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ESOP repurchase obligations―Planning for future pay ups

11.19.20

Read this if you are a financial manager of an ESOP.

Employee Stock Ownership Plans (ESOPs) must generally buy back, or repurchase, participants’ shares when they leave the plan or want to diversify holdings. If the ESOP does not purchase the stock the company is required to purchase the shares from the participant under the “put option” described in Internal Revenue Code (IRS) Section 409(h).These rules require the company to either provide enough cash to the ESOP to fund stock repurchases, if adequate other assets are not available within the ESOP, or to fund the repurchase of shares outside of the ESOP. Anticipating the amount and timing of these repurchases requires a lot of number crunching and assumptions to arrive at an estimated “Repurchase Obligation” at a point in time. In most cases, ESOPs enlist the help of valuation specialists, actuaries, or outsider vendors to prepare a study.

All this is done as a component of ESOP cash flow planning but also begs the question, what do you need to record or disclose in your company’s financial statements related to this obligation?

The Financial Accounting Standards Board’s guidance on the subject is contained in Accounting Standards Codification (ASC) Topic 718, Compensation - Stock Compensation. More specifically, ASC Section 718-40-50 clearly outlines the terms, allocated share and fair value information, compensation and other related disclosure requirements for ESOPs in paragraphs 1a through g. One of these requirements—paragraph f—requires disclosure of “the existence and nature of any repurchase obligation...” While the existence of a potential repurchase obligation is undeniable due to the requirements of IRC Section 409(h), disclosure of the nature of the obligation may require judgement and a careful reread of the plan documents.

Existence of the obligation

What private companies record for redemptions is straightforward. They are required to accrue obligations related to redemption events initiated on or before the balance sheet date and disclose share and obligation balance information related to those transactions of material.

Disclosures must include the number of allocated shares and the fair value of those shares as of the balance sheet date. This sounds like a general disclosure of terms, but the intention is to communicate maximum repurchase obligation exposure. If redemptions subsequent to the balance sheet date require material and imminent use of cash, the company should consider whether it is required to disclose them as a subsequent event (including amounts) under ASC Topic 855, Subsequent Events.

Nature of the obligation

So, what do you need to disclose specific to the nature of your company’s ESOP shares repurchase obligation?

Put options against the ESOP trust (i.e., rights afforded under the ESOP requiring the trust to purchase outstanding stock at given prices within specific time horizons). Plan terms allowing redemption payments in excess of a certain threshold to be made over a defined period of time (e.g., retiring employees with vested balances greater than $5,000 may receive their payments in equal installments over a five-year period, while those with lower balances may receive their benefit in a lump sum).

If your company’s ownership has an ESOP component or you are considering an ESOP as part of your exit strategy, please reach out to Linda Roberts and Estera Ciparyte-McDonald. They can help you better understand the myriad considerations to be taken into account, and the required and potential financial statement impact and disclosures.

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BerryDunn experts and consultants

Read this if you are an employee benefit plan fiduciary.

Fiduciary risk management

This is the final article in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with ERISA requirements. You can find the full series here.

If, as part of your involvement with an employee benefit plan, you have decision-making ability; you advise those with decision-making ability; or someone tasks you with decision-making related to the plan, you are more likely than not, a fiduciary. As discussed in the first article of the series, this status comes with responsibilities and, therefore, risks and consequences.

The general approach to handling risk is a cycle of identifying, assessing, controlling, and reviewing controls over risks. Based on the assessment of a given risk, there are four ways to manage it: you can avoid, reduce, transfer, or accept the risk. 

Identifying and assessing fiduciary risk1 

The risks facing a plan fiduciary include, but are not limited to, the following:

Removal of fiduciary

In appropriate cases, a fiduciary may be removed and permanently prohibited from acting as a fiduciary or from providing services to ERISA plans.

Civil penalties

Among other penalties, the DOL may assess a civil penalty equal to 20% of the amounts recovered for the plan through litigation or settlement.

Criminal prosecution

Upon a conviction for a willful violation of ERISA’s reporting and disclosure requirements, a fiduciary may be subject to fines and/or imprisonment for not more than ten years. There is also a provision in ERISA that applies to any person, not just ERISA fiduciaries, that makes coercive interference with ERISA rights a criminal offense punishable by fines and/or imprisonment for up to ten years. In addition, outside of ERISA, there are a number of criminal statutes that apply to any person, not just ERISA fiduciaries, including criminal statutes for embezzling from an ERISA plan, making false statements in ERISA documents, and taking illegal kickbacks in connection with an ERISA plan.

