Using KPI’s For Your Hermosa Beach Business

Being able to reasonably forecast upcoming problems has become an essential skill for Hermosa Beach business owners — but too many are flying blind, or doing “bank balance accounting”.

Can we help you fix this?

Using KPI’s For Your Hermosa Beach Business

“It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.” – Franklin D Roosevelt

If you measure your key metrics you can manage the performance of your Hermosa Beach business, AND you can see problems well in advance of when they might show up in revenue or profit figures. 

Each and every business has key performance metrics (KPI’s), some of which are common to other businesses, some are industry-specific, and some companies create their own KPI’s.

These sort of things are our bread and butter, when working with Hermosa Beach small businesses.

Can we help?

Financial metrics are often common to all businesses. Some examples include:

* Average transaction value.

* Gross profit margin.

* A measurement of a company’s efficiency during the production process.

* How much is left over after COGS.

* Gross Profit divided by Total Revenue.

* Net profit percentage.

* The amount of profit for every $1 of revenue generated.

* Net Profit divided by Total Revenue multiplied by 100.

* Debtor days or receivable turn days.

* How long your customers take to pay you. (The sooner your customers pay, the sooner you can get that cash working for you.)

* 365 (days in the year) divided by (Sales on credit or invoice divided by Average Accounts Receivable).

More industry-specific KPI’s might include:

* Table turns per night.

The number of times a restaurant is able to sit customers at a table.

* Utilization.

The number of hours a machine in the production line can run.

* Rejection rate.

The number of defects rejected in an assembly line.

Non-industry-specific KPI’s might include:

* Customers won/lost.

* Customer complaints/product returns.

* Staff sick days.

You must absolutely integrate the RIGHT measurements to get proper insight on your business’ performance.

I hope this gets your juices flowing. Many of these financial indicators are things that WE can help you to implement … if you let us.


To Nguyen
(877) 9AC-CUDA
Accudata Accounting Advisors

One of my favorite things about what we get to do around here is helping our Hermosa Beach clients find “missing money” in their businesses. Whether it’s through cost reductions, profit analysis, tax planning (LOTS of money can be saved there), or other means, what we are able to do for our business owner clients can often be likened to diving for dollars. 

A treasure hunt, if you will.

I thought I would take a few paragraphs to encourage you to get a little more creative over ways that you can do the same for yourself in your Hermosa Beach business.

What To Try When Your Hermosa Beach Business’ Receivables Are Slowing Down

“Action is the fundamental key to all success.” – Pablo Picass

Many different types of Hermosa Beach businesses suffer from the problem of accumulated “past due” receivables. 

And it’s a problem which shouldn’t *just* be addressed by “normal means” (calling, pestering, etc.).

The good news is that you don’t have to accept the normal status quo — you can actually change the way the game normally works. How? Well, I suggest that you use tactics similar to those which WON you the sale in the first place: discounts, premiums for advance or prompt payments, and good old multi-step follow-up.

If you do have (or ever develop) a receivables problem, you’ll need to take this same sort of aggressive action to clean it up. “Preserving the relationship” with a client who can’t (or won’t, more likely) pay his bills is of little value.  And, left alone, collection problems tend to get worse, not better. 

Even large, long-established corporations can find themselves in trouble with their payables. In that situation, you as a creditor could wait years for your money and then recover only a percentage of it. 

So it’s important that you set into place a *system* for collecting past due accounts.

Because one of the most important lessons that I’ve learned over my years in business is that trends rarely reverse themselves. Trends don’t just change; people change trends.  Waiting, procrastinating, delaying action on a negative situation simply means it won’t change — at least, not likely for the better.

When you get that very first glimmer of something “not right” in your business (especially in a financial area), that’s the time to look closer and take corrective action. Too many people spot the tip of a problem and choose to ignore it, feeling they’ve got enough to handle already, so why go looking for trouble? 

The fact is that you need a bias for “sales” in every area of your business — even collections. 

So, turn your marketing mind onto it. What incentives can you provide to delinquent customers? How can you “cut through the clutter” so that YOU get paid (while other vendors wait … and wait)? Good headlines, conversational appeals, and multi-step follow-ups are good places to start. And “starting” on this issue is the biggest step.

From there, set it into place so it happens automatically.

And then you’ll notice the “trends” changing in your favor.


