Cash Flow Strategies for Business Survival

Learn the critical importance of managing and forecasting your company’s cash flow and positioning it for growth and success by downloading our white paper, Cash Flow Strategies for Business Survival.

In the paper, business finance experts share insights to help you understand key cash flow concepts, the reasons companies run out of cash, and the value of applying technology and specialized expertise to help your company manage its cash flow effectively.

Choose the Right Family Office Accounting Software to Eliminate Financial Complexity

One of the most effective ways for a family office to improve efficiency and reduce complexity is by selecting the best accounting software for its needs. While popular accounting software such as QuickBooks is suitable for family offices with relatively straightforward investments and accounting needs, a platform such as Sage Intacct may be a better alternative for more complex situations.

Prioritize Your Family Office’s Accounting Software

Several factors, such as delays in obtaining financial reports, relying on manual processes, not meeting family expectations about the availability of information, or uncertainty about the reliability of performance data can indicate the need for more sophisticated software.

In contrast, aligning the right software package to your family office’s accounting and reporting needs can enable real-time visibility, deeper insights, and increased efficiency.

Situations Where Sage Intacct May be a Better Alternative:

  • A broad range of asset classes. Expanding the family office portfolio beyond stocks and bonds, such as private equity and other alternative investments, can create complexity that may be challenging to manage with basic accounting software. Similarly, tracking multi-generational investments or using multiple custodians can create issues in consolidating financial reports.
  • Manual processes and report preparation. Some accounting packages may not be able to integrate investment accounts with the rest of your family office business on a timely basis. Relying on manual processes and reports can create delays as well as opportunities for inadvertent or inappropriate data manipulation or fraud.
  • Budgeting and forecasting challenges. Dedicated financial management packages that go beyond basic needs can enhance your family office budgeting and financial planning, enabling more effective decisions and a more efficient management process.

Aligning Accounting Software with Your Family Office Needs

In contrast, choosing a more sophisticated financial management software for your family office operations can lead to powerful advantages:

  • Integration with other tools. A flexible solution that integrates with other applications is essential to eliminating manual processes and achieving comprehensive reporting. Some of the more common integrations we see in family office include, investment management reporting, bill pay, expense management, and payroll. It can be significantly easier for family office principals and staff to monitor and administer these aspects using one application instead of several tools.
  • Comprehensive reporting. A sophisticated family office financial platform allows family members to customize dashboards and reports in different formats, highlighting the metrics they find most important. Similarly, comprehensive reports allow family members to gain deeper insights about investment performance and opportunities.
  • Unified visibility. Ongoing consolidation of results from different investment classes provides real-time insights while improving financial management and planning.
  • Stronger controls. Sophisticated reporting tools have built-in controls to help mitigate the risk of fraud or errors. It will also save considerable time in the reconciliation process.

Still Worried About Changing Your Family Office’s Software?

Some of the common challenges that family offices face when graduating to a more advanced accounting platform include the prospect of losing the familiarity of QuickBooks, having to train staff on a new system, and potential disruptions to office routines. While these concerns are understandable, an effective implementation plan can enable the family office to enjoy the considerable benefits of upgrading their basic financial management package to a more sophisticated platform.

If you are ready to switch accounting software or need more information, contact our team. We can help!

What Is a Family Office?

In broad terms, a family office is an entity established to manage the financial and administrative affairs of high-net-worth individuals and their families.

Depending on the family and its needs, this typically involves coordinating the activities of, as well as data and reports from, professionals including accounting, tax, investment, legal, and administrative professionals. These services, and how they interact within a given family office, can be highly customized and guarded by confidentiality.

A family office can be created in a variety of formats, and for varying reasons to serve the specific needs of the families setting them up. If a family’s assets are shared by more than one generation, for example, a formal family office structure can increase reporting transparency and enable a smoother transition to a younger generation.

Types of Family Office Structures

Family offices often have one or more primarily focuses on how they serve their families and principals:

  • Administrative family offices focus on the family’s day-to-day administrative needs. This can include, for instance, basic financial duties, travel planning, and household tasks such as coordinating landscapers, housekeepers, and other service providers.
  • Accounting family offices center around the family’s financial reporting and related needs, such as paying bills, budgeting, and consolidating performance data from a variety of accounts and asset classes.
  • Investment and wealth management family offices focus on identifying and monitoring the family’s investments and assets.

These broad focuses are often combined to align with a family’s specific needs and preferences. Some family offices are led by a strong principal and others are overseen by a formal board or a less-formal family council.

Similarly, some offices are dedicated to serving a single family, while multi-family offices provide shared services to a small group of families.

While thresholds vary, many families with assets between $10 million and $250 million will be served most effectively with virtual family offices that use a variety of professionals. Families with assets in excess of $750 million will likely benefit from a dedicated family office with in-house professionals and specialized expertise on retainer. Families between those ranges typically have a blend of resources.

Advantages of Outsourced Accounting and Bill Pay

Some of the most common family office services include outsourced accounting and bill pay. These services are well-suited for outsourcing because they require professional expertise to perform, and because most busy family office principals would prefer not to take care of the intricate details of financial reporting themselves.

Instead, outsourcing accounting and bill pay allows family members to focus on their business, community, recreation, or other activities while feeling assured someone’s monitoring their accounts and paying their bills on time.

