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TFG’s Accounting Supervisors and Data Entry professionals will complete your Quick Books accounting daily and provide all of your reports, payroll, budget, AR and AP.  We can do as much or as little as you like while you maintain your CPA to file your taxes and give tax advice.

But that’s not all!  Our Success Partners can customize your reporting to identify and monitor you Key Profit Indicators and provide weekly support.

Do you turnover in accounting?  Is your accounting done accurately and on time?  Are you getting the financial reporting that you need to drive your business in a timely manner?  Are you overpaying for accounting?

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By Dirk Dieters, Executive Director of The Fremont Group


This document is a basic primer for business owners with no accounting background (or particular aptitude!) Have your own Income Statement and Balance Sheet in front of you while you read this. Pick out the different parts on your statement as they are presented.[1]

Your financial statements

A company keeps two basic financial statements—an Income Statement (also known as a Profit & Loss Statement or P&L) and a Balance Sheet. These should be produced internally for your review at least monthly. To understand the difference between the Income Statement and a Balance Sheet look at a photograph on your wall. What do you see when you look at that picture? You see the “things” that were in front of the camera lens at the moment that the picture was taken. Imagine that instead of a camera the photographer had had a video recorder. What would you see then? You would see the “activity” that took place during the period of time that the camera was on. Your Balance Sheet is the photograph; your Income Statement is the video.

Balance Sheet

The Balance Sheet is a summary of the things that your company owns (things including debt) at a particular moment. It can change the next moment if you sell something that you own or bring in more “something.” The Balance Sheet has 3 parts: Assets; Liabilities; and Shareholder’s Equity. Assets are anything that you own. Liabilities are anything you owe. Shareholder’s Equity is a subtraction problem. Imagine that you have a house worth $250,000 and a mortgage of $200,000. What would be your equity? $50,000. You obtain this by subtracting the value of what you have from what you owe on it. This is how your Shareholder’s Equity is obtained. It is as “real” as the equity in your house. The report is called a Balance Sheet because it has to “balance.” In other words, the Assets minus the Liabilities equal the Shareholder’s Equity. Conversely, Shareholder’s Equity plus Liabilities equal Assets. It “balances.”

Your Assets and your Liabilities are sub-divided into two parts—Current and Long Term (or Fixed). An Asset is anything that you own. A Current Asset is an Asset that in the normal course of business would be converted into cash in the next six months.[2] Current Assets will include: Cash (obviously cash is already “converted” to cash); Accounts Receivable[3] (you will collect your AR from your customers in the next six months); Inventory (you will convert it into product which will sell); and you might have one or two other categories. The total of your Current Assets indicates how much cash your company will have to use in the short term.


A Fixed Asset or Long-Term Asset are those things that you own that in the normal course of business would not be converted into cash—desks, chairs, computers, trucks, equipment, etc. Most of these Assets are not sold, rather they wear out and therefore each year your accountant lowers their value. This is depreciation.[4]

A Liability is anything that you owe. A Current Liability is a debt that you have to pay in the next six months. A Long-Term Liability is a debt that you don’t have to pay in the next six months.

Who Cares?

You should care because the Shareholder’s Equity is akin to the equity in your house. It is the “book value” of your company. One of your objectives should be to increase the Shareholder’s Equity of your company. Other than yourself (and shareholders) there are three other people who care—buyers, bankers and bonders (the three B’s). Potential buyers care because your Balance Sheet details the things that they are buying. Bankers care because it gives an indication of whether or not you can repay a loan (see Current Ratio). Bonders care because they need to make sure that you are solvent enough to complete a bad project.

Current Ratio

If you take only one thing away from this discussion of your Balance Sheet, learn to understand your Current Ratio. Review our definitions above. One category indicates how much money your company has scheduled to come in during the short-term. Another category indicates how much money your company has going out in the short-term. The Current Assets show the money coming in[5] and Current Liabilities shows the money going out. To calculate your Current Ratio, divide your Current Assets by your Current Liabilities. Obviously we want to have more money coming in than going out (and so does a bank before they lend you money!) Therefore if you divide your CA by your CL you want the quotient (answer) to be greater than 1.0. If it is a decimal below 1.0 then you have more money going out than coming in—this is one of the tests of insolvency. In most companies a Current Ration of 1.5 to 2.5 is best but it varies so be sure to discuss this with your consultant. Although your bank will not tell you this, your Current Ratio can also be too high. As a business owner you would prefer to have a lot of Fixed Assets as these are the things that make you money. Equipment, trucks, computers, etc are tools that drive the business. You really don’t make money off of Current Assets—cash, receivables, inventory, etc. However banks want to see a lot of Current Assets (very high Current Ratio) to assure them that their loan payment will be made.

Income Statement

Most people pay more attention to their Income Statement because at the bottom it shows your profit or loss. We all know that we want profit so we look there first. As the Balance Sheet is divided into three parts, the Income Statement is divided into four[6] parts: Sales (or Revenues, or Income); Cost of Goods Sold (or Direct Costs); Overhead (formerly General & Administrative Costs); and Profit (or Loss).

