Scott Gregory, Your Trusted CFO

Simplify Your Bank Rec Process Instantly

If your business accepts credit cards, you may find yourself trying to untangle a real mess at month-end when it comes time to reconcile your bank account.

Why? Because your credit card processor is taking out their fee on each transaction as it is posted into your account. So instead of the full amount of the sale being deposited, a fractional amount is instead. And this can cause all sorts of grief when reconciling.

A BETTER WAY...

Give your merchant processor a call and ask them to take their fees out on a monthly basis instead of on a per-transaction basis.

By doing this, each deposit will clear for the full amount, and then your bank account will only be charged once each month for the total of the merchant fees.

My experience is that most processors will do this for you - but you have to ask. Naturally, they set their payments up on a "per transaction" basis by default since they get paid faster that way!

LOTS OF HAPPY CLIENTS

This one little trick has simplified the bookkeeping for many of my clients over the years.

Do you have troubles or concerns with your accounting and bookkeeping? Contact me so we can discuss things further.

______________________________________________________________________________________________

Alternative Sources of Funding for Small Business When the Bank Says "No"

A recent Wall Street Journal article on peer-to-peer lending for small businesses really caught my attention.

I guess it was just a matter of time until the concept of social networking melded into the business finance area.

WHAT THE HECK IS PEER-TO-PEER LENDING?

In short, instead of getting a traditional loan or line of credit from a bank, your small business could approach a network of potential investors via an online marketplace.

While still very small in the scope of small business financing, the Wall Street Journal article indicates that peer-to-peer lending sites have generated more than $500 million in loans in the past five years.

WHO ARE THE PLAYERS IN THE PEER-TO-PEER LENDING MARKETPLACE?

As with all things internet related, there are many players in this space. Two of the most prominent ones are Prosper Marketplace and Lending Club Corp.

Just imagine these firms as matchmakers - they use the power of their marketplace to match people looking for loans to those who are looking to make loans.

Thus, the peer-to-peer concept.

YOUR FINANCES STILL HAVE TO BE IN ORDER

Just because this type of lending is not driven by bank guidelines, there is still a screening process that borrowers have to go through at these peer sites. Your credit score plays a big role in the overall rating you receive from them and the ultimate interest rate assigned to your loan.

The process of how peer-to-peer lending works in these marketplaces is very simple. Naturally, you will want to do your homework on these funding sources relating to terms, fees and other criteria.

IS THIS SOMETHING YOUR BUSINESS WOULD CONSIDER?

Is this concept too "out there" for your small business to even consider? Have you had any experience with any of the peer-to-peer lending sites, either as a borrower or an investory?

Please share your thoughts in the comments section below - would love to hear them!

___________________________________________________________________________________________

Fantastic Financial Info to Know: Tracking Your Accounts Receivable

Do you sell to your customers on credit?

By that, I mean do you offer some sort of payment terms such as:

• Net 30 days
• Net 45 days
• Net "Hope My Clients Pay Me Someday"

If you do sell on credit, it is essential to the financial health of your business to have a solid system in place to monitor the following information:

• Who owes you?
• How much they owe you?
• How long they have owed you?

THE ACCOUNTS RECEIVABLE AGING REPORT TO THE RESCUE!

If you use QuickBooks or other accounting software, the built-in Accounts Receivable Aging Summary report will be your best friend.

This report quickly summarizes the key details mentioned above for easy review and monitoring as shown in the screen shot below:



Naturally, you will want to build an internal system that allows you to take follow-up actions on anyone that has gone into overdue status (or to even be proactive on invoices about to come due!).

ACCOUNTS RECEIVABLE ARE THE LIFEBLOOD OF YOUR BUSINESS

A simple thing to remember - every dollar that shows up on the accounts receivable report above is a dollar that is NOT in your business checking account. That money is not helping you pay your bills, purchase inventory or meet your payroll obligations.

I know it is difficult to envision playing the "bad cop" and having to contact your customers to collect on overdue amounts. However, if you don't make these important calls, your invoice may very well go to the bottom of the stack. And that is not a good place to be.

