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In the construction industry, managing costs is essential to ensure the success of any project. While direct costs like labor and materials are often at the forefront of budget considerations, overhead costs are equally crucial to ensure profitability.

In this article, we will discuss the intricacies of overhead budgeting and analysis for construction businesses, including the importance of calculating overhead costs, what constitutes these costs, methods for accurate calculation, and strategies to optimize overhead spending.

Why Do You Need To Calculate Overhead Costs?

Construction companies know that staying on budget and on time are critical aspects of a successful project. However, overhead costs often fly under the radar, leading to unexpected financial setbacks. Failing to calculate and account for overhead costs can erode profit margins and jeopardize project viability, especially for projects that operate on slim margins.

So, how can construction companies avoid falling into this trap? Let’s take a look at what exactly makes up overhead costs for construction and how to calculate them.

What Is Included in Overhead Costs in Construction?

Overhead costs include a wide array of expenses that indirectly support the construction process. These include:

Administrative Expenses: Office rent, utilities, insurance, salaries, and professional fees.

Advertising Expenses: Billboards, online ads, flyers, mailers, and business cards.

Bonding and Insurance Expenses: Bonding premiums, general permits, and insurance premiums.

Equipment Expenses: Equipment that is not a direct job cost including leased equipment, owned equipment, maintenance, and repairs.

Vehicle Expenses: Leased vehicles, owned vehicles, fuel, maintenance, and repairs.

Labor Burden: Payroll taxes, workers’ compensation insurance, and other labor-related costs.

Directly attributable costs such as direct labor, direct material, and direct expenses are not part of overhead costs.

Two Ways to Budget Overhead Costs for a Construction Company

Budgeting overhead for a construction company is essential for effective financial management. There are a variety of ways a company can approach this, but here are two common approaches you can consider:

Historical Analysis:

This approach involves examining past financial records and historical data to estimate future overhead costs. Let’s discuss how to use historical data for more accurate cost projections.

Analyze the company’s financial statements from previous years to identify trends and patterns in overhead expenses. Break down overhead costs into categories such as utilities, rent, insurance, office supplies, and administrative salaries. Calculate the average annual expenses for each category over the past few years.

Adjust these historical figures for inflation, any anticipated changes in the business, or upcoming projects that may impact overhead costs. This approach provides a baseline estimate based on past performance.

Zero-Based Budgeting:

Zero-based budgeting (ZBB) requires a fresh start each budgeting period, where overhead costs are justified from the ground up. Instead of basing the new budget on past expenses, you begin with a clean slate.

Identify and list all overhead expenses from scratch. Every expense, no matter how small, must be justified and allocated based on the company’s current needs and objectives.

This approach encourages cost-cutting and efficiency improvements as each expense item is rigorously evaluated.

While ZBB can be time-consuming, it can help identify unnecessary overhead costs and lead to more efficient resource allocation.

Ultimately, the choice of budgeting approach will depend on your construction company’s specific circumstances, goals, and available resources. Some companies may benefit from a combination of these approaches to create a comprehensive and accurate overhead budget. Regularly reviewing and adjusting the budget as circumstances change is also crucial for effective financial management in the construction industry.

Methods for Overhead Allocation in Construction

Allocating overhead costs in a construction company accurately is crucial for determining the true cost of each project and for overall financial management. Here are three common methods for allocating overhead in a construction company:

Percentage Method:

This method allocates overhead costs as a percentage of the direct costs or project value associated with each project. Direct costs include expenses directly tied to a specific project, such as labor, materials, subcontractor fees, and equipment costs.

To use this method, you calculate a predetermined overhead rate (e.g., 10%) based on historical data and budgeted overhead expenses. Then, for each project, you apply this rate to the total direct costs to allocate a portion of the overhead expenses to that project.

For example, if a project has $100,000 in direct costs and the predetermined overhead rate is 10%, the allocated overhead would be $10,000.

Labor Hours or Labor Costs:

This approach allocates overhead costs based on the labor hours worked or labor costs incurred on each project. It assumes that overhead costs are directly related to the amount of labor required for each project.

Calculate the overhead rate by dividing the total budgeted overhead expenses by the total labor hours or labor costs for all projects. Then, for each project, allocate overhead based on the project’s share of the total labor hours or costs.

For example, if a project requires 20% of the total labor hours, and the total overhead costs are $100,000, the allocated overhead for that project would be $20,000.

Square Footage:

This method allocates overhead costs based on the square (or other measurement) footage involved in each project. It is commonly used in construction companies that work on building and renovation projects.

Calculate the overhead rate by dividing the total budgeted overhead expenses by the total square footage or square meters for all projects. Then, allocate overhead to each project based on the project’s share of the total space.

For example, if your annual project volume is 200,000 SF and project ‘A’ involves 10,000 square feet and the total overhead costs are $100,000, the allocated overhead for that project would be $5,000 (200,000/$100,000 = $0.50 per sf).

It’s essential to note that the choice of overhead allocation method should align with your construction company’s specific needs, the nature of your projects, and the availability of data. Some companies may even use a combination of these methods to ensure a more accurate representation of overhead costs. Additionally, regularly reviewing and adjusting your allocation method and rates based on changing volume, project characteristics and overhead expenses is essential for maintaining accuracy in your cost accounting.

How To Reduce Your Overhead Costs

Reducing overhead costs is a goal shared by all businesses. Strategies include:

Streamline Administrative Processes: Automate tasks, optimize scheduling, and improve labor management.

Optimize Significant Costs: Renegotiate leases, explore SAAS options, and optimize labor and material costs.

Review Recurring Expenses: Re-quote insurance policies and negotiate recurring costs like printers.

Manage Inventory Levels: Employ just-in-time supply chain management to avoid excess inventory.

Track Reimbursable Expenses: Use apps to track and reclaim costs like mileage.

Common Mistakes When Calculating Overhead Costs in Construction

Calculating overhead costs accurately in construction is crucial for making informed financial decisions. However, there are common mistakes that can lead to inaccurate overhead calculations. Here are some of the most common mistakes to avoid:

Misclassification of Expenses: One of the fundamental mistakes is misclassifying expenses as either direct or indirect overhead costs. It’s essential to clearly distinguish between costs that are directly attributable to a specific project (direct costs) and those that support the overall operation of the company (indirect overhead costs). Misclassification can lead to incorrect allocation and distort the true cost of a project.

Overlooking Variable Overhead Costs: Some construction companies may focus solely on fixed overhead costs, such as rent and insurance, while overlooking variable overhead costs. Variable overhead costs, like office supplies, utilities, or equipment maintenance, can fluctuate based on the level of activity and should be included in your calculations for accurate project cost estimation.

Using Outdated Data: Relying on outdated or inaccurate historical data when calculating overhead costs can result in inaccurate budgeting and cost allocation. Overhead costs can change over time due to factors like inflation, changes in the business environment, or technological advancements. Ensure that you regularly update your data and calculations to reflect current conditions.

Neglecting Seasonal Variations: Construction businesses often experience seasonal fluctuations in activity. Failing to account for these variations when allocating overhead costs can lead to underestimating or overestimating expenses for specific projects. Consider the seasonality of your projects and adjust your overhead allocation accordingly.

Failure to Consider Project Complexity: Not all construction projects are equal in terms of complexity and resource requirements. Failing to consider project-specific factors, such as the size, scope, location, and duration of a project, can result in inaccurate overhead allocation. Complex projects may require a higher level of overhead support.

Not Reviewing and Adjusting Overhead Rates: Overhead rates should be periodically reviewed and adjusted to reflect changes in the business environment, overhead costs, and project types. Failure to update these rates can lead to significant discrepancies between budgeted and actual costs.

Incomplete Documentation: Proper documentation of all overhead expenses is essential. Failing to keep detailed records of indirect costs and their allocation can make it difficult to track, verify, and justify overhead expenses.

To mitigate these common mistakes, construction companies should establish clear accounting practices, invest in robust cost tracking and management systems, and regularly review and update their overhead allocation methods and rates. Additionally, seeking the guidance of financial professionals or consultants with expertise in construction accounting can help ensure accurate overhead cost calculations.

How Outsourced Accounting Can Help with Overhead Budgeting and Analysis

Benefitting from Outsourced Expertise

In the world of construction finances, turning to outsourced accounting is a smart move for refining overhead budgeting and analysis. This approach involves partnering with financial experts who specialize in tackling the complexities of overhead cost calculations. By relying on these professionals, construction companies tap into industry-specific knowledge and skills.

Navigating Cost Details with Precision

Outsourced accountants are adept at pinpointing and categorizing both direct and indirect costs, providing a complete financial picture. Using tailored tools and techniques for the construction sector, they use advanced software to accurately track expenses, allocate costs, calculate burden rates, and analyze differences. This approach speeds up calculations while making overhead estimates more accurate.

Unleashing Internal Focus Through Outsourcing

Beyond the numbers, outsourcing frees up internal resources from intricate financial tasks. This lets construction businesses concentrate on their core work, innovation, and skilled project management.

Cultivating Smart Growth and Decision-Making

This streamlined operation not only boosts profitability but also nurtures an environment for strategic growth and well-informed decisions. With outsourced accounting, construction companies set the stage for financial expertise and operational excellence in an ever-changing industry.

Final Thoughts

Overhead budgeting and analysis are integral to successful construction projects. Calculating and managing overhead costs with precision can safeguard profit margins and streamline operations. By understanding the components of overhead, utilizing appropriate calculation methods, and implementing cost-saving strategies, construction businesses can optimize their financial health and project outcomes.

Learn More About Signature Analytics

At Signature Analytics, we support our clients’ day-to-day accounting functions, including:

Invoicing
AR management
Bill processing
AP management
Forecasting
Reporting
Monthly close
And more…

Ready to get started with outsourcing your day to day accounting services? Talk to an expert today.

Then, read on to learn Why Your Construction Business Needs an Outsourced CFO.

Outsourced CFO Services And Why Your Construction Business Needs Them

READ OUR POST ON EFFECTIVE JOB COSTING...

As a construction business owner, you’ve got a lot on your plate – from handling projects to managing your team. But one thing you can’t afford to overlook is your finances. Let’s face it – managing your finance and accounting can be overwhelming, especially when you’re already juggling so much. That’s where outsourced CFO services come in.

In this blog, we will delve into the realm of outsourced CFO services, gaining an understanding of their essence and exploring their transformative impact on your construction business. Let us explore what these services entail and uncover the reasons why they are a significant game-changer for your company.

Outsourced CFO Services for Construction

When you opt for outsourced CFO services, you’re bringing in a finance expert to provide C-level guidance on your financial outlook. Your fractional Chief Financial Officer will provide strategic guidance, financial planning, analysis, and sophisticated insights you may not have access to otherwise. An outsourced CFO helps to ensure you’re headed in the right direction when it comes to your construction business’ finances – at a cost that doesn’t do the very opposite of what you’re hiring them to do.

But how exactly can these services help your construction business succeed? Let’s discuss.

Financial Management Challenges for Construction Businesses

Effectively managing finances can pose significant challenges for construction business owners. With constrained resources, a lack of financial expertise, and the need to prioritize core business activities, financial matters often take a backseat, leading to various pain points that require attention. Let’s delve into some of these pain points:

Limited Financial Insight: Without a financial professional, construction businesses may struggle to gain a comprehensive understanding of their financial situation. Analyzing financial data, identifying trends, and making informed decisions based on insights become challenging tasks without specialized expertise.

Strategic Decision-Making: Developing a robust financial strategy is crucial for long-term success, but it’s not always straightforward without the guidance of an experienced CFO. Aligning financial goals with overall business objectives and creating actionable strategies to drive growth and profitability may prove to be daunting.

Cash Flow Optimization: Efficient cash flow management is critical for construction businesses, which often operate on tight budgets. The absence of proper cash flow planning can lead to cash shortages, hindered growth initiatives, or difficulties in managing day-to-day expenses.

Key Metrics: Key metrics play a crucial role in evaluating the performance and efficiency of a construction company. These metrics provide insights into various aspects of the company’s operations, financial health, and project management. They may include project completion time, cost overrun percentage, safety incident rate, client satisfaction score, profit margin, revenue growth, and employee productivity. Monitoring and analyzing these metrics allows the company to identify areas of improvement, optimize resource allocation, ensure compliance with safety standards, and make informed strategic decisions. By consistently tracking these key metrics, a construction company can enhance its overall performance and maintain a competitive edge in the market.

Fortunately, outsourced CFO services present a viable solution to these challenges. By collaborating with a team of experienced financial experts, construction businesses can offload the burden of financial management and gain access to strategic guidance and valuable insights tailored to their specific needs. Let’s explore the key benefits and components of outsourced CFO services that can empower construction businesses to make informed financial decisions and propel their growth.

CFO Services: Key Deliverables for Construction

Make Informed Business Decisions with the Right Financial Insights

Sophisticated Business Guidance

Strategic Planning

Our team provides sophisticated business guidance, strategic planning, and in-depth analysis to empower you in making informed decisions. By collaborating closely with you, we develop a comprehensive roadmap aligned with your business goals, assess market trends, and create actionable strategies for growth and profitability.

Business Modeling for Enhanced Analysis

Through advanced business modeling techniques, we unlock your business’s full potential by conducting in-depth analysis and forecasting. Our robust financial models consider various scenarios, assess risks and opportunities, and guide decision-making.

Annual Budgeting for Financial Stability and Growth

Our dedicated experts work with you to develop annual budgets that serve as a roadmap for financial stability and growth. By considering your objectives, historical data, market conditions, and industry benchmarks, we help you allocate resources effectively, prioritize investments, and monitor performance throughout the year.

Breakeven and Margin Analysis for Profitability Assessment

We conduct comprehensive breakeven analyses to understand your business’s profitability and financial health. Additionally, our experts perform detailed margin analyses to evaluate the profitability of your products, services, or business segments.

Business-specific KPI Development and Strategic Pricing

We work closely with you to develop business-specific key performance indicators (KPIs) that align with your strategic objectives and provide meaningful insights into performance. Our experts also assist you in developing effective pricing models tailored to your industry, market dynamics, and customer segments.

Guidance on ASC 606 Revenue Recognition Standards

To ensure compliance and accurate financial reporting, our team provides comprehensive guidance and support in implementing ASC 606 revenue recognition standards. We help you understand the impact on your revenue recognition processes and financial statements.

A Dedicated Financial Intelligence Technology Team (FIT)

Custom Reporting Development

We acknowledge that each business has unique reporting needs. Our FIT team excels in developing custom reports that provide detailed financial analysis and insights specifically tailored to your organization and systems. Whether it’s connecting disparate systems, supporting new system implementaions, or developing new dynamic reports, we work closely with you to understand your reporting requirements and deliver meaningful reports that meet your needs.

Efficiency through Improved Integration

Managing financial data efficiently and accurately is crucial. Our FIT team ensures seamless integration of accounting data across various technology tools, eliminating the need for manual data entry and reducing the risk of errors. By leveraging automation and integration solutions, we streamline your financial processes and enhance data integrity. This allows you to focus on core business activities with confidence, knowing that your financial data is consistently accurate and up to date.

When to Consider Outsourcing CFO Services for Your Construction Business?

The perfect timing to explore outsourced CFO services is not during a crisis or as a last-minute attempt to salvage a struggling business. Instead, it is best to consider outsourcing CFO services during periods of growth and success when there is the capacity and enthusiasm to enhance existing processes and benefit from expert financial leadership.

That being said, if your business is currently in a state of crisis or approaching one, an outsourced CFO services company could be exactly what you need. They have extensive experience assisting other businesses in navigating challenging situations and can implement strategies tailored to your specific circumstances, drawing from their expertise across multiple industries.

Ready to Explore Outsourced CFO Services?

If your business needs forward-looking financial analysis but you’re not ready to hire a full-time CFO or require additional support for your existing team, explore the range of services offered by our experts at Signature Analytics. Our highly experienced accountants can function as your entire accounting department, from CFO to staff accountant. If that doesn’t fit your needs, we can work alongside your internal accounting staff to provide ongoing support, training, and forward-looking financial analysis. This ensures effective company management, operational analysis, and informed decision-making for the long term.

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

How Outsourced Accounting Works with Outsourced IT

In 2023, many business owners have turned to outsourcing to streamline their businesses- From customer support to digital marketing to logistics, there’s an outsourcing team available to handle every aspect of your business. But many business owners share the same burning questions: how do these services actually work together? And, more importantly, how can these services collaborate to help my business succeed?

In this blog post, we’ll delve into the collaboration between outsourced accounting and IT, two critical functions that can greatly benefit your business. We’ll explore the advantages of outsourcing these services and how their synergy can drive your business towards success. Let’s dive in.

Understanding Outsourced Accounting and Outsourced IT

Outsourced Accounting

Outsourced accounting simplifies financial management by letting external experts handle it. Rather than dealing with financial tasks internally, you hire an accounting provider to handle important processes like managing finances, ensuring regulatory compliance, and generating accurate reports. Outsourcing accounting brings several advantages.

Firstly, it helps you save costs by eliminating the need for an in-house accounting team. Additionally, outsourcing provides access to specialized accounting expertise that your organization may not have. By leveraging the skills and knowledge of outsourced accounting professionals, you can enhance the efficiency and accuracy of your financial operations.

Outsourced IT Services

Outsourced IT services play a crucial role in managing your business’s technology needs. When you team up with an outsourced IT provider, they take care of your technology infrastructure, cybersecurity, software solutions, and technical support. By outsourcing your IT requirements, you enjoy enhanced security measures that shield your sensitive data from cyber threats. Additionally, scaling becomes simpler as your IT provider can adapt resources to accommodate your business’s growth.

Outsourcing IT also grants you access to specialized IT expertise, empowering you to leverage advanced technologies and stay ahead in the competitive landscape.

Let’s take a look at how these two functions can work together to help your business succeed.

How Outsourced Accounting Works with Outsourced IT

When outsourced accounting and outsourced IT services join forces, they can significantly contribute to the growth and success of your business. Here’s a simplified breakdown of how these two functions work together:

Streamlined Financial Operations

By integrating outsourced accounting with outsourced IT, you can make your financial processes more efficient. Using technology, tasks like accounting calculations and record-keeping can be automated, simplifying workflows. This collaboration saves time and improves accuracy, allowing your team to focus on important strategic initiatives.

Enhanced Data Security

Outsourced IT services specialize in protecting sensitive information, including your financial data. They implement advanced security measures, such as firewalls, encryption, and threat monitoring, to safeguard against cyber threats. By partnering with outsourced IT, your financial information remains secure, reducing the risk of unauthorized access or data breaches.

Strategic Decision-making

To make informed decisions, you need accurate financial data and insights. Through collaboration between outsourced accounting and IT services, data exchange becomes seamless. This integration ensures timely and reliable financial reporting, enabling you to analyze performance, spot trends, and make well-informed decisions that drive business growth.

Scalability and Flexibility

As your business expands, both outsourced accounting and IT services can adapt to your changing needs. Outsourced IT providers possess the expertise and resources to support the growth of your technology infrastructure. Similarly, outsourced accounting providers can adjust their services to accommodate your evolving financial requirements. This flexibility allows you to scale your operations smoothly.

Cost Savings and Access to Expertise

Outsourcing accounting and IT functions can lead to cost savings. By eliminating the need for in-house teams and infrastructure, you reduce expenses associated with recruitment, training, and equipment. Additionally, outsourcing provides access to a pool of specialized professionals who bring expertise beyond what may be available within your organization. This expertise includes knowledge of the latest technologies and industry best practices.

Collaboration and Communication

Effective collaboration and communication between outsourced accounting and IT teams are essential for a successful partnership and efficient workflow. Regular meetings and open lines of communication allow both teams to align their efforts and work towards shared goals. By collaborating closely, the accounting and IT teams can ensure that financial data requirements are clearly communicated, technical considerations are addressed, and any potential issues are resolved promptly. This collaboration fosters a cohesive working environment, promotes knowledge sharing, and enhances overall productivity.

Integration of Accounting and IT Systems

Integrating accounting and IT systems brings numerous benefits that streamline processes and improve data accuracy. When financial data is synced with IT infrastructure, it enables seamless data transfers between accounting software, databases, and other relevant systems. This integration allows for real-time updates, ensuring that financial information is always up to date and accurate. By eliminating manual data entry and reducing the risk of human errors, businesses can enhance data integrity and minimize discrepancies. Additionally, integration simplifies the consolidation and analysis of financial data, providing a comprehensive view of the organization’s financial performance.

Key Considerations for Selecting Outsourced IT and Accounting Providers that Can Integrate Effectively

When choosing outsourced IT and accounting providers that can integrate effectively, it’s important to consider the following:

Expertise and Specialization: Look for providers with expertise and specialization in IT and accounting, especially in your industry. They should understand your specific needs and regulatory requirements.

Compatibility and Integration Capabilities: Ensure that the IT and accounting systems used by the providers are compatible and can seamlessly integrate with each other. This avoids any issues or delays during integration.

Communication and Collaboration: Effective communication and collaboration between the IT and accounting teams are essential. Consider the providers’ communication channels, response times, and their willingness to work closely with each other and your internal teams.

Data Security and Privacy: Prioritize providers with strong data security measures to protect your sensitive financial data from unauthorized access, breaches, and cyber threats. Check for security protocols, certifications, and privacy measures.

Scalability and Flexibility: Verify that the providers can scale their services to accommodate your business growth. They should have the resources and flexibility to adapt as your needs change.

Service Level Agreements (SLAs): Define clear expectations and performance metrics through well-defined SLAs. SLAs should cover aspects like response times, uptime guarantees, data backup and recovery, and compliance with regulations.

Reputation and References: Research the providers’ reputation and seek references or testimonials from their clients. This gives you insights into their service quality, reliability, and ability to integrate effectively.

Cost and Value: Consider the cost structure and value proposition offered by the providers. Assess whether the benefits of integration outweigh the costs, and ensure transparent pricing aligned with your budget.

By considering these factors, you can choose outsourced IT and accounting providers that meet your needs and have the ability to integrate effectively, ultimately contributing to your business’s success.

Interested in Learning More About Outsourced Accounting Services?

Signature Analytics outsourced accounting and CFO business advisory services teams get you access to finance and accounting expertise and insights. By putting the right people, processes, and technology in place, we facilitate accurate, relevant, and timely data so you can make smart business decisions.

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

Learn more about our services, here.

Creating Financial Clarity for the Business Sale [PODCAST]

News, Podcasts

Welcome to The Faces of Business, hosted by Damon Alka, where conversations revolve around life and business experiences. Our aim is to entertain, engage, build a community, and offer insights that help others achieve their business aspirations. Today, we’re honored to host Jason Krueger, a linchpin from Signature Analytics, known for his substantial contribution towards ensuring financial clarity in businesses.

Listen on iTunes: https://podcasts.apple.com/us/podcast/creating-financial-clarity-for-the-business-sale/id1558858992?i=1000622548395

Damon Alka:
We’re back on the Faces of Business, and I’m truly excited about today’s session. Jason Krueger, with his extensive experience at Signature Analytics, will give us a deeper understanding of financial clarity in business. Jason, it’s great to have you on board. You and your team at Signature Analytics have had a considerable run in this business providing outsourced accounting services. There must be some intriguing stories over the years. Tell us about some significant challenges you’ve faced.
Jason Krueger:
More often than not, we’re called in post-crisis. We’ve seen businesses facing issues like significant fraud. While it’s not always ideal, our primary focus remains on guiding businesses to understand their financials better. We want to help them in achieving their long-term objectives.
Damon Alka:
How did your journey start, and how did the idea of Signature Analytics come into being?
Jason Krueger:
I began my journey in public accounting during the late nineties, specifically on the financial statement audit side. I believed that understanding the numbers equated to understanding the business. My career began with Moss Adams, then transitioned to Deloitte for a larger SEC experience. However, my heart was always set on mid-market companies.
Over the years, I observed many businesses merely looking at accounting and finances as a necessary obligation. I recognized a void in the market; companies deserved better financial guidance. Many needed more resources or the right talent for their accounting needs. This realization inspired the birth of Signature Analytics in 2008. Our mission was clear: to assist small and mid-market businesses in navigating the world of finance, offering them clarity and peace of mind.

Challenges Mid-Market Businesses Face

Public accounting introduced me to a plethora of companies, differing not just in size, but also in the industries they thrived in and the leadership at their helms. It’s undeniable that larger, public companies are leagues ahead in terms of sophistication. They have a rigorous structure with all their policies documented meticulously, and a team comprising seasoned professionals who have grown up the corporate ladder.

On the flip side, the mid-market domain often comprises first-time entrepreneurs. They lack the resources to replicate the intricate corporate structure that their mammoth counterparts maintain. The initial realization of their shortcomings in financial and accounting expertise was a revelation, but now, it’s a common sight for me.

Often, I perceive this sector as the ‘wild west’ of business. Companies burst forth with innovative ideas, but there’s a glaring gap when it comes to the structural know-how of scaling up and monetizing these ideas. The talent deficit in the finance realm exacerbates this challenge. Fewer individuals are opting for accounting as a profession, which leaves a void in expertise, especially for these mid-sized businesses.

Honestly, I empathize with the youth’s perception of accounting. I didn’t delve into accounting with the intent to stick to it indefinitely. I was more intrigued by the intricacies of business it would reveal.

While public companies have a mandate to maintain their credibility through reliable projections, these burgeoning businesses are often left to navigate their trajectory without much guidance. Today’s business landscape, especially with entities like SaaS companies, is rapidly evolving. They might land substantial funding and hit the market running within a couple of years. It’s an unpredictable, fast-paced environment.

We’ve witnessed numerous companies that, upon securing capital, are immediately subjected to leadership changes influenced by their investors. They might bring aboard a proficient CFO, but the support structure beneath is often underwhelming, sometimes just limited to a low-tier bookkeeper. However, these scenarios are gratifying for us. These businesses have a defined vision. They value our expertise, allowing us to assist in fleshing out their operational backends, and propelling their growth trajectory.

Smaller businesses often overlook the monumental benefits they can harness from financial data. Efficiently leveraged financial insights can be transformative, ensuring swift, informed decisions.

Cash is King – Especially in Manufacturing & Distribution

In the contemporary business landscape, particularly in our current climate, one axiom remains timeless: Cash is king. Healthy cash flow often masks underlying issues, but once there’s a hiccup in that flow, deeper problems surface, often catching business owners off-guard.

I’ve interacted with countless manufacturers, and it’s a common conundrum. They’ll present their income statement, their P&L, flaunting the profits, and then juxtapose it with their liquidity woes. “Why do I have no cash?” they’d ask. It usually boils down to two reasons. Firstly, the financial statements might have discrepancies. Secondly, and more often than not, the ‘missing’ cash is tied up in inventory. It’s on the shelves of their warehouse, waiting to be transformed into sales.

The intricate dance of managing inventory processes, aligning it with sales cycles, and ensuring optimal purchase patterns often trip manufacturers up. Their industry probably faces the most challenges in cash management, making it paramount for them to cultivate robust banking relationships. Fortunately, the inventory can serve as collateral, providing a bit of financial cushion.

For businesses seeking growth and expansion, there comes a moment of reckoning. Whether it’s for financing, attracting investors, or capitalizing on potential tax credits, they’ll need to present their financials to third parties. This is a litmus test of sorts. If their financial statements are not coherent or if they appear unreliable, it stalls their ambitions. That’s when they realize the importance of having sound, comprehensible, and accurate financial documentation.

Know Your Margins

Margin is the heartbeat of any business, driving profits and illuminating key financial health indicators. Surprisingly, many business owners have a somewhat vague grasp of their margins. When questioned, they might provide a broad range: “Oh, it’s somewhere between 50 and 60%”. Such vagueness can be dangerous. Businesses should know their margins to the exact percentage point. Further, this should be broken down by product and service line. Identifying which products or services are most profitable allows businesses to fine-tune pricing and cost structures. For a business with a turnover of $10 million, a margin improvement of just 1% translates to an extra $100,000 in profit. Accurate visibility into margins can drive impactful, immediate decisions.

Why Liquidating Inventory is Smart in Cash-Strapped Times

Growing businesses often find themselves cash-strapped, and more often than not, the culprit is inventory. Businesses might see impressive growth rates, but if their inventory growth outpaces revenue growth, liquidity issues arise. Inventory sitting on shelves not only ties up cash but can also incur interest if financed through a line of credit.

In recent years, supply chain disruptions have forced many businesses to stock up, leading to inflated inventory levels. Now, businesses have an opportunity. They can liquidate this excess stock, converting products into much-needed cash. Even if this means selling products at a reduced price, the infusion of liquidity can support other business needs, making it a strategic move.

How Accounting Technologies Have Improved Accounting Practices

The accounting landscape has been dramatically reshaped by technology. With the rise of electronic transactions, processes that once depended on paper checks or wire transfers are now faster and more efficient. While sophisticated solutions like ERP systems can be costly and daunting for small and mid-sized businesses, there are intermediate options, like QuickBooks, that serve many needs.

However, the key lies in proper implementation. If systems are incorrectly set up, teams might revert to manual practices like maintaining Excel spreadsheets on the side, leading to inefficiencies. Ideally, businesses should move away from practices like cutting paper checks, with platforms like bill.com offering automated solutions. The potency of these systems is undeniable, but they must be correctly tailored to each business’s unique needs. One of our primary focuses when onboarding clients is assessing their accounting environment, ensuring their systems and technology align seamlessly with their operations.

The Signature Analytics Assessment Process

When diving into the methodology of SA’s assessment, it becomes evident that the approach is all-encompassing. Their focus is not just on one dimension, but a holistic evaluation spanning people, processes, technology, and reporting structures. Within this vast landscape, technology holds a significant role. The assessment involves mapping out the present technological tools, understanding their applications, pinpointing their strengths and weaknesses, and discerning their integration capabilities. As the assessment unfolds, SA crafts recommendations. Interestingly, these suggestions aren’t rigid; they are thoughtfully adjusted based on a company’s financial health. If resources were unlimited, certain solutions might be ideal, but SA acknowledges the real-world constraints businesses face. Thus, they offer a balanced blend of quick efficiency boosts and long-term strategic plans. Emphasizing their tailored approach, SA firmly believes that each client requires a unique solution. This philosophy stands as a testament against a one-size-fits-all mindset. With SA, the journey goes beyond just “doing accounting”. It’s about crafting a plan, understanding the ecosystem, and then executing. A notable analogy draws attention to the roles of accounting and IT in businesses. Often, they’re like black holes – their intricacies remain mysterious until something goes awry.

The Importance of AR/AP Processes

The financial arteries of a business, Accounts Receivable (AR) and Accounts Payable (AP), have long held prominence in operational discussions. One of the primary tools to enhance cash flow, as discussed, is refining payment terms. It can be as straightforward as soliciting larger initial deposits, or perhaps invoicing with increased frequency. Many business owners, tethered to traditional beliefs, might be apprehensive. There’s a prevailing thought that customers might balk at these new terms. But as SA’s journey suggests, testing these waters, especially with new clientele, might yield favorable currents. The narrative evolves as we trace SA’s 15-year trajectory. The company transitioned from a 30-day term, predominantly check-driven model, to a more fluid system, and the positive impact on cash flow was palpable. This financial evolution underscores the need for consistency in AR and AP processes. From invoicing to collections and from strategizing payments to executing them, a regular rhythm is pivotal. And when discussing manufacturing businesses, the challenges amplify. These entities grapple with a unique financial puzzle – navigating the hiatus between procuring materials and securing customer payments.

Why a Good Banking Relationship is Crucial

Within the financial tapestry of a business, banking relationships emerge as crucial threads. Regardless of an immediate necessity, forging a sturdy partnership with a bank is indispensable for any business. This relationship is not just about transactional exchanges. It’s a strategic alliance that, even in higher interest periods, can offer growth avenues. The message is clear: nurturing a robust banking relationship is not a mere luxury but an essential strategy for business vitality.

