Benchmarking: Part 1

Do you ever wonder how your business does compared to others similar to you in size and industry? Maybe knowing this information would give you a more competitive drive, or would lead you to make some improvements to better your company. Or, maybe you’re just curious.

Whatever your reason for wanting to know, benchmarking can be a powerful tool to compare you to your peers and check your performance. Benchmarking can even lead to an overall greater level of success as a company.

Here are a few (of many) reasons why we think benchmarking is pretty awesome.

It never goes out of style| Benchmarking isn’t just a one and done concept. It can, and should, be used throughout the entire lifecycle of the business. As your numbers and statistics change, the same happens for the competition. Benchmarking can provide a real-time look into how your business is stacking up against the competition and industry trends, and can help you find solutions at any stage in your business.

Knowledge is power| When you see and understand how your business is ranking relative to similar businesses, you can empower management to evaluate company performance and make informed decisions. This information can also be used to identify new and future opportunities that can lead to greater growth and success. To accomplish this, it’s best to compare on an industry or peer group level, rather than just a one-company comparison.

Data doesn’t lie| Without good data, you’re wasting your time. Make sure to look for data from benchmarking that is:

  • Relevant – Data won’t mean much to you if it isn’t relevant to your business. Make sure you consider your geography, size and industry when getting your data. Each has their own trends and characteristics that are incorporated into the data – which makes for a meaningful comparison.
  • Timely – You want to be sure the benchmarks being used are the most recent available, which helps account for seasonality, economic cycles and other fluctuating factors.
  • Accurate – If you’re making sure your data is relevant, it will likely be accurate too. However, it’s always a good idea to verify the data before applying to make important decisions.

A way to measure success| Each business and industry (even businesses in the same industry) has a different way of measuring what success means to them. While you can only decide what success looks like for your business, there are a few metrics that can provide a quick, high level view of your business’s well-being:

  • Net Profit Margin = Net profit before taxes, divided by sales
  • Liquidity Ratio – Current Ratio = Total current assets divided by total current liabilities
  • Turnover ratios, which include inventory days, accounts receivable days and accounts payable days.

As you can see above, benchmarking is a great way to get a picture of how your business is really doing compared to those around it. Using this information, you can feel comfortable making changes to better grow and improve your business.

A Millennial’s View

Guest blog by: Isaac Bumgarden, audit intern, Eide Bailly LLP

Accountant: the career that seems like it’s filled with numbers nerds, gloomy days reading over spreadsheets and days spent typing away on a calculator. If we’re talking about a public accountant, everyone thinks you’re an evil number cruncher who’s up to no good (and maybe even works for the IRS).

So how does someone, let alone a millennial, decide accounting is the right career path?

As you know, everyone is different (yes, even us millennials have different tastes and interests). While I don’t speak for everyone, it seems a majority of millennials have a similar experience when it comes to choosing a career, especially if they landed on accounting. When looking at the accounting profession (at least before having much exposure to it), we tend to think of someone sitting behind a desk, quickly punching numbers into a calculator all day, or even someone working for the IRS – and often times, these views don’t seem to sit well with us millennials. After all, we are said to be a social generation which thrives off of each other.

However, college and schooling comes around, and a whole new world presents itself. Rather than hearing about the IRS auditors, you start learning about different options in the accounting world.

“A CFO? What’s that?”

            “There are other auditors besides the IRS? Well what’s the difference?”

           “I can open up my own tax accounting firm in my small home town if I                           understand this stuff?”

You begin to realize that maybe accounting isn’t a one-size-fits-all career path, and there might even be something about it that catches your eye. In fact, I see accounting as a door that leads to a lot of potential in the business world, which is something I never would have even thought of on my own.

Many of the potential scenarios in accounting appeal to us millennials if we are exposed to these options. If you enjoy being alone, maybe the traditional accounting job is for you. If you like interacting with people, take a look at the business side of accounting, such as being a CFO, where you get to go in and work alongside different companies. If travel is your idea of an ideal career, maybe an auditor is the right choice for you. There are many different opportunities and possibilities for each personality and skill set.

For myself (and other millennials, too) and even the general public, accounting is often seen as a boring profession, as explained before. However, accounting is so much more than just the numbers. Public accounting is not only a way to help individuals, but businesses as well.

Being an auditor allows you to help businesses be sure they are on the right track both legally and financially. If you’re the tax man (or woman), you can make sure individuals, families and businesses are being taxed properly, which can lead to saved money and greater revenue and income. Many people don’t realize accounting truly allows you to help people do what they love.

