In order to properly manage your company you need accurate and timely information. How are sales? Is your marketing program working? Are there any problems in operations? And so forth.
Underlying all of this, you need to have a firm grasp of your company’s financials. For example…
• Are you on track to meet or exceed your goals, or do you have ground to make up?
• Is your spending proportionate to your sales level?
• Is your staffing level appropriate?
• Is your cash position getting stronger or weaker?
• Are you in compliance with your loan covenants?
• Is the information reported in your dashboard accurate?
Unfortunately, if you’re struggling with your month-end close, chances are you’re flying blind. You’re making decisions based on inaccurate and outdated data, and don’t have the necessary data to spot potentially problematic issues or trends before they get worse.
It’s time to turn the situation around
If your month-end closes are not timely and accurate, you probably do not have the right team in place. To change this you need to be sure that your Accounting Department is staffed with people who have the training, time and skill set to ensure all of the following get done:
• Basic accounting activities – Including accurately completing billing, recording purchases and related accounts payable, processing payroll, and maintaining up-to-date general ledger accounts.
• General ledger analysis – A detailed review of the general ledger to identify and research any unusual or nonsensible entries or account balances. This function should be performed by a senior-level accountant.
• Monthly financial statements – Timely preparation of an accurate Balance Sheet, Income Statement and Statement of Cash Flow, all in a format that properly segregates current assets and liabilities from long-term assets and liabilities. This is usually done by the Controller or CFO.
• Variance analysis – A written narrative prepared by a strong Controller or CFO that clearly explains any significant variances from what was expected in the budget or plan, and what caused them to occur.
Compliance with loan covenants – As explained in a previous article, failing to comply with loan covenants can ruin your banking relationship. Compliance with the reporting aspects of your loan covenants should be done by a strong Controller or the CFO as part of the monthly close process.
Need help putting all of this in place? Give me a call. As your part-time CFO, I’m here for you.
In the Ideal World: Things to Do Before You Start Selling Products
The best way to survive a sales tax audit is to do things right in the first place! This is true whether you’re running a start-up or you have an existing business that’s considering expanding into another city, county or state.
Here’s what you need to do…
• Understand the applicable laws. Familiarize yourself with the sales tax laws that relate to you and the areas in which you plan to conduct business:
• What is the current sales tax rate?
• What transactions are taxable?
• Under what circumstances are sales exempt from sales tax?
• What documentation is required to exempt sales from sales tax? Be sure to keep all of these properly filled out and signed documents in one central file.
• When and how do you need to report and pay the sales tax?
• Ensure you apply the appropriate tax. Have a procedure in place to monitor, track and apply changes to tax rates in all of the places in which you are doing business. Use accounting software that allows you to easily manage multiple sales tax tables, exempt certain customers from paying sales tax, and get a report of who you’re exempting so you can easily double-check that you have proper paperwork on file.
• Pay all taxes on time. Especially if you’re dealing with multiple sales tax entities, have a system for ensuring nothing falls through the cracks.
In Reality: Things to Do When You Find Out You’re Being Audited
If you’ve done all of the things listed above, then your audit preparation is complete. You’ll just have to walk the auditor through the sales tax return and provide them with any requested documents
If you haven’t done these things, you’ll want to try to postpone the audit. Go back through all your records and get your ducks in a row. For example, if you’ve exempted sales transaction and don’t have signed resale certificates on file, go back to your customers to get them.
Need help preparing for a sales tax audit or putting a robust sales tax system in place? Give me a call. As your part-time CFO, this is one of the many services I provide.