Business Uses of Insurance

There are various business uses of insurance. Below we mention some of the more common uses:

Group Term life insurance

Most businesses include Group Life Insurance in their employee benefit packages. These are usually at no cost to the employee with amounts based on a dollar amount or a multiple of base salary.

But-Sell Agreements

Businesses often plan for continuation of the business following the death of an owner, partner or stockholder, by executing buy-sell agreements funded by life insurance.

There are three risks which must be faced by the owner of a business. He or she will suffer death, dissability or retire. Various agreements backed by life insurance may be used to provide for temporary continuation and eventual sale of a business upon the death of a sole proprietor, or the purchase of a business by surviving partners, or the purchase of stock in a corporation when a major stockholder dies.

When a sole proprietor dies, there could follow the abrupt end of income for family members and the forced liquidation of business assets at a fraction of their value. Life insurance proceeds come in handy to pay a competent person to keep the business running pending sale.

Many owners are very specific regarding what they would like to see done with the business at death. If the business is the sole means of livelihood of a number of partners or stockholders, the liquidation alternative is not acceptable unless unavoidable A life insurance policy on the owner can often prevent liquidation and preserve the value of the business until it is sold or passed on to heirs or dependents.

Key Person Insurance

Some employees play a key roll in the operation of a business and are relied on. They provide vision, creativity etc. Their death would be a severe loss to the business. Life insurance can be used to protect the financial interest in these key employes.

Liability Insurance

Businesses buy liability insurance to cover assets such as property and automobile.

Workers Compensation Insurance

Employers are required to purchase Workers Compensation insurance to cover employees injured on the job.

Directors Errors and omission

Employers purchase this insurance to cover claims due to directors and officers errors.

The Different Types of Business Entities Explained

As people strive to get involved in operating a business, there are many enquiries concerning the various forms of business entities that can be set up--this article gives a brief description of each form.

SOLE PROPRIETORSHIP
A sole proprietorship is an unincorporated entity owned by one person-usually common in the service industry and usually owned by one person. The business is not considered a legal entity separate from its owner and taxes flow through to the owner of the business. Compare to the other business types this is relatively easy to set up. For accounting and reporting purposes it is important to keep some form of systematic records.

PARTNERSHIP
This is an unincorporated business owned by two or more persons. These persons are called partners. They have come together to operate a business, because of some compelling reasons--they might be buddies for some time, they might share a common passion, they might complement each other whereby one has the capital and the other person has the know-how etc. In this form of business there is a legal contract drafted that both partners should sign. This comes with legal ramifications involving how much each partner should contribute, share of profits--each partners responsibility for the partnership debt, ending the partnership among other things. Although there are do-it-your-self kits that one can use to establish a partnerships, because of the legal technicalities it is advisable to use the services of an attorney.

CORPORATIONS
These are incorporated entities under the laws of a particular state. Ownership is evidenced by shares owned by individuals called shareholders. One prominent benefit is that the shareholders enjoy limited liability--they are only liable for the company's debt up to the extent of their investment in the company.

The shareholders elect a Board of Directors, who then employ managers to run the business. It is also easier to raise capital with this form and it has perpetual life.

For more information on this and other accounting topics contact the author- Selvyn Evans.

Accounting and Bookkeeping quiz

KNOW SOME IMPORTANT ACCOUNTING TERMS

CURRENT ASSETS:
Current assets are cash and other assets expected to be converted into cash, sold or consumed either in one year, or in the operating cycle, whichever is longer.

CURRENT LIABILITIES
Current Liabilities are amounts owing by a business to its creditors, that are reasonably expected to be paid or liquidated either through the use of current assets or through the creation of other current liabilities.

The Dangers of Delaying Accounting/booking processes.

Many small businesses are operating without up to date accounting record, or timely periodical reporting. Business owners are sometimes undecided as to whether they should outsource or prepare accounts in-house. This is sometimes caused by cash shortage, or just a careless approach to business by the owners. Below we examine some disadvantages of delaying the accounting and Bookkeeping functions.

A businessman who operates without accounting data will not know how the business is performing. There might be some cash in the bank, but this is not the same as profit. He needs to know in a timely manner, how his business is doing. He needs to compare accurately documented revenue with matching expenditure to see if he is making a profit.

When there is a lack of accounting data, the presence of pilferage or fraud may not be detected before much is lost. The guilty employee might have departed before the discovery is made, so that any chance of recovery is lost. Often in a small business, there may only be the owner and a bookkeeper. The bookkeeper, who may be having personal financial difficulties, takes a small amount of money intending to pay it back. No one notice, so more is taken. Over a period of time, it starts to mount up to a lot of money.
Timely preparation of accounts, examined by the can help to prevent this temptation

Correct information is needed at intervals to calculate sales, use and other tax, and to meet other statutory obligations. Proprietors will be penalized for late payment of taxes, for errors in tax computation or the absence of payment.

Where there are partners, or more than one persons running and benefiting from the business, the lack of accounting information will make it impossible to determine each partner's share of profits or loss, leading to mistrust among partners.

The longer the delay in preparing accounts, the more difficult it will be to investigate and remedy past issues that affect the accounting. The details of what really happened 6 months or 1 year ago is not always easily recalled.

All operations should have some system of internal control and procedure to minimize fraud and errors. The timely preparation of accounts will aid the compliance with internal rules and regulation.

