Forty-two percent of employees surveyed said that they felt their company had a “weak ethical culture,” according to the National Business Ethics Survey (NBES), a report published by the Washington, DC‒based Ethics Resource Center (ERC). http://www.ethics.org/nbes/ This figure is up from 37 percent two years ago, and could herald a downward trend in business ethics, even though ethics are typically up during an economic downturn, according to the ERC.

Ethical Behavior by the Numbers

Only 45 percent of those surveyed reported seeing misconduct taking place. In our opinion, that number is still too high, but it’s actually an historic low. And 65 percent of those employees who witnessed behavior reported it. The highest percentage, 70 percent, spotted and reported stealing and inappropriate offers of payment to public officials. Other categories that at least two-thirds of whistle-blowers spotted included:

- Inside trading

- Falsification of expense report

- Falsification or manipulation of financial reporting information

TCG Has Your Back

If you run a tight ship and have earned the respect of your workers, you’d like to think you’re in that 55 percent of companies who don’t experience any sort of unethical behavior, or at least amongst the percentages of businesses with employees who will report unethical behavior. But you can never be sure.

Since about half of all unethical business behaviors involve falsification of financial reports, inflating expense reports, or some other form of stealing — even as seemingly minor as using a corporate card to make purchases on the Internet — your best defense against corporate theft is a bookkeeper and financial controller you can trust.

Wouldn’t it be nice to have a financial bookkeeper and CPA who works remotely, and doesn’t get involved in your company morale or ethics at all? Someone whose only interest is looking after your financial records and your best interests?

A virtual bookkeeper and financial controller remains impartial. They won’t “team up” with one of your employees to “cook the books,” because they deal directly with you, not your employees. And, with 24-hour access to your financial records in the cloud, you know you can always check your records, any time, from anywhere, if something seems suspicious.

In good times or bad, employees steal. The best defense you have is understanding your financial records so you can spot theft early or even prevent it. A virtual financial controller can help you understand your financial reports so you always have complete control of your business.

Here are five easy ways you may be able to cut costs without sacrificing quality or company morale. (Some of these tips may actually boost morale!)

1 – Go over your books with a fine-tooth comb. – Spotting waste in your daily, weekly and monthly expenses (the same way you do with your home budget) is one great way to cut costs. But if your books are mess, this can be hard to do. A virtual financial controller can help you understand your cash flow statements and other financial reports so you can trim financial fat easily.

2 – Reduce overhead costs by permitting employees to telecommute. – Telecommuting, flex-time and shared office space (where one employee works, for instance, three days a week in the office and two days at home, and another does the reverse, while sharing the same desk) can reduce overhead costs dramatically. Studies show it also raises morale. Work-at-home employees, rather than slacking more, actually get more accomplished without the long commute and distractions of co-workers.

3 – Reduce business travel by using videoconferencing, teleconferencing and even attending virtual conferences. – U.S. companies, combined, spent about $200 billion in business travel last year. With today’s technology, it’s easy to eliminate some of your travel budget, either by sending fewer employees or going to fewer trade shows. Look at your travel budget and decide if the money might be better spent on a high-end videoconferencing system that will last for years, or if you can use equipment you already have to teleconference with clients in other regions.

4 – Use the right accounting software for your company’s size and needs. – If you’re paying a monthly subscription for cloud-based accounting software and you’re buying more than you need, you could realize substantial savings by shopping around for a better package. If you’re in the midst of upgrading your accounting software, consider a scalable, cloud-based solution like Intaact. With accounting software in-the-cloud, you’ll save money on software upgrades needed to install new software, IT staff time, and potential hardware upgrades. 

5 – Hire a part-time financial controller or a virtual bookkeeper to help you sort it all out. – For a fraction of the salary you’d have to pay a full-time, in-house CFO or financial controller, The Controllership Group can help you get a handle on your financial records, show you where to cut costs, and set you up with the right financial accounting software for your needs.

