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Money Habits Make Debt-Free

Money Habits Make Debt-Free

Plan for Escaping the Rat Race and Living the Rich Life

Have you adopted the Thrive Budget, Modern Portfolio Theory, easy-as-a-pie-chart nest egg strategies and the 3-Ingredient Recipe for Cooking Up Profits? Or are you clinging onto investments that have lost value, praying for a Hail Mary miracle that erases your losses and achieves unbelievable gains, and borrowing money to stay afloat in the meantime? Are you so afraid of the idea of investing that you invest only in yourself and your business, but get tempted to buy gold because that’s what everyone else is doing?

Health, Health Insurance and Health Savings Accounts

Do you have a high deductible with health savings account that you manage for 10% ROI? Or, are you stressed out all of the time, worried about your health, angry at all of the ways you are being eaten alive by bills, and paying an arm and a leg for health insurance because you have to? Or, do you spend most of your “extra” money on fun and pleasure instead of health insurance? Are you uninsured?

Outlook on Business

Do you work hard, course correct, adopt best business practices and keep work and family and home life separate? Or are you so worried about your finances that you are crabby with your family and draining your life savings to try and hang onto everything, including a failing business or investment? Have you borrowed from family and friends to buy another self-help seminar or online marketing course?

About Accounting With Lights Out

About Accounting With Lights Out

Flicking the switch

So how is a ten-fold boost in productivity possible? It’s simply a question of automating as many aspects of the AP function as possible. The real costs involved in AP are the man-hours involved in manual tasks, including: finding purchase orders and good received notes; checking and matching these; manual data entry into core business systems such as ERP; manual validation; processing complex invoices which may involve checking against service level agreements, and more.

Even more costs are incurred in tasks such as long-term filing and storage of documents, staff turnover and teaching systems to new staff. If these tasks can be automated, then accounting staff can be redeployed in more strategic roles such as data analysis, and not be involved in time-consuming paper trails.

The ultimate aim is sometimes referred to as “lights-out accounting [http://www.dvtl.co.uk/index.pl?art=14]” – in other words, switching off the lights while the work proceeds automatically. And although it’s not yet possible to flick off the light switch all the time, the latest-generation invoice data capture and processing solutions really do deliver gains in productivity of up to 1000%, helping to turn AP into a profit centre, not a cost centre.

Let’s take a close look at exactly how this can be achieved. We will use a real-life example of the AP department of a large business in the licensed trade, which undertook a phased migration from paper-based manual processing to fully automated invoice processing.

Raising a glass to automation

DrinkCo is a UK-based business that owns several well-known pub chains. As one of the largest pub operators in the UK, the company processes 600,000 invoices per year. As a Peoplesoft (now Oracle) Accounts user, DrinkCo wanted to deploy an invoice capture [http://www.dvtl.co.uk/index.pl?art=31] solution to bring key financial data directly into the Peoplesoft solution and accelerate processing.

With ROI being a key factor in the decision to deploy, DrinkCo undertook a proof-of-concept exercise with Digital Vision [http://www.dvtl.co.uk] that demonstrated that ROI was possible within months, rather than years.

The proof-of-concept was based around an invoice capture solution from Paradatec, integrated with data extracts from the Peoplesoft system so that invoices can be matched with purchase orders and goods received notes. This demonstrated that high levels of accuracy were possible with data capture on the majority of invoices received.

Before optimisation of the capture process, data capture on general invoices was 73%. By focusing on invoices from large-volume suppliers, this was raised close to 100%. Furthermore, the process proved that the artificial intelligence system performed regardless of invoice layout, and that that the invoice capture engine’s AI rules could be adapted to handle different invoice layouts, or those from new suppliers.

On completing the proof of concept, Digital Vision gave a detailed specification to DrinkCo to integrate the Paradatec capture solution, SpeedKey validation and Contempus invoice processing with Peoplesoft Accounts, with invoice images stored in an IBM Content Manager repository.

Going live

When the green light was given to proceed with the automation project, additional pressures reared their head. One of DrinkCo’s offices was to be closed and the work transferred to its Midlands HQ. This also meant redundancies amongst AP staff – which applied additional pressure to get the automated invoice processing system live as quickly as possible. As staff was leaving, a backlog of invoices was building up.

The solution was deployed in just 8 weeks. The backlog of 4500 invoices built up while staff were leaving was dealt with by just four staff, who validated and corrected the backlog in less than three days. Under its previous system, clearing a similar-sized backlog would have taken 12 staff over 10 days – clearly demonstrating the savings in time and manpower possible with the automated solution, and immediately delivering ROI. The AP team continues with four validation staff, and the project achieved full return on the original investment in just 8 months.