To Nguyen
(877) 9AC-CUDA
Accudata Accounting Advisors

How do you make financial decisions for your Hermosa Beach business? Do you set aside time to review your actual financial reports, or are you committing “bank balance bookkeeping”?

You know what I mean: checking your business bank account daily as a measurement of your business health.

If that’s you, we should really talk.

And before we talk, read this.

Use These Financial Reports For Business Decisions By Accudata Accounting Advisors

A lie has speed, but truth has endurance. – Edgar J. Mohn

Some Hermosa Beach business owners never like to “look under the hood” of their finances, and their accountants or financial partners can sometimes encourage that behavior by keeping them in the dark.

Well, I hope that won’t be you. 

In fact, with our Hermosa Beach clients, we go overboard to provide the kind of insight into financials that they really need to make strong decisions.

One way I’d like to help YOU (regardless of whether you’re an existing client of ours) is by pointing out different reports and metrics that you can find in most accounting softwares, that business owners or their bookkeepers often neglect. Knowing these numbers will help you avoid an embarrassing flub in YOUR business. 

Even if you are using some of these reports, I’m sure you’ll find a few more to add to your repertoire. Of course this is just a very basic introduction, but hopefully it’ll spark some ideas.

  1. Profit & Loss Summary Prev Year Comparison: Most business owners rely on the Profit & Loss Summary report, but comparing your results to last year can provide quick insight into whether your revenue is growing or contracting–as well as how fast expenses are rising. 
  2. Balance Sheet Prev Year Comparison: As with your income statement, it’s important to compare where certain balances stand now versus last year (such as Cash, Accounts Receivable and Payable, etc.). 
  3. Statement of Cash Flows: Profit & Loss reports enable you to see what you earned, while Balance Sheet reports help you determine what you have–as well as what you owe. (However, neither report necessarily provides a clear picture of where cash is coming from, or going to.) In short, this report shows you exactly what caused your bank balance to increase or decrease during a given report period. 
  4. Collections Report: Tricky economic times mean it is more important than ever to keep track of your collections. Fortunately, QuickBooks and other platforms make it easy to contact customers with overdue invoices.
  5. A/P Aging Summary: Although it’s key to make sure that your customers are paying in a timely fashion, it’s just as important to pay your vendors, too. Unpaid bills can result in phone calls, e-mails, and other unnecessary interruptions. 
  6. Voided/Deleted Transactions Summary: It’s no surprise that small businesses are much more prone to fraud than large businesses. Small business employees usually wear multiple hats, so it’s often impossible to separate financial duties (bigger businesses can do this with ease). Fortunately accounting platforms make it hard for perpetrators to cover their tracks — you’ll be able to quickly identify any transactions that have been deleted from your books. Granted, this isn’t an end-all solution by any means, but it is a helpful management tool. Plus, if a transaction ends up “vanishing” from your books, you can use this report to see who deleted it.
  7. Transaction History: QuickBooks or other accounting softwares will usually display a report that shows the entire history for a given transaction. Think of this as a “report within a report”, as you can only run it in certain circumstances. 

And don’t forget — we’re right here for you, if you need us.

Let’s make smart calls together.


To Nguyen

(877) 9AC-CUDA

Accudata Accounting Advisors


If you’re struggling in your Hermosa Beach business, and not getting the traction you need, I have a quick thought for you today.

Struggling Hermosa Beach Businesses Should Be Careful With Price Reductions

“Despite your best efforts, not everyone wants to be helped. Make a difference where you can and be at peace with the rest.” -Gary Hopkins

It can be tempting for Hermosa Beach businesses to believe that pricing is the primary factor that could be causing problems in their business.

We might hear consumers say, “Well, I would buy it if it were in my price range.” And, that idea tempts many business owners to lower their prices–just to sell more products.

But price reductions more often create more problems than they solve for a business.

That’s because they:

* Decrease net profits

* Lead to the purchase of lower-quality products

* Increase customer demands to drop the price even lower!

* Require even more sales to make up the difference in revenue

* Need a larger quantity of products

And, in the end, there will always be someone willing to go out of business faster than you.

Remember this: price is not a benefit. The close of a sale is not determined by the cost of your product. If you truly “sell” your customers and prospects, they will purchase your products/services no matter what price you determine.

That’s the plain truth — and you’ve probably seen it in your own purchase patterns.