Switching Accounting Methods with the IRS       

According to IRS regulations, whatever type of accounting process you begin with for your tax returns is the method you must continue with. To switch from cash-based accounting to accrual based accounting requires that you file Form 3115 in duplicate. You can file an Automatic Change Request in duplicate (by attaching one copy to your federal income tax return and submitting the other) no earlier than the first day of the year of the change, and no later than when your income tax return is filed for that year.

You can make an Advance Consent Request by filing Form 3115 during the tax year in which you’re requesting the change.

Switching Accounting Methods Within Your Company’s Financial Records

Filling out Form 3115 to change the accounting method you use for your business is no small feat. It’s wise to contact a tax accountant for help with the paperwork. But that first step may seem easy compared to the other changes necessary as you transition from cash to accrual basis accounting. (Trust us, it’s worth it, especially for a larger small business.)

It can be hard for some people, especially if you’ve worked with cash basis accounting your whole life, to make the switch to accrual basis accounting. After all, even personal finances are calculated on a cash basis. In your personal checking account ledger, you log deposits when you put them in the bank, not as you work to earn the money.

Transitioning to accrual based accounting for your business requires a change in mindset and how you view your company financial statements. You’ll begin to get more accurate figures about your company’s real financial state, which helps with financial forecasting. In accrual basis accounting, you log expenses as soon as they occur and income when it is earned. For this reason, your balance sheets may be showing revenue, but you won’t actually have money in the bank.

After you transition to accrual based accounting, you may also want to calculate weekly cash flow statements, which shows exactly how much money your business has on hand. Many businesses use accrual basis accounting for some purposes and cash basis accounting for others.

Financial Accounting Software and Accounting Methods

Many popular accounting software applications, including QuickBooks and Intacct, permit accounting using both methods. You can then generate reports showing the two different bottom lines you’ll get when using either method.

You may choose to generate some reports based on the accrual method and others on the cash method, depending on what you hope to learn from the reports.

Need Help with Accrual Based Accounting

As you make the transition to accrual based accounting, you’ll find yourself entering a whole new world of numbers. You may need an expert to help you make the transition, and to take over your bookkeeping as your business continues to grow.

An outsourced bookkeeper and financial controller will explain everything you need (or want) to know about accrual basis accounting, so that you remain in full control of your business and its financial future, while managing your books to give you one less thing to worry about.

Using cash-based accounting, a business tracks income as it is received and expenses as they are spent. It’s as simple as that.

Drawbacks to Cash-based Accounting

Cash-based accounting provides a clear picture of exactly how much cash you have on hand, but there are many drawbacks to cash-based accounting for most businesses.

- Is not GAAP-compliant

- If you’re seeking investment capital or a loan, you’ll need to show GAAP-compliant bookkeeping records, which use accrual-based accounting

- Might paint an inaccurately optimistic view of business capital

- Could result in higher estimated tax liabilities, or even spending money that’s needed for the future to reduce tax liability

About Accrual-Based Accounting

There’s another form of accounting, far more prevalent and practical in the business world. Accrual-based accounting matches income to expenses on balance sheets by tracking income when it is earned and expenses when they are accrued.

Especially for companies that manage many long-term projects, accrual based accounting paints a far more accurate picture of a company’s financial state. Here are some other benefits of accrual based accounting:

- Results in more accurate quarterly estimated tax payments

- Is GAAP-compliant — if your company is ever audited, you won’t face compliance issues for your bookkeeping

- Helps the application process for investment capital or business loans, since it is necessary for bookkeeping records to be GAAP compliant in these situations

Making the Switch to Accrual-based Accounting

It can be a challenge for a growing Indiana business to make the switch to accrual-based accounting, but there are so many good reasons to do so! With time, you’ll find it’s even easier to manage your income and expenses using this type of bookkeeping.

If you find you need help to make your bookkeeping records GAAP compliant, don’t be afraid to seek outside help from outsourced bookkeeping services. Professional virtual bookkeepers and financial controllers can help you make the switch to accrual-based accounting painlessly, so your business can continue to grow — the right way!

