Business owners sometimes mistakenly equate profits with cash flow. Here’s how this can lead to surprises when managing day-to-day operations — and why many profitable companies experience cash shortages. Working capital Profits are closely related to taxable income. Reported at the bottom of your company’s income statement, they’re essentially the result of revenue less the cost of goods sold and other operating expenses incurred in the accounting period. Generally Accepted Accounting Principles (GAAP) require companies to “match” costs and expenses to the period in which revenue is recognized. Under accrual-basis accounting, it doesn’t necessarily matter when you receive payments from customers or when you pay expenses. For example, inventory sitting in a warehouse or retail store can’t be deducted — even though it may have been long paid for (or financed). The expense hits your income statement only when an item is sold or used. Your inventory account contains many cash outflows that are waiting to be expensed. Other working capital accounts — such as accounts receivable, accrued expenses and trade payables — also represent a difference between the timing of cash flows. As your business grows and prepares for increasing future sales, you invest more in working capital, which […] Details
External audits aren’t required for every business. But whether required or not, they can provide lenders and investors with assurance that your financial statements are free from material misstatement and prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). How can you help facilitate efficient, timely audit fieldwork? The keys are frequent communication and coordination between a company’s internal audit department and its external audit firm throughout the year. Here are four ways to foster this partnership. 1. Encourage frequent communication Scheduling regular meetings between members of the internal and external audit teams sets the stage for a more efficient audit process. You might discuss emerging issues, such as how the company intends to apply a new accounting standard or the status of internal control remediation efforts. In preparation for an audit, auditors can meet to compare the internal audit department’s workplan to the external auditor’s audit plan. This comparison can help minimize duplication of effort and identify areas where the teams might work together — or at least complement each other’s efforts. 2. Provide access to internal audit reports The external audit team can’t rely exclusively on the internal audit department’s reports to plan their audit. But sharing […] Details
Now that 2019 has begun, there isn’t too much you can do to reduce your 2018 income tax liability. But it’s smart to begin preparing for filing your 2018 return. Because the Tax Cuts and Jobs Act (TCJA), which was signed into law at the end of 2017, likely will have a major impact on your 2018 taxes, it’s a good time to review the most significant provisions impacting individual taxpayers. Rates and exemptions Generally, taxpayers will be subject to lower tax rates for 2018. But a couple of rates stay the same, and changes to some of the brackets for certain types of filers (individuals and heads of households) could cause them to be subject to higher rates. Some exemptions are eliminated, while others increase. Here are some of the specific changes: Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% Elimination of personal and dependent exemptions AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers for 2018 Approximate doubling of the gift and estate tax exemption, to $11.18 million for […] Details
Motivation. It’s a relatively simple word, but encouraging it among your employees can be a challenge. Maybe that’s because, fundamentally, enthusiasm must come from within. It’s not something you can implant in someone externally. For this reason, employers sometimes need to get back to the basics of employee motivation to identify the right ways to inspire their workforces. Maslow’s hierarchy Every employee has needs. Some just want to do a good job and go home happy. Others want to earn as much money as possible. Determining what will drive each person may boil down to figuring out what makes him or her tick as a human being. Psychologist Abraham Maslow developed a “hierarchy of needs” for humanity. Those needs, as they apply to the workplace, are: Physiological: Being able to earn enough to acquire food, shelter, clothing and other survival necessities is usually an employee’s most basic need. Safety: Having a secure and non-threatening work environment, safe equipment and job security is the next most basic need. Social: Once physiological and safety needs are met, employees typically are looking to fulfill higher-level needs. The first of these is generally positive relationships with managers and coworkers and feeling like part of […] Details
The dawning of 2019 means the 2018 income tax filing season will soon be upon us. After year end, it’s generally too late to take action to reduce 2018 taxes. Business owners may, therefore, want to shift their focus to assessing whether they’ll likely owe taxes or get a refund when they file their returns this spring, so they can plan accordingly. With the biggest tax law changes in decades — under the Tax Cuts and Jobs Act (TCJA) — generally going into effect beginning in 2018, most businesses and their owners will be significantly impacted. So, refreshing yourself on the major changes is a good idea. Taxation of pass-through entities These changes generally affect owners of S corporations, partnerships and limited liability companies (LLCs) treated as partnerships, as well as sole proprietors: Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% A new 20% qualified business income deduction for eligible owners (the Section 199A deduction) Changes to many other tax breaks for individuals that will impact owners’ overall tax liability Taxation of corporations These changes generally affect C corporations, personal service corporations […] Details
Tyler, Simms & St. Sauveur, CPAs, P.C.
Phone: +1 (603) 653-0044