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Accounting

Accounting

I want to talk about how to keep track of the money in a company. That is called accounting and we’re going start with the basics of accounting.

Accounting is keeping track of the money in a company. It’s critical to keep good books and CPA for a business, no matter how small it is. I’m not going to lay out exactly how to do that, but I am going to discuss a few important principals.

The first important principal is every financial transaction of a company needs to be recorded. This process has been made much easier with the advent of accounting software. For most startups, Quickbooks will do in the beginning. As the company grows, the choice of accounting software will become more complicated, but by then you will have hired a financial team that can make those choices.

The recording of financial transactions is not an art. It is a science and a well understood science. It revolves around the twin concepts of a “chart of accounts” and “double entry accounting.” Let’s start with the chart of accounts.

The accounting books of a company start with a chart of accounts. There are two kinds of accounts; income/expense accounts and asset/liability accounts. The chart of accounts includes all of them. Income and expense accounts represent money coming into and out of a business. Asset and liability accounts represent money that is contained in the business or owed by the business.

Advertising revenue that you receive from Google Adsense would be an income account. The salary expense of a developer you hire would be an expense account. Your cash in your bank account would be an asset account. The money you owe on your company credit card would be called “accounts payable” and would be a liability.

When you initially set up your chart of accounts, the balance in each and every account is zero. As you start entering financial transactions in your accounting software, the balances of the accounts goes up or possibly down.

The concept of double entry accounting is important to understand. Each financial transaction has two sides to it and you need both of them to record the transaction. Let’s go back to that Adsense revenue example. You receive a check in the mail from Google. You deposit the check at the bank. The accounting double entry is you record an increase in the cash asset account on the balance sheet and a corresponding equal increase in the advertising revenue account. When you pay the credit card bill, you would record a decrease in the cash asset account on the balance sheet and a decrease in the “accounts payable” account on the balance sheet.

These accounting entries can get very complicated with many accounts involved in a single recorded transaction, but no matter how complicated the entries get the two sides of the financial transaction always have to add up to the same amount. The entry must balance out. That is the science of accounting.

Since the objective of this blog is not to turn you all into accountants, I’ll stop there, but I hope everyone understands what a chart of accounts and an accounting entry is now.

Once you have a chart of accounts and have recorded financial transactions in it, you can produce reports. These reports are simply the balances in various accounts or alternatively the changes in the balances over a period of time.

The next three posts are going to be about the three most common reports;

  • the profit and loss statement which is a report of the changes in the income and expense accounts over a certain period of time (month and year being the most common)
  • the balance sheet which is a report of the balances all all asset and liability accounts at a certain point in time
  • the cash flow statement which is report of the changes in all of the accounts (income/expense and asset/liability) in order to determine how much cash the business is producing or consuming over a certain period of time (month and year being the most common)

If you have a company, you must have financial records for it. And they must be accurate and up to date. I do not recommend doing this yourself. I recommend hiring a part-time bookkeeper to maintain your financial records at the start. A good one will save you all sorts of headaches. As your company grows, eventually you will need a full time accounting person, then several, and at some point your finance organization could be quite large.

There is always a temptation to skimp on this part of the business. It’s not a core part of most businesses and is often not valued by tech entrepreneurs. But please don’t skimp on this. Do it right and well. And hire good people to do the accounting work for your company. It will pay huge dividends in the long run.

The Profit And Loss Statement

Today we are going to talk about one of the most important things in business, the profit and loss statement (also known as the P&L).

Picking up from the accounting post last week, there are two kinds of accounting entries; those that describe money coming into and out of your business, and money that is contained in your business. The P&L deals with the first category.

A profit and loss statement is a report of the changes in the income and expense accounts over a set period of time. The most common periods of time are months, quarters, and years, although you can produce a P&L report for any period.

Here is a profit and loss statement for the past four years for Google. I got it from their annual report (10k). I know it is too small on this page to read, but if you click on the image, it will load much larger in a new tab.

Google p&l

The top line of profit and loss statements is revenue (that’s why you’ll often hear revenue referred to as “the top line”). Revenue is the total amount of money you’ve earned coming into your business over a set period of time. It is NOT the total amount of cash coming into your business. Cash can come into your business for a variety of reasons, like financings, advance payments for services to be rendered in the future, payments of invoices sent months ago.

There is a very important, but highly technical, concept called revenue recognition. Revenue recognition determines how much revenue you will put on your accounting statements in a specific time period. For a startup company, revenue recognition is not normally difficult. If you sell something, your revenue is the price at which you sold the item and it is recognized in the period in which the item was sold. If you sell advertising, revenue is the price at which you sold the advertising and it is recognized in the period in which the advertising actually ran on your media property. If you provide a subscription service, your revenue in any period will be the amount of the subscription that was provided in that period.

This leads to another important concept called “accrual accounting.” When many people start keeping books, they simply record cash received for services rendered as revenue. And they record the bills they pay as expenses. This is called “cash accounting” and is the way most of us keep our personal books and records. But a business is not supposed to keep books this way. It is supposed to use the concept of accrual accounting.

Let’s say you hire a contract developer to build your iPhone app. And your deal with him is you’ll pay him $30,000 to deliver it to you. And let’s say it takes him three months to build it. At the end of the three months you pay him the $30,000. In cash accounting, in month three you would record an expense of $30,000. But in accrual accounting, each month you’d record an expense of $10,000 and because you aren’t actually paying the developer the cash yet, you charge the $10,000 each month to a balance sheet account called Accrued Expenses. Then when you pay the bill, you don’t touch the P&L, its simply a balance sheet entry that reduces Cash and reduces Accrued Expenses by $30,000.

The point of accrual accounting is to perfectly match the revenues and expenses to the time period in which they actually happen, not when the payments are made or received.