Choosing Small Business Bookkeeping Software

Let’s look at some of the traits good bookkeeping software for small businesses should have.

1. Access to your financial data 24/7 – This is one reason that more and more businesses are relying on cloud-based accounting software.

2. Does not tax your company’s IT infrastructure with expensive hardware upgrades or time-intensive installations. – Again, accounting software in the cloud can be easily loaded on to any computer with Internet access. In most cases, all that’s required is the latest version of your Web browser (to maintain the most secure connection) and a secure Internet connection.

3. Customization – Every business is different, so accounting software is not “one-size-fits-all.” Relying on Excel or other spreadsheet programs to fill in gaps in accounting needs leads to complications, compliance issues and added costs. Software that your small business bookkeeper or virtual accountant can customize easily will streamline accounting processes and reduce long-term costs.

4. Scalability as your business grows – Many small businesses start with QuickBooks Online or QuickBooks Pro accounting software, but functionality may be limited as the business grows. Intacct accounting software grows with your company, offering time and expense management, order management, sales force integration, CRM functions, sales and use tax, project accounting and more.

5. Puts the information business owners need right at their fingertips, so business owners can put their customers first. – If you don’t feel as if your current accounting software is doing this, it might be time to learn more about cloud based accounting and Intacct. TCG can help.

Having a basic understanding of your company’s financial reports can help with:

- Financial forecasting

- Making the right financial decisions

- Peace of mind, since you’ll know exactly where your business stands

Let’s take a look at some of the different types of financial reports, since that’s the first thing a small business owner needs to know. In future posts, as you visit this blog, we’ll describe each type of report in greater detail.

Balance Sheet

A company’s balance sheet reveals a company’s assets (what it owns) and liabilities (what it owes), plus the company’s net worth, or how much is invested in the business. These numbers (liabilities plus net worth) should equal a company’s assets, and then this financial report is said to “balance.”

Profit and Loss Statement

Many business owners have a basic understanding of this financial statement, since it can reveal, at a glimpse, whether a company’s profits are up or down from quarter-to-quarter, or from the same quarter in other years. (Due to seasonal fluctuations in business, it’s most helpful to compare one quarter to the same quarter in another year to get a true picture of whether business is up or down for the year.)

The profit and loss statement, sometimes called an income statement, does not show cash flow — or how much  in liquid assets a company has available at the time. The profit and loss statement shows how much money a business will make after expenses, or net profit.

Don’t Have Financial Statements?
Are your financial statements a mess? Or are all the numbers in the right boxes but you haven’t got a clue what they mean? If either of these problems sound like a challenge you’re facing right now, you may need virtual outsourced accounting services to help.

At TCG group, we can provide a part-time virtual bookkeeper and financial controller to, well, balance your balance sheets and (perhaps more importantly) explain them to you.

If you’re confused by financial statements, the important thing is to ask your accountant questions. It’s okay if you ask the same questions month after month. That’s how you’ll learn.

At TCG, we’d prefer you to view us as a trusted partner who will patiently answer all your questions, than for you to stay in the dark about your own company’s financial statements.

Not sure what a cash flow statement is or why it’s important?

A cash flow statement is a statement of the actual money coming in to and going out of your business on a daily, weekly, monthly and quarterly basis. In accrual based accounting, you may log a large, ongoing project as revenue at the start of a quarter, but the client might pay in monthly installments. Your balance sheets, income statement and other financial statements will show revenue in your business for that time period. But your bank account will not reflect all the income from the project until, obviously, it’s all collected and deposited.

Your cash flow statement will show only payments received. A cash flow statements shows all income from all sources including:

- Client payments

- Sales of goods

- Sales of assets, such as office equipment

- Investment income, such as from real estate or other investments in the business’s name

The cash flow statement also shows all money paid out in any given time period, which might include:

- Payroll

- Cash paid for inventory purchased

- Cash paid for business assets, such as office equipment and vehicles

- Operating expenses, such as lease or mortgage payments, utilities, etc.