Participant lawsuits

Additionally, plan participants may file a lawsuit against the fiduciary for breach of their fiduciary duty. Over the past few years, this has become more common and has generally been related to the fiduciary’s failure to adequately negotiate and monitor plan fees. 

Co-fiduciary liability

ERISA's unique co-fiduciary liability provisions make each fiduciary responsible for the actions of the other plan fiduciaries but only under certain circumstances. As a general rule, fiduciaries aren’t responsible for the breach of another fiduciary unless:

  • They participate knowingly in, or knowingly undertake to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach;
  • Their failure to be prudent in the administration of their own fiduciary responsibilities enables the other fiduciary to commit a breach; or
  • They have knowledge of a breach by such other fiduciary and don’t make reasonable efforts under the circumstances to remedy the breach.

Controlling fiduciary risk

There are several ways to effectively manage fiduciary risk. When used together, they give you solid controls to greatly reduce your level of risk.

Plan documentation

A fiduciary and/or plan sponsor should reduce their exposure to the risks identified above and their first line of defense is through plan documentation (discussed in depth here). Broadly speaking, the organizers and fiduciaries of the plan should ensure that policies and procedures are laid out to ensure proper oversight and internal controls are in place to prevent any voluntary or involuntary noncompliance with ERISA and the DOL.

Oversight

Fiduciaries should meet formally on a regular basis to review the plan’s offerings, service providers, fees, and other issues that may affect the plan. A single individual who is the sole fiduciary for a plan may not have the knowledge or bandwidth to appropriately fulfill the responsibilities of the plan. Additionally, having an auditor come in and audit the plan can help identify some of the risks identified above, although an audit of the plan does not reduce your responsibility to monitor and review the plan’s activity on an ongoing basis.

Third Party Administrators (TPA) & recordkeepers

Fiduciaries may also be able to mitigate some of the risks identified above through use of a TPA and/or recordkeeper. While TPAs and recordkeepers are not generally considered fiduciaries or co-fiduciaries, TPAs have varying service offerings, including recordkeeping, that are powerful tools to plan administrators to review and operate the plan. For example, depending on the plan sponsor’s existing payroll and HR structure, inclusive of TPAs and recordkeepers, fiduciaries may be able to automate the transfer of contributions to ensure timeliness of deposits. The plan may also be able to add another layer of internal controls by incorporating the TPA’s or recordkeeper’s internal controls into the plan’s control environment assuming the fiduciary has gained an understanding and comfort around the controls present at the TPA and/or recordkeeper.

Professional investment advisors and co-fiduciaries

Employee benefit plans must meet certain requirements with regard to their investment offerings. For instance, the plan must allow participants to invest in a diversified portfolio. The plan may try to transfer some of these risks and employ the help of a professional investment advisor to help ensure the plan’s investment offerings meet such criteria. This could involve hiring either an ERISA 3(21) fiduciary or an ERISA 3(38) fiduciary. The former serves as an advisor and a co-fiduciary, but does not have any authority by themselves, while the latter is an investment manager and therefore authorized to select investments for the plan. Doing so may help demonstrate to regulators that a fiduciary has fulfilled their duty in this regard. Alternatively, a plan may hire a 3(16) Fiduciary. 3(16) Fiduciaries are individuals or organizations that are charged with running plans as the plan administrator. A company may be able to shift most of their fiduciary risk to such a fiduciary. 

In any case, the plan fiduciary must continue to monitor a 3(16), 3(21) or 3(38) advisor to make sure it is still prudent to use that advisor.

Bonding and fiduciary liability insurance

Bonding is required for most EB plans and does not protect the fiduciary from any risk. It does however protect the plan from fraud or dishonesty. On the other hand, fiduciary liability insurance can protect the fiduciary in the case of breach of fiduciary duty. This type of insurance is not required but is another option to transfer fiduciary risk.

As mentioned in our second article, much like owning a car, regular preventative maintenance can help you avoid the need for costly repairs. Plan fiduciaries should periodically refresh their understanding of ERISA requirements and re-evaluate their current and future business activities on an ongoing basis. Doing so will help mitigate any risks associated with non-compliance with the DOL and IRS and keep the plan running smoothly. 