With that in mind, let’s look at the second part of the P&L, the expense section. In the Google P&L above, expenses are broken out into several categories; cost of revenues, R&D, sales and marketing, and general and administration. You’ll note that in 2005, there was also a contribution to the Google Foundation, but that only happened once, in 2005.

The presentation Google uses is quite common. One difference you will often see is the cost of revenues applied directly against the revenues and a calculation of a net amount of revenues minus cost of revenues, which is called gross margin. I prefer that gross margin be broken out as it is a really important number. Some businesses have very high costs of revenue and very low gross margins. And example would be a retailer, particularly a low price retailer. The gross margins of a discount retailer could be as low as 25%.

Google’s gross margin in 2009 was roughly $14.9bn (revenue of $23.7bn minus cost of revenues of $8.8bn). The way gross margin is most often shown is as a percent of revenues so in 2009 Google’s gross margin was 63% (14.9bn divided by 23.7). I prefer to invest in high gross margin businesses because they have a lot of money left after making a sale to pay for the other costs of the business, thereby providing resources to grow the business without needing more financing. It is also much easier to get a high gross margin business profitable.

The other reason to break out “cost of revenues” is that it will most likely increase with revenues whereas the other expenses may not. The non cost of revenues expenses are sometimes referred to as “overhead”. They are the costs of operating the business even if you have no revenue. They are also sometimes referred to as the “fixed costs” of the business. But in a startup, they are hardly fixed. These expenses, in Google’s categorization scheme, are R&D, sales and marketing, and general/admin. In layman’s terms, they are the costs of making the product, the costs of selling the product, and the cost of running the business.

The most interesting line in the P&L to me is the next one, “Income From Operations” also known as “Operating Income.” Income From Operations is equal to revenue minus expenses. If “Income From Operations” is a positive number, then your base business is profitable. If it is a negative number, you are losing money. This is a critical number because if you are making money, you can grow your business without needing help from anyone else. Your business is sustainable. If you are not making money, you will need to finance your business in some way to keep it going. Your business is unsustainable on its own.

The line items after “Income From Operations” are the additional expenses that aren’t directly related to your core business. They include interest income (from your cash balances), interest expense (from any debt the business has), and taxes owed (federal, state, local, and possibly international). These expenses are important because they are real costs of the business. But I don’t pay as much attention to them because interest income and expense can be changed by making changes to the balance sheet and taxes are generally only paid when a business is profitable. When you deduct the interest and taxes from Income From Operations, you get to the final number on the P&L, called Net Income.

I started this post off by saying that the P&L is “one of the most important things in business.” I am serious about that. Every business needs to look at its P&L regularly and I am a big fan of sharing the P&L with the entire company. It is a simple snapshot of the health of a business.

I like to look at a “trended P&L” most of all. The Google P&L that I showed above is a “trended P&L” in that it shows the trends in revenues, expenses, and profits over five years. For startup companies, I prefer to look at a trended P&L of monthly statements, usually over a twelve month period. That presentation shows how revenues are increasing (hopefully) and how expenses are increasing (hopefully less than revenues). The trended monthly P&L is a great way to look at a business and see what is going on financially.

I’ll end this post with a nod to everyone who commented last week that numbers don’t tell you everything about a business. That is very true. A P&L can only tell you so much about a business. It won’t tell you if the product is good and getting better. It won’t tell you how the morale of the company is. It won’t tell you if the management team is executing well. And it won’t tell you if the company has the right long term strategy. Actually it will tell you all of that but after it is too late to do anything about it. So as important as the P&L is, it is only one data point you can use in analyzing a business. It’s a good place to start. But you have to get beyond the numbers if you really want to know what is going on.

The Balance Sheet

The Balance Sheet shows how much capital you have built up in your business.

If you go back to my post on Accounting, you will recall that there are two kinds of accounts in a company’s chart of accounts; revenue and expense accounts and asset and liability accounts.

Last week we talked about the Profit and Loss statement which is a report of the revenue and expense accounts.

The Balance Sheet is a report of the asset and liability accounts. Assets are things you own in your business, like cash, capital equipment, and money that is owed to you for products and services you have delivered to customers. Liabilities are obligations of the business, like bills you have yet to pay, money you have borrowed from a bank or investors.

Here is Google’s balance sheet as of 12/31/2009:

Google balance sheet

Let’s start from the top and work our way down.

The top line, cash, is the single most important item on the balance sheet. Cash is the fuel of a business. If you run out of cash, you are in big trouble unless there is a “filling station” nearby that is willing to fund your business. Alan Shugart, founder of Seagate and a few other disk drive companies, famously said “cash is more important than your mother.” That’s how important cash is and you never want to get into a situation where you run out of it.

The second line, short term investments, is basically additional cash. Most startups won’t have this line item on their balance sheet. But when you are Google and are sitting on $24bn of cash and short term investments, it makes sense to invest some of your cash in “short term instruments”. Hopefully for Google and its shareholders, these investments are safe, liquid, and are at very minimal risk of loss.

The next line is “accounts receivable”. Google calls it “net receivables’ because they are netting out money some of their partners owe them. I don’t really know why they are doing it that way. But for most companies, this line item is called Accounts Receivable and it is the total amount of money owed to the business for products and services that have been delivered but have not been collected. It’s the money your customers owe your business. If this number gets really big relative to revenues (for example if it  represents more than three months of revenues) then you know something is wrong with the business. We’ll talk more about that in an upcoming post about financial statement analysis.

I’m only going to cover the big line items in this balance sheet. So the next line item to look at is called Total Current Assets. That’s the amount of assets that you can turn into cash fairly quickly. It is often considered a measure of the “liquidity of the business.”