ADDITIONAL RESOURCE

The Guide to Getting Paid: Weed Out Bad Paying Customers.. by Michelle Dunn

___________________________________________________________________________________________

Fantastic Financial Info to Know: Profit and Loss Report with a Twist

When it comes to managing the finances of your business, it is essential to be comfortable with certain critical benchmarks.

This "Fantastic Financial Info to Know" series will introduce you to three of them.

CRITICAL BENCHMARK #1 - SEEING YOUR PROFIT AND LOSS WITH A % OF INCOME CALCULATION

Your profit and loss report provides a recap of your income and expenses for a certain period of time, whether it be a week, month or year.

It is also extremely helpful to know not just what the dollars are, but also how all of those line items stack up as a percentage of your business income.

AN UP CLOSE LOOK

The sample report below shows just what a Profit and Loss Report with a % of Income Calculation can look like (click on the image for a larger view):

Using this example, you can quickly and easily see just how significant the various expenses of the business are in relation to the income level.

In a flash, you can see that the job expenses are a bit over 37% of the total income and the payroll expenses are running slightly more than 26% of the total income for the year (this profit and loss report was run for a year-to-date basis for demonstration purposes).

Are these percentages too high? Too low? That is where some historical trends can be very helpful. If you create this same profit and loss on a monthly basis and track some of these key figures, it will then be easy to spot trends (either favorable or unfavorable) in your business finances and then take appropriate action from there.

THE PROFIT AND LOSS WITH A % OF INCOME COLUMN IN QUICKBOOKS

The above report was created using QuickBooks accounting software with just a few mouse clicks and is also available in other accounting software as well.

If you need help getting your QuickBooks organized to provide this type information to you on  a regular basis, contact me so we can talk further about your situation.

__________________________________________________________________________________________

Join Me for: "Just Because You Say They Are a Contractor Doesn't Mean They Are" Webinar

Register for my webinar to get up to speed on two very critical issues facing small businesses:

• Understanding the New Hire Act and how it impacts your business
• Employee or Contractor: Making the Wrong Choice Can Cost You a Fortune

I am very pleased to have Molly Mulroy for Paycor on the webinar. She'll cover the New Hire Act and what it means to your business.

I'll be covering the "employee or contractor" topic with insight to help you understand what is involved in making the best decision on this important question.

IT'S FREE

The webinar is free!

In addition, it will be recorded for playback in the event you can't make the live webinar.

REGISTER NOW!

Take just a second to register for our webinar on the New Hire Act and Employee or Contractor issues.

Look forward to seeing you there!

______________________________________________________________________________________________

Why Is It You Do Your Own Payroll and Not Outsource It?

When it comes to very low value and potentially high risk business activities, doing your own payroll ranks right near the top.

According to SurePayroll, over 40% of small businesses receive an average tax penalty of $845 per year. OUCH!

Unfortunately, over the last twenty-five years I have witnessed many small business disasters that have resulted from making the fateful decision to do payroll in-house.

BUT IT'S EASY TO WRITE THE PAYCHECKS!

This is one of the main comments I hear from business owners when talking about payroll. Or said another way, "gee, how hard can it be to write the paychecks to the employees"?

Of all the pieces that go into a business payroll system, I would very much agree that creating the paychecks is by far the easiest part of the puzzle.

YOUR PAIN COMES WITH THE DEPOSITS AND FILINGS

Do you have a payroll expert on staff? (the answer is likely no).

If not, who is going to keep you updated on the massive amount of payroll laws and timetables you need to keep track of? How do you know you are filing the right forms at the right times and with the right people?

Just for giggles, sit down and figure out just what the schedule should be to make your federal tax deposits. Oh, and by the way, are flexible spending accounts taxable for state or local tax purposes? Might as well review the rules on those too. Got a migraine yet? (no fair asking your neighbor in the business suite down the hall - they very likely have most or all of wrong...)

You see, the real pain of doing payroll yourself is normally felt one to three years AFTER the payroll was processed. This pain becomes intense when you get the letter from the tax agency that indicates you were either late in filing or didn't deposit enough. Or worse, both of them! Get out the checkbook - it may likely be time to pay up (though the IRS isn't always right either...)

Just one of these notices will more than likely wash away the "savings" you thought were automatic by doing your own payroll.

