The Company Balance Sheet
There are three major financial statements – the profit & loss, the balance sheet, and the statement of cash flow. The balance sheet is what drives the cash flow of the business.
The balance sheet is an important financial-analysis and reporting tool that outlines the assets, liabilities and equity of the company at the end of the accounting period. If the balance sheet is not correct, then the cash flow forecast is most likely inaccurate and worthless.
Unfortunately the balance sheet is what is usually the most neglected and least understood.
In an effort to help get the balance sheet forecasting correct, here are some common mistakes that entrepreneurs, CEOs, business owners, and even business financial consultants regularly make:
The most common mistake made is not having a balance sheet. The balance sheet represents the most complex transactions of the company and may be left out because the company lacks the expertise of a CFO (Chief Financial Officer) or a firm with CFO services to assemble this critical part of the three major financial statements needed.
The major operating assets include accounts receivable, inventory, pre-paid items, and much more. The major operating liabilities include accounts payable, taxes payable, and other accrued expenses. When sales go up, accounts receivables go up, and cash goes down. However, does your information show that? If sales go up, can we expect our inventory level to stay the same? Most likely it will need to increase. The increments of these changes are dependent upon the relationship between the days sales outstanding and your inventory turnover.
As sales increase, your accounts payable usually increase as well. The timing of your payments against your accounts payable is a major outflow in the cash flow puzzle that is called working capital. We need to define the relationship that payables have with your operating activities and implement this relationship in your balance sheet.
There are several other operating assets and liabilities that dramatically influence cash flow. I’ll avoid all of the details of each, but it is fair to say that without properly forecasting them, your cash flow forecast will never be accurate.
Are we bringing in any more equity investments during the period? What is your dividend policy for shareholders? Is some or all of the active shareholders compensation coming through equity? All of these items can have a significant impact on cash flow, although none of them show up on the P&L.
In addition to equity transactions, the structure of all of the company’s debts and obligations need to be correctly reflected. This is done on the balance sheet. An interest only line of credit will keep the same balance until more is withdrawn or some is paid back based on the cash flow of your business. Term loans need to show the correct amount of principal being reduced every month.
Obviously these items can seriously change your cash flow, and they need to be included in the financial model so you can correctly forecast your cash flow.
Above are a few common mistakes, certainly not all-inclusive (you’ll notice I did not address capital expenditures at all), but should help create a positive foundation to build the balance sheet.
L & R Tax Preparation offers CFO services. We have helped our clients get a handle on their companies, make the best strategic decisions possible, raise necessary capital, and perhaps most importantly, track their progress so they can correct problem areas and make more valid assumptions in the future.
Reads from last week?
Well I have actually sat down and done this for a long time. I hope I can maintain the regularity that one would expect.
I’d like to start with a friend of mine. One truly and almost whole hardily responsible for guiding me into the world of blogging. (Did I use the word “Whole” correctly?) We have communicated over the past few years via email and blog post getting to know each other. Next month is the Annual NATP conference in Austin TX, where we had hoped to meet in person once and for along with several others. I say “hoped”, because I am unable to make it. Anyway. . . .
THE WONDERING TAX PRO has two posts that are must-reads. As a taxpayer, this is a topic you should be following. Closely. DEAR COMMISSIONER SHULMAN & SHOULD TAX PREPARERS BE REQUIRED TO FILE THEIR CLIENTS’ RETURNS ELECTRONICALLY?
On the same subject, Trish McIntire of Our Taxing Times has this to say Preparer Registration – Surprise!
Midyear tax tip #1: Welcome summer with energy-related tax breaks
Midyear tax tip #2: Plan health care account moves
Midyear tax tip #3: Adjust withholding – This is my entry
Midyear tax tip #4: Evaluate your estimated tax situation
Midyear tax tip #5: Pay attention to your portfolio
Kelly the internets TAXGIRL writes Congress Fiddles While We Burn: No Movement on Tax Bill, it is a look into HR 4213 or the Tax Extenders Bill. She also brings us news about the Senators Talk Tax Hikes on the Hill. A post that should be read.
James Maule from Mauled Again has two great post, FICA, Medicare, and Payroll Taxes and Internal Revenue Code: Small Change, New Feature, New Look. Both are great reads at least I thought so and feel you should read them. Knowing what’s going on helps, you plan.
