Safer Banking Habits

January 9, 2012

Small business owners are increasingly taking advantage of expanded online banking services rolled out by banks in the last decade. At the same time, we see many businesses continuing to use traditional paper checks to pay bills. Whether businesses are banking electronically or with paper, there are certain risks to be aware of. One of our goals at SmartBooks is to provide clients with great accounting controls to reduce the risk of fraud. To that end we share recommendations based on banking practices we have observed over the years. 

Online Payment

Online payment systems are often used without checks and balances, so that anyone with access to the online banking system can issue payments. Furthermore, there is no audit trail to show which user issued payments. To mitigate these risks: 

1. Set up separate usernames for each person who will be accessing your online banking system
2. Provide access to the online payment module to only those users who need it
3. Do not delegate access to online payment systems unless you can set up a two-step payment process so the owner can have the bookkeeper queue up payments but the owner must then approve the payments before they are sent
4. Do not make an owner's personal account accessible alongside the business account. That way if access to one account were to be compromised, the other would remain safe. In addition, it may not be appropriate for other staff to have access to the owner's personal information. 

Check Payment 

When paying bills via paper checks, there are often insufficient controls around check stock and the signature process. To mitigate these risks:

1. Do not store blank checks in the bookkeeper's or office manager's desk. Keep them locked up in an owner's office and provide check stock only as needed to print and mail checks. Collect unused checks after each check run.
2. Although it may save you time to have bookkeeping staff forge owner signatures or use a signature stamp to make payments when the owner is not available, that removes one of the most important controls. Have checks signed by an owner or someone other than the accounting staff who process the bills so that at least two people are required to issue a payment. 

Bank Statements

Regardless of how rigorously you control the payment process, ultimately owners should review bank statements to ensure they recognize the identities of parties being paid and that the payment amounts look reasonable. Reviewing monthly bank statements does take time, though consider the value of deterring fraud and detecting any that should occur. 

A Better Option

SmartBooks uses a powerful and easy online accounts payable system to address all these risks, and many more. It is more efficient than using online bank payment systems. It integrates document management with an online approval workflow to make sure clients approve all bills before they can be paid. If you would like to learn how SmartBooks can make your accounts payable process more efficient while protecting you against fraud, please contact founder Calvin Wilder at cwilder@smartbookscorp.com  or 978.202.3064 x700.

Efficient Expense Reports

November 29, 2011

Does this sound like the expense report process at your company? 

• Employees dread taking the time to save, retrieve and compile receipts, fill out an expense report, and put it on their manager's or bookkeeper's desk
• Accounting staff dreads re-typing all the line items into the accounting software using time that could be utilized on more valuable activities 
• Managers don't know if all their staff have submitted their monthly expense reports 
• The process is so onerous it gets put off and never done, or 5 months of expenses are crammed into one mega-sized expense report, and sometimes it even holds up closing the books at the end of the year 
• Late expense reports cause expenses to be recorded in the wrong month and skew financial reports or delay billing reimbursable expenses to cleints
• Expense reports only include reimbursable expenses. Reports omit documentation of charges put on a company credit card which may be needed in the future. 

With today's technology expense reporting can be streamlined, paperless, and can capture and report information much more efficiently.

Now imagine this process: 

• Employees photograph receipts with their phones and upload the photos and any other electronic receipts onto expense reports  
• Employees with credit cards download transactions onto their expense reports. This captures non-reimbursable expenses charged to company credit cards to help properly code and document them. 
• Reports are created and submitted online to accounting, with line items mapped to QuickBooks so no double entry is required
• Managers approve reports online and can see who has not submitted expense reports 
• All documents are saved in electronic form for easy access and reference 

Let's face it: expense reports are never going to be fun, but they can be done more efficiently. If you would like to learn more about how an efficient online expense report system would benefit your company, or would like to discuss specific software options, please contact SmartBooks founder Calvin Wilder at cwilder@smartbookscorp.com or 978.202.3064 x700.

Time for Year End Tax Planning

October 27, 2011


Although the warm summer weather doesn't seem that far behind us, it will be the end of the year soon. Among other things, that means it is time for business owners to review their tax liabilities and put a plan in place for any year end tax management tactics. 

Many business owners work with their CPA every fall to assess expected that liabilities and to understand what can be done to optimize those liabilities, often by deferring taxable income and sometimes even by accelerating it. In many cases the personal tax situations of the principal owners need to be considered along with the business. 

If you have not already done so, specific issues to address with your CPA include: 

1. Expected taxable income for your business
2. Combined business and personal tax picture
3. Estimated tax payments that should be made
4. Any expected major changes in profits in 2012 compared to 2011
5. Timing of year-end transactions which could be completed in 2011 or pushed into early 2012
6. Any special opportunities such as tax credits that might be available to your business 

SmartBooks can help. Our clients receive accurate, timely financial reports which can be used for effective tax planning. We work with our clients' CPAs to provide whatever additional information would be helpful to the tax planning process. 

