May 2016

Preparing for BHPH Bad Customers

Posted on May 31, 2016 by Debra Barcuch

There are two schools of thought when creating cash flow for a buy here pay here auto dealership. One involves selling cars as quickly as possible and repossessing them just as quickly. The other more viable option is to focus on customer service. By keeping customers in a vehicle longer, the dealer can also secure steady cash flow and support repeat customers as well as referrals. Dealers, collections staff and service technicians are all involved in the customer experience. This article reviews the benefits of a customer-centric approach to cash flow and financial management and the tools that help dealers achieve more profitable payment streams.

Build in Safeguards for Bad Breaks with BHPH Bad Customers

Not every customer will respond positively to improved customer service at a buy here pay here dealership. There will be times when some customers take advantage and eventually stop paying and communicating. Be prepared for a level of default and repossession from bhph bad customers. Build that expected percentage of defaults into your budget while focusing the majority of your efforts on well-intentioned customers who need the option your dealership offers.

Don’t assume it’s a customer issue until you explore the situation. If collections start to dip, check in with collections staff to make sure they are reaching out to customers regularly, assessing the situation and discussing payment options. At times, you may find that collections outreach is inconsistent; that is an internal operations issue rather than a customer issue. Check the call logs to determine where and when the communications process is breaking down. It may also be a matter of how collections staff are communicating with customers. In this case, you will need more training around appropriate or scripted conversations that support a positive customer response and cooperation. Collections conversations about repossession are very different than conversations that encourage a customer to get current on payments.

If your staff is unable or unwilling to work in this new model, it may be easier to replace staff and promote “new management” to encourage more customer interest and communication. This includes anyone who will interact with customers. The longer you wait to reeducate staff and get customers talking, the more likely you will lose the payment stream and deal with more repossessions.

Slower collections, however, may also reside with a dealer who is not pulling and reading reports every week — or at least biweekly. If the dealer doesn’t have the time to pull and review reports regularly, assign a back office team member to the task who can pull reports and summarize findings.

One important factor for achieving regular payment streams is how the payments are set up in the first place.

Customers in buy here pay here arrangements typically make weekly or biweekly payments, sometimes in person. Payments should be set up according to how the customer gets paid, which is usually weekly or every other week. For other customers, their income can change during the year. It’s much easier to handle a collections issue later if you are aware of how the customer gets paid, what could hinder the customer from paying and how you will resolve a cash flow issue on the customer side if and when it happens.

Meet with your CPA every month or quarter to gain insight on reporting and budgeting improvements as well as cash flow projections for the dealership. Your CPA will not make customer service calls for you or force you to design and read more accurate reports. But we can make sure the software is set up properly to provide up-to-date and helpful reports. CPAs familiar with buy here pay here can also identify the information dealers should pay attention to in a customer-centric environment.

Dealers will still have to repossess vehicles even with good customer service. So why make the switch? The simple answer is that valuation of the dealership is tied to strong collections, a well-performing loan portfolio and healthy margins. Lenders and investors consider these areas of the operation carefully when deciding to extend credit. At least one investment group we know of required a dealer to switch to the customer-centric approach as a way to improve cash flow.

If you think this approach could work better for your dealership in the long run, talk to the auto dealership team at Cornwell Jackson.

Download the Whitepaper Here: Customer Service: A Better Approach to BHPH Cash Flow

Mike Rizkal, CPA is the audit and assurance partner in Cornwell Jackson’s assurance practice and auto dealership segment. Mike utilizes his real world practical experience to provide consulting and accounting services to buy here pay here owners and managers across North Texas.

Coping with Language Barriers in Human Resources

Posted on May 27, 2016 by Debra Barcuch

Language Barriers in HR

It’s not uncommon these days to have employees who don’t speak English or have difficulty understanding it. But those employees are just as eligible for benefits as the rest of your staff and it’s important that they understand their rights and obligations.

The federal Employee Retirement Income Security Act (ERISA), which covers a wide range of employee benefit plans, requires businesses to provide a summary plan description to all employees. And while the law doesn’t require you to translate the plan description into writing in other languages, in some situations you are required to include a foreign language directive that offers foreign-language speakers assistance in understanding your programs.

You are obliged to provide the foreign language notice:

If fewer than 100 employees participate in your plan and 25 percent of them are literate in only the same non-English language.
If either 500 participants, or 10 percent of all plan participants, are literate in only the same non-English language.

So if only a few employees are non-English speaking, the notice is not required. On the other hand, an employer may need to provide notices in more than one language (for example, Spanish and Vietnamese) if the requisite number of employees are literate in only those languages.

The notice must tell employees that help is available and how to get it. For example, an effective notice might include the name, address, phone number and office hours of the plan administrator.

This, of course, is the minimum, and many employers take additional steps, including:

Translations. Some companies provide translations of the entire summary plan description (or at least the highlights), comparison charts and enrollment forms. If you opt for this, use a translation company to ensure that nuances are correct and certain words such as “coverage,” “blanket” and “umbrella” are properly translated.
Open benefits meetings. It can be helpful to include English-speaking relatives or friends at meetings explaining benefits. Bilingual or separate meetings in another language are also an option, although this is likely to involve more time and expense.
Colleague assistance. Some companies ask employees who are fluent in both English and another language to help those who have difficulty with English. This can be helpful at meetings where it can be difficult to follow the rapid flow of presentations and question-and-answer sessions.

