The word “audit” can be thrown around often in workplace conversations. It could refer to a review of your organization’s digital media presence or the assessment of internal procedure effectiveness. However, when used by an accounting professional, the term “audit” has a precise meaning. Keep reading to learn more.

Financial Audit

A financial audit is an official service designed to inspect an organization’s accounting records, technology, and processes. An audit can only be conducted by a licensed CPA who is independent of the organization, meaning that the CPA performing the audit must have no relationship with the organization, its owners, or its employees. This requirement exists to avoid any compromise to the audit or appearance of impropriety. 

To conduct an audit, the CPA performs a set of tasks that review the company transactions, balances, and accounting processes, called an audit program. The audit program is custom-designed for the company based on the risks perceived by the audit team, the type of organization being audited, and other factors. Once the audit has been completed, the auditor will issue a formal report stating the findings of the audit. The report typically includes a letter, financial statements, and footnotes.

The auditor’s report can be utilized by the company’s management and third parties, such as lenders and stockholders.

While there are mandatory audit requirements for large public companies, government institutions, schools, and nonprofit organizations, these aren’t typically applicable for small businesses due to the expense. There are other assurance services that can be more helpful for small businesses. They include compilations, reviews, and agreed-upon procedures. Let’s learn more about them.

Other Assurance Services

An audit falls under assurance services in accounting, and it’s the most stringent of all. But there are other types of assurance services available, like:

Compilations. In this type of engagement, the CPA performs basic checks on your financial statements and puts them together with a cover letter. It basically tells a third party that you have a CPA, but it provides the least amount of assurance service.

Reviews. In a review, there are a few more checks, tests, and inquiries, that a CPA will perform before issuing financial statements. This service provides more assurance than a compilation but less than an audit.

Agreed-upon procedures. An engagement with agreed-upon procedures is a very specific engagement where one aspect of the business is reviewed in accordance with a specific goal.

When small businesses are asked for documents from an accountant by a bank or lender, they can often provide these lower-level assurance reports, and the reports will not only suffice but save money.

IRS Audit

The term “audit” can also be used informally to define an inspection more narrow in scope, such as an audit performed on an organization by the IRS or a state agency. There is no assurance provided in this type of audit. This audit aims to produce whatever records the organization is asked for to verify the numbers it sent to the agency. These types of audits can occur randomly or as a result of suspected fraud. 

Audits performed by the IRS or a state agency can be stressful and unpleasant experiences. Having your accountant support you along the way can be reassuring.

All organizations, no matter their size, have bills to pay. The larger the company, the more formal the accounts payable process tends to be. That doesn’t mean small business owners can’t benefit from a formal accounts payable process. Establishing one can be a great way to set controls and avoid unnecessary and unapproved spending. Let’s look at the accounts payable workflow to see where we can put some controls in place to protect your organization’s hard-earned money.

Purchase Order

A good first step is to initiate a purchase ordering process. All spending over a certain amount, such as $500, should require pre-approval from a manager or officer of your company. This step can take the form of a purchase order.

A purchase order (PO) is simply a pledge on the part of your company to purchase an item or group of items from a particular vendor. It should include the vendor’s information, the item(s) and quantities, the price that the vendor has agreed to, and who initiated and approved the proposed purchase. It will look similar to a bill, but it’s not a bill and should be appropriately marked.

If the price is not standard or the items are custom, there may be an estimate from the vendor that documents the price on the purchase order. The vendor writes the estimate document, while your company originates the purchase order.

While the purchase order is important, it does not create any entry on your accounting records, as no transaction has taken place yet.

Bill

The bill is the documentation of the purchase with a payment request. It is created by the vendor from which you are obtaining goods or services. It should be recorded on your accounting books once you have received it from the vendor.

The bill should be matched with the purchase order, checking to see if each item, quantity, and price match the same on the purchase order. Any discrepancies require explanation.

The timing of the bill can vary. For example, you may receive it before or after you’ve received the goods or services it covers.

Packing Slip

If the goods ordered are physical and will be shipped to you, then a packing slip or shipping document will usually be included with your package. The shipping document will have quantities but may not have prices listed. The document should match the actual items received, and any shortages or overages should be noted.

A process to stock the items into your inventory should then occur. A transaction should be entered into your system to increase inventory for the goods you receive.

The (corrected) packing slip should be matched against the bill to ensure sure you have received everything included on the bill. Again, if there is a discrepancy, it should be noted.

It’s common for back-ordered items to come in a later shipment, especially when supply chains become disrupted due to the pandemic. If your organization deals with multiple shipments for a single order often, you’ll need to set up a process for tracking them.

Approvals

As you can see, there might be a couple new checks and balances for you to implement in your organization, and there should be a documented processes for each one: one for matching the documents, another for any discrepancies that arise, and a final one for approval as you move from purchase order to packing slip to bill.

