Invoice Factoring Terminology

Whether you have used Invoice factoring in the past to fund your working capital needs or are researching to see if the factoring of your company's invoices is right for you, it is important to understand Invoice Factoring Terminology so you can be a well educated business owner.

First, what is Invoice factoring? It is the selling or assigning of your unpaid invoices to credit worthy clients to a Factoring Company. Once your invoices are verified and assigned to the Factoring company, a Factor will advance you up to 95% against your invoices. Here are some of the terms you will hear when discussing Invoice factoring.

Advance Rate: This is the percentage that a Factoring Company will give you as part of your daily or weekly funding. For example, the factor approves a batch of invoices from you totaling $30,000. Your agreement with the Factor stipulates an 85% advance rate. You will be wired approximate $25,500.

Debtor: This is your client who owes the debt of payment to the factor and subsequently you. Since you are the Factoring Companies customer it cuts down on confusion versus talking about the client's client.

Dilution: Sometimes you have to offer your clients a discount or they take a charge back or deduction. It is important that the Factor knows about this as they compute your funding based on your Advance Rate times the face value of your invoices less any dilution.

Factoring Fee: This is the cost to you of Invoice Factoring. Fees can be anywhere from.6% to 4% per 30 days depending on several risk variables including industry, credit worthiness of your client and dilution chance.

Invoice: An invoice or bill is a commercial document issued by a seller to their customer (the Debtor), which lists the product's or service's description, quantity and agreed upon price the seller has provided the buyer. An invoice also indicates the buyer must pay the seller, according to the payment terms. The buyer has a maximum number of days in which to pay for these goods and is sometimes offered a discount if paid before the due date. An Invoice is a legal document and many times companies do not protect themselves with the correct verbiage on the invoice. A good Factoring Company can help you make sure you are fully protected by reviewing the language on your invoice.

Proof of Delivery: A Factor will want to confirm that your client (the Debtor) has received the goods or services described in your invoice to the Debtor's satisfaction.

Recourse: The factor assumes no credit responsibility and invoices can be charged back to you at any time. This is risky for you unless you are selling to the very strong, credit worthy entities like a Walmart or the US Government. Remember what happened to Circuit City and Linen's and Things? There is one thing worse than no sales and that is selling the product and not getting paid.

Reserve Account: Invoice Factoring is a two part process. First is the initial Advance and secondly is the release of the Reserve less the Factor's Fee once the invoice is paid. Occasionally a Factoring Company will hold a percentage of your Reserves if their is a history of charge backs or to off-set against any bad invoices.

Sales Terms: This is the Payment Terms you give your customer which need to be stated clearly on the invoice. Typical terms are Net 30 days or Due on the 10th day of the following month. Terms can also be combined. For instance many companies sell on 2% 10 days, Net 30. Which means the client receives a 2% discount if they pay within 10 days but the invoice is due by the 30th day without a discount.

Without Recourse: The Factoring Company bears full responsibility for credit approval based solely on the Debtor's financial ability to pay invoices according to the stated terms. There is also Limited Recourse were you covered in the event your client files for bankruptcy protection. Many times this is the most cost effective way to Factor your Invoices as the Factoring Company can use Credit Insurance to mitigate that risk.

This has been a very short description on frequently used Invoice Factoring Terminology. Please contact the author with any questions.

Why Is It Important To Hire Accountants For Your Business?

Employing an accountant is something that a lot of small and medium businesses put off doing. A lot of them will buy accounting software or use a package supplied by their local bank to do their final accounts. What most people do not realise, is that the reason why an accountant is a professional and spends years training is because not only can they produce accurate reports and accounts, but they may also be able to save you money on the amount of tax and liabilities that you have.

Employing an accountant is something that a lot of small and medium businesses put off doing. A lot of them will buy accounting software or use a package supplied by their local bank to do their final accounts. A lot of people do not realise is that the reason why an accountant is a professional and spends years training is because not only can they produce accurate reports and accounts but also they will be able to save you money on the amount of tax and liabilities that you have.

In today's economically challenged climate, businesses are looking to save money in all areas. One of the easiest costs to cut out is hiring an accountant to sort out your financial liabilities. This in fact could be a major mistake as they are trained to not only deal with your finances but also look at ways you can improve your business from a financial point of view.

A lot of accountants will be trained in dealing with businesses from all industries and will know some of the simplest methods to reduce tax liabilities. Also they will be able to produce in depth financial reports that are easy to read and understand. From a business point of view this means that not only will you be able to see a snapshot of how your business is doing month on month but also you will be able to spot when profits are going down and take action before it is too late.

Most self-employed people will leave their accounts until the last minute when they are due in and will spend days trying to find receipts that have been stuffed down the back of their vehicle. This is completely the wrong thing to do as many of them miss opportunities to save money and also they cannot find out how profitable their business is until the end of the year.

Those who choose to employ an accountant are more focused on their monthly earnings and will find that they have a better chance of success especially in hard economic times.

Conclusion

Employing professional accountants is extremely important especially if you have a business to run. It will allow you to take a snapshot of your business to check if you are on course to be profitable throughout the year. Also it is important to make sure your tax liabilities are handled in the correct way therefore eliminating any risk of being penalised for errors in your accounts.

