.

Financial Reports: The Roadmap to Reaching Your Destination

When taking a family road trip, one of the first things you do is use a map to layout the journey, locate markers along the way, identify where the destination is and how long it will take to get there. Clear, concise and timely reporting of usable financial information to internal stakeholders operates like a roadmap, but for your business for role clarity.

When putting together this “roadmap” for your business and communicating that information with internal stakeholders, there are a few important things to keep in mind:

  1. It is essential to report information on key operating metrics and not only report on items that can be interpreted from the income statement. For example, the balance sheet and statement of cash flows can also provide important information to internal stakeholders, such as: How much cash is tied up in receivables? Have you taken on new debt? What about inventory?
  2. Ideally, your business should have some sort of stakeholder management dashboard that summarizes all these key internal and external metrics in one place. It should also include metrics and key performance indicators (KPIs) that are unique to your business effort.
  3. Financial information and reports should not be viewed in isolation. Rather, the information should be compared to prior periods to understand influence trends.
  4. The owners of each metric should be able to explain the results that have occurred so internal stakeholders can understand what the results actually mean. Has inventory grown because of a new product line? Has cash increased because the company is now using a line of credit? Is employees utilization lower because the company is hiring in advance of customer growth?
  5. Communicating financial information in an organized and easy to understand method—such as using pictures and graphs instead of a list of numbers, and showing trends to help managers visualize projections—can help increase credibility with board individuals (internally or externally) and improve meeting productivity. Take a look at a recent case study.

The combination of all these will allow the CEO and other internal stakeholders to have greater confidence in their decision-making process and enable them to make those decisions based on dispassionate financial analysis rather than a “gut feeling”.

We Can Help

Presenting timely financial information in an easily digestible format is essential in communicating with internal stakeholders. If you need professional-looking reports prepared to increase your credibility and improve meeting productivity with internal stakeholders, we can help. Contact us today for a free consultation with one of our CFOs.

It’s not until you start filling in the terms and numbers of your business plan that it shifts from the conceptual to the actual. While your marketing strategy is an interesting read, it’s the figures on the bottom line that will help you get a business loan or investors.

To justify your plan with good numbers, you need a distinct section in your business plan, where you can lay out your financial forecasts and statements. The financial section of your business plan is one of the most critical parts of the whole document if you wish to acquire funding.

The Purpose of the Financial Section of a Business Plan

Before you start organizing your business financials, it’s important to be aware that this is not the same as keeping accounts. There is a significant difference. Accounting takes a historical view of financial information, whereas financial business planning looks to the future. The financial section of a business plan has two primary purposes.

The first is to attract investors. They will want to see your numbers growing and that you have an exit strategy in place for them when they can make a profit. A bank will also want to view these figures, so they know you will be able to pay back your loan. The second purpose of the financials is for your benefit. It gives you a dependable guideline to see how your business is going to do.

What to Include in the Financial Side of a Business Plan

The financial side of a business plan includes various financial statements that show where you want to take your company. This plan helps lenders, and investors see how much financing your business needs and if it is worth their while getting involved.

There are four financial statements that are essential to include in a structured financial plan. These can help you arrange your financial projections for the next three to five years. Your financial plan should consist of the following financial statements:

1. The Sales Forecast

A sales forecast can be laid out in a spreadsheet as a projection of your sales for the next three to five years. Use different sections for each sale type and a separate column for every month for the first year, and monthly or quarterly columns for the next three to five years.

The most definite way to indicate your sales forecast is by providing separate blocks for pricing, unit sales, calculated sales, unit costs, and unit cost of sales. Including all these figures will help you calculate your gross margin, which amounts to sales less the cost of sales. It gives you a useful figure for comparing your forecast with other industry reporting ratios.

2. The Expense Budget

An expense budget helps you figure out how much it will cost you to make the sales you forecast in the previous section. To make it completely clear you are going to need to differentiate between fixed costs (such as utilities, rent, and payroll) and variable costs (such as marketing costs).

Again, don’t forget that this is a business statement, not accounting, so you will have to estimate things like taxes and interest. Keep it as simple as possible when making your operating expenses estimates. For example, to calculate your expected taxes, multiply your estimated profits by your tax percentage. To evaluate and determine interest, multiply your estimated debts by an interest rate.

3. The Income Projection Statement

The income projection statement is the section where you list your projected profits and loss for the next three to five years. You can use the numbers you’ve included in your sales forecast and expenses to help you calculate these figures. You’ll also have to assess your assets and liabilities which are not covered under your income projections. You may wish to create a separate statement for these or include them here. Think about inventory, money owed to you, and assets such as equipment. Under liabilities, you will list any possible outstanding loans and any other bills you may not be able to pay.

4. The Cash-Flow Statement

The cash-flow section of your financial business plan indicates the movement of money in and out of your business. This section is based on a combination of your sales forecast and balance between your projected income and expenses.

If your business plan for the year is to start a new business, you will need to create a cash-flow projection. For an existing business and most clients we serve, you can base your cash-flow statement on balance sheets and profit and loss statements from previous years. Be realistic about the time it takes for your invoices to be paid in full. Being practical in this way can ensure you have no surprised down the road; primarily if you rely on invoices to pay 100 percent of your expenses.

Other Statements for a Financial Business Plan

There are other statements that you can include in the financial section of your business program. While not essential, they can be beneficial for you as you grow your business. These include:

The Personnel Plan

You may decide to create a personnel plan. By creating this plan, you can describe the different members of your management team and what they offer the rest of the workforce regarding management, training, and knowledge of your market. The plan should justify their salary and/or equity share.

This financial condition section can also be used to list each different department in your company, if applicable. You should even name members of staff or departments that you have yet to hire.

The Break-Even Analysis

The break-even analysis is a calculation of how much your company will have to sell to cover your expenses.

For example, consider a landscaping business. It will need to be ready to function with all the vehicles, equipment, business cards, marketing, and all the landscapers working to generate income. If you were to only landscaped one garden, your business would be operating at a loss. You may not even make enough money to pay for gas and materials, let alone wages.

Creating a break-even analysis can give you an idea of how many landscaping jobs you would need to do to cover your expenses.

You may feel overwhelmed at the prospect of creating a financial plan, and it can undoubtedly be challenging. But it is essential that you fully understand each section. As a business owner, you may consider hiring a bookkeeper to handle your account once your business is running. You will need to understand your business’ financial statements and use them as a basis for making decisions about your company. Numerous available software programs can help you put it together and lighten your load.

In the long run, the financial statements in your business plan will outline the growth and potential of your business. And once you can show where your financial performance figures are coming from, you will significantly increase your chances of getting funding from lenders or investors. So, don’t skimp on your financial statements, take the time to learn how to do them properly, and get them right. It will be worth it in the long run.