Anyway . . .
- Audits Reveal Thousands Wrongfully Received Homebuyer’s Tax Credit,
- Former Company Controller Sentenced to 36 Months in prison for Tax Evasion,
- Top Quality Standards for a Tax Resolution Company
- Today’s tax burden much lower than 30 years ago
- 5 things you can do now to get ready for huge tax hikes in 2011
People management: What managers can learn from The Beatles
For those of you following the saga, I have joined the ranks over at The Daily Reviewer “Top 100 Blogs”. The Missouri Taxguy is on the second page of the tax section and the third row from the bottom in the Money section. You’ll be able to veiw many great blogs. So be sure to check out your favorite topics at The Daily Reviewer .
Ten days ago, I posted that I had submitted this blog to Alltop for inclusion to their listing. As it is truly a grow site I gave it awhile (ten days), but alas I haven’t made it to their newsstand of blogs. I was there once before but as my blogging tapered off and mostly stopped for a while, I was removed. Now upon my return, new web address and all, the Alltop site has grown wonderfully. Yet my submission has yet to be accepted.
Below is a list of the blogging sites I wish to join in the tax section over at Alltop. All of them are great resources I hope you all will use and enjoy.
Tax-News.Com Live Tax Headlines
Tax Policy Center: The Numbers
IRS Tax Problem Solver Blog – IRS Help
If you’d like to see me back on the shelf at Alltop, please contact them and let them know.
Choosing a Payroll Provider —
There comes a time in every small business owner’s life when they start thinking about moving payroll from their living room computer into the hands of a hired professional.
View L & R Tax Preparation Payroll Video
Shopping for a payroll professional, as well as anything else, requires a little research.
Having just moved my company largely online with on line everything (including payroll) I thought I should put some information out for everyone. So, here are some key questions everyone should ask themselves before choosing a payroll provider.
Before you commit to a payroll provider, ask these questions.
1. What type of payroll provider service will address my needs best?
With traditional payroll services, you phone in, e-mail or fax your payroll information every pay period. These methods require you to establish a set time every pay period for you to submit your payroll. Traditional services also calculate taxes and other deductions and offer various payment methods for employees.
Online payroll has been available for nearly a decade. This service usually allows you to enter payroll hours from one Web site and will make all payroll tax calculations and deductions. Paycheck stubs and W-2s are available for employers and employees on a secure Web site, and direct deposit is usually included. Some, can and will file and pay payroll taxes on your behalf. (L & R Tax preparation now offers this service)
Payroll software, like online payroll, allows you to enter payroll information at your convenience and will perform necessary calculations. However, you are responsible for debiting your bank account, printing checks or arranging for direct deposit and handling IRS penalties and notices.
2. What are the biggest concerns about outsourcing payroll?
Most people agree that payroll would be an easy if it weren’t for payroll taxes, withholdings and other calculations such as 401k, or accrued leave time. If you don’t want to stay on top of strict IRS rules and regulations, choose a payroll service that will do the work for you.
Additionally, if you’re considering software or a phone/email/fax solution to process payroll, make sure they offer direct deposit. You’ll save your employees time, and you won’t have to be in on payday to hand out checks.
Although you probably won’t think of it immediately, online access for pay stubs and payroll records can save hours of tedious work. If an employee has ever asked you to provide the last six months worth of pay stubs for mortgage purposes, you know the advantages of offering employees self-service payroll accounts.
3. What if something goes wrong?
If it’s important for you to be able to speak with someone on the phone when you have a question about payroll, ask if they offer live, U.S.-based customer support. And if you’re one to work on Saturdays, you’ll want to make sure someone will be available to assist you then.
Phone support can be a lifesaver if you receive IRS penalties and notices. It’s not uncommon for businesses to receive these penalties or notices in error. If you don’t want to be on the phone directly with the IRS resolving the issue, make sure your payroll service has tax experts who will work with the IRS on your behalf.
Fitting in time for a call about a small payroll question is not on most small business owners’ lists of top priorities. Make sure your payroll service offers a comprehensive, easy-to-use online help database.
4. How does outsourcing my payroll help me stay in compliance?
Many services calculate payroll and provide direct deposits but don’t handle payroll tax deposits or filings. They may say they assist with those tasks, but if you want the most inconvenient and riskiest part of payroll off your plate, make sure your provider will deposit and file federal, state and local payroll taxes on your behalf.
