Monday, March 16, 2009

Why Hire A CPA (Certified Public Accountant)?

A CPA or a certified public accountant can be one of the most important human resource assets of any organization, but many organizations do not realize their importance or have incorrect or partial knowledge about how to reap benefits from hiring a CPA. Before discussing why an organization should hire a CPA, let us know more about the responsibilities of a CPA.

A CPA is a professional who may work individually or act on the part of an accounting-firm. He or she monitors and keeps track of the financial records of an organization or an individual. Every year numerous businessmen question the need to engage a CPA for account purposes, when all a CPA seems responsible for is filing statutory paperwork for the government and delivering a profit and loss statement.

Many businesses are unorganized or are headed by individuals who are too busy to organize their finances. A CPA looks after the financial statements and records of the client. They are trained and experienced and that makes them the perfect choice to trust all your accounts with.

To become a CPA, one has to meet the requirements laid down by American Institute of Certified Public Accountant (AICPA). There are some states that strictly require a CPA to have a minimum experience level, before starting off to practice. However, not all states lay down the same rules.

A CPA need not be hired all year round and typically in an organization where there is an accounts department already existent, a CPA is hired for a short time only to prepare professionally the tax returns. However, some businessmen do keep a regular CPA to ensure that their finances are in order. Taxes are the specialty of a CPA. In fact most of them are hired to take care of all applied taxes. CPAs are experts in filing multiple federal as well as state tax returns and they also know how to accurately organize all the receipts and other document verifications required for tax deductions.

While hiring a CPA, some businessmen or organizations look out for CPAs who are located in the same area of the business, so that in the event of some unexpected problem cropping up, he can be contacted immediately. Some businessmen however, prefer to hire a CPA who has a successful track record, even if he is located across the nation.

The above mentioned reasons are good enough to hire a CPA, but if there is still doubt, there are other good reasons as well. Most organizations seek help from a CPA to preserve their financial records safely and to file tax returns for them. A CPA can supervise budgeting processes, setting up of financial systems, including making quick books, training staff and giving money saving ideas etc, along with being a sounding board that gives sound advice.

Organizations never seem to exploit a CPAs skill properly. With the type of command the CPAs have over the financial domain, the organizations can benefit a lot from their expertise. Time is precious and instead of spending hours on reviewing and sorting your finances only to find out that you have erred, it would be much better and easier to just pick up the phone or log on to the Internet and fix an appointment with a trained and experienced CPA.

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CPA Continuing Education

The Certified Public Accountant is a designation offered to eligible accountants, who have passed the Uniform Certified Public Accountant Examination in the USA and possess the necessary state education and experience. The CPA license protects the public from inefficient individuals, who perform substandard accounting work. The first accountancy law was passed in 1896, by the state of New York, in order to test the qualifications of public accountants. Then accounting evolved as a profession and was tagged with licensing requirements, code of professional ethics and certain standards of profession.

Later many states also followed this lead and eventually fifty-four states and jurisdictions enacted the public accounting legislation. The Board of Accountancy bears the responsibility for licensing candidates as well as for compliance with the state accountancy laws. Most of the U.S. state accountants without a CPA license are prohibited from providing opinions or suggestions on financial statements. As a result, in a number of cases, the CPA designation is not allowed to be used out-of-the-state until you get a license or a certificate from the state.

To become a CPA in the United States, it is essential to take and pass the Uniform Certified Public Accountant Examination. The American Institute of Certified Public Accountants sets the test and is administered by the National Association of State Boards of Accountancy. Individual State Boards of Accountancy identify the eligibility criteria for the Uniform CPA Exams. A U.S. Bachelors degree in accounting, along with an additional one year study is required to be eligible to take the CPA test.

CPAs work in a range of areas of finance including the following:

. Audit, assurance and information integrity.
. Planning analyzing financial status.
. Forensic accounting like detecting, preventing and investigating frauds related to finance.
. Information technology.
. Venture Capital.
. Planning and tax preparation.
. Corporate governance.

Owing to the frequently changing nature of their profession, it is essential for CPAs to keep themselves abreast with the latest developments in the field. Even if the changes are in the form of new laws or old laws amended to reflect changes, pleading ignorance is not a way out for them. They need to be aware of a number of fields, as the profession deals with a range of tasks including taxation, finance, planning, business and advisory rules. In order to be successful as a CPA, it is necessary to opt for ongoing education.

A number of educational as well as other institutions, including several non-profitable centers offer ongoing professional courses for CPAs. In most states, a professional CPA license holder is required to take specified professional education courses on an annual basis. It helps to retain the professional license. In order to pursue continuing education, a CPA is required to take time off from the busy schedule and be a part of professional courses. The continuing education programs can even take the form of official conferences and seminars that offer a number of credits to CPAs attending a certain number of hours. These conferences and seminars are headed by popular speakers, who share their experiences, skills and knowledge with the CPAs.

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Build a Reputation - Build a BV Practice: The Best Four Investments You Can Make

While attending a recent annual conference I ran into Jim-just as I do each and every year. Jim is short and stout, usually a little disheveled but typically with a jovial attitude-A Santa Claus without the boots, red robe and "ho ho ho". This time, however, something was different. He wore a look of frustration like the one I used to give my father when he tried to explain quadratic formulas and I just wasn't getting it.