We Can Help

If you need help determining which financial statements you need or require consultation when setting up a business plan, we can help. As an outsourced accounting firm, we provide ongoing accounting support and financial analysis to small and mid-size businesses. Our team of highly experienced accountants will act as your entire accounting department (CFO to staff accountant).

We complement and work alongside your internal staff to provide ongoing accounting and finance support for your business. These areas are necessary to effectively run your company, analyze operations, and guide business decisions. Contact us today so we can get started.

“You can’t manage what you can’t measure.”

We have heard it again and again. This phrase seems to be the creed of the business world. There is something about assigning a number and correlating that with meaning to prove we are being successful.

Just like in sports, success is measured by the score. In business, success is measured managed by numbers. In many cases, these measurements are tracked and monitored to help management gauge the performance of the company, and these kinds of metrics are referred to as Key Performance Indicators (KPIs).

In business, many of a CFO’s responsibilities are to develop KPIs applicable to the company, regularly support the analysis of those KPIs, and driving changes that directly improve KPIs. All of these actions are done to hopefully improve the future value of the company.

The Importance Of KPIs To Business Success

Businesses are multi-faceted and so a company needs to monitor several different KPIs to provide insight into how the business is performing. Some of these measurements may be more basic, like inventory turnover. While other KPIs can be more involved, such as employee utilization or profitability by an individual client or product line.

Once KPI goals are defined, it is important to understand how those measurements can be used to enhance the performance of the business. For example, JPMorgan Chase & Co was able to reduce their fully burdened labor costs by $3.2 million annually by eliminating voice mail for consumer-bank employees.

Another great example is with one of our very own brewery clients. We were able to increase profits by 15% after adjusting their pricing and distribution strategies following a detailed analysis of their profit margins by individual product line.

It’s important to understand that knowing what to measure matters and then making operational changes to influence those measurements directly can have a significant impact on the bottom line. If you measure many things that don’t matter, you’ll end up with a ton of meaningless data.

What Are The Examples Of Key Performance Indicators?

KPIs will be different for every business. Below are some basic examples, how they can be calculated, what they measure, and the best way to use the measurement to improve profitability.

eGuide: What Business Should Expect From Their Accounting Department

Days Sales Outstanding

(Accounts Receivable) / (Sales on Credit or Terms) x (Number of Days the Sales Represent)

This KPI measures how many days of sales are in accounts receivable. Hopefully, this measurement will be at (or near) what your credit terms are. For example, if you have credit terms of 45 days, your day’s sales outstanding should be close to that number. This KPI can be impacted by offering a slight discount for early payment to reduce outstanding accounts receivable.

Read More: Managing Your Revenue Cycle: 6 Accounts Receivable Best Practices

Inventory Turnover

(Cost of Goods Sold) / (Average Inventory) x (12 Months)

This KPI measures the number of times the inventory is sold–or the amount of turnover–in one year. An inventory turn of 1 would mean you sell all your inventory once a year, whereas an inventory turn of 12 would indicate you sell your inventory every month. This KPI is influenced by reducing slow-moving or excess inventory, or by increasing sales, which will, in turn, improve cash flow.

Days Sales in Inventory

(Average Inventory) / (Cost of Goods Sold) x (Number of Days)

This KPI measures how many days of inventory is on hand. It is similar to inventory turnover but indicates the number of days until inventory is sold. For example, if the day’s sales in inventory are 30 days, then the inventory turns would be 12 (or once a month). You can affect this KPI by carrying the least amount of inventory necessary to meet demand.

Working Capital

(Current Assets) – (Current Liabilities)

This KPI measures the available assets to meet short-term financial obligations. These types of assets can include cash, investments, or accounts receivable. A company can analyze financial health by seeing which available assets can meet short-term financial debts. To calculate working capital, subtract current liabilities from current assets such as the examples mentioned earlier.

Return on Assets

(Net Income) / (Total Assets)

This financial KPI measures the rate of earnings generated from invested capital in assets and can be affected by increasing earnings and/or reducing invested capital.

Return on Equity

(Net Income) / (Shareholder’s Equity)

This financial KPI measures the return on capital invested by shareholders of the company and can be affected by increasing earnings and/or reducing the amount invested by shareholders.

eGuide: What Business Should Expect From Their Accounting Department

What KPIs Are Important To Measure?

KPIs for capital-intensive industries (manufacturing, distribution, telecommunications, transportation, etc.) often focus on how effective and efficient assets are utilized to produce a return. Whereas KPIs for service-based organizations (i.e., companies that bill people, hours, or projects to clients) tend to focus on utilization (percentage of total working time charged to customers) to drive profitability.

Most businesses, regardless of the industry, should measure KPIs that focus on generating positive cash flow from operations. Companies should also monitor how quickly it can turn sales into cash (days sales outstanding) or how long the money is invested in inventory (days sales in inventory).

The important thing is to determine what measurements are most appropriate for your specific business and industry. One way to do that is to look at other companies in the same industry and identify what measurements they are using. Those analyses can also be used as benchmarks to compare your business against others in the same industry.

Read More: Analyzing Employee Utilization Rates to Drive Profitability for Professional Services Firms

How Signature Analytics Can Help

Profitability is the easiest and most straightforward measurement of a company’s success. However, if you want to take your business to the next level, it is also important to look at other key performance indicators that can drive profitability and how they can be influenced to increase and drive performance. If you need help identifying, monitoring, and influencing KPIs to improve the current and future value of your business, contact us today for a free consultation.


Do you know your numbers?

Internal controls are a series of policies and procedures that a business owner puts in place for the following purposes:

  • Protecting assets: internal controls protect assets from accidental loss or loss from fraud.
  • Maintaining reliability: internal controls make sure that management has accurate, timely, and complete information.
  • Ensuring compliance: internal controls keep accounts in compliance with the many federal, state, and local laws and regulations affecting the operations of a company.
  • Promoting efficient operations: internal controls create an environment where managers and staff can maximize efficiency and effectiveness.
  • Accomplishing objectives: internal controls provide a mechanism for management to monitor the achievement of operational goals and objectives.

The responsibility for maintaining internal controls falls on administrative management. Members of the management team are responsible for communicating to staff their duties and expectations within an internal control environment. They are also accountable for ensuring that other areas of the internal control framework are dealt with consistently.

Framework for Internal Accounting Controls

To be effective, the framework for internal accounting controls should have a system that includes:

  • A controlled environment/li>
  • Risk assessment
  • Monitoring and reviewing
  • Information and communication
  • Control activities

The Three Main Internal Controls

There are three main types of internal controls, these are:

Detective Internal Controls

This type of control is designed to highlight any problems within a company’s accounting process. Detective internal controls are commonly used for things such as fraud prevention, quality control, and legal compliance. Examples of detective controls include an inventory count, internal audits, and surprise cash counts. Detective internal controls protect a company’s assets by finding errors when they occur so that business owners can minimize their impact on the company.

