Quick note to let you know we’ve got two new videos, just released:

1. Balance Sheet 101: Basic Structure
2. Balance Sheet 101: Negative Numbers.

These are part of our four-part Balance Sheet 101 series. The next two videos will be:

• Balance Sheet 101: Equity Accounts
• Balance Sheet 101: 12 Ways to Analyze.

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Here’s a good introductory video course on small business accounting for both bookkeepers and new business owners. Presented by the U.S. Small Business Administration, it explains financial statement basics and why they’re important to running a successful business.

http://www.sba.gov/training/finandacctg/index.html

While we’re on the subject of free accounting help, here’s a reminder about another one of my favorite resources: http://www.accountingcoach.com/.

An accounting firm that misstated audited financial statements and then concealed the blunder was recently condemned by the Quebec Court of Appeal to pay more than $300,000 to a shareholder who relied on the statements to acquire a company.

Mallette S.E.N.C.R.L., the sixth largest accounting firm in the province with more than 50 partners and 550 professionals working across 21 offices located in small and mid-sized cities, was held liable for breach of a legal duty after the court found that it was accountable for the loss of future gains the shareholder could have earned. Also held liable were two of the firm’s partners – Gratien Nolet, formerly of Arthur Andersen, who performed the audit from 1999 to 2003, and Marc Dagenais, a tax expert.

“There was a breach of duty to inform by the accountant towards his client (contractual breach) and there was a second breach towards those he knew would rely on the statements he prepared and audited – that is, the company’s shareholders (extra-contractual breach),” said the appeal court in its 11-page ruling which overturned a lower court ruling. “The second breach was intentional. The appellant can claim compensation against the respondents for all direct and immediate damages it caused by its extracontractual breach.”

Under Quebec civil law, there are two types of liability: contractual, which is based on the failure to perform an obligation undertaken by agreement, and the other referred to as extra-contractual, which occurs when there is a breach of a legal duty. In short, the liability of an accountant is not limited to the person or organization with whom he did business. When a professional fault committed in the exercise of his profession affects a third party, the professional may be held liable. The plaintiff, however, has the burden of proving that the damages he suffered “are a direct consequence of the wrongful error.”

“The ruling highlights the need for auditors to take into consideration shareholders when they discover an anomaly,” said Germain Jutras, a Quebec City lawyer who successfully plead the case before the appeal court. “When they discover an error they must notify the board of the directors of the enterprise and the company’s shareholders, more so in this case given that the error was made by the accounting firm itself. Instead they kept the information to themselves.”

The case dates back to eight years ago when Claude Boire, a Quebec businessman and head of Couvoir Boire, one of the province’s largest poultry hatcheries, became a minority shareholder of another hatchery after purchasing 45 per cent of Nutribec Ltée.’s shares. A shareholder agreement between the two stakeholders contained a so-called “shotgun” clause, which allowed a partner to purchase all of the shares held by the other shareholder. If a shotgun clause is triggered, the shareholder who receives the offer must then agree to sell his shares at the price established and offered by the offering shareholder – or purchase the shares of the offering shareholder at the same specified price.

On September 2002, following an irreconcilable disagreement between the two partners over the future of Nutribec, Groupe DLPC, Nutribec’s other shareholder, triggered the shotgun clause, offering to purchase the shares held by Boire through his company, Agri-Capital Drummond Inc., for $3.4 million, based on an overall value for Nutribec of $7.5 million according  to the valuation made by DLPC. After analyzing the offer and the company’s financial statements, Agri-Capital turned down the bid and instead purchased DLPC’s shares, as required under the shotgun agreement.

Nearly a year before the deal was sealed on November 2002, Revenue Quebec conducted an audit on Nutribec, examining fiscal years 1998 and 1999. On October 2001, the tax authorities asked Nutribec for more information, and the company’s comptroller gave Mallette’s tax expert the mandate to deal with the situation. Shortly thereafter, Dagenais – the tax expert — discovered that a tax loss for the amount of $4.5 million had been claimed twice, in 1998 and 1999. Dagenais, however, did not inform Nutribec’s management.

“On the contrary, Dagenais and Nolet attempted to fix the situation during the course of their negotiations with Revenue Quebec,” noted Justice Pierre Dalphond of the Quebec Court of Appeal. The judge added that a “laconic note” was inserted in Nutribec’s 2001 annual financial statement, which stated that it was “impossible to quantify as of this date the impact” the losses would have so long as the audit and negotiations with Revenue Quebec were not completed.

In 2005, Agri-Capital sued the accounting firm for $2.4 million, asserting that had it been aware of the duplicate tax loss, it would not have purchased DLPC’s shares but rather would have sold its 45 per cent interest in Nutribec to DLPC. Agri-Capital also argued that it had been deprived of $1.3 million, that is the benefit it would have obtained from the $4.5 million tax loss.