After we exchange the usual "hellos" and "how are you" Jim says, "My partners are telling me to give up on the valuation business. They gave me an ultimatum: if I want to continue pursuing the valuation business then I am on my own. I just can't seem to penetrate this market and build my practice!" he adds. "I feel like I am failing myself, I am failing my partners and I am failing my family."

"What have you done to build your valuation practice?" I ask.

"Well, I tried newsletters for a couple months, and that didn't work. I met with an attorney here and there, but that hasn't brought in business. I've attended a couple of networking meetings, but that didn't work, either. I'm not sure what I'm doing wrong."

A common conversation among BV professionals

Jim is not alone in his frustration. Over the past decade and through my travels, I have had the same conversation with numerous colleagues trying to gain market share and build their valuation practices. Their development efforts are not achieving their objectives - so perhaps it's time to consider the feedback from these results, and change our collective approach. As Warren Buffett once said, "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

Today we are faced with numerous marketing challenges in our practices that may seem insurmountable. The level of competition in the industry has increased tremendously as has its sophistication. We live in an era of spam filters, mind filters, mass deletions and constant change. We are typically bombarded with over 5,000 messages a day through various media. Viewed through this lens, navigating the BV marketing landscape is no less rocky than trying to ski the 4,800 foot drop from the top of Half Dome in Yosemite National Park. That's just as frustrating and perilous a journey as building a valuation practice without the proper planning, tools, and systems.

How do you invest your marketing time and money?

We need to understand that each and every day of our business life, we make an invesent in our professional futures:

We invest our time. Every day, we decide what gets our focus. Do I golf at the local club or attend a networking lunch at the local Bar Association? No matter who we are, how wealthy or poor, our background or our base abilities: We are all given the same amount time each and every day. What determines who is successful and who is not is how that time is invested.

We invest our energy. After determining where to invest your time, you must put sufficient energy behind the decision to create measurable progress towards your goals. For example, if you say you want your BV practice to be worth $XXX, then you'll need to spend your time and energy in activities specifically geared to building that level of practice.

We invest money in our operations. Typically, you should strive for 2 to 4 times return on your marketing dollar. For instance, an ad in a professional journal for your valuation services should generate revenues well in excess of the cost.

We invest our creativity. Given the high market competition and constant media bombardment, we are constantly searching for unique strategies to set us apart from the crowd, including exceptional marketing or client relationship concepts, or planning techniques that we provide our clients.

We make each of these invesment decisions on a daily basis, mindfully or not. To be successful in building a BV practice, you must make conscious decisions that propel you toward the desired results. In addition, you'll want to have a consistently-executed system and process to accelerate your results.

Statistics show that nearly half (48%) of marketers typically give up after the first contact. A quarter (25%) give up after the second contact, 12% give up after the third, and 5% give up after the fourth. All told, the vast majority (90%) of marketers will contact their potential referral sources or customers four times or fewer with no results. This is precisely the situation my friend Jim was in. What he didn't realize is that statistics also show it takes a minimum of seven contacts to make the sale.

Tips and tactics to build a BV practice

What follows are a few tools and tactics that helped build my practice from nothing to a substantial national presence. These strategies also helped create a systematic, automatic process of communicating with contacts that is both efficient and cost-effective.

1. Understand your capabilities. At the core of this process you must first determine where you currently are, and then where you want to go. This is no different than planning a road trip to Chicago; knowing the destination is not enough to determine the best way route, which will change depending on whether you're starting from Ohio or New Mexico. An assessment of your current starting point includes knowing your particular capabilities (education and designations), BV market requirements, capital and professional capacity.

We've developed a tool called the Practice Silhouette that allows you to understand the various elements of your valuation practice-including your employees, expertise, relationships, service and product in a matrix format. The process helps you determine whether you are a commodity, a unique provider or a "standout" within the marketplace. The one-page matrix give you a quick "snapshot" of your valuation practice position as it exists today. It allows you to identify your base (where you are), gaps (where you want to be), and bridges (how to get there).

2. Create and implement your marketing plan. To truly succeed in business valuation, you cannot be a secret. People must know about you before they can decide whether to use you. You must become a recognized authority or go-to person. Many valuation professionals are technical experts, but not recognized experts. They get the work accomplished accurately and effectively, but no one knows they exist.

You must raise the market's awareness of your existence, expertise and knowledge. This will build your reputation as well as your value in the marketplace. To accomplish this, you need to structure a marketing plan around a systematic process of building market awareness of your existence, your reputation and your business. The system has got to take place on multiple levels. The goal is to develop an ongoing relationship with referral sources over time; remember the "minimum of seven" rule.

Fortunately, our current Internet age allows us create a systematic marketing plan that is both effective and cost-efficient, more so today than even a decade ago. Historically, the majority of business development efforts went toward the use of direct mail (such as newsletters) and direct contact (such as lunch meetings).

Now your marketing plan must include both online and off-line marketing strategies, including those that reach the masses-and those that use more intimate, one-on-one methods.

The off-line tactics still include focused direct mail (client newsletters, press releases, postcards, etc.), seminars and educational programs, articles and networking meetings. The ultimate desired outcome is the creation of solid relationships in the marketplace.

