New tricks in accounting

We have been doing some reading to learn some new techniques for a new client.  Our new client is a manufacturer whose accounting system was set up to operate in a lean environment.  While we have heard of lean and Beth has managed a mill in a lean environment, we had not seen it applied to accounting.  We have read a couple of books on the subject and while I resisted initially, I now get the point!  I next tackled Throughput accounting, written by Steven Bragg.  While I am sure it would not excite a lot of you, I found it fascinating.

The theory behind Throughput accounting is that every business has one area which dictates the speed with which the company operates.  In a manufacturing environment, it is usually a piece of equipment.  It can be due to policies (batch sizes or ordering procedures) or human factors (undersized staff).  The main emphasis initially is to identify the constraint and then to maximize its efficiency.  After that, the business must work to support this area.  There are chapters devoted to scheduling production, pricing products and cutting costs.  Really interesting and a different take on accounting and how it can support the operations and sales functions within a company.  We are hoping it will help our client run more efficiently and, of course, more profitably.

We are hoping to take some time off next week to spend with our families, so we wish everyone a happy holiday season.  Stay tuned in 2012!

Sales mix and contribution margin

As you are creating your budget and planning for 2012 a review of both your product mix and the contribution margin each product brings to your business is important.  The mix refers to the amount of each product you sell compared to total sales.  Most businesses sell at least a few different things and the price is generally different for each product.  The ideal situation calls for the highest margin products to generate the most sales.  This isn't always the case which is why it is important to look at the contribution margin of each product and determine if the pricing is adequate.

Contribution margin can be thought of as the fraction of sales that contributes to the offset of fixed costs.  Alternatively, unit contribution margin is the amount each unit sale adds to profit.  The contribution margin is calculated by subtracting the variable cost of each unit from the price of each unit.  Given the contribution margin, an owner can easily compute breakeven points and target income levels, and make better decisions about whether to add or subtract a product line and about how to price a product. The contribution margin can also be used to monitor the efficiency of manufacturing operations.

All the budgeting and planning we have discussed so far take research, a calculator and time, but the results are worth it.  Small business owners who put this effort into running their business see the growth and profitability they want and need.

Using your budget to grow sales

Now that you have created your budget for 2012, how do you get the most use out of it?  One way to start is the look at the revenue part of the budget.  How did you create it?  What kind of growth are you planning for and how will you achieve it?  You can use your sales growth goals from the budget to jump start your marketing plan.  You cannot hope to achieve sales growth without a concrete plan. This goes back to our earlier post talking about strategic planning and re-determining who your target market is and how to reach them.  You may want to sit down with a marketing professional to review your marketing plan and make revisions as necessary.

This is also a good time to look at staffing.  Do you have the right number of employees with the right skills to implement your budget for 2012?  Having the right people is essential to achieving your business goals.  Next week, we will talk about looking at your product mix and examining the contribution margin for each product you sell. 

Budgeting---quick and easy or detailed and effective?

The traditional budget process takes the existing budget and increases or decreases it by a certain percentage.  This is done as a whole for a really quick and easy method or line-by-line in a more detailed approach.  Either approach gets the job done quickly but are the results worth it?

There are several more modern ways to create a budget for a business: Zero-based, Activity based and Kaizen are among the most popular.  Zero-based budgeting reverses the process of traditional budgeting by starting each line item at zero. No reference is made to the current budget or prior spending levels, instead each expense budget must be justified.

Activity based budgeting groups the business expenditures by activities in the various functional areas such as administrative, sales and manufacturing.  Activities are tied to the strategic goals the company has set and the costs needed to fund the activities are the basis of the budget.  This technique allows a business to align its costs with its goals and objectives, reduce costs and improve business practices.

Kaizen is the Japanese word for continuous improvement and goes along with the lean process.  The budget is set based on future improvements in all areas which means the budget cannot be achieved unless the improvements are made.  This process forces a business to actually implement the changes it has developed during a strategic planning session or goal setting exercise.  The approach has a company work to minimize costs at all stages of the product life cycle and in all areas of the business.

All three of these techniques are much more time consuming than the traditional process but all three give more realistic and thoughtful numbers to work with.  The whole reason to budget is to help guide and manage a business better so even if the process is tedious, utilizing any of these techniques will help you grow your company and achieve greater results.

Preventing Theft and Fraud

I was just reading an article about a local company who suffered a large loss due to employee theft which rallied the old internal auditor in me.  Many small business owners think they don't need internal controls because they know all their employees and none of them would steal from them.  While having a good relationship with your employees reduces the chance of theft or fraud, it doesn't eliminate it.  The Association of Certified Fraud Examiners reported that in 2010, small businesses suffered losses of 5-7% of total revenue due to employee theft. 

Theft from employees centers on what ACFE calls the fraud triangle: Motivation, Opportunity and Rationalization.  As stated earlier, employees who have a good relationship with the owner/manager and who feel they receive adequate compensation are less likely to rationalize stealing from their employer.  A good reason to have happy employees!  Motivation can be due to excessive medical bills, a gambling problem, an addiction problem or other financial difficulties.  Watching employees for signs of increased stress such as an increase in the number of personal calls received, changes in personal hygeine, changes in working hours (coming in early or staying late) or signs they are living above their financial means.

The last way to protect against employee theft is to limit opportunities.  This is done by creating good internal controls.  Even small businesses can set up internal controls as follows:
1. Having the owner demonstrate an active interest in the books and financial reports
2. Provide oversight and review of employees work
3. Segregating duties wherever possible

Duties to segregate include:
1. Separating the opening of mail (and logging payments received) from posting the payments to your accounting system and depositing them in the bank
2. Separating mailing checks with payments to vendors from recording the checks in the accounting system-even better is to use online bill paying where the bookkeeper can enter the payments into the system but only the owner can authorize the release of payment
3. Separating the entry of data into the accounting program from reconciling the accounts-the owner or an outside accountant should be reconciling checking accounts and credit cards

Other internal controls measures include:
1. Reviewing payrolls for reasonableness (is someone padding their hours?)
2. Requiring proper documentation for all purchases (invoices, receipts)
3. Having the owner sign all checks and maintaining control over all blank checks
4. Maintain a list of all fixed assets and doing a physical check periodically
5. Performing a physical count of inventory regularly
6. Requiring management approval for all credit memos or adjustments to accounts receivable
7. Reviewing the books for duplicate payments to vendors or increases in expenses which are unexpected

The ACFE estimates the median loss to businesses in 2010 from employee theft was $128,000 which can cripple some small businesses.  Owners need to remind themselves that while they can delegate tasks to employees, they should not delegate their responsibility to supervise the activities.  Reviewing the books can save your company so look at the financial statements regularly. 

