1. Check transaction dates. Go through the accounts and review transaction dates near the end of the year (i.e. from December 15 through January 15) to make sure the correct transaction dates are assigned so income and expenses are reported in the correct tax year.

2. Use the right method of accounting. Make sure that reports are in the correct accounting method, either cash or accrual. Check with your advisor to find out what reporting method is best for you, but remember changing back and forth from cash to accrual accounting is prohibited for each five-year period.

3. Verify accounts receivables. Review all open invoices in the accounts receivable report (A/R Aging Summary) are actual invoices reflecting product delivered or work performed and all invoices are truly collectable. If there is an overstatement, it will be reported as income that was not collected.

4. Verify accounts payables. Make sure all open bills (A/P Aging Summary) are actually for money owed. Be wary of bills and checks that repeat in a QuickBooks files, which often happens, since this can double the cost of some expenses.

5. Watch for negative accounts. There should be no negative balances in the expense accounts on the P&L Report (unless there is a return). It is not uncommon to see accounts in the balance sheet such as “Accumulated Depreciation,” or “Bad Debt,” which will reflect a negative balance, but verify that they are correct.

6. Verify that all your bank/credit card/credit line/loan accounts are reconciled and show the proper balance per your statements.

7. Review all un-cleared checks and deposits. Verify against the bank statement that any outstanding deposits or checks truly are outstanding. Reconcile the bank statements first, and then delete double entries or data errors. An un-cleared deposit is a big red flag – did the bank make an error?

8. Use the report comparison function. A report comparing last year to the current year will highlight any inconsistencies or unusual changes.

9. Track fixed assets. Create a sub account for each major fixed asset to make it easy to identify and build depreciation schedules. Your CPA will typically provide the depreciation adjustments.

10. Use the memos field consistently. Provide as much detail as you can in memos to make it easier to review – e.g. “January Rent” – and review to make sure you have 12 months of rent payments.

Whether your company is using QuickBooks or not, these protocols will be extremely valuable in maintaining and preparing your books in a fashion that will make it easier for your tax preparer to file your company’s taxes and save you money. If you need help, consider hiring a bookkeeping expert or a firm well-versed in QuickBooks procedures to lend a hand.

Here are some current areas where a good accounting service will track information that will be needed at the end of 2012 when tax time rolls around again:

- Payroll tax cut: The payroll tax cut for employees was due to end after 2011, but Congress has revived the cut through the end of February 2012. This will have an impact on payroll and payroll planning, at least in the short-term.

- Depreciation drops to 50 percent: Among the tax breaks no longer available to business is the 100 percent bonus for first-year depreciation. Now, instead of deducting all of new equipment or capital expenditures, small business owners can only write off 50 percent of the cost of assets in the year they are placed new equipment into service.

- A higher ceiling on expenses: Businesses can now only expense up to $139,000 of assets put into use in 2012, down from $500,000.

- The R&D tax credit: Congress has eliminated the research and development tax credit, but experts predict they will probably revive it after the election.

- Social Security wage base rise: This year there is a $3,300 increase over 2011, the first increase since 2009. The Social Security tax rate will stay at 4.2 percent for the year, and 6.2 percent for employers; and the 1.45 percent Medicare rate will affect employers and employees alike. Self-employed workers will pay 13.3 percent on the first $110,100 in profits and 2.9 percent after that.

- Uncertain tax positions: More corporations will need to file Schedule UTP to report uncertain tax positions, since the $100 million asset threshold has been cut to $50 million.

- Reporting value of health coverage: As part of W-2 reporting, employers now must report the value of health coverage on W-2s for 2012.

These are just some of the changes in the tax rules and regulations affecting small business. Smart business owners need to be sure their accounting departments are sufficiently familiar with changes in tax law, or they need to seek help from accounting services that are paid to keep up with regulatory changes. Now is the perfect time to lay the groundwork for 2012 and to make certain that the company is in compliance. Are you confided that your accounting department is tracking the proper information and taking advantage of the current tax regulations?

