Categories
Medicare

How to Start a Home Health Business in Florida

How to Start a Home Health Business in Florida

Home health businesses (HHA) provide health care to home-bound seniors and the disabled. Home health aides, nursing assistants, registered nurses and directors play a vital role in assisting the home-bound population. Since the elderly and disabled are vulnerable, states such as Florida have rigorous licensing requirements for home health business. But if you are motivated, caring and have strong financial backing, you may succeed in the home health care business.

Instructions on How to Start a Home Health Business

    • How to Start a Home Health Business, Find a location first. According to the Florida Agency for Health Care Administration (AHCA), a home health care business can’t be located in a private residence and the building must be zoned for a business.
    • Write a business plan. AHCA requires one for licensure, which must detail employee and consumer recruitment, services provided and a financial plan approved by a Certified Professional Accountant (CPA). The AHCA also requires enough money or credit to fund the agency for its first three months.
    • Buy malpractice and liability insurance. For each service provided, the AHCA requires $250,000 of coverage.
    • Hire an administrator, alternate administrator, director of nursing and financial officer. Before you can submit an application, these positions must be filled by persons who meet AHCA’s standards. For more information on these requirements, see the Resources section.
    • Submit a completed application to the AHCA. The application must include background checks for both owners and employees, an affidavit of good moral character and evidence that vital personnel met the state’s standards. For an application and in-depth explanation of the requirements, see the Resources section.
    • Hire nurses and home health aides who meet federal Medicare and Medicaid training requirements. Both Medicare and Medicaid are federally-funded health programs for the poor, disabled and elderly. Most people who use home health services are insured under these programs. For more information on training requirements and becoming a Medicare or Medicaid provider, see the Resources section.

 

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Accounting

What is a CPA?

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CPA

What is a CPA?

A Certified Public Accountant Miami or CPA Miami is a special type of accountant. Officially it’s the title of someone in the United States, who has passed the Uniform Certified Public Accounting Examination and has met some additional state education and experience requirements to get this certification. This test is grueling and requires upwards of 150 hours of special education and Accountant Miami complies and reports it’s CPE to the Florida Board of Accountancy.

But what does this mean to you as a small business owner in Miami. Do you need a Miami CPA or will a regular Miami Accountant or even a Miami Bookkeeper be sufficient for your business?

Most people use the term CPA and accountant interchangeably but there is a very big difference. The CPA designation carries a lot of weight within the financial community and certainly within the accounting profession.

Services Provided By Accountant Miami:

In public accounting, those accounting services provided to a business on a contract basis, a CPA attests (to a financial audit) and gives assurances that financial statements are reasonable and accurate and adhere to generally accepted accounting principles (GAAP). They also attest to the reasonableness of disclosures and that statements are free from “material misstatement”.

As a Miami Auditor, a CPA is required by professional standards and Federal and State laws to maintain independence from the entity for which they are conducting a financial audit and review, often called a Financial Audit.

Our Miami Consulting Service, advises companies on acceptable business practices and making recommendations on financial management. Typically these consultants do not work as auditors for a company at the same time they are acting as consultants.

As part of the certification, our Miami Accountants must complete 40 hours of continuing professional education (CPE) every year to keep up with the new rules and regulations in the financial, accounting, and business world. This is proof of the high level of expectations of the accounting profession for a Certified Public Accountant in Miami.

Our Certified Public Accountant in Miami belongs to the Florida Institute of Certified Public Accountants (FICPA) and American Institute of Certified Public Accountants (AICPA) with the goal of keeping up to date with the accounting community and taking continuing education classes. Of course tax laws change frequently and our Miami Accountants will spend time staying abreast of changes in financial areas. As a member of a local association they have access to the latest thinking and rules in the accounting area.

Why You Need A CPA

If for no other reason than Tax Planning it’s good to have the advice of a Tax Accountant. And as far as business management and financial advice access to a good Accountant in Miami is very desirable.

But does that mean you need a CPA?