In addition to peace of mind, outsourced accounting and bill pay provides more effective reporting and a deeper understanding of the family’s assets and investment performance. By combining data from different accounts onto a single report or dashboard, busy family members can understand their financial data at a glance.

Outsourcing bill pay also offers stronger financial controls, such as requiring approval for major purchases or two signatures on checks for amounts above a pre-determined threshold.

More Effective Financial Software

Another benefit family offices provide is access to sophisticated financial software to help the family optimize its reporting, forecasting, and budgeting. Many families start tracking their finances with checkbook registers, account statements, and spreadsheets, but find the complexity of managing different accounts and asset classes challenging.

Dedicated financial tools such as Sage Intacct help family offices consolidate financial and performance data across multiple accounts, integrate investment management reporting with bill pay, expense management, and payroll, and reduce fraud and manual error risk.

If you would like assistance reviewing your situation and implementing a roadmap to meet your family office’s goals, contact us.

Family Office Technology Transitions

Families and family offices are always experiencing transitions, and navigating these events successfully makes all the difference in how well the family accomplishes its long-term goals. Families who keep their wealth together longer than just two generations recognize the need for successful transitions. This includes the importance of choosing the right software and processes to manage increasing complexity and planning for future generations.

One often-overlooked challenge is whether the family has prepared the family office infrastructure for an initial transition, such as the sale of a family business. While suddenly having substantial liquidity can be daunting, it is also straightforward to deal with it. It does not take long, however, for increasing complexity to manifest. This is the point at which people, processes and procedures are critical to success—and where failure can raise its ugly head.

Wealth creators often store everything they know and do in their heads. They understand the ‘what’ and the ‘why’ of their investment decisions, know where their cash is at any moment, and simply can work without extensive systems.

One very wealthy individual had zero support staff, did his own investing, and kept enough cash around to pay bills, make purchases, and manage his houses. He used his checkbook as his accounting system.

His next generation will be challenged by this lack of structure and documentation. They will lack the understanding of the wealth generator’s thinking, not to mention the extreme challenge of estate tax compliance when there is no information reporting system available.

Basic Accounting Tools Fall Short

In most cases, the first systems families use to track activity are very simple and based on checkbooks and Excel spreadsheets. Fairly quickly, there is a natural upgrade to QuickBooks Online or similar accounting tools. Most families stay with these initial systems for way too long, eventually finding themselves doing significant manual reporting via spreadsheets and not leveraging technology any more than when they started.

This is also the riskiest phase from a malfeasance standpoint as it is hard to track reconciliations and cash movements among numerous entities.

Common symptoms of challenges facing the family using inappropriate systems include:

  • Having numerous separate entities with financials that can only be consolidated manually.
  • A lack of timely reporting.
  • Extreme manual reconciliation processes.
  • Devoting way too many resources to creating the reporting needed to manage the family’s spending and wealth.

Despite throwing resources at the accounting processes, there is usually a significant delay in receiving reliable information in a format that makes sense. On top of these challenges, there is limited ability—at times no ability—to access information on a real-time basis.

And many family offices hang on to these initial systems far beyond their useful life because they see the pain of change as very high without understanding the significant downstream benefits. Growing complexity with multiple trusts, LLCs, other investment entities, multiple homes and households, and extensive portfolio investments can grind these systems to halt.

Technology Tools and Benefits

This brings us to the next significant transition—adopting and implementing a technology stack that can reduce time, energy, and costs to provide sound, comprehensive, and timely reporting. Family offices resist this change, to their detriment, because the technology cost appears expensive. However, the enhanced internal controls, ease of slicing and dicing information, and reductions in personnel expenses create savings that more than compensate for additional technology costs.

For example, visualize a technology stack that would allow the following:

  • Integration with banking and credit card providers with minimal manual intervention (and virtual reconciliations).
  • Cost and investment allocations across entities in one entry.
  • Intercompany accounting.
  • Consolidated reporting and separate entity reporting within one application.
  • Dashboards with daily balance reporting.
  • Ability to aggregate custodian detail.

Wouldn’t this make your accounting more accurate, timelier, and useful?

Choosing a more sophisticated financial management software for your family office operations can lead to powerful advantages:

  • Comprehensive reporting. A sophisticated family office financial platform allows family members to customize dashboards and reports, and to gain deeper insights about investment performance and opportunities.
  • Unified visibility. Consolidating results from different investment classes provides real-time insights while improving financial management and planning.
  • Integration with other tools. Some common integrations that benefit family offices include investment management reporting, bill pay, expense management, and payroll.
  • Stronger controls. Sophisticated reporting tools help mitigate the risk of fraud or errors while saving considerable time in the reconciliation process.

Sensiba is a value-added reseller for Sage Intacct, a cost-effective software solution that accomplishes all the above “next transition” accounting and reporting requirements. Sensiba’s Outsourced Accounting Services and Family Office Practice can be your accounting department engine by doing all the bill pay, accounting, and reporting using a Sage Intacct technology stack. For less than the cost of an accountant, you get the best in reporting and an entire accounting department serving your family.

To learn more about the many ways outsourced accounting and Sage Intacct can improve your family office administration and reporting, contact us.

