Entrepreneur – Page 5 – New Economy CPA

Top Ways to Prepare for a Recession

June 29, 2022/in Budgeting, Entrepreneur, Finance, Startup/by Jeff Allain

Talks of a recession are growing as the economy continues to feel the negative effects of the Corona Virus and the war in Ukraine.

Both have led to lingering supply chain issues, inflation reaching record highs, capital markets tightening up, and talent shortages across nearly every industry.

For small business owners, a looming recession can be frightening. The last recession, which began in 2007 and lasted through 2010, forced nearly 1.8 million small businesses to go under.

Now, business owners are intimidated and again struggling to keep up and adapt to a market that is trending downwards.

However, there’s no need to fear, there is still time to prepare and strengthen your business for a potential recession. Here are some of the top ways to do it:

Review Your Expenses in Detail

As you prepare to fight the storm of a recession, the first place to look is your expenses. You’ve likely already sifted through your expenses and cut back in places where you were overspending or spending unnecessarily, but now it is time to go back to the drawing board.

Instead of starting with all of the expenses you can cut, start by defining your necessary expenses.

Rent
Utilities
Inventory
Insurance
Employee salaries
Etc.

From there, crosscheck these necessities with your current spending habits. What expenses don’t fit into these categories?

This will give you an idea of what expenses you can do without when the time comes to save money.

Manage Your Cash Flow Weekly

We’ve said it before, and we promise to say it again, cash flow is the lifeblood of your business. It’s a strong indicator of financial health and without a positive cash flow your business won’t survive a recession.

You can build your cash flow by:

Tracking related metrics and utilizing forecasts to produce better outcomes.
Keeping a close watch on your accounts receivable by collecting payments on time and knowing what you are owed.
Updating vendor and partner contracts to ensure you are not overpaying.
Running a pricing analysis to ensure you are still charging the right prices.

As you start implementing these strategies, remember to wrap your arms around your cash flow and manage it weekly.

New Economy’s FREE Cash Flow Projection Tool can help you do just that. It was built to help you predict your cash flow and make smart decisions about spending and saving. With our tool, you’ll be able to see all of the inflows and outflows that affect your bottom line over time so that you can plan ahead with confidence.

Run Scenarios in Your Financial Projections

Your financial projections can determine how well your business copes with the effects of a recession. They’ll use previous data to help you indicate where you may see problems down the road.

As you prepare for a recession, you should create financial projections for what would happen if you cut expenses, saw changes in revenue, increase or decrease your prices, and so forth. This will give you better visibility as you navigate the downturn and help you make the right decisions to keep your business afloat.

Revisit Financing Options Now

Before it’s too late, explore your financing options. Now is a great time to speak with lenders or investors, apply for grants, or even start a crowdfunding campaign.

However, be clear with how much additional cash you need to raise before you dive in. You can use the free cash flow tool here, as well, to gain greater visibility and determine how much you may need to survive a recession.

Get Accurate and Updated Financials

Knowing where your business stands at all times is key to preparing for and withstanding a recession.

There are multiple tools you can use to get accurate and updated financials. The top four tools include:

Cash Flow Tool
- As we mentioned, this helps measure the inflows and outflows that affect your bottom line.
Weekly Scorecard
- This includes the KPIs you need to reach your business goals.

Financial Projections
- These are predictive analyses you can use to help you make informed decisions.
Month-End Close
- This is a monthly recap of your financial statements. By following the steps needed to complete your month-end close, you’ll also be staying on top of your finances month-to-month, which is essential for preparing for a recession.

New Economy Can Help You Prepare

For business owners, the thought of a recession can be intimidating. However, with preparation, you can ensure your business comes out on the other side.

We’ve covered the importance of reviewing your expenses in detail, managing your cash flow weekly, running scenarios in your financial projections, revisiting financing options, and getting accurate and updated financials, but if you’re still struggling to prepare for a recession, turn to New Economy for guidance!

We help entrepreneurs gain control of their finances to make smart decisions to build and grow their business – and that includes before, during, and after a recession. Contact us today to learn more about how we can help!

Top 4 Financial Tools for Success

June 1, 2022/in Entrepreneur, Finance/by Jeff Allain

Financial tools are the drivers behind successful businesses. They bring simplicity to tasks that can otherwise be complicated and time-consuming.