In general you can assume that anyone who has taken the time to get certified as a CPA, and maintain that certification, is at the upper levels of the skill set, our Miami Accountants certainly are. It’s a clear credibility booster to be a CPA. If your business can afford the best than our CPA in Miami are worth the money.

But does that mean they are better than a typical accountant. Of course not. But it does indicate a level of commitment that is worth considering. Certainly if legal proceedings are required, the assurance of a CPA will hold more weight than a typical accountant. Again much depends on the reputation of the CPA in the community as well. Certainly an audit by a CPA has an implied level of credibility. Not to mention a non CPA cannot perform financial audits by law.

Our Miami CPA Firm does much more than financial audits these days. We provide consulting and overall financial planning not only for small and large businesses but also for estate planning, investments, and strategic planning.

So if you want to run your business at the highest level you certainly want to consider hiring a Certified Public Accountant like the ones at Accountant Miami.

 

Categories
Medicare

How to File a Medicare Cost Report

How to File a Medicare Cost Report

CMS and AHCA require Home Health Agencies (HHA), Hospice, Hospitals, and Renal Facilities to file an annual Medicare Cost Report and or Medicaid Cost Report.

GENERAL INSTRUCTIONS

Federal/State program administered through the State of Florida Agency for Health Care Administration (AHCA). Each provider participating in the Medicaid or Medicare program shall submit a uniform Medicaid Cost Report and or Medicare Cost Report and related documents required by the Florida Title XIX Long-Term Care Reimbursement Plan (Plan). For Medicaid Cost Report and or Medicare Cost Report periods ending on or after December 31, 2003, cost reports must be filed using “SEXTANT”, the October 2003 Electronic Cost Report (ECR); the October 2003 Chart of Accounts; and instructions provided by AHCA. Further, this Medicaid Cost Report and or Medicare Cost Report must be filed within the timeframe specified in the Plan. All required schedules MUST be completed or marked N/A. Note that Schedules I, J and J-2 are only required for providers on cost or payback reimbursement.

Limited amounts of supplemental supporting documentation can be added to the Notes Schedule provided within the ECR. Additional supporting documentation or attachments may be mailed to the address provided below. All additional information and documentation, whether on the Notes Schedule or mailed separately, must be referenced to the applicable cost report schedule.

The provider of the Medicaid Cost Report and or the Medicare Cost Report home office cost report must each stand-alone. Do not indicate, “see home office cost report” on any schedule in lieu of completing the schedule.

All schedules must be completed with all applicable information each year. Do not reference a prior year report as containing the information requested in lieu of completing the schedule in the current year cost report.

In addition to submitting the ECR as per the instructions in Appendix B, one hard copy of the cost report, the certification page, supplemental schedules and attachments, and accountant’s compilation reports must to be sent to:

Agency for Health Care Administration

Audit Services 2727 Mahan Drive, Mail Stop 21

Tallahassee, Florida 32308

The recognized Medicaid Cost Report Medicare Cost Report will be determined by utilizing the accrual method of accounting in accordance with generally accepted accounting principles (GAAP) as established by the American Institute of Certified Public Accountants (AICPA), the methods of reimbursement in accordance with Medicare (Title XVIII) Principles of Cost Reimbursement, the Centers for Medicare and Medicaid Services Provider Reimbursement Manual (CMS Pub. 15-1) except as modified by the Florida Title XIX Long-Term Care Reimbursement Plan, and State of Florida Administrative Code.

INPUTTING COST REPORT DATA

The input worksheet is where the bulk of the cost report data will be entered. Enter text using proper case; please do not use all capital letters. Enter whole numbers only unless the input number is a percentage. Enter a percentage in decimal form (i.e. input .047635 for 4.7635%). Debits are entered as positive numbers and credits are entered as negative numbers unless otherwise specified.

Patient days input fields cannot be left blank; these include In-House Patient Days; Reserved Bed Days; Holding Bed Days; and Skilled, Intermediate I, and Intermediate II Medicaid Days. When appropriate it is required that zero be entered.

Other input worksheets that require the input of data are designated with a “(W)” on the worksheet tab (such as, Cover (W), B (W), K (W) or L (W), etc). “See attached” is not considered valid for Electronic Cost Reporting purposes.

