How Do We Bring Value To Our Clients

The first thing we do is listen to and understand what our clients are telling us they need.

For example, when the personal computer came on the scene many years ago, many of our clients purchased one and accounting software as well. At that time, many accountants thought their clients were doing this mostly to reduce the fees they were paying their accountants. They also thought their clients would leave them because their clients could now do a lot of what they had been doing for them.

But the real reason that clients were purchasing a PC and accounting software was because they could now solve a big need they had. Before the PC accountants were preparing after the fact financial statements. Their clients would give them their check stubs and bank statements after the end of the month and the accountants would prepare financial statements that the clients would receive 2 to 4 weeks after the fact.

Even though this was important financial information for the business owner, it was history by the time they received it.

They did not have the ability very easily to know information about their financial operations on a day to day basis, such as cash on hand, accounts receivable, accounts payable, inventory, etc. They therefore could not make daily or weekly management decisions affecting their businesses.

This was the need they had. However, even though this need was solved, another was created from the solution of that need. Even though they could have control over their day to day operations, because they did not understand accounting well enough, the financial statements they produced from the accounting software most of the time was not useful. This caused them an increase in accountant fees to correct the financial statements.

Realizing this new need, we developed a way to significantly reduce the costs of correcting the financial statements through our “internet accounting” service and still giving our clients the control over their daily operations.

This is how we bring value to our clients, which also makes our business more valuable.

 

How Do I Reduce My Costs Without Reducing Quality!

The recession has been upon us now for many years. We have lost more jobs in this recession than all the other recessions since the Great Depression! Many business owners are thinking about cutting costs in order to survive. But what are some of the problems with doing so?

We have had many new clients tell us about their trials and tribulations with attempting to reduce costs. Some of the first costs that business owners look at to cut are so called administrative costs, such as accounting and bookkeeping costs. Where a business owner had an accountant perform certain accounting functions, they will have a bookkeeper perform those functions, thinking the bookkeeper is cheaper.

However, the first thing to look at is, what are the qualifications to become a bookkeeper? Even though there are many places for a person to receive bookkeeping training, there is a lot that is missing. There is no nationally recognized certification, no licensing by the state authorities, and thus no real repercussion for the business owner once things go awry.

The point is that cutting costs shouldn’t mean cutting quality. However, this is exactly what  happens most of the time. And the eventual results are that it costs the business owner more, not less, than it did before. If you only want to reduce costs and are not thinking about the quality and competence, chances are you will unfortunately get this result.

We have been using a system for over ten years now that we call “Internet Accounting.” The way it works is we place the clients QuickBooks on a server located in New England. The clients accesses their QuickBooks through the internet. First we set up their QuickBooks correctly and train whomever if is going to do the data entry tasks. Because we have trained this person and can oversee what they are doing, it enables the client to hire someone at a much lower cost because they don’t have to be concerned about their competence. They know we have taken care of that through our training and oversight. So we have helped them reduce costs without reducing quality!

Should I Have Accrual or Cash Basis Financial Statements?


Many of our clients ask us whether they should have accrual or cash basis financial statements or their businesses. The answer is yes and no or yes and yes.

Accrual basis financials include among other things that are too complicated to go into at this time, accounts receivable and accounts payable.

You record a dollar amount to an accounts receivable customer file and an income category when your company has performed everything to warrant billing the customer. You have recorded the income but you have not received payment yet.

You record a dollar amount to an accounts payable vendor file and an expense category when the company has an obligation to pay for services rendered to your company. You have recorded the expense but you have not paid the bill yet.

The reason accrual is used in accounting is that it matches the income earned to the expenses incurred within the same accounting period, usually the same month. This gives you a clearer picture of what you earned in that month and what it cost you to earn that income in that month.

If you use a cash basis you would only record what you received in payment that month and what you paid in that month. This would not give you a clear or complete picture if, for example your customers were paying you late and you consequently paid your bills late as well. Your cash basis financials might look good but there might be aging accounts receivable that are uncollectible and unpaid aging accounts payable.

We therefore encourage our clients to have accrual basis financial statements because it is a more accurate and complete reflection of what is really happening in the business.

However, some clients may be on a cash basis for income tax reporting purposes. Many smaller businesses are not required to report on an accrual basis for income tax reporting. So for them, they need both cash and accrual basis financial statements: cash to determine their income tax obligations and accrual to have a more accurate and complete picture for management purposes.

All of our clients use QuickBooks. In QuickBooks you can switch from cash to accrual at the click of a mouse. That is if the books have been properly set up and the accounting information has been inputted correctly.

So the answer to should I have accrual or cash basis financial statements is yes to accrual basis if you are required to for income tax purposes. Yes to cash basis if you are required to for income tax purposes. You should always have your books on an accrual basis to better manage your company.

How Do I Reduce My Costs Without Reducing Quality!

The recession has been upon us now for many years. We have lost more jobs in this recession than all the other recessions since the Great Depression! Many business owners are thinking about cutting costs in order to survive. But what are some of the problems with doing so?

