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Entries by Katie Chrisman

Key Performance Indicators for Measuring Not-for-Profit Success

Measuring success in a not-for-profit organization is rarely simple. Financial results matter, but they do not tell the full story. Mission impact, program quality, community trust, and long-term sustainability all shape what success really looks like.  Key performance indicators, or KPIs, can bring structure to that complexity. When thoughtfully selected, they help leadership and …

Measuring success in a not-for-profit organization is rarely simple. Financial results matter, but they do not tell the full story. Mission impact, program quality, community trust, and long-term sustainability all shape what success really looks like. 

Key performance indicators, or KPIs, can bring structure to that complexity. When thoughtfully selected, they help leadership and boards track progress, support informed decision-making, and strengthen accountability. 

Start With a Clear Definition of Success 

Before choosing KPIs, leadership must define what strong performance means for the organization. That definition should reflect mission priorities while also recognizing stakeholder expectations. 

Consider questions such as: 

  • What outcomes define success for the communities we serve? 
  • How do funders measure performance? 
  • What does the board need to oversee effectively? 
  • What systems are in place to gather reliable data? 
  • How will data be used to guide improvement, not just reporting? 

Without clarity at this stage, KPIs risk becoming disconnected from strategy. 

Focus on Strategic Indicators, Not Everything You Can Measure 

KPIs are not an inventory of every data point available. They are a focused set of indicators that reflect meaningful progress and organizational health. 

Most organizations benefit from a mix of: 

  • Lead indicators, which signal future performance. Examples include donor engagement levels, program inquiries, or grant pipeline activity. 
  • Lagging indicators, which measure results already achieved. Examples include program completion rates, client outcomes, retention statistics, or year-over-year revenue stability. 

A balanced approach provides insight into both current results and future trajectory. 

Align KPIs With Your Business Model 

Effective KPIs are grounded in how the organization operates. Leadership should understand both revenue drivers and cost structures before finalizing what to measure. 

Important considerations include: 

  • Reliability and predictability of revenue streams 
  • Donor retention and fundraising efficiency 
  • Key cost drivers and expense trends 
  • Program-delivery metrics that influence participation and outcomes 

When KPIs reflect real operational drivers, they become practical tools rather than abstract numbers. 

Use Dashboards to Strengthen Oversight 

Many not-for-profits organize KPIs into dashboards for leadership and board review. A well-designed dashboard makes performance conversations more focused and productive. 

However, dashboards only add value when they are actively used. KPIs should be reviewed regularly, discussed openly, and adjusted as strategy evolves. Indicators that made sense during a strategic-planning cycle may need refinement as priorities shift. 

Keeping KPIs visible and relevant reinforces accountability and continuous improvement. 

Be Mindful of Unintended Incentives 

Measurement influences behavior. Poorly designed KPIs can unintentionally reward the wrong outcomes. For example, focusing solely on program volume may overlook service quality. Emphasizing short-term fundraising targets may distract from long-term donor relationships. 

Leadership should periodically assess whether KPIs are reinforcing the organization’s mission and values. 

Integrate KPIs Into Strategic Governance 

KPIs work best when tied directly to strategic goals and governance practices. They should support board oversight, guide management discussions, and inform year-end planning and budgeting decisions. 

When integrated thoughtfully, KPIs become more than a reporting requirement. They provide clarity around priorities and strengthen long-term sustainability. 

At DBC, our not-for-profit specialists partner with you to define the right performance indicators, align financial strategy with your mission, and build reporting systems that strengthen transparency and governance. If you are ready to measure what truly matters and lead with clarity, we are here to help you put the right structure in place.

To read the original article by Jeanne Bell, please visit https://nonprofitquarterly.org/what-are-key-performance-indicators-kpis-to-measure-nonprofit-success/ 

Improve Your Accounting System with Paperless W-9 and Sales Tax Exemption Storage

Most accounting systems already include tools designed to reduce paperwork and support compliance. The challenge is not access to those tools, but using them consistently.Two simple habits can make a meaningful difference in day-to-day accounting work and year-end preparation. One is storing vendor W-9 forms directly in the vendor profile. The other is saving …

Most accounting systems already include tools designed to reduce paperwork and support compliance. The challenge is not access to those tools, but using them consistently.

Two simple habits can make a meaningful difference in day-to-day accounting work and year-end preparation. One is storing vendor W-9 forms directly in the vendor profile. The other is saving customer sales tax exemption certificates within the customer record.

Together, these practices support cleaner records, faster reporting, and fewer last-minute scrambles when deadlines or audits arise.

Why Store Vendor W-9 Forms in Your Accounting System

When W-9 forms are scanned or saved directly to the vendor profile in your accounting system, the information needed for 1099 preparation is already in one place.

This approach helps by:

  • Reducing time spent tracking down missing tax information at year end
  • Lowering the risk of using outdated or incorrect vendor details
  • Creating a consistent, searchable record for your team and your CPA

For systems like QuickBooks, attaching a W-9 to the vendor profile means your 1099 process becomes more about review and accuracy, not document hunting. That efficiency adds up quickly, especially for businesses working with a high number of vendors.

How to Store Vendor W-9 Forms in Your Accounting System

Most accounting systems, including QuickBooks, allow you to attach documents directly to vendor records. Using this feature consistently makes 1099 preparation significantly easier.

