Getting Your Business Back on Track

There are a lot of considerations that go into running a small business, especially one in the process of growing and improving, but it’s not always easy. In fact, often times it might feel like your business just won’t cooperate and you might feel like you’re losing control.

How do you get back on track and help your business live up to its potential? Here are six areas you as a business owner can focus on:

  • Sales – Sales figures can help you determine revenue and inventory purchases, so keeping accurate records is important. To do this, implement detailed policies and procedures for all types of sales, whether it be cash, checks, credit cards or online sales. Consider using an invoicing system when shipping goods and having proof of delivery when goods are shipped. Also be sure to check your invoices against sales and payments to ensure everything matches up correctly.
  • Accounts Receivable – We’ve mentioned this a lot: keeping up on accounts receivable is important. Income from your operations is what keeps your business going, so making sure you collect, and on time at that, is very important. To keep up on AR, establish collection policies in writing, and make sure to follow through on implementing these policies. Here are some ideas:
    • Establish a solid system for billing, such as numerical or batch processing
    • Have a timely review process for all accounts
    • Keep your accounts receivable separate from cash
    • Have security measures in place for communicating
  • Accounts Payable – Just like it’s good when your business receives cash, other businesses need to be paid as well. Keeping up on payments can help your business establish a trustworthy reputation which can ultimately lead to more success and growth. Unfortunately, AP is an area that many businesses struggle with. To stay out of hot water in this area, consider setting up procedures for cross checking payments, always check pricing options from competitors and vendors and be sure that billing amounts are being entered correctly.
  • Cash – Businesses that accept cash (especially a lot of cash) are at a high risk of loss due to theft or other discrepancies and errors. Keep your cash in control by having employees balance cash at the end of their shifts, have controls in place to ensure employees can’t pocket the cash without entering the transaction, check and reconcile bank balances regularly, keep all cash payment methods secure and pay attention to your business’s cash flows.
  • Human Resources and Payroll – Technology has made it easier for hackers, scammers and even bad-egg employees to commit fraud or other harm to your business. To keep your people (and your business) safe, consider the following:
    • Require password updates regularly- for you and your employees, and make sure to keep all passwords safe and not written down.
    • When it comes to payroll, review the details (do you know all those employees?) and checks/direct deposits to make sure pay is being disbursed properly.
    • Pay attention to any differences between payroll expenses and monthly budgets – this could be a red flag that someone or something has gotten access to your books.
  • Physical Assets – The physical assets your business owns, such as machinery or laptops, are of great value to your business – you don’t want anything happening to them. When it comes to laptops and other electronics, make sure they are safeguarded or locked up. This makes it difficult for someone to steal the physical piece itself, along with the information stored on it. Cyber security problems are on the rise (seriously, check this out), so keeping these assets on lock down can help prevent data breaches and other cyber-crimes. Record asset purchases and monitor use and depreciation on them to stay up to date on their value. Also consider setting a usage policy so assets aren’t falling into the wrong hands or being mishandled.

While there are many areas of your business that deserve your time and attention, these are some areas that can help you keep control over the growth and direction of your business. Your trusted business advisors can help you set goals and policies to ensure that everything is running smoothly in your business. If you need help, just ask!

 

 

 

Digital Marketing Trends You Should Measure

Guest Blog by Tiffanie Honeyman, OpGo Marketing

You have your business up and running. But how do you spread the word? And how do you do it in a world that’s constantly changed by technology?

Digital marketing trends can be overwhelming. It’s hard to figure out which metrics matter most and what channels you should be focusing on.

Never fear! There are five main focal points to help clear the fog of digital marketing metrics.

  1. Customer Experience: Micro-Moments
  2. Search Engine Optimization (SEO)
  3. Search Engine Marketing (SEM)
  4. Facebook
  5. Mobile

In today’s blog, we’ll talk about micro-moments in more detail. Stay tuned for blogs two and three, which will discuss the other metrics.

Customer Experience: Micro-Moments

With all the shiny objects in the digital marketing world, customer experience can be overlooked. Being customer-centric means having first-hand knowledge of what your customers want and being there at the right time to meet their needs. An example of a “micro-moment” would be when a customer is researching how to do something or deciding if a purchase is worth it.

