“Accounting is a useful tool to help your company meet its financial goals” is a theme you may have picked up by now reading the Nerd. This month, I want to touch on a framework for establishing goals. Somewhere in sunny Southern California, while studying to be a a master Nerd, I learned about SMART goals. Let me share and present it to a Busgirl, or guy.

Below is a list of goals your transportation company may have:

  1. Make more money
  2. Increase sales
  3. Control expenses
  4. Increase profitability
  5. Improve cash flow
  6. Increase line run revenues by 20% for 2019 (over 2018)
  7. Increase revenue per mile by 5% by June 2020 as compared to calendar year 2018
  8. Increase revenue per day to $1,200 for the calendar year 2019
  9. Increase line run ridership by 15% for summer 2019 (over summer 2018)
  10. Keep administrative expenses at or below 6% of net sales for 2019
  11. Increase profitability to 15% of net sales by April 2020
  12. Increase sedan utilization to 50% during 2019
  13. Maintain fuel expenses at $100,000 for the year

Specific – Make sure your goals are specific. Define what it is the company would like to achieve. Goal number 1 is very vague. What does this mean? Is the goal to increase cash? Increase the dollar amount of net income? One would have to guess or ask additional questions to really know. Goal number 2 is more specific than goal number 1, but numbers 6 through 13 are much more specific.

Measurable – Make sure your goal has an appropriate metric that can be measured. Sometimes goals are measured in dollars. Some may best be measured as a percentage of sales. Still others, as in examples 9 and 12, are measured by non-financial metrics such as utilization and yield. Creating a productive staff is vague, but decreasing absenteeism by X% over last year is a metric that can be measured.

Attainable – Are you setting goals that are reachable? If the goal is set too high and there is no way to reach it, it is not reasonable to set it as a goal. Goal number 13 may be an unattainable goal. Fuel is a large variable cost that rarely remains stagnant as a company’s revenues eb and flow. Therefore, measure the cost of fuel as a percentage of net sales instead of a dollar amount. During a period of increasing fuel prices, raising your rates may be the action required to attain a consistent fuel cost percentage. Our goal becomes “keeping our fuel cost at a X% of net sales by increasing our rates X% over the next six months.” Understand that here we are looking at rates and not volume. You may increase rates and decrease your utilization, all in keeping with the same bottom line. The point is that an attainable goal can involve multiple action items and results.

Relevant – Is the goal you are setting relevant to your overall business plan? A goal can be set for office supply expense, but that does that really have a significant effect on the company? Make sure the goal is worthwhile. Do not waste time on goals that have little to no affect on your finances, company culture, or personal well-being.

Time Bound – Set a specific time that the goal is to be completed in. A goal without a time frame in which to complete it leaves a company floundering as to the planning steps necessary to get there and hard to determine when you had reached or failed to reach your goal.

Include your team and have them buy into the goal. Allow you supervisors a chance to create goals with you. If you pass the responsibility on to a supervisor, be sure the goal is clear and well understood, and that you provide support. How do they benefit from achieving the goal? Can you incentivize them? How does your line staff benefit? Many times they are the ones that will determine the success of your goal.

Finally, seek encouragement from your non-competing industry peers; friends wish you to succeed and the synergy can be tremendous! In any event, there is always room for improvement and SMART goals are just that, smart.

Let us at BUSBooks review your financial picture and help you set your own SMART goals. Together we can move you further down the road!

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

What Ever Happened to the Two Martini Lunch?

A long, long, time ago I worked in food service hustling drinks and huge plates of food to luncheon guests. I was always amazed at how much these guys could consume and continue working the afternoon! Who knows if any really did?

At that time business meals where 100% deductible as a taxable business expense. Under President Reagan the Tax Reform Act of 1986 changed that and the deductible percentage dropped to 80%. The food service industry went into a tizzy believing that their business would drop accordingly with the change in tax law. (That year I abandoned the food and beverage industry, purchased a 12-year-old Model 5 Eagle, and went into the bus business!) The Revenue Reconciliation Act of 1993 under President Clinton brought the deduction to 50% as of January 1, 1994. Not much has changed since then until President Trump passed the Tax Cut and Jobs Act of 2018.

So, what happened to the Martini Lunch? It most likely became the Craft Beer or Cabernet Lunch as tastes have changed. However, while assisting industry bookkeepers with their work a question still is asked, “Can we expense that pepperoni pizza?” I will let the Nerd fill you in on how this recent Act has changed what business meal, travel and entertainment expenses are tax deductible and what bookkeeping procedures you should put in place to properly record them.