Given current technological developments, online tactics should permeate all of your marketing channels. The focal point is a properly designed website, which serves as a resource for site visitors and provides a systematic mechanism to capture the visitor's data. Once the system has captured the date, it will communicate with the visitors on a regular, automatic and cost effective basis.

A capture system with autoresponders allows you to provide ongoing resources and communications to thousands with a simple push of a button. An autoresponder is an automated delivery system that sends prescheduled emails, audio mails or video mails to all of your "captured" contacts at certain designated intervals. After the initial setup, the delivery process runs on its own. In my own practice, I use this system to provide over 9,500 colleagues and referral sources access to my E-Audio Alert on a regular basis with no mailing costs. It is also a system that can be used to automatically deliver a report, article or some other digital benefit to a person that visit the site such as our 5-Part Mini Audio e-Course on the 5 Deadly Sins of Building a Practice Through Internet Strategies.

These online tactics lead to others such as telephone seminars, webinars and a continuous flow of resources to your referral sources. For instance, I recently assisted a CPA create a video e-mail to his tax clients discussing some new rules affecting their 2006 tax returns. We did this with a $50 camera and a computer while the CPA was sitting at his desk, and then immediately e-mailed it to over 300 clients - a personal message with a level of authenticity, articulation and sincerity that no letter or email could capture. If marketing is the process of creating relationships, which I believe it is, these new technological tactics allow us to reach and touch our potential referral sources and clients in new ways.

Be committed and consistent

Only a committed, consistent use of this multi-tiered marketing will create visibility. Visibility leads to experience. Experience leads to credibility. Credibility leads to a reputation and reputation leads to marketing momentum. Marketing momentum results in growth for your valuation practice.

Each of theses strategies and tactics has a specific syntax and frequency to assure a consistent connection with your referral sources. In addition, you need to consider goal setting, strategic visioning, rapport building skills, controls and procedures, engagement management issues and other practice development factors we don't have the opportunity discuss here.

Many of these approaches are considered non-traditional, and you must have an open mind to consider them in building your valuation business. Jim has proven to us that doing the same thing but expecting different results doesn't work. Try expanding your references; you will be surprised at the results. As Albert Einstein once said, "We are boxed in by the boundary conditions of our thinking." Don't allow yourself to be boxed in: Get on with your success, and do it with conviction.

As for Jim, he is now consciously making the decisions of how to invest his time, money, energy and creativity. He put a structured marketing plan in place by completing a Silhouette Matrix, identifying and implementing specific strategies such as autoresponders, postcards and an article campaign. His plan executes systematically and automatically and more importantly, is producing results. I expect to see the old jovial Jim at the next business valuation conference.

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Microsoft Excel Features and Functions for Accountants

Spreadsheets for Microsoft Excel is an indispensable tool for accountants, being used to create the financial statements and to produce many other types of financial reports including budgets, forecasts of cash flow and financial models. Many accountants are considered experts in the use of Excel, but the reality is that most are self taught and are not aware of how to utilize the full potential of Excel. With some basic training programs stand the amount of functions available for the counter within Excel can be identified and put to use.

Calculation functions
Basic arithmetic functions such as SUM () and the border will allow you to produce a useful models and perform some fairly complex calculations. By expanding your knowledge of some of the many other functions, Excel can become a much more versatile tool.

There are many financial functions for the realization of calculations of interest and investment that can greatly simplify the lengthy formulas, for example, usually requires repayment of the loan. Care is required to verify that the functions work the same way as his own textbook formula, but once you have tested the features in a variety of conditions and confirmed the results, it can simplify tasks such as determining the net present value.

If you only want to perform calculations on the issues within their data that meet certain criteria, the matrix of the database and functions are very useful. The SUMPRODUCT () function is also a very good alternative. It can extract all sorts of values in a data table and can be used as an alternative to a large number of functions.

Pivot tables
Many users of Excel are not familiar with pivot tables, which is one of the most powerful features of Excel. A pivot table is a great reporting tool that type and quantity of data independent of the original data in the design of the spreadsheet. Dragging and dropping the column headings around you can change the way that data is. For example, having a list of rows, each with an employee name, week number, item description and expenditure expense amount. Using pivot tables, data can be easily transformed into a summary table that the total for each employee every week or the total cost for each employee. The options are almost endless and can be moved between at the touch of a button.

Audit and control functions
Professional accountants have a responsibility to ensure they are submitting accurate data. To eliminate the possibility of serious errors that should ensure that the spreadsheets have been well designed and rigorously controlled. The use of SI () and TEXT () helper functions to allow the checking of error messages to be included and show that the models have been reconciled and are properly conducted.

Other features such as the validation tool to check the data falls within the ranges and toolbar audit, which will highlight the cells combine to produce an error are also powerful tools to ensure that data will be presented precise manner.

Data Protection
It is always useful to make the models easy to use. Or restriction of the protection of values that can be placed in the cells can help prevent unforeseen errors. Options are available in Excel so you can protect all the selected cells, or within a spreadsheet. This allows you to restrict the cells where data can be input and prevent their formulas are accidentally overwritten or modified. Using drop down boxes is another good option to limit the values that can be entered by users.