Cash-Basis Projections are Often Required

Some businesses file cash-basis tax returns while using the accrual basis for regular financial reporting. In this case, accurate tax planning requires that taxable income be estimated using the cash basis. SmartBooks provides this cash-basis conversion for some clients as part of their service package. For any client we can provide this cash-basis estimate upon request for a fixed fee-- if interested contact your Accounting Associate. 

If your business is having trouble staying on top of its bookkeeping or getting regular financial reports, please contact founder Calvin Wilder at cwilder@smartbookscorp.com or 978.202.3064 x700 to learn how SmartBooks can help.

Ten Red Flags for Bad Debt

October 6, 2011

Many businesses extend credit to customers, and there are inevitable collections problems and bad debt expense. In some industries and companies, extending more attractive credit terms helps increase sales. The goal of managing accounts receivable is not necessarily to minimize bad debt expense or to minimize the amount of outstanding accounts receivable. Rather, the goal is to optimize profits by managing the risks and rewards of extending credit to customers.

Unlike when selling to large public companies with publicly available financial statements, when you sell to small businesses you have very little knowledge of their customer's financial condition and creditworthiness. Many small businesses are bootstrapped and undercapitalized, and may never be able to pay off large debts owed to you. Keep an eye out for the following red flags, and train your employees to spot them as well. 

Look out for these ten red flags of problem accounts: 

A check bounces, even if the explanation seems plausible
The customer fails to answer the phone or respond to voicemail and email messages, or expresses unusual frustration or apathy during collection calls
The customer starts taking longer to pay bills
The customer requests extended payment terms, higher credit limits, or a payment plan
A delinquent customer places an unusually large order
1. An investor-backed company starts talking about delaying payments until the next round of funding closes
You start receiving partial payments or payments of recent smaller invoices while larger, older invoices remain unpaid 
If you are a services business, a customer starts drumming up unwarranted complaints about the quality of service and refuses to pay bills or delays paying them until future services are delivered
A client refuses to pay all outstanding bills until a dispute on one particular bill is resolved
The customer fails to meet an agreed upon payment schedule

In our experience, these often portend an upcoming bad debt writeoff. The sooner you can spot them and reduce credit exposure to those customers, the less money you will have to write off. 

In an upcoming SmartBrief, we will present ideas to more proactively manage your credit and collections process and reduce bad debt risk while increasing cash flow. If you would like to discuss your collections process and concerns and learn how SmartBooks can help, please contact co-founder Calvin Wilder at cwilder@smartbookscorp.com or 978.202.3064 begin_of_the_skype_highlighting            978.202.3064      end_of_the_skype_highlighting x700.

It's Not Too Early to Work on 1099s

September 22, 2011

At SmartBooks, as at all other businesses we know, one of our least favorite activities is managing Form 1099 reporting. However, it is one of those things we must do properly to keep us and our clients out of trouble. Recognizing 1099s rank up there with making collections calls and having teeth pulled on the list of enjoyable activities, we want to provide some encouragement to do as much of the 1099 work in advance of January as possible. At year end there are usually many other priorities such as closing the books for the year, finalizing budgets for next year, and preparing for income tax returns, all of which seem more important and at least slightly more enjoyable.

There are at least 15 different versions of Form 1099 used to report various kinds of payments made by a business. Luckily many small businesses need only file Form 1099-MISC to report payments made to service providers. Though only one version, the rules can still be complicated. With numerous exceptions and additions, the primary requirement is to report all payments made to service providers paid over $600. Corporations are generally exempt (except law firms who have no $600 exemption). LLCs, LPs, and other non-corporate entities must receive 1099s in addition to individuals working as independent contractors. 

Some general suggestions: 

• Collect IRS Form W-9 from all new vendors before you pay them. You need the W-9 in order to prepare accurate 1099s, and your vendors will readily provide it to you if required in order for them to be paid. Collecting W-9s months later and from inactive vendors is more difficult. 
• Configure QuickBooks (or other accounting software) to identify vendors who require a 1099 for 2011. Confirm you have W-9s on file for all those vendors. 
• Investigate online 1099 filing services which can save you time by mailing forms to your vendors and electronically filing them with the IRS. If you are going to write the forms by hand or print them out of QuickBooks, special paper forms must be used. Order those forms now or as soon as they are available this fall to be sure you have them when you need them. 

