News & Tech Tips

Using QuickBooks to prepare 2024 budgets and forecasts

As year-end nears, many businesses and nonprofits are planning for 2024. QuickBooks® provides budget and forecast features to help management make financial predictions, as well as assess “what if” scenarios to help make more-informed business decisions. Here’s how you can use these tools for your year-end financial planning.

Budgets vs. forecasts

The budget function in QuickBooks is typically used to manage expenditures during the year to ensure that departments and locations spend according to authorized levels. QuickBooks allows you to create a new budget from scratch. However, budgeted amounts often are based on the prior year with adjustments for new projects and expected growth.

For example, your marketing department’s salaries might be based on the prior year with adjustments for raises (if any). Suppose the department hired a new team member in October 2023. When preparing the department’s 2024 budget, you’d make an adjustment for that individual’s full-year salary based on the prorated amount from the prior year.

The forecast function is used to make projections and perform “what if” analysis. To illustrate, you might run worst, most-likely and best-case scenarios for revenue and expenses for the coming year.

For example, suppose your company plans to build a new facility in the third quarter of 2024, and you plan to finance a significant portion of the cost. Because it’s unclear whether the Federal Reserve Bank will raise or lower interest rates in the coming months, you might run multiple financing scenarios with varying interest rates. You also might vary other inputs, such as expected construction costs and revenue and expenses related to opening the new facility, when you perform your scenario analysis.

How QuickBooks features work

To access these tools in QuickBooks, select “planning & budgeting” from the company menu. A budget or forecast can be created for both the profit and loss statement (also known as the income statement) and the balance sheet. You can increase the detail of a budget or forecast by adding figures at the customer/job or class level (or both).

Each budget and forecast created is saved in a unique file and managed separately. If your organization has multiple departments or locations, you can budget and forecast using QuickBooks classes. If you track job costs, you can even prepare forecasts and budgets for individual jobs.

QuickBooks also allows you to view different sets of reports for budgets and forecasts. You can use these reports to review your entries. In addition, you can view comparisons of how the company’s budget or forecast compares to actual results for income and expenses, classes, jobs or balance sheet account balances.

There are two advanced options to consider when using QuickBooks. One is the cash flow projector; this tool also allows you to determine sources and uses of cash to plan ways to avert projected shortfalls in cash. The second is the business plan tool, which allows you to develop a complete master plan for your business.

Planning in uncertain times

Many businesses are currently facing rising costs, uncertain demand, and labor shortages. In today’s volatile marketplace, preparing reports that plan for the financial future is critical to survival. It’s also important to monitor progress throughout the year — not just at year-end. The hard part is creating the underlying assumptions that will drive your budget or forecast. The easy part is entering the information into QuickBooks. Contact us to help you plan for 2024 and beyond.

 

Other uses for QuickBooks.

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Beyond the Chair: Navigating Key Metrics for Dental Office Prosperity

One common problem that dentists face is that they spend ample time working in their businesses and not much time working on their businesses. They can hardly be blamed, for while the hygiene department is a crucial contributor to production, dentists are responsible for most of the daily production total. The pressure to produce is intense. Visions of loan payments, payroll, and personal obligations merge into a specter that roars to dentists about imposter syndrome and failure. A combination of pride, urgency, and fear can keep dentists pinned to the chair in a desperate attempt to produce at all costs and ignore less urgent needs. If this mindset takes hold, practitioners risk developing tunnel vision in which the target is production, and every possible arrow is shot toward the bullseye without much thought to taking time to aim.

Production is critical to the success of a dental office. There is no doubt about that. But production is not all that is important to success. A production mindset can prevent dentists from thinking about their practices holistically and can limit the attention paid to other critical numbers, like weak collection ratios and skyrocketing expenses.

Production shortsightedness prevents dentists from dealing with the other crucial numbers in their practices. How can practitioners prioritize production without developing a production blind spot? Below are some tips for keeping a balanced approach to all the essential practice numbers.