If payroll taxes are the riskiest part of payroll, new hire reporting is the second. In a recent poll, 95 percent of business owners were not aware that federal and state law mandates that all new hires be reported to the state in an appropriate amount of time. To alleviate worries about compliance, select a payroll provider that reports new hires automatically.
Some payroll services offer more than payroll compliance. For example, your business must post the appropriate labor law posters. If you don’t want to worry about costly fines, ask a potential provider about labor law posters and poster updates.
5. Is it worth it?
Regardless of the method you choose — phoning-in, e-mailing, faxing, or entering payroll online or into software —outsourcing payroll is always faster and more reliable than doing it by hand. Homemade spreadsheets are useful, but a transposed number or erroneous formula can translate into a payroll nightmare as you try to rectify an employee’s pay and amend taxes.
If there’s one thing you can always count on changing, it’s tax laws. And they don’t always change at the beginning of the year. Outsourced payroll, even payroll software, spares you the burden of keeping up-to-date with ever-changing tax tables.
Some closing thoughts.
Outsourced payroll is the same as other outsourced services: You can’t put a price on more time to grow your business and service for your clients. That’s not to say the most expensive payroll service will provide you with the most free time. For example, traditional payroll services are usually the most expensive, yet they require you to set aside time during normal business hours to fax or phone in payroll. Likewise, the cheapest provider may save you money but will likely leave you scratching your head trying to decode payroll tax and compliance laws.
Look for the provider that meets your specific needs. Don’t pay for a service that charges for extras you won’t use. Likewise, don’t try to save money by selecting a service that meets just most of your needs. You want a service that handles all your needs. When you find the right payroll service, the benefits will justify the cost
Where I have been. . .
Well let’s not let the title miss lead to much. I haven’t really been gone, but I have been very out of touch for a while so let’s find out what I have been doing. . .
Over the course of this past year, I have expanded my firm. Not so much in a construction manner but an expanse of my services. For a full listing, you can go to my website and explore the Services page.
The biggest part or upgrade would be the addition of on-line services. We now have available to our clients an online payroll service, on line accounting service, online employee services, and direct deposit capabilities.
It seems we have focused our online amenities towards the business folks. Well, that’s just where we started. We aren’t done yet. Still to come (timeline is looking at 2011), are going to have online access for all of our clients’ needs. From basic financial planning, to tax questionnaires (that will go out from here to clients, and back again) along with access to past returns for up to ten years. But that is latter.
We currently have over 50 on line calculators to assist you. You’ll find these calculators on our calculator’s web page. Under the following headings – Taxes & Payroll, Business Planning, Personal Finance, College Saving, Retirement, Estate Planning, Home Mortgage, Car Loan, and Loans.
Our changes in part are contributed to our upgrade to a better provider company. We have purchased many of our products from Thomson Reuters, the leading software provider worldwide for accounting professionals. This has opened the door to many services we can now offer our growing client base. We will continue to use our software from our pervious providers as well.
The above notwithstanding, through the #1 software provider for the general public we have been able to offer our clients a choice between the two. By doing this, we are able to accommodate all your needs.
Last, but not least. We have a new web site. One of the top things we have done to better serve our clients. Through this site you will have a great many options to help you find the information you need. Not just the calculators that I mentioned above, but you also can find answers to common QuickBooks issues, buy intuit software, incorporate, get tax information at our Tax Center page where you can find more calculators, find forms (Federal and any State), find due dates and much more. You’ll also be able to sign up for our monthly newsletter, have access to financial guides, find links to buy books we recommend, almost everything you might need including my appointment calendar where you can request an appointment and see when we are available.
We are very happy with the new site and we hope you will be too. It will offer our clients and others information to access to information that isn’t always that easy to find. I have added links to our web site at the top right of this blog so they will always be there. Go to our home page to start looking for what you need. L & R Tax Preparation.
As I work my way back through everything I will try and get back to my regular Sunday post where I recap the best post from other tax bloggers along with my favorite PF bloggers.
No word yet from Alltop. I’ll keep everyone up to date as things progress.
Alltop
Well when I change my site around I fail to update over at Alltop. 