Unless you have investigated 1099 reporting requirements and are familiar with all the federal and state rules that apply to your business, we encourage you to contact your CPA or SmartBooks for assistance. If you are inclined to self-study, visit www.irs.gov/efile/article/0,,id=98114,00.html. If you would like to discuss your 1099 requirements with SmartBooks, please contact co-founder Calvin Wilder at  cwilder@smartbookscorp.com or 978.202.3064 x700.

Business Continuity and Bookkeeping in the Cloud

September 7, 2011



Last week here in New England, Hurricane Irene showed us how a "weakened" storm that scored low in the hurricane rating scale can still inflict tremendous damage to individuals and businesses. Imagine if your office and accounting system were among those destroyed in the storm.

• Would you be able to place purchase orders, invoice customers, and receive customer payments?
• To reconstruct your system, how long would it take and how much would it cost in extra staff time and systems cost?
• Would you prefer to instead focus on customer relationships, supply chain, and taking care of your family and home?
• If you lost your paper records, could you pass a year-end CPA audit or an IRS audit without Herculean effort and some luck?

Even if your computer network has a good offsite data backup system, flood or fire could destroy critical paper documents kept in the office. It is prohibitively expensive to buy fireproof filing cabinets, redundant computer networks, waterless fire suppression systems for server rooms, electric generators, and all the other things you would need to buy and maintain in order to prevent a disaster from taking down your accounting systems. Alternatively, relying on a disaster recovery plan to rebuild systems after disaster strikes has its own set of risks and costs. Small and midsize businesses simply can't duplicate the kinds of business continuity and disaster recovery systems used by big businesses.

The good news is that with the rise of cloud computing, small and midsize businesses now have access to systems which provide business continuity in addition to the more widely touted benefits of ease of access and reduced IT costs. This now extends to accounting systems and document management systems which can operate in secure, redundant datacenter environments rather than on computers in your office. For example, the QuickBooks hosting company used by most SmartBooks clients has multiple physical and electronic security measures and backup systems, uses banks of hundreds of redundant servers, has diesel generators to power the facility, has multiple internet services providers, and has automatic fail-over to a sister facility on the other side of the country.

Of course you must still do your due diligence on the various cloud computing solutions to understand the risks of particular systems. You may still want an independent backup such as periodically copying files to a CD and storing it in a safe, or storing an electronic copy on a separate computer network. You want to be careful about being locked into proprietary technology with high switching costs.

If you would like to learn more about how to utilize cloud computing solutions to not only make your bookkeeping systems more efficient and accessible, but also to provide you valuable business continuity benefits, please contact founder Calvin Wilder at 978.202.3064 begin_of_the_skype_highlighting            978.202.3064      end_of_the_skype_highlighting x700 or cwilder@smartbookscorp.com.  

Internal Controls: Is Your Bookkeeper Stealing From You?

August 24, 2011

Sadly, if you Google "bookkeeper theft" you get a long list. Here are some examples:

• Software company 
• Motorcycle Dealer
• American Legion
• Manufacturing company 
• Various Colorado businesses

When SmartBooks engages with new clients, we are often surprised by the practices we find. For example, office managers have signature stamps or routinely forge the owner's signature when paying bills. Or bookkeepers use online bank payment systems to issue electronic payments. Practices such as these usually arise from legitimate attempts to save time, but they can also be exploited to steal money.
We don't mean to accuse bookkeepers and office managers of theft; to be clear most are honest and are not stealing from their clients and employers. However, clearly there are enough bad apples that small business owners should be more concerned.
Basic controls and steps small business owners can adopt to reduce the risk of theft include:

1. Sign all checks personally and do not allow others to hold paper checks or access your bank's online payment system. 
2. Review vendor invoices and follow up on unfamiliar charges before paying the invoices 
3. If employees are going to use credit or debit cards, require monthly expense reports to explain all charges. Getting rewards points from credit cards is nice, but not at the cost of runaway expenses or embezzlement. 
4. Require contract bookkeepers to carry insurance. You can't insure against outright theft, but you can insure against negligence and identify bookkeepers who are serious about protecting their clients. 
5. Reconcile cash receipts and bank deposits against goods and services actually delivered to customers. Theft can be done by skimming from revenue, even in non-cash businesses. 
6. Review bank statements, check images, and monthly reconciliation reports. Follow up on unfamiliar transactions and any "reconciliation adjustments" made by your bookkeeper if the bank statement does not match the balance reported in your accounting software.

At SmartBooks, we take internal controls very seriously. We utilize an Accounts Payable software that enforces segregation of duties and requires all bills to be approved by clients before they are paid. This system may not be practical for many businesses to administer on their own but is something to consider.

