Put your company’s financial statements to work for you

1. Benchmarking

Historical financial statements can be used to evaluate the company’s current performance vs. past performance or industry norms. A comprehensive benchmarking study includes the following elements:

Size. This is usually in terms of annual revenue, total assets or market share.

Growth. This shows how much the company’s size has changed from previous periods.

Liquidity. Working capital ratios help assess how easily assets can be converted into cash and whether current assets are sufficient to cover current liabilities.

Profitability. This section evaluates whether the business is making money from operations — before considering changes in working capital accounts, investments in capital expenditures and financing activities.

Turnover. Such ratios as total asset turnover (revenue divided by total assets) or inventory turnover (cost of sales divided by inventory) show how effectively the company manages its assets.

Leverage. This refers to how the company finances its operations — through debt or equity. Each has pros and cons.

No universal benchmarks apply to all types of businesses. So, it’s important to seek data sorted by industry, size and geographic location, if possible. To understand what’s normal for businesses like yours, consider such sources as trade journals, conventions or local roundtable meetings. Your accountant can also provide access to benchmarking studies they use during audits, reviews and consulting engagements.

2. Forecasting

Historical financial statements also may serve as the starting point for forecasting, which is a critical part of strategic planning. Comprehensive business plans include forecasted balance sheets, income statements and statements of cash flows.

Many items in your forecasts will be derived from revenue. For example, variable expenses and working capital accounts are often assumed to grow in tandem with revenue. Other items, such as rent and management salaries, are fixed over the short run. These items may need to increase in steps over the long run. For example, if a company is currently at (or near) full capacity, it may eventually need to expand its factory or purchase equipment to grow.

By tracking sources and uses of cash on the forecasted statement of cash flows, management can identify when cash shortfalls might happen and plan how to make up the difference. For example, the company might need to draw on its line of credit, lay off workers, reduce inventory levels or improve its collections. In turn, these changes will flow through to the company’s forecasted balance sheet.

For more information

Let’s take your financial statements to the next level! We can help you benchmark your company’s performance and create forecasts from your year-end financial statements.

© 2020

The QBI deduction basics and a year-end tax tip that might help you qualify

If you own a business, you may wonder if you’re eligible to take the qualified business income (QBI) deduction. Sometimes this is referred to as the pass-through deduction or the Section 199A deduction.

The QBI deduction:

  • Is available to owners of sole proprietorships, single member limited liability companies (LLCs), partnerships, and S corporations, as well as trusts and estates.
  • Is intended to reduce the tax rate on QBI to a rate that’s closer to the corporate tax rate.
  • Is taken “below the line.” In other words, it reduces your taxable income but not your adjusted gross income.
  • Is available regardless of whether you itemize deductions or take the standard deduction.

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their QBI. For 2020, if taxable income exceeds $163,300 for single taxpayers, or $326,600 for a married couple filing jointly, the QBI deduction may be limited based on different scenarios. These include whether the taxpayer is engaged in a service-type of trade or business (such as law, accounting, health, or consulting), the amount of W-2 wages paid by the trade or business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the trade or business.

The limitations are phased in. For example, the phase-in for 2020 applies to single filers with taxable income between $163,300 and $213,300 and joint filers with taxable income between $326,600 and $426,600.

For tax years beginning in 2021, the inflation-adjusted threshold amounts will be $164,900 for single taxpayers, and $329,800 for married couples filing jointly.

Year-end planning tip

Some taxpayers may be able to achieve significant savings with respect to this deduction, by deferring income or accelerating deductions at year end so that they come under the dollar thresholds (or be subject to a smaller phaseout of the deduction) for 2020. Depending on your business model, you also may be able to increase the deduction by increasing W-2 wages before year end. The rules are quite complex, so contact us with questions and consult with us before taking steps.

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Year-end SWOT analysis can uncover risks

As your company plans for the coming year, management should assess your strengths, weaknesses, opportunities and threats. A SWOT analysis identifies what you’re doing right (and wrong) and what outside forces could impact performance in a positive (or negative) manner. A current assessment may be particularly insightful, because market conditions have changed significantly during the year — and some changes may be permanent.