The next set of assets are “long term assets” that cannot be turned into cash easily. I’ll mention three of them.  Long Term Investments are probably Google’s minority investments in venture stage companies and other such things. The most important long term asset is “Property Plant and Equipment” which is the cost of your capital equipment. For the companies we typically invest in, this number is not large unless they rack their own servers. Google of course does just that and has spent $4.8bn to date (net of depreciation) on its “factory”. Depreciation is the annual cost of writing down the value of your property plant and equipment. It appears as a line in the profit and loss statement. The final long term asset I’ll mention is Goodwill. This is a hard one to explain. But I’ll try. When you purchase a business, like YouTube, for more than it’s “book value” you must record the difference as Goodwill.  Google has paid up for a bunch of businesses, like YouTube and Doubleclick, and it’s Goodwill is a large number, currently $4.9bn. If you think that the value of any of the businesses you have acquired has gone down, you can write off some or all of that Goodwill. That will create a large one time expense on your profit and loss statement.

After cash, I believe the liability section of the balance sheet is the most important section. It shows the businesses’ debts. And the other thing that can put you out of business aside from running out of cash is inability to pay your debts. That is called bankruptcy. Of course, running out of cash is one reason you may not be able to pay your debts. But many companies go bankrupt with huge amounts of cash on their books. So it is critical to understand a company’s debts.

The main current liabilities are accounts payable and accrued expenses. Since we don’t see any accrued expenses on Google’s balance sheet I assume they are lumping the two together under accounts payable. They are closely related. Both represent expenses of the business that have yet to be paid. The difference is that accounts payable are for bills the company receives from other businesses. And accrued expenses are accounting entries a company makes in anticipation of being billed. A good example of an accounts payable is a legal bill you have not paid. A good example of an accrued expense is employee benefits that you have not yet been billed for that you accrue for each month.

If you compare Current Liabilities to Current Assets, you’ll get a sense of how tight a company is operating. Google’s current assets are $29bn and its current liabilities are $2.7bn. It’s good to be Google, they are not sweating it. Many of our portfolio companies operate with these numbers close to equal. They are sweating it.

Non current liabilities are mostly long term debt of the business. The amount of debt is interesting for sure. If it is very large compared to the total assets of the business its a reason to be concerned. But its even more important to dig into the term of the long term debt and find out when it is coming due and other important factors. You won’t find that on the balance sheet. You’ll need to get the footnotes of the financial statements to do that. Again, we’ll talk more about that in a future post on financial statement analysis.

The next section of the balance sheet is called Stockholders Equity. This includes two categories of “equity”. The first is the amount that equity investors, from VCs to public shareholders, have invested in the business. The second is the amount of earnings that have been retained in the business over the years. I’m not entirely sure how Google breaks out the two on it’s balance sheet so we’ll just talk about the total for now. Google’s total stockholders equity is $36bn. That is also called the “book value” of the business.

The cool thing about a balance sheet is it has to balance out. Total Assets must equal Total Liabilities plus Stockholders Equity. In Google’s case, total assets are $40.5bn. Total Liabilities are $4.5bn. If you subtract the liabilities from the assets, you get $36bn, which is the amount of stockholders equity.

We’ll talk about cash flow statements next week and the fact that a balance sheet has to balance can be very helpful in analyzing and projecting out the cash flow of a business.

In summary, the Balance Sheet shows the value of all the capital that a business has built up over the years. The most important numbers in it are cash and liabilities. Always pay attention to those numbers. I almost never look at a profit and loss statement without also looking at a balance sheet. They really should be considered together as they are two sides of the same coin.

Cash Flow

The standard form of a cash flow statement is a bit hard to comprehend in my opinion and I don’t think it does a very good job of describing the various aspects of cash flow in a business.

That said, let’s start with the concept of cash flow and we’ll come back to the accounting treatment.

Cash flow is the amount of cash your business either produces or consumes in a given period, typically a month, quarter, or year. You might think that is the same as the profit of the business, but that is not correct for a bunch of reasons.

The profit of a business is the difference between revenues and expenses. If revenues are greater than expenses, your business is producing a profit. If expenses are greater than revenues, your business is producing a loss.

But there are many examples of profitable businesses that consume cash. And there are also examples of unprofitable businesses that produce cash, at least for a period of time.

Here’s why.

As I explained in the Income Statement post, revenues are recognized as they are earned, not necessarily when they are collected. And expenses are recognized as they are incurred, not necessarily when they are paid for. Also, some things you might think of as expenses of a business, like buying servers, are actually posted to the Balance Sheet as property of the business and then depreciated (ie expensed) over time.

So if you have a business with significant hardware requirements, like a hosting business for example, you might be generating a profit on paper but the cash outlays you are making to buy servers may mean your business is cash flow negative.

Another example in the opposite direction would be a software as a service business where your company gets paid a year in advance for your software subscription revenues. You collect the revenue upfront but recognize it over the course of the year. So in the month you collect the revenue from a big customer, you might be cash flow positive, but your Income Statement would show the business operating at a loss.

Cash flow is really easy to calculate. It’s the difference between your cash balance at the start of whatever period you are measuring and the end of that period. Let’s say you start the year with $1mm in cash and end the year with $2mm in cash. Your cash flow for the year is positive by $1mm. If you start the year with $1mm in cash and end the year with no cash, your cash flow for the year is negative by $1mm.

But as you might imagine the accounting version of the cash flow statement is not that simple. Instead of getting into the standard form, which as I said I don’t really like, let’s talk about a simpler form that gets you to mostly the same place.

Let’s say you want to do a cash flow statement for the past year. You start with your Net Income number from your Income Statement for the year. Let’s say that number is $1mm of positive net income.

Then you look at your Balance Sheet from the prior year and the current year. Look at the Current Assets (less cash) at the start of the year and the Current Assets (less cash) at the end of the year. If they have gone up, let’s say by $500,000, then you subtract that number from your Net Income. The reason you subtract the number is your business used some of your cash to increase its current assets. One typical reason for that is your Accounts Receivable went up because your customers are taking longer to pay you.