Most small businesses keep their books internally. They make entries with each transaction and classify them according to the type of expense or income. Their program then automatically generates the Income Statement and Balance Sheet reports. Unfortunately GIGO applies—garbage in; garbage out. The reports are good enough for your accountant to take the data and do your taxes but generally not good enough for managerial purposes.[7] After we explain your Income Statement, you will understand some of the managerial purposes that it can serve if it is properly structured. As the transactions are entered they are placed on the reports according to your Chart of Accounts. Your Chart of Accounts determines which of the sections of your Income Statement or Balance Sheet the transaction is found. If you Chart of Accounts is inaccurate, your financial statements will not help you run the business.

Your Income Statement is not developed by the computer—it is built through your actions. This is a critical concept. Every time that you make a sale or pay bills, your are “building” your Income Statement.

REVENUES = the total amount of all of the invoices that you give to customers.[8]

COST OF GOODS SOLD = the direct cost of providing the good or service—the things that you bill the customer for. Included are the Labor, Materials and other costs that you would not have if you did not do the job (or make the sale). In a sense Direct Labor is a good thing—you have paid someone to produce your product which you sold to make money.

MARK UP = is the amount that you have charged your customer in excess of what it cost you to produce it. This amount is then applied to Overhead and Profit.

To summarize, every job (or sale) you make pays the cost of producing the product or service (COGS), allocates some of the mark up to overhead and some of the mark up to profit.

Your Chart of Accounts must put each transaction in the proper section. Labor for example must be divided between COGS and Overhead. A company without an accurate Chart of Accounts cannot properly price their product.[9]

As I have shown, your Income Statement is “built” through your transactions. It is produced in the following format:




GROSS PROFIT (subtract COGS from Revenue)



Your Overhead is your fixed costs. These are expenses that you will have even if you don’t make a sale. (The expenses that you have because of the sale are COGS.) Your GOGS is a percentage of the Revenue. Your Overhead is fixed. Gross Profit is the amount of each dollar that comes in that you are able to spend on Overhead and Net Profit. For example if you sell a product for a dollar that costs you 50 cents, you have a gross profit of 50 cents or 50%. You now have that 50 cents to apply to Overhead and Net Profit. Since your Overhead is a fixed amount, your break even is the number of 50 cents you have to bring in to pay that fixed overhead. If your overhead is $100 it takes $200 of sales to break even.[10] Therefore your break even is your fixed Overhead divided by your Gross Profit percentage. Knowing your break even is not optional—how else can you develop a rational sales and marketing plan? And without accurate numbers how can you determine your pricing structure?

Budget and Cash Flow

Your Income Statement is used to develop your Budget. Your Budget tells you what you can afford; your Cash Flow Forecast tells you when you can afford it. The Budget is critical in pricing and in developing excess-profit based incentives for your employees. Your Cash Flow Forecasting is how you run your business. You need to have developed a six-week cash forecast that shows your expected cash balances at the end of each of the next six weeks. There are virtually no generic software programs which adequately budget or project cash flow.


Profit Plan


There are four “expenses” that have to be paid out of Net Profit. Therefore each company has a certain minimum, mandatory percentage of profit that they require in order to remain viable. The net profit must be enough to pay: (1) your debt service; (2) new asset purchases; (3) the amount of cash you plan to retain; and (4) your taxes. The funding of your Profit Plan for these four items is for break even purposes just another expense.



In order to have financial control of your company you must have an accurate Income Statement, Balance Sheet, Budget and Cash Flow Forecast. These are tools required for Pricing, Sales and Marketing Plan, Employee Accountability and Incentives, Cash Management, and other managerial uses.

[1] You may notice that in some cases your statements may not match the presentation. These are adjustments that should be made in your chart of accounts. Until these adjustments are made, much of the analysis of your financial statements is impossible.

[2] Much of this document is an over-simplification. It is accurate enough for our purposes.

[3] This assumes that you are keeping your books on an accrual basis and not on a cash basis. Your internal books should be kept on an accrual basis as this more accurately shows your true financial position. You can keep your internal books on an accrual basis for your management and allow your accountant to file your taxes on a cash basis which is often more advantageous. The difference is when you post income and when you post expenses. On a cash basis you post income only after you have the cash and post expenses only when you pay them. On a cash basis you would not have AR or AP. In an accrual basis you post income when you have earned it and expenses when you incur the obligation. This creates AR and AP.

[4] Note that the government allows you to “expense” your depreciation. This means that you are able to reduce your income by the amount that your assets reduce in value. (In reality there are tax schedules that dictate how fast your Fixed Assets “wear out” or in other words how much of a deduction you are allowed to claim for tax purposes.) This creates a “book value” for your asset which is often different from the “market value” and is almost always different from the value of the asset to your operations. For example, a truck might depreciate over 5 years. This would allow you to deduct one-fifth of the value of the truck each year from your Income Statement for tax purposes. On your Balance Sheet the value of the Fixed Asset would reduce by one-fifth each year until it reached zero after five years. Obviously the truck would still have “market value” (you could sell the truck for something) and obviously the truck would have value to your operations, but for tax and Balance Sheet issues, it would no longer have any value.

[5] This ignores your operations and just gives you the current status.

[6] In some instances it is appropriate to add a fifth part to segregate selling costs.