Need help navigating the fiduciary road? Reach out to the BerryDunn employee benefit consulting team today.

1From Fidelity’s Plan Sponsor Webstation: Consequences of breach of fiduciary duties 

Article
Fiduciary risk: Five ways to control and reduce it

Read is you use QuickBooks Online.

Your customers are your company’s lifeblood. Make sure their records are thorough and up-to-date.

When companies buy other companies, the customer list is often considered the most critical asset. When a business is damaged and data possibly lost, the customer list is the set of records do they most hope to recover.

You probably spend most of your time in QuickBooks Online working with transactions and reports, but your customer records deserve equal time. If they’re incomplete or otherwise not well maintained, you lose time filling in the blanks when you’re trying to complete a task that requires complete customer profiles. Your searches and reports may not tell the whole picture. Your relationships can suffer, and you may miss out on sales opportunities.

QuickBooks Online provides excellent tools for creating and maintaining comprehensive customer and sub-customer records. Here’s a look at how it all works.

Moving your customer data in

There are two ways to create customer records in QuickBooks Online. If you have an existing database in Outlook, Excel, Gmail, or Google Sheets, you can import it. This will save you an enormous amount of time, but it’s a challenging process. You select the file you want to import, and then you have to “map” it by matching the fields in your database to fields in QuickBooks Online. You’ll likely need our help with this.


To import a customer file into QuickBooks Online, you’ll have to “map” its fields. We can help you with this.

Your other option is to enter records manually. This is time-consuming, but the more information you can include about your customers from the start, the better. You can always edit your records to add, delete, or modify what you originally entered.

To get started, hover over Sales in the toolbar and click on Customers. Then click on New Customer in the upper right corner to open the Customer information window. The only field you’re required to complete is Display name as. You may want to do this if you have a new customer on the phone and you want to concentrate on the conversation. You can take notes about their contact information and fill in the record later, when you’re off the phone.

But wherever possible, as we’ve already said, complete as many fields as you can. You’ll enter name and billing and shipping address and phone number(s) on the opening screen. You can also supply contact details like fax number and website. 

Creating sub-customers

You’ll notice a checkbox that says Is sub-customer. QuickBooks Online lets you “nest” related records under the “parent” record. This can be an actual customer, but many people use it to document jobs they’re doing for the customer. So if you’re a contractor, for example, you might have sub-customers like Sun deck and Spa

If you want to set up such a record, enter the job name and click in the box next to Is sub-customer. Two fields will open below that allow you to select the parent customer and to indicate the sub-customer’s billing status. The remainder of the fields will automatically fill in with the parent customer’s contact information.


You can set up jobs as sub-customers in QuickBooks Online. 

Supplying details

When you’re setting up individual customers, you should add as much detail as you possibly can to each record, beyond basic contact information. QuickBooks Online’s record templates display a number of tabs running horizontally across the window. The most important of these are:

  • Tax info. Are the customers taxable or exempt? If taxable, what is his or her Default tax code? (If you haven’t set up sales taxes yet and need to, please let us help. It’s complicated.)
  • Payment and billing. Do they have preferred payment and/or delivery methods? Will you be assigning default payment terms, like Net 30 or Due on receipt? What is their Opening balance? If they’re brand-new customers who have never ordered from you, this will be $0.00. If they’re existing, active customers, enter any outstanding balance they have with you as of the date that you enter. This must be correct, to avoid any problems with the customers’ ongoing balances. Questions? Ask us.

Other tabs here are self-explanatory. When you’ve entered everything you can, click Save. The new record will now appear in the Customers list and will be available to select from the drop-down list in transactions.

There will be times when you have to refer back to these forms to answer questions. By maintaining detailed, accurate customer records, you’ll be ready to respond. If you have questions about any of the information requested, or about other elements of QuickBooks Online that are puzzling you, please contact our Outsourced Accounting team. so we can set up a consultation.

Article
How to maintain customer records in QuickBooks Online

Read this if you are at a financial institution.

Feeling stuck, or maybe even frozen, in your CECL readiness efforts? No matter where you are in the process, here are three things you can do right now to ensure your CECL implementation is on track:

  1. Create or re-visit your 2022 timeline
    With just under 12 months to the January 2023 CECL adoption date, it’s important to make every moment count. Consider CECL adoption your Olympic moment and, like every great Olympic athlete, you have interim events—a timeline of major milestones—to ensure you are ready for “Day 1” and beyond. One strategy to ensure you do not “run out of time” is to start at the end of your timeline and work backward.

