accountant relevance – Page 2 – Cooper Mann Consulting

January 22, 2015

State of the Union: The Irrelevance of Good Accounting?

finance I’m a little concerned, and any professional in accounting and finance who works with small businesses should be just a little concerned, too. Why? Because there is a belief out there that some nifty software and Internet Of Things (IoT) approach to finance will ultimately eliminate the need for a small business to work with skilled, trained accounting professionals. Remember the marketing slogan introduced by Intuit with QuickBooks – the one that suggested that, “if you can write a check, you can do your own books”? Most accountants will tell you that it is not true, and the ability to operate a product like QuickBooks does not magically turn poor accounting and bookkeeping information into good business data. In fact, it most frequently enables bad information to turn into bad business decisions – quickly.

DIY bookkeeping solutions have been around for a while, so why the distress about it now? Up until this point, it hadn’t been so overtly stated to small business owners that having less-than-great accounting data is very much OK, and that the role accounting professionals play in small business finances is more of a burden than benefit. Consider the statement made by President Obama in his recent State of the Union address:

“Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford”

If I’m an accounting professional, I am pretty steamed up about that statement because I know how screwy business accounting data gets when the work is done by folks without the proper training. Incorrect or improper accounting treatment can make a big difference when it comes to filing those taxes mentioned…. and not in a good way. That transaction on the bank statement… Is it a cost of goods sold or a regular business expense? Is it an asset or supply item? Is it a reimbursement or revenue? Is the payroll deduction before or after taxes? Is that even a viable payroll deduction item? These questions and more arise frequently in a small business, and the treatment for these items is improper as often as not.

There is a big value in what a trained accounting professional can offer a small business owner, and the value often translates to eliminating unnecessary tax burdens and the delivery of accurate reporting – both of which are really important when it comes to actually trying to grow a healthy and sustainable business.

Small businesses are often considered to be the fuel powering our economy. Doesn’t it make sense for us all to recognize that smarter businesses are likely to be more successful, and that more successful small businesses means growth in the economy? The importance of good fiscal and financial management and reporting – in business and in government – is not something to minimize, and suggesting that it takes no intervention or skill to do the job properly reflects poorly not only on the person saying it, but on the entire establishment.

jmbunnyfeet Make Sense?

December 11, 2014September 25, 2018

Audit or Advice? Small Accounting Firm Practitioners and Small Business Clients

When a small business owner needs advice about running the business or strategizing on financial matters, one would think that the business owner would engage their accountant in the discussion. Following along with that logic, many small firm practitioners believe that their small business clients will ultimately engage with them for this advisory work and move beyond statutory audit and compliance work. For a great many firms, however, there remains a struggle to achieve more work and greater opportunity from client engagements; the firm remains relegated to performing mechanical functions of accounting and reporting and fails to gain the additional work which is truly desirable. There are a number of elements which present themselves in this discussion – considerations that the small firm practitioner may not be addressing – and which are likely contributing to the firm losing the opportunity to deliver more and deeper services to the client.

First, let’s consider why small business owners initially engage with their accounting professionals. More than with larger businesses, smaller businesses tend to rely more heavily upon the involvement of outsourced accounting professionals simply because the business isn’t able to justify the cost of staffing the position full-time. Needing office managers and bookkeepers or data entry operators is often a more evident need to the business owner, where assistance with daily operational and information management processes are more urgently required. Functions considered to be “accounting” could effectively be outsourced to a 3^rd party and handled in more of an after-the-fact basis. For many small business owners, accounting is something which can be performed after all the real work is done, and presents the information necessary for payment of taxes, processing of payroll reports and the like. The accounting professional is typically engaged because the business owner knows this work must be done by somebody, and believes the selected practitioner to be competent and trustworthy, and they’re also probably local.