Employee benefit programs can be difficult to understand even for those for whom English is their native language. Your company makes a large investment in its benefits, so ensuring they are understood can help avoid complications and help make sure employees appreciate them.

Shining the Spotlight on Payroll Record Retention

Posted on May 25, 2016July 23, 2024 by Debra Barcuch

As if payroll record retention and recordkeeping wasn’t already difficult enough, another layer of complexity has been added by the Affordable Care Act (ACA).

Now that the ACA rules are firmly in place, here’s a brief rundown of several areas of concern for record retention. This list is based on information provided by the IRS, the Social Security Administration (SSA) and the Department of Labor (DOL).

ACA Requirements

The IRS administers health insurance coverage requirements under the ACA. The law currently requires employers with 50 or more full-time employees or full-time equivalents to provide at least minimum essential coverage. For the IRS, employers must file these informational forms:

1094-B, Transmittal of Health Coverage Information Returns,
1099-B, Health Coverage,
1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and
1095-C, Employer-Provided Health Insurance Offer and Coverage.

Employers should retain copies for at least three years or be able to reconstruct the data for that time period.

Federal Income Tax and FICA Requirements

Wages are subject to both federal withholding and Federal Insurance Contributions Act (FICA) taxes. The Social Security tax portion of FICA is equal to 6.2% of the first $118,500 of wages in 2016. The Medicare tax portion is equal to 1.45% on all wages.

Generally, employers must retain income tax and FICA tax records for at least four years from the date of the employee’s tax return due date. They must also keep information regarding wage continuation payments that the employer or a third party makes under an accident or health plan. This information should include the start and end dates of the time off from work and the amount and weekly rate of each payment.

Copies of documents filed on paper or electronically must be kept for at least four years after the tax return due date or, if later, the date the tax is paid. This includes the entire Forms 941 series and any W-2 forms sent but returned as undeliverable. It is permissible to destroy original W-2 forms if they can be electronically reproduced.

Employers filing claims for refunds, credits or abatements on income and FICA taxes, must hold on to related documents for at least four years. Companies with health insurance, cafeteria, educational assistance, adoption assistance or a dependent care assistance plan providing tax-free benefits must keep records establishing that the plans meet statutory requirements.

Finally, employers in businesses that require tip reporting must keep records substantiating any information returns or employer statements on tip allocations for at least three years after the return or statement is due.

FUTA Requirements

Under the Federal Unemployment Tax Act (FUTA), employers must withhold amounts for unemployment payments. The FUTA rate is 6% on the first $7,000 of wages, but can be reduced by as much as 5.4% for credits on contributions to state unemployment programs.

Employers must retain records for four years from the later of either the date they file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return or the date they pay the tax. The records should include:

Compensation paid to employees during the year,
Compensation subject to FUTA tax,
State unemployment payments (separating out any employee contributions),
All information on Form 940, and
Any difference between total compensation and the taxable amount.

Note: Currently, only Alaska, New Jersey and Pennsylvania require employee contributions.

FLSA Requirements

The Fair Labor Standards Act (FLSA) governs minimum wage and overtime pay rules. Employees must be paid at least the minimum wage and one and one-half times their regular rates of pay for overtime unless they are exempt.

Every covered employer must keep certain records for each non-exempt worker. Generally, these records should include the employee’s full name, Social Security number, address, birth date if younger than 19, sex and occupation, as well as:

Time and day workweek begins,
Hours worked each day,
Hours worked each week,
Basis on which wages are paid,
Regular hourly pay rate,
Total daily or weekly straight-time earnings,
Total overtime earnings for the week,
Additions to or deductions from wages,
Total wages paid each pay period, and
Date of payment and pay period covered

Records on which wage computations are based, such as time cards and piecework tickets, wage rate tables, work and time schedules and records of additions to or deductions from wages need to be kept for only two years. The remaining records should be held for at least three years.

Your CJ Payroll adviser can help ensure that you follow all the rules for retaining payroll records.

The Annual Payroll Tax Forum

The American Payroll Association (APA) is touting its mid-year Payroll Tax Forum.

This is a one-day course the not-for-profit group is offering in 18 cities from June 13 to June 24. The forum will focus on the latest payroll-related changes from Congress and various federal agencies.

Scheduled topics include:

Health insurance data reporting required by the Affordable Care Act (ACA),
Taxation and reporting of executive employee compensation,
Preparation for a proposed increase to the white collar exemption minimum salary requirement, and
Planning for the accelerated W-2 and 1099 filing dates.

The program will also include reviews of recent legislative and regulatory changes, the annually adjusted wage bases and benefit limits, as well as a discussion of revisions to IRS forms and publications. The forum is open to anyone involved in an organization’s payroll. More information is available at the APA website.

Roadblocks to an Efficient Restaurant

Posted on May 23, 2016July 23, 2024 by Debra Barcuch

Removing roadblocks to restaurant efficiency can be an ongoing process. Whether it is improving tracking measures, investing in a POS, modernizing vendor payments, or something else, taking away the inefficiencies can help owners and managers exceed industry benchmarks, free up focus for customers and growth, and create an easier path to sell when it’s time.