To define micro-moments for your customers, develop personas and wrap your marketing initiatives around them by creating journeys and online experiences they will appreciate. Be proactive. Once you know your marketing is talking to the right people, in the right way, at the right time, set benchmarks for engagement and conversions.

How to measure customer experience.

Customer Feedback. Give your customers a voice, and you get valuable feedback on your products, services, support, and overall brand experience. There are many ways to give your customers a voice.

  • Emails
  • Online Surveys
  • Social Polls
  • Exploratory Interviews
  • Social Listening
  • Comment boxes

Reviews. In addition to the feedback options, customer reviews are another great way to shed light. Once you know you have a solid user experience, push for more reviews. Reviews will influence others who are making a decision related to your product or service.

On-Site Activity

  • Review the paths taken on your site that resulted in conversions to clients or sales.
  • Review the paths taken when conversions did not occur and analyze the reasons why, listing the differences from those that did convert.
  • If you’re doing e-commerce, investigate cart abandonment rate to know how many people made it to your cart, but did not buy. Investigate the “why” (i.e. Mobile issue) and make changes to reduce the abandonment rate and increase the frequency of transactions.
  • Review conversions by audience segment to learn more about the demographics, behavior, and interests of buyers. Apply this knowledge to future campaigns, include micro-moments, and find lookalike audiences.
  • Measure user experience by doing a site audit and assess whether or not your site follows best practices.

The driving force behind sales is meeting a customer’s need better than your competitors. If you are not creating an avenue for two-way communication in a digital marketing strategy, you are at risk of being ignorant of what really matters to your customers.

When you know what matters most, you can modify your marketing messaging to amplify how you are meeting those needs better than anyone else. Lastly, if you don’t create a great online experience for your customer, they will find someone who will.

 

Sales Tax 101: Sales Tax versus Use Tax

(We are assuming your business operations are in North Dakota therefore specific examples within this blog may be different based on the tax regulations in your state.)

We are sure you have heard of both sales tax and use tax. But, do you know how they’re different?

SALES TAX is typically imposed on the sales price of a good or service (if taxable) at the time of the sale. The purchaser pays the sales tax and the seller remits the sales tax. In addition, sales tax only applies to retail transactions; wholesale transactions are purchased tax exempt. This is the type of tax most of you are acquainted with already.

USE TAX, on the other hand, is typically imposed on the use or consumption of a good or service (if taxable). The purchaser pays and remits the sales tax.

Here are a few scenarios to help explain this further (note, these are just examples, not an all-inclusive listing). You’re welcome.

Scenario One: If you purchase an item for wholesale (meaning you purchased it tax exempt) and use it personally or within your business operations.

Generally, the end user of the item is responsible for paying tax. The definition of an end user is not all that simple (but then again, when is tax ever simple?). For example, let’s say you’re in the business of selling flooring and your customers can purchase the flooring in one of two ways:

  1. The customer will purchase the flooring only.
  2. The customer will purchase the flooring and have you install the flooring.

In both cases, you, as the retailer, purchase the flooring at wholesale. The end user in purchase option one is simple, your customer. Therefore, your invoice to the customer would include the sales price of the flooring and itemized line for sales tax. In purchase option two, you are the end user. Now we know what you’re thinking. My customer is getting the flooring not me. However, once you put on the “contractor hat” and are installing real property (that’s not always simple to determine either), you become the end user and you must pay the tax.

So how does that work?

  1. Calculate the tax on the materials that were purchased tax exempt, like the flooring and used in the installation. Remember to calculate the sales tax using the tax rates for the jurisdiction in which you used the materials as opposed to where you received the material (these could be the same).
  2.  Include the use tax on your sales tax return (there is even a line for the state portion on the return; it’s been there a long time).
  3. Invoice your customer for the total price of the flooring installed. Do not include an itemized line for sales or use tax. Make sure you specifically denote that it was installed on the invoice (this will be handy in the case of a sales tax audit).

