Business Profitability Seminar + FREE Presentation download

Business Profitability Seminar + FREE Presentation download

Smith Schafer Principals, Gary Turnquist and John Edson teamed up to discuss how companies can improve profitability and create value. The event was hosted at the Golden Valley Golf & Country Club.

Seminar topics discussed included:

  • Revenue drivers
  • Management of expenses
  • Gross margin management
  • Key performance measures

Enter your email below to download your copy of the presentation.

10 Signs Your Business is Ready to Outsource Accounting Services

10 Signs Your Business is Ready to Outsource Accounting Services

Do you need help managing the daily routine?

Managing your business accounting needs can be time consuming, stressful and costly. Many growing businesses struggle to create a well-tuned accounting process, especially as certain systems and processes need to change to support increased activity.
 
Outsourcing this part of your business helps you gain the confidence and tools you need to be successful. Outsourced accounting provides you with:

  • A better understanding of your financial condition
  • More free time to focus on your business and craft
  • Expert guidance towards your financial goals

Do you need help managing the daily routine? Below are 10 questions to help you assess if your business is ready to outsource accounting functions:

1. Do you have adequate time to work on your craft or service?

For most business owners, accounting is not part of their core competency. You should be spending your valuable time growing your company and where your true passions lie.  

2. Do you need help with financial decisions?

The biggest benefit from outsourced accounting is access to a team of knowledgeable professionals. Maintaining compliance for your business is not only overwhelming, but it can be stressful. With ever changing rules and regulations, it is important you are relaying on someone who truly understands the financial part of your business.  

3. Do you need timely financials to make real-time decisions?

Better data allows for better decisions. Monthly financial statements can help you answer questions such as:

  • Do I have enough cash to make payroll?
  • Am I pricing my jobs right?
  • Can I afford to hire another employee? 

Financials give you a monthly snapshot of how your business is doing from a financial standpoint and if the business is able to keep up with costs.  

4. Do you lack a segregation of duties?

The Association of Certified Fraud Examiners reports “the most common fraudster is the trusted employee.” It takes an average of 18 months to identify fraud after the fact! Internal controls and segregation of duties can prevent employee theft.  

5. Is it a struggle to find an efficient, long-term, in-house accounting team?

Outsourced accounting eliminates the time and expense associated with recruiting, training and managing additional staff. You will not have to budget for the variable cost of an employee rather a fixed cost for the month. In addition, you will be mitigating risk for any Human Resource compliance issues.  

6. Do you need to improve and update your business processes?

An outside accounting team can work with you to increase operational efficiencies for your business. The team can design a system of automation and integration to deliver greater financial reporting. In addition, automation of billing and collection processes can save time, lower mistakes from human error and decrease risk of fraud by providing better transparency and workflows.  

7. Do you keep repeating the same mistakes?

If you are not using an experienced accounting professional, mistakes are likely to happen. There are numerous accounting mistakes that are difficult to track and identify.
Example of a Common Mistake We See – Using the invoicing function in QuickBooks, and duplicating revenue by entering the deposits from the bank directly, as well as using the “Un-deposited Funds” account. As a result, you may think your sales are high for the month but in reality sales are at breakeven.  

8. Do you want to keep your finances private and confidential?

An area often overlooked, is the security and privacy of sensitive information within the workplace. With an outsourced accounting department, internal employees are not in direct contact with business finances. Therefore, it limits them to discussing the business finances with anyone.  

9. Do you need to update your accounting software?

Most software systems are updated every 3-5 years. If you have not updated your software in years, you may be missing out on key features and reporting options. An outsourced accounting firm have the most updated systems, at a fraction of your cost. An outsourced accounting team can also provide training on how to use the technology.  

10. Do you want to grow your business?

As your business grows, so do the accounting needs. While invoicing, accounts payable and payroll often suffer first, improper or delayed accounting also stifles future growth by limiting the necessary data for strategic decisions. Business owners typically try to manage it themselves while balancing their many other duties or hire accounting staff to remedy the problem. However, this not only ties up additional resources, but it can be ineffective without the proper expertise and day-to-day guidance.

According to a client accounting services survey conducted by Bill.com, 80 percent of business owners said they have more time to focus on their business and 50 percent said they worry less about mistakes when they switched to outsourced account.

If you answered yes to a majority of the above questions, you should consider outsourcing your accounting department.

Smith Schafer is here to help. We offer scalable accounting services. Whether you need help managing the daily routine or assistance with more strategic decisions, such as software analysis and selection, our accounting professionals can give you back valuable time and resources so you can focus on growing your business. Contact us today to learn more about how we can take the burden of accounting off your plate.