Outsourced Accounting for Restaurants: The Secret Ingredient for Success

Improved cash flow management, forecasting, and operational efficiency are among the advantages outsourcing their accounting and finance functions offers to restaurant operators.

Under an outsourced accounting arrangement, a restaurant company gains the experience and knowledge of a professional finance team without having to invest in full-time staffers or spending time learning specialized software platforms.

The outsourced team takes on the company’s daily finance and accounting tasks such as:

  • Managing cash flow
  • Account reconciliations
  • Forecasting
  • Period-end closings
  • Other vital financial management functions.

Outsourced accounting allows management to tap into professionals with restaurant-specific experience who can unlock insights hidden in performance data.

This professional help allows restaurant operators to focus on running their stores, building their business, and concentrating on the hospitality-related tasks they enjoy most.

Bringing in Accounting Help

Many growing restaurant companies quickly recognize the importance of effective financial management—as well as the challenges of trying to do it yourself or with the help of a well-intentioned friend or family member.

In addition to understanding how much cash flows into and out of a restaurant, operators also need to monitor critical factors including labor and ingredient costs, and other important performance metrics.

Outsourced accounting is more cost-effective than spending money on fulltime staffers that, even for an operator with two or three locations, you don’t need. Rather than paying fulltime salaries and benefits, you can purchase the right level of accounting talent for your company today, freeing up vital cash for other areas of your business.

Additional Benefits of Outsourcing

Cash Flow Management

Managing cash flow effectively is a common challenge for restaurant operators for several reasons. For instance, each location receives almost-daily deliveries of ingredients, linens, and other essentials. Many of these deliveries come with two- or three-day payment terms. The operator needs the ability to understand how much cash is coming in and the agility to make payments quickly.

Automating With Accounting Software

A professional finance team can also support the restaurant with accounting software that makes forecasting and reporting much easier than would be possible with spreadsheets or general-purpose small-business software. Financial management software can improve efficiency and streamline operations by automating account reconciliations and identifying transactions that may indicate financial fraud.

To learn ways to improve your accounting software, read our article “Assembling a High-Performance Restaurant Tech Stack”.

Analyzing Cash Flow Drivers

The outsourced accounting team will be able to analyze your restaurants’ performance data to help you understand the factors driving performance. It’s one thing to know you can pay tomorrow’s bills, but it takes operators to a different level when you know details such as the percentage of your expenses devoted to ingredients, or how your front-of-house labor costs compare with those in the back of the house. Understanding these details help operators identify issues and make necessary adjustments to course correct before issues become problems.

Uncovering Actionable Insights

In many cases, restaurant operators are collecting data from their point-of-sale (POS) systems and invoices. Unless their finance team analyzes that data, valuable insights that can unlock performance improvements will go unnoticed and management will rely primarily on instinct.

Forecasting and Trend Analysis

Accounting professionals can also help with detailed forecasting and trend analysis to better understand how costs and profitability can vary by location, day and time, season, and other factors. Your outsourced finance team can go beyond reviewing actual spend to develop budgets and forecasts. Management can also compare the likely outcomes of different scenarios, such as adjusting staffing levels, launching promotions, or increasing menu prices to obtain desired revenue and profitability

To learn more about the performance and profitability benefits outsourced accounting can provide restaurant operators, contact us.

Intuit recently announced it will no longer sell new subscriptions to the following QuickBooks software in the United States after September 30, 2024:

  • Desktop Pro Plus
  • Desktop Premier Plus
  • Desktop Mac Plus
  • Enhanced Payroll

Security updates, product updates, and support for existing subscribers and those who own the software will continue. Existing subscribers will be able to renew.  Intuit, however, will not develop the software further or allow future purchases. Read more about the change here.

Now is a great time to consider moving to QuickBooks Online or another cloud-based accounting software to enjoy the latest innovations and productivity enhancements.  Moving to the cloud unlocks significant time savings and efficiency advantages in today’s working environment.

Schedule a Meeting

If you would like to discuss your alternatives, please schedule a meeting to discuss your needs.

Risk Mitigation in Family Offices: Effective Strategies for Internal Control

Contrary to what you might imagine given the name, family offices are more subject to fraud and malfeasance than small- to medium-sized businesses. Why? Aren’t we all family? Don’t we treat everyone with care and respect?

To paraphrase Willie Sutton: “Because that is where the opportunity is.” Most family offices have few employees. Their staff may include team members who believe they are underpaid and on whom the principals rely on for a variety of tasks. Internal controls are usually lacking or not designed properly. Separation of duties relating to cash, for instance, is exceedingly difficult due to a lack of personnel.

Areas of Concern

Within family offices, several key areas present significant risks:

  • One person managing all aspects of cash–receipts, bill pay, movement among bank accounts, bank reconciliations (if done at all), vendor management, etc.
  • Lacking proper processes and oversight of the bank reconciliation process.
  • Not using available technology tools to mitigate the risk of cash being moved without the express authorization of the family.
  • Using the ubiquitous QuickBooks for accounting purposes when it’s not the most effective tool. If the family has complex activity and reporting requirements for numerous legal entities, the number of manual activities required to keep separate entities accurate and complete within QuickBooks can lead to significant errors, delays in reporting, and an ability to hide nefarious activities. Moreover, QuickBooks allows users to enter dates for a prior period, which can be used to disguise transactions in the current period.
  • Poor or nonexistent vendor management processes can facilitate embezzlement. Most malfeasance includes creating false vendors for the purpose of stealing.
  • Lack of good technology hygiene. When was the last time they had a cybersecurity review? Are their software programs updated consistently to avoid the latest hacking threats? Can they answer the question, “How safe is your data?”

