CPA Archives | Page 14 of 15

Do You Know Your Company’s Risks? Are You Managing Them?

Leaders of small to medium-sized businesses usually have two things on their mind: What are my sales? And, do I have enough cash to make payroll? Don’t settle on a reactionary position in dealing with the risks that can have long-lasting effects.

Many businesses suffer, and fail because their leaders do not see the inherent risks that can negate the years of hard work it took to build the business.Here are some tips to managing the risks:

Look at your company from the 20,000 foot level: The first step to managing risks is to identify, on a broad level, your company environment. What is the established company culture that increases your risks? Why is the culture like this? What is the company philosophy? If you need a blueprint, use the COSO ERM (Enterprise Risk Management) framework as a guide.
Take your business apart: Look at your company by business unit or profit center. Use techniques like questionnaires, interviews, or my favorite, scenarios.
Access the Risks: Access the risks visually. I have found that flowcharts show the snags in operations that lead to inefficiency, misappropriation, and possible fraud.
Develop a plan and assign responsibilities: An ERM plan should tie into the company’s strategic plan. All cylinders should be firing sending the machine in the same direction.
Be proactive in your thinking: Don’t react to crises, but implement controls that can prevent, or at least detect a breach of company policies and procedures.
Communicate the plan: All department heads and executives should own the responsibility of implementing the plan and controls.
Use metrics to monitor: We create executive dashboards that monitor certain benchmarks, critical success factors, and accounting ratios that indicate the plan is in operation. This is essential, because an unmonitored plan is a dead plan.
Be flexible and alter the plan: Nothing is in stone. Businesses are not stagnant, so change the aspects of the plan that are not working.

Selling a Small Business?

So you want to sell your small business that you built from scratch! That’s great, but are you going to sleep at night? Here are a few tips you should consider when selling a small business:

Know what your small business is worth. Compare your small business to the industry, and the regional market share you possess. If you are the value of your small business, you will have a hard time selling it for what it is worth.
Make a liquidation plan of your small business. There are “asset sales” and “stock sales” of a small busines corporation. Find out the difference and consult a financial advisor about which would be better.
Value your small business by its individual assets, first. This valuation will help you understand your tax picture. You should know this before you sign the contract to sell, or maybe before you accept an offer.
Don’t warrant anything. Your small business financial statements are probably not audited, so don’t act like they are. If they are audited, let the CPA attest to its validity. Be careful of what assurances you make about your small business.
Have you considered the option of consulting to your small business after you sell it? This could build a comfort level in the buyer and intice them to make the deal.
Consult your financial advisor before making any decisions to sell your small business. It could be the difference between crafting a great deal, or life-long regret.

Some Tips on Moving from Employee to Small Business Owner

This economy has spurred many to open their own small business because their income decreased, their employer closed down, or they were laid off. Whatever the reason, here are some tips:

The first question I ask a married person starting their small business is, “What does your spouse do for a living?” The first 1 or 2 years of a new small business can be tough, and that second income can be the difference between you closing your doors, or seeing year 3. If your spouse can shoulder the major financial burden for a year, try reducing her salary tax withholdings. Your small business income will probably be lower than the previous year, creating a smaller tax liability.
Do you know what kind of legal structure you want? Sole proprietor, C Corporation, S Corporation, LLC? If you have a partner who is the money person, and have unequal distributions, an LLC may be your best structure for a new small business.
If you are a professional, what restrictions are there imposed by the licensing board on your choice of entity?
How is your overall personal debt? If it is high, you may want to pay it off before making the leap into a new small business. You will need cash for your small business. Cash is king.
How are you going to issue payroll? QuickBooks has a good payroll function for a small business, but complicated payroll issues can take a lot of your time.
In regards to payroll taxes, do not use the government as a bank. This is so common in small business. I have seen small businesses and medium-sized businesses pay the net payroll, but not the taxes withheld. Be very careful, because criminal penalties can arise if you spend the money.
Insurance? Don’t forget. You don’t want your small business to be the source of legal liability on your personal assets. It could mean the difference between you paying a deductible of $5,000 or losing your house. Make sure to consult an attorney on this point before starting your small business.
How are you planning to market your small business? This is a constant effort. Start by looking at other professional organizations that compliment your business. For example, I only go to CPA functions for continuing education. I prefer to meet at lawyer’s functions, contractors, entertainers, and other persons that I can introduce myself for additional business.
If you are hiring employees, check the workers comp rates. In manual labor small businesses, this seems to be a large chunk of the budget.
A few other tips are to budget your expenditures, create a web page, and match your costs to your job.