There are a number of ways to measure success in promoting team performance. As James Slavet of Greylock Partners writes in a recent Forbes guest article:

“If you can measure it, you can manage it” is a business saying that goes way back. Maybe it was Henry Ford who said that, or Peter Drucker? Regardless, most managers only measure outputs, not inputs, which is like telling a Little League team to score more runs, rather than actually explaining how to swing a bat and make contact with the ball. Similarly, most companies measure traffic, revenue or earnings, without considering how to improve the company at an atomic level: how to make a meeting better, or an engineer more productive.

Here is a synopsis of five metrics that Slavet suggests managers can use to measure great team performance:

1. Flow State Percentage – Great work requires uninterrupted concentration. We all have experienced that feeling of being “in the zone” or finding “the flow” needed to complete a set task. Unfortunately, most work environments don’t promote uninterrupted concentration. There are phone calls, emails, meetings, water cooler conversations, and other disruptions that disrupt concentration. Once interrupted, it can take 15 minutes or longer to get back to a more productive state. Improve performance by promoting an environment where work can proceed without interruption, i.e., increase the flow state percentage. Minimize email usage. Create one meeting-free workday each week. Use other approaches to minimize disruption, and measure improvements in productivity.

2. The Anxiety-Boredom Continuum – Strive to create a state where the team operates between boredom and anxiety, and promote a little anxiety to provide an edge. Don’t create overwhelming tasks that make the team want to throw up their hands in despair, but create a workload and rhythm with enough tempo to keep them interested and challenged. Remember that star performers get bored easily, and they often perform better with greater challenges. Watch for telltales that team members may be bored, such as leaving work early, calling in sick, or arriving late. Also watch for frustration and other signs that they are being pushed too hard.

3. Meeting Promoter Score – Meetings can be a huge waste of time and, because time is money, inefficient meetings are costly. Reassess meeting policies. Can a junior staff member call a meeting to tie up senior management to debate the color of the new paint in the break room? Ask meeting participants to rate the effectiveness of meetings, and ask what they would do to improve them. The higher the meeting promoter score, the more productive the meetings.

4. Compound Weekly Learning Rate – Adding to the pool of company knowledge promotes growth. Employees who have a natural curiosity and a desire to learn will eventually surpass their peers. Promote that curiosity and adding new knowledge to the company. Ask each team member how to make things 1 percent better by adding new knowledge each week. Did they learn something from a customer? From a supplier? Make learning and adding to the pool of knowledge part of the corporate culture and review the progress. Adding a little new knowledge at a time adds up.

5. Positive Feedback Ratio – Famed psychologist John Gottman notes that marriages succeed where there are five times as many positive interactions as negative ones. The same is true in business relationships. Don’t use too much negative feedback. Praise team members for their accomplishments so they don’t become too wary of criticism. Positive feedback encourages them to give their best. Try to say something nice, even if it seems silly or unnatural. Try to maintain that 5:1 ratio.

Every aspect of company management can and should be measured. Aligning management practices with overarching strategic objectives, managing the process, and measuring the outcome are the necessary steps toward success.

One of the primary reasons that the strategic planning process fails is because the plan is written and then set aside to gather dust. Once the plan is created, it needs to be communicated to the parties involved in its success. Provide metrics that align with the expectations for the plan’s outcome.

The most powerful thing about metrics is that they keep the team focused. Measurement must be continuous, so a well-run organization needs to generate monthly financials and track metrics for SOs on a regular basis. The ongoing measurement and regular reporting serve to reinforce the drive to achieve SOs and track progress toward the company’s goals.

So are metrics set that are readily measurable and that can be used to fight the entropy of long-term objectives? First, consider that metrics are made up of measurements against a target or goal. To create clarity around desired outcomes, apply measurements that make sense toward a target goal. If an SO is to increase sales then use a simple metric like increased sales, and set benchmarks to make the goal achievable over time, rather than setting an unspecific SO such as “increase sales by 15 percent.” Break the goal into measurable milestones, so metrics become an increase of 1 percent the first month, 2 percent the second month, 5 percent the third, and so on to achieve the strategic objective. Adjust the targets as needed to achieve the strategic objective.