Thankfully, financial tools can be used in nearly every corner of your financial system. At New Economy, we suggest using four primary tools to help entrepreneurs, like you, gain control of their finances to make smart decisions to build and grow their businesses.

Here is an overview of each of these helpful financial tools:

Tool #1: Cash Flow Tool

Cash flow is the lifeblood of your business. You need cash on hand to handle basic tasks, like:

Paying employees and suppliers
Buying inventory
And leveraging business growth

However, measuring how much cash is flowing in and out of your business can be difficult, especially if you don’t have a solid tracking system. Making smart decisions about saving and spending gets complicated and you often lose the ability to properly grow your business.

This is where the free cash flow tool we created at New Economy will come in handy. With it, you can see all of the inflows and outflows that affect your bottom line over time so that you can plan ahead with confidence.

Visit https://neweconomycpa.com/free-offer/ to access our free Cash Flow Tool.

Tool #2: Weekly Scorecard

Scorecards include a combination of the KPIs you need to reach your business goals.

They are built specifically for your business and give you a look into your performance over a set amount of time, in this case, a week.

As you craft your weekly scorecard, try not to overthink it. Focus on including only four or five of the most important metrics.

To select your metrics ask your team how they would measure a good week. This could be anything from making “X” number of sales to having “X” amount of money in the bank. In general, you should include metrics that provide information related to revenue, client acquisitions, efficiency, and profitability.

In addition to your weekly financial scorecards, you should create weekly scorecards for other departments as well. This gives you a good idea of what is going on in your business across the board.

Tool #3: Financial Projections

Financial projections are essential tools for every business. They are predictors of where your business is headed based on previous data and indicate when you may have problems with cash flow, pricing, or overspending.

With your projections and current data, you can also evaluate the state of your business, structure big-picture ideas, assess risk, and take action for business growth.

For example, let’s say you believe increasing prices will help you generate more profit but are worried you’ll lose too many customers. Financial projections will predict where your business will stand financially after raising the price. With that information, you can create the best course of action moving forward.

Tool #4: Month-End Close

By now you have probably figured out the importance of leveraging your financial information to make business decisions. You can find everything you need to run a successful business with your numbers, however, if you don’t have a good process for doing so, you’ll miss out on plenty of opportunities.

The best way to ensure you are mining value from your numbers is to build a month-end close process. Essentially, this will be a combination of complete and timely financial statements you can use to help you make business decisions.

While you should build a month-end closing process that works best for your business, here are the key things to keep in mind:

Record
- Make sure all revenue and expenses have been recorded
- Record accrued liabilities, including payroll, employee vacation, notes payable interest expenses, and taxes
- Review fixed assets and perform an inventory count
- Post journal entries for depreciation and amortization
Close
- Reconcile cash, checking, and savings accounts, petty cash fund, and credit card accounts
- Reconcile prepaid accounts
- Reconcile intercompany accounts to ensure payables and receivables match between both businesses
Analyze
- Generate an adjusted trial balance and draft income statement, balance sheet, and A/R and A/P Aging Reports
- Review analysis with stakeholders
Report
- Prepare management, FP&A, and external/SEC reporting
- Assemble required documentation for internal and external auditors

As you go through your month-end close process, take your time and rely on automation as much as possible. Remember, this is an essential piece to a successful business.

Want Help Incorporating These Tools into Your Financial System?

Each of these tools adds a tremendous amount of value to your financial system. They monitor cash flow and overall business performance, as well as give you an idea of where your business is headed and help you nail down the numbers you need to make better business decisions.

Properly leveraging these tools leads to a successful business, so if you need assistance in this area, consider New Economy!

We help entrepreneurs gain control of their finances to make smart decisions to build and grow their business. Contact us today to learn more!

5 Ways to Manage Cash Burn and Runway

April 29, 2022/in Budgeting, Entrepreneur, Finance, Startup/by Jeff Allain

Every business, especially new startups or quickly growing businesses, should be keeping a close eye on their cash burn and runway.

These metrics provide essential insight into the sustainability of your spending habits and the financial health of your business. If cash burn and runway are struggling, your business will also struggle.

Below is an overview of what exactly cash burn and runway mean for your business and how you can manage them.

What is Cash Burn?

