Tips to Prevent Employee Theft

Tips to Prevent Employee Theft

Learn How to Prevent Theft in Your Business

Not all crooks roam the streets at night. Some might be roaming your company hallways, stealing cash, forging or altering checks and pilfering your inventory and property. Even worse, they may be stealing intellectual property, such as confidential documents or trade secrets. What can you do to prevent employee theft?

Here are 18 crime busters:

1. Talk openly with your employees about theft and dishonesty. Set an example for ethical behavior.

2. Be suspicious of any employee with a sudden financial change. (Has someone started buying expensive clothes, gifts, or cars?)

3. Prosecute offenders. It helps deter further crime. Articulate a zero tolerance policy in your employee handbook.

4. Have the bank send all canceled checks and bank correspondence to a different address (for example, a post office box or your home).

5. Require employees to sign out and sign in equipment. When a staff member leaves the company, make sure laptop computers, cell phones and other equipment are promptly returned.

6. Periodically change locks on doors and file cabinets. And change computer passwords regularly, particularly after someone leaves the company on bad terms.

7. Keep a close eye on petty cash. Be skeptical about excessive voids, credits or damage claims. Investigate all missing documents. Do not let employees think no one notices when something is missing.

8. Visit frequently and unannounced your warehouse or storage areas. Look for suspicious patterns. For example, do certain employees always park near the door?

9. Randomly check deliveries to your business and your customers. There may be hidden stolen goods in them.

10. Never accept photocopies of documents like invoices and delivery tickets.

11. Look into unexplained employee absences. At the same time, be suspicious if a staff member never takes a day off. That could mean an employee is afraid that theft will be detected if he or she is not around to cover it up.

12. Spot-check phone bills for calls to unrecognized business numbers.

13. Conduct unscheduled audits. Pull purchase records from the company files and ask the person in charge if they compared prices. If not, why?

14. Require full documentation. Ask for receipts, delivery times and notes on the condition of goods when they arrived.

15. Pay only for what you receive. Remind staff members that the company does not pay for items not ordered, even if an invoice is submitted.

16. Get professional help. Ask your insurance agent to visit your business and check it out before buying a substantial theft insurance policy. Smith Schafer can perform an internal control study and make recommendations to segregate employee duties in a way that minimizes illegal activities and reduces theft.

17. Hire a bonding company to bond your employees, if possible.

18. Establish an anonymous tip program that allows employees to report questionable behavior.

These are only some of the steps your company can take to help prevent internal fraud.

If you discover suspicious activity and do not have concrete proof, get legal advice before confronting an employee. A false accusation could irreparably harm employee morale and could result in a lawsuit against your company.

For more information on this topic, contact your Smith Schafer professional or check out our Audit Service Page.

2019 Tax Deadline Calendar

2019 Tax Deadline Calendar

Tax Deadlines

Tax reform brought many changes to the tax code, however it did not change the statutory due dates for filing taxes. See below for important tax deadlines through the remainder of 2019.

April 15, 2019

  • Individual Tax Returns Due
  • Individual Tax Return Extension Form Due
  • C-corporations Tax Returns (operating on a calendar year) Due
  • C-corporations Tax Return Extension Form Due
  • Estates & Trusts Income Tax Returns Due
  • 1st Quarter 2019 Estimated Tax Payment Due
  • Last Day to make a Contribution to a IRA, Health Savings Account, SEP-IRA or Solo 401(k) for the 2018 Tax Year.

June 17, 2019

  • 2nd Quarter 2019 Estimated Tax Payment Due

September 16, 2019

  • 3rd Quarter 2019 Estimated Tax Payment Due
  • Extended Partnership Tax Returns Due
  • Extended S-corporation Tax Returns Due

September 30, 2019

  • Extended Estates & Trusts Income Tax Returns Due

October 15, 2019

  • Extended Individual Tax Returns Due
  • Extended C-corporation Tax Returns Due

Business Valuation & Succession Planning

Business Valuation & Succession Planning

How much is your business worth and what are your plans for the long run? These are questions every business owner will face at some point. Business owners invest many years of time, energy, and personal funds to build a business. Planning for your exit is often one of the hardest things a business owner must do. Contemplating the business you built or help to develop without you is complex, difficult and emotionally challenging. When succession planning is executed properly, it allows for the orderly transition of management while protecting the exiting owner professionally, emotionally and financially.

What should business owners do to prepare for business succession and how can they maximize the value of their business? 