[7] The best analysis of this is found in “Minding My Own Business” by Dirk Dieters available on The Fremont Group web site from the publisher (best price) or on The relevant section discusses “managerial accounting.”

[8] This of course is on an accrual basis.

[9] Every company has a “product.” In a typical service business that “product” is a unit of time. The charge for that unit of time determines the price.

[10] Now you should be able to see why you must have a proper chart of accounts. Without it you cannot properly compute your break even—nor do some of the other critical management calculations.

Business Boot Camp—Are You Ready?

Are you ready for 2012? Has the last year gone as you planned? Measure twice; cut once is an expression that applies just as aptly to your business as it does to construction. You may not have achieved all you thought you would in 2011 but don’t let a lack of preparation be the cause of a repeat in 2011. You can decide to do everything possible to change in 2012 or choose to just see what happens. Start off right

The Fremont Group offers their “Business Boot Camp” to all members. You will be assigned a Success Partner who, in one week, will tear your business apart and lay out a plan for SUCCESS IN 2012. They are not “yes men” so be prepared. The Fremont Business Boot Camp is not a seminar—it is an intensive implementation package designed to implement change; not talk about it. If you are not committed to change you should not enlist.

Who is eligible:

Your company must have more than 5 employees and have been in business more than two years. (Call for separate camps for start-up and small firms.)

You must be a “working owner” who is open to change.

You may not have more than 100 employees.

What you will get:

  • Your entire company will become focused and “on the same page.”
  • Obstacles to achieving your results will be aired, addressed and the entire organization will be utilized to eliminate those obstacles.
  • Employee productivity will increase through “buy in” and proper use of accountability and incentives.
  • You will have a clear game plan that is designed to “win the game.” You will no longer be the football coach with a game plan that says, “if everything goes right we will only lose by a touchdown.”
  • What the bank wants to know and how to present it.
  • You will have a foundation for long-term success.
  • Your organization will have a new appreciation of your role as owner of the company.

How you will get it (Sample Agenda):[1]


Morning: Introduction to staff and tour facility. Meet with owners and key employees and distribute Minding My Own Business questionnaires. Gather financial information.

Afternoon: Identify your goals for 2012 and become familiar with your operations. Gather questionnaires and any additional information needed to complete a SWOT analysis of the company.

Evening: Success Partner completes financial analysis and analysis of the company and analysis of company morale and organizational issues.


Breakfast: Success Partner and Head of Accounting

Morning: Meet with owners to review their analysis of current financial position. Present Accounting 101 to owners and financial staff (if required). Establish company budget and KPI’s. Assign Head of Sales to prepare a summary of the company’s “Sales System” for presentation on Wednesday.

Afternoon: Review the findings from the Employee questionnaires and interviews with owners. Contrast those findings with the owner’s perceptions. Identify current methods of employee accountability and incentives and develop the framework for desired methods of employee accountability and incentives.

Evening: Owners take Success Partner and key personnel to dinner—informal discussion.


Breakfast: Success Partner and Head of Sales

Morning: Review with owners the presentation of the current “Sales System”

Review company goals and re-write them as required. Present SWOT analysis for discussion (Strengths; Weaknesses; Opportunities and Threats). Determine how these should be presented to the staff.

Afternoon: Company meeting. Present SWOT analysis. Review findings of the first two days. Solicit input from the organization. Conclude with the establishment of a management committee (companies with more than 10 employees) and their first meeting.

Evening: Success Partner completes first draft of Action Plan.


Breakfast; Success Partner and Head of Operations.

Morning: Meet with Management Committee (or owner in companies with fewer than 10 employees) to identify the five greatest issues facing the company and potential solutions. Review with owner and head of sales critique of the “Sales System.”

Afternoon: Meet with owners to develop a plan to address those issues. Develop a complete Action Plan for 2010. Establish benchmarks for progress.

Evening: Success Partner prepares formal Action Plan for presentation.


Breakfast and Morning: Meeting with owners to review presentation of Action Plan to the company. Presentation of the Action Plan in full company meeting. Wrap up.

How to enlist:

Call The Fremont Group at (303) 338 9300 and tell them you are ready for Boot Camp. Registration Fee is $9995 plus $500 for non-local travel; $100 for local travel. The travel and $4,000 non-refundable deposit is required to hold a date; balance due at the first meeting. Preferred method of payment is PayPal on this site. Companies who are members receive their discount.

[1] The agenda assumes that you business has a person who is the head of accounting; head of sales; and head of operations. In smaller companies the owner may double as this person. Other “tweeks” in the agenda normally have to be made to accommodate the unique situations in each company.

How Healthcare Reform Will Affect Small Businesses

This article is from Business Owner Magazine and can be found at  Business Owner Magazine is published by the small business consulting firm, Global Resources of Buffalo Grove IL

By JoAnn Laing

As aspects of the Patient Protection and Affordable Care Act (PPACA) gradually kick in, the application, management and makeup of healthcare benefits, offerings and costs will change for many small businesses.

Small business owners may be faced with:

  • Coverage requirements prohibiting insurers from denying coverage or using price discrimination to target those with preexisting conditions; and
  • The establishment of government sponsoredhealth plans.