Preventive Internal Controls

This type of control is a proactive control designed to prevent errors and irregularities from occurring. Preventive internal controls are usually performed on a regular basis. Some examples of preventive controls are:

  • Separation of duties: splitting tasks for bookkeeping, deposits, reporting, and auditing, so there’s less chance of employee fraud.
  • Controlling access: this feature prevents team members from logging into certain parts of the accounting system unless they have a password.
  • Double-entry accounting: a system that adds extra reliability so that books are always balanced.

>Preventive internal controls are put in place to help with clerical accuracy, backing up data, and preventing employee fraud. These internal controls help to avoid any problems or irregularities so that the business processes can run smoothly.

Corrective Internal Controls

Corrective internal controls are put in place to correct any errors that were found by the detective, internal controls. This type of internal control usually begins by detecting undesirable outcomes and keeping the spotlight on the problem until management can solve it. If an error occurs, then it is essential that an employee follow procedures that have been put into place to correct the mistake. Examples of corrective internal accounting controls include physical audits (such as hand counting money) and physically tracking assets to reveal well-hidden discrepancies. Implementing a quality improvement team can be a great way to address ongoing problems and to correct processes.

eGuide: What Business Should Expect From Their Accounting Department

Other Forms of Internal Controls

There are other forms of internal accounting controls, these include:

Standardized Documentation

When accounting documents such as inventory receipts, invoices, internal materials requests, and travel expense reports are standardized, this can help to maintain consistency in the company’s records. Standardized document formats also make it easier to review past records when a discrepancy has been found in the system.

Trial Balances

This internal control entails using a double-entry accounting system. Doing so increases reliability and keeps the book balanced. Errors may still throw a double-entry system off balance. If employees calculate daily or weekly trial balances, this will help maintain analysis of the state of the system so that discrepancies can be discovered early.

Periodic Reconciliations

Occasional accounting reconciliations mean that account balances in the company system can be matched up with balances in independent accounts such as credit customers, suppliers, and banks. Any differences between these accounts will highlight errors.

Approval Authority

This internal control requires members of the management team to authorize specific transactions. Approval authority adds a further layer of responsibility to accounting procedures because it proves that any transactions have been analyzed and approved by the appropriate managers.

eGuide: What Business Should Expect From Their Accounting Department

Ways to Improve Internal Accounting Controls

There are things you can do to strengthen your internal accounting controls. Here are a few suggestions:

Allocate Separate Accounting Responsibilities

Instead of relying on one employee or bookkeeper to handle all the accounting duties, segregate the processes to different members of your team. For example, processing receipts and payments can be separated. Other activities that can be separated include signing checks, approving invoices, and reconciling accounts. Allowing a single person to handle all these accounting processes increases the risk of errors or fraud.

Increase Oversight

Even though you have internal controls, they will not be effective enough without oversight. If you don’t have time to do it yourself, you should allocate a trusted member of your personnel to review statements, account reconciliations, and payment registers periodically. Look out for unapproved expenses or raises, non-existent employees, and unapproved hours. Make it a priority to review your company’s financial data so that you can stay abreast of trends and changes in your financial reports.

Restrict Employee Access to Financial Systems

Typically, business accounting software allows users to edit previous transactions. This unmonitored permission opens up the potential for employees to hide fraud or theft. As a business owner, you should restrict employee access to the company’s financial system to reduce the risk of employees changing and deleting entries. You can also review any transaction changes in the system to reveal any irregular activity.

Have a Third-Party Overlook Financial Statements

You can increase the safety of your assets by having a third party review your company’s accounts. Any employees who are involved with internal accounting and aware of your third-party review will be deterred from fraudulent practices. An independent reviewer will also be able to identify errors and inconsistencies.

Perform a Self-evaluation of Your Internal Controls

Performing a self-evaluation can help you to highlight any areas that come up short before problems arise and give you the opportunity to use more effective controls. The easiest process to perform a self-evaluation is by conducting a trace of a particular transaction throughout company records and procedures. The trace will give you a deeper understanding of your internal controls in action, particularly those controls which are in place to detect or prevent fraud. You will also be able to see if your internal controls have been designed effectively and are operating as intended.

Effective internal controls for your accounting and finance should be an integral part of your business plan. Internal controls significantly reduce the risk of loss of assets and increase the reliability and accuracy of all your accounting and finance operations. Additionally, controls ensure that your company’s accounting system is in accordance with applicable laws and regulations.

We Can Help

You can contact us if you need help establishing internal controls for your accounting and finance department to protect your business assets adequately. Signature Analytics is an outsourced accounting firm providing ongoing accounting support and financial analysis to small and mid-size businesses. Our team of highly experienced accountants will act as your entire accounting department (CFO to staff accountant), or complement your internal staff, to provide the ongoing accounting and finance support necessary to effectively run your company, analyze operations, and guide business decisions.


Do you know your numbers?

Have you ever wondered how to create a business budget? An annual budget is an essential financial plan for a company’s expenditure for the coming fiscal year. Company owners can use this plan not only to calculate their yearly budget, but also to determine when to file tax forms, get audited, and close the books. Creating a business budget involves balancing your company’s revenue with its expenses using past trends and realistic revenue expectations so that you can predict your needs for the next fiscal year.

Why Does a Business Need an Annual Budget?

A company needs to know how to make a business budget for many reasons. Most importantly, it acts as a roadmap to where your business is going in the next year. Once you establish how much money you have, you can determine how much money you can spend and how much cash you need to meet the goals of your business. Curious how to prepare a budget for a company? This process is vital for several reasons:

  • It sharpens your understanding of company goals
  • It allows you to portray the real picture of what is happening in your company
  • It provides effective ways of dealing with money issues
  • It fills the need for required information
  • It facilitates discussion of the finances
  • It enables you to avoid surprises and gives you full control

This is How to Prepare a Business Budget

Before you begin your forecast for revenue and expenditure, you will need to gather income and expense data from previous fiscal periods. Collecting this information will help you estimate the future budgeting process based on past trends. For example, if you are creating a quarterly budget, then look back at your previous two or three quarterly financial statements. This way, you can create a custom budget based on your desired timeframe. Once you have the trend data, you can use it to create a baseline projection for future revenue and expenditure. For example, if your revenue has increased at an average of 25 percent each quarter, for the past six quarters, increase your baseline projection for the next quarter by 25 percent.

What Are the Elements of an Annual Budget?

