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June News and Notes

Who Really Needs Financial Statements?

If you are a small business owner or manager, I have a question for you. Do you regularly receive and review financial statements for your company? Are you more likely to produce financial reports on a schedule and in a format requested by interested third parties, such as lenders and other creditors? When you get a request for financial reports from a potential new supplier or customer, do you ever stop to ask yourself what they may be looking for?

Financial statements aren’t just something to prepare so that you can comply with a loan covenant, or secure an open credit account with a potential new supplier. If your financial information is so important to people outside your business, shouldn’t it be even more important to you? At their most basic, profit and loss statements tell you if you are making any money. Balance sheets tell you if you have more assets or liabilities. Companies that own more than they owe are said to have equity, an indicator of financial strength and stability. Obviously, it is better to be making money than losing money.

Maybe some owners and managers are casual about reviewing financial reports because they feel that they already know whether they are making money, or if they have equity. Sometimes this seat-of-the-pants approach is accurate, but many times it isn’t. While it is critical to know for sure, good financial reports can tell you so much more. They can be used to spot trends, both good and bad. They can highlight areas of strength in company operations, as well as areas that may be draining resources without any meaningful return. They can alert you to the possible failure to meet loan covenants, giving you time to either correct the situation before year end, or to provide your lender with a much-appreciated “heads up” so that it doesn’t come as an unwelcome surprise.

Some companies assume that they are achieving a target gross profit margin because they are pricing their jobs and products accordingly. Actual results may be falling short, for a variety of reasons. Proper analysis of financial data can not only demonstrate that goals aren’t being met, but, they can also help to identify the reasons for the shortfall.

If you aren’t getting good quality financial reports for your business, make it a point to do so now. If you aren’t sure what those financial reports are telling you, or if you could use something beyond the basic reports, then consider getting financial support from a contract provider such as ProfitBuilders. What you don’t know could hurt you.
 

Government Contract Payment Withholding (Part 2)

As we mentioned last month, a long-delayed requirement for governments to withhold 3% (to cover income taxes) from all payments to contractors is scheduled to go into effect in 2012.  It looks like the movement to permanently kill this idea by repealing the law is gaining steam.  However, just as it was with the expanded 1099 reporting requirements, it may not be easy, even with growing bi-partisan support.

Here's a report on the latest from Capitol Hill.

http://thehill.com/blogs/on-the-money/domestic-taxes/163579-lawmakers-see-promise-in-push-to-repeal-withholding-rule

Financial Scandals are Nothing New

The relatively brief history of the 21st century has provided us with financial transgressions from Enron to Madoff.  However, as the following slide show demonstrates, scoundrels from the last century cooked up some pretty elaborate schemes of their own.  At least one of them managed to get his name permanently attached to a particular type of scheme.

http://www.accountingtoday.com/photo_gallery/2_6/photo/Great-Finance-Accounting-Scandals-Intro-58714-1.html

Self-Employed Tax Breaks Hang in the Balance

A pair of tax breaks for the self-employed, one already in place and one being promoted, face an uphill battle.  One is the temporary tax break that allowed the self-employed to fully deduct health care premiums before calculating self-employment taxes.  The other is a proposal to allow people with home offices an automatic allowance of $1,500 annually for their home office, without supporting records and calculations.  Studies have shown that almost half of all taxpayers eligible to take the home office deduction fail to do so because of concerns that it is too difficult to calculate or that it would increase their chances of being selected for audit.

http://www.businessweek.com/smallbiz/content/may2011/sb20110518_065045.htm