Despite administration assertions to the contrary, there will also be additional costs and administrative oversight that even the smallest company will need to deal with. In surveys conducted by Information Strategies, Inc. (ISI), looming healthcare benefit changes are increasingly occupying small business leaders’ attention at the present time.

At a minimum, requirements such as mandated wellness programs, minimum coverage levels and employee participation are forcing small firms to address often painful healthcare benefit decisions.

Nationally, three-quarters of businesses with 10 to 24 workers offer benefits. About half of those with three to nine employees provide health plans. By comparison, 99 percent of firms with more than 100 employees offer benefits. It is estimated that there are more than 1.2 million firms that come under the new rules primarily affecting employers with 50 or more employees.

The new IRS rules allow businesses to use one of three methods to determine the number of full-time workers: counting bodies, weeks worked or hours worked – whichever is easier and more beneficial. In addition, the IRS stated it would permit businesses to claim the credit this year even if they do not currently meet a requirement under the law to provide the same level of coverage to every worker.

The first decision small firms will have to face is whether to continue providing such coverage or pay a yearly penalty per employee. This choice was one under consideration by one out of every four small businesses surveyed by ISI in the first quarter of 2011.

The penalty for failing to provide coverage is a nondeductible $2,000 per employee, per year excise tax assessed monthly ($166.67 per month) for each month the employer failed to provide coverage. For purposes of computing the penalty, the assessment of the excise tax begins after a 30-employee threshold is passed.

For those who plan to continue offering coverage, private insurers suggest that premiums will rise for small employer groups. The experience of small business owners in California does not contradict this expectation. There, small group premiums have gone up significantly despite the efforts of the state insurance commissioner to hold the line.

Employers will also face an increase in payroll taxes. Under current law, most wages are subject to a 1.45-percent Medicare payroll tax. The PPACA adds 0.9 percent surtax to wages in excess of $200,000 for single filers and $250,000 for joint filers.

To balance this trend, as many as four million small businesses might be eligible for federal tax credits to help cover the cost of health insurance for their workers. Small businesses were sent government postcards alerting them to the availability of the credit—which covers up to 35 percent of their healthcare costs—in hopes that more would choose to offer the coverage. The IRS also issued a series of rules clarifying eligibility for the credit, which is available to businesses with fewer than 25 employees and paying an average salary of less than $50,000 a year. The value of the credit phases out as the number of workers and their salaries rise, with the full 35 percent credit available only to businesses with fewer than 10 full-time workers paying an average salary of less than $25,000 (see next page for details on how this program works).

Healthcare reform has some additional helpful provisions for small business owners. Often, small business owners provide differing plans for themselves and senior management. These highly compensated employees have plans that significantly exceed the value of benefits offered to non-highly compensated employees. If they fail to meet IRS standards, the plan may lose its tax-qualified status. Administering “non-discriminatory” tests are likely to be highly complex, complicated even further by the fact that the actual comparisons may not be available until the end of the tax year.

Beginning this year, a simple cafeteria plan will be offered to help those employing 100 or fewer. This uniform plan will avoid the non-discrimination rules. To satisfy safe harbor (compliance) rules, the employer must meet both contribution and participation requirements. By following the safe harbor, an employer may safely retain certain discriminatory benefits for their highly compensated employees.

To meet the contributory safe harbor, the employer must contribute to the plan, on behalf of each employee (regardless of an employee’s actual contribution), an amount that is at least:

  1. Two percent of an employee’s compensation, or
  2. The lesser of six percent of an employee’s compensation or twice the amount of salary reduction contributions of each employee.

In recent years, many smaller firms have been turning to consumer-directed healthcare offerings, including health reimbursement accounts (HRAs), health savings accounts (HSAs) and flexible spending accounts (FSAs). For distribution purposes, PPACA has changed the definition of a “qualified medical expense.” These tax devices will only apply to the reimbursement of the costs of insulin and prescription drugs in taxable years starting after December 31, 2010. The additional tax on impermissible distributions from an HSA or Archer MSA (the predecessor to the HSA) will increase from 10 percent to 20 percent.

There will also be limits imposed on the amount that an employee can elect to contribute to a flexible spending arrangement under an employer sponsored cafeteria plan. Prior to the PPACA, there was no limit. After 2010, the annual limit is $2,500 subject to future indexing.

These plans have been providing smaller firms with significant reduction in premiums and should be further explored if a preferred provider plan is now in effect. For insurers, the small business market presents a big opportunity. As noted earlier, nationally, three-quarters of businesses with 10 to 24 workers offer benefits. About half of those with three to nine employees provide health plans. By comparison, 99 percent of firms with more than 200 employees offer benefits.

Insurers, on the other hand, face the difficult requirement of spending at least $.80 cents of every premium dollar on healthcare services. Insurers have also reduced broker commissions, meaning professional help for smaller employees may not be as prevalent as in prior years. Small business owners should shop for the best rates and start earlier in the plan year.

What has yet to be determined is the role exchanges will play in the healthcare benefits experience for small businesses. If Massachusetts is a harbinger, then many firms will opt to provide incentives for employees to seek individual coverage through these programs and do away with healthcare offerings. The administration is trying to address these concerns before most provisions begin in 2014.

According to attorney Ben A. Neibur, “Administering and monitoring compliance will, unfortunately, absorb both public and private dollars adding to the associated expenses of what, already, is the world’s most expensive health care system.”