SWOT analysis

Continuing with our year end planning, we are going to talk about SWOT analysis.  SWOT stands for Strengths, Weaknesses, Opportunities and Threats.  We like to use SWOT when starting a business plan as well as a year end planning tool.  It gives the business owner the chance to determine if a start-up has the right mix of strengths and opportunities to offset the weaknesses and threats.  As a year end planning tool, a SWOT analysis gives the owner the chance to look at the business with fresh eyes.

Strengths and Weaknesses refer to internal environmental factors a business faces.  What is the business good at and where are they lacking skills, facilities?  Strengths are the resources and capabilities that the business has to use to create a competitive advantage.  What can your business do better than your competition?  This can include patents, a well known brand name, a good reputation for quality and service, cost advantages from size or proprietary knowledge.

Weaknesses are things which leave a business at a competitive disadvantage such as a high cost structure, lack of access to good distribution channels, lack of a strong brand name, etc.

Opportunities and Threats are external environmental factors a business faces in their quest to succeed.  Opportunities can include unfulfilled customer needs: what do customers want that no one else is selling or manufacturing?  Creation of new technologies or loosening of regulations can also create opportunities for a business.  Failure of a competitor is another way a business can find an opportunity. 

Threats can come from a shift in customer tastes away from your products or services or the emergence of substitute products.  A business must always be looking to create the next big product because eventually someone else will make a product to compete with yours.

A good SWOT analysis involves laying out all the strengths, weaknesses, opportunities and threats a business faces.  How to best organize this information?  A TOWS matrix, which we will cover next week.

Strategic planning

We are back to discussing sales or more specifically, your market.  A key part of any business plan is the marketing section.  The plan lays out the exact market your business operates in both functionally and geographically.  Your target market is defined and a good marketing section will have detailed planning for how to reach that target market.  Also defined is your competition and how your business compares listing both strengths and weaknesses.  We like to do a SWOT analysis with a TOWS matrix whenever possible when creating a business plan to help us define the businesses strengths and weaknesses as well as the competitions.  If you aren't sure what a SWOT analysis is with a TOWS matrix, check us out next week!

While most small businesses define their target market and examine their competition at start-up, not all continue the process.  We think it is very important for you to take a fresh look at who your target market really is each year as opposed to who you thought they would be. Sometimes the target market shifts and sometimes your assumptions as to who they will be turn out to be wrong. Knowing who is buying your products now is very important when determing how to reach new customers. It is also important to look at your competition on a regular basis and see what changes have occurred with them.

Major corporations devote a significant amount of time and money each year in strategic planning and small businesses should commit some time and money to this endeavor as well.  Understanding who you are selling to and who else is offering the same products and services is very helpful when planning your marketing and your operations.

Budgeting process: expenses

The last two weeks, we talked about how to properly create a sales forecast for 2012 which will be used to set goals and also in your budget.  This week we will tackle the expenses.  Many people approach the expense portion of a budget with a broad hand: they increase costs across the board by a set percentage.  The better approach in to go line by line and gather your information.  Talk to your landlord, your utility provider, your insurance agent and find out what they anticipate 2012 to look like. You will also want to consider your staffing levels. If your forecast shows increased sales, will you need more employees? All of this takes time, but you will have much more meaningful numbers to work with.

The whole point of creating a budget is to guide your decision making during the year.  Can you afford to take advantage of a volume purchase discount?  Can you afford to hire more employees?   Is this the right time to expand or do you need to start accumulating cash in anticipation of an economic slump?  Putting together a budget is a little tedious, but the information you get from the exercise is well worth it.

Getting ready for the new year: sales forecast

Now that you have talked to your major customers and compared your year-to-date actual sales to your budget, you are ready to determine your sales forecast for 2012. While it is tempting to take the easy way and just bump up this year's sales by a set percentage, you will get more meaningful results if you put some additional thought and effort into the project. There are several techniques for arriving at a sales forecast and you will want to use all three and then set your budget where they intersect.

Technique number one for a retail business is to look at market statistics and see what the average sales volume per square foot of retail space.  You can then apply this ratio to your own store.  For other business types, the process is similar: look at average sales for the latest period available for your business sector.  This will give you a baseline for your sales, but you don't want to stop here as you may be comparing sales in Chicago to Boston to Kalamazoo and that isn't accurate enough.

The next step in forecasting your sales is to determine for your specific location, how many households needing your goods live within say, 5 miles. How much will they spend on these items annually, and what percentage of their spending will you get, compared to competitors? Do the same for within larger distances (with lower sales forecast figures). (Use distances that make sense for your location and business type.)  This step takes some time and research, but gives you additional accuracy.

The final technique is to set a sales budget for each product or service you offer. Use categories of products if you have a larger number and variety offered. If you offer say, four types of goods plus two types of extra cost services, estimate sales revenues for each of the six product/service lines. Make an estimate of where you think you'll be in six months (we should be selling four of these items a day, plus three of these, plus two of these) and calculate the gross sales per day. Then multiply by the number of days you will be open for each month in question. Now scale proportionately from month one to month six; that is, build up from no sales (or few sales) to your six month sales level. Now carry it out from months six through twelve for a complete annual sales forecast. You will be using the numbers from the first two techniques as a guideline as you develop this forecast.

Congratulations.  you have now completed the sales portion of your 2012 budget.  You will want to check actual to budget at least once a month to see where you are and what adjustments need to be made. 

Next week, we will work on the expense side of the budget.

Sales variances and what they mean.

Last time we talked about what steps you should be taking to close out the year with style.  Expanding on the subject of comparing actual results to your budget, today we will talk about sales variances.

It is easy to compare actual sales results with what you had budgeted, the trick is to determine what caused the variance.  Was it bad budget assumptions? (You always want to leave good notes with your budget as to what your assumptions were for sales and expenses).  Was it a change in overall sales levels or a change in the sales mix?  Sales mix means the combination of products or services you are selling.  Most businesses have at least two different products or services they sell and the actual mix may be different from what you assumed when established your budget.  Our first year of business saw our overall revenue exceeding our budget, but the mix was much different that we expected.  We have gotten better every year at estimating our overall revenue and the mix.  It is important to watch this mix as you may have different margins for different products/services.  You need to understand the market potential for all your products and services and determine if your pricing and marketing is adequate.

Doing this analysis is what hones your understanding of your business and improves your ability to budget and to run your company.  The more you understand your industry, your market and your business, the more successsful you will be.

What Do You Need to Do Before Year End?