We have had many new clients tell us about their trials and tribulations with attempting to reduce costs. Some of the first costs that business owners look at to cut are so called administrative costs, such as accounting and bookkeeping costs. Where a business owner had an accountant perform certain accounting functions, they will have a bookkeeper perform those functions, thinking the bookkeeper is cheaper.

However, the first thing to look at is, what are the qualifications to become a bookkeeper? Even though there are many places for a person to receive bookkeeping training, there is a lot that is missing. There is no nationally recognized certification, no licensing by the state authorities, and thus no real repercussion for the business owner once things go awry.

The point is that cutting costs shouldn’t mean cutting quality. However, this is exactly what happens most of the time. And the eventual results are that it costs the business owner more, not less, than it did before. If you only want to reduce costs and are not thinking about the quality and competence, chances are you will unfortunately get this result.

We have been using a system for over ten years now that we call “Internet Accounting.” The way it works is we place the clients QuickBooks on a server located in New England. The clients accesses their QuickBooks through the internet. First we set up their QuickBooks correctly and train whomever if is going to do the data entry tasks. Because we have trained this person and can oversee what they are doing, it enables the client to hire someone at a much lower cost because they don’t have to be concerned about their competence. They know we have taken care of that through our training and oversight. So we have helped them reduce costs without reducing quality!

7 Wisdoms for Financial Health in Your Dental Practice

Many of our dental practices do not like to deal with the financial matters within their businesses. Often, we coach our dentists to outsource their bookkeeping to one provider and their tax filings to a different CPA. The magic of this combination provides them with a check & balance system to ensure accuracy and peace of mind. The dentist then merely has to act as the leader of their practice, reviewing a few key factors to ensure success. Here are seven wisdoms for you to really begin to monitor the financial health of your dental practice:

  1. Every month, review how the money accumulated within the dental practice was spent. Be sure to monitor expenses related to: staff, lab fees, equipment, supplies and debt repayments. Knowing where all of your money goes is the first step toward understanding where your money should go.
  2. Monitor your cash flow. Are you saving, paying down debt and staying compliant with your taxes? Review the appropriate percentages needed to align yourself with a financial plan that will encourage practice growth and lifestyle desires.
  3. Have an exit strategy. Retiring from your business does not just happen. Create a plan that includes a desired retirement income, risks associated with investments, savings goals and a retirement date.
  4. Save, save, save. By creating a savings goal for each year, you can truly measure your success. Were you able to save 20% of your income? If so, your practice is viable and healthy in relation to your revenue & profits.
  5. Plan for the future. As your dental practice begins to grow, plan for additional expenses that may occur as a result of your growth. Will you need additional equipment, a new building or additional staff?
  6. Manage the debt. A dental practice can be rather capital intensive, especially when you first get started. It is important to manage the debt in accordance to any savings plans that you may have planned. Talking with an experienced accountant will help determine your debt to income ratio and determine a plan to reduce debt reasonably without sacrificing your practice or lifestyle.
  7. Protect yourself. Insuring yourself and your practice properly will provide the peace of mind that you desire. Understand life insurance, disability and liability policies to ensure that all are cared for during unexpected life issues.

They Lied! A/R is not really an asset

When I went to college, my accounting classes taught me that accounts receivable (A/R) should be classified as an asset. All through college and into the working world I had this information ingrained into me. I used it when I was an auditor, a tax accountant, and a controller. With many companies their A/R was their biggest asset. It made the difference between then having a positive or negative bottom line. But they lied!

I no longer look at A/R as an asset. I now think of it as a liability. Isn’t it really your customers or clients liability to you? Isn’t it just an I.O.U. from your customer or client? It’s only really an asset to you when the money is in your hands.

I say this because, well first, it’s the truth. But second, by looking at A/R as an I.O.U, you will think of it differently. It doesn’t seem so tangible when you think of it as an I.O.U or liability from your customer or client. It will certainly make you think about collecting it more quickly and turning it into cash. Most people look at A/R as simply being an entry in their books for future cash, and not actual cash.

Remember cash is king and you can’t do much if it isn’t in your pocket.

5 Things To Monitor To Make Sure Your Business Finances Are On Track

What are the 5 things you must monitor to make sure your business finances are on track? Being busy entrepreneurs, it is important that we don’t lose sight of our business finances in all of that busy-ness. Five areas must be monitored on a daily and weekly basis in order to make sure things are on track.

Accounts receivable. Sometimes we might get excited about our accounts receivable increasing because it means we have made new sales. However, if these accounts are not collected in a timely manner this
could affect our cash flow. Monitor the aging of the accounts and make sure you have collection policies in place to keep them current.

Cash in Bank. Make sure everything that affects your bank account is recorded on a daily and weekly basis. That way you will know the accurate cash in bank balance.

Accounts payable. Make sure all payables are recorded that are due. By having a handle on your accounts receivable, accurate cash in bank balances and knowing when everything is due from your accounts payable, you can predict any surprises in cash flow shortages coming up.

