During my 28 years in public accounting, I’ve had the opportunity to work with organizations from numerous industries – construction, pharmaceutical development and manufacturing, technology, consumer electronics, media and healthcare, to name a few.  As a young accountant, I was quickly taken by the nuances of the construction industry and how it can differ radically from other industries – not just as it relates to percentage of completion accounting for contractors – but by the dynamics of the various interwoven relationships that any successful contractor needs to deftly navigate if they want to be successful.  At the time, I didn’t know a surety from a performance bond from a bonding agent, and I recall very clearly how I came to realize how the success of the clients I worked with depended not only on their ability to successfully run their organizations operationally, but also on how well they were able to manage the myriad relationships involved in securing financing for their various ongoing projects.

One of the unique attributes of construction contractors is that a successful contractor is just one or two bad estimates away from being a struggling contractor.  When a contractor bids $10 million on a project and they later learn – after the project has been awarded and started – that the project estimate was understated by $2 million – that is the difference between profitability and significant financial struggles.  It’s one of the reasons that traditional lenders such as banks may tend to be more hesitant to work with contractors.

Because lenders are in the business of protecting their financial interests, and because one of the ways they protect those interests with construction contractors is by working with teams of service providers that have relevant industry experience, it’s important that an accountant working with a contractor has significant relevant industry experience.  Having a thorough understanding of the nuances of percentage of completion accounting as applied to a construction contractor is an absolute requirement for any accountant working in this industry.  Inaccuracies or errors on financial statements are highly detrimental to a contractor’s ability to secure ongoing financing and may even preclude their ability to get bonded for particular jobs.

Lenders and financers are keenly interested in historical gross profit by project / job over time, because percentage of completion accounting is very much driven by the contractor’s estimates.  To the extent the estimates are unreliable or overly aggressive, for example, the timing of revenue recognized will trend in a way that causes concern about the contractor’s ability to provide accurate financial statements. A knowledgeable accountant will keep a close eye on historical gross profit trends on a job-by-job basis, and in the process will provide sound advice regarding the accounting for estimates, costs to complete and the overall percentage of completion process.  Additionally, they can proactively work with the contractor to present their financial statements in a way that provides the specific types of information that lenders will specifically look for from a contractor, thereby reducing or eliminating the multiple iterations of questions that are likely to occur from a lender when they are presented with contractor financial statements that aren’t appropriately tailored to the industry-specific accounting requirements.

One of the attributes I love about my job more than any other is that my work is the exact opposite of a repetitive-motion job.  Every day can bring something completely different, and working with construction contractors presents a combination of technical and relationship-driven issues that require constant thought and problem-solving, which in turn provide significant added value to the contractor, which ultimately strengthens the underlying relationship.

Conventional wisdom says that what goes up must come down. But even if you view market volatility as a normal occurrence, it can be tough to handle when your money is at stake. Though there’s no foolproof way to handle the ups and downs of the stock market, the following common-sense tips can help.

Don’t put all your eggs in one basket

Diversifying your investment portfolio is one of the key tools for trying to manage market volatility. Because asset classes often perform differently under different market conditions, spreading your assets across a variety of investments such as stocks, bonds, and cash alternatives has the potential to help reduce your overall risk. Ideally, a decline in one type of asset will be balanced out by a gain in another, though diversification can’t eliminate the possibility of market loss.

Focus on the forest, not on the trees

As the market goes up and down, it’s easy to become too focused on day-to-day returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio. Although only you can decide how much investment risk you can handle, if you still have years to invest, don’t overestimate the effect of short-term price fluctuations on your portfolio. 

Look before you leap

When the market goes down and investment losses pile up, you may be tempted to pull out of the stock market altogether and look for less volatile investments. The modest returns that typically accompany low-risk investments may seem attractive when more risky investments are posting negative returns.

But before you leap into a different investment strategy, make sure you’re doing it for the right reasons. How you choose to invest your money should be consistent with your goals and time horizon.

Look for the silver lining

A down market, like every cloud, has a silver lining. The silver lining of a down market is the opportunity to buy shares of stock at lower prices.