Want another example? Let’s say you sell pens in your retail store (you’re the owner). The pens are generally sold to your customers so you charge sales tax at the point of sale. However, today your pen broke so you run over to the aisle that houses the pens and grab one. You let accounting know that you took a pen for business use (because if it were taken for personal use, that would need to be accounted for differently). Accounting does an inventory adjustment to decrease the inventory and increase the office supplies expense for the cost of the pen. You’re good to go, right? Nope. Remember that you need to account for, and pay the use tax, on the pen.

Scenario Two: If you use an item in a tax jurisdiction that is higher than the tax jurisdiction in which you purchased the item.

You guessed it … you need to pay the difference.

However, it works both ways. If you use the item in a tax jurisdiction that is lower, you can request a refund from the state. For example, your business is in Fargo, North Dakota which has a tax rate of 7.50%. You purchase a piece of equipment from a dealer in Moorhead, Minnesota which has a tax rate of 6.875% and bring it back to Fargo, North Dakota to be used. You would be responsible to pay and remit use tax in the amount of 0.625% of the purchase price. Don’t forget that in North Dakota there a local maximum tax rates. For more information, check out our blog.

So what’s your takeaway? Often, sales and use tax are thought to be the same thing. They’re not. Taxable transactions will always include either sales tax or use tax, but never both.

Confused much? Don’t worry. Sales and use tax is not a simple matter. We have full-time people that are SALT (State and Local Tax) experts. It’s what they deal with day in and day out. There are also great resources out there as well. For instance, you can check out your state’s website for guidelines and publications. As always if you have questions, we would love to help.

Sales Tax 101: Nexus

NEXUS …

What is it and why should you care?

Well, are you doing business in multiple states? If you are, understanding nexus is a must for your business or it could cost you big time.

The concept of nexus is relatively simple however determining nexus has become fairly complex. Nexus (a.k.a sufficient physical presence) creates the responsibility to collect and pay tax on sales in the state you are doing business. Just as the term implies, it is the sufficient physical presence that creates nexus. Sufficient physical presence used to be fairly straightforward, however, with the rise of online retailing, the meaning of physical presence is evolving.

Sidebar: Activities that create nexus for sales tax purposes do not determine nexus for income tax. Some of the considerations are similar in nature but the extent of the activities generally vary. How about that for confusing?

So what types of activities could create nexus? Nexus is determined on a state by state basis (what creates nexus differs by state). Here are a few questions to get you started thinking about activities that could create nexus:

  •  Where are your employees or contractors (ex. salespersons, independent sales reps, subcontractors, etc.) located?
  • In what states do you attend trade shows?
  • In what states do you advertise locally?
  • What states do you have licensed franchises?
  • Do you have related entities? What states are they located?
  • What states do you have licenses on your intellectual property?
  • In what states do you have ownership of (or lease) real or personal property?
  • In what states are you maintaining inventory?
  • What states are your employees traveling for business purposes (sales, training, deliveries, installs/repairs, etc.)?

Bottom line, there are many considerations to determining nexus. If it seems too much, there are experts in the field of sales tax.

NEXUS

Sales Tax 101: North Dakota Cap

Are you doing business in North Dakota? Have you ever heard of a local sales tax cap or maximum tax?

In North Dakota, there are numerous local sales tax jurisdictions (we’re talking cities and counties here) that have a maximum amount of sales tax you are responsible to pay (a.k.a. refund cap). However, it is not the responsibility of the vendor to cap the sales tax on your purchase. So now you’re probably thinking, that’s just great. Good news is, you are able to submit a claim for refund with the State!

So how does the cap work? Let’s use an example:

Gerald purchased $10,000 in lumber for his project and had it deliver to the jobsite (located in Fargo). When he received the bill from the vendor it totaled $10,750 which included sales tax in the amount of 7.5% (which was properly imposed).

Materials                     $10,000.00

Sales Tax                                750.00

Total                              $10,750.00

Gerald went ahead and paid the vendor $10,750. However, the sales tax on this purchase is in excess of the maximum tax so Gerald should apply for a refund. How so?