Yes, we know it is only the beginning of October, but this is the time of year we like to get our clients starting to think about the end of the year.  Some procedures take time and others require setting up meetings so it is good to get a jump on the process.  This is the time to compare your actual results to your current budget.  This will give you some of the information you need as you create next year's budget.  Consider what the variances are and what caused them. After you get an understanding of where you are now, think about where you are going next year.  This is a good time to touch base with your major customers and find out that their plans are for the next year.  Do they anticipate purchasing the same amounts next year or more? Or less? Based on the results of these conversations, you will want to update your marketing plan.  This will help you set your milestones and metrics so you can achieve your sales goals. The next step is to create your budget for next year. A good budget is like a good map and it will help you navigate through the next year. 
You  also need to meet with your tax advisor. This is the perfect time for your advisor to see where you are so you have time to make decisions and adjustments before the end of the current year.
Getting these projects done now will allow you to concentrate on the end of this year and start 2012 with a bang!

Finding Customers

Time is a commodity in most people's lives, but that is certainly so in the life of a small business owner. Generating leads which turn into sales takes time and sales are often a part of the job that small business owners do not want to do. The first business that I started eventually came to a standstill because I was not generating leads...I was spending all of my time just doing the technical work. That prompted me to spend some time in a sales business so that I could learn how to sell.

Some of the most important rules that I learned in that business was that you needed to devote specific time each week to the sales part of your business and you need to set concrete measurable goals (number of sales calls, number of networking events, etc) that you can hold yourself to. Making connections take time. Generating leads takes time. Following up with potential leads takes time. Writing proposals takes time. Closing deals takes time. All of these activities, however, are a necessary requirement for making sure that you always have new customers and new jobs ready to start.

Today I read a blog by Geoffrey James about 6 easy ways to make your lead generation and qualification process more effective so that you are spending your sales time effectively. (www.bnet.com/blog/salesmachine/six-easy-ways-to-find-more-customers). One of his recommendations is to obtain leads in order of effectiveness:

1) Referrals (friends, colleagues, existing customers and business contacts). Don't forget to ask these contacts for referrals on a regular basis.

2) Networking (meeting people at industry events and other occasions). Following up with 2 or 3 of these people after each event will help to build a relationship with them and push them into the referrals category.

3) Sales partnerships (working with other sales professionals in other companies that sell complimentary products).

4) Web visitors (potential customers who have visited your website.

5) Cold-calling (contacting potential customers based upon the information about them and their companies on the Web).

Another of his recommendations is to make sure that you eliminate bad leads as part of your lead qualification. Write down what a good lead looks like. Find out as best you can what type of prospect is likely to buy by gathering accurate quantitative data. You can supplement that information by examining the profile and traits of your current and past customers. Then tailor your networking and lead generating activities to generate good qualified leads. It is not worthwhile to just generate a bunch of leads. In fact, it is costly. You want to generate leads that are likely to turn into customers.

And finally, measure. Measure how well you are meeting your sales goals. Measure how many leads convert into a paying customer. Measure the traits of those that do turn into the type of customer you desire and continue to adjust your profile of a good lead based on that information.

Now get out there and generate some good leads!

My how time flies.....

It is the middle of September.  How did that happen, it was just summer!  In the flurry of end of summer activities and getting kids back to school, we didn't get this blog updated.  We realized that last post was 22 days ago and we were amazed that it had been that long.  We failed to follow our own protocol-normally we divvy up the task of writing the blog articles and then we put it on our calendar.  We have been pushing hard to get two business plans completed so our clients will be ready to open their new business and so we let some of our planning and procedures slide.  This, of course, let's all of you see that we are human and we do fail at times.  It also gives us a chance to reiterate how important it is for a business to plan and organize.  We will be sitting down today to assign the remaining weeks of this year and get the writing time on our calendars.  Do as we say and as we usually do!

Decoding Reimbursable Employee Expenses

We have had a lot of questions from our clients recently related to meals and mileage and reimbursing employees, so this blog post is dedicated to trying to clearly explain how this business topic works.

Any food and beverage and travel expenses including mileage that are directly related or associated with the active conduct of a trade or business are allowed to be deducted as business expenses for tax purposes to the extent that they are not lavish and extravagant.

If these expenses are covered by an “Accountable Plan” they do not have to be reported as taxable income on employees’ paychecks. An “Accountable Plan” means that employees are required to turn in receipts and fill out an expense report within a reasonable time, generally 30 days after the expense is incurred. This applies whether an employer gives an advance, pays a per diem, or reimburses employee paid expenses. If an employee gives an advance, the employee needs to return the unused portion of the advance along with the expense report and receipts. Under an “Accountable Plan”, the employer does not report the expense on the employee’s W2 as taxable income.

If per diems are used under an “Accountable Plan”, they must be equal to or less than the IRS allowable per diem or the difference must be included as taxable income to the employee. If you use per diems, let us know and we will provide you with the current rates. For meals while traveling, per diems need to be pro-rated by a consistent, reasonable method for departure and arrival days because they are less than 24 hours for business purposes.

If the employer does not have an “Accountable Plan” (i.e., does not require employees to turn in expense reports and receipts to document the reimbursement or per diem), then the advance or per diem needs to be included as taxable income on the employee’s W2 and then the employee can claim the expense on their taxes.

When recording mileage, commuting miles (miles from home to the main place of business and back) are not allowed as a business expense. If commuting miles are reimbursed, then they must be included as taxable income on the employee’s W2. The employee cannot claim the expense on their taxes.

For business meals, some meals are 50% deductible and some meals are 100% deductible. We recommend setting up two separate meals accounts on your books to note the difference, such as Meals-50% deductible and Meals-100% deductible and to record the expenses under the correct category as they occur. Most meals that are on an expense report fall under the 50% category.

The meals that are 100% deductible are:

1.    Recreational expenses primarily for employees who are not highly compensated, such as the business holiday party or the company picnic

2.    Office snacks provided to employees at the office

3.    Occasional meals provided on the employer’s premises to more than half of the employees for the convenience of the employer, meaning meals provided to employees to keep them working late or on weekends for the employer’s convenience (i.e., supper money).

4.    Meal expenses (or goods, services, and facilities) made available to the public, usually for advertising and promotional purposes such as an Open House.

5.    Meals for which the business is reimbursed for the expense

6.    Meal expenses includible in income of persons who are not employees

Meals that are 50% deductible are:

1.    Meals directly related to business meetings of employees, stockholders, agents, and directors

2.    Office meetings and partner meetings

3.    Meals with clients, customers, and vendors that will benefit the business

4.    Meals while on business travel status (this requires an overnight stay).

5.    Meals while attending a business seminar, convention, or any other form of meeting. Note: a meal during the course of a business day that does not have a business purpose (i.e., driving through McDonalds while on a day of sales calls within your normal territory) is not an allowable tax deduction.

