Business Best Practices

Small business owners who conduct regular reviews of their business’ operating health are more likely to detect potential issues before they develop into major problems. Some areas should be monitored regularly since they hold the greatest potential for harming a company’s long-term financial health.

Cash Flow

You should be concerned if your cash flow is insufficient to cover expenses because payments for goods or services are slow in coming. Beware also if your cash reserves accumulate rather than being put to work. Excess funds may be parked in short-term investment accounts, but ideally, they should be put to work growing the business.

Gross Profit Margin

If it is shrinking over several quarters, your production costs may be rising at a faster pace than your prices. Or, it may because you are charging less than in the past. Either way, declining gross profit margins are a threat to the financial health of your business.

Receivables

If they are growing faster than sales, it is a sign that your customers are not paying what they owe you in a timely manner. You may need to take steps to improve your collection procedures. Be proactive and consistent about issuing invoices and providing any necessary supporting documentation. In addition, contact customers as soon as you detect any delays in payment and stay on top of accounts that are past due.

Debt

Almost every business carries some debt. It’s generally not a problem as long as it is kept under control. Too much debt is a different matter in that it can eat up your cash, cut into your profits, and reduce the return you’re getting on your investment in the company.

Assets

Turnover rates are an important measure if your business carries inventory. When inventory turns over slowly, cash flow suffers. Your best approach is to determine how many days’ worth of product you’d ideally like to have on hand and adapt your purchasing to meet that goal. Additionally, keep an eye on fixed assets. If you have equipment that’s not being fully utilized, you may be able to repurpose it. If not, it may be time to sell or donate it.

Professional Input Can Be Valuable

Business owners should evaluate a broad range of financial information when making decisions. The input of a financial professional can be helpful in the assessment of a business’s overall financial health

Perhaps the number one action you can take to support the financial health of your small business is to stay on top of accounting. Make sure you’re aware of most small businesses’ accounting challenges and learn how to overcome them. We’ll tell you how here!

Banking

You’ve been banking for years, and you know how to manage the task. However, when you own a business, banking isn’t like managing personal checking and savings accounts. Unfortunately, many small business owners use their personal funds to pay for business expenses, especially when first starting out. Even small costs add up over time. This “cross contamination” of spending between personal and business accounts can lead to costly mistakes, not to mention headaches for your accounting team. Keep personal expenses, and business expenses separate all the time. Have dedicated bank accounts and credit cards only used for one or the other. If you need to track down an expenditure, you only need to look in one place.

Budget

When bank accounts are separated, budgeting becomes exponentially easier. You can even use an accounting software program to help you keep up with money coming and going to and from your business. However, recognize that simply entering information into a software program is not the end of the work when balancing a budget. Thinking that is true ends up being the downfall of many small businesses. Budgeting for a business means forecasting to ensure that unexpected expenses can be covered, managing inventory, taxes, and more. A shift in any direction can throw off any budget. That’s why many small businesses opt to outsource their accounting. The known upfront expense of doing so can far offset costly budgeting errors down the road.

Unexpected expenses

As mentioned above, you must consider the unexpected as part of your budget. Additional (new) taxes, payment delays from customers, rising costs of materials and supplies, new employee training, etc., are all possibilities. A qualified accountant is aware of these unexpected expenses and others that your business could face and knows how to prepare you for them. Awareness of what could financially happen in business is crucial to long-term profitability.

Payroll

While unexpected expenses are likely the most daunting for a small business, payroll is almost always the most significant. Payroll entails more than what you pay employees. New employee classification, if incorrect, could cost you a bundle in penalties. Other payroll-related accounting challenges are pay accuracy, proper tax filing, compliance, and paid time off tracking.

Unless you’re an HR professional, and chances are you’re not if you’re the business owner, consider recruiting a qualified accountant to help you manage payroll. It will save you headaches in the short term and money in the long term.

Taxes

A conversation about accounting and small business isn’t complete without discussing taxes. The tax struggle can be daunting, from filing to making sure you pay enough but that you don’t overpay. A significant challenge regarding taxes is merely keeping up with the ever-changing tax laws. A qualified accountant or CPA will be up-to-date on new regulations and guidelines so that you don’t have to be.

Overcoming accounting challenges like these is easy with a qualified accounting team on your side. Consider outsourcing your accounting needs so that your focus remains where it should – on running your business your way.

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Contact our accounting professionals now for help managing your small business finances.

Cash is critical to the functioning of every business. Maintaining a healthy cash flow not only allows a company to meet its financial obligations but also gives it the flexibility to take advantage of emerging opportunities.

All too often, however, small businesses find themselves in a cash crunch, struggling to pay the bills and stay afloat. The good news is that businesses can take various measures to manage cash flow more effectively.