To store a vendor W-9:

  • Request the completed W-9 from the vendor before or when services begin
  • Save the form electronically using a clear file name that includes the vendor name and date
  • Open the vendor profile in your accounting system
  • Upload or attach the W-9 within the vendor record using the document or attachment feature
  • Review the vendor’s tax information in the system to confirm it matches the W-9

Once attached, the W-9 remains accessible year after year, reducing the need to re-request information during 1099 season.

Why Save Sales Tax Exemption Certificates for Customers

Sales tax exemption certificates are another document that often gets filed away, emailed, or misplaced over time. Storing these certificates in the customer profile keeps them readily available when needed.

This practice supports:

  • Faster responses during a state sales tax audit
  • Clear documentation if questions arise about taxable versus exempt sales
  • More organized, paperless recordkeeping

Having exemption certificates tied directly to the customer record also reduces reliance on individual inboxes or shared folders that may not be consistently maintained.

How to Save Sales Tax Exemption Certificates for Customers

Customer records can also store supporting documentation, which is especially helpful for sales tax compliance.

To save a sales tax exemption certificate:

  • Obtain a valid exemption certificate from the customer before treating sales as exempt
  • Scan or save the certificate electronically using a clear file name
  • Open the customer profile in your accounting system
  • Upload or attach the exemption certificate within the customer record
  • Note any expiration dates or renewal requirements so the exemption stays current

Storing certificates this way ensures documentation is readily available if questions arise or a state audit occurs.

The Bigger Picture: Better Records, Less Stress

Paperless document storage within your accounting system is not about adding complexity. It is about building habits that support accuracy, accountability, and efficiency.

When key tax documents are stored where the related financial data already lives, your records are easier to manage, easier to review, and easier to support when questions arise.

These practices also make collaboration with your CPA smoother. With documents already organized and accessible, conversations can focus on planning and insights rather than gathering information.

Getting Started

If you are not currently attaching W-9 forms or sales tax exemption certificates within your accounting system, start small. Make this part of your vendor setup and customer onboarding process going forward. Over time, this creates a cleaner system with less manual follow-up.

If you would like guidance on setting this up in your accounting software or reviewing your current process, the DBC team is here to help you determine what will work best for your business.

Developing Internal Controls to Prevent Embezzlement 

For a not-for-profit organization, trust is a major part of your work. Donors give because they believe in your mission. Board members and staff give their time because they care. The communities you serve rely on you to be responsible with every dollar. That is exactly why internal controls matter. Even well-run organizations can be vulnerable to fraud …

For a not-for-profit organization, trust is a major part of your work. Donors give because they believe in your mission. Board members and staff give their time because they care. The communities you serve rely on you to be responsible with every dollar. 

That is exactly why internal controls matter. 

Even well-run organizations can be vulnerable to fraud when processes are informal, oversight is limited, or one person is handling too much. Putting the right controls in place is not about suspicion. It is about protecting the organization, the mission, and the people who depend on it. 

Understanding the Risk 

Embezzlement happens when someone misuses funds or assets they have access to. In many cases, it does not start with one large transaction. It starts small and grows over time, especially when no one is reviewing the details. 

Not-for-profits can be at higher risk because: 

  • Staffing is often lean 
  • Leadership may rely heavily on trust and long-standing relationships 
  • Administrative duties are sometimes spread thin 
  • Financial tasks may fall to one person out of necessity 

The goal is not to assume the worst. The goal is to avoid a situation where one mistake or one bad decision goes unnoticed for too long. 

Common Red Flags to Watch For 

Fraud rarely announces itself clearly, but there are warning signs worth paying attention to, such as: 

  • Unexplained fluctuations in account balances 
  • Missing receipts or incomplete documentation 
  • Reconciliations that are delayed or not completed 
  • Unusual vendor payments or reimbursements 
  • A staff member who resists oversight or refuses to take time off 

Red flags do not always mean fraud, but they should always lead to follow-up. 

Why Internal Controls Matter 

Internal controls are the basic safeguards that keep financial operations accurate, consistent, and reviewable. When they are working well, they help an organization stay organized and reduce preventable risk. 

Strong internal controls can help you: 

  • Reduce opportunities for misuse of funds 
  • Catch errors early, before they snowball 
  • Improve financial reporting and board oversight 
  • Strengthen confidence with donors and grantors 

Controls do not have to be complicated to be effective. They simply need to be consistent. 

Practical Internal Controls to Strengthen 

Below are a few internal control strategies we often recommend for not-for-profit organizations. Some can be implemented quickly, while others may require a policy update or a shift in workflow. The right mix depends on your team size, responsibilities, and day-to-day operations. 

  1. Separate Financial Responsibilities

One person should not be responsible for authorizing payments, entering transactions, and reconciling accounts. 

Even in a small organization, there are ways to introduce separation. For example, a board member can review bank statements, or a second person can approve payments over a certain dollar amount. 

  1. Create Clear Approval Rules

Written approval policies reduce confusion and prevent uncomfortable “gray areas.” 

A strong policy should define: 

  • Who can approve expenses 
  • Spending limits by role 
  • When dual approval is required 
  • Whether checks, electronic payments, and reimbursements follow the same rules 

Clear, written rules protect everyone involved by reducing uncertainty, keeping approvals consistent, and making financial decisions easier to support later. 

  1. Complete Bank Reconciliations Every Month

Monthly bank reconciliations are one of the simplest and most effective controls available. 

Best practice is to have someone independent review them, even if they are not the person completing them. The goal is to confirm accuracy and make sure unusual activity is identified quickly. 