Then look at your Non-Current Assets at the start of the year and the end of the year. If they have gone up, let’s say by $500k, then you also subtract that number from your Net Income. The reason is your business used some of your cash to increase its Non-Current Assets, most likely Property, Plant, and Equipment (like servers).

At this point, halfway through this simplified cash flow statement, your business that had a Net Income of $1mm produced no cash because $500k of it went to current assets and $500k of it went to non-current assets.

Liabilities work the other way. If they go up, you add the number to Net Income. Let’s start with Current Liabilities such as Accounts Payable (money you owe your suppliers, etc). If that number goes up by $250k over the course of the year, you are effectively using your suppliers to finance your business. Another reason current liabilities could go up is Deferred Revenue went up. That would mean you are effectively using your customers to finance your business (like that software as a service example earlier on in this post).

Then look at Long Term Liabilities. Let’s say they went up by $500k because you borrowed $500k from the bank to purchase the servers that caused your Non-Current Assets to go up by $500k. So add that $500k to Net Income as well.

Now, the simplified cash flow statement is showing $750k of positive cash flow. But we have one more section of the Balance Sheet to deal with, Stockholders Equity. For Stockholders Equity, you need to back out the current year’s net income because we started with that. Once you do that, the main reason Stockholders Equity would go up would be an equity raise. Let’s say you raised $1mm of venture capital during the year and so Stockholder’s Equity went up by $1mm. You’d add that $1mm to Net Income as well.

So, that’s basically it. You start with $1mm of Net Income, subtract $500k of increased current assets, subtract $500k of increased non-current assets, add $250k of increased current liabilities, add $500k of increased long-term liabilities, and add $1mm of increased stockholders equity, and you get positive cash flow of $1.75mm.

Of course, you’ll want to check this against the cash balance at the start of the year and the end of the year to make sure that in fact cash did go up by $1.75mm. If it didn’t, then you have to go back and check your math.

So why would anyone want to do the cash flow statement the long way if you can simply compare cash at the start of the year and the end of the year? The answer is that doing a full-blown cash flow statement tells you a lot about where you are consuming or producing cash. And you can use that information to do something about it.

Let’s say that your cash flow is weak because your accounts receivable are way too high. You can hire a dedicated collections person. You can start cutting off customers who are paying you too late. Or you can do a combination of both. Bringing down accounts receivable is a great way to improve a business’ cash flow.

Let’s say you are spending a boatload on hardware to ramp up your web service’s capacity. And it is bringing your cash flow down. If you are profitable or have good financial backers, you can go to a bank and borrow against those servers. You can match non-current assets to long-term liabilities so that together they don’t impact the cash flow of your business.

Let’s say your current liabilities went down over the past year by $500k. That’s a $500k reduction in your cash flow. Maybe you are paying your bills much more quickly than you did when you started the business and had no cash. You might instruct your accounting team to slow down bill payment a bit and bring it back in line with prior practices. That could help produce better cash flow.

These are but a few examples of the kinds of things you can learn by doing a cash flow statement. It’s simply not enough to look at the Income Statement and the Balance Sheet. You need to understand the third piece of the puzzle to see the business in its entirety.

One last point and I am done with this week’s post. When you are doing projections for future years, I encourage management teams to project the income statement first, then the cash flow statement, and then end up with the balance sheet. You can make assumptions about how the line items in the Income Statement will cause the various Balance Sheet items to change (like Accounts Receivable should be equal to the past three months of revenue) and then lay all that out as a cash flow statement and then take the changes in the various items in the cash flow statement to build the Balance Sheet. I like to do that in monthly form. We’ll talk more about projections next week because I think this is a very important subject for startups and entrepreneurial management teams to wrap their heads around.

 

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Accounting

What Accountant Miami Resume’s Should Look Like

What Accountant Miami Resume’s Should Look Like

If you’re an Accountant Miami in the market for an accounting job in Miami, you’ll have greater success if your resume contains accounting key words and specific accounting skills. Accountant Miami these days will have greater success if they are “Subject Matter Experts” (SME). As an Accountant Miami for over 25 years, I found my niche in the medical field. Our CPA Firm is one of a handful of Accountant Miami Firms that specialize in Medicare Cost Reports, AHCA Proof of Financial Ability reports, Medicaid Cost Reports and Home Healthcare Accounting.

An Accountant Miami should be able to:

  • First and foremost, ensure compliance with accounting and tax preparation deadlines
  • Make sure your accounting records can pass a financial audit
  • Create accounting budgets & forecast and perform gap analysis between the two
  • Manage payroll functions
  • Perform month-end accounting close
  • Reconcile sub-ledgers to the general ledger (A/P, A/R etc)
  • Prepare bank reconciliations
  • Prepare month end accounting journal entries
  • Maintain fixed assets depreciation schedule
  • Prepare financial statements

 The following skills (in no specific order) will give you the edge landing that accounting job:

  •  Excellent oral and written communications skills with the ability to articulate complex issues
  • Great boardroom presence (excellent presentation skills are invaluable)
  • Listen first, paraphrase to make sure you understand, then speak
  • Detail oriented, efficient and organized with the ability to execute on project
  • Strong analytical and problem solving skills. Don’t point out problems unless you have the solutions
  • Highly trustworthy, ethical and discreet
  • Team player

Accountant Miami Background:

  • BA in Finance or Accounting
  • Certified Public Accountant (CPA) or MBA will give you an edge over the competition
  • 3 to 5 years accounting experience in the industry
  • Big 3 Public Accounting experience is looks great, but not always required
  • Fluent in English and Spanish in Miami is a definite plus

It goes without saying that computer skills and knowledge of accounting software is a given these days.

Good luck!

 

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Accounting

Accountant Miami or Scammers in Miami?

Accountant Miami or Scammers in Miami?

