5 Reasons to Outsource Your Accounting

5 Reasons to Outsource Your Accounting

5 Reasons to Outsource Your Accounting

As a business owner, working long hours is something you are all too familiar with. You are responsible for managing the day-to-day activities, while simultaneously growing your business. You feel there are just not enough hours in the day to complete your ‘to do list.’ Often wishing for a solution where you can do it all. The great thing is, there is a way to accomplish this. When you outsource you accounting services, you ease the stressors of ‘doing it all.’ Plus, your dream is to be a business owner, not an accountant.

The thought of outsourcing any business process may have your ‘wheels spinning.’ How can this help to solve your problems? Outsourcing provides many benefits, ultimately aiding in the success of your business.

Cost Savings

Having an inhouse accountant, bookkeeper, or even an accounting team is a significant expense to your business. You are responsible not only for an employee’s pay, but also everything that goes along with it. This includes things like payroll taxes, paid time off, and other benefits. When outsourcing accounting services, you are paying only for the services you desire. It reduces your business’ costs and helps to increase its profitability.

Expertise

Accountants specialize it just that, accounting. When you outsource accounting, you get access to a team of experts. We constantly are improving our skills and keeping up with the industry standards. Understanding the ever-changing laws and regulations to help keep you compliant. Having the right team of experts is vital to the success of your business. Outsourcing also allows you to tailor your accounting services to your needs.

Focus on Growing

Business owners get caught up in the daily minutia of a business, rather than growing it. When you outsource accounting though, this changes. The time you desperately were looking for, now exists. This gives you and your team the opportunity to focus on setting and achieving goals. As this occurs, you have continuous access to an accounting team. Giving you the ability to expand your accounting services as your business grows.

Minimize Time and Resources for Recruiting

Recruiting is a time-consuming task. You spend countless hours going through the process of creating a job post, reviewing resumes, and performing interviews. Only to risk being left with mediocre candidates, or someone who lasts for six months. Then the long and exhausting process starts all over. Outsourcing your accounting eliminates the expense and tedious process of trying to find the perfect candidate.

Smarter Business Decisions

Outsourcing accounting services provides a fresh outlook on your financial data. This gives you an opportunity to finally have a proactive business strategy, versus a reactive one. Analyzing your business’ financial information from a bird’s eye view allows accountants to evaluate the financial health of your company. They can provide you with impartial advice, which can help you achieve your business’ goals.

 

There are many benefits to outsourcing your accounting services. It reduces costs, provides expertise, promotes growth, and much more. Our team knows your pain points as a business owner and is here to help!

 

Contributed by Elizabeth Partlow

Incurred Cost Submission Common Problems

Incurred Cost Submission Common Problems

Common Problems for the Incurred Cost Submission

The Federal Acquisition Regulations (FAR) requires government contractors with certain contracts to submit an incurred cost submission (ICS). FAR 52.216-7 requires contractors who have time and material (T&M) or cost-reimbursable contracts to submit an ICS. The ICS schedules reconcile a contractor’s billings with the government. It does this by calculating the final indirect cost rates contractors incur. Government contractors have six months to submit an ICS after their fiscal year is over.

An ICS can be an overwhelming task to complete. The ICS model includes several schedules. Each of these schedules takes time, and usually many documents to complete. With at least fifteen schedules to complete, common problems may happen.

Job Cost Errors

As a government contractor, it is important to classify costs correctly. Therefore, classifying costs as direct, fringe, overhead, general & administrative, and unallowable is necessary. The proper classification minimizes the reporting errors of costs on the ICS schedules.

Segregating costs, such as allowable and unallowable costs, also prevents government contractors from incurring any penalties. The FAR clause 52.242-3 describes how contractors may face penalties as a result of including unallowable costs in their indirect cost pools.

Similarly, the job cost ledger not reconciling with the general ledger is another common problem for the ICS. Examples of why the two ledgers do not reconcile are:

  • Not assigning direct costs to a job
  • Assigning direct costs to a customer, not to a specific job
  • Tagging indirect costs to a job

Invoice Errors

It is important to make sure invoicing for government contracts is done correctly. However, there are different requirements for each type of contract. Some contracts include restrictions or limits on the invoicing for certain costs. On the other hand, other contracts may require to invoice at negotiated rates. Common errors that occur during the invoicing process are:

  • T&M contracts are not billed at negotiated rates
  • T&M contracts are billed with labor rates and hours as lump sums
  • Cost reimbursable contracts are billed like a T&M project.

