All Entries in the "Accounting & Finance" Category

Seven Reasons to Outsource Your Accounting Practice

In today’s high-stakes business environment, companies outsource some operational functions to save time and money. As one of the first processes to be widely outsourced, accounting procedures continue to be released from in-house operations at an epic rate. This is because outsourced accounting practices can save money and time, and offer unwavering peace of mind to managers. As a business consultant, company owners often ask me whether they, too, should make this switch.  My answer, consistently, is, “Absolutely.”

I’ve seen various types of companies benefit as a result of outsourcing. Some business owners, however, are still unsure if the practice is right for their company. While there are many factors to consider before making the switch, below are a few reasons why outsourcing your accounting practice could be a smart business move for your company:

• Reduce overhead costs and increase efficiencies. Due to thespecialized nature of the work, several employees are often needed to operate in-house accounting. In addition, accounting procedures may require businesses to hire additional personnel for task separation and internal control. Outsourcing proves effective at reducing overhead because it eliminates the need for extra benefits, training, office equipment, down time and taxes, just to name a few.

• Improve budgeting practices. Does your budget need to be refined? Companies that deliver outsourcing services provide expert advice on future planning and money management. Oversight from outside experts can help you identity financial problems before they occur and ensure the financial viability of your company.

• Improve cash flows. Do you run a successful business but sometimes struggle to pay the bills? Cash shortfalls can be stressful, but outsourcing can allow your business to take advantage of everyday accounting practices to help manage cash shortfalls. For example, a professional accountant can improve your cash flow by skillfully delaying disbursements while aggressively pursuing unpaid debts.

• Save time and get convenience. How much time has your accounting team wasted trying to solve a complex (or simple) accounting problem? Have you or your senior management team ever spent time bookkeeping? Let the experts take care of the accounting and free management to tackle the duties in their job descriptions. Outsourcing allows you to stop wasting valuable time on accounting and focus on business strategy.

• Receive sound advice. As opposed to hiring a “general” bookkeeper, outsourcing provides an opportunity toalign yourself with a professional who has experience with your type of business. Companies that provide outsourced accounting services employ knowledgeable personnel with expertise in every area of accounting. Accordingly, you will have access to individuals with specialized knowledge to fit your specific accounting needs.

• Expand staffing flexibility. As mentioned earlier, your time is better spent selling your services or product than it is working on the accounting. This is also true for your senior management.  Outsourcing allows you and management to focus on developing new business opportunities rather than tackling day-to-day tasks within the company.

• Get real-time access to your data. A dedicated accounting company will be able to assist in timely decision-making through technology. For instance, cloud-based accounting applications give you access to up-to-the-minute financial records on a web browser. The use of technology offers easy access to data, aiding day-to-day and strategic decision-making.

While outsourcing accounting procedures offers many advantages, it is important that companies making this move have a thorough understanding of their provider’s reputation, security practices and areas of expertise. In addition, companies must remain vigilant and not entirely surrender control of their accounting practices.

Many companies are benefiting from the rewards of outsourcing their accounting. As this practice continues to grow and the workforce becomes accustomed to its convenience, the prevalence of outsourcing accounting procedures may offer yet another reason for companies to take advantage of the benefits it offers.

THE IMPORTANCE OF “FIRST IMPRESSIONS” Getting a Company Ready for a Financing or Sale

While the cliché, “You only get one chance to make a first impression,” rings true in the social context, the phrase is also true in the business world where the stakes can be much higher. If you are applying for a bank loan, seeking capital from equity investors or considering a possible sale of your company, it is critically important that your business documents are complete and that you respond promptly to requests for information.

 
Seeking financing or preparing a company for a potential sale will vary by industry and the type of business. In any case, the starting point for a business is to make a strong first impression because any well advised lender, investor or potential buyer will undertake a thorough “due diligence” review of the company before they make a final decision to lend, invest or buy the company. The key is to be pro-active in preparing for an external review because the outcome will have a profound impact on the terms, price and sometimes, whether the transaction closes at all.

 
There are two elements that shape the impression you make in responding to a due diligence request. First, is the quality and completeness of the information and documentation you provide; and second, is how long it takes you to respond. A complete and well organized response is expected, but even a thorough response can create a negative impression if it takes too long to pull together the requested information and documentation. Conversely, a thorough and timely response to a due diligence request can create a positive first impression that may help to temper at least some types of negative issues that might be raised by the substance of your response.

 
Among the most frequently overlooked items that a business owner should have at the ready prior to a due diligence review by others, and which have universal application to every industry or type of business include the following:

• Signed Copies of All Important Agreements: Every company has agreements that are critical or at least material to its operation and financial success. These often include real estate and equipment leases, documentation of existing credit facilities, distribution agreements, licenses and employment-related agreements. Make sure all current agreements are complete and signed by all the parties, and attach any exhibits referred to in the agreements.

• Complete Documentation of Ownership of the Company: Although there is rarely a doubt in the minds of the owners regarding ownership of the company, in a surprising number of cases, producing the legal documents to substantiate ownership can be a problem. The issuance of stock must be approved by a vote of the Board of Directors. Once stock is issued, the original owner and all stock transferred by the original owner should be documented in the company’s stock transfer records. If there are restrictions on transfer in the charter, bylaws or a stockholder’s agreement, a waiver of transfer restrictions should be on file. If stock has been issued without the proper approvals or there are gaps in the stock records, this could be an indicator of a potentially expensive dispute or litigation in the future.