With the convergence of market environment changes, regulatory and jurisdiction conditions, as well as changes in behaviors (cultural, sociological, technological), a new level of demand has been created for business and financial advisory services. Yet small business owners often remain reticent to approach their local small firm practitioner for the service. Why is it that the client doesn’t often approach their small firm practitioner with requests for advice and advisory services?

Part of the problem is perception. Small business owners often believe that their needs require specialized knowledge and experience to address, and that the skill and experience can only be derived from a larger firm. Particularly if the smaller firm is not presenting itself in a manner that suggests that business advisory services are not only offered but are a specialty, the firm may simply lose to competitors who communicate the ability more effectively (something larger and more established firms are able to do via referral and reputation as well as through marketing).

A possible way to address the competency and perception issue is partnering, where firms join to collectively deliver solutions to the client. Where one firm may specialize in an aspect of the engagement and the other firm addresses other areas, the delivery of full service to the client is ultimately the goal, and sharing the work and the revenue is often a more agreeable approach than losing out on the engagement altogether.

Another factor presenting itself in the equation is the “entrepreneurial spirit” from which many small businesses are fueled. A small business owner is often somewhat of a superman, taking on multiple roles and performing a variety of functions in the business. It is this DIY (do-it-yourself) attitude that contributes to the business growth and success, but it is also sometimes the barrier to achieving a higher degree of success. Believing more in the personal power of critical thinking than in the reliance on the professional’s education, experience and insight, the business owner simply refrains from asking for advice because they don’t think they need it.

Frugality is another factor playing into the small firm/small business relationship. Small business owners may want advice, but they don’t want to have to pay for it. Anyone selling products or services to small business recognizes that there is a certain amount of consulting and advice that accompanies most sales. For some, this is simply a part of the sales process; helping the customer determine that this is the best choice and they should buy it. It’s not so simple with accounting and finance, however. There’s a big difference – and perhaps large risk associations – in giving advice versus performing accounting and compliance work. Certainly, advisory services aren’t something the firm would elect to give away, so it becomes essential that the value of the advisory service be expressed in a way that the client can understand and believe.

I once heard a financial planner address this same argument, where a prospective client suggested that they couldn’t really afford to pay for the advice. The financial planner countered with the argument that a good financial plan will increase the return, which then recoups the cost of the advice. If you pay $100 for the advice, and you earn $500 more than you would have without the advice, then it kind of feels like you’re getting paid to get advice because you gain more than you spend. It’s the same with accounting, finance and business advisory services: sound advice should improve the rate of return, which would more than compensate for the cost of the advice. The trick is getting the client to view the service as something real and valuable and not as snake oil, and to make a commitment to following the advice. Real value must be communicated and tangible results measured and delivered, not smoke and mirrors. Otherwise, the client return isn’t there, and the advice proved valueless.

As regulatory requirements increase – and become increasingly complex – the demand by small business for outside help also increases. It is this ever-expanding demand which represents opportunity for small firm practitioners to capture more (more interesting and more profitable) work from their small business clients. But competition is also growing from new providers and systems delivering advice, forcing adjustments to how the small firm must present its offerings and services, as well as change how they deliver and support those offerings.Whether through partnering and referral models, the development of new competencies and capabilities, creation of new workflows and methods, or some/all of the above, small firm practitioners must adapt in order to get that opportunity.

While the small firm practitioner may recognize that the small business client is greatly in need of advisory services, what they may not recognize is that the traditional approach has turned around, and it has become more likely that the client will seek advice first and statutory audit work second. For small firm practitioners, it is time to recognize that relationships are changing and how business is done must evolve to meet and advance that change.

jmbunnyfeet Make Sense?

November 18, 2014December 2, 2014

Courier or Messenger as Contractor or Employee? Compliance with Department of Labor

When it comes to dealing with the Department of Labor, there is only one prudent approach: keep meticulous records and self-audit regularly. It’s not that the DOL is a particularly frightening group, but increasingly public conflicts suggesting wage theft and avoidance of employer responsibilities continue to shine a bright light on the gravely imperative nature of keeping the right records and operating within the proper constraints. It is the DOL’s persistence in the auditing of independent contractor relationships which has put a tremendous amount of pressure on businesses which operate with primarily contracted workers.

