Today, many organizations rely on cloud-based tools to store and manage data. However, the costs to set up cloud computing services can be significant, and many business owners are unsure whether the implementation costs must be immediately expensed or capitalized. Changes made in recent years provide some much-needed clarity to the rules.

Advantages of cloud storage

Before diving into the accounting rules, it’s important to understand the potential benefits of cloud-computing arrangements, including:

Cost savings. Cloud storage reduces the need for physical servers and IT infrastructure, lowering capital expenses.

Remote access. Cloud systems let your team access data and tools from anywhere. This can be ideal for hybrid or remote work models — or small business owners who frequently travel.

Scalability. As your business grows, cloud services can easily scale to match your data and software needs.

However, it’s critical to vet cloud-service providers carefully. Always choose a provider that offers strong security protocols and automated data backup. This reduces the risk of data loss from hardware failure or human error. As companies grow, they may decide to switch to cloud providers that offer enhanced security or more robust features.

Implementation costs

Whether your business is adopting cloud services for the first time or transitioning from one provider to another, setup costs can be significant. These often range from several thousand to tens of thousands of dollars. First-time implementation costs typically include:

• Consulting and planning,
• System configuration,
• Data migration,
• Integration with existing tools,
• User training, and
• Post-launch support.

Among the most labor-intensive, expensive parts of the process are migrating data securely and ensuring that cloud applications are tailored to your workflow. Additionally, time spent coordinating between your team, vendors and consultants can add up quickly.

Switching cloud providers can also be costly. You’ll likely need to repeat many of the same implementation steps. Plus, you might face other challenges, such as reformatting or cleaning data, re-establishing integrations, retraining employees and minimizing downtime. Some providers may charge exit fees or make data retrieval cumbersome. The more customized your current system is, the harder (and costlier) it may be to transfer your setup to a new platform.

Accounting rules

Previously, U.S. Generally Accepted Accounting Principles (GAAP) required companies to immediately expense all setup costs for cloud contracts that didn’t include a software license. This treatment impaired a company’s profits in the year it implemented a cloud-computing arrangement.

Fortunately, the Financial Accounting Standards Board updated the accounting rules in 2018. Now, businesses can capitalize and amortize certain implementation costs for service contracts that don’t include a software license. Specifically, costs related to the application development phase — such as configuration, coding and testing — can be capitalized and gradually expensed over the life of the contract. However, costs from the preliminary research phase or post-launch support still must be immediately expensed. Spreading out certain implementation costs over the contract’s life can improve financial ratios and reduce year-over-year volatility in reported profits.

The updated guidance went into effect in 2020 for calendar-year public companies and in 2021 for all other entities. However, you may not be aware of these changes if your company is adopting cloud services for the first time — or if you previously implemented a cloud arrangement under the old rules and are now switching providers.

For more information

The accounting rules for cloud computing arrangements can be complex, especially when determining which costs qualify and how to apply them across different contracts. Contact us for guidance on reporting these arrangements properly under current GAAP. We can help you review agreements, classify implementation costs, and choose a provider that offers both strong security and the functionality your business needs.

Starting a business can be rewarding, but the financial learning curve is often steep. The U.S. Bureau of Labor Statistics estimates that one in five new businesses will fail within one year of opening, roughly half will close within five years, and less than a third will survive for 10 years or longer. A common thread in early failures is weak financial planning and oversight.

A comprehensive, realistic budget can help your start-up minimize growing pains and thrive over the long run. However, accurate budgeting can be difficult when historical data is limited. Here are some tips to help jumpstart your start-up’s budgeting process:

Start at the top

First, forecast the top line of your company’s income statement — revenue. How much do you expect to sell over the next year? Monthly sales forecasts tend to become more reliable as the company builds momentum and management gains experience. But market research, industry benchmarks or small-scale test runs can help start-ups with limited history gauge future demand.

Next, evaluate whether you have the right mix of resources (such as people, equipment, tools, space and systems) to deliver forecasted revenue. If your current setup doesn’t support your goals, you may need to adjust your sales targets, pricing or operational capacity.

Get a handle on breakeven

Many costs — such as materials, labor, sales tax and shipping — vary based on revenue. Estimate how much you expect to earn on each $1 of revenue after subtracting direct costs. This is known as your contribution margin.

Some operating costs — such as rent, salaries and insurance — will be fixed, at least over the short run. Once you know your total monthly overhead costs, you can use your contribution margin to estimate how much you’ll need to sell each month to cover fixed costs. For instance, if your monthly fixed costs are $10,000 and your contribution margin is 40%, you’ll need to generate $25,000 in sales to break even.

However, don’t be discouraged if your small business isn’t profitable right away. Breaking even takes time and hard work. Once you do turn a profit, you’ll need to save room in your budget for income taxes.

Look beyond the income statement 

Next, forecast your balance sheet at the end of each month. Start-ups use assets to generate revenue. For instance, you might need equipment and marketing materials (including a website). Some operating assets (like accounts receivable and inventory) typically move in tandem with revenue. Assets are listed on the balance sheet, typically in order of liquidity (how quickly the item can be converted into cash).