Inventorying strengths and weaknesses

Start your analysis by identifying internal strengths and weaknesses keeping in mind the customer’s perspective. Strengths represent potential areas for boosting revenues and building value, including core competencies and competitive advantages. Examples might include a strong brand or an exceptional sales team.

It’s important to unearth the source of each strength. When strengths are largely tied to people, rather than the business itself, consider what might happen if a key person suddenly left the business. To offset key person risks, consider purchasing life insurance policies on key people, initiating noncompete agreements and implementing a formal succession plan.

Alternatively, weaknesses represent potential risks and should be minimized or eliminated. They might include low employee morale, weak internal controls, unreliable quality or a location with poor accessibility. Often weaknesses are evaluated relative to the company’s competitors.

Anticipating opportunities and threats

The next part of a SWOT analysis looks externally at what’s happening in the industry, economy and regulatory environment. Opportunities are favorable external conditions that could increase revenues and value if the company acts on them before its competitors do.

Threats are unfavorable conditions that might prevent your company from achieving its goals. They might come from the economy, technological changes, competition and government regulations, including COVID-19-related operating restrictions. The idea is to watch for and minimize existing and potential threats.

Think like an auditor

During a financial statement audit, your accountant conducts a risk assessment. That assessment can provide a meaningful starting point for your SWOT analysis. Contact us for more information.

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December 2020 Short Bits


Earlier this year, the U.S. Department of Labor adjusted their rule on who is eligible for overtime pay. The new rule updates earnings thresholds required to make executive, administrative and professional employees exempt from overtime. These employees will now need to earn at least $684 per week as a salaried employee and a portion of nondiscretionary bonuses and incentive pay, like commissions, can be used to meet the minimum salary requirement.


Most U.S. coins are stamped with a letter code to show which branch of the U.S. Mint made the coin. However, the Philadelphia branch doesn’t always use a stamp because it was the first Mint branch. And no marks were used from 1965 to 1967. But today, most coins, except those made in Philadelphia, carry the stamp of their creator.


Less travel due to the coronavirus pandemic has reaped huge rewards for the planet. According to joint studies by NASA, the European Space Agency and the Japan Aerospace Exploration Agency, air quality improved in parts of Europe with a 50% reduction in air pollution and a 30% reduction in the Northeast US. Similar improvements were seen in parts of India and China.


The U.S. Department of Labor is providing $100 million to support states in combating and uncovering unemployment fraud. The funds can be used to complete fraud investigations and to implement tools to detect and recover improper pandemic unemployment payments and states are encouraged to adopt new fraud prevention strategies to protect the integrity of their unemployment insurance programs.

December 2020 Questions and Answers


Leslie relocated in 2020 for a job opportunity. Her new employer didn’t provide any financial assistance for the move. Can she deduct any of her moving expenses from her tax return?


Unfortunately, due to the Tax Cuts and Jobs Act, moving expenses are no longer tax deductible. The only exception is for members of the military. If Leslie is an active duty armed services member and moved as part of a permanent change of station, then some of her unreimbursed moving expenses are deductible. She can deduct reasonable costs to move her household goods and personal belongings along with travel expenses to her new home.


I received a CP-501 notice from the IRS claiming I have a balance due, but I don’t agree. What should I do?


Since the CP-501 notice is the first notice you will receive about a past due amount, you’ll want to call the IRS right away using the phone number provided on the notice. But before you call, do your research and have all the information available to explain why you believe there is a mistake. Although talking with the IRS may seem scary, don’t ignore the notice. Interest and penalties may continue to be charged and they have the right to place a lien on your property.

Track Your Dollars

Do you keep track of all the money you spend in a month? Tracking your expenses will help you take control of your financial life.


By tracking your expenses each month, you’ll be able to identify negative spending habits that you can change to make your money work better for you. You might find you’re paying for services you don’t use like a gym membership or a software that you forgot to cancel before the free trial period expired.


If you’re planning to buy a house someday or looking to increase your retirement savings, tracking your expenses will help keep you on track to reach those goals. You’ll be able to see if you have expenses that can be lowered or if your spending remains in line with your priorities.


