FlexHR Outsourced Human Resources

Flex HR is an HR department for small and mid-sized employers.  We offer all the services normally provided by internal HR, but at a lower cost and higher quality.  Whether you are looking for limited HR services or a full HR outsource, Flex HR is the “high tech-high touch” solution to fulfill your specific needs.

A partial listing of our capabilities includes:

• HR Leadership and consulting by a VP level HR practitioner
• Payroll and benefits administration
• Employee on-boarding and life cycle management
• Recruiting and selection
• Management and employee counseling
• Compliance management and more

Aside from the obvious need to file taxes, it is stated that accounting provides four essential services to a small business. First, it records revenue obtained through the sale of products and services. Second, it provides an accurate record of the expenses associated with the sale of those products and services. Third, it keeps a record of monies owed in relationship to those expenses and finally it is a record of what the company owns.

This is very succinct. So what? Running a company is about cash. Knowing your profitability is important in the long term. However, staying in business in the short term is about cash management. Cash based accounting helps the owner understand their cash position more clearly in the short term, but makes it difficult to determine if the company will be profitable in the long term. There are four types of taxpayers that cannot use cash based accounting; Corporations over $5M, C Corp Partnerships, tax shelters and taxpayers with revenues over $1M requiring inventory. (You might want to talk with your tax preparer about reporting inventory if you are using cash based accounting). Accrual accounting is great for accessing the financial health of an organization over time, but tells you almost nothing about your cash position on a real time basis. Mid-size to large organization use accrual accounting with cash projection reporting. That is they run a separate set of books that keeps track of cash sources and cash uses.

Therefore, it would seem the best approach would appear to be accrual based accounting with a cash projection worksheet. Sounds like double work. I don’t have the time to do this myself. The way I save time is using summary data as opposed to detailed data. The problem with summary data is that it tells me almost nothing about how to run my business better. If I hire someone to do this thing for me, how does the effort pay for itself? I’m a guy that believes you don’t invest in a business expense that won’t pay itself back with profit. So how much net profit will I generate by having a bookkeeper or accountant? That’s a tough one….

Well for one thing, I know inventory consumes cash. Increasing the velocity of my inventory (that is the inventory turnover rate) will help me hold on to my cash longer. In my business, it won’t earn me much interest, but it may help avoid a late penalty on a payment due. Having a detailed analysis of how much I buy verses how much I sell, by item, will help me conserve cash. It might also help me identify waste, spillage or theft.

Knowing the profit margin on each product I sell could help me set pricing better. The market is going to drive many of my prices, so I might end up discontinuing products I can’t make money on. This could help me pay for help.

If my accounting could tell me how much profit-per-employee I make it might help me manage my labor cost more closely. I might also be able to assess how much I really spend on marketing if I can include all the ancillary expenses like meals and give-a-ways. Knowing how much I spend will help me understand its value better. All I really have to do is find a one per cent reduction in expenses or a two percent increase in revenues. With the right help it might be there…. There might even be more…. However, I’m going to have to find someone who understands both my business and how I manage my business… they need to understand both accrual based accounting and cash projections to really be useful….. what I don’t need is another employee to manage….

Luis Luarca of Allectus, a business management advisory, says “As proper and accurate accounting is the life blood of business, accurate and relevant accounting procedures allow for the opportunity to affect all aspects of business efficiently and effectively.” They both agree on some simple yet extremely important indicators of a poorly run business.

1. An overall lack of understanding concerning financial statements and their importance in business decision making

Understanding the technical definitions of items portrayed in financial statements is a long way from understanding what it really means and how an understanding of the meaning can be used to help run the business for efficiently and more profitably. The structure of the financial statements can mask potential risk and hide growing concerns. Not knowing what do don’t know can hurt you.

2. Over reliance on online bank balances to manage cash flow

The statement or online bank balance doesn’t tell the real story. It doesn’t tell what deposits haven’t cleared, what checks have not been cashed or what credit card transactions are not reconciled. More importantly it does not provide a vision into future cash needs. It is a point-in-time view of the health of cash. It can be dramatically different within minutes as transactions clear.