Input areas have cells with a light yellow background. When a choice is required, a brown background is used with a dropdown box. Clicking on the arrow to the right of the dropdown box allows for an appropriate selection to be made. (Appropriate selections must be made from the dropdown box to avoid a validation error).

When data is entered on the input worksheet, the appropriate schedule changes can be reviewed by clicking on the schedule tab. Many schedules have validity checks built into the system. In some instances, an error message may appear on the applicable schedule to the right side of the row being checked. In other circumstances, validation checks are a part of the applicable schedule.

When data input is completed for the entire Cost Report, the “VALIDATE” tab should be referenced to locate any remaining exceptions noted. Sextant currently checks for more than 190 different potential exceptions to the Medicaid Cost Report or Medicare Cost Report.

Certification Page:

The Provider may use the “optional Medicaid Cost Report or Medicare Cost Report identifier” for internal tracking purposes. If the cost report is prepared in house choose “yes” in the dropdown box; otherwise, choose “no” in the dropdown box.

Enter the name of CPA (or CPA firm) responsible for preparation of the cost report.

Enter the CPA (or CPA firm) license number. If not a Florida CPA identify the state of licensure.

Please contact us for a complete how to guide on how to prepare a Medicaid Cost Report or Medicaid Cost Report

 

Categories
Accounting

Outsourcing Accounting Services is an Investment for Your Small Business

Outsourcing Accounting Services is an Investment for Your Small Business

As a small business owner in Miami, you want to make investments in your business; outsourcing accounting services in Miami will do that just that. QuickBooks is a great accounting software program, but unlike what most people think you need to have basic accounting skills. As a Miami Accountant I see it all too often, garbage in – garbage out. Our Accounting Services in Miami are your virtual accountants that can help you keep your books straight and accurate. Our accounting services in Miami will also save you money and help you better the bottom line of your business. Accounting Miami Firms are not all the same. Accounting is something that you need to outsource, so do not try to do it yourself. Look at how Accounting Miami is actually an investment for your business.

Use Accounting Services that are Streamlined:

With all the options out there, small business owners have choices. Outsourced accounting services, are becoming more and more popular today. You will find that there are easy ways to get information online and you can have your documents submitted electronically. You will also be able to easily communicate through email, Share Point sites, and know that you will be able to get it done so easily. Make sure that you are looking at these streamlined Accounting Firms so that you can get your accounting done quicker and easier.

Save Money with Accounting Services Miami:

People do not realize or comprehend the amount of money that you can save by outsourcing your bookkeeping and accounting services in Miami. You are going to be able to pay someone by the hours that they actually bill instead of paying them a salary. Outsourced accounting services in Miami is going to save you a ton of money and are going to be an excellent way to save you cash by not hiring someone in your office that requires extra pay for when the accounting is slower. You will find that just in the recruiting, training, and advertising for a new employee that you will save a ton of money just outsourcing your accounting.

Access Accounting Services that Corporations are used To

The hard part about hiring accountants in house is that you just do not get the best of the best. Those accountants require a higher salary and generally end up in the hands of a corporation that is much larger. What you will find is that with Accounting Miami, you will be able to take advantage of a team of accountants and CPA’s, which are more like what a large corporation gets. Get talent and do not pay the extra cash that you would generally have to shell out for.

Accountability and Liability

If there is an error in your books and you do it yourself, it is your fault. Instead, what you will find is that when you outsource accounting you take the liability out of your hands. You want to have someone else to blame if there is an error and even though a team of professionals does a great job if they make an error, they are to blame for it. Be sure that you are looking into Accounting Services in Miami and getting what you need to have quality accounting completed for you that is error free.

 

Categories
Business Trends

Moving Out of the Home Office — Four Tips for Growing Businesses

Moving Out of the Home Office — Four Tips for Growing Businesses

Did you know that an astonishing 52 percent of small businesses are based out of a Home Office? That’s according to the SBA’s Office of Advocacy.