When you start tracking your expenses you may find that you worry less about money. Since you’ll know where every dollar is going, you won’t be anxious wondering if you’ll have enough money at the end of the month. You’ll feel more confident and because you’re keeping track of your spending, you’ll be less likely to make impulse buys.

End of Financial Year Tune Up

Reviewing where you stand financially before the end of the year means you can take advantage of tax-saving opportunities that end December 31, 2020 and then start financially strong in the New Year.


If you have a flexible spending account (FSA), be sure you use all the funds before year’s end, unless your plan offers a grace period. Most plans are on a calendar year and unlike a health savings account (HSA) which allows you to roll over unused funds to the next year, your FSA is a use it or lose it plan. You can buy most over-the-counter medications and even glasses with your FSA funds.


Review all of your insurance policies to ensure they meet your needs and you’re not paying too much. Check with your agent to see if bundling multiple types of insurance, like home, car, and umbrella could reduce your rates.


While you’re reviewing your insurance needs, take a look at your beneficiary information on your life insurance and retirement accounts. If you’ve gotten married or divorced, you may need to update your beneficiary information.


Schedule an appointment with your financial advisor to review your investments.

December 2020 Client Profile

Kara owns a consulting business and in 2021 her employees will be traveling out of state for work. She’s never had to reimburse employees for travel expenses so she’s wondering whether to give them a travel allowance or reimburse them for actual expenses.

The method Kara chooses can affect her employees’ taxes. Reimbursing her employees for actual expenses they incur won’t trigger taxes. Kara will want to have employees submit an approved expense report with receipts to request reimbursement.

Alternatively, travel allowances can be taxable income to her employees. If the employee is not required to account for all of their travel expenses, then the entire travel allowance is taxable. Things like providing a monthly car allowance without requiring mileage logs causes the full allowance to be taxable. But if the employee is required to account for travel expenses by submitting an expense report with receipts, they will be required to return any excess allowance within a reasonable time. If the excess isn’t returned, it becomes taxable.

However, if Kara uses the IRS’ per diem rates and has employees account for expenses, any excess doesn’t need to be returned and isn’t taxable.

Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.

Improve Customer Service to Wow Your Clients

Taking your customer service up a notch can reap huge benefits. If you want to retain satisfied clients who help spread the word about your business, use these steps to wow them.


Everyone appreciates someone who honors their word. Clear communication from the start is key. Mapping out exactly what will be done and when it will be done avoids confusion or disappointment. Communication doesn’t stop there. Continually communicating throughout the project establishes trust and integrity. And in the event your client is upset, acknowledging their concerns and correcting any errors is a must.


Another sure-fire way to wow clients is to give them more than they expected. Maybe that’s giving them a free gift with purchase or honoring an expired coupon or discount. This goodwill can turn a one-time customer into a loyal repeat customer who tells their friends about your company.


Although you might be hesitant to make a hard upsell pitch, offering free trials or samples of your products is a softer approach. If you have products or services related to what they already have, give them away in small amounts. For example, if they purchased your weight loss coaching program, offer them a free trial to your meal planning service. They will welcome your help in solving additional problems.


Expressing gratitude comes in many forms and a sincere expression of gratefulness will pay off in the long run. Considering your clientele, find the way to express your gratitude that will resonate with them. If your business serves local clients, maybe attend one of their events or drop off a hand-written thank you card. For e-commerce businesses, send a coupon they can use on a future purchase.

Unemployment, Side Gigs and Tax

The pandemic has been front and center most of this year and it may have tax implications for you. If you collected unemployment compensation from either your state or the federal government, it is all taxable as ordinary income. You will receive a Form 1099-G by January 31 that shows you how much compensation you received and how much tax was withheld. If you’re still collecting unemployment benefits in 2021, consider increasing your tax withholding with your state unemployment office if you owe taxes for 2020.

And if you picked up a side gig during the pandemic, remember to calculate your business-related expenses. Since you’ll be filing Schedule C to report your self-employment income, you’ll be able to deduct related business expenses. If you shopped and delivered groceries to people’s homes, you could deduct the mileage you drove, any parking fees or tolls incurred during your shopping work and a portion of your cell phone bill.