Nonprofit Accounting Blog

A company’s biggest security threat does not come in the form of outside sources such as break-ins or malware. More likely than not, it comes from employees inside the company. A lost laptop containing confidential company and employee information or a misplaced disk with account information can be detrimental to a company’s security. Protect your company against such internal threats and loss of information by taking specific measures to reduce potential risks.

Diminish the risk of a possible security breach by taking preventative steps such as these:

• Conduct background checks on every employee. An exhaustive employee screening, including reference, credit and background checks, should occur before every hiring. These screenings give the employer a better understanding of the person they are hiring and a heads-up to any potential problems.
• Establish a social contract. People are not as loyal to their employees as they once were. Part of the reason for this is that the employee no longer feels valued or appreciated by their employer. One way to establish a loyal work force is to paying attention to the way employees are treated on a regular basis. Good treatment of employees can boost the company morale and diminish security breaches.
• Make employees aware of confidentiality policies. Periodically inform employees of the company’s confidentiality policies, especially in regard to email. While including this information in an employee handbook is valuable, go a step further and make sure that employees are trained on under these policies.
• Adapt company policies to new technologies. Keep up with technology. Stay informed about the trends and adjust your policies accordingly. Cell phones with cameras and external hard drives that can easily download company information are such technologies. Protect your company against potential security breaches by periodically updating your policies to include new forms of technology.

Read more about the biggest threat to your company’s security here.

Does the idea of a tax audit cause you to lose sleep? Are you worried that you will be unprepared for a tax audit when it comes? Does your staff show signs of anxiety in anticipation for the auditors to walk through your company’s doors?

If any of the above scenarios sound familiar, take heart. The four tips below will help you successfully prepare for a tax audit.

1. Be Ready.
   Ask your auditor for a list of items they will need during the audit, with deadlines for each item. Discuss any questions you have with the auditor before the fieldwork. If you will not be ready before the agreed-upon dates, let your auditor know right away.Know beforehand that you will be required to provide some information on the spot. This may include requests for specific expense reports, journal entry support, or program reports. Prepare for these surprise questions by collecting the information you may need throughout the year.
2. Be realistic.
   Be realistic with your expectations of the audit. Your contract with the auditing firm should set your expectations. It should discuss what the audit will accomplish and your responsibilities.Take note that there is a clear line between accounting and auditing services. Consider hiring a different firm if you need help performing accounting tasks that you are not comfortable performing. However, if you are capable of owning the process, your audit firm can assist you with certain analysis and adjustment information outside of the audit.
3. Minimize Your Risks Year-Round.
   Review and revise your accounting and procedures manual. If you do not have an accounting and procedures manual, develop one. Self-assess internal weaknesses and determine the necessary internal controls to diminish those weaknesses. Revisit your organization’s policies and procedures periodically and determine whether they are being followed.Discuss any changes in operations with your auditor during the year and update your policies and procedures accordingly.
4. Be Prepared to Deal with Any Control Deficiencies.
   Be prepared for your auditor to apply risk standards during your audit. Once your auditor has reviewed the risk and internal control information you’ve assembled, he or she could determine there is a “significant deficiency” or, more serious, “material weakness”.Prepare a written response for any matter identified in the auditor’s SAS 115 letter. Include whether you have taken or intend to take any action in response to the finding.

For more information about preparing for a tax audit, read our blog “SecretsSharedforIRSTaxAudits”.

1. Lack of basic financial information. The main pitfall of companies is that financial information is not shared in a timely manner throughout the organization. For information to be valuable, it must be shared within a realistic time frame. More often than not, the information exists but is not provided in a timely manner to those who need it.

2. Lack of comprehensive financial information. A comprehensive analytics report should be produced by each company and organization. This report should relate each balance sheet, revenue, and expense item. Providing calculations, such as length of time in the receivables and inventory departments, can enlighten the company to problem areas and unfavorable trends.

Provide statistical information, trend reports and extensive calculations, such as cost per unit and gross margin by item. These reports are crucial to the proper management of a company and offer valid insight into the health of that company.

3. Inaccurate or incomplete information. Accurate and complete information is crucial in financial reporting; however, most companies prepare financial reports with information that is both inaccurate and incomplete. If you find dramatic variances in the inventory, cash and accounts receivable balances versus your actuals, you need to take a look at the information. Often, these discrepancies can be explained. The reasons may include data entry mistakes, returns not being entered into the system or the balance sheet not reflecting all divisions.