Budgeting Best Practices

When it comes to financial reporting, budgeting is paramount. Unfortunately, some businesses treat budgeting as a box-checking exercise, creating one and then relegating it to a drawer, never to be revisited. A budget, when utilized properly, sets clear expectations. It’s an instrumental tool in gauging how your business is performing compared to what you anticipated. By dissecting the budget into its various components—revenue, cost of goods sold, margin, and other costs—one can gain a granular insight into the business’s health. It’s not about mere number crunching; it’s about understanding your business’s trends over time. And while a storm brews in the market, with rising interest rates and looming recession threats, it’s time for businesses to consider “weatherproofing.” This doesn’t equate to slashing budgets haphazardly. It’s about strategic preparation. Some sectors might necessitate investment to gain market share, while others present genuine opportunities for financial trimming. The current market landscape is a mixed bag: while some businesses are witnessing phenomenal growth, others are grappling with challenges. A lot hinges on the industry and its unique dynamics.

The Importance of Monthly Close

Consistency in financial reporting is non-negotiable for businesses. The ideal structure emphasizes a regular monthly close process, ensuring timely availability of financial packages. Companies lagging behind in their reporting find themselves grappling with outdated or irrelevant data. Take, for instance, Signature Analytics; the emphasis is on maintaining a consistent monthly reporting package. This comprehensive package delves deep, starting with the income statement, moving on to the balance sheet, and then addressing cash flows. But the analysis doesn’t stop there. To truly understand a business, it’s crucial to dissect revenue, break it down by product line, assess the cost of goods sold, margins, and other expenses. Furthermore, it’s essential to discern trends and understand their implications. But monthly reports aren’t enough. With the delay inherent in monthly reporting, businesses could be operating nearly two months behind the latest data. That’s where daily reports come into play. Real-time reporting tools like Microsoft Power BI are invaluable, providing daily insights and snapshots to help businesses stay on top of their game. This proactive approach is essential. Whether you’re a service-based business monitoring employee utilization or a high-volume retail outfit tracking monthly sales trends, you need to ensure you’re on track to meet your forecasts. Being reactive can spell disaster. If you’re behind on your targets, recognizing this early can mean the difference between a minor course correction and a major catastrophe. It’s crucial to understand the correlation between daily operations and the eventual impact on cash flow, especially in businesses with longer cash cycles.

Accrual Accounting Matters

Accrual accounting is pivotal for any business seeking clarity in their financial reporting. While the subject might seem a bit technical and perhaps tedious to some, its essence is quite straightforward. Accrual accounting ensures that the revenue generated in a given month aligns with the costs incurred for the products or services during that period. This gives businesses a realistic snapshot of their profitability and helps them gauge trends. For instance, if you rely solely on cash basis accounting, you might record revenue whenever a sale is made or an invoice is dispatched and log costs when a product is purchased. This approach could paint a misleading picture. You might have borne costs three months prior, and by not syncing those costs with relevant revenues, your books might show you’re performing exceptionally well when, in reality, you could be on the cusp of a downturn. Transitioning to accrual-based accounting isn’t just a recommendation; it’s a necessity for businesses wanting a crystal-clear view of their financial health.

Preventing Fraud

The danger of having one person wear too many hats in the accounting department cannot be stressed enough. Many small businesses, driven by budget constraints, often allow a single individual to manage invoicing, bill payments, and payroll. Such a lack of segregation of duties is risky, making it easy for malpractices to slip through. A stark example of this can be found in a manufacturing setting where an individual with overarching control over accounting and payroll led the business astray. The owner’s disregard for accounting turned the inventory into an enigma, allowing the individual to manipulate the inventory balance and consequently the profitability figures. This person’s fraudulent activities stretched from claiming inflated expense reimbursements to setting up fake suppliers. While most fraudsters eventually get caught, the destruction left in their wake can be monumental. Even businesses with straightforward cash operations aren’t immune to fraud. The narrative underscores the significance of incorporating external oversight and robust internal controls, even if it means involving the CEO or executive team in the financial review processes.

The Future of Accounting (Technology)

At Signature Analytics, technology isn’t just incorporated—it’s embraced. The future of accounting is exciting, with innovations poised to streamline many traditional processes. The more we can automate and optimize aspects like reconciliations and data entry, the more bandwidth we have for value-added tasks. The introduction of AI, exemplified by tools like ChatGPT, has revolutionized how we visualize accounting. It’s not just about traditional financial statements anymore. Trend analyses, process documentation, and various efficiencies are within reach thanks to technological advancements. By leveraging a custom reporting tool compatible with software like QuickBooks and NetSuite, Signature Analytics ensures its clients receive comprehensive financial statements regularly. The goal is to perpetually augment value and efficiencies, even in sectors of accounting that might seem commoditized.

How to Get in Touch With SA

For those keen on delving deeper into what Signature Analytics offers or just to discuss business challenges and experiences, reaching out is easy. The best avenue is through their website, signatureanalytics.com. For more direct communication, interested individuals can email jkruger@signatureanalytics.com or call (858) 228-5643. With a dedicated team of 85 professionals, Signature Analytics aims to bolster the small to midsize business sector. The philosophy is clear: if they can’t assist, they won’t force a solution. The essence is to share, guide, and collaborate with business owners nationwide.

Know Your Margins [VIDEO]

Understanding margins is the cornerstone of any successful business strategy. Signature Analytics’ CEO, Pete Heald, and President, Jason Kruger, recently emphasized the importance of deep comprehension of your business’s margins, the influences that shape them, and the opportunities they present for improvement.

Why Knowing Your Margins is Essential

Margins, the difference between the selling price of a product or service and its cost, are a primary indicator of a business’s profitability. It’s not enough to understand the overall margin; businesses must also grasp the margins for individual product or service lines. As CEO, Pete Heald points out, having this understanding allows for effective measurement and goal setting.

Increasing the gross margin – the profitability after subtracting cost of goods sold (COGS) – even by a single percentage point can lead to significant improvements in a business’s bottom line. In a $10 million revenue business, for example, a 1% improvement in margin equals an additional $100,000 in net income. That much additional cash on the bottom line can make a huge difference in how a business makes decisions about inventory purchasing, hiring and workforce planning, real estate costs and many other operational choices.

Understanding Your Trends

Margins, much like other financial parameters, can trend upwards or downwards over time. Businesses need to mine these trends for the valuable insights they provide. A decreasing margin might signal a need for proactive adjustments, while an improving margin could indicate the effectiveness of certain strategies.

For example, if a $10M business can increase the price of a product by 2% while COGS remain the same, they will see an additional $200,000 bump to the bottom line. Understanding the details that drive these dynamics allows a business owner and leadership team to make strategic decisions to improve gross margin and profitability.

Beyond Gross Margin

Improving gross margin is only part of the puzzle. Businesses must also focus on managing their Selling, General & Administrative (SG&A) expenses to improve their net income margin. CEO, Pete Heald emphasized that the key to managing SG&A costs lies in understanding your numbers, trends, and what constitutes your margins by service or product line.

Once businesses have a firm grip on their margins, they can explore various strategies to enhance them. This could include sales strategies, purchasing strategies, or re-evaluating shipping agreements to name just a few. For businesses that manufacture or buy products, these elements can significantly impact margins.

Ultimately, the importance of margins cannot be overstated. They’re an essential part of the financial health of any business. As President, Jason Kruger stresses in the video above, small improvements of even 1-3% can make a substantial difference to a business’s bottom line, reinforcing the importance of not just understanding your margins, but also continually striving to improve them.

What to look for in nonprofit accounting software

Nonprofit organizations face significant challenges when it comes to technology. Justifying any kind of overhead spending that does not directly support the daily work of a nonprofit’s mission prevents many nonprofits from upgrading and updating their technology. Lower administrative costs garner accolades in watchdog publications such as GuideStar and Charity Navigator which report on how donor funds are spent, and all nonprofits want to show that their organization is promoting their mission-first philosophy.

On top of budgetary concerns, there are limitations in staff experience. Some staff join a nonprofit because they are passionate about the cause but have limited training in technology skills. At the same time, other employees and members of the Board of Directors are passionate about the mission of the nonprofit and have a depth of expertise in the area of technology and software that goes above and beyond that of the rest of the organization.

Higher turnover, lower salaries, and limited resources add to the complex landscape many nonprofits face when advocating for the adoption of new accounting or project management technology.

Here at Signature Analytics, we work with nonprofits of all sizes nationwide and have helped choose and implement accounting technology that fits our clients’ unique needs. In this article, we will share our own experiences with software that works for nonprofits and why we think each is a good choice to support accounting operations, and your organization as a whole.

The Best Accounting Software for Nonprofits:

There are a lot of accounting software suites out there. Complex systems and simple apps, custom architectures, and out-of-the-box solutions. So how should a nonprofit choose which one is right?

If your organization is already using an accounting software system but is unhappy with it or, if your organization has been cobbling together a combination of systems and is looking for a single source of truth, here are some software solutions to take into consideration.

QBO for Nonprofits

Quickbooks Online (QBO) is a simple, versatile solution that we have found fits many of our small to mid-sized non-profit clients’ needs. At a flexible price point with all the features you would likely need, a quick learning curve and the ability to be used by experts and novices alike, we think QBO is one of the very best solutions available for NFPs.

Challenges like months of training, the need for deep technical expertise, high onboarding costs, and unforeseen upcharges for customization all are avoided by using QBO. Additionally, when you hire staff or need to integrate your accounting software with other technology suites, QBO is easy to use and versatile. It “plays well with others”.

We find that ease of use is paramount for a new software and Quickbooks meets those criteria handily while still offering a wide array of features for the technically savvy user.

Netsuite for NonProfits

Netsuite provides robust and highly customizable solutions for larger and more complex nonprofit organizations. With a custom solution like Netsuite one of the considerations must be the amount of training that has to be done first to get the organization into the system and then with every subsequent new hire. With a longer onboarding ramp Netsuite planning requires a strategic and focused approach.

Many times, we have heard from accounting teams, C-Suites, and staff that the Board of Directors wants them in Netsuite. As outsourced accounting partners with many organizations of different sizes from $10M – $1.3B, we recommend abstaining from software selections until after our 30-day assessment. During the assessment, we are learning about your organization’s needs, skills, capabilities, and requirements. To recommend one system over another without that information would be overly hasty.

Other Non-Profit Accounting Software Options

The great thing about this era in technology is that there are myriad solutions available. The challenging thing is that there are SO MANY solutions available. When we perform an assessment, we really get to know the skill sets of our clients, what their unique needs are, and how software can integrate in a helpful, painless, and affordable way to make their organization run more smoothly. When an organization is already embedded in its systems, our teams are highly skilled and able to support accounting functions within the existing environments. Some of the additional software systems that we are experienced in which are available for nonprofit accounting and finance departments include, Xero, Sage and Freshbooks.

Xero provides an intuitive, easy-to-use platform that allows nonprofits to track donations, manage expenditures, and provide transparency with rich reporting tools.

FreshBooks offers time-tracking capabilities, streamlined invoicing, and expense management, making it a great option for service-based nonprofits.

Sage caters to nonprofits with features like grant management, budgeting, and advanced reporting options that can handle the complex financial needs of larger organizations.

Whichever solution your organization chooses, the right software can significantly enhance the efficiency and accuracy of a nonprofit’s accounting processes, leading to more effective management of funds and better delivery of your mission.

What to consider when looking for Grants Management Software

First, evaluate the software’s ability to streamline the grant application process, making it easier for your team to apply for a variety of grants. Secondly, consider the software’s reporting capabilities – can it generate the necessary reports to demonstrate compliance and impact to funders? Lastly, take into account the software’s scalability to ensure it can handle your organization’s growth.

For example, Fluxx Grantmaker is a leading choice due to its robust grant tracking and application management features. It can automate processes, provide real-time analytics, and offer an intuitive platform for both grantmakers and applicants, making the process seamless.

Blackbaud Grantmaking, on the other hand, stands out for its comprehensive reporting capabilities. It allows organizations to create custom reports, dashboards, and visualizations that can illustrate a project’s progress and its impact effectively.

Lastly, SurveyMonkey Apply is notable for its scalability and flexibility. It provides a platform that can manage multiple grants, scholarships, or other application-based programs simultaneously, making it an excellent choice for growing organizations. Additionally, it offers an easy-to-use interface and intuitive design that simplifies the grant management process.

Each of these software options provides unique advantages, so it’s important to consider your organization’s specific needs when choosing the best fit.

Effective Multi-Departmental Budgeting Software for Nonprofits

Navigating the complexities of multi-departmental budgeting for nonprofits can be a daunting task. Fathom stands out as a robust solution, offering flexibility and seamless integration capabilities with leading accounting software like QBO and NetSuite, among others. This integration empowers nonprofits to track their budgets and financial performance across multiple departments with ease and precision.

At Signature Analytics, we thrive in the face of such challenges presented by software integration. We’ve honed our expertise in leveraging Fathom’s capabilities to create customized solutions for our clients. For instance, we’ve successfully improvised QBO for efficient department and grant tracking, harnessing Class/Customer features to our advantage.

Moreover, Fathom allows us to generate multiple comprehensive reports, enabling us to garner the insightful overview we need to make informed financial decisions. Whether it’s a report we’ve currently put together, one we’re using for continuing professional education (CPE), or a custom one tailored to your organization’s needs, Fathom’s versatile reporting tools equip us to deliver the insights you need for effective budget management and financial planning.

Comprehensive Aspects for All Software Selections

When considering software selection from a holistic perspective, synchronization is an essential factor. We at Signature Analytics recommend the use of a ‘heavy’ Salesforce integration specialist who is well-versed in managing intricate, wide-scale integrations. to work in tandem with your dedicated Signature Analytics team.

Whatever your choice in software, you need your staff to get up and running quickly in order to be able to use it across levels of technological sophistication. Adding layers of complexity onto a department that is likely already working as fast and as hard as it can is a recipe for employee dissatisfaction.

An additional consideration is recruiting and hiring in the future. Choosing a complex software solution can make it harder to recruit accounting staff if one of the job requirements is experience in highly complex accounting software.

Our role is to ensure that all the finance and accounting needs of your organization are clearly defined and integrated successfully into the process. To accomplish this, we offer a comprehensive approach, ensuring every aspect of your financial and accounting needs is accurately captured and incorporated into your overall software solutions.

Best Project Management Technology for Nonprofits

Accounting is the great truth teller and reveals a lot about an organization. As we work with our nonprofit clients we often uncover inefficiencies that are wasting precious resources. One of those areas we frequently encounter is operations. Many of our nonprofit clients, manage work and tasks via email, memos, and meetings and do not have a project management software that is easy to use and offers visibility.

The goal of any software is to streamline and simplify a process. So with this in mind, we always weigh cost and complexity. It is essential to understand what problem you are solving. If it is a people problem, no amount of technology will fix it. There has to be a clear and simple path to training & onboarding when any new software is implemented otherwise utilization will lag.

Internally in our own organization, we use Asana. We find that the simplicity and intuitive board layout make project tracking, time tracking, and manager visibility into team activities simple and efficient.

Other project management software for nonprofits to consider:

Monday.com

Monday.com is a flexible platform that enables teams to collaboratively manage and track projects in a visual, intuitive way. For nonprofit organizations, its ability to centralize all communication, tasks, and resources in one place can facilitate a streamlined workflow and encourage transparency. The software also provides comprehensive project tracking tools and allows you to create custom workflows that align with your nonprofit’s unique processes.

Teamwork

Teamwork is a project management tool that allows for seamless collaboration among team members, fostering an organized work environment. It is especially useful for nonprofits looking to monitor projects, assign tasks, and track time spent on specific activities. The software’s easy-to-use interface, integrated communication tools, and advanced reporting capabilities make it a versatile choice for managing and coordinating your nonprofit’s initiatives.

Trello

Trello is an excellent option for nonprofits seeking a simple yet effective project management solution. It operates on a board-and-card system, which allows teams to create, assign, and track tasks visually. This can be particularly beneficial for nonprofits, as it enables a clear overview of ongoing projects, deadlines, and responsibilities. Trello’s simplicity and intuitive design make it easy for all team members to adopt, reducing the learning curve typically associated with new software.

Basecamp

Basecamp offers an all-in-one approach to project management, combining the functionalities of messaging platforms, task assignment tools, and scheduling software. This makes it an efficient choice for nonprofits seeking to consolidate their project management processes in one place. With Basecamp, your team can easily share files, set up to-do lists, schedule events, and maintain open lines of communication, ensuring that everyone stays in the loop about project updates and changes.

Project management software often offers a trial subscription allowing you to try out the interface and see what is right for your team.

How Nonprofits Can Benefit from Technology Upgrades

Efficiency is key in any organization. Having more time means having more resources and needing to spend less money to execute your mission.

For all technologies, one has to weigh cost, ease of use, training, implementation, and how the software communicates with the other technologies you already use or may implement in the future. While a custom program may work fine on its own, the rigidity of not being able to integrate might make it a poor choice to achieve the goal of streamlined operations.

At Signature Analytics, we recently conducted a technology audit for ourselves – read more about our cost-saving techniques here How to Weather-Proof your business for a possible recession and we found areas of over-spending that we were able to address and refine.

Currently, we use Quickbooks, Asana, BILL, and Ramp (among others) to run our own business. Here is a brief overview of these software options and how we find them to be most effective.

BILL – For our team, bill.com provides ease of use,and affordability, and it helps us manage AP, Expenses, and some AR functions. Here’s what Bill.com says about themselves:

Less: Paper, payables, mess, manual effort, and clunky processes,

More time for your: Customers, strategy, mission, and clients.

Bill.com is the intelligent way to create and pay bills, send invoices, and get paid.

Ramp: Ramp is an expense management software that helps us manage our corporate credit card usage, offers additional AP options to what Bill.com offers and is easy to use for an accounting team & for the users. With Ramp, there is a convenient cashback rewards feature. Additionally, one of the features we like is that our team can add the Ramp card to Apple Pay. We are able to manage spending limits in real-time which helps us to track & manage spending for our team who are located all over the US!

Here’s what Ramp says about themselves:

Ramp is the ultimate platform for modern finance teams.

Free your finance team to do the best work of their lives — and save an average of 3.5%

Have a software you have been considering that we didn’t mention? Send us an email and we’ll check it out and give you our take on whether it would be a good fit for your nonprofit’s needs.

Rethinking Inventory & Debt in the Current Economy [VIDEO]

In a recent conversation, Signature Analytics’ CEO, Pete Heald, and President, Jason Kruger, shed light on a critical issue faced by businesses in the current economic environment – managing inventory while carrying debt. They highlight how companies can rethink their processes and operations to improve profitability, by addressing excess inventory and thinking strategically about mounting interest rates associated with debt.

Inventory Surplus and Cash Shortage

The COVID-19 pandemic and ensuing supply chain disruptions led many companies to accumulate excess inventory. Many resorted to leveraging credit lines or financing to procure stockpiles of inventory to offset supply chain disruptions. However, with the rise in interest rates, some companies now find themselves cash-strapped, which hampers their ability to manage and run their businesses effectively.

Understanding the Cost of Inventory

To navigate these challenges, business leaders need a deep understanding of the current cost structure of both existing inventory and new incoming stock. While holding additional inventory made sense during the disruptions of the pandemic, it is now time to examine price structure, inventory, and margins more strategically. The decision to liquidate stock, even at a lower profit margin, could be more beneficial than retaining it while paying higher interest rates on the underlying loans that afforded the initial purchase. Converting inventory into cash allows businesses to pay off their debt and reduce interest payments, freeing up capital to run operations more strategically and with less fear of cash shortages in other areas.

Streamlining Inventory Management

Looking ahead, President, Jason Kruger, advises businesses to reevaluate how quickly they’re turning their inventory. The buying pace of 3 years ago can now give way to leaner inventory management with the supply chain opened back up and delivery times more reliable.

Depending on your unique situation, you may find that reducing or even liquidating a portion of your inventory can improve cash flow, lower storage costs, and reduce the risk of being left holding the proverbial bag as it relates to obsolete stock.

Coupled with the right strategic support, businesses can optimize their inventory management processes to better align with changing market dynamics and the current economic climate. This proactive approach to inventory management, as recommended by Pete Heald and Jason Kruger, can be instrumental in improving a company’s profitability in these challenging times.

Reach out to learn more about how Signature Analytics helps business owners make smart business decisions based on accurate, relevant, and timely data and excellent accounting and financial management.

Cash Flow Secrets: Uncover the Lifeblood of Small Business [PODCAST]

News, Podcasts

Read the Show Notes and listen to this and other podcasts on Tyler’s website here: https://thinktyler.com/podcast_episode/cash-flow-secrets-jason-kruger/

Jason advocates that knowledge of one’s business is the linchpin to success and profitability. With the right financial foresight and accounting tools at your disposal, profitability soars, productivity amplifies, and smarter business strategies emerge.

Join us in this edition of the Think Business with Tyler podcast, where we delve into the importance of comprehensive financial understanding, the essential element of cash flow for budding enterprises, the wisdom of not always being the smartest person in the room, and the importance of understanding all the elements of your business financial realities to ensure success and smart business decisions.

Essential Takeaways:

Decoding Business Metrics: Grasping your business metrics isn’t a luxury; it’s a necessity. Jason emphasizes, “Mastering your numbers, supplemented with a solid financial backdrop, is foundational. Start there. With that clarity, you can delve into your business’s depths, identify avenues for enhancement, and brace against economic downturns.”
Cash Flow – The Small Business Lifeline: In the nascent stages, cash flow management is paramount. It’s the pulse of your business. Positive cash flow paves the way to achieving long-haul aspirations. Jason opines, “Cash stands as the backbone for emerging businesses. Comprehend the cash implications of your budgetary choices. Rapid growth often strains cash, necessitating an understanding of your investments and their cash ramifications.”
Valuing Collective Wisdom: Surround yourself with ingenious minds. For entrepreneurs, it’s not about always being the most astute but about absorbing knowledge from those around. Jason shares, “Entrepreneurs should recognize and cherish the collective intelligence around them, focusing on their overarching business vision.”
Business Mastery: A successful entrepreneur is one who understands the nuances of their venture. It’s about having a grasp, not necessarily mastery, over every component. Jason elucidates, “Know your venture inside out. While outsourcing expertise is viable, owning the essence is vital. Whether it’s sales, marketing, or operations – be well-versed.”

QuickBooks Desktop (2020) Discontinued

With the planned obsolescence of QuickBooks Desktop 2020 by Intuit on May 31, 2023, many businesses are confronted with crucial decisions about the future of their accounting operations. The transition away from QuickBooks Desktop (QBD) 2020 presents an opportunity to upgrade your tech stack and enhance the collaborative capacity of your business by leveraging real-time data. As a provider of outsourced accounting services, Signature Analytics can help you navigate this transition smoothly, ensuring that you continue to have access to robust, up-to-date financial information for strategic decision-making.

The main change to note is that while QBD 2020 will remain available for current users, it will no longer receive updates or support. If your business relies on add-ons such as the popular payroll service, this transition could disrupt your operations. But don’t fret – Signature Analytics is prepared to support you through this process, working alongside your team to restructure your accounting systems and maintain business continuity.

Transition to QBO or Stay on Desktop?

If you’re considering whether to move to a more recent version of QBD or switch to QuickBooks Online (QBO), Signature Analytics can provide expert guidance to help you weigh the pros and cons. With the sunsetting of QBD 2020, shifting to QBO could be a strategic move. As an outsourced accounting partner, we can help you harness the potential of QBO’s cloud-based platform, providing you with real-time data access, increased mobility, and better collaboration among your team members.

If you’re thinking about upgrading your tech stack, we can also provide insights into alternative software solutions to QuickBooks. For example, if you’re looking to replace certain features lost when transitioning from QBD to QBO, inFlow might be a viable option. It offers sales orders, inventory tracking, a range of reports, and seamless integration with QBO. Our team at Signature Analytics can guide you through this software selection process and ensure seamless integration with your existing systems.

How Hard is it to Transfer from Quickbooks Desktop to Online?

One of the key benefits of working with an outsourced accounting team like Signature Analytics is our technical expertise and ability to adapt quickly to changes in your business environment. With the discontinuation of QuickBooks Desktop 2020, we can help your business transition smoothly to a new accounting software, whether it’s an upgraded version of QuickBooks Desktop, QuickBooks Online, or another alternative. In doing so, we can help ensure that your business retains access to accurate and timely financial data, while also enabling more collaborative and mobile operations through real-time data access.

Transitioning your accounting software is an opportunity to enhance your tech stack, streamline processes, and improve collaboration within your team. With Signature Analytics on your side, you can leverage this transition to upgrade your systems, enabling your business to become more agile, data-driven, and resilient in the face of future changes.

Let’s look at a direct comparison between QuickBooks Online and QuickBooks Desktop:

Cost: You can get QuickBooks Online for as low as $30 per month, while QuickBooks Desktop will cost you starting from $549 annually.
Third-Party Software Compatibility: QuickBooks Online can integrate with over 650 different applications, whereas QuickBooks Desktop only accommodates just over 250.
Accessibility: With QuickBooks Online being cloud-based, you can access it from any location with internet access and a web browser. QuickBooks Desktop, on the other hand, is installed on your local device but can be self-hosted at an additional cost for more accessibility.
Industry-Specific Solutions: QuickBooks Desktop comes in seven versions each tailored to a specific industry. However, QuickBooks Online’s large number of integrations provides the flexibility to cater to various industries.
Life-cycle of Software: Intuit periodically discontinues older versions of QuickBooks Desktop, as seen with the retirement of QuickBooks Desktop 2020. This results in loss of support for key add-on functions such as payroll and credit card processing. QuickBooks Online, being a cloud-based solution, does not face this issue.

Both QuickBooks Desktop and Online provide the following features:

Robust accounting capabilities
Integrations numbering in the hundreds
Invoicing
Management of contacts
Tracking of expenses and time
Inventory management
Project management functionalities
Budgeting tools
Reporting capabilities
Support for taxes
Add-ons for payroll
Mobile application support

However, only QuickBooks Online offers:

A fully cloud-based format
Compatibility with Mac
600 extra integrations
Invoices with high-quality design
The capacity to auto-schedule invoices
Invoicing capabilities in multiple languages
Optional support for live bookkeeping

While, only QuickBooks Desktop offers:

A format that’s installed locally
Sales orders
An additional 50 reports
Optional features that are industry-specific
Optional industry-focused reporting

Consider QuickBooks Online if:

You’re seeking software that’s user-friendly and easy to learn.
You want the flexibility to handle your accounting remotely via mobile apps.
You value time-saving automations and integrations.
You wish to integrate payment processing for online invoice payments.
You require international invoicing capabilities.

On the other hand, QuickBooks Desktop may be the right choice if:

You prefer accounting software that’s installed locally.
You require the industry-specific features offered by QuickBooks Premier or QuickBooks Enterprise.
Your business processes include sales orders.
Your accounting needs are particularly complex.

Learn More About Signature Analytics – Discover How We Can Help You

With an outsourced accounting team from Signature Analytics, you get accurate, relevant, and timely reporting and financial insights to help you make smart business decisions.

Learn more about our outsourced accounting services, here.

How Outsourced Accounting Works with Outsourced HR

As the economy wobbles on the edge of a recession or slowdown and inflation and the job market remains stubbornly high, business owners are looking for innovative ways to be flexible in the way they manage their workforces. While in years gone by accounting, HR, compliance, IT, and marketing were all handled in-house, it is increasingly accepted that outsourced solutions can provide next-level flexibility while delivering a higher caliber of service than a company would be able to afford should they hire in-house [check out our outsourced vs in-house analysis here].

In this article, we’ll explore the functions of outsourced HR and outsourced accounting, how outsourcing non-essential functions can benefit companies, and how, as an outsourced accounting provider, we at Signature Analytics, work with outsourced HR companies.

How Do Outsourced Accounting and Outsourced HR Work Together?

The term non-essential is somewhat of a misnomer. Both HR and accounting are essential to any business. For HR, not only is it essential from a regulatory perspective, but also because your people need to get paid, obtain benefits, be trained, and have an outlet to voice concerns. The “resources” part of Human Resources can fall by the wayside when a single HR employee or small HR department is tasked with managing a larger workforce than they can effectively handle.

Outsourcing your HR means you get the right size HR team with the right level of expertise in whatever area your team needs. That’s true of whatever outsourced relationship you engage in.

For us, when we work with a client who chooses to outsource HR, we celebrate! An outsourced HR partner is a great asset in our world because we can coordinate payroll processes with experienced professionals who know the industry and are tech-savvy and efficient. We can collaborate on complex problems and streamline operations to better handle any cross-departmental challenges that come our way.

For the business owners we work with, outsourcing HR means their internal people are less stressed, more proactive, and more motivated to improve the culture of their organization. Productivity increases when culture improves and that’s good for morale and the bottom line.

And for us, improved margins, increased efficiencies, and a happy C-Suite are always good news.

What Services Do Outsourced HR Firms Provide?

Outsourced HR comes in many shapes and sizes. There are outsourced HR companies that focus on recruiting, there are those that handle compliance and handbooks, there are project-based Learning & Development Outsourced HR companies, and Fractional HR teams that work on recurring retainers. There are outsourced HR firms that focus on culture and those that handle complex payroll relating to Davis Bacon and service contracts. Whatever kind of outsourced HR support you’re looking for, you can bet there’s a good fit for you.

What Services Do Outsourced Accounting Firms Provide?

Outsourcing your accounting team is, as you may already have guessed, our area of expertise. For us, we believe that the Signature Analytics model is the best way to access expertise without breaking the bank. While some outsourced accounting companies only provide Outsourced CFOs and others place bookkeepers, at Signature Analytics, we take an integrated, holistic approach to every engagement.

We start off with an assessment phase. During the first 90 days, your Signature Analytics outsourced accounting team is hard at work learning your existing strengths and identifying your areas of concern. We are not passively sitting by observing though, our day-to-day accounting process starts on day one getting into the technologies and processes that exist for your organization and creating a plan for best practices in your business moving forward.

The Assessment results in a plan of action and recommendations for the skillsets and effort we feel will be most beneficial to your company. The great part? We’re flexible so as you grow we can add additional staff with a diverse range of skills to support that growth; if you should need to pull back, we can reduce the effort to match your needs.

Our teams consist of Staff accountants, Accounting managers, Controllers, and CFO-level business advisory specialists. For our clients, our goal is to streamline accounting procedures and develop reporting so that the data that comes out of the month-end close is useful, practical and gives the company leadership the kind of valuable insights they need to make smart business decisions.

Outsourced Accounting and Outsourced HR: A Winning Combination

Choosing to use outsourced accounting and outsourced HR services can be a game-changer for businesses. With a flexible outsourced team at your fingertips, your teams can create a holistic approach to managing financial and human resource functions.

Making Financial and HR Processes Smooth and Accurate

When outsourced accounting and HR services team up, they create a seamless flow of precise financial data. This means that the accounting provider can deliver accurate information to the HR provider, making payroll management, budgeting, and financial planning in HR more efficient. By aligning these processes, businesses can reduce errors, avoid data discrepancies, and ensure consistency in reporting and decision-making. It’s all about streamlining and improving accuracy for better overall operations.

Maximizing Cost Savings and Resource Management

By combining outsourced accounting and HR services, businesses can effectively optimize costs and allocate resources. Outsourcing these functions allows for reduced reliance on internal resources such as dedicated accounting and HR staff, office space, software, and infrastructure. This cost-effective approach opens up valuable resources that can be redirected to core business activities like product development, customer acquisition, and strategic initiatives.

Leveraging Specialized Knowledge and Expertise

When businesses opt for outsourced accounting and HR providers, they tap into a wealth of specialized knowledge and expertise. These providers bring unique skills to the table, which contribute to enhanced efficiency and effectiveness. Accounting professionals possess in-depth financial expertise, ensuring accurate financial reporting, compliance with regulations, and proactive financial analysis. On the other hand, HR providers bring comprehensive knowledge of HR practices, employment laws, and talent management, making it easier for businesses to navigate complex HR challenges.