The issue is not exclusive to any particular industry, but it seems that there are numerous rich targets in the area of logistics, as recent decisions impacting FedEx and UPS reflect. Described in an MSNBC article quoting David Weil’s book “The Fissured Workplace”, the decisions supporting the DOL in the 9th Circuit “further undermine the “devolution of the proletariat” — corporate America’s ongoing effort to shed front-line, often low-wage employees through independent contracting, subcontracting, and franchising arrangements”. The two federal appellate decisions disputed FedEx’s contention that its drivers in California and Oregon were properly classified as independent contractors. While there are many situations where the argument supports fair treatment for workers who operate more as employees than contracted workers, there is an equally substantial base of business where the performers are contracted and independent and should remain free to operate as such.

One of the industries directly in the crosshairs of the Wage and Hour Division of DOL is the courier and messenger industry. Couriers and messengers pick up and deliver messages, documents, packages, and other items – generally between offices or departments within a business, or directly to other businesses or individuals – and do this while traveling by foot, bicycle, motorcycle, public transportation or private vehicle. The Bureau of Labor statistics in 2012 indicated that almost 25% of those classified as couriers and messengers were local messengers and delivery providers, and that the highest concentration of these providers is in New York.

So what’s the deal with DOL versus courier/messenger services and their clients as it relates to the “contractor independence” issue? Well, the initial approach by the DOL is often to consider the hiring authority (the client) as a Professional Employer Organization or simply as an employer. This approach is often forwarded regardless of the provider’s owner/operator status, and may be due to a lack of supporting evidence that the courier was actively soliciting additional business from other sources (which is generally not the problem of the client, but in this case could be). There is a requirement to substantiate not only the client’s position that he is not the employer, but to satisfy recordkeeping for the courier or messenger, as well, proving independence and having the necessary paperwork and proof to support the claim.

In a business where people are frequently on the move, scheduling jobs between pickups and deliveries, there isn’t a lot of time to spend filling out paperwork and getting written agreements. These folks are working even as they’re scheduling more work, and a lot of this activity is done via text or telephone while riding a bicycle. The circumstances of how this industry works makes compliance a particularly difficult task, and the DOL doesn’t have to schedule audits and compliance visits – they can approach a business at any time and request to review records, observe activities, and more.

Given the frequency of such investigations and audits, every business in the industry should be looking for a simple and foolproof solution to keeping the right paperwork and records that will support the business operator claim of independence and protect them from unnecessary cost or litigation. This is where an accounting professional or consultant may provide assistance, identifying the tools and developing the processes to ensure proper reporting and compliance with regulations on both sides of the transaction. Without the proper documentation and evidence supporting the position of the client as well as the provider (the courier/messenger), both parties may end up finding themselves in an unintentional and costly relationship.

jmbunnyfeet Make Sense?

September 30, 2014

Revenue Recognition and closing the reporting GAAP

One company earns what the other company spends. This is business, and it seems like it would be pretty straightforward, accounting for the money coming in and the money going out. But it is really not that simple when it comes to business finances and accounting for revenue. With investor pressure to improve share prices and market pressures forcing greater competition, businesses have always sought out ways to make the performance look as good as possible – on paper even if not in reality. It is this requirement to make the business look better than it may actually be that drives “innovation” in financial reporting, and encourages some companies to use whatever rules are available to mislead investors or paint a rosy picture for stakeholders. When the balance is lost and financial reporting standards become so oblique as to allow regular and gross misrepresentation, it is time to change the standards.

There are numerous instances of fraud and scandal reported from the finance departments of big businesses, but instances of improper or misleading revenue recognition can happen in even the smallest of companies, and not necessarily on purpose. It is important to understand that properly and accurately reporting business revenue and earnings isn’t done just for investor satisfaction, it is an essential part of describing business performance that any owner or manager must be able to rely on.