If you are concerned about whether your current bookkeeping practices leave you vulnerable to theft, contact founder Calvin Wilder for a confidential discussion at 978.202.3064 x700 or cwilder@smartbookscorp.com. We can also provide a more comprehensive written assessment of your business's accounting policies and procedures, which includes analysis of internal controls as well as other systems and accounting practices, if you are concerned about more than just embezzlement risk.

Bookkeeping on a Mac

August 1, 2011

We have noticed more and more people are using Macs for business these days.  We also know there are challenges with using accounting software on a Mac, and want to present solutions for effectively using QuickBooks on a Mac. Because QuickBooks has around 90% market share, we will focus on QuickBooks.  We understand many business owners prefer Macs, and it is important that we present bookkeeping solutions that are Mac compatible.

Challenges include:

1. The Mac version of QuickBooks is limited in functionality you might need. Features common in PC versions are slow to be incorporated in the Mac version. For example, until only this year there was no multi-user function.
2. The Mac version is different software and is not compatible with PCs. If you have a mixed computing environment, you cannot access QuickBooks from both Macs and PCs. Plus the user interface is different so getting good bookkeeping support can be harder to find.
3. Tax preparation can be more difficult. Most CPAs use PCs and many prefer to use a copy of the QuickBooks database during the tax preparation process. Because the Mac version uses a different database format, you cannot easily provide a copy to your CPA.   There is a database conversion process, but it is cumbersome and something most people want to avoid.

Here are 2 ways to use QuickBooks more effectively on Macs:

1. Use the Online Edition of QuickBooks.  It may not be a fit for your business as functionality is limited and the interface is slower to use than a regular desktop edition. However, the Online Edition is compatible with Mac web browsers and it is an option to consider that avoids local IT headaches and allows you to provide access to your CPA.
2. Use a fully-featured PC desktop edition, but hosted in a datacenter and accessible from Macs over the web using Terminal Services or Citrix. You have a fully-featured version of QuickBooks and can choose between the Pro, Premier and Enterprise editions depending on your specific needs. Although you can use the software on your Mac, you can easily share QuickBooks with your CPA because it is the PC edition. There are a number of application hosting companies who provide this service. You could also host QuickBooks on your own server, though most small businesses do not have the infrastructure and expertise to set up a remote access QuickBooks server. Other benefits of a hosted solution are that QuickBooks can easily be accessed remotely, not just from your own computer or in your own office, and it is backed up automatically for you.

We understand many business owners prefer Macs, and it is important that our bookkeeping services be 100% Mac compatible. SmartBooks typically uses a hosted QuickBooks solution that is Mac compatible, and we support the Online Edition. We also use an online document management system accessible from all popular internet browsers.

If you would like to discuss which solution is best for your business to use QuickBooks on a Mac, or would like more information about SmartBooks services, contact founder Calvin Wilder at 978.202.3064 x700 or cwilder@smartbookscorp.com.

What is a Bookkeeper, Controller & CFO and Which Do You Need?

July 20, 2011

A Bookkeeper records vendor bills, creates customer invoices, makes collections calls, reconciles bank and credit card accounts, and makes various other accounting entries on a daily, weekly and monthly basis. Except for very small or early stage businesses where owners are able to record the small number of transactions themselves, outside bookkeeping is often the first financial position engaged as the owners' time is best spent on higher value activities.

A Controller is responsible for managing ("controlling") the accounting of a business including policies and operational procedures. Controllers manage the monthly closing of the books to produce accurate financial statements and must have significant accounting experience. They also support the budgeting and reporting process. Startups sometimes engage a part-time controller in order to keep their books in order until they grow large enough to need and to afford a full-time Controller.

A Chief Financial Officer (CFO) is a senior executive responsible for financial planning and analysis, financial projections, cash planning and fundraising, capital allocation, merger and acquisition support, and the overall finance and accounting function. Because the CFO is a senior executive role (and thus expensive), most small businesses and even many midsize businesses with millions of dollars in revenue engage a part-time CFO to keep costs affordable while getting the strategic support they need.

It is important to understand the roles and capabilities of each of these positions and to evaluate your needs and expectations accordingly. For example sometimes business owners think they need a CFO, but they really need solid bookkeeping and controller oversight. Or they expect their bookkeeper to analyze their monthly financial results and point out important trends, but to do that well really requires a CFO.  For small businesses the challenge is obtaining the right mix of finance staff at an affordable cost.

SmartBooks provides a comprehensive solution with our staff skilled as both Bookkeeper, Controller, and CFO. Most of our services are at the Bookkeeper and Controller level. CFO support is provided by founder Calvin Wilder and more extensive needs are met by our network of independent part-time CFOs. If you are uncertain what you need or are having trouble finding the right solution, to discuss your specific situation please contact Calvin Wilder at cwilder@smartbookscorp.com or (978) 202-3064 x700. If SmartBooks is not a fit, we will introduce you to the expertise in our best-of-breed network of service providers.