Eight Tips for Effective Internal Controls Within a Family Office

While challenging, there are prudent measures and straightforward solutions that can significantly mitigate the opportunity for embezzlement or financial misstatements. These include:

Mandatory Vacation Policy

Require key employees to take a two- to three-week vacation every year. It is extremely difficult for an employee to maintain an embezzlement scheme if they are not there to monitor or hide it. Watch for employees who work excessive hours, especially when no one else is present.

Bank Reconciliation Oversight

Implement a robust oversight process for bank reconciliations. Use outside consultants if, as a principal, you do not think you can do an adequate job with this process. At a minimum, separate the employee who handles the cash from those who record the cash and reconcile the two activities on a timely basis. In today’s digital world of cash movement, electronic oversight of the reconciliations is critical.

Cash Movement Approvals

Employ technology that requires someone other than the person creating the payments to approve the movement of cash. Approvals can take place on your mobile phone from anywhere in the world.

Regular Vendor Reviews

Review and approve your vendors periodically. Any new vendor should be approved contemporaneously and before being paid for the first time.

Consistent Technology Assessments

Perform technology assessments consistently, such as every year or, at most, two. Technology is moving so rapidly that significant opportunities to improve your technology environment may be available.

Third-Party Internal Control Reviews

Obtain periodic third-party reviews of your internal control environment to establish and reinforce a robust, right-fit system of controls. This provides additional comfort regarding the completeness and accuracy of the data that underlies the financial reports. Internal control processes and procedures should be well-documented and tested periodically for compliance.

Budget and Variance Analysis

Set and approve budgets and report actual-to-budget variances to identify when activity differs from your expectations.

Annual Net Worth Statement Review

Conduct an in-depth review of the details that make up your net worth statement at least annually to avoid the unpleasant surprise of finding assets or liabilities you might not be aware of.

Professional Guidance for Family Offices

Malfeasance, embezzlement, and fraud can easily occur unless the family recognizes risks and takes the appropriate steps to mitigate them. If you would like to discuss your family office situation, our team would be more than pleased to visit with you and provide suggestions.

Outsourcing Your Accounting to Address Volatility

Volatile economies and unsettled market conditions may cause growing companies to reduce spending and reassess their strategic plans. Outsourced accounting can provide a cost-effective solution for companies to meet their ongoing cash management and financial reporting needs while preparing for their next growth stage—or the return of more favorable markets.

The Benefits of Outsourcing Accounting

Business owners and accounting staff can reap many of the benefits of outsourced accounting services, including optimizing team size and resources, streamlining reporting using advanced software, optimizing cash flow management, and increasing organizational agility.

For instance, outsourcing allows your company to scale your accounting team effectively if your transaction volume rises and falls with market trends or seasonality—while still closing your books efficiently and on time. You can right-size your accounting team and meet your company’s needs without the cost and effort required to hire and train additional full-time staff.

Streamline Reporting Using Advanced Software

The outsourced accounting provider will typically use cloud-based accounting and financial management software to help streamline and automate processes associated with the financial close. This saves time and costs by increasing efficiency and accuracy while reducing manual entries and the potential for data-related errors.

Once the books are closed, you’ll be able to provide up-to-date performance reports to investors, lenders, and other key stakeholders.

The company’s management will have access to data and analysis tools that provide insights into the factors driving the company’s performance. Company leaders will be better able to identify opportunities and adjust operations quickly if needed.

Optimize Cash Flow Management

During volatile markets, it’s vital to manage your company’s cash flow effectively to address its short-term needs. Cash flow management can also reduce the potential for long-term financial and operational challenges. Outsourced accounting professionals can help with cash-flow management by providing:

  • Effective invoicing to promote timely customer payments.
  • Bank reconciliations to help identify accounting errors and reduce fraud risk.
  • Tracking and management of receivables to ensure consistent revenue streams.

Increase Organizational Agility

Outsourcing your company’s accounting function offers a flexible approach to financial reporting and management. It helps you meet your individual disclosure, compliance, and reporting needs without the ongoing cost and administrative overhead of a full-time accounting team.

Outsourcing helps you maintain financial processes to weather volatile market conditions and prepare for the next stage of your company’s growth.

Get Started Outsourcing Your Accounting and Financials

If you are considering outsourced accounting and financial services and would like to better understand your options, connect with us.

Implementing the New ASC 842 Lease Accounting Standard

The new ASC 842 lease accounting standard, has become effective for private companies for fiscal years beginning after December 15, 2021. For calendar-year-end companies, adopting ASC 842 requires practical implementation plans to, for the first time, account for operating leases on the balance sheet.

