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Category: Entrepreneur

Individual skilled in a specific field or area working independent of established “salaried job” setting. Best described by the term “spirit of the entrepreneur”, this type of person is known to carve out his/her own niche, call his/her own shots and work according to his/her own schedule.

  • What is accounting fraud?

    Accounting fraud is a deliberate and improper manipulation of the recording of sales revenue and/or expenses in order to make a company’s profit performance appear better than it actually is. Some things that companies do that can constitute fraud are:

    • Not listing prepaid expenses or other incidental assets
    • Not showing certain classifications of current assets and/or liabilities
    • Collapsing short- and long-term debt into one amount.

    Over-recording sales revenue is the most common technique of accounting fraud. A business may ship products to customers that they haven’t ordered, knowing that those customers will return the products after the end of the year. Until the returns are made, the business records the shipments as if they were actual sales. Or a business may engage in channel stuffing.

    Channel stuffing is when a business delivers products to dealers or final customers that they really don’t want, but such a business makes deals on the side that provide incentives and special privileges if the dealers or customers don’t object to taking premature delivery of the products. A business may also delay recording products that have been returned by customers to avoid recognizing these offsets against sales revenue in the current year.

    The other way a business commits accounting fraud is by under-recording expenses, such as not recording depreciation expense. Or a business may choose not to record all of its cost of goods sold expense fore the sales made during a period. This would make the gross margin higher, but the business’s inventory asset would include products that actually are not in inventory because they’ve been delivered to customers.

    A business might also choose not to record asset losses that should be recognized, such as uncollectible accounts receivable, or it might not write down inventory under the lower of cost or market rule. A business might also not record the full amount of the liability for an expense, making that liability understated in the company’s balance sheet. Its profit, therefore, would be overstated.




  • What are independent auditors?


    Independent CPA auditors are like referees in the financial reporting arena. The CPA comes in, does an audit of the business’s accounting system and methods and gives a report that is attached to the company’s financial statements. Publicly owned businesses are required to have their annual financial reports audited by independent CPA firms and any privately owned businesses have audits done as well because they know that an audit report will add credibility to their financial reports.

    An auditor judges whether the business’s accounting methods are in accordance with generally accepted accounting principles (GAAP). Generally everything is in place and the financial report is a reliable document. But at times an auditor will wave a yellow or red flag.

    Some indicators of potential trouble include when the business’s capability to continue normal operations is in doubt because of what are known as financial exigencies, which could mean a low cash balance, unpaid overdue liabilities, or major lawsuits that the business doesn’t have the cash to cover.

    An auditor must exercise professional skepticism, meaning the auditor should challenge the accounting methods and reporting practices of the client in order to make sure that its financial statement conform with accounting standards and are not misleading – in short, that the financial statement are fairly presented. Indeed, the words “fairly presented” are the exact words used in the auditor’s report.

    A good auditor need technical know-how, but also needs to know how to be tough on the accounting methods of the client. His job is to be the agent of the shareholders and other users of the business’s financial report. It’s incumbent on an auditor to strictly uphold GAAP, and not let any irregularities slide.

    There are a number of well-known companies that engaged in accounting fraud recently and that fraud was not discovered by the CPA auditors. Enron is one of these companies. In this case, the auditing firm, Arthur Anderson was found guilty of obstruction of justice because it destroyed audit evidence.

  • What is Acid Test Ratio and ROA Ratio?


    Investors calculate the acid test ratio, also known as the quick ratio or the pounce ratio. This ratio excludes inventory and prepaid expenses, which the current ratio includes, and it limits assets to cash and items that the business can quickly convert to cash. This limited category of assets is known as quick or liquid assets. The acid-text ratio is calculated by dividing the liquid assets by the total current liabilities.

    This ratio is also known as the pounce ratio to emphasize that you’re calculating for a worst-case scenario, where the business’s creditors could pounce on the business and demand quick payment of the business’s liabilities. Short term creditors do not have the right to demand immediate payment, except in unusual circumstances. This ratio is a conservative way to look at a business’s capability to pay its short-term liabilities.

    One factor that affects the bottom-line profitability of a business is whether it uses debt to its advantage. A business may realize a financial leverage gain, meaning it earns more profit on the money it has borrowed than the interest paid for the use of the borrowed money. A good part of a business’s net income for the year may be due to financial leverage. The ROA ratio is determined by dividing the earnings before interest and income tax (EBIT) by the net operating assets.