Securing Compliance with Regulations

To steer clear of penalties, legal troubles, and harm to reputation, businesses must prioritize compliance with financial and HR regulations. Outsourced accounting and HR providers come to the rescue with their expertise in this area. They possess a thorough understanding of regulatory requirements and establish strong processes to ensure compliance. By teaming up with these experts, businesses can stay informed about evolving regulations, minimize risks associated with compliance, and confidently concentrate on core business activities.

Fueling Strategic Growth and Success

Accounting and HR functions both contribute strategically to business growth and success. When businesses integrate outsourced accounting and HR services, they gain access to valuable guidance and support in areas like workforce planning, talent management, organizational development, and succession planning. This collaboration allows businesses to align their financial and HR strategies, ensuring that both functions work together towards shared goals and objectives.

What Industries Most Benefit from Outsourced HR and Accounting?

Many industries can benefit from outsourcing HR and accounting services, particularly industries that need cost-effective solutions, specialized expertise, and streamlined processes. (That’s kind of everyone).

Small and Medium-sized Enterprises (SMEs): SMEs often have limited resources and may find it challenging to maintain in-house accounting and HR departments. Outsourcing provides them with professional services without the need to hire dedicated staff or invest in infrastructure. It enables SMEs to effectively manage their finances and HR functions with expert support.

Professional Services: Businesses in fields like legal, consulting, marketing, and design often require specialized financial expertise and HR support. Outsourcing these functions allows professionals to concentrate on serving their clients while relying on experts to handle accounting tasks such as invoicing, financial analysis, and tax compliance, as well as HR responsibilities like payroll and talent management. Understanding utilization rates can help with workforce planning and having a grasp on profitability by client can inform rates and benefits package adjustments.

Technology Companies: Businesses in the technology sector require agility and flexibility to focus on their core operations. Outsourcing accounting and HR functions allows them to allocate their resources to product development, innovation, and scaling while leaving the financial and HR management to specialized providers that can grow with their erratic and often meteoric growth trajectories.

Construction: Construction companies often have complex financial management needs, including project accounting, cost tracking, and compliance with industry regulations. Outsourcing accounting services can help them streamline these processes, ensure accurate financial reporting, and stay on top of their financial obligations. Additionally, outsourcing HR functions can assist construction companies in handling workforce management, payroll administration, employee benefits, and compliance with labor laws.

Manufacturing and Distribution: The manufacturing and distribution industry involves intricate inventory management, supply chain operations, and financial transactions. Outsourcing accounting services can provide these businesses with expertise in inventory valuation, cost accounting, and financial analysis. It can also help them optimize their supply chain by providing accurate and timely financial information. Outsourcing HR functions can support these companies in managing their diverse workforce, tracking employee time and attendance, and implementing effective labor strategies.

Recovery and Wellness Centers: Recovery and wellness centers, including rehabilitation facilities, mental health clinics, and wellness retreats, have unique HR requirements related to staff scheduling, credentialing, and compliance with healthcare regulations. Outsourcing HR services can assist these centers in managing their staffing needs, ensuring compliance with industry standards, and maintaining accurate employee records. By outsourcing accounting functions, these centers can focus on providing high-quality care while leaving financial management, billing, and insurance claim processing to experts.

Life Sciences and Biotech: The life sciences and biotech industries require precise financial management due to complex research and development processes, regulatory compliance, and intellectual property considerations. Outsourcing accounting services can help these companies in effectively tracking research expenditures, managing grants and contracts, and ensuring compliance with financial regulations. Additionally, outsourcing HR functions can support life sciences and biotech companies in talent acquisition, managing payroll for specialized roles, and implementing employee training and development programs.

Nonprofit Entities: Nonprofit organizations, such as charities, foundations, and social service agencies, can benefit significantly from outsourcing HR and accounting functions.

These are just some of the industries that can benefit from outsourcing accounting and outsourced HR.

Final Notes

Outsourcing accounting services is an effective way for businesses to streamline their financial operations and access expert financial professionals. By combining outsourced accounting services with outsourced HR services, businesses can achieve a comprehensive solution for managing their financial and human resource functions.

Discover the Benefits of Outsourced Accounting with Signature Analytics

At Signature Analytics, we are dedicated to delivering top-quality service to our clients. Our team comprises highly skilled professionals with extensive experience in all aspects of financial and accounting services, including a focus on financial compliance management. We leverage integrated, cutting-edge technology and tools to streamline your accounting processes, maximizing efficiency, saving time and money, and ensuring best practices.

Our comprehensive outsourced accounting services support your day-to-day financial operations, including:

Invoicing
AR management
Bill processing
AP management
Forecasting
Reporting
Monthly close
And more…

Managing Human Capital Costs in a Slowing Economy

Right-Sized Teams at the Right Time

One of the things we looked at as we were going through the end of Covid and into this year was growth. We were fortunate to experience a lot of growth and opportunity during the pandemic, and we had increased the size of our team to meet that demand. As we got into 2023 it became clear that the slowdown was going to affect us all and we had to make some tough decisions to right-size our people costs. We know we’re not alone. We’re hearing the same story from a lot of our clients and prospects as well. So here are the elements we feel are most important to address as you manage your business and prepare to weather this slowdown in the economy.

Questions to ask yourself and your leadership

What were the investments we made in our growth?
What do we see that actual growth being?
Are the size of your team and the growth projections aligned?
If not, where can you make strategic cuts and still provide the level of service/ support/ delivery that your customers are accustomed to?

Businesses grappling with their growth and cost strategies need a thorough understanding of financials, coupled with the ability to critically assess assumptions. When it comes to making decisions about people, it’s always – well – personal. But with a clear eye and good data decisions about hiring or reducing the size of your staff can be made knowing that it is the right choice for your business going forward.

For businesses that are asset-heavy or equipment-heavy, or a combination thereof, the right-sizing discussion will be multi-layered. Really, as you look at ways to prepare for a slower economy the key is to understand your numbers and your trends and clearly define your goals based on that data. A strategic partnership with Signature Analytics provides that kind of guidance. We make sure our clients know their budget, forecast, cash flow projections and can right-size their companies based on those numbers.

Making Hard Decisions Easier

As a business owner, it’s not that hard to identify excess costs or call out underperforming team members. But having the data to support those assessments ensures that you’re making smart cuts, not just those that are most obvious.
For us, At Signature, we took a hard look at our people costs, real estate costs, technology costs, and other costs within our organization to determine which costs make sense, which are adding value to our company now, and which roles and activities we see adding value in the future.

Because we did a comprehensive cost assessment, in some cases, we didn’t cut costs, we increased them because we uncovered opportunities to take advantage of trends in the market that didn’t exist a year ago.

It’s not just about slashing roles and reducing people costs, there are nuances that go along with knowing your numbers. Understanding what your historical trends are, understanding the impact of expenses and investments and what they’ve made to your business is critical.

Accountability in Decision Making

At Signature Analytics, we know the value of having an accountability partner – someone who can challenge your assumptions. We act as a strategic partner for our clients to add a collaborative approach to decision-making. With an expert at your side, it’s easier to ensure the organization continually aligns with the changing market realities and doesn’t just rely on past successes.

Having an accountability partner or a person, either as a consultant or within your company who helps you challenge those assumptions is a vital role. The assumptions we made a year and a half ago, needed to be challenged. When we took the time ourselves to address our human capital costs and many other costs holistically, we decided some areas need to be cut, some teams, streamlined, some costs reduced and others increased.

Our CFO Business Advisory services help our clients have access to the kind of expertise you get from a full time CFO but at a fraction of the cost – and for a fraction of the time. Making smart and well thought out decisions that don’t have to be rolled back saves everyone time, money, and lost revenue.

Effective Job Costing, Project Tracking, and WIP Management for Construction Companies

Read the Executive Summary or Listen to the Podcast HERE: What Nonprofits Need to Know to Breeze through Annual Audits

Do you know what your profitability is at the project level? For many construction company owners, the answer is a resounding, “sort of.” At Signature Analytics we know that understanding your Job Costing, Project Tracking, and WIP Management makes all the difference in ensuring profitability. With multiple projects running at one time, it’s easy to lose track of the intricacies of each job. But, in order to grow and maintain profitability, each of these elements listed above must be executed accurately to ensure that all costs are captured.

The construction industry has complex and consequential accounting requirements. For many construction companies, bringing on an outsourced accounting team can mean more accurate financial reporting, the ability to scale and grow to the next level,and eliminating the cycle of the good years merely offsetting the bad.

There are several critical aspects of accounting for construction businesses, particularly for subcontracting companies. Job costing, project tracking, comprehending gross profit margins, accurately capturing revenue in the appropriate periods, managing payroll against projects, and understanding which job sizes best suit a company’s operational structure to manage cash flow are just a few of those aspects.

You need clear financials and experienced people to make sure your financial reporting is giving you the information you can use to bid jobs more accurately, manage your workers more effectively and increase profits today and into the future.

Here are seven elements essential to managing your construction company’s finances.

1: Monitoring Project-based Margins:

Identifying which projects – large or small – are most profitable can help guide strategic efforts toward more lucrative ventures. Reviewing job costing across multiple projects can uncover patterns. Recognizing these trends can improve future job bidding, ensuring accurate cost assignment for bid components.

2: Aligning Payroll with Projects:

Proper tracking of project-specific salary and benefits expenditure can provide valuable insights into labor cost management. Noticing that labor costs tend to rise at specific project stages might cause you to hire differently or manage performance-based incentives to ensure the timely completion of challenging stages.

3: Maintaining Precise Work-in-Progress (WIP) Analysis:

Accurate WIP analysis is crucial to determine the appropriate milestones for billing, ensuring effective revenue recognition and cash flow management.

4: Recognizing Cash Flow Patterns:

Job costing accuracy aids in predicting your expected weekly cash flow in the complex environment of the construction industry, where billing and payments can be unpredictable. You may need to bill more upfront or, you may have to manage your cash flow differently if your projects have costs that arise before their associated billing periods. Having reliable cash flow projections can mitigate stress and enable better planning for potential expenses.

5: Leveraging the Right Software:

Software that integrates job tracking with your other financial reporting systems supports the alignment of costs, sales, profits, and cash flow planning. Construction accounting software should include project tracking, job costing, and payroll tracking. A mobile time-tracking app can provide real-time labor data as well.

6: Simplifying Cost Codes:

While more detailed cost codes can provide in-depth insights, they can also complicate reporting and processing. Take a look at your least and most frequently used codes, and question whether they should be more specific or whether they should be pared down.

7: Allocating Overhead Expenses:

Overhead expenses, including administration costs, rent, utilities, equipment, etc., must be allocated by project to get a precise picture of your profit margins. Payroll and benefits should be tracked separately from overhead to understand job costing elements separately.

When it comes to payroll management, building in burdens for employees, such as health and other benefits, can be allocated to the projects. This includes the overhead costs related to the employees captured as part of the burden rate, ensuring it’s not just booked as an overhead expense.

An outsourced accounting partner can guide you to a better understanding of your profit margins and help you make smart choices to enhance them. Have questions about your unique situation? Talk to An Expert.

The Nonprofit MBA Podcast

News, Nonprofits, Podcasts

What Nonprofits Need to Know to Breeze through Annual Audits Featuring Jason Kruger on The Nonprofit MBA Podcast

Annual audits offer numerous benefits for nonprofits, including improved financial accountability, enhanced internal controls, compliance with legal requirements, increased donor confidence, informed decision-making, and positive public perception. By conducting regular audits, nonprofits can foster their mission, maintain transparency, and effectively manage their financial resources to serve their communities. In today’s podcast, Jason Kruger from Signature Analytics and Stephen Halasnik from Financing Solutions, a great provider of nonprofit lines of credit, discuss what nonprofits need to know to breeze through the annual audits.

About Jason Kruger from Signature Analytics

On today’s episode, we have the pleasure of speaking with Jason Kruger, the President and Founder of Signature Analytics. Jason is shaking up the way business owners run their businesses by highlighting the gaps in data and reporting that many business owners face and sharing insights on how to improve profitability, increase productivity and run your company smarter. Jason has 20+ years of experience in the accounting and business advisory field working with mid-market companies and nonprofits. Join us as we share actionable insights and strategies to help you run your Organization smarter

About Stephen Halasnik, The Nonprofit MBA Podcast, and Financing Solutions

Stephen Halasnik co-founded Financing Solutions, the leading provider of lines of credit for nonprofits and church financing. The credit line program for nonprofits & churches is fast, easy, inexpensive, and costs nothing to set up, making it a great backup plan when cash flow is temporarily down. Mr. Halasnik is also the host of the popular, Nonprofit MBA Podcast. The podcast brings experts to discuss fundraising, nonprofit grants, executive director leadership, nonprofit boards, and other important topics. You can learn more about the nonprofit line of credit program here or call 862-207-4118.

Understanding Annual Audits for Nonprofits

Annual audits play a pivotal role for nonprofits by fostering improved financial responsibility, bolstering internal controls, ensuring legal compliance, boosting donor trust, aiding informed decision-making, and fostering a positive public image.

While legal obligations might drive some nonprofits to conduct annual audits, the broader reason lies in promoting transparency, reliability, and trust with stakeholders. Given the potentially overwhelming nature of the audit process, nonprofits can benefit immensely from a deeper understanding of the key aspects of annual audits.

OUTSOURCED ACCOUNTING FOR NONPROFITS

Why Are Nonprofits Audited?

Nonprofit entities prioritize public interests over personal profits. As a result, they largely depend on donations, grants, and other philanthropic funds. Audits, conducted by independent professionals, ensure these organizations are transparent, accountable, and compliant with pertinent legal standards. Key focus areas for these audits include:

Financial Responsibility: Audits confirm the authenticity of financial statements, shedding light on the organization’s income, expenses, assets, and liabilities. Such rigorous examination of financial records assures stakeholders of the diligent management of funds and that the organization’s financial dealings align with relevant accounting norms and laws.
Regulatory Compliance: Annual audits inspect if nonprofits adhere to a myriad of regulatory standards, including state and federal regulations. This reinforces the nonprofit’s commitment to legal compliance and accountability.
Strengthening Internal Controls: Audits scrutinize a nonprofit’s internal control measures, encompassing financial administration, governance, and risk management protocols. These evaluations help pinpoint and remedy any control shortcomings, fortifying the institution against fraud or mismanagement.
Building Donor Confidence: Transparent financial operations and independent audits amplify an organization’s credibility, assuring donors and stakeholders of its commitment to the intended charitable causes. This boosts the organization’s image, inviting increased backing and resources.
Board Oversight: Board members, responsible for steering the nonprofit, rely on audits to gain insights into the organization’s financial well-being, pinpoint areas of improvement, and guide the organization’s trajectory.

Nonprofit Audit Types

Different audits cater to distinct organizational needs:

Financial Audit: A comprehensive review of an organization’s financial statements to verify their accuracy and legal compliance.
Internal Audit: Undertaken by internal teams, these focus on the efficacy of internal controls and compliance with in-house policies.
External Audit: Independent CPAs or audit agencies carry out these assessments to vouch for the credibility of an organization’s financial reports.
Compliance Audit: A scrutiny of an organization’s adherence to specific legal, regulatory, or industry benchmarks.
Operational Audit: This centers on evaluating the efficiency and effectiveness of an organization’s day-to-day operations.

How To Streamline the Audit Process for Nonprofits

Achieving hassle-free audits is possible with a deeper understanding of the following aspects:

Stay Abreast with Audit Norms: Stay updated with financial reporting protocols like GAAP or IFRS. This knowledge is instrumental in readying your organization for an audit.
Keep Flawless Financial Records: A robust record of all financial operations forms the bedrock of successful audits. Employ suitable accounting tools to maintain these records and perform routine reconciliations.
Adopt Rigorous Internal Controls: Implement a robust control framework to stave off financial discrepancies. Divide financial responsibilities among different individuals to introduce checks and balances.
Regular In-house Assessments: Periodic internal checks can preempt potential audit challenges by detecting financial irregularities early on.
Select the Right Auditor: Partner with a seasoned auditor familiar with nonprofit intricacies. It’s crucial that they resonate with your organization’s ethos.
Assemble Essential Documents: Compile pertinent financial documents systematically to ensure the audit proceeds without hitches.
Maintain Transparent Dialogue with Auditors: Engage in candid interactions with auditors. Furnish requisite information and address their inquiries promptly to ensure a smooth audit journey.
Glean Insights from Audit Outcomes: Use audit findings as a learning curve. Understand the recommendations and refine your organization’s financial protocols, reinforcing its financial soundness and diminishing future audit challenges.

Rethinking Real Estate Costs in a Slowing Economy

In the ever-shifting business landscape, one of the significant overheads that organizations grapple with is real estate costs. The lingering impacts of the COVID-19 pandemic have redefined the traditional workspace model, prompting companies to reevaluate their real estate strategies. Here’s how businesses can optimize their approach to real estate to remain resilient in a slowing economy.

The Post-COVID Workspace Conundrum

Three prominent workspace models have emerged in the aftermath of the pandemic:

Full-time in-office: A model many companies have adhered to for decades, but one that’s now being received with apprehension by employees post-pandemic.
Hybrid: This model offers flexibility, with employees spending a few days in the office and the rest working remotely. It appears to be the middle-ground many are leaning towards.
Completely Remote: With the entire workforce operating remotely, this model completely eliminates the need for physical office space.

Our company, along with many others, found that a full-time return to the office post-pandemic wasn’t feasible if we intended to retain top talent. The hybrid model, while attractive, poses its own set of challenges. How does one justify the complete cost of real estate if it’s being used only a fraction of the time?

The Remote Advantage

Choosing a fully remote operational model allowed us significant savings on real estate costs. Not only did this free up cash, but it also provided us the flexibility to redirect those funds towards enhancing company culture, a component that can sometimes be diluted in a fully remote setting.

However, going fully remote isn’t without its challenges. Maintaining a unique company culture, ensuring adequate training and development for new entrants, and fostering team cohesion are all areas that require careful consideration.

Evaluating Real Estate as a Business Expense

Every cost in business should be measured against the value it brings. From a cash flow perspective, the savings from eliminating or reducing real estate costs can be significant. Additionally, going remote or adopting a hybrid model can open up doors to a wider talent pool, no longer restricted by geographical boundaries.

However, the decision shouldn’t be solely based on cash flow. It’s crucial to ask, “What value is this expense adding to my business?” If an expense, like real estate, isn’t adding the desired value, it might be time to reconsider.

The slow pace of the economy demands agility and adaptability from businesses. In such times, rethinking fixed costs like real estate and aligning them with the evolving needs of the workforce can not only result in cost savings but also lead to a more dynamic, resilient, and future-ready organization. As we sail into uncharted economic waters, businesses that periodically evaluate the value derived from each expense will be best positioned to thrive.

Prepare for a slower economy across the board with these insights from Jason Kruger and Pete Heald Weatherproofing your business for a slowing economy

Outsourced Accounting Overview: How to Find the Right Company for You

Outsourced accounting has become an increasingly popular option for businesses looking to streamline their financial and accounting functions. By outsourcing, businesses can access the expertise of accounting professionals without the costs and responsibilities associated with an in-house team.

In this blog, we will explore the benefits of outsourced accounting, how to find the right outsourced accounting company, and the factors to consider when choosing a partner.

What Is Outsourced Accounting?

Outsourced accounting refers to the practice of hiring a third-party company or service provider to manage a business’s financial and accounting functions. This may include tasks such as bookkeeping, payroll, month end close, and financial reporting. Instead of having an in-house accounting team, businesses can rely on outsourced accounting services to handle these functions. Outsourced accounting can be done remotely or on-site, depending on the specific needs of the business.

Why Are More Businesses Outsourcing Their Accounting?

There are several reasons why more businesses are turning to outsourced accounting services. For one, outsourcing can be a more cost-effective option compared to hiring a full-time accounting team. By outsourcing, businesses can save on the costs of salaries, benefits, and office space. Outsourcing also allows businesses to access the expertise of accounting professionals without having to invest in training and development.

Benefits of Outsourced Accounting

Access to Expertise

Outsourced accounting firms typically have a team of experienced accounting professionals who are trained in various areas of accounting, such as bookkeeping, payroll, month end close, and financial reporting. By outsourcing accounting functions, businesses can access the expertise of these professionals and receive expert advice and guidance on financial management and strategy.

Cost Savings

Outsourcing accounting functions can be a cost-effective option for businesses compared to hiring an in-house accounting team. With outsourced accounting, businesses can avoid the costs associated with salaries, benefits, office space, and equipment. Outsourcing also allows businesses to pay only for the accounting services they need, which can help them save money in the long run.

Improved Efficiency and Productivity

By outsourcing routine accounting tasks, businesses can free up time and resources to focus on core operations and strategic initiatives. This can improve efficiency and productivity within the organization and enable businesses to grow and expand more quickly.

Access to Advanced Technology and Software

Outsourced accounting firms typically have access to advanced accounting technology and software that may not be affordable or practical for businesses to invest in on their own. By outsourcing accounting functions, businesses can take advantage of these tools and improve their financial management and reporting.

Scalability

Outsourced accounting services can be scaled up or down depending on the specific needs and budget of the business. This allows businesses to access the accounting services they need when they need them, without having to worry about managing an in-house team or hiring additional staff.

Risk Reduction

Internal accounting teams create a variety of potential risks for the business including turn over, lack of expertise, and fraud. Outsourced accounting firms offset this risk with added resources, a pool of expertise that clients can draw upon, and implementing checks and balances.

How to Find an Outsourced Accounting Company

When looking for an outsourced accounting company, it’s important to do your research and consider a few key factors. Here are some steps you can take to find the right outsourced accounting company for your business:

Identify your accounting needs:

Before you start looking for an outsourced accounting company, it’s important to identify what accounting services you need. This will help you narrow down your search and find a company that can provide the services you require.

Check credentials:

Make sure the outsourced accounting company you are considering has the necessary credentials, such as certifications or licenses. This can ensure that the company has the expertise and experience to provide high-quality accounting services.

Read reviews:

Look for reviews and testimonials from other clients of the outsourced accounting company. This can give you an idea of the company’s reputation and the quality of their services.

Schedule a consultation:

Once you’ve narrowed down your options, schedule a consultation with each outsourced accounting company to discuss your needs and learn more about their services. This can help you determine if the company is a good fit for your business.

Factors to Consider for Your Partner

When evaluating outsourced accounting companies, it’s important to consider a few key factors to ensure you find the right partner for your business. Here are some factors to consider:

Defined Processes and Approach

Look for an outsourced accounting company with defined processes. How will they onboard you, do they implement best practices, will they be a good partner to work with?

Technology and Software

Make sure the outsourced accounting company uses up-to-date technology and software to manage your accounting functions. This can improve efficiency and accuracy and provide you with real-time access to your financial data.

Communication and Responsiveness

Look for a company that has good communication and is responsive to your needs. This can ensure that you receive timely and accurate financial information and that any issues are addressed quickly.

Cost

Consider the cost of the outsourced accounting services and make sure they fit within your budget. Look for a company that offers transparent pricing and does not have hidden fees.

Service Level Agreement

Make sure the outsourced accounting company offers a service level agreement (SLA) that outlines the scope of services, expectations, and responsibilities. This can ensure that both parties are on the same page and can help prevent misunderstandings or disputes in the future.

By considering these factors, you can find the right outsourced accounting partner for your business and ensure that your accounting functions are managed effectively and efficiently.

Learn More About Signature Analytics – Discover How We Can Help You

With an outsourced accounting team from Signature Analytics, you get accurate, relevant, and timely reporting and financial insights to help you make smart business decisions.

Learn more about our outsourced accounting services, here.

How to Maximize Cash Flow for Your Professional Services Company

As a professional services company, cash flow is crucial to your success. Whether you’re in marketing, advertising, HR, IT, law, or any other professional service, managing your finances effectively is essential for sustainable growth. That’s where Signature Analytics comes in.

As a leading provider of outsourced accounting services for professional services companies, we have the expertise to help you optimize your cash flow and improve your financial performance.

Streamlining Payment Collection: Benefits of ACH Authorization for Efficient Cash Flow

Efficient cash flow management is crucial for every business, relying on the prompt and streamlined collection of payments from clients. To optimize the accounts receivable (AR) process, businesses should consider implementing ACH (Automated Clearing House) authorization for payment collection instead of relying on checks.

One significant advantage for companies is the ability to process ACH payments in-house, without involving the client directly. This necessitates the completion of an ACH Authorization Form by the clients, granting permission for the company to process payments via ACH. Implementing this method has proven to be a game changer for our organization. By shifting to a Net 2 payment term, we are able to process payments promptly based on the agreed-upon terms. This streamlined approach allows us to collect payments swiftly, eliminating the need to spend valuable time chasing down outstanding balances.

Reduced Transaction Fees

Compared to credit cards, ACH payments offer lower transaction fees. When businesses process credit card payments, they must pay a percentage of the transaction value in fees. These fees can add up quickly, especially for businesses that process a large volume of transactions. In contrast, ACH payments typically incur a fixed fee, regardless of the transaction value. By using ACH payments for deposit payments, businesses can save money on transaction fees.

Minimized Chargebacks and Disputes

Credit card payments are vulnerable to chargebacks and disputes, which can negatively impact a business’s cash flow. Chargebacks occur when a client disputes a payment with their credit card company, and the payment is reversed. This can result in a loss of revenue and additional administrative costs for the business. In contrast, ACH payments are less susceptible to chargebacks and disputes. Once a payment is authorized and processed, it is more challenging for clients to dispute or reverse the transaction, resulting in more predictable cash flow.

Faster and More Reliable Payments

ACH payments are typically faster and more reliable than credit card payments, which can be subject to processing delays or issues. Once authorized, ACH payments are processed quickly, often within a day or two. This means that businesses can receive payment for deposit services promptly, allowing for smoother cash flow management. Additionally, ACH payments are more reliable than credit card payments since they are less likely to be declined due to issues such as expired cards or insufficient funds.

Less Administrative Burden

By using ACH payments for deposit payments, businesses can also reduce the administrative burden of managing AR. With ACH payments, businesses can set up recurring payments for deposit services, reducing the need for manual invoicing and payment tracking. This simplifies the AR process and frees up time and resources for other critical business activities.

Benefits of Requesting a Deposit

Apart from utilizing ACH for payment collection, businesses can adopt various strategies to optimize their cash flow. This deposit serves as an initial injection of funds, offering flexibility to cover expenses or capitalize on growth opportunities. Unlike an administrative fee, which focuses on generating higher margins, the deposit strategy directly contributes to enhancing cash flow within the business.

Improved Cash Flow

Charging a set up fee or requesting a deposit helps to improve cash flow management. By securing funds upfront, businesses can reduce the risk of delayed payments or non-payment from clients, which can impact cash flow. The upfront funds can be used to cover expenses and invest in growth opportunities, providing a cushion for the business to operate more smoothly.

Reduced Risk of Non-Payment

Another benefit of charging an upfront admin fee or requesting a deposit is that it reduces the risk of non-payment from clients. When clients pay a deposit or admin fee, they have a financial stake in the business relationship and are more likely to fulfill their obligations. This reduces the risk of late payments or non-payment, which can negatively impact cash flow and profitability.

Better Management of Expenses

By securing an upfront deposit or admin fee, businesses can better manage their expenses. They can use the funds to cover initial expenses such as equipment purchases, marketing, or other start-up costs. This reduces the need for businesses to take on debt or rely on credit lines to cover expenses, which can negatively impact cash flow.

Tracking Utilization Rates for Professional Services Companies

Professional services companies rely heavily on their workforce, and tracking utilization rates is critical to their success. Utilization rate refers to the percentage of time employees spend on billable work compared to their total available working hours. It is a key metric that reflects the efficiency of the workforce and the utilization of resources.

Methods for Tracking Utilization Rates

To track utilization rates, professional services companies can use time-tracking software, project management tools, or employee productivity monitoring tools. These tools allow businesses to track the time employees spend on specific tasks and projects, as well as their overall productivity.

Benefits of Tracking Utilization Rates

Tracking utilization rates provides numerous benefits for professional services companies. By tracking utilization rates, businesses can identify areas where improvements can be made to optimize their workforce and increase billable hours. This can result in higher revenue and profitability for the company.

Implementing Cost Control Measures for Professional Services Companies

Managing cash flow for professional services companies requires a focus on profitability and cost controls. Understanding profitability by client or project is crucial to identify which areas of the business are generating the most revenue and where costs can be controlled.

Detailed Financial Reports from Signature Analytics

Signature Analytics can provide professional services companies with detailed financial reports that break down revenues and expenses by client or project. These reports can help analyze profitability and make data-driven decisions. By identifying high-margin clients or projects and controlling costs, businesses can maximize their gross margin and SG&A (Selling, General, and Administrative) costs, resulting in improved cash flow.

Identifying High-Margin Clients or Projects

By analyzing financial reports, professional services companies can identify high-margin clients or projects. These are the clients or projects that generate the most revenue and have the highest profit margins. By focusing on these clients or projects, businesses can increase their profitability and improve their cash flow.

Controlling Costs

Controlling costs is another critical factor in managing cash flow for professional services companies. By identifying areas where costs can be reduced, businesses can improve their profitability and cash flow. Cost control measures can include reducing unnecessary expenses, negotiating better pricing with vendors, and optimizing resource allocation.

Final Notes

Signature Analytics can help streamline the accounts receivable process by recommending the collection of deposits through ACH, leading to reduced transaction fees, minimized chargebacks, and more reliable payments. Implementing strategies such as charging an upfront admin fee or requesting a deposit can also improve cash flow management, reduce the risk of non-payment, and better manage expenses. Tracking utilization rates and implementing cost control measures are critical in optimizing the workforce, identifying high-margin clients or projects, and maximizing profitability.

To take your professional services company to the next level, consider working with Signature Analytics and implementing these cash flow management strategies. Let us help you improve your financial performance and achieve sustainable growth.

Learn more about our services, here.

Managing Technology Costs [VIDEO]

Technology costs can be the secret drain of cash in any business. The slow incremental (or sometimes rapid) rise of technology costs can occur under the radar of even the most vigilant CEO. At Signature Analytics, we recently conducted a technology audit and discovered so opportunities to cut costs and improve efficiency all in one swift change of vendor.

The Ever-Evolving Tech Landscape

There are so many options when it comes to software and technological tools. From Software as a Service (SaaS) solutions to the burgeoning field of Artificial Intelligence (AI), there is an ever-growing list of options. However, these services often come with incentives that make them appear more affordable in the first year or initial agreement, leading to costs that can quickly escalate as time goes on.

When we looked at our own technology expenses, we discovered that we had areas that were easy to trim back such as maintaining more ‘seats’ than needed, and areas where our contracts had jumped in cost upon renewal. We know we’re not alone. This happens to our clients all the time.

Research and Negotiation

An essential step we took was a comprehensive review of our technological assets: which technologies were in use, who was using them, and what value they brought to the company. This process illuminated areas of over-payment and under-utilization, paving the way for cost-cutting measures.

Take some time to research the current market, you may find new platforms that offer greater functionality at a more cost-effective rate than your existing systems. Yes, switching takes time and effort. But it also focuses your teams on their internal processes and for soem software requires a deep dive into data that may have become muddled over time.

Can’t find a better solution? Research offers a benchmark to bring to your current provider to start a renegotiation. By understanding the competitive landscape, you can approach current vendors and negotiate better pricing to get the best value for your investment.

Strategic Cost Evaluation

The key to reducing expenses is strategic trimming not across-the-board cost-cutting. When you understand your numbers, analyze cost trends, and determine the value driven by those expenses it becomes very clear where you’re overpaying and what services you can reduce or eliminate entirely.

When you reduce costs in one area it can officer an opportunity to invest in areas you may have been constrained in. Reduced software costs and better systems might leave room for leadership coaching for middle management or an increased spend in marketing. Or even that outsourced accounting team you always wanted to support your in-house accounting staff!

It’s all about finding ways to increase efficiencies in cost structure and manage your business more effectively.

Technology is an essential aspect of any business, so it is critical to ensure it is providing value proportional to its cost. Regular review, market research, and strategic cost evaluation are vital to keep these expenses in check, ensuring they are both necessary operational costs and strategic investments driving your company forward.