It seems the reason millennials aren’t choosing accounting as readily as other generations simply stems from the lack of information about what accounting really entails. When it comes to accounting, you’re never really stuck in one area. We millennials enjoy variety and a change in scenery, and accounting allows us to have just that.

Is it Time to Upgrade?

Accounting software is a great tool for your business. It helps you keep track of invoices, let’s you see where are your money is going and even allows you to access your information basically anytime, anywhere.

But if your accounting software is out of date, it actually might be doing more harm than good for your business. Here are some signs that it might be time to look into an updated system.

  • Are you still communicating with vendors and customers through email or even *gasp* snail mail? If so, it may be time to look for a system that provides an easier way to communicate.
  • If your desk is covered in papers and you have paper invoices and timecards coming out your ears, it’s time to stop endangering the tree population and look into a system that can do this electronically.
  • It might be time to look into some new software if your system doesn’t allow you to look at your information anytime, anywhere. This includes your cell phone – many systems allow you to have all of your information at the swipe of a finger.
  • Is your chart of accounts endless? Or, maybe you need to create a whole new set of accounts each time you add another profit or cost center (grants, jobs, products lines, etc.). Either way, both are major signs that it’s time to upgrade and update.
  • Your account system should do what you need it to, without you having to perform extra steps and work arounds. If your system is doing the exact opposite of its intended purpose, it’s time for something new.
  • If your vendor has completely stopped (or won’t be for much longer) supporting your software, you’ll need to upgrade. Although this sounds pretty obvious, we see this problem quite often!
  • It’s time to upgrade to a new system if you’re still using spreadsheets to track date and compute calculations. (Hint: accounting software does this for you!)
  • Here’s a big one. Do you enter manual journal entries – maybe you’ve even compiled them in your spreadsheets? Are you operating in several systems that don’t sync together? Time to get on board with a new, updated system!
  • Consider how much time you are devoting to closing the books each month. If you’re manually creating reports and manually completing the consolidation process, you’re wasting your time. An updated system can help you save your time to dedicate to other parts of your business.

If any of these common warning signs sound like something you are experiencing, now is probably a good time to start looking for new, updated accounting software. Although the transition won’t be easy, the benefits to your business will be worth it!

Have Questions? We have Answers

In our line of work, we get a lot of questions on anything and everything related to owning and operating a business (and we’re happy to answer them, too)! While a lot of these questions are usually pretty easy to answer, sometimes we get a few that really make us think. Even then, we enjoy researching and finding the answers to help business owners be successful.

So, what questions do you have about your business? We would love to help you reach your dreams and goals.

In case you think your question might be too far out there, we promise it’s not. Check out some of these questions (and our answers) to get you started on finding the information you need to watch your business succeed.

“I have invoices coming out of my ears! What do I do with all of them?”

When you have a large amount of invoices to deal with, it’s easy to get overwhelmed and lose track of what needs to get done. When invoices aren’t being properly managed, your business can see some serious negative side effects, such as fraud. Following this list of tasks can help you make sure you’re keeping everything in check. Looking to an automated system, such as QuickBooks, is also a great way to keep your invoices at a manageable level.

“Where in the world did all of my cash go?”

This question is more common than you may think. While your business may be profitable, you can still be running out of cash, which might be a concern. Financial struggles can be hard, but our professionals are available to help. Check out this blog – and then, let’s talk!

“Why don’t I have enough time to do everything that needs to get done?”

We get it: owning and operating a business means you have a lot on your plate. From accounting and finance, to human resources to the day-to-day operations, you probably don’t have enough time to do it all yourself. The good news is you don’t have to! Consider your team of employees. What can you delegate to take some of the burden off your shoulders and free up some time? Another option is outsourcing. When you outsource some of your business activities, such as your accounting processes, you free up time to focus on why you got into business in the first place.

“What is this accrual accounting thing I hear so much about? Am I doing it?”

Knowing the specific ins and outs of accounting can be a confusing, daunting task. What it comes to what method of accounting you are using, the water may get even muddier. Maybe you’ve heard of cash based accounting and accrual accounting, but you really have no idea where to begin. We’ve written multiple blogs on how to tell the difference and how to select what fits your business and set up your books. Check them out!

“Taxes terrify me. Where do I even begin?”

Taxes are a complex issue, and questions regarding this topic are common. Whether you want to know more about R&D tax credits, employer vehicles and mileage, how to track your taxes or even all those pesky (yet necessary) forms, we’ve got you covered. Check out our tax archive for answers to all your most pressing questions. If you can’t find the answer, let us know.