There are many things to consider.

Consumer Fraud–Identity Theft Protection Tips

Small safeguards can save you consumer fraud giant headaches. Many safeguards are common sense, but in today’s information age, sometimes the sence isn’t so common.

Do not readily give out personal information. For example, some restaurants request a credit card number over the phone when making reservations. Do not give it, and go to another restaurant. Your protection is only as good as their security. Even if the restaurant’s employees are trustworthy, credit card information could be left unattended for the others to view.
Be careful of copied documents or identifications. Years ago, I was asked to prove my residence in a city three different ways for my son’s baseball all-star qualification. One identification they were requesting was a copy of a driver’s license. Parents were unaware that a driver’s license number and birthdate are invaluable data for bank accounts and other privacy circumstances. If you must provide a copy of such, black out the sensitive information. The document you may be handing over may pass through many hands.
Restrict access to your personal information. Passwords on computers are essential. Access to your computer can provide information to undesirable eyes
Do not let anyone cash your checks without a phone call from the bank. Visit your bank and arrange to block the cashing of all checks unless they phone your cell phone. This procedure has prevented the fraudulent check cashing four times in five years for me. The last time, a bank called me for check cashing by a client who did not write the check. Individuals produce fraudulent checks and cash them at your bank.
Do not return calls to suspicious area codes. Scammers text messages, or leave phone messages with some urgent message. They entice you to call a number that is to the Caribbean (e.g., “809” area code) and keep you on the line as long as possible. That can bring charges up to $25 per minute. I have also heard of some scams that transfer your call around the world amounting to hundreds of dollars on your bill. Be careful. Here are some other area codes.

Country Code

Bahamas 242
Barbados 246
Antigua 268
Cayman Islands 345
Monsterrat 664
St. Lucia 758
Puerto Rico 787
St. Kitts/Nevis 869
Jamaica 876
Bermuda 441
N. Commonwealth 670
Trinidad &Dominica 767
Tobago 868

Strategic Planning–Avoiding Sharks with a Blue Ocean Strategy

When I hear, “Think outside the box,” I cringe. I believe that this command frustrates analytical people; they do not know what to do, or how to do it because there are no rules or assumptions.Instead, I like to tell people to use the right side of their brain – the creative side.A strategic planning approach, The Blue Ocean Strategy, facilitates this type of thinking.

Blue Ocean Strategy (BOS) is a corporate strategy and business book written by Professors W. Chan Kim and Ren© Mauborgne, of INSEAD. The strategy attempts to create an uncontested market space, and thereby make competition irrelevant. Dim & Maubourgne initially called this “Value Innovation,” in 5 articles for the Harvard Business Review published before their 2005 book. BOS is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000).

There is no easy way to quickly describe BOS, except by example. Cirque du Soleil is a good example of a company that meets the BOS criteria (focus, divergence, and compelling tagline).For example, compare this circus to Ringling Bros. using the following factors: star performers, animal shows, 3-ring arenas, aisle concessions, theme, unique venue, and artistic dances. Cirque du Soleil concluded that the public really did not want star performers, animal shows, 3-ring arenas, and aisle concessions.In addition, star performers and animal shows were very expensive.They decided to do away with the three, but added theme, unique venue and artistic dances. This created a unique market because they were discarding what the public did not value, and added new aspects that the public would value.Instead of being in a “bloody” red ocean competing on price or quality, they could be competitive by offering a new experience for the audience.

If you are in the artistic world, maybe I can stretch this example to Paul Simon.In 1986, he could have composed music using the same style such as folk (Simon & Garfunkel), or a pop (Kodachrome).However, he used his artistic ability to expand his use of world music. In 1986 he released Grammy award-winning Graceland, which featured the groundbreaking use of African rhythms and performers. In 1990, he followed with the album The Rhythm of the Saints, which featured Brazilian musical themes. These albums helped to popularize world music as a genre.It essentially created a blue ocean for him without competition in a new genre.