It's not Too Early To Think About Taxes

May 25, 2011

Although it may seem like 2010 income tax returns were just filed, it is already time to start thinking about 2011 taxes. Estimated tax payments are often required over the course of the year in order to avoid late payment penalties or interest. In addition, large year-end tax bills may create a cash flow problem and some clients like the "forced savings" imposed by estimated taxes. With the June 15th estimated tax deadline approaching, we want to encourage clients to think about their 2011 taxes.

Of course taxes are seldom simple:

• There can be large differences between accrual-basis profit and cash-basis profit. Many small businesses file taxes using the cash basis, so it is important to understand the differences.  
• For closely held businesses the owners' personal and household tax circumstances may be intertwined with the business and the full picture must be considered. 
• Sometimes paying the least amount of tax this year is not necessarily the optimal strategy (depending on multi-year differences in income, tax rates, and other factors). 
• Planning requires a forecast, and many small businesses either do not have a forecast model in place or have volatile revenues and costs and struggle to accurately forecast future profits.

We encourage all clients to have an active dialog with their CPAs during the year, not just during tax season, so they can get the expert advice they need to create an optimal plan and turn that plan into action.  SmartBooks can provide estimates of accrual-basis and cash-basis profit (or loss) which can be used to help determine expected tax liabilities.  Part of the planning process might require a full-year income statement forecast, which is something either SmartBooks or one of our independent CFO affiliates can provide.

If you are in need of assistance with the June 15th estimated tax payment for your business (or yourself individually if you have pass-through liability from an s-corporation or LLC), SmartBooks can help. If you are an existing client, please contact your Accounting Associate or CFO Calvin Wilder.  

If you are not a client and are in need of assistance planning the June 15th estimated tax payment, or for tax planning in general to avoid year-end surprises, please contact co-founder Calvin Wilder at cwilder@smartbookscorp.com or 978.202.3064 begin_of_the_skype_highlighting            978.202.3064      end_of_the_skype_highlighting x700.  If you do not have an existing CPA relationship, we can also recommend a good fit from our network of CPA firms.

First SmartBooks Commercial

This commercial was created by Jimmy Young, founder of our client Young Broadcasters of America.

Plan Now To Avoid Tax Surprises

November 2009

A good practice for all business owners is to sit down with their CPA every fall to do tax planning to identify expected liabilities and strategies to minimize the tax burden. This year it is more important than ever to stay on top of tax issues given the dynamic economic and tax environment. Plus, most small business tax issues need to be reviewed in an integrated fashion along with the personal tax situations of the principal owners.

Specific issues to address with your CPA, if you have not already done so, include:

Estimated taxes

1. Most business owners wish to avoid interest and penalties by paying their tax liability via quarterly estimated tax payments.
2. One tactic sometimes used to avoid penalties is to prepay current year taxes, via quarterly estimated taxes, by paying an amount equal to the prior year's actual tax liability. Many businesses are unfortunately posting significantly lower profits in 2009 than in 2008, so this method may result in excessive and unnecessary tax payments. Work with your CPA to match estimated tax payments with your actual current year estimated tax liability.

Integration with personal taxes

1. Most small businesses are structured as entities such as LLCs and s-corporations where the tax liabilities of the business pass through to the owners of the business. In this case, the tax decisions of the business directly impact the tax liabilities of owners. Business owners should be informed of the estimated taxable gain or loss that will flow to them personally. Any associated cash distributions should be planned to provide owners with the cash with which to pay their pass-through tax liabilities.
2. For closely held businesses with one owner or a small number of related owners, the tax issues of owners may impact decisions made for the business. With the volatile stock market and real estate market, owners may be sitting on large realized or unrealized capital gains or losses which can factor into the overall strategy.

Transaction timing

1. There may be a benefit from recognizing certain revenue and expense items in 2009 or from delaying the transactions into 2010. This may be especially true if there is going to be a significant change in your marginal tax rates in 2010.
   

Bookkeeping and reporting

1. Effective tax planning is dependent upon accurate and up-to-date financial reports showing year-to-date business profits and capital expenditures, and expected results through year-end. Your CPA will struggle to provide effective tax advice if you do not present him or her with good information.
2. Ask your CPA for feedback on the quality of reporting you provide and for suggestions on how bookkeeping can be improved to make the tax planning process easier and more effective.

SmartBooks can help:

Our clients receive accurate, timely financial reports which can be used for effective tax planning. We work directly with our clients' CPAs to provide whatever additional information would be helpful to the CPA. For c-corporation clients, we set up estimated tax payment schedules and income tax accruals on their monthly financial statements.