  1. Review Financial Reports Consistently

Financial statements should be reviewed throughout the year, not filed away and revisited months later. Regular review is one of the most effective ways to strengthen oversight, catch errors early, and reduce the risk of inappropriate activity going unnoticed. 

At a minimum, leadership and the board should review: 

  • Monthly financial statements 
  • Budget-to-actual comparisons 
  • Unusual variances or unexpected trends 
  • Major vendor payments and reimbursements 

Consistent review creates accountability and helps confirm that financial activity matches what the organization expects. It also makes it much easier to spot concerns early, while they are still manageable. 

  1. Tighten Reimbursement and Expense Documentation

Expense reimbursement policies should require: 

  • Receipts 
  • Clear descriptions of the expense 
  • Approval before reimbursement 

If possible, reduce cash activity and move transactions to traceable payment methods. Electronic payments create a clearer paper trail, improve documentation, and make it easier to review activity later. 

  1. Use Software Access Controls

Your accounting system should have individual user logins with appropriate permissions. Not everyone needs access to everything. 

A few practical safeguards include: 

  • Limiting access to bank and payment functions 
  • Enabling audit trails 
  • Removing access immediately when staff transitions occur 
  • Reviewing user permissions at least annually 

These settings matter more than most organizations realize. 

  1. Schedule Periodic Reviews or Outside Support

Independent review strengthens accountability. Depending on your size and reporting requirements, that may include: 

  • Internal review by a finance committee 
  • An external bookkeeping review 
  • Audit preparation support 
  • An annual financial statement audit 

This is not only about meeting requirements. It is about catching problems early and putting better systems in place so that they do not repeat. 

  1. Build a Culture of Accountability

The strongest internal controls are supported by a healthy workplace culture. 

That includes: 

  • Encouraging questions 
  • Making it safe to raise concerns 
  • Setting clear expectations for documentation 
  • Reinforcing that oversight is normal and responsible 

Good controls work best when everyone understands their purpose. 

How De Boer, Baumann & Company Can Help 

De Boer, Baumann & Company works with not-for-profit organizations to strengthen internal controls in a way that is practical and sustainable. We help organizations evaluate existing processes, identify gaps, and put safeguards in place that fit the size and needs of the team. 

If you would like guidance on internal controls, financial oversight, or audit readiness, please contact us. We would be glad to help you reduce risk and strengthen the systems that support your mission. 

Strategies for Managing Restricted vs. Unrestricted Funds 

For not-for-profit organizations, every contribution supports the mission. But not every dollar can be used the same way. Understanding the difference between restricted and unrestricted funds is a core part of financial stewardship, and it directly impacts compliance, budgeting, and transparency. When these funds are tracked properly, organizations can honor donor intent while still maintaining the flexibility needed to …

For not-for-profit organizations, every contribution supports the mission. But not every dollar can be used the same way. Understanding the difference between restricted and unrestricted funds is a core part of financial stewardship, and it directly impacts compliance, budgeting, and transparency. 

When these funds are tracked properly, organizations can honor donor intent while still maintaining the flexibility needed to cover operations and plan ahead. Strong fund management also builds trust with donors, grantors, board members, and the broader community. 

Understanding Restricted and Unrestricted Funds 

Not-for-profit organizations receive funding from many sources, including individual donors, grants, sponsorships, and fundraising events. Some funds are restricted to a specific purpose, while others are available for general use. Knowing the difference can help your organization plan responsibly, stay compliant, and report clearly. 

Restricted Funds 

Restricted funds are contributions designated for a specific program, project, or purpose. The donor or grantor sets the terms, and the organization is responsible for using the funds exactly as intended. 

Common examples include: 

  • A grant restricted to youth education programming 
  • A donation earmarked for a building renovation 
  • A gift intended to fund a specific event or campaign 

Because restricted funds come with conditions, they often require more detailed tracking and reporting. This helps ensure the organization stays compliant while maintaining a clear audit trail. 

Unrestricted Funds 

Unrestricted funds can be used at the organization’s discretion. These dollars support general operating needs such as payroll, rent, insurance, technology, and administrative costs. 

Unrestricted support may not feel as exciting as program-based giving, but it often makes the biggest difference behind the scenes. It is what keeps the organization running between grants, seasonal fundraising, or large projects. 

Why the Balance Matters 

A healthy not-for-profit needs both restricted and unrestricted funds. 

Restricted funding can strengthen programs and support growth, but too much restricted funding can create cash pressure. It is common for an organization to have strong program funding on paper while still struggling to cover basic operating expenses. 

On the other hand, relying too heavily on unrestricted funding may limit the ability to expand programs or pursue larger initiatives. 

The goal is a balanced funding structure that supports both mission impact and financial stability. 

Practical Strategies for Managing Funds Well 

Managing restricted and unrestricted funds does not have to be complicated, but it does require consistency. Here are a few best practices we often recommend: 

  1. Use an Accounting System That Supports Fund Tracking

Your accounting system should allow you to track funds by restriction, program, or funding source. This might be done through separate fund accounts, classes, or departments depending on the software setup. 

The right structure makes reporting easier and helps reduce errors when funds are spent. 

  1. Document Donor Restrictions Clearly

Restrictions should be confirmed in writing before funds are accepted and deposited. If the terms are unclear, it is worth clarifying them up front rather than trying to interpret them later. 

Clear documentation protects the donor and the organization, and it makes financial reporting more straightforward. 