In addition, over or under billings may exist on Schedule I as a result of job costs or invoicing errors. Due to this, the government contractor may owe the government money, or vice versa.

In conclusion, completing an incurred cost submission is necessary if government contractors have cost reimbursable or T&M contracts. Your virtual CFO should be proactive during the year to help minimize errors when completing an ICS. Ultimately, working having a virtual CFO who specializes in government contracting is the best.

 

Originally written by Jamie M. Shryock, CPA 

Updated and additional content provided by Elizabeth Partlow

 

Indirect Costs: Overhead vs G&A

Indirect Costs: Overhead vs G&A

Indirect Costs: Overhead vs G&A

As a government contractor, have you ever sat there and thought to yourself, ‘Gee it would be so much easier not having to worry about the allocation of all my business’ costs?’ Surely, you are not the only one. Being compliant with FAR can be time consuming, but it is important. First, identify if a cost is direct or indirect. An important question to ask is: Is the cost specific to only one cost objective? Cost objectives can include a contract, a task, or a contract line item. Direct costs are costs that are specific to one cost objective. Examples of direct costs are direct labor and material. These items are exclusive to specific cost objectives.

Indirect costs are not specific to a cost objective. These costs typically are split into 3 categories: Fringe, Overhead, and General and Administrative (G&A) costs. Fringe costs usually are the easiest to identify. They relate to employee costs, such as payroll taxes and compensated absences (sick and vacation time). People struggle the most with identifying overhead and G&A costs because they have similarities. So, what exactly are overhead and G&A costs?

Overhead Costs

Overhead costs directly relate to contracts but are not specific to one contract. People often refer to these costs as contract support. If a government contractor does not have any contracts, then they will also not have any overhead costs. Examples of overhead costs include:

  • Travel costs
  • Recruiting expenses for direct employees
  • Training
  • Conference fees (specific to contract support)

Labor can also be an overhead cost. An example of overhead labor is a meeting with project managers that is not specific to one contract.

General and Administrative (G&A) Costs

 General and Administrative expenses are the indirect costs that a business incurs to run its daily operations. These costs are not identifiable to a project, contract, or a product. This means that they exist even if a government contractor has no contracts. Examples of G&A costs include:

  • Accounting services
  • Marketing
  • Office supplies
  • Bid and proposal (B&P)

In some instances, employee labor is a G&A cost for a business. For example, employees who only perform administrative functions record their labor as G&A.

Identifying and properly classifying indirect costs is important as a government contractor. At times this can be a tricky task, but it does not have to be. If this is a challenging area for you, Cheryl Jefferson & Associates would love to assist you.

 

Originally written by Elizabeth A. Wells

Updated and additional content provided by Elizabeth Partlow

Why Budgets are Important for Business

Why Budgets are Important for Business

Mention the word budget to most business owners, and instantly their hands become clammy. Budgets often get a bad rap because planning one can be a tedious task. However, the benefits of a budget, far out-weigh, the dread many associate with the word. A budget is an essential tool for every business: big and small. In simplistic terms, a budget is a projection of revenues and expenses in a future period. Budgets serve as a ‘blueprint’ and aid in the success and growth of a business.

Goal Setting

Goal setting assists in achieving success and growth for your business. It is important to have long and short-term goals. Creating a budget can help you reach the goals you envision for your business. Budgets can also help you focus on your business’ goals. It is common for business owners to get caught up in the daily grind, forgetting about the big picture. Often leading to inefficiencies in resource usage. Reviewing your budget regularly allows you to ensure your business is on track to meet its goals.

Measuring Performance

Budgets can measure the performance of a business. Comparing a current budget to previous data can be a great way to track your business’ performance. These comparisons tend to make trends more visible. Often indicating areas needing improvement. Identifying areas of improvement allows business owners to find and implement solutions. Ultimately, helping a business to optimize its efficiency.

Decision Making

The decisions you make daily as a business owner affect the success of your business. Having a budget in place helps prepare you to make important decisions. It provides you with knowledge of the ‘ins and outs’ of your business. For example, an employee wants to attend a conference to develop their skills. Having a budget in place allows you to readily know whether this request is feasible or not.

Budgets are a great tool for businesses to use. The thought of creating one may seem like a daunting task, but it does not have to be. Cheryl Jefferson & Associates is available to assist you with your budget needs.