As a CPA in Miami, I’m aware that a Home Office based business must have numerous advantages for many business models, and for businesses of different ages.  For example, during the start-up phase it represents a low-cost and low-risk avenue for conducting business. However, a home office has its limitations. Small business owners often find that they are not cut out to work from home, or they’ve found their enterprise growing and need to hire employees, or they simply need a more professional space in which to conduct business.

But how do you make a seamless and cost-effective transition from a Home Office business to a professional office space? Here are some best practices to consider as you expand beyond your home-based business environment.

Outsource Accounting Services

As a small business owner in Miami, you want to make investments in your business; outsourcing accounting services in Miami will do that just that. QuickBooks is a great accounting software program, but unlike what most people think you need to have basic accounting skills. As a Miami Accountant I see it all too often, garbage in – garbage out. Our Accounting Services in Miami are your virtual accountants that can help you keep your books straight and accurate. Our accounting services will also save you money and help you better the bottom line of your business. Accounting Miami Firms are not all the same. Accounting is something that you need to outsource, so do not try to do it yourself. Look at how Accounting Miami is actually an investment for your business.

Assess Your Home Office Budget

If you are considering a commercial property lease, make sure you have a clear sense of your Home Office vs Commercial Lease budget on a per-square-foot basis. Ask yourself how many offices, cubes, or workstations you’ll need, now and in the future. If you anticipate further growth, preempt the need for multiple moves by looking for a building that has extra space you can expand into should you need it.

Your budget should also include cost estimates for furniture, utilities, and IT needs. Don’t go overboard though; as you transition from home to an office, invest your resources wisely. One option is to rent office furniture and equipment, or buy government surplus equipment (a little known but very cost-effective way to equip your business.) Alternatively, you may want to introduce a hot-desking policy or shared office space. This will allow employees to literally share a “hot-desk” on a rotating basis. So if one employee is teleworking or taking flex time, another employee can use the same desk space.

Consider Serviced Offices or Suites

A great option for making the transition from a home office to a professional environment is to rent a serviced office or executive suite. Usually located in busy business districts, these premises are fully equipped and managed by a facility management firm. The rental agreements for these spaces are often more flexible than commercial leases and also give you the option of easily scaling up if you need to. Typically a serviced office broker can help you locate the right space.

Decide on a Location

Deciding on a location for you new office or retail outlet will take some research. You want your presence to be felt, but you also want to make sure you’re visible and within reach of your target customers. If you are in the retail service industry, having a store concept or design in mind is also a good idea; this will help you pitch your business to commercial leasing companies seeking the “right kind of tenant” for their property.

Update Your Business Regulatory Paperwork

When you relocate your business to a new city, county, or state you’ll need to update several key business requirements. For example, both your business licenses and permits and your “Doing Business As” name (DBA) filing will need to be updated with your local government.  Visit the Incorporating and Registering Your Business page for more information on how to re-register your business in a new location. If you move to a new state you’ll also need to understand your new city/county tax requirements, as well as notify your previous state of your move. Find links to your state revenue office here.

Categories
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!

 

Categories
Accounting

The Power of Virtual Accounting Services

The Power of Virtual Accounting Services

As an Accounting Services Miami provider we’ve seen the coming to age of cloud computing has brought about a large number of commercial opportunities and efficiencies available to the business community, particularly small and medium enterprises (SMEs). One of the opportunities and efficiencies is virtual accounting services in Miami or, as some protagonists like to put it – cloud accounting is one of the strong emerging service offerings. What started as a theoretical computing possibility is indeed a reality today.

Accounting services have progressed from the days when it was considered a specialized and an awkwardly difficult task, fraught with illogical principles that undermine business freedom. Accounting software packages such as QuickBooks and Peachtree have made very useful contributions in reducing the difficulty of day-to-day accounting, but these accounting software programs appeared to add to the learning curve and accessibility is limited to the computer system that they are installed on.