The IRS stated the value of the small business tax credit would not be reduced by State healthcare tax credits, which exist in as many as 20 states, according to a list compiled by the National Conference of State Legislatures. Businesses will also be permitted to apply the credit to vision, dental and other such coverage, so long as they pay at least 50 percent of their workers’ premiums.

An important selling point has been a tax credit that the nation’s new healthcare law provides to companies with fewer than 25 employees and moderate-to-low pay scales to help offset the cost of providing benefits. The tax credit is one of the first few provisions to kick in—much of the law rolls out over the next few years.

“We certainly did not expect to see this in this economy,” said Gary Claxton, who oversees an annual survey of employer health.

By 2014, employers who have more than 50 employees must offer health insurance benefits or pay penalties ($2,000 per employee). The 50-employee threshold may discourage growing enterprises from adding full time employees.

Companies with 25 or fewer employees who meet certain wage requirements will also be able to get credits toward health insurance purchases. Businesses that pay more than 50 percent of employees’ health benefits, have fewer than 26 employees and pay average annual wages of less than $50,000 can claim a tax credit of up to 35 percent of the cost from the 2010 tax year through the 2013 tax year. The credit will go up to 50 percent in 2014 and can be used for two consecutive years after that. The open question is: What happens in 2017? Will small businesses bear the full cost?

Payroll Service Companies – Common Features They Offer

Submitted by Tony McCall

Business Development Manager, Modern Business Associates (MBA)

Toll Free: 888-622-6460, E-Mail:

Payroll service companies provide a common suite of core services. As in introduction to what payroll service companies do, consider the following core services.

  • Calculating Payroll for each employee
  • Calculating tax obligations for each employee
  • Printing Checks for payroll
  • Service companies also deliver the checks
  • Creating Reports for Management

Additional services sometimes include:

  • Affordable 401 (k) plans to offer employees. Payroll service companies help level the playing field with the benefits offered by your larger competitors.
  • Employee Manuals provided and customized by Payroll Service Companies keep you from trying to reinvent the wheel and stay up to date with state and national legislation to more effectively avoid employee claims.
  • Automatic check signature can save your team time each payroll by not requiring an executive to sign the checks, one at a time.
  • Direct Deposit with an issues voided payroll statement instead of a check. Gives you control over when the funds are distributed from your business checking account, instead of waiting for the checks to be mailed and individually clear.
  • Your selection of paycheck distribution, whether it is by 1st class mail, Priority Mail or another selection.
  • Access to forms and reports via the Internet.
  • Individually Tracking Days Off – Payroll Service Companies can keep track of important events such as sick days, vacation days, salaries, and benefits levels for each employee in your company, in addition to regular payroll information.
  • Employee Assistance Programs (EAP) help manage issues such as diversity, workplace violence prevention, and sexual harassment prevention and education.

Reduced Social Security Withholding for 2011

The following article is found at LINK

Payroll tax holiday for 2011 provides tax savings for workers

By William Perez, Guide

Workers will see less taxes deducted from their paychecks for Social Security. For the year 2011 only, Congress has legislated a temporary payroll tax holiday designed to put more money into the hands of American workers.

Temporary Reduction in the Social Security Tax Rate

For 2011 only, employees will pay 4.2% of their wage earnings for the Social Security tax, instead of the normal 6.2% rate. Employers still pay the full 6.2% rate.

Self-employed persons, who pay both halves of the Social Security tax through the self-employment tax, will pay a combined rate of 10.4% (the employer’s 6.2% plus the employee’s 4.2% rates).

Implementing the Payroll Tax Holiday

The Internal Revenue Service has directed employers to implement the lower 4.2% Social Security tax rate paid by employees no later than January 31, 2011. Additionally, employers are supposed to refund to their employees any excess tax withholding if they were using the old 6.2% rate during January; the IRS has instructed employers to refund the difference no later than March 31, 2011.

Self-employed persons pay their Social Security tax through estimated tax payments. Self-employed workers may utilize the lower Social Security tax rates when calculating their tax payments.

How Much Will You Save from the Reduction in Social Security Tax?

The difference between the normal 6.2% rate and the 4.2% rate in effect for 2011 results in a 2% savings on labor income. How much tax savings you will enjoy depends on your labor income for the year. Labor income is composed of wages, salaries, and net self-employment income. The Social Security tax is also capped at a maximum wage baseof $106,800 for the year 2011. Thus the maximum savings any particular worker will enjoy from the rate reduction is $2,136 (which is two percent of the $106,800 wage base).

If your labor income is less than the maximum wage base, your tax savings will be 2% of your wages, salary or net self-employment income. If your salary for the year is $50,000 (for example), then your tax savings amounts to $1,000.

What Happens to the “Missing” Social Security Funds?

To prevent Social Security from losing tax revenue, Congress mandated that revenues be transferred from the general fund to the Social Security trust funds to make up for the tax reduction. This is provided for in section 601 of the Tax Relief Act, which reads in part, “There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsection (a). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted.”

What to Do With Your Savings from the Payroll Tax Holiday?