One of the ways you can do this is by using dollar-cost averaging. With dollar-cost averaging, you don’t try to “time the market” by buying shares at the moment when the price is lowest. In fact, you don’t worry about price at all. Instead, you invest a specific amount of money at regular intervals over time. When the price is higher, your investment dollars buy fewer shares of an investment, but when the price is lower, the same dollar amount will buy you more shares. A workplace savings plan, such as a 401(k) plan in which the same amount is deducted from each paycheck and invested through the plan, is one of the most well-known examples of dollar cost averaging in action.

Making dollar-cost averaging work for you

• Get started as soon as possible. The longer you have to ride out the ups and downs of the market, the more opportunity you have to build a sizable investment account over time.
• Stick with it. Dollar-cost averaging is a long-term investment strategy. Make sure you have the financial resources and the discipline to invest continuously through all types of market conditions, regardless of price fluctuations.
• Take advantage of automatic deductions. Having your investment contributions deducted and invested automatically makes the process easy and convenient.

Don’t stick your head in the sand

While focusing too much on short-term gains or losses is unwise, so is ignoring your investments. You should check your portfolio at least once a year—more frequently if the market is particularly volatile or when there have been significant changes in your life. You may need to rebalance your portfolio to bring it back in line with your investment goals and risk tolerance. Rebalancing involves selling some investments in order to buy others. Investors should keep in mind that selling investments could result in a tax liability. Don’t hesitate to get expert help if you need it to decide which investment options are right for you.

Don’t count your chickens before they hatch

As the market recovers from a down cycle, elation quickly sets in. If the upswing lasts long enough, it’s easy to believe that investing in the stock market is a sure thing. But, of course, it never is. As many investors have learned the hard way, becoming overly optimistic about investing during the good times can be as detrimental as worrying too much during the bad times. The right approach during all kinds of markets is to be realistic. Have a plan, stick with it, and strike a comfortable balance between risk and return.

I have two primary things that I have tried to instill in my children: (1) Pay attention to your surroundings and, (2) If it sounds too good to be true, then it probably is. They have heard me tell them to pay attention to their surroundings since they were very young. As they have grown into teenagers and young adults, I find myself explaining more and more about things that go on in the “real world”. Unfortunately part of our “real world” includes a bunch of scam artists and cons.

Every day I hear advertisements on the radio or see billboards or internet ads for help with bad credit. Unfortunately bad credit is a fact of life for many consumers. Even more unfortunate is that many of those consumers are targeted by scam artists making promises they can’t keep and profiting from them. Scammers will say they can “wipe away” bad credit or have ways of disguising your credit history.

While there are legitimate organizations out there that truly are trying to help consumers, there is really no way to totally erase bad credit information from your credit report. According to the Attorney General’s Office of the State of Florida, “accurate information which is within seven years of the reporting period, or ten years if the information related to bankruptcy, cannot be erased from a credit report.” The AG further states “If you have a poor credit history, time is the only thing that will heal your credit report.”

Scams often include companies who charge a fee promising a “new credit identity” and providing a nine-digit number that looks like a social security number, sometimes called a CPN or credit profile number. Often, these numbers are stolen social security numbers from other consumers. Some scams direct victims to apply for an EIN, or Employer Identification Number from the IRS. EIN’s are legitimate numbers used for businesses, but may not be substituted for a social security number. This practice, known as file segregation, may be a federal crime.

The Federal Trade Commission indicates that the following are signs a company or individual may be operating a credit repair fraud scheme:

• Insists you pay them before they do any work on your behalf.
• Tells you not to contact the credit reporting companies directly.
• Tells you to dispute information in your credit report – even if you know it is accurate.
• Tells you to give false information on your applications for credit or a loan.
• Doesn’t explain your legal rights when they tell you what they can do for you.

The Credit Repair Organization Act (CROA) makes it illegal for credit repair companies to lie about what they can do for you and to charge you before they have performed their services. The FTC enforces the Act and offers a wealth of information for consumers. With the advent of social media and increased technology, opportunities to scam consumers has skyrocketed. Our increased use of email and social networking has increased the amount of personal information floating around in the cyber-world. Consumers need to be prudent with their personal information and be wary of promises of quick fixes to bad situations.