Some rather slick and simpler solutions accounting services are emerging in the market based on cloud computing principles. The ability to access your books of accounts and useful performance reports at anytime and from anyplace with internet connectivity and the simplicity of use that virtual or cloud accounting solutions bring has accelerated the uptake. Users are instantly amazed at how easily they have been able to manage their books with the part time assistant of an Accounting Services working remotely. This brings additional opportunities of efficiency and reduced errors.

Mr. Viera, managing partner of Accounting Services Miami provider states “clearly, the economic benefits of virtual accounting services

Significantly outstrip its costs by several multiples. Like most shared services, the installation, support and maintenance costs are spread across the number of users bringing the unit costs down over time”. The commoditization of accounting services as an anytime and anyplace service has been helped in no small measure by advances in telecommunications. Significant improvement in wired and wireless communication bandwidth, the ubiquitous WIFI access and the smart phone revolution, have made virtual Accounting Services the best solution for SMEs.

Whilst technology and the growth of personal wealth have delivered a range of possibilities, it is not an excuse for carelessness. Accounting Services is no less a serious matter than it was 50 years ago. Diligence is still required to ensure that accounts reflect a true and fair view. The level of regulatory scrutiny and the keenness of tax authorities to grow national revenue in the challenging economic circumstances of today cannot be over emphasized. Users of virtual accounting services in Miami must ensure that their records are accurate and complete. At Accounting Services Miami we maintain an eye on your books monthly to ensure accurate and timely reporting.

Simple steps to harnessing such strengths include:

1. Using reminders to plan their accounting and administrative tasks including invoicing, bank reconciliation and updating the books account.

2. Using the invoicing and chaser facilities (e.g. email reminders) on virtual accounting solutions to manage their business operations and working capital.

3. Accessing their account reports regularly either directly or through part time accountants to ensure that the books reflect what they expect.

4. Regularly using the various reports and aids e.g. working capital ratios, sales and profit graphs, that virtual accounting solutions instantly generate to make business decisions

5. Utilizing the account closure and financial statement generating facilities and tax filing plug-ins to generate their accounts for regulatory and tax filing purposes.

6. Keep your password strong, safe and secure

7. Don’t go it alone. Hire our Miami CPA Firm to assist you. Unless you have a bachelor’s degree in accounting, you’re going to run into trouble. Fixing the mess cost more than maintaining it on a regular basis.

The simple steps help ensure that business are well controlled and that regulatory and your CPA will ensure tax preparation obligations are met in a timely manner.

Overall, the virtual Accounting Services promise appears to have been delivered.

Have you been having trouble finding a cost effective solution to address your accounting, payroll and tax needs? Would you like to improve company’s control over your regulatory obligations and financial performance monitoring? Are your accounts in order and are you compliant with the array of regulatory requirements? How would you like to have 100% access to your up-to-date accounts and statutory information anytime, anywhere at the click of your mouse? Visit http://quickbooksonline.intuit.com/finance-accounting-solutions  for a FREE 30-day trial of QuickBooks Pro accounting software.

 

Categories
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.

 

Categories
Accounting

Miami Accountants Miami Accounting

Miami Accountants aka Miami Accounting

Miami Accountants aka Miami Accounting is concerned with the provisions and use of accounting information to small business owners, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their accounting Miami small business control functions.

In contrast to other Miami Accountants information is:

  • Forward-looking for an Miami Accountants
  • Model to support decision making vs. just looking at historical after-the-fact financial statements
  • Designed and intended for use accounting small business to improve control functions.
  • Miami Accountants responds to the needs of small business, using management information systems

Miami Accountants firms are traditional vs. innovative

According to most Miami Accountants, accounting processes is mostly about the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Miami Accountants also complies with the preparation of financial statements for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities such as AHCA Medicare Cost Reports.

Miami Accountants recently updated its definition of its accounting practice as follows:  “Accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy.”

Our Miami Accountants extend best practices to the following three areas:

  • Our Miami Accountants are strategic partners in your organization.
  • Developing our accounting firms practices to assist in decision-making and managing the performance of the organization.
  • Risk Management contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.
 When hiring Miami Accountants, consider if you want traditional vs. innovative practices

Please call us for a free initial consultation.

 

Categories
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.