Innovators Jumpstart- Grant Thornton (Financials and Accounting)

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Financial Reporting and
Accounting

2. © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
Your Presenters
Jane Gregg, CPA, CA Nick Lawrence, CPA, CA

3. © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
Record Keeping
Timely financial record keeping is critical to
running your business effectively
– Monitor cash flows
– Forecasting and budgeting
– Key performance indicators
– Banking covenants and restrictions
– Filing requirements

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Record Keeping
• What are the costs of untimely bookkeeping?
– External accounting costs to fix
– Missed opportunities due to delay
• Financing
• Investments
– Late filing penalties and interest
– Fraud and error

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Regular Accounting
Processes
• What are some of the regular accounting
processes performed?
– Monthly bank reconciliations
– Monthly review of accounts receivable
– Inventory counts
– Monthly payable reconciliations
– Payroll tax remittances
– HST/GST remittances

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Financial Reporting
How often should I review financial reports?

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Financial Reporting
• The frequency of financial review depends on:
– The type of financial information needed
– The users of that information
– Accounting system capabilities
• Consider who needs what information and design
your accounting systems based on those needs.
– Managers, bank, other stakeholders

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Cash is King!
In most cases, start-ups don't fail because they
aren't profitable, it's usually because they've run
out of cash.

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Cash Management
• Always observe/control/conserve cash
• Set appropriate credit terms—long with suppliers,
short with customers
• Check credit worthiness of customers
• Monitor inventory stock cycles
• Forecasting and budgeting are critical
• Focus on key working capital metrics
• Consider alternative financing

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Key performance indicators
(KPIs)
• Identify key milestones
• Identify appropriate KPIs
o Must measure milestones
o Must be quantifiable
o Must reflect your goals

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Common Ratios
These help measure financial performance:
• Current ratio
• Inventory turnover & Average days in inventory
• Receivables turnover & Average days in receivables
• Payables turnover & Average days in payables
• Debt to equity ratio
• Debt ratio
• Interest coverage
• Gross margin
• Return on sales/assets/equity

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Other KPIs
Understand your customers:
• Customer retention rate
• Customer satisfaction
index
• Customer turnover rate
• Customer complaints
• Customer profitability
score
Understand your market:
• Market growth rate
• Market share
• Social networking
footprint
• Page views and bounce
rate
• Search engine rankings
• Clout score

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Other KPIs
Operational performance:
• Six sigma level
• Utilization rates
• Process waste level
• Order fulfillment time
• Inventory shrinkage rate
• Project cost variance
• Time to market
• Quality index
• Process downtime level
Understand your employees:
• Revenue per employee
• Employee satisfaction
index
• Average employee tenure
• 360-degree feedback
score
• Salary competitiveness
ratio
• Training return on
investment

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Accounting Considerations
• Accrual Accounting versus Cash Basis
– Revenues and expenses recorded based on
when "earned" and/or "incurred"
• Financial statement categories:
– Balance Sheet: assets, liabilities, equity
– Income Statement: revenues and expenses

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Accounting Considerations
Revenue Recognition
Revenue is typically recognized when delivery has
occurred or services have been rendered, the sellers'
price is fixed or determinable, and collection is
reasonably assured.

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Accounting Considerations
Revenue Recognition Issues
• Consignment
• Right to return
• Customer acceptance
• Layaway sales
• Guarantees and
warranties
• Multiple deliverables
• Long delivery times
• Cancellable sales
arrangements
• Refundable fee for
services
• Percentage of
completion
• Government grants
• Forgivable loans

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Accounting Considerations
Capitalization versus expense
– Some expenditures are classified as long-lived
assets instead of a current period expense.
– These assets are depreciated over the
estimated useful life.
• Examples of capital assets (tangible and
intangible):
– Buildings, land, equipment, vehicles, etc.
– Patents, customer lists, trademarks, etc.

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Accounting Considerations
Research and development
• Expenditure on research is an expense in the
period it is incurred.
• An entity cannot demonstrate that an intangible
asset exists at this stage.
• Examples of research activities:
– activities aimed at obtaining new knowledge
– the search for alternative materials, devices, etc.
– design and evaluation of possible alternative
materials, devices, etc.

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Accounting Considerations
Research and development
• Expenditures in the development phase can be
accounted for one of two ways:
– expense in the period incurred
– capitalize as an intangible asset
• Classification as a long lived intangible asset
depends on number of criteria outlined in the CPA
Handbook
• The development phase is further advanced than
the research phase therefore it is easier to
demonstrate future economic benefits.

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Accounting Considerations
Accounting Estimates
• Some common estimates used in financial
statements include:
– Useful life estimates
– Allowance for doubtful accounts
– Net realizable value of inventory
– Future income tax assets/liabilities
• Potentially there could be more complex estimates
required that may involve expert opinions.
– e.g. future employee benefit obligations

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How can Grant Thornton
Help?
• Year end compliance
• Accounting and business advisory
• Personal and corporate tax compliance and
planning
• Business strategy and planning
• Financing (e.g. assistance with applications)
• NB Small Investor Tax Credit
• Government assistance

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Any Questions?