PUT THE STAFF ON VALUE-ADDED ACTIVITIES INSTEAD

In addition to the "it's easy to write paychecks" argument I hear, the next most popular sentiment is "well, I'm already paying my staff to be here - might as well have them do the payroll".

If that's the case, maybe they should perform your next cavity filling or oil change too!

All kidding aside...

If you are paying the staff, put them to work on projects that add value to the business. Some quick examples:

• Following-up on overdue customer accounts
• Helping put together your next customer mailing
• Connecting with customers and prospects via social media or e-mail tools

Don't let your business fall into the non-value added trap of doing payroll in-house! There should be plenty of other things for your staff to work on that have a much higher value.

WHO DO I USE TO PROCESS THE PAYROLL?

There are a plethora of businesses that can take care of your payroll. National firms such as Paychex, SurePayroll, QuickBooks as well as local payroll specialists have you covered on this issue. Get a few quotes - you will quickly find that it isn't as expensive as you think it might be.

Even better - the sooner you hand off payroll to an outside processor, the sooner you relieve the potential burden you face for late filings, undeposited taxes, underdeposited taxes and other payroll nightmares!

_____________________________________________________________________________________________

Turn...Turn...Turn...Your Accounts Receivable That Is!

In addition to being the title of the timeless tune from The Byrds, this phrase also comes into play in relation to your customers – collecting payments from them that is.

When dealing with your accounts receivable (the fancy accounting lingo for money that your customers owe you), it is critical to set up key metrics to track your performance in collecting those funds. The idea is to “turn, turn, turn” your accounts receivable over on a regular basis to get the funds into your checking account as quickly as possible.

To help build your knowledge in this area, there are two key indicators (among others) you should know:

1)      “Accounts Receivable Turnover” – this tells you how effectively you are managing your receivables. Here is the formula to calculate it:

A/R Turnover = Net Credit Sales / Average Accounts Receivable

For this measurement, a higher number/turnover is definitely better!

 

2)      “Days Sales Outstanding” (DSO) – this tells you how many days it is taking to collect payments from your customers. Here is the formula:

(Total Accounts Receivable / Total Credit Sales) / # of days in measurement period. For this formula, a lower number is definitely better (it takes less time to collect!)

For example: If your total A/R = $50,000, your total credit sales are $100,000 and the total sales figure is for a 90 day period, the equation would be:

(($50,000 / $100,000) x 90). The Days Sales Outstanding = 45 days. In this example, it takes the business, on average, 45 days to collect from their customers.

Every dollar you have in accounts receivable is a dollar you don’t have in your checkbook. Manage those dollars wisely and it will pay big dividends.

_________________________________________________________________________________________________

Scott Gregory provides CFO and controller services to service, manufacturing and distribution businesses in Northeastern Ohio.

He is very fluent in the following dialects often heard yet rarely understood by business owners:

• "Accounting-speak"
• "IT jargon"
• "Inventory gobbledygook"
• "Banking banter"
• "Internet and e-commerce cyberbabble"

Put his twenty-five years of experience to work in your business. Contact Scott today.

Ohio Sales Tax is Due When the Invoice is Created, Not When it is Collected

I know this going to come as a surprise to many businesses in Ohio that are responsible for collecting sales taxes...

Your sales taxes are due to the state based on when you invoice for them, NOT when you collect the taxes from your customers. In "accounting-speak", this means that the taxes are due on the accrual basis (when invoiced), not on the cash basis (when paid by your customer).

Skeptical? Take a look at the FAQ page from the Ohio Dept of Taxation.

In the event that your customer does not ultimately pay the sales tax you have advanced to the state, there are methods available to recover that tax.

I feel your pain. I hear the question all the time - "why should I have to pay the state before I get paid?"

Thought you should know about this...please don't shoot the messenger.

_________________________________________________________________________________________

Scott Gregory provides CFO and controller services to service, manufacturing and distribution businesses in Northeastern Ohio.

He is very fluent in the following dialects often heard yet rarely understood by business owners:

• "Accounting-speak"
• "IT jargon"
• "Inventory gobbledygook"
• "Banking banter"
• "Internet and e-commerce cyberbabble"

Put his twenty-five years of experience to work in your business. Contact Scott today.

Streamline Your Accounting: Stop Driving to the Bank

C'mon, be honest...