Whether you are using Excel, it is important to achieve the knowledge required to complete their daily tasks. Excel training can give you this knowledge and equipping with the skills you need to work more accurately and efficiently.

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24Measuring Non Profit Efficiency: The Statement of Functional Expense

Accounting provides some measure of a firm's economic efficiency on its income statement. A large net income usually tells us that something has gone right, while a large loss indicates that something is amiss. The same cannot be said about a non profit's income statements (usually called the Statements of Revenue and Expense). Since the central goal of a non profit is to provide services, not earn large profits, the absence of a profit is not a mark against the organization. As an alternative to the income statement, accounting attempts to measure a non profit's efficiency on a financial statement called the Statement of Functional Expenses (SFE).

The SFE divides a non profit's expenses into three categories:

1.Program Expenses: goods and services distributed to fulfill the purpose of the organization.

2.Administrative expenses: costs of business management, record keeping, budgeting, and finance and other management and administrative activities.

3.Fund raising expenses: costs of fund-raising campaigns and events.

The underlying idea of the SFE is that an efficient non profit is one that minimizes its cost of fund raising and administration. The SFE allows us to compute the ratio of these three expense categories. We might reasonably expect that an organization that spent 80% of its resources on program, 15% on administration and 5% on fund raising would be more efficient than an organization that spent 80% of its resources on fund raising, 15% on administration and 5% on program related expenses.

In theory, we should be able to compare the efficiency of various non profits by comparing the expense ratios reported on their SFEs. Alas, these reported ratios are not so reliable because non profits tirelessly diddle the accounting rules and definitions as to what constitutes a fund raising expense versus a program expense.

The Big Fudge: Joint Fund Raising and Program Costs

The idea of joint costs is to partially disguise fund raising costs as program costs. Traditionally this is done in large direct mailings by enclosing a newsletter or a call to action with the fund raising appeal. The enclosed newsletter allows organizations to claim that the cost of the mailing is at least partially attributable to education (a program function). Or the enclosed call to action is part of the organization's advocacy work (also a program function).

Example. Onandon is a charitable group devoted to assisting traumatized victims of over talking. In addition to providing support and treatment groups, the organization supports legislation to combat over talking in the society at large. They annually send a 10,000 piece direct mailing that cost them $25,000. In the mailing, along with a request for funds, they include a newsletter and an appeal to supporters to contact their congress person to vote for a reform law that would limit the length of election campaigns to three weeks. They expect to collect $40,000 from the mailing. So after costs they net only $15,000 on the mailing. If the cost of the mailing is fully allocated to fund raising expense it would appear that only 38% of raised funds go to program purposes ($15,000/40,000). On the other hand, if they divide the cost of the mailing equally between fund raising and program expense then the ratio looks much better. Now it would appear that 75% of the funds raised go to program purposes ($15,000/$20,000).

What the Accounting Rules Say about Joint Costs

Accounting rule makers have made sporadic attempts to close this obvious loophole. The latest rules still allow organizations fairly broad discretion in fudging fund raising costs. One restriction that cannot be circumvented is the use of paid fund raisers. If a fund raising campaign uses paid fund raisers paid on commission then the entire cost of the campaign must be classified as fund raising expenses. Other than that restriction almost any other type of fund raising costs can be partially allocated to program expenses.

What the Watchdogs Say

Because accounting rules are relatively lax, charitable watchdogs often recharacterize joint costs as fund raising expenses. The American Institute of Philanthropy (AIP) on its web site makes the following comments on how it rates the percentage of expenses allocated to fund raising costs:

"The mailings and phone calls of these (charitable) groups may serve a dual purpose: raising funds and educating donors. However many of these groups consider such mailings and phone calls to be largely educational and their costs to be primarily program expenses. In some cases AIP adjusts the higher number. For example, AIP may differ with a group's decision that the cost of acquiring new donors or members is a program service. Fund raising costs, i.e., direct mail and telemarketing, are often factored in as program expenses."

Not All Non Profits Fudge Joint Allocation Costs

While the accounting rules on joint costs allow for fudging on fund raising expenses, this should not be taken to mean that all non profits fudge these expenses. Certainly informative newsletters and bona fide calls to action combined with a fund raising appeal warrant allocations between program and fund raising expense. Unfortunately the rules also allow for abuse. And you cannot tell which organizations fudge and which do not just by looking at their Statements of Functional Expenses. To a certain extent watchdog groups such as the AIP can help because they look closely at the actual fund raising practices of many of the largest non profits. You can find their charitable ratings on their web site.

Other Tests of Whether Your Favorite Non Profit Spends Too Much on Fund Raising

As a donor you can catch on fairly quickly as to whether your favorite charity is spending too much on fund raising. Here are some indicators:

1.Do you have a 200 year supply of address labels provided by the charity?

2.Do you receive three times as many phone calls from your charity asking for funds as you do calls from your friends and relatives?

3.Does your charity request annual membership renewals two months after you paid your annual dues?

4.Has your charity sold your name and address to 100 other non profits so now you receive 4 times as many direct mail solicitations as personal mail?

5.Do you have to increase your anti-anxiety meds every time you receive a new "call to action" from your favorite advocacy group warning you that if you do not give them more money civilization as we know it will come to an end?