Our Lease Accounting Guide for Private Companies provides real-world insights to help private companies meet their lease accounting requirements, including:

  • Creating An Effective Framework For ASC 842 Compliance
  • Choosing The Most Suitable Adoption And Reporting Method For Your Company
  • Key Lease Standard Provisions, Concepts, And Terminology
  • Selecting The Most Effective Discount Rate For Your Company
  • Choosing Practical Expedients Available Within The Lease Accounting Standard
  • Software Considerations To Streamline ASC 842 Adoption

Lease Reassessment and Remeasurement Requirements Under the ASC 842 Accounting Standard

Now that your company has transitioned to the ASC 842 Lease Accounting standard, what comes next? What do you do when the lease arrangement changes, or the facts and circumstances change after your initial adoption?

Overview of ASC 842 Adoption Process

It’s important to remember the ASC 842 adoption process doesn’t represent an end goal. Instead, it is a new approach for monitoring and managing the company’s lease agreements. Companies must ensure they have accurate and complete data on all their leases, including the terms, payments, and options. They also should ensure that any changes to lease terms or conditions are accounted for and whether any leases need to be reassessed or remeasured to account for the remaining lease term accurately.

Situations Requiring Reassessment or Remeasurement of Leases

Common situations where a lease requires reassessment or remeasurement include:

  • The lease terms and conditions change, such as terms being extended.
  • Company leaders reconsider exercising a purchase option.
  • The company determines the amount of a lease incentive that was unknown at adoption.
  • A lease is terminated before the scheduled end date.
  • The leased asset becomes obsolete, damaged, or destroyed.

As part of their review, companies must evaluate how to disclose lease changes to stakeholders such as investors, lenders, and auditors.

Understanding Lease Modifications vs. Reassessments

Lease modifications are often easy for lessees to identify because they require changing their contract with the lessor. In contrast, other events during the lease term can require the lessee to remeasure the lease liability and the associated right-of-use asset.

Reassessments are required when an event does not involve renegotiating the lease terms and conditions, but when facts, assumptions, or other circumstances change. For example, a lessee may change their decision about exercising an option within a lease.

Frequency of Lease Agreement Review

How often companies should review their existing lease agreements depends on the number of leases they have and their complexity. In most instances, companies should review their lease agreements annually to ensure that they continue to comply with ASC 842 and any changes have been identified and accounted for properly. If a company has many leases, or complex leases, they may need to review their agreements more frequently.

Technology Tools Can Help Lease Accounting

If a lease is modified or reassessed, the underlying liability and right-of-use asset must be remeasured to account for the change. In some cases, the changes result in a gain or loss for the company.

Calculating these changes manually can be cumbersome if the finance teams rely on spreadsheets. In addition, having to copy or re-enter data manually can lead to errors and misjudgment.

Software tools such as LeaseCrunch can perform lease reassessments and calculate the journal entries and amortization schedules for the resulting right-of-use asset and lease liability remeasurements. This can help teams avoid errors and misjudgment caused by manual calculations.

LeaseCrunch offers a step-by-step workflow for entering the necessary data for the lease revision. It is flexible enough to manage changes in lease terms, payment streams, purchase options, early terminations, and incentives received.

For more information about our lease accounting services or lease reassessment and remeasurement, contact our team.

How Lease Accounting Update (ASC 842) Impacts Technology and Startup Companies

ASC 842 lease accounting is effective for calendar year-end entities for the 2022 fiscal year. The core concept of ASC 842 is the intention of the FASB to move previously off-balance-sheet operating leases to the balance sheet to better reflect the contractual liabilities owed under these arrangements.

Many venture-backed early-stage startup companies, or remote-enabled companies, have minimal or no operating leases. However, this does not mean ASC 842 concepts and provisions do not need to be considered.

Four Common Misconceptions for Tech and Startup Companies

Misconception 1: No Year-End Leases Equals No Impact

The company doesn’t have any leases as of year-end, so there is no ASC 842 impact.

Truth:

This is a misconception because ASC 842 is required to be adopted as of the beginning of the period presented. Any leases outstanding as of 1/1/22 for calendar year-end entities would need to be included in the analysis of adoption and calculation of adoption entries.

Misconception 2: No Operating Leases Means No Need to Worry

The company has no operating leases and never has, so there is no ASC 842 impact.

Truth:

While the absence of traditional operating leases for office space or equipment results in no impact of adoption related to those types of leases, ASC 842 requires entities to evaluate whether there are embedded leases that were not considered under prior guidance. The FASB Master Glossary defines a lease as:

“A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.”

Many companies that do not have office leases may still have embedded leases with service providers that may need to be accounted for. In many cases, agreements with cloud providers for designated servers or server space (data centers and colocations) qualify as embedded leases and require capitalization.

Related-party leases are evaluated the same way under ASC 842 as old lease accounting standards.

Truth:

ASC 842 requires that leases entered into with parties related to the company that are under common control are required to be assessed based on the written contract terms, regardless of the intent of the terms.

A related-party lease whereby either party may terminate the contract for convenience with no significant penalty would not have commercial substance and would not be a lease under ASC 842 as the terms are not enforceable over the specified terms. This is a change from prior guidance whereby related-party leases were evaluated for their economic substance above the legally enforceable terms and conditions.

Misconception 4: Only the Balance Sheet is Affected

ASC 842 impacts the balance sheet only and has no other significant effects after adoption.

