Tag: Inventory

Posted on May 16, 2016

Checklist 1200

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 PLANNING
Small 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 FORECASTING
In 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 MARGIN
Amid 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 FORECASTING
Cash 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.

INVENTORY
For 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.

PAYROLL
For 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.

BANKING
Most 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.

TAXES
You 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 COMPLIANCE
Laws, 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.

EMERGENCIES
Preventing 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.

SB Quarterly Pulse Check Cover

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!

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Posted on May 22, 2015

A Day in the Life of a CPA

 

I anxiously arrived at Deloitte for my first day of employment and met with my assigned mentor. He showed me the supply room and introduced me to some of the team members. I was so excited. The firm administrator, who everyone seemed to fear, delivered my business cards and gave me my first assignment. Throughout the interview process I knew I would be working on one of the largest engagements in the Tulsa office, however, it would not be starting for a couple of weeks so I got assigned to a special project working in the consulting group. I met with the consultant, Robert, to get started, and he outlined the project goals and indicated we would be working with a client located in Muskogee, Oklahoma.

The next morning we met at his house and drove to the client location. It was in January and very cold. During the 30 minute drive, Robert explained that the owner of the privately owned company, which manufactured and distributed toilet paper, was trying to understand why the manufacturing waste variance was at 27% when the industry standard was only 4%. Since we provided audit and tax services to the client, they decided to engage us to review the production records to determine the cause of the variance. Robert was certain it had to do with irregularities within upper management. Robert explained as we arrived that we were going to be disguised as the audit team starting the annual audit.

As we pulled up to the client, Robert explained things may get intense but not to worry if things get out of control. As he slid his Glock from under the seat, he reassured me that he would keep us safe if the situation became confrontational. I tried to recall from my college and CPA classes if this was something a CPA would normally encounter. I was very worried -but I was in Muskogee, Oklahoma with no car to run back to the office, so I decided to trust that it was going to be ok.

The receptionist led us to the conference room with the President and all the other officers of the client. They introduced us to our key contacts and we got started immediately. Our objective was simple: recreate ending inventory from production records. The process was tedious and the working conditions were difficult. It was 1992 and everyone that worked for the client smoked heavily so it felt like we were working in an ashtray.

As time progressed, the President and other officers became aware of our focus on inventory, so we told him that we rotated our testing and this was the year for us to focus on inventory. It was getting tense, but at the same time- we were making progress. The production manager fed us everything we needed to calculate what ending inventory should be based on production and shipments. Finally, we had the results.

We met with the owner and controller of the client to discuss our conclusions. It was obvious that inventory was being fraudulently removed from the warehouse. The owner wanted us to provide an opinion in writing that someone was stealing the inventory. We told him that under our CPA guidelines this was not possible. We could only give him the data we accumulated and he would have to handle it from there. He was furious and said he was not going to pay us and that he planned to contact his attorney to review his options of suing our firm for malpractice.

The next day we arrived at the client to gather our work papers and clear the field. It had been an exhausting 3 weeks and our efforts seemed to only make matters worse. As we were gathering our things, Robert asked me to fax his expense report to the office. The main fax machine was not working, so I asked the receptionist if there was another fax. She offered me the President’s fax machine and unlocked his office to allow me in to use it. I picked up a sheet that had been left on the President’s fax machine. It was a purchase order for toilet paper from a convenience store addressed to another company. I quickly realized the issues we had uncovered in ending inventory were directly connected to the President. He had been selling the inventory made by our client in the name of another company. I took it to Robert and by the next day they arrested the President. Robert and I went from goats to heroes, and the client was satisfied.

CPAs are called upon every day to help solve complex problems business owners face. We take both conventional and unconventional approaches to help business owners navigate seen and unforeseen challenges. We add value because our involvement provides our clients credibility in the financial markets.

I am now a partner at Cornwell Jackson with 23 years of experience. As CPAs and advisors, we work relentlessly to help our clients by going above and beyond to exceed our client’s expectations. Please contact us if you need a CPA that will provide solutions that help your business grow and prosper.

Blog post written by: Scott Bates, Audit Partner

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