For your budget to be adequate, you should break down income and anticipated expenses either by month or by quarter. Which one you choose will depend on the size of your company. The budget should incorporate separate accounts for each of your business’ departments. These departmental mini-budgets should also be broken down by month or quarter. There are many factors that you need to consider when putting together your company’s yearly budget. These components are essential if you want to create an accurate and up-to-date annual budget and maintain control over finances. The budget needs to include:

  • Projected expenses: the amount of money which you expect to spend during the fiscal year. Projected expenses can be broken down into categories such as salaries, office expenses, etc. There are several steps to make a correct estimate of your projected expenses. The first step is to make a list of your company’s necessities for the fiscal year. You can look back at trends from past years to help you stay accurate. Next, make a list of expenses you will require to conduct typical business activities. It would help if you also listed any of your company’s fiscal obligations. Finally, list the items you would like to purchase for your company but may not be able to afford during the upcoming year. Add up all these expenses to provide a guideline for your budget.
  • Projected income: the amount of money you expect your company to make during the coming fiscal year. Projected income includes revenue and any income which may be coming from grants, contracts, funding sources, memberships, and sales. There are several steps you will need to take to reach your projected income. The first step is to estimate the amount you expect to accrue from sales revenue. Next, determine the amount you expect from fees that you charge for services. Finally, estimate the figures you expect from fundraising, investments, and memberships. Adding up these figures will give you your projected income for the year.
  • Interaction of expenses and income: This aspect of the annual budget entails keeping track of the money that was given for a specific activity, item, or position by a funder. It is important to build in any restrictions that might come with the money so that nothing comes as a surprise later.
  • Adjustments to reflect reality: You must remember to factor in funds for emergencies and unexpected necessary purchases. Also, don’t forget that your annual budget will begin as an estimate, so you will need to adjust it throughout the year to make it more accurate. To do so, layout your figures in a useful format so you can easily compare the total expenses with the total income. Stick to your expenditure budget as much as possible because a budget surplus may not show up until the end of the fiscal year.

This is What Should Non-profit Organizations Should Know

Typically, non-profit organizations are required to undergo an annual audit. The audit must be conducted by a Certified Public Accountant (CPA) that will examine your organization’s financial records to ensure that they are accurate. The CPA will also work with you to solve any problems or correct any mistakes. Providing that the records are in good order, and there is nothing illegal found, the CPA will prepare a financial statement for the organization based on the documents examined. The statement certifies that the non-profit’s accounts are in order and that professional accounting practices (or as we recommend, GAAP) have been followed.

This is How You Trim Your Company Budget

In certain circumstances, you may wish to cut your company’s budget. If so, it’s crucial that you do it in an organized way. Here are some considerations to help you decide on what you can and can’t cut:

  • Make sure you don’t cut services or items that are necessary for running your business.
  • Are you able to reduce the number of physical items you need to run a department?
  • Do you need to consider making staff cutbacks? If this is the case, could you reduce staff hours, ask members of staff to increase their share of their fringe benefits, or is it necessary to lay off some members of the staff?

Do Not Disregard an Annual Budget

Annual budgets are essential for evaluating your company’s performance over the course of a fiscal year. Because you will be comparing and raking revenues and expenditure and comparing these aspects to what was budgeted, you can make sure that your company is sticking to its original plans. Budgeting also presents an excellent opportunity for you to identify issues and opportunities. For example, if sales in the first quarter turn out to be lower than projected, you will be able to see where you can cut expenses late in the financial year to remain profitable. Equally, if you introduce a new product that turns out to be more valuable than you anticipated, you will be able to see exactly where you have additional revenue, and you can revise your budget and perhaps use the extra money to increase production.

Looking for some small business budget templates to help get started? Check out the link or contact us. It’s clear to see why annual budgeting is important for your business. You can make sure that you are utilizing your entire annual budget optimally by employing the best budget management practices. This is the only way your company will truly grow and continue to be successful.

 

Make your strategic budget a priority

Credit cards are popular for business transactions for their convenience and benefits. If your company relies on credit cards for business transactions, it is important to follow credit card best practices to ensure the business uses credit responsibly.

Types of Cards

There are many options for the type of cards available for business transactions. The simplest is a Debit card that processes transactions directly in your bank account, much like a check, ACH or bill pay transaction. “Credit” cards can be either Charge cards, which often have no pre-set limit, but must be paid in full at the end of each billing cycle, or true “Credit” cards, which allow payment of less than the full balance each billing cycle, and charge interest or fees for the privilege.

In general, Debit cards allow for the flexibility of paying for goods and services at the point of purchase, but only if the money exists in the bank account. Charge cards are useful if a company’s cash flow is stable enough to ensure repayment in full, and credit cards can be helpful when cash flow is variable, as there are repayment options.

Benefits of Using Credit Cards

Many card programs allow rewards points or miles based on purchasing volume. It is a convenient and efficient way to pay for expenses and there are often purchase protection features and the ability to dispute a charge on a credit card statement. There are also valuable summary reports that categorize spending for easy review.

Common Problems Companies May Have

  • Sometimes purchases on credit cards are not timely entered in the financials – or at all!
  • Furnishing a credit card number is very different than generating, signing and presenting a check or cash. Checkbooks are kept in a secure location, credit cards travel the world with employees and purchasing departments.
  • The monthly statements show a mere summary of the charge, often cryptic numbers and letters. There is often a rush to input the data, so that a payment can be generated or the “books closed.” This can hide important vendor or expense details, as often charges are summarized to minimize data entry.
  • Sometimes only the payment made to the credit card is entered, which is usually different than the charge activity.
  • Finally, there can be unauthorized charges buried in the detail that is not entered.

Practices Signature Analytics Recommends to Clients

  • Issue cards to individuals, rather than “sharing” the card numbers, this helps manage approvals and reduces unauthorized charges. If all of the cards can be managed on one bill that makes for easier management since there is just one payment to process,.
  • Download transactions weekly from the card websites, and review/approve these, rather than wait for the statement to be generated. This also allows GL coding details to be added, as well as any potential client related data or pass through charges.
  • Book expense details directly in the accounting system, this will help provide details for future financial analysis.
  • Implement auto feeds of credit card transactions into the accounting system. This is a feature of many accounting programs, which downloads transaction details on regular basis, and allows the assignment of a vendor and GL account number without having to key in the data. Alternatively, some programs allow the importing of data that has been downloaded from the card issuer sites.
  • Use cards issued in the name of the business, or if a personal card, use it only for business purchases. Mixing personal transactions on cards can be very difficult to account for.
  • For purchases on employee’s personal cards, use expense management software that gets credit card data directly, and create approvals for the reimbursement of these expenses.
  • Get cards from more than one issuer, as not all vendors take all brands of cards.
  • Inquire of vendors if they have “purchasing” cards that work for only their locations, such as fuel transaction cards. There are often additional reporting features available, such as the vehicle mileage that gets entered when purchased, so that miles per gallon can be monitored, discouraging unauthorized charge fees.