Thank you, Mr. Bus Guy. The good news is that business meals are still partially deductible. Meals in which one conducts business with current clients, potential clients, networking sources, and meals while traveling for business are all still 50% deductible*. The IRS cautions these costs should not be “lavish” or “extravagant.” However, entertainment such as baseball games, concerts, and similar types of events are no longer deductible. Those are now reported for income tax purposes as “non-deductible expenses” and do not decrease the taxable income of the entity**.

Let me make another distinction here. Sometimes when food is provided, the entire expense can be written off. Meals provided as a part of an employee training event or meeting are fully deductible***. Additionally, meals and food provided for the convenience of the employer are also fully deductible. Do you keep beverages and snacks in the office for employees? Do you buy pizza for the staff when they are working late? Fully deductible!

To keep from having to look at this in detail at year end, I recommend tracking the three types of expenses separately during the year. Generally, this means having three different accounts:

  1. *Entertainment – not deductible for tax purposes
  2. **Meals – 50% deductible for tax purposes
  3. ***Meeting Meals (or just include with general meeting costs) – 100% deductible for tax purposes

This will have your books in order and ready for reporting Meal and Entertainment expenses properly to the IRS.

Let us at BUSBooks help you set up your books, giving you the peace of mind to manage your business! Together we can make your accounting more meaningful.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

Something Better Than Cash…

What could be better than cash? Cash is king, right? It warms your pocket and always looks hot on TV when C-notes are expressed after a quick lick of the thumb. But in the not so exciting world of accounting, Cash is best left in the bank and Accrual is the cool way to go. Let the Nerd explain.

Cash Basis accounting is the simplest form of accounting. Revenues are recorded when received and expenses are recorded when paid. But does that really tell you the whole story? Who owes you money and how much do they owe?  How much do you owe your vendors?  How much of what you think is income is not because the trips you collected on do not operate until next month? Did you have net income in that dreadful month you wrote the big insurance check even as your checking account took a nose dive? You may have, and the answer to knowing how lies in the manner of your accounting.

Merriam-Webster’s definition of accrual: “relating to or being a method of accounting that recognizes income when earned and expenses when incurred regardless of when cash is received or disbursed.”

Accrual Accounting is a little more work, but it provides better information from which to run your company. Yes, we at BUSBooks can assist with that. And once you set it up your bookkeepers can easily follow the process. 

Key accounts that are involved with accrual accounting are accounts receivable, prepaid insurance, prepaid expenses, accounts payable, customer deposits, and accrued expenses. These accounts help track the revenues and costs that apply to a specific period. This allows your financial reports to reflect how your company is performing NOT just the effects of your back accounts.  

For example, some expenses are significant and only paid once or twice a year. These heavy hitters may include vehicle insurance and registration, property taxes, and workers comp policies. Accrual Accounting equally distributes these expenses throughout the entire life of the policy, fee or tax. If you use the Cash Basis accounting method, the expenses paid only one or twice a year only effect the time period in which they are paid and therefore distorts your actual net income.

Accounts Payable (A/P) and Accounts Receivable (A/R) are important balance sheet accounts used in Accrual Accounting. The A/P records the amount of money you owe your vendors at the close of the balance sheet, most likely the month end. The goods and services are expensed in the period they are received, and if not paid in that same period, are recorded in the payable account where they remain until paid. On the balance sheet the A/P is a current liability.

The A/R records amounts earned and billed, but not yet paid to you at the close of the period. Deposits and payments received by your company for work not yet performed at the close of the period reduce A/R if recorded in the same account. This money is not yet revenue, and therefore does not affect the period’s net income. These accounts are current assets on the balance sheet.

Most companies within our industry have their books already set up on an Accrual Basis. Those that do not eventually need to change over when securing bus loans or lines of credit, or when they attempt to sell the company. And to understand how your company is really performing, the Accrual Basis of accounting is a must.

So how does Accrual Basis accounting interact with your income taxes? It depends. In general, companies with revenues less than $25 million in average revenues over the last three years can use the cash method for reporting income taxes. Many companies and businesses will use this method for reporting for income tax even if they maintain their books on accrual basis. Which method to use for income tax reporting is a separate decision. We at BUSBooks can help you analyze your situation and provide recommendations for your company.

Let us at BUSBooks help you achieve Accrual Basis financial reporting to help manage your business.! Together we can make accounting more meaningful.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.