The greatest roadblock to restaurant efficiency is lack of tracking. We know this can seem daunting to owners who prefer to focus on food and customers, not numbers. Also, many successful restaurant owners and managers are rightly focused on sales and may feel they don’t have the time or budget to set up a tracking system.

Another roadblock used to be the cost of point of sale (POS) systems, which could run hundreds of thousands of dollars. Now these solutions cost a fraction of that and can often be implemented for a monthly subscription cost. However, owners and managers are often unclear about the hidden costs in the current systems they use and can’t see the justification for a POS system.

Just consider: anyone who is still paying bills by writing checks by hand may not realize this can cost $5-8 per check. Frequently, people forget to factor in some of these elements:

Time to write each check
Time to process it
Paying for a stamp and envelope
Time to file the record

Check writing and more can be done in seconds with an online solution. A tool like Bill.com allows owners and managers to quickly see the status of their books and pay bills from any location. Time spent with a cumbersome bill paying system could be better spent optimizing processes, creating new dishes or delighting customers with personal attention.

We also see restaurant owners who have a good POS system, but are not leveraging the report capabilities of that system — or have not integrated with an accounting solution. Working with a restaurant accountant can give you access to people who know the kinds of restaurant accounting software that easily integrate with popular POS systems. Some firms will even set it up for you.

Lastly for startups, a major roadblock to efficiency is the potential debt to bling out the restaurant and make it attractive to potential customers. It looks great, but monthly rent or depreciation can go through the roof. Instead, project sales per square foot in order to select a right-sized location and budget for build-out, fixtures and décor.

Advances in computing support efficient restaurants

These days it’s easy for restaurants to be set up with cloud computing solutions that support paperless reporting. Historically, owners and managers couldn’t see the whole inventory at any point in time, but this is now possible. With cloud solutions and current POS systems, you can know exactly how much inventory has been used and what should be on hand. In addition to reducing food waste, this can be a key indicator for spotting theft. (See our article “Protect Your Restaurant from Employee Embezzlement” if this is a concern for you.)

A powerful accounting software solution promotes a streamlined back office, which enables owners and managers to be customer facing. This takes away the worry about end-of-shift backlogs of paperwork. You can check in with staff and customers and get a pulse for satisfaction or improvements. Restaurant accounting systems should be designed to help improve, not hinder success. They should make it easy to review the entire financial picture every month.

Multiple locations and selling a restaurant

The better the accounting and corporate governance of any restaurant, the stronger position it’s in for expansion or selling. For restaurant owners using a system in which POS and accounting are linked and automated, they’ll find accounting to be much more timely and therefore cost-effective. When there are many locations and different investors for each location, this kind of system can easily produce K-1 forms and other necessary information for each investor.

A restaurant is worth what the buyer is willing to pay for it. If records are being kept on paper and must be pieced together to provide information to a buyer, this bogs down the sales process and makes it hard to show the real value of the restaurant. If there is an automated system in place, however, it’s a much quicker process to show potential buyers the numbers in ways that are clear and easy to understand. This helps tremendously with all steps in a sale, from getting a buyer interested to the final transfer of the restaurant to new ownership.

Restaurant accountants know the techniques that help restaurants be more efficient. We know the benchmarks discussed here and we’ve helped other restaurants reach them. If you have a serious interest in making your restaurant more efficient, talk to the accounting team at Cornwell Jackson. You’ll be surprised what a difference it can make in your efficiency, bottom line and peace of mind.

Scott Bates, CPA, is a partner in Cornwell Jackson’s audit practice and leads the Cornwell Jackson business services practice, including outsourced accounting, bookkeeping, and payroll services. He is an expert for clients in restaurants, healthcare, real estate, auto and transportation, technology, service, construction, retail, and manufacturing and distribution industries.

Dealers Beware: The FTC Is on the Warpath Over Auto Sales Advertising Regulation

Posted on May 19, 2016 by Debra Barcuch

The Federal Trade Commission is making full use of its bolstered regulation and enforcement power over auto sales advertising.

How One Ad Misled Consumers

The FTC is paying particular attention to ads that are posted online or on social media.

The agency reportedly has said that dealerships boost their chances of problems with the FTC by taking ads that might have been fine for print or on television and cutting and pasting them online. The reason: Fine print can become unreadable when reproduced in smaller print online or a video.

In one case against an auto dealer, the FTC complaint says the website ad included a photo of the car and a video. Near the end of the video ad, a block of text appears stating:

“. . . . Priced with all applicable manufacturer rebates and incentives. Does not include tax, title, acquisition, registration or doc fees. Not all model trim levels will be applicable. Kelley Blue Book: Minus the mileage, wear and tear up to $10,000 fair. Not to be combined with any other offer. See dealer for complete details.”

Combined with other examples of the dealers’ website ads, the FTC concluded that “the company does not disclose important additional terms of the prominently advertised lease, including but not limited to whether consumers must pay tax, tags, registration or doc fees, the number of lease payments, and whether an extra charge may be imposed at the end of the lease.”

When the Dodd-Frank Wall Street Reform and Consumer Protection Act became law in 2010, the FTC’s power over the ads increased. The agency now looks at television, print and online ads to see if they clearly spell out all the costs and other important terms of a sale needed by consumers. Dealers publishing misleading ads risk censure and potentially severe financial penalties.