  • View production goals as ideal objectives, not as absolute requirements. No one can accurately predict whether the multi-implant patient will show up for her appointment or if the weather will prevent a patient from making it to the office. Production is fluid from day to day. Sometimes, it is possible to redeem the lost appointment by keeping a list of patients who are available on short notice. These patients should live close to the office so they can fill the empty spot without causing you to run behind. But when a day’s production evaporates, and no one can fill the gap, make use of the time to attend to other practice priorities.
  • Evaluate your office’s scheduling practices. If no-shows are common in your office or treatment plans are gathering dust, it may be time to evaluate the office’s scheduling policy. Faltering production numbers can be an early indicator that scheduling needs attention. If you use block scheduling, ensure you have detailed the contingencies for instances when the block remains empty. For example, if you instruct schedulers to keep a two-hour crown and bridge block open from 2 p.m. to 4 p.m. on Wednesday, tell them when that reserved spot can be released to schedule other appointment types. Be specific in your wishes. Otherwise, each staff member may use different criteria.
  • Schedule time each month to intentionally evaluate other office metrics. High production numbers can be a panacea for dental offices. Completed treatment does not always equal money in the door if the bill for services remains outstanding. However, production is only one factor in the income equation. Dentists focusing on production will likely underperform in working on their businesses because they spend too much time working in them. Below are other metrics besides production that need monitoring for improved productivity.

 

Accounts Receivable Aging:

Evaluating your practice’s accounts receivable aging is a significant step toward getting paid promptly for the production of the past. Many offices overlook the necessity of routinely and intentionally looking at how long it takes them to get fully paid for the procedures. Aged accounts receivable are divided into distinct categories. These categories are: 0-30 days, 31-60 days, 61-90 days, and > 90 days. Below are some practice benchmarks

Collections experts report that the ability to collect amounts past 60 days drops from 90% to 70%, so staying active in getting accounts paid within the first 60 days past the service date is critical.

Some offices make the mistake of beginning the aging process from the date of an insurance payment. Avoid this tactic. This aging method improves the look of the accounts receivable aging report but re-sets the timer on the collections process, which results in less cash flow today.

 

Collections:

A careful examination of the company’s accounts receivable aging report is likely to lead to an inspection of its collection practices. According to Watson (2022), 17.8% of people in the United States have medical debt in collections. The Consumer Financial Protection Bureau states that, in 2021, medical debt was the most common debt that appeared on credit reports.

Credit reporting rules have recently changed. The No Surprises Act became effective on January 1, 2022. This federal law protects patients from receiving bills when being treated by an out-of-network provider in an in-network facility such as an emergency room or urgent care facility. This act requires private practitioners, including dentists, to provide uninsured and self-pay patients with good faith estimates of the cost of services before treatment. Fees that exceed $400 of the estimate are subject to the patient initiating the Patient-Provider Dispute Resolution process.

The three nationwide credit bureaus (Equifax, Experian, and TransUnion) changed their credit reporting guidelines in 2022 to support consumers facing medical debt. Effective July 1, 2022, paid medical collection debt is no longer included on consumer credit reports. Additionally, these agencies increased the time before reporting will begin on unpaid medical debt to one year. The agencies will only report on outstanding medical debt that exceeds $500.

Dentists must develop lawful collection practices in their offices that prevent debt from accumulating by implementing policies that help patients understand their financial obligations for treatment rendered before beginning treatment. It is wise to provide detailed treatment plans for all patients, review the costs associated with treatment at each step in the treatment plan process, and set clear expectations for settling accounts.

 

Expense Reports:

The hectic pace of a dental office lends itself to putting recurring purchases on autopilot. It is easy to “set it and forget it.” This philosophy encourages waste and prevents offices from routinely monitoring their subscriptions and monthly orders. As a result, it is not uncommon to have recurring charges mount up over time. Auditing your subscriptions and regular expenses is a great way to increase the office bank balance without increasing production.

Dentists should schedule a monthly meeting to review expenses and plan for any necessary changes in the budget. It is beneficial to schedule a yearly review of the contracts for the office’s credit card processing service, toothbrush ordering, IT services, and other subscription services to ensure that the fees are reasonable and that the service is still relevant to the dental office needs.