Hauling yourself to the bank to make your deposit every day is a pain in the shorts, isn't it?

As long as your business takes payment by check (and not by coin or currency), you can stop making that daily trip to the bank. How could that could be?

Ask your banker about a product called Remote Deposit. It also goes by Remote Banking, Remote Office, and a host of other names, but the idea is the same. You turn your office into a remote branch of your bank (if only you could print money there too!)

Here is an overview of how Remote Deposit works:

• The bank sells (or rents) you what is called a remote capture terminal. It is a small piece of hardware that sits on your desk. You feed your checks through the terminal, and the image of the check is then stored for processing.
• You use the bank supplied software to then transmit these images securely and directly to the bank to complete your deposit.

What's in it for you?

• No longer waste countless days over the course of a year driving to and from the bank and hanging out in line to make the deposit
• Most banks provide a longer business day when using remote deposit. For example, instead of having deposits after 3pm posting to the next business day, many allow same day deposits up to 5 or 6pm the same day.
• Acceleration of your cash flow so that you can use available funds more aggressively to pay down debt and reduce interest expenses.
• Convert the time you spend on non-value added banking activities into value-added and revenue enhancing activities (i.e. chasing customers down for overdue payments, helping to get quotes and estimates out the door, etc.)

Is there a cost for Remote Deposit?

In most cases, there is a cost to purchase or rent the terminal as well as a monthly cost to maintain the remote deposit service.

Naturally, if you are an extremely small business, this concept may not be cost-effective for you. However, if your business has any steady recurring volume of checks, it may pay for itself relatively quickly. Besides, there is a cost to the way you are currently handling your bank deposits - you just don't see it leaving your checkbooks each month!

With some negotiation, you can usually find a way to lower some of these costs as well.

Additional Resources on Remote Deposit:

• Handy Remote Deposit Calculator - see how much you could save.
• RemoteDepositCapture.com - learn more about this idea
• Background on Remote Deposit from Wikipedia

Are you using Remote Deposit in your business? Let us know how its' working out for you by posting a comment below!

_______________________________________________________________________________________________________

Scott Gregory provides CFO and controller services to service, manufacturing and distribution businesses in Northeastern Ohio.

Ohio - a Business Friendly State? You be the Judge...

From the tales of the "sad but true" department...

I recently became aware of a local small business that got not one, but two surprises in their mailbox from two different state taxing agencies. Actually, they weren't really surprises, but nightmares in an envelope!

The first letter they received was from the state bureau of unemployment advising them that their unemployment tax rate for the new year was increasing from .8% for the year to 11.8%.

You read that right...

Their unemployment tax rate was going from .8% to 11.8%. (that is from point 8 to 11 point 8!)

W-T-F?

You see, this business, like many others last year, had some turbulence in their cash flow during the year. They happened to make a late payment on their unemployment taxes during the quarter that the state set their rate for the next year. Once that happened, they got caught up in the machine.

Be aware - they did not skip the payment. They paid it in full about 60 days late when cash became available and they also paid the interest that was billed to them for the late payment.

IT GETS BETTER...

Shortly after they had that little explosive dropped into their cash flow planning, they received another letter from the state bureau of workers compensation.

Because one of their payments was 60 days late during the year, this business was told they were being dropped out of their group rating program for workers compensation for one year.

Important note - the state allows you to be 59 days late, but not 60. If you hit the magic 60 days, lights out.

Like the unemployment situation, the late payment was ultimately made in full on the 60th day. The business was not a habitually late payer for either of these tax programs.

End result of this little snafu?

Their workers compensation rate INCREASED 450% for the new year.

THE APPEALS ARE UNDERWAY

Naturally, this business has begun the appeals process with both state agencies. They have already lost the first round of the workers compensation battle.

Why they lost? Because the state is so far in debt, that they passed a law last year that said these penalty rates are in place for a year when late payments are involved. Few, if any, exceptions to be granted. Too bad...so sad.

MORAL OF THE STORY: Don't be late on your payroll taxes. Ever.

If you do business in the state of Ohio, you could be next...

________________________________________________________________________________________________

Scott Gregory provides CFO and controller services to service, manufacturing and distribution businesses in Northeastern Ohio.