“When my client analyzed the company’s financial statements, he determined that it would have been more advantageous for him to buy than to sell,” said Jutras. “However, had he known there was an error in the company’s financial statements he would have taken another decision and would have sold his shares and make an immediate profit of $2.4 million. Instead he was faced with a company that owed a substantial amount to Revenue Quebec.”

While the court of first instance held that Agri-Capital failed to clearly demonstrate it suffered harm, regardless of whether or not the accountants committed a fault, the Quebec Court of Appeal came to a different conclusion.

Informed by a ruling the appeal court made nearly 15 years ago, Lalumière v. Moquin [1995] R.D.J. 440 (C.A.), Judge Dalphond noted that the auditors of a company may be responsible delictually for any personal damages suffered by shareholders caused by their negligence even though there may be no contractual relationship between the auditors and the shareholders, provided that the damages suffered are distinct from the damages suffered by the company.

Justice Dalphond also pointed out that according to Chapter 5400 of the CICA Standards and Guidance Collection (CICA Handbook) upon the discovery of a material misstatement in audited financial statements auditors have an obligation to discuss it as quickly as possible with management, and when circumstances allow it, with the company’s board of directors.

“The note in Nutribec’s 2001 financial statements, which was handed to its executives and shareholders at the beginning of 2002, was not adequate because it gave an incomplete portrait, indeed deceptive, of the misstatement which was identified and known by the respondents,” said Judge Dalphond.

He underscores that a note in Nutribec’s 2002 financial statements points out that the company lost $75,000 in fiscal advantages for fiscal 2001. Judge Dalphond also points out that according to expert reports prepared by PricewaterhouseCoopers, “if the tax losses had existed, the evidence leads us to conclude that, on the balance of probabilities, Nutribec could profited up to $313,000.”

Judge Dalphond concluded that Mallette was liable for for past and future losses  incurred by Nutribec’s sole shareholder, and ordered the accounting firm to pay $313,000 plus interest and expert fees totaling $16,000.

Pierre Cimon, a Quebec City lawyer with Ogilvy Renault who represented Mallette, refused to comment except to say that he has been given instructions by the accounting firm to file an application for leave to appeal before the Supreme Court.

Board members from two different nonprofits called me to express concern and surprise after learning in recent board meetings that their organizations were in financial distress or even crisis.  Both indicated that while they were seeing regular financial statements, they were not seeing anything that related to cash flow.  Both attributed the distress to a shortfall in foundation funding.  They each indicated that the boards were surprised by this news!

Boards should not be surprised by the financial status of the organization.  Given the impact of our nation’s financial crisis on funding sources, including foundations, there should be contingency plans in place.  The full board (not the Finance Committee, the Treasurer or the chief executive) is responsible for the financial statements and the financial viability of the organization.  So what can boards do to ensure that they are not surprised?  At BVU, we work with hundreds of boards each year, and find the following to be useful:

Establish a strong Finance Committee – Recruit more than one person with the relevant skills and expertise to work with staff to develop a realistic budget and financial forecasts at regular intervals (Quarterly? Monthly? Weekly?).  Ensure that the board’s financial reports are useful for forecasting and decision making.

1. Develop a one-page dashboard – Identify the key measures that board (and staff) must monitor on a regular basis to ensure that the organization is making progress towards financial, fundraising and programmatic goals.  For each category, track progress against budget-to-date and compare with numbers from the previous year.  Focus on key variances.  This is an excellent tool to help boards provide accountability, plan and make decisions, but it does not replace the need to provide financial statements to the board.
2. Create a culture of transparency and accountability – Share the financial forecast and the dashboard with the full board at each meeting.  Discuss options, priorities and realistic strategies for board and staff to help raise funds or reset the budget.  Access to this information should not be limited to the Finance Committee or the Treasurer.  The chief executive should feel comfortable that the board is a partner in addressing challenging financial issues.
3. Use meeting time to focus on important issues – View board and committee meetings as precious time where the organization’s board can focus on the issues that matter most.  Don’t waste time on details or reports that board members can read in advance or see in the dashboard. Use meeting time to discuss strategic issues and options.

BVU provides training and consulting to hundreds of nonprofit board members and boards each year.  Please contact Elizabeth Voudouris at evoudouris@businessvolunteers.org for a sample dashboard or to learn more about BVU’s services to strengthen your board.

Here’s a somewhat contrarian view to the many calls for “more lending, more lending” to small businesses. Yes, more lending to small businesses that represent a reasonable risk i.e. those with solid fundamentals. But more lending to small businesses with little collateral, negative cash flow, and a high debt-to-equity ratio? I’m not so sure that’s a path toward long-term economic recovery. Seems like more of what got us into trouble in the first place, because underlying structural problems aren’t being addressed.