 

Insurance Contracts:

Insurance contracts do not always favor the provider. It is not unheard of for a dentist to enter into a contract paying less for procedures than the cost of providing the supplies. This inequitable payment may go unnoticed unless providers schedule yearly insurance payer audits. It is not feasible to tackle every insurance contract yearly. Instead, devote time to examining two or three contracts for unsatisfactory conditions that you have encountered. Contact the company and request a review of the contract terms. If you cannot renegotiate more favorable terms, it may necessitate evaluating whether your office should continue participating with the payer.

 

Managing a dental office is complex. Focusing on production is a daily necessity. However, there are many other critical metrics to monitor. Try to implement a plan for addressing all the crucial numbers in your dental office. You will soon enjoy a more balanced and accurate view of your practice.

 

 Looking for more Dental Articles? Click Here!

 

 

References:

Watson, A. M. (2022, November 11). 5 rights you have around medical debt collection. GoodRx Health. 5 Rights You Have Around Medical Bills and Debt Collection Laws – GoodRx

Resources:

Transunion. (2022, March 18). Equifax, Experian, and TransUnion support U.S. consumers with changes to medical collection debt reporting. Equifax, Experian, and TransUnion Support U.S. Consumers With Changes to Medical Collection Debt Reporting

 

 

Accounting for M&As

Business merger and acquisition (M&A) transactions have significant financial reporting implications. Notably, the company’s balance sheet will look markedly different than it did before the business combination. Here’s some guidance on reporting business combinations under U.S. Generally Accepted Accounting Principles (GAAP).

Allocating the purchase price

GAAP requires a buyer to allocate the purchase price to all acquired assets and liabilities based on their fair values. This process starts by estimating a cash equivalent purchase price.

If a buyer pays 100% cash up front, the purchase price is already at a cash equivalent value. But the cash equivalent price is less clear if a seller accepts noncash terms, such as an earnout that’s contingent on the acquired entity’s future performance or stock in the newly formed entity.

The next step is to identify all tangible and intangible assets and liabilities acquired in the business combination. The seller’s presale balance sheet will report most tangible assets and liabilities, including inventory, equipment, and payables. However, intangibles are reported only if they were previously purchased by the seller. Most intangibles are generated in-house, so they’re rarely included on the seller’s balance sheet.

Assigning fair value

Acquired assets and liabilities are then added to the buyer’s balance sheet, based on their fair values on the acquisition date. The difference between the sum of these fair values and the purchase price is reported as goodwill.

Goodwill and other indefinite-lived intangibles — such as brand names and in-process research and development — usually aren’t amortized for GAAP purposes. Instead, companies generally must test goodwill for impairment each year. Impairment testing also may be necessary when certain triggering events happen.

Examples of triggering events include the loss of a major customer or enactment of unfavorable government regulations. If a borrower reports an impairment loss, it could mean that the business combination has failed to achieve management’s expectations.

Rather than test for impairment, private companies may elect to amortize goodwill straight-line, generally over 10 years. However, companies that elect this alternate method must still test for impairment when certain triggering events occur.

In rare instances, a buyer negotiates a bargain purchase. Here, the fair value of the net assets exceeds the fair value of consideration transfer (the purchase price). Rather than book negative goodwill, the buyer reports a gain from the purchase on the income statement.

Get it right

Accurate purchase price allocations are essential to minimizing write-offs and restatements in subsequent periods. Contact us to get M&A accounting right from the start. We can help ensure your fair value estimates are supported by market data and reliable valuation techniques.

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Tips for a faster month-end close

Does your company struggle to close its books at the end of each month? The month-end close requires accounting personnel to round up data from across the organization. This process can strain internal resources, potentially leading to delayed financial reporting, errors and even fraud. Here are some simple ways to streamline your company’s monthly closing process.

Develop a standardized process

Gathering accounting data involves many moving parts throughout the organization. To reduce the stress, aim for a consistent approach that applies standard operating procedures and robust checklists.

This minimizes the use of ad-hoc processes. It also helps ensure consistency when reporting financial data month after month.