The FTC has charged several auto dealers with false or deceptive advertising about the cost of buying or leasing cars. Most dealers settle the charges by agreeing to take a series of administrative steps to ensure that future ads comply with relevant laws and regulations.

The agreements warn that further violations may result in civil penalties. Those penalties could amount to as much as $16,000 per day. The agreements remain in effect for 20 years.

One enforcement action charged a Massachusetts auto dealer with running advertisements saying consumers could lease vehicles with no money down and specified monthly payments. The FTC said the advertised amounts did not mention substantial fees.

In a consent order, the dealership agreed to follow the rules applying to such ads, which requires clearly and conspicuously disclosing, for instance, whether the price in the ads are for loans or leases and how much money must be paid up front.

Among other dealerships charged were:

- A Maryland dealer that allegedly advertised “Internet prices” and “dealer discounts” not available to a typical consumer.

- An Ohio dealer who allegedly ran a bait and switch operation in which discounts applied only to more expensive models of the advertised vehicles.

- Two dealerships in California charged with advertising vehicles for sale for $5,000 less than their actual prices. Both used ads that included a mix of English and Spanish.

- A dealer in Georgia allegedly advertising auto financing with low monthly payments, when the payments advertised were temporary “teasers.” After making a few payments at the teaser rate, the monthly payment would go up.

A Michigan dealership that allegedly sent out mailers falsely claiming that the recipients had won sweepstakes prizes.

The dealerships are charged under a variety of laws and regulations, including the FTC Act, the Consumer Leasing Act and the Truth in Lending Act. All the dealers said the violations were not deliberate.

Closely review your dealership’s ads to ensure you don’t inadvertently run any ads that could be construed as misleading.

Working with Medical Debt Collection Firms

Posted on May 18, 2016July 22, 2024 by Debra Barcuch

Medical Debt Collectors

On a regular basis, most physicians have patients that refuse or forget to pay bills. Every business deals with this problem, but medical practices have their own unique set of problems with unpaid bills. First, you can’t retrieve the service you provided. Second, unless the patient is a deadbeat, you probably want to keep the individual as one of your patients. Is working with medical debt collection firms to resolve the unpaid charges the best option for your practice?

First-Party versus Third-Party Collections

First-party collections refer to the physicians or someone on their staff who attempts to retrieve payment from the patient. Third-party collections refer to hiring another individual or company to collect the money.

In the United States, The Association of Credit and Collection Professionals (ACA) is the trade organization for third-party collection agencies. The Consumer Financial Protection Bureau (CFPB) is the primary regulator of third-party collections. The CFPB regulates debt collectors on the federal level, but states also have their own laws. Some states comply with the federal rules and others go further.

Federal laws known as the Fair Debt Collections Act and the Consumers Protect Act are the main laws the CFPB uses to regulate collections. These laws include things such as preventing a collection agency from contacting consumers on their cell phones using an automated device, even though the agencies can utilize an auto dialer.

Currently, medical debt doesn’t fall under the CFPB. The CFPB oversees credit reporting, and some legislators argue that if medical debt were included on a credit report it would likely have an impact on the individual’s ability to get a loan or credit.

Ins and Outs of Third-Party Collections

Generally speaking, third-party collectors receive commissions, taking a percentage of whatever they collect. In the physician collections arena, it’s generally a private negotiated rate that typically ranges from 10 to 25 percent or more depending on the amount of debt, type of debt and the ease of collections.

A key word is “negotiated.” The physician should be willing to negotiate a rate, rather than accept the rate the collection agency offers. The negotiated rate will often be based on the time period involved in the outstanding balance. For example, an outstanding balance of 60 days would have a lower commission than one that is 120 days or longer. The more difficult it is to get the money, the higher the percentage the physician is going to pay simply because it’s more work for the collection agency to acquire the funds.

Partly because of the personal nature of medicine, physicians often have a say in how a collection agency approaches retrieving funds. These typically start with letters and alternate with phone calls.

A common practice for a collection agency is to activate the collections after a set period, generally after the physician’s initial payment statement is sent. One method is to alternate. For example, one collection agency has a series of three letters and two phone calls that alternate, letter, phone call, letter, phone call, letter. This approach accelerates the urgency on the part of the doctor’s office getting paid.

One collection agency approach is to operate under the physician’s office name so that the patient is not aware that the debt has been turned over to a collection agency. In particular, if patients merely forgot or had a temporary problem resulting in lack of payment, they are less likely to be offended than if their doctor sent their accounts to a third-party collection agency.

Alternately, collection agencies may have services that operate under their own names, which increases the urgency. Again, they alternate letters and phone calls. Once patients pay, physicians have the option of sending a card or e-mail that states, in part: Thank you for your payment. As part of the message, the doctor may add additional thoughts such as: Please call if you need our services. Thank you for choosing us as your health care provider.

This underlines the importance of the collection agency understanding the value of physician-patient relationships. Physicians have a brand to promote and protect, and it’s important that a collection agency doesn’t negatively impact that brand. The physician-patient relationship is a significant part of the brand and should be protected.

Representation and Respect

When hiring a third-party collection firm, remember that the firm represents you and your medical practice. Every collection agency is different. The physician needs to be comfortable with the way the collection agency operates and presents itself. Are they respectful to the patients? Are they direct and straightforward? Are they timely? What is their customer service like?