How Outsourcing Accounts Payable Can Streamline Your Business

Outsourcing accounts payable is a popular choice for businesses aiming to streamline their financial processes. By delegating this task to a third-party provider, companies can save time, reduce costs, and improve accuracy. However, accounts payable is best viewed as part of a comprehensive solution within outsourced accounting services.

When businesses opt for outsourced accounting, they entrust a third-party provider with managing their entire financial ecosystem, including accounts payable. This holistic approach ensures seamless integration and optimization of all accounting functions, resulting in streamlined workflows, increased accuracy, and cost savings.

Comprehensive Accounting Solutions: Integrating Accounts Payable Services

Accounts payable is a crucial component of outsourced accounting services, and it is best viewed as part of a comprehensive solution rather than a standalone service.

By incorporating accounts payable within the broader scope of outsourced accounting, businesses can streamline their financial processes, improve accuracy, and save valuable time and resources.

This comprehensive solution allows businesses to leverage the expertise of the outsourcing provider across all accounting functions, leading to enhanced efficiency, cost savings, and access to specialized knowledge. Ultimately, it is the synergy and cohesion of outsourced accounting services that yield the most significant advantages for businesses.

Benefits of Outsourcing Accounting with a Holistic Approach

Streamlined Workflow:

When businesses choose to outsource accounting with a holistic approach, including accounts payable, they gain the ability to streamline their financial workflow. By consolidating all accounting functions under a single provider, duplicate processes can be eliminated, manual tasks can be reduced, and the handling of financial data becomes consistent and efficient.

This integration ensures a seamless flow of information between different accounting processes, allowing for better coordination, faster processing times, and improved overall efficiency. With a streamlined workflow, businesses can focus on core operations while leaving the complex financial tasks in the hands of experts.

Cost Savings:

Outsourcing accounting with a comprehensive solution offers significant cost-saving benefits for businesses. By opting for outsourcing instead of maintaining an in-house accounting team, businesses can avoid the expenses associated with hiring, training, and managing employees. The costs of salaries, benefits, office space, and equipment are eliminated.

Additionally, outsourcing eliminates the need for investing in accounting software, infrastructure, and ongoing maintenance. With outsourcing, businesses can achieve cost efficiency while gaining access to professional accounting services and expertise without the heavy financial burden.

Increased Accuracy:

Integrated accounts payable, as part of outsourced accounting, plays a crucial role in improving accuracy in financial processes. Professional accounting providers have established procedures, quality controls, and experienced staff dedicated to minimizing errors and ensuring precise recording, tracking, and payment of invoices. By leveraging their expertise and specialized knowledge, outsourcing providers can reduce the risk of errors, discrepancies, and data inaccuracies.

The result is improved financial accuracy, enhanced audit readiness, and increased confidence in the integrity of financial information.

Access to Expertise:

Outsourcing accounting with a holistic approach provides businesses with access to a team of accounting professionals who possess specialized knowledge and expertise. These professionals stay updated on accounting regulations, best practices, and industry trends, enabling them to offer valuable insights and guidance.

With access to such expertise, businesses can navigate complex financial challenges, make informed decisions, and optimize their financial strategies. By partnering with experienced professionals, businesses can tap into a wealth of knowledge, ensuring compliance, efficiency, and strategic financial management.

Focus on Core Competencies:

Outsourcing accounting functions allows businesses to concentrate on their core competencies. By entrusting the financial management tasks to experts, businesses can redirect their time, energy, and resources towards strategic initiatives, innovation, and revenue-generating activities that drive growth.

This focus on core competencies can lead to improved competitiveness, increased agility, and enhanced customer satisfaction. With the burden of accounting lifted, businesses can dedicate their efforts to what they do best, gaining a competitive edge in the market.

Scalability and Flexibility:

One of the key advantages of outsourcing accounting is the scalability and flexibility it offers. Businesses experience fluctuations in their financial management needs due to factors such as growth, seasonal demand, or market expansion. With outsourcing, providers can quickly adapt their services to accommodate these changing requirements.

Whether it’s scaling up during peak periods or adjusting resources during slower times, outsourcing providers can ensure a seamless financial management process that aligns with the evolving needs of the business. This scalability and flexibility empower businesses to navigate changing market conditions efficiently and effectively.

Data Security and Compliance:

Data security and compliance are paramount in financial management. Reputable outsourcing providers prioritize data security by implementing robust protocols and secure systems to protect sensitive financial information. They also adhere to regulatory standards and industry-specific compliance requirements.

By outsourcing accounting, businesses can mitigate risks associated with data breaches, maintain data confidentiality, and ensure compliance with legal and industry regulations. This focus on data security and compliance provides businesses with peace of mind and safeguards their reputation.

Customized Reporting and Analytics:

Outsourced accounting services open the door to customized reporting and analytics. With integrated accounts payable as part of outsourced accounting services, businesses can benefit from customized reporting and analytics. Professional outsourcing providers have the expertise to generate tailored financial reports, key performance indicators (KPIs), and analysis specific to the business’s needs. These customized reports provide businesses with deep insights into their financial performance, allowing them to make informed decisions, identify trends, and uncover opportunities for improvement.

By leveraging accurate and comprehensive financial data, businesses can gain a competitive edge, optimize their financial strategies, and drive long-term success.

Improved Vendor Relationships:

Efficient accounts payable management, facilitated by outsourcing, can contribute to stronger vendor relationships. By ensuring timely and accurate payments, businesses can enhance their reputation as reliable partners. Prompt payments build trust and credibility with suppliers and vendors, which can lead to better negotiation leverage and favorable terms.

Furthermore, outsourcing providers often have established relationships and partnerships with vendors, allowing businesses to tap into a network of trusted suppliers. Strengthened vendor relationships can lead to improved collaboration, cost savings through negotiated discounts, and enhanced supply chain management.

Focus on Long-Term Success:

Outsourcing accounts payable, as part of a comprehensive accounting solution, allows businesses to adopt a long-term approach to financial management. By leveraging the expertise and support of outsourcing providers, businesses can establish a solid financial foundation, improve profitability, and achieve sustainable growth. Outsourcing enables businesses to benefit from proactive financial planning, forecasting, and strategic guidance. With a long-term perspective, businesses can identify opportunities for expansion, manage cash flow effectively, and make informed investment decisions. By partnering with outsourcing providers who share their vision for long-term success, businesses can position themselves for a prosperous future.

Final Notes

Outsourcing accounting with Signature Analytics can offer a range of benefits, from cost savings to increased efficiency and accuracy in financial processes. By choosing the right outsourcing provider, businesses can reap these benefits and focus on their core competencies.

Learn more about our services, here.

Unlocking Business Growth with Outsourced Bookkeeping

As a business owner, you know that managing your finances effectively is essential for success. However, handling bookkeeping in-house can be time-consuming, complex, and costly. That’s where outsourced bookkeeping comes in.

For many business owners the difference between outsourced accounting and outsourced bookkeeping is virtually indistinguishable. After all, both involve the day to day running of the company’s finance and accounting functions. At Signature Analytics, we think of bookkeeping as just another way to talk about a business’ accounting functions. While we don’t offer bookkeeping as a standalone service, our outsourced accounting teams provide the highest caliber of day-to-day boots on the ground accounting support for our clients.

In this blog post, we will explore what outsourced bookkeeping is, why it’s important, how it works, and the reasons why you should consider outsourcing your accounting and bookkeeping to a trusted partner like Signature Analytics.

What is Outsourced Bookkeeping?

Outsourced bookkeeping refers to the practice of hiring an external accounting firm or bookkeeping service provider to handle your company’s financial records, transactions, and reporting. Instead of having an in-house team, you can outsource these tasks to a specialized provider, who will handle them on your behalf, typically using cloud-based accounting software.

What Do Bookkeepers Do & Why Are They Important?

Bookkeepers play a crucial role in maintaining accurate financial records and ensuring compliance with accounting standards and tax regulations. They handle various tasks, including recording financial transactions, reconciling accounts, managing invoices and expenses, preparing financial statements, and providing financial reports. Bookkeepers are essential for businesses as they provide accurate and up-to-date financial information, which is crucial for making informed decisions and managing cashflow effectively.

How Does Outsourced Bookkeeping Work?

Outsourced bookkeeping typically involves partnering with a professional accounting firm, like Signature Analytics, that specializes in providing accounting services. The process starts with our comprehensive Assessment which is designed to help us understand your business’s financial needs and goals.

Once the scope of work needed and pricing are agreed upon, we set goals and KPIs and a roadmap for your company’s accounting. Our outsourced accounting team sets up the right systems to collect and process your financial data. This involves providing access to your financial accounts, implementing cloud-based accounting software, and establishing communication channels for ongoing collaboration.

When you work with an outsourced accounting / bookkeeping team like Signature Analytics, we then handle all the day-to-day bookkeeping and accounting tasks, providing regular financial reports and insights to help you make smart decisions about your business.

5 Reasons to Outsource Your Bookkeeping

Cost-Effective: Outsourced bookkeeping can be more cost-effective compared to hiring an in-house bookkeeping team. With outsourced bookkeeping, you can avoid costs associated with hiring, training, and managing employees, as well as providing employee benefits and office space. You can also access specialized expertise at a fraction of the cost of hiring a full-time bookkeeper.
Time-Saving: Managing bookkeeping in-house can be time-consuming, taking away valuable time and resources from your core business operations. Outsourcing bookkeeping allows you to focus on growing your business and leave the financial tasks to the experts, saving you time and effort.
Expertise and Accuracy: Outsourced bookkeeping providers are specialized in their field, with expertise in financial accounting and reporting. They are skilled at accurately recording financial transactions, reconciling accounts, and preparing financial statements, reducing the risk of errors and ensuring compliance with accounting standards and tax regulations.
Scalability: Outsourced bookkeeping can easily adapt to your business’s changing needs. Whether you are a small start-up or a growing enterprise, the outsourced bookkeeping provider can scale their services up or down based on your requirements, providing flexibility and cost savings.
Access to Advanced Technology: Outsourced bookkeeping providers typically use advanced cloud-based accounting software, which provides real-time access to financial data, automation of repetitive tasks, and enhanced data security. This allows you to have a streamlined and efficient bookkeeping process, with access to accurate and up-to-date financial information.

Costs Associated with Outsourced Bookkeeping

The costs associated with outsourced bookkeeping and accounting can vary depending on the size and complexity of your business and the scope of services provided by the bookkeeping provider. With Signature Analytics, our outsourced bookkeeping services are priced based on the complexity of a company’s financial records and the level of expertise required. We work on a monthly retainer base model and often provide customized pricing packages.

It’s important to note that while there are costs associated with outsourced bookkeeping, the benefits of increased accuracy, time-saving, access to expertise, scalability, and advanced technology can outweigh the costs in the long run. Outsourced bookkeeping can be a cost-effective solution compared to hiring and managing an in-house accounting and bookkeeping team.

Who Typically Outsources Their Bookkeeping?

Many businesses and industries benefit from outsourced bookkeeping, including professional services companies like marketing, advertising and PR, HR and IT, law firms, and more. These businesses often have unique financial needs and require specialized expertise in managing their financial records and transactions. Outsourced bookkeeping can provide professional services companies with the necessary expertise and flexibility to handle their bookkeeping efficiently while they focus on their core operations and growth strategies.

Best Factors to Look for in Outsourced Bookkeeping

When considering outsourcing your bookkeeping and accounting, it’s important to look for a reputable and experienced accounting firm that specializes in your industry. Some of the best factors to look for in outsourced bookkeeping include:

Expertise:

Look for a provider with a team of experienced and qualified bookkeepers who are well-versed in financial accounting and reporting, and are familiar with the unique requirements of your industry.

Customized Solutions:

Choose a provider that offers customized solutions tailored to your specific business needs, rather than a one-size-fits-all approach. This ensures that the bookkeeping services are aligned with your business goals and requirements.

Technology and Security:

Ensure that the outsourced bookkeeping provider uses advanced cloud-based accounting software that provides real-time access to financial data and offers enhanced security measures to protect your financial information.

Communication and Collaboration:

Look for a provider that maintains open and transparent communication channels, and encourages collaboration to ensure that you stay informed and involved in the bookkeeping process.

Reputation and References:

Check the provider’s reputation in the industry and ask for references from their existing clients. This can give you insights into their reliability, professionalism, and quality of services.

Our Outsourced Bookkeeping Process & Services

At Signature Analytics, we offer comprehensive outsourced accounting and bookkeeping services. Our process starts with a thorough assessment of your business’s financial needs and goals. We then set up a system to collect and process your financial data, using advanced cloud-based accounting software.

Our team of experienced bookkeepers handles all the day-to-day bookkeeping tasks, providing you with regular financial reports and insights to help you make informed decisions about your business. Our services include financial transaction recording, accounts reconciliation, invoice and expense management, financial statement preparation, and customized reporting to track utilization rates, profitability, cost controls, and client by client profitability metrics.

How Outsourced Bookkeeping Can Grow Your Business

Outsourced bookkeeping / accounting can be a strategic move for your business, unlocking various opportunities for growth. By outsourcing your bookkeeping to a trusted provider like Signature Analytics, you can:

Focus on Core Operations:

Outsourced bookkeeping allows you to focus on your core business operations, such as marketing, sales, and client services, without being bogged down by financial tasks. This can help you allocate your time and resources more effectively and drive business growth.

Make Informed Decisions:

Accurate and up-to-date financial information provided by outsourced bookkeeping can help you make informed decisions about pricing, cost controls, profitability, and client management. This can result in better financial performance and improved profitability.

Enhanced Financial Management:

Outsourced bookkeeping provides you with professional financial management that can help you better understand your financial position, manage cash flow, and make strategic financial decisions. This can lead to improved financial stability and growth for your business.

Scalability:

Outsourced bookkeeping can easily adapt to the changing needs of your business. As your business grows, the volume and complexity of financial transactions may increase. Outsourced bookkeeping services can scale up or down to accommodate these changes without any disruption, providing you with a flexible and scalable solution.

Access to Expertise:

By outsourcing your bookkeeping, you gain access to a team of experienced bookkeepers who are well-versed in financial accounting and reporting. They can provide valuable insights, financial analysis, and expertise to help you make better financial decisions for your business.

Cost Savings:

Outsourcing your bookkeeping can result in cost savings compared to hiring and managing an in-house bookkeeping team. With outsourced bookkeeping, you don’t have to worry about costs associated with salaries, benefits, training, software, and infrastructure. This can free up valuable resources that can be invested in other areas of your business.

Discover How Signature Analytics Can Help You

At Signature Analytics, we are a leading provider of outsourced accounting and outsourced bookkeeping services. Our experienced team specializes in managing the unique financial needs of businesses in a wide variety of industries such as professional services, IT and Tech firms, BioTech and Life Science companies, Manufacturing and distribution., Wellness and recovery centers, law firms and many more. With our comprehensive bookkeeping services, advanced technology, and customized solutions, we can help you streamline your financial processes, improve financial visibility, and make informed decisions to drive business growth. Contact us today to learn more about how Signature Analytics can support your business’s accounting and finance needs.

What is the True Cost of Outsourcing Accounting?

Outsourcing accounting services has become increasingly popular among businesses due to its cost-effectiveness and improved results, enabling businesses to focus on their core competencies while delegating accounting tasks to external experts. While outsourcing can reduce the need to hire and train in-house staff, businesses should also be aware of the different types of costs involved, including direct, indirect, and hidden costs.

With minimal potential downsides, outsourcing accounting services can help businesses cut costs, reduce fraud, save time, increase profitability and operational efficiency, and access greater skills and resources.

Understanding Outsourcing Accounting: The Basics

Outsourcing accounting services has become an increasingly popular practice among businesses of all sizes. This involves hiring an external service provider to perform tasks or functions related to the accounting and finance department of the business.

The main reason why businesses outsource accounting services is to increase quality and reduce costs. By outsourcing, businesses can eliminate the need to hire and train in-house staff, which can be expensive. Instead, they can rely on the expertise and experience of an external provider who can offer cost-effective solutions.

Let’s take a look at these costs.

The Cost of Outsourcing Accounting

When it comes to outsourcing, there are different types of costs that businesses should be aware of. Direct costs are expenses that are directly associated with outsourcing, such as the fees paid to the outsourcing company. These costs are typically outlined in the outsourcing contract and can be budgeted for accordingly.

Indirect costs, on the other hand, are expenses that are not directly associated with outsourcing but arise as a result of it. For example, the cost of managing the outsourcing relationship or the cost of training internal staff to work with the outsourcing company can be considered indirect costs.

Hidden costs are expenses that are not immediately apparent, such as the cost of transferring knowledge to the outsourcing company.

At Signature Analytics, our monthly retainer typically falls within the range of $5,000 to $15,000 per month, depending on the size of the business and the level of services required. This fee includes a full-service, fully trained accounting team, including a CFO-level advisor, accounting manager, staff accountants, and bookkeepers.

How Outsourced Accounting Can Help Businesses Cut Costs

Hiring an outsourced accounting team is more affordable than hiring an entire in-house accounting team. Hiring in-house incurs expensive overhead costs including costs regarding hiring and onboarding, PTO, health insurance, retirement, vacation, workers’ compensation, sick days, and more.

Outsourced Accounting Can Reduce the Likelihood of Fraud

According to research conducted by Price Waterhouse Coopers (PwC), 46% of organizations surveyed reported experiencing fraud, corruption, or other economic crimes in the past 24 months in 2022. Private companies and small businesses were the most common victims, with up to 42% falling prey to fraud and incurring median losses of $164,000. Such losses can be catastrophic for small and mid-sized businesses.

One reason why internal fraud occurs more frequently with in-house accountants is that small businesses usually lack the checks and balances found in large enterprises. Additionally, internal controls in small businesses are often weak, and with just one person responsible, there is little opportunity for correction. However, outsourcing accounting services can significantly reduce the likelihood of fraud and other economic crimes.

Outsourced Accounting Can Save Business Owners Time and Increase Profitability and Operational Efficiency

By engaging an outsourced team, you can expedite the process. With a ready-made team at your disposal, you save time and avoid the need for training. Moreover, the hiring company can rid itself of the onus of mentoring, training, onboarding, and managing accountants (typically not their core skillset).

Outsourced accounting teams bring with them a wealth of experience from different industries. They can introduce novel and efficient methods of tackling old problems. An external team’s unbiased viewpoint can uncover operational gaps or hidden drains on profitability, which can be addressed promptly.

Outsourced Accounting Increases Access to Greater Skills and Resources

When opting for an in-house accountant, you are limited to a single individual’s expertise. However, outsourcing provides access to an entire accounting team with a wealth of experience in handling day-to-day accounting processes such as accounts payable, accounts receivable, and month-end close. These professionals are well-versed in providing accurate, relevant, and timely numbers to businesses across various industries.

Moreover, outsourcing allows for the flexibility to cater to specific needs such as controllers or accounting managers, unlike in-house accountants with limited skill sets.

Outsourced Accounting Costs: FAQs

What is the Cost of Outsourcing?

The cost of outsourcing varies depending on a number of factors, such as the type and scope of services being outsourced, the location and experience level of the outsourcing provider, and the duration of the outsourcing engagement. Typically, businesses will pay a set fee for the services being outsourced, and this can either be a fixed amount or based on hourly rates.

What Are Three Important Costs of Outsourcing?

Three important costs of outsourcing to consider are direct costs, indirect costs, and hidden costs. Direct costs are expenses that are directly associated with outsourcing, such as fees paid to the outsourcing company. Indirect costs are expenses that are not directly associated with outsourcing but arise as a result of it, such as the cost of managing the outsourcing relationship. Hidden costs are expenses that are not immediately apparent, such as the cost of transferring knowledge to the outsourcing company.

Is Outsourcing Really Cheaper?

Outsourcing can be cheaper than hiring and training full-time employees for certain tasks, but this depends on a number of factors. For example, outsourcing can be cost-effective for tasks that are not core to the business’s operations, or for tasks that require specialized expertise or equipment that the business does not have in-house. However, outsourcing may not always be cheaper than hiring and training employees, especially if the business needs full time support.

What is the Main Argument Against Outsourcing?

The main argument against outsourcing is that it can lead to job loss and a decline in the quality of work. Critics argue that outsourcing can lead to the loss of jobs for local workers, as companies choose to outsource work to lower-cost providers in other countries. Additionally, outsourcing can sometimes lead to poor quality work if the outsourcing provider does not have a good understanding of the business’s specific needs and processes. However, proponents of outsourcing argue that it can actually help create jobs by allowing businesses to grow and become more competitive.

Learn More About Signature Analytics

At Signature Analytics, we support our clients’ day-to-day accounting functions, including:

Invoicing
AR management
Bill processing
AP management
Forecasting
Reporting
Monthly close
And more…

Ready to get started with outsourcing your day to day accounting services? Talk to an expert today.

Manufacturing and Distribution Inventory as a Non-Cash Asset [VIDEO]

The health of any manufacturing or distribution enterprise is determined not just by the number of products it sells or the revenue it generates, but also by its efficiency in managing assets. Chief among these assets is inventory. Yet, despite its importance, inventory management often remains an under-optimized function, especially in fluctuating economic scenarios. Here’s why understanding and streamlining inventory processes can be a game-changer for businesses.

Cash on the Shelf: The Hidden Cost of Inventory

It’s a simple equation. Every product that sits on a shelf represents cash that’s tied up. For manufacturers or distributors, inventory can be visualized as money frozen into a tangible form, waiting to be liquidated upon a sale.

Inventory might be an essential buffer against unexpected demand or supply chain disruptions, but there’s a caveat. When it’s mishandled, inventory transforms from an asset into a liability. The logic is straightforward: the longer products sit unused or unsold, the longer the capital is tied up without generating any return. Moreover, if businesses are resorting to lines of credit to purchase more inventory, they end up bearing the added weight of interest costs on unsold goods.

Navigating Post-COVID Inventory Challenges

The pandemic brought with it an array of supply chain challenges. Many businesses, in response to uncertain product availability, increased their inventory holdings to navigate potential disruptions. While this might have been a prudent strategy in the thick of the pandemic, clinging to it post-COVID can be financially draining.

With the most acute supply chain disruptions largely behind us, businesses must reevaluate their inventory needs. Holding onto larger stocks might have made sense when the future availability of materials was in question, but as we move towards economic normalization, such practices might be more of a burden than a boon.

The Metrics Matter

Understanding the duration inventory sits on the shelf, often referred to by metrics like Days Sales Outstanding (DSO), is crucial. These metrics provide insights into inventory turnover rates and can help businesses pinpoint inefficiencies in their ordering and sales processes.

Adapting to a Changing Economic Landscape

As whispers of economic downturns get louder, businesses need to recalibrate their strategies. Lessons learned during the pandemic are invaluable, but they must be applied judiciously, given the evolving economic context.

In conclusion, for those in the manufacturing or distribution sectors, it’s not just about having inventory—it’s about having the right amount of inventory. Proper inventory management practices can free up cash, reduce unnecessary interest payments, and ensure smoother operations. As we transition into a new economic era, businesses that proactively manage their inventory, understanding it as cash on the shelf, will be better poised to weather challenges and seize opportunities.

The Goldilocks Zone of Reporting: Not Too Much, Not Too Little, Just Right

Running a successful business requires making informed decisions, and accurate financial reporting is a crucial part of that process. However, sifting through mountains of data to identify key insights can be overwhelming, and insufficient reporting can lead to misguided decisions. This is where finding the Goldilocks Zone of reporting becomes essential – not too much, not too little, but just right.

At Signature Analytics, we understand the challenges of financial reporting and the impact it can have on business operations. In this blog post, we’ll discuss the importance of accurate reporting, the challenges it presents, and how finding the Goldilocks Zone can help businesses make informed decisions.

So, What Types of Business Reports Should Business Owners Focus On? Let’s Discuss Key Reports

The five most important and commonly referenced financial reports are:

Income statement
Balance sheet
Statement of cash flows
AR aging report
Budget vs actual

Income Statement

An income statement, also known as a profit and loss statement, is a financial document that summarizes a company’s revenue, expenses, and profits over a specific period of time. The income statement is used to measure a company’s financial performance.

Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It lists the company’s assets, liabilities, and equity and shows how these elements are related to each other: Assets = Liabilities + Equity. The balance sheet is used to assess the company’s financial strength and stability, as well as its ability to pay debts and meet obligations.

Statement of Cash Flows

A statement of cash flows is a financial statement that provides information about a company’s cash inflows and outflows over a specific period of time.. The statement of cash flows is used to understand how a company is generating and using cash, which is critical for its short-term liquidity and financial stability.

AR Aging Report

An aging report, also known as an accounts receivable aging report, is a financial document that shows how long it takes for a company to collect payment from its customers. The aging report categorizes the company’s accounts receivable into different aging buckets, such as 0-30 days, 31-60 days, 61-90 days, and over 90 days, and provides a summary of the amount of money the company is owed in each category.

Budget Vs Actual

Budget versus actual reporting, also known as budget variance analysis, is a financial management tool that compares a company’s actual financial performance to its budgeted or planned performance. The objective of budget versus actual reporting is to identify variances or differences between actual results and budgeted or planned results and to analyze the causes of these variances.

Nonprofit Reporting Is Just as Key Reporting in For-profits

Nonprofit organizations rely on accurate and timely financial information to operate effectively and fulfill their mission. The role of board reporting is critical in this regard as it provides nonprofit board members with the information they need to make informed decisions about the organization’s financial health and future direction. In addition to financial statements, key reports for nonprofits include budget versus actual reports, which compare actual financial results to the budget, and program expense reports, which help track spending related to specific programs or initiatives.

Accurate and reliable financial information is essential for nonprofit boards to make informed decisions, allocate resources effectively, and ensure compliance with legal and regulatory requirements. Without proper reporting, nonprofit organizations may struggle to attract and retain donors, secure grants, or make sound financial decisions, which can have significant implications for their long-term sustainability and success.

Garbage in – Garbage out: Why Clean Data is Key

Having a single source of truth for financial data is crucial for accurate and effective reporting. It involves aggregating data from multiple sources and creating a centralized database that is easy to access and analyze. Signature Analytics specializes in creating customized reporting solutions that ensure businesses have clean, reliable data to inform their decision-making.

With their expertise, businesses can gain a clearer understanding of their financial health and make informed decisions based on trustworthy information. Clean data is the foundation of successful financial reporting, and Signature Analytics helps businesses achieve this by providing tailored solutions that work for their unique needs.

Good People, Processes, and Technology

Reporting is a critical component of business operations, but getting it right can be a challenge. The amount of data available can be overwhelming, and insufficient or inaccurate reporting can lead to misguided decisions.

Signature Analytics understands these challenges and provides tailored reporting solutions that balance the right amount of information with ease of use. Their approach combines good people, processes, and technology to provide businesses and nonprofits with the right insights for informed decision-making. By leveraging their expertise and technology, organizationscan ensure they have access to clean data and the right reports to make smart decisions.

In Conclusion

Accurate and reliable financial reporting is essential for businesses and nonprofits to make informed decisions. The Goldilocks Zone of reporting is finding the right balance between too much and too little information. Signature Analytics provides tailored reporting solutions that help businesses achieve this balance by combining good people, processes, and technology. With their help, businesses can access clean data and the right reports to make smart decisions based on accurate financial information.

About Signature Analytics

By working with an outsourced accounting team, businesses can focus on their core activities, knowing that their financial operations are being handled efficiently and effectively, freeing up their own internal resources to focus on driving growth and profitability.

Signature Analytics is the Smart Choice for both nonprofit and for-profit organizations. Why? Our assessments provide a deep dive into your existing accounting structures and processes and help us customize the right solution for your business. With those insights, we then bring in the right outsourced team to get you the Accurate, Relevant, and Timely financials you need to run your business successfully.

Contact our team of experts to learn more. Then, read on to learn more about How Outsourced Accounting Supports Non-Profit Annual Audits.

How Much Should I Pay to Replace My VP of Finance?

And other accounting roles, responsibilities and costs:

Employee turnover can be a disruptive and stressful experience for any business owner. Losing a key member of the finance or accounting team can have significant operational and financial consequences. The search for a replacement can be a daunting task, especially when the departing employee takes institutional knowledge with them. This can lead to process gaps and disruptions across multiple departments.

Replacing the departed employee can take months and require extensive training on your company’s operations. Finding the right skill level and culture fit is crucial, and the search process can be time-consuming and costly. Meanwhile, your business must continue running, and the absence of a key finance or accounting team member can cause unnecessary stress and strain.

Assessing the Cost and Value of In-House Finance and Accounting Teams

As a business owner, you may be wondering how much you should pay to replace key finance and accounting team members such as CFOs, VPs of Finance, Controllers, Accounting Managers, Staff Accountants, or Bookkeepers. However, before we delve into that question, it’s essential to determine if it’s the right one to ask. In many cases, small to mid-market businesses may not need a full-time CFO or VP of Finance, but rather require on-demand financial insights.

Before we discuss the benefits of outsourcing, let’s examine the state of the hiring market nationwide. It’s worth noting that the following statistics are based on national averages, and areas such as San Diego, LA, and OC may have significantly higher salary ranges.

Current Average Salaries for Finance and Accounting Positions

Here is a breakdown of the current average salaries for finance and accounting positions in the United States, based on recent data from Glassdoor and the Bureau of Labor Statistics (this is salary information only):

Chief Financial Officer (CFO): The average annual salary for a CFO is around $160,000 to $230,000, depending on the industry and company size.

Vice President of Finance: The average annual salary for a VP of Finance is around $120,000 to $170,000, depending on the industry and company size.

Accounting Manager: The average annual salary for an Accounting Manager is around $80,000 to $120,000, depending on the industry and company size.

Staff Accountant: The average annual salary for a Staff Accountant is around $50,000 to $70,000, depending on the industry and company size.

Bookkeeper: The average annual salary for a Bookkeeper is around $35,000 to $50,000, depending on the industry and company size.

When adding up the total costs of these positions include salaries, bonuses, benefits (15 to 20%), and overhead (computer, office space, etc.), It becomes apparent with the math that hiring an in-house accounting team is a significant investment for any company as it involves recruiting, training, and retaining staff, along with providing them with benefits, bonuses, and salaries.

An Alternative Solution? Outsourcing Accounting Services

Outsourcing accounting services can provide a more cost-effective and flexible solution. By outsourcing these services, businesses can benefit from a range of advantages that can help them overcome the disruption caused by employee turnover and maintain their financial operations.

At Signature Analytics, our monthly retainer typically falls within the range of $5,000 to $15,000 per month, depending on the size of the business and the level of services required. This fee includes a full-service accounting team, including a CFO-level advisor, controller, staff accountants, and bookkeepers.

By Outsourcing Accounting Services, Businesses Can Benefit From:

Reduced Costs

Outsourcing accounting services can significantly reduce costs for businesses. In fact, outsourcing can save businesses up to 50% compared to maintaining a full in-house accounting team. This is because outsourcing delivers the right person at the right time doing the right job and eliminates the issues of a junior person trying to do work outside of their skillset or a senior person becoming bored doing junior level work..

Increased Flexibility

Outsourcing accounting services provides businesses with increased flexibility. Businesses can access a range of accounting services based on their specific needs as they grow and change. This includes basic bookkeeping, financial reporting, audit support, special projects, and even CFO-level strategy and planning services. Outsourcing providers can quickly scale services up or down to match the needs of their clients.

Access to Expert Advice

Outsourcing accounting services provides businesses with access to experienced and knowledgeable professionals. Outsourced accounting providers often have a team of professionals who specialize in different areas of accounting and finance. This allows businesses to access expert advice and guidance on various financial matters, including tax planning, budgeting, financial forecasting, and more.

Improved Accuracy and Compliance

Outsourcing accounting services can improve accuracy and ensure compliance with financial regulations and reporting requirements. Outsourcing providers have a team of professionals who specialize in accounting and finance. They have a deep understanding of financial regulations and reporting requirements, ensuring that businesses remain compliant with applicable laws and regulations. Additionally, outsourcing providers use advanced accounting software and technology to minimize errors and improve accuracy.