  • The first step is determining a realistic value of the business. This is accomplished by having a valuation performed on an as-is, on-going basis of the business. Some owners may want to determine the annual value of the business for legal reasons, such as a buy/sell agreement, and others may want to be updated on an as-desired basis in order to keep track of the value of their estate.
  • The simplest and least expensive way to determine a value of the business is to engage a valuation expert to perform a Calculation of Value engagement. This calculates the value using the same general methodology of a more comprehensive Opinion of Value engagement, without the increased reporting requirements and therefore, without the increased fees for the service.
  • Another benefit of the Calculation of Value engagement is the professional’s assessment of the main drivers of value for the business. This may help the owner determine ways to increase the value of the business before they decide to transfer the ownership. The business owners may also use the information to help determine the best type of transaction for their economic needs.

Business Succession

  • Business succession transactions may be accomplished by gifting the ownership to family, key employees, or other individuals. Gifting is most common with family successions.
  • The business may be sold to employees, third parties, or may be combined with some amount of gifting. This type of transfer of ownership will be approximately the value determined when the business was valued as an as-is, on-going basis.
  • Businesses may be sold to a strategic buyer (someone already in the industry). A transaction with a strategic buyer usually occurs at a value higher than the amount determined with the traditional Calculation of Value engagement. The buyer may incorporate the revenue streams into their existing business and will be able to achieve increased profit and cash flow by consolidating specific overhead expenses. Example: Two facilities may not be needed and common business functions, such as administrative may be consolidated and the costs may be absorbed by the increased revenue. A specific Calculation of Value engagement may be performed to determine an estimated value of the business if it is sold to a strategic buyer.

CONTACT US

Determining the value of your business and incorporating this information into your overall financial, retirement, and estate planning, will help you manage the wealth of your business. To help business owners through this process, Smith Schafer offers business valuation and succession planning services designed to help businesses create and execute a successful transition strategy.

Smith Schafer works with companies, in multiple industries, to uncover the true value of their companies’ tangible and intangible assets. Whether you need help creating a succession plan or conducting a business valuation, our professionals can guide you. 

Cash is King – Improve your Cash Management

Cash is King – Improve your Cash Management

Most of us in the business world have heard the phrases “cash is king” or “it is trash until it is cash.” Do you know the last time you or your management team critically examined the policies and procedures directly affecting the cash management cycle? If your answer is no, continue reading to learn a few tips to improve your company’s cash management.

One of the simplest ways of better managing cash flow is identifying and implementing policies and procedures aimed at shortening the operating cycle.

[ Operating cycle is the time it takes to obtain the order, manufacture the item, ship the item, invoice the customer and collect the receivable, therefore converting the sale to cash. ]

Management must work closely with the appropriate individuals to review each specific area. Questions to ask yourself:

  • Are there ways to streamline the process of taking orders and getting them into the manufacturing schedule quicker?
  • Once in the schedule, are there methods to reduce the time it takes to manufacture the item and have it shipped to the customer? 
  • Is there “low hanging fruit” in the areas of invoicing and collections?
  • Are there areas we could automate to make accounts receivable management more efficient?   

All of these areas significantly affect your company’s cash flow management. We recommend your management invest time in order to make these as efficient as possible.

Did you know? New technology has allowed many companies to complete the invoice process the same day or even before the product is shipped. 

These are just a few simple ways to improve your company’s cash flow. If you would like to examine and quantify the potential benefits that your company can realize by shortening the operating cycle, contact us today!

2019 Contribution Limits

2019 Contribution Limits

For 2019, most of the limits will remain the same however there were a few key increases to be aware of. For example, the IRS increased the employee’s contribution limit for 401(k) plan participants from $18,500 per year to $19,000 per year. Also, the defined contribution plan annual contribution limit increased from $55,000 to $56,000. These changes will need to be reflected in your company’s plan administration and payroll processes. Below is a summary table reflecting some of the key benefit plan limits: 

RETIREMENT PLAN LIMITS

2018 2019
Annual compensation limit $275,000 $280,000
401(k), 403(b) & 457(b) employee contributions $18,500 $19,000
Catch-up contributions (if age 50 or older) $6,000 $6,000
Highly compensated employee threshold $120,000 $125,000
Key employee officer compensation threshold $175,000 $180,000
Defined contribution plan annual contribution limit $55,000 $56,000
Employee stock ownership plan (ESOP) limit for determining the length of the general five-year distribution plan $220,000 $225,000
ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,105,000 $1,130,000
Roth IRA and traditional IRA $5,500 $6,000
Roth IRA and IRA catch-up contributions $1,000 $1,000
SIMPLE salary deferral $12,500 $13,000
SIMPLE catch-up limit $3,000 $3,000

Contact Us

It is important to update plan documents and benefit plan materials to reflect the recent changes. It is also important to consider any individual participant notification requirements that are necessary to remain in compliance with plan rules. If you have questions about the changes, please contact Smith Schafer for assistance. 

