How Accounting Plays a Role in Strategic Planning

As the business world changes, so too must the accountant’s role. Accounting plays a crucial role in strategic planning as it helps organizations make informed decisions based on financial data and insights. Here are a few ways accounting contributes to strategic planning:

Budgeting and Forecasting: Accounting provides historical financial data that can be used to create budgets and forecasts for the future. This helps organizations to plan and allocate resources effectively and make informed decisions about future investments.

Cost Analysis: Accounting provides insights into the costs associated with different business activities. By analyzing the costs, organizations can identify opportunities to reduce expenses and increase profitability.

Financial Reporting: Accounting generates financial statements that provide a comprehensive view of the organization’s financial performance. These reports help stakeholders, including management, investors, and creditors, make informed decisions about the organization’s future.

Performance Metrics: Accounting helps organizations track and measure key performance indicators (KPIs) that are critical to the success of the business. KPIs such as revenue, gross margin, and net income can be tracked and analyzed to determine whether the organization is meeting its strategic goals.

Risk Management: Accounting helps organizations identify and manage financial risks. By analyzing financial data, organizations can identify potential risks and develop strategies to mitigate them.

Overall, accounting plays a significant role in strategic planning by providing valuable financial data and insights that organizations can use to make informed decisions and achieve their strategic goals.

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Are CPA’s Solely Tax Gurus?

Certified Public Accountants (CPA) are highly trained people, specializing in accounting. They took the time to earn a professional designation by meeting several requirements. The conditions they met include passing the CPA exam, their level of education and experience. These professional accountants are considered trusted business advisors and are well respected. Contrary to many thoughts, CPAs focus on more than just tax planning and preparation. But what exactly do CPAs do other than taxes?

What Do CPAs Do?

CPAs help business owners make informed decisions, ultimately helping them to achieve their business’ goals. Also, their level of experience and expertise allows them to provide guidance and advice. There are a few common areas of expertise that CPAs focus on. These areas include:

• Auditing and assurance services
• Tax preparation and consulting
• Consulting services
• Financial planning

The guidance and services a CPA provides can be advisory, specialty consulting, or relating to the daily operations of a business. Some examples of the day-to-day services include bookkeeping and payroll administration.

Advisory services can include assistance in recruiting future accounting staff, creating budgets, and forecasts/projections. Government contract consulting is an example of a specialty service. As a government contractor being DCAA compliant is imperative.

Benefits of Working with a CPA

As a business owner, it is very easy to get caught up in the daily. You become so focused on this, that you often push aside the financial health of your business. Working with a CPA can help you with this. They provide many benefits for a business. These benefits include:

• Giving you more time to focus on running your business.
• Being compliant with applicable laws (Tax, FAR, DCAA)
• Receiving personalized business advice.
• They can help with business growth and development.

CPAs are highly educated and experienced accounting professionals. Often, they are associated with tax planning and preparation. However, their skill set is far greater than just taxes. They possess the knowledge to provide reactive guidance when errors occur. While simultaneously using foresight to encourage growth and guidance.

Originally written by Maryney Ramirez

Updated and additional content provided by Elizabeth Partlow

Are Employee Gifts Taxable?

As a business owner, giving employees gifts and other fringe benefits is something that you are familiar with. Every year you may like to give holiday bonuses or give a gift to each employee on their birthday. This allows you an opportunity to show your appreciation for your employees and to help build a great company culture. However, your good intentions may backfire if you do not understand the tax implications of gift giving. Depending on the type of gift given, it may be taxable income to your employees. But how do you know if a gift is taxable income or not?

What are De Minimis Fringe Benefits?

Most employee gifts are taxable income, unless they are de minimis fringe benefits. These benefits have a minimal value and occur infrequently. They also are not taxable and a business can deduct these items. A previous IRS ruling specifies that a de minimis benefit should not exceed $100. If the value and frequency cause accounting to be impractical, it is likely the gift it is a de minimis benefit. Examples of de minimis fringe benefits are:

• Holiday or birthday gifts with a low market value
• Occasional tickets to sporting events
• Flowers provided under special circumstances

These types of gifts and/or benefits are so small that there is no need to report them.

Taxable Employee Gifts

Cash and cash equivalents are some of the most convenient gifts to give your employees. Some examples of cash equivalent items are gift cards and gift certificates. You may want to think twice before giving these types of gifts though. These gifts are almost always taxable. For example, giving your employees a gift card to buy a turkey for Thanksgiving becomes taxable income for them. All taxable income is reportable on an employee’s W-2.