The Fargo sales tax rate of 7.5% is made up of three components:

State of North Dakota          5.0%

City of Fargo                            2.0%

Cass County                             0.5%

Total                                            7.5%

The maximum taxes are $50 and $12.50 for the City of Fargo and Cass County, respectively (there is no maximum tax for the State). In other words, sales tax only applies to the first $2,500 of your purchase. Let’s recalculate the bill using the cap:

Materials                     $10,000.00

Sales Tax                                562.50

Total                              $10,562.50

State $500 ($10,000 * 5.0%), City $50 ($2,500 * 2.0%), and County $12.50 ($2,500 * 0.5%) = $562.50

That means Gerald is eligible for a refund of $187.50 from the State of North Dakota.

Awesome right? But how does Gerald get his refund:

It’s easy as 1, 2, 3…

  1.  Log-on to 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. Complete and send the form as instructed.

Here are a few other notes on maximum tax:

  •  The claim for refund must be postmarked no later than three years from the date of the invoice. (That’s right, if you weren’t aware of the cap, you can go back three years and submit a claim now!)
  • Copies of all invoices covered by the claim must be included with the form.
  • The claim for refund only applies on properly imposed sales tax (that’s right the sales tax needs to be right to claim a refund from the State).
  • The claim for refund 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 includes a table which outlines the cities and counties that impose a maximum tax.

Still have questions? We have people. Let us help you.

 

 

 

 

 

 

Accounting 101: DUDE, WHERE’S MY CASH?

I am profitable but I am running out of cash. What’s up with that?

Sound familiar? Often, profitability is confused with cash flow in the business world. However, those two measurements are not synonymous. So what’s the difference?

Let’s start from the beginning with some basic terminology:

BALANCE SHEET is the measurement of a company’s resources (CASH is one of those resources). A basic balance sheet has three components: assets, liabilities and equity.

  • ASSETS | the “stuff” you own or is owed to you. For example, cash, receivables, inventory and property and equipment are all assets.
  • LIABILITIES | the “stuff” you owe. For example, accounts payable, credit cards payable, gift cards outstanding, notes payables, sales tax, payroll taxes are all liabilities.
  • EQUITY | the businesses worth (the balance of assets less liabilities). Typically, equity is comprised of common stock, paid in capital, contributions/distributions and retained earnings (the accumulation of net earnings over the life of the business).

PROFIT & LOSS is the measurement of a company’s PROFITABILITY. A basic profit and loss has four components: sales, costs of goods, operating expenses and other income/expenses.

  • SALES | the gross proceeds received from the sale of a product or service.
  • COST OF GOODS SOLD (COGS) | the cost incurred directly related to the sales generated. These typically vary based on the level of sales. Here’s an example: the purchase price of inventory sold or labor and materials in a manufacturing process.
  • OPERATING EXPENSES | the normal, ongoing costs incurred to conduct your business. Think office wages, professional fees, office supplies, bank fees, and advertising.
  • OTHER INCOME AND EXPENSES | the sources of income earned and expenses incurred outside of the normal course of business. More examples? Gains/losses on investments.

PROFITABILITY is what’s left after deducting all of the business expenses from the income generated. Still not sure what that means? Let’s break it down …

SALES – COSTS OF GOODS SOLD – OPERATING EXPENSES ± OTHER INCOME/EXPENSES = NET INCOME (PROFITABILITY)

Still with us? Now here’s how cash flow works (and no, they’re not the same).

CASH FLOW is the difference between the cash at the beginning of the period and at the end of the period. At its simplest form, cash flow equals the cash changes in assets (other than cash itself – that’s what we are calculating), liabilities and equity. Cash flow is provided or used by various activities of the business. The activities are broken into three categories: operating, investing, and financing.

BEGINNING CASH BALANCE

± NET CASH FROM (USED BY) OPERATING ACTIVITIES

± NET CASH FROM (USED BY) INVESTING ACTIVITIES

± NET CASH FROM (USED BY) FINANCING ACTIVITIES

= ENDING CASH BALANCE

  • OPERATING ACTIVITIES | starts with net income (that’s right, profitability is a component of cash flow) and adjust for non-cash transactions. What non-cash transactions? The adjustments include, but are not limited to, depreciation, gains and losses on sales property and equipment, and bad debt expense. Once adjusted for the non-cash transactions, net income is adjusted for the changes in operating assets and liabilities. What are those? Operating assets and liabilities include, but not limited to, accounts receivable, inventory, prepaids, accounts payable, and accrued liabilities are added or deducted.