Controlling Expenses

A good place to start is by reviewing expenses to determine if there are areas where you can shave costs by contracting with another vendor or renegotiating existing contracts. Costs for ongoing goods and services, such as utilities, shipping, and telecommunications, should be reviewed frequently to see if expenses can be reduced. And when paying suppliers, consider whether it makes financial sense to take advantage of any early payment incentives that may be offered.

Keeping Debt in Check

Debt can be a useful tool if used properly, so be sure to keep it at a manageable level. Before your business takes on a new loan, reach out to multiple lenders and compare the terms they offer. When acquiring equipment, consider whether leasing may be a better option than borrowing money to finance its purchase. For short-term financing needs, a line of credit is a helpful tool. The lender will base interest charges only on the amount your business draws from the credit line.

Managing Inventory

Maintaining excessive inventory can tie up cash unnecessarily. If your business carries inventory, avoid overstocking. Your inventory management system should be able to indicate the minimum quantities that you need to keep on hand in order to meet your customers’ needs.

Simplifying Billing and Collections

Employees who handle billing and collections should have specific, clear guidelines. By standardizing the process, you help ensure your business will be paid promptly. You can speed up payments by offering discounts for early payment or by encouraging your customers to pay using electronic funds transfer. To help minimize the problem of unpaid accounts, consider making follow-up calls or sending email or text message reminders within a set period after you have provided goods or services or when a bill’s due date passes. Minimizing Taxes When Possible

Deductions and credits can help your business limit its tax burden and boost its cash flow. A knowledgeable tax professional can keep you informed of any special tax breaks that may be of value to your business, such as the energy credit for the acquisition of various types of alternative energy property.

Make Planning a Priority

Identifying the causes of reduced cash flow and taking steps to rectify a cash flow crunch is critical to the ongoing success of your business. Proper cash flow planning can help you make better use of budgets and employ financing and capital more effectively to increase revenues as well as boost profits. If erratic cash flow is a recurring issue for your business, it can be helpful to gain the insights and the input from an experienced financial professional.

 

What is FFCRA?

The Families First Coronavirus Response Act (FFCRA) was passed in response to the spread of the novel coronavirus and the disease it causes, COVID-19. The Act became effective on April 1, 2020, encompassing two other acts, the Emergency Family and Medical Leave Expansion Act (EFMLEA) and the Emergency Paid Sick Leave Act (EPSLA).

The purpose of FFCRA was to:

• expand the Family and Medical Leave Act (FMLA) until December 31, 2020, for leave and income loss for employees who must stay home to care for children due to school or childcare closures in response to COVID-19
• create two weeks of paid sick leave for childcare and other coronavirus-related leave
• provide tax credits related to paid leave mandated by the act

THE IMMEDIATE QUESTION: What Happens Now that FFCRA has Ended?

When the Act was proposed, no one anticipated that coronavirus would be part of everyone’s daily life, nor that “pandemic” would become a household word. Now that this is the case – and now that there’s a new POTUS – questions buzz about the FFCRA’s fate. While the FFCRA no longer requires employers to provide COVID-related sick pay or paid leave, employers who choose to do so will receive a tax credit for those wages through March 31, 2021.

The IRS is expected to provide further guidance soon to businesses impacted by the FFCRA. Until then, employers are on their own in terms of deciding whether to provide leave. If they do, they must carefully navigate their decision to avoid potential discrimination issues.

GENERAL INFORMATION ABOUT FFCRA

Which Employers are Responsible?

Government agencies and private businesses with fewer than 500 employees must comply with the FFCRA. Businesses with fewer than 50 employees are exempt from the FFCRA if they can show that providing benefits would put them at risk of going out of business. Businesses with fewer than 25 employees do not have to reinstate employees that return from leave. All businesses with 25 or more employees must reinstate employees after returning from leave.

Which Employees are Eligible and What do They Receive?

Full-time employees who have been employed for at least 30 days and are unable to work (i.e., via remote) and who must care for children at home due to the coronavirus health emergency are eligible.

Part-time employees are eligible for the number of hours of leave they work on average over a two-week period.

Employers first offer unpaid leave (or accrued vacation time) for ten days (80 hours). After that time, paid leave begins at two-thirds of the employee’s regular pay rate. Compensation can continue up to 10 weeks as long as daily pay does not exceed $200 and total pay (for the ten weeks) does not exceed $10,000.

For employees unable to work because they are quarantined for COVID-19 exposure, illness, or symptoms, employers must pay them at their full pay rate for ten days (80 hours). A 10-week extension exists for full-time employees at two-thirds of their regular pay rate if needed for a total of 12 weeks for these employees.