We recommend that all employers adopt an Accountable Plan. This simply requires developing a procedure for reimbursing employees for the above expenses. We have a sample expense report that you can adapt to your business if needed.

Thanks goes out to Julie Kim from Watkins-Meegan for writing the most user friendly explanation of 50% v. 100% deductible meals that I have seen! Some of the words in this blog are hers.

How Much Accounting Do You Need?

The questions about accounting plague many business owners. How much, how often, and who should I use are the questions that we often hear. My response is, "It depends".

If you are a service business with straight time invoicing to clients for services and just a few expenses such as advertising, office supplies, website, travel, meals and entertainment, then you often can do your bookkeeping yourself. There is very little complex accounting involved for simple service professionals. You will want to hire an accountant to come in and set up a system for you and discuss what is allowable for tax purposes, but you can generally handle the bookkeeping yourself. If you are too busy to handle it or you just hate it, then I recommend hiring a bookkeeper to help you with the daily or weekly tasks.

It is beneficial to hire a good bookkeeper who can come in at a lower rate and deal with the detail and stay on top of getting your data into your system when you are operating under one of the following scenarios:
(1) your business is relatively simple but has a larger number and variety of transactions
(2) you are complex enough to warrant a purchase order system
(3) you have many clients and you need to track specific expenses or time to the various clients which leads to more complex billing.
She can also help you complete your invoicing and schedule payment of bills, freeing you up to work on the money generating activities that drive your business.

Where you start moving to the need for an accountant who has a more knowledge of accounting practices than a bookkeeper is when:
(1) you start having more fixed assets that you need to be calculating depreciation on and maintaining a fixed asset subsystem
(2) you have inventory and you need to be tracking inventory and need to understand the accounting related to that
(3) you have higher accounts receivable and need someone to be keeping an eye on that
(4)you have multiple employees so you might want an accountant with some internal control experience to set up and monitor internal controls for you so that you minimize your risk of embezzlement or theft
(5) when your transactions start getting larger and you can no longer handle the oversight yourself. Quite often you will keep your lower rate bookkeeper for the normal data entry and then use the accountant to come in to reconcile accounts, provide some of that internal control, and oversee all of the higher end functions that a bookkeeper might not be able to tackle for you.

Where do you start crossing into the outsourced CFO work? Again, it's not necessarily a function of how large you are. It's more of a function of how complex you are:
(1) you have added enough employees that you need more oversight
(2) you have multiple product lines and you need to be tracking the profitability of each and making decisions about which product lines to abandon and which to keep
(3) you have multiple locations so there is some consolidation or comparison of data
(4) you need to be doing more budgeting and forecasting
(5) you have large working capital needs and so you need someone to help you to monitor and make decisions regarding your cash flow.

Accounting is one of those functions that people don't like to pay for because they don't see an immediate payoff.  Those who have brought a bookkeeper and/or accountant into their business life will tell you that while the payoff may not be apparent right away, it will happen and having people with those skills helping will make your business easier to run and more enjoyable!

Are you too busy or are you procrastinating?

Small business owners are usually extremely busy and often overwhelmed by the amount and variety of tasks they must accomplish in a given week.  We often hear that there isn't enough time in a day/week to get everything done.  We understand this feeling as we are small business owners too! 

What we have noticed is that it is usually the unpleasant tasks that get pushed to the back and left undone.  Beth and I share a calendars on Microsoft Outlook and we schedule all time we are working at clients there as well as any meetings we will be attending.  What we don't always do is put tasks we are going to work on at the office on the calendar.  Since we work from our virtual office (our homes), we do a great deal of work there.  We have noticed that when we are not getting a job done that putting it on the calendar on a specific day, at a specific time pushes us enough to get the task completed. 

We are great believers in calendars-ours are color coded and maintained rigorously.  We schedule family events as soon as they come to our attention and as we are planning each month, we make sure we have set aside time for big projects which are upcoming. 

If you find you aren't getting essential but unpleasant tasks (bookkeeping?!) done time after time, consider putting them on the calendar for a day and time you feel the strongest.  We also have found that scheduling something fun right after the task you dislike also gives you incentive.

What techniques do you use to get all your work done?

QuickBooks and the IRS

There has been a great deal of chatter on the QuickBooks LinkedIn groups I belong to about the IRS requesting QuickBooks files.  There has also been related discussions about who owns a QuickBooks file-the company or the preparer (accountant, tax preparer, bookkeeper).  Beth and I had lunch with a tax manager at a CPA firm today and she mentioned a client going through an audit and how the IRS agent was using the QuickBooks file.  It was very interesting the hear that the agent was reviewing all the items in the Meals & Entertainment expense account and disallowing any checks which didn't have a name and business purpose in the memo area.  Those which did include those details the agent accepted without asking for the receipt.  Further evidence of the benefits of detailed bookkeeping!  It also shows how far accounting software programs have come. We recommend using description and memo fields to provide the detail about who you are meeting with and the purpose which may save yourself the time and expense of digging out a receipt should you be audited.

  Beth and I feel that our clients own their QuickBooks file even if it is located on our computers rather than theirs.  The majority expressing an opinion on LinkedIn concurred although there were some practitioners who felt that files on their computers were their property.  Although I am sure a lot of work went into creating those files, the information belongs to the company creating the data, not the company or individual creating the QuickBooks file.  The difference in opinion does indicate that when interviewing, companies should ask a potential accountant or bookkeeper who would own the file when they are interviewing candidates.

Why you should learn to love accounting

My goal in life is to get everyone to love accounting. I don’t think I’m going to succeed but I’ll keep trying. What do I love most about accounting? It’s all about balance. Balanced equations, balanced transactions, balanced books. In these turbulent times, couldn’t we all use a little balance in our lives? So how can accounting bring some balance to your business life?

Try focusing on managerial accounting. Large businesses have cost accountants, Fortune 500 corporations have whole departments devoted to the discipline. Successful small business owners need to assume this role as well. It is not as scary as it sounds. We are fortunate in this time period to be able to make use of a variety of accounting software programs. Beth and I are QuickBooks Pro-Advisors, but there are many other good programs out there that make accounting and bookkeeping easier for the small business owner. We have noticed that too many small businesses have only a tax accounting focus to their accounting. We suspect that is because most small businesses use a tax preparer to finalize their books and a tax preparer is naturally focused on what the business needs to file their taxes. It is very important to keep the tax authorities happy! It is also important to recognize that tax accounting is only a small component of the accounting picture.