How will you finance your company’s assets? Entrepreneurs may invest personal funds, receive money from other investors or take out loans. These items fall under liabilities and equity on the balance sheet.

Monitor cash flows

Even profitable businesses can run into trouble if they fail to manage cash wisely. That’s why cash flow forecasting is essential. Consider these questions:

• Will your business generate enough cash each month to cover fixed expenses, payroll, debt service and other short-term obligations?
• Can you speed up collection or postpone certain payments?
• Are you stockpiling excess inventory — or running too lean to meet demand?

Forecasting monthly cash flows helps identify when cash shortfalls, as well as seasonal peaks and troughs, are likely to occur. You should have a credit line or another backup plan in case you fall short.

Compare your results to the budget

Budgeting isn’t a static process. Each month, entrepreneurs should revisit their budgets and evaluate whether adjustments are needed based on actual results. For instance, you may have underbudgeted or overbudgeted on some items and, thus, spent more or less than you anticipated.

Some variances may be the result of macroeconomic forces. For example, increased government regulation, new competition or an economic downturn can adversely affect your budget. Although these items may be outside of your control, it’s critical to identify and address them early before variances spiral out of control.

Seek external guidance

Does your start-up struggle with budgeting? We can help you prepare a realistic budget based on past performance, industry benchmarks and evolving market trends. Contact us to help your small business build a better budget, evaluate variances and beat the odds in today’s competitive marketplace.

 

 

Although footnote disclosures appear at the end of reviewed or audited financial statements, they’re far more than a regulatory formality. They provide critical insight into a company’s accounting policies, unusual transactions, contingent liabilities and post-reporting events. The Financial Accounting Standards Board’s conceptual framework says footnotes “are intended to amplify or explain items presented in the main body of the statements.”

Here are answers to some questions that business owners and managers may have about complying with the disclosure requirements under U.S. Generally Accepted Accounting Principles (GAAP).

What are footnote disclosures?

Footnote disclosures are explanatory notes that accompany financial statements. They offer readers the clarity needed to assess risks and financial viability. The level of disclosure varies depending on the level of assurance provided.

Footnotes aren’t exclusive to audited financial statements. Under the American Institute of Certified Public Accountants’ Statements on Standards for Accounting and Review Services, full footnote disclosures are also required for reviewed financial statements under GAAP.

Footnotes aren’t required for compiled financial statements unless management requests them. If full disclosure is requested, the CPA assists in drafting them based on management’s representations. If footnotes are omitted, compiled financial statements must clearly communicate that management accepts responsibility for the omission.

Who’s responsible for the disclosures?

Management provides the underlying financial information for disclosures and is ultimately responsible for the content of footnotes. However, the CPA who prepares a company’s financial statements plays a critical role in drafting and reviewing them and ensuring they comply with applicable accounting frameworks.

For audited and reviewed statements, the CPA helps translate management’s data into clear, accurate disclosures that comply with GAAP or other applicable standards. When preparing compiled financials, the CPA drafts them only when they’re requested and approved by management.

Why do footnotes matter? 

Footnote disclosures help readers “read between the lines.” They offer crucial information not readily apparent in the core financial statements and can alert users to hidden risks. Consider the following examples:

Going-concern issues. Financial statements are prepared under the general assumption that the business is a viable going-concern entity. Disclosures are required if management or the CPA believes the company may not survive the next 12 months. For example, a footnote might say, “Management has evaluated the company’s ability to continue as a going concern and determined that recurring operating losses and negative cash flows raise substantial doubt about its ability to continue operations beyond December 31, 2025. Management plans to secure additional funding to address this risk.”

Related-party transactions. Companies may give preferential treatment to, or receive it from, individuals or entities with close ties to the company’s management. Footnotes must disclose such related-party transactions to ensure users are aware of any favorable or non-arm’s-length arrangements. If these disclosures are omitted, the financial results may be misleading, especially if such arrangements are temporary or subject to change. For example, if a company rents property from the owner’s relatives at a below-market rate and fails to disclose this, it could appear more profitable than it truly is.

Accounting changes. Any switch in accounting methods must be disclosed, including the rationale and financial impact. While such changes may be required due to regulatory shifts, they can also be used to manipulate results. Transparent footnotes ensure stakeholders can discern whether changes are justified or opportunistic.

Contingent and unreported liabilities. Not all obligations show up on the balance sheet. Footnotes should disclose contingent liabilities, such as pending lawsuits, IRS inquiries and warranty obligations. Auditors often confirm contingent liabilities by reviewing legal correspondence and contracts, and proper disclosure helps prevent surprises that could derail financial performance.