These are examples of best practices for managing company credit cards. It is an example of the approach we take with our clients to all accounting policies and procedures.

We Can Help

Contact us if your business needs assistance in creating and implementing procedures to best manage your company credit cards and expenses. Signature Analytics is an outsourced accounting firm providing ongoing accounting support and financial analysis to small and mid-size businesses. Our team of highly experienced accountants will act as your entire accounting department (CFO to staff accountant), or complement your internal staff, to provide the ongoing accounting and finance support necessary to effectively run your company, analyze operations, and guide business decisions.

Running a business is hard work, and business leaders continuously face new trials, even when their business is extremely successful. For business leaders to continue with growth and success, they must be prepared to overcome challenges. Given that financial leaders control millions of dollars, they have a unique vantage point into how to run a business and maintain its viability.

4 Financial Leadership Lessons for Business Owners

Are you just starting as a new business owner? Have you been running a corporation for years? Either way, you can’t go wrong with these four financial leadership lessons.

1. Make sure you know and understand your numbers

As a business owner, you absolutely must understand which numbers drive your business. It’s crucial to stay informed about these metrics as they change from day to day and month to month. This data ranges from cash balance in the bank to complicated calculations and forecasts. You can keep ahead of the financial game by maintaining a weekly and monthly data chart to track metrics.

Don’t worry if you lack the financial background to determine which metrics you need to follow or how to track them. Get someone from your team to do this for you. If you don’t have anyone on your team who can do this, then it’s time to recruit a new member for the decisions.

Kroger Chief Financial Officer, J. Michael Schlotman has been with the company for more than 30 years and has been CFO since 2000.

Before joining the Kroger team, Schlotman worked with the accounting group Coopers & Lybrand. Since joining the board at Kroger, Schlotman was recognized for multiple achievements within the company, including doubling Kroger’s digital investments and acquiring stakes in overseas companies.

His advice to business leaders? Be as comfortable with the people as you are with the numbers behind the business.

2. Transparency is crucial for growth

Once you are fully up-to-date with your company’s figures, you must share that data with your internal stakeholders. So, in addition to providing items related to your income statement, give them information related to your inventory, how much money you have tied up in receivables, and your current debt load.

These figures should not be viewed in isolation but should be shown in contrast to prior periods to highlight trends. Sharing metrics that help drive company growth and profit will encourage your stakeholder’s ability to invest in improving company performance.

When your company is financially successful, you can invest more money in its employees through expanded benefits, office amenities, bonuses, and personal development opportunities.

Ned Segal joined Twitter as their CFO in 2017. Before joining the team, Segal was a Goldman Sachs banker for many years and more recently held the position of Senior Vice President of Finance at Silicon Valley’s Intuit. His advice for financial leaders is to find the truth in the figures.

Elizabeth Elliott, VP of Equity Research, has been with the company for a year. Her role is to perform financial modeling to share with company leaders and shareholders. Her advice to business leaders is that to maintain financial success in business, you must be honest and prepared to admit your mistakes.

3. Understand your customer’s values and invest there

Too often, business leaders become distracted in attempting to please too many different people by offering too broad a range of services and features. Consequently, they end up spreading themselves too thinly and losing money. It’s essential to reduce your costs by avoiding the selling of goods and services that are not essential to your customer base.

The key factor here to remember is your goals are to improve your product and your customer service to increase sales growth. Don’t attempt to incorporate too many different aspects into your service. Otherwise, you will tend to lose sight of the things your customers truly value. To do this effectively, you must understand what generates profit and invest in those areas.

CFO of Home Depot Carol B. Tomé has been in her position since 2001. She was named the executive vice president of corporate services in 2007. As well as financial leadership, her areas of leadership expertise include real estate and strategic business development. Tomé’s advice to be great leaders is to understand that you need to become a master of connecting with your audience.

4. Motivate employees to boost your business

Having a growing business gives employees opportunities to make an impact and leave their mark on it. Employees want to have a role, clear and achievable goals, and purpose. Therefore, the ethos behind your company and its strategic goals and objectives should be made clear.

The key to success in this instance is maintaining clear and consistent communication. Excellent communication helps keep employees engaged, productive, and loyal to your company’s vision. Remember to talk with rather than to your team.

Another critical element to motivating your employees is maintaining an air of professionalism. Professionalism and proper interpersonal behavior nurture pride, as well as team loyalty. While you are demonstrating your level of professionalism, encourage employees to achieve their own level of skills.

The CEO of Morgan Stanley, Clare Woodman, joined the team in 2002 as a lawyer in Global Capital Markets. She advises business leaders to remember that preparation is more powerful than perfection and that striving to be prepared means more success in the workplace.

What should you do now that you have gained a bit of business wisdom from some of the top industry experts? Put their practical knowledge to work in your business. Bear in mind that although it’s relatively easy to start up a business of your own, only a few company owners achieve success in the long term. Always strive to keep learning from other business leaders; this will help you grow and keep you in the right frame of mind to make your business succeed.

There are several financial reports that will provide insight into the past, present, and future financial state of the business. As a business owner, it is critical to have an annual report of this financial data as it will allow you to more effectively run your company, enable you to better analyze operations, and help guide business decisions.

Of all the financial reports, below are five of the most essential accounting reports every business owner should be reviewing on a regular and annual basis to gain a better understanding of the company’s financial performance.

1. Balance Sheet

The Balance Sheet is a financial statement summarizing a company’s total assets (current, non-current and intangible assets), liabilities (financial obligations), and shareholders’ equity (investments and retained earnings) at a specific point in time, usually at the end of an accounting period. It provides a snapshot of a company’s financial position, including the economic resources the company owns, owes, and the sources of financing for those resources.

The Balance Sheet can be used to identify trends and make more informed financial accounting decisions. It is also important to lenders, as they will use it to determine a company’s creditworthiness.

2. Income Statement

The Income Statement is sometimes referred to as the Profit and Loss Statement (P&L), Statement of Operations, or Statement of Income. The Income Statement summarizes the total revenues and expenses incurred by the business, showing the profitability (net income or net loss) over a specified period of time, usually a month, quarter or year.

The Income Statement is used by internal stakeholders (such as the management team and board of directors) as well as external stakeholders (such as investors and creditors) to evaluate profitability and help assess the level of risk for an investor or creditor. In order to have a viable and valuable company, revenues must exceed expenses.

3. Cash Flow Statement

The Cash Flow Statement summarizes all cash inflows and cash outflows of a business over a period of time. This statement is different from the Balance Sheet and Income Statement because it only takes into account cash money activity; it does not account for non-cash activity such as sales or purchases on credit or depreciation.

The Cash Flow Statement is presented with three sections: operating, financing and investing activities, and indicates which areas of the business are generating and using the most cash. One of the best uses for the Cash Flow Statement is to estimate future cash flow which will assist with budgeting and decision making.