Physicians need to maintain good relations with their patients. You absolutely do not want a collection agency that antagonizes them.

When choosing a collection agency, ask your peers for recommendations and inquire:

Are you happy with the service? Is the service effective?Can you negotiate with them?Does the agency represent your practice in a way that is appropriate?Medical debt has its own vocabulary and with the changes from ICD-9 to ICD-10, it is more complicated than ever. So look for a collection agency that specializing in medical practices … not just medicine. A collection agency that handles medical practice debts works differently than one that handles hospital debts. Hospitals are often very aggressive in collecting debt, partly because on the whole they are dealing with very large numbers. Physicians in private practice can be more flexible.

Offer Workarounds

One thing physicians often do and should do, is to try and avoid the need for a collection agency. Of course, a lot of small payments that are ignored can accumulate in a big way, but looking at outstanding claims and understanding which ones are collectible is an important consideration. It can sometimes be worthwhile to write off an outstanding debt because it wasn’t reasonable, there was a mistake, or there’s so little money involved that it’s not worth the hassle.

But if you let too many payments slip away, you may suffer financially. Consider negotiating payment with the patient. Contact the patient and suggest a payment plan. Ask them what they can afford to pay. It’s a way to keep the patient involved with the practice unless it’s obvious they are deadbeats who have no intention of paying their bills.

Evaluate your front-office policies as well. Consider getting a patient’s credit card so that once the insurance company pays their part, you can directly charge the patient’s credit card. Then, provide a receipt to the patient that their card has been charged per their insurance plan.

Make sure the office collects all the patient’s important financial information, including demographics and insurance data. Understand how much the insurance deductible or co-pays are and inform the patient how much they owe before they leave your office. Be diligent in collecting as much money owed upfront so you don’t have to chase it on the back end.

If possible, understand why patients aren’t paying. Are they unemployed? Confused about their insurance coverage? Or are they unhappy with the care they received?

This last issue can be complicated, but it emphasizes the importance of understanding why the patient isn’t paying. If for some reason, the patient is legitimately unhappy with the level of care and you then send that patient’s bill to a collection agency, you could be increasing the likelihood of a lawsuit.

It’s best to be judicious about which bills you go after. And know that you’ve really done the best you can for patients — while still getting paid.

Small Business Quarterly Check In

Posted on May 16, 2016July 23, 2024 by Debra Barcuch

Sound planning is one of the most critical factors to the success of your business. Before you started your business, you likely put together a plan for your start-up expenses and projected monthly revenues and expenses. Now that your business is up and running, your plan will need to be adjusted regularly to match your actual performance.

If you’re like most small business owners, time is your most scarce resource. Conducting a monthly or quarterly financial health checkup with your local certified public accountant (CPA) can provide a substantial return on your financial planning time because it allows you to leverage the expert training and experience of a CPA who advises many small business owners.

By reviewing the following aspects of your business, your CPA team at Cornwell Jackson can help you identify and correct problem areas before they become crises.

Small Business Check-in List

Here are some of the things you need to think about when you conduct a periodic checkup on your business:

KEY PERFORMANCE INDICATORS (KPIs)KPIs vary for each type of business. Your CPA can help you develop KPIs most relevant to your business, formulate them into a dashboard and review them with you on a regular basis. Most CPAs can also provide you with comparative data based on their extensive experience with other businesses as well as other industry sources.

STRATEGY AND PLANNINGSmall owners don’t have the luxury of a strategic planning department, and daily operations consume most of your time. Your CPA can serve as your strategy adviser and help you boil your strategy down into measurable goals and review your progress on a regular basis.

SALES FORECASTINGIn the beginning, your sales forecast was based on market research, your sales and marketing plan and your best estimates based on experience in your industry. Even the best start-up sales forecasts need to be reworked in light of new information you’ve learned from actual operating performance. Because your CPA advises many small businesses, he has extensive experience with sales forecasts and can perform a periodic checkup to see whether your sales forecast is realistic in light of your specific circumstances.

GROSS PROFIT MARGINAmid frequently changing costs and pressure to make sales, many small business owners find it challenging to keep up with whether they’re maintaining adequate profit margins to sustain their business. Your CPA can help you calculate and track gross margins by product or service, by customer (or customer group) or by job. Most importantly, your CPA can help you identify causes of margin erosion and recommend changes you can make to get your margins back on track.

CASH FLOW FORECASTINGCash flow management makes the difference between success and failure for most businesses. Your CPA can provide you with the kind of professional cash flow forecasts an in-house finance department would provide to management in a larger business. Your CPA can help you answer the questions: What will our cash balance look like during our slow season? Will we need to borrow to cover shortfalls? Do we have a large enough line of credit?

ACCOUNTS RECEIVABLE (A/R)Accounts receivable can be difficult to forecast until you have enough history to identify trends. In many cases your CPA has access to trend and benchmark data for other businesses similar to yours and can help you forecast seasonal fluctuations and compare your A/R performance to industry benchmarks. Your CPA can also help you identify needed adjustments to your credit and collection policies. Here are some of the things you need to think about when you conduct a periodic checkup on your business: 3

ACCOUNTS PAYABLE (A/P)Sometimes an accounts payable problem arises suddenly. But more often problems develop over time and can be corrected before they become crises. Your CPA can review your accounts payable and help you develop a plan to resolve payment issues and prevent them from occurring.