Increased Focus on Core Business Functions

Outsourcing accounting services allows businesses to focus on their core functions and strategic initiatives. Managing an in-house accounting team can be time-consuming and resource-intensive. By outsourcing accounting services, businesses can free up time and resources that can be directed towards core business functions such as sales, marketing, and product development. This can result in increased efficiency and productivity, ultimately leading to improved profitability.

Learn More About Signature Analytics

Outsourcing accounting services can provide businesses with a cost-effective and flexible solution to managing their financial operations. With Signature Analytics, businesses can access a full-service accounting team that can provide expert advice, improved accuracy and compliance, and increased focus on core business functions.

Analyzing Employee Utilization Rates to Drive Profitability for Professional Services Firms

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

The Importance of tracking Utilization Rates and Billable Hours

Professional services companies spend a lot of time and effort around managing people. However, with many professional services companies, the crucial metrics of utilization rates and billable hours go overlooked or, at best under valued. Signature Analytics’ CEO Pete Heald and President Jason Kruger discuss best practices for all kinds of professional services companies who want to set pricing, hire staff and manage scope using accurate financial data.

Setting the Right Goals

For a professional services firm, setting accurate billable hour goals is foundational. However, as both Pete and Jason highlight, these goals can differ depending on the role. While lower-level employees might spend the bulk of their time billing hours to clients, senior-level personnel could be more involved in initiatives like sales, demanding a different metric for them.

Setting the right goals for the members of your team and then communicating them effectively and setting accountability around goal achievement are essential steps to managing using the data from your financials as opposed to being reactive to client demands or employee inspiration.

Checking in with leadership to assess each employee’s value to the company is important when setting these goals for billable vs non-billable hours. If someone isn’t billing hours, what are they contributing to the organization? Being clear on expectations and understanding where your people are ringing the most value is a crucial step to improving productivity and profitability.

What about fixed-fee Professional Services?

Even if a company operates on fixed fees, understanding the time and efficiency involved in each engagement is crucial. This ensures profitability remains on point, and businesses can set realistic and competitive fixed fees. Setting those fees should result directly from a granular understanding of the utilization rate and billable/ non billable horse of the team. IF the margins don’t add up, this data allows an owner to address pricing or bring in support to assess team efficacy.

Price setting is a little bit of a science and a little bit of an art. Even if a firm uses a fixed fee structure, determining an hourly rate is vital as it forms the basis for those fees. To determine this rate, Pete suggests starting with desired gross margins. For instance, if a firm targets a 40% gross margin and has clarity on the hours each team member works, they can backward calculate potential hourly rates.

Regular Tracking

Regularly monitoring billable hours – be it daily, weekly, or monthly – is crucial. Choosing the right project management software streamlines the process of tracking hours and managing staff. For most companies: even those with under a million in revenue, Excel spreadsheets just won’t cut it. Good project management and tracking software not only provides actionable insights into utilization but also assists in setting goals and managing to those goals Moreover, incorporating incentives for employees who meet or exceed their targets can bolster productivity and enhance value.

Hiring Decisions & Capacity Understanding

With accurate data in hand, a company can better predict when to hire the next individuals. This preemptive workforce planning approach ensures businesses aren’t scrambling to keep up with contracts after the fact but are strategically prepared for growth. Understanding current capacity helps in determining when to onboard new clients and when to expand the team.

Balancing Rates, Compensation, and Margins

Jason concludes by highlighting a trinity in professional services – the rate billed to clients, the compensation offered to employees, and the resultant margins. The market often determines billing rates, but they can also be a reflection of the unique value a firm offers vis-a-vis competitors. These rates, in turn, play a pivotal role in deciding employee compensation and the margins a firm can achieve.

In sum, while utilization and billable hours might seem like mere metrics, they lie at the heart of a professional service firm’s operational and strategic decisions. Firms that master these dynamics position themselves for both profitability and growth.

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 costs 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 consistently 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 its 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 and 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 help 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.

How Long Should I Wait for My Monthly Close?

As a small to mid-market business owner, you rely on timely and accurate financial reporting to make informed decisions about your business. However, if your accounting team is struggling to keep up with your monthly close, it can be frustrating and stressful.

In this blog post, we’ll discuss how long you should wait for your monthly close and what you can do to speed up the process.

First, What is a Monthly Close?

A monthly close is the process of finalizing your financial statements for the month, including your profit and loss statement, balance sheet, and cash flow statement. This process typically involves reconciling your bank and credit card accounts, reviewing your transactions for accuracy, and ensuring that all necessary journal entries have been made.

To learn more about best practices for the month-end closing process, read our blog, here.

Benefits of an Accurate, Relevant, and Timely Monthly Close

When done right, the month-end close provides your company a with accurate, timeley, and relevant financial statements and information to improve your organization, decision making, and risk management.

Decision Making

The month-end close allows you to keep accurate financial records throughout the year so you can see trends and make insightful business decisions at any time, not just at the end of the year.

At a quick glance, you can get a snapshot of where there are revenue problems, expense issues, operational issues, or inconsistencies within your company The month-end close supports your efforts to keepyour business on the right track through monthly reviews of key financial data.

Transparency

The month-end close also makes your business transparent to others, instead of only having annual-financial data that could be months old and tell an inaccurate story. This provides great value for when you’re seeking a much-needed loan, or if there are potential buyers looking at an acquisition.

Risk Management

The monthly close process allows for the identification of errors or irregularities in financial statements, which could signal potential risks to your business. By detecting and addressing such issues early, you can mitigate their impact and prevent them from escalating into more significant risks.

It also involves a series of checks and balances designed to ensure the accuracy and completeness of financial data. These controls can help identify and address potential risks related to fraud, errors, or omissions in financial reporting, thereby reducing the risk of financial misstatements.

How Long Should the Month-end Close Process Take?

The length of time it takes to complete a monthly close can vary depending on the size of your business, the complexity of your accounting processes, and the efficiency of your accounting team. In general, a monthly closae should take between 5 and 15 business days. This means that if your month ends on the 31st, you should expect to receive your financial statements the following month.

What Can You Do to Speed Up the Monthly Close Process?

If your accounting team is struggling to keep up with your monthly close, there are several things you can do to speed up the process:

Evaluate Your Current Accounting Processes

Review your current accounting processes to identify areas where you can streamline or automate tasks. This may include investing in accounting software, creating standardized procedures for recurring tasks, simplify procedures, or outsourcing certain functions.

Bring in an Outsourced Accounting Team

Bringing on an outsourced accounting team with expertise in day-to-day accounting and accurate reporting can provide significant value for small to mid-market business owners. Not only can they help streamline your monthly close process, but they can also provide valuable insights and expertise to help you make informed decisions about your business.

Additionally, outsourcing your accounting functions can help you reduce overhead costs associated with hiring and managing an in-house accounting team.

At Signature Analytics, we specialize in providing outsourced accounting services to help businesses achieve timely and accurate financial reporting. Our team of experienced professionals can help you streamline your accounting processes and provide valuable insights to help you grow your business.

Set Clear Deadlines

Establish clear deadlines for the monthly close and communicate them to your accounting team. This can help ensure that everyone is on the same page and working towards the same goal.

Conduct Regular Reviews

Regularly review your accounting processes to identify areas of weakness and opportunities for improvement. This can help you identify bottlenecks and streamline your processes.

Common Challenges and How to Overcome Them

Missing Data

Missing data is a significant issue in the monthly close process because it can cause delays in reconciling accounts and make it challenging to report accurate financial information. When financial data is incomplete or missing, accountants may need to spend additional time tracking down missing information and reconciling accounts, which can significantly slow down the monthly close process. Inaccurate financial reporting can also lead to costly errors and misrepresentations of the company’s financial health, which can have serious consequences for the business.

Too Many Data Sources

Many organizations rely on spreadsheets, emails, phone calls, and in-person meetings to gather the data for their month-end close.

This causes delays as your accounting team is trying to recover the necessary information from employees, software systems, and accounts. It’s vital that, when it’s time for the month-end close to begin, you can draw all your financial data from as few sources as possible including a centralized source, such as Netsuite \, Quickbooks, or other accounting platform..

Manual Processes

Unfortunately, human beings are error prone. While this may be okay when you spill your coffee in the morning, you don’t want human error anywhere near your accounting system.

You can reduce human error by automating your accounts with the right software and avoid mistakes that are often made with manual entry of data.

Poor Project Management

Any area of your business is going to falter with poor project management, and your accounting department is no exception.

When performing the month-end close, you want to have systems in place that increase accountability and quality-check the collected data. You also want your accounting team to have good time management processes by setting up deadlines and goals for them to work towards.

Learn More About Signature Analytics

A timely monthly close is critical for small to mid-market business owners who rely on up-to-date financial information to make smart decisions about their business. If your accounting team is struggling to keep up, there are several steps you can take to speed up the process.

At Signature Analytics, we specialize in helping businesses improve their accounting processes and streamline their monthly close. Contact us today to learn how we can help you achieve a faster and more accurate monthly close.

If you’re interested in outsourcing the month-end close process, or any of your other accounting needs, contact us today.

How Your Day-To-Day Accounting May Be Killing Your Profitability

Running a successful business involves more than just generating revenue and making sales. Accounting is a critical aspect of business operations, but it is often overlooked or not given the attention it deserves, especially by small and medium-sized enterprises (SMEs). Accounting errors such as late or inaccurate financial statements, double payments to vendors, and other mistakes can have a significant impact on the health and sustainability of a business.

In this blog, we will discuss the little ways that poor day-to-day accounting can kill your business and what you can do to avoid these errors. First, we will explore the consequences of accounting errors, including poor decision-making, cash flow problems, missed tax deadlines, and vendor disputes. These consequences can have serious ramifications for your business, from financial losses to damage to your reputation and relationships with vendors.

The Little Ways Poor Day-to-Day Accounting is Killing Your Business

Inaccurate or late financial statements, double payments to vendors, and other accounting errors can have a significant impact on your business. Here are some of the ways that these errors can harm your business:

1. Poor Decision Making

One of the most significant impacts of inaccurate or late financial statements is poor decision-making. Without accurate and timely financial statements, it’s challenging to make informed decisions about your business. You may miss opportunities, make poor investments, or overspend in areas that aren’t generating revenue. All of these decisions can harm your business in the long run.

2. Cash Flow Problems

Late or inaccurate accounts receivable reports can lead to cash flow problems. This can make it difficult to pay bills, invest in growth opportunities, or even meet payroll obligations. Cash flow is the lifeblood of any business, and if it’s not managed correctly, it can lead to significant issues down the line.

3. Missed Tax Deadlines

Missing tax deadlines can result in penalties and interest charges. It can also lead to audits and investigations, which can be costly and time-consuming. Tax laws and regulations are constantly changing, and it can be challenging to keep up with all the deadlines and requirements. But failing to do so can have serious consequences for your business.

4. Vendor Disputes

Double payments, late payments, and/or inaccurate payments to vendors can result in disputes and misunderstandings that damage your business’s reputation. It can also lead to legal battles and damage to vendor relationships. Maintaining strong vendor relationships is crucial for any business, and disputes or misunderstandings can hurt your business’s bottom line.

5. Inability to Plan for the Future

If your business is not keeping accurate records of its finances, you won’t be able to create a realistic plan for the future. Financial statements, cash flow reports, and other accounting documents are essential for creating budgets, setting goals, and making projections. Without these tools, you won’t be able to plan for growth or respond to changes in the market.

6. Stress and Burnout

Poor accounting practices can create stress and burnout among your employees. If your accounting processes are inefficient, your staff may be forced to work overtime or struggle to keep up with deadlines. This can lead to employee burnout, lower productivity, and higher turnover rates. By improving your day-to-day accounting practices, you can create a more positive work environment and reduce stress levels.

7. Lost Opportunities

Inaccurate or incomplete financial records can cause you to miss out on potentially lucrative opportunities for your business. For example, if you’re not tracking your expenses and revenue properly, you might miss opportunities to invest in growth areas or take advantage of price or tax breaks. Without a clear picture of your financial health, you could also miss out on opportunities to secure financing or partnerships that could help you take your business to the next level.

8. Inability to Get Financing

Inaccurate or incomplete financial records may cause your bank or other financial institutions to lose confidence in your business. This may lead to financial consequences on current obligations and/or the inability to get new or additional financing to fund your business.

How to Improve Your Day-to-Day Reporting (and Keep it From Killing Your Business)

The first step in avoiding these problems is to partner with a reputable accounting firm like Signature Analytics. Our five-step process ensures that your accounting processes are streamlined and accurate, giving you the information you need to make informed decisions and run your business more efficiently.

In addition, there are several other steps you can take to avoid accounting errors, including:

1.Regularly Review Your Financial Statements

Make it a habit to review your financial statements regularly, so you can catch errors before they become major issues. This includes reviewing your balance sheet, income statement, and cash flow statement.

2. Use Accounting Software

Invest in accounting software that automates many of your day-to-day accounting processes. This can help you streamline your accounting processes, reduce errors, and save time and money.

3. Train Your Team

Invest in training your team on accounting best practices and ensure they have the skills and knowledge needed to manage your business’s accounting processes effectively.

4. Conduct Regular Audits

Regularly conduct audits of your accounting processes to identify areas of weakness and opportunities for improvement. This can help you identify potential errors and fix them before they become major issues.

5. Stay Up-to-date on Tax Laws

Stay up-to-date on changes to tax laws and regulations that may impact your business. This can help you avoid penalties and ensure compliance with applicable laws. A recent example is remote work and employers hiring employees in multiple states with different reporting and tax requirements.

Five Step Process to Streamline Accounting Practices

At Signature Analytics, we understand that every business is unique, with different goals, drivers, and concerns. That’s why we have developed a five-step process to ensure that your accounting processes are streamlined and accurate, and your business can operate at its full potential.

Step 1: Goal Development & Roadmap

We begin by getting to know your business, its industry, goals, and drivers. This helps us to understand your immediate needs and priorities, and develop a roadmap that aligns with your business objectives.

Step 2: Information & Process Validation

The next step is to evaluate your existing information and processes to ensure that your business has a solid foundation for timely and accurate reporting. We review your team’s capabilities and skillsets, validate your existing processes, and implement new ones where necessary.

Step 3: Day-to-Day Accounting

With good people, processes, and technology, we manage your day-to-day accounting processes. This includes the month-end close process, financial statement production, documenting SOPs, audit support, cash flow management, monthly management report, AR/AP aging reports, invoicing, collections, AR management, inventory process development and setup, and bank covenant requirements.

Step 4: Financial Reporting

We provide accurate, relevant, and timely financial reporting that enables you to make sound decisions. This includes custom reports based on your business needs, profit and loss statement, balance sheet, and cash flow statement, monthly management report, and AR/AP aging report.

Step 5: Financial Analysis & Support

In addition to standard reporting, we provide business modeling and financial analysis that can help you achieve your goals. This includes utilization analysis, annual budgeting, M&A support, profitability analysis, margin analysis, and business-specific KPIs.

Learn More About Signature Analytics

Accounting is a critical aspect of any business, and errors can have a significant impact on your bottom line. At Signature Analytics, we understand the importance of accurate and timely financial reporting, and we have developed a five-step process to help your business operate more efficiently and effectively. By partnering with us and implementing the steps outlined above, you can avoid accounting errors and run your business with confidence.

How to transition your business from cash to accrual accounting (and why)

Accrual vs Cash vs GAAP Accounting:

For small business owners, there is a choice to be made between cash basis accounting and accrual accounting. Larger corporations, however, are required by the IRS to utilize accrual accounting. As a business grows and passes the threshold beyond which cash-based accounting is practical it is important to transition to accrual accounting. That process is no small feat and can cause businesses to have some eye-opening financial discoveries. The fact is, that managing financials on a cash basis, can cause business owners to inadvertently deceive themselves. If your business is still using a cash-based accounting method, read on from the steps you’ll need to take to transition to accrual, why you need to do it sooner than later, and how Signature Analytics can help.

Accrual Basis Accounting

When using accrual accounting, revenue is spread out over the period in which a service is provided. Accrual accounting provides a more precise understanding of a business’ current financial picture, allowing business owners to make more informed decisions. Expenses are reflected as they are incurred, as opposed to when cash is disbursed. Therefore, short-term fluctuations in cash flow do not dramatically alter the overall financial picture.

Accrual accounting is the recommended method for almost all businesses. This method allows you to track revenues and expenses in order to assess the profitability of your business and identify trends in performance. It provides a more reliable measure of Gross Margins, giving you the insight needed to make educated business decisions. Cash accounting may appear simpler, but accrual accounting is by far the superior choice.

Cash Basis Accounting

Cash accounting is a method of bookkeeping that records transactions as they occur, rather than when revenue or expenses are actually earned. When using cash accounting, revenue from services rendered in April, May, and June will not be reflected in the financial statements until payment is received in July. This can create a false impression of business decline, despite services having been performed and earned in the prior months. This method of accounting can lead to misinformed decisions being made concerning staffing, pricing, ordering, and many other key decisions a business owner must make. To ensure accurate financial reporting, it is important to understand the differences between accrual and cash accounting.

Can a business use cash basis accounting and still be GAAP compliant?

Cash basis accounting is not GAAP-compliant. GAAP (Generally Accepted Accounting Principles) is a set of standards and guidelines for financial reporting that are widely recognized and accepted as the authoritative standard for financial reporting in the United States.

Cash basis accounting is a simplified method of accounting that only recognizes transactions when cash is received or disbursed. While cash basis accounting is simpler and easier to use, it does not provide as much information about the financial performance and position of a business as accrual accounting.

A business using cash basis accounting must still follow certain principles and guidelines, such as ensuring that transactions are recorded accurately and in a timely manner, and providing accurate financial statements that reflect the financial position of the business.

For most businesses, especially those with complex financial operations, accrual accounting is the preferred method of accounting as it provides a more complete and accurate picture of the financial performance and position of the business.

While it is possible for a business to use cash basis accounting, the limitations of cash basis accounting may result in less accurate and less informative financial statements, and most businesses may find accrual accounting to be a better choice for their financial reporting needs.

What are the principles of GAAP accounting?

Historical cost principle: Assets and liabilities are recorded at their original cost.
Full disclosure principle: All relevant and material information should be disclosed in the financial statements.
Matching principle: Expenses should be matched with revenues in the period in which they were incurred.
Revenue recognition principle: Revenue should be recognized when earned, regardless of when payment is received.
Objectivity principle: Financial statements should be based on objective evidence.
Consistency principle: Companies should use the same accounting methods from one period to the next.
Conservatism principle: In case of uncertainty, the financial statement should reflect the worst-case scenario.
Materiality principle: Only information that is significant enough to affect the decisions of users should be included in the financial statements.
Fair presentation principle: Financial statements should be presented in a way that is not misleading.
Cost-benefit principle: The benefits of providing information should outweigh the costs.

What steps should a business take to transition from cash basis to accrual basis accounting?

Transitioning from cash basis to accrual basis accounting can be a significant change for a business, but it can also provide greater insight into the financial performance and position of the company.

Here are the steps a business should take to make the transition:

Assess your current accounting system: Review the current accounting system to determine what changes need to be made in order to transition to accrual accounting. This may involve upgrading the accounting software, hiring additional staff, or contracting with an outsourced accounting firm.

Train staff: All staff members involved in the accounting process should be trained on the new accounting methods and procedures. This will ensure that everyone is using the same methods and that the transition goes smoothly.

Implement new processes: Establish new SOPs for recording and tracking financial transactions under accrual accounting. This may include tracking accounts payable and accounts receivable and inventory differently now that you’re using an accrual method.

Review financial statements: Ensure that your financial statements are accurate and reflect the financial position of the company under accrual accounting. If necessary, make adjustments to the financial statements to ensure that they are accurate.

Monitor results: Monitor the results of the transition to accrual accounting and make any necessary adjustments. This may involve modifying procedures or making changes to the accounting software, having more regular leadership meetings to align on the meaning of financial reports, or bringing in a fractional CFO business advisor to help guide the leadership in their understanding of the numbers.

Seek professional guidance: Consider seeking the guidance of an outsourced accounting firm to ensure that the transition is successful and that the financial statements are accurate, relevant, and delivered in a timely fashion.

Transitioning from cash basis to accrual basis accounting can be a complex process, but it can provide infinitely greater insight into the financial performance and position of your company. By following the steps outlined above, a business can make the transition smoothly and effectively.

Call our expert outsourced accounting consultants today to see how we can help your business be efficient, effective and make smart decisions.

Outsourced vs. In-House Accounting

The decision of whether to outsource your accounting or keep it in-house is an important one whatever the size of your business. Did you know that most business owners rank their accountant as the #1 most important job to their success?

Accountants are entrusted with company financials and are responsible for sharing accurate and timely financial data with the leadership team to ensure that the decisions that are being made about the future of the company are based in reality, not just a “gut feel”. For those businesses that are in high-growth mode, those pivoting industry, reducing workforce size, or preparing for an acquisition, the need for accurate financial data and accounting services can jump to a high priority overnight.

At Signature Analytics, we want to make sure you have all the data you need to make the right decision for YOUR business. Let’s discuss the differences between and benefits of outsourced accounting services vs. in-house accounting hires.

There are pros and cons to both outsourcing and hiring in-house staff for accounting functions. Here’s a look at some of the key considerations.

The Pros of Outsourced Accounting Services:

Businesses today are increasingly turning to outsourced accounting leaders to help turn around a struggling business and/or enhance profitability for many different reasons.

Current revenue performance may be declining or stagnant quarter-over-quarter and year-over-year, signaling a dire situation if not addressed.

Current accounting technology and processes may not be driving desired results.

Disruptive market and/or industry competitors have changed the “rules of the game” and there is no CFO-level business advisory role in the company to conduct in-depth forecasting and scenario planning in this new environment.

The historically hands-on business owner or CEO no longer has the time or expertise to oversee critical changes in the accounting function.

From strategic direction to process changes to accounting team management. Bringing in an outsourced accounting partner can free the owner or CEO to concentrate on other aspects of the business, including providing visionary oversight of the larger organization.

Outsourced accounting teams bring an external perspective to add market-based clarity to the accounting department. With an outsourced accounting team, the business can gain essential expertise to strategically expand market influence.

Based on a strong track record of success in a variety of markets, an outsourced accounting partner can develop and implement new strategies and processes and introduce effective technologies that can update and upgrade the way you do business. An Outsourced CFO business advisor can make the tough decisions necessary to increase efficiency, control costs, and better align resources.

Outsourced accounting can save business owners money

Outsourced accounting can save business owners time and increase profitability and operational efficiency

When you bring in an outsourced team, they’re ready to go. You save time on training, and while there are time commitments to every outsourced relationship, mentoring, training, onboarding, and managing are removed from the hiring company’s to-do list.

An outsourced accounting team will have experience in many industries and may be able to provide efficient ways of addressing old problems. The fresh eyes of an outsourced team may call to light operational gaps or unseen drains on your profitability that can be addressed immediately.

Outsourced accounting increases access to greater skills and resources

When you hire an in-house accountant, you usually hire a single individual. When you outsource, you have access to an entire accounting team and their expertise. Your day-to-day accounting process from accounts payable and accounts receivable to month-end close and everything in between is handled by professionals with years of experience providing accurate relevant and timely numbers to businesses across industries. If you need a controller, we have controllers, if you need an accounting manager, that can also be accommodated. You’re not stuck with one person’s limited experience or skill-set.

Outsourced Accounting can reduce the likelihood of fraud

Research from Price Waterhouse Coopers PwC states that in 2022 46% of surveyed organizations reported experiencing fraud, corruption or other economic crimes in the last 24 months.

Moreover, private companies and small businesses were most often victims. Up to 42% of them fell victim to fraud, with median losses of $164,000. Claims of this size are quick to shut the doors of most small, and even mid-sized businesses.

But why does internal fraud occur more frequently with in-house accountants? Small businesses typically don’t have the same checks and balances in place that large enterprises do.

Small businesses falter when it comes to internal controls. Moreover, with just one person responsible, there is no room for correction.

The Cons of Outsourcing Your Accounting

With all the benefits that can be realized by outsourcing your company’s accounting team, why would a small to mid-sized business not want to implement this likely competitive advantage? Here are some possible reasons:

The business owner or leadership team wants to maintain full internal control amongst current staff (perhaps for a family-run business) – even if that means sacrificing potential benefits noted above.

Aspects of the business operation might be deemed confidential or sensitive to a level that rules out bringing in a fractional resource.
Current leaders want to remain “hands on” in running day-to-day company operations, even if they have little time to address the big-picture strategic direction.
Although outsourcing pricing is usually custom based on company needs, and includes a value proposition designed for near- and long-term ROI, the business might not be able to financially engage the services of a fractional Outsourced Accounting firm in the short-term.
The current company culture is in a fragile state and it is feared (rightly or wrongly) that bringing in an external resource will cause unwanted ripples.

Outsourcing is growing in popularity. Hiring an outsourced accounting service provider means your accounting team is not on-site 9 – 5 Monday through Friday… Then again, post-COVID, that model is fading away.

Accounting isn’t the only function that business owners are outsourcing.

In today’s ever-expanding “gig economy,” outsourcing entry-level tasks and job roles has become commonplace. But a growing number of organizations are exploring and adopting outsourcing for higher-level functions, too. Small to mid-sized organizations are increasingly outsourcing their non-essential functions – from marketing to IT to HR and of course, accounting – and finding success with this new paradigm.

Many aspects of your business can be outsourced. For example:

Outsourced Marketing Services
Outsourced Sales Teams
Outsourced IT Management
Outsourced Customer service (offshore, or onshore)
Outsourced Admins or Personal Assistants
Outsourced Shipping and Logistics Management

More and more businesses choose to outsource functions within their business to free up their own time, to unburden their existing staff, and access greater levels of experience so the leadership team can focus on what they do best: running their business.

Outsourced vs. In-House: What Option is Best for My Business?

At the end of the day, the decision between outsourced and in-house accounting is up to you as a business owner. It depends on you, your specific accounting needs, and your budget.

It’s more likely for large corporations to have their own accounting departments. Why? Because they have tight structures and very traditional internal controls. For more flexible businesses with modern business structures, outsourcing becomes a much more scalable model. For businesses that are getting aligned with the new world of work in which skill overrides geography and resources and flexibility are more important than strict control, the outsourced model is a veritable no-brainer.

The Bottom Line

Any business needs to weigh outsourcing’s advantages and disadvantages before taking that plunge. Nonetheless, the reasons for outsourcing can often outweigh the reasons against it. Certainly, for many businesses, having access to accurate financial data, accurate reporting, and scalable finance and accounting leadership can be the difference between long-term success and poor business decisions.

At Signature Analytics, we support our clients’ day-to-day accounting functions, including:

Invoicing
AR management
Bill processing
AP management
Forecasting
Reporting
Monthly close
And more…

Ready to get started with outsourcing your day to day accounting services? Talk to an expert today.

The Shrinking Accounting Profession

How technology & outsourcing can fill the void

The accounting profession in the United States is experiencing a significant decline, with a shortage of accountants and CPAs becoming a major concern. This shortage is compounded by the increasing number of accountants leaving their jobs at both corporations and audit firms*, as well as the declining number of accounting graduates.

According to the AICPA, the number of college graduates earning a bachelor’s or master’s degree in accounting has dropped by 4% since the onset of the COVID-19 pandemic. And the number of graduates sitting for the Uniform CPA Examination has dropped from 50,000 candidates in 2010 to 32,000 in 2021.

In addition to this, the baby boomers’ retirement is further exacerbating the situation, leaving fewer professionals to tackle more work that is increasingly complex. This combination of factors has created a perfect storm for the accounting profession, which is struggling to keep up with demand.

The SEC has expressed strong concerns about the shortage of accounting professionals, warning that it could lead to serious financial reporting deficiencies across U.S. businesses, both big and small. The shrinking accounting profession is becoming a critical issue that needs to be addressed, as it poses a significant risk to the financial stability of the country. Fortunately, with outsourced solutions and the improved accounting software and technology available, business owners have options beyond the traditional hiring of in-house staff to fill their accounting needs.

Outsourcing and Technology: A Perfect Match

Cloud-based accounting software allows accountants to access financial data from anywhere, making it easier for outsourced providers to work with clients remotely. This technology also allows for real-time financial reporting, which can help companies make more informed business decisions.

One solution to overcome the shortage of accounting professionals is to hire an outsourced accounting company that can implement technologies and software to streamline a business’s internal processes. In this regard, Signature Analytics provides a comprehensive solution that goes beyond project-based tax help.

Signature Analytics offers outsourced accounting solutions that include a Financial Intelligence Team specializing in putting the right people on an account, implementing the right technology to streamline processes, and generating accurate, relevant, and timely reporting. By leveraging technology and their team’s expertise, Signature Analytics can provide businesses with a cost-effective solution that improves efficiency and accuracy while freeing up time for internal staff to focus on other critical business activities.

With their expertise in various accounting areas, Signature Analytics can help businesses streamline their bookkeeping, monthly close, and financial reporting processes, leading to improved efficiency, cost savings, and higher profit margins. By leveraging their technology and expertise, businesses can overcome the challenges posed by the shrinking accounting profession while staying competitive in their respective industries.

Overall, hiring an outsourced accounting company like Signature Analytics can provide businesses with a comprehensive solution to overcome the challenges posed by the shortage of accounting professionals. By implementing the right technology and software and leveraging their team’s expertise, Signature Analytics can help businesses streamline their accounting processes, reduce costs, and improve their profit margins.

Top Accounting & Finance Technologies in 2023

Rippling: Rippling is the first way for businesses to manage all of their HR, IT, and Finance — payroll, benefits, expenses, corporate cards, computers, apps, and more — in one unified workforce platform.

Quickbooks: QuickBooks by Intuit is a well-known accounting software designed to help small to medium-sized businesses manage their finances. This easy-to-use software streamlines business tasks by offering templates for spreadsheets, invoices, and financial reports.

Ramp: Next-generation finance tools – from corporate cards and expense management, to bill payments and accounting integrations – designed to save businesses time and money with every click.

Netsuite: Netsuite is a cloud-based ERP software that includes accounting features. It is designed for medium-sized and large businesses and offers features such as financial management, inventory management, and order management.

Fathom: Fathom is a cloud-based financial analysis and management software that helps businesses to analyze and monitor their financial performance, create financial reports, and make data-driven decisions.

Bill: a leader in financial automation software for small and midsize businesses (SMBs). Hundreds of thousands of businesses trust BILL solutions to manage financial workflows, including payables, receivables, and spend and expense management.

Tipalti: Tipalti is a cloud-based payment automation software that helps businesses to manage and automate their accounts payable and payment processing operations.

Salesforce: Salesforce is a cloud-based customer relationship management (CRM) software that allows businesses to manage customer data, track sales leads, and create marketing campaigns.

Emburse: Emburse is the global leader in spend optimization with expense, travel management, purchasing and accounts payable, and payments solutions.

Stripe: Stripe is a cloud-based payment processing software that allows businesses to accept payments online, manage subscriptions, and run financial reports.

Asana: A project management tool. Asana helps teams orchestrate their work, from small projects to strategic initiatives.

The Upshot

In conclusion, the shortage of accounting professionals in the United States is a pressing issue that is being exacerbated by various factors such as declining numbers of accounting graduates, accountants leaving their jobs, and the retirement of baby boomers. However, businesses have options to fill this void through technology and outsourcing solutions.

Cloud-based accounting software, such as QuickBooks, Netsuite, and Fathom, allows for remote access to financial data and real-time reporting, making it easier for outsourced providers to work with clients efficiently. Outsourcing companies like Signature Analytics offer comprehensive solutions that combine the right technology with their team’s expertise to streamline businesses’ internal processes and generate accurate and timely financial reporting.

In addition to outsourcing, there are various accounting and finance technologies available, such as Rippling, Ramp, Bill, Tipalti, Salesforce, Emburse, Stripe, and Asana, that can help businesses manage their finances, automate processes, and optimize spend. These technologies can improve efficiency, reduce costs, and increase profit margins for businesses facing the challenges of the shrinking accounting profession.