One of the questions we are asked on a regular basis is whether or not a practice’s compensation plan is “fair” and incentivizes each physician. I usually respond with another question, “What are you trying to incentivize?” The answers I receive usually are related to a perceived deficiency in a certain physician in the practice. The question is often asked by either a more senior, higher producing physician in the practice or the practice administrator. Common answers are:

• Increase production
• Increase profits
• Timely chart documentation
• Reach out to referring physicians
• Use more of our ancillaries (be careful of Stark issues)
• Follow practice procedures
• Take more or less call

We then would work to add a component to the compensation plan which would account for any of these additional factors. But is just tweaking your current model enough?

Evaluating Physician Compensation Models

Health care systems and ACOs are transitioning traditional fee-for-service (FFS) compensation systems to value-based, pay-for-performance programs, shared savings and compensation plans, global or bundled payments, episode-of- care reimbursement and quality compensation plans. This doesn’t mean that FFS and collections are not a part of the compensation model.

Just that other factors are being added to the compensation plans. When evaluating a compensation system, physicians should ask the following questions:

1. If separate services are bundled into an episode for a single payment, how will physicians be compensated for their portion?
2. What compensation incentives are present for improved quality, better care coordination and outcomes?
3. Are there withholds or disincentive features?
4. What is the degree of risk that a physician has and how does this affect compensation?
5. What percent of base compensation is based on quality factors?
6. Is compensation based on obtaining all or none of the incentive amount?
7. Is the compensation system based on work relative value units (wRVUs)?

Do you have the data?

If your practice isn’t tracking the same data that is being used by Medicare and insurance payers your practice will be at a disadvantage.

• Are you tracking patient quality?
• Do you perform patient satisfaction surveys?
• Do you research which facility for your procedures has the lowest cost and highest quality?
• Do your patients have better outcomes and shorter hospital stays than the competition?
• If you refer patients to another provider, how do that provider’s cost and quality measures stack up?
• Do you prescribe lower cost prescriptions?
• Do you track the of outcomes coordinated patient care?

The payers are using this type of information plus many other metrics when evaluating your practice’s contract rates or even whether to retain your practice in a network. Not only should the practice be reviewing statistical data and how the practice compares to its competitors but it should incentivize physicians to maximize your scores when contracting with payers.

If you haven’t reviewed your compensation plan in a while maybe it is time to take a fresh look. There is not a perfect system and what works for one practice in a specialty may not work for yours. By not reviewing the compensation system you may be putting your practice at a disadvantage in recruiting, succession planning, contracting and ultimately profitability.

By Jim White, CPA

Xero has recently released a dashboard that cannot be found in any other like-market cloud based accounting applications. It is an Assurance Dashboard!

This dashboard does not replace the value or expertise of a traditional audit, but instead empowers the business owner to manage the process in real time.

Some of the highlighted features include:

User Heat Signatures: Allow the user to monitor who has logged in and at what level of frequency. Wowzer… I really neglected my Demo Company in April. Oops!

Looking for more detail at the daily level? No problem for this dashboard! It produces a daily summary for every major action within Xero by each user.

As for bank accounts, users are able to monitor if/when statement lines have been deleted and/or if something was manually reconciled. Neither activity is necessarily an indicator of fraud or theft, but both are usually great indicators that a part of the process (reconciling) needs adjustment. This becomes a great opportunity to inquire about any coding or processing concerns. In a non-demo company (i.e. in real life) it would even show which user deleted the transaction.

Invoices & Bills: the process of generating invoices – a true means-to-an-end (getting paid). Ah, bills. If you don’t open them, you don’t have to pay them, right? Sorry, wrong.

Nothing screams process compliance like being able to monitor that your accounting staff (bookkeeper, controller or outsourced accountant) is getting the data in timely. With this feature you can even monitor posted backdated activity.

This new dashboard is also a great tool for monitoring activity that had to be captured post month-end close.

This tool is only available to Xero users who are currently set up with advisors privileges and is included in the monthly subscription fee.

What is even more important than the feature itself, is to recognize that application developers have greater opportunities to provide massive features, in the cloud, at nominal costs to small business owners.

Life is good in the cloud!

by Stephanie Holt