If a customer or prospect doesn’t buy — and they claim the cost had something to do with it — you can guess they probably wouldn’t have purchased anyway.

As a small business owner, and marketer, your job is to sell your products and services. But the actual art of marketing and selling doesn’t have to do with the price of the product. 

By the time your contacts find out about the price, they should be determined to purchase no matter what the cost.

So, find “real” benefits (value) to sell to your customers and prospects. Help them to see how great their life is with your product or service, and you’ve got a customer. Point out their current pain properly, and your contact will do anything to get rid of it.

Set your prices and hold fast. If you’ve marketed correctly, you will still have customers anxious to do business with you.

Price gouging is a horrible thing — but, really, that’s a bogeyman that lives more in our heads than in real life.

Charge your worth. You deserve it.


To Nguyen
(877) 9AC-CUDA
Accudata Accounting Advisors

During the first Super Bowl that Tom Brady won (with the Patriots), these were some of the companies who advertised (hat tip to Jon Erlichman of Bloomberg):

Radio Shack
Circuit City
VoiceStream Wireless
Gateway Computers

The year was 2002, and life looked a little different, eh? BUSINESS looked different. Over the past few years, we’ve all had to adjust to some things.

It’s a large part of my job to work with Hermosa Beach business owners by “picking up the pieces” of their finances, and unfortunately, it’s often too late to have done any good.

Of course, we work with plenty of thriving businesses by helping them spot hidden opportunities buried within a mess of data.

That’s because every day my staff and I swim in an ocean of numbers, and we’ve become pretty quick about knowing what’s happening in a business by seeing where the “currents” are leading (if you will).

But often we’re stuck looking historically instead of real-time, because too many Hermosa Beach business owners don’t have a system in place for getting those numbers to us quickly. But when they do, we can very quickly know how to help.

Some numbers don’t necessarily show up on balance sheets — and they’re perhaps even more important than what you see on a P/L statement …

Measuring Key Numbers In Your Hermosa Beach Business And Developing Accountability

“You have been blessed with a mind that can direct your actions in any way that you choose.” -Ramon Luis

It’s easy to get lazy when a business can pick the low hanging fruit available in an easy marketplace.

But, that’s not always the case, is it?

Markets shrink, funding dries up, prospects aren’t as easily found, or profitability margins decrease. So what do you do? Many Hermosa Beach business owners don’t know how to tweak their marketing and sales systems, so they can track the numbers at each step in the sales process and grow in new directions.

I have seen (in several industries) that the businesses who create a culture of accountability, have weekly sales meetings, track their numbers, and hold team members accountable, are successful … while those that guess and “assume” are usually out of business. It’s just a matter of time.

The key is knowing the numbers — what is the average expected result, and how you are measuring up against that result for each step in the process. This is where accountability starts.

But many people don’t want to track the numbers, because they might have to admit that they aren’t doing their job and letting their teammates down. Others simply do not have the systems or do not understand how to track those numbers or understand the benchmarks of the average business, the good business — and the great business.

Many self-employed business owners just feel what they are doing is “working” without having tested it or tracking where they are at. Sadly, this reflects a naivete that will eventually bite you in the rear end.

Unless you have completed valid measurements and received statistically reliable results, you don’t have any idea whether you are improving or going backwards.

Especially in a crazy lockdown economy, it’s important to get ahead of the curve and not rely on lazy systems for your business.

So, here is the cold, hard truth: if you don’t know how to test scientifically — or if you do know but you think it’s not necessary — your business is on the slow road towards oblivion.

Here are the sort of things you should be watching…

If you want to develop business mastery, it starts with expertise in direct marketing and sales. And that means establishing the ability to measure the following factors and develop accountability around them:

  • Statistically valid testing at each stage of the sales process
  • Structuring price, term, refund, and premium tests for profit — and what works
  • Determining the true lifetime value of every new customer
  • Calculating “allowable acquisition costs” (what you can spend to get a customer)
  • Measuring responsiveness by advertising source
  • Identifying the “doubling date” or “half-life” of a new offer or customer
  • When is the right time to purge unproductive prospects and staff
  • How do you identify opportunities for multiple streams of revenue within your business (the numbers should tell you)

If you don’t have the ability to measure these areas in your Hermosa Beach business — or if your key people cannot — consider your business to be in trouble.