As an Accountant Miami I’m still stunned at the unethical and just plain incompetent work non CPA Firms in Miami provide. We have to bail more people out of trouble with the IRS due to incompetent bookkeeping services in Miami than the Coast Guard has to pluck people from sinking boats. So Accountant Miami style is buyer beware and unfortunately so many people do not know the difference between a bookkeeper, accountant or CPA. (Recent example: Client’s company owed her $1M and she needed to pull $500K. Instead of repaying the loan to herself tax free, her bookkeeper tells her she needs to run it through payroll. That generated a $178K tax liability which almost sank the business. All avoidable)

So the question I pose, do you need an Accountant Miami? At the very least the answer is YES. I highly recommend a Accountant Miami. A Accountant Miami or CPA is a licensed professional who has passed the uniform CPA exam and is bound by the laws of the State and the profession. A regular accountant probably graduated from college but did not take the CPA exam and is not bound by State laws. Bookkeepers usually only have on the job experience limited to paying your bills and creating invoices. Unfortunately, anyone in the State can hang a shingle and get into the business of Tax Preparation Miami style. When the IRS comes calling, they will turn their backs on you and tell you to find a Accountant Miami in Miami to help you fix their mess. There is nothing you can do, except sue them. Good luck with that.

As a small business owner you wear the hat of CEO, Marketing Director, Salesman, Decorator, Stock-person, Secretary, Security Guard, and more times than not, Parent. Throw an incompetent Accountant Miami (or worse a bookkeeper) in the mix and now overwhelmed is an understatement.

So many times this is the scenario I walk into when I meet a new client: Me, Ok. Tell me what you are currently doing to manage your accounting.” Client, “Well, not very much. I take in money and deposit it. I then pay the bills when they come in.” Me, “So basically, if you have money in the account, you are doing well, if not, then not so much.” Client, “Basically, yes.”

If you are in this situation you should not feel bad. If everyone was an Accountant Miami, I wouldn’t have a job. I tell new accounting and or college students all the time, you either love accounting or you hate it.” Very rarely is there anyone in between. For this reason, new business owners should truly seek out an accountant in Miami even at the start up of their company.

Client: “But will an Accountant Miami cost me a fortune? I need every penny I can spare”. Not necessarily I answer. Our Miami Accountants and CPA Firm in Miami charge on a monthly flat fee basis. No surprises on your monthly bill and we put it in writing. To run a successful, growing, and well-balanced business a business should have balanced and well managed books.

Now, when thinking about this you have 3 choices. (1) Do it yourself (2) Hire an accounting in-house (3) Outsource. If you decide to do this yourself, God Bless you because it is extremely time consuming.

Ok so I don’t want or know how to do it myself, so now what? ”

Now you have to decide if you need to hire an Accountant Miami who provides outsourced accounting services in Miami. Yes hire local! Be sure that if you want to hire a CPA Firm in Miami, it will not be costly if you know what you want and help CPA Firm in Miami by keeping good records.

Don’t settle for someone who can handle light bookkeeping because you will NOT be getting the information in a way that it best for you to do all you should. I advise Outsourcing. Not only because that is what I do, but so many times, it is in the best interest of small business owners. I don’t know about you, but when I started my first company, I did not have $40 to $50K to fork out to an accountant. Instead, outsourcing was the way to go. Cheaper, more experience, and no delays due to vacations, sick days, or turn-over.

 

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Accounting

How To Choose A Miami Accountant Or Miami Accounting Firm

 

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How To Choose A Miami Accountant Or Miami Accounting Firm

There are a number of individuals and businesses who use Miami Accountant year round. There are other individuals who only hire a Miami Accountant to help get all of their finances in order before their tax preparation.

Surprisingly, most business owners and individuals don’t carefully consider matching their needs to a Miami Accountant qualifications when making a selection. That’s because many of us who don’t have a strong accounting background view all accountants as being equal.

 

But the reality is that all Miami Accountant are not created equal….and the same goes for a CPA Firms as well.

An accountant, technically speaking, is a professional who takes care of the accounting needs of an individual or a business, including bookkeeping, tax preparation, financial advice, and more. Choosing an Miami Accountant is a highly individual process, as everyone has different needs.

This article explains how a Miami Accountant can help you conquer business finances and provide useful questions you should use to choose an Miami Accountant that best matches your needs and can help you prosper — and not somebody who just crunches the numbers.

Step by Step Questions When Choosing an Miami Accountant:

1. Determine what your specific needs are.

2.Get personal recommendations.

3.Speak personally with the accountant. After you have recommendations, speak with the accountant or accountants that interest you. Explain what you are looking for and ask any questions that you might have. Watch and listen for clear, direct answers and make sure you feel comfortable with the accountant. Feel free to ask about credentials and experience – most Miami Accountant will be happy to provide that information.

4.Determine how much it will cost. When it comes to Miami Accountant, cheapest is not necessarily best when it comes to accountants! On the other hand, you don’t want to be overcharged. Do a little comparative shopping to make sure that the fees seem to be within an acceptable range.

5. Consider your feelings. It may sound silly to involve feelings in a business or financial decision, but if you are working with someone, especially someone who will be working with your money, you want to feel secure and comfortable. If you are uncomfortable with the accountant for any reason, choose a different one.

6. Get a timeline. Make sure you talk to the prospective accountant about when you need things done. If you are on a tight deadline for tax season, make sure that he or she can meet that deadline. You need to make sure that the accountant you choose can give you the time that you need!

Does Your Accountants Proximity to Your Business Really Matter? Why Choose a Miami Accountant?

As the accountants’ relationship with clients often requires a continuous, ongoing exchange, it is important to choose an Miami Accountant that is easily accessible. However, due to recent technological advancements of communications, desktop sharing and remote access, accountants can more easily exchange information that previously required a physical presence that is no longer applicable.