Managerial accounting is using the information your accounting program or accountant is providing to help you guide your business. This means you must have financial statements prepared and available to you on a monthly basis. This is where the focus shifts from tax accounting which relies only on a year-end statement to managerial accounting which requires monthly statements. Ideally, as the small business owner, you have prepared a budget for your business and you are comparing your actual results to your budget regularly. You should also be comparing this developing and this task will bring these problems to your attention before they reach a crisis point. If your gross profit is less than you expected you need to understand why. Is your main supplier charging more than you anticipated? Are your shipping costs running higher? Do you have an employee theft problem? If your supplier is charging more, do you need to raise your own prices or can you get your sales staff to increase volume and earn you a volume discount. If shipping costs are rising, do you need to add a surcharge to your customers? If you suspect theft, do you need to install security cameras in your warehouse?

In today’s tough economy, no business can afford to be blindly operating at a loss. If you are losing money and you don’t know why, putting on your managerial accountant hat can help you answer the questions and formulate a plan to solve the problems. So do you love accounting a little more? Maybe not, but hopefully you can see how it can help bring some balance to your business life.

Accounting Solution for Mac Users

Today we ran across a solution for all of our Mac users who struggle to find a good accounting solution for their business. Intuit's QuickBooks for Mac is generally viewed as the best solution for Mac users, but even at that it is missing many of the best features that QuickBooks Pro or Premier forWindows has developed.

The solution that presented itself to us today is to purchase Parallels Desktop for Mac. For approximately $80, this program allows you to seamlessly run both Windows and Mac OS X on your Mac. This allows you to keep your Mac with everything you love and to also be able to purchase QuickBooks Pro or Premier for Windows with all of the advanced features that they provide. The best of both worlds!

Dumpster Day

Beth and I are reading a couple of books on organization for our own benefit and to help our clients.  She is reading Organizing for the Creative Person by Dorothy Lehmkuhl and I am reading Getting Things Done by David Allen.  Beth has already garnered some great ideas from her book and I was just struck by a great concept in mine: Dumpster Day!  David Allen recommends all individuals and businesses instituting an annual Dumpster Day during which all employees come to work in jeans and tennis shoes, set their phones to go to voice mail and sort through all their stored stuff.  This involves sorting through all files, file cabinets, in-baskets, drawers, etc. and deciding what is worth keeping and what is no longer relevant.  I love the idea-imagine how refreshing it will be to pare down all your stuff.  We will institute this at E&S Entrepreneur Advisors, LLC and the Schuldes household.  How about you?

Do you have enough suppliers to keep your business running?

The earthquake and tsunami in Japan are having worldwide economic consequences.  Clearly, the Japanese government and some Japanese corporations have revealed inadequate disaster preparedness and risk management programs.  This is having impacts on many other countries and businesses as products produced in Japan are becoming hard to procure and the recovery is predicted to take a long time. 

While this may not seem relevant to a small business owner in Wisconsin, parallels can be drawn.  Every business owner needs to make sure they have an adequate source for all products, materials and supplies.  Relying on only one source is dangerous for any size business.  Part of any well run business is the regular review of potential suppliers/vendors for both price and quality.  Having a backup plan should disaster hit one of your suppliers is vital to keep your own business running smoothly.  This can also be true for clients or customers.  If your business is too reliant on one customer and that business suffers a setback, can your business survive?

5 Small Changes That Can Improve Your Bottom Line

When we are working with small business owners on improving their profit and cash position, they are often expecting us to identify some big area where improvements are clearly needed. Sometimes that is the case, but more often we will be recommending a number of small changes which add up to the needed improvement. The following are 5 areas where we are often able to make a little change.

1. Sales: Implement one new sales and/or marketing strategy. If your business is dependent upon networking, then attend 1 more networking event each week. If you have employees, ask everyone to attend 1 networking event each month where they are focused on generating leads. If your business is dependent upon sales calls, commit to making 1 more sales calls every day. That may take only 10 minutes per day, but adds up to a total of 20 more sales calls per month.

2. Cost of Goods Sold: Shop for alternate vendors. Evaluate order frequency and quantity for volume discounts. Evaluate the product to see if there is any component that does not add value to the customer and reduce your product cost by removing it.

3. Technology: Spend some time analyzing the costs/benefits of the ever-changing technologies available today. Frequently the ROI is quite high even in the short-run in terms of improved efficiency which can be translated into reduced costs, or better customer service, potentially higher capacity and even improved sales.

4. Other Expenses: Nothing should be sacred in terms of business expenses. Look at each line on your P/L and make sure that every dollar being spent is done with a forethought. Renegotiate rents. Get alternate quotes on insurance. Look to paperless alternatives for record-keeping and billing to reduce office supply costs.

5. Track Performance Metrics: Every business should be tracking non-financial performance metrics in addition to the bottom line. Evaluate each different advertising and customer relations tactic to verify that it is producing results. Track the hours spent on various activities to be sure that you and your employees are focusing efforts on enough of the income-producing or billable activities. Take surveys to be sure that what you are offering really has value to the customer.

A small company may already perceive itself to be running lean, but is still able to make a number of small changes to improve the cash flow and cash position.

Taking Action

A new client of ours recommended the book "Getting Things Done" by David Allen and commented that it was a real life saver in her business.  I have just started reading it and what has struck me the most so far is his statement that the best way to reduce stress and increase productivity is to take action.  This struck a chord with me as I have often found this to be true.  When I have been worried about a presentation at work or fretting about a friend in need, stopping and asking myself "what are you going to do about this besides worry?" and then taking action has reduced the anxiety.

When we are reviewing financial statements with our clients and pointing out areas of concern, our first question is "why do you think this is happening?" but the next question is always "what are you going to do about it?"  Merely making note of a negative trend in your business is not enough although it is the first step.  This is why we focus on managerial accounting and work with our clients on reviewing their financial reports regularly.  The sooner you spot a negative trend, the sooner you can take action.

When has taking action reduced your anxiety or increased your productivity? 

Succeed At Running Your Small Business

What does it take to run a successful small business? Many entrepreneurs are caught off guard by the amount of work and the variety of tasks they must perform when running a small business. It is easy to get overwhelmed by all the jobs both big and small. Is there any way to make the juggling of all these tasks easier?

Some jobs are easier to deal with than others simply because the owner likes the particular task. Others are easier to avoid because the task is distasteful. The fact of the matter is that each task is crucial to the success of a small business and cannot be avoided. So how can you get them all accomplished?

Set up procedures and processes for your business. Take the time to figure out how best to organize your office, your business, yourself. Write down all the jobs that must be done to keep your business running and determine when they must be done. Then determine who is best suited to complete each task. If you are a one woman shop then it would appear that you must do everything but consider whether it would be money well spent to outsource some of your tasks. Hiring a bookkeeper or enlisting a payroll service may free up your time for income producing tasks which will pay for the outside service and allow you to do what you love and what you are good at.