Generally Accepted Accounting Principles (GAAP) provide investors and business owners with some consistency in the financial statements they use to analyze company performance, but only minimally. This is partly due to the fact that GAAP is based not only on some standards established by policy boards (the authoritative standards) but also on “generally accepted” standards, which are often not really standards at all but simply past practice that was found to be accepted. Especially in the global economy where fewer businesses operate solely within traditional territorial boundaries – and where accepted reporting methods vary widely – having a single financial reporting standard has become more important than ever.

Make it so, Number One.

Now there are new rules from FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) which provide clear and detailed guidance for how businesses recognize revenues. These rules are based on a consistently applied set of principles, no matter what sort of business is involved and regardless of where the business is located.

A focus of the new rules of revenue recognition centers on customer contracts, delving into the details of how earnings from those agreements should be recorded. Consider that many businesses combine multiple products and services into a single agreement, even though there may be several deliverables or milestones included. This method of booking customer contracts allowed companies to report revenues they were not yet due as part of a total agreement, often resulting with inflated earnings reports. Stakeholders would perceive that the company had reached one earning threshold, but the reality was something quite different and performance expectations were unmet.

“FASB and the International Accounting Standards Board (IASB) issued converged guidance on recognizing revenue in contracts with customers. The new guidance is a major achievement in the Boards’ joint efforts to improve this important area of financial reporting.” http://www.fasb.org/jsp/FASB/Page/BridgePage&cid=1351027207987

The new rules force an additional level of discussion, including a full set of disclosure requirements that will provide more information about contracts with customers. Businesses must identify each promised deliverable and attached revenue or earning component, which helps to better understand how the revenue may be earned (and recognized) as the business performs on the various obligations to the customer.

Just take a look at some big ERP companies and the lawsuits generated from problems and failures in delivery – problems that might have been more clearly identified to investors and stakeholders if the tie between product sales and services to be performed were more clearly described. In many cases, these situations exemplify the revenue recognition reporting problem, where large customer contracts and license sales were fully booked and recognized even though implementation services milestones attached to those license sales remained undelivered.

“2010 – JDA Software (i2) – Dillard’s, Inc.: Dillard’s had alleged i2 failed to meet obligations regarding two software-license agreements for which the department-store operator had paid $8 million.” http://www.zdnet.com/blog/projectfailures/erp-train-wrecks-failures-and-lawsuits/12055

For private companies, reporting periods beginning after December 15, 2017 must follow the new guidance. It may seem like a long period of time – from the decision to apply the new rules to the effective date – but the number of businesses the new rules will impact is large. The FASB made a decision to delay the effective date because of the broad scope of organizations affected and “the potentially significant effect that a change in revenue recognition has on other financial statement line items.”

Business owners and their accounting professionals need to make sure that financial systems and processes are up to the task and can track and produce the detailed reporting these new rules require. For investors and analysts, the new reporting rules and detailed information they generate will go a long way towards minimizing the impact of innovative revenue reporting practices, and will hopefully bring a new level of believability and usefulness to business financial reports.

Make Sense?

April 29, 2014December 7, 2017

The CPA for Small Business: Proactive, Responsive, and Helps Paint a Beautiful Picture

I once read an article written by Doug Sleeter which describing the findings of a published report titled What SMBs Want from Their CPA. The report was a summary of results from a study conducted by The Sleeter Group, and was intended to help accounting professionals understand the factors in the market which influence business use of professional accounting services. While adoption and use of technology was not named as the top item on the list, capabilities which can be rendered only if such adoption occurs were. In short, it’s not the technology that clients demand, but the level of service that professionals can only deliver by embracing advancements in technology and applying them to the client engagement.