Planning ahead and having a good understanding of the tax implications for employee gifts is crucial. Keeping records of taxable employee gifts, you give makes W-2 processing easier. But what if you are unsure about what is or is not a taxable employee gift? The best thing to do is to ask your trusted CPA.

Originally written by Jamie M. Shryock, CPA

Updated and additional content provided by Elizabeth Partlow

Employee Retention Credit

Over the last few years, the COVID-19 pandemic did not discriminate against the businesses it has affected. Whether large or small, businesses were forced to reduce their operations. In some cases, they had to shut down completely. Thankfully, in March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed. The act implemented many relief packages to help American families and businesses. Some of the more well-known programs include the paycheck protection program (PPP) and economic injury disaster (EDIL) loans. However, there were tax credits created to help as well. One of those tax credits is the Employee Retention Credit (ERC).

What is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a fully refundable payroll tax credit. It was designed to encourage employers to keep employees on their payroll during the pandemic. The credit is for qualifying employee wages. Qualified wages include wages and some health expenses paid to employees during eligible periods. Small businesses, with less than 100 employees, can treat all wages paid to employees as qualified wages. However, larger businesses, with more than 100 full-time employees, can not treat all wages paid as qualified.

An employer can claim 50% of the first $10,000 in wages per employee that were paid in 2020. For 2021, they can claim 70% of the first $10,000 in wages per employee for quarters 1-3. In total, a small business can receive up to $26,000 in credit per eligible employee. The ERC is not an income tax credit and does not relate to a business’s profit or loss.

Who Qualifies for the Employee Retention Credit?

To qualify for the ERC, a business needs to meet certain criteria. A business must have had their operations partially or fully suspended due to the government orders regarding the COVID-19 pandemic. Or a business must have experienced a significant decline in gross receipts during the calendar year compared to the same periods in 2019.

Businesses can also qualify for the ERC even if they have received other CARES Act assistance, such as the PPP Loan. However, the credit cannot go towards wages that were claimed in the PPP Loan application.

A business must complete a multi-step process to receive the employee retention credit. This process includes determining if the business qualifies for the credit, as well as calculating qualified wages. The amended payroll tax returns need to be filed. It can be a lengthy and tedious process, but it does not have to be. Our team members are here to assist you!

Contributed by Elizabeth Partlow

Indirect Costs: Overhead vs G&A

As a government contractor, have you ever sat there and thought to yourself, ‘Gee it would be so much easier not having to worry about the allocation of all my business’ costs?’ Surely, you are not the only one. Being compliant with FAR can be time consuming, but it is important. First, identify if a cost is direct or indirect. An important question to ask is: Is the cost specific to only one cost objective? Cost objectives can include a contract, a task, or a contract line item. Direct costs are costs that are specific to one cost objective. Examples of direct costs are direct labor and material. These items are exclusive to specific cost objectives.

Indirect costs are not specific to a cost objective. These costs typically are split into 3 categories: Fringe, Overhead, and General and Administrative (G&A) costs. Fringe costs usually are the easiest to identify. They relate to employee costs, such as payroll taxes and compensated absences (sick and vacation time). People struggle the most with identifying overhead and G&A costs because they have similarities. So, what exactly are overhead and G&A costs?

Overhead Costs

Overhead costs directly relate to contracts but are not specific to one contract. People often refer to these costs as contract support. If a government contractor does not have any contracts, then they will also not have any overhead costs. Examples of overhead costs include:

• Travel costs
• Recruiting expenses for direct employees
• Training
• Conference fees (specific to contract support)

Labor can also be an overhead cost. An example of overhead labor is a meeting with project managers that is not specific to one contract.

General and Administrative (G&A) Costs

 General and Administrative expenses are the indirect costs that a business incurs to run its daily operations. These costs are not identifiable to a project, contract, or a product. This means that they exist even if a government contractor has no contracts. Examples of G&A costs include:

• Accounting services
• Marketing
• Office supplies
• Bid and proposal (B&P)

In some instances, employee labor is a G&A cost for a business. For example, employees who only perform administrative functions record their labor as G&A.

Identifying and properly classifying indirect costs is important as a government contractor. At times this can be a tricky task, but it does not have to be. If this is a challenging area for you, Cheryl Jefferson & Associates would love to assist you.

Originally written by Elizabeth A. Wells

Updated and additional content provided by Elizabeth Partlow