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Savings on Tax Returns

Filing a tax return is vital for most adults. However, if you don't make more than the minimum amount doesn't mean that you shouldn't file. There are reasons why filing a return may still get you a refund. Sadly a lot of people tend to have little or no idea at all regarding these matters. There are quite a number of strategies that a CPA firm can recommend talking about taxes.

For most tax payers their primary concern is how to get the most money back and how to pay the least amount of income tax whenever they file for their tax returns. Therefore you have to make your own research, and find the right strategies that would work for you. A CPA firm can help you with so many things concerning tax issues. And you will need the expertise that these people have for you to arrive to that amount that is honestly due for you and eventually get that expected refund you deserve.

Tax planning is important to legally reduce your tax liability. And that is one of the main goals of accountants for their clients to achieve. For you to succeed you must follow certain strategies that most of the experts recommends. One is Finding tax deductions by structuring your money to pay for things you enjoy, or if you are an eligible educator and you use your own money to buy needed items for your students, you can deduct up to a certain amount of qualified expenses; you may also include the fees and dues to professional societies, such as maintaining a professional certification; job search expenses is another item, you can deduct expenses related to job-searches - even if you did not get a job - as long as the job you were looking for is one in your present occupation. And the list continues.

Now, about credits there are quite a list of items for which taxpayers may claim a deduction if they are eligible. You may need special requirements though so make sure that you qualify before claiming any of these items on your tax return. An example of available credits may include Education tax credits; this can help to offset the cost of education. So if you are qualified for these credits, they can add up to sensible amounts and might result in you receiving a larger tax refund than you would expect.

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Self-Employed Accounting Spreadsheets - The Essential Ingredients

Many self-employed individuals will start off their business bookkeeping records on an accounting spreadsheet.

The popularity of spreadsheets such as Microsoft's Excel means that it is often the first 'financial tool' a businessman reaches for. But, is it the right one?

In a previous article 'Accounting Software - are bookkeeping spreadsheets the answer for small businesses' I examined the 'bare minimum' bookkeeping requirements for a small business accounting spreadsheet and outlined what controls needed to be in place to augment these records. The article concluded that a properly designed and fully reconciled Cash Book accounting spreadsheet coupled with a Sales Day Book and a Purchase Day Book could form the basis of a workable bookkeeping solution.

For the self-employed businessman this means making sure that your records will HELP rather than HINDER the work of your accountant. Many accountants find that they 'have to do the work again' because of the inadequacy or inaccuracy of the bookkeeping data presented to them.

I would strongly advocate showing your accounts spreadsheets to your accountant at an early stage and be prepared to implement any changes he might suggest.

What should you include on your accounting spreadsheets?

There are many examples of good bookkeeping spreadsheets, and all of them will incorporate the following essential data for EACH of your business transactions.

· The transaction Date

· The transaction TYPE (Purchase Invoice, Bank Payment, PayPal Receipt etc.)

· Who is the transaction with (Customer Name, Supplier Name etc.)

· The transaction Reference (Invoice Number, Cheque Number, etc.)

· An ANALYSIS of the transaction (Sales, Rent, Wages, Interest Paid etc.)

· The GROSS transaction value

· The VAT value (if applicable) of the transaction

· The NET value (after VAT) of the transaction

· The STATUS of the transaction (Invoice Paid, Bank transaction matched to statement, etc.)

So, a series of three bookkeeping spreadsheets designed in a monthly columnar format with these column headings is a good starting point:

DATE, TYPE, NAME, REFERENCE, ANALYSIS, GROSS, VAT, NET and STATUS.

Each business transaction should be listed on a new line and should be sorted chronologically.

To help your accountant, I would recommend that you use a standard naming convention for your transactions analysis. (Sales, Rent, Wages, Interest Paid etc.)

After you have entered your basic information onto the accounting spreadsheets, you should then examine your bank, credit card and other statements to make sure that you have not missed any transactions. If you have, then these need to be recorded on your listings.

You need to make sure that the whole accounting spreadsheet BALANCES. Add up the individual COLUMN totals and then add up the individual ROW totals, they should be the same.

Finally, send your first months accounting worksheets to your accountant for correction and approval.

As a guide you can view several examples of professionally designed accounting spreadsheets on our website.

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How to Get Every Stinking Tax Deduction!

It happens every year. A client wanders in with a shoe box and a prayer and wants me to put a miracle out of my hat. Then they get depressed or angry or both because they have to pay tax, sometimes a lot of tax.

So you want to know the secret to getting every stinking tax deduction you are entitled to? Rule No. 1. Keep good records. It is as simple as that.

Rule No. 2. Keep things separated. If you have a business, its records need to be separate from your personal stuff. If you have multiple businesses, you must keep their records separate from each other as well. Mingling your business and personal finances is bad. Separate business and personal bank accounts are good. Only pay business expenses using business accounts, and personal expenses using personal accounts. You may need to write yourself a check from your business (draw) to deposit in your personal account to pay for personal expenses; you may need to write a formal loan document to your business to cover business expenses. Even though this seems like extra paperwork, it is essential to good record keeping clarity.