As a small business CFO I tend to be on the conservative side when advising companies how much debt to take on, and this recent article called The Debt Economy by James Surowiecki extends this caution to a macroeconomic level. He traces the line of excessive debt from individuals businesses and consumers to the economy as a whole, and the bust cycle that follows as a natural correction.

Most interestingly, however, he drives home the point that the tax deductibility of business loan interest isn’t a given; it’s constructed to meet social, economic (supposedly), and political (definitely) goals. His point is that if we remove the inalienable right to take a tax deduction for household mortgage interest and interest on business debt, how do we feel about such debt?

Being a fiscal conservative, I expected to view this article as support for my cautious approach to taking on more small business debt — keep your current ratio at 2.0 or higher, your debt-to-equity ratio at 2.0 or lower, etc.

And I still feel that way. Mostly. But I’m also intrigued by the financial engineering behind running a highly leveraged small business. If the tax deductions are there, and lenders are willing to take the risk, why not? You increase your risk of losing it all, but if you’re comfortable with that trade off — more risk to achieve more return — why not try it?

The problem I see is that many companies take on a lot of debt, but then don’t engineer the company to generate the above average returns necessary to justify the risk of being highly leveraged.

So where do I end up on the issue?

For the majority of small businesses, keep your balance sheet in a range that commercial lenders are comfortable with.

But for the minority who are comfortable with lots of debt and want to make a fast run for outsized earnings or a quick exit strategy, be very clear on your plan, because it’s a different business plan. Build in some downside protection to minimize the collateral damage if things don’t work out. But most importantly, set your targets high and run all aspects of the company (sales, operations, and finance) to meet those targets. Engineer the company to run hot, essentially, and be ready to sell it when the right opportunity comes along.

Math is hard. Poverty is harder.

Q: Dear Control Your Cash, how do I read a stock quote?

A: Considering that you’re just a literary construct and not an actual person, it doesn’t really matter.

Q: Thanks. You know how to make a girl feel special.

Tickers and charts are easy to understand if you know what you’re doing. Take stock ABC, for instance.

That’s not an idiom. Take stock ABC. That’s the ticker symbol for AmerisourceBergen, a drug wholesaler based out of suburban Philadelphia. ABC trades on the New York Stock Exchange, which is what the “NYSE” represents on this page.

The first line tells you what price a share of ABC last traded at (as of 1:49 p.m. ET today), and how much ABC gained or lost from the previous trading day (last Friday).

That covers everything down to the Previous Close line in the first column. Open means what price ABC first traded at today. That gives you an idea of what direction ABC’s price was heading in earlier, but it’s not as important at what ABC closed at.

Bid and Ask are a little more complicated. For large, heavily traded companies, Bid and Ask usually don’t apply. But for companies whose stock trades sporadically, they’re important. That’ll require us to look at a different company for a while; DEF.

DEF is Claymore/Sabrient Defensive Equity exchange-traded fund (more on these later), which is operated by Claymore, a Chicago financial firm. DEF trades on NYSEArca, a smaller, online-only exchange that features the stocks of small companies.

You’ll notice it’s been a few hours since someone bought DEF. For a decently sized company, that’d be all but impossible. Shares of DEF last traded at 20.77 (these numbers will obviously have changed by the time you read this.) But since then, no one’s been willing to buy it at that price, nor has anyone who owns it been willing to sell it for that little. Buyers are offering 20.77 for more shares, but there are none left at that price. Because no one’s willing to sell it for less than 20.79. The broker who bid 20.77 a share for DEF was willing to buy a lot of 3500 shares at that price. The broker who was asking 20.79 a share for DEF was offering a lot of 2500 shares.

Alright, back to ABC. The 1-year target estimate is what some analyst thinks the price will be a year from now. Treat this with the skepticism it deserves.

Day’s range and 52-week range are self-explanatory. Volume is the number of shares that were traded today. But you can’t multiply Volume by Last Trade to get the dollar value of the number of shares traded today, because not all the shares traded at 24.60. (Of course not, they fluctuated between the numbers listed in Day’s Range.)

The (3m) after Average Volume means 3 months.

Market Capitalization is essentially what the company is worth. There are several ways to value a company, the most obvious one being what someone would be willing to pay for it. But since there’s probably no one who wants to buy every last share of ABC, the best we can do is multiply the price of a share by the number of outstanding shares. Makes sense, right? The chart tells us that ABC is thus worth $7.2 billion.

