How An Accountant Can Help Your Business Grow And Prosper

How An Accountant Can Help Your Business Grow And Prosper

Accountants do a lot more than report numbers and file tax forms. Given the opportunity, your accountant can be a real asset to your business. There are at least eight ways that an accountant can help your business grow and prosper.

Budgeting

Budgeting is a critical aspect of small business management and forms the foundation for your future growth and operational efficiency. Budgeting can be a tough exercise, especially in smaller enterprises. Your accountant can help you to create a realistic budget, one that reflects accurate numbers and one that will help your business to achieve its goals and to get rid of unnecessary costs.

Cash Flow

For small enterprises, cash flow often makes the difference between success and failure. It is the number one reason why many small enterprises battle to grow and often land up underwater.

Small companies with clients that often pay late, or who are subject to unexpected expenses or firms who struggle to develop efficient cash management systems, will most likely benefit a great deal from the support of experienced accounting professionals.

When you employ an accountant, she can map out the cash flow trends and implement a system to balance the inflows and outflows of cash. Gaining control over your cash flow is the doorway to business growth.

Collections And Receivables

Companies that have to wait on payments and battle to get fees from clients will benefit from a system to handle unpaid invoices more efficiently.

More than half of the small businesses surveyed above list accounts and collections as the top concern for their business.

Debt Management

Many small businesses utilize debt. What an accountant can add to the mix is the ability to distinguish between good and bad debt and the know-how to get rid of toxic debt through the development of repayment strategies. For enterprises that require taking on new debt, an accounting professional can improve the terms of the loan.

Financial Planning

Growth is typically hazardous and hard to achieve without a well developed strategic plan. Accountants understand the key questions that need strategic answers, items like, ‘what number of staff you can afford to employ and what your sales targets for the coming year should be?’ Integral to this process will be thoughtful guidance in respect of additional financing your business will require to fuel its growth targets.

Legal Structure

More than 70% of small businesses are structured as sole proprietorships. The simplicity of a sole proprietorship is very beneficial, but it may not be the best for your future success. An accountant can help your company select the appropriate legal structure to limit your tax obligations and protect you as an owner from the perils of owning a business.

Payroll Compliance

Payroll tax is the primary non-compliance issue for many small companies, and it paves the road with steep fines. Some enterprises outsource their payroll function, but only 50% of small companies involve their accountant. Your accountant has the ability to manage your compliance with payroll requirements and the know-how to develop a monitoring system to hedge you against cash flow problems when your business grows.

Tax Planning

More than 70% of small enterprises employ an accountant for tax preparation, but only 30% go on to invite their accountant in for tax planning advice. An accountant will guide you into full compliance with all your tax obligations, something which requires uninterrupted attention. A once a year review is of dubious value.

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Pandemic Accounting

No one foresaw the number of lease concessions resulting from the pandemic or the complexities that arose from the Paycheck Protection Program’s loans. The advice was provided by FASB staff Q&As, AICPA Technical Questions and Answers, and a GASB technical bulletin. Some effective dates were postponed.

The FASB delayed the effective dates for new revenue recognition and lease accounting standards for prepares that have not adopted them yet. They also proposed the delay of the effective date for its long-duration insurance contract standard.

Lease Concessions

It is not required in respect of lease concessions related to the pandemic for a lessor to analyze each contract to determine whether enforceable rights and obligations exist. The lessor or lessee can apply or not apply the lease modification guidance to those contracts. The choice is available for pandemic-related concessions that do not result in a substantial increase in the lessor’s rights or the lessee’s obligations.

When a deferral changes the contract’s timing but does not substantially change the amount of the consideration, taxpayers can use one of many methods to account for the same. None of the methods provide any advantages over the others.

  1. Method One: Account for the concessions as if no changes were made to the contract. The lessor increases its lease receivable, and the lessee increases its accounts payable as receivables and payments accrue. On income statements during the deferral, the lessor still recognizes income, and the lessee acknowledges expenses.
  2. Method Two: Account for deferred payments as variable lease payments.

Some lease concessions can be accounted for as if the enforceable rights and obligations existed in the original contract, while others may be accounted for following Topics 842 and 840. However, Topic 842 must be applied consistently to leases with similar attributes under similar circumstances.