3. Inaccurate posting of financial information

This can run from simple transposition errors, to the more complex allocation error. One of the most overlooked concerns for small businesses is that the chart of accounts does not reflect the way the owner operates their business. A badly thought out chart of accounts can actually hide business problems until they are too late. Because of this, the allocation of expenses may not accurately show their impact on the business.

4. Daily and Weekly financial information is not routinely collected, reviewed and acted upon.

Many business owners are too preoccupied with data input to take the time to routinely apply a logic test to the financial information. Expand the effort to daily or weekly information gathering and little time is left to run the business. Owners should spend the majority to their time reviewing financial information for trends and taking action on those trends to improve the business performance. Instead many spend their time with the low level activity of capturing data.

5. The absence of a well organized and implemented accounting system that includes business specific Chart of Accounting, key performance tracking and repeatable procedures.

This seems to be the last thing any small business owners wants to take on. There are a lot of reasons for this. Tactical operational issues take precedence. There is a lack of understand as to the quantifiable benefits. There is a lack of interest or aptitude. All of these are the very reasons that a small business owner should look outside of their own expertise and time. This is a primary skill, much like tax accounting, that should be outsourced.

These trying economic times have brought to the surface ongoing operational issues that were previously covered by a better economy. Although poor profitability might have still been a problem, cash flow allowed these problems to go unaddressed. Many companies managed this through short term borrowing or lines-of-credit. Once credit was constrained and cash flow became an issue, operational inefficiencies came to light.

A lack of attention to good operational accounting may have masked many of these issues until they became a crisis. Crisis management is never a good answer. For some companies it became the only viable answer. The owner must take back control. To accomplish this there must be an in-depth review of how they currently account for financial activity and what that tells them or doesn’t tell them about the health of their business. This many times requires a third party that can objectively assess the environment exclusive of day-to-day operational bias and business ownership pride.

Georgia Society for Worker’s Compensation is a society comprised of some of the finest business entities in the state of Georgia. Their focus is on improving working conditions for Georgia’s employees, while reducing overall expenditures in worker’s compensation for Georgia business owners.

Membership to Georgia Society for Worker’s Compensation gives you access to a team of professionals:
• Dedicated Risk Manager
• Dedicated Claims Management Specialist
• Nurse Case Managers
• Dedicated Human Resource Consultants

They will work with businesses to:

• Identify their tax credit opportunities (both current and overlooked)
• Calculate their credits
• Automate the data gathering process
• Submit paperwork for certification
• Track certification status

Ensure every tax credit is claimed

The beans in a bag of Land of a Thousand Hills Coffee™ travel more than 8,000 miles just to make it into your cup. Each one is handpicked on a Rwandan farm, travels down a bumpy dirt road to the coffee washing station, and is sorted five times before voyaging across the whitecaps of the Atlantic Ocean to their Roasting House. When they arrive in Roswell, Georgia, the beans are roasted in small batches by an Artisan Roaster for what will undoubtedly be one of the best cups of coffee you ever taste.

Passion for the best cup of coffee you ever taste lead to 40% annualized growth during a recession… and cash flow problems. LOTH turned to eProcess Pros to help them understand the movement of cash throughout their business, put a plan in place for managing that cash and supporting that plan with repeatable processes that can be monitored and adjusted. We are extremely proud to have them as a client. They produce an extremely good product with dedicated individuals who serve not only their local community, but the extended community in Rwanda.

The British Franchise Association (BFA) claims that the biggest obstacle to growth is finding people with the right skills to run their own outlet. A survey conducted in conjunction with NatWest revealed that a quarter of franchisers are finding it difficult to attract new franchisees because applicants lack the skills and funds to take on the job.