That being said, these are the sorts of conversations we love to have with you. We’d love to be a resource, and to help you see the opportunities — and the traps — within your business.

We’re here to help.

I’m grateful for our partnership and for your referrals.


To Nguyen
(877) 9AC-CUDA
Accudata Accounting Advisors

There is a difference between income and wealth.

Tax returns aren’t about wealth — they’re about “income”, and how that is defined.

Business owners and real estate investors have access to powerful tax advantages that wage earners do not … and wage-earners probably wouldn’t understand them.

This is true for smart Hermosa Beach business owners the world over.

Or perhaps you’re considering STARTING a Hermosa Beach business?

Let’s talk about making that business actually work on your behalf today.

5 Business Mistakes That Can Be Fatal By Accudata Accounting Advisors

“Life isn’t about finding yourself. Life is about creating yourself.” – George Bernard Shaw

Based on what I’ve seen in my work with local Hermosa Beach businesses, here are the basic business mistakes people make when starting and operating a small business. These are by no means an exhaustive list of business mistakes, merely the most common — and eminently avoidable…

Not having a CLEAR business plan. A good business plan will guide you through the first few months and years of your business. It should contain metrics that help you monitor costs as well as progress.

It doesn’t have to be fancy, or even something that would hold up under an investor’s scrutiny (though, certainly, if you’re going down that road, go the extra mile and make sure it’s good). But it does have to give you a roadmap to the goals you should be hitting by certain points — 3 months, 6 months, 12 months.

Doing everything yourself. Even in a one-person operation, you’ll have your hands full. If you’re not in a position to hire employees, at least be ready to outsource the tasks that aren’t integral to your daily operations.

In this way, of course, you free yourself for the highest-level activities, such as marketing and sales.

Targeting the wrong market. Nothing takes the place of solid market research before you launch your Hermosa Beach business. Find out who needs your product or service, where they are, what they expect to pay for it, and whether there are enough customers for you to survive.

But the BEST way to do this, is not to use statistics or data … it’s to start small, and sell something to your targeted market first which is very similar to what you are wanting to ultimately provide. Survey results are one thing, but having people “vote” with their pocketbook is a much better predictor of future results.

Failure to prioritize sales. Your great idea for a product is only that–an idea. To actually grow, you’ve got to devote sufficient time to sales. Instead of trying to perfect your product, work on getting it out to customers. Let your customers help you perfect things, especially after you start selling to them.

Underestimating your resources. No matter how detailed your business plan is, chances are your startup will require more time and money than you anticipate before it gets off the ground. Be patient, and plan for the long haul.

In fact, here’s a good rule of thumb:

1) Take your projected costs: double them.
2) Take your projected revenue: cut it in half.

If your proposition is still profitable, give it a shot.


To Nguyen
(877) 9AC-CUDA
Accudata Accounting Advisors


If we’ve learned anything from 2020, it’s that our best-laid plans don’t always turn out. As the great philosopher Mike Tyson once said: everyone has a plan until they get punched in the face.

What is your plan for exiting your Hermosa Beach family business?

You need to have a direction.

For many, it’s moving the family business towards a sale. But for many others, they want to see their work passed onto subsequent generations, and to provide an ongoing source of supply and fulfillment for their children.

That’s who I will address today.

Passing Down Your Hermosa Beach Family Business

“You can always amend a big plan, but you can never expand a little one.” -Harry S. Truman

According to the most recent data I’ve seen, only 34% of family businesses successfully pass to the second generation, and only 13% make it to the third generation. Those aren’t great numbers, considering that many family business owners (including many in the Hermosa Beach area) try to pass down their businesses to their children.

Those who are successful balance three different dynamics well: family, business and ownership — each of which have different goals and objectives, as well as rules of behavior.

Things that can be talked about with ease around a business roundtable might not go over well with family, and the kind of intimacy present within a family structure doesn’t always lend itself to wise business decisions.

So, let’s take a look at each of these areas and see how they should be approached.

The Family Role
For most Hermosa Beach family businesses, this is the most important dynamic to consider. The challenge when it comes to succession is that the older generation would want to pass on not just business sense, but also the particular ideals by which the family seeks to operate the business.

To do so, each generation has to be actively raised to the level of “peer” by the actions and attitudes of the generation before them. There are many ways to go about ensuring this happens, but my suggestion is that proven family character must be required for leadership in the family business, and some kind of outside advisory board (whether formal or not) with at least two outsiders can help keep family values intact.