Provide ample time for data analysis

Too often, the accounting department dedicates most of the time allocated to closing the books to the mechanics of the process. But spending some time analyzing the data for integrity and accuracy is critical. Examples of review procedures include:

  • Reconciling amounts in a ledger to source documents (such as invoices, contracts, or bank records),
  • Testing a random sample of transactions for accuracy,
  • Benchmarking monthly results against historical performance or industry standards, and
  • Assigning multiple workers to perform the same tasks simultaneously.

Without adequate due diligence, the probability of errors (or fraud) in the financial statements increases. Failure to evaluate the data can result in more time being spent correcting errors that could have been caught with a simple review — before they were recorded in your financial records.

Encourage process improvements

Workers who are actively involved in closing out the books often may be best equipped to recognize trouble spots and bottlenecks. So, it’s important to adopt a continuous improvement mindset.

Consider brainstorming as a team. Then, assign responsibility for adopting changes to an employee with the follow-through capabilities and authority to drive change in your organization.

Be flexible with staffing

Often, accounting departments require certain specialized staff to be present during the month-end close. If an employee is unavailable, the department may be shorthanded and unable to complete critical tasks.

Implementing a cross-training program for key steps can help minimize frustration and delays. It may also help identify inefficiencies in the financial reporting process.

Consider automation

Your accounting department may rely on manual processes to extract, manipulate, and report data. However, these processes create opportunities for human errors and fraud.

Fortunately, modern accounting software can automate certain routine, repeatable tasks, such as invoicing, accounts payable management, and payroll administration. In some cases, you may need to upgrade your current accounting software to take full advantage of the power of automation.

Keep it simple

Closing the books doesn’t have to be a stressful, labor-intensive chore. We can help you simplify the process and give your accounting staff more time to focus on value-added tasks that take your company’s financial reporting to the next level.

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Shareholder advances: Debt or equity?

From time to time, owners of closely held businesses might need to advance their companies money to bridge a temporary downturn or provide funds for an expansion or another major purchase. How should those advances be classified under U.S. Generally Accepted Accounting Principles (GAAP)? Depending on the facts and circumstances of the transaction, an advance may be reported as debt or additional paid-in capital.

What are the deciding factors?

When classifying a shareholder advance, it’s important to consider the economic substance of the transaction over its form. The accounting rules lay out the following issues to evaluate when reporting these transactions:

Intent to repay. Open-ended understandings between related parties about repayment imply that an advance is a form of equity. For example, an advance may be classified as a capital contribution if it was extended to save the business from imminent failure and no attempts at repayment have ever been made.

Terms of the advance. An advance is more likely to be treated as bona fide debt if the parties have signed a written promissory note that bears reasonable interest, has a fixed maturity date and a history of periodic loan repayments, and includes some form of collateral. However, if an advance is subordinate to bank debt and other creditors, it’s more likely to qualify as equity.

Ability to repay. This includes the company’s historic and future debt service capacity, as well as its credit standing and ability to secure other forms of financing. The stronger these factors are, the more appropriate it may be to classify the advance as debt.

Third-party reporting. Consistently treating an advance as debt (or equity) on tax returns can provide additional insight into its proper classification.

With shareholder advances, disclosures are key. Under GAAP, you’re required to describe any related-party transactions, including the magnitude and specific line items in the financial statements that are affected. Numerous related-party transactions may necessitate the use of a tabular format to make the footnotes to the financial statements more reader-friendly.

Why does it matter?

The proper classification of shareholder advances is especially important when a company has unsecured bank loans or more than one shareholder. It’s also relevant for tax purposes because advances that are classified as debt typically require imputed interest charges. However, the tax rules don’t always align with GAAP.

To further complicate matters, shareholders sometimes forgive loans or convert them to equity. Reporting these types of transactions can become complex when the fair value of the equity differs from the carrying value of the debt.

Get it right

There isn’t a one-size-fits-all solution for classifying shareholder advances. We can help you address the challenges of reporting these transactions and adequately disclose the details in your financial statements.

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