Dr. Michael Davis, who received his PhD in accounting at the University of Massachusetts, wrote a great article entitled “The Ten Lessons for Entrepreneurs”. One of his ten important lessons is that you can’t overestimate the value of good marketing, yet many small business people are woefully unskilled at this vital function. Most small business gets their marketing education at the hands of an aggressive sales person or at a half day seminar. Dr. Davis also extols the virtues of knowing finance and accounting as a primary tool for business decision making. The lack of this skill is a primary reason that many small business are overly optimistic about potential which leads to underfunding and collapse. Both of these skill sets are required to be successful. Small business manager don’t have the time or resources to stay current on finance, accounting, marketing, sales, operations, human resources and business practices.

One of the most important indicators of a successful franchise system is the repeatable methodologies embedded into the franchisee culture that both optimizes revenue and minimizes expense. Having a great brand, a great product and a great delivery system are critical to getting any franchise system off the ground. But it is repeatable methodologies that the franchisee can execute against that bring in new franchisees and helps existing franchisees grow. These repeatable methodologies must assume that there is a fundamental lack of business skills available within the franchise system to implement these methodologies. Doing so assures that the methodology will be mildly successful for most and wildly successful for the rest.

Most franchise systems provide excellent tools, if used properly and consistently, that help the franchisee become and stay successful. The problem arises when the franchisee either doesn’t have the skills required to use the tool properly and consistently, or doesn’t have the time. The tool, expensive to acquire, does not achieve its goal of improved profitability. Most of the time, the tool is blamed for the lack of success. Pragmatically the assessment is right. If the user can’t use the tool, then it’s the wrong tool.

Franchisor need to start looking at providing the required skills along with the required tools. The franchisor can either have the franchisee outsource these activities to the franchisor or an independent third party. There are some inherent benefits to outsourcing to an independent third party, but either will work. The franchisor should determine what high value activities MUST be done by the business manager for the business to be successful. They should then see which of those activities must be done exclusively by the business manager and what can be done by support staff. Most small businesses can’t afford a support staff. The franchisor should then help the business manager acquire the required support staff on either a part-time or ad-hoc basis. Every business must provide accounting and marketing expertise. Why leave it up to the franchisee to find the appropriate resource. If you know then have to have it, make it part of the value of your franchise by providing access to it.

The tools help reduce the cost of acquiring the prerequisite skills by automating as many of the process as possible. Automation reduces errors and cost. Tools can’t replace human involvement; they can only improve their results and reduce the cost.

The goal of any franchisor is to fill their franchise system with people who are not as focused on the day-to-day transactional processes as they are focused on finding transformational programs and projects that will take their business to the next level. Franchisors need to provide tools and the prerequisite resources required to operate these tools so that the business manager can solve problems before they become problems.

Please visit our newest client at digthis.info.

The IRS currently has a reporting requirement for businesses who hire independent contractors. If a business hires a contractor, and pays them more than $600 in a tax year for services, the business must file a Form 1099. One copy of the Form 1099 goes to the contractor to remind him/her that taxes must be paid on the amount of income received. Another copy goes to the IRS which utilizes the form to ensure that the contractor accurately complies with the tax code by paying the proper amount of taxes on income.

As of 2012, every business — big and small — will be required to issue a Form 1099 to any vendor of services or property to which the business has paid more than $600 in a tax year for those services or property, regardless of the method of payment. A copy of the Form 1099 must also be sent to the Internal Revenue Service. Think about the hundreds of millions of transactions performed daily…credit card transactions, checks, money orders, cash, bank wires, E-pays, etc.

According to a survey conducted by the National Association for the Self-Employed (NASE), micro-businesses (fewer than ten employees) issue approximately two to three Form 1099’s to independent contractors under the current reporting requirement. Under the new expanded regulation, these businesses have estimated that they will have to issue roughly twenty-seven Form 1099s, mostly to large corporations. This is a 1250% increase in the amount of paperwork that will be required of small business come 2012. In addition to issuing form 1099s, a business will have to get Taxpayer Identification Numbers (TINs) from all qualifying vendors. Should the business owner be unable to do so, they would be required to withhold a portion of that vendor payment and send it to the IRS. The IRS will have to use a significant portion of the 16,000 new employees authorized by H.R. 3200 just to audit the flow of new 1099’s.