INVENTORYFor many businesses, inventory is a major draw on operating capital and cash flow. If your business has seasonal fluctuations, inventory forecasting can be difficult. Your CPA can help you forecast your inventory needs and evaluate inventory financing options from suppliers, local banks and commercial lenders.

PAYROLLFor most businesses, payroll is a major expense. Your CPA can help you locate industry benchmarks and develop a scorecard for you to monitor. CPAs can also provide an objective checkup on your health care expenses, retirement plan and other employee benefits. If you need specific benefits help, your CPA can provide you with a referral to a specialist.

BANKINGMost lenders include certain loan covenants in their lending agreements such as a requirement to maintain certain types of insurance coverage, to meet a certain debt to income ratio and so on. Failure to maintain these requirements could result in penalties or even worse — having your loan called. Your CPA can help you develop a scorecard to monitor and stress-test your loan covenants in light of your financial forecasts. If a loan covenant breach is likely, your CPA can help you develop a plan to bring your business back into compliance or to renegotiate covenant requirements with the lender.

TAXESYou don’t want a big surprise tax bill when you file your annual return, but you don’t want to tie up more capital than necessary in your estimated quarterly tax payments. Your CPA can check your performance and projections against your estimated tax payments to help you avoid surprises at tax time.

REGULATORY COMPLIANCELaws, regulations and financial reporting standards change frequently. Failure to comply can result in costly penalties from state and federal authorities or place you in technical default of loan covenants with your bank. Your CPA can help you identify regulatory changes that could impact your business and assist you with compliance.

EMERGENCIESPreventing emergencies is one of the benefits of scheduling regular checkups with your CPA. But you can’t predict some situations such as the loss of a major customer, a lender unexpectedly calling a loan, a personal health problem or other unpredictable event. When you’ve been meeting with your CPA on a regular basis, your CPA knows your business and is in a better position to help you when an emergency arises. Because your CPA is specially trained and advises many small businesses, your CPA is uniquely qualified to advise you on your financial options in a crisis situation.

To download this checklist from the AICPA, click here.

In this guide, we cover:

Strategy and Planning
Cash FLow Forecasting
Gross Profit Margins
Key Performance Indicators (KPIs)
and more!

Policies and Restaurant Benchmarking Drive Consistency in Efficiency

Posted on May 12, 2016July 23, 2024 by Debra Barcuch

Improving restaurant efficiency through policies and restaurant benchmarking can become an ongoing part of your point of sale and accounting systems, allowing you to make continuous improvements to the key factors that drive your restaurant’s efficiency. This can help owners and managers exceed industry benchmarks, free up focus for customers and growth, and create an easier path to sell when it’s time.

If a restaurant doesn’t have effective policies in place for all of the small daily actions taking place, it’s easy to lose money through inconsistencies. Policies for the following daily tasks and restaurant care will help restaurants be more efficient even during times of staff turnover.

How drinks are made
How cleaning is handled
How sales are entered into POS
Customer service techniques
Tasks specific to staff roles throughout service times
Delivery of meals
Closing duties including paperwork
Vendor interaction

Policies should also cover preferred vendor relationships. Picking different vendors month to month can create inconsistent costing. The more consistent numbers are across all areas of the restaurant, the faster owners and managers can see weak points and correct them.

For example, payroll is the most up-to-date KPI in a business — and the most expensive. A well-managed payroll and benefits system takes time and strategy, and the opportunity to address payroll complexity first lies with your CPA. This relationship can either simplify or increase complexity. Restaurant owners must account for federal income tax, federal and state unemployment tax, Social Security and Medicare. Many companies have run into trouble in the areas of paying unemployment taxes, making late payroll deposits, incorrectly classifying employees as independent contractors on 1099s and assuming that depositing payroll is the same as reporting.

In addition, The Department of Labor’s impending changes to overtime exemption rules are creating even more angst in the area of wage and hour compliance. Employees previously exempt from overtime rules may now be considered non-exempt, leading to the need to track overtime hours and communicate possible changes in benefits. It may even require employers to dictate how employees can take time off or how they work outside of normal business hours. These changes tie directly into payroll administration and tax planning.

On the benefits side, employers can offer a variety of things to compete for talent as well as help employees work efficiently. Properly classifying these benefits and properly withholding for pre-tax or taxable benefits simply adds to the complexity. Handle something wrong, and you will have compliance problems as well as upset employees.

It is fair to say that payroll administration and compliance is a big deal. While some CPA firms offer payroll administration as part of basic or strategic accounting services, the level of administration and services vary widely. The potential benefit of having your CPA firm handle payroll administration, however, is that the team understands the world of taxes and accounting. They can streamline payroll reporting, deposits and filing schedules into the audit or tax deadlines they already handle for the business.

However, not every CPA firm offers payroll administration. Due to its complexity, it’s also important that the firm has a staff of professionals dedicated to this area of your business.