Cash burn is a measure of how quickly your business uses your cash balance. In other words, cash burn is the measure of how much cash is flowing out of your business.

Typically, cash burn is measured on a monthly basis. However, in some cases, when the need to use cash increases, it can be measured on a weekly or even daily basis.

Why is Cash Burn Important?

Cash burn rate is a great indicator of the overall health of your business. It shows you:

How long you have until you run out of cash
If you have a healthy cash flow
How fast you are spending the money you have on hand

It’s important to find a healthy cash burn rate. In fact, a recent study shows that nearly 82% of businesses fail because of cash flow problems.

If you are spending your cash too quickly, it can lead to a failed business. If you aren’t spending your cash fast enough, it can indicate a lack of growth and investment in your business.

For young businesses and startups, cash burn is especially relevant. Typically, profits are low during this time, which means managing your spending is even more important.

How to Calculate Cash Burn

Cash burn for any given period of time is fairly easy to calculate. First, you have to identify your start and ending cash balance (found on your statement of cash flows) and then find the difference between those numbers. Next, you divide the difference by the number of months in the given period. The total is your monthly cash burn rate.

Here is an example:

$300,000(starting balance as of Jan 1) – $120,000(ending balance as of March 31) = $180,000(difference)

$180,000(difference) / 3 (number of months in the period) = $60,000 monthly cash burn rate

Now that you know how quickly you are going through your cash, you need to determine how long you can withstand that spending rate. This is referred to as your runway.

What is Runway and How is it Calculated?

Runway is the amount of time your business can continue to operate with your current cash burn rate. Like burn rate, a healthy balance of runway is essential for any business.

If you have a short runway, your business is quickly running out of time to survive. However, while a long runway sounds appealing, it could also mean you are not properly allocating your cash reserves.

To calculate your runway, simply divide your total cash reserve by your burn rate.

For example:

$120,000(total cash reserve) / $60,000(burn rate) = 2 months left before your business runs out of cash.

Tips for Managing Cash Burn and Runway

Ideally, your business will have a negative cash burn rate. This would indicate that you are bringing in more money than you are spending and would, therefore, lengthen your runway.

Here are several proven ways to manage your cash burn and runway:

1. Reduce or Defer Non-Essential Expenses

You’ll want to take a close look at your budget to determine if your expenses are bringing value to your business.

Find where you can cut, reduce, or defer certain expenses. However, make sure your changes are sustainable. Making too many changes too quickly can stunt growth.

2. Pay Bills Slower

If you aren’t reaping a benefit from paying your bills before they are due, hold off on your payments.

This allows you to hold on to your cash for longer periods of time.

3. Bill Sooner and Collect Faster

If you’re struggling with your cash burn and runway, one of the best adjustments is collecting your money sooner rather than later.

Send your invoices right away and include terms for payment. If you’re struggling with collecting payments in general, try implementing a late fee or improving your collection methods.

4. Raise Additional Funds

Many new start-ups and small businesses have to go through multiple rounds of funding before they start seeing substantial profits.

After calculations, if your cash burn and runway are not where you want them to be, consider raising additional funds.

5. Increase Prices

Inaccurate or low prices can negatively impact your profits. If you’re looking for more cash inflows, consider running a pricing analysis. Chances are, you’re charging too little for your products and/or services.

Our Free Cash Flow Tool Can Help

Having clear predictions of your cash burn and runway can mean the difference between success and failure for your business.

That’s why we put together a free cash flow tool that lets you plan your budget in advance and see how much money is coming in and out of your business over time.

With the help of New Economy, you’ll gain control over your finances and position your business for success! Contact us today to learn more ways we can help you!

Why Companies Choose New Economy as an Outsourced Accounting, Finance and Tax Partner

March 21, 2022/in Entrepreneur, Finance, Startup/by Jeff Allain

New Economy was designed to help entrepreneurs gain control of their finances and make smart decisions to build and grow their business

As an outsourced accounting, finance and tax partner, we do this by making you the hero (think Luke Skywalker), identifying your problems and challenges (think saving the galaxy), and we come in and play the role of guiding you to financial success (think Yoda).

We believe you deserve financial confidence to grow your business and want to be the reason you fall back in love with being an entrepreneur.

Here’s how we will get you there:

You are the Hero

This is all about you. Your dreams. Your business. Your finances. Your success.