We recommend putting undesirable tasks right on your calendar. Figure out what time of day and what day of the week works best for you to get the dirty work done and schedule your least favorite tasks for this time. Then stick to the calendar. Get the job done and crossed off your to-do list. You won’t believe how good it feels. Use to-do lists, a calendar and an organization chart and you will find your business running more smoothly and your life feeling less hectic.

So any other good ideas out there to help a small business owner stay organized and on track? Let us know.

Running your business with a proactive attitude

One of the seminars we are working on deals with how you can run your business more effectively if you approach life with a proactive attitude rather than always reacting.  Here are just a few topics to inspire your curiosity:

Develop short and long term plans, set up a budget, have goals and benchmarks to measure your planning and goal setting.

Write up job descriptions for employees and have regular job performance reviews.

Get expert help when you need it: accounting, IT, marketing are a few common areas where many business owners seek help.

Develop a good risk management policy.  Many small businesses are run with a very small staff and it is important to plan ahead and have procedures in place in the event someone else has to step in due to illness or injury.

This is just a start to the topic and we have many more areas to cover.  Any suggestions as to what else we should cover?

Hate making the dreaded Cold Calls?

We have all heard the old adage “it is easier to keep a current customer than to find a new one”.  I was reflecting on that this week due to two experiences that we have had in the past year. 

First of all, in compliance with my to-do list, I was following up with a past client who had indicated that they were making some changes in the spring. Her comment struck home when I called and she replied, “I’m so glad you called. You were on my list to call but I have been so busy with…” That says it all. As business owners wearing our sales hats we don’t like to pester other business owners. We know how busy they are and how much we all resent interruptions. But good customer service is all about listening with the intent to understand. By listening well during conversations, we can understand the current and potential situations that make up our clients’ world. We can make notes to call them at a future date and if we have gained their trust in our past transactions with them (see our April 7 post), then those future sales calls will be productive.

Conversely, let’s use the marketing firm that we used last year as a poor example of following up. Last year we hired a local marketing firm to help us with our PR. Our marketing plans were on track except we realized that we were hesitating when it came to our PR and so, as we would advise our clients, we outsourced what we were clearly not good at. That firm proposed a more comprehensive marketing program than we were able to commit to last year, but we explained our situation and settled on the PR work that we wanted as well as some website SEO. The PR firm did get an article published on our business in 2 area papers, but did not accomplish everything that was on the PR plan that they had laid out which included TV spots, radio interviews, and more. Perhaps that is the nature of PR. I don’t know as they did not follow up with us to review their progress. 

What I do know is that once our budgeted dollar amount was spent last October, we never heard from them again! No phone call to find out if we were now in a position to address some of the other areas that they had recommended to us in 2010. No follow up call with us in 2011 to review our situation and marketing needs for this year.  We had simply not heard from them since until a PR article that we submitted ourselves ran in the area newspapers a few weeks ago. We understand that we are a small business and therefore not highly lucrative for them, but we are a few thousand dollars per year and that dollar amount could potentially increase as we grow. This was an example of poor sales work on their part. We actually did have some marketing work to accomplish this year and we sought out a different source.

The moral of this article is:  follow up regularly with your current and past clients in addition to looking for new customers. If you did your job well, you have already earned their trust.

Speed of Trust and Small Business

I had the opportunity earlier this week to attend a webinar hosted by the Institute of Management Accountants (IMA) of which I am a part. The speaker was Stephen Covey talking on the Speed of Trust. As with everything I study which is intended for global business, I like to ponder how the same concepts can be applied to small business. This topic, in particular, had some very concrete applications especially to others like us who are in service businesses.

One of the main points that Stephen Covey asserts is that trust is more than a social value. Rather it is has an economic impact as well. As trust increases, the speed at which work gets done increases and the cost decreases. According to Covey, trust is a function of 2 things: Credibility and Behavior. He cites 4 Cores of Credibility. The first two, Integrity and Intent are related to whether people trust our character. The second two, Capabilities and Results, are related to whether people trust our competence.

Without understanding the theory that Stephen Covey proposes, I have observed scenarios working with clients where we can accomplish a lot in a short period of time if we are trusted because we are not having to meet continually to explain every step and have everything approved. This increases the speed of our success with clients and therefore reduces their bill. A lower bill makes our services feel even more valuable to our clients and they recommend us to others thus increasing our income. That perfectly describes the Trust Dividend cited in the Speed of Trust.

Applying this to the small business service providers, we can increase the speed at which our clients trust us by:
1. Making sure that our actions speak as loud as our words to our integrity.

2. Declaring our intent. Clients are not going to think that things should be done our way just because we say so. We need to explain the why behind what service we want to do and why it is important to them. This shows them that we are actually looking out for our clients and not just trying to make money off of them.

3. Continually staying on top of the latest changes and trends in our field. For Susan as a CPA and myself as a CMA we are required to complete 30 hours of continuing education each year. Even if that is not required in your field, be sure that you are staying relevant.

4. Making sure that we provide the results that we promised. Deliver our best on time every time. Keep our commitments.

I recommend that people everywhere read Stephen Covey's best selling book The Speed of Trust to gain even more insight on how you can increase your own Speed of Trust within your organization and with all of your stakeholders.

5 tips for the Home-Based Entrepreneur

People often struggle with how to be a successful entrepreneur based out of their home. The distractions are many, but the rewards are great! As with all entrepreneurial success, working from your home requires some upfront planning and discipline colored with your personal priorities and style.

1. Set up an office. Designate a space that is your own, preferably with a door, with your desk and equipment, a good chair, files, and everything that you need set up for maximum efficiency. That doesn’t mean that you always have to work from that spot, but when one son is practicing his drums and the other is on the guitar, it is nice to have a place to retreat to which is promotes concentration.

2. Invest in technology. Nothing wears you down faster than having to walk to a different room to plug into your printer every time you need to print a document. Set your house up with wireless technology. Purchase multiple monitors if that makes your work more efficient. Invest in the software you need. New solutions and improvements are developed daily which simplify the tasks at hand.

3. Know yourself. Understand your moods. Know the times of the day that you work the best, and schedule your work activities around that. I wake up in the morning with my mind already thinking about the day’s issues. On days that I am not scheduled with morning clients, I often grab a cup of coffee and start my day working on my laptop from my bed. I can accomplish a lot between 6:30-8:30 from that comfy location. In fact, that’s what I’m doing right now! Then I take a break to exercise and get dressed for the day before I start in again for another couple hours of concentrated work. Some days I pause my workday at 3 pm to drive children and make dinner, but then use the evening hours to finish up any research or reading that is needed while my children are doing their homework and my husband is reading as well. My point is that while my workday may look random and disjointed, it is actually a well-laid out schedule of activities placed during their most effective windows of time.