Which means we now have an idea of how many outstanding shares of ABC there are, which would be 293 million (give or take a tenth of a percent or so, thanks to rounding.) Not that that’s important in and of itself, but it does tell us that about .42% of ABC’s outstanding shares have changed hands today. Which means that 99.58% of ABC’s outstanding shares stayed right where they were. (When the hotties on Fox Business say that “trading was heavy today”, it’s relative. Trading is always pretty light.)

The next two items should be reversed. Let’s start with EPS, which is earnings per share. It’s how much money the company made (according to its annual income statement), divided by the number of outstanding shares. A little multiplication shows that ABC made about $486 million last year, which is excellent, especially considering ABC’s market capitalization. (ttm) means trailing 12 months; in other words, looking at the company’s earnings over the past year.

P/E is price/earnings ratio, which is a indirect measure of what investors think a company’s stock will be worth. It’s the stock price divided by EPS.

ABC investors are willing to pay $14.79 for every dollar of income the company generates annually. In other words, it would take about 14.79 years for the stock to earn enough to pay for itself.

Which isn’t bad. Say you have another investment, like a $100,000 house that you rent out. If it took you 14.79 years to collect enough rent to pay for the house, that’d be an annual rate of return of 6.76%.

P/E ratio is important enough that it warrants its own post, but for now just know that a high number (usually >17 or so) means that the stock is either overvalued, or investors think it’s going to earn a lot more in the future. A number from 0-10 means that the company stock is a bargain, or the company’s going to start earning less. (A negative number means the company’s losing money.) ABC’s P/E ratio just happens to be right around what’s normally considered fair value. P/E ratios depend hugely on what industry a company is in. For instance, a healthy electric utility will usually have a lower P/E than will a barely profitable tech company. Governments regulate utilities heavily, and while they’re profitable, they cost a ton to start up and their profits are usually limited if steady. 

That leaves Dividend and Yield. Successful, consistently profitable companies pay shareholders a dividend – sometimes annually, sometimes quarterly, sometimes even monthly. It’s a piece of the profits earmarked just for this purpose. If that sounds unduly generous, keep in mind that the shareholders own the company: it’s their money. They authorize the board of directors to hire executives who’ll authorize dividends, and those directors and executives hold shares themselves.

To keep things uniform, dividends are expressed annually. So if a company happens to pay a quarterly dividend, the number listed here is 4 times that. Yield is the dividend divided by the share price.

Q: Wow, Control Your Cash. You’re really smart. Did I mention that I’m tall, blonde, statuesque and lonely?

A: Very funny.

It is in your best interest to insist that the estate agent furnishes you with the following information:

1. The rules governing the scheme.
2. The names of the trustees of the Body Corporate and managing agents.
3. The amount of the levy payable in respect of the unit and whether any increase is anticipated.
4. The extent to which the body corporate has made provision for future maintenance to the scheme.
5. Financial statements of the Body Corporate.

It’s that time again.

Aim for a quick, clean close of last month’s books by the 15th of this month.

1. What should be done by now (the 5th)?

• Bank and credit card reconciliations
• Payroll entries
• Customer invoicing
• Most vendor bills
• Work in Progress (WIP)
• Physical inventory count (full or partial, depending on your policy)
• Recurring journal entries (e.g. depreciation).

2. By the 10th:

• Issue “soft close” financial reports; you should have a clear sense about last month’s financial performance
• Complete your self-review of the books
• Send the books to peer review.

3. By the 15th:

• Finish peer review
• Issue management reports
• Carry forward open items
• QuickBooks users: advance the closing date each month or quarter.

Warning sign

If you find yourself deep into the month before your books are closed (e.g. the 20th, 25th, etc.), that’s a symptom of accounting department problems that need to be corrected.

On the other hand, if you can finish the three steps above by the 1oth of each month instead of the 15th, even better.

Below are seven ways to measure the financial performance of your business. Three appear on the financial statements, three do not, and one is outside the business altogether.

You can see these three on your company’s financial statements…

1. Profit

The creation (profit) or consumption (loss) of wealth over a certain period of time. Other words for profit are “earnings”, “net income”, and “the bottom line”. A full measurement of profit must include owner’s compensation. More profit is good.

2. Cash flow

The difference between the amount of cash you end up with at the end of a certain period of time versus how much you started with. More positive cash flow is good.

3. Balance sheet strength

Generally speaking, your company’s assets relative to its liabilities at a specific point in time. More assets (what the company owns) and fewer liabilities (what the company owes) results in a stronger balance sheet. A stronger balance sheet is good.

The next three usually do not appear on the financial statements…

4. Risk

Business is risky. You might not get paid by a customer, you might default on a bank loan, your company might get sued, etc. Risk is sometimes defined as probability times consequence, the likelihood of something occurring multiplied by the damage it would cause. To earn the same dollar of profit with less risk is good. Or, to earn more profit with the same amount of risk is good. Hence, the risk/reward relationship.

