No Bull Business Blog

Cash vs. profit: 50% of execs, managers don’t know difference

 Excerpted from the Executive Report: What Non-Finance Managers Need to Know About Finance.

How business savvy are you and your managers? You might be surprised by how little many execs and managers know about the finance aspects of their business.

In a recent Harvard Business Review survey, a representative sample of 300 managers, from C-level execs to supervisors, did poorly on a financial literacy exam that was included.

The average score: 38%.

• More than 50% couldn’t describe the difference between “cash” and “profit.”
• Many couldn’t distinguish a balance sheet from an income statement.

Decisions made by managers who lack even basic business knowledge can put any company at risk.

It’s also the kind of knowledge shortfall many managers are reluctant to admit, or to seek help for.

Here are just two of the questions managers on the exam.

1. A company has more cash today when …

  a. All customers pay their bills sooner
  b. Accounts Receivable increases
  c. Retained earnings increases
  d. Profit increases

 

2. You should be pleased about your company’s financial status if …

  a. There is an increasing trend in Cost of Goods Sold (COGS)
  b. Cash flow is coming from company investing
  c. Cash flow is coming from company operations
  d. There is a negative trend in operating margin

 

So, how did you do? The answers: 1. a; 2. c

DIGGING DEEPER
Understanding the finance side of business is important. At the very least, execs and managers should know what the common finance terms of business are. To get a better understanding, read the Executive Report: What Non-Finance Managers Need to Know About Finance.

Beware: Scammers sending IRS e-mails

Tell your entire finance staff to be more vigilant than ever when opening their e-mail.

What to watch for: any message from IRS containing links to the service’s publications about business, excise, and exempt-organization tax compliance. (The e-mail also promises IRS help on one of the biggest finance headaches these days: retirement plans and IRAs.)

It’s a scam, says the taxman. When you click on the links, malware is downloaded that allows hackers access to your systems and passwords. Ouch. One good-intentioned click could prove very expensive.

Remind everyone: All legit IRS Web pages start with http://www.irs.gov

KEEPING A WATCH ON T&E:
The IRS pays a lot of attention to how you handle travel and entertainment expenses. To see the best practices, check out the Executive Report: T&E Best Practices: Complete Guide to Ensure Compliance

Cash advances: A T&E 'worst practice'

Excerpted from the Executive Report: T&E Best Practices: Complete Guide to Ensure Compliance

Employees who regularly have travel or entertainment expenses will ask for cash advances. Warning: Cash advances are seriously detrimental to T&E compliance.

They're considered a "worst practice." Their negative impact stems from a single reason: They effectively reduce an employee's incentive to complete paperwork.

Makes sense. Typical T&E reimbursements require a healthy bit of legwork before employees can expect to see their money returned. If handed money up-front, employees have little reason to keep track of paperwork and return it in a timely fashion.

That means A/P will have more money going out with less information coming in on how those funds are being spent - not exactly a rock-solid approach when it comes to information gathering and record retention.

Once money is in an employee's hands, there's little A/P can do to get the receipts and reports, other than putting a hold on future advances or reimbursements, or docking an employee's pay until the needed info is received.

ADDITONAL INFO:
There are a lot of smart things companies can do when handling travel and entertainment expenses. To see the best practices, check out the Executive Report: T&E Best Practices: Complete Guide to Ensure Compliance

Be ready: Key Federal tax deadlines for 1099s

These are some of the key filing deadlines companies need to meet for the 1099-MISC and related forms:

• January 31, 2008 - companies must mail 1099s to payees.


• February 28, 2008 - paper or magnetic media 1099s and W-2s must be mailed.


• March 15, 2008 -1042-Ss are due to IRS, regardless of which filing method companies use.


• March 31, 2008 - due date for e-filing 1099s to IRS.


• May 31, 2008 - 5498s recipient statement and filing to the IRS