Rule No. 3. Keep every stinking receipt, no exceptions. If you don't want to store paper, there are scanning products that may allow you to create a digital version of these records and even file them and organize them for you. However you must be able to print out a legible copy from that digital file AND you must keep back-ups (notice the plural?) AND those back ups should not reside in the same place as the original electronic file. Lose the electronic file without a back up and it is the same as NOT having a receipt. Oh, give your digital files meaningful names... office-supplies-4-12-12 is much more useful than PO9567.

Rule No. 4. Invest in some way to keep everything separate -files, envelopes, piles on your desk, bank accounts, credit cards, ledgers, etc., set up a system AND use it.

Rule No. 5. Invest in a pen & a stapler. Use the pen to make notes on your receipts so you can write down What it was for on the receipt. You must write down Where & What for, on that business trip receipt. You must write down Who was there, What business was discussed on that business luncheon receipt. Staple credit card payments to the bill they go with. When you pay a bill, write down How you paid, the amount & when.

Rule No. 6. Get a mileage log and use it religiously. Have one for every vehicle. Lots of mileage is deductible, but only If you write down the mileage in a log created at or near the time the mileage is incurred. Office supply stores carry them and they are very inexpensive.

Rule No. 7. Learn the rules. No one is responsible for your stuff but you. If there are any special deductions: Home office, gambling, real-estate professional, etc. that you've heard of and want to use, learn the rules (www.irs.gov has a wonderful search feature) and follow them. Alternatively, discuss it with your tax professional-nobody knows your business better than you, so if you have a question you must ask it.

Rule No. 8. Keep a schedule. Once a week, twice a month you must sit down and organize everything. Handle each piece of paper once, make a digital copy, log it into your ledger, spreadsheet, Quicken, Quickbooks, Peachtree, or what-ever, staple things together, shred stuff if it needs to be shredded, and file the digital, or paper copy in such a manner that you know you can find it later. If you don't want to do it hire competent help, but realize you are ultimately responsible.

Rule No. 9. Hire competent professionals if you need them. If your finances are complex, maybe you need to investigate the use of entities such as corporations, LLCs and trust, and hire professionals such as lawyers, CPAs, financial planners and bookkeepers. Use them in a timely fashion. If you see your book-keeper once a year, your results are not going to be that good, things get lost, memories fade and questions do not get answered. If you get a CPA or an attorney after a problem has happened your results are not going to be that good either.

Rule No. 10. Take personal responsibility for your finances - that is how the adults do it. Don't blame the bookkeeper for poor financial records if you only show up once a year with incomplete records. Don't blame the CPA if you did not pay your estimated taxes. Don't blame the attorney if you did not give them enough information to adequately advise you. Garbage in, garbage out applies.

Your records are only going to be as good as what you put incomplete records delivered & entered in a timely fashion yield the best results. Most banks only give you 60 days to challenge a charge; and many banks only keep 6 months worth of statements online. You run across a problem 10 months out, often there is no way to get at the record you need or fix a problem, you may not remember critical details, and you may not be able to adequately answer all questions.

As always, small business services and taxation are our business. If you need help with taxes, or other services, Please give us a call. We would love to engage you as a client.

The usual disclaimers: Although the author has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, dis-information, changes, mistakes, typos and hackers happen, therefore GetMeOutOfThisShoebox.com, Art & Business Consulting LLC, its employees, members and other associates, take no responsibility for any action taken or results based on the information supplied here in. The content of this article generally applies to business and individual taxation in the United States of America. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein. The author currently does not have a certified public accountant, human resource specialist, certified financial planner or an attorney on staff; this information is purely for educational pur-poses and not to be construed as legal or financial advice. The author, and its employees, members and other associates are not engaged to practice law; you always should discuss legal matters with your attorney before talking to anyone.

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Cloud Based Accounting: Is It Secure?

One of the most common questions people ask us is regarding the security of cloud based accounting. We've all heard the stories of how our financial information can be stolen online, and it definitely creates cause for concern. That's why we use top level, SSL encryption for all your accounting files, which are stored on our secure servers in SAS-certified facilities. But there are also steps you can take to make sure that your cloud based accounting files stay secure.

1. Make sure you're using the latest version of your Web browser or smart phone software before you access your accounting files. - In most cases, our SSL encryption measures won't permit you to log in to your files if you're not using the latest version of Internet Explorer, Firefox or Safari. But just in case, it's important to always make sure you're using the latest software versions available, as this software will contain important security updates to make it harder for hackers to break into your files.

2. Always access your accounting files from a secure Internet connection. - On our end, your data is kept secure in the cloud. But all of our security measures won't help if you access files through an unsecured network. While one of the benefits of cloud based accounting is the ability to check your financial statements and other records from anywhere with Internet access, we recommend against accessing your Peachtree or QuickBooks files over an unsecured wireless network, such as at your local coffeehouse.

3. Follow common sense measures to protect your data. - Use a strong password with a combination of numbers and letters that no on will be able to guess. Make sure no one is looking over your shoulder when you log in to your cloud based accounting software. Don't leave your computer unattended in a public place. All of these common sense measures can help keep your financial data secure in the cloud.