Cash Flow Woes

Cash Flow Woes

You placed your primary focus on creating business (which is vital), but neglected to monitor the ebb and flow of revenues and expenses (which is vital). Every business owner must keep an eye on the money and take corrective actions as needed if we want to build a thriving business because quite perversely, as sales go up, cash-flow might go down.

Here’s how cash-flow crashes happen. As business expands, staying on top of accounts receivable becomes more time-consuming. Those in service businesses (like website design or public relations) may find that clients, oftentimes those whose names we crave for our client list, may unilaterally decide to pay receivables in 60 days, instead of 30 days. Meanwhile, you have payroll and other operating expenses that are due ASAP.

Improper pricing is another cause of cash-flow crashes. You may sell a ton of T-shirts but if the profit margin is too thin, excellent sales volume may not overcome an inadequate mark-up. Revenues generated may not cover expenses. The remedy is to either acquire the product less expensively, or raise the price.

A growing business brings up still more issues that keep its owner awake at night: capital expenditures. You must decide whether or not and when to upgrade office equipment, open a new office or move to larger quarters, or hire more workers to keep up with the growing number of customers.

Fail to invest in capacity and you leave money on the table, along with dissatisfied customers who can kill you on social media. Get fooled by the romantic delusion of further growth, invest in demand that never materializes and you are stuck with potentially crippling debt that can bankrupt the business.

It’s quite the dilemma and only the best fortune-teller can give the right answer. John Terry, of Churchill Terry business advisers in Dallas, TX, recommends that business owners focus on one question only when evaluating the possibility of making large capital investments: will it bring money in the door? If not, find a less expensive alternative, or learn to make do without it. Successful business owners learn to preserve and protect liquidity. Here are other actions to take:

  • Hire a savvy bookkeeper or accountant to function as the business controller (full or part-time)
  • Each week, collect the data on key financial indicators: accounts payable, accounts receivable, available cash and the quick ratio (cash + receivables / current liabilities + accounts payable) to monitor that all-important liquidity
  • Each month, collect the data on these indicators: accounts receivable turnover ratio (how long does it take to get paid?), the operating cash-flow ratio (cash-flow from operations / current liabilities) and the pre-tax net profit margin
Asset Misappropriation

Asset Misappropriation

Unrecorded Sales

The most common form of skimming is not recording the sale of goods but collecting the money from the customer. Despite controls such as register tape, managers, and surveillance equipment, employees may be able to manipulate the system in order to prevent fraud detection. In some examples of unrecorded sales, the fraudster manipulates the register tape so that it does not print on the tape when transactions are keyed into the system. A means of detection would be pre-numbering the system records so that if skimming were perpetrated when the fraudster turn the register tape back on there would be a break in the pre-numbered transactions. Companies should be specifically careful of unrecorded sales schemes with revenue streams that are difficult to monitor and generally unpredictable in value.

Understated Sales and Receivables

In these skimming schemes the customer receives a receipt that is for the total amount of the transaction but when the employee enters it into the system they record either a discount or a sale of lesser value. In order to cover their tracks they can manipulate carbon copies of the receipt by writing in their own amounts or generating false discount documentation. Fraud prevention is possible by requiring approval for sales discounts, checking receipts for alterations and tracking the history of cashiers’ sales discounts.

Theft of Checks Through the Mail

In this particular scheme the sale has been recorded into the company’s system but the payment on the receivable has not been received. The person in charge of receiving payment in the company physically steals the check and cashes it at the bank. If the employee is able to overcome the issues with cashing the checks such as endorsement and convincing the bank that the transaction is legitimate then they must deal with how to conceal the fraud when the customers balance becomes delinquent. If the employee is not careful the company will send late notices to customers that will likely result in complaints from customers with a copy of the canceled check. Fraudsters have gone around this by intercepting the notices or manipulating the address of the customer in order to reroute the mail. A major red flag for the opportunity to commit this scheme is when the employee that receives the mail is also the same person that has the job of recording the receipt. By properly segregating duties and marking all checks for deposit only, a company can easily reduce the potential of this skimming scheme.

Short-Term Skimming

The final category of short-term skimming is less about stealing the money than borrowing it in order to accumulate earnings from the time value of money. By delaying the receipt of payment the employee is able to use the funds for short term investments generating interest for the perpetrator. The means of obtaining access of the money could be any of the forms above but there is a clear distinction that in this case the money is eventually returned to the company and the only loss is the time value of that receipt. Red flags in this area would include a higher days sales outstanding ratio or unusual payment timing when compared to historical customer payment especially when looking at specific customers.