The Boundaries of Business
For a business to be successful, it has to be able to make quick decisions and create change when needed. Because it needs to make a profit long term, it must (by definition) be market-oriented — which means not family-focused. As a result, family members can’t be treated equally. If one family member works part-time, while another chooses to work full-time, plus nights and weekends, the monetary incentive needs to be in proportion to the profit each brings into the business.

If a business is passed from one member of the older generation to one member of the next generation, many of these issues can be postponed or ignored. But if the business moves from a single owner to a partnership of siblings (and then to a set of cousins who are shareholders), the business must continue to run like a business — while simultaneously dealing with a possibly wicked brew of family tension. You need to plan for: leader selection, the role of non-employees, conflict resolution, and the shared control of different family branches.

Further, those actually running the business must also be trained in the financial responsibility of management, preferably before the change of ownership. There will need to be policies for fair dividend distribution for those not employed. Again, it’s a very good idea to involve outside advisors, and not just during the succession period itself.

Who Owns It?
As soon as a family business is divided into shares, there will be those working “in” the business and those who merely own shares in the business. As a result of this, you need to make a predetermined plan for buyouts, professionalized management, mentoring, and family council meetings.

The ownership component is probably the easiest to transition and transfer, but it won’t achieve your succession goals without a solid family structure AND a healthy business structure in place.

Family businesses are complex, and there are many things to consider. But to do it right, you need to make sure you are training family business leadership well, that business decisions are made for business reasons only, and that ownership transfers are made according to a good plan.

That’s the way you pass down a good family business.

Easy, right?

Again, if you are operating a family business, make sure you get all of this straightened out.


To Nguyen
(877) 9AC-CUDA
Accudata Accounting Advisors


So … I’m not sure if you knew this.

Apparently, running a business is expensive. And controlling costs can be daunting.

But despite whatever you might see from those gurus who are posing by their Lamborghinis in the Facebook ads … even the leanest Hermosa Beach businesses are never 100% profit.

Trust me — I’ve seen it all.

Which is why I wanted to take a moment to write about this for you. It’s honestly a bit of a palate cleanser for me, as we manage So. Much. Paperwork. (And forms.)

Alright … let’s get to the fun stuff (at least for the penny-watching accountant that resides within my soul)…

A Few Helpful Tips for Hermosa Beach Businesses to Win at Controlling Costs

“You may be disappointed if you fail, but you are doomed if you don’t try.” – Beverly Sill

Depending on the type of business you run in Hermosa Beach, you have a myriad of things you need to pay for to stay in business from rent to office supplies to payroll to inventory (not to mention all those pesky taxes).

When a business is brand new, most business owners go over the top controlling costs. But over time, they tend to loosen their grip on such things and inevitably experience “cost creep.” Sound familiar?

Every dollar you spend on a business expense means one less dollar in profit for your business. So, it’s a good idea to periodically check in on your expenses to make sure you’re controlling costs where needed.

But where do you start?
Looking at your income statement may just give you a headache. Plus, that P&L is a summary of categorized expenses and doesn’t tell the full story about individual costs wracked up throughout the year.

Rather than starting with staring at financial statements or bank records, it might be easier (and less stressful) to consider specific relationships that make your business run.

Start with your suppliers. As a business manager, your job is to make sure you have an adequate inventory of goods to sell or enough supplies on hand to deliver the services you provide. Managing your own supply chain is critical to the success of your Hermosa Beach business. Any interruption in that supply chain can have disastrous consequences, kind of like a tiny little boat gumming up the Suez Canal for a week.

And since your supply costs are probably one of your largest expenses, this is a great place to start with controlling costs in your Hermosa Beach business.

Ideally, you should spread vendor relationships a little bit, so that you have a diverse supply chain. But, you don’t want to spread the love between too many suppliers because your order volume will end up being too low to receive the best pricing from each vendor. In other words, you don’t want just one single source for all your widgets, but you also don’t want a dozen different suppliers either.

When was the last time you reviewed your suppliers and their pricing? I’d suggest making this an annual exercise.

Ask them questions like:

– How can we get better pricing from you?

– Are there other sizes, colors, styles we can get better pricing on?

– If we order larger quantities at reduced intervals, can we get better pricing?