  1. Review Restricted Fund Activity Regularly

Restricted fund balances should be reviewed on a consistent schedule, ideally monthly. This helps confirm that: 

  • Expenses are being coded correctly 
  • Spending aligns with grant or donor requirements 
  • Funds are available before commitments are made 

Regular reviews also help prevent restricted funds from sitting unused when the organization could be making progress on the intended purpose. 

  1. Establish an Indirect Cost Allocation Policy 

Many grants do not cover the full cost of running a program. Administrative support, technology, payroll processing, and facility expenses often benefit multiple programs at once. 

A clear cost-allocation policy helps ensure these shared expenses are applied consistently and documented properly, while staying within grant guidelines. 

  1. Make Sure Staff and Board Members Understand Restrictions

Fund restrictions are not just an accounting issue. They affect leadership decisions and spending approvals. 

Training staff and board members on restricted versus unrestricted funds helps avoid accidental misuse and improves financial decision-making across the organization. 

  1. Strengthen Unrestricted Giving Through Clear Messaging

Not-for-profits often hesitate to ask for unrestricted support, but many donors are willing when the need is explained clearly. 

Sharing how unrestricted funds support staffing, operations, and mission continuity can help donors understand why flexible giving matters. A stronger base of unrestricted support can also reduce financial stress during slower fundraising periods. 

Building Transparency and Trust 

Strong fund management supports more than compliance. It strengthens confidence. 

When financial reporting is clear and restrictions are handled properly, donors and grantors are more likely to continue giving. Board members can make decisions with better information, and the organization can plan ahead with fewer surprises. 

Transparency is not just a reporting goal. It is one of the strongest ways to demonstrate responsible stewardship. 

How De Boer, Baumann & Company Can Help 

De Boer, Baumann & Company works with not-for-profit organizations to strengthen financial systems, improve fund tracking, and support clear, compliant reporting. 

If you would like guidance on your accounting setup, restricted fund reporting, or budgeting and planning, please contact us. We would be happy to help you build a clear financial foundation that supports your mission year after year. 

Sales Tax Considerations in Multi-State Construction Projects

 Multi-state construction projects can create sales and use tax issues that do not show up in single-state work. Each state has its own rules, and those rules can change depending on the type of project, how materials are purchased and delivered, how invoices are structured, and whether equipment moves across state lines. When these details are not …

 Multi-state construction projects can create sales and use tax issues that do not show up in single-state work. Each state has its own rules, and those rules can change depending on the type of project, how materials are purchased and delivered, how invoices are structured, and whether equipment moves across state lines. 

When these details are not addressed early, contractors can run into compliance gaps, unexpected tax cost, or project delays. A little upfront planning can often prevent much bigger problems later. 

Start With Each State’s Definition of Taxable Activity 

Sales and use tax rules vary more than most contractors expect. In one state, materials may be taxable at the time of purchase. In another, the contractor may be treated as the end user and responsible for use tax. Some states tax certain construction-related services, while others tax only tangible materials. 

Before starting work in a new state, it is worth confirming: 

  • How the state treats contractors for tax purposes 
  • Whether the project involves taxable labor or services 
  • Which rules apply to your project type 

Even small differences in state definitions can affect job costs and pricing. 

Materials: Where Most Mistakes Happen 

Materials are often the biggest source of confusion in multi-state projects, especially when delivery, billing, and jobsite locations do not line up cleanly. 

Depending on the state: 

  • Contractors may be required to pay sales tax when purchasing materials, even if the customer is billed separately 
  • Contractors may be able to purchase materials tax-free if the transaction qualifies as a resale 
  • Tax may apply based on delivery location, jobsite location, or where the materials are installed 

The most important step is maintaining clean documentation. Material invoices, delivery addresses, and jobsite records should support how tax was handled. 

Use Tax: Easy to Miss, Hard to Fix Later 

Use tax becomes an issue when sales tax was not collected at the time of purchase, but the materials end up being used in a state where tax is due. This is one of the most common compliance gaps we see in multi-state work. 

Use tax issues often come up when: 

  • Materials are purchased tax-free but installed in a taxable state 
  • Materials are bought in one state and moved to another during the project 
  • Temporary storage changes where tax responsibility lands 

When the project is already underway, fixing use tax problems can take more time and create more exposure. Tracking material movement early is the easier route. 

Installation Labor and Invoicing Structure Matter 

Not every state treats installation services the same way. Some tax installation labor. Others do not. In some cases, labor is taxable only when it is billed as part of a combined materials invoice. 

For multi-state contractors, it helps to confirm: 

  • Whether installation labor is taxable 
  • Whether repairs and maintenance are taxed differently than new construction 
  • Whether invoices should separate material and labor charges 

Clear invoice structure can reduce audit questions and make compliance more straightforward. 

Equipment Creates Its Own Tax Trail 

Equipment that moves across state lines can create additional tax responsibilities, especially on longer projects. States may apply tax based on equipment location, usage, or how long it stays in-state. 

Contractors should confirm whether: 

  • Bringing equipment into a state triggers use tax 
  • Owned equipment and rented equipment are treated differently 
  • Long-term projects require registration or recurring reporting 

Because equipment often moves between jobs, tracking where it is used matters more than many contractors realize. 

Exemptions Can Affect Bids and Pricing 

Some projects may qualify for sales tax exemptions, but those exemptions are not automatic. They vary by state and may depend on the customer, the project type, or the documentation provided. 