If your business is having trouble staying on top of its bookkeeping or getting regular financial reporting, please contact us. If you are looking for a good CPA to help with your tax planning, we have relationships with several very goods CPAs and can make an appropriate referral depending on your needs.

Take Control of Your Business Finances

June 2009

Given the difficult current economic conditions it is more important than ever that business owners take control of their finances. This means understanding who owes them money, to whom they owe money, and the profitability of goods and services sold. We suggest business owners review the following areas:

Cash

1. Surprisingly many businesses have bank accounts that have not been reconciled in many months. It is critical to know your current cash balances. Quoted bank balances are insufficient as they do not take into account uncleared checks or pending electronic debits.

Accounts Receivable

1. Review a current accounts receivable aging report to understand which customers owe you how much money and how many days’ sales outstanding are represented by your accounts receivable.
2. Identify bad debt risks and determine collections strategies for those accounts.
3. Establish credit limits to mitigate collections risk.
4. Review credit hold policies.
5. Establish criteria for cost-effectiveness of using a collections agency or litigation.
6. Understand the cash flow impact of delinquent accounts.
   

Accounts Payable

1. Review current accounts payable aging report to understand which vendors you owe how much money and how many days’ expenses are represented by your accounts payable.
2. Identify vendors to whom the business owner has personally guaranteed debts
   If cash flow does not permit payment of all bills when due, try to renegotiate payment terms with vendors and prioritize vendors based upon ongoing business plans.

Profitability

1. Review trends in growth rate and profit margins, both gross margins and operating margins, as well as the return on capital that has been invested in the business.
2. Review the profitability of different goods and services, not just the business as a whole.
3. Adjust cost structure and management attention to focus on areas offering the greatest potential for profitable growth.

SmartBooks can help in each of these areas.

You should know how your business is performing as you go, not long after the fact. Financial and operational reports are worth little unless they are available when business managers need the information to make good business decisions. A timely close used to mean 15 to 30 days after the end of a month. These days we can close a company’s books within a week using best practices and technology tools.

Cash

1. SmartBooks accounts for cash on an ongoing basis and can provide a near-real-time cash balance to business owners.

Accounts Receivable

1. We provide weekly A/R report to clients to facilitate internal collections efforts.
2. SmartBooks, with the benefit of having a founder attorney with collections expertise, can manage accounts receivables for clients to improve cash flow and minimize bad debt expense.
3. We identify bad debt risks, recommend credit limits and credit hold policies, and assess when a collection agency or litigation is cost-effective.

Accounts Payable

1. We provide clients weekly A/P reports so business owners understand their liabilities and can prioritize payment when necessary.

Profitability

1. We provide clients with a monthly income statement and analysis report showing profit margins and trends in growth rates and margins and return on invested capital. We can also track various other business metrics that are important to your business and generate those reports on a regular basis.
2. For clients needing more extensive financial analysis, planning and management, we introduce one of our Chief Financial Officer partners to consult on strategic finance issues.

Safeguarding Your Legal Retainers

March, 2009

When attorneys receive retainers or other advance deposits from clients, those retainers must be kept in a separate bank account and may not be comingled with attorneys' own funds. Only after service has been delivered and billed may those funds be transferred to attorneys' own accounts. There have been important recent developments affecting client funds accounts, impacting both attorneys and clients. As you may have seen in the news there have unfortunately also been some serious scandals in which client funds were misappropriated, most notably by the Dreier Law Firm in New York. Now is a good time for both attorneys and clients to review requirements for client funds accounts.

IOLTA Accounts

Client funds are typically placed in IOLTA accounts (Interest on Lawyers Trust Accounts). These accounts are a specific kind of bank account and are required by state law. The intent of the law is for interest earned on client funds held in trust by attorneys to be remitted to state committees and ultimately used to provide legal aid to the indigent. IOLTA rules require attorneys to maintain specific accounts, internal controls and bookkeeping for client funds.

Recent Developments Affecting IOLTA Accounts:

1. As part of its attempt to stabilize the banking industry and protect depositors, the FDIC recently expanded its insurance coverage. The FDIC is now providing unlimited coverage to IOLTA accounts at participating banks through December 31, 2009.
2. The requirements Massachusetts banks must meet to offer IOLTA accounts have changed as of February 1, 2009. Banks must be re-certified to offer IOLTA accounts. Some banks previously certified to offer IOLTA accounts are no longer certified. To be IOLTA compliant, attorneys must have their IOLTA accounts at banks that have been re-certified.

Why Should Attorneys Care About IOLTA Compliance?

1. Comingling of attorney and client funds is a serious ethical violation which can lead to disciplinary action.
2. Having a dedicated client funds account is insufficient; the law stipulates that it must be a specific IOLTA account at an approved bank.
3. Attorneys, partners, and their firms are liable to clients if client funds are used improperly.
4. There is reputational risk from non-compliance: perception is reality even if there is no misuse of client funds.