– Is there a different freight option that will reduce delivery costs?

– Do you offer different payment terms that might save us some money?

Even if you have a great working relationship with vendors, it never hurts to ask these types of questions. The sales reps understand that you’re running a business and controlling costs is a priority, so they won’t get offended when you ask your question.

Take a look at your technology costs. Tech is all around us, so it’s no longer a question of whether or not technology is used in your Hermosa Beach business, but rather what tech and to what extent. If your business operation relies on cutting edge technology, you’re going to have different tech costs than other businesses. Otherwise, there are a variety of helpful ways for controlling costs so they don’t run amok.

Together with your Hermosa Beach team and your IT consultant, consider the following:

– Do we need to replace an on-site server with a cloud solution (usually costs less)?

– Are we operating on a series of old, cobbled together software programs or do we need to implement a newer all-in-one software solution (more cost effective and efficient)?

– Are we using automation where we can? Or is there anywhere we can implement modern technology solutions which are capable of high levels of automation (saves time and money)?

– If certain hardware is near the end of its useful life, can we purchase incremental upgrades instead of doing “rip and replace” to control expenditures?

– If currently leasing items such as computers, printers, and copiers, could it be cheaper to purchase this equipment instead? Or vice versa?

– Are there certain basic IT tasks we can train in-house staff on to reduce expensive visits from offsite IT consultants (big savings in the long run)?

Lastly, let’s talk about labor costs. You already know that employees (including sub-contractors) are one of your biggest operating costs.

Controlling costs here can be difficult, because emotions get involved. Your employees can quickly feel like family, so making any changes can be difficult. This is a harsh reality that too many Hermosa Beach employers have been forced to deal with.

Controlling labor costs isn’t just about wages. There are a host of other costs, such as payroll taxes, health insurance, paid holidays, sick leave, and retirement account contributions. Even if your business doesn’t offer some of these benefits, the reality is that it’s becoming more and more expensive to hire and retain good people. That’s a cost creep you’re definitely going to have to face sooner or later.

Think outside the proverbial box to control labor costs:

– Outsource certain support functions like payroll processing, employee benefits, bookkeeping, and tax matters (we know someone who can help with that).

– Let some staff work from home. This is obviously all the rage right now at gigantic corporations, but it can work for small businesses, too. Employees that work from home report being happier and more productive. For you, it means leasing less office space.

– As the economy opens back up, really ask yourself whether or not you absolutely need to hire more full-time people. Hiring, in and of itself is expensive and time consuming. Can you train existing staff to do the work instead? Can you use a temp agency for short-term labor on special projects? Can you contract out to another local company? Can you hire a part-time employee and still get a quality person that will do quality work?

– When employees ask for wage increases, consider alternatives to straight hourly or salary rate bumps. Is there a bonus structure you can implement instead? Is there some sort of commission or profit sharing structure you can create to reward employees when the business is doing better without creating permanent fixed costs?

– If your business is seasonal, consider offering employees short periods of time off at reduced pay. For example, offer a “spring break” week if things really slow down for you this month. This can save on labor costs without forcing good employees to leave, which would ultimately cost you more in the long run to replace them.

Controlling costs is part of running a business. Some expenses are easier to control than others, and some expenses, such as those related to employees, can be downright uncomfortable to face.

We work with all kinds of Hermosa Beach businesses and have seen all kinds of out of control business expenses.

If you have a strange feeling that controlling costs is something you’ve been struggling with, but aren’t exactly sure what’s out of line and what’s not, let’s discuss it.

We’re here to help.


To Nguyen
(877) 9AC-CUDA
Accudata Accounting Advisors

If you’ll forgive me, I’m going to get pretty geeky today.

You probably didn’t realize that there are actual pros and cons to expense reimbursement for employees, etc. or using a company cc. Oh my Hermosa Beach readers, I’m going to take you down a little rabbit hole today, yes I am.

Now, let’s dive into handling business expenses paid by employees.

Expense Reimbursement vs Company Credit Cards: What Hermosa Beach Business Owners Need to Decide

“The secret of getting ahead is getting started.” – Mark Twain

You gotta spend money to make money. All businesses need supplies, materials, and services to help produce their own goods and services.

Depending on the nature of your business, your employees may need to make independent purchase decisions on a frequent basis. Empowering your employees to make these purchases on their own can make your business run much more efficiently. After all, do you really need to be involved in the decision to buy a new toner cartridge for the printer?