Subsequent events. Significant events occurring after the balance sheet date but before financial statement issuance — such as a major customer loss or regulatory enforcement action — must be disclosed if they could materially affect the business. For instance, a company’s 2024 financial statement footnotes might say, “On February 20, 2025, the company’s largest customer filed for bankruptcy. The outstanding accounts receivable balance of $180,000 has been written off as uncollectible.” Such disclosures help users assess the company’s performance and avoid being blindsided by sudden downturns.

Transparency equals trust

Clear, tailored footnotes — free from boilerplate language — demonstrate that a business isn’t hiding anything. This fosters trust and credibility with external stakeholders, such as investors, lenders, and regulators, while equipping management with vital context to make strategic decisions.

In today’s high-risk marketplace, transparency isn’t just good practice; it can provide a competitive advantage. Contact us to learn more. We can help refine your company’s footnote disclosures and evaluate those of potential partners or competitors.

Turnover in finance and accounting (F&A) leadership is on the rise. In 2024, CFO turnover among Standard & Poor’s 500 companies hit 17.8%, tying a record high in 2021, according to the Russell Reynolds Global CFO Turnover Index. This trend isn’t limited to large corporations. Closely held businesses are also feeling the pinch, as competition for experienced finance professionals intensifies and the accounting profession faces a well-documented talent shortage.

The departure of a CFO, controller or senior accountant can disrupt daily business operations. It often leaves the remaining staff stretched thin, creates gaps in institutional knowledge, and increases the risk of errors or compliance lapses, especially during time-sensitive reporting cycles.

However, if handled wisely, this disruption can also be a turning point. It gives business owners and managers time to re-evaluate the department, modernize processes and make strategic upgrades. Here are four critical steps to consider after a leadership change in your F&A department.

Redefine the F&A team role

Your business has likely evolved since the previous F&A team leader was hired. Perhaps you’ve taken on debt, expanded into new markets, or needed to meet investor or regulatory reporting requirements. Now’s the time to ask: Does our original job description reflect the company’s current financial reporting needs?

You might need to replace a former bookkeeper-turned-controller with a CPA who has experience managing teams, scaling finance systems and working with external stakeholders. A fresh job description that aligns with your current and future goals helps ensure you hire (or outsource to) someone with the appropriate talent level.

Evaluate past performance

Leadership transitions are a natural opportunity to assess whether your accounting reports are timely, accurate and relevant. Your reports should provide insights to help you feel confident during tax season and when speaking with lenders.

If not, now is the time to improve internal processes, provide additional training for your remaining staff, and explore outsourced accounting and CFO services. An external partner can bring consistency, technical expertise and forward-looking insights, often at a lower cost than a full-time hire.

Assess technology

Outdated or underutilized accounting software can leave your business overly dependent on one person to “make it work.” Modern solutions can automate account reconciliations, track real-time performance metrics and reduce manual entry. Cost-effective upgrades can reduce errors, lower fraud risks and free your F&A staff for higher-value work.

Take stock of your systems. Are you using them effectively? Is it time for an upgrade or additional training on your existing software? If you’re unsure, we can assess your tech stack and help you make the most of your current platform or recommend more suitable options.

Look to the future

As your business grows and evolves, your F&A department needs to keep pace. For instance, if you’re planning a merger, seeking capital or expanding geographically, your F&A team must be equipped to support these moves.

In-house teams often lack the time or capacity to prepare for growth — and they might have outdated or biased ways of approaching change that could benefit from fresh insights. Outsourced CFOs can help by providing strategic support and financial clarity without the cost of a full-time executive. Likewise, streamlining the department’s policies and procedures can help improve performance and position it for the future.

For more information

Losing an F&A team leader is never convenient, but it doesn’t have to be chaotic. Contact us today to keep your finances on track — no matter who’s in charge. We can help you find an F&A professional with the right skills to help your business emerge from the leadership transition stronger, more agile and better prepared for what’s next.

Designing Your Life After Business – Free Download

For many entrepreneurs, building a successful business is a lifelong pursuit—one that defines their identity, purpose, and daily rhythm. But what happens when it’s time to step away? The transition out of business ownership can be jarring if not approached with intention. That’s where the concept of life after business becomes essential.

In Designing Your Life After Business, we highlight a key insight: while financial planning is crucial, personal planning is what gives your post-exit life meaning. Research shows that 75% of business owners regret selling their businesses within the first year—not because they lack financial security, but because they haven’t clearly defined what comes next.

To navigate this transition successfully, the guide presents a “Three-Legged Stool” approach:

1. Personal Plan – Clarify passions, purpose, and what your ideal day looks like after exiting.

2. Financial Plan – Align resources to fund your envisioned lifestyle.

3. Business Plan – Maximize your company’s value before the transition.

The guide includes practical worksheets to help business owners explore their passions, social connections, health and wellness, continued learning, and ways to give back. Whether it’s through travel, mentoring, volunteering, or rediscovering hobbies, life after business is an opportunity to intentionally craft a joyful and meaningful future.

Ultimately, your exit isn’t an end—it’s a pivot point. With thoughtful planning, you can shift from making a living to truly making a life.