Common exemption categories include: 

  • Government projects 
  • Not-for-profit organizations 
  • Certain manufacturing or industrial projects 
  • Affordable housing and public works programs 

Confirming exemption requirements before bidding helps avoid pricing errors and billing issues later. 

Build a Simple Multi-State Tax Process 

Multi-state sales and use tax becomes more manageable when there is a repeatable process in place. A strong starting point includes: 

  • Tracking where materials are purchased, delivered, and installed 
  • Reviewing state rules during bidding and project setup 
  • Separating material and labor clearly on invoices when needed 
  • Maintaining documentation that supports tax decisions 

With better structure, multi-state projects become easier to forecast and less likely to create surprise costs. 

Staying Confident in Multi-State Work 

At DBC, we work with construction companies to navigate multi-state tax requirements, strengthen internal processes, and support long-term planning. If you would like help evaluating your approach to multi-state sales and use tax, we invite you to contact us. 

Key Differences Between Cash and Accrual Accounting for Contractors 

Choosing an accounting method is one of the most important financial decisions a construction business makes. It affects when income shows up on your books, how clearly you can track job performance, and how much confidence you have in your numbers. For contractors, this decision matters even more because construction work rarely follows a simple …

Choosing an accounting method is one of the most important financial decisions a construction business makes. It affects when income shows up on your books, how clearly you can track job performance, and how much confidence you have in your numbers. 

For contractors, this decision matters even more because construction work rarely follows a simple pattern. Materials are purchased before a job is complete. Labor costs hit weekly. Payments may arrive in uneven stages. The method you choose should support the realities of how you actually operate. 

This article breaks down the difference between cash and accrual accounting and why the choice impacts more than just bookkeeping. 

How the Cash Method Works 

With the cash method, you recognize income when you receive payment and expenses when you pay them. It is simple, widely used, and often a good fit for smaller contractors or businesses running shorter jobs. 

Many contractors like the cash method because it mirrors what they see in the bank account. When money comes in, it is recorded as income. When you pay bills, it is recorded as an expense. That can make day-to-day cash management feel more straightforward. 

The downside is that the cash method can hide what is really happening inside a job. 

A few common examples: 

  • If a customer delays payment, your revenue looks lower even if the work is complete. 
  • If you pay for materials up front, expenses may spike in one month even if the job is ongoing. 
  • If you have multiple jobs running at once, it can be hard to tell which ones are actually profitable. 

The cash method is simple, but it does not always provide a clean view of job performance. 

How the Accrual Method Works 

With the accrual method, you recognize income when it is earned and expenses when they are incurred, regardless of when cash moves. 

This approach is often more useful for construction businesses because it matches revenue and costs to the work being performed. That makes it easier to evaluate the true financial position of a job over time. 

Contractors often choose accrual accounting when they need: 

  • clearer job-costing and profitability reporting 
  • better matching of revenue and expenses 
  • stronger reporting for lenders and bonding agents 
  • financial statements that support long-term planning 

Accrual accounting takes more effort to maintain, but it generally gives a more reliable picture of performance, especially for multi-month projects. 

What Contractors Should Watch For 

Both methods can be correct, but they tell different stories. 

Here is what that looks like in practice: 

Under the cash method, a contractor may look highly profitable during a month when collections are strong, even if job costs are rising or projects are running behind. 

Under the accrual method, revenue and costs are tied to the work performed, even if the customer has not paid yet. 

That difference affects how early you can spot problems like: 

  • cost overruns 
  • underbilling 
  • delayed collections 
  • jobs that “feel busy” but are not producing profit 

If you rely on your financial reports to make staffing, pricing, or bidding decisions, those timing differences matter. 

Tax Planning Considerations 

Your accounting method also impacts when income is recognized for tax purposes. 

With the cash method, taxable income can often be pushed later if payments are received later. With the accrual method, taxable income may be recognized earlier, based on billing or work completed. 

A few things contractors should keep in mind: 

  • Large late-year billings can increase taxable income under accrual reporting. 
  • Delayed collections may reduce taxable income under cash reporting, even when the work is complete. 
  • Certain contractors may be required to use accrual accounting or percentage-of-completion based on revenue levels, entity structure, or contract type. 

This is why the “best” method is not always just the easiest one. It should support both operational decision-making and tax planning. 

Choosing the Right Method for Your Business 

There is no one-size-fits-all answer. The right accounting method depends on how your business runs today and where you are headed next. 

A few factors to consider: 

Project length and complexity 
If your jobs stretch across multiple months or phases, accrual reporting often gives a clearer picture. 

Cash flow needs 
If cash is tight and you need a simple system to track what is available right now, the cash method can work well in the early stages. 

Reporting requirements 
Bonding agents, lenders, and larger customers often prefer accrual-based financial statements because they reflect job performance more consistently. 

Many contractors eventually move from cash to accrual as they grow, take on larger jobs, or need better reporting. The key is making that shift intentionally, with the right structure in place. 

Bringing Clarity to Your Financial Reporting 

Understanding the difference between cash and accrual accounting helps contractors make better decisions, plan more effectively, and avoid surprises. The right method supports job-level visibility, strengthens tax planning, and makes it easier to track profitability over time. 

At DBC, we help construction companies evaluate their accounting methods, understand the tax impact, and set up financial reporting that fits the way construction actually works. If you would like help choosing the right method or improving your current setup, we invite you to contact us. 