Read more: The Importance of Cash Flow Management for Small and Mid-size Businesses

The Cash Flow Statement, Balance Sheet and Income Statement together make up the standard financial statement package. These financial statements should be prepared by your accounting team on a monthly basis after the month-end close procedures have been performed. They can (and should) be used to calculate key performance indicators and monitor them over time.

4. Accounts Receivable Aging Report

The Accounts Receivable (A/R) Aging Report categorizes outstanding accounts receivable into groups based on the due date of the invoice, typically current, as well as 1-30, 31-60, 61-90 and >90 days overdue.

A common source of cash flow problems (especially for small and mid-size businesses) is poorly managed accounts receivable. The more cash you have tied up in receivables due to slow-paying customers and delinquent accounts, the less cash you have available for running your business. Reviewing the A/R Aging report will help companies proactively manage the receivable collections process immediately upon invoicing and create more accountability for the person responsible for collections.

Read more: Managing Your Revenue Cycle: 6 Accounts Receivable Best Practices

The A/R Aging Report can be generated out of most accounting systems and can be reviewed at any time. If collecting on accounts receivable is an issue for your business, a weekly review of this report may be necessary to assist in identifying past due accounts. Once these accounts are identified, collection procedures can be initiated to improve business cash flows.

5. Budget vs Actual

As the name suggests, this report is a comparison of actual results, primarily from the Income Statement, against the budgeted amounts that were projected at the beginning of the period. This report will allow the reader to assess how closely a company’s spending and revenue generation meets the financial forecasting projections included in the budget. It can help identify areas that were over and under budget, indicating the ability to hire additional employees or bringing attention to a gross profit margin not in line with financial reporting expectations, for example.

The Budget vs. Actual Report should be prepared on a monthly basis and reviewed with the financial statements to determine if any areas of the business are not meeting expectations and should be investigated further.

We Can Help

Our highly experienced accountants can complement your internal accounting employees, or act as your entire accounting department (CFO to staff accountant) on an ongoing basis. We will consistently provide you with timely and accurate financials and reports (like the ones mentioned above) on a monthly basis, as well as the actionable financial analysis you need to effectively run your company, analyze operations, and guide business decisions. If your business needs additional accounting support, contact us today to schedule a free consultation.

Whether you own a small company or a large corporation it is important to maximize the value of your accounting records so you can make the most informed and appropriate decisions for your business. The accounting method your company uses can have an impact on your ability to make these financial decisions, so it is important to choose the best method for your business.

There are two primary accounting methods that companies use to track their income and expenses – cash basis or accrual basis accounting methods. Below we will review the advantages and disadvantages of each accounting method, discuss the impact they could have on your company, and assist you in evaluating which method is the most appropriate for your business.

Here are some important criteria to consider when performing this evaluation:

  1. Who are the users of the financial statements and information (management, investors, bank, tax advisors, etc.) and how will they use this financial information?
  2. What method of accounting is the company using for tax purposes?
  3. What is the vision of the company in the next 5 years?

Cash Basis Method of Accounting

With the cash basis method of accounting, transactions are accounted for based on the company’s cash inflows and outflows. For example, revenue is recorded by the company when the cash is received from customers and expenses are recorded when payments are made to vendors. Because all transactions are recorded based on the cash inflows and outflows, the company’s balance sheet will not include, or track, the accounts receivable or accounts payable. With this method, accounts receivable and accounts payable are usually tracked separately within the company’s accounting system or on the side.

Many small and start-up companies will use the cash basis accounting method because it is typically the simpler of the two methods from an accounting standpoint. At this point in a business, companies also tend to place a lower level of importance on the financial information of the company, so the cash method is sufficient for their purposes.

Accrual Basis Method of Accounting

Under the accrual basis method of accounting, transactions are accounted for when the transaction occurs or is earned, regardless of when the cash is paid or received. Income is recorded when the sale occurs and expenses are recorded when the goods or services are received.

Although it is slightly more complicated from an accounting and tax preparation standpoint, there are significant advantages for companies using the accrual accounting method. These advantages include:

  • The ability to “match” revenues and related expenses within the applicable periods so companies can appropriately analyze profitability margins.
  • Creating consistency as to when the revenues and the expenses of the company are recorded allowing for increased ease of budgeting and forecasting.
  • If the company is looking for additional financing opportunities, banks and other investors usually ask for the financial information in the accrual basis method of accounting.

In general, the accrual method of accounting provides a better picture into the financial results of the company. This allows users of the financial information to make more informed decisions, ultimately providing additional value to the company.

Which Accounting Method is Best for Your Business?

Based on the information above, let’s revisit our consideration questions to help you evaluate which method is best for your business.

1. Who are the users of the financial statements and information (management, investors, banks, tax advisors, etc.) and how will they use this financial information?

If the users of the financial information are strictly internal management and there are a limited number of transactions, the cash method may be appropriate; however, management will be limited to the financial information available when making decisions.

If the company has outside investors, bankers, or other advisors, it is highly recommended to utilize the accrual method. Not only will it provide substantially more insight and value to those users, it will also show that the company is sophisticated enough to take the next step as a company.

2. What method of accounting is the company using for tax purposes?

From a tax perspective, the accrual method MUST be used for the following companies:

  • Your company is a C corporation.
  • Your company has inventory.
  • Your gross sales revenue is greater than $5 million (there are some exceptions to this rule that you should discuss with your tax accountant).

If your company is required to report taxes on an accrual basis for any of the reasons above, then you should always account for your internal records on an accrual basis as well.

If your company does not meet the above criteria, then you have the option to report taxes on a cash or an accrual basis. Many times it is more advantageous to report taxes on a cash basis and these options should be discussed with your tax accountant. However, even if the cash method is the best option from a tax perspective, it may still be beneficial from a management perspective to use the accrual method for internal reporting purposes.

3. What is the vision of the company in the next 5 years?

If your company is small, has limited transactions, and there are no plans for growth in the future, then the cash basis method of accounting would likely be the preferred and most reasonable option.

However, if your company forecasts growth in the future, especially if you plan to have revenues in excess of $5 million, it is important to begin accounting for the company’s transactions on an accrual basis as soon as possible. This transition is essential as you prepare your company to enter into discussions with other advisors and begin seeking out potential financing opportunities. It will give your company and management credibility and allow you to make the most appropriate and informed financial decisions for your business.

Making the Transition

If your company is currently using the cash basis method of accounting and feel it may be time to transition to an accrual method, we can help. Our experienced accounting team has assisted several companies with this change – some to facilitate the growth of their business and others to provide better insight into the financial health of their company.