Big Unanswered Questions about Non Profit Efficiency

Even if all SFEs reflected an accurate and fair allocation of a non profit's expenses, there would still be big unanswered questions about efficiency. Efficiency is not just about minimizing administrative and fund raising expenses. Efficiency is ultimately about choosing the best strategy to accomplish the non profit's goals. Efficiency also involves hiring and managing competent staff and being accountable to an independent board of directors. It is entirely possible that an organization that spends 40% of its expenses on fund raising is, in this larger sense, more efficient than an organization that spends only 20% on fund raising. Unfortunately, these overall efficiencies or inefficiencies are utterly immeasurable by any financial statement. This is not to say that such overall efficiency is not measurable, but that any such measurements are not derivable from a non profit's financial statements.

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A Basic Introduction to Accounts Receivables

If one were to reduce business to the simplest terms, one would probably call it the selling of goods by one person, and the buying of those same goods by another. Thus, whether we pay cash or run up a tab while doing business, money has to change hands during the course of a business transaction.

Accounts receivables is one such type of a business transaction. It refers to the way of dealing with amounts of money that are owed to a business by its customer. On the balance sheet of a company, accounts receivable refer to the amount of money that a customer owes it. Accounts receivables are also referred to as trade receivables, which makes the concept a little clearer. As this is a debt related amount, it appears under the category of current assets on the balance sheet of the company.

An accounts receivables transaction is generally carried out by means of an invoice which is sent to the customer with the aim of informing him of the duration within which the debt amount must be paid off. The term within which the debt has to be paid may be thirty days, forty-five days, sixty days, or even as much as ninety days. However, the duration of the debt depends entirely on the debtor and the creditor.

Various payment practices may be followed. These practices may be determined by the various industry standards. They may also be colored by the financial status of the debtor, or affected by the company's corporate policy.

Larger business organizations usually have to resort to the development of an entire accounts receivables department to look into the various kinds and amounts of debts that its customers owe it. A sales ledger is usually used to record transactions that pertain to accounts receivables.

Anyone who is starting out on a new business venture would have to learn about the various kinds of accounting terms and practices that are carried on within various industries. To get into a business undertaking without adequate study of the various accounting practices would be committing professional hara-kiri. Accounts receivables is only one of the many kinds of transactions that prevail in a business setting.

No matter what noble work you hope to do through your business, ultimately you would want it to be financially sound. So, you should make sure to find out about the many financial transactions that will enter into the picture once you start selling your products or services.

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Managerial Accounting and Business Growth

If you are in a growth mode, perhaps your business is only a few years old and you are trying to establish yourself in the local market, then your measurements will focus on growth.

Before you can measure your growth you need to be clear about where you are now and where you hope to go. What size is the market? Have you targeted a certain geographic area? Or perhaps a certain channel, like hair salons for your handmade moisturizing products.

Whatever the growth goals are, you can develop a system for tracking your progress. Let's take a look at Carls' Candles and the managerial accounting system he has developed to measure his growth.

Carl has been making container candles for three years now. At the current prices Carl has been able to increase sales year over year. But the growth rate has slowed and last year he only grew his sales revenue by 5%.

The market for container candles is growing and the distribution outlets are numerous. Carl has been marketing his candles direct by selling through independent retailers and small gift shops in the area.

Carl sells to the retailers at $3 per candle. The direct costs for each candle are $1 and the overheads are $4,000 per month. In Carls' overhead budget he includes his own wages, electricity, and insurance. The direct costs include soy wax, containers, fragrance, wicks, and delivery.

Break even for Carl is $3 minus $1 divided into $48,000, or 24,000 candles per year. For the last three years Carl has sold 26,000 then 30,000 and 31,500 candles each year. Carl wants to develop a pricing program that will help him to stretch out into new areas like wholesale distribution.

If Carl keeps his price the same for all his customers he won't be able to offer a lower price to the wholesalers. But if Carl drops his price to the wholesalers, below the $3 per candle, then he would not be making enough profit. What can Carl do?

Using managerial accounting, Carl has listed out the raw material costs for his candles.
$.45 Soy Wax
$.05 Glass Container
$.01 Wick
$.15 Fragrance
$.44 Delivery
$1 Total Direct Cost per Candle

Carl can offer the same candle to a wholesaler at $3 minus 44 cents for delivery, which equals $2.66 per candle. Will this be enough to increase his sales volumes? Carl puts out a flyer and mails it to all the local wholesalers. His sales increase because now the wholesalers can distribute many more candles than Carl.

But Carl tracks the sales and notices an increase in his wholesale shipments but a decrease in his retail sales. What has happened? The wholesalers are now shipping his old retailers direct. So Carl is selling more product at a lower price. In this simplistic example you can see how managerial accounting has helped Carl make decisions about his growth oriented pricing strategy.

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Sunk Costs and Loss Aversion

Sunk costs are generally defined as costs incurred before that are not recoverable and should not be taken into account in decision making. Here is a slightly modified example of a sunk cost of Jerold Zimmerman "Accounting for decision making and control" (Irwin McGraw-Hill)

Example. Abadabba Berman, the comptroller of the company to cement shoes Schultz, with Microstiff has contracted to design an accounting software package owned by the company at a cost of $ 15,000. Abaddaba reasons that have invested heavily in the old system of simply abandoning it.