 

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Business Trends

Free Accounting Software – CPA Not Included

Free Accounting Software – CPA Not Included

As a CPA in Miami, I know small businesses love to use QuickBooks. There are versions of QuickBooks which are even free. However, like the “batteries not included” disclaimer on toys, the CPA in Miami is not included with QuickBooks. In order to make informed business decisions with accurate accounting data you should hire Gustavo A. Viera CPA.

If you own a business, then at the end of the every month you mostly face the problems which involve bookkeeping and accounting. CPA provides bookkeeping and accounting services in Miami and support and employ professional qualified CPA. Accounting Miami CPA also complies with the preparation of financial statements, tax preparation and cost reports to regulatory agencies such as AHCA preparing Medicare Cost Reports.

With the advent of the internet, it has become easy to handle the accounting and bookkeeping task in an easy and simple way. That is of course assuming you have some basic accounting knowledge.

Don’t “Fire your CPA” just yet as the old QuickBooks advertisement used to tout. QuickBooks quickly reversed its advertising strategy when business owners flooded their tech support lines with basic accounting questions and their books in shambles. Intuit, the owners of QuickBooks products, quickly came out with an “Accountants Edition” of QuickBooks which allowed the business owner to send CPA in Miami an “Accountants Copy” for review at the end of the month.

CPA SERVICES:

  • Forward-looking
  • Supports in the decision making process
  • Prepares timely financial statements
  • Helps small business improve control functions
  • Highly automated using the latest management information systems

 CPA in Miami firms are traditional vs. innovative. Accounting Miami is all about:

  •  Our Miami Accountants are strategic partners in your organization
  • Our Miami accounting firm assist in decision-making of the organization
  • Our Miami accounting helps you with Risk Management

CPA services are not all alike. With tough economic times, small businesses have been greatly impacted. Saving a buck is always a good idea, but not when it comes to your accounting. We have seen so many businesses get bad advice that lands them in trouble with the IRS. The number of fraudulent tax preparation Miami has also risen with “tax services in Miami” promising huge refunds. What many people don’t know is that the income tax return is prepared fraudulently and you become personally liable when you sign it. These tax services in Miami try to walk away when they get caught. But the IRS is cracking down on the owners of these services and they’re putting them in jail. I applaud the IRS’s efforts to clean up the industry.

When hiring a CPA in Miami, consider if you want traditional vs. innovative practices in your CPA?

Please call us for a free initial consultation.

 

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Business Trends

CPA

Gustavo Viera is a licensed CPA in Florida since 1983. More than 25 years of accounting, tax and audit experience.

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Tax

CPA Firm in Miami Reasonable Salary for S Corporation Owners

CPA Firm in Miami Reasonable Salary for S Corporation Owners

Besides its single level of taxation as a pass through entity, CPA Firm in Miami  remind clients that the advantage of an S corporation over a C corporation is that a shareholder’s share of the corporation’s net income is not considered self-employment earnings and therefore is not subject to self-employment tax (13.3% in 2011 and 2012). CPA Firm in Miami VieraCPA notes the stark contrast to that of a general partner, LLC member, or sole proprietor, for whom net earnings from self-employment include any trade or business income and a partner’s distributive share of income from a trade or business carried on by the partnership according to CPA Firm in Miami , Gustavo A Viera.

However, if the S corporation shareholder (let’s say an CPA Firm in Miami ) provides services to the S corporation, he or she must receive an adequate or reasonable amount of compensation for these services. The S corporation may deduct the compensation expense and must pay the employer share of employment taxes: 6.2% Social Security tax and 1.45% Medicare tax. The shareholder-employee (i.e. CPA Firm in Miami ) is responsible for 4.2% Social Security tax (in 2011 and 2012) and 1.45% Medicare tax. The S corporation is also responsible for Federal Unemployment Tax Act (FUTA) taxes. Minimizing these taxes provides an incentive to keep the S corporation shareholder’s wages low and to characterize most of the pass through income as distributions.

The U.S. Government Accountability Office reported in 2009 on employment tax noncompliance among S corporation shareholders. The IRS has been pursuing this perceived abuse of inadequate compensation in favor of dividend distributions to shareholder-employees and has won a number of cases, according to CPA Firm in Miami VieraCPA.

According to CPA Firm in Miami VieraCPA, the IRS has the authority to reclassify dividends, distributions, or payments to the shareholder-employee, including loan repayments, as compensation if it deems compensation inadequate or unreasonable. The courts have held that the question of reasonable compensation is one of fact, determined on a case-by-case basis. The IRS has posted on its website three major sources of gross receipts it will consider when determining reasonable compensation: the services provided by the shareholder, the services of non-shareholder employees, and the capital and equipment of the corporation.

IRS fact sheet FS-2008-25, Wage Compensation for S Corporation Officers line an CPA Firm in Miami with Sub S status, lists the following factors in determining reasonable compensation: training and experience, duties and responsibilities, time and effort devoted to the business, dividend history, payments to non-shareholder employees, timing and manner of paying bonuses to key people, what comparable businesses pay for similar services, compensation agreements, and the use of a formula to determine compensation. Sources of information on comparable compensation for services include the U.S. Department of Labor’s Bureau of Labor Statistics, employment agencies, and a market analysis. The key in defending a claimed compensation amount is to document all research to support the amount.

Shareholders who are officers of a corporation who do not perform any services or perform only minor services in that capacity and who do not receive or are not entitled to receive direct or indirect compensation are not considered employees of the corporation. Thus, since most shareholder-officers of closely held corporations do provide more than minor services to the corporation, they most likely are considered employees. If a shareholder is an officer who is considered an employee, CPA Firm in Miami point to Section 530 of the Revenue Act of 1978, P.L. 95-600, does not apply as a safe harbor for re-characterizing the shareholder’s compensation because, under Sec. 3121(d)(1), corporate officers are statutory employees.