    Tip: Whether it be 1/1/2023 (“Day 1” adoption), or the first date by which you want to start parallel runs, fix the date of that final must-hit milestone, and work backward. For example, in order to adopt CECL on 1/1/2023, what major milestone has to be achieved before then and how much time will you need for that? Setting milestones from the final date backward will help you fit the remaining major activities into the time you have left—you can’t “run out of time” this way!



     
  2. Assess where you are, tactically, and fill in the gaps
    What would an Olympic athlete be without a training schedule, and coaches, trainers, and other professionals to guide and push them? In order to make the most of each event (or milestone) in the countdown to CECL adoption, let’s fill in our training schedule. What key decisions still need to be made or documented? Who has the authority to approve them? What’s the right time and venue to obtain that approval? Will these be one-to-one, small group, or committee/board meetings? Will meetings be set up as-needed, or is the meeting schedule (e.g. quarterly executive/board) already set? Who are you engaging for model validation and key control review? What is the date of that review work? 

    Tip: Add those key approval, review, and validation dates to your timeline, and make sure the meeting time you need with decision-makers is booked in their calendars now. Scheduling this time in advance is a transparent and tangible sign that you’ve charted the course, helps ensure decision-makers are available to you when needed most, and incremental progress is being consistently made toward your ultimate goal. 
  3. Identify the top three tasks to complete this week, reserve the time in your calendar, and complete them!
    Like any athlete, you are now “in training”, and daily and weekly actions you take will ensure you reach your goal in as strong a position possible. Whether it’s scheduling those meetings, identifying subject matter experts you can rely upon for coaching, or putting the finishing touches on model documentation and internal control mapping, booking that time with yourself to complete these tasks is key to feeling prepared and ready for CECL adoption. 

    Tip: Set aside a few minutes at the end or start of each week to review your timeline/milestones and identify the next key actions to complete.

Would you like assistance with certain aspects of your CECL readiness efforts? Are you ready for some validation/review work, or need guidance on policy, governance, or internal/financial reporting controls?

Contact our Financial Institutions team. We'll help you get your CECL implementation over the finish line. 


 

Article
CECL implementation: Three steps for a medal-winning adoption 

Read this if you are a community bank.

The Federal Deposit Insurance Corporation (FDIC) recently issued its third quarter 2021 Quarterly Banking Profile. The report provides financial information based on Call Reports filed by 4,914 FDIC-insured commercial banks and savings institutions. The report also contains a section specific to community bank performance. In third quarter 2021, this section included the financial information of 4,450 FDIC-insured community banks. Community banks are identified based on criteria defined in the FDIC’s 2020 Community Banking Study. Here are BerryDunn’s key takeaways from the community bank section of the report:

  • There was a $1.4 billion increase in quarterly net income from a year prior despite continued net interest margin (NIM) compression. This increase was mainly due to higher net interest income and lower provision expenses. Net interest income had increased $2.2 billion due to lower interest expense and higher commercial and industrial (C&I) loan interest income, mainly due to fees earned through the payoff and forgiveness of Paycheck Protection Program (PPP) loans. Provision expense decreased $1.4 billion from third quarter 2020. However, it remained positive at $270.4 million, which was an increase of $219.2 million from second quarter 2021. For noncommunity banks, provision expense was negative $5.2 billion for third quarter 2021

    *See Exhibit B at the end of this article for more information on the third-quarter year-over-year change in income.
     