The metrics will vary with the SOs, but for the sake of discussion, let’s assume there are fiscal strategic objectives for the coming year. Set the metrics for the SOs accordingly, and avoid the common traps. Here is a simple list of “do’s” and “don’ts”:

• - Do tie metrics to strategic planning and anticipated outcomes.
• - Do makes sure everyone in the organization, from the C-level executives ion down, understands what is being measured and why.
• - Do limit the number of measurements to promote better understanding and usefulness. Focus on a handful of metrics that tracks truly strategic variables.
• - Do identify the drivers that affect the desired outcomes for the organization.
• - Do use graphics to display results and dramatize interdependencies, trends, and outliers.
• - Do link metrics to performance rewards whenever appropriate.
• - Do accept uncertainties. Anticipate some failures and prepare to adjust course as needed.
• - Don’t limit metric responsibilities to senior management. Everyone should have a stake in the process and a role in contributing to the company’s success.
• - Don’t treat metric development as a one-time event. As conditions change so should the metrics.
  • - Don’t wait for perfection of every detail. Strive for best effort and adjust as needed.
• - Don’t introduce metrics that are solely tied to compensation.

1. Where is the business today? Answering this question requires a firm grasp of internal operations, including materials, services, manufacturing capabilities, customer relations, debt, staffing, and the elements that drive profitability. Assessing the current state of the company needs to be cold and objective, with a realistic and critical examination of operations.

2. Where does the business need to go? These are top-level objectives, defined by the vision for the company, its mission statement, values, techniques, and goals. Where should the business be in five years, or ten years? Where is the focus to maintain a competitive advantage and promote growth?

3. How to get there? Once the top-level objectives have been defined, the next step is to identify those strategic objectives to achieve the top-level objectives. These are the specific objectives that relate to financial resources, market position, personnel, equipment, etc.

The business experts offer numerous ways to define these strategic objectives, and their formulae for success are alternately simple and highly complex. Perhaps the simplest way to assess the achievability of your SOs is to apply the acronym SMART to each objective:

1. Specific: Your SOs must be narrowly defined. Goals can provide a general direction, but SOs reqiure specific metrics that provide milestones of achievement. For example, “increasing profits” it too general, but “increasing sales by 25 percent” is specific and provides a marker for success.

2. Measurable: All strategic objectives need to deliver measurable results. At the end of the planning cycle it should be possible to determine if SOs were achieved or not, which means providing both the metrics and the means to measure those metrics. For example, “increasing customer satisfaction by 10 percent” could be a measurable objective, but only if you have the means in place to measure satisfaction. What does customer satisfaction look like and how do you determine if there is a 10-percent improvement? A measurable objective would be to “improve customer satisfaction survey scores by 10 percent,” the implication being that you have a measurement tool in place.

3. Achievable and Actionable: An objective can only be strategic if you have the means to accomplish it. Every SO needs to be achievable through direct action. For example, an SO such as “reducing the economic impact on sales” is not necessarily achievable and it certainly isn’t actionable since you have no direct impact on the economy. However, an SO such as “increase sales by 10 percent” is both achievable and certainly actionable.

4. Realistic: In addition to setting actionable objectives, SOs also must be realistic. Challenging objectives are acceptable, but don’t set the marker so high that it can’t be reached given available staffing, resources, and capital.

5. Time bound: Deadlines for achievement are critical, otherwise SOs become open-ended. All objectives need to have a timeframe that coincides with measurement, e.g. “increase sales by 10 percent in the next six months.”

The litmus test for each of your strategic objectives is that it has to meet each of these five criteria. If the objective fails to meet one or more of these criteria, then either assess it to determine if it is truly strategic, or revise it to make it more specific, measurable, actionable, realistic, and time bound.

Management pundit Peter Drucker has defined eight major classifications for strategic objectives:

1. 1. Profitability, including how to achieve financial growth;
2. 2. Financial resources, identifying capital sources and how to use them;
3. 3. Market position, including the company’s standing in its current market and new target markets;
4. 4. Innovation, such as developing new goods and services, and in the tactics needed to deliver them;
5. 5. Productivity, and how to plan to use external resources relative to output;
6. 6. Physical resources, such as new equipment and new facilities and how they will improve operations;
7. 7. Human resources, such as recruiting and developing employees to meet the company’s goals; and
8. 8. Social responsibility, such as improving the awareness and responsiveness to the company’s impact on the broader community of stakeholders.