When Congress implemented the payroll tax holiday, they were hoping to help stimulate consumer spending by putting some extra money into people’s paychecks. It certainly is tempting to spend that money, but I have a different opinion on the subject. Social security taxes goes to pay for a permanent, lifelong benefit. As long as I pay in now, I’ll get guaranteed benefits later when I retire or become disabled. So it stands to reason that I would want to utilize the Social Security tax savings to create some sort of lifelong benefit. I asked my colleagues at for some suggestions for utilizing your tax savings, and here’s what they advised:

Invest in education. Wendy Connick,’s Guide to Sales, recommends “putting it in a college fund for the kids, or taking that class or training program you’ve been eying.” There can even be a tax-angle to this strategy. College tuition expenses can generate tax credits or a deduction, thus you’d be using tax savings from Social Security to generate additional income tax savings. Alternatively, putting your payroll tax savings into a Section 529 college savings plan can help shelter your college savings from taxes on the earnings and growth.

Buy insurance. Mike Meulemans,’s Guide to Insurance, recommends buying long-term care insurance coverage. “One great way to reinforce our retirement assets is to purchase long-term care insurance.” There’s potential tax savings with this strategy too, as long-term care premiums can potentially payroll tax savings if purchased through your employer or can be included in the health insurance deduction for self-employed persons, or could be deducted as part of your itemized medical deductions.

Boost your retirement savings. Both Erin Huffstetler (About Frugal Living) and Jean Murray (About Business Law/Taxes) recommend saving your Social Security tax windfall. Murray feels this is particularly important, “If you believe, as I do, that Social Security will not be adequate to fund your retirement years, put that extra money into an IRA or 401(k).” Retirement plans have significant tax advantages too, as you may be able to get a deduction now for savings you contribute, and any earnings is tax-deferred until withdrawn later.

Managerial Accounting

Men and women with a limited understanding of accounting started most businesses. Their bookkeeper compiles information for their accountant but the owner knows that the tax return that their CPA prepares is not a true indication of how their business runs. Their accounting produces nothing that they can really use so they ignore it. They become frustrated because they don’t know what they can afford nor when they can afford it. They compensate by tracking some areas—usually sales and relying upon their “gut feel.” The good news is that the more experienced the business owner is, the more likely that his “gut feel” will be correct. The bad news is that the business easily outgrows this method and it is impossible either to delegate this management style or to transition this style to an heir or successor. Sooner or later the small mistakes become big dollars. The owner becomes overworked and less effective. They can’t get away and they can’t get out. They are trapped. They have been set up for failure.

With my clients I often use this analogy. “Look out of the window. Imagine that you see a young child crossing the street. A speeding car approaches and hits the child—a terrible, terrible tragedy. After you observe this event you sit down and write three letters describing the tragedy. The first letter is to your best friend. The second is to your young child and the last is to your lawyer. Each of the letters is truthful but imagine how each will be different. These letters are the same as your accounting needs.” The only “letter” that the owner currently produces is a letter that the bookkeeper has written to the CPA for the purpose of taxes. This is a very important letter but it does not provide the owner with what he needs to run the business. Most owners recognize this deficiency but simply just don’t know what to do about it. They are getting the wrong letter. Imagine how baffled the young child would be if he received the letter written to the lawyer.

All information produced by a company must meet four criteria: it must be timely, accurate, usable and produced at a minimum cost. Timely means that it must be delivered at a point in that acting upon the information can make a difference. If a football coach covers the scoreboard during the game and then waits until Tuesday to read the paper to find out if he has won or lost, he has not received timely information. As absurd as that sounds, that is exactly how many business owners operate. The term accurate is often misunderstood. In our context accurate means as accurate as is necessary for the purpose of the report. Accountants and bookkeepers put a very high standard upon accuracy that is good—especially for tax purposes, however, all reports do not require that same degree of accuracy. Accountants and software completely overlook the “usable” criteria. Business owners rarely have the same level of sophistication regarding accounting as their CPA and therefore the format of the reports needs to be adjusted. This is particularly true as the reports filter down through the organization. If it is not understood, it is of no value. Lastly the information must be produced at a minimum cost. There is a cost to the production of all information and it is senseless to spend $500 to create a report that generates $100 of profit.

Historical vs Projected

Information provided by your accountant is historical information. Anything that has to be prepared and reviewed in-house, then shipped to the accountant, reviewed and compiled there and then shipped back to the owner has to be historical. Historical information does have its’ place. In looking for trends, identifying where the company has been and in preparing forecasts, historical information can be very useful. However, the value of historical information diminishes in businesses with rapid change. Small businesses can double their sales in a year. They can move into new locations with completely different overhead structures. They can quickly move to different products and customers. In such an environment, historical information becomes just slightly more than an academic pursuit.

The only thing that is really relevant to the business owner is how the company stands in relation to their plan. But most owners don’t even have a plan! Most owners are so sucked into the daily operations (other people’s jobs) that they fail to do their job. Their first job is to plan. This is a constant process. Man plans and God laughs. The plan is not even intended to work, rather it is intended to create benchmarks against which the company’s performance will be measured. The revision of this plan is a constant process, not an annual event. At least monthly, the owner must review his benchmarks and revise the plan. (Obviously from this plan is generated the operational standards for the organization.) The owner projects revenues and cost of sales—by product or department—and establishes overhead.