In conclusion, by leveraging technology and outsourcing solutions, businesses can overcome the shortage of accounting professionals and stay competitive in their respective industries. The right combination of technology and outsourcing can fill the void and ensure that businesses have the necessary accounting support to thrive in today’s complex financial landscape.

How Profitable is Your Business… Really?

As a business owner, it’s essential to maximize your profitability. However, it’s easy to lose sight of the key financial metrics amidst the daily operations of growing your business. Achieving optimal profitability requires you to devote extensive time and effort to analyze financial metrics, and reports. Without proper reporting and analysis, you may have to rely on a bookkeeper or intuition alone, which could lead to missed opportunities for growth and profitability.

So as a business owner, how can you know how profitable your business really is? Let’s start with some key financial metrics business owners should consider for making informed decisions and how to use these metrics in a profitability analysis. Then, we will discuss common reasons for not seeing profit despite showing it on P&L statements, as well as ways to improve profitability with the help of an outsourced accounting team.

Key Metrics to Determine Profitability

Profitability analysis is a crucial component for any business endeavor as it provides critical insights into the financial health and performance of an organization. Here are some key profitability metrics that business owners can use to evaluate their company’s performance:

Gross profit margin: This is the percentage of revenue that remains after subtracting the cost of goods sold. It helps determine the amount of profit a company generates from its sales.

Net profit margin: This ratio measures the percentage of revenue that remains after deducting all expenses, including taxes and interest. This metric reflects the overall profitability of a business.

Return on investment (ROI): This metric evaluates how effectively a company uses its capital to generate profits. It is calculated by dividing the net profit by the total investment.

Let’s discuss how business owners can use these metrics to conduct a profitability analysis.

How Would a Business Owner Conduct a Step-by-step Profitability Analysis?

A business owner can conduct a profitability analysis by following these steps:

Gather financial information: Collect all relevant financial statements, including balance sheets, income statements, and cash flow statements.
Define profitability metrics: Identify the key profitability metrics that are relevant to the business, such as gross profit margin, net profit margin, and return on investment.
Calculate profitability metrics: Use financial information to calculate the relevant profitability metrics and compare the results to industry standards and past performance.
Analyze costs: Analyze the cost structure of the business and identify areas where costs can be reduced or eliminated.
Evaluate pricing strategy: Assess the effectiveness of the current pricing strategy and determine if adjustments are necessary to increase profitability.
Assess revenue streams: Evaluate the different revenue streams and the profitability of each individual revenue stream and identify opportunities for growth.
Review operations: Conduct a thorough review of the business operations and identify areas where improvements can be made to increase efficiency and reduce costs.
Make recommendations: Based on the findings from the profitability analysis, make recommendations for improving the financial performance of the business.
Implement changes: Implement the recommended changes and monitor the results to ensure that the desired improvements in profitability are achieved.

By conducting a profitability analysis, a business owner can gain a better understanding of the financial health of the business and take action to improve profitability.

Why Some Business Owners Aren’t Seeing Profits in the form of Cash Despite Showing Profits on P&L Statements

Running a business is challenging, and profitability is one of the most crucial aspects of any successful enterprise. However, some business owners find themselves struggling despite showing profits on their P&L statements. In particular, manufacturing businesses are susceptible to this issue. Although they might be profitable on paper, they can still be strapped for cash.

In this section, we’ll explore some of the reasons why business owners may not be seeing profits, even if their P&L statements say otherwise.

Too Much Inventory

Cash can be sitting on shelves in the form of inventory, impacting the timing of cash out versus cash in. This can significantly affect a business’s cash flow, especially in the manufacturing industry where there are costs up front to produce a product, but you can’t collect until you sell it.

Lines of Credit or Financing

When businesses face a shortage of cash flow due to inventory or manufacturing, they may turn to lines of credit or financing to cover their expenses. While this may seem like a viable solution, it can also lead to further problems. Lines of credit and financing often come with high interest rates and fees, which can add up and eat away at profits.

Bad Data

Inaccurate financial data can contribute to why some business owners may not see profits. Missing transactions or errors in financial reporting can lead to a skewed view of the company’s financial health. It may be difficult to detect such errors without proper checks and balances in place.

No Confidence in Accounts Receivable & Accounting Receivable Processes

Business owners should regularly review their AR aging to ensure they are collecting payments on time and efficiently. In addition, they need to be aware of any outstanding payables and ensure that they are not paying for the same expense twice. This can happen when a payment is made using a credit card, but accounting also enters the expense in AP, resulting in duplicate payments.

Questions Business Owners Can Ask Themselves to Improve Profitability

By reflecting on these questions and identifying areas for improvement, business owners can take steps to ensure the financial health of their enterprise.

Do You Have a Defined Monthly Close and Reporting Process?

Having a defined monthly close and reporting process is crucial for accurate financial reporting. Without a structured process, it becomes challenging to ensure that all financial transactions have been accounted for and that the reported numbers are reliable.

Supporting schedules are additional documents or reports that provide more detailed information about the financial transactions that have been recorded. These schedules are used to double-check the accuracy of the reported numbers in the financial statements.

By comparing the supporting schedules to the financial statements, any discrepancies or errors can be identified and corrected. This process ensures that the reported financial information is transparent and reliable, which is essential for making informed decisions.

By implementing a defined monthly close and reporting process, businesses can improve their financial accuracy and make better-informed decisions.

Are You Using Technology to Support Your Processes?

In today’s digital age, technology plays a critical role in business operations. From accounting software to project management tools, technology can help automate and streamline processes, improving efficiency and reducing costs. By leveraging the right technology solutions, businesses can gain a competitive advantage and improve profitability.

Do You Have Checks and Balances?

Checks and balances are vital for businesses to maintain financial integrity and prevent fraud. For example, separating duties between employees who handle financial transactions can reduce the risk of fraud. Additionally, implementing periodic analyses and reviews can help detect and prevent financial errors or discrepancies.

Do You Have the Right Reporting in Place to Gain a Comprehensive Understanding of Your Business?

To make informed decisions and improve profitability, business owners need to have accurate and up-to-date financial reporting. This includes regular financial statements, budgeting and forecasting reports, and key performance indicators (KPIs) to monitor business performance. By having access to the right information, business owners can make informed decisions and take proactive steps to improve profitability.

Are You Prepared For Bonuses and Unexpected Business Expenses?

Business owners should always be prepared for unexpected expenses and bonuses. Having a solid financial plan in place that accounts for unexpected expenses and bonuses can help ensure the business remains profitable and financially stable. This can involve setting aside reserves specifically for unexpected expenses and bonuses, and regularly reviewing financial reports to ensure that the business is on track to meet its goals.

Does Someone on Your Accounting Team Help You See the Whole Picture?

Running a business can be a busy and demanding task. Business owners are often focused on growth, serving clients, and managing employees, leaving little time for other tasks. That’s why having someone on the accounting team who has the complete picture and can provide insights is important.

How Could Hiring an Outsourced Accounting Team Improve Profitability?

Hiring an outsourced accounting team can improve profitability in several ways:

Improved accuracy: An outsourced accounting team has the expertise and resources to ensure that financial records are accurate and up-to-date. This can help to reduce errors, minimize the risk of fraud, and ensure that tax obligations are met.

Increased efficiency: An outsourced accounting team can automate many manual processes, reducing the time and effort required to manage financial operations. This can free up time for business owners to focus on core business activities, leading to increased efficiency.

Lower costs: Outsourced accounting services are often more cost-effective than hiring an in-house accounting team. Business owners can avoid the costs associated with recruiting, training, and compensating employees, while still benefiting from the expertise of a professional accounting team.

Enhanced financial analysis: An outsourced accounting team can provide business owners with more sophisticated financial analysis and reporting, including real-time financial dashboards, cash flow projections, and cost-benefit analysis. This information can help business owners make more informed decisions and improve profitability.

Scalability: An outsourced accounting team can be scaled up or down as the needs of the business change, allowing business owners to adjust their spending as necessary.

By outsourcing accounting functions, business owners can benefit from the expertise and resources of a professional accounting team, improving their financial management capabilities and ultimately contributing to increased profitability.

About Signature Analytics

Signature Analytics is the Smart Choice for business owners. With the support of our expert accounting and CFO Business Advisory services, your business can get to the

next level of profitability and operational efficiency.

Our assessments provide a deep dive into your existing accounting structures and processes and help us customize the right solution for your business. With those

insights, we then bring in the right outsourced team to get you the Accurate, Relevant, and Timely financials you need to run your business successfully. Contact our team of experts to learn more. Then, read on to learn more about the Six Best Practices for Financial Reporting and Analysis.

Nonprofit vs For Profit Accounting Structure

How to Map Your Accounting Team to Your Nonprofit vs For Profit Business Structure

Aligning the accounting team involves identifying the key accounting activities necessary to support your business model and then allocating resources to those areas. Financial and regulatory requirements vary between for-profit and nonprofit organizations. In this blog, we will delve deeper into how to align your accounting team with your business model, including an examination of the distinct characteristics of for-profit and nonprofit business models, their accounting structure, and reporting requirements.

For-profit businesses generally operate with the primary goal of generating profits for their owners or shareholders, while nonprofits are organized for a specific social cause or mission, and do not have owners who expect to earn a financial return on their investment. As a result, nonprofits often have a different revenue model and source of funding compared to for-profits. Let’s dive into the distinctive characteristics of each business model and explore how those differences impact best accounting practices.

What Is the Ideal Accounting Structure for a For-Profit Business Model?

The ideal accounting team and structure for a for-profit business model will depend on the size and complexity of the business. However, in general, a good accounting team and structure should have the following key roles and responsibilities:

Chief Financial Officer (CFO): This is the head of the Finance and Accounting Department and is responsible for overseeing all financial activities of the business. The CFO should have a strong background in accounting, finance, and business management.

Controller: The controller oversees the day-to-day accounting operations and reports to the CFO. They are responsible for maintaining the integrity of the company’s accounting records, including managing the month-end close process, preparing financial statements, and ensuring compliance with accounting regulations.

Accounting Manager: The accounting manager reports to the Controller and oversees staff who are responsible for managing the accounts payable and receivable, recording financial transactions, reconciling accounts, and preparing financial reports.

Staff Accountants: Staff accountants are responsible for recording financial transactions, reconciling accounts, and preparing financial reports.

Tax Specialist: The tax specialist should have expertise in tax laws and regulations and be responsible for preparing and filing tax returns, managing tax audits, and providing tax advice to the business. For most small and midsized companies, this function is outsourced to their Tax CPA

Financial Analyst: The financial analyst is responsible for analyzing financial data to help the business make informed decisions, such as forecasting future revenue, assessing the profitability of different projects, and analyzing financial trends.

The Ideal Reporting Structure for a For-Profit Business

The Ideal Reporting Structure for a For-Profit Business refers to the process of organizing and presenting financial information in a clear and accurate manner to support informed decision-making by stakeholders. For a service-based business, for example, it is important to track revenue by source, credits used to arrive at net revenue, and the cost of services provided.

Additionally, different profit centers, service lines, and geographic locations may require separate tracking for more effective financial management. Overhead costs, such as sales and marketing, general operations, rent, and administration, must be taken into account when determining sales, general, and administrative costs.

By properly tracking these expenses and revenue sources, a service-based business can ensure accurate financial reporting and decision-making. Ultimately, the ideal reporting structure for a for-profit business should support the overall accounting team structure and ensure compliance with financial reporting requirements.

Optimizing Accounting and Reporting Structures for Nonprofit Organizations

Nonprofit organizations can have business models that resemble for-profit businesses, such as generating revenue through fee-for-service programs or selling products. However, unlike for-profit businesses, the revenue generated is used to further the nonprofit’s mission rather than to provide financial returns to owners or shareholders. For example, the Girl Scouts of America’s $800 million in annual cookie sales helps fund their programs and activities.

What Is the Ideal Accounting Structure for a Nonprofit Organization?

The ideal accounting team for a nonprofit could include the following positions:

Chief Financial Officer (CFO): This senior executive is responsible for overall financial strategy and management, including financial planning and analysis, treasury, and risk management.

Fundraising Director*: The fundraising director is responsible for developing and implementing a comprehensive fundraising strategy that includes major gifts, planned giving, corporate sponsorships, and grant applications.

Grants Manager*: This person is responsible for managing the organization’s grant applications, reporting, and compliance with grant requirements.

Donor Relations Manager*: This person is responsible for managing the organization’s relationships with donors, including receipting, acknowledgment, and stewardship of gifts.

Controller: The controller oversees the day-to-day accounting operations and reports to the CFO. They are responsible for maintaining the integrity of the organization’s accounting records, including managing the month-end close process, preparing financial statements, and ensuring compliance with accounting regulations.

Staff Accountant: This person is responsible for maintaining the organization’s general ledger, including recording transactions and preparing financial statements.

Bookkeeper: This person is responsible for performing routine accounting tasks, such as data entry and reconciliation of bank statements.

*These special roles are not always on the accounting team – they collaborate with the accounting team to ensure that grants are accounted for correctly.

What is the Ideal Reporting Structure for a Nonprofit Organization?

The ideal reporting structure for a nonprofit organization is structured more around programs and their associated costs, as opposed to operational running expenses. In nonprofit accounting, any cost associated with a program is directly associated with how it contributes to fulfilling the organization’s mission, rather than generating profits.

An accounting ledger is a key component of a nonprofit organization’s accounting system and serves as the primary source of information for financial statements. The accounting ledger records all financial transactions, such as donations, grants, program expenses, fundraising expenses, and other financial activities of the nonprofit.

Nonprofits have different financial objectives compared to for-profit organizations, as their primary goal is to fulfill their mission rather than generate profits. Therefore, their accounting ledgers are structured differently to account for different types of financial transactions.

How Can Outsourced Accounting Teams Support Businesses Who Want to Align Their Accounting Team to Their Business Model?

Outsourced accounting teams can support businesses in aligning their accounting team to their business model by providing specialized expertise, resources, and technology that may not be available in-house. Some of the ways in which outsourced accounting teams can support businesses include:

Customization: Outsourced accounting teams can provide customized services to match the specific needs of the business, including the creation of a tailored accounting team structure that aligns with the business’s goals and objectives.

Scalability: Outsourced accounting teams can scale up or down as needed, providing the business with the resources it needs when it needs them, without the need for a long-term commitment or investment in new hires.

Access to technology: Outsourced accounting teams often have access to the latest accounting software and technology, enabling them to provide efficient and accurate services to the business.

Expertise: Outsourced accounting teams often have a deep pool of specialized expertise, including certified public accountants (CPAs) and other financial professionals, who can provide guidance and support on complex accounting and financial issues.

Cost savings: Outsourced accounting teams can provide cost savings compared to hiring in-house staff, as the business does not need to invest in salaries, benefits, and other employment-related expenses.

About Signature Analytics

Contact our team of experts to learn more. Then, read on to learn more about How Outsourced Accounting Supports Non-Profit Annual Audits.

How to weather-proof your business for a possible recession

The economic downturn is here, and with it comes the possibility of a recession. While it’s impossible to predict exactly what the future holds, it’s important for businesses to take steps to weather-proof their operations in order to prepare for the worst. While there’s no one-size-fits-all approach, there are certain steps that business owners can take to ensure their business is resilient should a recession occur. In this article, we’ll explore some of the most important steps that businesses can take to weather-proof their operations and processes to have a stronger base to support their success in the face of economic uncertainty.

“It all has to tie back to a budget and then to the cash flows of your business. When you are clear on that, it gives you the confidence to operate effectively, and understand the impact of different scenarios.”

-Jason Kruger, Founder Signature Analytics

The Signature Analytics team tackles the possibility of a recession

As business owners ourselves, we sat down to talk through some strategies and tactics that business owners can take to reduce costs, make smart and strategic moves, and, weather-proof their businesses in these times of economic fluctuations. Here are some excerpts from our conversation (edited for fluidity and context).

For many businesses the ill effects of COVID have receded, freight costs are coming back down to a manageable level, and the costs of raw materials are also coming back down. With these reductions in costs, there are choices to be made. You can keep those increased margins knowing that times may get leaner in the fairly near future, or you can pass those cost-cuts on to your customers in hopes of driving more business and increasing revenues. Each of these strategies has its merits, you really have to dig into your numbers to make the call that’s right for your business and your industry.

To make that call and many others we dig into here you’ll have to have accurate financial reporting – it’s what we do best so it’s where we think all smart business decisions start.

“Business owners need to really invest in scenario planning, what happens if revenue is 10% below what we think? It can happen. You have to understand your variable versus your fixed cost. I suggest you take a long look at ways to reduce some of your fixed costs.”

-Pete Heald, CEO Signature Analytics

Compensation costs are holding steady

There’s one area where costs are not coming down, nor will they anytime soon, and those are compensation costs. The minimum wage keeps rising and the unemployment rate is still at historic lows despite the flurry of cuts at the largest tech giants. No one is taking a pay cut just because the world has opened back up and supply chains are moving again. If your business is hiring new people right now and you’ve adopted a hybrid or remote work model, there are some interesting decisions to be made in terms of where you source your people and how you compensate them.

Here in Southern CA, the unemployment rate is 2.5% and if you’re hiring a brand new college grad, you’re paying a premium in many industries. If however, you are open to remote employees, it opens things up quite a bit. It means you can hire anywhere which can bring big changes to comp structures and benefits structures.

As you’re looking at your margins and spending across the board, don’t forget to take the time to audit those employee benefits. You want to be sure that the benefits you offer are doing the job they’re meant to do: attract and retain great people.

When we audited our work environment and employee benefits we discovered that the majority of our staff preferred to work remotely. That opened up the option of reducing our real estate costs while providing a hybrid remote-first work environment that works for us, for our margins, for our culture, and for our clients.

Re-examine your debt and get a good banker

Another area in which business owners can take action to reduce costs and prepare for the possibility of interest rates continuing to go up is by re-examining their loans. If you don’t have a good relationship with your banker, build one. A banker should be your ally. If you do have challenging quarters (or years) having a banker on your side is beyond helpful.

Take a look at any variable-rate loans your business has and see if you can refinance at a fixed rate. Some SBA loans which started with very low-interest rates (around 5.75%) are already up to 10.5% and could go as high as 12% in 2023. Consider the term of that fixed rate however, ask “where do I think rates will be in 2 or 3 years?”

The key to a good banking relationship for your business is communication. A good banker will be a resource throughout the life of your business if you are transparent with them and share your financial reporting. The truth is: they’re going to find out if you’re having financial troubles. It is better to share your financial statements with them early and help them be an advocate for you. Your banker will have resources and insights to share. If you keep your banker in the dark it creates concern about what else might be going on that you aren’t sharing with the bank. That concern could create an adversarial relationship that neither of you wants.

John Harelson at Endeavor Business Bank says:

I care about every one of our clients and I hope they think of me as a resource and an ally. When business owners come to me with financial challenges I’m eager to help. Depending on the issue they are facing, I can provide introductions to trusted connections for a wide variety of business challenges too. I have introduced organizational change consultants, HR, legal services, or, in the case of Signature Analytics, great financial management, and outsourced accounting. I want all our banking clients to do well. It’s why I do what I do.

Most loans have financial statement reporting requirements as well as metrics and behaviors built into the loan covenants. Those requirements are very important to your banking relationship. Always know what metrics and behaviors need to be met, reporting any violations as soon as possible will help ease the concerns of your bank that you are on top of it. Bring a partner like Signature Analytics in so your accounting department isn’t racing against the clock and get those financial statements and compliance data to the bank on time.

How can nonprofits prepare for a recession?

We’ve been working with the Trevor Project and a number of larger nonprofits for years. When NFPs are doing financial scenario planning in a down economy, they have to plan for the likelihood that fundraising may decrease. 2023 fundraising may not be at the same levels as 2022.

The challenge for many nonprofits is that just when people are tightening their belts and less likely to give, that’s when their services are needed the most. Saving money on operational costs is essential. Outsourcing non-core functions – HR, Accounting, and Marketing can be a way to reduce those operational costs. Outsourcing can provide on-demand expertise and increase efficiencies at a flexible cost that will be able to scale up and down.

Risks that outsourcing can address (mini-case stories)

Scaling up (or down) based on immediate needs:

We just started working with a company that had a part-time controller for years. That one person couldn’t scale up when they had a huge influx of business and that was just the time they didn’t have time to onboard new employees. Outsourcing with a reputable partner means they can scale up (and down) quickly based on immediate needs. For this client: we came in and got all the systems and processes in place, set up their day-to-day accounting and provided those services, and stepped in in that controller role to keep the finances running at full speed even as their business grew at a rapid pace.

Losing a key person:

With unemployment so low, recruiters are pulling staff from one company to another with regularity. Having an outsourced solution protects you if you lose a key person. Without someone to fill in and without clearly documented SOPs you can find yourself running blind. That person that left might have been doing invoicing and processing payroll, key functions that take time to teach. It’s easy to put too much reliance on one person especially if you are running lean. The loss of a key accounting person can mean that a business can’t collect its invoices in a timely manner which puts real stress on a business.

We’ve recently stepped in and filled a leadership role in a prominent NFP while also providing accounting help in the day-to-day side of their financial operations.

Our Partner Satpal Nagpal at GHJ shared some insights with us about the value of reliable financials for both nonprofits and for-profit companies.

These are excerpts from our conversation:

These are uncertain economic times. There are conflicting signals of a recession, will it be mild, or deep? When we see external uncertainties like this we feel it is even more important to control those things that are controllable. You don’t want to layer on an element of uncertainty in your decision-making because of unreliable financials. Making sure you have a solid foundation you can trust with accurate reporting, reliable bookkeeping, and accounting services will provide you with the right data to make predictions you can trust.

Because of the level of uncertainty out there in the financial landscape, businesses should be engaging in scenario planning for whatever comes their way. What will you adjust if the recession is mild vs deep, where will you cut back or what levels will you manipulate? These scenarios must be built on the backbone of good financials. And an audit of your financial statements can set you up to make better business decisions.

The fact is, in a tight fiscal environment, lenders and other financial institutions look at businesses’ financials with a sharper eye, and you don’t want to be caught off guard. For example: Nonprofits received funding from a lot of sources over the last 3 years [due to the pandemic and other factors]. As that money came in, the criteria for how it was to be spent and what oversight was going to be put in place was unclear. In my opinion, that’s about to change. And when it does, having a good process of internal financial controls and compliance will make the process of audits and compliance much more straightforward.

Making sure your business records are up to date and working with a strong team like GHJ to provide audits ensures that everything is in order when the regulators request information.

What business owners and nonprofits may not realize is that you can’t go into an audit unprepared. Audit preparation is a process that takes time and collaboration.

At GHJ, we build collaborative relationships to provide information to our clients, whether it’s benchmarking or best practices, or critical information on internal controls. That’s where our collaboration with Signature Analytics makes us very successful. That relationship provides business owners with a strong and reliable financial foundation and the audits to prove that their accounting andn finance departments are being managed with impeccable accuracy.

Maybe the most important piece of advice is to challenge your assumptions.

All the cost-controls and auditing we’ve been talking about has to tie back to your strategic budget for it to be implemented in a smart way. To weather-proof your business for a recession the number one step is to make sure you have really solid financials. Start with scenario planning, look at your debt, analyze what is variable vs fixed, and think about that business banking relationship. If you’re in a good place, take out a Line of Credit now. If you have one, extend it. If you wait until times are tough you may no longer qualify for the level of funding you qualify for now. Don’t assume your SBA rates are the only good rates out there, different lenders have different risk profiles.

Challenge your own rates and prices. Have you increased your rates to keep up? The narrative right now is that we all have to accept the rising cost of goods & services. But with a potential recession, the opportunity to increase prices may be coming to an end – if a recession hits, that opportunity to raise prices will be lost. So get clear on your margins, overhead, utilization rates, and cost controls and increase your prices now.

Places you may be inefficient and can make smarter business decisions:

Look at your tech stack and make sure the technology you contracted to use years ago is still the best. Maybe you can move to a new system for less – you know you’re not getting those deals from year one anymore.
Audit your real estate needs. We did. We realized our staff wanted to be remote – or hybrid and we chose to meet that need for our staff and at the same time reduce major overhead costs in our real estate expenditure.
Challenge your assumptions about compensation and benefits. The right comp structures will attract the best people who align with your company culture.
Audit your income statements
Clean up your aging AR
Examine those loans, and make sure you’ve got the best rates.
Look at the various investments you are making in your business – re-allocating certain funds in down economies can be a wise move (just don’t get reactive!)
Check employee utilization rates and org structures for inefficiencies.

All of these discussions have to come back to your strategic budget, and good financials. For us, that’s at the heart of good business decisions. It’s why we do what we do. We help business owners make smart business decisions.

If you have a topic you’d like us to do a deep dive on: send us a message, we’d love to hear from you.

How Outsourced Accounting Supports Non-Profit Annual Audits

Read the Case Study of How We Work with San Diego Rescue Mission here:

The regulations a nonprofit organization must adhere to can be daunting. Even the most robust accounting department is intimidated by the looming specter of an audit. In the world of nonprofits, where keeping operational costs low is a priority in service of the greater good, and accounting departments are often running very lean, audits can be extremely taxing on an internal accounting department.

At Signature Analytics, we pride ourselves on the work we do supporting midsized and larger non-profit organizations across the country. We have deep expertise in the financial statement preparation necessary for nonprofits to successfully pass their annual audit.

There are a number of situations in which outsourced services and their inherent flexibility can be of particular service. For example, if your nonprofit has had a sudden influx of donations, if your organization has grown rapidly, or if you have lost key people, or had to scale down quickly, access to flexible outsourced accounting services with an expertise in the world of nonprofits might be the right solution for your organization.

There are major areas of vulnerability for a nonprofit including

Outdated technology which leads to manual and time-consuming processes
Lack of internal controls that can cause discrepancies in financial statements
No single source of truth for financial data
Vacant finance and accounting leadership roles

Passing an annual audit is essential to the longevity of your mission and to the impact you can create. At Signature Analytics, we are dedicated to supporting nonprofits as they navigate upgrades to their technology and improvements to their financial management because we know that with better financial management, your mission can thrive.

Talk to An Expert

What are the requirements for a nonprofit to pass its annual financial statement audit?

In order to pass their annual financial statement audit, a nonprofit must provide evidence that their financial statements are accurate and meet the standards set forth by Generally Accepted Accounting Principles (GAAP). This includes providing a full and complete set of financial statements, including a statement of financial position (balance sheet), statement of activities (income statement), statement of cash flows, statement of changes in net assets, and statement of functional expenses. The nonprofit must also provide supporting documentation, including general ledger accounts, contracts, bank statements, and other records. Additionally, the nonprofit must be able to demonstrate that they have internal controls in place to properly mitigate risk and that they are in compliance with all applicable laws and regulations.

What are the challenges nonprofits face in preparing for their annual financial statement audits?

Nonprofits face a variety of challenges in preparing for their annual financial statement audits. These include: ensuring they have accurate financial records that are prepared in accordance with Generally Accepted Accounting Principles (GAAP), collecting and organizing the necessary supporting documentation, and having the necessary internal controls in place to properly mitigate risk and ensure compliance with all applicable laws and regulations. Additionally, nonprofits must ensure that they are able to provide evidence to support the accuracy of their financial statements and adequately address any discrepancies or irregularities that may be found during the audit process. Finally, nonprofits must ensure that they have the necessary resources and personnel available to conduct the audit in an accurate and timely manner.

Nonprofits are often understaffed in an attempt to keep administrative costs low for their 990 reporting. This can lead to high stress or burnout. On top of the constraints of staffing, technology is notoriously lagging in nonprofits making processes time-consuming and manual. Under these circumstances, it is not surprising that accounting staff struggle to meet the expectations of an increasingly sophisticated and demanding Board of Directors.

Audits can strain an internal accounting department by requesting specific reporting and 990 preparation expertise. Using an outsourced partner can help by improving internal controls, standardizing and documenting processes and recommending technologies to improve manual processes.

Who can prepare financial statements for a nonprofit financial statement audit?

A CPA has to audit the financials for a nonprofit financial statement audit however, that CPA cannot prepare the statements being audited as that would be a conflict of interest. The financial statements including the Statement of Activities, Statement of Financial Position, and all related financial reporting must be prepared by a separate entity and presented to the auditing CPA for their review. Often, nonprofits think they can take on this task of financial statement preparation but do not realize the intense scrutiny that their financials undergo in the audit process.

What are some of the requested amendments that Financial Statement Audits return?

Unrecorded Liabilities: Auditors may identify unrecorded liabilities that should be recognized in the financial statements.
Unrecorded Assets: Auditors may identify unrecorded assets that should be recognized in the financial statements.
Off-Balance Sheet Obligations: Auditors may identify potential off-balance sheet obligations that should be disclosed.
Improper Accounting Treatment: Auditors may identify improper accounting treatments and suggest appropriate changes.
Misclassification of Expenses: Auditors may identify misclassifications of expenses, suggesting changes to ensure accuracy.
Unsupported Transactions: Auditors may identify unsupported transactions, suggesting appropriate support documentation.
Uncorrected Errors: Auditors may identify errors that have not been corrected, suggesting changes to ensure accuracy.

READ THE CASE STORY OF HOW WE SUPPORT A LARGE NATIONAL NFP HERE

What are the consequences of failing a financial statement audit?

The consequences of a failed financial statement audit for a nonprofit can be serious. It could lead to a loss of funding or donations, increased scrutiny from regulators, or even criminal charges. It could also lead to a loss of public trust and confidence, which could be difficult to regain. Additionally, the organization’s reputation may suffer, leading to fewer volunteers and donors. Lastly, it could lead to the organization being unable to obtain financing or loans or losing its 501c3 status.

Watchdog organizations keep careful tabs on the results of annual audits and report the results. The advantage to this is that when you pass your audit and get excellent reports those reports are published, helping guide donors to your nonprofit.

What updates or new requirements must Nonprofits comply with in 2023?

New Pronouncement requirements from FASB are a constant source of accounting department stress. The requirements can easily creep up on a nonprofit. Many NFP accounting teams don’t know how to implement these requirements but they are a required part of GAAP. One example is ASC 842 for Leases:

FASB ASC Topic 842, Leases is a new accounting standard that requires organizations to recognize leases on their balance sheets. This means that nonprofit accounting departments will need to identify all leases they have entered into and determine whether they meet the definition of a lease under the new standard. If they do, the nonprofit must record the lease liability and right-of-use asset on their balance sheet, and also disclose additional information in their financial statements. This will impact how nonprofits report on their financial statements and require additional processes and controls to ensure proper tracking and reporting of leases. Nonprofit accounting departments will need to ensure they have the proper systems and processes in place to comply with the new standard and accurately report their lease obligations.

There are several other FASB (Financial Accounting Standards Board) Pronouncements that have specific (and often challenging) requirements for nonprofits. Some of the key pronouncements include:

FASB ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The Update is expected to increase transparency around contributed nonfinancial assets (also known as “gifts-in-kind”) received by not-for-profit (NFP) organizations, including transparency on how those assets are used and how they are valued. These amendments should be applied on a retrospective basis and are effective for annual periods beginning after June 15, 2021, and interim periods with annual periods beginning after June 15, 2022.

FASB ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities: This pronouncement provides guidance on how nonprofit organizations should present their financial statements, including new reporting requirements related to net asset classifications, liquidity, functional expenses, and investment returns.

FASB ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made: This standard provides updated guidance on how nonprofits should account for contributions they receive and contributions they make. It clarifies the definition of a contribution, provides guidance on how to distinguish between contributions and exchange transactions, and provides additional guidance on how to account for conditional contributions.

FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606): This standard outlines the requirements for how nonprofits should recognize revenue from contracts with customers. It establishes a five-step process for revenue recognition, including identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price, and recognizing revenue as the performance obligations are fulfilled. NFPs regularly make errors implementing ASC 606. For example, many NFPs record grant revenue when the cash is received instead of upon award.