Your workflow may vary from the one listed above, depending on the order the documents are received and when payment is required. You may even have a different workflow for different vendors. 

Once the purchase order, shipping document, and bill have been matched and corrected, it’s time to get them approved for payment by the appropriate level of management that you desire. You’ll want to determine which of your employees can spend and approve certain amounts in advance of this step.

Payment

Once your bill is approved, review the payment terms and due date, then prepare the bill for payment. This can be accomplished through your accounting system or by using a company credit card, sending a bank transfer or wire, or writing, signing, and mailing a manual check.

Workflow

A strong accounts payable workflow will protect your company from unauthorized payments, missing items, and even hasty purchasing decisions. There are also many accounts payable systems to support the automation of this procedure so you can implement it with greater ease. 

New Business Directions provides custom workflow development and training, so if you’re interested in refining your processes around accounts payable, visit newbusinessdirections.com/custom-workflow-development/ or reach out to us via our inquiry form, located on our contact page. 

For small business owners, it can feel like there is never enough time to accomplish everything. If you’re feeling scattered in your day-to-day responsibilities, it may be time to implement a new approach to tackling your workload. One strategy that can help optimize your efforts is time batching (also called calendar blocking). If this is the first time you have heard of this, time batching can revolutionize the way you approach work.

What Is Time Batching?

Time batching is the act of grouping similar tasks together on your calendar to gain economies of scale. Almost everything can be batched: answering emails, running errands, customer calls or appointments, answering employees’ questions, and even meetings.

Here are a couple of examples. Instead of running to the office supply on Tuesday, going to the printer on Thursday, and visiting the warehouse on Friday, why not accomplish all your errands on Wednesday in one trip? Instead of answering emails as they appear in your inbox throughout the day, set aside designated time to answer them two to three times a day. If your calendar is overrun with meetings and appointments at all hours of the day, consider scheduling future appointments back-to-back, or designate one or more days a week as “no meetings” days by carving out time as “not available” in large chunks on your calendar. 

The beauty of time batching is that your brain will be less exhausted at the end of the day. When your workday is spent jumping from one task to the next, the brain experiences greater fatigue, and productivity suffers. These dings to your output are called switching costs, because they describe the tax that results from switching tasks often. 

Studies show that time costs are more significant when transitioning to more complex or unfamiliar tasks. Dr. David Myer, a psychologist who studies multitasking, determined that “even brief mental blocks created by shifting between tasks can cost as much as 40 percent of someone’s productive time,” according to an article by the American Psychological Association.

While switching tasks throughout the day is often necessary for most professionals, excessive switching can strain the brain. Time batching, on the other hand, helps reduce the number of times you switch tasks throughout the day, thus reducing mental fatigue and time costs that result from multitasking or frequent task switching. 

Business vs Personal Time

You can apply time batching to more than just your work life. In fact, it’s likely that you’re already practicing it at home and don’t realize it. Common examples of time batching at home include prepping meals for the week on Sunday or washing several loads of laundry in a row. 

While some things can’t be batched (like walking the dog), many more can. You just need to be open to the possibilities.

The Highest Payoff

The highest payoff with time batching comes when you can reduce your most common interruptions. For example, employee questions could be fielded more strategically by cross-training employees. Or, you could host recurring “office hours” for your team to address any questions or roadblocks with you, instead of stopping by throughout the day. 

Emails, chat platforms, and texts are also a source of constant interruptions. If your role allows it, consider reducing your distractions by silencing one or more of these communication methods. If you set aside designated time throughout the day to answer these communications, they’ll never go more than a few hours without being addressed anyway, and your day will grow a little quieter. 

Phone calls can be another source of interruption. When possible, encourage callers to schedule a time to call you or let them know how much more efficient email is, or silence your ringer and get back to them at a designated point in the day.

Getting It All Done

You can practice time batching for years and still get better at it. Try implementing just one element of time batching to start, like scheduling time to answer emails and then stay out of your inbox. Slowly transitioning to time batching will help you avoid change overwhelm. Then, every few months, look for more items to batch (no matter how long you’ve been practicing).

Time batching will not only help you get home to your personal life sooner; it will help you feel less drained and more energized at the end of the day, allowing you to actually enjoy your personal time. Try it and see what you think.

Remote work has exploded since the onset of the pandemic, especially in professional services. Now that companies have seen that remote work models are both productive and feasible, they’re realizing the benefits of an expanded pool of potential employees, too: some firms are hiring employees that live several states away from where the office is located. While this is an exciting opportunity for both employers and professionals, it comes with a few ramifications for employers. Below, we’ll walk you through what these could look like for your state.