• Employment Matters: Are the company’s service providers properly classified as employees or independent contractors? Improperly classifying service providers can lead to expensive problems, including civil fines and liability for failure to pay withholding taxes, penalties and interest. Also, if your company has intellectual property that is material to its operation and success, all service providers should be required to sign confidentiality agreements and, in some cases, assignment of developments agreements.

• Qualification to Do Business: Virtually all companies are required to file annual reports in the state in which they are organized. If they do business in other states or foreign countries, they also may be required to qualify to do business in those other jurisdictions. Failure to file annual reports in the state where you are organized can result in administrative dissolution of your company. Although there is a procedure for reinstatement, being administratively dissolved for failure to file your annual reports makes a profoundly negative statement about how the company is run. Failure to qualify in another state or foreign country can also give rise to civil penalties and disqualification from use of the courts in that jurisdiction. That could be important if a major customer fails to pay you and your company decides to sue to recover what is owed.

These four points are not an exclusive listing of areas that need to be addressed. Rather, they are common problems that come up in due diligence reviews. For a more exhaustive due diligence checklist of the type you might expect to receive in an equity financing or an acquisition, consult with your attorney.

Minding Your Own Brand: How Low Can You Go?

While judging a freshman business plan competition at a local university, I noticed a pattern. Each of the student groups said they were developing a premium brand, but they would use a low-cost penetration pricing strategy. Even though they were often selling at a loss, they explained that by entering the market as the low price leader, they would gain market share, people would fall in love with their product and they could raise their prices once they had built customer loyalty.

I could not think of any company that after entering the market with low-cost pricing, went on to be a dominant premium brand and could command an above market price. So, as a judge, I reminded them that “using this logic, they will develop a commodity level brand with very little loyalty and being a commodity is a hole few companies could ever hope to dig themselves out from.”

I know what you’re saying, “They are freshmen and have a lot to learn about business.” Hopefully these students have learned from this and will think differently when it really counts. However, this flawed thinking is not reserved for the business school novice because most companies can’t get it through their thick skulls that a low-cost pricing strategy doesn’t work and does not build customer loyalty.

Big box store “low-price guarantees” are creating a marketplace full of people who are fixated on price. Customers are no longer loyal to most brands and will switch from their “favorite” brand for a few pennies. These customers are loyal to low-price, not a particular brand. Because loyalty cannot be based on price, I would much rather see a company say that they were 10% higher than their most expensive competitor and then prove that they are well worth the price. This is a better positioning strategy than to bow to the unprofitable pricing practices that the current marketplace demands.

The only companies that have escaped this madness are the ones that realized a low-cost pricing strategy will never lead to long-term brand success. Once they stopped worrying about how competitive their price is and started focusing on their brand experience, they avoided being a low-cost provider and had a better chance at gaining customer loyalty. By doing this, they are seen as a premium brand which attracts true passionate advocates and builds a lasting relationship with their customers.

Customers will not become loyal advocates if you have lured them in with a low-cost pricing strategy. The only true way to build advocacy is to find a unique way to stand out from the crowd by providing extraordinary brand experiences. Unless you provide an extraordinary brand experience, customers will see you as a commodity and will lack brand passion. Advocacy only comes from people who create a true relationship with the brand and that loyalty is priceless.

Understand the Benefits of Permanent Life Insurance.

Permanent life insurance can provide you and your family with longstanding benefits that ultimately provide a greater sense of protection and financial security. Here’s an overview of the ways that a permanent life insurance policy can be a valuable option for you and your family.

While the primary purpose of life insurance is to protect loved ones in the event of your death, permanent life insurance offers other financial benefits that may be extremely helpful with everyday expenses. One of the larger financial perks of purchasing a permanent life insurance policy is the cash value accumulation component, which guarantees[1] cash value accumulation on a tax-deferred basis. This cash accumulation is often referred to as a “living benefit” since it is a benefit you can enjoy during your lifetime. As long as your premiums are paid, the cash value that builds in your policy accumulates on a tax-deferred basis and can be borrowed against[2] generally income tax-free. That money can be accessed via policy loans for virtually anything, such as funding a child’s college education, supplementing your retirement income as the life insurance needs decrease, or even ensuring the continuation of a personal business you’ve worked hard to build. Moreover, some permanent life insurance policies may be eligible for dividends[3] which may be used to help pay premiums or purchase additional insurance.

Stay safe and secure.

Unlike permanent life insurance, which is in place for your entire life, term life insurance generally provides a tax-free death benefit for a specific length of time. When the term expires, so does your protection. While you may be able to renew it, your health may have changed and the rates may be higher. While term insurance may initially offer more affordable premiums, permanent life insurance provides a lifetime of protection and value. Your premium stays the same regardless of your age or health conditions, and the policy is more likely to be in force when your family needs it most.

Now is the time.

It’s always a good time to protect your family. But it’s even more important to make sure they’re protected when other assets can’t be counted on. That’s why permanent life insurance is so valuable—its cash value is guaranteed to accumulate each year, regardless of the economic environment.

This educational, third-party article is provided as a courtesy by Ted Donnelly, Agent, New York Life Insurance Company.

[1] Guarantees are backed by the claims-paying ability of the issuer.

[2] The cash value in a permanent life policy is accessed through policy loans, which accrue interest at the current rate and decrease the available death benefit and cash value.

[3] Dividends are based on the policy’s applicable dividend scale, which is neither guaranteed nor an estimate of future results.