In 1971, Coca-Cola launched a campaign to unite the world by sharing a coke. GAAP, in the broadest sense, is similar but rather than joining the world through carbonated sugar water, the purpose of the Financial Accounting Standards Board (FASB) has been to establish and implement the uniformity of accounting principles worldwide.

What is GAAP

While 100 percent consistency has yet to be achieved worldwide, GAAP (generally accepted accounting principles), or simply accounting standards, are the framework for the rules and standards that dictate how financial statements are prepared.

GAAP addresses four concepts of financial accounting:

1. Revenue Recognition
Revenue Recognition is the accounting principle defining what earned revenue is, when to recognize or account for that revenue, and how much of it is measurable.

2. Measurement
Measurement is the accounting principle stating that assets and liabilities are recorded at the market value (actual cost) of the item on the date of acquisition. In short, only record transactions concerning real money. Factors that can indirectly impact the financial results of a business’s revenue (e.g., highly skilled employee equaling a predicted increase in sales), expenses, assets, or liabilities cannot be recorded.

3. Expense (aka The Matching Principle)
The expense recognition (also called the matching principle) addresses when to recognize expenses. Since this concept is considered one of the essential principles of GAAP, we discuss it further below.

4. Full Disclosure
Full disclosure principle states that all financial statements must present all the information needed for an individual to make an informed, economic decision. Required disclosures can come in many forms such as (but not limited to) financial statements, earnings reports, press releases, or footnotes.

The Matching Principle

We promised there’d be more. One of the essential GAAP principles in accounting is the matching principle (or expense recognition). The concept states that expenses are to be recognized in the same accounting period as related revenues.

Matching is critical because it creates consistency in the financial statement, which can be skewed if expenses are recognized either in earlier or later months. The matching principle ties the revenue recognition and expense principles together.

GAAP incorporates a general guideline known as the prudence concept which states that a company should be conservative when recording its profits while undervaluing when recording expenses and losses. Under this concept of accounting, the final accounts of a business must show caution (prudence) where income and expenses are impacted.

To understand the prudence concept a bit more, read here.

Why we need GAAP

Commonly referred to as the language of business, the primary purpose of accounting is to communicate the financial results of the business to the owners or other individuals involved.

The purpose of GAAP is to ensure that financial statements of U.S businesses (and perhaps worldwide one day) are consistent and comparable. Why does this matter? Globalization has created international companies. GAAP is making it possible for people across the world to interpret the accounting data used by other countries to make informed financial decisions.

For instance, an American investor is interested in investing in a business in Japan. If the investor is unable to interpret the business’s financial statements, how do they know the financial health of a business and whether or not it’s worth investing?

Without uniformity of accounting principles, investors are unable to interpret an international company’s accounting information.

Enforcement of GAAP

Does anyone enforce GAAP? Accounting principles are determined by private sectors which means they are not mandated and have no authoritative requirement, but are instead generally accepted (i.e., Generally Accepted Accounting Principles – GAAP). However, because most accountants were taught these accounting principles in formal education, most companies follow GAAP as though they are the law.

What accounting method is accepted under GAAP?

GAAP affects what is disclosed in financial statements. Therefore, going back to the financial accounting concept of recognition (which indicates items are recorded on the financial statement), GAAP focuses on accrual accounting rather than cash accounting.

GAAP and accrual accounting

The annual financial report (which contains elements such as income statement, balance sheet, and statement of cash flows) is prepared by applying GAAP. The accrual basis of accounting reflects a better association of revenues and expenses with the appropriate accounting period, which is why it’s preferred over cash accounting.

U.S. GAAP and IFRS

While U.S. based companies are required to abide by GAAP, IFRS (International Financial Reporting Standards) is the accounting method used throughout most of the world.

The primary difference between IFRS and GAAP is IFRS accounting is based on principle while GAAP is based on rules. IFRS guidelines provide far less detail than GAAP; however, it may more accurately represent the economics of business transactions. If your company is involved in any international business, it’s important to understand the differences between GAAP and IFRS.

The process of managing financial reports is not easy for most small and mid-size business owners – especially when it’s necessary to it accurately on a consistent basis. If you need assistance in managing financial statements to ensure they adhere GAAP, contact us today.

Earlier this year, a company approached us after identifying some unusual checking activity while their bookkeeper was out of town for a week at training. They asked us to come in to look at all of the activity and determine if their accounting records were accurate. One of our accounting managers went to their office the following day to review the books (while the bookkeeper was still away at training) and identified that the bookkeeper had been colluding with a vendor to issue fraudulent payments and splitting the proceeds.

Needless to say, the company fired the bookkeeper for theft. The company requested that our accountants take over the role until they could find a replacement and we have continued to provide ongoing internal control accounting support to the company, including oversight for the new bookkeeper.

As a business owner, often your main focus is on the operations of the business. We have worked with several business owners who did not make financial information a priority, instead of focusing only on revenue. We work with other business owners who also recognize the importance financial statements play in understanding the state of the operations of their assets; however, with the best of intentions, they delegated the accounting work to an available employee (such as an office manager or admin), or to a bookkeeper with little to no accounting background, while providing no oversight at all.

How to Protect Your Business From Employee Fraud

Employee fraud is more common than you may think, with small organizations (those with fewer than 100 employees) being the most common victims of organizational fraud. As a business owner, you have to take the necessary steps to ensure you’re protected.

Here are 5 ways to improve internal controls and oversight within your organization to help protect your business from employee fraud:

1. Segregate Accounting Duties

Small businesses usually depend on one employee or a bookkeeper to ensure the process in all aspects of the accounting process, including authorization, execution, custody, and posting of transactions. Ideally, the processing of cash receipts and payments will be separated, with segregation of duties with different people approving invoices, preparing checks, signing checks, and reconciling the bank accounts. Allowing one individual to handle cash or checks received, the deposits, and the posting of payments in the system increases the risk of fraud. These processes should be segregated among different individuals. If this is not feasible for your organization, it is advisable to rotate individuals performing the above tasks periodically.

Additionally, you could use an AP risk and control matrix to help your company assess and minimize inherent risks resulting from faulty accounting data and residual risks, which can remain even with good controls. AP automation providers, like Sampli, can help companies prepare AP risk and control matrices by keeping detailed and easily accessible accounting data, which gives business owners and CEOs a complete picture of what they’re up against.

You could also consider the use of an online payment service that can be accessed anywhere and provide you with increased account control over the payment process. Bills and payments can be authorized conveniently prior to any cash disbursement. If your situation still warrants physical check policies, consider signing them yourself or authorizing an additional signer. Ensure objectives that the signer is separate from the person issuing the checks and that the signer matches the checks to invoices prior to mailing. Finally, be sure to store blank checks in a safe place restricting access to avoid risk.