Lessors must disclose material concessions granted, and lessees must disclose material benefits received, and both should disclose the effects of the disclosures.

PPP Borrower Accounting

Nongovernmental entities can account for PPP loans as a financial liability and accrue interest following the interest method. The TQA refers to nongovernmental entities only, but this includes business and not-for-profit entities.

According to the TQA, an entity accounting for the PPP loan under Topic 470:

  • Would record the cash inflow from the PPP loan as a financial liability and accrue interest using the interest method.
  • Would not impute additional interest at a market rate.
  • Would record the proceeds from the loan as a liability until (a) the loan is partly or wholly forgiven and the debtor has been legally released, or (b) the debtor paid off the loan.
  • Would reduce the liability by the amount forgiven and record a gain on extinguishment once the loan is partly or wholly forgiven and legal release is received.

Suppose a nongovernmental entity is a business entity and expects to meet the PPP’s eligibility criteria¾and concludes that the PPP loan is in substance, a grant expected to be forgiven¾it may account for the PPP loans by analogizing to IAS 20, Accounting for Government Grants and Disclosures of Government Assistance. It cannot recognize government assistance until it has the assurance that the aid’s conditions will be met and that the aid will be received.

Suppose it has reasonable assurance that the conditions will be met. In that case, the grant’s earnings impact can be recorded systematically for the periods for which the entity recognizes the costs the grants are intended to compensate as expenses. When the PPP’s eligibility and loan forgiveness criteria are expected to be met, the entity can analogize to the guidance in Subtopic 958-605 or 450-30. NFPs should account for PPP loans following Subtopic 958-605 as a conditional contribution.

Lender Accounting

  1. Loan restructuring if it results in periods with reduced payments: When a creditor restructures a loan, and the restructured loan is neither a troubled debt restructuring nor required to be accounted for as a new loan, a creditor should determine a new effective interest rate following the interest method, as described in Subtopic 310-20.
  2. Accounting for the forgivable portion of a PPP loan: According to AICPA, payments from the US Small Business Administration (SBA) must be accounted for the same way payments received from borrowers are. When full payment is received before the loan matures, payments should be recorded as a prepayment.
  3. Classification of Advances under the PPP: It should be accounted for as a loan.
  4. Consideration of SBA guarantee under PPP: Should be considered embedded guarantees since it would not meet a freestanding contract definition.
  5. For the loan origination fee from the SBA: According to AICPA, the PPP loan’s drawback provisions renders it refundable. Hence it would be subject to Subtopic 310-20.
  6. Suspension of troubled debt restructuring: Banks are allowed to suspend US GAAP troubled debt restructuring accounting requirements for loans restructured because of the pandemic between March 1 and December 31 of 2020.

Government Accounting

  1. Coronavirus Relief Fund payments: Recipients should recognize these resources as liabilities until all the applicable eligibility requirements are met. This includes the incurrence of eligible expenditures. When the government met the CARES Act’s eligibility requirements, it should recognize Coronavirus Relief Fund resources’ revenue.
  2. Federal Assistance: CARES Act Resources that were provided to alleviate a government’s revenue loss due to the pandemic are contingent upon eligibility requirements. Those that specifically include eligibility requirements for revenue loss must be recognized as revenue when the government meets the action-based eligibility requirements.
  3. Forgivable PPP loans: If a government determines that its PPP loan will be forgiven in a subsequent reporting period, it is still required to report the loan as a liability until it is legally released from the debt.
  4. CARES Act resources and nonoperating revenues: CARES Act resources to a business-type activity or enterprise fund are considered subsidies. Resources provided to governments through the Provider Relief Fund’s Uninsured Program must be reported as nonoperating revenue.
  5. Extraordinary or Special Items: The use of resources in response to the pandemic, including actions to slow its spread or implement stay-at-home orders, should not be reported as special or extraordinary items.

Hedge Accounting

According to the FASB Staff Q&A, the pandemic’s impact should be considered rare cases caused by extenuating circumstances beyond an entity’s control. Hence, an entity can apply the exception for such rare cases, based on the case’s facts and circumstances.