Qualifying Reasons for Leave

An employee qualifies for paid leave if they are unable to work at their place of employment OR via remote (i.e., from home) due to:

• Federal, State, or local quarantine or isolation related to COVID-19
• A health care provider’s advice to self-quarantine due to COVID-19
• Symptoms of COVID-19 while in the progress of actively seeking a medical diagnosis (i.e., testing)
• The need to care for a quarantined individual or an individual who is having symptoms of COVID-19 (i.e., a child who cannot attend school or daycare or a child whose school or daycare is closed due to COVID-19 restrictions)

What Tax Credits are Businesses Entitled to under the FFCRA?

Private companies can seek reimbursement through fully refundable tax credits each quarter for paid sick leave and paid family leave (i.e., FMLA). The tax credits are applied against an employer’s already-owed Social Security taxes. If that is not enough to offset the payouts to employees, the Treasury Department helps cover the balance.

What’s Next?

Since Congress did not renew, the FFCRA employers are no longer required to offer paid sick time or paid leave to employees. However, employers who choose to do so voluntarily can still claim tax credits for doing so until March 31, 2021. In light of this federal ruling, employers should keep in mind that state and local laws in their areas may not be the same. Some states extended rulings that require employers to cover pay for COVID-related leave. Check with your state and local government to know the laws where you are.

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And as always, your tax professional should be up-to-date on all the latest guidelines and regulations about FFCRA, so check with them first so that your business is on track moving ahead in these still-uncertain times of the pandemic.

Get back to the job of running your business and leave the accounting to us! Call us at 407-281-7375 now and request a free consultation to find out how we can work together for your success.

To lease . . . or not to lease. This is an issue business owners often face. If you are weighing the pros and cons of leasing versus buying, here are some things to keep in mind.

Cost
Evaluating costs is more complicated than comparing the price of leasing a piece of equipment versus its purchase price. You will also want to consider these issues:

• How soon will the equipment need to be upgraded or replaced? Highly technical or specialized equipment becomes obsolete quickly and may be a good candidate for leasing.
• How will you arrange for service and repair? Leasing arrangements often include maintenance of the equipment. If you’re thinking of buying, research the equipment’s repair history as well as the cost and availability of reliable service.
• How long will you need the equipment? If your use will be short term, then leasing may be the better option.

Cash
If you’ve been leasing your equipment, then your costs have been predictable. Purchasing equipment can substantially alter your cash flow. Be sure you consider how purchasing your equipment might affect your business’ finances.

• Can you save money by buying or leasing equipment? If — and when — cash savings will be realized is an important factor for you to weigh.
• Do you have the cash available to purchase the equipment? If you use cash for a down payment, you may have less cash for operating and other business expenses.
• How will financing your equipment purchases affect your ability to get credit for other things? If you anticipate having future credit needs, you may want to avoid adding equipment loans to your current debt load.

If you’re weighing leasing versus buying, give us a call. We can help you look at how the various options will play out.

Contact us today at 407-281-7375 and ask for Denise May to discuss your business needs with an experienced Longwood, FL accountant or request your free consultation online now.

Your manager breaks her leg playing softball and will be out for a month. Or your receptionist’s husband lands his dream job, but it’s out of state so they’ll be moving. When you own a small business, learning to expect the unexpected comes with the territory. Yet, you don’t have to stand idly by and wait for something to disrupt your finances and send you down a path of trouble. Consider being proactive with these troubleshooting tips.

Watch Your Numbers

You can monitor your company’s financial health, spot developing problems, and improve performance by reviewing key ratios derived from the numbers on your financial statements. Taken together, these ratios help paint a picture of your company’s financial well-being.

At times, you might dwell on problems in one particular aspect of your business. But don’t ignore the rest. If you’re not seeing the big picture, you might not spot trouble in other areas. For example, if your profit margin is falling, you could become so focused on trying to find a solution that you fail to notice that several of your biggest customers haven’t sent a payment lately and a cash flow problem is brewing.

Watch Your Assets

Always try to make the most of your assets. If you carry inventory, keep your eye on turnover rates. Slow inventory turnover can strain your cash flow. Figure out how many days’ worth of product you’d ideally like to have on hand, and adapt your purchasing to meet that goal. Also, check your fixed assets. If you have equipment that’s not being fully utilized, you may be able to repurpose it. If not, it may be time to sell or donate it.

Watch Your Debt

It’s practically impossible to operate a business without taking on at least some debt. Debt itself isn’t a problem, as long as you keep it under control. A high level of debt can eat up your cash, cut into your profits, and reduce the return you’re getting on your investment in the company — and that’s definitely trouble.

Get back to the job of running your business and leave the accounting to us! Call us at 407-281-7375 now and request a free consultation to find out how we can work together for your success.