Managing Payroll for Tipped Employees in Restaurants 

Managing payroll in a restaurant is never simple. High guest volume, varied shift lengths, different roles across front and back of house, and constant movement between tasks all influence how employees are paid. Once tips enter the picture, everything becomes more complex. Restaurants must track tip income accurately, withhold the correct taxes, classify wages properly, and ensure compliance …

Managing payroll in a restaurant is never simple. High guest volume, varied shift lengths, different roles across front and back of house, and constant movement between tasks all influence how employees are paid. Once tips enter the picture, everything becomes more complex. Restaurants must track tip income accurately, withhold the correct taxes, classify wages properly, and ensure compliance with federal and state rules. 

Strong payroll systems do more than reduce risk. They help owners support their staff, maintain trust, and create a more stable operation. When tip reporting and wage calculations run smoothly, the entire business benefits from greater clarity and fewer surprises. 

Understand the Difference Between Wages and Tips 

The foundation of accurate payroll is understanding what counts as a wage and what counts as a tip. Direct wages include base hourly pay and any service charges the restaurant controls. Tips are voluntary payments chosen by the guest. 

This distinction influences overtime calculations, tip pooling rules, and eligible tax credits. Any inconsistency in how these payments are classified can create payroll errors that take time and resources to correct. 

Track Reported Tips Consistently 

Employees are required to report their tips, and the employer must include them in payroll. Restaurants often rely on point-of-sale systems to collect tip data at the end of each shift. This works well when the reporting process is consistent, clear, and reinforced. 

Regular communication plays a major role in maintaining accuracy. New hires, staff rotating between roles, and seasonal workers all need reminders about proper reporting. When the system becomes part of the daily routine, the restaurant benefits from smoother payroll and fewer discrepancies. 

Apply Overtime Rules Correctly 

Overtime calculations in tipped environments require careful attention. Overtime is based on the regular rate of pay, which includes both wages and the tip credit taken by the employer. Miscalculating this amount is one of the most common payroll errors in restaurants. 

A thoughtful review of overtime practices helps ensure that pay reflects both the law and the actual work performed. It also reinforces fairness for employees, which supports retention in an industry where turnover is often high. 

Manage Tip Credits with Care 

Many restaurants use the tip credit to meet minimum wage requirements. This practice is permitted, but only when specific conditions are met. Employees must receive enough tips to reach the required wage level, and employers must follow detailed notification requirements. 

Accurate tip reporting is essential for this credit to hold up under review. When records are incomplete or inconsistent, the credit can be challenged. Regular payroll reviews help confirm that the credit is applied correctly and that employees are paid according to the law. 

Maintain Clear Tip Pooling Structures 

Tip pooling is common in restaurants where service relies on multiple roles. When structured well, pools support fairness and teamwork. However, the rules are specific. Only employees who regularly receive tips can participate in most situations, and the pool must follow a consistent formula. 

Documenting the pool, communicating expectations, and reviewing participation regularly helps avoid confusion and reduces compliance risks. 

Treat Service Charges Correctly 

Automatic gratuities and service fees are not tips. They are wages controlled by the business, which means they must be included in payroll and handled accordingly. These charges also influence overtime calculations, which makes correct classification even more important. 

Restaurants that host events or serve large groups should review how these fees are recorded and distributed to ensure consistency. 

Strengthen Internal Controls 

A strong payroll system is supported by reliable internal controls. These may include shift-based tip reporting, regular reconciliation of point-of-sale data, written tip pool guidelines, and periodic reviews of wage calculations. Controls provide structure, so that payroll does not depend on memory or informal processes. When these controls are combined with accurate reporting and clear communication, owners gain greater confidence in their numbers and employees feel more secure in their pay. 

At DBC, we help restaurants build payroll systems that support accuracy, compliance, and long-term financial clarity. If you would like guidance on improving your processes or navigating tip-related rules, our team is ready to help. 

Understanding Tip Income Reporting and IRS Regulations 

Tips are a vital part of how hospitality businesses operate. They influence staffing, shape guest service, and help attract dependable employees in a competitive labor market. Yet they also introduce one of the most complex compliance areas for restaurants and hotels. When tip reporting is unclear or inconsistent, small inaccuracies can grow into larger payroll …

Tips are a vital part of how hospitality businesses operate. They influence staffing, shape guest service, and help attract dependable employees in a competitive labor market. Yet they also introduce one of the most complex compliance areas for restaurants and hotels. When tip reporting is unclear or inconsistent, small inaccuracies can grow into larger payroll problems, missed credits, and IRS scrutiny. 

Many businesses discover these issues only when reconciling year-end records. Servers may follow different reporting habits from shift to shift. Managers may treat service charges differently depending on the event. Digital tips from delivery platforms may flow into payroll systems in unexpected ways. These inconsistencies are common, but they are also preventable with a stronger understanding of the rules. 

A clear look at the basics can help owners strengthen internal processes and protect both the business and its employees. 

What Counts as a Tip 

A payment qualifies as a tip only when the guest chooses the amount freely and directs it to the employee. This includes cash left on a table, gratuities added to credit card slips, and digital tips collected through online ordering systems. 

These payments must be reported as income by the employee. Many reporting challenges come from misunderstandings about what counts, so communicating this definition clearly helps everyone stay on the same page. 

Service Charges Are Not Tips 

Automatic charges can easily cause confusion, especially during busy shifts. A banquet fee on a wedding event, a large-party charge added to a restaurant bill, or a room service delivery fee may feel like tips, but they are not. Since the guest does not decide the amount, the IRS treats these charges as wages. 