The entity should consider if the forecasted transaction remains probable over a reasonable period based on the nature of its business and the forecasted transactions, AND the size of the disruption to the entity’s business by the pandemic. When the forecasted transaction’s existence is no longer probable within the reasonable period beyond the additional two-month period, the exception would no longer apply. The entity does not have to consider missed forecasts regarding the pandemic when determining whether the entity has shown a pattern of missing forecasts.

Healthcare Entities

Provider Relief Fund payments to not-for-profit and for-profit health care entities should be accounted for as non-exchange transactions. The only contribution revenue that should be recognized are health-care-related expenses and lost revenues that will not be reimbursed by any other sources. NFP health care entities should evaluate their situation’s facts and circumstances to determine if the conditions had been met at any given reporting date. Payments received more than recognizable contribution revenue must be reported as liabilities.

General Distribution Payments can only be used for pandemic related expenses and are therefore considered donor-restricted.

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Easy Bookkeeping Tips For Entrepreneurs

All enterprises run on money. It is required to fuel the operation and invest in its future. If a business spends too much or too little, the results will be catastrophic. The only way to know exactly how much to spend and when to spend it is by keeping track of every penny. A small business bookkeeping system is essential for those who want to accomplish financial peace of mind, know what they have and when they have it, and prove to others how well the business performs.

Bookkeeping

Bookkeeping allows business owners to track all financial transactions accurately. Without comprehensive records, planning and budgeting are impossible. A budget is dependent on an assessment of all revenue streams and expenses. A balance sheet enables the stakeholders in a business to assess the financial condition with one glance.

Bookkeeping vs Accounting

Bookkeeping is all about meticulous records of all financial transactions. Accounting is all about the bigger picture¾about summarizing an enterprise’s financial condition and its performance over time, allowing participants to make decisions and plans. Despite the same, bookkeeping provides the platform for accounting by keeping the general ledger accurate and complete. On the other hand, the accountants will prepare the tax returns based on the bookkeeper’s records.

Methods Of Bookkeeping

Levels of complexity distinguish methods. Small firms typically start with a single-entry bookkeeping system, where the bookkeeper merely records every transaction on a simple balance sheet as income or expenses. Single-entry bookkeeping will work for small enterprises with low transaction volumes. The more complex double-entry bookkeeping system is essential for reliable bookkeeping in businesses with higher transaction volumes. A double-entry system requires two entries for every transaction to balance assets and liabilities and to follow the money. This is the only way to balance your accounts and is essential to those who will draw up the firm’s financial statements and produce reports on income and expenditure for tax preparation and long-term planning.

Bookkeeping Skills

  • Understanding debits and credits

To keep a balance sheet accurate and balanced, the bookkeeper must keep track of every debit and credit, which means they have to record every penny that flows into the firm and every account payable and receivable. The record has to show every scheduled payment and every due inflow to efficiently pair expenses and income.

  • Organization

A bookkeeper has to know how and where transactions are recorded and should stick to a uniform pattern. Everything must be checked and double-checked¾the whole point of the double-entry system is to spot errors when the accounts do not balance. A precise and consistent method is crucial.

  • Software

It is all about selecting the most suitable software for the enterprise. It takes time to adjust the software to the company’s unique needs and processes but do it once, and the record-keeping will become a lot more efficient.

  • It’s all about the details

Accurate bookkeeping is detailed bookkeeping. A bookkeeper that is serious about the details will set the standard for the rest of the employees to do the same. Improved accuracy leads to improved management, decision-making, and profitability and reduces the effort required to prepare financial statements, which impacts the preparation of taxes and applications for loans.

  • Communication

Keep in mind that a healthy cash flow depends on communication. A lack of understanding by employees for the importance and the method of bookkeeping can ruin a firm. Typically more than one person will work on the ledgers. Only crisp and precise instructions can guarantee uniformity, and hence, accuracy. Employees need exact instructions and all the required information before they become an asset to the bookkeeping process. Mistakes and omissions cost money.

  • Professionalism

Double-entry bookkeeping is a complicated full-time job. When a business takes off, it must employ an expert to stay on top of its records and relieve the owners’ burden. An expert bookkeeper will provide the enterprise with:

  • Accurate financial records.
  • Timely financial records.
  • A big-picture perspective on the firm’s financial health.
  • Unbiased records and evaluations.
  • Peace of mind.
  • Time to focus on growth and revenue.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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