  • Quarterly NIM increased 3 basis points from third quarter 2020 to 3.31%. The average yield on earning assets fell 20 basis points to 3.60% while the average funding cost fell 23 basis points to 0.29%. This was the first annual expansion of NIM since first quarter 2019. The annual decline in both yield and cost of funds were the smallest reported since first quarter 2020.
  • Net gains on loan sales revenue declined $1.2 billion (41.5%) from third quarter 2020. However, other noninterest income increased $343.3 million or 15.2% while revenue from service charges on deposit accounts increased $100.3 million or 14.5%. In total, noninterest income decreased $616.3 million from third quarter 2020.
  • Noninterest expense increased 5.7% from third quarter 2020. This increase was mainly attributable to salary and benefit expenses, which saw an increase of $402.2 million (4.3%). That being said, average assets per employee increased 10.4% from third quarter 2020. Noninterest expense as a percentage of average assets declined 12 basis points from third quarter 2020 to 2.45%, despite 74.1% of community banks reporting higher noninterest expense.
  • Noncurrent loan balances (loans 90 days or more past due or in nonaccrual status) declined by $847 million, or 7.1%, from second quarter 2021. The noncurrent rate dropped 4 basis points to 0.65% from second quarter 2021.
  • The coverage ratio (allowance for loan and lease losses as a percentage of loans that are 90 days or more past due or in nonaccrual status) increased 44.1 percentage points year-over-year to 203.5%. This ratio is well above the financial crisis average of 147.9% and is a record high. The coverage ratio for community banks is 26.2 percentage points above the coverage ratio for noncommunity banks.
  • Net charge-offs declined 4 basis points from third quarter 2020 to 0.06%.
  • Loans and leases declined from second quarter 2021 by 0.2%. This decrease was mainly seen in the C&I loan category, which was driven by a $45.6 billion decrease in PPP loan balances due to their payoff and forgiveness. Total loans and leases declined by $19.2 billion (1.1%) from third quarter 2020. The largest decline was shown in C&I loans ($87.3 billion or 24.9%). Growth in other loan categories, such as nonfarm nonresidential commercial real estate, construction & development, and multifamily loans of $69.9 million offset a portion of this decline. 

    *See Exhibit C at the end of this article for more information on the change in loan balances.
     
  • Nearly seven out of ten community banks reported an increase in deposit balances during the third quarter. Growth in deposits above the insurance limit increased by $57.8 billion, or 5.5%, while growth in deposits below the insurance limit showed an increase of $1.7 billion, or 0.1%, from second quarter 2021. In total, deposit growth was 2.6% during third quarter 2021.
  • The average community bank leverage ratio (CBLR) for the 1,737 banks that elected to use the CBLR framework was 11.3%. The average leverage capital ratio was 10.25%.
  • The number of community banks declined by 40 to 4,450 from second quarter 2021. This change includes one new community bank, 10 banks transitioning from community to noncommunity bank, five banks transitioning from noncommunity to community bank, 35 community bank mergers or consolidations, and one community bank having ceased operations.

Third quarter 2021 was another strong quarter for community banks, as evidenced by the increase in year-over-year quarterly net income of 19.6% ($1.4 billion). However, NIMs remain low despite seeing growth in the most recent quarter (for the first time since first quarter 2019), as shown in Exhibit A. The consensus remains that community banks will likely need to find creative ways to increase their NIM, grow their earning asset bases, or continue to increase noninterest income to maintain current net income levels. In regards to the latter, many pressures to noninterest income streams exist. Financial technology (fintech) companies are changing the way we bank by automating processes that have traditionally been manual (for instance, loan approval). Decentralized financing (DeFi) also poses a threat to the banking industry. Building off of fintech’s automation, DeFi looks to cut out the middle-man (banks) altogether by building financial services on a blockchain. Ongoing investment in technology should continue to be a focus, as banks look to compete with nontraditional players in the financial services industry. The larger, noncommunity banks are also putting pressure on community banks and their ability to generate noninterest income, as recently seen by Capital One Bank eliminating all overdraft fees.

According to the Consumer Financial Protection Bureau, the financial services industry brought in $15.5 billion in overdraft fees in 2019. Seen as a move to enhance Capital One Bank’s relationships with its customers, community banks will also need to find innovative ways to enhance relationships with current and potential customers. As fintech companies and DeFi become more mainstream and accepted in the marketplace, the value propositions of community banks will likely need to change.

The importance of the efficiency ratio (noninterest expense as a percentage of total revenue) is also magnified as community banks attempt to manage their noninterest expenses in light of low NIMs. Banks appear to be strongly focusing on noninterest expense management, as seen by the 12 basis point decline from third quarter 2020 in noninterest expense as a percentage of average assets, although inflated balance sheets may have something to do with the decrease in the percentage.

Furthermore, much uncertainty still exists. For instance, although significant charge-offs have not yet materialized, the financial picture for many borrowers remains uncertain. And, payment deferrals have made some credit quality indicators, such as past due status, less reliable. Payment deferrals for many borrowers are coming to a halt. So, the true financial picture of these borrowers may start to come into focus. The ability of community banks to maintain relationships with their borrowers and remain apprised of the results of their borrowers’ operations has never been more important. This monitoring will become increasingly important as we transition into a post-pandemic economy.