Restaurant Benchmarking

Industry benchmarks are a key indicator of how well a restaurant is performing against industry standards within a certain time period. You can gauge performance against restaurants of similar size and revenue by comparing your assets, liabilities and net worth. The 2016 restaurant benchmarks below are provided by BKR International, a top global accounting association, in conjunction with First Research. They show benchmark ratios based on 2014 data from more than 500,000 restaurants, and detailed out by restaurant size and revenue.

As you can see, benchmarks can provide a quick snapshot of how a restaurant is performing by just looking at quarterly financial statements against what analysts are reporting from the industry as a whole. Once you understand where your restaurant is performing well and where it misses the mark, you can focus time and resources in the right areas.

Invest in Better BHPH Tools to Increase Customer Service Levels in Dealerships

Posted on May 10, 2016 by Debra Barcuch

There are two schools of thought when creating cash flow for a buy here pay here auto dealership. One involves selling cars as quickly as possible and repossessing them just as quickly. The other more viable option is to focus on customer service. By keeping customers in a vehicle longer, the dealer can also secure steady cash flow and support repeat customers as well as referrals. Dealers, collections staff and service technicians are all involved in the customer experience. This article reviews the benefits of efficient financial management and the tools that help dealers achieve more profitable payment streams.

All dealerships need an effective way of tracking the number of customers they have and current level of collections. If customers are behind on payments, then dealers need to know the level of delinquency to prioritize which accounts need attention first. Again, the longer a delinquency is left unchecked, the more likely you are to lose that customer and default to repossession.

There are several software packages that support dealership efficiency, including but not limited to AutoStar, Finance Express/Dealer Socket, Frazer and Dealer-mate. The software must be used properly and regularly for a customer-centric approach to succeed. In a repossession approach, dealers simply wait for legally sanctioned delinquency. In a customer-centric approach, dealers must look at reports weekly. They will look for signs of changes in payment streams, then communicate with collections staff who must reach out to those flagged customers.

Once collections improve, the reports can tell dealers how to improve budgeting, track inventory and monitor related finance company (RFC) reimbursements (if applicable). The software can also be tailored to provide reports to the dealership that are most meaningful.

Some of the reports and elements of reports that dealers should pay attention to include:

Inventory Listing

This keeps track of cars available for sale. It should include the purchase price at the cost to dealer plus an amount for make-ready costs (expenses incurred to bring vehicles up to selling condition). Many dealers affix a standard cost to apply to vehicles to make them ready for sale based on historical trends. Some do try to assign exact costs, but the recordkeeping for this can be cumbersome. A compromise would be to use the standard cost for most vehicles and add large, specific make-ready expenses if applicable.

The inventory list is also used to reconcile against the lender’s floorplan records. While the dealership’s profits are primarily earned through interest, maintaining appropriate inventory costs (by not overpaying for inventory) is still a critical piece for a healthy dealership.

Accounts/Notes Receivable (dealership’s portfolio)

Dealers should keep track of all open accounts and note the accounts that are past due. This report can also separate the components of the loan between the principal balance, current balance, accrued interest, sales tax, and discounts – original and current.

Charge offs

After reviewing the A/R reports, this report gives the dealer a list of every account that will no longer be collected. This is useful for year-end reporting, as the IRS requires Form 1099-C (cancellation of debt) to be issued to these customers. The penalties for noncompliance here are steep, so it’s worth it for the dealer to keep accurate records.

Some dealers only move a small portion of their loans to the full charge-off stage, as issuing these forms can drive away potentially good future customers. If you don’t expect (or want) the customer to return, consider a full charge-off.

Cash Flow Report

This is different from the cash flow statements included in GAAP financial statements. This is a report out of the dealership’s sales software that shows the amount received from customers. It will separate the payments between down payments, interest, principal, sales tax and unearned discount. Some dealers keep track of their cash flow by the number of open, current accounts. For example, if they have 100 current accounts paying $400 per month, they know they should be receiving $40,000 per month. This can even be broken down bi-weekly or weekly depending on the dealer’s needs.

This report also helps track the payments to the actual bank statement and can be reconciled with the monthly expected cash flow receipts from the account/notes receivable report.

Sales Tax Reports

These are compliance based, but are important. This report keeps track of sales tax due. For certain states, sales tax is due in full when the car is sold. However, for other states, (i.e. Texas), the sales tax is due as the payments are collected. The sales tax report works in conjunction with the A/R and cash flow report to make sure the dealer is paying sales tax only as the monthly payments are received.

In states where the law requires sales tax payments as money is collected, this approach improves the dealer’s monthly cash flow.

While all of these reports are very helpful in running a buy here pay here dealership, it is also important to maintain the company’s Balance Sheet, Income Statement, and Statement of Cash Flows as part of financial statement audits and potential IRS examinations.

Software investment and tracking can pay dividends. One dealer we know is one of the most profitable in the region with several locations and many loyal customers. He credits it to the customer-centric approach of keeping the customers he has, getting referrals and reducing his inventory costs, major repair costs and sales quotas. And who doesn’t like profits?

If you think this approach could work better for your dealership in the long run, talk to the auto dealership team at Cornwell Jackson. You can also Download the Article here: Customer Service: A Better Approach to BHPH Cash Flow

Guide to Acquiring Startup Financing for Small Businesses

Posted on May 9, 2016July 23, 2024 by Debra Barcuch

It’s no secret that you will need capital to launch your new business. Many entrepreneurs struggle to get their businesses off the ground because they’re unable to secure adequate funding. The good news is that billions of dollars are available to fund small business ventures like yours.