4. Block time on your calendar. This is an old Stephen Covey tip which I like to jazz up with color coding. Block off your income-generating work related activities in one color (client work, client meetings, etc.). Block off time for working on your own business in another color (your own marketing, accounting, strategy work, etc.). In a third color block off time every week for your important relationships (spouse, children, friends). In a fourth color block off time for community involvement. And in a fifth color block off time for you! The color coding is an effective way to see that you are building balance into your life which will help sustain your entrepreneurial spirit.

5. Focus. Work from daily priority lists to help you work with a purpose. When you sit down to work for a two hour window, make sure that you know what task (or tasks if you need variety) you are going to accomplish and then don’t let yourself get distracted by phone calls, e-mails, or interesting articles. This is not the time to change a load of laundry or load the dishwasher. You save those tasks for your breaks. You can judge what is considered worthy of an interruption, so hold yourself accountable. After all, you are your own boss, so hold yourself to the same standards that you would expect of your employees!

Although it doesn’t work for all personalities, with some planning and discipline you can successfully run your business from your home.

Why do I have to do my accounting?

What is accounting really? Techniques or a language that allows you to keep track of the money coming in and going out of a business. Many people are uncomfortable with accounting because they are unfamiliar with the terminology. I can’t tell you how many times I tried to explain to friends struggling with an accounting class in college how assets could be debits, liabilities-credits while income was a credit and expenses were debits. They always thought assets and income should act the same way. I tried to get into the theory behind double entry accounting and how the balance sheet and income statement flow through each other, but some people just got bogged down with the terms.

The nice thing about the invention of accounting software programs is that the terminology has really become a non-issue. With QuickBooks or other programs, the user is filling out forms or writing checks and the program “writes” the entries for you so you don’t need to know whether you are debiting cash or crediting sales. Once you let your discomfort over the terminology go, you can focus on learning how to use the program. Modern software has nice features built in that require you to enter data such as customer names and addresses only once and then each time you invoice that customer, all that information is automatically entered into the form. Even better, once you’ve learned how to use your accounting software, you can really reap the benefits of good accounting by learning how to use the many reports the programs can generate.

The whole point to establishing a good accounting system is to provide you, the owner, with the information you need to run your business. The less time you spend on the bookkeeping portion of the accounting process, the more time you will have for the analysis portion. It is the analysis that will point out the questions your business is asking you. While modern accounting programs can’t answer the questions, but they can point you in the right direction and give you the information you need to find the answers.

A successful small business owner learns how to make the most from her accounting process by selecting the right program, learning how to use the software, learning how to read the financial statements and using all the great information to make the decisions needed to keep her business moving forward.

Why do small businesses fail?

Even though the economy is starting to turn around, we still see too many small businesses closing their doors.  Why?

• The business didn't take the time to understand what set it apart from it's competitors or didn't articulate that to the market clearly enough.
• The business wasn't set up for success.  A well developed business plan wasn't created which listed all the start up expenses and assets required and located the funding for these expenditures.
• The business didn't know what it's break even point was and didn't systematically determine it's pricing.
• The owner wasn't prepared for how hard a small business owner has to work and the sacrifices that need to be made during the start up years.
• The owner lacked the people skills to effectively deal with employees, customers and vendors.
• The business didn't have proper financial information to make decisions and change strategies.  Good financial statements are NOT just for your tax preparer to use.  They help you understand what is or is not working in your business.
• The owner had insufficient or irrelevant experience to run their own business.  Many people who have always been an employee have no idea what it takes to be a business owner.  The owner of a small business has to know about labor laws and tax codes and licensing requirements and record keeping rules........

It breaks our hearts every time we see a business with a good product or that offers good service fail because it didn't have the proper infrastructure or organization.  We have often thought business owners should be required to take a class so they do understand all the rules and regulations they need to follow and all the other things they need to understand. 

Helping Partners to Remain Friends

It has been an interesting few weeks as we have been working with a couple of clients who are severing partnerships and going their own way. Overwhelmingly we notice the problems that arise when you do not obtain legal help in setting up a partnership or a multi-member llc and you do not have the proper operating agreements in place.

These are the typical scenarios: Best friends decide to start a business to promote a shared dream. No thought is given to how the business will be managed if one of the partners develops health problems. A husband and wife form a business together, trusting each other completely. No thought is given to what would happen with the business in case the couple divorces. For too many businesses, the llc is formed by filing the Articles of Incorporation, but the set-up stops there. The operating agreement is the important next step after filing the Articles of Organization to form the LLC.



Businesses are started with excitement and good intentions. Part of the up-front set-up, however, needs to be a detailed operating agreement including the solutions for the worst-case scenarios. The following lists some of the topics to be covered in the business operating agreement:

1. Who are the members of the LLC (that's right, member is the correct terminology)?
2. What did each member contribute to the business?
3. What are the requirements for a new member to join the business and how will the price be determined?
4. What are the requirements if a member wishes to withdraw from the business?
5. What will happen if a member becomes mentally or physically disabled. For what lengths of time?
6. If a member withdraws, how will the buy out price be determined?
7. How will duties be separated and/or shared?
8. How will disputes be resolved?
9. How will profits, losses, and distributions be split among members?
10. What will happen in case of a divorce in a Marital Property State like Wisconsin? Do you have the proper documents and signatures in place so that you do not end up in business with your partner's ex-husband in case of a death or divorce?

These are just the building blocks of an operating agreement. They can be as detailed as you think helpful. As in all things related to business, planning up front saves you a tremendous amount of grief in the end. Agree on the solutions up front and you will save yourselves a lot of heart ache later.

I invite you to share your lessons learned if you went into business without an operating agreement and ended up with problems later on.

Learning to run your business with your iPhone

Sharlyn Lauby of Mashable had a recent article about online learning apps available for iPhone users. Beth and I haven’t jumped on the iPhone bandwagon yet, but for those of you who have, this is a list of apps available to you:


• Learning To-Go by INTERSOG included Pocket MBA, Pocket CFO and Pocket Manager

• Sandler Training offers courses on sales and sales management

• Skill-Pill has 2 minute videos for hundreds of business topics

• CellCast Widget provides a mobile library with hundreds of topics

• iTunesU gives you access to Stanford’s Entrepreneurial Thought Leaders series

Next time you are picking up your kids after practice or waiting to see the dentist, take advantage of the down time to take in a little continuing education. We are big believers in constant learning and improving. Any apps out there we missed?

