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2014

Small_Biz_Acct_body.jpgby Robert Lerose.

 

Small business owners who call upon their accountants only when it's time to prepare taxes are doing themselves a disservice. Sure, accountants can fill out the necessary paperwork to keep your business in compliance with the tax authorities, but that's just one function they perform. Many accountants offer a wide range of overlooked services that can accelerate the progress of your small business.

 

Ask questions

Small businesses that want to get the most out of their relationship with their accountant can begin by communicating candidly. "People are almost embarrassed to ask questions. They think they're the only one with that question or that it's too silly," says Helena Swyter, owner of Chicago-based SweeterCPA. "But an accountant can be a good helper. It's easier for both of us if the small business owner asks questions going forward."

 

One issue that Swyter runs into repeatedly is how to categorize funds. Some businesses commingle business and personal funds and do not clearly categorize what is deductible. Others do not keep accurate records about business and personal expenditures—such as cash purchases or cell phone usage—making it hard to know what is fully deductible. A good accountant can set up an efficient bookkeeping system when a business is first starting out or review a system that is already in place. "I tell people that the best bookkeeping system is the one that they're going to use regularly," Swyter says.

 

Accountants can also offer a much needed perspective before major decisions, such as selling or acquiring a business, taking on a partner, or hiring a first employee. Swyter points out that there is considerable gray area when it comes to hiring an employee versus an independent contractor, and even something as simple as knowing whether to buy a piece of equipment in December or January can be fraught with tax consequences that an accountant can unravel. "I tell all my clients that the best thing they can do for me is to ask me questions whenever they have them," Swyter says.

 

 

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Leverage their network

Because accountants are exposed to different types of small businesses, they can usually offer general advice on a variety of concerns. But in addition to what they know, accountants can help small business owners by who they know.

 

"Accountants get to be very well networked with other trustworthy professionals, whether it be bankers or attorneys or insurance agents or financial advisers," says Josh Dubrow, a CPA and senior manager at Nussbaum Yates Berg Klein and Wolpow, a New York-based accounting firm. "So if it's not something in the accountant's area of expertise, they typically know somebody that they can direct a small business owner to."

 

For example, Dubrow is guiding one of his high tech clients through the maze of proposals to raise capital. He is helping them put together a sound business plan, forecasts, and budget. "This is something that I enjoy doing—actively working with my clients to give them a solid foundation in this situation," Dubrow says.

 

While most CPAs can service a wide variety of businesses, Dubrow concedes that small business owners should interview accounting firms to see if they have expertise in their particular niche before settling on a firm. "You want to know that your accountant has other clients or experience in your industry or has the knowledge base to navigate you in that industry," Dubrow says.

 

Like Swyter, Dubrow would like to see more small businesses keep an open line of communication with their accountant throughout the year on key business decisions—including those that are not related to accounting—such as entering into a major contract or buying a new facility. Sometimes the accountant can uncover opportunities in the negotiations that the business owner might overlook. "Far too often you hear about these things after the fact, which eliminates tax planning considerations because the year is over or the transaction is done," Dubrow says. "If these [transactions] were structured slightly differently, maybe there could be some sort of tax efficiency [for the small business owner]."

 

Keep in touch

Besides these major transactions, accountants can handle smaller, day-to-day functions like bookkeeping in some cases. "We do this for a few companies where we are their accounting department, handling everything from paying bills and invoices all the way up to the financials and preparing tax returns," says Kevin McCoy, a St. Louis, Missouri-based CPA.

 

Some small business owners are not well versed in the financials of their operation, which can lead to costly problems, McCoy says. For example, after he showed one of his clients that the cost of their workers' compensation coverage was alarmingly high, the client is considering negotiating a new arrangement. Regular communication between an accountant and a small business owner is vital to avoid these kinds of mistakes. "I call or email my clients every quarter and encourage them to call me if they need anything in between," McCoy says. "Any farther out than that and you run into surprises that nobody likes."

 

Case in point: one of his clients had bought stock in another company without realizing that the company was burdened by heavy tax liabilities that the new owner was obligated to pay. "If they would have come to me up front and told me they were interested in buying this company, we could have advised them about checking them out more thoroughly or going for just an asset purchase and not the whole company," McCoy says. "We like to hear from our clients on anything that's out of the ordinary or different from their day-to-day operations."

 

Inc.

Guide: Keys to Cash Flow Modeling

Posted by Inc. Jan 28, 2014

Cash-Flow-Modeling---Thumb.gifBusiness evaluation and forecasting resources are especially valuable for small business owners and sole proprietors whose responsibilities extend to every facet of the company’s operations. Cash flow modeling tools can support their decision-making, help to ensure that the company is prepared to handle emerging challenges and opportunities, and strengthen relationships with lenders who can contribute to the company’s long-term success.