Strategic objectives should be selected to address the major challenges facing the company. To make these SOs manageable and actionable, limit them to no more than eight, and it’s vital to prioritize them. Most companies, including non-profits, start with financial concerns, since making money is a primary concern. Then build the product strategy and customer support and marketing infrastructure in order to increase revenues. This may then lead to concerns about human resources and staffing. Strategic objectives are usually interdependent, which is why you need to create a hierarchy of SOs.

To clarify how to choose your SOs and then prioritize them, let’s use a hypothetical example. Assume that you operate a chain of pet food stores and your financial objective is to grow by $5 million in profit in the coming year. The company will need to add new products or services, such as a pet wash and pet shampoo added in each store, to help build profits. The company also needs to add five new stores in new target areas to increase your market presence and build profits. That may mean more capital to add those new stores and new staff to manage the new operations. A community support program will help build market awareness and attract new customers.

Based on this scenario, you have defined a series of six basic strategic objectives:

1. 1. Financial – To add $1 million in profits.
2. 2. Innovations – To expand the product line with new goods and services, such as a pet wash, to achieve the established profit objective.
3. 3. Physical resources – New storefronts will be required to expand the company’s market penetration and meet your profit goals, and the company will need to retrofit existing stores to add the new pet washing stations.
4. 4. Financial resources – New capital is needed to install the new pet wash operations and to add new stores.
5. 5. Human resources – New managers and staff will be needed to run the new operations.
6. 6. Social responsibility – A community awareness campaign targeting pet owners will help build customer awareness and loyalty.

As you develop your strategic objectives, stay focused to achieve those objectives. Limit the number of SOs to no more than eight. Once you have defined your strategic objectives, validate them using four basic criteria:

1. 1. Is the objective measurable or verifiable?
2. 2. Is the objective feasible or achievable?
3. 3. Is the objective adaptable or flexible?
4. 4. Is the objective consistent with the rest of your strategic plan?

In future blog posts later this month, we will delve further into the role of strategic objectives in guiding your operation, including how to measure the outcome of the SOs and how to budget for them.

This year as with every year, the tax laws are changing. Here are some tips on ways to save on taxes that may disappear after this year, complements of CPA Michael Custer and reported in BusinessWeek.

Custer notes that many small businesses are structured as S corporations of LLCs, which means the owner’s personal taxes are intimately tied to their businesses. The flow-through income from the business has to be reported on the owner’s tax returns. That’s why it’s vital to have an experienced tax planner help with your tax preparation, and why you need to be candid with your accountant.

Congress passed a number of new tax and job bills in 2010, including a number of new deductions for small business owners to deduct new and used equipment under U.S. Tax Code Section 179. Now companies can deduct the full amount of purchases up front rather than depreciating them over time. Deductions apply to personal property and equipment put into service in 2011, such as computers, furniture, telephone systems, software, machinery and the like. Leased equipment qualifies as well. This year business owners can deduct up to $500,000 in equipment; twice the amount for 2010. Businesses also can buy up to $2 million in equipment, up from the old $800,000 threshold, but that $2 million limit will start to drop after this year since it was targeted for small businesses with limited budgets. In 2012, the deduction is scheduled to drop to $125,000 and then to $25,000 in 2013; the same level as in 2002.

For companies that buy more than $500,000 in qualified equipment in 2011, they are allowed 100 percent depreciation, up from 50 percent for the previous year, and only apply to new equipment.

This year also offers bonus depreciation, where businesses that have no taxable profits in 2011 can carry their net loss forward to future years. This can be extremely useful for startups and struggling companies that are investing for future growth. Be sure to keep your receipts to reflect the fact you purchased the equipment during 2011.

If it makes sense for your company’s financial situation, you can prepay state and real estate taxes, or accelerate deductions and defer income to offset you 2011 taxes. Many of these strategies only make sense if you are expecting a banner year in 2012; don’t adopt prepayment strategies if they will adversely affect your cash flow.