Risk is often not priced correctly, as we learned all too well through the collapse of gigantic U.S. financial institutions.

5. Owner’s time invested

How many hours per day, week, month, and year do you put into your business? To earn the same dollar of profit while investing less of your time is good.

6. Valuation

What is the fair market value (FMV) of your business? Is it rising or falling? In addition to providing current income, businesses create wealth for their owners by having a resale value. When it comes time for you to execute your exit strategy, a higher business valuation is better.

This last way to measure financial health is outside the company realm altogether…

7. Business owner’s net worth

Financially, the purpose of a business is to create wealth for its owners. Does the owner(s) have substantial investments in retirement accounts, real estate, and other holdings? Has the owner’s net worth increased a result of money she/he has taken out of the business? Look to the owner’s personal balance sheet for a full understanding of a small business’ financial performance.

WASHINGTON — Sen. Paul G. Kirk Jr., D-Mass., is a rich man.

According to his financial disclosure report, filed Oct. 23 with the Senate Office of Public Records, Mr. Kirk has publicly traded assets worth between $2.74 million and $5.98 million — and that’s not including his house, car or annual income: From Jan. 1, 2008, to Oct. 22, 2009, Mr. Kirk reported earned income totaling $349,187.50.

Inventory-based businesses: take a physical count at the end of this month.

Record for all items in stock:

1. Item / SKU
2. Quantity on hand
3. Cost basis
4. Extension (#2 x #3).

Compare that to what’s in your QuickBooks file and reconcile any differences. As of the last day of each month, you want to have accurate numbers for inventory and Cost of Goods Sold, which combined with sales will give you your gross profit margin.

In a product-based business, knowing your gross margins (even down to one-half of one percent) is essential to successful financial management.

The end of year (12/31) inventory must be extremely accurate. During the year it’s OK to save time and estimate on some lower-value items. So if you have a box of 200 widgets that cost $200 ($1 each) and it looks to be half full, call it 100 widgets @ $1 = $100 of inventory and move on.

Account for all your higher value items, though, because they exert greater influence on the total number.

IMPORTANT! It’s better to do a “good enough” inventory count and calculation each month than none at all.

Keeping on top of physical inventory is one of those little things that can pay off big in terms of reducing losses due to shrinkage, pointing out errors in your inventory system, and giving you more accurate data upon which to make decisions that will improve financial performance.

———————

[David Stern CFO best practice #133]

When you’re knee-deep in bills, post-its and several different to-do-lists, it’s not uncommon to overlook certain fine lines and deadlines in your financial statements. Whether you have multiple accounts with different credit card companies or you prefer to keep your cards at a more manageable number, there are some mistakes… >>>READ more

Since IFRS is supposed to be recognized in 2008 tax reporting it is  important to ask how a small and medium sized enterprise will be defined in the incoming IFRS…

According to International Accounting Stardards Board the definition of an SME “states that the entity can have no publicly traded debt or stock, or the entity cannot be deemed as having “public accountability” such as holding assets in a fiduciary capacity for a broad group of outsiders (banks, credit unions, broker-dealers, mutual funds, and so forth). They apparently didn’t want to use the term “public accountability” in the title, as they felt it might cause more confusion. For example, Joe’s Hot Dog Stand may be publicly accountable to the health department, but obviously that isn’t the intent of the standard.”

Further

“The users of SME financial statements often differ from the users of financial statements based on full IFRS or U.S. GAAP. Users of the financial statements of private companies (generally, lenders, creditors, or owners) usually focus more on shorter-term cash flows, liquidity, balance sheet strength, interest coverage, and solvency issues. That means they do legitimately need an accounting standard for private companies that would meet the needs of their financial statement users while balancing the costs and benefits from a preparer perspective.”

The slimmed down version of IFRS is only 230 pages compared to the 17,000 pages for large corporations. Clearly hiring the right accountant is crucial in a successful transition when you have so much information to deal with… i.e. “General Electric had to endure (heat) over incorrectly implementing Financial Accounting Standard No. 133, Accounting for Hedging Activities  -the grand dame of complex and convoluted standards, more than 800 pages long”…

In spite of the urgency to get started on adopting the new standards it is said that the market will drive acceptance of the new IFRS standards -especially in the Western world and America. For more details on the benefits of IFRS for SME check out this excellent report by Compliance Week Columnist Colleen Cunningham. http://bit.ly/t8d7l

The Hurclean feat of understanding and adopting the new IRFS lies ahead for not only accountants but SME! A Word to the Wise...Begin to Prepare today!