Truth:

Companies should be diligent in considering the impact of adoption to reporting to external parties, especially banks that require financial covenant compliance, and plan proactively to inform stakeholders of any anticipated impact. Impacts on accounting and disclosure of deferred taxes should also be considered.

Companies should also ensure policies and procedures are put into place to account for new leases and contracts and any lease modifications as they occur.

Make sure to review all lease agreements, amendments, and related documents carefully and keep any changes in writing. Related-party leases should also be evaluated to ensure the contract terms in the executed lease properly reflect the intended use. 

Implementing ASC 842

These are just some of the many nuances in applying ASC 842 completely and accurately to ensure GAAP compliance for technology and startup companies. If you have questions, contact our team to understand the impact on your company.

Sale-Leaseback Accounting Considerations Under ASC 842

As organizations consider sale-leaseback transactions, they must understand the financial reporting implications under the new lease accounting standard, ASC 842.

What is a Sale-Leaseback Transaction?

A sale-leaseback transaction typically occurs when an organization sells an asset, such as real estate, and immediately (or soon thereafter) leases the asset back from the purchaser. The organization that sold the asset is now a lessee, and the buyer is a lessor.

Sale-leaseback can be a useful tool for companies that need to raise capital quickly. However, it’s important to weigh the pros and cons carefully before deciding if this strategy is right for your business.

Pros and Cons of Sale-Leaseback for Organizations

Pros

Organizations pursue sale-leasebacks for potential benefits that can include freeing up cash for operating or investing while maintaining the use of the asset, strengthening their balance sheet by using a less-costly form of financing than a debt facility, and allowing management to concentrate on their core business operations instead of worrying about maintaining fixed assets.

For buyer-lessors, these transactions can provide income over the lease term, as well as the potential to generate further returns by investing the lease income.

Cons

Potential disadvantages that sellers-lessees need to evaluate include the potential recognition of capital gains, an increased lease liability, and the removal of the sold asset from the balance sheet. For the buyer-lessor, the primary risk is potential payment default by the lessee.

Understanding Sale-Leaseback Accounting

The first considerations in accounting for sale-leaseback transactions are determining whether a contract exists and whether the transfer can rightfully be considered a sale. Under the new guidance, these factors depend on the following criteria outlined in Topic 606, Revenue from Contracts with Customers:

  1. The parties have approved the contract
  2. The entity can identify each party’s rights regarding the transferred asset(s), as well as the payment
  3. The contract has commercial substance
  4. The entity believes it will probably collect consideration
  5. The performance obligation is satisfied with the transfer of control of the asset(s)

Under Topic 606, the transfer of control is defined by the buyer-lessor accepting the asset and assuming: Legal title, Physical possession, The risks and rewards of ownership, and An obligation to pay for the asset

The existence of a leaseback does not prevent the buyer-lessor from obtaining control of the asset. However, the buyer-lessor is not considered to have control of the asset if the leaseback would be classified as a finance lease or a sales-type lease.

Similarly, an option from the seller-lessee to repurchase the asset would preclude accounting for the transfer of the asset as a sale unless both of the following criteria are met:

  • The exercise price of the option is the fair value of the asset at the time the option is exercised
  • Alternative assets, substantially the same as the transferred asset, are readily available in the marketplace

If the transfer of the asset is determined to be a sale, the seller-lessee should:

  • Recognize the transaction price for the sale at the point in time the buyer-lessor obtains control of the asset along with capital gains associated with the sale, if any
  • Derecognize the carrying amount of the underlying asset
  • Account for the newly executed lease under Topic 842

Fair Value Considerations

In a sale and leaseback transaction, the sale price might be more than the fair value of the asset because the resulting lease payments are above a market rate; conversely, the sale price might be less than the fair value because the lease payments are below a market rate.

That could result in the misstatement of amounts for the seller-lessee and the buyer-lessor. In this case, the purchase price of the asset should be adjusted if the sale and leaseback occur at other than a market rate.

Determining Fair Value

Whether a sale and leaseback transaction occurs at fair value is determined by the difference between either of the following (whichever is more readily determinable):

  • The sale price of the asset and its fair value
  • The present value of the lease payments and the present value of market rental payments

Adjustment of Sale Price

If the sale-leaseback transaction is not at fair value, the asset’s sale price should be adjusted on the same basis the entity used to determine the transaction was not at fair value. The adjustment to the sales price should be accounted for as follows:

  • Any increase to the sale price of the asset is recorded as a prepayment of rent
  • Any reduction of the sale price of the asset is recorded as additional financing provided by the buyer-lessor to the seller-lessee

Companies that have not yet adopted the new lease accounting standards can elect the package of practical expedients available during the transition and not reassess expired or existing lease contracts, assuming they have been correctly accounted for previously.

For more information about our lease accounting services or sale-leaseback accounting, contact our team.

9 Advantages of Outsourcing Accounting Services

Outsourcing offers unique solutions to some of today’s biggest accounting challenges. If your company is debating how to best account for its transactions, consider the advantages of outsourcing accounting.