You want to make the most of your tax deductions while those deductions are still available. Be sure to consult your accountant or tax professional and get the advice you need before the end of the year.

In the current economy, many employers have had to scale back on bonuses and commissions while prodding their employees to do more for less. If you don’t have an employee incentive program built into your budget, you’re in luck. Fortunately, there is mounting evidence that the best employee incentive programs have nothing to do with monetary prizes, but instead involve the relationship that employers build with their workers. That’s not to say that a bonus or gift incentive isn’t appreciated, but it is wise to look for ways you can connect with your workers to help them be at their most productive.

Show you care

Many employees respond best when they feel their company cares about them and their ideas. Unhappy employees are less likely to perform at their best. How do you show you care? Sure, monetary incentives are great, but after a while that Olive Garden gift card gets a little stale. Make a genuine effort to show that you not only care about your employees’ work projects, but that you also care about them. It’s simple really. Take the time to make small-talk and express an interest in your employees’ family life and extracurricular activities. Praise workers who have done a good job, and remember that a little bit of kindness goes a long way.

Employees who feel that their company cares about them will typically return the favor and care about their company. The worker who cares about his or her company is also going to care more about his or her job duties and will consequently perform better. It’s a common sense principle that is too often overlooked.

Give attention to your employees’ goals

Investing in your employees’ success will give you great returns. Take an active approach and talk to employees about their goals. Create an atmosphere that is conducive to employee growth by making time outside of annual reviews to find out what employees really want to do and what they’re working toward.

You may find that some of your workers are great at the projects you’ve assigned to them, but they also have innovative solutions to other issues that have arisen in your business. You may learn that they consider what they’re doing now to be a stepping stone, and that’s okay. Promotion is a huge incentive. By helping your employees reach their goals, you will be bettering your company. You can always hire someone else to fill entry-level positions that ambitious employees may vacate, but you can’t always re-create the chance to mold a manager from the ground up.

R-E-S-P-E-C-T

You’re a busy person, but so are your employees. There are few things as disheartening to staff as to work extremely hard on a presentation and then to look around the conference room only to notice that the manager is busy on his or her laptop or mobile device. Unplug during meetings, and give your employees the full respect and attention they deserve. That also goes for not answering emails or the phone when you’re in the presence of one of your employees.

Show appreciation

Finally, use manners. A simple “thank you” for a job well done is a great way to show employees you care and you noticed their hard work. You can thank employees in the presence of others, but that isn’t necessary. A genuine show of appreciation can go a long way toward helping an employee feel recognized and re-energizing their desire to do a job well.

Listed below are some areas you may want to look into when doing your full year end review. In addition to checking the data accuracy and closing the books, you should think about and plan for the up-coming year. Be sure your tax objective is aligned with your business goals. For example, you would make different decisions if you were looking to raise funding or trying to sell your company versus trying to keep profits low to save on taxes.

1. Planning for taxes. Do you have too much profit on the books? How does it compare to the prior year? If you had a banner year, it will also mean an increase in taxes. You may be eligible to offset profits with additional asset purchases before year end. Section 179 deduction allows you to expense the full cost of certain equipment or other assets. It may be a good time to purchase the new server or equipment you were planning to acquire next year.

2. Hold off invoicing / delay the sale to next year. In some instances it may be a good strategy to defer some billing past December 31st to lower your profits. It depends on how you recognize revenue in your industry, but if there is no real benefit to you invoicing on a job or sale on the 31^st, it might be wise to delay when you close that big job. Again, check with your CPA, and compare that tax advantage with how things will look on your books in the future should you decide to borrow money or if you plan to sell. Be smart.

3. Accelerate expenses. Sometimes it makes sense to pay additional expense before year end such as January rent or property taxes. Again, think about your plans for the next year. Some of these strategies depend on your current profits, your expected profits and the overall tax objective of the business.

4. Bad debts. If you have accounts receivables that you most likely can’t collect, it might be a good time to claim them as bad debts. If you are on an accrual system for taxes, then you have paid the taxes on money you may never collect. It may be best to get them off of the books. Review with your CPA the best possible solution.