 

Originally written by Jamie M. Shryock, CPA

Updated and additional content provided by Elizabeth Partlow

Working Capital  

Working Capital  

Working capital is the difference between a company’s current assets and its current liabilities.  Current assets include cash, inventory, receivables, and other assets which are expected to be turned into cash within one (1) year. Current liabilities include accounts payable, loans of one year or less, and other liabilities which are expected to be paid off within one year. Working capital is important because it allows management to see if the business is remaining solvent in accordance with its day-to-day operations.
 

What does this mean to a business? 

Having working capital is crucial for a business because it impacts short-term operations and long-term goals. Working capital measures a company’s operational efficiency, and short-term financial health. If a company’s current assets do not exceed its current liabilities, it could go bankrupt. Positive Working capital indicates that a company can fund its current operations. On the other hand, high working capital is not always a good thing. It might indicate that the business has too much inventory or is not investing its excess cash. A business must be able to pay its vendors on time. If not, cash will need to be paid prior to cash being received. Also, if there is no adequate working capital, it can become difficult to receive loans from banks for expansion and growth. That is because the business would be considered a risky investment. 

What can a business do/plan to increase working capital?  

Some strategies a business can take to increase working capital are: 

  1. Not financing fixed assets with cash. An alternative is using long-term loans or leasing fixed assets. 
  2. Have a line of credit (LOC). Business owners will want to keep this to a minimum. It will only work for the very short-term and should not be the business’ main source of cash.
  3. Owners can loan personal money to the business. The related party loan will be recorded as a long-term liability.
  4. Replace short-term debt with long-term debt. This can help in the near term, but payments will still need to be made on the long-term debt. 
  5. Issue more equity. Increases cash on hand.

Conclusion 

Working capital is an essential part of a business and it is very important to manage it well for its success. There is no single formula that works for every business because every business is unique and has different necessities.  If your business needs to maintain healthy working capital levels, we can help. 

Originally contributed by Jamie M. Shryock, CPA 

Updated and additional content provided by Takeshi Aida 

The New Lease Standard

The New Lease Standard

It’s that time of year again, and no, I’m not talking about holidays. It’s that time of year when you need to start thinking about closing the books, preparing annual financial statements, and filing tax returns. Year end is when you have to think about all those financial reporting obligations. Everyone wants to know how the business performed, including investors, banks, and the IRS.

So, as usual, I’ve put together some key items to review as you prepare for year end.

Review the Trial Balance report

This report is well-known amongst accountants. It provides an overview of the balances in every account that has a balance.  Depending on the report filters, it may even show accounts that have no balance currently, but had activity during the year.

You will want to scan the Trial Balance report for any balances that appear odd.  Are there balances that should be debits but are showing as credits, and visa versa?  Are there balances for accounts you don’t recall using?  You’ll want the also skim through the amounts to see if they look realistic on the surface.

Lastly, you’ll want to make sure you have reconciled to each balance. You should have prepared bank reconciliations or credit card reconciliations.  These should all still tie to the year end balances on this report.  You may have statements from third-party providers.  These should tie to the year end balances on the Trial Balance.  If balances do not tie, you should at least investigate the difference.

Take a deeper dive into the general ledger

The general ledger, like the Trial Balance report, shows the balances in every account.  However, the general ledger provides the details of how those balances came to exist.  It includes the line-item transactions that add and subtract from the balance at the beginning of the period, to calculate the balance at the end of the period.  Depending on your accounting system, there could be a running balance after each transaction.

With the general ledger, you should make sure you have classified transactions properly.  Is there a credit card charge for supplies purchased at Office Depot in the Travel account?  Are there customer payments in your labor expense accounts?

The general ledger is also useful in determining the reason behind those financial differences when the balances do not tie to statements and reconciliations.

Payroll expense, reconcile to the payroll tax returns

I find a key area that explodes with errors is the payroll expense.  For all of our financial statement clients, we make sure that the payroll expense accounts reconcile to the 941, 940, and SUTA tax returns.

Ideally, you want to reconcile payroll expense on a quarterly basis.  If you are using a third-party payroll processor, you can do it when you receive the quarterly tax package.  If you are preparing payroll in-house, you actually want to reconcile, prior to submitting the payroll tax returns.

Reconciling payroll expense is not only important for the financial statements.  It is important for the income tax returns as well.  Under an IRS payroll tax audit, the payroll expense will be reconciled to the amounts you submitted on the W2’s and well as the payroll tax returns.  Also, reconciling is important to ensure you have remitted the correct amount of payroll taxes.  The penalties for incorrect payroll tax filings are assessed on the business, regardless of whether you process payroll in-house or have a third-party.

