Specialized Services Archives - Page 9 of 11

Using QuickBooks to prepare 2024 budgets and forecasts

Jacob Courtright on December 7, 2023

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.

Tailored Consulting Service Announcement

Jacob Courtright on April 20, 2023

We are excited to announce that Whalen CPAs is expanding its services and is now offering Dental & Healthcare Practice Consulting. We believe this new addition will help us provide our clients with comprehensive solutions that will improve their practice’s overall health and maximize profits.

We understand that managing a dental or healthcare practice can be complex and time-consuming. With our new consulting service, we aim to simplify the process and provide our clients with the tools and resources they need to make informed decisions. Our team of experts, led by Laurie Morgan, a dentist and instructional designer, has firsthand experience dealing with the intricacies of practice management.

We prioritize collaboration and transparency, and our team will work closely with you to understand your unique needs and goals. We offer a range of services, including data analysis, market research, and strategic planning, to help you make informed decisions and achieve your internal goals.

At Whalen CPAs, we’re committed to providing our clients with the highest quality of service. We believe this new offering will help us better serve your needs and provide you with a more efficient and streamlined practice. We’re excited about this new service and look forward to working with you.

If you have any questions or want to learn more about our new consulting services, please don’t hesitate to contact us. We’re always here to help.

Dig deeper! Find hidden treasure in financial statement footnotes

Greencrest on June 3, 2022

Numbers tell only part of the story. Comprehensive footnote disclosures, which are found at the end of reviewed and audited financial statements, provide valuable insight into a company’s operations. Unfortunately, most people don’t take the time to read footnotes in full, causing them to overlook key details. Here are some examples of hidden risk factors that may be unearthed by reading footnote disclosures.

Related-party transactions

Companies may give preferential treatment to, or receive it from, related parties. Footnotes are supposed to disclose related parties with whom the company conducts business.

For example, say a tool and die shop rents space from the owner’s parents at a below-market rate, saving roughly $120,000 each year. Because the shop doesn’t disclose that this favorable related-party deal exists, the business appears more profitable on the face of its income statement than it really is. If the owner’s parents unexpectedly die — and the owner’s brother, who inherits the real estate, raises the rent to the current market rate — the business could fall on hard times, and the stakeholders could be blindsided by the undisclosed related-party risk.

Accounting changes

Footnotes disclose the nature and justification for a change in accounting principle, as well as that change’s effect on the financial statements. Valid reasons exist to change an accounting method, such as a regulatory mandate. But dishonest managers can use accounting changes in, say, depreciation or inventory reporting methods to manipulate financial results.

Unreported and contingent liabilities

A company’s balance sheet might not reflect all future obligations. Detailed footnotes may reveal, for example, a potentially damaging lawsuit, an IRS inquiry or an environmental claim. Footnotes also spell out the details of loan terms, warranties, contingent liabilities and leases.

Significant events

Outside stakeholders appreciate a forewarning of impending problems, such as the recent loss of a major customer or stricter regulations in effect for the coming year. Footnotes disclose significant events that could materially impact future earnings or impair business value.

Transparency is key

In today’s uncertain marketplace, it’s common for investors, lenders and other stakeholders to ask questions about your disclosures and request supporting documentation to help them make better-informed decisions. We can help you draft clear, concise footnotes and address stakeholder concerns. On the flip side, we can also discuss concerns that arise when reviewing disclosures made by publicly traded competitors and potential M&A targets. Contact us for more information.

How inflation could affect your financial statements

Greencrest on May 20, 2022

Business owners and investors are understandably concerned about skyrocketing inflation. Over the last year, consumer prices have increased 8.3%, according to the latest data from the U.S. Bureau of Labor Statistics. The Consumer Price Index (CPI) covers the prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. This was a slightly smaller increase than the 8.5% figure for the period ending in March, which was the highest 12-month increase since December 1981.

Meanwhile, the producer price index (PPI) is up 11% over last year. This was a smaller increase than the 11.2% figure for the period ending in March, which was the largest increase on record for wholesale inflation. PPI gauges inflation before it hits consumers.

Key Impacts

For your business, inflation may increase direct costs and lower customer demand for discretionary goods and services. This leads to lower profits — unless you’re able to pass cost increases on to customers. However, the possible effects aren’t limited to your gross margin. Here are seven other aspects of your financial statements that might be impacted by today’s high rate of inflation.

1. Inventory. Under U.S. Generally Accepted Accounting Principles (GAAP), inventory is measured at the lower of 1) cost and 2) market value or net realizable value. Methods that companies use to determine inventory cost include average cost, first-in, first-out (FIFO), and last-in, first-out (LIFO). The method you choose affects profits and the company’s ending inventory valuation. There also might be trickle-down effects on a company’s tax obligations.

