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It’s an Accrual World…or is it?

Cash or accrual? Accrual or cash? Which approach should I take?

Huh?

Yeah, we’re talking about accounting approaches…again.  But that’s ok.  It’s our business.  And it should be yours, too.

Sure, you’re the business owner, founder, inventor, chief creator or whatever. But if you don’t know how your expenses are handled then you might not be in business all that along.

So, please, pay attention, here.  You do have a choice in accounting approaches. And it has to do with timing.

If you use cash basis accounting, revenue is recorded when cash is received from customers and expenses are recorded when cash is paid out (payroll and bills).

  • Usually smaller businesses (less than $5 million in annual revenue)us this system as it is simpler.
  • It is not about how you are paid (cash) rather it means that invoices aren’t income until they are settled.
  • Same with bills—they aren’t expenses until they are paid.

Accrual basis accounting records revenue when it is earned and expenses are recorded when consumed.  That is:

  • Income is recognized as soon as an invoice is generated—not paid (payment received).
  • And bills—expenses—are recognized as soon as they show up, not when they are paid.
  • This system works better for larger companies, usually with $5 million or more in annual revenue.

Then there are hybrid systems, too. But be sure and understand your business and seek out the counsel of an accounting professional before you choose an accounting method for your company.

For more on how to choose and implement an accounting approach, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their financial strategy from the back office to the boardroom.

**photos courtesy of Unsplash (Steve Johnson and Scott Graham, photographers)

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Graduation Day

There are milestones in every life and relationship—first meeting, marriage, births, graduation day.  And with each milestone comes a change.  Sometimes they are difficult partings, others joyful.

The same goes for business relationships. As a fractional CFO and controller, I have seen many companies of various sizes and values grow right in front of me.  Some start out with little financial strategy or processes and grow into companies of substance, size and scale.  In the case of the Big Dot of Happiness, the owners decided to sell the business.  Through the acquisition, I worked with their team, assisting with purchase price allocation accounting, processes and implemented accrual accounting practices.

When I first met Big Dot, a year ago, my assignment with them was to help establish financial processes and to act as their fractional controller.  Recently, the time came to “graduate” them to the next level.  They had grown significantly, production was higher, and they needed additional resources to help them grow.

My work here was done.

While it was sad to not be continuing as their day-to-day financial expert, it was gratifying to know that I had an impact on their growth and future.

Some of the things we put in place to make the financial aspect of their business come into focus:

  • Established uniform accounting practices; that is, put an accounting system in place.
  • Created and implemented a system for following accrual accounting.
  • Established a financial reporting package.
  • Assisted with creating a better way to look at inventory system and cost-of-goods sold infrastructure.
  • Attended to daily cash flow management and monthly close procedures.
  • Built balance sheet reconciliations and more.

It was a fun ride and I thoroughly enjoyed working with them.  I got to implement some needed financial strategies and along the way met and worked with some talented, smart and gracious people. This was living proof that sometimes the best thing you can do is help someone to the next phase of their business.  As the Tim McGraw song says, “when you get where you’re going, turn around and help the next one in line…”

Glad I could do my part and help in the transition to their new full-time controller at their Wisconsin headquarters.

Tina

For more on how to transition your business to the next level, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their financial strategy from the back office to the boardroom.

*photos courtesy of Unsplash (Good Free Photos) and Tina O’Banion

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Could I Get an Interpreter Here?

Do you ever feel like you’ve been to a foreign country when you leave your CPA’s office? I mean, really, they seem to speak in an altogether different language.

It’s like you need an English-to-CPA dictionary. Or at least a phrase book. Now there’s a thought.

Instead of immersing yourself in a whole ‘nother culture and language of numbers, how about you learn a few key terms and notions that will help you navigate the financial landscape between you.  That is, the balance sheets, income statements and tax returns that describe your company in financial terms.  After all, you know your company best—they just know the numbers better.  It is, really, up to you to put two and two together…oh, sorry, I couldn’t resist.

Here are a few key words, phrases and concepts to keep top of mind when next you visit with the green-eyeshade monster:

  • Accounting period
  • Cash flow
  • Cost of sales
  • General ledger
  • Gross profit
  • Income statement
  • Liabilities
  • Liquidity
  • Return on investment (ROI)
  • Working capital

While this doesn’t cover everything, it will, in the continuation of the travel metaphor, at least keep you from missing your (financial) train. You don’t need to know all of these concepts in great detail, but you should at least have a passing definition and some examples in your mind for each one.  Over time and as your relationship builds with your financial team, you will become more literate in the language.  And they, in turn, will become more knowledgeable about your business and industry.