Recheck business meals including deliveries

Lately, tax laws have been changing as frequently as you change the oil in your car.  After the Tax Cuts and Jobs Act (TCJA) in 2017, entertainment expense went from a 50% to a 0% deduction.  Business meals remained at a 50% deduction.

In December 2020, the Taxpayer Certainty and Disaster Tax Relief Act was enacted.  The Act provides a temporary 100% deduction for business meals provided by a restaurant.  Specifically, expenses paid or incurred between January 1, 2021 and December 31, 2022, for food and beverages provided by a restaurant are 100% tax-deductible.  A restaurant is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of where the food is consumed. This does not apply to grocery stores, convenience stores, pre-packages food, etc.

For this calendar year and next, you will want to review all the meals purchased.  Make sure they are supported by receipts unless you are using GSA per diems.  Be sure to separate out any entertainment, which is still not deductible.  The meal expenses can include tax and delivery charges as well.

Negative accounts payable?

If you are using your accounting software correctly, certain reports are never out of whack.  One such report is the Accounts Payable (AP) Aging report.  This report shows all unpaid bills and ages them based on how long they have been outstanding.

If you notice, “negative” balances for vendors or bills, you could be missing deductible expense.  Negative balances happen when a bill payment is earlier than the date of the bill. For example, a January 1 rent bill is paid on December 26.  This will create a negative AP amount for the December AP Aging report.  However, it will not exist in January when both net to $0.

Another reason for negative financial AP, is that you are actually missing a bill that matches the full amount of the bill payment.  This occurs when you have paid a bill, but later deleted it.  Also, a negative AP exists if you enter a bill payment for more than the amount of the bill that you are attaching it to.  You will want to double check to make sure you have recorded the bill (and the expense) for the correct amount.

Work from home state tax implications

If you are new to having remote workers, COVID may have brought on some challenges for you.  From an accounting perspective, state tax nexus is the biggest risk.  When you people were in the office, you knew exactly which state’s tax laws had to be followed.  Based on your office location or your contracts, there was little fluctuation in where withholding, unemployment, or even income tax was filed.  Most states, waived nexus rules temporarily during the pandemic.  Now, permanent work-at-home (WAH) policies, have opened the business up to having tax liability to states that they did not before.  The tax liability extends beyond payroll tax, to income tax.

You will want to review your employee work locations.  You should document the location of where they are performing work, down to the city/county.  You also want to document any employee working in another location for more than 30 days.  Depending on each state’s rules, you may have additional tax filings. For example, if your employee is working remotely from Montana, you have to withholding and pay Montana payroll taxes, regardless of the business’ location.

Take inventory of your property and equipment

Remember, year end is clean up time.  You will want to take an inventory of all the property and equipment that you have on your fixed asset lists and property tax returns.  Why pay property tax on items that are broken, unusable, lost, or trashed?

You should take a full inventory that includes items that remote workers may also have in their possession.  Again, some states do require property tax filings on laptops, computers and other equipment that telecommuting employees are using at home.

Record entries to dispose of items that no longer exist.  Don’t forget to record depreciation on the new assets that you purchased for the fiscal year.

Review your trends

If you are using accounting software, and I hope you are, you should run comparative financial statements.  Comparative financial statements show more that one period, side by side, so that you can…. compare.

You should run a monthly profit and loss to check for routine income and expense that is missing from one or more months.  Run a two- or three-year profit and loss to detect those once-a-year expenses or income that are missing from this year.  This comparison is useful for detecting possible misclassifications (i.e., expense recorded but in a different account than last year).

Run a two- or three-year Balance Sheet to see if balances increased or decreased as expected.  Check for balances that normally remain unchanged, that have now changed.  This is a good report to assess if everything you own or plan to use in the future is recorded as an asset.  Also assess if everything you owe is recorded as a liability.

Every year accounting standards and tax laws change. Year end checklists always need to be updated or refreshed based on current events.  The pandemic threw another curve into what used to be predictable planning for year end.  While this list is not comprehensive of all the things you can do to plan for year end, it highlights what I think is often missed.  If you have any questions, or when in doubt, a CPA can provide important guidance to your small business.  At Cheryl Jefferson & Associates, we take a proactive approach to making sure our clients are ready for year end, all year long.

Contributed by Cheryl Jefferson Cooke, CPA|CFF, CFE