If you've ever made a purchase online, you've put your trust in the same SSL encryption used with our cloud based accounting system. We do everything we can to keep your financial data and accounting records safe; if you do the same by following common sense measures to protect and limit access to your account, you can be assured that cloud based accounting is secure.

PROTECT YOUR DATA WITH CLOUD-BASED ACCOUNTING

Tornadoes and hurricanes put your company's computer servers and hard drives, and all your financial information, at risk. Natural disasters can create flooding that can wipe out all your computer systems. Power surges - even if you believe your computer is protected with surge protectors - can damage your hard drive, rendering your data unreadable. And heavy winds can even cause buildings to collapse and cause shock damage to your hard drives or servers, again, making it impossible to access your financial records and other data. It happens.

The data back-up best practices recommend having three back-ups of mission critical data, including one version off-site so that you or other authorized personnel can access it, even if you can't get in to your main offices, which could be the case during a natural disaster.

But when you rely on accounting software in the cloud, you'll know your data is safe, regardless of your back-up practices. We still recommend keeping at least one other copy of your financial accounting data backed up, because no storage system is ever 100 percent safe. But if you're looking for consistency and reliability, along with data you can access from any device with Internet access, 24/7, cloud-based accounting software is the way to go.

As we enter the worst time of year for flooding, hurricanes and tornadoes, it may be time to evaluate your data back-up systems and your accounting software. While you're at it, take a good look at your bookkeeping and accounting practices. Are you maximizing your company's potential with the right business accounting software and a bookkeeper, CPA or part-time financial controller you can trust?

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Do I Need an Accountant for My Business?

New business start-ups require an exhaustive amount of time and effort, a busy and stressful period where making a profit should be the priority but accountants do so much more than just deal with tax, they are also important business advisors who deal with many businesses all the time and offer a full range of financial services in order to save time, cut down on unnecessary expenditure and help plan a business road map to future success.

Hiring an accountant at the beginning is a great way to ensure your business finances are well organised, clear and ready for any inspection. Choosing an accountant is the next step and this is very important as most business owners like to stay with the same accountant for years, this in turn develops into a working relationship of trust which is vital if the business is to survive through both the good times and difficult periods where business is slow.

The first step you should take when looking for an accountant is whether there are any in your local area that have worked with businesses like yours. An accountant who has clients in the manufacturing sector might not be best suited to work with someone who runs a hotel or bed and breakfast business. Ask your local business centre advisors who they recommend as the best local accountants in your area, if you can find a good accountants close to where you live this is an added bonus as you can also pop down to see him/her if you have any problems or questions relating to your accounts.

It is also worth finding out how big the accountant firm is, a large accountancy practice might be good for big businesses but they often charge more than a smaller, family run affair who are likely to more familiar with small to medium sized businesses. Checking out the accountants website will give you a good first impression, the next step is arrange an initial consultation.

Competition amongst accountancy practices is usually pretty fierce so they should be eager to impress you, a good accountant will not mind you asking to speak to their other customers. This is the ultimate test as you will get the best reviews from existing customers. If the accountant comes up with some story about client confidentiality then maybe they are trying to hide something, in which case politely sit through the rest of the meeting and then look for another accountant to go and see.

The Yellow Pages or Thomson Local directory will have many accountants listed or you can even check your local newspaper classified ad section.

By careful consideration there is no reason why you cannot hire a professional, friendly accountant who can take your business to the next level. Remember, accountants are not just for tax returns, they can help with whole host of financial services designed to make you business better and stronger.

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Have You Been Turning Down Businesses for Not Having Competent Bookkeepers?

If you are a CPA or an accounting firm, this is something you might be familiar with. For the others, here is a little insight into the problem. Competent bookkeepers are a scarce resource. This is because bookkeeping is a skill honed only with experience, moreover it is lower in hierarchy when compared to accounting, in which most youngsters opt for as a profession. This scarcity has created huge demand for quality bookkeeping.

The 'scarcity' scenario has led to a situation where CPA's and accounting firms have to pay a higher price to get competent bookkeepers. Though this is somewhat manageable for accounting firms, it is out of the question for most CPA's who work individually. The end result- they have to turn down new businesses for not having good bookkeepers to take care of things like basic entries. Wondering why accountants can't take of this themselves? Well they can, but not when there is too much to do. Accounting is where the money is, henceforth they would be wasting time if they did more bookkeeping than accounting. Therefore they tend to turn down new businesses when they find their hands full with clients for whom they do both bookkeeping and accounting.

So this gets you thinking if there is a way accountants could welcome new businesses without having to worry about the bookkeeping.

Well there is. The answer lies in Outsourcing.

Yes, there are outsourcing companies that provide quality accounting bookkeeping services among the regular BPO services of call center and customer support. The bookkeepers here are usually graduates in accounts or related streams, therefore bookkeeping comes easily to them. They can effectively do the job for less that half the price you would have to pay a competent bookkeeper in your vicinity.

Apprehensive about outsourcing books and accounts?

Well don't be. You would be amazed at the levels BPO's go to in order to ease this concern. Things like secure portals for data transfer, policies such as "no working for competitors" are some of them. Some BPO's also offer to work from your computer where you provide them remote access. In such a case your financial documents wouldn't leave your office.