Are consultants worth the price?

I recently read a case study by Jessica Bruder in the New York Times. She was detailing the struggles a family owned business was going through after years of uncontrolled growth which resulted in the company being “functionally bankrupt”. They were hoping, at best, for an $80,000 loss on $3.5 million in sales. Desperate, they hired a consultant to come in and analyze the business and determine what was needed to save the company. The consultants determined that the business was lacking internal financial and operational controls. Employee job descriptions were weak and the organizational chart was haphazard resulting in a lack of coordination, inefficiency, frustration and a tendency for workers to focus a single task.


The thrust of the article was whether the $170,000 the consultants would charge to implement the turnaround plan was worth the money. The plan called for creating more detailed financial data which included job-costing as well as an improved organizational chart, job descriptions and employee performance reviews. Several experts offered their thoughts which included:

“If the long-term problem is that the family has exceeded its managerial capabilities, then getting a list of solutions from a management consultant — however accurate or perfect a list it is — won’t solve the problem.” Matthew Stewart “The Management Myth”

“This is the definition of crazy. Each year they keep doing the same things and hoping for a different result. I think they’re smart to bring in an outside resource, but I would make sure the resource is focusing on the entire business, not just operations. And I would make the payment performance-based.” Chris Carey of Chris Carey Advisors.

Beth and I offer consulting services such as this and we are helping a couple of businesses turn themselves around. We don’t charge $170,000 but we are interested in people’s opinions on the effectiveness of consultants. What have your experiences been?

Work With Purpose in 2011

You've vowed it before, but 2011 is going to be the year that you begin to work with purpose as you manage your business. Setting goals is an important part of continuously improving your business. It allows the business owner and their employees to be proactive rather than reactive in their dealings. The specific goals for 2011 should align with the long-term strategy of the business. Below are several keys for setting business goals.

1. Goals should be relevant. That is, they should be something that somehow ties into your strategy.

2. Goals need to be actionable and measurable. It is not specific enough, for example, to state a goal of improving customer service. You need to understand how to improve customer service and state your goal in those terms. For example, an acceptable goal for improving customer service is to reduce project turnaround time by 3 days. You will then need to track and measure past and future project turnaround time.

3. Goals should have a time line assigned to them. If the time line is a longer period of time, the goal should also have benchmarks. For example, if the goal is to increase sales by $40,000 by December of 2010, then you might set a quarterly benchmark of $10,000 to track your progress toward the goal.

4. Goals should be reasonable. Goals that are completely unattainable serve no purpose toward improving your business operations. They only lead to frustration.

Goals are usually focused on generating greater profits so they are often developed in the areas of customer service, sales, improving operational efficiency, and improving employee competency.


Don't work another day just reacting to business. Put your goals in place before the end of the month and move your business forward with purpose in 2011!

Perceived value in a tough economy

I was at an advisory board meeting for the Better Business Bureau today and we were discussing perceived value.  We were talking about the reasons some businesses chose not to renew their accreditation with the BBB and it came down to perceived value. 

With many small businesses continuing to struggle financially, owners must make hard decisions on where to spend money.  Some areas are not negotiable-insurance and rent must be paid as do employees.  Other areas are not as obvious such as memberships or dues.  Accounting often falls into the same category-lacking perceived value. 

Beth and I have been fortunate to retain all our clients through the last 2 years, but we often run into the value question when we are meeting with perspective clients.  They know they need help, but the idea of the accounting bill can be hard to swallow.  Those businesses who do retain us do come to see the value of our work which is why they remain clients.  We make sure to post their recommendations and testimonials on our website and on Linked In so potential clients can see what people have to say about our work. 

My husband often finds himself in a similar situation.  He is the sales manager for a local business which is fortunate to have over 50 years of quality products and service to their name.  Despite this sterling reputation, they often find businesses interested only in the bottom line-they want the lowest bill or the cheapest alternative and not the best value.  Again, it is a question of perceived value.  There may be other businesses that provide a cheaper product, but the buyer may find that the quality is lower and the maintenance higher and in the long run, the overall cost to the business will be higher.  Some individuals find this concept difficult to comprehend upfront. 

Any ideas on how to combat the question of perceived value?

What needs to be done now that the year is over?

Happy New Year! The end of a year brings several things that business owners need to accomplish. Whether you do the work yourself or  your accountant helps you, the following list will help you to be sure that nothing is forgotten. 

1.       By January 15, 2011, anyone who has been paying estimated taxes needs to pay the final installment for 2010. This is sent in on Federal Form 1040-ES and for Wisconsin business owners Form WI 1ES.

2.       By January 31, 2011, 1099 Forms need to be sent to all service providers who are not taxed as corporations and you paid more than $600.00 in 2010. They must also be sent to any lawyers regardless of the amount that you paid them. For 2011, make it your policy to have all service providers fill out a W-9 before you pay their bill. That way you are sure to have their information come tax time next year.

3.       By January 31, 2011, W2’s need to be sent to all employees. Other payroll reports and returns that need to be completed by this date are the 2010 4^th Quarter Federal Form 941 or annual Form 944, Federal Form 940, and for Wisconsin the 4^th Quarter Form WT-6 and Annual WT-7 as well as the 4^th Quarter UCT101 for the Department of Workforce Development. If you have not been paying in monthly or quarterly, payment will be due with these returns.

4.       By January 31, 2011, the sales tax return for either the month of December, the 4^th quarter of 2010, or the entire year of 2010 is due depending on your sales tax filing status.

5.       Your Financial Books need to be reviewed for accuracy and completeness. Below are several areas that are critical to look at before you close your year:

a.       Accrue any year-end costs associated to payroll in 2010 which were not paid until 2011.

b.      Ensure all vendor bills are posted by the Dec. 31, 2010 date.

c.       Ensure all clients are invoiced for 2010 business.

d.      Adjust any outstanding receivables that are considered uncollectible against bad debt expense. Verify that all receivable reports are accurate and equal the Accounts Receivable account balance.

e.      Verify that all accounts payable reports are accurate and equal the Accounts Payable account balance.

f.        Reconcile all bank accounts, savings accounts, credit card accounts, and loan accounts.

g.       Conduct a physical inventory count and record adjustments.

h.      Adjust any prepaid items that need to be expensed.

i.         Calculate and record amortization and depreciation.

j.        Review asset and expense balances to ensure that all fixed assets have been accurately recorded. Also verify that the detail for assets is recorded in a fixed asset ledger.

k.       Adjust any prepaid deposits to earned revenue.

l.         Print and review year-end reports.

m.    Back-up your data.