Impact of Cloud Based Systems on Business Valuations

Surprisingly, many small to mid-sized business owners, when prodded, have no basis or accepted methodology for valuing their business. Many of us "think" we know what our business is valued at, but it is often difficult to determine objectively what the business is worth, separating out the passion and "sweat equity" we pour into our companies. For many small to mid-sized business owners, the value of their company may be their own largest personal asset. For businesses that may not be completely privately owned, the value of the company still significantly impacts the partners' overall compensation.

Critical to valuing a business is having an understanding of the company's financial situation. Accurate business valuations require a certain level of financial expertise and analytical experience, and keeping this level of expertise on staff full time can often prove costly for small businesses. However, with the advent of cloud computing, the ability of business owners to accurately value their business has exponentially increased providing them with significant benefits.

1. Real time access to financials- For business owners who have invested in cloud computing services, the financial data they can access is no longer a monthly (or quarterly) static figure. The impact of sales and purchases immediately factors into projections, so that owners can confidently assess their financial situation and have a handle on the health of their business. If they require outside assistance to analyze the figures, providing organized, real time data to the experts assisting with the business valuation is more efficient and therefore more cost effective.

2. Reporting and financial modeling- Many cloud computing programs and system providers offer the option of reporting various performance metrics, indicators that the business owners otherwise may not be able to access. Some providers include standard reports that track financial progress and allow for users to run various scenarios on income projections, evaluating how that then impacts the value of the company. Larger corporations historically have had the means to invest in heavy IT infrastructure and expertise to produce this type of reporting. However, cloud based systems that do not require heavily investing in IT architecture, infrastructure, and support have changed the way small to mid-sized companies do business in that they, too, now have access to this type of financial reporting. Smaller companies now can make decisions based on the same type of financial intelligence previously reserved for larger, more lucrative companies.

3. Transparency of shared data- For businesses prepping for potential sale, investment, or securing loans, cloud based systems allow business owners to share real time information with buyers, investors and lenders, adding credibility to financial data. Investors and lenders can be granted access to financials that provide direct insight into the health of a business, reducing concerns that the data provided to them is not "clean" data.

Although many factors impact the value of a business, such as strength of management team, the most critical factor is a company's financials. Maintaining updated, accurate financial records and having "real time" access to those figures helps business owners assess the true value of their company. We are currently offering a free analysis of your accounting business processes and accounting system. If you would like to learn more on cloud based systems can improve your bottom line and impact the value of your business, please call me directly at 781.503.9004 or email me at sales@aixsol.com

Satish Patel, CPA
President, Analytix Solutions
Satish Patel, Founder-CEO of Analytix Solutions, has more than two decades of experience as a CPA. He has also advised small and mid-sized businesses on diverse matters such as valuation, accounting, and finance. His experience extends to raising capital and arranging for finance from angel investors.

Four Tips for Effective Succession Planning

Succession planning is especially essential for owners of small privately owned or family owned businesses. The aim of the succession plan is to ensure that the values and vision held by the business continue. To ensure the business legacy carries on, careful consideration must be given to the succession process. However, owners or partners often neglect to give this process the serious attention it deserves.

This happens for several reasons, including owners finding it difficult to relinquish control of a successful business that was built through passion, dedication, and hard work. Other reasons can include family dynamics that may be fraught with tension, when otherwise invisible surface at times of succession discussions. Even if family relationships are amicable or the question is not applicable to business operations, succession decisions can impact key people within the business itself that can make the entire process cumbersome. This may include tenured or key employees feeling either entitled or neglected in the decisions.

Below are four tips to help ensure development of a successful succession plan.

Plan well in advance; involve professional help if necessary
One of the most common visions for succession is that of a founding member of the business growing old and transferring leadership to an identified, younger employee or family member. Unforeseen developments such as accidents or deaths can easily disrupt such plans, as can situations such as founding members receiving compelling employment offers. Succession planning in such cases becomes reactive, hasty and ill-planned and could erode the company's revenue stream, including customers and market share.

Instead, businesses could benefit immensely from identifying and securing professional assistance. Succession planning can then be conducted in a thorough manner, without disrupting the future of the business or its legacy.

Determine the qualities of the successor; address ownership
Succession planning should also include business ownership in its domain. This translates to identifying issues that surpass just business management concerns. For this reason, determining a successor becomes a key factor in the plan. Founding members may look for someone most similar to themselves; but this need not always ensure a successful succession plan. Instead, owners should look at the contemporary business environment and look for qualities in the successor that will carry the business forward in current times.