The S corporation entity form provides planning opportunities to avoid payroll taxes or self-employment taxes on distributions that are instead a return on capital and assets. With the increase in Medicare tax of an additional 0.9% for high-wage earners scheduled to begin in 2013, this may represent a larger opportunity. The key in defending against a possible audit and re-characterization of dividends is to document all research and analysis of the determination of the shareholder-employee salary.

 

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Business Trends

Accountant in Miami Avoids IT Meltdown

Just as many people rarely visit the doctor until they are sick or in pain, most Accountant in Miami have not made any major changes to its IT infrastructure — until one fateful day last tax season, when a system crash caused some lost data just as we were wrapping up tax season.

Too little, too late, some would say, but the Accountant in Miami VieraCPA managed to avoid major disaster weather-related problems through off-site hosting of its data and improved internal systems overall.

Accountant in Miami and its aging IT infrastructure, coupled with the real possibility of natural disasters due to its location in hurricane country, prompted the Accountant in Miami VieraCPA to begin a serious review on its current systems.

A WAKE-UP CALL

Prior to the incident in April 2012, the Accountant in Miami firm had decided that changes were needed to its systems, but with the firm and its clients still recovering from a recession, the investments were admittedly not made soon enough.

“What ultimately happened was we lost about 12 to 14 hours during the end of tax season, as well as some data,” explained Accountant in Miami VieraCPA. “We were backing up to tape before discs and the hardware went down. After that, we had a meeting and everyone decided we wanted a system as bullet-proof as you can make it. Everybody bought in, Accountant in Miami VieraCPA spearheaded and led it. When the recession hit, everyone decided to be more conservative, and at the time, it was basically if it wasn’t broke, don’t fix it. When this [incident] happened, times had gotten better and we were more confident in spending money, but we realized from this how vulnerable we really were.”

The IT department also realized that while some upgrades were being made at the time of the crash, prevention should have occurred sooner. Other issues also likely contributed, as Accountant in Miami recalled. “In 2008, we put in [storage area network] and virtual servers, and the consultant that did it for us recommended how we set it up and we expected at the time it would last three years before it would need more space. That was around when [the crash] hit,” he said. “We didn’t understand enough about how they were setting it up.”

Accountant in Miami agreed that while some investments were made to upgrade the system, there was limited understanding of what was really needed for the growth of the firm. “A year before things went down, we had discussed a way the system reserves space. We were looking at not only the space the data was taking up, but what VMware could do to replicate and reserve space,” she said. “We didn’t have the understanding of the space required to do all this, and when the time came to invest in more space, the firm decided to back off because it was fairly expensive and we were in a recession. Because there were no issues, we thought we could tackle it after tax season. Then the tape backup died and we didn’t have enough snapshots. I was doing manual backups until the early hours of the morning weeks before [the crash].”

The Accountant in Miami also now has document management, CRM and client portals in the cloud, but ultimately it would like all staff to be more mobile and able to work more virtually, with all necessary tools and files accessible from wherever they are.

 

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Business Trends

Accountant in Miami Advises How to Respond to IRS Business Audits

I can’t think of a business in America that welcomes an IRS Business Audits with open arms

IRS Business Audits for most, it is a highly stressful and worrisome time. But as an Accountant in Miami I can share some commonsense steps, gleaned from my 27 years of experience, which small and medium-sized businesses should take if served with an audit notice to make the process as easy as possible.

The IRS Business Audits Focus

Knowing how to respond to an IRS Business Audits is all the more important, especially considering the increased focus of the IRS on wealthier individuals, who often are owners of small and medium-sized businesses. These businesses tend to be organized as pass-through entities.

On individual returns, the IRS is increasing IRS Business Audits of wealthier individuals. Its coverage rate of households with over $1 million in income has increased from 5.57 percent in 2008 to 12.48 percent in 2011. While the overall number of audits has gone up significantly, it is important to keep in mind the increased coverage rate also reflects a notable decrease in the number of returns received claiming more than $1 million in income—from 392,000 in 2008 to 291,000 in 2011.

Accountant in Miami Gustavo A Viera, CPA notes the primary areas of interest for IRS Business Audits include transfer pricing, offshore accounts, passive activities/hobbies, executive compensation and employee status (such as independent contractor). Responding to studies on the tax gap, the IRS also remains particularly concerned with unreported and underreported income. Businesses with a high volume of cash transactions and no third-party reporting also are garnering a good deal of attention.

Over the last couple of years, I have met on a number of occasions with senior IRS official—especially those with the Large Business and International Division. The meetings were most constructive and some readers may be surprised to know the IRS senior management has considerable interest in running the exam process efficiently. Based on discussions with the IRS, as well as from ongoing representation of hundreds of businesses before the IRS that our Accountants in Miami have handled, the following best practices will help you navigate the IRS Business Audits process.

A Better Result from an IRS Business Audits

1) Assemble your team. Immediately upon receiving a notice of an exam or review, bring together your key internal employees, gather relevant documents, and involve your CPA or other Accountant in Miami. An untimely or unprepared response—especially at the first meeting—can leave a negative impression and affect the tone and tenor of the entire IRS Business Audits.

2) Mutual respect. IRS agents have a difficult job. It is only natural that treating IRS employees with professional courtesy will make the IRS more likely to respond in kind. Also, they will be more likely to listen with open ears to better understand your take on the matter.

3) From the get-go, establish the scope of the examination. This is key. The IRS, to its credit, has embraced the concept of using an opening dialogue to discuss the framework for the IRS Business Audits. This is good news and can go far in preventing surprises or unwanted detours during the exam.  Business owners and their counsel should embrace this opportunity.

