Poor records lead to poor business decisions and can cost the business far more in taxes. An accurate and reliable set of records is imperative for any business to make meaningful decisions about the productivity of their business and can help identify areas of tax savings. Accuracy also helps in filing an accurate return which has less likelihood of audit and under audit, less likelihood of an unfavorable tax adjustment.

A budget helps the business owner gauge their spending mapping out months of better revenue or higher expenses so that the business is ready to meet cash flow and manage business expectations for the practice.

A Budget is based upon historical performance and expected upcoming financial performance, usually using conservative amounts to allow for unexpected changes. It also helps the business save for future major fixed asset repairs or replacements creating a sinking fund for future use. A projection is very similar to a budget however will more heavily rely on expected changes based upon implementation of current plans. IE, you are increasing prices and you want to project the revenue over the year base upon similar volumes in prior years.

Cash method follows the flow of cash – expenses are deductible when paid (including credit card purchases) and income is reportable when constructively received. The accrual method of accounting means the business must take into income that which is earned even if not paid but may deduct what has been incurred but not yet paid.

Most businesses benefit from the cash basis since it follows the flow of cash, but accrual is mandatory at certain levels (ie average 25M+ in revenues), if inventory is a major factor of the business, or payables far outstrip receivables.

Cash burn is the rate at which a company uses its cash reserves to fund operations. It's usually measured on a monthly basis.

A cash flow plan can help alleviate cash flow shortages helping to identify is short-term borrowing needed or if excess cash should be invested in a short-term or long-term interest bearing account.

Financing certain fixed assets is definitely warranted or utilizing a line of credit to help alleviate short term cash shortages. Attention should be paid to interest rates being paid and terms of financing agreements.

We will look at the cost of the interest paid, including cost savings in comparison to investment interest or future cash required by the business.

If possible, use a business credit card but do not incur carrying balances for extended periods of time. A business credit card should be listed under the business and while the credit card company will require personal guarantees, but this should not impact the business owner’s credit score. Therefore, if possible, do not use personal credit cards.

• Cash or Accrual – when and how could revenue be delayed and expenses accelerated if it makes sense in different tax years.
• Accelerate expenses – depends upon method of accounting
• Defer income - depends upon method of accounting
• Capital equipment expenditures – when are these fully deductible? We talk about Sec179 expense or depreciation depends upon the net income of the business and the goals of the business.

• Retirement contributions
o 401k
o SIMPLE
o SEP
o IRA
• Profit sharing contributions
• Balancing expensing vs depreciating expenditures
We talk about all of the above depending upon the needs of the business.

We look at a variety of factors such as net income, cash flow, debt versus equity and other factors to see if the business is profitable but success can also take on other meanings such as how the business owner’s time is utilized and we look at that as well.

We look at markup on products and areas where prices can or should be increased depending upon the cost of providing the services. IE ambulatory vet and looking at the cost of maintaining and operating costs of a veterinary vehicle.

We look at the time involved of the veterinarian. At a minimum, the vet must have admin support and all routine tasks should be delegated. For veterinary technicians or associate vets, we look at the cost of the salary in relation to the additional income that can be earned. Or when it comes to tech, can the day become more efficient to help pay for the salary.

We look at market salaries, the costs of employer match taxes, get WC costs from insurance carriers along with other benefits that will be offered to the employees.

We look at health insurance to start, pre-tax benefits and then look at retirement. Basically it is best to start with the minimum of what can be afforded and the build from there as the business manages those costs adding on other benefits as the business becomes more profitable.

Any unincorporated business (including single member LLCs and those taxed as partnerships) are issued 1099s for accumulated payments in excess of $600 for the year. The IRS looks at behavioral issues to define if a worker is an employee or can be treated as an independent contractor, so we look at those factors in relation to the worker to determine if they can be treated as a contractor.

No matter how long the practice has been running we look at when the practice owner would like to retire, determine the future cost of living and what funds the owner will need to live comfortably. We look at what the practice will be worth for sale at that time and count back to see what pieces need to be put in place to allow the owner to retire on time and financially comfortable.

We have KPIs that we will use to measure client satisfaction which may involve surveys or requesting reviews. Any factors of improvement are addressed to keep the reputation of the practice and help improve overall client satisfaction.

We talk about an employee handbook and standard operating procedures (SOPs) that can be used to measure performance to help give objective feedback on employee performance. It helps to support decisions regarding raises or promotions without an entirely subjective approach. Employees need to know how they are performing and they will want raises and promotions so ignoring employee reviews will not make this go away. It helps employees know where they stand within he organization and what they can expect from the employer.

Many practice management softwares offer this matrix and the owners want to look at this for veterinary productivity and may tie it to compensation and employee evaluations. The matrixes can be used to formulate goals for improvement and increased profitability.

This depends upon the owners. We do an indepth analysis of the practice as well as a SWOT analysis to find the practice’s strengths and weaknesses. This is used in combination with the owners goals – both professional and personal – to determine what the financial goals will be and how to attain them without incurring more long hours for the practice owner.

Using a CPA business and tax advisor though all stages is useful to keep the business on track, provide accountability, and financial measurements for the success of the business. When approaching the time for a sale, the practice must be organized to ease transition such as having documented SOPs in place, employees working within their capacity, good financial records and showing profitability along with certain expected KPIs. This helps the practice get to the point of offering the practice for sale, but once it is with a broker (unless there is an internal buyer) the CPA helps with due diligence and weighing the costs and net return after taxes of various offers. The practice will most likely have a broker helping to market the business and garner several competing bids, an attorney for all contract review and negotiations and the CPA to determine the financial sense of the offer and the resulting taxes.

With veterinarians we look to keep AR to a minimum. Services should be paid for at the pet or animal appointment or a credit card should be on file. If the practice allows for clients to owe them the charges and allows the charges to get out of hand, it can cost the practice much not only in income that may never be received but the time and energy in getting paid. If balances are excessive or >90 days, then hiring a credit agency may be warranted although there is a cost as they keep a % of what they collect.

For cash basis tax payers you do not get to deduct unpaid AP, but it is warranted to track it so that bills don’t fall through the cracks and when paying bills that those due are paid before those with later due dates to preserve cash flow.