    An investor compares the ROA with the interest rate at which the corporation borrowed money. If a business’s ROA is 14 percent and the interest rate on its debt is 8 percent, the business’s net gain on its capital is 6 percent more than what it’s paying in interest.

    ROA is a useful ratio for interpreting profit performance, aside from determining financial gain or loss. ROA is called a capital utilization test that measures how profit before interest and income tax was earned on the total capital employed by the business.

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  • Reporting: Private vis-a-vis Public


    A public corporation is a business whose securities are traded on the public stock exchanges, such as the New York Stock Exchange and Nasdaq. A private company is held solely by its owners and is not traded publicly. When the shareholders of a private business receive the periodical financial reports, they are entitled to assume that the company’s financial statements and footnotes are prepared in accordance with GAAP.

    Otherwise the president of chief officer of the business should clearly warn the shareholders that GAAP have not been followed in one or more respects. The content of a private business’s annual financial report is often minimal. It includes the three primary financial statements – the balance sheet, income statement and statement of cash flows. There’s generally no letter from the chief executive, no photographs, no charts.

    In contrast, the annual report of a publicly traded company has more bells and whistles to it. There are also more requirements for reporting. These include the management discussion and analysis (MD&A) section that presents the top managers’ interpretation and analysis of the business’s profit performance and other important financial developments over the year.

    Another section required for public companies is the earnings per share (EPS). This is the only ratio that a public business is required to report, although most public companies report a few others as well. A three-year comparative income statement is also required.

    Many publicly owned businesses make their required filings with the SEC, but they present very different annual financial reports to their stockholders. A large number of public companies include only condensed financial information rather than comprehensive financial statements. They will generally refer the reader to a more detailed SEC financial report for more specifics.

  • How to analyze a financial statement

    It’s obvious financial statement have a lot of numbers in them and at first glance it can seem unwieldy to read and understand. One way to interpret a financial report is to compute ratios, which means, divide a particular number in the financial report by another.

    Financial statement ratios are also useful because they enable the reader to compare a business’s current performance with its past performance or with another business’s performance, regardless of whether sales revenue or net income was bigger or smaller for the other years or the other business. In order words, using ratios can cancel out difference in company sizes.

    There aren’t many ratios in financial reports. Publicly owned businesses are required to report just one ratio (earnings per share, or EPS) and privately-owned businesses generally don’t report any ratios. Generally accepted accounting principles (GAAP) don’t require that any ratios be reported, except EPS for publicly owned companies.

    Ratios don’t provide definitive answers, however. They’re useful indicators, but aren’t the only factor in gauging the profitability and effectiveness of a company.

    One ratio that’s a useful indicator of a company’s profitability is the gross margin ratio. This is the gross margin divided by the sales revenue. Businesses don’t discose margin information in their external financial reports. This information is considered to be proprietary in nature and is kept confidential to shield it from competitors.

    The profit ratio is very important in analyzing the bottom-line of a company. It indicates how much net income was earned on each $100 of sales revenue. A profit ratio of 5 to 10 percent is common in most industries, although some highly price-competitive industries, such as retailers or grocery stores will show profit ratios of only 1 to 2 percent.




  • Is There An Ideal Time To Publish Your Articles?

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    Today’s post is special for a couple of reasons. First it has brought back some memories about my own early days on the Web; and Second it is a rather inspiring account of the author’s own recollection of his early Web publishing efforts. When you think about it, the vastness of this Internet community/marketplace could be very intimidating.

    My memories – as conjured up by the article I’m about to share with you – are vivid and, as a Web marketer going on 5 years with a pretty decent demand for my articles, I share the following article with the knowledge that, in order for any entrepreneur or marketer to be successful on the Web, s/he MUST be able to communicate effectively with the community; and the best way to be effective is to be honest to yourself and your audience.

    Here’s the entire article – which was shared with me – authorized for republishing by, and with a few words of introduction from, my reliable copywriting buddy at the Copywriter’s Roundtable:

    Today, I’ll share what might be the weirdest (and best) invitation you’ll hear all year. But first, a challenge. This comes to us via our Kiwi pal and fellow copywriter, Sean D’Souza. What’s the challenge? By way of explanation, I happen to know that a lot of you guys are not just aspiring copywriters… but aspiring writers in general. Sean, too, was once in your shoes.