Common expense types your employees may need to pay for include:

  • Office supplies
  • Postage
  • Parking and tolls
  • Meals
  • Small tools
  • Small quantities of parts and materials

All of these expenses, and many others, are necessary to complete tasks required to run your Hermosa Beach business. The critical question you need to address up front is this: Will you reimburse employees for expenses they pay or provide them a company credit card to pay such expenses?

This decision comes with important tax and accounting consequences, and you as the business owner need to know the pros and cons of each method.

Time Savings

On the surface, issuing employees a company credit card may seem to be the better option in terms of saving time. With a credit card there are no expense reports to be completed, no reimbursement checks to be cut. Sounds good, doesn’t it Hermosa Beach friends?

But think about this: Do you need to allocate expenses to specific clients? If your employees are, for example, purchasing parts and materials needed to complete a job for a customer, then those credit card charges ultimately need to be assigned to that customer’s account for invoicing. This means somebody has to go through the credit card statements and reconcile them against receipts and job orders. Oops! There went the time savings.

If you don’t need to do this for tracking expenses back to specific customers, then a company credit card can certainly save a lot of time. Otherwise, having employees complete expense reports and reimbursing them for business expenses they paid out of pocket may actually be faster and easier for your business.

Trust Issues

When you provide a company credit or debit card to an employee, you’re placing a significant amount of trust in that person. You need to have faith in your employees that they won’t go on a wild Amazon shopping spree.

If this is a concern, running a reimbursement program might be the better way to go. I’d say this is particularly true if you happen to have a fair amount of employee turnover, or if you operate multiple locations inside and outside of Hermosa Beach wherein you don’t necessarily know each and every employee. As your business grows, you won’t have direct connection with every single team member, which can exacerbate trust issues.

Use Tax Audits

As more people have worked from home over the last year and have taken their company credit cards with them, one issue in particular has grown quite a bit larger. This has been compounded by state budget issues, causing states to step up their enforcement efforts in order to collect more revenue.

What am I talking about? Use tax.

Use tax is a tax you’re supposed to pay when sales tax wasn’t paid on items used in your Hermosa Beach business. If your employees are working from home and order supplies online, for example, those supplies may be being ordered on a website that doesn’t collect and pay sales tax in our state. Thus, you’re supposed to pay the equivalent sales tax in the form of use tax and file a separate tax return for this purpose.

The credit card statement that shows the transactions your employee is making can be demanded by the state when they conduct a use tax audit. As they scrutinize purchases that you may not even really be aware of, they’re looking for those online transactions for items used in your business that were shipped in from out of state, and then you may be liable for a use tax bill or, at the very least, have to pay the cost of us to represent you to fight that tax bill.

This is a clear downside to providing company credit cards to your employees. And for the record, these purchases don’t have to be made from home — they can just as easily be made online right from your Hermosa Beach office.

Accountable Plans

If you choose reimbursement for expenses paid out of pocket, you’re going to want to set up what the IRS calls an accountable plan. By running your reimbursement arrangement as an accountable plan, your employees won’t need to worry about reimbursed funds ever being treated as income to them by the IRS, and there are no tax consequences for them. In addition, the accountable plan helps ensure the deductibility of the business expenses for you.

In creating an accountable plan, you’ll:

  • Set specific rules about what types of expenses are eligible for reimbursement
  • Create a standardized expense reporting form
  • Set timelines for reporting expenses and reimbursements
  • Stipulate the requirements for substantiation (e.g. paper receipts)

Using an accountable plan instead of company credit cards for each employee can help avoid some of the issues mentioned earlier. You can more closely track the payment of sales and use tax to avoid future surprises, quickly assign expenses to customer jobs for faster invoicing to the customer, and eliminate any potential trust issues.

The trade off? Time and convenience.

If you’re debating this decision, we can analyze the types of expenses your Hermosa Beach business incurs to help you with making a decision. And also, if you decide to set up an accountable plan, we can help you with that process, too. Let’s talk more about it.


To Nguyen
(877) 9AC-CUDA
Accudata Accounting Advisors

Today’s topic has the benefit of ensuring your Hermosa Beach “financial fortress” is as airtight as it can possibly be, which has its own advantages.