Price Action Trading System

Price Action Trading System

Transfer Mispricing sprouts when there is a form of more phenomenon known as trade mispricing. When business takes place between two unrelated or apparently unrelated parties, such results out. Estimation, that about 60% of the international trade happens within rather than between multinationals which are across national boundaries but within the same corporate group.

The estimates vary depending on how much tax revenues can lose by the governments due to transfer mispricing.

But as two unrelated companies sit to trade with one another, they may wish to distort the price with an intention to minimise the overall tax bills. But with the “Arm’s Length” principle such practices are supposed to stop and ensure that costs recorded as if the trades is taking place with ‘arm’s length.’ Because the ‘Arm’s Length’ stands unworkable in most of the situation, this is why multinational corporate tax avoidance occurs for a reason.

The conventional international approach deals with transfer mispricing through ‘arm’s length ‘principle. This type of transfer pricing policy takes place when bilateral treaties between governments take place.

Most of the businesses take up arm’s length principle while most just move in the opposite direction. It may be because ‘arm’s length principle is indeed hard to implement. Governments around the world are systematically limped in their ability to collect revenues from the corporate tax system. Also, billions of dollars are wasted annually across the world on government enforcement efforts which have little chances of meeting high compliance requirements.

As opposed to the ‘arm’s length’ principle, in the unitary taxation approach, such tax method is involved wherein taxing the various parts of a multinational company depends on what is done in the real world.

Benefits of Unitary taxation over arm’s length principle

  1. Firstly this form of taxation reduces tax evasion and avoidance by MNEs.
  2. Secondly, home countries can find little tax revenue from foreign affiliates as the foreign income is just taxed when it repatriates and foreign taxes are credible against the home tax.
  3. Unitary taxation also helps in raising the share of Global MNE rents which are received by poorest countries.

The government is continuously trying to devise measures by which misuse of transfer pricing takes place. Some of the ways by which misuse of transfer pricing can be curbed are with the help of arm length principle for the intra-firm sale of goods and services. Thus firms have to be continuously vigilant about these measures and devices for it is they who have to pay for goods and service while purchasing it from the related enterprise. At such time, for firms, the best option is to associate with experienced tax and accounting consultants. They help companies in strategizing and policy development, help businesses to reduce the impact of year-end adjustments, monitor transfer pricing footprint and coordinate across organisations. And most importantly these tax consultants assist in delivering timely risk assessment and management services.

Separate Personal and Business Expenses

Separate Personal and Business Expenses

Create a Business Checking Account

This should be your first step when starting a new business, and you should get into the habit of depositing income here and paying bills from this account as well. If there is ever any question as to whether you are running a hobby or a business, the IRS will first look to see if you’ve opened a separate account, which will help them decide whether to grant you that all-important distinction, so you want to make things as simple and clear as possible for yourself from the beginning.

Open a Business Credit Card

If you are a new business owner, it can be difficult to get approved for a credit card, but apply anyways, it’s no use wondering “if”. And if you get denied, continue apply especially as your business grows. Little secret about doing this is that business credit cards are the only credit cards on which interest accrued is deductible as a business expense.

Pay Yourself a Salary

Writing a check from your business checking account to yourself for the same amount each month will help you maintain a sustainable business budget. It can be easy to let money slide around between personal and business accounts but paying yourself a set salary will help maintain the necessary boundaries.

Maintaining clear lines between your business and personal expenses doesn’t need to be challenging. Setting up a clear distinction between your personal and business finances, and consistently keeping them separate, is fundamental to your success. If you are a new business owner, start things right from the outset. If you have been in business a while, take a day or two to get things set up for the long haul. It will save you tons of headache and make it easier for you to become successful in your business.

Cash Flow Statements

Cash Flow Statements

As per Generally Accepted Principles of Accounting (GAAP), cash flow statements can be prepared in two ways: direct and indirect. The latter mode is deemed appropriate because it shows the relation between net income and cash from operations. Moreover, it starts with accrual method’s net profit (or loss) and proceeds further. The former mode, on the other hand, presents a summary the cash flows from various activities only.

Despite the name, non-cash items including leasing to purchase an asset, conversion of debt to equity, exchange of non-cash asset, liabilities for similar non-cash assets, or liabilities, and issuance of share in exchange for assets should also be recorded. This can be done as a note or within the statement itself, as the management deems suitable. Also disclosed in the notes are any significant noncash transactions like depreciation, amortization or impairment loss.