Remember, although we numbers nerds really like our financial lingo, we promise to answer your questions in a way you will understand, not just a bunch of accountant talk. After all, we want to see your business succeed!

The Sales Tax Cap

It’s time for a facelift. Last summer, we posted a blog about the North Dakota sales tax cap, and to this date, we still get tons of views on it. What does this mean? It’s a hot topic that’s important to business owners! So, we decided to bring it front and center again so you can get all the info you need without having to dig too far (we’re nice like that).

If you’re doing business in the state of North Dakota, there’s some important tax issues you need to know about: local sales tax cap and minimum tax.

There are multiple cities and counties in North Dakota, which means there are multiple local sales tax jurisdictions that have a max amount of sales tax you are responsible to pay – or, in other words, the refund cap. However, it’s not the vendor’s responsibility to cap the sales tax on your purchase.

The good news? You can submit a claim for a refund with the State!

So, how does all this cap stuff even work? Let’s look at an example:

Gary is working on a project, and bought $10,000 worth of lumber. He had the lumber delivered right to the job site – which is located in Fargo. He received a bill from the vendor, with the total being $10,750. This included sales tax at a rate of 7.5%, which was properly imposed.

Material Cost    $10,000.00

            Sales Tax                 750.00     

            Total                 $10,750.00

Gary went ahead and paid the bill for $10,750. However, in this case, the sales tax on the purchase is in excess of the maximum tax. This means Gary should apply for a refund. But how is the sales tax more?

Well…

The Fargo sales tax rate – which is the 7.5% that was applied to the purchase – is made up of three components:

State of North Dakota   5.0%

            City of Fargo                2.0%

            Cass County                  0.5%

The maximum tax for the City of Fargo is $50, while $12.50 is the maximum tax for Cass County (the State itself doesn’t have a maximum tax). In other words, the sales tax only applies to the first $2,500 of your purchase. Let’s recalculate Gary’s bill using the tax cap:

Material Cost    $10,000.00   

            Sales Tax               562.50

            Total                 $10,562.50

Confused about where the $562.50 came from? State tax = $500 ($10,000*5.0%), City tax = $50 ($2,500*2.0%), and County tax = $12.50 ($2,500*0.5%).

This means that our good friend Gary is eligible for a refund of $187.50 from the State of North Dakota – and who doesn’t love getting money back?

So how does Gary go about getting his refund?

Easy as cake (which Gary could definitely indulge in with his refund money)!

  1. Visit https://www.nd.gov/tax/salesanduse/forms/
  2. Under “Other Forms” click on “Claim for Refund Local Sales and Use Tax Paid Beyond Maximum Tax
  3. Follow the instructions to complete and send back

A few other things to keep in mind with maximum tax include:

  • The refund claim must be postmarked no later than three years from the date of the invoice. (This means if you weren’t aware of the cap, you can look back three years and see if you have any claims to submit!)
  • You need to include with the form a copy of all invoices covered by the claim.
  • The refund claim only applies on properly imposed sales tax – which means the sales tax needs to be right in order to claim a refund from the state.
  • The refund claim applies to a single transaction, not an item on a transaction or total purchases for a month.
  • Not all cities and counties impose a maximum tax. The claim for refund form has a table which outlines the cities and counties that impose this tax.

If you still have questions, let us know. We have tax people who can help make taxes a little less… taxing.

A Community Resource: Emerging Prairie

Guest Blog By: Annie Wood, Director of Community Programs, Emerging Prairie

Founded in 2013, Emerging Prairie began with the goal to create a community we all want to be part of. We want to do our part to make Fargo a great place to bet on ideas, start companies and improve the human condition through technology-based solutions. In 2016, Emerging Prairie became a non-profit organization and maintains its mission to connect and celebrate the entrepreneurial ecosystem.

At Emerging Prairie, we live out our mission in multiple ways:

– Platforms: we have an online content publication and several events that create opportunities for people to share and spread their ideas. We also utilize platforms like 1 Million Cups (caffeinated by the Kauffman Foundation) and TEDxFargo to help champion these ideas.

– Coworking: we run The Prairie Den, a coworking and event space in downtown Fargo. The Den provides a home for startups, small businesses, entrepreneurs, an office away from the office for other organizations, and a place for people to meet.

– Connecting: we run multiple programs and groups that are designed for authentic connection for entrepreneurs to connect to other entrepreneurs, as well as build connections between members of the community.