Business Valuations – What You Need to Know

Business Valuations – What You Need to Know

Most business owners and attorneys know the basics of the business valuation process. For example, you may know there are three approaches to value:

  1. Cost
  2. Market
  3. Income

You may even know some of the methods that fall under these approaches, including the:

  • Adjusted book value,
  • Excess earnings,
  • Guideline public company,
  • Merger and acquisition,
  • Capitalization of earnings, and
  • Discounted cash flow methods.

But experienced laypeople also understand the process of valuing a business is not simply a matter of plugging numbers into these “black boxes” and having the answer spit out the other end. Instead, valuation analysts use professional judgment to arrive at a reasonable conclusion of value.

Internal Factors to Consider in a Business Valuation

Arriving at a reliable value starts with the subject company’s financial information, including tax returns and financial statements from the last three to five years. Valuators also consider forecasts, projections, and business plans. But a comprehensive valuation goes beyond the numbers. It includes site visits, management interviews and an evaluation of the nonfinancial factors impacting value.

Valuators rely on various professional standards and publications to guide them through this part of the valuation process. These tools help appraisers know what information to request and what questions to ask.

For example, the AICPA Statement on Standards for Valuation Services No. 1 suggests the following non-financial information to consider when valuing a business:

  • Nature, background and history of the subject company;
  • Facilities;
  • Organizational structure;
  • Management team (which may include officers, directors and key employees);
  • Classes of equity ownership interests and rights attached thereto;
  • Products or services (or both);
  • Geographic markets;
  • Industry markets;
  • Key customers and suppliers;
  • Competition;
  • Business risks;
  • Strategy and future plans; and
  • Governmental or regulatory environment.

This list is similar to what is included in IRS Revenue Ruling 59-60, which addresses the valuation of closely-held stock for tax purposes. This ruling is also commonly referenced for non-tax valuations.

External Factors to Consider in a Business Valuation

Many of the items valuators consider relate specifically to the subject company. However, valuation analysts also consider external factors impacting value. These factors affect every business differently, requiring appraisers to make subjective judgment calls. To illustrate, consider these four examples:

  1. Market conditions. An appraiser’s conclusion is only valid as of a specific point in time. Suppose the subject company is a restaurant located in a small, rural community that recently lost its major employer. Here, the restaurant’s value would likely be adversely affected by its current market conditions.

On the other hand, if the restaurant were located in a town with a prosperous economy — despite a weak national economy — the local market conditions might increase the value of the restaurant. In some cases, a severe, ongoing economic situation, like during the great recession of 2007–2009, can have a dampening effect on almost every business no matter where it is located.

  • Regulatory environment. Government regulations can also impact the value of a company. For example, the Affordable Care Act (ACA) could increase overhead costs — and, therefore, decrease future cash flows — for companies with 50 or more full-time equivalent employees.
  • Competition. A company operating in an industry with low barriers to entry — such as a product promotion firm — faces ongoing, often unforeseeable, competition. Anyone with a computer, inexpensive design software, the ability to sell and a creative mind can run this type of operation. The valuation analyst needs to determine the competitive situation — including how such a practice differentiates itself from the competitors — when determining value.

Conversely, a business operating in an industry with high barriers to entry might not be as concerned about new competitors entering the marketplace. For instance, a manufacturer of products made from tungsten, an expensive and volatile commoditized metal, might find itself in a good competitive position, because handling tungsten requires specializes facilities and training.

  • Industry outlook. The state of the company’s industry also impacts value. For example, a company operating in a declining industry — such as direct mail — may not be worth much more than its liquidation value, even if it has years of positive operating cash flows. Conversely, companies in emerging growth markets — such as technology service providers — may be worth more than their historic financial performance might suggest. The value of these firms may, instead, be based on speculative future earnings estimates.

Questions?

It is often said valuation is an art as much as a science. Valuation analysts piece together various types of internal and external data to get a complete picture of how much a business is worth. The process requires more than dropping numbers into a black box. Like a trained artist, valuators use their professional tools, accepted methods and business experience to finesse the data into reliable value conclusions.

Smith Schafer works with business owners, in multiple industries, to uncover the true value of their companies’ tangible and intangible assets. The resulting valuation report provides an accurate baseline measurement that informs your strategic plan – whether your goal is to sell the business, arm yourself for litigation or build additional value for the future.