FASB ASU 2016-02, Leases (Topic 842): This standard, as mentioned above, requires organizations to recognize leases on their balance sheets. Nonprofits are required to comply with this standard just like any other organization.

These pronouncements all have significant impacts on nonprofit accounting departments and require careful consideration and planning to ensure compliance. Nonprofits need to understand the implications of these pronouncements on their organization. Here at Signature Analytics, we recognize the additional burden these new pronouncements place on an already stretched accounting team and we are here to help.

How does Signature Analytics help nonprofits in audit preparation, day-to-day accounting, and beyond?

We partner with nonprofits and act as a member of the internal team. It is our privilege to serve our nonprofit clients and support their missions by providing the kind of accurate and trustworthy reporting that gives their Boards of Directors confidence in the way the organization is being run. Our long history with nonprofits speaks to the commitment we have and the relationships we build with our NFP partners.

We build Standard Operating Procedures for everything we do so that you have visibility into the processes that make your accounting work. We have the depth of expertise and financial sophistication to address all levels of concerns from a savvy Board of Directors. Our reporting is clear and precise, supporting your requirements around 990 preparation and Financial Statement Audits so you have the reliable financial information to proceed seamlessly through those requirements. We support your grant preparation, writing, and reporting by providing accurate and timely financial information.

Because of our commitment to the success of each of our non-profit clients, we support many nonprofits beyond financial statement audits. In fact, we regularly engage with our NFP clients for ongoing day-to-day accounting support after our initial audit help. We take the stress out of nonprofit accounting across California and across the US.

If your nonprofit is falling behind on audits, if your Board is requesting a level of reporting that is causing your in-house accounting staff to be burned out or over-stressed, if you need accurate financials to make smart decisions… Please reach out. We are here to support your mission with reliable outsourced accounting support.

The Six Best Practices for Financial Reporting and Analysis

Financial reporting is an essential process for businesses of all sizes. By tracking, analyzing, and reporting a business’ results, the key stakeholders can make smart decisions about how to manage their business, including allocating resources and managing cash flow.

“Financial Reporting” is a broad term that encompasses a number of different types of documents, including a company’s financial statements. To put it simply, all financial statements are considered financial reports, but not all financial reports are financial statements.

In this article, we will delve into the best practices for financial reporting and analysis, and how companies can shift from a reactive to a proactive approach. Additionally, we will explore the crucial role of budgeting and strategic planning in achieving financial success and staying on track with business goals.

What is Financial Reporting and Analysis?

Financial reporting and analysis is the practice of gathering and evaluating financial data to assess a business’ performance. This process provides insight into a company’s revenue, expenses, assets, liabilities, and equity. Financial reports offer a comprehensive view of a business’ financial health, enabling decision-makers to address the health and progress of the business.

What Does Financial Reporting Include?

Financial reporting typically includes:

Monthly, Quarterly, and Annual Reports, which include the income statement, balance sheet, and cash flow statement. These financial reports provide an overview of an organization’s financial performance over a specified timeframe.

A/R and A/P Reports, which contain data about invoicing and accounts payable including aging (how long you are taking to collect revenue or pay vendors). These reports can include metrics and KPIs.

Periodic Analysis. It is important to do periodic deep dives into your operations. This may include inventory audits, gross margin and/or gross profit analysis (by market, product, service line, etc.), compensation analysis, headcount analysis, or utilization analysis.

Let’s take a look at how business owners can improve their financial reporting process.

The Best Practices For Financial Reporting and Analysis

1.Know The Financial Reports That Are Essential to Your Business

For many business owners, it can be overwhelming to know which financial reports to focus on. Additional volume of reporting does not equal improved understanding. Getting a 50-page financial report does little to help a busy executive understand their business. So, let’s break down the most important financial reports that every business owner or CEO should be aware of, and how they can help you make smarter decisions for your company’s growth and success.

The five most important and commonly referenced financial reports are:

Income statement
Balance sheet
Statement of cash flows
AR aging report
Budget vs actual

Income Statement

Balance Sheet

Statement of Cash Flows

A statement of cash flows is a financial statement that provides information about a company’s cash inflows and outflows over a specific period of time, typically a month or a quarter. The statement of cash flows is used to understand how a company is generating and using cash, which is critical for its short-term liquidity and financial stability.

AR Aging Report

The aging report is used to manage the accounts receivable process and to assess the risk of bad debt. By analyzing the aging report, a company can identify which customers are paying on time and which ones are falling behind, allowing it to take appropriate action to improve cash flow and reduce the risk of bad debt.

Budget vs Actual

Budget versus actual reporting typically includes the following elements:

Budget or planned results: This is the amount of revenue, expenses, and other financial results that the company planned to achieve during a specific period of time.
Actual results: This is the actual amount of revenue, expenses, and other financial results that the company achieved during the same period of time as the budget.
Variance analysis: This is the process of comparing the budgeted or planned results to the actual results to identify variances and analyze the causes of these variances. Variance analysis helps the company understand why its results were different from its expectations and provides information for making adjustments and improvements.

Budget versus actual reporting is an important management tool for monitoring the financial performance of a company and making informed decisions about budgeting, forecasting, and resource allocation. By analyzing budget variances, a company can identify trends, improve planning and budgeting processes, and make informed decisions to improve its financial results. Together, these financial reports are essential for managing the business.

Ensuring that the data from financial reports is accurate is essential for business owners to make smart decisions about the direction of the company. If financial reports are not providing actionable insights, companies like Signature Analytics can help to determine what needs to be improved in accounting and financial reporting.

2.Implement GAAP Accounting Principles

GAAP stands for Generally Accepted Accounting Principles. It is a set of guidelines and rules widely used as a framework for financial reporting in the United States, providing a common set of standards for entities to prepare and present their financial information in a consistent and transparent manner. These principles are established by the Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA).

GAAP accounting principles include:

Historical cost principle: Assets and liabilities are recorded at their original cost.
Full disclosure principle: All relevant and material information should be disclosed in the financial statements.
Matching principle: Expenses should be matched with revenues in the period in which they were incurred.
Revenue recognition principle: Revenue should be recognized when earned, regardless of when payment is received.
Objectivity principle: Financial statements should be based on objective evidence.
Consistency principle: Companies should use the same accounting methods from one period to the next.
Conservatism principle: In case of uncertainty, the financial statement should reflect the worst-case scenario.
Materiality principle: Only information that is significant enough to affect the decisions of users should be included in the financial statements.
Fair presentation principle: Financial statements should be presented in a way that is not misleading.
Cost-benefit principle: The benefits of providing information should outweigh the costs.

By following these principles, GAAP aims to ensure that financial statements are consistent, comparable, and reliable, which can help users make smarter decisions about the financial health of a company.

The process of managing financial reports is not easy for most small and mid-size business owners – especially when it’s necessary to do it accurately on a consistent basis. If you need assistance in managing financial statements to ensure they adhere to GAAP, contact us today.

3. Follow the Four C’s of Good Data

Another best practice for financial reporting is to ensure that the data used for reports is accurate and timely. This means that the data is correct, current, complete, and consistent (the 4 c’s). By ensuring that the data meets the 4 c’s, businesses can ensure that their financial reports are reliable, which can increase credibility and trust among stakeholders. Furthermore, errors and inaccuracies in financial reports can lead to poor decision-making and costly mistakes.

It is essential to have a process in place to verify and validate data before it is used in financial reports. This can be accomplished by implementing a data governance framework, which includes data quality checks, data audits, and data validation. This process will help to ensure that the data is accurate, complete, and consistent, and will help to improve the overall quality of financial reporting.

Use of technology to streamline the reporting process

By using technology to streamline the financial reporting process, companies can improve the 4 c’s of their financial reporting. A company can use technology to streamline the financial reporting process in the following ways:

Automate data collection and entry: Using financial management software to automate the collection and entry of financial data can reduce the risk of errors and save time.
Real-time reporting: Advanced technology solutions can provide real-time financial reporting, allowing companies to make informed decisions quickly.
Data visualization: Technology can help companies present financial data in a clear and visually appealing way, making it easier to understand and analyze.
Cloud-based solutions: Cloud-based financial management systems allow for secure access to financial data from any location on various devises, making it easier for teams to collaborate and share information.
Integration with other systems: Integrating financial reporting systems with other business systems, such as sales and purchasing systems, can provide a more comprehensive view of the company’s financial position and reduce double entry. Again reducing the risk of errors and saving time.

Keep Processes Simple and Consistent

By reducing process complexity, businesses can improve the 4 c’s of their financial reports, which ultimately helps to make informed decisions about the financial health of the business.

Processes should be documented to ensure consistency, understanding, and efficiency. Documenting processes provides a clear and consistent understanding of how tasks are to be performed, reducing the likelihood of misunderstandings and errors. Once processes are documented, then a company can move to process improvement.

Process improvement is an important best practice for financial reporting. A complex process can lead to errors and delays, making it difficult to produce accurate and timely financial reports. To reduce process complexity, businesses can take several steps such as simplifying the data collection and analysis process.

This can be done by reviewing the current process, identifying areas of inefficiency, and simplifying or eliminating those steps.

4. Establish Monitoring and Reporting Frequency to Ensure Accurate and Useful Financial Reports

Accounting management establishes a consistent monitoring and reporting frequency for accurate financial reporting. This includes setting regular intervals for recording financial transactions, such as daily or weekly, and for compiling and analyzing financial data, such as monthly or quarterly. By doing so, business owners can have confidence that their financial records are accurate and up to date, which in turn allows for more effective decision-making and forecasting.

Additionally, setting a regular reporting frequency helps to identify trends and patterns in financial performance, and can aid in identifying potential issues or areas for improvement.

5. Implement Performance Analysis and Benchmarking

Performance analysis is the process of evaluating the performance of an organization, business unit, product, etc. The goal of performance analysis is to identify areas of strength and weakness and to understand how performance can be improved. Performance analysis typically involves gathering data, analyzing the data, and presenting the results in a meaningful way.

Benchmarking, on the other hand, is the process of comparing the performance of an organization, business unit, product, etc. against standards of excellence or best practices within the industry. Benchmarking provides a way to measure performance against a standard, and to identify areas where improvements can be made. Benchmarking can be used to evaluate a variety of factors, including cost, quality, productivity, and customer satisfaction.

Performance analysis and benchmarking are often used together to provide a comprehensive view of performance and to identify areas for improvement. By comparing performance against industry standards and best practices, companies can make informed decisions about their operations and strategy, and improve their overall performance.

In addition, regular performance analysis and benchmarking allows companies to monitor their progress over time, making it easier to track their performance and identify areas where they need to improve. This leads to increased accountability within the organization.

6. Create Clear Summaries and Explanations

For busy company leaders, it is important that the financial reports that are received provide valuable insights that aid in decision-making. Creating clear summaries and financial analysis is essential for financial reporting. Accounting and financial leadership should present the most important data in a simple and direct way, using clear and concise language, providing summaries at the start of the report, and using charts, tables, and graphs to present key data.

It is also important for accounting and financial leadership to explain any data or figures in the report to help company leaders understand the context and significance of the information. This way, stakeholders can understand and use the financial reports effectively, which helps in making informed decisions about the financial health of the business.

In Summary

Financial reporting and analysis is a crucial process for businesses of all sizes to track, analyze, and report their financial performance. By understanding the importance of budgeting and strategic planning, as well as the key financial reports and statements, business owners can shift from a reactive to a proactive approach and make informed decisions about managing the business.

About Signature Analytics

Signature Analytics is the smart choice for business owners. With the support of our outsourced accounting and CFO Business Advisory services, your business can make smarter decisions based on accurate data.

We customize the right solution for your business to get you the Accurate, Relevant, and Timely (ART) financials you need to run your business successfully. Contact our team of experts for expert accounting and financial analysis.

The Benefits of Outsourced CFO Services

eGuide: What Business Should Expect From Their Accounting Department

According to Price Waterhouse Cooper’s 2022 survey, “Outsourcing is delivering results. A large majority of customers (87%) say that today’s outsourcing delivers the benefits projected in the original business case, whether partly or completely”

Additionally:

“Many respondents (53%) indicated they outsource activities that they consider to be ‘core’. For example, in the finance function, this could be a move from outsourcing payroll and accounts payable towards seeking assistance with budgeting, forecasting and management reporting.”

It takes a wide variety of specialties and skills to run all types of businesses, and outsourcing some of these roles can provide a depth of expertise and breadth of experience that would be otherwise unattainable. Either unattainable because of cost concerns, or because of the tight labor market.

What should I expect from Outsourced CFO Services?

Saving money is not the primary benefit of hiring an outsourced CFO and accounting partner, though it is a nice side effect. Many companies who are facing financial challenges cut back on hiring higher-level finance leadership roles (like an in-house CFO) just at the time when those insights and guidance are needed the most.

According to PwC’s 2022 Pulse Survey, “Labor costs will have the strongest impact on corporate margins in 2022. Changing processes to reduce reliance on employees, allowing permanent relocation outside of corporate offices and outsourcing are all part of the strategy to reduce costs.”

Leveraging outsourced chief financial officer (CFO) services can save your business more than you invest through the financial, operational, and strategic insights they bring to the table. As an active part of your leadership team, your outsourced CFO partner can help business owners and CEOs drive greater profitability and business growth through full service consulting firm services. They will also help you make decisions based on accurate data, future projections, and financial expertise.

In addition to the flexibility and insights an outsourced CFO solution can bring, a fresh set of eyes can illuminate areas of inefficiency that have become so much a part of the fabric of the day to day operations of an accounting department that they go unnoticed.

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 strategic planning, and the goals of the business. A company’s size can also have a significant influence on the CFO’s role.

The Importance of Forward-Looking Financial Analysis

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

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:

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.

If your company is struggling with cash flow issues, there may be hidden inefficiencies, accounting practices, and operational issues that can be addressed by a CFO who looks at the big picture

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 and financial reports. They should also be monitoring budgeted versus actual results on a quarterly or monthly basis and reforecasting accordingly.

The fresh perspective of outsourced contract CFO services can provide high-level strategic guidance to optimize revenue growth in new and exciting ways.

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 projections and goals of the company.

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.

Finding one source of truth and ensuring that the data driving financial statements and reporting are accurate, relevant, and timely is essential to the function of an outsourced CFO.

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.

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 using key performance indicators. The information should illustrate trends to visualize projections so the data can help drive business decisions.

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 company’s performance.

If your company is planning for an exit, an outsourced CFO can help you present your company’s finances to get the best possible valuation.

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.

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

Technology Streamlining or Upgrades:

Finding the most efficient tools can streamline reporting and internal processes and reduce wasted hours in your accounting department.

What to Expect from an Outsourced CFO:

While some accounting departments worry that an outsourced CFO will come in to be a hatchet person, that is rarely the case. To be successful, an outsourced CFO services company will work closely with the CEO or business owner and leadership team to align on goals and then share those goals with the accounting and finance service departments to make sure that the financial and accounting functions are aligned in supporting the business goals. .

Outsourced CFOs are advocates and allies, not adversaries. The added burden of being asked to conduct an audit, or to make strategic decisions and provide finance insights to a BOD or new CEO can overwhelm an otherwise functional accounting team. When you work with a high-level finance and business advisor they can put the right processes and procedures in place to avoid overburdening the existing team. Additionally, an outsourced CFO can see areas in which technology can help streamline processes to free accounting staff to do what they do best.

An outsourced CFO can help the existing leadership by serving as a finance and accounting coach to the CEO providing financial expertise and future-facing guidance for the organization.

When is the best time to bring on an outsourced CFO?

The best time to try outsourcing CFO services is not in a time of crisis, or as a last-ditch attempt to right a sinking ship, but in times of growth and prosperity when there is bandwidth and enthusiasm to create better processes and the financial leadership expertise to support growth and innovation.

However, if your business is in, or approaching, crisis mode an outsourced CFO services company may be exactly what’s needed. They will have helped other businesses navigate crisis situations and can implement strategies for your business leveraging their experience in multiple industries.

A Solution That’s Right For You

If your CFO is providing forward-thinking analysis, they are providing infinite value to your company. Think about how your business has grown and changed over the past 6 months, 12 months, and 3 years. Have you changed and elevated your financial and business model strategies to meet those changes?

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.

It takes all areas of expertise to run a business. The role of the experienced CFO with its finance expertise and financial insights supports the CEO’s vision and the Controller’s daily operational duties. With the Outsourced CFO and Business Advisory services at Signature Analytics, you can have high-level finance insights that scale with your company’s growth.

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, then explore the breadth of services offered by experts at Signature Analytics.

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 for the long term.

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

Cost Control as a tool for innovation and growth

Cost Control Strategies, Cost Control Challenges

The modern business landscape has historically been more concerned with innovation and disruption than with cost control solutions. But the fact remains that to run an efficient business and to increase profits, optimize budgets, and ensure long-term financial sustainability, cost control solutions are key.

A common mistake management teams make is lumping cost controls in with machete-wielding cost-cutting initiatives. Cost-cutting initiatives and cost-control solutions are not one and the same. Effective cost control solutions are proactive and support innovation by recognizing inefficiencies and finding solutions before they drain resources. Cost-cutting initiatives are often reactive and look to remove programs, departments, or other costs because of an urgent need to reduce spending.

Cost control is, in fact, an integral part of managing any mid-sized business. As the economy continues to fluctuate, businesses must be diligent in ensuring that their spending is under control and that their finances are in order. It is important to understand how to effectively manage costs so that businesses can maximize profits and remain competitive. Additionally, by recognizing areas in which cost control solutions can be implemented more money can be made available for innovative initiatives that might have otherwise gone unrealized due to lack of dedicated funding.

The first step in a cost control initiative is to identify areas of spending that are not essential. This can be done by evaluating the budget of each department, and determining which costs are necessary and which are not. By eliminating non-essential costs, businesses can save money and focus on more productive products, services or research and development. It is important to create a strategic budget that includes all areas of business operations, department by department. A strategic budget that is regularly referenced and revised helps businesses make sure they are on track to meet revenue goals and spending metrics.

Common Cost Control Challenges

Confusing cost control functions with day-to-day accounting: A business’ accounting department reports activities, while cost control initiatives are focused on analyzing spending, evaluating departmental performance, and actively seeking ways to be more efficient. To make business decisions based on good data you need accurate, relevant and timely financials.
Management teams lumping annual strategic budgets in with cost control findings: Cost control recommendations and findings are based on real-time numbers, whereas a strategic budget is set in advance. When a business’ budget and real-time cost control findings have discrepancies there should be a red flag that your CFO or high-level finance business advisor can dig into to find sustainable solutions.
Access to data: Financial data can come from outside vendors, and 3rd party systems as well as from internal reporting. Not all of that data will be reported the same way leaving room for misinterpretation. Having expert finance and accounting leadership can help keep the data clear and actionable. Finding a single source of truth to use to compare budget and actual is essential to making smart business decisions.
Cash, accrual, and GAAP: With cash basis accounting, expenses are recorded only when cash is exchanged, which can delay the recognition of an expense. Under accrual basis accounting, expenses are recorded when goods are exchanged, regardless of when cash is exchanged, which means that the expense is recognized immediately. This can give managers a more immediate and accurate picture of the company’s financial performance and enable them to better manage costs.
Scope creep: Without leadership in each department, businesses can run over budget without realizing it. Regular audits of all departments and project performances can help cost control measures be proactive instead of reactive.

Cost Control Strategies

Collecting costs in a consolidated format allows organizations to make more accurate and informed projections, know where they can minimize costs, and identify areas of overspending.

For businesses whose complexity requires multiple technologies, teams, and vendors, having cost control solutions is essential to staying profitable and ensuring that the data that is reported in the month-end close accurately reflects the costs of ongoing initiatives.

Look at your vendor relationships: Cost control and vendor management often go hand-in-hand to streamline contract negotiations, work to build sustainable relationships with vendors and customers/clients, and create partnerships that benefit both businesses.

Audit your technology contracts: Technology is always evolving and that contract you signed 5 years ago has likely crept up in price every year since you got the “new customer special”. While changing technologies can be painful, it can cut unnecessary costs, lower inefficiencies in time and process, and potentially help you rethink the data and usage that the technology addresses coming up with a better solution for your business.

Evaluate your benefits: Does your team love Friday happy hour? How about the health coverage you offer? Are your employees taking advantage of your 401K matching? Think about what matters to the people for whom you provide benefits and you may find there are places to cut costs while actually offering the benefits your team wants.

The goal of cost control is to give your company a powerful framework that’s designed to improve visibility and keep you in control of your costs so you can invest in the initiatives that drive revenue and innovation.

Cost Management vs. Cost Control

The terms “cost management” and “cost control” are used interchangeably. Both address processes from budget planning, cost estimation, financing, and funding to managing projects during execution. We think of cost controls as proactive and cost management as reactive or rather cost controls are implemented company-wide whereas cost management is geared more to specific projects or initiatives that are overseen by a project manager.

Cost Control

When talking about cost controls, business owners first establish a budget and then measure the variance between it and the actual cost. This variance analysis allows the finance, accounting, and department project managers to alert leadership to spikes and address issues before costs get out of control.

Cost Management

Cost management is an on-the-job process of tracking and reporting costs throughout a project or initiative. Cost management will be the job of a project manager and often applies to industries with estimates, inventory, and measurable goods and expenses throughout the scope of work. Managing the costs of any engagement, whatever the industry, requires understanding utilization rates, overhead costs, and numbers behind your profitability metrics.

Creating a Culture where cost controls are rewarded

How can you create a culture where cost controls are rewarded in your company? Your greatest asset in the quest for better and more sustainable cost controls in your company might just be your employees. But how do you incentivize people to be their own watchdogs? There’s ample evidence for reward and game-based incentivizations for all kinds of activities. Why not use some of those strategies to get your whole company to help create a cost control culture.

Create a cost control incentive program. Offer rewards for employees who find ways to reduce costs or save money.

Make cost control a priority. Make it clear that cost control is an important part of the company’s culture and that it should be taken seriously.

Provide training. Educate employees on cost control and how to identify potential cost savings opportunities.

Hold regular meetings to discuss cost control. Make cost control a regular discussion topic during team meetings or other company gatherings.

Recognize and reward cost control successes. Publicly recognize employees who have successfully identified and implemented cost savings initiatives.

Create a cost control policy. Establish a company wide policy on cost control and ensure that all employees understand and adhere to it.
Gamify your cost controls. Grant weekly power-ups, badges, and rewards, create avatars on a digital or physical display to show the rest of the company who is “winning” in the game of cost controls. If it’s fun, you’ll get more buy-in.

The Upshot

When it comes to cost control solutions, there are many tools at a business owner’s disposal. Using those tools wisely to create an environment that is both efficient and effective for business growth and innovation is a balance that can be challenging. At Signature Analytics, our outsourced accounting and CFO business advisory services provide the leadership and guidance business owners need to implement accounting best practices that are cost-saving while keeping the business goals and strategic long-term objectives in mind.

If your business needs strategic cost control advice, and implementation of accounting best practices, reach out to us today.

The business value of getting your month-end close process right

Month-end close is a source of stress for many growing and mid-sized accounting departments and their C-Suites. It’s a race against the clock to get the timing and useability right.

For the C-Suite, the real-time nature of the month-end close provides actionable insights into their business’ operations and financials. These insights lead to better-informed decisions about the direction of the company.

For the accounting team, the month-end close is a crucial task they must perform rapidly without errors. It also has to take place simultaneously with day-to-day accounting functions.

Because of the value and timing of month-end closing, conversations around it are often a source of friction. In this article, we look at the month-end close process and why each step impacts good business operations.

Benefits of an Accurate, Relevant, and Timely Month-End Close:

When done right, the month-end close provides your company and accounting department with improved organization, decision making, and risk management.

Immediate Decision Making

The month-end close allows you to keep accurate financial records throughout the year so you can make insightful business decisions at any time, not just at the end of the year.

At a quick glance, you can get an immediate snapshot of where there are cash flow problems, operational issues, or inconsistencies within your accounting department. The month-end close confirms your business is on the right track through monthly reviews of key financial data.

Transparency

The month-end close also makes your business transparent to others, instead of only having year-close data that could be months old and tell an inaccurate story. This provides great value for when you’re seeking a much-needed loan, or if there are potential buyers looking at an acquisition.

Taxes

Taxes can be a headache no matter what size company you’re running. A consistent and accurate month-end close process makes tax filing and audits significantly smoother.

When it’s time for your CPA to do the year-end close and file taxes, they have all the data from your month-end closes saving them time which saves you money. The month-end close process also means you’re always prepared for an audit should one come up.

Common Challenges and How to Overcome Them

Too Many Data Sources

Many large organizations rely on spreadsheets, emails, phone calls, and in-person meetings to gather the data for their month-end close.

This causes delays as your accounting team is trying to recover the necessary information from employees, software systems, and accounts. It’s vital that, when it’s time for the month-end close to begin, you can draw all your financial data from one centralized source, such as Netsuite Fathom, Quickbooks, Salesforce.

Manual Processes

Unfortunately, human beings are error prone. While this may be okay when you spill your coffee in the morning, you don’t want human error anywhere near your accounting system.

You can reduce human error by automating your accounts with the right software and avoid mistakes that are often made with manual entry of data.

Poor Project Management

Any area of your business is going to falter with poor project management, and your accounting department is no exception.

Reports Needed for Month-End Close

When conducting your month-end close, you’ll need a few key documents to report your numbers with accuracy. We’ll give you the basics of each report here, but you can find more in-depth information on each topic on our blog.

Financial Statements

There are three key financial statements that will give your accounting department the required financial data it needs.

Your monthly income statement will list all of your company’s revenue and expenses for the previous month. Reviewing this document for your month-end close ensures you’re not forgetting any invoices or being overcharged for certain services.
Your Balance Sheet indicates your financial health by using the following equation:

Total Liabilities + Owners Equity = Total Assets

When performing the month-end close, you’ll want to make sure that this equation is equal on your balance sheet to avoid any accounting errors.

The Cash Flow Statement is similar to the income statement, except that income and expenses are recorded when a cash payment is received, instead of recorded when a service is performed.

Comparing these key documents will validate that there are no inconsistencies and that your financials have been reported accurately over the previous month.

General Ledger

A General Ledger is an account used to store, sort, and summarize all of a company’s transactions. You can use a General Ledger account to generate financial statements or quickly spot irregularities in your accounting records for the month-end close.

Petty Cash Totals

A Petty Cash Fund is a minor amount of cash that is kept available for your company to use for purchases that are too small to bother using a credit card or check. At the month-end close, you need to check that your receipts of items paid for with petty cash match your funds in that account.

Inventory Levels

The month-end close is a great time to check in on your inventory. You want to monitor the depreciation or appreciation of your non-liquid assets such as equipment and property. Checking the value of these assets monthly provides you with crucial information regarding the value of your company.

You also want to look at replenishable inventory during the month-end close. Take inventory of what you have in surplus, and where you need to re-stock.

Monthly Close Timing

The monthly closing process normally takes anywhere from 5-10 days. Ideally, you should start the process two weeks before the month ends to complete all tasks. By being aware of what slows accounting teams down, embracing automation, or outsourcing the month-end close, you can reduce time spent as well as close on your target date.

Best Practices for Month-End Close:

We’ve covered a lot about the month-end close. You now know what not to do, what reports to use, timing, and the benefits of doing the monthly close right. But how can you make sure it’s done right?

Focus on Quality (Especially When Starting Out)

If you follow the right processes, your month-end close will naturally speed up over time as everyone gets comfortable with their roles and responsibilities. It’s imperative that your primary goal is to do it right once, and not wrong three times. If you do it wrong, then you’re making business decisions off of incorrect data, which could be catastrophic to long term financial health.

Of course, it’s nice to get things done early and focus on other issues, but that will come with time. Making sure things are done right to start will pay off in the long term.

Build Cross-Department Relationships

Having you, or your accounting department, be aware of how the rest of the business operates will provide valuable insight when going over the monthly financial documents. With an understanding of how other departments work, you’ll be able to make more sense of the financial data they produce.

Building cross-department relationships is also great for team efficiency. Through these relationships, everyone at your company will have a better understanding of how the business runs, making it easier for them to collaborate in the future.

Bring In the Experts

Perhaps you’ve been doing a lot of the month-end close yourself, or you don’t like how much time and capacity it takes away from your accounting department.

At Signature Analytics, we review financial activity and performance for a calendar month to prepare for the monthly financial statements. This includes quality control with senior-level accountants validating the work.

If you’re interested in outsourcing the month-end close process, or any of your other accounting needs, contact us today.

How to Use Financial Gap Analysis

A gap analysis is a tool that companies use to compare their current financial performance with their target performance. Business owners and managers can use this information to not only identify any financial gaps but to better understand how to overcome them and find the best course of action towards the company’s financial goals. The “gap” in a gap analysis is the space between where an organization is and where it wants to be in the future. Not to be confused with GAAP (Generally Accepted Accounting Principles) reporting, a gap analysis is a measure of where a business has gaps in finance, operational efficiency or other blind spots.

The main questions a gap analysis aims to answer are:

Where are we now?
Where do we wish we were?
How are we going to close the gap?

In this article, we will outline the purpose and process of a gap analysis and answer some frequently asked questions.

Understanding Gap Analysis

A gap analysis is a method of assessing the financial performance of a business to determine whether requirements or objectives are being met and, if not, what steps should be taken to meet them. By defining these gaps, management teams can create plans to address any underperforming areas and work towards the goals of the organization.

Performance gaps can be measured across multiple areas of the business, such as revenue generation, sales processes, technology adoption, internal communication or operations processes. Gap analysis can also be used to assess the difference between liabilities and rate-sensitive assets including bank assets, bonds, loans and leases.

There are typically five basic steps to a gap analysis, which include:

Benchmarking the current state
Defining financial goals
Analyzing the gap data
Compiling a gap report and making a plan
Monitoring progress

When Is a Gap Analysis Necessary?

Whenever fluctuations in profitability, changes in operational efficiency or rapid growth occurs, performing the process of a gap analysis, and specifically a financial gap analysis, can bring essential insights into how a business operates to light. This information can help a company navigate a scope of financial situations, ranging from long-term strategic planning to short-term budget issues.

However, companies do not need to be underperforming to perform a gap analysis. Since these analyses are strategic in nature, business owners and managers can use them to understand aspects such as market positioning and labor needs. Further, company leaders can use this information to scale the business and/or set the organization up for long-term financial success.

Types of Gap Analyses

Gap analyses can generally be split into two categories: strategic and operational.

Strategic gap analysis assesses gaps in business planning and the overall organization.

Operational gap analysis, on the other hand, examines a specific project, process or day-to-day work of a team or department.

Types of gap analysis include:

Financial/Accounting gap analysis
Product or market gap analysis
Strategic gap analysis
Skill gap analysis
Compliance gap analysis
Product development gap analysis
And more

Gap Analysis Examples

Many businesses use the gap analysis process. Let’s take a look at some examples of gap analysis uses.

Gap analysis is most useful when an organization needs to:

Develop a change management strategy but leadership needs to first identify the gap between the current and desired state
Create a new strategy for the team and want to understand where the organization currently sits
Prepare for an audit and showcase how the company is proactively addressing any gaps
Find out why the organization isn’t meeting important key performance indicators (KPIs) and strategic objectives
Identify opportunities to improve existing processes
Prepare a strategic plan and prioritize resources

How To Perform a Financial Gap Analysis

A gap analysis template can be used and typically contains five basic steps to evaluate the gaps. Let’s take a look.

Benchmark Current Financial State

A gap analysis starts by defining the state which an organization is operating at. The current situation represents an objective reality which can be measured using currently available financial data. This data serves as a baseline against which future growth potential can be measured.

For instance, if an organization wants to perform a gap analysis of profits, then the current situation would be based on the most recent annual, quarterly or monthly profits. Financial key performance indicators are gross profit margin and operating profit margin.

Define Financial Goals

Management can use this step to define what is important to the success of the organization and their future financial goals.