Abaddaba must consider the past, investment in software Microstiff face a sunk cost. According to the theory of cost only to consider the relevant costs are future costs associated with each option. If Microstiff maintain the software is more expensive than buying in the future Quickcrooks package Microstiff then the software should be abandoned. The previous large investments in Microstiff should not be a consideration in making its decision.

Loss Aversion: Why Will not Let Go Abaddaba of Microstiff

According to the theory of cost accounting Abaddaba the option of staying in Microstiff is irrational. The best option for the company is leaving the software, not keep it. Now, of course, irrational choice for business can be a very rational person Abaddaba. Why? Abaddaba not before treating investment as irrelevant is a very common feature of a behavior known as prevent the loss.

Loss Aversion varieties

For most people, losses loom larger than gains. Variations of loss aversions are common place in business and investment. For example, investors are generally much faster to gain to lose. The loss of an automatic stop when shooting a stock sale of investments of price falls to a certain extent. It is automatic and is used because it is too human trait of loss aversion that often keeps people from cutting their losses. I told you what the dollar impact of keeping the old software versus the purchase of new software would be. The tendency to hold on to losers, and therefore not cut our losses, can be reinforced by the ambiguity surrounding the decisions of the real world. If you are able to be emotionally invested in a bad decision, the tendency is to filter and skew the data to support the abandonment of courses of action are invested in.

Tips for dealing with sunk costs and loss Aversion

First recognize that there is no way to separate yourself emotionally from the consequences of major decisions made. If you own a small business, it is important to have an external consultant. Trade or business associations often have staff available for advice on business operations. Remember also the loss-aversion and an unwillingness to abandon sunk costs may be in groups as well as individuals. Ignoring the non-recoverable costs required to admit we made bad decisions.

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Ten Commonly Missed Tax Deductions For Businesses

There is nothing worse than preparing Income Taxes and finding that there were many deductions we didn't keep track of. Not keeping track of deductions can be very costly come tax time. It is very important to keep good records all year round.

For every dollar you don't deduct, you could be paying up to 35% back to Uncle Sam. If the dollar has been spent, taxes shouldn't have to be paid on it. Think of the productivity of your business if you could put 35% of your income back into your business rather than in the hands of politicians. What kind of advertising campaign could you do with 35% extra cash flow every month. With a little organization and planning this can be possible.

Most business owners remember to take the big obvious deductions such as cost of goods sold, materials, tools, supplies, and employee expenses. But often times it is the small seemingly insignificant deductions that can make or break a company. Lone Peak Business Solutions has the 10 most commonly missed business deductions.

1. Advertising - Business cards, newspaper ads, information packets you hand out, free samples, flyers, product testing, videos and CD's.

2. Children - Money paid to children for helping with such things as delivering flyers, product, stuffing envelopes, cleaning office and car, etc.

3. Dues and Subscriptions - Dues to professional organizations and magazines that have to do with your trade or business.

4. Educational Expense - Classes or seminars that you take to improve your business.

5. Gifts - Gifts to clients and associates.

6. Laundry and Cleaning - This includes uniforms and Protective clothing and also your clothing when you are out of town.

7. Travel - Hotels, airfare, cab fare, parking, cleaning while away from home, trip log.

8. Home Office - A home office must be a separate room in your home to do business and accounting. Part of your living room or bedroom will not count. A percentage of utility Bills, home owners insurance, property tax, mortgage interest, refinance fees, repairs and maintenance, cleaning supplies, office decor, etc. are deductible. You find out the percentage by dividing the square footage of the office by the square footage of the entire house.

9. Mileage or Vehicle - There are two ways to take a vehicle expense. One is to take the mileage you use when picking up product, supplies, office supplies, meetings, handing out advertising or business cards, meals and entertaining clients, etc. The other way is to take the expense of using the vehicle: fuel, parts, mechanics, oil changes, etc. Along with taking expenses, you can also depreciate the vehicle.

10. Telephone - Cell phone, long distance calls on home phone, extra phone lines into home for business, fax or Internet.

Items such as paper clips, bank charges, credit card charges and home office expense seem small and unimportant at the time, but multiply those little things over a year or two and then multiply it times 35% and it can add up to quite a bit of money that should be in your pocket rather than in the government's pocket.

Along with keeping track of expenses it is important to evaluate your income and expenses on at least a quarterly basis. This allows you to determine if too much is being spent any one place. It allows you to determine if all the deductions that can be are being claimed. It allows you to determine how to better increase sales and decrease costs.

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Safeguarding Tax and Financial Records

The IRS recently published a newswire urging people to safeguard their records. IRS Acting Commissioner, Kevin M. Brown stated, "With forecasts calling for an active Atlantic hurricane season, the IRS encourages taxpayers to protect tax and financial documents that can be hard to replace." (Newswire dated June 1, 2007)

Actually whether or not you live in a hurricane area, there are many things that can happen to destroy important records. We all think about big natural disasters such as hurricanes, tornados, earthquakes, etc. But there are other disasters that can affect anyone no matter where you live. They include such things as fires, flooded basements, theft, accidentally throwing things away, etc.