Some business managers prefer to do the books themselves, but in many instances they don't have the time or expertise to do accounting and take care of operations.
There are likely to be errors because business owners are usually not good at accounting, and errors in the reports can cause inappropriate actions to be taken that will have adverse effects on the operation.

At other times business owners try to reduce expenses by not employing someone to do the bookkeeping, or outsourcing the function, but in the long run this decision
can be more costly than the cost of getting the books done.
In summary , timely accounting and bookkeeping is essential to every business. It provides a feed back to the owner on the results of operation for a period. It then becomes the owners responsibility to take remedial action where necessary, to correct any adverse discoveries.

Selvyn Evans is an Accounting/Financial Professional with 30 years experience in the Accounting and finance field. He publishes business topics and assist small businesses in their bookkeeping and accounting needs.

Church Audit - Why Would Our Church Or Nonprofit Organization Actually Want an Audit?

A nonprofit or church audit is a process that provides reasonable assurance that good stewardship is being used in handling and accounting for the funds and other assets of your organization.

The audit may be external (performed by an outside Certified Public Accountant) and/or internal (reviewed by business people in your organization who understand financial management and are not related in any way to the Financial Secretary or Treasurer).

Why would your organization actually want an audit?

Because it is the best way to:

* Protect the persons your organization elects to offices of financial responsibility from unwarranted charges of careless or improper handling of funds;
* Build the trust and confidence of the financial supporters of the organization in the way their money is being accounted for;
* Set habits of fiscal responsibility to assure that when there is turnover in personnel there will be continuity in accountability;
* Assure that contributions made to the organization with special conditions attached are consistently administered in accordance with the donors' instructions, and thereby letting donors know their contributions are being used as intended;
* Provide checks and balances for sums received and expended.

Most nonprofit or church audits are internal. An internal audit consists of selected auditing procedures performed by individuals inside your organization rather than by an outside CPA.

Internal audits can be a very cost effective means of improving the organization's system of internal controls without the expense of a full scope outside audit.

The purpose of many of the internal audit procedures are to ensure that the organization's system of internal controls is operating as intended. The internal auditors (which very well could be volunteers from the organization's financial committee), should develop an audit program and an audit schedule.

Your nonprofit or church may want to consider consulting with a CPA who is familiar with auditing to assist the organization in designing the internal audit program and training the internal auditors. Once the audit program has been effectively designed and documented, the nonprofit or church should be able to use the program for several years with only limited involvement of the outside CPA.

Generally, a person(s) who is "qualified" to perform an internal audit will have some experience with accounting principles, such as those gained through bookkeeping, office management, or accounting courses.

The person(s) must have the time to devote to the internal audit as it is quite a lengthy process.
Sometimes a small church or nonprofit will agree with another small church or nonprofit in the same locale to have the treasurer of each audit the other.

Often churches have accounting professionals in their congregations who are not serving that church in any of the financial positions who are willing to perform the audit as a donation of services.
An audit is not a reflection on the competence or integrity of your financial staff. Rather, it is a routine procedure designed to protect both your staff and your church or nonprofit.

In conclusion, remember...conducting an audit is not a symbol of distrust..it is a mark of responsibility.

Vickey Boatright, nonprofit fund accountant, church Financial advisor, and editor of the website: http://www.freechurchaccounting.com a resource for free financial spreadsheets, an internal audit checklist, and nonprofit and church accounting.

What Sort of Services Can You Expect From a Good Accountant

You will frequently hear the phrase, "There are two things you can count on: death and taxes". This exemplifies how most people feel about dealing with taxes - much like facing death.

Fortunately, there are people who enjoy this, not only plugging numbers into columns, but figuring out payroll and making tax decisions to maximize the citizen's return. When searching for an accountant, there are certain things you must keep in mind to find the person who is a perfect fit.

The consumer should always consider the level of service received from his or her accountant. Consider communication, speed at returning phone calls, availability for appointments, whether they can come to your business, and the accuracy of the work they submit back to you. One of the best ways to find a good accountant is through word of mouth. Ask people that have similar financial needs than you whom they use, and do a little research. Set up a meeting and make sure this is someone you want to make a long term working relationship with.

While meeting with this prospective accountant, find out what kind of services are offered. Find out if they are a general accountant, providing bookkeeping services and if they can meet your payroll needs. Inquire on what the rates are. Also, and important consideration is how much you will have to keep up with for taxes and what they are willing to keep up with throughout the year. As the tax laws change, make sure to ask about what your accountant does to keep up with the changing laws and how that will be communicated to you.

Many accountants specialize, so make sure this person meets your needs. What kind of tax services do you require? For the normal citizen, a general accountant should be fine in most instances, but make sure to double check with an inheritance or capital gain - if your financial situation changes, will your accountant be prepared to handle it? Business owners and people with large financial assets have a lot more to consider. Corporate taxes, stamp taxes, payroll and wealth management.

For most people, future planning is important. The best way to financially plan for the future is to know exactly what you have today. While your accountant can not give you guaranteed advice, he or she can give you projected returns on your retirement accounts, business plans, investments and insurance. Your accountant is there to help you set up a budget where everything works. And although it's ultimately up to you to put the money in the bank, it is essential to have a reputable accountant there to make sure it's working for you. And when you consider the ramifications of doing your taxes wrong, there's just no way you can put a price on having someone help you do them right. Tax penalties will make life unbearable! So find your tax professional soon.

Richard Mitchell has created several online resources dealing with accountancy and has worked closely with Birmingham Accountants for some time.