For more on how to speak the language of finance, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their financial strategy from the back office to the boardroom.

**photos courtesy of Unsplash (Ivan Shilov and Waldemar Brandt, photographers)

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What’s Mine is Mine and What’s Yours is Mine

OPM. Other people’s money.

In the world of investments that’s usually how an enterprise gets funded.  The days of banks being the leading (or only) source for loans and funds for investing have been waning for quite some time.

Have you taken advantage of using funds from private investors to fund and grow your company? If you have, you know that it can be an adventure, but it can also be a positive way to grow and expand.  But if you take this road, what should be considered in handling other people’s money?

Here’s a list of considerations:

  • Involve a third party, like an attorney or money manager, to accept, handle and return money.
  • Set up separate accounts just for the private lending cash; also consider not co-mingling the cash from multiple investors.
  • Consider assigning each loan a specific role—i.e., operational improvements or warehouse expansion.
  • Be sure and follow your state’s regulations on reporting and filing any reports.
  • Repay your investors promptly and to the plan agreed to. Continue to pay interest until their portion of the investment is paid off.

Whatever you do, start with a clear plan and then stick to it.  As the saying goes, “those who fail to plan, plan to fail.”

For more on how to work with investment groups and individuals and handling investor’s money, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their financial strategy from the back office to the boardroom.

**photos courtesy of Unsplash (Allef Vinicius and Sharon MCutcheon, photographers)

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Welcome to the Hotel Cali-Texas…

Out of sight, out of mind, right?

Used to be, the boss could call an all-hands meeting in the company cafeteria and look everyone in the eye and interact.

Well, in the age of COVID, having off-site employees might mean they are out of sight, but they really aren’t out of mind. And when it comes to payroll and other basics of human resource management, they really should be top of mind.

They might be in California when HQ is in Texas.

Having a remote workforce, particularly one that that spans multiple cities and states—and maybe even countries—is more the norm than it has ever been.  However, when it comes to payroll and other things that impact them, things change dramatically if they are in L.A. and you are in Dallas.

Here’s a list of considerations:

  • Payroll
  • Income and other taxes
  • Hiring rules
  • Wage and hour requirements
  • Immigration rules

Just because someone works for your company doesn’t mean the rules of your corporate home state (or even city and county) apply.  The fact is they reside some place else.  This means the rules where they are doing the work apply.  If an employee works for a Dallas company remotely in Atlanta, then payroll and income taxes for Georgia apply to them and must be paid to the state of Georgia.  Ditto the rules on the conditions of their employment and how their work hours are governed.

For more on how to manage your people, payroll and other important assets, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their financial strategy from the back office to the boardroom.

**photos courtesy of Unsplash (Chris Montgomery, Keem Ibarra and Jamie Lopes, photographers)

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Demystifying that Five-Letter Word: “Audit”

The very utterance of the word makes even seasoned businesspeople cringe and cower in fear.

“Audit? Why do we need to do an audit?”

OK, before you go into hiding and crawl into the fetal position in a corner, let’s stop and realize just what an audit is, the kinds of audits there are and that an audit can actually be a good thing.

“Really? Oh, pray tell, please continue,” she said.

Actually, there are nine different types of audit.  And they all play a role in the success—or failure—of your business:

  • Internal
  • External
  • IRS tax (the one we all think of)
  • Financial
  • Operational
  • Compliance
  • Information system
  • Payroll
  • Pay

Audits are a way to objectively examine and assess a company’s performance—operational, financial, and other aspects of the company—to ensure things are working and where there might be room for improvement.  They all involve:

  • A review
  • Assessment of findings
  • Recommendations

In many cases, audits are a legal requirement.  But in the end, they all are about measuring performance and compliance with some entity’s rules. While having the IRS look at your books is daunting at the very least, if you are complaint and have kept up with your books, it will be a valuable exercise and worthy of lessons learned.

For more on how to manage your finances and use audit to your full advantage, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their financial strategy from the back office to the boardroom.

*photos courtesy of Unsplash (Stephen Dawson, Markus Winkler and Mwangi Gatheca, photographers)

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