CPA bookkeeping is the name of this service that BPO's provide. If not listed you could ask for accounting bookkeeping services. If your an accounting firm or CPA, this is the perfect solution for you. Make your business grow in a convenient way!

What Are the Roles of Accounting in a Business?

Accounting, a system for measuring and summarizing business activities, interpreting financial information, and communicating the results to management and other stakeholders to help them make better business decisions, is said to lie at the heart of every business.

A business can likely survive, for a while at least, with no effective marketing plan, poor human resource management and indeed a poorly designed business strategy. However, it's impossible to run an organization or make sound investment decisions without accurate, timely financial information; this is what the accountant prepares, summarize, interpret, analyze and communicate.

On the positive side, good accounting, along with financial management, can truly help keep the business under control; it also provides the owners, management and others with the information and the confidence to make the bold decisions and take the opportunities to help the business grow. This is because accounting basically functions in recording and provision of financial information to the individuals who run the company.

Important Functions of Accounting

Accounting Functions are divided into 5 Main Functions:

-Record Keeping Function. This involves the creation of financial records of business transactions, keeping a systematic record of financial transaction - journalization, posting and preparation of final statements. This is done in order to be able to create financial statements to report regularly to the interested parties.

-Protection of Business Property. This involves protecting the property of business from unjustified and unwanted use. The accountant thus has to analyze flows of finance of the company and design such a system of accounting which protects its assets from an unjustified and unwanted use.

-Legal Requirement Function. This involves devising such a system that will meet the legal requirements. Under the provision of law, a business owner has to file various statements such as income tax returns, returns for sales tax purpose etc. These tax statements can be determined by using accounting system that follow the requirements of law with the help of which various returns, documents, statements etc., are prepared.

-Communicating the Results. Accounting is considered to be the language of business. There are various transactions that are communicated through accounting. On the other hand, there are many parties such as owners, creditors, government, employees, etc, who are interested in knowing the results of the firm. This is where communicating function of accounting becomes involved as accountants need to assess and analyze the financial position of a business at a particular moment in time basing on the financial information gathered. And then, the accountants can communicate the meaning of financial information and work with individuals and organizations to help them use financial information to deal with business problems.

-Getting numbers is the easy part of accounting, particularly since the introduction of the computer and the numerous numbers of online or web-based accounting software solutions that one can avail out in the web, either for free or with a fee. The hard part is analyzing, interpreting, and communicating information and doing so clearly while effectively interacting with people from all business disciplines.

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Finding the Right Software for Tax Collection

Do you work for a city government? Are you involved in the collections department for local taxes? If so, then you know what a difference that good software for tax collection can make for a local government agency. This being the case, there are a few things that you should look for when trying to choose the right product for your department. Make sure that the product you buy is easy to use, is capable of handling the amount of data that your city requires, and can effectively and efficiently track which residents are delinquent on their payments.

Is the Product Easy to Use?

The first thing that you should look for when looking for software for tax collection is that a product is user friendly. There is nothing more frustrating than trying to use a program that is completely non-intuitive. Additionally, it can be very frustrating to try to train your employees or those in your department on such a program. This being the case, you should know what capabilities you are looking for in a program and make sure that whatever you choose meets these needs in an easy to use way.

Is the Product Capable of Meeting Your Needs?

The second thing that you should consider when shopping for software for tax collection is that the program is capable of processing the amount of data that you need it to process. If you work for a large city or county, then it is important that you only choose a program that is capable to meet the needs of an area as large as yours. This means that you should be well aware of the amount of data that you will have now and in the years to come and make sure that any program you buy can accommodate this.

Does It Have an Effective Tracking feature?

Finally, if you are looking for software for tax collection, the first thing that you need a program to be able to do is to track delinquent payments accurately and in a way that is easy to follow. Be sure to look for a program that can do this in a way that will make your department run as efficiently as possible.

In all, there are a number of things that you should look for when shopping for software for tax collection. You want to be sure that it is easy and intuitive to use, that it is capable of meeting the needs of your department, and that it has an effective payment tracking feature. While there might be other things that you need, these features are a good place to begin looking.

Accounting and Movies: A Connection

There have been a number of movies that have been released pertaining to current trends in accounting and finance, especially around the 1990's. Examples of some movies would be "Other People's Money", "Boiler Room", and Enron: "The Smartest Guys in the Room". Below I will give a brief overview of the movie "Other People's Money" and state how this relates to our accounting class and accounting in general. I will then give examples and facts to back up my example. Lastly, I give my opinion on the following clips that we watched.

"Other People's Money" is a movie released in 1991, about a Man who targets corporations with undervalued assets and works to obtain a controlling interest in them. Danny DeVito or "Laurence Garfield" notices the downfall in a division called New England Wire and Cable and decides that he wants to gain approval and buy the company. This division is especially appealing to Garfield because they have no debt, no pending lawsuits, valuable assets, a fully funded pension, and a strong liquidity position. In the film the Wire and Cable division has consistently been losing money and its losses have been funded by the profits of the other divisions of the company. Ultimately, Garfield wants to come in and sell the assets making the shareholders money and eventually get rid of the division.