Now this is not to say that every blue ocean does not turn red, because once the idea is manifested, there is a window of uncontested opportunity.So, what a business must do is continually develop blue oceans and keep ahead of the competition.

This alone will not confirm success. To stop at a strategic plan level will only bring frustration, because the process will not be complete. In order to be successful, you must properly impliment, monitor, and alter a strategy.

Strategic planning tips when buying a company

So you found the perfect company to buy! That’s great, but are you going to sleep at night? Here are a few strategic planning tips you should consider when buying a company:

Do your due diligence. Investigate the trends of Accounts Receivables, Cash, Accounts Payables, Officer Loans, Sales, and Cost of Goods Sold over five years. The trends will tell you a lot about the past, present, and possibly the future of a company. If these trends look bad, ask the hard questions, and demand support for their responses.
Create a Strategic Plan. Most new owners do not know what this means. The main point is to visualize where your company is in relation to its industry and where you want it to be. The strategic plan will include your internal strengths and weakness. Be honest and don’t look at the business through rose-colored glasses. An honest strategic plan before you buy the business can alert you of business aspects that you overlooked.
Plan for technology. Technology can help you monitor your strategic plan. Along with your budgeting plan, strategic plans have benchmarks that a company wants to meet. Use technology as a “thermometer” of your business health. A few troubling metrics can signal a bigger problem down the road. Also, how will social networking and search engine optomization help you in achieving your goals?
Cash is king. Always capitalize your company adequately and properly. Sometimes the best capitalized companies are those who squander their resources, while the poorest companies may have the best ideas but no capital to get there. Again, your strategic plan along with your maketing and budget plans should give you an honest idea of what it will cost to finance your company. Many feel that once you arrived at that number, multiply it by three because your sales will usually lag behind your estimates for a lot longer than you think.
Consult experts: There are many forms of strategic planning. If you have a good grasp of you industry, you can solicit the help of a strategist and business plan professional to help you organize the plan. Never venture out in a new direction without professional help. A couple of hours of consulting with a CPA or an attorney can save the business down the line.

Personal Accounting: What to do when you are financially in over your head?

So you just added up your credit card statements, and you got that sinking feeling. What will I do now?

Our society is run on consumerism. We have seen in the last year, that without it, the US is sunk. But what if you spend more than you make? What can you do in personal accounting habits? Here are a few tips:

Change credit cards. If you still have good credit and receive zero interest credit card teasers in the mail, it could be a good thing. Try rolling over your debt onto a zero interest card, temporarily. This personal accounting move can give you a little time in paying off the debt before accruing more interest. However, there is a danger. If you do not change your spending patterns, you will be worse off than before. Use the new card in your personal accounting strategy to eliminate your debt, not incur more. So, this means that you may have to cut up all the other cards until you arrive at a zero debt level.
Pay cash and stop using credit. Pay cash for as many things as you can without running your bank balance into your overdraft account. This personal accounting strategy can really teach you how much you spend each month, and on what items. There are few things more sobering than seeing your cash disappears out of your wallet.
Try to cook most of your meals. Yes, yes I know. You can’t cook. But, the internet is full of quick recipes that can make you a real chef Boyardee in no time. If you must go out, go to restaurant.com and get discount coupons, or buy an Entertainment Book. This way you could cut your dining cost in half, and still enjoy yourself. In this economy, even 5 star restaurants like Lawry’s the Prime Rib are offering deals. Look for them.
Don’t borrow money from friends and family. They don’t need your problems, and it may be the last time they talk to you for a while. This of course may not apply in catastrophic circumstances where families pitch in to help each other.
Make a personal accounting cash flow statement. Schedule out your expenses each month, and consider where you can cut. Be honest with yourself. You want to be debt-free before the holidays, in which at that time you can spend responsibly on gifts.

Cash has been and always will be king.

So what have we learned about the financial demise of Nicolas Cage, and his entertainment accountant?