    And then he did something about it. Today, he’s going to challenge you to do something about it too. Even if the kind of his writing he’s recommending ISN’T something on your wordsmithing bucket list, I encourage you to read on — simply substitute the kind of writing you want to do with the kind Sean talks about here.

    Sean, take it away…

    WHEN’S THE RIGHT TIME TO PUBLISH YOUR ARTICLE?
    by Sean D’Souza

    Imagine a daughter who’s about to utter her first word. For a long time her expectant parents have been waiting to guess what that first word would be. Would it be ‘dada’ or ‘mama’? Or something else altogether? And then she says it! There are whoops of joy. Except this daughter is not really a baby. She’s a woman at the ‘ripe, old age’ of 35. And there’s nothing wrong with the woman at all.

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    She was just waiting for the right moment to say her first word. Yes, I know it’s a ridiculous story But it’s not any more ridiculous than you waiting for the right moment to publish your article. As we go through writing articles, we believe that our articles aren’t quite good enough to post on our websites or blogs. So we salt them, in the hope that we’ll write better articles in the future.

    If I’d waited for the future, you wouldn’t be reading this article. When I started writing articles way back in the year 2000, I struggled with my articles. I didn’t feel they were good enough. And besides I had one massive problem. I felt like a fraud, because I was a cartoonist and knew nothing about marketing. But I’d read an article in the Reader’s Digest when I was a child. The title of the article was “Be brave and mighty forces will be with you.”

    So I gave in to mighty forces. I published my articles. And to my surprise, others not only wanted to read them, but wanted to publish them as well. And while it took us over a year back then, over a thousand people subscribed. One thousand people were reading my ‘crappy’ articles. And it didn’t stop there. I then wrote this document called The Brain Audit. It was only 20 pages long, including some fillers. And at first it was a trickle of customers that bought it, but soon we had hundreds of people buying it.

    I’m sure you’ve heard this story before, but we had sold over $50,000 worth of The Brain Audit in that form; And it was only then that it got upgraded. (Today The Brain Audit is 180 pages and far more polished); but what if I had waited for the perfect moment? What if my articles still needed polish? What if I had believed that The Brain Audit was too anorexic to publish?

    Be brave! Go ahead and publish your stuff. And then be surprised, just like I was.
    The article ends, hope you liked it.

    Note to the reader: John at Copywriter’s Roundtable has invited you to sign up for $78 worth of free gifts at the Copywriter’s Rountable. John is a very reliable, down to earth and principled individual, so you WILL get your gifts when you sign up.

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  • Making Your Accounting Principles Acceptable




    It would be very easy for an employee to expect fair treatment from professionals within the company s/he’s employed with. To expect them to act within the precepts of the Golden Rule: “Do Unto Others as You Would Have Them do Unto You” which, if company management were to engage in such honorable behavior, workers would have little or nothing to worry about. But that’s not the case and therefore principles and systems must be employed.

    If everyone involved in the process of accounting followed their own system, or no system at all, there would be no way to truly tell whether a company was profitable or not. Most companies follow what is commonly referred to as GAAP (Generally Accepted Accounting Principles), and there are huge tomes in libraries and bookstores devoted to just this one topic.

    Unless a company states otherwise, anyone reading a financial statement can make the assumption that company has used GAAP. If GAAP is not the set of principles used for preparing financial statements, then a business needs to make clear which other form of accounting they have used and are bound to avoid using titles in its financial statements that could mislead the person examining it.

    GAAP is the gold standard for preparing financial statements and/or a financial report. Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses.

    Different principles have been established for different types of business entities, such as for-profit and NFP (Not For Profit) companies/organizations, governments and other enterprises. GAAP is not cut and dried, however. They’re guidelines and, as such, are often open to interpretation. Estimates have to be made at times, and they require good faith efforts towards accuracy.

    You have probably heard the phrase “creative accounting,” which is when a company pushes the envelope a little (or a lot) too far to make their business look more profitable than it might actually be. This is also known as massaging the numbers, a practice that can spiral out of control and quickly turn into accounting fraud (or cooking the books). The results of these practices can be devastating and ruinous to hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.