Business Consultants & Certified Public Accountants

A Shorter Cash Flow Cycle Means a Stronger Business

Every business owner knows that maintaining a healthy cash flow is essential to a company’s success. But there are a variety of ways to accomplish this objective. One way is to accelerate inflows and decelerate outflows, thereby shortening your cash flow cycle. Truncating this cycle by 10 to 15 days can significantly boost your working capital.

When it comes to inflows, you need to manage collections. Doing so includes enforcing your credit terms and aggressively going after delinquent accounts. If your payment terms are net 30 days and payment hasn’t been received, someone in your accounting department should be contacting the customer (by either email or phone) on Day 31.

On the outflows side, take full advantage of your suppliers’ payment terms. If they’re offering net 30 day terms, use electronic banking to make the payment on Day 30. Also, negotiate with suppliers for extended payment terms: Will they stretch net 15 terms to net 30 days — or net 30 day terms to net 45 days?

For more-specific suggestions on shortening your company’s cash flow cycle, please contact us. We can assess your inflows, outflows and overall cash standing to identify ways to strengthen your business.

 

Review Your Fringe Benefits to See What You Might be Missing

A business can offer many things as fringe benefits. So it’s a good idea to occasionally review the possibilities to see whether you might be missing something that could help you attract and retain the best employees. Two broad categories that are generally deductible by the employer and tax-free to employees are:

1. Working-condition fringe benefits. These are expenses that, if employees had paid them, they could have deducted on their personal tax returns. Examples include employer-paid subscriptions to business periodicals or websites and employer expenditures for some types of on-the-job training.

2. De minimis fringe benefits. Included here is any employer-provided property or service that has a value so small in relation to the frequency with which it’s provided that accounting for it is “unreasonable or administratively impracticable,” according to the IRS. Some examples of these items are group meals; occasional coffee, doughnuts or soft drinks; and permission to make occasional local telephone calls.

Also worth looking into are qualified transportation fringe benefits. These include covering expenditures (up to certain limits) related to commuter transportation, such as mass transit, van pooling, parking and bicycling.

Bear in mind that various rules must be followed to ensure the tax-advantaged treatment of fringe benefits. And that’s where we come in. Please contact us for help not only choosing the right offerings for your size and type of business, but also ensuring that the tax consequences will be what you expect.

 

Independent Contractors offer Expertise, Potential Risks

Turning to independent contractors can be a smart option in a number of situations, such as when you have a seasonal upswing in workload or need a specialized skill for a short period. But independent contractors come with potential risks, too. They may not help you trim your total workforce costs if you use them excessively. More important, there can be tax and legal ramifications if you mishandle the relationship.

The IRS has long scrutinized employers’ use of independent contractors as a way to avoid payroll tax obligations. If the IRS recharacterizes an independent contractor as an employee, you could be on the hook for:

  • Back payroll taxes you should have paid,
  • Back payroll and income taxes you should have withheld, and
  • Interest and penalties.

Also, earlier this year, the Department of Labor renewed its focus on employee misclassification. Its Wage and Hour Division released Administrator’s Interpretation No. 2015-1, which includes six factors to help employers determine proper classification and warns of serious potential penalties.

Independent contractors can give you flexibility to even out the peaks and valleys of your workforce needs. But these arrangements have risks. We can help you understand the tax implications and work with your legal advisors to keep you in compliance. Contact us today!

 

Keep an Eye on KPIs as your Company Rolls Along

Like race car drivers, business owners need to monitor gauges on their dashboards to keep an eye out for serious operational failures before a total breakdown occurs. These gauges are commonly referred to as key performance indicators (KPIs).

There are two broad categories of KPIs: financial and nonfinancial. Financial KPIs often take the form of ratios, such as:

Debt to Equity: Total Debt / Shareholder’s Equity,

Current Ratio: Current Assets / Current Liabilities, and

Days Sales Outstanding: Number of Days × Accounts Receivable / Credit Sales.