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

2. Restrict Access to Financial Systems

The most common accounting software used by businesses gives its users the ability to edit and delete previous transactions which could lead to easy concealment of theft. Business owners should retain ADMIN rights (if possible) to the company’s accounting system and consider restricting user access to only areas necessary for their functions. This will help reduce the chances of an individual creating false entries and covering up their tracks. A review of voided and deleted transactions will show any adjustments or deletions and can be instrumental in exposing irregularities in procedures.

If approval rights are granted to an employee or bookkeeper in your online payment service, a review of credit memos should be performed to ensure the validity of issued credits and deter the creation of false credit memos to cover any intercepted cash.

3. Increase Oversight

Internal controls without oversight are not good enough. You, or a trusted resource, should diligently review bank statements, check or payment registers, and bank reconciliations regularly. Review payroll statements for phantom employees and unapproved raises, hours, or even expenses. Impress upon the employee the need to keep supporting documents and you should periodically review some transactions and supporting documents for validity and accuracy.

Most importantly, business owners need to follow policies and procedures to make it a priority to review financial reports and understand the trend and changes in the business’s financial data. There should be a focus on understanding month over month or quarterly fluctuations as well as variances between budget and actuals.

4. Have Financial Statements Reviewed by a Third Party

To support bookkeepers and other in-house accounting efforts, business owners should consider utilizing their CPA to periodically review the financial statements. An individual who knows that the work performed will subsequently be reviewed is more likely to be deterred from committing fraud. An outside accountant can be instrumental in identifying inaccuracies and inconsistencies in the financial records as well as helping business owners better understand the procedures of their financial data.

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

5. Require Employees to Take Vacation

In the client example mentioned earlier, the company identified the unusual checking activity while their bookkeeper was out of town for training. Embezzlement and other types of fraud require a constant paper trail cover-up in order to go undetected in accounting records. 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.

Read more: Employee Fraud is More Common in Small Businesses – Are you Protected?

We Can Help

Signature Analytics provides small and mid-sized businesses with the resources of a full accounting team on an outsourced basis, so our clients achieve effective segregation of accounting duties without having to hire additional full-time accounting staff. We ensure that all of our clients have preventative controls in place and provide an appropriate level of oversight and challenge for the company’s financial books and records.

To learn more about how Signature Analytics can help ensure your business is protected from employee fraud, contact us for a free consultation.

 


 

Discover how outsourced accounting can provide more visibility into your business

Crafting an annual budget is one of the most important financial aspects of a business, but often gets overlooked.

Business budget planning is an essential task that is frequently neglected at small and mid-size companies. So why is it so important? Well, mostly because it is a process that prepares your company to answer critical questions about what the next 12 months will look like:

  • What are you projecting sales to be next year?
  • Are you expecting margins to improve next year?
  • Do you plan to hire additional employees?
  • Will you have any significant capital expenditures soon?

These questions (and many others) are typical of investors, financial institutions, potential strategic partners, and financial buyers. Every business, regardless of size, should have the answers to these questions to be able to plan the annual operating budget accordingly.

Having a chief financial officer, or CFO, as part of your company’s C-Suite executive team can be an asset in this process.

A CFO will have access to and be up to date on the most recent financial data pertaining to the company. These resources can help the company craft its budget, as well as short and long-term financial goals. Strategic budgeting is a skill that any good CFO will have in their arsenal. It’s just a matter of working as a team to bring all the relevant information together to plan for the future.

Read more: What CEOs Need From Their CFO

If you are overwhelmed by company budgeting planning, don’t have a CFO, or don’t know where to begin, below are some tips to help you get started:

1. Consult All Departments

The annual budgeting process should not be completed behind closed doors by one member of the accounting or finance team. Instead, all the departments within the company should be part of the conversation and provide feedback, insights, and expectations for the following fiscal year.

Who should contribute to the conversation? Be sure to loop in:

  • The sales team: they can assist with realistic revenue assessments
  • The manufacturing or service team: they can advise on costs of delivery and any large purchases required to update machinery
  • The research and development team: they can discuss expected expenses as well as the timing on any new products anticipated
  • Any other departments who can add value to the conversation

It is encouraged to incorporate feedback from each department as the results are much more likely to be accurate. Therefore, project completions are possible for the upcoming fiscal year. Too often, companies that do complete the annual budget planning process estimate an overall percentage increase over the prior year’s actual income – this is something that should be avoided.

2. Estimate Revenues

Expected sales have a significant influence on costs, including employee headcount, but it can be very challenging to make projections accurately. Here are some ways to come up with the best estimate:

  • Consider the recent monthly growth rate experienced by the company and decide if it can be continued.
  • Review industry guides and other expert publications that focus on your industry.
  • Review financial information from a number of your competitors, if available.
  • Communicate with your current customers to better understand their expected needs of your product or service.
  • Discuss the expected sales with your sales department and set expectations to help determine compensation for this team.

3. Determine Expenses

Once the expected revenue figures are estimated, the focus can shift towards expenses. Here are some considerations:

  • Some costs relate directly to revenue, whether they be inventory or employee services. Typically, the gross margin of a business does not fluctuate substantially unless new products are developed, inventory prices change, or inefficiencies are identified within the manufacturing process. Use this time to challenge your employees to identify cost savings related to the delivery of products or services.
  • Other expenses are fixed costs such as rent, insurance, equipment leases, and certain other services purchased. These expenses may be easier to estimate; however, you should consider reviewing the policies in place, especially around insurance. Use this time to determine if better insurance rates are available or if different coverages would be more advantageous.
  • Employee compensation should always be established to be in line with revenues and related growth in the coming year. Many companies believe that all employees require annual raises, but if the results show a contraction in the business, then it may not be reasonable. Consider tying aspects of compensation to the growth of the company. With today’s inflationary trends, make sure you include cost of living wage increases for your employees in your budget and projections as well.
  • Along with compensation, estimating employee headcount is a critical aspect of the budgeting process. It is important to identify when you will need to hire, how long that hiring process takes, and what experience level would optimize the operations.

4. Identify Capital Expenditures

Often not considered in the budgeting process are those large or expensive purchases which are vital to the continued success of the business. These may include new computers, systems, machinery, vehicles, furniture, etc. It is essential to keep in mind that each new employee hired will likely require a certain amount of capital expenditure.

Investments in equipment or processes that are directly related to your product or service should also be considered. Will you need to purchase any new materials next year? Is there old equipment that needs to be updated? Avoiding investment in equipment can impact your output, quality, or delivery timing, which can directly impact your revenues.

5. Calculate Cash Flow

While putting together a projected income statement can feel great, it is just as important to calculate the expected cash flow of the business.

Your company may pay bills faster than customers pay theirs. You may need to purchase inventory well in advance of sales if acquisition time is significant. In cases such as these, a cash flow statement should be created using the income statement as well as AR/AP turnover rates and other metrics from the balance sheet.

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