This movie relates to accounting because it brings in the concepts of GAAP, financial statements, ethics, and liquidation. "GAAP" or generally accepted accounting principles are a common set of accounting principles or procedures that companies use to come up with their financial statements. Our accounting 302 class is in compliance with GAAP and we follow the guidelines when dealing with inventories, depreciation, liabilities, assets, impairments, and depletion.

In the clip "Other People's Money" Danny DeVito tries to show the owner of the New England Wire and Cable division their company's investment in the market or "market value". He does this by adding their assets: equipment, land, other operations, and working capital and divides them by their number of shares outstanding. He proved to the company that while their stock price should be at $25.00 a share, it is only at 10.00 a share or in Danny DeVito's words, "a sale." This relates to our class discussion because it brings into account investments, revenue recognition, and earnings per share. We will also be learning about statements of cash flows, which are in relation to the financial statements.

Ethics and liquidation also plays a big role in the film. A highly liquid asset is something that can be converted into cash at a rapid pace and is like cash because the price remains relatively constant when being sold in the market. Danny DeVito is also called "Larry the Liquidator" in the movie because he is known for liquidating companies, or selling off their assets. This will eventually get the stockholders money however it puts the business in a position to fail. Ethics comes into play here because you have know what is right from wrong and take into consideration all whom will be affected by decisions that you make.

Sometimes ethics is not enough because you cannot trust everyone to do the right thing all the time. In 2002, a bill was passed and was called Sarbanes Oxley or "SOX". This bill was passed because corporations "cooked the books" or in other words they would lie on their financial statements. This ended up costing investors billions of dollars because the corporation would go bankrupt, some examples would be that of Tyco, Enron, and WorldCom. "SOX" has made strict rules that all accountants must follow, especially CPA's who audit, and now require CFO's to sign off on statements proving that they are legitimate. Sarbanes Oxley and ethics plays a big role in accounting which is why I thought it was relevant to our accounting class as well as all accounting majors.

I have previously seen "Other People's Money" in the past and have enjoyed the film. Overall, the assigned clips we watched were very interesting and informative. It was a nice change of pace to see how accounting really applies to businesses not just by being told, but instead by watching this movie. "Other People's Money" ties in well with different levels of accounting ranging from intermediate to advanced classes because it brings into account liabilities, market value, GAAP, and other accounting terms such as working capital and liquidation. The movie also displays a real life situation very well and puts it into a plot that is enjoyable to watch so you are entertained and learning at the same time.

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How Healthy Is Your Business?

Many businesses just look at their profit & loss statement (aka income statement), but you could be missing out on some helpful information.

Have you ever heard of accounting ratios? The first time I even learned of them was when I somehow stumbled on them in the help in QuickBooks (it's no longer in there). But they explained why I was struggling financially even though I had money in my bank account and my P & L showed a profit.

Banks often use ratios to analyze your financial statements as part of the loan approval process, so it's helpful to know in advance what they'll see. Acceptable ratios can vary by industry, so you might find that your accountant or trade association may have those numbers. Would let you know how you compare to those in the same line of work.

Profit margin is a simple one. This looks at the percentage of sales you get to keep before taxes. Acceptable margins vary widely by industry. An easy way to get this percentage is to

1. Run your P & L.

2. Click on Customize Report

3. Click on Percent of Income

4. Now you have your percentage.

For those of you who have direct costs, like contractors, landscapers, wholesalers, retailers, you may also want to look at your Gross Profit Margin. This looks at the percentage of sales you get to keep after your direct expenses but before your overhead. So, if you have your direct expenses showing as Cost of Goods Sold (which I highly recommend), then this is just as simple at the Profit Margin ratio. Using the steps listed for profit margin ratio, you can now see the percentage of direct expenses before overhead.

Now here are a couple of the ratios I stumbled upon. To calculate these ratios means you need to run your Balance Sheet (I know many of you do not), and that the Balance Sheet is in good shape. (I run it at client sites to see if they are making common mistakes that can go unseen on the P & L but jump out at you on the Balance Sheet). But that's an article for another day.

Current Ratio - How easily can you pay your debts? For a true picture, you will want to include the "current portion of long-term debt". In other words, if you have 4 years left on a loan, move 12 months of principle from long-term liability to current liability. (Your accountant or lending institution could help you determine this number if you need assistance.) This can be a substantial dollar amount depending on the number and size of your loans. But even if you don't do this, it can still be a good eye opener. Simply divide your Total Current Assets by your Total Current Liabilities.

Debt Ratio - What percentage of your business is financed by debt? To get this ratio, divide Total Liabilities (debt) by Total Assets.

So take a look at these ratios for your business and see what you get. If you want to know if they are good or bad, your accountant can help you determine how you are doing for your industry. I would recommend that you look at these at least quarterly if not monthly. You may find that for your industry, these ratios will fluctuate seasonally.

And, if you're not sure if your balance sheet is in good shape, your accountant can give you a quick yes or no - hopefully you'll get a yes. If it's no, we'll be happy to see what may be going wrong in your QuickBooks.