Advantages of Outsourcing Accounting Services

1. Outsource Accounting Cost

Outsourced accountants can cost a fraction of what you pay to recruit, hire, supervise, and retain an in-house accountant. In many cases, outsourcing firms can perform the same volume, quality, and consistency of work as your own accounting team, just at a much lower cost.

2. Accessibility to Accounting Personnel

Competition is fierce for qualified accountants, making it both difficult and expensive to staff an in-house accounting team fully. As an alternative to traditional recruiting, outsourcing makes it far easier to access accounting talent, generalists, and specialists alike.

3. Timely and Efficient

Getting the accounting done correctly takes time and companies may not have the staff or inclination to invest in the proper resources. Instead of compromising, rely on an outsourced accounting firm to handle the workloads and free up hours to spend on other high-priority items.

4. Accounting Expertise

Most companies need specialized accounting insights at some point, even if they don’t need to have specialized accountants in their ranks. Outsourcing firms employ a wide range of specialists for clients to consult with as needed. Think of it as expertise on demand.

5. Financial Liquidity

Managing cash flow takes time, experience, and a careful touch. Relying on an outsourced accounting firm often improves cash flow as these firms have more time and resources to dedicate to the effort, often at a fixed fee.

6. Precise Budgeting

As the overall roadmap for the company, budgets can lead toward riches or ruin. Enlisting outsourced accountants to help prepare the budget ensures that all variables – positive or negative – have been fully considered before deciding where to spend.

7. Detailed Reporting

Understanding your results are critical to managing your business. An outsourced provider will report back to you on your operations, focusing on trends that are both positive and negative, giving you critical information to help navigate your business going forward.

8. Knowledgeable Tax Consulting

Few companies are equipped to handle their own taxes. Visiting a tax prep specialist once a year may not be adequate either. By contrast, outsourcing is a long-term partnership that utilizes a deep understanding of your finances to deliver expert tax advice whenever necessary.

9. Automation Insight and Implementation

Transform your business by working with an outsourced provider to select the best-in-class automation tools to reduce data entry and cumbersome manual processes. This will streamline operations, improve internal controls, and reduce operating costs.

Is It Time for Your Company To Start Outsourcing?

Interested to learn how these advantages of selecting an outsourced accounting service could benefit your organization? Reach out to our outsourced accounting team, and let’s discuss your goals.

How Finance and Accounting Outsourcing Helps Companies Grow

As companies grow their operations, finance and accounting outsourcing provides a cost-effective way to optimize their financial management while obtaining business insights that go beyond the information available from basic accounting.

Outsourced Finance and Accounting Services and Benefits

An outsourced finance and accounting team provides the organization with a range of financial management and compliance services without investing in a full-time team or supporting technology systems.

Day to Day Finance and Accounting Functions

The outsourced team will handle critical finance and accounting operations such as account reconciliations, preparing financial reports, and handling period- and year-end accounting, among other activities. Day to day, the outsourced team can help the organization enhance cash flow by managing accounts payables and receivables and tracking customer payments.

More Effective Reporting

More importantly, the outsourced finance and accounting team can prepare detailed reports and deploy analytics tools to help management better understand the organization’s performance and market opportunities. As management focuses on growth and operations, the outsourced finance team can help the organization enhance its financial management as well as compliance with industry obligations.

The organization’s management will be able to access reporting tools and visual dashboards that aggregate data from various financial systems to provide a unified view of the organization’s performance.

Common reports:

  • Monthly, quarterly, and annual income statements
  • Bank reconciliations
  • Cash flow statements
  • Financial and operational analyses using key performance indicators

These reports provide a deeper understanding of the market trends driving the numbers, which enables more effective business decisions.

Strategy

The outsourced provider will help management maintain appropriate spending and investment levels with budget development, implementation, and monitoring, as well as forward-looking projections and scenario planning to help the organization adjust as market conditions change or opportunities emerge.

Cloud-based Systems

Similarly, the outsourced provider will use more sophisticated accounting systems and analysis tools than a growing company would likely have on its own. This frees the client from the need to compare, implement, and maintain cloud-based software platforms. In addition, these tools will provide more effective security for the organization’s financial information and customer data than would be available if the organization relied on a series of spreadsheets.

Access to Talent

Outsourcing finance and accounting also helps the organization gain quick access to qualified talent to support the team’s needs while minimizing recruiting costs. The outsourced provider handles the recruiting and training and can maintain appropriate staffing levels during peak periods as well as offer continuity during vacation seasons.

Is Outsourcing Right for Your Company?

As your organization grows, you may find that it becomes increasingly difficult to manage your finance and accounting functions and stay compliant with regulations. One way to ease this burden is by outsourcing finance and accounting functions to a team of experts. This team can handle critical operations such as financial reporting, period-end accounting, and cash management.

By outsourcing these services, you can free up time and resources so you can focus on other aspects of running your business. If you’re interested in learning more about how we can help optimize your financial management, contact our team today.

How a Family Office Helps Busy CEOs

Can you imagine a CEO of a fast-paced, growing company getting up before dawn to pay bills and keep the family accounting straight? Are you wondering if the insurance might lapse or if the lights could go out unexpectedly? It was reported in a Harvard Business School study that “CEOs are always on, and there is always more to be done. The leaders in that study worked 9.7 hours per weekday, on average”.