The report and article placed a specific focus on trends relating to technology adoption and use in the professional practice, and establishes a foundation for firms to understand why technology is and always has been a key factor in the success of the CPA-client relationship. It’s not that the accounting professional must become a skilled technologist and promote high technology to the client. Rather, the success factor rests with the firm’s motivation to implement technologies and tools which will improve their ability to deliver more (and more valuable) service to the client in a more direct and timely manner.

The survey’s two critical questions posed to small business owners who use the services of a CPA were 1. What factors played a role in your decision to leave your former CPA?, and 2. What types of services would you like to receive from your CPA? Both questions are pretty straightforward, and the top responses from surveyed SMBs were equally unambiguous.

To the first question (factors playing into a decision to leave former CPA), the top two answers indicated that reactive and/or unresponsive are the problems which ultimately cause a small business owner to change accounting professionals. The top response was “Former CPA didn’t give proactive advice, only reactive”. The close second response was “Former CPA had poor responsiveness”.

Unfortunately, these responses more than accurately describe many professional firms and their approach to client service. These firms are perfectly content with waiting for clients to deliver after-the-fact information, delivering reports long after their relevance has past, and providing no sense of urgency in helping clients address business issues facing them here and now. These firms are content to work with their write-up and trial balance solutions, depreciation and amortization and tax products – and give little consideration to how they could adjust their operation to a better, more relevant and rapid delivery of service and insight to the client.

The second question, “What services do SMBs want from their CPAs?”, was met with the same responses professionals have been hearing for years; small business owners need help with business planning and business strategy and they wish the help would come from their CPA. It is surprising how many accounting professionals list business planning and strategy among the services they promote on their websites, and then just sit back and wait for clients to ask. Communication with clients remains relegated to annual reminders for tax information, or maybe slightly more frequent notes about other tax or compliance work to be done. It may be a bit unfair to place all the blame on the professional. Regulatory and reporting impacts on business are increasing and are increasingly complicated. Many professionals find it challenging enough simply to keep up with changes relating to the services they currently and regularly provide.

This is where practitioners should seriously take notice, and accept that the ability to meet changing market and customer demands is by intelligently leveraging technology to accomplish what people and process cannot do alone.

It takes information technology to speed up the bookkeeping, accounting and reporting processes; technology is required to help turn information into useful and relevant data;
technology facilitates the faster collection of information from and the delivery of information to clients;
technology is applied to reflecting numbers as pictures and helping users visualize the meaning of the data, and
technology enables the collection and analysis of “big data”, which leads to AI advancements and greater intelligence delivered through the applications businesses use.

The Sleeter Group report clearly demonstrated that small business owners continue to need and want more than just tax returns and post-facto reports from their accounting professionals, and that the lack of attention in these areas pose a direct threat to the small business/CPA relationship. Professionals can remove the threat by working closer with their small business clients, applying technology and process controls to get better information in a more timely manner, and returning the result with greater insight. Be proactive and be responsive, and apply the necessary technologies and business philosophy to get there before the client base looks for satisfaction elsewhere.

I’ve said before that small business owners don’t care about the numbers, they care about the picture the numbers paint, and they care about getting to a place where the picture is absolutely beautiful. With the right tools in place, their CPA can help guide them there.

jmbunnyfeet Make Sense?

March 10, 2014

Why #Accountants Should Implement #Cloud Services | QuickBooks and Beyond

Why Accountants Should Implement Cloud Services

Most professional accounting service providers, accounting pros included, are recognizing that customers are increasingly demanding lower costs for service but want more flexible methods for obtaining the service. Where the business value of the service provided used to be enough, providers are now expected to deliver their services how and when clients want them delivered.

Evidence of the mobile and social impacts of technology is visible everywhere, and no business is immune to the requirement to adapt or perish. Rather than viewing the shift in technology application and use as a threat to previous well-rehearsed process models, wise practitioners are finding opportunity to change things around a bit, facilitating workflow and process improvements and creating new opportunities where they didn’t previously exist.

Breaking Down Time and Distance Barriers

via Why Accountants Should Implement Cloud Services | QuickBooks and Beyond.