If you happen to get audited, the IRS doesn't particularly care why you no longer have your records and they will go off the records they can gather. The IRS can provide you with W-2 information, income from interest, dividends, stock sales, 1099 information, interest paid on government student loans, and how much mortgage interest you paid to a financial institution. They don't have records of business deductions, donations, dependents, alimony paid, daycare expenses, medical expenses, etc.

There are several ways you can choose to keep your records safe.

1. Paperless Record keeping: With the wide use of computers, internet bank records, W-2 forms, and other documents can easily be downloaded to your computer. Other documents can be scanned in. This can then be saved onto a USB drive as a back up which can be store in a safety deposit box and/or sent to a relative in another city.

2. CD or DVD: Records can be scanned into the computer and burned onto a CD or DVD. Several copies can be made inexpensively and stored in several places.

3. Record Keeping Companies: There are companies that will copy and keep your records in their vaults so that in the case of a disaster they can provide you with a copy.

4. Protective Boxes and Safes: You can purchase fire proof and water proof boxes and small safes to keep valuable records in. They can work well if you don't live in a place were place where a natural disaster will likely take down the entire house.

Other items you may want to document and keep safe are personal records such as birth certificates, social security cards, passports, insurance documents, home closing documents, and investment documents. In large disasters, it is important to be able to prove who you are and that your children belong to you. If your home is destroyed you may need to prove ownership.

There once was a family of eight. One evening the whole family went to the local pool for an evening of swimming and fun. They were gone about two hours and when they arrived home, their home was on fire. The fire department was there and the neighbors had all been frantically trying to find them. The plug on their toaster had shorted out and started the fire. It was a small fire that was quickly contained, but the fire department wouldn't let the family go in until they were sure everything was safe, which took a day. They stood there with nothing but their swimsuits and towels as neighbors ran to their homes to find clothing and diapers so the family could at least get dressed.

When they were finally able to enter their home, the smoke had damaged everything. They spent a week in a hotel until the insurance could make arrangements to find temporary housing, Then came the task of listing all the things that had been destroyed and working with the insurance company to fix their home and replace the contents.

This was a relatively small disaster as disasters go. But it could happen to anyone. In any disaster it is good to have a record of your personal belongings, especially items of greater value. Photographing or video taping the contents of your home can be a great help when filing an insurance claim after a disaster.

Also, if you do not have insurance to cover losses, they can be deducted on your tax returns. Recording what you have, when you purchased it and what you paid for it can also expedite claims. The IRS has a free disaster loss workbook that can help individuals and businesses compile a detailed list of belongings. The IRS publication 584 is for individuals and the publication 584B is for businesses.

Nothing can take away the pain and trauma of a disaster, but being prepared can make the recovery process much easier. Review your emergency plan annually. Make sure records that have been safeguarded are current and up to date. Being prepared takes much of the worry out of life.

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Planning an Business Trip

For Business Owners, a business trip can be a valuable tool and tax deduction. Typically however, the business owner gets to tax time and finds out there is a big tax liability due.

Then the wheels start turning. "What other deductions have I missed? Oh yes, the family vacation!" Thoughts turn to the family vacation and how it could possibly be construed to be a business trip. The truth is that unless you actually conducted business, after the fact is too late.

It is possible to combine a business trip and family vacation, but there are things you should do right to make it legal. Every summer there are seminars and work related trips to be taken and it is fine to take your family along. Be aware that only the business part of your trip is tax deductible.

If you drive your vehicle, it doesn't cost anymore in gas to take along the spouse and kids so all the gas is deductible. But if you stop to eat, only the persons involved in the business part of the trip can deduct the meal.

If you all stay in one hotel room then it may not cost anymore for the room than if you stayed alone the whole room is deductible. If it costs more for more people in the room, then the extra is not tax deductible.

Amusement parks are generally not tax deductible unless you are in a business related to amusement parks. Deductions need to be honest and related to your business field.

Here are some things that you should do when planning and taking a business trip.

1. Plan ahead. Make a plan of where you are going and what business you will conduct. There are many sources (especially on the internet) that can give you information of the businesses and events in the area you plan to go.

2. Business Purpose. Have a specific purpose for the trip. It can include such things as visiting other businesses like yours to see how they operate, making customer or vendor contacts, looking for opportunities for expansion, etc.

3. Keep receipts. The key to taking deductions is being able to prove you had expenses. Receipts include the actual sales receipt, checks, credit card statements and bank statements.

4. Enlist family members. Depending on the type of business you are involved in, there are times when your family can help gather information and a give a different perspective to the information you gather and places you research.

If you ask family members to help, have them write a report at the end of the trip telling their opinions and perspectives. Make sure they tie it into the purpose of the trip.

5. Log where you go. Keep a record of the places you go that are business related. A note book or day planner can work. Also an envelope with the log on the front and receipts and information from the places you go inside is handy.

6. Log who you talk to. Keep a record of who you meet and what you discuss. Again, a note book, day planner or envelope can be useful.

7. Log what you research. Keep a record of the information you gather.

8. Business cards. Keep a business card from the people you meet and the businesses you visit that are business related.

9. Keep ticket stubs. Keep the stubs from events such as seminars and trade shows. Note what you learned from thee events.