Whether you are overseeing a corporation or running a small business accounting services from your home, you will at some time in your career need to engage the services of a good accountant.
• Identify company needs. Do you need a bookkeeper to balance the checkbook or someone to prepare financial statements and/or tax documents?
• Determine the type of tax accountant needed, based on your needs. Many tax accountants can provide all the services you require or are part of an accounting company that can cover your needs.
• Ask others, especially those in your same line of business, for recommendations.
• Look in the yellow pages or contact other companies for referrals.
• Contact the local Chamber of Commerce or the American Institute of Certified Public Accountants (AICPA) for referrals.
• Look beyond fees, when evaluating accountants, and ensure you feel comfortable with your perspective tax accountant and his or her ability to quickly respond to and understand the changing needs of your business.

Laporan keuangan suatu perusahaan dihasilkan guna memenuhi kebutuhan para penggunanya secara umum, terutama dalam pengambilan keputusan bisnis. Untuk itu informasi keuangan yang dihasilkan haruslah berkualitas. Dikatakan berkualitas apabila suatu laporan keuangan memenuhi karakteristik kualitatif laporan keuangan, yaitu dapat dipahami, relevan, keandalan, dan dapat dibandingkan.

Salah satu karakteristik tersebut adalah dapat dibandingkan (comparability) yang dinyatakan dalam kerangka dasar penyusunan dan penyajian laporan keuangan pada Standar Akuntansi Keuangan (SAK). Kendati masing-masing karakteristik memiliki porsi yang sama krusialnya, namun penulis ingin meninjau dari sisi pentingnya daya banding suatu laporan keuangan.

Apabila mengaitkan ‘memiliki daya banding’ dengan judul di atas, memiliki daya banding dapat kita kaitkan dengan konsistensi, baik dalam penyajian, metode maupun kebijakan akuntansi yang digunakan, sedangkan penyajian data komparatif mencakup daya banding suatu informasi dan mengarah pada kepentingan pembaca yakni bagaimana agar pembaca laporan keuangan dapat menilai kinerja suatu perusahaan bila dibandingkan dengan kinerja sebelumnya.

Investor atau calon investor tentunya lebih tertarik pada ‘peningkatan peforma’ suatu perusahaan dan bukan suatu kondisi yang ‘biasa-biasa saja’. Untuk itu secara sederhana, kinerja yang lebih baik selain meningkatkan kesejahteraan shareholders-nya, juga semakin meningkatkan peluang ketertarikan calon investor pada suatu perusahaan. Oleh karena itu, penilaian lebih baik atau lebih buruk merupakan sesuatu yang penting dan bukankah bila kita ingin mengatakan suatu hal itu adalah lebih baik atau lebih buruk maka harus ada sesuatu yang identik untuk dibandingkan. Hal yang paling identik untuk dibandingkan dalam laporan keuangan suatu perusahaan adalah laporan keuangan perusahaan itu sendiri.

Jadi, laporan keuangan periode sebelumnya merupakan suatu sarana pembanding untuk menilai lebih baik atau lebih buruk kinerja suatu perusahaan pada laporan keuangan periode berjalan.

Informasi apa saja yang dibutuhkan sebagai data komparatif ?
Merujuk pada Framework for the Preparation and Presentation of Financial Statements pada International Financial Reporting Standards (IFRSs), informasi laporan keuangan untuk periode berjalan diungkapkan secara komparatif dengan periode sebelumnya. Informasi komparatif menyajikan minimal dua laporan posisi keuangan (neraca), dua laporan untuk tiap jenis laporan lainnya, dan catatan atas laporan keuangan.

Selain itu, informasi yang bersifat naratif dan deskriptif dari laporan keuangan periode sebelumnya juga diungkapkan jika relevan untuk pemahaman laporan keuangan periode berjalan. Dalam hal perusahaan menganggap bahwa jumlah yang disajikan dalam laporan keuangan periode sebelumnya tidak dapat diperbandingkan secara keseluruhan, maka perusahaan harus mengungkapkan fakta yang menunjukkan hal yang demikian.

Jadi, adalah penting untuk menyajikan laporan keuangan periode sebelumnya sebagai data perbandingan terhadap laporan keuangan periode berjalan karena hal ini memungkinkan pembaca untuk menilai fenomena ekonomi yang terjadi pada perusahaan. Kepatuhan pada standar akuntansi keuangan yang digunakan oleh perusahaan akan meningkatkan kualitas daya banding suatu laporan keuangan.

At this blog and in our consulting, we devote substantial time and effort helping businesses achieve a quick, clean monthly close. Here we explain why.

Financial feedback

Your monthly close produces financial statements — P&L, balance sheet, and cash flow statement. These reports give you valuable feedback about what’s working (and what’s not) in your business.

The sooner you respond to this feedback, the sooner you can correct course to improve financial performance. But if you have to wait 30 or 60 or 90 days to know, for example, that labor costs are out of control, you’ve lost valuable time to fix the problem. You’ve lost more money. And that money is gone forever.