For seasonal borrowers, current indications, such as the most recent results from the Federal Reserve’s Beige Book, show that economic activity was modest in August and September 2021. Supply chain pressures, labor shortages, and concerns over COVID-19 variants (delta and now omicron) have slowed economic growth and continue to provide uncertainty as to (1) the trajectory of the economy, (2) whether inflation is transitory, and (3) the need for the Federal Reserve to increase the federal funds target rate. If an increase in the federal funds target rate is used to combat inflation, community banks could see their NIMs in another transitory stage.

Also, as offices start to open, employers will start to reassess their office needs. Many employers have either created or revised remote working policies due to changing employee behavior. If remote working schedules persist, whether it be full-time or hybrid, the demand for office space may decline, causing instability for commercial real estate borrowers. Banks should closely monitor these borrowers, as identifying early signs of credit deterioration could be essential to preserving the relationship.

The financial services industry is full of excitement right now. While the industry faces many challenges, these challenges also bring opportunity for banks to experiment and differentiate themselves. The forces at play right now indicate the industry will likely look much different ten years from now. However, as the pandemic has exhibited, you may be full steam ahead in one direction and then an unforeseen force may totally up-end your plans. As always, please don’t hesitate to reach out to BerryDunn’s Financial Services team if you have any questions.

Article
FDIC Issues its Third Quarter 2021 Quarterly Banking Profile

Read this if you use QuickBooks Online.

Are you finding that you need more flexibility in an area of QuickBooks Online? Maybe it’s time to try an integrated app.

When you first started using QuickBooks Online, you probably found it supplied the tools you needed to manage your accounting—and then some. But as your business grows or becomes more complex, you may need more functionality and flexibility in one or more areas, like time tracking and billing.

There are hundreds of add-on applications that integrate well with QuickBooks Online in the QuickBooks Apps store, which you can find here. Many of these apps are free, but most have subscription fees. They’re designed to amplify the power of QuickBooks Online’s own features. The site will remain your home base, but you’ll have to learn enough about the add-on apps to understand how they work and how they integrate with QuickBooks Online. Here are some of the most popular add-on solutions from the QuickBooks Apps site.

Expensify

QuickBooks Online allows you to record expenses. Its thorough form templates ask you for numerous details, like the vendor, product or service, amount, and billable status. Completed expenses appear in a table. You can run any of several related reports, like Expenses by Vendor Summary. If you use the QuickBooks Online mobile app, you can snap photos of receipts that are turned into expense forms by QuickBooks Online and partially completed with the receipt data.

Using the QuickBooks Online mobile app, you can snap photos of receipts and complete the expense forms provided.

But Expensify ($5-9 per month for one user) does more. It’s a robust expense management system that handles everything from receipt processing to next-day reimbursement. Where QuickBooks Online only supports basic expense tracking, Expensify allows you to create expense reports and follow them through multi-level approvals. It features automatic credit card reconciliation and expense policy enforcement, as well as bill pay and invoices/payments. Two-way synchronization with QuickBooks Online means you can work in either application and your data will be replicated in the other, as is the case with all of these integrated solutions.

QuickBooks Time

Formerly known as TSheets, this powerful time-tracking application builds on QuickBooks Online’s time management and payroll features. QuickBooks Time ($8-10 per user per month plus $20-40 monthly base fee) is now owned by Intuit, so it’s embedded directly in QuickBooks Online. 

Your employees can track their hours on any device, from any location, and they will instantly be available in QuickBooks Online so managers can review, edit, and approve timesheets. That data can then be used in areas like invoicing, job costing, and payroll. Advanced features include scheduling capabilities, overtime monitoring, GPS tracking, and real-time reports. The Who’s Working window shows you where your staff members are working and what they’re doing, in real time. 

Method:CRM

QuickBooks Online does a good job of helping you create profiles of customers and storing them for quick retrieval. But some businesses need more than that. They need true Customer Relationship Management (CRM). Method:CRM ($28-49 per month per user; discounts for annual subscriptions) is an excellent partner for QuickBooks Online in this area.