4. Lack of future-focused reporting. Many companies are familiar with looking back through the financials and reporting on past trends; this is called historical cost accounting. To produce effective financial reports, companies must look ahead and make projections about the future. Reports such as cash flow calendars can predict upcoming cash flow balances for a three month period and can signal advance warnings so the company can take immediate, and preventative, action.

Many companies run into obstacles because they are constantly looking backward instead of forward. Looking to the future can provide valuable insight as to where the company is headed, as well as alert you to upcoming obstacles. Continue to make projections throughout the year and incorporate those projections into your financial reports.

5. Lack of event-triggered reporting. Today’s accounting systems have the ability to alert you to drastic changes or undesirable outcomes in your financial information. These systems continuously perform calculations and compare the results to the criteria you have defined. For example, accounting systems can warn the appropriate people when cash balances far too far, when inventory levels are too low, or when gross margins for a particular products have fallen below the acceptable level. An email is typically sent out when instances such as these occur so the correct personnel can take appropriate action.

Taking the time to establish criteria and set up trigger-event notices will help you become more proactive in managing your financial data. For more information about effective reporting, click here.

While it may not seem to be the most important task on your radar, budgeting is crucial to financial success and stability within your business. According to recent research, many business owners refer only to their bank statements to track cash flow and develop business budgets. This means that most business owners are not developing their budgeting skills to the necessary degree for maximum returns.

If businesses do not monitor where their money is going, they could end up spending more than their capabilities. This lack of knowledge could be detrimental to the company. Help your business avoid unexplained income and expenses by developing and maintaining a strict budget. By facilitating your company’s wealth, you are freeing up your costs to invest in the most important asset of all – your business.

Effective budgeting requires extensive planning and preparation, but, in the end, it will save your business time and money. The following tips are designed to help you create and maintain your budget.

1. Write it down.
   On a blank sheet of paper, write out all the income and expenditure of your business. Make sure you write down everything. Once all of your expenses have been determined, enter them into a spreadsheet. This will enable you to easily track what is going in and out of the business’ financials.
2. Determine essentials and non-essentials.
   Like developing a personal budget, your company budget must take into account needs vs wants. Determine the essentials and non-essentials of the company’s overheads. Find cheaper alternatives for non-essentials that do not directly contribute to business operations or eliminate them altogether.
3. Create monetary goals.
   Establish measurable goals within realistic time frames. For example, one of your goals could be to cut spending by a certain percentage for any given month. Your goals should be challenging and achievable while making sure not to conflict with any other goals. These goals should motivate you and your company, not discourage you.
4. Create a realistic budget.
   Avoid creating a stringent budget that will be impossible to follow. Your budget does not have to account for all of your money, and it should allow for unexpected expenses or cash emergencies.
5. Ask for help.
   Developing a budget for your business is difficult. You should have no shame in turning to various resources for help. Accounting software, such as MYOB or Quicken, can walk you through the process of creating an effective budget. Your accountant can also give you valuable advice. Both resources will help you develop a template for your business budget and train you to expand your own budgeting skills.Keep in mind that while it is beneficial to learn from others, do not depend upon their knowledge. Make the effort to understand the principles behind any advice so that you can have a working knowledge of budgeting. This will ensure your success for constructing and maintaining your budget.

If you would like professional advice before you tackle constructing your budget, contact us today and let us aid you in your journey toward business success.

Developing quality passwords is the challenge of many businesses. Your software, particularly your financial software, contains confidential personal financial data that you do not want available to just anyone. Generating a secure password, however, is much harder than it seems. Your password must be hard-to-crack, as well as relevant enough for you to remember. The following tips will help you develop and store your password to ensure that your financial data does not get into the wrong hands.

1. Choose passwords that would be difficult for those who know you to figure out.
   If your password is challenging enough so that a friend or coworker can not figure it out, you are probably safe to assume that someone who does not know you will not be able to do so either.
2. Pick a phrase that is easy for you to recall and use acronyms.
   Create a password using the first letter of each word in a phrase that you can recall easily. Use symbols such as pound or dollar signs or numbers within the password to achieve extra security.
3. Use keyboard combinations.
   The most secure passwords use a combination of letters, symbols and numbers.
4. Avoid personal information.
   Never include personal information in passwords. This applies to numbers such as license numbers, social security numbers, birth dates, etc.
5. Do not consult the dictionary for password formation.
   Never use words that can be found in any published dictionary.
6. Change passwords every now and then.
   Change your passwords quarterly. To ensure that you remember to change them, mark your calendar. This may be time-consuming, but it will most likely prevent you from identity theft.
7. Never reuse passwords.
   You should never use the same password for multiple files, websites, servers or systems. Using the same password for many financial records increases the risk of someone finding it and gaining access to multiple records. Always use a unique password for each file, website and system.
8. Keep a record of important passwords.
   While you should always keep record of the passwords that guard your financial data, never keep a written record near your computer. If you must store passwords, use an encrypted software. Make sure to keep a printed record passwords in your safe deposit box at a financial institution or another extremely secure physical location. Make a trip to the secure location every time you change passwords to ensure your data is up to date. When you do update the data, be sure to shred all old password records.