If there’s a problem, the sooner you know about it the better. And if there’s an opportunity emerging, the sooner you see it, the more chance you have to optimize it.

Prevent accounting problems

On one of my first jobs as a financial consultant, I was paid $2,500 to clean up a large QuickBooks payroll mess. It would have cost my client $500 for me to set it up correctly in the first place. That’s a 500% premium for after-the-fact clean up.

A quick, clean monthly close sniffs out accounting problems when they’re small, before they have a chance to grow large and expensive. Find these problems, fix them, and put the money you save toward more productive uses, or take it out as profit.

A well run finance department

A quick, clean monthly close usually points to a well run finance department.

A perennially late, messy monthly close might be a symptom of such problems as:

• time planning issues (bookkeeper and/or business owner)
• lack of management commitment
• lack of technical skill, capacity, or motivation
• fraud.

On one consulting engagement my job was to lead a financial system clean up. The books hadn’t been closed for months, because the former bookkeeper had been delaying the monthly close, giving one excuse after another. The upshot: she was obscuring the evidence that she had stolen over $100,000.

Is 10-15 days realistic?

A soft close within 10 days, and a hard close within 15 days, is a reasonable expectation in today’s wired world, where global transactions can clear in minutes and daily bank balances are confirmed within hours.

It takes commitment, as well as coordination with employees, vendors, and customers. But it’s definitely possible, and very much worth the effort.

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[David Stern CFO best practice #535]

Here are six ways to measure the financial health of your business:

1. Profit

The creation (profit) or consumption (loss) of wealth over a certain period of time. Other words for profit are “earnings”, “net income”, and “the bottom line”. A full measurement of profit must include owner’s compensation. More profit is good.

2. Cash flow

The difference between the amount of cash you end up with at the end of a certain period of time versus how much you started with. More is good.

3. Balance sheet strength

Generally speaking, your company’s assets relative to its liabilities at a specific point in time. More assets (what the company owns) and fewer liabilities (what the company owes) results in a stronger balance sheet. A stronger balance sheet is good.

4. Risk

Business is risky. You might not get paid by a customer, you might default on a bank loan, your company might get sued, etc. Risk is sometimes defined as probability times consequence, the likelihood of something occurring multiplied by the damage it would cause. To earn the same dollar of profit with less risk is good. Or, to earn more profit with the same amount of risk is good. Hence, the risk/reward relationship.

5. Owner’s time invested

How many hours per day, week, month, and year do you put into your business? To earn the same dollar of profit while investing less of your time is good.

6. Valuation

What is the fair market value (FMV) of your business? Is it rising or falling? In addition to providing current income, businesses create wealth for their owners by having a resale value. When it comes time for you to execute your exit strategy, a higher business valuation is better.

What is IFRS? What does it mean for SME in Canada, the UK and the USA? The buzz in accounting circles these days is about the new International Financial Reporting Standards. Globalization marches on and its impact is felt in every industry be it technology standards for the internet or  new accounting practices worldwide. This blog post will provide some basic background on IFRS in order to get you familiar with the basic concept…

One of the keys to success in business and life is the ability to read financial statements. In fact, Robert Kiyosaki, author of Rich Dad, Poor Dad says this ability is key to developing your financial IQand your wealth!  Financial Statements are at the heart of accounting standards as they contain key information that effects all business players including “present and potential investors,employees, lenders, suppliers and other trade creditors, customers,
governments and their agencies and the public. All these parties use financial
reports in order to satisfy some of their different needs for information…”

Prior to the introduction of the new International Financial Reporting Standards there exists a Framework for the Preparation and Presentation of Financial Statements. To view an overview of the Australian framework check this link

http://bit.ly/dkZEy

According to the Canadian Accounting Magazine “The International Accounting Standards Board has issued an international financial reporting standard (IFRS) designed for use by small and medium-sized entities, which are estimated to represent more than 95% of all companies. The standard is a result of a five-year development process with extensive consultation of SMEs worldwide.”

This document is a mere 230 pages…and will soon be favorite reading material for all accountants. This new standard was created in response to “to strong international demand from both developed and emerging economies for a rigorous and common set of accounting standards for smaller and medium-sized businesses that is much simpler than full IFRSs”

http://bit.ly/p6tcc

These standards are already used in many parts of the world including Europe, Hong Kong, Australia and Pakistan. For a full list of who is using the IFRS standards currently check this link. http://bit.ly/3fAsle

Why are Canada and the US not on board yet? Apparently adoption of these new standards requires a new mind set.  It requires a sift from “rules” to “principles”. While change is the order of the day in some many ways from the new American President to new bank regulations in the USA it seems the western world in spite of its love for new technologies that appear at warp speed drags its feed when it comes to financial changes. It may seem to be semantics but what is the difference between rules and principles  you may ask. We will leave the question of  ethics to a later post.