Every business can be broken into 4-10 key operational variables. These key variables must be projected and tracked weekly. Why weekly? It is the attainment of these results that determines the profit of the company and that is the reason we are in business. The more that one focuses on the result that they wish to achieve, the more likely they are to achieve that result. There are no lasting religions that have people come to church once a year, or once a month, or once a quarter. A weekly focus is exponentially more likely to deliver your result. The timeliness of the information in this instance is more important than the accuracy. You will have a difficult time convincing you bookkeeper of that because their entire orientation is towards accuracy, however the purpose of these “flash reports” is not their accuracy—it is the focus that they create. If a report indicates that a number is out of the range of the owner’s established benchmark, it then is the responsibility of the proper person to identify why and what is being done to correct it.[1] (As scary as it seems to some owners, there are variables that must be tracked daily! But learn to walk before you run.)

This gives you something to think about this Memorial Day Weekend.

[1] It is important to keep your information needs in the proper perspective. The owner must first create a plan—a vision—and identify what it is that they are trying to achieve. An important part of that plan is the financial plan as discussed herein. Once established, the company’s organizational structure becomes the delivery system of those results. Each job requires a defined result and that result is determined by your plan. Organizational Structure is examined in Part II. Finally the information systems monitor those results. Their purpose is to alert the owner as to whether or not he is performing his plan.

Is a PEO right for your small business? (or for that matter, what is a PEO?)

The following was provided by Tony McCall.

Payroll Service Companies – Common Features They Offer

Payroll service companies provide a common suite of core services. As in introduction to what payroll service companies do, consider the following core services.

  • Calculating Payroll for each employee
  • Calculating tax obligations for each employee
  • Printing Checks for payroll
  • Service companies also deliver the checks
  • Creating Reports for Management

Additional services sometimes include:

  • Affordable 401 (k) plans to offer employees. Payroll service companies help level the playing field with the benefits offered by your larger competitors.
  • Employee Manuals provided and customized by Payroll Service Companies keep you from trying to reinvent the wheel and stay up to date with state and national legislation to more effectively avoid employee claims.
  • Automatic check signature can save your team time each payroll by not requiring an executive to sign the checks, one at a time.
  • Direct Deposit with an issues voided payroll statement instead of a check. Gives you control over when the funds are distributed from your business checking account, instead of waiting for the checks to be mailed and individually clear.
  • Your selection of paycheck distribution, whether it is by 1st class mail, Priority Mail or another selection.
  • Access to forms and reports via the Internet.
  • Individually Tracking Days Off – Payroll Service Companies can keep track of important events such as sick days, vacation days, salaries, and benefits levels for each employee in your company, in addition to regular payroll information.
  • Employee Assistance Programs (EAP) help manage issues such as diversity, workplace violence prevention, and sexual harassment prevention and education.

When looking at payroll service companies, many businesses consider Modern Business Associates. As a payroll service company in this competitive industry we focus our efforts on not only providing the most efficient services to your business, but also leveraging our top-notch customer service to quickly establish a trusted relationship.

Will your Professional Employer Organization bring top-notch human resource software to the table to meet your business HR system needs?

As a large business executive, you may be considering outsourcing your payroll or HR processes. Savvy Professional Employer Organizations have developed specialized services and delivery systems that cater to needs specific to larger companies.

A common requirement from large businesses working with professional employer organizations is for the PEO’s technology platform to meet the HR system needs of a large company.

Prior to pursuing a PEO relationship, you’ve probably already made a substantial capital investment in human resource software, sometimes called an HRIS system. Terefore, as you look at partner companies to help with things like your payroll processing and benefits administration, here are some great questions to ask:

“Why do you believe your technology system will provide reliable data?”

Have the PEO explain their expertise in providing reliable data, and how their HR technology is backed –up. Getting a message that payroll processing will be unavailable for a few days can cost you employee angst. Also, finding problems with data that their system is feeding yours, months after the integration, can be a nightmare to fix.

“Does your HRIS system have the features I need, and what features should I be using?”

Making sure the PEO’s HR system has the features you need is an obvious question, but also taking to time to get the PEO’s advice on what features you could benefit from can provide valuable insight. For example, larger companies are increasingly seeking human resource software platforms with an integrated self-service station that assists with leave administration and that provides employees with access to information such as workplace policies and procedures.

“Can you show me why you think your HRIS platform is an integrated solution, and not a jumble of independent software and online tools?”

Many PEOs arrive at the meeting with you prepared to talk about all their HR technology and online services they have for you, but if they don’t talk to each other, you may get frustrated with extensive training for your people to learn all the different systems. There may also be a need to enter data more than once, which is a data management sin.
For example, can the system handle all of the payroll, benefits, and human resources information needs too?
“In case it’s needed, how customizable is your software package, or online service?”
Understanding that there’s room to customize the software for your specific needs helps you feel more confident in a PEO choice.

“Can your system integrate with what we are already using?”

Seeing the greats features of the PEO system can be exciting, but if it doesn’t tie into pieces of your current HR technology that you will continue to use, then what’s the point?

“How hard is it to train my staff to use the HR system tools?”