This means they must be included in payroll, taxed like regular income, and considered when calculating overtime. Misclassifying them often leads to payroll corrections that take time and resources to unwind. 

Employee Reporting Requirements 

Employees are required to report their tips to the employer. This includes tips they received directly; and tips shared through pooling arrangements. The IRS expects this reporting to occur regularly, and employers rely on accurate reporting to withhold the correct taxes. 

Most restaurants and hotels use end-of-shift reporting to streamline this process. It works well when employees understand the system and follow it consistently. Regular reinforcement keeps the process clear even with frequent staffing changes. 

Employer Responsibilities 

Employers must ensure all reported tips are included in payroll, that taxes are withheld correctly, and that records are accurate and complete. This includes maintaining documentation for daily tip reports, tip pools, and any service charge distributions. 

Another responsibility involves monitoring whether reported tips seem reasonable compared to sales. If they fall below certain thresholds, employers may be required to allocate additional tips. A reliable internal reporting process helps avoid this situation and keeps payroll aligned with IRS expectations. 

Tip Pooling Rules 

Tip pooling allows teams to share gratuities in a structured way. It is often used to recognize the contributions of servers, bartenders, bussers, and other front-of-house staff. However, the rules around who can participate are specific. 

Pools must follow a consistent structure, and in most cases only employees who routinely receive tips may join. When a pool includes staff who should not be part of it, compliance issues can arise. Clear documentation protects the business and ensures employees understand how the pool works. 

Opportunities for Tip-Related Tax Credits 

Accurate reporting does more than support payroll compliance. It also positions businesses to benefit from valuable tax credits. Restaurants often qualify for a credit related to employer-paid FICA taxes on tips that exceed the federal minimum wage. Hotels may qualify as well when staff in lounges, banquet services, or on-site restaurants receive tips. 

Because this credit requires precise payroll and tip documentation, businesses benefit from reviewing their records regularly instead of waiting for year end. 

Strengthening Internal Processes 

Every hospitality business can benefit from reviewing its tip reporting structure. Reliable systems usually include a clear point-of-sale workflow, consistent end-of-shift reporting, written tip pool rules, and periodic payroll reviews. These steps help ensure that tips, service charges, and wages flow through payroll correctly. 

When these processes run smoothly, owners gain clearer insight into labor costs and create a stronger foundation for financial planning. 

At DBC, we help hospitality businesses strengthen their reporting systems, navigate IRS requirements, and make tax planning more predictable. If you want to review your current process or ensure your business is aligned with best practices, our team is here to support you. 

How Hospitality Businesses Can Maximize Cash Flow During Slow Seasons 

Every hospitality business experiences slower periods. Seasonal travel patterns, weather shifts, local events, and changing consumer behavior all affect guest traffic and revenue. Slow seasons are a normal part of the industry, yet they often create pressure on cash flow, staffing decisions, and day-to-day management. Preparing for these cycles gives owners more control. When cash …

Every hospitality business experiences slower periods. Seasonal travel patterns, weather shifts, local events, and changing consumer behavior all affect guest traffic and revenue. Slow seasons are a normal part of the industry, yet they often create pressure on cash flow, staffing decisions, and day-to-day management. 

Preparing for these cycles gives owners more control. When cash flow planning becomes a routine part of operations, slow seasons feel less disruptive and more predictable. With the right tools and awareness, hotels and restaurants can move through these quieter periods with greater stability and confidence. 

Build a Cash Flow Forecast That Reflects Seasonality 

A realistic forecast is one of the most reliable tools for navigating slow months. Hospitality businesses see predictable swings in occupancy, covers, and customer volume throughout the year. Mapping those patterns into a month-by-month forecast helps you anticipate shortages early and make calculated adjustments. 

A strong forecast should incorporate fixed expenses, variable costs, planned repairs, capital needs, and expected revenue shifts. When updated regularly, it helps owners spot trends and prepare before cash tightens. 

Review Pricing or Rate Strategies 

Slow seasons often reveal opportunities in pricing. For example, restaurants may benefit from limited-time menus, seasonal offerings, or adjustments to portion sizes that better match demand. Hotels may identify periods where targeted rate adjustments improve occupancy without weakening long-term pricing strength. 

Thoughtful, data-driven pricing decisions can support both revenue and customer experience. Small adjustments at the right time help balance lower volume without overextending guests or staff. 

Strengthen Inventory Controls 

Inventory can become one of the largest sources of waste during slow periods. Overordering leads to spoilage in restaurants, while hotels may carry unused supplies for weeks longer than necessary. 

Tighter ordering practices, smaller batch purchasing, and regular inventory reviews help align spending with actual demand. This not only reduces waste but also protects cash that would otherwise sit on shelves or in storage rooms. 

Evaluate Labor Needs with Care 

Labor is both essential and costly in the hospitality industry. Slow seasons are a chance to review staffing levels, cross-train employees, and adjust schedules without compromising service quality. 

Cross-training can be particularly effective. When staff can move smoothly between roles, you maintain coverage with fewer total hours worked. This preserves cash while still supporting a positive guest experience. 

Plan Maintenance and Improvement Projects Strategically 

Quiet periods create room to complete necessary maintenance, equipment upgrades, and small-scale renovations. Planning these projects for slow seasons helps minimize disruptions during busy times and allows owners to negotiate more effectively with vendors. 

A maintenance plan that spreads costs throughout the year also helps avoid sudden expenses that strain cash flow. 