Accounting applications help in making accurate information to be presented in cash flow statements. Direct method or indirect method, applications are capable of preparing precisely – after all, it comes from the journal entry that is made in the initial stages of accounting, and the app makes sure of it – what the management wants. The management can see the flow of cash at any period of time in the fiscal year. In addition, because its data is linked with the “cash” part in the balance sheet, having accurate figure helps a lot. Moreover, there is also the feature of security, an authenticity that comes with the apps.

Info of Online Billing

Info of Online Billing

To support a simple billing procedure, the online billing methods are playing an important role. For businesses like medical care services and law firms, simplified billing methods are vital. Providing medical services can be more important for any physician than solving the complex calculation work of billing rules. In such a field, the wastage of time can cause fatal results. This is why for businesses like medical care services, it is very important to go with the technology that saves a fair amount time as well as resources.

Traditional billing methods can be very time-consuming and costlier as compared to electronic payment methods. The online billing technique or the E-commerce payment system can cut down the expenses by cutting down the costs of several items that are required in traditional billing methods. Online billing is the fastest method for generating bills. You can create bills within seconds no matter how long they are. The calculations done with the help of online billing methods are so precise that manual calculations cannot beat them. With the help of online bills, you can generate a number of copies without any wastage of time. With the help of an online billing system, you can send bills to any place in the world by clicking a few buttons. The e-mails help you to send your bills to distant people and places within seconds. Online billing methods can be very helpful in saving the details of several deals. You can keep a soft copy saved for years. All the data remains secure and no one can get access to this data without administrative permission.

There are a number of websites that are available on the internet that can give you the details about electronic payment methods. You can visit these websites to know the benefits of online billing for your business over the traditional billing methods. With the help of an online billing process, you can run your business in a more efficient way. Also, the effective work culture is obtained when billing methods are done properly. If you want to know more about online billing then you can visit practicemax.com which the official website of a leading medical care service provider company Practice Max.

Practices for Accounts Payable

Practices for Accounts Payable

  1. Develop a written accounts payable policy and procedures document. A written policy: (a) facilitates employee training, (b) helps to establish a consistent response to routine situations and, (c) may create a framework for appropriate delegation of responsibilities.
  2. Identify incompatible duties and implement appropriate segregation of these duties. For example, employees who authorize invoices for payment should not have the ability to edit vendor master files, so too, employees who can edit vendor master files should not be allowed to process vendor invoices. Where possible appoint someone, not otherwise involved in the accounts payable process, to monitor changes to vendor master files.
  3. Where possible make purchases from pre-approved vendors only. This could help negotiate more favorable terms.
  4. When new vendors are added to the system, be sure to send a new vendor welcome letter. The letter should detail where invoices must be sent and any information necessary to process vendor invoices such as the completed w-9 forms, which are needed for the annual preparation of form 1099. There are hefty fines for non-compliance with 1099 reporting.
  5. Have all vendor invoices sent to the accounts payable department, where they should be logged, before they are sent for approvals. This procedure reduces the incidence of lost and missing invoices.
Opening A Business Bank Account

Opening A Business Bank Account

Online banking. Online banking is a key feature that all business owners should look for. Busy small business owners can save a lot of time by using online banking for paying bills, doing bank transfers, checking balances, and even accepting payments. They or they employees won’t have to spend time going to the bank and waiting in line for doing these. Most banks today offer this solution for free and when opening an account, just make sure the institution offers a safe and secure online banking service. Its website should not suffer from regular glitches and has a good and reliable loading speed.

They have little to no monthly fees. If you make the mistake of opening a business bank account that come with monthly fees, a portion of your hard-earned money will simply go to paying for these fees. To make sure you will enjoy this service, find out what this free banking offer includes. Check if each transaction is free no matter what the balance in your account may be or if there a minimum balance requirement. You would also do well to find out if printed checks for the account, cash deposits, and cashing checks are also free. Don’t forget to ask about ATM fees, debit cards and bill payments as well, especially if these are services your business needs. Choose a bank and an account that includes all of these for free.

The authority of the local branch to grant loans. Lastly, most businesses need some extra funds from time to time to keep things flowing smoothly. You can plan for any unexpected credit needs by choosing a bank that allows branch personnel to make credit decisions in the local branch instead of always referring to their main office. This is a free feature that can be a really valuable convenience for business owners who may need money in a hurry. With this feature, you won’t have to wait for weeks to receive the approval of an emergency loan you applied for which your business really needs.