Should a business not file or inaccurately file their form 1099s, significant penalties will apply.

Is there good news along this front? Yes, Small Business Paperwork Mandate Elimination Act of 2010, S.3571/ H.R. 5141, is designed to repeal or modify this regulation.

Go over each line item, and compare it with the previous month’s P&L. If you don’t understand what a line item represents, find out. The numbers should make sense to YOU, not to your accountant. And if you haven’t already, organize the line items so that similar items are closer together. The default setting in most financial software usually lists the expenses alphabetically. For example, it makes sense to see “Product Packaging Materials” next to “Merchandise Purchased for Resale.” Feel free to combine line items to make your P&L more concise, and/or break apart line items to show you more details so you can make some sound business decisions based on what the numbers are telling you.

COGS – Cost of Goods Sold
Also referred to as the “cost of sales,” COGS are the direct costs attributable to the production of goods sold. This includes material cost and production (labor) costs but does not include indirect cost like advertising or R&D. COGS will show up on your P&L Statements. Watch the percentages, not the actual dollar amounts from one month to the next. The percentage should stay pretty much the same with regards to revenues.

EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization
This is the most complicated of the acronyms we’re discussing today, but essentially EBITDA measures the core income that your company earns before your cover your debt payments and income taxes. It’s an indicator of operating performance and profitability, but it’s not a good measure of cash because it doesn’t include changes in working capital.

EBITDA is a good way to measure your profitability, but be forewarned: even businesses with a great EBITDA can go out of business due to cash flow. EBITDA leaves out the cash needed to fund working capital and the replacement of old equipment. Profits are great, but if you have no cash, your business will “bleed out” pretty quickly.

BEP – Break-Even Point
This is one of those numbers you want to know by heart and just like it says, this important indicator tells you at what point your business “breaks even.” It is the dollar amount of revenues that exactly covers all your operating expenses (variable and fixed costs), with nothing left over for profit. It’s an important indicator of risk because it shows you how close your business is to the “no profit” line. For instance, if your business is currently producing revenues at the level of $100,000 per month, and your break-even point is $60,000 per month, you are comfortably above your no profit line. You want your BEP swimming in your head at all times. It’s your minimum target for slow months, and it’s where emergency on your hands.

CR and QR: Current Ratio and Quick Ratio
Current Ratio = [Current Assets ÷ Current Liabilities]
The current ratio measures your ability to meet short-term obligations by determining if you have enough current assets to cover current liabilities. Ideally, your current ratio should be near 2.00, meaning your current assets are two times, or 200%, of your current liabilities. If your current ratio is below 2.00, your short-term debt-paying ability is reduced. This is an unstable financial position, and you should examine your finances to see where improvements can be made. If your current ratio is above 2.00, you have above average debt-paying ability; however, if it is too high, it may mean that you are not utilizing your assets effectively. If it’s below a 1, then you’ve got an emergency on your hands.

Quick Ratio = [(Current Assets - Inventory) ÷ Current Liabilities]
Like the current ratio, the quick ratio measures short-term debt-paying ability. It is calculated without inventory because inventory is not as easy to turn into cash as your other current assets. Thus, the quick ratio examines assets that can be turned into cash in the least amount of time. Businesses that carry a lot of inventory need this important planning tool. Ideally, your quick ratio should be at 1.00 or higher. If it is lower than 1.00, you may have trouble meeting your current obligations. Below 0.5 is an emergency. Note that if you don’t carry inventory, your current ratio and quick ratio will be the same.

This doesn’t have to be  complicated, or difficult
You don’t have to be a finance expert; you just have to understand enough to make the decisions that matter. You begin all of your budgeting and forecasting. At a minimum, your revenues (sales) should be at least as high as your BEP. The goal, of course, is to increase this number over time so that revenues (sales) are above the BEP.