Ah, the wonders of financial documentation…

Effective Financial Documentation Strategies For Hermosa Beach Taxpayers

“You get older and you learn there is one sentence, just four words long, and if you can say it to yourself it offers more comfort than almost any other. It goes like this: At least I tried.” –Ann Brashares

Many of our Hermosa Beach clients have never received that dreadful notice from the IRS, initiating an audit — or, much worse, the KNOCK on the door! If you never have, you probably don’t keep much financial documentation.

If you have, you are probably terrified to part with a single receipt.

But remember, either way, we’re in your corner.

However, the IRS is one of the few courts where failure to produce proof of your claims results in the assumption that you are guilty of tax fraud.

(This is part of the reason why you ALWAYS want a professional on your side in these matters. Would you go to court without an advocate? Would you go before a court with a software-generated defense? “Your honor, here is my lawyer, Siri.”)

So, it’s imperative that you are able to protect yourself. And, as great as we are — some of this still does fall in your court. That’s why you must save all the financial documentation used to create your tax returns, in order to defend yourself in the case of an audit.

The tax courts consistently slap down arguments that don’t rely upon financial documentation. That’s the big takeaway here.

So, take some time this week to make sure that you have a workable system that enables you to follow these guidelines:

1) Retain a paper copy or receipt of any tax-relevant transaction. Scan these documents and archive them electronically, or acquire them in an electronic format. If the purchase has a manual or warranty, store all the documents in the same electronic and physical location.

Sadly, the IRS has ruled bank or credit card records to be insufficient financial documentation. As a result, just keep your statements long enough to reconcile your account.

If the purchase was a business or tax-deductible expense, record the expense and why it justifies the deduction. Store this information with or on the receipts.

2) Keep brokerage statements indefinitely for taxable accounts. You are responsible for reporting the cost basis of any security you sell to calculate the capital gains tax. For a mutual fund with 30 years of reinvested dividends, each dividend payment is part of the cost basis. As a result, the cost basis can sometimes be computed only if you have the complete transaction history.

Without knowing the cost basis, the IRS could argue that the entire value of the investment be treated as gain.

If you have lost the record of how much you originally paid for an investment, instead of selling and paying 15% or more of the value in taxes, you can use that investment as part of your charitable giving. Gifting appreciated stock avoids the tax owed and still qualifies for a full deduction. Oddly enough, the IRS still asks for the original purchase date and price for gifted securities, but leaving these blank has no effect on your tax owed.

Many custodians keep several years of electronic copies of brokerage statements available. And they are now required to send any known cost basis electronically when you transfer securities to a new custodian. If your current custodian has the correct cost basis of your securities, you probably no longer need to keep brokerage statements. However, an approach of “better safe than sorry” is always advisable with the IRS.

3) Keep IRA nondeductible contribution records forever. You may need those records every year that you withdraw money in retirement to show that a portion of the withdrawal is not tax deductible.

Or to avoid the hassle, clear out nondeductible IRA contributions by converting all of your IRA accounts to Roth accounts.

4) Keep partnership documents, contracts, commission or royalty structures forever. This includes property records, deeds and titles, especially those relating to intellectual property. It also includes any transfers of value for estate planning purposes.

5) Save ALL of your tax returns. After you file, save the paper and/or electronic copies with the rest of that year’s financial documents.

Tax returns and all the supporting financial documentation must be kept at least seven years. The IRS can audit your return for up to three years from your filing date. However, the three-year limit only applies to good-faith errors.

If the IRS suspects you underreported your gross income by 25% or more, they have up to six years to challenge your return. And because we can all file for an extension at the October 15 deadline, you must keep your records for at least seven years.

Regardless of those rules, though, if the IRS suspects you filed a fraudulent return, no statute of limitations applies. Because the IRS is run and organized by fallible people (with all of their attendant biases, emotions, etc.), we suggest keeping your tax returns and documents forever.

Unfortunately, whenever the IRS challenges you, the burden of producing evidence that your claims are true rests entirely with you, so you had better have your financial documentation in order.

Taxpayers collectively spend six billion hours, or 8,758 lifetimes, annually trying to comply with the tax code. Fortunately, as I previously mentioned, YOU don’t have to be the one doing all the heavy lifting. We are on your side…

To your (extended) family’s lasting financial and emotional peace…


To Nguyen
(877) 9AC-CUDA
Accudata Accounting Advisors

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