The Two Kinds of Accounting

Bookkeeping is one of the oldest professions in the business world. It began in ancient Mesopotamia, where farmers and herders needed to keep track of their crops and livestock. Their form of bookkeeping relied on the usage of tokens, and this development marked the beginning of an entire industry of professionals who would continue to gain importance as the modern business world evolved.

Today, the world of accountancy is multifold. No business or industry, no matter how large or small, how self-contained or externally divided, can function properly and ethically without the work of accountants. There are two major forms of accounting that are distinct from each other: managerial accounting and financial accounting. When considering a career as an accountant, it is important to obtain a good background education in the principles of both forms before making the decision regarding which kind of account you want to become.

Managerial, or management accounting is an internal form of accounting employed primarily within single businesses and concerned with the growth and development of that business. Its interest is fully absorbed with the costs and profits of a company with minimum regard to external considerations, like shareholders or outside investors. A managerial accountant works closely with a company in terms of decision-making, planning, and assisting in the company's forward-looking strategies. If you consider yourself more of a team-player within a group of shared interests, cost and managerial accounting is best suited for your career aspirations.

In contrast, financial accounting is a bit wider in scope. Financial accountancy is more of a central mind, tying and sharing financial information together for a large collection of interested parties, like companies, stockholders, banks, and even government agencies. Financial accountants are responsible for measuring and monitoring performances and profits and reporting constant financial feedback to all of the interested users. Unlike the managerial accountant, the financial accountant is less concerned with the day-to-day operations of an individual company. If you have more of a mind for mining data and finding patterns, consider specializing in a career as a financial accountant.

When considering enrolling into an accounting college, choose a program that offers students a generalized education in the early semesters. This allows the student to get a taste of all the various forms of accounting before having to decide upon a specialization. Not only will the student get a basis in both managerial and financial accounting, but also some other accounting specializations that could be pursued, such as taxation, business finance and applied accounting systems. Another important consideration in selecting a program is having good transfer options after the early semesters. A basis in accounting could lead the student to other areas of the business world like business marketing, insurance, administration or financial services.

Obtaining good accounting training, therefore, opens up to the future accountant a wide variety of options in the business world. But for those dedicated to working in the exciting world of number-crunching and financial planning, whether within the family of a single company or as the networking centre of the larger financial world, then management accounting or financial accounting is a great career you can count on.

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The Customers Bigger Accountancy Firms Miss

At first glance, it does seem like the bigger accountancy firms are the best to work with. The image is that of a large and trusted organization with many happy customers. This draws everyone including small business owners, who later become customers. What is not immediately obvious is the bias with which they treat bigger clients. This affects small clients in terms of delayed work and improper responses from accountants.

However, the most annoying thing is not being able to reach your accountant. Yes! Their phone lines are constantly engaged and they don't seem to respond promptly to emails. This scenario of the professionals being 'unavailable' is more prevalent if you are a small business owner whose accounts are with a large firms.

Since it is a big and reputed company, you subconsciously expect them to do be great at their jobs. Due to this mentality, we often seem to forget the fact that we are the customers here.

What this all leads to?

A very unpleasant accounting experience which repeats itself all through the year. This brings us to the question- is it all worth it? The answer is no, it is not. Not for all the pressure, time and money invested in the process. Appointing individual accountants for the job also may not be a great idea since you cannot be sure of the quality of work.

The ideal solution lies in finding an accountancy firm which specifically caters to small businesses. Not surprisingly, there are companies that do that. They long understood the bias that exists among the big accounting firms and decided to cater to this 'dejected' group.

Here are some of their policies

• They make sure that they are always available and encourage face-to-face meetings.
• They take in companies whose employee strength are under 100.
• No hidden charges- they see to it that the prices are fixed with no hidden charges.
• They travel to your place to meet you at your convenience.

These policies make them the perfect accounting partners for small businesses and start ups. It couldn't get better can it?
Moreover, their rates are mostly affordable or at max, on par with the biggies. You don't have to pay extra for the special attention.

It is indeed sad that the big accounting firms lose this group of people. However, everyone stands to benefit with the idea of specialty accounting firms for small businesses. So if you are a small business looking for better accounting solutions? You might want to find such an accountancy firm in your locality! Small business accounting helps most of the concerns to cut down the costs. Add value to your business by figuring out the perfect accounting solutions.

Accounting for Law Firms - Get Your Trust Funds in Order!

One of the most difficult bookkeeping tasks for law firms is the correct processing of client trust accounts. The client trust account is a bank account where law firms hold money for a client to cover the cost of expenses. The trust account, also known as an IOLTA account (Interest on Lawyers Trust Account), must be separate from the law firms operating account and the funds must be clearly identified. Each state has guidelines governing the handling and reporting of attorney trust funds. Attorneys can neither borrow from or utilize trust funds to operate their business.

One of the easiest ways to properly account for and reconcile the trust funds account is by purchasing proper accounting software, although there are several on the market, I prefer utilizing QuickBooks software. The software is reasonably inexpensive and will provide attorneys with the tools they need to not only properly manage their trust account, but also to run the daily operations of their business, including billing. Please note that some larger firms will have different requirements and may utilize a QuickBooks add-on for their billing purposes.