4) Meet deadlines. The IRS will want to establish deadlines for production of information and material. It is a balance for the business owner. The desire for the exam to be in the rear-view mirror should not cause the setting of unrealistic deadlines. Missing a deadline potentially could have significant ramifications on a timely completion of an audit. The IRS examiner may have to reschedule your review for a day further down the road. Given the current environment of budget cuts and bigger workloads, the IRS is facing very real resource limitations. That’s why the IRS will be working very hard to get the job done on a tight schedule.

5) Document production and interviews. Organize and label documents. Personnel should be knowledgeable and well prepared. Dumping irrelevant documents on the agent or stonewalling the agent with people who can’t provide the necessary information is not in your interest.

6) Conduct your own review. I have seen businesses have great success in an audit when they go beyond what is required by the IRS. For example, work with your tax professionals to engage in a thorough scrubbing to see if tax credits or incentives not previously taken (or fully taken) by the business can be raised. This scrubbing during the exam process can result in actually receiving a check from the Treasury.

7) When necessary, see the manager. Ask to meet the agents’ manager to resolve a question of law or fact. To its credit, IRS senior management actively encourages business owners to go up the chain of command to seek a resolution.

8) Mediation and arbitration. The IRS has significantly expanded the opportunity for taxpayers to seek a resolution through mediation and arbitration.  While it is more art than science as to when it is appropriate, mediation and arbitration are great avenues to consider for solving a problem.

9) Appeals and litigation. From the moment you receive an audit notice, be aware you may have to seek a resolution either through mediation, arbitration, IRS appeals or even litigation. This means having a clear record of what facts were provided to the IRS and also ensuring the legal issues have been properly developed and put forward.

Small and medium-sized business owners need to know the IRS is stepping up its activities in this sector. While it’s never a walk in the park, taking an engaged approach throughout an IRS Business Audits will greatly improve your chances of a better outcome.

 

Categories
Tax

Amended Return Will Not Trigger IRS

Tax Preparers state that filing an amended return generally do not increase their chance of being audited, an IRS manager said on October 19. Gustavo A Viera, Accountant in Miami, said it depends on the amended return and what is being amended but, that, in his experience, an amended return does not automatically trigger an audit. The IRS probably does not have the resources to audit every amended return.

If a taxpayer is chosen for an audit, Viera explained, it is better not to file an amended return after the audit starts. Chances are that the audit group will not get the amended return, and the filing will create confusion, he said. It is better to discuss any proposed change with the revenue agent conducting the audit, Viera said.

Most audits come through referrals or projects, according to Viera. The IRS does not conduct many random audits, Viera added. Referrals are reviewed by a group of managers, who decide whether an audit is appropriate. Viera indicated that the IRS conducts additional research when it receives a referral before opening an audit and does not take referrals at face value.

The most common issues that come up in audits include unrelated business income, employment taxes, intermediate sanctions, unfiled returns, revocation of the exemption and termination cases. The office conducts a lot of employment tax audits, Viera noted, and may request an IRS specialist to help out.

Viera primarily deals with large tax audits, involving taxpayers with $250 million or more in assets. An audit team of several agents will conduct the audit. The team may include specialists in areas such as employment taxes or tax-exempt bonds. In a large case audit, the IRS issues a Notice of Proposed Adjustment (NOPA) for every issue that it is contesting.

General program audits are conducted by a single agent, Viera said. IRS pointed out that, in these audits, the IRS provides a revenue agent’s report (RAR), rather than a NOPA. IRS indicated that some matters may show up in a NOPA that would not make it into an RAR.

Viera said that revenue agents prepare for an audit by looking at what triggered the audit, looking at the taxpayer’s website, conducting Internet research to look for articles on the taxpayer, and studying the organization’s Form 990 information return. The agent will focus on what the organization does and whether its activities have changed since it began and will scrutinize the numbers on the form.

IRS noted that an organization’s general counsel periodically will peruse its website to check on the accuracy of information provided and claims being made. Particularly for advocacy organizations, such as Code Secs. 501(c)(3) and 501(c)(4) organizations, it matters what is on the website, and the organization needs to take responsibility for it, she said.

The IRS issues information document requests (IDRs) to obtain information and documents from a taxpayer under audit. IRS said that some IDRs are clear; others may be overly broad; and responding comprehensively may be burdensome. She suggested talking to the IRS if the taxpayer has a problem with the IDR.

Viera said that open communication between the IRS agent and the taxpayer is important; if the taxpayer has a problem, talk to the agent or the group manager. Viera pointed out that, if he requests a particular document, there is probably an issue lurking behind the request and that, eventually, hhe will want to discuss that issue with the taxpayer. IRS asked about standardized IDRs. Viera replied that he stays away from that. His IDRs are very focused, with one issue per IDR.

In a team exam, taxpayers and the IRS attempt to resolve issues as the audit is being conducted, according to Viera. In a general program audit, attempted resolution may not come until the end, at a closing conference, she indicated. Viera said that an issue should not be a surprise. A taxpayer who is unclear about the issues should ask the agent, and the agent should identify the issues.

The IRS will generally assess penalties if the taxpayer owes additional taxes, Viera said. The IRS puts the taxpayer on notice, and gives the taxpayer an opportunity to argue good faith and reasonable cause. He added that the IRS tries to be reasonable and noted that, if a taxpayer makes an error and confesses, the IRS may be more lenient on penalties.

Some audits terminate with a closing agreement, but these can be time-consuming, Viera said. The IRS will try to resolve the audit through the revenue agent’s report, rather than a closing agreement. However, fast-track mediation is faster than the normal process and may involve an expedited closing agreement.

If the issues are not resolved, the taxpayer can file a protest and ask IRS Appeals to look at the case. The IRS agent will read the protest and may file a rebuttal, Viera added. IRS said that the taxpayer should get a copy of the rebuttal, but the IRS does not always provide it.

Viera said that, if the IRS has enough information on an issue, it will take an aggressive position in the audit. Issues do not just go away.