Why Should Clients Care About Their Attorneys Being IOLTA Compliant?

1. Many instances of fraud by attorneys involve misappropriation of client funds facilitated by comingling of attorney and client funds.
2. An IOLTA account alone will not prevent fraud, but full compliance with IOLTA standards including internal controls and records retention significantly reduces the risk of fraud.
3. IOLTA compliance is indicative of a law firm that is professionally managed and takes its client responsibilities seriously.

Primary IOLTA Requirements:

1. A client funds account holds all advance payments and retainers until services are delivered and billed.
2. Client funds accounts can only be held in an IOLTA account at an approved bank (many banks are not approved for IOLTA accounts).
3. Three separate ledgers are maintained: Client Ledger, Bank Charge Ledger, and Check Ledger.
4. Internal controls are maintained over deposit and disbursement processes.
5. Six year retention of ledgers, reconciliations reports, and other documentation.
6. If electronic records are kept, as is commonplace today, a good data backup system.

SmartBooks Service is IOLTA Compliant:

1. One of our partners is an attorney who understands law firm operations.
2. The SmartBooks system includes electronic workflow with internal controls.
3. The three IOLTA ledgers and other documentation can be generated with a few mouse clicks.
4. Data is backed up daily in secure datacenters.
5. Documents are retained for at least seven years.

Advantages of SmartBooks Over an Individual Bookkeeper

Some individual bookkeepers do great work. However, there are a number of issues to consider when a business relies on one person for an important business function regardless of how well intentioned or highly skilled that one person may be. SmartBooks alleviates many of those issues.

1. Like any one person, an individual bookkeeper has limited depth and breadth of skills. No one person can do everything well. SmartBooks provides a team and a structure in which the team can successfully provide a comprehensive suite services, all executed at a very high quality level.
2. SmartBooks understands how to use technology to improve the bookkeeping process and client experience. Most bookkeepers know how to use QuickBooks at least at a basic level. SmartBooks has taken it a step further to put together a highly efficient bookkeeping platform that includes a lot more than just Quickbooks software. SmartBooks provides a turnkey accounting technology infrastructure which also includes online document management, online expense reports, online timesheets, an online accounts payable system, and other components.  We understand how to get the most out of Quickbooks, and we have added integrated technology solutions to make the process even more efficient. Because the system is so efficient, clients spend less of their time on paperwork and have quick and easy access to information they need.
3. SmartBooks can handle more complex accounting. We account for capitalized assets and depreciation on a monthly basis, as well as loan amortization and tax accruals. We can handle complex revenue and expense recognition rules. These are areas in which individual bookkeepers often have limited skills or rely on controllers or CPAs to manage.
4. CPAs are used to being given sub-standard books at the end of the year from many clients who use individual bookkeepers and see the limitations to what one person can handle.
5. When one person is doing all the bookkeeping, there are no layers of supervision and limited checks and balances to enforce internal controls. For example, the same person entering bills is often the same person who pays the bills and then reconciles the bank account. SmartBooks segregates duties among multiple individuals, and the accounts payable module used by SmartBooks is SAS70 certified for compliance with Sarbanes Oxley regulations for internal controls. How many small businesses can say that about their current accounts payable process?
6. When relying on one person, he/she can go on vacation, get sick, leave for another job, retire, suffer a serious accident, become disabled, or otherwise become unavailable, sometimes on short notice leaving you in a bind. Even if you replace the person, there is little continuity with the new person and the transition can be difficult.
7. Many business owners are not qualified to evaluate the skill of a bookkeeper when interviewing and hiring individuals. Because bookkeeping is our core business, all of our bookkeepers are very good at bookkeeping.
8. Individual bookkeepers are constrained by their own capacity, and part-time bookkeepers are further constrained by the needs of their other clients. SmartBooks has the ability to easily scale service volume up and down based on the needs of individual clients and to respond quickly to ad hoc client needs.
9. Bookkeepers are not CFOs and have limited ability to perform financial planning and analysis and deliver strategic financial consulting services. It is difficult and expensive to find a good part-time CFO. Working with SmartBooks, clients have access to a CFO whenever they need one. Because our CFO partners have integrated access to clients' financial information, we can provide support that is more timely and less expensive.
10. Bookkeepers are usually not skilled at collections and managing accounts receivable, nor do they enjor or prioritize making collections call. SmartBooks understands how to manage the entire accounts receivable process, from sales through legal collections, and by making regular systematic collections calls for all delinquent accounts we can significantly improve collections results and cash flow for clients.
11. The principals of SmartBooks are themselves small business owners and understand the needs of small business owners. We bring the perspective of the business owner and senior executive to ensure the results of the bookkeeping process, including ultimately the financial reports, support the goals of the business and do so in a cost efficient and low risk manner.