Many companies meet tax season unprepared. If you find yourself stressing to scour up records and financials at tax time, your system may be in need of reform. Maintaining good records year-round not only helps you keep track of the transactions you made throughout the year, but it also aids in reducing the stress of tax filing. Well-organized records also prepares you to answer questions should your return be selected for examination.

The IRS has developed a list of the few things that could help you properly manage your records. For the most part, the IRS does not require you to keep records in any special manner. You should, however, keep record of any and all documents that many impact your federal tax return.

Individual taxpayers should keep records of the following information for at least three years:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any proof of payment
• Any other records to support deductions or credits you plan to claim on your return

Records related to property should be maintained for at least three years after you sell or dispose of the property. The following are examples of property records you should keep:

• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records

Small business owners must keep additional records in preparation for tax time. You must keep all employment tax records for at least four years after the tax becomes due or is paid. Business owners should save and file the following documents:

• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099 – MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks

Ultimately, maintaining good records year-round will greatly reduce the stress associated with tax time. Whether you are an individual tax payer or a small business owner, keeping these tips in mind will ensure your success during tax time.

For additional tips to keep tax time stress at bay, review our list of solutions to tax time problems.

Planning an event can be both exciting and challenging. While the details and plans can be engaging, the logistics can be daunting. The success and profitability of an event or meeting is determined by three crucial components: budget development, planning and implementation. Meeting the pre-determined budget is not about cutting costs alone; it’s about planning ahead, time management and revisiting past years meetings and making changes. In order to plan a successful event, you must review past budgets and observe trends in your industry and events like yours. Establishing a budget development planning process in order to meet your needs and goals will ensure the success of your upcoming meeting or event.

First of all, you must revisit past events. Review the supplier contracts from previous and current events in order to get a grasp of what you can spend. Examine budget processes from previous events and make necessary changes. Research historical trends in your industry and past events to determine what needs to be thrown out, or added, to make your event a success.

Once you have reviewed past events, you need to focus on the tasks that need to be accomplished right now. Discuss the profitability goals for the company and each event. Establish areas of the event that need more dollars than other areas. Review attendance goals for the event, keeping in mind “fall out” trends to determine true attendance. Negotiate and streamline supplier contracts in order to ensure top profitability. Develop a tracking system and monitor daily expenses and profit goals.

There are many on-site expenses that companies often forget when developing event budgets. On-site expenses include hotels, F&B, Audio/Visual, Trade Show, Staffing, etc. Make sure to manage all of these expenses properly. Advise your team on unplanned expenses as they arise and determine the worthiness of each expense. Throughout the process, continue to track all expenses in order to maintain margins.

The post event review is one of the most important steps in event budgeting. Review all supplier billings and make sure they coincide with your previous agreements. If you find additional charges, dispute the unapproved expenses. Once all payments have been reviewed, present final billing and be sure to maintain timely supplier payments. Review the budget vs. actual expenses and provide a report on the variances. Let management know what changes were made and why. Since you continuously monitored the process, you should be able to answer these questions sufficiently. Finally, review all processes and identify problematic areas. Discuss how these should have been handled and plan future events accordingly.

Overall, the keys to developing an event budget are examining past events, developing and maintaining a realistic budget and reviewing the budget and processes post-event. The hard work that goes into creating and sticking to the budget will enable your event to flourish and create maximum profitability for your company. Learn more about budgeting for special events here.

 

There are few things that bring on more headaches than tax season. As a small business owner, you know that doing the taxes yourself can be more than a chore; it’s near to impossible. After reviewing the new tax laws for the year, pouring through financials with calculator in hand and deciphering the code known as Schedule C, many business owners are in need of a vacation far away from the tax world.

If the thought of doing your own taxes this year makes you cringe, you should consider hiring a professional. Their knowledge of current tax laws and small business accounting, which they can advise you on year-round, makes hiring a professional a worthwhile investment.

A good tax advisor will keep you compliant with tax laws.

