It’s That Time Again

It’s that time of year again when most businesses are closing their books. The business owners are either celebrating or licking their wounds. In any event, we as accountants usually have some clean-up and decision making to do.

Year-End Financial Statements

The year-end financial statements are the most critical reports we issue. These reports (profit and loss statement and the balance sheet) will be used for tax preparation, for 2010 budgeting and for decision making more than any other monthly reports we prepare. Because it’s important that these year-end financial statements reflect accurate information, we need to make sure they are correct.

You probably have a year-end routine you rely on, but here is a simple checklist of items that you might consider for clients when ensuring the accuracy of their year-end financials:

 Year-End Accounting Checklist

• Does the general ledger bank balance reconcile to the bank statement?
• Are there any worthless accounts receivables that should be written off?
• Does the Allowance for Bad Debts have a reasonable estimate of potential write-offs?
• Is Deposits is Transit cleared out?
• Have all the credit card accounts been reconciled as of year-end?
• Does the company’s inventory balance reflect actual inventory available?
• Do you need to adjust inventory for items that cost more than their worth and should be written down to their market value?
• Does the company still have all the fixed assets?
• Have you recorded depreciation correctly?
• Does the suspense account have a zero balance?
• Any prepaid items that need to be expensed (i.e. prepaid insurance)?
• Have all year end payables been accurately recorded?
• Does your payroll tax liability coincide with year-end reports?
• Does the notes payable account (loans) agree with the bank?
• Does the interest expense for these notes agree to form 1098 from the financial institution? (you no longer need to wait for the 1098’s with the convenience of on-line banking)
• Are there other debts that have not been included on the books?
• Are there debts on the books that no longer exist because of forgiveness or nonpayment?
• Are the 1099 vendor’s correct information, federal identification number, and mailing address?
• Have I ordered or do I need to order year-end tax forms (i.e. 1099’s, w-2’s, etc).

Meet with your Client

Once you have completed this list, make sure you sit down with your client and review the financial statements to identify anything you might not be aware of.

Throughout the review ask the question, “Do these balances seem reasonable?” At the end of the meeting ask, “Are there any other assets or liabilities that I haven’t included?” Occasionally, they might surprise you with an event that you didn’t have any knowledge of before, but that will affect your books.

Finally, the last step of the year-end process is to compare your financial statements to prior years to see if any increase or decrease is reasonable. If you run across some significant changes, you may want to look at the general ledger account to ensure the entries are legitimate or if they need to be reclassified.

As you follow this year-end process you will be amazed at how much you learn. You may see trends and practices that will help you in consulting with the client and help him/her run their business more effectively.

In fact, often times the accountant will know more about the business finances than the owner. So, this year, take the time and make the effort to be precise so that you can go into 2010 with reliable balances and peace of mind.

• Do you have questions? For no charge, call Andy at Accounting-alacarte at 805 636-1250 and she will be more than happy to support you during the year end process.

   

  Best Wishes for a Prosperous 2010!

Cash is King but how do you maximize it?

Do you know where your cash went? Cash management is a relentless task that requires constant attention. It is important to develop efficiency in your procedures by utilizing tools such as cash flow projections and key performance indicators as a road map for the future direction of your business. Cash flow projections are the key to making smart, profitable decisions. Well managed companies utilize these tools to proactively navigate challenges through early detection and proper planning.

To be successful with cash flow management you need to be diligent and efficient in recording information timely. In addition, below are a few tips that will help you maximize your cash flow.

Establish tools to regularly monitor key business areas and drive profitability

· Utilize cash flow projections to make wise business decisions

· Develop visibility to key performance indicators to improve working capital

· Know your break-even point and your overhead rate

· Enter transactions daily to provide real-time visibility

Know your Cash situation

· Develop a 13-week and 12-month cash flow forecast to monitor cash flow

· Know your cash balance NOT your bank balance!

· Evaluate cyclicality or fluctuations in your business and establish a proper cash reserve

Collect receivables more quickly

· Email invoices upon job completion - timely billing starts the clock sooner

· Follow-up, follow-up, follow-up - Stay at the top of your customer’s payment list

· Implement tools such as credit card processing, EFT’s and remote deposit processing

· Begin collection efforts as soon as an invoice is past due

· Make good customer decisions - avoid collection problems

Slow down payments to vendors

· Negotiate with suppliers - don’t be afraid to ask for extended terms such as 60 -90 days

· Negotiate for vendor concessions such as volume and early pay discounts (your competitors are getting discounts, why aren’t you?)

· Always take advantage of all discounts and pay when due, not before

Sell your inventory more quickly

· Maintain inventory of only your top selling items (use the 80/20 rule)

· Tighten replenishment procedures (establish pre-determined re-order points)

· Constantly monitor and regularly closeout slow-moving or obsolete inventory

· Implement tight document controls and limit access to inventory to minimize theft

Safeguard your assets

· Monitor business performance against estimates and research variances

· Understand areas of risk and establish a strict tone from the top

· Know the elements that motivate individuals to commit fraud - Pressure, Opportunity & Justification

· Evaluate new hires carefully - implement background checks

· Segregate duties and establish tight internal controls to minimize risk

Understanding the key profitability drivers of your business is essential to effectively managing costs.  In addition, preparing monthly cash flow projections are crucial to making prudent business decisions.  Incorporating these tools to improve your cash management process allows you to successfully navigate challenges and minimize cash shortages.  More importantly, it allows you to focus your talents and efforts on growing your business which is what you do best.

Accounting a la Carte can help you develop the tools you need to monitor your business and make better decisions. Take the mystery out of cash management and maximize your cash flow today!