2. Goodwill. When estimating the fair value of acquired goodwill, companies that use GAAP are supposed to apply consistent valuation techniques from period to period. However, the assumptions underlying fair value estimates may need to be revised as inflation increases. For instance, market participants typically use higher discount rates during inflationary periods and might expect revised cash flows due to rising expenditures, changes in customer behaviors and modified product pricing.

3. Investments. Inflation can lead to volatility in the public markets. Changes in the market values of a company’s investments can result in realized or unrealized gains or losses, which ultimately impact deferred tax assets and liabilities under GAAP. Concerns about inflation may also cause a company to revise its investment strategy, which may require new methods of accounting or special disclosures in the financial statement footnotes.

4. Foreign currency. Inflation can affect foreign exchange rates. As exchange rates fluctuate, companies that accept, hold and convert foreign currencies need to ensure they’re capturing the correct rate at the appropriate point in time.

5. Debts. If your company has variable-rate loans, interest costs may increase as the Federal Reserve raises interest rates to counter inflation. The Fed already raised its target federal funds rate by 0.5% in May and is expected to increase rates further over the course of 2022. Some businesses might decide to convert variable-rate loans into fixed-rate loans or apply for additional credit now to lock in fixed-rate loans before the next rate hike. Others may restructure their debt. Depending on the nature of a restructuring, it may be reported as a troubled debt restructuring, a modification or an extinguishment of the debt under GAAP.

6. Overhead expenses. Long-term lease agreements may contain escalation clauses tied to CPI or other inflationary measures that will lead to increased lease payments. Likewise, vendors and professional service providers may increase their prices during times of inflation to preserve their own profits.

7. Going concern disclosures. Each reporting period, management must evaluate whether there’s substantial doubt about the company’s ability to continue as a going concern. Substantial doubt exists if it’s probable that the entity will be unable to meet obligations as they become due within 12 months of the financial statement issuance date. Soaring rates of inflation can be the downfall of companies that are unprepared to counter the effects, causing doubt about their long-term viability.

We can help

Inflation can have far-reaching effects on a company’s financial statements. Contact us for help anticipating how inflation is likely to affect your company’s financials and brainstorming ways to manage inflationary risks.

Valuable gifts to charity may require an appraisal

Greencrest on May 3, 2022

If you donate valuable items to charity, you may be required to get an appraisal. The IRS requires donors and charitable organizations to supply certain information to prove their right to deduct charitable contributions. If you donate an item of property (or a group of similar items) worth more than $5,000, certain appraisal requirements apply. You must:

Get a “qualified appraisal,”
Receive the qualified appraisal before your tax return is due,
Attach an “appraisal summary” to the first tax return on which the deduction is claimed,
Include other information with the return, and
Maintain certain records.

Keep these definitions in mind. A qualified appraisal is a complex and detailed document. It must be prepared and signed by a qualified appraiser. An appraisal summary is a summary of a qualified appraisal made on Form 8283 and attached to the donor’s return.

While courts have allowed taxpayers some latitude in meeting the “qualified appraisal” rules, you should aim for exact compliance.

The qualified appraisal isn’t submitted separately to the IRS in most cases. Instead, the appraisal summary, which is a separate statement prepared on an IRS form, is attached to the donor’s tax return. However, a copy of the appraisal must be attached for gifts of art valued at $20,000 or more and for all gifts of property valued at more than $500,000, other than inventory, publicly traded stock and intellectual property. If an item has been appraised at $50,000 or more, you can ask the IRS to issue a “Statement of Value” that can be used to substantiate the value.

Failure to comply with the requirements

The penalty for failing to get a qualified appraisal and attach an appraisal summary to the return is denial of the charitable deduction. The deduction may be lost even if the property was valued correctly. There may be relief if the failure was due to reasonable cause.

Exceptions to the requirement

A qualified appraisal isn’t required for contributions of:

A car, boat or airplane for which the deduction is limited to the charity’s gross sales proceeds,
stock in trade, inventory or property held primarily for sale to customers in the ordinary course of business,
publicly traded securities for which market quotations are “readily available,” and
qualified intellectual property, such as a patent.

Also, only a partially completed appraisal summary must be attached to the tax return for contributions of:

Nonpublicly traded stock for which the claimed deduction is greater than $5,000 and doesn’t exceed $10,000, and
Publicly traded securities for which market quotations aren’t “readily available.”

More than one gift

If you make gifts of two or more items during a tax year, even to multiple charitable organizations, the claimed values of all property of the same category or type (such as stamps, paintings, books, stock that isn’t publicly traded, land, jewelry, furniture or toys) are added together in determining whether the $5,000 or $10,000 limits are exceeded.

The bottom line is you must be careful to comply with the appraisal requirements or risk disallowance of your charitable deduction. Contact us if you have any further questions or want to discuss your contribution planning.

Category: Specialized Services

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