Your choice in a tax advisor is an important decision. Just as you would not choose anyone off the street for your spouse, you must put extensive thought into who you choose to handle your taxes. First in foremost, since you will spend a substantial amount of time talking to each other, you must choose a tax advisor who can communicate well with you. He or she must be knowledgeable of the tax laws, sensitive to the needs of your business, and available to answer your questions and respond to your needs.

Before you begin your search, you need to define your needs. Start with asking questions such as these:

• What do you need from a tax advisor?
• What are your expectations?
• Can he or she help you with those persistent accounting problems?

True tax advisors not only puts together your annual tax return, they also provide many additional services, such as bookkeeping and payroll services, ongoing financial counseling, helping set financial goals and aiding in the decision process for making major purchases or investments. Because tax advisors keep an eye on tax implications, their input year-round is beneficial to your company’s financial health. Find a tax professional you can trust not only with your taxes, but also with your business decisions.

Interview potential tax advisors in order to find one who meets your needs.

Once you have defined your needs, start searching for the right candidate. Ask fellow business owners, your lawyer, or your banker for recommendations. Once you have collected several names, check out their background and give each of them a call. Any advisor should be able to set aside some time to meet with you, under no obligation. In that initial meeting, thoroughly question your CPA. This is, after all, a job interview that will lead you to the right candidate. Here are some important questions you will want to ask:

• How much do you charge?
• How quick is your turn-around?
• How many people will be working on my account?
• Can I reach you by both phone and email?
• How many clients do you personally serve each year?

When you ask questions, pay attention to language as well as the answers. If he or she isn’t able to get the message across in a way that you understand, the relationship will not be successful.

Before choosing a tax advisor, always ask for personal references.

After you have interviewed all the candidates and narrowed your choices down, look at their knowledge and experience in your particular industry. Do they know the tax laws well? Have they worked with other businesses in your industry? Ask for references (two or three names) from companies similar to your own – in type, size and situation. Ask them about the tax advisors’ response time and track record. Your references will provide you a much needed outsider’s view.

Finally, look for an accountant with long-term potential. Ask yourself, “Will this particular tax advisor grow with my business?”. If you trust that the tax advisor will give you good advice should you expand, and he or she meets all the criteria you defined for your accountant, you have found the perfect tax advisor for you. For information about our tax advising services, visit our About Us page.

Starting a business can be exhilarating and terrifying all at once. You never want to be the one that says, “If I knew then what I knew now, I never would have…” As business consultants, we hate to see small business owners paying the price for mistakes made due to lack of information. Therefore we are providing this list of five easily avoidable errors that small businesses make:

1. Investing your Retirement Savings into your Business.
   Many receive their 401K or IRA statement and are tempted to use the extra capital for their fledgling business. Don’t do it! Your retirement should be protected like Fort Knox. If, for any reason, your business doesn’t succeed and you have to file personal bankruptcy, your retirement is generally safe from
   creditors. That fund will give you something to fall back on even if you come close to losing everything.
2. Deciding on a Sole Proprietorship
   Yes they are easy and fast to set-up, but sole proprietorships leave you vulnerable to have your personal assets taken by business creditors. Your home, bank accounts and possessions are free game to creditors and they will not hesitate to take them. A limited liability corporation (LLC) keeps the liabilities where they belong – in your business.
3. Neglecting to Read the Fine Print
   Although you may have already established your business as an LLC, your personal assets may still be at risk. Business credit cards, bank loans, tenant agreements and more may have “personal guarantee” language that will require you to personally pay your businesses debts. Look for that kind of language in
   every agreement you sign and strike it from the contract.
4. Forgetting to Get Insured
   According to entrepreneur.com, about 8 million business owners operate out of their homes in the United States. Home insurance policies do not offer the same level of coverage that most small businesses need, especially when their homes house expensive equipment. General liability insurance offers a broad range
   of policy options at a relatively inexpensive cost. 
5. Being too Trusting
   Unfortunately theft is highly common in small businesses. Sometimes it is as small as a few office supplies and sometimes it is as serious as an employee rerouting funds to their personal accounts. Watch your books and inventory and keep an eye out for discrepancies. If you’re not sure how to do it, find an expert
   that can review your books on a quarterly basis and help you identify and address any red flags.

Most small business owners are optimistic by nature and don’t want to address the possibility of things going wrong. By preparing for the worst, you will ensure that you are protected and set-up for success. Minimize your risk to save yourself from headaches, heartaches and big money losses.

For more business tips, check out our article on how to avoid the top five financial mistakes that can put you out of business.