In addition, large clients want an HRIS platform that allows for easy access and operation by the end users — both management and non-management workers alike. Get the PEO to paint a picture of how the training is performed and how much time it will take your employees to finish it.

“How will you adapt to our future needs?”

Asking for example of how the PEO has adapted their HR system for a client’s changing needs can help you understand the PEO’s process for changes their offerings to meet your needs and to execute any additional integration and staff training that may be needed.

At Modern Business Associates, our knowledgeable Florida HRO team includes HR specialists with legal backgrounds, employment tax professionals, certified payroll processors, licensed insurance agents and award winning customer service professionals. Our products and services are designed to offer you back-office support so you can focus on new revenue.

Get upfront PEO-contract clarity on HR and Payroll Outsourcing fee structures from a professional employer organization, to prevent hassles down the road.

With the changing business environment and the need to focus on generating revenues, many business owners are considering outsourcing the payroll, tax, insurance and employee benefits support tasks for their businesses. Professional Employer Organizations (PEOs) are designed to take on these duties for you. It is not uncommon for one PEO company to structure its fees differently from others. Building trust with your HR outsourcing company is critical to the relationship’s long term success.

When looking at a PEO contract, here’s a list of things to ask upfront, to prevent misunderstandings down the road.

“Do you bundle your fees?”

Traditionally, PEOs bill their service package in either a bundled or unbundled format.

PEOs opting for the unbundled invoice method list the services individually on the invoice.

1. The payroll amounts

2. Employment-related taxes (FICA, FUTA, SUTA)

3. Workers’ compensation premiums

4. Administration fee charged by the PEO

5. Benefit costs

PEOs using the bundled invoice approach combine all the service fees, occasionally breaking out the Benefit Costs. Either method is fine, just be sure that you understand what is included in a bundled fee.

“What if the workers’ compensation rates or group health insurance premiums change during the contract? How will those changes affect my bill?”

It’s in the best interest of the PEO company to secure the best rates from insurance carriers, but those rates do change. You need to have a clear understanding regarding how those rate changes will affect the PEOs fees during the contract period.

“Does your Client Service Agreement cover all of these questions?”

A PEO agent should be able to provide a well drafted client service agreement (CSA) that outlines the responsibilities of the PEO and identifies all services for which the client is being charged. Just like with any other contract, it is important that you, as a business owner, understand the agreement you are entering in to.

“Do you utilize an IRS Section 125 plan in calculating payroll taxes?”

PEOs can use an IRS Section 125 plan to reduce the tax liabilities for your company, which means they can calculate the payroll taxes based on the reduced taxable wages. Check to see if the PEO utilizes a Section 125 plan and find out how the tax reduction is reflected on your invoice.

The PEO contract should be drafted in such a way that little question can be raised during the contract period of how fees will be applied. The partnership between client and PEO can be mutually beneficial, provided these considerations are addressed early in the business relationship.

At Modern Business Associates, we handle these kinds of questions every day. Give us a call and we’ll be happy to professionally answer any questions you may regarding this topic and how it applies to your specific company.

Workplace Trends that May Change How you do Business Down the Road

Posted in [HR Outsourcing] By MBAHRO

Workforce experts expect artificial intelligence and e-mail will put an end to HR as we know it.

Here are some predictions of how workforce management will be in 10 years.

  • Labor Unions – In spite of decreasing membership, labor unions are not expected to grow.
  • Company Involvement will Increase in Schools – Concerned over students poorly prepared for the job market, more and more businesses are getting involved with schools. Corporate sponsors are showing up on school campuses across the U.S.
  • Consultants – Today, about 30 million Americans are self-employed. Since companies are always looking at outsourcing as a way to control costs, the use of freelancers and consultants is expected to grow.
  • Companies will be Open 24/7 – In an effort to speed up services and production, and to reach new customers in foreign time zones, more and more companies will be open for business 24/7.
  • E-mail – It’s taken less than 10-years for electronic mail to become the main way people communicate. It makes it easier and faster to get work done. Future e-mail is expected to add new potential. For instance, senders might be able to match a list (by Internet provider, company or name). Improved anti-spam programs will also come into play. “Unified messaging” will also allow workers to check voicemail, cell messaging, e-mail and fax machines from one inbox.
  • Artificial Intelligence – As data warehouses and the web grow, artificial intelligence will solve problems beyond the human brain. “AI” will discover patterns and find problems in data.
  • Workplace Privacy – In Europe, it’s illegal to view employee e-mails. It’s expected this trend to grow in the United States as well. U.S. companies may reduce their monitoring of e-mail and Internet use down the road.
  • Defined Benefit Plans – In the future, attracting the best employees will be next to impossible without a defined benefit plan. It’s estimated that employees will choose to work for companies with retirement plans that provide guaranteed benefits.

Though there is no way to know exactly how the workplace will change down the road, we all know it will change tremendously. The more we can do now to be prepared, the better.

Modern Business Associates is an HR company that focuses on payroll and HR outsourcing. We routinely work with clients on preparing for business trends. As a Professional Payroll and HR outsource organization, our clients rely on us to help them effectively deal with these kinds of topics.

Tony McCall, Business Development Manager

Modern Business Associates (MBA); Toll Free: 888-622-6460; Mobile:   303-324-0483; Fax: 727-570-4608; E-Mail: