How to survive sales and use tax audits

Any growing company can expect to hit the department of revenue’s radar at some point. Since it may be inevitable, it’s important to be prepared for sales and use tax audits.

“Each state has its own criteria that guide its decision to conduct an audit,” says Cheryl A. Fields, sales and use tax manager at Clarus Partners. “Sometimes it can be a noticeable change in what would be normal business activity that will trigger an audit; other times it’s because a company is doing business in a state but is not registered to do so. With all states and localities trying to balance budgets, they are carefully looking to ensure each business is paying its fair share of tax.”

Smart Business spoke with Fields about preparing for and surviving a sales and use tax audit.

What typically triggers a sales and use tax audit?

States consider different criteria as they scan the market for potential sales and use tax audits. For instance, states are looking more closely at internet-based businesses and transactions. Sometimes an audit is instigated by a phone call from a customer questioning the taxability of a transaction or a specific business practice. Other times an auditor may discover an irregular transaction during their daily activities and choose to investigate further. Regardless of why an audit is initiated, every company could be subject to one.

What are auditors looking for?

Auditors primarily dig in to a company’s financial records to make sure everything has been reported correctly. They’ll look carefully at any exempt sales to make sure the company has documentation showing the exemption is valid. An auditor will check expenses, both capital and recurring, to make sure everything that should have sales tax on it does, or the business paid the corresponding use tax.

Who is required to charge sales tax differs in each state. Companies that execute sales through the internet should keep track of the changes in the nexus requirements for each state and the changes in business activities, such as marketing efforts and expansions, where the sales personnel are located, to stay compliant.

What happens if the auditor finds issues?

If there are issues discovered through an audit, the department of revenue will issue an assessment. The company under audit, however, has a chance to review the findings prior to an assessment being issued.

If it is your first audit, many jurisdictions will waive the penalty associated if the assessment is not a result of fraud or gross negligence. Most states and localities will assess the interest. Penalties can be assessed at 25 to 30 percent of the tax involved. A fraud penalty will be greater.

How can companies prepare for an audit?

Keep communication with the auditor open, but give him or her no more information than what they request. Document the process and keep a log of all of the audit activity, i.e. when documents were turned over to the auditor, when they call, etc. This information could be helpful if there’s a need to challenge the assessment later. Also, remember that auditors are not trained to look for overpayments of sales and use tax. Therefore, it is necessary to review your records for sales and use tax paid in error so it will be included in the audit results. This may reduce any assessment or the state may issue a refund.

Challenges are common because the statues/laws are subject to interpretation. Read the law and make sure they are applying it properly.

What common mistakes do companies make that lead to penalties?

Most companies get in trouble when they don’t have the needed documentation. What’s important is that the company addresses the issues upfront with the auditor and agrees on an acceptable method to complete the audit.

There’s no need to be afraid of a sales and use tax audit. Establish a good working relationship with the auditor so that the audit will not become unnecessarily difficult. Never be afraid to challenge an assessment because the laws are subject to interpretation and you know your business better than the auditors. Consider it a routine part of doing business.

Insights Accounting is brought to you by Clarus Partners

How to determine if a family office is right for your needs

Family offices combine the expertise of financial, accounting and legal professionals all under one roof. However, the term “family office” is sometimes a confusing phrase that needs further clarity and understanding.

The family office is unique in and of itself. As the old saying goes, “If you’ve seen one family office, you’ve seen but one family office.”

“Each family office has myriad services it can offer a family, and there are two different types of family offices: single-family offices and multi-family offices,” says Floyd A. Trouten III, CPA, a Director at Barnes Wendling CPAs.

“Both types cover separate family office functions for a mixture of family groups. Multiple generations of family members can be part of the family office. The function of a family office is defined by the family and individual member needs.”

Furthermore, a critical role of the family office is providing financial education to younger generations.

“These educational services can include offering mentorship for family members as they begin to enter the business world and assistance in the development of next generation leadership within the family,” Trouten says. “Generally, family offices will also provide office services as necessary for any philanthropic planning or governance.”

Higher-level family office services can include concierge travel arrangements, calendar control and maintenance, bill pay, budget preparation, analysis and other direct financial functions.

Smart Business spoke with Trouten about the evolution of family offices and how to determine if they are a fit for your particular needs.

How have family offices evolved?
In recent times, family offices have reinvested heavily in closely held operating businesses. The pendulum has swung away from pure financial assets to ownership in operating entities. In fact, some family offices will co-invest, or outright compete, with private equity groups for highly valued targets. Family offices, unlike private equity funds, usually do not have a limited hold period for the investment, thus providing the luxury of taking a longer term view.

All in all, family offices serve as a way to protect family financial assets, minimize risk, educate family members and develop next generation leadership. From a purely financial perspective, family offices are able to control costs, manage taxes and cash flow, provide objective measurements of financial returns and assist in choosing what assets to invest in.

How can an accounting firm help family offices?
An accounting firm can provide valuable services to family offices, such as tax planning, compliance services, cash flow management, asset protection planning and investment management.

An accounting firm can also screen outside service providers, determine the risk profile for various buckets of investment dollars and review private investments as part of the overall asset diversification plan. An important service family offices should offer is specialized estate and trust planning that accounts for beneficiary needs while providing the most advantageous tax positions.

Difficult discussions may need to occur in order to make sure the family office has a clear purpose so the entire family is focused on what is best for the group. The financial needs of one family member should not outweigh the others. Prudent and thoughtful advisers are needed to help reach the optimum group goal.

How does someone determine if their needs require the services of a family office?
The more complicated your situation, the more you may need a family office. For example, if you’re selling your business and need to make important decisions regarding financial or legal management, an accounting firm specializing in family office services could manage these issues for you.

The assets of the family are much more efficiently and effectively managed when using one overseeing organization. The greatest value of an accounting firm is its ability to coordinate all of the various professional services needed to manage the financial affairs of a family.

Insights Accounting is brought to you by Barnes Wendling CPAs

Too many companies miss out on common cost-saving tax credits

Many businesses fail to take advantage of cost-saving tax credits made available by state and local governments. These credits are established by jurisdictions to incentivize behaviors such as job creation, which helps offset employers’ costs to create new positions while increasing the tax base. Other targeted hiring incentives are designed to encourage businesses to hire individuals in certain categories who may have trouble finding employment — for example, people with disabilities, veterans or those on public assistance.

“Tax credits are also used by state and local governments to encourage businesses to make investments in their jurisdiction, either through job creation, capital investments or to get outside businesses to set up facilities within their borders,” says Monika Diehl, tax director at Clarus Partners.

Smart Business spoke with Diehl about how businesses can identify and take advantage of available tax credits to offset expenses.

What are the basic criteria for receiving tax credits?

Tax credits are typically available when a business makes a meaningful investment in its workforce, for instance by creating 10 new positions or investing in training programs to teach new skills to employees. In some cases, credits are aimed to attract businesses in certain higher paying industries, like technology, for instance, to encourage more of those types of companies to set up shop in a jurisdiction.

Some companies may be engaged in qualifying activities and not be aware that they qualify for a tax credit. And to the extent that a business is planning to make an investment — by hiring employees, buying equipment, relocating or adding another location — there may be opportunities to work with a consultant to get a negotiated incentive package.

What’s the difference between statutory and negotiated credits?

Statutory tax credits are written into the law and can be taken, typically without an advanced application, as companies file their annual tax returns. Businesses must meet certain criteria to qualify for them, which could be based on the type of business, hiring individuals from certain categories, or because they operate in an economically disadvantaged area. Businesses generally must complete a form to calculate and claim their credit, then include the form with their tax filing.

Negotiated incentives are usually a part of a larger project and most often come into play when a business is considering relocating or building a new facility. They create an opportunity to get state and local jurisdictions to compete with each other for the business. Such incentives are rarely the reason to move, but they are an influencing factor in where the company ends up.

These tax credits are negotiated with economic development departments. In most cases, the interest of the government offices will be around how many jobs are created, the pay level of those jobs and the total proposed investment in capital assets. For the companies, the negotiated package might include credit for each new job created, training grants for new employees, low interest financing for capital purchases and more.

What’s the difference between refundable and nonrefundable credits?

Nonrefundable credits reduce a company’s tax liability to zero, but not below. In many cases the remainder, or amount of available credit that couldn’t be applied in a given year, can be carried over and applied to the next year’s tax liability. Refundable tax credits allow companies to reduce their tax liability below zero and get a check back for the difference.

What compliance components are associated with these credits?

After qualifying for some tax credits, there is compliance work that needs to be done. This is usually an annual filing requirement to report on how the company’s growth and investments made during the year compare with what was planned. Companies must be aware of what’s due and when to get their benefit. Missing a deadline could delay receipt of the incentives.

There are many incentives that exist for companies large and small, but they must be sought out. Talk to a consultant to see what opportunities exist to reduce costs.

Insights Accounting is brought to you by Clarus Partners

Let an owner representative guide your commercial real estate project

An owner representative in a commercial real estate project serves as the eyes and ears for an owner. These professionals have expertise from a number of different disciplines and bring them to bear on a project, tackling financial, accounting, project coordination and real estate elements.

“Leveraging the experience of an owner representative means the owner doesn’t have to use his or her company’s resources and take people off of their main tasks to oversee a real estate project,” says Dale Bradford, Esq., a principal at Skoda Minotti.

“Working with an experienced owner representative on a commercial real estate project, whether renovating or buying land and building, means putting the task in the hands of someone with experience to ensure the project gets completed on time and on budget.”

Smart Business spoke with Bradford about owner representatives and their role in commercial real estate deals.

What are the common roadblocks in a commercial real estate transaction?

Companies must deal with the jurisdictional requirements, such as zoning, and concerns such as whether the location is within a flood plain. There are also environmental issues, such as whether or not the property is on a brownfield, has hazard violations or could be in a protected wetland.

There are many reasons land may not be prime for development, for instance, because of geological limitations. Issues found underground can be among the most problematic for a real estate project. Owners can rest a lot easier after the foundation is built.

Other concerns that need resolved are the title, easements, and determining if there is access to necessary and sufficient infrastructure, such as water, sewer and electric.

Many due diligence questions need to be asked from the initial research through the project to completion. It’s an owner representative’s job to think about everything that’s involved and be sure that any point at which a problem could arise, it either doesn’t or is quickly addressed when it does.

Why should an economic analysis be performed?

The overall cost of a project is determined and reviewed between the owner and owner representative. Its basis is established by matching the functional necessities of the final structure with the available budget for its creation. It’s very important that owners carefully set a budget for the project and understand what outcome is feasible for that money, and where the funding for the project will come from.

Crunching numbers and setting budgets may sound like a job for a CFO. But — and with respect to CFOs — they aren’t necessarily focused on the same issues as someone who primarily does commercial real estate. Owner representatives are naturally considering such elements as the cost of materials and putting together bid proposals. It’s a different assessment than those most companies do regularly, which is why it’s better left to experienced professionals.

What factors determine whether or not to proceed with a commercial real estate development project?

There are basically three:

  • Outside third-party incentives offered by the authority overseeing the state or local jurisdiction, such as tax credits and tax abatements, or other government incentive programs specifically created to facilitate real estate development projects that offer an owner tangible savings.
  • The availability of real estate in a location that makes sense.
  • Whether it accommodates most or all of the user’s end needs. For example, a manufacturing facility may need nearby access from the facility to a highway or rail spur.

While those are important, consider that many projects fail or cost way more than they should because they are not coordinated well. It can be tough for those who are inexperienced to be aware of real estate project pitfalls. An owner representative has the experience to bring a project in on time and on budget, while avoiding pitfalls that would trap an inexperienced project leader.

Insights Accounting is brought to you by Skoda Minotti

Who you get to audit your retirement plan matters

Retirement plan audits are required by law and sizable penalties exist for companies that fail to meet their obligations. Some companies try to save on the cost of audits by using their existing tax accountant or CPA, which could mean working with an inexperienced auditor who doesn’t perform all the required tests.

Sean Pierce, director of accounting and auditing services at Clarus Partners, says the Department of Labor (DOL) is paying closer attention to the quality of audits and will reject plan filings and assess penalties if filings do not meet professional standards.

Smart Business spoke with Pierce about retirement plan auditing requirements and what to look for in an auditor.

Why are retirement plan audits important?

Retirement plan audits are required by the Employee Retirement Income Security Act of 1974 (ERISA) when filing the form 5500 for large plans. Large plans are generally those that have more than 100 participants. If a plan that meets the audit requirement files a 5500 without an audit by a qualified independent auditor, the DOL can reject the filing and assess penalties up to $1,100 per day, without limit.

What do audits seek to accomplish?

An audit helps the plan administrator carry out its legal responsibility to file a complete and accurate form 5500 for the plan with the DOL and IRS. A financial statement audit provides an independent, third-party report to participants, plan management, the DOL and other interested parties that indicates whether the plan’s financial statements provide reliable information to assess the plan’s present and future ability to pay benefits. An audit may also help plan management improve and streamline plan operations and evaluating the strength of the plan’s internal control over financial reporting.

Who is required to conduct an audit?

Generally, retirement plans are required to have an audit if there are 100 participants or more at the beginning of a plan year. A participant includes any individual who is eligible to participate in the plan, regardless of their actual participation, and also retired or separated participants who are receiving benefits or have an account balance in the plan. Additionally, a deceased individual who has one or more beneficiaries who are entitled to receive benefits in the plan are considered a participant.

Church plans and governmental entities are exempt from Title 1 ERISA audit requirements.

Why is it important to hire a qualified, independent accountant to audit a retirement plan?

A recent DOL study found that firms with limited employee benefit plan audit practices have a higher rate of deficient professional work. The most common deficiency found by the DOL was failure of the auditor to perform tests unique to employee benefit plan audits.

In recent years, the DOL has significantly stepped up enforcement of the audit requirement and audit firm review for employee benefit plans. Hiring a firm that lacks knowledge of the specialized nature of the industry and skills necessary to perform plan audits conflicts with the stated goal of ERISA to protect plan participants. The DOL has the right to reject plan filings and assess penalties up to $1,100 per day, without limit, on plan administrators for deficient filings.

Who else might companies ask to audit their retirement plans if not an independent accountant? What problems does this tend to introduce?

Plan sponsors may ask their tax accountant or other CPA to perform the plan audit because it is convenient or the fees charged are more attractive to the plan sponsor. But like the recent DOL study concluded, the audit quality tends to suffer when an independent auditor is not qualified or properly trained.

What can companies learn from their retirement plan audits?

If a company has hired a qualified independent auditor, they will learn if they are in compliance with the provisions of their plan document, which governs how the plan is to be administered. Additionally, the company will find out if they are in compliance with ERISA requirements for plan operations.

Insights Accounting is brought to you by Clarus Partners

What property owners should know about this year’s property revaluation

Out of the 88 counties in Ohio, some of the biggest are conducting property revaluations this year. A few of the counties included in the 2017 revaluation are Franklin, Delaware, Hamilton and Butler.

“The revaluation will impact all property types including commercial, industrial and residential,” says Holly Swisher, a director at Clarus Partners. “In a revaluation year such as this, it’s highly likely that values will change. It’s important because an increase in property values brings with it an increase in annual property taxes.”

Smart Business spoke with Swisher about revaluations, what property owners can expect and what recourse they have if they feel the valuations are inaccurate.

What is the difference between a revaluation and an update?

Revaluation takes place every six years and is the process of looking at all properties in a county and adjusting their values up or down based on market activity. Updating occurs three years after a revaluation and only if there is substantial information that justifies an adjustment to the values of certain properties or areas. It’s set up so that all counties aren’t conducting revaluations at the same time — some counties choose to outsource the process to third-party appraisers, and there wouldn’t be enough resources available at one time.

What is the impact of an increase of property value?    

When property values rise, the associated tax liability will also likely increase. Taxpayers rarely view this as a positive change. Property values that are set in a revaluation year remain at that level for three years, as does the increased tax liability, until an update year comes around.

Many taxpayers believe that property tax is based on what their property is worth. But it’s an appraisal that provides the best estimate of value. County revaluations are conducted using mass appraisal techniques. The adjustments applied through this process do not address the specific aspects of any one property. In many situations, an appraisal is needed to determine the correct value for a specific property.

What recourse do property owners have if they feel the valuation is incorrect?

Counties issue revaluation notices in the fall of the year that they’re revaluing. Taxpayers have 30 days to request a meeting with the county auditor to discuss the property value if they feel the value that the auditor came up with is too high. This process is considered an informal process during which property owners have the opportunity to sit down and present county auditors with information that may change their mind. If that informal process doesn’t lead the auditor to change a property’s value, the taxpayer can enter into a formal process, before the deadline of March 31 of the following year, to file a formal appeal to the county’s Board of Revision.

Taxpayers who are not familiar with the valuation should have a property tax expert look it over. The expert can provide feedback on the value and compare it to current market data to see whether or not it’s in line with comparable properties. The expert will provide a cost-benefit analysis to give the property owner a sense of how to proceed. Depending on the potential change in valuation, the cost to pursue a reduction could be more than the savings. An expert can advise property owners on the best approach.

It’s important that property owners are aware of and understand the process so they can anticipate when their property value is likely to change. Property valuation is very specific to the jurisdiction and it takes an expert with local knowledge to determine whether a property has been overvalued. An expert’s review gives property owners the best possible chance of getting a property’s value reduced.

Insights Accounting is brought to you by Clarus Partners

Changes to states’ sales, use tax laws will affect companies selling via the web

The rise and proliferation of online commerce has increased the number and value of transactions with out-of-state retailers and in-state customers. A recent court decision has cleared the way for states to enforce sales and use tax reporting requirements and enforce tax collection laws on those transactions, which has put a heavier burden on businesses to comply.

“Because states are now more aggressively pursuing collection laws, companies that conduct interstate business need to be prepared to collect and pay the sales tax to the states,” says Jeff Stonerock, tax director at Clarus Partners.

Smart Business spoke with Stonerock about these laws, what they mean for businesses and how to comply.

What regulations exist for reporting sales and use tax obligations?

In 2010, Colorado passed a law requiring out-of-state sellers to either collect tax based on the amount of sales into the state of Colorado, or if the seller does not collect sales tax, to begin changing their invoices to customers to notify them that sales tax is due on their purchase even though the seller is not collecting the sales tax.

This law requires sellers to provide a year-end statement, similar to 1099s, to all of their customers as to the total amount of purchases that the sales tax is owed. There is also a requirement for the seller to provide a statement, similar to the 1096, to the state identifying customers and their total amount of purchases in the year.

Since 2010, there has been a long court battle with the Direct Marketing Association that was decided in favor of Colorado in the Tenth Circuit court allowing Colorado to impose this law. This past December, the U.S. Supreme Court upheld the decision.

What had been the state tax regulations before the recent court decision?

The prior state tax regulations required some physical presence in a state before the state could impose its laws for sales tax reporting and collection. The states, for over a decade, have been trying to get a law passed by the U.S. Congress to allow them to impose sales tax on out-of-state-companies. The Marketplace Fairness Act was one such bill that is introduced each year to require out-of-state sellers to collect sales tax just like an in-state brick-and-mortar company. Tired of waiting on Congress to pass a law, Colorado took matters into its own hands and became the first state to try to impose tax laws requiring reporting of the sales from the out-of-state seller to its in-state customers.

What is the trend in sales tax reporting?

States are now beginning to impose an economic nexus standard instead of a physical presence standard on businesses. This means the amount of sales or the number of sale transactions allows the state to impose its tax and requirements to collect and remit sales tax on businesses. In some states, companies are required to collect and file sales tax returns if their amount of sales are $10,000 or they have 200 sale transactions to customers in the state in a year.

What does compliance look like?

To start collecting sales and use tax, businesses need to know the sales tax rates in each state. Throughout the U.S. there are more than 12,000 tax rates, so companies must know the address of the customer where the sale takes place or where the product is shipped. They also must understand the unique tax laws in each of those states. Then the company must decide if changes need to be made to its invoices, as well as where sales tax needs to be collected and where returns need to be filed.

There are software programs available that determine the tax rate where transactions occur and automatically add it to the invoice. Many companies that don’t have the volume it takes to justify purchasing such software must manually look up the rates to calculate the sales tax or outsource the compliance to a company that specializes in this area. In any case, the company must register with the state or local jurisdiction to get a vendor’s license number that allows it to properly report and pay the tax. It may be a challenge to adjust billing, but it’s less painful than facing collections through an audit for unpaid sales tax plus the additional penalties and interest.

Insights Accounting is brought to you by Clarus Partners

The reasons your customers are asking for your SOC Report

Service organizations are invaluable to the companies they serve and include such businesses as IT companies, payroll companies, third party administrators of benefit plans, collection companies and billing companies.

However, service organization customers and their auditors often require assurance that the service organization’s internal controls are appropriately designed and operating effectively to reduce the risk of a significant error, omission or data loss by the service organization.

Service Organization Control (SOC) Reports were designed by the American Institute of CPAs (AICPA) to provide that assurance.

Smart Business spoke with Rosemary Rehner, CPA, a Director at Barnes Wendling CPAs, about SOC reporting and how it works.

Why do service organizations obtain a SOC Report?
Service organizations seeking new customers and attempting to stay ahead of the competition can distinguish themselves by obtaining a SOC Report, which reduces customer audit time and effort. Service organizations often find their internal controls subject to inspection from their customers’ internal and external auditors.

The inquiries, checklists and visits can be repetitive and disruptive to operations by drawing significant personnel and resources away from the service organization’s mission. The extent and frequency of customer audits can be reduced with a SOC Report.

The SOC process results in the identification of missing or redundant controls that could put the business at risk or cost the service organization money. Service organizations are often required contractually by their customers to obtain and provide a SOC Report periodically, or it is requested during a customer audit.

What is the difference between a SOC 1 and SOC 2 report?
The SOC 1 Report was specifically designed for service organizations providing services that impact financial reporting for their customers.

For example, payroll companies process payroll transactions and provide reports to their customers who, in turn, use those reports to record transactions in their financial records. Therefore, the payroll company’s controls, or lack thereof, could impact the accuracy of the financial reporting of its customers.

The use of cloud computing, outsourced IT functions and other services that do not necessarily involve financial reporting have resulted in a need for an assurance report other than a SOC 1 Report. With this need in mind, the AICPA created the SOC 2 Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality or Privacy.

SOC 2 Reports provide service organizations with the opportunity to obtain detailed examinations of internal controls other than those over financial reporting.

In a type 1 SOC Report (regardless of whether the report is a SOC 1 or SOC 2), a description of the service organization’s system and the controls designed by management are included. The independent accountant expresses an opinion on whether management’s description of its system is fairly presented and whether the controls included in the description are suitability designed.

In addition to the information contained in a type 1 report, a type 2 report contains an opinion from the independent accountant on whether the controls were operating effectively throughout the reporting period. In other words, for both type 1 and type 2 reports, the independent accountant will gain an understanding of the system and the internal controls.

In a type 2 report, the independent accountant then obtains evidence of the operation of controls throughout the period and concludes, based upon the testing, whether or not the controls were operating effectively during the reporting period.

How do you get started?
Preparing for a SOC engagement involves assessment of the current control environment, the design of controls and limited testing of the operating effectiveness of those controls. Consult with a CPA experienced in performing SOC engagements to help prepare for your first examination.

Insights Accounting is brought to you by Barnes Wendling CPAs

How to ensure you’re getting the most out of your accountant

Accountants are often brought in to a business as an adviser to address issues that are too complex or outside the wheelhouse of the business owner or executives. But not all accountants are created equal. There are signs business owners should be aware of that indicate an accountant isn’t doing as much as he or she could to help move a business forward. And when those signs become apparent, it’s time to part ways.

Smart Business spoke with Kirk Trowbridge, CPA, director at Clarus Partners, about the signs a relationship with an accountant isn’t working out, how to sever that relationship and what traits to look for in the next accountant.

What should business owners consider as they look to evaluate the work their accountant is doing?

A good place to start is to ask other service providers you currently have a good working relationship with and whose opinion you value if they could recommend an accountant.

For example, you could ask your attorney, banker or financial adviser for a list of potential accountants who they would recommend. You can then setup face-to-face meetings with the accountants on the list and determine if the person has the possibility to be a good fit to work with your organization. You can ask the accountants that you are interviewing for references from clients they currently service. It’s a good idea to ask for references from their clients that are operating in similar businesses in terms of size and industry.

What are some common signs that a relationship with an accountant isn’t working?

If you cannot get your phone calls or emails returned in a timely manner, it is usually a sign that the accountant does not value you as a client. Another sign is if you ask your accountant questions that are specific to your industry and they are not able to answer the question or at least get you an answer in an acceptable time frame. Not every accountant is going to know the answers to every question on the spot, but they should have the resources and ability to get you an answer.

Once it’s determined that an accountant isn’t right for an organization, how do you suggest the company end the relationship?

It depends on how long of a working relationship you have had with the accountant. If you have been working together for a long time, a meeting to inform the accountant that your organization no longer fits them is a good idea. It’s not necessary to give a lot of details about why you are making a change.

It’s a good idea that you put something in writing informing the accountant that you will no longer need their services as of a certain date. That way there can be no confusion on when the relationship ended. If you have only been working together for a short period of time, informing the accountant in writing is fine, but putting a date as to when you will no longer need their services is recommended.

How can companies ensure their next accountant is a better fit?

Do your due diligence. Interview more than just one accountant. Ask to meet other people in their firm. Ask to meet the other people that will be working on your account as well. Ask for an engagement in writing that specifies exactly what work the accountant will perform and the expectation of when that work will be completed. Know what the accountant expects of you as well. What information will you provide to them and in what manner? Make sure both sides know and are in agreement as to their role, and what is expected in this relationship.

Using the right accountant can be a big asset to your organization. The right accountant can both provide accurate and timely financial statements and tax returns, and can be a valuable part of your team and assist you in helping your organization be successful.

Insights Accounting is brought to you by Clarus Partners

Six things every company should do at year’s end

At the end of each calendar year there are a few timely considerations for businesses, for instance, financial moves that affect a company’s tax position. The end of the year, however, is more of a psychologically significant time as people reflect on the past year and look forward to the future. It’s a natural time for planning, review, budgeting and forecasting.

Smart Business spoke with Michael Stevenson, managing partner at Clarus Partners, about what businesses can do to prepare for the coming year.

What should companies review and plan for as they approach a new year?  

Among the things companies should do going into a new calendar year is to create a budget for the coming year. Project the costs of any potential big-ticket purchases, such as equipment and hiring new people, and determine at what point of the year it’s anticipated those will happen.

Make budgets measurable so as to not create something that can never be achieved. Do, however, make it a stretch to achieve. And make the budget time bound. If planning to increase annual revenue by 10 percent, map out how much increase the company will need to achieve each quarter to reach that goal. Don’t set goals too high or it will make the budget irrelevant.

Prepare for emergencies by creating an emergency fund that’s at least twice normal operating expenses. This could take the form of working capital or a cash reserve account.

It’s also a good time to manage debt. Many companies confuse what they can borrow with what they should borrow. If the debt on a company’s books makes it highly leveraged, plans should be made to eliminate some of that debt. Some of a company’s investments, then, should go toward paying down its debt.

Prepare for the unexpected. Catastrophes happen, fraud happens, so a plan should be in place to deal with those events. A good first step is to cross train associates to protect business operations against an employee who decides to leave and create a safeguard against a fraudulent employee so someone is able to look over his or her shoulder. Also create a disaster recovery plan to backup critical company data on a daily basis so that if something happens a backup can restore it within 24 hours.

Business owners should make a concerted effort to delegate more to employees in the new year. It’s easy for business owners to fool themselves into thinking they can do everything. Learning to delegate makes for better growth and it makes their work/life balance healthier.

Find a way to give back to the community. Find a cause that matters to the organization and donate, volunteer or become a board member. It goes a long way toward making the community a better place to live and do business.

When should planning begin and how should those plans rollout?

The last quarter of the year is the best time to budget for the coming year. It’s when most of the relevant historical financial information and potential sales commitments are in for the first half of the next year.

Expense-side budgeting is often fairly easy since items such as payroll and operating expenses tend to remain stable from year to year. The hardest task is projecting revenue for the next 12 months. Often the first half of the year’s revenue is clear, but the back half could be a guess. Set a revenue target to grow to and write those numbers down.

Who should be involved in year-end planning?

When planning for the upcoming year, involve the organization’s trusted management team. When the planning meeting is over, everyone has to be on the same page. Goals must be attainable and measurable. Then set out to accomplish them one step at a time so the bigger, annual goal can be achieved.

Be bold when planning. Companies that do the same things they did the previous year aren’t putting themselves in a growth position. Business owners should regularly delegate the tasks they’ve learned, clearing the way for them to take on new responsibilities that position the company for growth. That can be hard for some people to do, but delegating key responsibilities to the management team makes for a stronger organization.

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