You can record and store customer details in QuickBooks Online, but Method:CRM adds true Customer Relationship management to the site.

When you integrate Method:CRM with QuickBooks Online, you no longer have to do duplicate data entry to keep track of your customers and their sales profiles and histories. You get a shared lead list and activity tracking (emails and phone calls), and your customer records contain the information a sales team needs, like customer details, interaction, transactions, and services performed. Leads are stored in Method:CRM until they’re customers, and you can track sales opportunities from a customer’s initial interest through the final sale. 

Two more advanced integrated apps

QuickBooks Online provides basic inventory-tracking capabilities, but if your business has more complex needs, an integrated application like SOS Inventory ($49.95-149.95 per user per month) should be able to meet them. Built for QuickBooks Online from the ground up, the application offers advanced features like sales orders and order management, assemblies, serial inventory, and multiple locations. And if you need more sophisticated bill pay, invoicing, and payment processing (with multiple automated approval levels) than QuickBooks Online offers, you might look into the highly-regarded Bill.com ($39-69 per user per month).

Growth Is good, but challenging

We wanted to introduce you to a few of the hundreds of integrated apps available for QuickBooks Online because you should know that there are options for expanding on the site’s built-in capabilities. As your business grows, so does your need for more sophisticated accounting. QuickBooks Online may still be able to serve you well with the help of one or more of these add-ons.

You may also want to explore the possibility of upgrading your version of QuickBooks Online. We encourage you to consult with us if you’re outgrowing QuickBooks Online. We can help you explore the options so you can spend your time planning for your company’s future instead of wrestling with your accounting application. Please contact our Outsourced Accounting team

Article
Expand QuickBooks Online's features: Use integrated apps

Read this if you are an employer that gives employee gifts.

The holiday season is officially in full swing! Unlike Ebenezer Scrooge, many employers are looking for ways to recognize the dedication and hard work of their employees. This gratitude often comes in the form of a holiday gift of some fashion. While this generosity is well-intended, gifts to employees can be fraught with potential tax consequences organizations should be aware of. This article will attempt to demystify the rules surrounding employee gifts to ensure organizations and their employees have a joyous holiday season.

Holiday gifts: Taxable or not?

So, are holiday gifts to employees taxable? The answer, as is so often the case with tax questions, is it depends. The IRS is very clear that cash and cash equivalents (specifically including gift cards) are always included as taxable income when they are provided by the employer, regardless of amount, with no exceptions. This means that if you plan to give your employees cash or a gift card this year, the value must be included in the employees’ wages and is subject to all payroll taxes. Bah humbug indeed!

Nontaxable gift options

There are however, a few ways to make nontaxable gifts to employees. In each instance the gift must be noncash (nor convertible to cash). IRS Publication 15 offers a variety of examples of de minimis (minimal) benefits, defined as any property or service you provide to an employee that has a minimal value, making the accounting for it unreasonable and administratively impracticable. Examples include holiday or birthday gifts with a low market value (a card and flowers, fruit baskets, a box of chocolates, etc.), or occasional tickets for theater or sporting events, among others. Again, cash and cash equivalents never qualify. The key is that the gift must be occasional or unusual in its frequency and must not be a form of disguised compensation. While de minimis benefits can be a gray area, the IRS has generally deemed items with a value exceeding $100 as too large to qualify as de minimis.

Holiday gifts can also be nontaxable if they are in the form of a gift coupon, if given for a specific item (with no redeemable cash value). A common example would be issuing a coupon to your employee for a free ham or turkey redeemable at the local grocery store. Nontaxable employee gifts can also come in the form of achievement awards, either for length of service or for safety achievements. The proverbial gold watch upon retirement is a classic example of such a gift. Here too, the award must always be tangible personal property—never cash or a cash equivalent. There are additional rules and value thresholds on any such gift. Please contact a member of your tax team to discuss these specific details further.

Whether employers are considering supplying gift cards, turkeys, or something in between, we hope all find this guidance helpful and still in the giving spirit! Coincidentally, at the end of A Christmas Carol, Ebenezer himself gives Bob Cratchit a turkey on Christmas day. Of course Mr. Scrooge would be aware of the potential tax consequences! We wish you all a very happy and healthy holiday season!

Not-for-profit resources

If you are a not-for-profit organization receiving charitable gifts, read Donor Acknowledgements: We have to file what?

Article
What employers need to know before making gifts to employees