Sick and Safe Ordinance – Minneapolis & St. Paul Area

Sick and Safe Ordinance – Minneapolis & St. Paul Area

How it will affect employers and employees in the Minneapolis & St Paul area

For business owners, it can be a struggle to keep up with all of the nuances that go with owning and operating a business. From payroll compliance to sales tax, it is important to keep up with business trends and industry updates. For business owners across the greater Minneapolis/St. Paul area, the sick and safe time changes have been a topic of discussion. Below is a summary of the sick and safe time updates that were effective July 1, 2017.

Background

For hourly or part-time employees, it may be a major burden to cover expenses such as health care out-of-pocket. Generally, employees who fall under this circumstance, are not eligible for paid time off (PTO). In Minneapolis and St. Paul’s efforts to promote a healthy and productive community, the two cities coincided to enact the sick and safe time ordinance. 

Definition – Sick and safe time includes illness or injury, medical treatment or preventative care, domestic or sexual assault, and care of a family member.​

The policy was placed into effect July 1, 2017 for businesses meeting the requirements.

Who is Affected?

If an employer has five or less employees in the Minneapolis/St. Paul area, they are required to provide sick and safe time to employees. The business must be physically located in the metropolitan area. For businesses who fall under the five employee threshold, the sick and safe time can be unpaid.

For employers who have six or more employees in the Minneapolis/St. Paul area, the same rules apply except for the sick and safe time must be paid.

An employee, under these guidelines, is any person who receives a W-2 and works at least 80 hours during the year.

Application

If the above requirements are met, an employer must accrue sick and safe leave on an hourly basis for each employee. Accrual must begin at the start date of the employee. For every 30 hours worked, an employee will receive one hour (paid or unpaid) of sick and safe leave. An employee can accrue up to 48 hours per calendar year. Any unused sick and safe leave at calendar year end, may be carried over up to 80 hours (unless an employer allows more).  

The Exception

Sick and safe time was enacted to benefit part-time or hourly employees. An employer who already has a vacation, sick or PTO policy in place for full-time or salaried employees is not affected by this law.

Note: If an employer has both part-time and full-time employees, the policies may need to be adjusted to comply.

Independent contractors are not subject to sick and safe leave. To check if an individual is considered an employee or an independent contractor, click here for more information or consult a tax professional.

More Information

To learn if your business operates in the city jurisdictions for sick and safe time, please visit the below webpages:

For any confusion or questions surrounding sick and safe time requirements for employers, please contact the Smith Schafer team. We offer full-service payroll services to assist our clients. We provide customized solutions for businesses all across the greater Minneapolis and St. Paul area.

Qualified Charitable Distribution – What You Need to Know

Qualified Charitable Distribution – What You Need to Know

If you are age 70 ½ or older, IRS rules require you to take a required minimum distribution each year from your tax-deferred retirement accounts. This additional taxable income may push you into a higher tax bracket and reduce your eligibility for certain tax credits and deductions. To eliminate or reduce the impact of required minimum distribution income, you may want to consider making a qualified charitable distribution.

A qualified charitable distribution is a direct transfer of funds from your IRA to a qualified charity. Amounts distributed as a qualified charitable distribution may be counted toward satisfying your required minimum distribution for the year and be excluded from your taxable income.

An eligible qualified charitable distribution must meet the following conditions:

  • Be at least 70 ½
  • The funds must come out of your IRA by your required minimum distribution deadline – typically December 31
  • Funds must be transferred directly from your IRA to one or more qualified charities
  • Qualified charitable distributions are limited to the amount that would otherwise be taxed as ordinary income
  • The maximum annual distribution amount qualifying a qualified charitable distribution is $100,000. However, if you are a joint tax filer, both you and your spouse may make a $100,000 qualified charitable distribution from your own IRAs.

Qualified Charitable Distributions & Required Minimum Distributions

You are allowed to make a qualified charitable distribution in excess of your required minimum distribution amount, up to $100,000. However, any amount donated above your required minimum distribution does not count toward satisfying a future year’s required minimum distribution. If your qualified charitable distribution does not fulfill your required minimum distribution for the year, you will need to withdraw additional funds to satisfy your required minimum distribution.

Example: You take a required minimum distribution in February, and then in November decide you want to do a qualified charitable distribution. You cannot retroactively deem the February distribution to be a qualified charitable distribution. You may still make the qualified charitable distribution and exclude this distribution from taxable income, but you will still need to include the February distribution as income.

If you take a regular withdrawal from an IRA and use it to make a charitable contribution, you still need to include this required minimum distribution in your taxable income. In order to meet the requirements of a qualified charitable distribution, it must be made directly to the charitable organization. A distribution in the form of a check must be made payable to the organization.