- Credit card or charge card payments for that month

In the case of credit card payments, your balance sheets and accounts payable will show the entire purchase price of whatever was bought using revolving credit. Your cash flow statement will only show the payment made to the credit card account, since it reflects money paid, while balance sheets show all outgoing revenue.

While it is one of the easiest financial statements to understand, because it’s very similar to a checking account ledger, understanding your cash flow statement is critical to maintaining financial control of your business. A virtual bookkeeper or financial controller can provide reports weekly, monthly or on-demand statements so you always know how much cash your business has available at any given time.

While many energy tax credits disappeared in 2012, there are still several energy efficient improvements you can make that will:

- Earn tax credits or deductions

- Save your company money each month

- Reduce your company’s carbon footprint, helping to make our planet a better place.

If you don’t consider yourself particularly eco-conscious, the cost savings and tax credits alone make the following energy efficient improvements compelling investments. Here’s some information on credits you can claim for energy efficient upgrades in 2012. Most importantly, many of these credits and deductions are good only until December 31, 2013, so it “pays” to upgrade now.

1 – Owners or tenants of buildings can deduct up to $1.80 per square foot for improvements that reduce a building’s heating, cooling, ventilation, water heating and interior lighting costs by at least 50 percent. Patial deductions are also available.

2. Owners of “combined heat and power” alternative energy systems that are 60 percent efficient, produce at least 20 percent of their useful energy as electricity and another 20 percent as useful thermal energy qualify for a 10 percent investment tax credit. The incentive can also be applied to the Alternative Minimum Tax (AMT). CHP systems must be smaller than 50 MW, and the credit applies only to the first 15 MW.

3. Business owners may claim a 30 percent credit, with no cap, for the installation of a solar hot water or solar PV (photovoltaic) system. This credit is good for systems installed through December 31, 2016. You may check with your local utility company or a solar installer to find out what state and local incentives may be available for the installation of solar technology, as well. With solar leasing and other financing options available, a solar system might be one of the fastest ways to save on energy costs for your business while earning generous tax credits.

4. Business owners who install wind power systems with a capacity of 100 kilowatts or less receive a tax credit of 30 percent of the total cost of the installed system through December 31, 2016.

5. Business owners who install a geothermal heating or heat pump system in their business can earn an investment tax credit of 10 percent of the installed cost through 2016. The option to claim this credit as an upfront grant expired in 2010.

How will you “go green” and save money this April 22?

As a business grows, however, it makes sense to begin using accrual-based accounting. In short, accrual-based accounting is when you deduct income when it is earned and expenses when they are spent. Let’s look at some of the benefits for growing small businesses:

1. Defer tax liability, while deducting expenses right away. This especially helps distributors, retailers and start-up businesses, who may have large upfront expenses and lower earned income at certain times of the year.

2. GAAP (Generally Accepted Accounting Principles) demands accrual based accounting. If your company is soliciting funding from outside investors, including angel investors or VC firms, your bookkeeping records should use accrual based accounting, making it easy for investors to analyze your profit and loss in a standard, commonly-accepted format.

3. Accrual-based accounting paints a much more clear picture of a company’s true financial situation, and reduces the potential for “creative” bookkeeping. For accurate financial forecasting, accrual basis accounting is the accepted practice.

Choosing Between Accrual and Cash Based Accounting Practices

If your company does not accept credit cards, takes only cash payments and pays for all expenses in cash, and wants to simplify bookkeeping processes, you may choose to continue with cash-basis accounting. Otherwise, it may be time to switch to accrual based accounting which, admittedly, can be more challenging to understand and implement.

If that’s the case for your growing business, it may also be time to consider outsourced bookkeeping services to manage your books, provide financial forecasting and financial analysis, and help your company determine the next best step for growth.