Being entrepreneurs ourselves, we understand the ups and downs that you are going through to build your business. We understand how hard it is but we also know you’re up to it as you have plenty of passion, guts, and vision.

And we know, there are plenty of challenges awaiting our Hero. And every great hero needs a guide helping them solve problems and pointing them in the right direction behind the scenes.

Every Hero has a Problem

As an entrepreneur, your issues and problems are abundant and financial issues can be overwhelming at times, especially since you didn’t start your business to manage the books, taxes, or accounting systems and processes.

Some of the problems you may run into are:

You lack the financial visibility to make decisions that drive your business forward.
You are not getting your financials in a timely manner, meaning you lack real-time data and the ability to make quick changes to get your business back on track.
You have inaccurate financials, giving you a misrepresentation of your business. You are struggling to get the right person in the accounting and finance seat to move at your speed and provide timely and accurate financial information to build and grow your business.
You are using processes and technology that aren’t adapting as your business is growing, which is causing inefficiencies and costing you money.
You are lacking strategic business or tax support.

Each of these issues puts your business in a tough position. They inhibit growth and add more work to your plate.

The Vision for Success

Having a great understanding of the problems and challenges facing entrepreneurs puts us in a position to add value and help you achieve your goals.

So imagine the following:

Having a partner that is providing accurate financials on time that you can trust
Having a partner that will help you leverage financial information to make decisions
Having a partner that will help to ensure your financial systems and processes are working efficiently and evolving to meet the needs of the business
Having a strategic partner to help support the growth of the business
Having a strategic partner to ensure you are keeping up with the evolving tax changes

Imagine a world where you don’t have to worry about anything financial, accounting or tax-related and where you can spend your time focused on growing your business.

That’s where New Economy comes in as the guide.

We are the Guide to Success

At New Economy, our passion is to Unleash the full potential of the Entrepreneur.

We have come alongside many Entrepreneurs helping to put their pain points and problems at the center of our focus. This is why we’ve created a team and culture that is thirsting to make an impact and add value.

Our goal is simple: to guide you to get the most out of your business finances so you can do what you love.

In fact, our tagline is: Helping entrepreneurs gain control of their finances and make smart decisions.

We truly believe with our support, your business can achieve the success you’ve envisioned from the beginning.

Here is what a few of our Heros have to say:

Linda Bohmbach – Owner/President of Sales at Home Healthsmith

“We have felt uncertainty and concern about how the business was performing financially. But then we found New Economy! They helped us understand our financials better by providing cash flow projections, a budget, and a projection. These tools have removed some of the fear and uncertainty and helped us with decision-making. But the best is they are entrepreneurs just like us.”

Erica Wennerstrom CFO/ COO at Framework Homeownership

“I first found New Economy in 2016, when I joined a technology startup whose accounting processes and technology stack were lagging and not operating effectively. With their partnership, I was able to modernize our financial operations and count on timely and accurate financials.

I have since worked with New Economy at two other companies, and each time relied on the New Economy team to help me tackle key financial operational challenges, including revamping the Chart of Accounts and financial statements, implementing new systems, and dealing with sales tax liabilities.

Even in the midst of large operational projects, New Economy ensures that I always have a handle on the numbers to make smart decisions and a team I can count on. THANK YOU!”

Su Sanni – CEO at Dollaride

“Dollaride is a growing venture-backed startup. We’ve been focused on growing our business, but needed a partner that could step right in to provide us with financial visibility and own the process. The team at New Economy has helped us to get organized.

Every month, they also provide key financial information that enables us to make smart decisions that build and grow our Company. We enjoy working with New Economy and highly recommend them!”

Want to Learn More About Working with New Economy as an Outsourced Accounting, Finance and Tax Partner?

If you want to gain control of your finances and make smart business decisions, New Economy is the outsourced accounting partner for you.

With our help, you’ll get the most out of your business and fall back in love with being an entrepreneur.

Schedule an appointment with us so we can get an understanding of who you are, where your challenges lie, and how we can help.

Does My Company Need a CFO?

February 22, 2022/in Entrepreneur, Finance, Startup/by Jeff Allain

As you know, a CFO can add value to your company. They have the strategic mind to financially engineer plans to raise capital, provide leadership, create and implement systems and processes that will support your business growth.