Qualified Charitable Distributions & Charities

For purposes of making a qualified charitable distribution, a eligible charity is any 501(c)(3) organization. This DOES NOT include private foundations or donor-advised funds. You are not allowed to receive any benefit in return for your qualified charitable distribution.

Example: If your donation covers tickets to a gala, your gift would not qualify as a qualified charitable distribution.

The charitable organization must cash your check before year-end for the qualified charitable distribution to satisfy your required minimum distribution. If you are planning to use a qualified charitable distribution as part of your year-end giving strategy, ensure you allow plenty of time for the charity to cash the check. Make certain you receive acknowledgement of the donation because you will need this to claim a deduction for a regular charitable contribution.

Qualified Charitable Distributions & Brokerage Accounts

Brokerage firms process each qualified charitable distributions differently. Contact your broker to learn exactly how to make a qualified charitable distribution from your account. The default option on many IRA distributions is to have tax withheld since most distributions are considered taxable income. If you are making a qualified charitable distribution, confirm with your broker you are not automatically having tax withheld, because the distribution is not taxable.

Questions?

Create a strategy. Gain value beyond the next tax return. 

Valuation: The Market Value Formula

Valuation: The Market Value Formula

The words “Business Value” or “Business Valuation” by themselves hold more than a singular definition. The complexity of business valuations, make it challenging to fully grasp what is involved in the process of valuing a company. There are three main approaches when establishing a value for a company:

  1. Asset
  2. Income
  3. Market

KEY FACTORS TO USING THE MARKET APPROACH

The market approach involves finding comparable sale transactions for other businesses in the same industry or finding comparable publicly traded companies to compare to the subject company. Below are important components to be included when using this business valuation approach.

Identifying an Industry

Valuation analysts will start by determining the industry the business operates in. Understanding exactly what industry is critical to utilizing this method. Research begins by gaining a complete understanding of the business, the customers, products, markets and competitors. After this information is collected, the next step is to identify the business NAICS and SIC codes. There are many generalized industries, including construction, wholesale, manufacturing, or information technology, but the valuation analysts will determine the correct industry classification within these broad industries. Finding the industry is important to utilizing the correct comparable information. 

Market Research & Comparable Companies

A significant amount of time is spent on market research and finding comparable companies. Valuation analysts start by using the business NAICS and SIC codes to search databases for comparable sales transactions.

Note: A common misconception is using this method is similar to a real estate appraisal. The misconception is, if a house is sold in the same general area, is a similar size, has comparable features and built around the same time it should have the same value. This may hold true for real estate, but businesses are more difficult when trying to compare.

Once the valuation analysts have a group of comparable companies, they research the transactions to determine if they truly are comparable. Most analysts will narrow the sample of businesses to five or 10 and conduct in-depth research on those businesses.

Multiples

When pulling together a group of similar businesses from a databases, zero in on the multiples of sales, earnings, or cash flow to develop an average multiple applying to business financial information. From the comparable transactions, valuation analysts will develop ratios of sales to selling price, cash flow to selling price, or earnings to selling price. If using comparable public companies in the analysis, look at the ratios published in annual reports, such  price to earnings. Use the average price earnings ratio to calculate a value of the business by applying ration to the  net income. It is important to emphasize this method can only be used if there is an adequate sample size.


CONTACT US

There are many reasons a company may want or need a business valuation, including negotiating a merger or business sale, estate and gift tax planning, considering new shareholders, attempting to resolve partner or other liability disputes, determining shareholder equity or even marital dissolution. A business valuation may also be useful for strategic planning and bench-marking purposes. Whatever purpose the valuation is fulfilling, it is vital to engage experienced professionals who will take a comprehensive view of all the company’s investments.

FREE Presentation Download: Understanding Revenue Recognition & Leases

FREE Presentation Download: Understanding Revenue Recognition & Leases

Do you understand the impact of the new accounting standard on your business? Revenue recognition has been around since 2010, when the first draft of the new standard was released. Three exposure drafts and numerous accounting standards later, it will be required to recognize income under the five-step approach.


We hosted a free breakfast seminar event at the Golden Valley Country Club on July 30 and attendees learned…

1. GAINED A BETTER UNDERSTANDING.

The new revenue accounting standards requires a consistent, single model for recognizing revenue and disclosure requirements on financial statements. This new standard was effective January 1, 2019 for all industries.

2. HOW TO PLAN FOR CHANGES.

In 2020, nearly all leases will need to be disclosed on the balance sheet. This may have a major affect on business banking relationships and access to new capital.

3. RECEIVED GUIDANCE ON THE IMPACTS.

At this educational seminar, we provided attendees with awareness and advice on these key issues and how they may impact business decisions.

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