Canada is set to fully adopt these new standards by January 1st, 2011 which gives you a year to start to make the metal shift and become familiar with the differences. The US has started – all American companies must adopt the standards by 2014. India is on the same timetable as Canada while Europe is miles ahead of us having adoped these principles five years ago! Which begs the question, where did the concept of globalization arise from anyhow? We think of it as the expansion of multinational corporations  but historians argue that it has been around since the dawn of the Roman Empire. One thing is for sure these new standards are here to stay for some time.

As a small or medium sized business owner where you aware that this change in reporting is taking place? What are your concerns or questions? Feel free to post your comments below.

In the Wall Street Journal Online today Raymund Flandez describes why and how small business owners use outsource rent-a-CFOs. Below is a pull quote, and here’s the full article.

Some small-business owners in need of accounting help to balance their books and guide them out of a financial black hole are renting CFOs rather than hiring them. The strategy comes at a time when the deep recession has forced small companies to look for money-saving alternatives that can yield good returns yet avoid substantial overhead costs.

Okay, up to now in this series we’ve covered having a plan for sales and marketing, looked at what your are providing, the timeliness, and whether it’s the right sales item or if in the service industry, are you truly servicing your customer the way you want them to be?  We’ve also covered your client and customer contact, how often and whether your contact message is a positive one.  We’ve talked about financials, the importance of reviewing and understanding those numbers.

Now in this final segment of the Focus Five, we look at what makes your business run, and the final piece of your overall review of your business health; Collecting Your Accounts Receivable.
How much are your account receivables? Age them. How many are current, 30, 60, 90 or greater days old? Are customers paying according to terms? If not, why not? If you offer terms you have to find a way to enforce them. You are not a bank!! Monitor and collect your receivables. Divide the current receivables into total receivables. This number should be 1.5 or lower.
When times are good and there is money in the bank, no one seems to care about management and procedures. Well, that’s not right. If you are in business long enough, you know that economies go in cycles. Nothing lasts forever, good or bad. The question is this: Are you going to run your business or are you going to let your business run you?
Recognize the problems, figure out how to fix them, make a plan and then take action. In tough times you have to take the initiative, roll up your sleeves and do something. Taking action starts the process. Your business will be more profitable and you’ll sleep better at night!
By the way, if you have not taken at least a ten day vacation in the last several years, you are doing something wrong. Fix it! Successful business owners have a balance in their lives between the time they spend on personal issues and time spent on work.

By focusing on the topics in this article, you will be taking the steps necessary to run a better business and become more successful. You will be dwelling on things you can control instead of things you can’t.
Get excited about who you are and what you do. Take action today and get back in the game! If you and other business owners across America do what they have to do in running their businesses, then there will be no time for worrying about things you cannot control, but instead you will be having fun overcoming the challenges that face business owners every day!

Are you having fun yet?

Special thanks again, to my colleague, Tom Judge, who originally wrote the piece that this series was based on!

Steven A. Feinberg – www.AppletreeBusiness.com

When I ran the Northern California division of ARCA, I upgraded to a class B commercial license so I could drive the company’s box trucks if we were ever short on drivers. During driver training they hammered home two tips:

1. Adjust your mirrors
2. Look 12 seconds ahead.

Both of these apply to running a business.

You adjust your mirrors in a truck to get a clear view of what’s behind you. In a business, your mirrors are your financial statements: last month’s P&L, Balance Sheet and Cash Flow Statement. That’s why in these blog pages I harp on a quick, accurate monthly close, because your financials tell you what recently happened and can inform your course corrections.

You look 12 seconds ahead in a truck, continually monitoring the road ahead of you, so you have enough time to slow down, stop, change lanes, avoid obstacles, or accelerate — all of which take longer in a truck than in a car. In your business those 12 seconds are the equivalent of looking ahead for “two payrolls and a rent check”, your 12 week cash flow forecast, and your 12 month financial plan. You’re scanning the future for financial events so you can adjust more gracefully.

Hopefully you have a good idea of where you want to drive your business. Study the past, anticipate the future, and it’s a lot more likely you’ll get their safely.

If ever you feel financially lost, know that there’s always a clear path home: your company’s financial statements. Get back on track with this five-step monthly process that revolves around your P&L and Balance Sheet…

1. Quickly close the books each month.
2. Analyze the numbers.
3. Plan how to improve performance.
4. Execute your plan.
5. Measure results.

You do this every month, rain or shine. It really works!

To recap:

1. Quick close
2. Analyze
3. Plan
4. Execute
5. Measure.