Let’s say your business is based in Texas. Already, you file quarterly payroll reports and pay federal payroll taxes for your Texas-based employees. You also file all the required state payroll reports and have Texas workers’ compensation.

Now let’s imagine that in May, you hired an employee that lives in Cleveland, OH. And in June, you hired another that lives in San Francisco, CA. In both cases, you’re required to complete a few extra steps to run payroll for your new employees.

• You may need to get set up as a Foreign Corporation in these states (the exact paperwork depends on your type of entity as well as the state’s requirements and where your business originates). This means filing legal paperwork and complying with annual tax filings and information statements. You may also need to hire a firm that can be your registered agent and legal contact in that state.
• You must get workers’ compensation in those two states.
• You must sign up with the unemployment agency in those states. For California, it’s the EDD (Employee Development Department), and for Ohio, it’s the Ohio Department of Job and Family Services.
• You’ll need to work with your payroll provider (think: QuickBooks Payroll or ADP) so they can accurately create paychecks for your new team members with the appropriate state withholdings.
• You’ll need to file the correct quarterly payroll reports (in addition to your federal ones) for both states.

It’s important to note that each state has its own forms and requirements with precise filing requirements. Some states that are smaller and closer together may have exceptions you can follow to save time, since it’s more likely that workers crossed state lines for work before the pandemic, but this is not often the case.

Nexus

Nexus is the connection between a company and a state that requires the company to register and then collect and remit sales tax in that state. Having an employee in another state establishes nexus for your organization, which means that you may have additional tax and legal requirements beyond payroll taxes. For example:

• If you have sales in these states, you may also need to collect and remit sales tax on those sales and file sales tax returns, where you otherwise might not have unless you met certain sales thresholds. Your first step is to register with the sales tax agency in the state where your new employee resides.
• As the business owner, you may even need to file a state income tax return and pay state income taxes as an individual, even if you’ve never set foot in that state!

Making the job offer to a remote worker may seem easy, but the paperwork that follows will be anything but. Ensure you comply with all tax and legal requirements brought on by hiring an out-of-state worker. You may need some lead time in getting all this setup, so be sure to consider this in establishing your new employee’s start date.

As always, if you need help with any of these tasks, please feel free to reach out to us any time.

When starting a business, most entrepreneurs excel at the specific technical skills they need in order to deliver their services and products to customers. It may seem like an obvious example, but a bike shop owner probably opened their store because they had an expertise in bicycles. If you own a law firm, you are probably good at practicing law (or at least smart enough to pass the bar exam). In either case, your core skill is closely aligned with the services your business provides.

But starting a business means putting on hats you wouldn’t normally wear at first, like marketer, bookkeeper, or administrator. And while you might outsource these tasks to new team members as your business grows, you’ll also need to develop new skills beyond your core strengths in order to thrive. That new skill depends on the type of business model you want to succeed at. Below, we’ll discuss the biggest strengths you’ll need to master in order to continue your business’s growth and become outrageously successful.

People-Based Business Model = Leadership

If your business is one of the 25 percent of small businesses that have employees and you have a team that serves customers, then you most likely have a people-based business model. The revenue you earn is dependent on how your people perform and serve customers.

Some examples would be a mid-sized law firm, a nail salon, a marketing agency, and a mid-sized plumbing company. Each one has a team of people that generate revenue.

These people need to be hired, trained, and motivated, and that is where the skill comes in. If you have a business model like this, you need to excel at leadership, which includes managing people as well as hiring and firing. You need to be great at developing a productive, happy team in order to reach your highest pinnacle of success. Your core skill is still needed, but without leadership skills, you won’t grow as much as you could.

Acquisition-Based Business Model = Negotiation

Some companies grow through the acquisition of other companies. In this case, your top skill should be negotiation; you will need to execute great deals to keep your business growing.

Project-Based Business Model = Project Management

If your job revolves around delivering large projects, such as construction, then your business model might be project-based. While knowing how to be a general contractor might be your core skill, your top skill should become project management.

How well you manage the project timeline, delivery of materials, and oversee the management of the right number of people with the right skill at the right time are all factors required to complete the project as quickly and profitably as possible, with the quality needed so you can move to the next one.

Volume-Based Business Model = Merchandising 

If moving high quantities of products or services is your business model (think: grocery store, software company, certain retailers and wholesalers), then your revenue depends on volume and how much you can sell. How you display and market your products will affect how many customers you can get in the door and how fast you can sell. Your top skill should become merchandising and all things marketing.

Your Top Skill Is No Longer Your Core Skill

These four types of business models serve as a sampling to show that once you achieve some level of success, your core skill may no longer be the keystone to further success. Developing professional skills beyond your core skill will take you farther than you ever imagined you could go with your business.