 

Click here to download the guide "Keys to Cash Flow Modeling"

Inc.

Back-to-Basics Cash Flow

Posted by Inc. Jan 21, 2014

There are very good reasons for business owners to stay on top of their cash flow, says Robert W. Duron, CPA, associate professor at Husson University’s School of Accounting. A business with well-managed cash flow runs more smoothly and finds it easier to establish and maintain the kind of credit rating required to secure financing for future growth and expansion. Perhaps most important, managing cash flow effectively helps you avoid the kind of surprises that can result in a sudden and unexpected cash crisis, he says.

 

In its basic form, cash flow is simply the total inflows of cash from operations, loans, and capital investments, minus the total outflows from operations, loan repayments, capital expenditures, and equity distributions, says Greg Wank, a partner at accounting firm Anchin, Block & Anchin. The basic cash flow formula is:

 

Beginning cash + Cash receipts – Cash disbursements = Ending cash

 

This can be broken down further into operating cash flow (solely from the buying and selling of goods and services the company is in business to provide), investing cash flow (capital expenditures and other cash flows from long-term investments), and financing cash flow (from debt and equity activity).

 

Cash flow modeling typically is fairly straightforward, but the information it provides is only valuable to your business if you use the right information and input it accurately, warns Doug Mitchell, a partner in Hardesty LLC, which provides on-demand financial management executives to businesses. For example, make sure the “Beginning cash” amount you use in the formula above agrees with the amounts that appear on the statements for your business bank accounts. For the “Cash disbursements” amount, make sure you include:

  • All accounts payables
  • Vendor invoices which have not been received but for which the service or product has been delivered
  • Payroll
  • Loan and/or lease interest and principal payments
  • Capital expenditures

 

To help ensure greater accuracy in the “Cash receipts” variable of the formula, Mitchell suggests organizing them into product and/or service categories, then checking off each category as you add them up. So your formula for determining cash receipts for each individual category is:

(Product/service item) x (quantity sold) x (price) = Cash receipts per category

 

Aron Susman, CPA, is a co-founder of TheSquareFoot, an online platform for commercial real estate leasing. He credits careful cash flow management with enabling his business to expand into three cities since its launch in 2011. “I think businesses overemphasize revenue and do not stress enough about cash flow,” he says. “Revenue is great, but if you are not collecting—and thus have huge accounts receivable—those revenues do not matter. I do not think you can compete in today’s environment if you are not monitoring your cash flow.”


Duron stresses that cash flow management must include a forward-looking perspective to be strategically useful. Start with beginning cash and then estimate both cash receipts and disbursements for a set planning period, he suggests, and he seconds Mitchell’s observation on the importance of including credit terms in those projections. “Sales made in one month may not be collected until one or more months after the sale,” he says. “Over time, a business owner can forecast with surprising accuracy what percentage of sales and/or purchases will be received or paid in a given month.”

 

Mitchell says one of the biggest mistakes owners of growing companies make is underestimating the amount of working capital they need. “Most entrepreneurs are optimists and tend to overstate revenues and understate expenses and surprises,” he observes. Other common mistakes he sees in his practice include:

  • Not linking the cash flow model with the P&L or balance sheet
  • Not linking the cash flow model to the sales forecast
  • Not allowing an extra margin to absorb a receipts shortfall
  • Not balancing/reconciling bank accounts on a routine, daily basis
  • Not monitoring payment patterns of key customer accounts
  • Insufficient attention paid to days sales outstanding (DSO) of smaller customers and to significant past due balances

 

Cash Flow Tools


Most accounting software programs include a variety of cash flow management and charting tools, and many additional resources are available online. Robert W. Duron, CPA, associate professor at Husson University’s School of Accounting, suggests:

 

Aron Susman, CPA, a co-founder of TheSquareFoot, suggests the SBA site is also a good source for answers to common questions about cash flow management. Check out the Managing Small Business Cash Flow – Answers to 10 Commonly Asked Questions blog post and the projected cash flow calculator, in particular. 


Article created by Inc. © Inc.

Content created exclusively for Bank of America.

Business-Model---Thumb.gifImplementing a business model change presents small business owners with both challenges and opportunities. By defining your goals and benchmarks, making sure you have the resources to execute the change, and creating a plan to mitigate the risks involved, you can create a foundation for ensuring that your plans remain on track and perform to your expectations.

 

Click here to download our guide "When to Change Your Business Model"

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