Design a selection plan/process
Unless the business is passed from family generation to generation, a rigorous selection process is required to ensure selection of the right candidate for the position. Consider designing a test that can assess strengths and weaknesses of the potential leader, and administer it to key employees of the business. The exam should not test just leadership qualities; it must also capably assess the candidates' adaptability and creativity and whether they can maintain and develop the legacy of the accompanying business.

Also, succession plans do not require in-house successors. If needed, keep your selection circle open. Hire professionals who can assist in identifying and hiring the right candidate from outside the business.

Make a decision and inform employees about it
Succession planning may begin with much enthusiasm but may lose momentum if the business owner chooses to defer completing it until a later time. If needed, revise and review selection criteria as well as the final decision; however, establish a realistic selection date, as well. After conducting the search, commit to making a decision to avoid negatively impacting morale across the business. Without the perceived consistency of a leader, employees may feel rudderless, impacting overall productivity and the company's bottom line.

By considering the above tips, you have taken the first steps in creating a successful succession plan.

Analytix Solutions
The Company that CPAs Recommend
Analytix Solutions is a professional full-service business support solutions provider. The company offers comprehensive and scalable bookkeeping and accounting services while leveraging its expertise, experience, and state-of-the-art infrastructure. It offers multiple services in diverse packages for companies that are seeking a trustworthy and professional partner to give their business a head start.

Increase Efficiency with Contract Management Systems

As part of our commitment to provide complimentary services which assist our clients in improving efficiency, Analytix Solutions recently developed and launched our new Contract Management System. Contract management systems can be an invaluable addition to any business. This is particularly true for businesses that lack dedicated resources and manpower for management of contracts, such as small and mid-size businesses and enterprises.

Contract management often involves understanding the terms and conditions of various contracts, undertaking negotiations, documenting the process, and tracking amendments and changes.

Contract management requires tracking correspondence such as purchase orders or sale invoices. Depending on the type of the contract, it may also include documentation of details such as technical instructions, legal specifics, and other miscellaneous terms and conditions. Implementing accurate contract management processes reduces the risk of errors caused by misunderstandings of the technical, legal, financial, and other similar details associated with the parties involved.

Proper contract management entails tracking vast amounts of data and details, resulting in an intensive and time-consuming process. By contrast, a contract management system facilitates organization of these details which is immensely beneficial for businesses where manpower resources, budgets and infrastructure are constrained. Implementation of a contract management system ensures accurate information is recorded for key contract elements such as the unique contract ID, the entity entering into the contract, type of contract, etc. Elements including date of the contract, renewal date, and even date of price increase, if applicable, may be included in a comprehensive system, thus helping businesses maintain an accurate report for each contract.

Benefits of Analytix's new Contract Management System include:

• Automatic reminders- Our new system emails reminders and alerts to multiple parties involved in the contract execution. The system also offers easy-to-navigate dashboard, making critical information more readily accessible.
• Detailed tracking- To facilitate managing multiple contracts, our system collects detailed information on each contract, such as the type of company or entity involved. Furthermore, the contracts can be tracked by various categories such as company location, department responsible for contract, etc.
• Central depository for all contracts- Storing contracts in a centralized location makes them easier to access. Moreover, our system offers significant storage space so that clients can store an unlimited number of contracts, while simultaneously being able to easily search them for key data.

For more information on our new Contract Management System, please email us at sales@aixsol.com.

Analytix Solutions
The Company that CPAs Recommend
Analytix Solutions is a professional full-service business support solutions provider. The company offers comprehensive and scalable bookkeeping and accounting services while leveraging its expertise, experience, and state-of-the-art infrastructure. It offers multiple services in diverse packages for companies that are seeking a trustworthy and professional partner to give their business a head start.

Leverage Depreciation Methods to Gain the Most Benefits in 2013

What is Depreciation?

Depreciation is the term used to describe reduction in asset value or assigning asset expenses to time periods of their usage.

When an asset's value decreases, it is termed as fair value depreciation, while assigning costs to the period of use of an asset is termed as depreciation with matching principle. Fair value depreciation influences a balance sheet, whereas depreciation with matching principle can affect the net income that is reported by the business.

For small businesses that operate on fixed budgets, leveraging the advantages of depreciation can be extremely beneficial. A business can assign expenses to assets, and if an asset is expected to prove useful in the future these expenses may be deferred. The depreciation is then noted in current period cost allocation, based upon the asset cost, its expected value, and its shelf-life.

Managing depreciation

Depreciation of capital assets needs to be accurate, like any other accounting function in an organization. One of the ways in which depreciation could be streamlined is to manage each asset separately or individually in a fixed asset management system.

How do you determine the amount to be depreciated? The difference between the cost of a fixed asset and its residual value is the total amount that needs to be depreciated over the life span of the asset. The time period across which the fixed asset is to be depreciated is termed as the 'useful economic life' of the asset.

Accurate depreciation matters because it is applied against the total profits earned by the organization in a single accounting period. There are several methods by which to arrive at this.

Straight line depreciation method

This depreciation method operates on the principle that every accounting period in the life of the asset should reflect equal depreciation. The formula for this is as follows:

Cost of Asset – Residual Value of Asset/ Number of years of Useful Economic Life of the Asset

Points to remember in this method

> This method is effective if the benefits received from a fixed asset are expected to remain unchanging for the most part, over its useful economic life.

> This is a popular method, and one widely adopted by many companies in calculating depreciation.

Reducing balance method

This method allocates a high depreciation charge in the initial years of the asset life, but it lessens the charges as asset age increases. The formula for this method is as follows:

Depreciation = Percentage of the reducing balance

Points to remember in this method

> The depreciation percentage is applied to the written-down value of the fixed asset.

> In some fixed assets, the benefits do decline over its period of useful life. Thus, this method is beneficial where the allocation of expenses matches with the pattern of benefits derived from the asset.

Financial and Accounting benefit

> Regardless of the method chosen, the total depreciation charged will remain the same because depreciation is not a method of valuation; instead, it allocates expenses.

> One of the two methods should be adopted and retained to gain the maximum benefit from depreciation over the asset's lifetime.

> Methods may be changed if the new one displays a clear advantage in financial position.

Depreciation of Capital Assets

Some organizations may not calculate depreciation using fixed asset systems. For these organizations, generating depreciation expenses every month could probably help maintain the pattern and also help in streamlining the process, resulting in higher accuracy.

Automated accounting solutions that can better define and improve the scope of the overall method used for depreciation, and they can also help in cases where fixed asset system is not used.

Any automated system needs to be customized to the specific needs of the organization. However, most of them would:

> Identify the capital assets involved

> Calculate and generated depreciation expense per capital asset on a monthly basis

> Provide a report on the depreciation of capital assets.

Whichever method you select, make sure that depreciation practices are fully leveraged to help you improve the profitability of your business.

Analytix Solutions
The Company that CPAs Recommend
Analytix Solutions is a professional full-service business support solutions provider. The company offers comprehensive and scalable bookkeeping and accounting services while leveraging its expertise, experience, and state-of-the-art infrastructure. It offers multiple services in diverse packages for companies that are seeking a trustworthy and professional partner to give their business a head start.

New Year Financial Resolutions for Small Businesses to Increase Profitability

New Year resolutions can fall by the wayside soon after they are made. However, those which involve adhering to financial best practices during the subsequent year should be followed with sincerity. For small businesses that often face inflexible budgets and the prospects of further cuts, this is even more important.

One trick to keeping your resolutions on target is to tackle them one step at a time. This rings true for maintaining financial resolutions, as well.

Resolve to abide by the books

In other words, maintain accurate books. Keep all expenses recorded and updated.

Resolve to record every transaction as it occurs or immediately afterwards. Write it on a piece of paper if required and then transcribe to your expense log. As a business owner, you need to ensure that all financial transactions are not verbal but are supported by written documentation.

One practical solution for ensuring diligent record-keeping for most small companies could be automation or turning to professional bookkeeping.

Improve financial reporting

Resolve for better and if possible, more detailed financial reporting. There are several software options available today that not just carry out detailed bookkeeping and data management, but also present users with accounting analysis and comparisons of other industry players by means of mathematical ratios. Tailoring the information you receive from your financial reports can be accomplished by customizing the setting parameters which you'd like compared and analyzed.

Keep an eye on short-term financial issues

Levers that impact business profitability can be short-term financial functions, not just long term improvements. Current and short-term goals such as close monitoring of cash flow, revenue and expenses, combined with meeting or surpassing customer expectations from your services/products/deliverables can help you increase profitability.

You can also implement accounting methods such as cost-volume-profit analysis and other cost calculations that will help you evaluate various parameters such as sales on costs, profits, etc.

Getting a clear handle on these factors will provide you with insight into helping you decide where your efforts are best leveraged and whether you should consider outsourcing certain functions to free up key resources for other profit-making efforts.

Continuously improve existing financial information systems

Look for information systems that help to standardize information and disseminate it in a timely and easy-to-use manner. Your financial applications should be easy to understand and use. Information systems should also be customized to provide the right kind of information that is detailed and aligned with your company's objectives.

Ensuring that information is updated assists decision makers to focus on areas of profitability, as they can confidently make financial adjustments knowing that the data is reliable. Proper categorizing and reporting of financial information empowers the entire decision-making process by providing a clear snapshot of the company’s health.

Make it a goal for your company this year to establish some financial New Year's resolutions…..and stick to them.

Analytix Solutions
The Company that CPAs Recommend
Analytix Solutions is a professional full-service business support solutions provider. The company offers comprehensive and scalable bookkeeping and accounting services while leveraging its expertise, experience, and state-of-the-art infrastructure. It offers multiple services in diverse packages for companies that are seeking a trustworthy and professional partner to give their business a head start.

Fiscal Cliff Implications on Small-Mid Sized Businesses

By now, most of us are well aware of the 2012, eleventh-hour, year-end deal and decisions enacted by Congress to avert the Fiscal Cliff crisis. Whether or not those decisions successfully will accomplish that objective remain unknown. The legislation minimizes tax increases for the individual taxpayer, but it is still unknown what consequences those changes will have on long term economic development. However, one thing which is certain is that several of those measures have a direct impact on small to mid-sized businesses, resulting in both positive and negative implications. Several of what could be the most impactful measures on small to mid-sized companies are summarized below.

Permanent Tax Rate on Salary- The tax rate for single income earners with taxable income over $400K or married earners with taxable income over $450K will be capped at 39.6%. Households with income lower than that will remain at the lower tax rate. The majority of small business owners have taxable income that falls under the $400K/$450K threshold, so permanent continuance of that lower tax rate is good news. For business owners with taxable income above the $400K/$450K threshold, the increased tax rate of 36% to 39.6% is not good news; however, it does allow for better tax planning, eliminating uncertainty about the rate.

Section 179 Depreciation Bonus- This incentive has been extended through 2013 providing a 50% tax credit to companies to purchase or lease new equipment. This measure promotes reinvestment in business and is beneficial to small to mid-sized companies, as long as they are willing to buy and in a financial position to make these purchases.

R&D Tax Credit- Like the depreciation bonus, this tax credit has also been extended and was made retroactive to 2011. This provides a 6% - 14% tax break for R&D expenses. Although this is a substantial credit and encourages investment in business growth, it applies only to small to mid-sized businesses that invest in research and development.

Payroll Tax Increase- The Payroll Tax Holiday was not extended as part of the Fiscal Cliff deal. As a result, employers' share of the Social Security tax rate will revert back to 6.2% from the 4.2% rate that has been effective for the past few years. Although a seemingly small percentage, this increase could have a substantial ramifications on payroll budget for small to mid-sized companies and discourage hiring. The small to mid-sized business sector accounts for a large percentage of job creation, so this may have a negative impact overall on economic expansion.

Work Opportunity Tax Credit (WOTC)- This measure has been extended through 2013, and encourages small businesses to hire underemployed and unemployed groups such as veterans and young people. This should assist in offsetting the payroll tax increase and incent small to mid-sized businesses to continue hiring, thereby promoting business growth.

Estate Planning Exemption Level- One of the most prevalent concerns among small business owners was the estate tax exemption threshold level. The new legislation has that level remaining fixed at $5.12 million, which is great news for small business owners. It was predicted to drop to just over $1 million. This would have been detrimental to many small, family owned businesses that have been family run for generations. In the event of an untimely death, many may have been forced to sell off part of the business or critical assets (such as machinery) to fund estate taxes, especially those companies which were heavily invested in assets but had low liquidity.

Assessing the true impact of these changes will take some time. Hopefully, the pros outweigh the cons for small to mid-sized businesses, and these measures will, in fact, stimulate growth. In the interim, it is more important than ever to have a clear understanding of your company's financials so that you are informed on which measures you can readily leverage to your company's advantage. We are currently offering a free 1 hour analysis of your business processes, including budgeting. If you would like to learn more on how Analytix Solutions can help move your business forward, please call me directly at 781.503.9004 or email me at sales@aixsol.com

Satish Patel, CPA
President, Analytix Solutions
Satish Patel, Founder-CEO of Analytix Solutions, has more than two decades of experience as a CPA. He has also advised small and mid-sized businesses on diverse matters such as valuation, accounting, and finance. His experience extends to raising capital and arranging for finance from angel investors.