Sales. On a daily and weekly basis, monitor what you have been selling. If you have various products, see which ones are in demand and which ones aren’t. This can affect what you order for inventory. You may also monitor who is buying and who is not. Is there a trend? This information can help you with your marketing and customer retention. Compare your sales with the same timeframe as last month and last year to spot any trends that need to be addressed. If there is a trend in more sales, ask why? If there a trend in less sales, ask why? All of this information will help you uncover trends, both positive and negative, to your business.

Profit. It is important to know what profit you are making on each item you sell. If the margins are going down, you need to discover why. Have you been giving too many discounts? Why? If you are not able
to make the gross profit margin you need, you will have trouble paying all of your expenses. Are there some products or services that are selling more than others? Why? Are labor costs going up? Are material costs going up? If so, you may need to research other avenues for labor or materials or you may have to raise your prices.

You should be able to look at these 5 areas each week in a very short timeframe to make sure your business finances are on track. Look at them often.

What Is The Real Number For Your Yearly Financial Goal?

Many entrepreneurs set yearly financial goals to reach at the beginning of each year. They put together projections and plans to reach them. But what are the numbers they are shooting for? What exactly is the real target? Many place emphasis on increasing their gross sales. You hear a lot of “We’re going to increase our gross revenues by such and such percentage this year!” Others place emphasis on Gross profit, again by noting an increased percentage. And still others place emphasis on their net income. But what if you have debt in your company, which many small business owners do? What if you are a sole proprietor, a partnership, or an S Corporation and you distribute draws or distributions? What about if you need new property, plant, and equipment for the business?

The real number you should be focused on is, after paying for all of your expenses, what left over for you, the business owner.  What remains after the gross profit, after the net income, after paying the principal portion of any debt obligations, after paying out draws and distributions, after reserving money for new property, plant, and equipment, and don’t forget taxes. After paying for all that, what is left? That’s the number you should be focused on when you make your financial goals each year. That number is what YOU get!

To The Moon!

Are those 2011 goals looming on the sidelines?  What to do first?  First, think about something completely different.  Consider shooting a rocket to the moon.  No really, consider how it was done.

NASA didn’t just wake up one day and decide, “Hey -  Let’s throw some people into a rocket, shoot it to the moon, then see if they ever come back!”   No, in fact, we can easily assume lots of time, planning, and research took place.  But even before that, putting humans on the moon started as the seed in somebody’s dream.  Imagination made NASA’s moon trip a reality.   Once imagined, painting a picture of this dream vivid enough for others to understand was necessary.

As outrageous as sending a rocket into outer space appeared, it happened.  The first thing to do with your 2011 goals, which really are dreams, aren’t they, is to imagine them into fruition.  Let the left, rational side of your brain take a rest, while the right, creative side of your brain goes to work.  Imagine what your life will become when these goals find their place in your reality.  Pretend they already are in your reality!  Close your eyes and see what’s different in your life when all 2011 goals are reached.  Then celebrate and feel gratitude for all you’ve just imagined.  Soon the picture in your mind will become clear and you’ll see circumstances in your life lining up in support.  Have fun pretending!

An L.L.C. (Limited Liability Company) is a Legal entity, not a Tax entity

When you go to the secretary of state to register you company, you have created a legal entity. Part of what that means is if your company is sued, the entity will be given notice to appear in a court of law.

However, there is no I.R.S. (Internal Revenue Service) tax form with the words “Limited Liability Company” as the heading. An L.L.C. is a legal entity but not a tax entity. Once you have registered with the secretary of state you then have to decide how the L.L.C. will be taxed. An L.L.C. can be taxed as a sole proprietor, partnership, C corporation, or an S Corporation.

The L.L.C. came into existence in the 1970’s in Wyoming. In Wyoming at that time there was a lot of oil and gas exploration. Typically, there was one person who contributed the money to drill, one person that contributed the labor to do the drilling, and one person that contributed the land where the drilling took place.

Before the L.L.C., the choices of entity were the partnership or the C and S corporations. Since there were many “dry holes” (no oil or gas), there were losses that could be used to reduce individual income taxes. However, only the person that contributed money could take the loss on their individual income taxes up to the amount contributed on a partnership or an S corporation.

The problem with using a partnership was the unlimited liability issue in which the liability is not limited to the entity thus exposing one’s personal assets to lawsuits.The problem with the S corporation is the profit or loss percentage is the same as the ownership percentage. So in our example of the 3 people contributing money, labor and land, if there were equal partners, only the one that contributed money could use the loss to offset other income on their individual income tax return. However, if there were equal partners, the person that contributed the money could only deduct one third of the loss, not a 100 percent.

By forming an L.L.C. and having it taxed as a partnership, the one that contributed the money could deduct 100 percent of the loss against other income on their individual income tax return. In a partnership the ownership percentage does not have to be the same as the profit or loss percentage. And because the legal entity is an L.L.C. it has the limited liability protection.