However, before making the decision to hire a CFO, you’ll likely have plenty of questions:

What exactly do they bring to the table?
Is my business in the right position to make the hire?
How deep do my pockets have to stretch to bring a CFO on board?

To bring some clarification to the decision-making process, we’ve answered some of the top questions for determining if your company needs a CFO.

What Does a CFO Do?

A chief financial officer wears many hats and each comes with valuable benefits for a business.

Oversees All Things Financial

It goes without saying that a strong financial position is a necessity if you hope to have a successful business. Including a CFO in your team makes this possible.

Their primary goal is to understand the ins and outs of your finances. Meaning when it comes to managing cash flow, creating budgets, leaning into financial forecasts, ensuring accurate reporting, and everything in between, a CFO will have it covered.

Strategic Advising

Not only will a CFO have a strong understanding of your finances, but they will also be able to offer experienced and data-backed advice to help your business make the right decisions.

They’ll serve as a planner and map out strategies with your goals in mind. From there, a CFO will implement and track the progress of those strategies to ensure your business sees success.

Apart from the more obvious financial strategies like improving profitability and building cash flow, CFOs offer strategic advising for:

Organizational changes like mergers, acquisitions, and IPOs.
Negotiating vendor contracts to ensure you are getting the best out of your money.
Building relationships outside of our organization but within the financial community like lenders and potential investors.

Building Infrastructure

Everything within your business requires a process. Whether it’s from a production, operational, or financial standpoint, you have (or should have) a system.

One of the roles of a CFO is to create systems and processes that help your finances stay organized and on track. This could include anything from:

Implementing a new payroll software
Creating a new way to track your cash flow
Integrating a new bookkeeping system

The idea behind this work is that your business will be able to run much more smoothly and efficiently with the proper infrastructure in place.

Building and Developing the Team

CFOs serve as the right-hand to upper-level management. They analyze everything from a financial perspective, which can be incredibly useful when building and developing a team.

A CFOs insight can be helpful for determining:

If it is the right time to hire.
Feasible salaries and benefits for employees.
Productivity and efficiency among current employees.

When Does My Business Need a CFO?

Typically, rapid growth plays the largest role in determining if your business is CFO-ready. As you grow, the need for financial assistance and expertise increases.

For example, a growing business often runs into the need for capital. A CFO understands the process of valuing your business, meeting with investors, pitching the deal, and then creating a plan for properly utilizing the money. They provide all of the support you would need to secure funding for growth.

As mentioned, the faster your business grows, the more financial support you will need. Your:

Budgets will have to be more detailed.
Reporting will have to be more accurate and advanced.
Forecasts will have to predict a multitude of different situations.

Every area of your business’ finances will require more attention and expert-level analysis, something only a CFO can offer.

Once new strategies are in place and your finances begin trending in the right direction, your entire team will need to be on board. For your success, it’s essential your team sticks to their budgets, understands their role from a financial standpoint, and reaches their assigned goals. A CFO serves as a financial leader, providing your team with the information they need to understand why they play an intricate role in your business’ success.

What Does a CFO Cost?

When a business owner is weighing the pros and cons of hiring a CFO, cost typically sits front and center. However, there are two routes you can take when it comes to reaping the benefits of a CFO.

Full-Time CFO

A full-time, in-house, CFO spends all of its time building strong finances for your business. As an employee of your company, you’ll be required to pay them a salary with equity and offer additional benefits.

If you choose the full-time CFO route, you’ll be paying anywhere between $300K-$400k a year to receive all of the benefits above.

Part-time/Outsourced CFO

The second option is to hire a part-time/outsourced CFO. They will take time to understand your business and your goals. Even though they are not full-time, they still offer the same services and you will receive the same benefits.

When you work with a part-time/outsourced CFO, your monthly bill will range between $6K-$12K per month. Oftentimes, with this option, you can pick what level of service you’d like, which is why the prices vary.

If you are interested in working with a part-time/outsourced CFO, consider New Economy. We offer lite CFO services which include strategic planning, capital raising, and financial modeling for forecasting and future visibility. Our goal is to help entrepreneurs gain financial clarity and make smart decisions.

Schedule a consultation with us today to learn how we can help you get the most out of your business!

1. What are the due dates for my company’s returns?

As an entrepreneur, due dates for your company’s returns will vary depending on how your business has been organized.

