Discussion:Accounting Simplification

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Accounting Questions --> Accounting Simplification

BBPBW (talk|edits) said:

10 July 2013
Hi Everyone...

Long time lurker, first time poster. I have a fairly involved question, I'm looking for guidance to simplify a client's accounting.

Background: I acquired a client who has five coffee shops throughout the county. They are all under their own Corporation (no idea why this was done), in addition to a management Corporation that includes: office staff, regional managers, office rent, storage, etc. So in short, 6 corporations. They are utilizing Quickbooks as software.

5 "Coffee Shop" Corporations (Let's call them Corp V, W, X, Y, Z) 1 "Management" Corporation (Let's call it Corp 1)

The issue: Each location is suffering to stay afloat, and because of that they are covering bills for one another. Also, each location covers a portion of the bills paid for the Management Corporation (Corp 1). For instance, the office personnel who work for Corp 1 receive payroll under Corp 1, and it's allocated to each Corp V-Z through the payable function. Also, Corp V-Z help pay for the office rent where all documents and office personnel work, and allocated to each store through a/r and a/p. Another instance; If Corp V can't pay it's rent, at times Corp 1 will pay it. Which then Corp 1 invoices Corp V as a bill, then Corp V enters a payable into the system documenting the amount owed.

Unfortunately, the intercompany transfers are out of hand. Allocating phone bills, storage, rent, wages, insurance, etc is a nightmare on a monthly basis and to me isn't efficient. My first inclination is to setup a note of each transfer, but that'd be just as much work allocating the expenses by each location. My other thought is to have each Corp V-Z pay their own fees and have the vendor bill the separately, but that isn't probable.

Any ideas? Please let me know if you have any further questions for detail....

Bottom Line (talk|edits) said:

11 July 2013
Oh what a mess. That said, they do need to track by location so they know how each store is doing. At least a portion of this borrowing from Peter to pay Paul is probably due to bad management and management by crisis. See if you can do some coaching on this and help them use their financial information as a management tool.

Can you file a consolidated tax return? If you can, you can consolidate everything into one QB file and use class tracking.

Podolin (talk|edits) said:

11 July 2013
Can you file a consolidated tax return? I realize you are asking about simplifying the accounting. However, depending on what corp. owns what other corp., the movement of cash as you describe could be several tax problems - beyond the scope of your question, but it is there. However, if there is one common parent and they file consolidated, that might go a long way to solve the tax issues (federal, anyway).

Kevinh5 (talk|edits) said:

11 July 2013
Are they required to file a consolidated return?

At a minimum, they are required to allocate the tax brackets and 179 limits.

Unless the owner is a drip, he should realize that the losing locations are running the business into the grounds. If he closed all losing locations, his net profit would perk up. Tell him he had better pay attention, before it's too latte.

Podolin (talk|edits) said:

11 July 2013
So, K5, your advice would be to hurry and get on the espresso line?

Are they required to file a consolidated return? Never, unless they already filed one, in which case they are required to keep on keepin' on.

Kevinh5 (talk|edits) said:

11 July 2013
Does he run his accounting software on Java?

Podolin (talk|edits) said:

11 July 2013
The Star of his industry makes big Bucks. For one thing, the very smallest coffee drink you can order is a "tall".

Fr. Mackelhenry (talk|edits) said:

11 July 2013
Any ideas?

Yes. Close down the weak units immediately.

Kevinh5 (talk|edits) said:

11 July 2013
Exactly, they are watering down overall profit like a cup of cheap Sanka.

Podolin (talk|edits) said:

12 July 2013
Is Sanka still around? My stomach turns just at the name.

Natalie (talk|edits) said:

July 14, 2013
What about transferring an even amount of cash rather than paying for bills here and there? That might make it easier to track the due to/from accounts.

As far as covering the management bills, why not pay a standard monthly amount based on an estimate at the beginning of the year? Then at the end, true it up?

Hopefully you have six QBs files that you're working with. If you're not using Enterprise Solutions, it's still easy enough to align the statements to consolidate them if necessary.

BBPBW (talk|edits) said:

16 July 2013
Thank you for your input everyone. Since they're a new client, I'm still learning their ins and outs in regards to money management and internal controls. In addition, whether or not their COGS are too high. More recently we've been revamping their internal controls to run a tighter line, so we'll see if that pans out before making drastic changes in closing down the burnt beans. *insert corny drumline* (and I'm sure K5 will appreciate that one). Haha.

A consolidated return was my thought as well, I'll have to discuss this with their tax preparer...Although, he hasn't been too helpful! Oy! Haha.

Natalie - you echo my thoughts as well.

Thanks everyone!

BBPBW (talk|edits) said:

16 July 2013
Update: no consolidated return

Podolin (talk|edits) said:

16 July 2013
Why not?

Kevinh5 (talk|edits) said:

16 July 2013
Probably a BIG mistake by the prior preparer. I'm wondering whether you can amend the last 3 years and save him thousands of dollars in taxes? Or maybe they're not C corps?

TaxObserver (talk|edits) said:

27 August 2013
interesting problems. I am still very new in this profession, but would like to get feeback on my 2cents input.

It seems the whole intercompany transfers has made it difficult for the owner to track profitablity and trust costs of each coffee shops.

Then, can we establish a contribution/distribution account between Corp1 and Corp V-Z.

1st: the company needs a good allcoation model on costs. Maybe learning what costs are usually covered by Corp1 that should be beared by the coffee shops, such as HR, IT costs of Corp1 for some exmaple.

at the beginning of a new month, Corp1 would calculate this allocation based on actual of previous month cost. (True up either quarterly, or half year)

This way instead of multiple individual bills, you will only have one clean invoice to send to the coffee shops.

2nd: To address out of control borrowing from each other.

At the beginning of the month, after the allocation of costs is done by Corp1. Corp V-Z should project a monthly cashflow based on its operational activities. Any surplus should be dsitributed back to Corp1 via wire transfer. Any deficit would be noted and request a contribution from Corp1. It alsowill eliminate moeny transfer between Corp V-Z. Any money to Corp V-Z will now only come from Corp1. Any money to Corp1 will come from Corp V-Z.

The accounting is simple. All you need is one contribution account and one distriubiton account.

That way you retain cash in your Corp1, give it better flexibility to management the money. It also elimate intercompany transfer between coffee shop, make it easier to calucalte each of the shop's true profitablity.


that's all I can think about now.

Is there anyway you can do this in way to help the client save tax?

Podolin (talk|edits) said:

28 August 2013
Just to emphasize, there are significant tax exposures if these are "sister" corps. and funds are transferred between them that could be re-characterized. For instance, if the cost allocations are successfully challenged, there could be constructive distributions to the shareholder(s).

To join in on this discussion, you must first log in.
Personal tools