While paying bills may be the last thing any CEO wants to do, it must be done. For too many leaders, however, early mornings or late nights involve valuable time and effort being taken away from the crucial aspects of building and running the company effectively. Does this sound like you?

Benefits of the Family Office

Enlisting a family office to help with bill-pay and accounting services offers an efficient and cost-effective way for a company leader to increase productivity. At the same time, routine financial and administrative tasks are handled on their behalf.

Flexible Service Levels

A family office can provide a variety of services, depending on the family’s financial situation and needs. Some CEOs want to ensure the bills from household providers, and services are paid on time, while others want more comprehensive reviews of their investments and insights into their budgeting and spending habits.

Stronger Governance

Enlisting outside help can also help the CEO improve corporate governance by avoiding situations that bring potential disadvantages. While it may be tempting to use the company’s financial team to help with the leader’s personal finances, for instance, this is often problematic.

A public company or venture-funded CEO would not have the luxury of setting up a family office within the company. It would be abhorrent to investors to think their investments paid for such activities.

Some privately held companies create an embedded family office using company staff, but that brings a bevy of attendant issues. Do you want your employees to know your personal financial situation? Do you want key employees, like your CFO or controller, to be distracted from important company business?

There can also be negative tax consequences for deducting expenses for personal purposes, as well as potential staff resentment with having to deal with family matters when employees are trying to build a career in their company roles.

Streamlined Solutions

Outsourcing family bill-pay and financial reporting ensures timely payments while offering CEOs more control over what gets paid. Depending on your preferences, you can review every invoice or require approvals above a predetermined amount. You can easily align the family office service level with the complexity of your financial situation and administrative needs.

Instead of waiting for tax documents from bankers, lenders, and wealth management professionals, for instance, the family office can compile this information easily and share it with your tax professional.

Easing CEO Workload

A family office frees valuable time to focus on growing your business, reduces stress, and provides peace of mind that routine transactions are being handled efficiently.

Our family office services include timely, relevant, and accurate reporting, internal controls, accounting support, and CFO insight so you can make informed decisions. We’ll work with you to assess your needs, develop operational and internal controls, and help you meet your financial goals.

If you would like to learn more about how a CEO could benefit from a family office, schedule an introductory call with our team.

Protect Family Assets by Shifting to a Family Enterprise Mindset

A common mistake many high-net-worth individuals and families make is failing to treat their family’s financial affairs as a business entity in their own right. Managing the business of the family’s assets is a critical practice that demands the same rigor applied to their underlying business activities.

Benefits of Setting Up a Family Office

An effective family office will provide several benefits, including:

  • Helping to manage and grow investment assets
  • Improving financial reporting and communications
  • Enhancing risk management (both from the perspective of investment risk and preventing the potential misuse of assets)
  • Strengthening estate and transition planning

Setting up and maintaining an effective family office requires a mindset based on understanding the family’s assets beyond investment returns, including maintaining a healthy balance sheet, installing the appropriate controls, and providing effective software tools — exactly as you would in your business.

For more information on setting one up, read our article “Simple Steps for Setting Up a Family Office

Family Asset Management

Whether you create a single-family office or work with a provider that serves several families, it’s important to understand that a family office can play a pivotal role in effectively protecting your family assets.

Your family office should go beyond bookkeeping and paying bills. It should help you understand and improve your entire financial picture and risk management strategies to ensure family assets are preserved, and you can have peace of mind.

For example, you want a professional (or a team) with experience in day-to-day operations such as paying bills, bank and credit card reconciliations, cash flow management, and financial reporting and forecasting. Also, it’s good to have support with medium and long-term planning, risk management, insurance, tax planning and compliance, and other considerations.

Protecting Your Family Assets from Fraud

Another important aspect to think about is creating an internal controls framework that, just as in your business, separates duties and responsibilities. You may reduce the risk of fraud and malfeasance that occurs if a staff member creates and pays vendors that are not serving the family.

Fraud and malfeasance in your family office is something no one wants to believe happens because, over time, staff may feel like they are family. However, it’s important to recognize that family offices commonly experience some form of dishonesty, so it is prudent to develop appropriate measures to mitigate such possibilities.

Selecting the Right Family Office Software

It’s also helpful to ensure your family office uses appropriate software tools to manage your affairs effectively. Spreadsheets and basic accounting packages won’t offer the appropriate degree of sophistication and internal controls required by the family office team. The right software will enhance efficiency, strengthen key internal control processes, and provide relevant reporting and risk management.

For more guidance on picking software, read our article “Choose the Right Family Office Accounting Software to Eliminate Financial Complexity

Using Sage Intacct

For instance, accounting platforms such as Sage Intacct can streamline financial reporting and provide real-time access to performance data, as well as insights to help you and your advisers manage the family’s assets more effectively.

It can also support complex accounting requirements and the institution of internal controls, as well as the ability to aggregate information from various investment portfolio custodians and identify anomalies in your financial transactions that may indicate fraud or other problems.

Shifting to an Enterprise Mindset

When protecting your family assets, the first step is recognizing that you need an independent enterprise mindset. It’s important to have all the appropriate operational, financial, and technological infrastructures to meet your needs today and to help you plan for the next generation.

For more information about our Family Office Services, contact our team.