The desired financial situation is the company’s goal for the key financial metrics performance. It should be based on the same measures as the current situation; for example, if the current situation is a measure of profits, then the desired situation should also be based on profits.

Analyze the Financial Gap Data

In a financial gap analysis, the gap is measured between the current financial situation and the desired financial situation. The gap is, quite simply, the difference between the current financial situation and the desired financial situation. To evaluate a company’s financial performance start with the P&L statement and to evaluate the gross profit margin and net profit margin. This step provides an opportunity to not only identify a gap and determine its size, but also to figure out why there is a gap.

This step can help management identify the roots of any issues or underperforming areas. Business leaders can successfully analyze the financial data by:

Being specific about the gap.
Asking questions to determine why the gap is occurring in order to determine the root of the problem. For instance: what is holding back our team from meeting the sales goals?
Looking through the company’s financial statements:, income statement, balance sheet, and cash flow statement to determine financial position.

Establish a Plan

After leadership identifies the gap and determines why it is occurring, they can create a plan to address the issues to improve the company’s financial health. In some cases, there may be a single solution for bridging the gap; in others, leadership may utilize several strategies in order to address any issues revealed by the analysis. These plans often include a detailed set of processes set at a specific cadence.

Monitor Progress

Gap analysis should be a continuous process where after changes have been made, the company re-evaluates its current position, progress, and goals.

Gap Analysis FAQs

A gap analysis is a powerful tool in strategic planning. However, many business leaders may not be sure where to start. Let’s answer some frequently asked questions.

How Do You Do Gap Analysis for your Business’ Finance and Accounting Department?

A gap analysis of your business’ finances is the same as gap analyses in other departments; the only differences are the goals and objectives assessed during the analysis. For example, in a financial gap analysis, a team might look at the company’s performance in terms of sales or revenue.

What Are the Three Fundamental Components of a Gap Analysis?

The three fundamental components of a gap analysis include: assessing the current situation, determining the goal state, and highlighting the gap between the two. Then, the organization leaders can create an action plan to bridge said gaps.

What Should a Financial Gap Analysis Include?

A financial gap analysis typically focuses on a few key elements. These elements can include, for example:

Revenue
Cost of Goods Sold
Gross Margin
Gross Profit
SG&A Expenses
Net Income
Net Income Margin
Cash or Liquid Assets
Assets
Debt or Liabilities
Equity / Equity Structure
Free Cash Flow
A/R
A/P
And more

What Happens After the Gap Analysis?

Following the analysis, the leaders of an organization will have a clear picture of where the gaps in the organization are, how big the gaps are, and how management may begin to address them.

Forward progress relies on consistent work over a period of time. We recommend taking concrete measures to manage progress, such as implementing key performance indicators (KPIs).

About Signature Analytics

Signature Analytics is the Smart Choice for business owners. With the support of our expert accounting and CFO Business Advisory services, your business can get to the next level of profitability and operational efficiency.

Our assessments provide a deep dive into your existing accounting structures and processes and help us customize the right solution for your business. With those insights, we then bring in the right outsourced team to get you the Accurate, Relevant, and Timely financials you need to run your business successfully.

Contact our team of experts for business and financial analysis and any other questions you may have during this challenging time.

Controller vs CFO: 3 Key Differences

Though the Chief Financial Officer (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 of each role. In this article, we’ll look at the three key differences between these positions. We’ll address their scope, daily responsibilities, and hierarchy to help give you a better understanding of how CFOs and controllers impact your company.

#1 Scope of Roles

CFO: The Strategizer

The CFO is the finance leader and chief financial strategist of a company. CFOs play a significant role in laying out the direction for a company’s future and advising stakeholders on important business decisions. Chief Financial Officers identify business risks by looking at financial data and make appropriate decisions to mitigate those risks, among their many leadership functions.

The CFO and CEO collaborate to make a case, based on the CEO’s vision and the CFO’s data, to get company-wide buy-in for changes in direction and new ideas. It is the CFO’s strategic leadership that steers the company in the right financial direction while holding departments that are tangential to the accounting and finance department accountable for the implementation and execution of the new direction.

Controller: The Tactician

The controller carries out the implementation and day-to-day management of the operations of the accounting department. The work that they do can be referred to as controller services. The controller’s oversight and account management enable the CFO to meet the company’s strategic goals. A good financial controller will develop efficient and effective strategies to increase profit margins, increase employee productivity, and find cost savings through cash management.

A controller is one of the most influential people within your company’s accounting and finance department. They can benefit your company by providing a balance of financial expertise and accounting services management that bridges the communication between C-suite and day to day functionality of the accounting department.

Read More: Benefits of a Part-Time CFO.

#2 Daily Responsibilities: Management vs. Forecasting

Although both CFO and controller roles oversee the financial aspects of the company, they 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
Ensuring the integrity of all accounting functions
Providing job training and mentoring to the accounting department

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 analysis for financial management decisions

Compliance

Monitoring debts and compliance
Providing information to external auditors
Providing financial information for tax filing
Facilitation of tax information to your CPA
Providing financial information to company executives
Assisting the finance team with financial decisions
Helping the accounting team with cash flow management

What are the Daily Responsibilities of a Chief Financial Officer (CFO)?

A CFO is less directly involved in the accounting department’s day-to-day accounting operations compared to the controller. The tiers of accountability that a CFO has are:

Economic Strategy and Forecasting

Reviewing and comparing the company’s past and present financial situation to improve financial strategy
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

#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 may be neglected, and the company may not have an accurate forecast of future finances.

The CFO is traditionally ranked just below the CEO in terms of hierarchy. The controller reports to the CFO, sometimes alongside the treasurer and tax manager.

Below the controller can be roles such as the accounting manager, financial planning manager, accounts receivable manager, and accounts payable manager.

Does Your Company Need a Controller or a CFO?

If you’re struggling to decide whether your company needs a controller, a CFO, or both, here are some things to consider:

Controller

You may consider hiring a controller if:

Your business is expanding: If you are scaling your growing business and your company is becoming more complex as you add lines of businesses or open new locations, a controller can make recommendations to help you use your capital wisely and save money wherever possible.
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.
Your CFO is overwhelmed: A controller can take a load off your CFO by focusing on the day-to-day supervision of the accounting team. They can provide the CFO with the necessary information to help them make accurate financial forecasts that support future strategic decisions for the business.

A controller can also help companies grow in several ways, including:

Taking Accountability for Your Company Finances: Your controller will take full responsibility and accountability for your company’s financial systems and should have a thorough understanding of your business expenses from your financial statements.
Finding areas where you could be saving on costs: Controllers find ways to improve profitability and budgeting, helping all departments align on ways to decrease expenses and improve product margins through cash flow management.
Creating value as a business partner: A controller can manage vendor relationships to ensure the best terms and contracts. A good controller will push back on spending decisions and offer advice on ways to cut costs and use capital wisely, often opening up funds for more proactive initiatives for the business’ ultimate growth.
Managing your company data: Your controller will supervise the company’s accounting processes and make sure it’s carried out accurately, efficiently, and securely. Good controllers stay up to date on current accounting and finance technology and best practices to keep your business on the cutting edge.

CFO

You may want to consider hiring a CFO if:

You’re in a transition stage, such as going through a merger, acquisition, or relocation: It’s never easy going through a big change. A good CFO will keep your finances on track and provide high-level insight and executive leadership as your company transitions.
You need financial forecasts for your company: All the financial data you keep track of is being wasted if you can’t use it proactively. A CFO can turn your historical data into projections so you can make insightful data-driven business decisions for the future.
You’re overwhelmed: You have enough on your plate running the company every day, and the added burden of guiding your finance department can quickly take over all of your time if you don’t have the right support. A CFO will lighten your financial workload so you can focus on more important decisions.

A CFO can help your business grow in several ways, including:

Negotiate better deals: A CFO can help your company score better rates with vendors, secure credit lines and loans from banks, and negotiate with clients to give your business a financial advantage.
Manage financial growth: A CFO will track all financial metrics across the board at your company and work hand in hand with each department to optimize financial growth.
Manage risk: You can only manage so much risk yourself. An experienced CFO will enforce the right financial controls and keep a vigilant eye on financial data to avoid any errors.

Outsourced vs In-House Controller: Which is Right for Your Business?

Outsourced controllers are likely less of a financial commitment than hiring in-house: In-house controller hires are longer processes with interviews, background checks, and likely recruiter fees involved as well as long contracts, benefits, and incentives. Both are experienced controllers that will report financial results for your accounting department.

Outsourced controllers are already trained in processes that save time. Far less training time is needed when you use outsourced controller services. Additionally, the level of accounting expertise you have access to with outsourced teams of finance and accounting professionals is more sophisticated in their controller services than the expertise of one individual who gets hired in-house full-time.

An outsourced controller will have experience in a wider range of industries providing innovative solutions to old problems. In-house controllers may not see the forest for the tree, missing opportunities to cut costs or amend business practices that may not be optimal.

Vacations and time off will not leave your company high and dry when you rely on internal controls. With an outsourced financial controller on your team, you will have access to expertise in accounting and bookkeeping when you need it. The deeper bench that outsourcing offers is one of the major benefits of outsourcing finance and accounting functions.

Contact Signature Analytics today to find out how we can help you optimize your company’s financial future.

Maximizing the value of your business before a sale

Benjamin Franklin said “By failing to plan, you are preparing to fail”, and nowhere is this more evident than in preparing to exit your company. If you own a business and have NOT thought about how you’ll exit, now is a good time to create a plan. Whether you intend to sell your business in 3 – 5 years or plan to stay in it for the long haul, the best way to grow intentionally, quickly, and profitably is to grow with an eye to sale or acquisition.

You didn’t start your business without a plan – why would you sell it without one?

Many mid-market business owners are unclear about their business value, how they can maximize their business value, and how they can determine their business valuation. As you create a plan for your business, your CFO will likely highlight the importance of well-structured debt, access to the right kinds of investment (VC, PE), and the importance of GAAP accounting and the kind of well-run finance and accounting department an acquiring company is looking for. If you do not have a finance executive on your team, getting those and other areas of your company’s Finance & Accounting (F&A) department in order will be essential to getting the maximum valuation for your business.

Timing is yet another factor that must be taken into account in order to maximize the value of your business for a sale. We often see owners reacting to a buyer who makes an unsolicited offer; this puts the buyer in the driver’s seat, not the owner. Being proactive in the process will yield substantially better sale prices than letting a buyer dictate the offer price. Additionally, proactively improving the areas of your business that drive value and eliminate risk in your company will be beneficial regardless of your decision to sell. Finally, understanding the marketplace will help set your expectations and give you a basis to manage toward the value you want.

Whether you plan to sell or just want to work toward having the kind of company someone would want to buy, you can be sure that your value is going to be higher if your company’s financials are in order. Having accurate, timely, and relevant financial data supports better business valuations and ultimately higher profits upon exit.

When should I start to plan to sell my business?

Exit planning ideally needs to begin 3 – 5 years before you plan to pass over the keys to the kingdom. The considerations that dictate this timeline range from tax planning and middle management leadership development, to timing markets and working with investors. Whatever your plan for exit, any potential acquiring entity will certainly do their due diligence, starting with your company’s financials.

Over 40% of owners plan to exit their business in the next 5 years. However, a majority of business owners do not have a formal exit strategy established.

If you’re thinking about timing the sale of your business, get started now in order to maximize the value of your business.

Start with why.

Understanding why you want to sell will help you get focused on the timeline and the asking price you will be aiming for. Whether you want to retire, are seeking a better work-life balance, are interested in starting a new career, or searching for a new purpose, the choice to sell a business you have built should not be taken lightly or executed hastily.

Questions you may want to consider:

Is the business ready to be sold?
Who do I want to sell the business to?
Am I ready to sell the business (emotionally)?
What will I do with the proceeds of the sale?
Am I prepared from a legal standpoint?
Do I have/need a wealth manager or other advisor?
How much could I sell the business for?
What will I do after I sell the business?
Am I willing to work for the new owner for a period of time?
When is the right time to sell the business?

How do you get the highest valuation for your business?

No one wants to sell to the lowest bidder. So what can you do to attract the right buyers willing to pay the highest price?

Understanding revenue streams and having underlying clean data is essential to maximizing your business value. Quality of earnings and/or financial statement audits are important pieces when a buyer does their due diligence for a deal. Think of ways you can create visibility into the profitability of your business for a buyer.

Business valuation is typically tied to the type of industry your company is in. As you work to maximize your business valuation, consulting with an expert in Mergers & Acquisitions (M&A) will be an asset to your process. They understand the value drivers from an acquiring entity’s perspective and can highlight areas of strength and weakness for you to address pre-listing. They also are experts in marketing your business to a broader range of potential acquirers.

Minimize risk to maximize value

Buyers value limited risk in the businesses they buy. There are business structures and revenue opportunities that can be addressed before the listing of the business to reduce risky business structures.

Reduce the concentration of earnings:

Don’t put all your eggs in one (or 3) baskets. If your revenue is high but it is largely from a small number of customers, the risk is that on sale of the business those customers leave and the revenue that was core to the valuation is no longer coming in. Spreading revenue among many customers ensures that no one account’s loss can negatively affect your company or your valuation. Better to have 50 mid-sized clients than 3 massive ones from a concentration of earnings perspective.

Implement Reliable Financial Reporting

When a buyer is looking to purchase a business, they want to know how it is performing. The price is often based on the trailing twelve months’ financial results and GAAP-based reporting. For a buyer, seeing clean financials builds trust, allows them to make decisions decisively and quickly, and provides insights into opportunities for growth that may increase their offer based on their plans for the future of the company.

Build a recurring revenue model

Subscription-based companies (where customers sign up and pay monthly) like Spotify, Blue Apron, and Dollar Shave Club have very high multiples and valuations because businesses with recurring revenue are more stable.

With this ongoing recurring revenue, these businesses have consistent income to rely upon and forecast against. Project-based businesses face more risk because as projects end, that revenue must be replaced. This typically requires more sales effort and expenses to grow overall revenue.

If your revenue is project-based or retail sales, you can develop a recurring model. For project companies, are there ongoing consulting engagements or other services that can be offered to develop a recurring model that can be offered to your client base? Building stable recurring income is positive for the business, whether you choose ultimately to sell or to hold on for the long term.

Bolster middle management and reduce reliance on the owner

If an entire business is based on the owner, e.g., the owner is running everything, has all of the relationships with the clients, and makes all of the sales then there is far less appeal for a potential buyer.

As an owner, it can be hard to disconnect from the day-to-day of running the business. One way to put structures in place to support the slow extraction of the owner from the daily running of a business is to build up the management team. By building a team that can run the business without you, you create business value that can transfer once you, the owner, are no longer involved.

A multi-level succession roadmap allows the company to fill gaps in skills and competencies for the entire company. There are several other ways a buyer may limit their risk on this issue, including requiring that the owner stays on board for another 3-5 years, paying a lower price, or reducing the upfront payment and creating an earn-out clause that pays out over a period of time -based on the business’ performance post-acquisition.

Build structures that scale

A business’ infrastructure includes such things as people, processes, tools, equipment, technology, approach, and culture that enable the business to service its customers. An owner who’s built a solid infrastructure that supports growth and scalability with efficient, repeatable, and consistent processes will find that their business has a higher value.

Benchmark your performance

Companies that generate stable, above-industry-average earnings are more valuable. To measure that, you need to understand the industry standards and measure yourself against them. If multiples in your industry are typically based on revenue, a higher net income supports a higher revenue multiple. If your industry valuations are typically off of EBITDA, then a higher EBITDA will be worth more under the same multiple and many times can even attract a higher multiple.

Regardless of the valuation methodology, there is always a strong case to improve your bottom-line margins. This can be done through active management, good key performance indicators (KPIs), accurate, relevant, and timely (ART) financial reporting, creating efficiencies in your business, outsourcing non-critical tasks, and building to sell.

Who Will Buy Your Company?

When you’re looking to sell, there are a number of potential buyers: strategic (competitors), private equity/venture capital, outside 3rd parties, insider (employee), or even having an employee stock ownership plan (ESOP).

Strategic Buyer (Competitor):

Selling to a strategic buyer may land you the highest potential sale as they might see value in a new geographic market, customer base, etc. When selling to a strategic buyer a consequence may be that your business becomes a part of a bigger whole. Often, the acquirer will look to cut the costs of your business by combining back-office support (accounting, HR, etc.), which may lead to some of your employees losing their jobs.

Private Equity / Venture Capital:

This may give you an opportunity to cash out and accelerate your business’ growth; however, as the owner, you may not only lose control, but you will also likely remain involved in the business for a specified period of time. This option may also give you the chance to “have a second bite at the apple.” Meaning you only sell a part of your business and help the financial buyer grow it. When the business is sold in the future, you get to reap the benefits from the growth in the second sale.

Outside 3rd Party:

Selling to an outside 3rd party can result in a high sale price; however, because the buyer may not know the industry, they will likely have the owner remain involved in the business in some capacity.

Insider (Employee):

Selling your business to an employee is typically the most painless transition; however, employees usually do not have significant resources to purchase the business, and this could result in the lowest sale price.

Employee Stock Ownership Plan (ESOP):

This option allows an owner to cash out, and the employees of the business become owners. This option typically works for steady, cash-producing businesses. There are unique challenges with ESOPs, and they are highly regulated.

Before choosing a buyer, it’s important to understand what you want to achieve. What do you, as a business owner, want to do with your life or your career?

Your personal objectives should help define how much you need from the sale, along with the timeline of when you would like to sell the business. Four million dollars now may meet your goals. Or working hard, improving your business, and taking on the risk of time may lead to a future valuation of a larger, more attractive business worth $10 million. Neither answer is right or wrong. It depends on you.

What’s Next?

According to a survey by Exit Planning Institute, Failing to plan for considerations beyond those of finance when planning to sell your business is the cause for 76% of business owners who exit regretting the choice a year after the sale:

Life doesn’t end after exit. Being clear on your personal and family goals and what comes after your sale is just as important as being clear on the steps needed to maximize the value of your business before a successful exit.

For more information about how we support business owners as they create business value, contact us.

Financial Metrics: Master the Language of Business

Business owners have access to myriad of metrics and data, but what is important? What financial metrics are the RIGHT metrics to track in order to make smarter business decisions? In this article, we review the most important financial metrics that business owners should track in order to make informed decisions in their businesses.

In a sea of data, it can be challenging to pick out the important markers that indicate a course correction or impending windfall. By tracking these financial metrics, business owners can have a canary in the coal mine or bellwether to give them insights into trends that indicate important changes that can be made to be more profitable.

To make informed business decisions, it is important to track certain financial metrics that can be found in the company’s financial statements. These include the balance sheet, income statement, and cash flow statement. By monitoring these metrics, business owners can gain insight into the financial health of their business.

What are Financial Metrics?

Financial metrics are indicators used to evaluate your business’ financial performance, position, and strengths and weaknesses. Key financial metrics provide key statistics from financial statements to calculate your business’ liquidity, leverage, profitability, and growth potential to help you make key decisions and evaluations to improve financial performance.

Financial Metrics Help CEOs Make Better Decisions

Metrics give you an honest and in-depth look at how your business is operating so you know when and where to make changes to improve your financial position. They can also be used as tools to determine company strengths as well as benchmarks for key performance indicator objectives.

There are an overwhelming number of metrics available to business owners, so it’s important to know what your business goals are and what metrics can achieve these goals.

Core Financial Metrics You Need to Know

Liquidity, leverage, profitability, and growth are core business metrics you can identify on your company’s financial statements to ensure your business is going in the right direction. Being aware of these metrics as your business grows and develops will be critical for long-term success and financial health.

Liquidity Metrics

Liquidity metrics are used to determine if your business has enough cash, or assets that can be easily turned into cash, to pay off short-term bills. By knowing what liquid funds are available you can get a good idea of your company’s short-term financial health.

When determining your company’s liquidity, you’ll use data from your balance sheets. The two key metrics we’ll use for liquidity are working capital and current ratio.

Working capital outlines the funds you have available to pay off your short-term financial obligations. Working capital can also be valuable for planning yearly budgets and being aware of short-term spending capacity.

To calculate your working capital, gather your current assets and liability from your balance sheet and use the formula:

Working capital = current assets – current liabilities

Your working capital should cover your short-term bills and financial obligations. If not, you will need to make some major adjustments or look for external capital to ensure the survival of your business.

Current ratio uses the same data as working capital but provides a ratio to determine short-term financial health.

Current ratio can be calculated with the formula:

Current ratio = current assets ÷ current liabilities

A current ratio that is less than 1 means you may be unable to pay off financial obligations if they were to all be called in in a short time-period. A good current ratio is between 1.2 and 2. A high current ratio is considered a positive for a company. Banks are more likely to extend credit to companies who can demonstrate that they have the ability to pay obligations. If a current ratio is super high, it might show that the company is not using its assets appropriately.

Using liquidity metrics is a great way to get an immediate snapshot of your current financial health. It should be checked often to make sure negative trends or negative liquidity doesn’t go unnoticed.

Financial Leverage Metrics

Leverage metrics tell you if your company is in a position to borrow from lenders or creditors. But before we learn what metrics to look out for, it’s important to know what leverage is and how it impacts your business.

Leverage means you have an increased earning potential with borrowed funds. Business owners often use leverage when they expect to earn more from borrowed funds by an amount that exceeds the cost of borrowing. A smart use of leverage can maximize the profitability of certain investments.

A key thing to note with leverage is that it amplifies losses as well. If your business does not perform the way you expect it to, then you’ll be paying off interest from your credit or loan with the money you need for more urgent issues caused by bad performance.

Metrics such as total debt to assets ratio can give you a good indicator of your leverage potential.

Total debt to assets ratio tells potential lenders if your company can pay off its loan in case the business fails. Basically, it measures the degree of leverage of the company.

Total debt to assets ratio can be calculated by the formula:

Total debt to assets ratio = (short-term debt + long-term debt) ÷ total assets

Total debt to equity ratio shows your company’s financial structure and is similar to total debt to assets ratio except it deals with your ability to pay off long-term financial obligations. This is a common ratio in looking at a firms solvency.

Total debt to equity ratio = total liabilities ÷ total shareholder equity

The optimal debt to equity ratio varies by industry.

Profitability Metrics

Profitability metrics measure your business’ ability to earn. By understanding profitability, you can determine if your company is on track and has growth potential, or if action plans need to be put into place.

Gross profits + margins indicate if your business is producing and selling products efficiently. These metrics show earning ability before your overhead expenses are factored in. Gross profit margin and net profit margins are a good way to single out your product and see if it’s on track.

Profits give you a dollar amount of the amount made during the income statement period, while margins give you results as a percentage.

Gross profits = net sales revenues – cost of goods sold

Gross profit margins = gross profit ÷ net sales revenues

Operating profit + margins indicate earnings from your normal business operations. These metrics provide a snapshot of your profitability with all costs factored in.

Operating profit = gross profit – operating expense

Operating profit margins = operating profit ÷ net sales revenues

Operating profit includes depreciation and amortization, but does not include interest or taxes.

Growth Metrics

Growth metrics determine if your company is falling behind or is in a good position for future financial success. It’s vital to recognize what defines business success for your company, and what growth you should track.

Common indicators for growth include sales revenue, profits, working capital, and your customer base.

A simple way to calculate the growth rate for the previous year can be found in the following formula, but it works for any period.

2022 Revenue – 2021 Revenue = Yearly difference in revenue

Growth Rate = Yearly Difference in Revenue ÷ 2021 Revenue

A business with stagnant sales and profits can’t keep up with inflation. It’s vital to make sure your company is growing in the key metrics listed in this article, so you don’t fall behind.

Learn More About Financial Metrics with Signature Analytics

Understanding how to use business metrics can make businesses aware of problems as soon as they happen and plan proactively for the future.

Contact us today to learn more about Financial Metrics and how outsourced accounting can help you use your financial metrics to positively transform your business.

Top 6 Accounting Best Practices Your Business Should Follow

Knowing the building blocks for effective managerial and financial accounting is critical for any company’s financial health. Following and implementing good accounting methods will help you make informed decisions and provide your business with financial stability and growth.

In this article, we will look at the six best accounting practices your business should follow

Strategic Budgeting E-Guide

1. Clear Financial Planning

A company’s financial status being successful starts with a clear and well-thought-out plan. While there are many ways to develop a financial plan, we prefer Financial Scenario Planning and Strategic Budgeting.

Financial Scenario Planning is a proactive planning tool that can prepare your business for any scenario. To start financial scenario planning, brainstorm all occurrences that could impact business expenses and financial positioning.

Then create a base, best, and worst-case scenario for each occurrence:

Base case: Use data from the previous year to predict the most likely scenario for your occurrence.
Best case: Imagine a situation where your occurrence exceeds projections (adding new customers, making a big acquisition). It’s important when using this scenario to be realistic with your projection.
Worst case: What’s the worst situation that could arise in your business in the coming year? Create an action plan for this scenario.

Brainstorming and building out potential scenarios that might impact your business’ finances help you make more informed decisions, give investors an in-depth preview of returns and risks, and minimize losses.

Strategic budgeting is the process of developing a budget that is based on your strategic business plan.

Start by creating a strategic business plan that includes future corporate milestones, what tasks must be done to reach them, and Key Performance Indicators (KPIs). Then use your budget to gauge if the finances of your business are on track.

Download our e-guide below to help you create a strategic budget.

2. Set up Fraud Alerts

Unfortunately, the most common victims of fraud are small businesses.

Preventing fraud in your company starts with putting fraud practices in place such as segregating accounting duties, adding outsourced oversight, enforcing time off and vacation policies for all employees, and reviewing statements monthly.

Setting up internal fraud alerts and protocols provides an extra layer of security on top of your existing practices. Fraud alerts require lenders and creditors to take extra steps to verify your identity before extending or creating lines of credit. Simply send a signed letter on your company letterhead to the commercial relations department of one of the three national credit bureaus (Equifax, Experian, TransUnion) to set the fraud alert protocol in motion.

3. Utilize Automated Software For Certain Accounting Services

Not using automated accounting software is likely costing you time and money.

Finances aren’t always as simple as understanding accounts payable and accounts receivable, and even the best accounting professionals can make mistakes. Accounting software automates tasks, reduces accounting errors, helps with cash flow tracking, and makes your business accounting faster and more efficient. The right software also keeps everything in one place, backed up, and easy to find.

From invoicing to payroll, automated accounting services make sense with the right implementation and oversight. Easily available automated accounting services can eliminate the risk of double payment, incorrect payroll entries, or late payments while reducing your workload. Good accounting software has the right integrations to create a network of technology and communication that supports accounting and operational business functions.

4. Master The Three Financial Statements

There are three financial statements that every small business owner needs to understand: income statements, balance sheets, and cash flow statements. With an understanding of these, business owners can more readily implement best business practices based on clear financial data.

Income statements measure your business’ profitability during a specified accounting period. They give you a clear look at all your revenue and expenses to determine net profit or loss.

Balance sheets show the financial health of your business. A balance sheet reports what your business owes (liabilities) and adds that to how much capital has been invested (equity) to determine your assets. The assets should always be equal to the sum of your equity and liabilities.

Cash flow statements focus on the overall money coming into the business compared to the money going out. While income statements are all about showing profit during a certain period, cash flow statements are a clear way to compare cash inflow vs cash outflow.

5. Backup All of Your Records and Financial Reporting

Backing up your records is an essential practice for the safety of your business and following legal requirements. Fortunately, having the right technology in place automates a lot of the backup process for you.

For all software, user error is the weakest link, so ensuring your fraud protection protocols involve strong password protection is the first step to take. Additionally, it is important to make sure that your technology is itself secure. That requires that you or someone in your IT department researches the security and safety of any new technology before choosing a place to store your financial information.

6. Hire Experts

If you haven’t read the book Who Not How,, this is an exercise in implementing the principles of that book. To get expertise, you can either build it or hire it. Hiring expertise is faster and often more efficient. If you need expert knowledge and insights in your accounting department immediately, the best solution is to outsource the expertise you need.

By bringing in a team of experts, you can easily automate manual accounting processes so your existing accounting team has more capacity and time to work on important and ongoing issues.

An outsourced team of finance and accounting experts can evaluate your accounting team’s skills, accounting structure, current technology, and data cleanup protocols and offer insight on how to run a more profitable and efficient business.

Importance of Effective Accounting Best Practices

The value of following good practices for effective accounting can’t be stressed enough.

Implementing effective accounting practices provides the necessary information for you and your company to make informed business decisions. It also creates a clear and objective evaluation of your company’s performance, so you know exactly how and when to make improvements.

Ready to implement these best practices? We can help.

Cash Flow Management for Nonprofits

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.

Get nonprofit accounting expertise today.

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

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

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Strategic Planning & Budgeting for The Year Ahead

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.”

DOWNLOAD THE STRATEGIC BUDGETING E-GUIDE

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.

Accounting vs Finance: What’s the Difference?

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 Named an SDBJ 2022 Best Places to Work

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.

SBA Updates the EIDL Loan Program to Assist Hard-Hit Businesses

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.

Signature Analytics Welcomes New Market Leaders to the Team!

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.

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.

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, 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.

Beyond Financial Management: Is Your CFO a Bookkeeper or a Strategic CFO?

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.

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.

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.

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.

The Effects of Inflation and Roaring Economy On Businesses

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

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

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

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

What is Inflation?

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

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

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

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.

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.

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.

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.

3 Ways Outsourcing Accounting Can Improve Your Business

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:

Letting your outsourced team own the accounting process
Having the right, qualified people on your side & managing through turnover
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.

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.

#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:

Companies hire lower-level employees and expect high-level output
Companies hire high-level employees with high pay but they focus on low-level work
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.

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.

#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.

What is Outsourced Accounting?

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

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

What does an outsourced accounting team do?

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

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

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

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.

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.

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Your Guide To Financial Modeling And Scenario Planning

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:

Your original plan
A probable case based on current data
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.

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.

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.

10 Tips to Help Improve Your Company’s Cash Flow

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

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

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

1. Anticipate and Plan for Future Cash Needs

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

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

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

2. Improve your Accounts Receivable

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

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

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

3. Manage your Accounts Payable Process

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

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

4. Put Idle Cash to Work

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

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

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.

How Signature Analytics Can Help Your Company

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

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

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

When Should You Consider Outsourcing Your Accounting Operations?

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.

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.

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.

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

PPP Loans: A Second Wave of Relief

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.

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.

How To Protect Your Small Business From Employee Fraud

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

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

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

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

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

Unfortunately, your thinking would be flawed.

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:

a lack of basic accounting controls
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:

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.
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
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.
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.
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.
Require your bookkeeper to take a vacation: Embezzlement and other types of fraud require a constant paper trail to go undetected. Therefore, business owners should insist that employees who perform the company’s accounting/bookkeeping duties take a vacation every year and designate a backup person to cover their responsibilities during that leave. Ideally, the vacation should be at least a week-long and occur over a month-end when the books are being closed. Assuming your books are closed monthly, this is not an easy request with a small team and another reason to build a trusted relationship with an outside firm.

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

How Can I Protect My Company?

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

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

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

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

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 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.

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.

*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:

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

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.

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.

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.

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:

Your Guide To The Main Street Lending Program

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:

Main Street New Loan Facility (MSNLF) (link to 6.8.20 term sheet)
Main Street Priority Loan Facility (MSPLF) (link to 6.8.20 term sheet)
Main Street Expanded Loan Facility (MSELF) (link to 6.8.20 term sheet)

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.

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:

less than $5 billion in 2019 revenues or
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:

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
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:

Federal Reserve Bank of Boston’s Website
MSLP Frequently Asked Questions (June 8, 2020) (PDF)
Federal Reserve Policy Tools Page (catch-all links to resources)
MSLP Lender Registration (create lender account)

Reducing Your Cost Structure

“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.

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.

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.

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.

How to Effectively Communicate Your Company’s Financials with External Stakeholders

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.

This Is How A Business Can Thrive During Times of Economic Hardship

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.

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.

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.

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.

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.

Important Questions To Ask When Planning and Testing A Business Strategy

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.

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.

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.

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.

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

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