What is Alltop?
Alltop is sort of a “digital magazine rack of the Internet. To be clear, Alltop sites are starting points” the site provides categorized selections of links to blogs and other web resources that make it easy to scan a lot of information on a particular subject. For example the Taxespage lists many tax blogs with links to the most recent posts. Alltop is a valuable resource for anyone wanting to research, or just keep up on, well, stuff. If you have ever been to a real magazine rack you know. Click herefor more information on Alltop. Or go to their home page at Alltop.com to start checking out your favorite information.
I have resubmitted, and hope to be back there soon.
Get this fixed. . .
Today I received notices from my local IRS Sr. Stakeholder Liaison. In his bulletin I found attached three documents/fliers on different things. The two that bother me are bulleted below.
- Preparer e-File Mandate: Paid tax return preparers that prepare 100 or more individual or trust returns in 2011 will be required to e-file. That number drops to 10 for 2012. If you not already an Electronic Return Originator, start the the process. Find out more at e-file Made Easy. You can also watch a U-Tube video.
- Return Preparer Regulations: IRS will soon implement new registration, testing, and continuing education requirements for all tax professionals. All {not my emphasis} paid tax return preparers must apply for a Preparer Tax Identification Number (PTIN) and register under a new system, projected to be available in September 2010. Beginning in 2011, there will be new testing and continuing education requirements for any paid tax return preparer who is not an attorney, certified public accountant, or enrolled agent. All paid preparers will come under the rules of Circular 230.
The e-File Mandate I have already made mention of, but would like to point out one more time that this is great for the IRS but assuredly they need to come up with a plan to exclude taxpayers who do not want to e-file. Mandating 100% for us is like telling only our clients, they have to e-file. Not everyone wants to. Not to mention some software providers charge extra for us to offer this service. One scenario is the college student who is also a single mother barely making any money but yet required to file, depending on where she goes is going to be charged additional fees because now she has to e-file. {Preparer to client – “Because our firm prepares more than 100 returns we have to e-file your return and it cost $XX.xx to do this” – Fair?}
Alrighty then. . .
The second bullet, Return Preparer Regulations, this one, this one burns my hind cheeks. Now don’t get me wrong I am all for preparer regulation, yet who’s making this up? The people? By the people, for the people? Really? Examine then this situation. . . .
Now this is a great idea, but when one says all, shouldn’t that mean all? The Lawyer who has passed the bar is qualified to prepare and represent clients in tax matters. Yet Lawyers are exempt from the new testing and continuing education requirements. Because they passed the bar? What is his/her tax knowledge? Is he being tested for his competency in tax law? Not by the IRS. CPA’s, same question. What is your tax background? Are you keeping up with the preparers regulations on testing and education? You don’t have to.
As a taxpayer, who do you want doing your taxes? Someone who is being regulated and tested by the IRS, who has proven their skills as a preparer to the IRS. Or do you want someone whose specialty is divorce law and litigation, or someone who is certified at preparing and analyzing financial reports such as balance sheets, income and loss statements, or setting up an accounting system for large corps.
Now maybe I am getting this all wrong but when we say, “all return preparers” lets mean all of us. CPA’s, Lawyers, EA’s and the soon to be “enrolled” and regerstared preparers. That would be all.
So Mr. Doug, fix this. “All paid tax return preparers must apply for a Preparer Tax Identification Number (PTIN) and register under a new system. New testing and continuing education requirements for any paid tax return preparer. All paid preparers will come under the rules of Circular 230.”
Electronic Filing Mandate
The IRS has been making changes to the Electronic Filing Mandate that originated in H.R. 3548 as predicted when it first came out.
At this point in time they are saying for this next tax season they “anticipate” asking requiring preparers who do 100 or more returns to file electronically and then lower that threshold to 10 for the next filing season. They are doing this because they expect low volume preparers may need more time to get signed up and familiar with the process. They will also be looking at a waiver process so if there is an extreme hardship for a tax preparing firm they may obtain extra time to get into compliance. They are also stating that taxpayers may need some convincing so if a tax client wishes to opt out there may be a way to do so.
As you can tell there is a lot of “supposes” and “may be’s” in this statement……the IRS isn’t completely finished with what they are planning for this next tax season. As I hear more, I’ll make sure to update you.
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