– Convening: we play a role in helping bring entrepreneurs together so our community learns together and can share what we collectively need when folks like the Bank of North Dakota are working on new ways to serve the startup community.

Companies of any stage can connect with us. Some of our programs are geared to companies of different sizes, stages and industries. For example, 1 Million Cups Fargo (which is supported by the Kauffman Foundation) is curated to be primarily tech-based founders or entrepreneurs who have a product or software as a service (SaaS) companies. We work to put founders first, so many of our programs are more geared toward supporting founders versus the size and stage of the company.

The Prairie Den is an inclusive space in the heart of downtown Fargo – it’s truly a place for community to be built. We think of it like a student union for our city. Just like a student union on a college campus is a place for students to study, hold meetings and social events, The Prairie Den provides a similar area to the community. It’s a place for connecting, for working, for moving ideas forward, and for groups to gather. We offer workspace for teams, individuals, and as an office-away-from-the-office for employees of many organizations. We also have conference rooms, a classroom and even an event space that we rent to members and non-members.

The Den is also where Co.Starters is hosted by our friends at Folkways. Co.Starters is a nine-week course to help people with ideas turn them into businesses, or people with young businesses strengthen them.

Emerging Prairie subscribes to the Fargo Thesis, which Co-Founder and Executive Director Greg Tehven first wrote about in Fargo Monthly. The Fargo Thesis is to Connect It, Believe It and Love It. This is how we operate in our community –Connecting people; Believing that Fargo is a place of possibility; and showing love by celebrating and caring for community members.

As an organization, Emerging Prairie is excited about continuing to support our startup community. We believe ideas matter. We know it’s a leap of faith to start something new, so we want to celebrate those who take the leap. And we want to be an organization that helps pave the way for founders to bet on their ideas, to build teams around them and to pursue possibilities to create a community that we all want to be part of.

Setting up for Success: Part 2

Welcome to our “Setting up for Success: Part 2” blog post. Part one focused on selecting a basis for your accounting and determining what information you need to track in your business.

Now that you understand what you need to track, how do you track this important information?

You can start by developing your chart of accounts. We know what you’re thinking: “develop my what?!”

Your chart of accounts is a listing of accounts that are needed to prepare financial statements and reports. A typical structure looks like this:

1000-1999 Assets

            2000-2999 Liabilities 

            3000-3999 Equity

            4000-4999 Sales

            5000-5999 Cost of Goods Sold (COGS)

            6000-6999 Operating Expenses (General and Administrative)

            7000-7999 Other Income and Expense

            8000-8999 Income Tax Expense

Account numbered 1000-3999 are used in preparing the balance sheet, while numbers 4000-8999 are used in preparing the income statement, which focuses on profit and loss. Of course, the number of individual accounts within each category will depend on the specific needs of your business.

A good rule to keep practice is to try to use the least number of accounts to attain the financial information you need, and structure it for growth.

What do we mean by growth? Let’s take a closer look at the assets section:

1000 Petty Cash

            1005 Checking

            1010 Savings

            1100 Accounts Receivable

            1200 Inventory

            1300 Prepaid Expenses

            1400 Fixed Assets

            1450 Accumulated Depreciation

You probably noticed the account numbers aren’t in sequential order. This allows for room for growth in your business.

You can also use the chart of accounts to track different jobs, departments, segments, etc. For example, maybe your business has locations across the Midwest in Fargo, Minneapolis and Sioux Falls. You want to be able to see how profitable you are at each location. You can track each location by assigning a division number, such as 01-Fargo, 02-Minneapolis, 03-Sioux Falls, and then attaching each division number to each of the accounts, like this:

            4000-01 Sales

            4000-02 Sales

            4000-03 Sales

            5000-01 COGS

            5000-02 COGS

            5000-03 COGS

Now that you know what information you need and how to track it, you can select an accounting system to help you track and keep information in order.

There are two options for tracking your information: manually or electronically (think desktop or cloud based). While there is no right or wrong way, computerized accounting is usually more efficient, which is leading to manual accounting becoming a dinosaur in today’s accounting world. Cloud based accounting also gives you the freedom to access your information anytime, anywhere. Who doesn’t love simplicity and accessibility?

It’s important, as always, to remember that each business is different, so accounting systems usually aren’t one size fits all. Doing your research and truly understanding your business’ needs can help you select a system that gives you the best possible results.

If all of this seems overwhelming, fear not. We have the resources and talent to help you design an accounting system that can set your business up for success.