Ten Ways SmartBooks Makes Life Easier for CPAs

January, 2009

1. SmartBooks helps ease the year end crunch by requiring less review and adjustment.
2. SmartBooks improves your ability to do tax planning by providing up-to-the-minute actual data so you can comfortably do tax planning with no surprises.
3. SmartBooks makes it easy to find estimated tax payments as we book them to appropriate GL accounts. We also make sure your clients' estimated taxes are paid on time and for the proper amount.
4. Chart of accounts are organized, and SmartBooks staff are able to quickly provide you tax-sensitive information instead of you having to dig for it or request it from the client-- items such as officer life insurance, S corp shareholder health insurance, officer salaries, etc.
5. SmartBooks takes care of fixed asset and loan amortization accounting on a monthly basis so assets and liabilities are on the books when the events happen and large year end adjustments are not required.
6. SmartBooks makes it easy to get quick and accurate interim financial statements for banks or other lenders or regulatory requirements.
7. SmartBooks will dramatically improve your ability to advise your clients on such things as monthly overhead, breakeven, and gross profit because the books will be up-to-date and accurate with an organized chart of accounts.
8. SmartBooks eliminates MQFS - Multiple QuickBooks File Syndrome.
9. SmartBooks will make sure prior year balance sheets are not changed.
10. You can log into your clients' web-based QuickBooks files at any time without having to request database copies via email or CD, drive to clients' offices, or deal with the IT headaches of trying to obtain remote access to their PCs or servers.

Start Smart!

January, 2009

The beginning of the year is a good time to reassess your company's finances and to make some New Year's resolutions related to your company's financial operations. Due to budget and resource constraints, most small businesses have areas for improvement. Given the difficult economic conditions we face, it is more important than ever to reassess your company's finances. We suggest you review the following areas:

Organization
The first step to understanding and improving your finances in to get organized:

• Identify outstanding vendor and clients contracts including renewal dates and auto-renewal provisions.
• Specify internal controls processes including how customer contracts are priced and company expenses approved.
• Understand high risk receivables and bad debt risks.
• Have a monthly budget and compare actual results to budget every month.
• Have accurate financial statements and meaningful operational reports that give insight into your company's performance.

Timeliness
You should know how your business is performing as you go, not long after the fact. Financial and operational reports are worth little unless they are available when business managers need the information to make good business decisions. A timely close used to mean 15 to 30 days after the end of a month. These days a company's books can usually be closed within a week using best practices and technology tools. Yet many businesses still take weeks to produce month-end reports, and some business owners feel like monthly reports are of so little value there is no formal reporting process. Even accurate reports are no longer very relevant if delivered weeks or months after the end of a month.

Cost Structure
In tough economic times like these, it is incumbent upon business leaders to match their cost structure to their current (likely lower) revenue levels. Cutting costs can be painful, and difficult decisions must be made. During good times production capacity and general overhead can be inflated, and during lean times they must be scaled back. A bottom up approach can sometimes be helpful where you start with a zero budget and prioritize where to spend money, rather than simply starting with last year's spending levels as often is done.

Efficiency
A focus on improving efficiency is critical to maintaining your company's ability to perform with reduced resources. Technology can be a great enabler. Now is also a great time to redesign internal processes to ensure time spent by employees is used most productively. Seek to leverage technology and best practices to produce more while spending less time and money.

SmartBooks can help in each of these areas:

Organization
Our bookkeeping system uses technology to automate and control the bookkeeping process. You take charge of the bill approval process. Your financial statements will be consistently accurate. We will design custom reports to give you insight into your business. You will know what's going on with your business.

Timeliness
Financial reports are delivered promptly within a few days after the end of each month. Electronic integration with your bank and credit card accounts gives you means you get good real-time data during the month. You will get the information you need, when you need it, in order to better manage your business.

Cost Structure
SmartBooks is less expensive than employing part-time or full-time bookkeeping staff. Furthermore, SmartBooks lets you avoid the step function cost associated with hiring employees. Our service can grow or shrink with your business's needs. Also, our contract is month-to-month.

Efficiency
SmartBooks allows you to spend less time on bookkeeping and processing paperwork. We allow you to spend more time on sales and client service so you can make the most of your opportunities to maintain and grow your revenue. For example, did you know that instead of dealing with paper bills and cutting and signing checks, you can get a weekly email with links to view, approve, and pay bills with just a few clicks of your mouse? For example, instead of having your office manager organize and fill up paper filing cabinets, use our online document management system. Accounting technology has progressed. Take advantage of it.

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