10. Summarize. At the end of the trip write a summary of what you accomplished and the conclusions you made.

The IRS looks carefully at business trips. Their purposes and validity can be stretched. By planning ahead and keeping good records, your legitimate expenses can be deducted comfortably and within the IRS codes and rules.

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Protecting Small Non-Profits from Fraud: An Ounce of Prevention

Small nonprofits are very vulnerable to fraud.When say small I mean small: organizations that raise less than $ 100,000 per year and only one person had paid or not paid staff people.
2.Many small organizations raise most of their cash. Cash is more easily misappropriated checks.
3.Small nonprofits are run by people you trust and commitment.

Here are some typical scenarios sadly fraud:

1.Cash in fundraising events is diverted by the treasurer of the organization or any other person with access to cash collections.
2.The treasurer wrote checks to themselves for the organization of the checking account. Onandon is a nonprofit organization dedicated to helping children of parents who talk too much. Most of the donations in these auctions are conducted in cash and deposited into the checking account organizations. The former Treasurer, Mal Feasance was skimming cash from these events to the tune of about $ 300 at auction. Mal has complete control over the checking account and prepares all financial statements.

Ounces of Prevention

Three relatively cheap and effective to prevent and detect fraud common;

1.Proper control of bank statements
2.Requiring two signatures on each check
3.Preparation Budget

Bank statements

If an organization has a treasurer, who collects and disburses funds to control and / or savings account, monthly bank statements be sent directly to another member of the board of the organization before it is transmitted to the treasurer.

Check two Signature Policy

Require that each check has two signatures.

Budgets

Each organization must have an annual budget approved by the board.

If the organization has cash fundraising as dinners, car washes, bingo, etc. should have the budget for each event. Any person other than the person responsible for handling and depositing cash should be to perform a washing cars, selling bingo cards and apply this number to the unit price to calculate the amount of cash raised. Suppose Onandon has a bingo game where the cards sell for $ 15 each. If 200 cards are sold, the net cash deposit should be $ 3000.

A matter of trust

There is a trade-off involved in the implementation of controls over fraud in small organizations. When people work closely together in small organizations it is natural to build trust over time. But diligent observation of controls against fraud requires people to maintain a degree of mistrust.

The responsibility of the Board of Directors

It is the responsibility of the board to ensure that adequate controls are in place to protect the assets of the organization. In small organizations will require that board members actually participate in the implementation of the controls discussed here. It is also important that board members understand why these checks are necessary.

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CPA Firms and Functions

Many CPA firms have turned out to be well established and most reputed companies in America. Basic functions of CPA firms include accounting systems, auditing and attestation, taxation, management consulting, business valuation, information systems consulting, information systems auditing and forensic accounting. This is why CPAs are so important for successful businesses and entrepreneurs, as they count on these firms for keeping them financially on target and ahead of the game.

CPA firms usually collaborate with well-educated, efficient individuals who play a significant role in the growth in their company. For improving their skills, these firms hire staff that updates their skills on a regular basis, to match up with the market standards.

CPA firms are expected to have established standards, policies and procedures appropriate to the various areas for facilitating volumes of reports they have to create. The policies could be as precise as managing cash flow, software billing, and recovery. Every CPA firms makes these policies known to the employees through training and written content. The Internet technology is also used for educational purposes. Moreover, CPA firms should constantly grow with the clients, fulfill their changing needs and remain relevant to them.

In present times, there has been greater state and federal regulation, increased focus on corporate governance and rigorous analysis by he general public and media. Due to this CPA firms have an increased concentration on risk management. While many CPA firms know the importance of dealing with the financial statement audit risks, they cannot overlook the tax engagement risks. If not, these firms may have to handle losing clients, malpractice suits, incur state and Federal penalties and damage their reputation.

In addition to the typical accounting functions, there are many specialty disciplines:

. Assurance and Audit: To ensure that the financial statements correctly present the financial performance of the company.

. Financial and Tax Planning: Recommending tax, investment, and savings options for eliminating control expenses, debt, optimize investments, and minimize tax burdens.

. Internal Auditing: Evaluating efficiency of an entity control structure, as an outside consultant or an employee. CPA professionals are in demand on account of new corporate governance rules and regulations.

. IT Services: Integrating, Designing, and applying advanced software systems that function as a link between organizational goals and software/hardware.

. Forensic Accounting: Detecting, preventing, and looking into financial frauds like securities fraud, embezzlement, money-laundering schemes, and tax evasion. Requests for this specialty have significantly grown due to various corporate scandals.

. International Accounting: Companies embracing International Financial Reporting Standards (IFRS) want accountants for reuniting IFRS with U.S. GAAP.

. Environmental Accounting: Dealing with how companies can be both environmentally profitable and responsible. This means concentrating on various projects like management and prevention of claims and disputes and environmental compliance audits.

. Consulting Services: Offering different specialty services for companies that include strategy and operations planning, financial planning, and performance management.

. Financial Analysis: Evaluation of identifying trends, business data, and contribute to the long-term strategies of a firm.

. General Accounting: Performing account analysis and reconciliation, processing journal entries, preparing payroll, sales, using tax, and other local tax filings.

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