NET INCOME

± NON-CASH TRANSACTIONS AFFECTING NET INCOME

± CHANGE IN OPERATING ASSETS AND LIABILITIES

= NET CASH FROM (USED FOR) OPERATING ACTIVITIES

  • INVESTING ACTIVITIES | includes, but not limited to, cash payments to purchase investments, property or equipment or fixed assets. Or on the other hand, cash received from selling an investment (or receiving a dividend from an investment), property or equipment.
  • FINANCING ACTIVITIES | includes, but not limited to, cash payments on long-term debt, cash received from issuance of long-term debt, net change (cash received and paid) on a line of credit, and cash contributions or distributions from owner.

All that goes into cash flow? Sure does. There are several other sources and uses of cash than profitability alone.

So if you have a lot of work and have sold a lot of your product or service, you may be really profitable. But, if your customers aren’t paying you in a timely manner, you may not have a lot of cash.

Or, in another scenario, if you took out a loan to start or expand a business, but you’ve been selling your services for less than they cost, you may still have some cash, but you aren’t profitable.

Moral of the story? They’re not the same, so don’t confuse them. You can have profitability without adequate cash flow. Or vice versa.

 Seem like a lot to manage? We can help. Contact us about our CFO 2.0 services.

Profitability v cash

Accounting 101: Setting Up Your Books (Part 2)

And now for Part Two. Miss Part One?

Now that you have an understanding of the information you need to track. How do you track it?

Developing Your Chart of Accounts: Your chart of accounts is a listing of accounts that are used to prepare financial reports. They are typically structured as follows:

1000-1999 Assets

2000-2999 Liabilities

3000-3999 Equity

4000-4999 Sales

5000-5999 Costs of Goods Sold

6000-6999 Operating Expenses (General and Administrative)

7000-7999 Other Income and Expense

8000-8999 Income Tax Expense

The accounts 1000-3999 are used to prepare the balance sheet and 4000-8999 are used to prepare the income statement (profit and loss). The number of individual accounts within each category will depend on the needs of your business.

Rule of thumb: use the least number of accounts to achieve the financial information you need and structure it for growth. What do I mean by growth? Let’s look a little closer at a condensed assets section:

1000 Petty Cash

1005 Checking

1010 Savings

1100 Accounts Receivable

1200 Inventory

1300 Prepaid Expenses

1400 Fixed Assets

1450 Accumulated Depreciation

Note: the account numbers are not in sequential order. This will allow room for growth in the business.

The chart of accounts can also be used to track jobs, departments, divisions etc. Let’s say you have a location in Fargo, Bismarck and Minot and you want to be able to view the profitability for each location. You are able to track by each location by assigning a division number, 01-Fargo, 02-Bismarck, 03-Minot, and attaching it to each of the accounts as such:

4000-01 Sales

4000-02 Sales

4000-03 Sales

5000-01 Costs of Goods Sold

5000-02 Costs of Goods Sold

5000-03 Costs of Goods Sold

Certain software will allow to track these profit centers outside of the chart of accounts. For example in QuickBooks, you are able to have just one sales and one costs of sales account by using classes and subclasses.

Selecting an Accounting System: Tracking your information can be accomplished in two ways: manually or computerized (desktop or cloud-based). There is no right or wrong way, however computerized accounting software is more efficient which is why manual accounting is almost non-existent in today’s accounting. Cloud-based also give you the freedom to access your financial data from just about anywhere, on any device.

There are several effective accounting software solutions out there such as (just to name a few; not all inclusive)

QuickBooks (Online or Desktop)

Xero

FreshBooks

Intacct

NetSuite

Again, it is important to understand your needs prior to purchasing to make sure you get a solution that fits your needs.

Overwhelmed? Need More Direction? Eide Bailly has the resources to help you design your accounting system or help you selected a solution that best fits your needs.

Accounting System Setup 101