Tax Returns

If your business is structured as a c-corporation you will file using Form 1120. If your business has elected s-corporation status you will file using Form 1120S. LLCs may be classified as a disregarded entity, a partnership, or a corporation in the eyes of the IRS.

Generally, C-corps are required to file by the 15th of the fourth month following the corporation’s tax year. S-corps and partnerships are required to file by the 15th of the third month following the corporation’s tax year. Disregarded entities follow the filing of the owner of the entity.

1099’s & W-2

As an employer, you are required to report employee wages on Form W-2. This filing is required to be prepared and sent to your employees by January 31st.

Other payments to non-employees may be required to be reported on Forms 1099. Payments to independent contractors, payments to attorneys, payments of interest, or rent are just a handful of scenarios in which Form 1099 may be required. Filing due dates for Forms 1099 are dependent upon different factors so it is best to consult with a professional.

2. Are there any big changes in the tax code I should be aware of?

Due to the COVID-19 pandemic, the last couple of years have brought about many changes to the way businesses file their taxes. Changes to the tax code have likely affected your business.

One major change is related to the employee retention credit (ERC). Unfortunately, the employee retention credit program ended effective September 30, 2021, for the majority of businesses. However, a business may be able to retroactively claim the ERC. The IRS has provided a notice outlining conditions to avoid a failure to deposit penalty due to the abrupt end of this program as some businesses may have underestimated their tax obligations.

Another mentionable change is related to the utilization of net operating losses. Generally, losses generated in years after 2017 are limited to 80% of taxable income and can only be carried forward. The CARES act temporarily allows for losses generated in 2018-2020 to be carried back five years. Carryback of these losses may result in a refund of taxes paid previously – be sure to check with a professional on your unique tax situation.

Typically, 50% of business meal expenses are deductible for tax purposes. IRS Notice 2021-25 has provided for a temporary 100% deduction for business meals purchased from restaurants in 2021 and 2022. This increased deduction can save your business tax dollars.

3. How can I save money and reduce taxes?

Figuring out how to save money on taxes is every business owner’s top priority during tax season. Here are the two best ways to do it.

Stay organized with a platform like QBO or Xero

A common flaw for many entrepreneurs during tax time is a lack of accurate records. Expenses fall through the cracks and trying to clean up your books at the end of the year becomes a nightmare.

However, using a platform like Quickbooks Online or Xero can help you avoid this and save you money even though they come with a fee. These virtual bookkeeping platforms allow you to track all of your expenses, so when it comes time to make deductions, you’ll have everything in one place.

Logging your transactions throughout the year also makes year-end closing simpler, because hopefully, you will have caught any discrepancies ahead of time.

Capture credits

There are plenty of credits available for businesses. Tax credits are claimed by submitting the required form and will lower your tax bill dollar-for-dollar. The two credits you should be aware of are the R&D credit and ERC.

The Research and Development Tax Credit is meant to encourage businesses to invest in the creation or improvement of products and processes within your business. Please don’t hesitate to reach out to us if you think you may be eligible for this credit.

As mentioned earlier, there was a change made to the ERC inhibiting its use for the final quarter of 2021. However, it can still be claimed for the first three quarters of the year. Your business may qualify based on how many employees you have.

4. Is my product or service subject to sales tax?

Whether or not your product or service is subject to sales tax boils down to where you are conducting business. It varies by state and while most states do have a statewide sales tax, some do not. The world of sales tax is frequently changing and is nuanced based on a variety of factors relating to business line, services, location of employees, etc.

We can help you navigate sales tax laws and link you with a team of professionals so you can shift your attention to your business. As you can imagine, making sure you are placing the correct sales tax on your products or services correctly is crucial to limit your tax penalty exposure.

5. How much will it cost to have a professional handle my taxes?

Handing your taxes over to a professional is ideal. They will work with you to ensure you meet important deadlines and are claiming credits and deductions your business qualifies for. Accountants are well-versed in tax code, meaning they are on top of any changes or important information you need to know before filing. Your ROI for working with a tax professional will not go unnoticed.

If you’re interested in passing off your taxes to a professional, consider working with New Economy. We help small businesses and investor-backed startups gain control of their finances and make smart decisions.

Schedule a discovery call to discuss the cost associated with our services and to learn how we can help your business grow!