Reinforce Marketing During Low-Traffic Periods 

Marketing often slows down when business slows down, yet this is when visibility becomes most important. Targeted promotions, loyalty incentives, and partnerships with local organizations can help bring in additional bookings or covers during quieter months. 

Consistency matters. Even modest marketing activity helps maintain momentum and positions the business for a stronger return when demand picks up. 

Review Financing Options Before You Need Them 

Lines of credit, equipment financing, or other flexible tools can offer valuable support, but they work best when arranged proactively. Establishing credit while cash flow is healthy provides more favorable terms and removes pressure when slow seasons arrive. 

Financing should complement a long-term cash strategy, not replace it. Thoughtful preparation ensures it becomes a safety net rather than a last resort. 

Create a Year-Round Cash Flow Plan 

Seasonality does not have to lead to uncertainty. A structured cash flow plan that considers high months, low months, and the investments needed for long-term success allows owners to operate with clarity. When you understand the rhythm of your business and prepare for it, slow seasons become manageable rather than stressful. 

Clear financial insight helps owners make better decisions, strengthen operations, and maintain resilience throughout the year. 

At DBC, we work closely with hospitality businesses to build cash flow strategies that match their operational realities. If you want to take a closer look at your seasonal patterns or develop a plan that supports more consistent performance, we are here to help. 

Top Tax Deductions Restaurants Often Miss 

The tax landscape for restaurants shifts often, yet many owners understandably focus most of their attention on day-to-day operations. Guest expectations, staffing decisions, supply costs, and scheduling pressures leave little room to sort through tax rules that rarely feel urgent. Even so, the hospitality industry has access to several deductions that can make a …

The tax landscape for restaurants shifts often, yet many owners understandably focus most of their attention on day-to-day operations. Guest expectations, staffing decisions, supply costs, and scheduling pressures leave little room to sort through tax rules that rarely feel urgent. Even so, the hospitality industry has access to several deductions that can make a meaningful difference at year end. 

These deductions are frequently missed. Sometimes the rules are unclear. Sometimes expenses fall into the background during busy seasons. Sometimes the documentation is not available when the return is prepared. Taking time to understand which deductions apply to your business can help you keep more of your earnings and create more room to invest in what matters most. 

Cost of Goods Sold Adjustments 

Restaurants move a high volume of inventory across food, beverages, retail items, and supplies. The cost of goods sold deduction can be larger than expected when inventory is documented accurately. Miscounts or outdated pricing often lead to smaller deductions. A more consistent inventory process helps ensure you capture the full cost of what your business used throughout the year. 

Tip Credit Opportunities 

Restaurants that employ tipped workers may qualify for a valuable tax credit when employees earn tips above the minimum wage. Many owners underclaim this credit simply because they are unsure how to document it. Strong payroll and point-of-sale reporting can help secure this opportunity and create meaningful tax savings. 

Employee Benefits and Training 

The hospitality industry depends on skilled, well-trained staff. Costs related to employee development are often deductible. This might include food safety certification, leadership training, or continuing education for managers. These investments help your team perform at a higher level and can support a stronger tax position. 

Repair and Maintenance Expenses 

Facility upkeep is a constant part of hospitality operations. Not every repair needs to be capitalized. Many routine maintenance costs qualify as deductible expenses. Examples include small kitchen repairs, equipment tune-ups, plumbing fixes, and cosmetic improvements that do not extend the life of the asset. Understanding the difference between a repair and an improvement helps ensure you do not miss deductions you are entitled to claim. 

Depreciation for Property and Equipment 

Restaurants often rely on significant investments in equipment and property. Items such as kitchen equipment, furniture, fixtures, and security systems may qualify for accelerated depreciation. Section 179 and bonus depreciation rules can provide substantial deductions in the year assets are placed in service. Because these rules change over time, a yearly review of your asset purchases is a worthwhile step. 

Energy Efficiency Improvements 

Upgrades that reduce energy use can offer both operational and tax benefits. Lighting improvements, HVAC updates, energy-efficient kitchen equipment, and insulation projects may qualify for deductions or credits. These projects often reduce utility costs as well, which gives owners a longer-term return beyond the tax benefit. 

Marketing and Advertising Costs 

Visibility is essential in a competitive hospitality market. Expenses for digital advertising, menu updates, website work, and promotional campaigns are generally deductible. These costs often appear across multiple platforms and vendors, which makes them easier to overlook unless tracked intentionally. 

Business Use of Technology 

Technology has become central to hospitality operations. Point-of-sale systems, reservation platforms, scheduling tools, payroll systems, and mobile-ordering software are common investments. Subscription fees and software purchases often qualify as deductible expenses and can be meaningful when combined over a full year. 

Moving Toward a Clearer Tax Strategy 

The hospitality industry has a complex cost structure. Labor, inventory, facilities, and guest experience all influence your financial picture. With so many variables in motion, it is understandable that tax planning can feel distant. A clearer view of available deductions can help you strengthen cash flow, prepare for the future, and make more informed decisions throughout the year. 

At DBC, we work alongside hospitality owners to identify tax opportunities, reinforce reporting processes, and support long term planning. If you would like to review your current deductions or build a strategy that gives you greater clarity for the year ahead, our team is ready to help. 

About us

De Boer, Baumann & Company provides professional accounting, tax, and business advisory services to individuals and businesses in West Michigan and the surrounding areas. With expertise in a variety of industries, DBC specializes in comprehensive and innovative solutions to help clients achieve their financial goals.