5. Add to your 401k or pension. Check with your benefits administrator to see if you can put more cash into your 401K or pension plan. Try to max out your retirement savings – this will not only help you save for the future, but will reduce your tax obligation. If you don’t have a company retirement plan see if you qualify for a Sep IRA or 401ki. Another tip is to convert retirement assets to a Roth 401k or IRA by Dec 31^st.

6. Review your budget. December also is the time to review your annual budget to see how you did compared to the previous year. Which line items were on target? Ideally you would review this monthly, but ask yourself how you did for the year. Which expenses and profits were greater than expected, or less than expected and why? How do you need to adjust your budget for the coming year?

These are just a few of the steps you can take to make sure you take advantage of year end strategies. There are additional strategies that could apply to your operation, depending on your situation. Your best bet is to contact your CFO or CPA to gain a full understanding of your business’s tax liability and other potential financial concerns. Remember that if you use pro-active planning and understand your financial status there will be very little surprises when tax time arrives.

The end of the calendar year is also the end of the fiscal year for most businesses, and that means it’s time to close the books. The end of the year also is an excellent time to analyze your business performance and get ready for your tax filing.

Closing the books means you are ending your official accounting period so you can start the next period with a clean slate. It means that once the books are “closed” there will be no more changes to the financial documents for the closed period. So accuracy is critical. The closed books are the “gospel” of what has happened in the financials for your company. Surprisingly, this may not be as easy as it sounds. If you want to accurately reflect exactly what happened in your business during any particular period, you need all of the supporting information. For example, invoices from vendors may be late, employees turn in expense reimbursements well after the expense occurred, credit card statements and banking statements take additional time to reconcile, etc.

There are a host of reasons why your financial records might need to be “tweaked” after the end of an accounting period, and once the books are closed changing the financial records is a real challenge. It’s like trying to get the Pope to accept abortion or birth control. Don’t bother trying it. That’s why many companies close their accounting books every month or every quarter. Closing the books monthly makes a lot of sense for many businesses because it’s an opportunity to stay close to the true business performance and the systems within your business. You don’t want to realize after a year’s time that your monthly profit and loss is off, that you owe more taxes than you thought you were going to, or that you suddenly have pension and 401K expenses that you had no idea were going to wipe out all of your hard-earned profits because you failed to close the books each month. It’s important to make sure you know what is happening in your financial world. But no matter what, even if you choose to wait until the end of the year, you certainly should close the books at least annually to prepare for tax filing.

To close the books means you close out and reconcile all of your accounts; all expenses have been posted, all income has been accurately reflected, and all of this information is entered accurately to corresponding accounts on the balance sheet. It means that every financial transaction, whether it has been paid for or not, is accurately reflected in your financial ledgers. And that an IRS agent could verify all of the information you have posted in your financial records with corresponding supporting documentation. It also means that there will be no “going back” to fix the “oh we forgot,” or “we didn’t know that was going to happen”

It is critical that your bookkeeper and controller be able prove to you that the systems within your business support accurate and effective source document management. They need to show that what is reflected in the financials can be proven as accurate with supporting information, and that every account on your balance sheet and profit and loss actually make sense. If they don’t, and you don’t understand them, then question whether or not your books are being accurately closed out each month. It’s not just about your bank balance; it is all of the accounts in your financial ledger. Each and every one needs to be accurate.

We use an Accounting Year End Closing Checklist that you can use to see if your bookkeeper or controller is truly doing what is needed when they tell you the books are closed out. Use the list to quiz them, and to demonstrate that they are actually closing the books. After your interview them and have them show you the systems they have in place, use good common sense and risk management analysis to determine how well your books are being closed out. Have you allocating enough resources to your financial record keeping. Are you investing enough into your money center, or are your books a mess, and is money being spilled recklessly about so the next IRS agent is going to tell you how reckless you have been?

The year end is the time to not only “close your books” and hand the financials over to your CPA to prepare your tax return, but assess how well your business is performing financially. You will sleep better at night, and you will have all of 2012 to work on fixing the things that you could have done better in 2011. Good luck!