Within QuickBooks, the user will set up a bank account named "Client Trust Account." If more then one trust account is required, the user can set up subaccounts, one for each client. The subaccount is part of the main account, but all of its transactions will be kept separate.

The next step would require the user to set up a Trust Liability account, which represents the money owed to the client. subaccounts should be assigned for each client as noted above for the Client Trust bank account.

By utilizing the subaccounts all activity of each client will be easy to reconcile, and the user will be able to access reports for each trust fund under their control making compliance a snap. A feature in QuickBooks will enable the user to generate a custom report, a "Trust Liability Proof" to illustrate that the trust fund accounts are in balance.

The above represent a simplistic scenario. There are other issues and work arounds that can be incorporated depending on the complexity of the situation. Examples of this are whether setting up a separate Trust Accounts Payable account is necessary or if the user will use a firm credit card to pay for client costs (some states may prohibit this practice), or whether expenses are paid for by the firm and then reimbursed from the trust fund etc., or there can be several matters the firm is working on for the client and the funds for these other matters must be segregated, or lastly, if the volume of trust fund activity is large, I would recommend maintaining a separate company file in the software.

Mobile Contract Cleaning Billing Cycles - Get Those Invoices Out ASAP to Reduce Receivable Timetable

Let's say that you run a mobile service business, and for the sake of argument let's say this is a mobile contract cleaning business. One which you go out to the location of the customer, clean whatever it is you've contracted for, and then at the end of the month you bill them for all of your visits. Well, in this case, let's say you did the service every Wednesday but on this particular month the last Wednesday occurred on the 24th of the month.

Well, in that case I would suggest that you send the bill out when your cleaning service vehicle comes back to your headquarters and have that invoice ready in the mail the next morning on the 25th. I would suggest that you do this rather than waiting till the last day of the month to send out the invoice. Why you ask? Well, if the last day of the month is the 30th then that invoice will not go out for another six days. The sooner the company that you are doing services for gets the invoice, the better chance that your invoice will be at the top of the pile at their accounts receivable department.

If you are dealing with a large company and you are working on a contract cleaning agreement, perhaps your agreement says that you will be paid in 30 or 60 days. In that case it makes sense to get the invoice in that six days early to get that clock ticking. After all, many large corporations now are trying to find ways to save money and increase their cash flow so they can show greater profits to increase their shareholders equity; meaning that they want to hold onto that invoice as long as possible before they pay it.

As I talk to many small businesses around the country, they tell me that the corporations may cut the check, but they will wait till the 30th day to write the check, then they will mail it, and then the small business has to wait for the mail as well. Even if the contract states that the Corporation they are doing business with has to pay a 2% penalty if they are over the 30 days. Interestingly enough, if you ask a consumer when they must pay their credit card bill, they will tell you that that credit card payment has to be in and cashed by the credit card company before the end of the time period.

It seems that it's unfair for small businesses in this regard, and they are being taken advantage of, but more so the reason to get those invoices out at the earliest possible date. Indeed I hope you will please consider this, and rather than doing all the invoices at the end of the month, you should do them on the last day of service for that month, and get them in the mail as soon as possible. Please consider all this and think on it.

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Tips About Invoice Factoring

One of the most difficult things about being in business is cash flow, but invoice factoring may provide the means necessary to keep the business flowing. After all, you need a certain amount of cash on hand at all times. But what if you have a stack of invoices that just haven't brought in the cash yet? You can't afford to wait until those customers decide to pay you. If you want to be successful, you've got to charge on-even if you don't have cash on hand.

This may sound impossible, but there are solutions for businesses that have a cash flow problem. Invoice factoring is one of the easiest ways to keep the cash flowing even though your invoices remain unpaid. Here's how it works. You receive quick cash based on that stack of invoices. It's quick and easy. The invoice factoring company simply buys your invoices and gives you an advance payment to tie you over until your customers actually pay. Their payment then goes straight to the invoice factoring company. If it sounds too good to be true, then it helps to understand more about the process.

Here are some tips to help you use this financial vehicle successfully:

• Most invoice factoring is done in two installments. The first one is basically an advance, and it is given to you when you hand over the invoice to the financing company. The second payment, which is also known as the rebate, is given to you after your customer pays the invoice.

• Advance payments can be anywhere from 60 to 90 percent of the gross value of the invoices, with 80 percent being about average.

• With this form of creative financing, you get paid immediately rather than having to wait one to three months for your own customer to pay you.

• The cost of using this service depends on three components. The credit level of your customers is one component, and the amount of time it takes for your invoices to get paid is another. The third component is the monthly factored volume.

• Usually you will pay anywhere between 1.5 percent and 5 percent for each transaction you make.

• Businesses that are growing quickly can especially benefit from this form of financing because it enables them to get the cash flow they need quickly to keep up with the rapid pace of orders coming in.

• Invoice factoring is different than a bank loan because most banks will not give you a loan based on the stack of unpaid invoices you have. The focus is instead shifted to how much credit your customers have rather than how much credit your business has.

• It's helpful to have insurance against fraud and / or requiring your customers to be audited. This will help reduce the risk of using this type of financial solution.

• When choosing a company to handle this part of your financial affairs, choose one that is knowledgeable about the laws regarding it.

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