You hear the story all too often, High profile entertainer goes broke. Or Entertainer blames entertainment accountant for bad tax advice. The first question the public asks is how? Doesn’t this entertainer earn $20 million a movie? That is more than ten people make in a lifetime. What did his entertainment accountant do with it? Steal it? Invest it in speculative investments?
I have worked as an entertainment accountant, aka business manager for entertainers for over twenty-five years. The public doesn’t see the view of the entertainer that we do. In fact, the persons usually in the inner circle are the entertainment accountant, attorney, agent, and publicist. Remember, the artist’s image is everything, and if that image conflicts with reality, something is bound to surface at times. Look at Charlie Sheen, or Tiger Woods. Their personal inequities surfaced because it is extremely hard to cover. The same is for the finances. A good entertainment accountant knows when a client is spending beyond their means. I have seen entertainers’ buys real estate all over the world, planes, boats, and rare art. As an entertainment accountant, my position is sound the alarm when a client nears a crucial financial point. That alarm gets louder as their situation gets more desperate.
So, did Nicolas Cage’s entertainment accountant sound the alarm? Did the entertainment accountant contribute to such a travesty? The court records may have told us the answers to these questions.
So what should you learn from this? Well, many of you may not be celebrities, so you wouldn’t hire an entertainment accountant. But, you can act as your own accountant by looking at your financial situation objectively. That is what entertainment accountants do. We don’t look at the things that a client wants, but at the relationship between what the client earns and spends. We also look at the future, and how they will survive when they aren’t hot anymore.
So how to you start?

Act like your own entertainment accountant. Look at your credit cards first. Are you paying them off each month? If not, cut them up live off cash at least for two months. You will see what you really need to survive in your budget.
Are you paying your taxes concurrently? One of the biggest worries of entertainment accountants, is to come to the end of the quarter, or year and not have any funds to pay taxes because the client has spent it. If you are self-employed, think about paying your taxes weekly. You can do this by opening a separate bank account.
Are you using your house as a piggy bank? As an entertainment accountant, the first thing I look at when a client needs to borrow money from their house is why, and what return should we expect. Don’t borrow to spend lavishly. Have a plan on paying it back.

So, if you cannot afford an entertainment accountant, or if you are even not an entertainer, be smart.

Health Care Act Tax Credit: The Problems of Misclassifying an Employee as an Indepedent Contractor

Health Care Act Tax Credit

Business Accountant Los Angeles

Business Accountants, we just want to be loved

So what is a business accountant anyway?

Like the word LOVE, the meaning of business accountant may change depending on one’s level of commitment. Love could refer to a relationship that is casual, sexual, or even metaphysical. Such is the case with the business accountant. No, I don’t mean that you should have a steamy relationship with your business accountant; that would give a whole new meaning to the term of double-entry accounting. What I am getting at is how much to you utilize your business accountant to further business or financial life.

Many would be surprised to learn that business accountants, especially the business management types, act as the “orchestra conductors” of the business world. When lawyers, insurance brokers, real estate agents, or pension consultants need information, they think of calling the client’s business accountant. That is because we have our finger on the financial pulse of clients and know where to find answers. We are not saying that the average business accountant has all the legal, insurance or real estate knowledge necessary to answer your every question. But, we are saying is that a good business accountant serves as a compass to direct you to other professionals who can navigate among a company or client’s historical information.

So many business transactions involve the changing of money. Who else knows records? The ever–increasing speed and capacity of technology helps the business accountant to sift through information and report it with faster speed than most other players.

But how else could you use your business accountant? Many businesses restrict their interaction to taxes or financial statements. We perform those functions, but they deal with historical data. Better yet, we as business accountants, act as strategic planners. We can use your historical information to plan and propose a plan of action for growing your business. The starting point of predicting your financial potential is to have your business accountant lay out your financial history and adapt it to changing market conditions. Your business accountant can then work with your marketing persons, productions staff, and sales people to carve a future where your business can break new ground. This process can transform your business into a leader in new technology, services, or products.

Does your business stand out from the competition? Does your business accountant provide you with the necessary information, processes, and tools to set your business apart and allow it to make money? Is your business accountant committed to your company by using creative ways to reinvent your business?