Before you begin the process of securing capital, you will need a written business plan that defines your business, management team, market, products and services, competitive advantage and the financial forecast and analysis that determines the proper amount and type of financing.

Determine Capital Needed for Fixed Assets

As you prepare the financial part of your business plan, you’ll need to provide a detailed list of your capital needs separated into the following categories that correspond to common asset categories and specific types of business loans. Consider the following as you create your list of capital needs.

Location — Will you buy, build or lease? What kind of materials and labor might you need to build out the space?
Equipment — List every major piece of equipment you will need and provide the cost for each and consider options for a capital lease versus making a purchase.
Technology — Divide your list into hardware and software. Don’t include software, data storage or website hosting that will be acquired on a subscription basis. Those services generally should be listed as operating expenses.
Furniture and fixtures — List the quantity and prices from major distributors for desks, file cabinets, tables, chairs, shelving, displays, cubicles and so on.
Vehicles — List cars and trucks essential to the operation of your business, such as delivery or service vehicles. Fleet vehicles may also be leased.

Evaluating Types of Working Capital Financing

The types and terms of working capital loans vary significantly depending on their intended purpose and corresponding risk. The following are some of the more common ones.

Lines of Credit

Lines of credit are common sources of short-term working capital financing. often, a business is approved for a line of credit up to a certain amount — much like a credit card — and the line can be used for fluctuations in accounts receivable, inventory and seasonal business cycles. Many banks won’t extend a line of credit until your business has been operating for 12 months. Generally, you will pay interest on your outstanding balance on a monthly basis. The principal of your loan is “callable” by the bank subject to the notification requirement of the note. Lines of credit typically are secured by accounts receivable and inventory and can also be required to be personally guaranteed by the business owner and subject to restrictive covenants.

Trade Credit

As your business begins to grow, establishing trade credit with your primary suppliers will help you finance your growth — often at no cost to you. Trade terms usually are 30 days, but in some industries (retail for example), you can negotiate substantially longer terms once you’ve established a relationship with a supplier. The key to establishing trade credit is “ask,” and when terms are extended to you always pay on time. Your first trade account will serve as a credit reference for your next and so on.

Preparing for Requests and Questions from Potential Lenders

While every loan program has specific forms you need to submit, you will likely need to provide much of the same information to each of the lenders for different loans. These documents include:

Personal Background
Resumes
Business Plan
Personal Credit Report
Business Credit Report
Income Tax Returns
Financial Statements
Bank Statements
Collateral
Personal Guarantee
Additional Legal Documents

For a detailed list of the documents that each lender will likely request, download the Guide to Acquiring Startup Financing, which includes a comprehensive Business Loan Application Checklist.

In addition to providing the above documentation for your new business, be prepared for lenders who will likely ask the following questions.

Why are you applying for this loan?
How will the loan proceeds be used?
What assets need to be purchased, and who are your suppliers?
What other business debt do you have, and who are your creditors?
Who are the members of your management team and what are their qualifications?
Why do you think this business will be successful?

As you make your way through the financing process and begin evaluating your funding options, keep in mind that your local CPA can be your most trusted professional business adviser. Your local CPA already advises other small businesses in your area and has relationships with local banks, insurance agents, attorneys, investors, municipal and county regulatory officials and more. Your CPA can be an important ally in helping you determine how much capital you need, evaluate available funding options and choose the ones that best meet your needs.

For the complete guide on how to acquire startup financing for your small business, click here to download. In this guide, certified public accountants (CPAs) offer their most helpful tips on the following topics.

Forecasting revenue, expenses, and operating capital requirements
Types of working capital financing
Determining capital needs for fixed assets
List your personal assets and liabilities
Identify potential funding sources
Financing package development
Business loan application checklist

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Shining the Spotlight on Payroll Record Retention

ACA Requirements

Federal Income Tax and FICA Requirements

FUTA Requirements

FLSA Requirements

The Annual Payroll Tax Forum

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When choosing a collection agency, ask your peers for recommendations and inquire:

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Small Business Check-in List

Policies and Restaurant Benchmarking Drive Consistency in Efficiency

Restaurant Benchmarking

Guide to Acquiring Startup Financing for Small Businesses

Determine Capital Needed for Fixed Assets

Evaluating Types of Working Capital Financing

Preparing for Requests and Questions from Potential Lenders

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Build in Safeguards for Bad Breaks with BHPH Bad Customers

One important factor for achieving regular payment streams is how the payments are set up in the first place.

ACA Requirements

Federal Income Tax and FICA Requirements

FUTA Requirements

FLSA Requirements

The Annual Payroll Tax Forum

Advances in computing support efficient restaurants

Multiple locations and selling a restaurant

How One Ad Misled Consumers

First-Party versus Third-Party Collections

Ins and Outs of Third-Party Collections

Representation and Respect

When choosing a collection agency, ask your peers for recommendations and inquire:

Offer Workarounds

Small Business Check-in List

Restaurant Benchmarking

Some of the reports and elements of reports that dealers should pay attention to include:

Determine Capital Needed for Fixed Assets

Evaluating Types of Working Capital Financing

Preparing for Requests and Questions from Potential Lenders

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