Nonfinancial KPIs may include measurable metrics in the areas of customer service, sales and marketing. For example, if a company’s goal is to improve its response time to customer complaints, its KPI might be to initially respond to complaints within 24 hours, and to eventually resolve at least 80% of complaints to the customer’s satisfaction.

KPIs differ from one company to the next based on industry, company type (B2B or B2C, for example) and, most important, strategic objectives. Your KPIs will stem mainly from your mission statement and your short-, medium- and long-term goals.

We can help you target the KPIs best suited to your business, and ensure the calculations are accurate and based on the timeliest financial data. Contact us today!

 

How to Fix a Shaky Succession Plan

A sound succession plan is a must for every business. But even the best-laid strategies can go awry. Here are some steps you can take to fix a shaky succession plan:

Compare progress to plan. Don’t rely on vague notions of why your succession plan isn’t working. Identify the specific gaps in its execution. Also consider how your impaired plan is affecting your company’s bottom line, productivity and morale.

Be a communicator. Inform key parties about the problems, such as your successor, members of your board of directors or advisory board, managers, family and key nonfamily employees, shareholders and investors, and professional advisors such as your attorney and accountant.

Hit the pause button, if necessary. Don’t be afraid to retain control of the business a little longer while your next-in-line resolves his or her shortcomings or while other problems are resolved. Alternatively, you might name an interim CEO.

Revisit your successor choice. In extreme cases, a business owner may simply need to find a new leader-to-be. Remember, no one can afford to continue investing in someone who can’t successfully drive the company forward.

We’d be happy to review your succession plan and provide insights into its strengths and potential weaknesses. Contact us today!

 

ESOPs Remain an Intriguing Benefits Option

The employee stock ownership plan (ESOP) is hardly a new concept. But it remains an intriguing benefits option for many companies.

An ESOP is a form of qualified retirement plan — specifically, a profit-sharing plan. It allows employees to own part of the company that employs them and then cash in their shares when they retire or otherwise leave the business.

Generally, an employer creates an ESOP by setting up a trust and contributing new company shares to it. The trust becomes the legally recognized owner of the company shares and is managed by a trustee who oversees the employees’ interests. Once the ESOP is up and running, the company makes annual, tax-deductible contributions that fund participants’ retirement accounts.

ESOPs offer businesses some exciting advantages, including:

  • Increased employee motivation,
  • Ease of ownership transition, and
  • Immediate tax benefits.

These arrangements, however, do present challenges. They’re not easy to set up, and the rules for plan distributions are complex. You’ll also need to have a business valuation performed. What’s more, ESOP fiduciaries have recently faced scrutiny by the Department of Labor.
If you think an ESOP might be a good fit for your company, contact us. We can help you further assess this type of retirement plan and, should it suit you, help implement it.

 

6 Ways to Mitigate Uncertainty in Strategic Planning

To succeed at strategic planning, business owners must look to actively mitigate the many uncertainties under which every company operates. Here are six ways to do that:

1. Be curious. Identify the demographic, technological, cultural and other changes occurring outside your company and industry.

2. Assess how those changes might impact your organization and industry. For example, trends toward a more ethnically diverse and older population have been well documented. How will they affect your business?

3. Gain insight on how to succeed in today’s world. Talk with employees at all levels and from across departments. Network with peers at companies within and outside your industry.

4. Figure out what you know. Soak up as much information as you can through industry journals, trade association gatherings and social media.

5. Challenge your assumptions. As markets, technology and industries advance, determine whether your current plans are still relevant. If they aren’t, make competitive adjustments.

6. Focus on flexibility, agility and resilience. Continually ask “what if” questions and plan for a range of scenarios. For instance, what if your supply chain breaks down?

Strategic planning should be approached prudently and decisively — not rashly or hesitantly. We can help chart your company’s course toward a brighter, more profitable future. Contact us today!