David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.
To connect with David, email david@betteraccountingsolutions.com.
Articles by David Roitblat
What the Election Means for The Merchant Cash Advance Business
November 1, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David, email david@betteraccountingsolutions.com.
After what feels like years, next week the United States of America will finally vote in our next president and get a break from the incessant political chatter…until it all resumes the next morning.
While the implications of this election are obviously enormous in a whole number of arenas, most significantly for us the repercussions of who we elect will have a major effect on the merchant cash advance business. With President Donald Trump and Vice President Kamala Harris proposing very distinct visions for their economic and regulatory agendas, MCA businesses will need to respond to who wins and adjust accordingly.
Here’s a closer look at how the upcoming presidential election might affect the merchant cash advance industry.
1. Tax Policies and Business Borrowing
Trump has promised to extend the Tax Cuts and Jobs Act (TCJA) and further reduce corporate taxes to 15%. This could increase small business profitability, which might lead some companies to rely less on MCA services, opting instead for more traditional financing solutions. However, businesses could still need short-term capital for expansion or to take advantage of new tax incentives, keeping MCA demand steady.
Harris’s administration is expected to take a different approach, focusing on progressive tax policies that could increase the tax burden on corporations and high-income earners. In such a scenario, businesses may experience tighter cash flows and turn to MCAs for quick injections of capital to meet operational needs.
2. Regulatory Climate and Business Sentiment
The regulatory environment will play a major role in shaping MCA activities. Trump’s platform emphasizes deregulation, which could reduce compliance costs and encourage entrepreneurship. With fewer regulatory hurdles, more entrepreneurs might be empowered to take a chance to open their dream businesses and seek short-term financing to fuel growth.
In contrast, Harris is likely to advocate for stronger oversight across industries, which could introduce stricter regulations for MCA companies. Increased compliance requirements would raise operational costs and change how they do business, forcing MCA firms to adapt quickly to remain competitive.
3. Tariffs and Supply Chain Impact
Trade policies are another critical area that will shape demand for MCA services. Trump’s proposed tariffs, such as a blanket 10%-20% on imports, would disrupt industries that rely heavily on global supply chains. Businesses affected by tariffs might seek cash advances to cover working capital needs as they adjust to higher costs and delays. While their loss is our industry’s gain, MCA providers could face greater risks if these businesses struggle to manage cash flow, increasing the chance of defaults.
If Harris focuses on stabilizing international trade through alliances and regulatory frameworks, businesses might experience more stable operations. However, as mentioned earlier, her compliance-related policies could still push some companies to seek short-term funding, keeping MCA services relevant in certain sectors.
4. Interest Rate Policy and Capital Costs
The election will also influence interest rate policy. Trump has criticized the Federal Reserve’s recent actions and indicated that he would like to replace its leadership. If this shift results in looser monetary policy, the cost of borrowing money will decrease, prompting more businesses to take loans from traditional banking institutions instead of MCAs.
On the other hand, if interest rates remain high, businesses may find it harder to secure bank loans. Under these circumstances, MCA services—known for quick access to capital—remain attractive to small businesses facing cash flow challenges.
5. Changes in Consumer Spending and Business Revenues
Both candidates’ economic plans will shape consumer behavior, which directly affects small business revenues—the core market for MCAs. Trump’s focus on reducing taxes and expanding domestic energy production may increase consumer spending in the short term, benefiting retail businesses that rely on discretionary income.
Meanwhile, Harris’s potential focus on healthcare, education, and environmental programs could favor businesses in those sectors. MCA providers may see shifts in their client base, with certain industries flourishing while others experience slower growth. These shifts will influence which businesses turn to MCAs for operational funding or growth capital.
Essentially, Trump’s pro-small business, pro-tariff and pro-deregulation positions would be a major boon for MCA businesses. Harris is expected to call for more taxation, more governmental oversight and compliance ordinances, and stifle economic progress in pursuit of a more “equitable economy”. As the political landscape evolves, being prepared for these changes will be key to thriving in the post-election MCA business environment.
How The Interest Rate Cuts Hurt MCAs
October 10, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David, email david@betteraccountingsolutions.com.
In recent weeks, for the first time since 2020, the Federal Reserve cut interest rates by a historic 50 bps- a percentage that hasn’t been seen since 2008. The cut lines up with the Fed’s projections that inflation is coming down and their hopeful outlook for the economy, and while it might seem like good news for most industries, the merchant cash advance (MCA) sector has its own complex feelings to the dramatic change.
Obviously, unlike traditional businesses that might simply celebrate cheaper borrowing costs, MCAs operate in a space where the time-value of money and risk evaluation play major roles, making this rate cut a more nuanced event for the industry. The effects will be felt across multiple areas of the MCA business, from how funding decisions are made to the shifting expectations of clients seeking advances.
Our entire business exists to serve merchants that can’t easily secure loans from banks or other traditional lenders. These clients often turn to MCA providers for fast capital, even at higher costs, because they can’t wait for lengthy approval processes or don’t meet conventional lending criteria. In an environment where the Fed has reduced rates, traditional banks will also lower their rates, making loans more attractive to a wider pool of businesses. This increase in competition from more traditionally recognized financial institutions could pose a challenge for MCAs, which rely on servicing clients who can’t or won’t pursue standard loans. With lower interest rates, more businesses that typically look to MCAs for funding might find themselves newly eligible for cheaper and more merchant-friendly bank loans.
This shift in the competitive landscape means MCA business must be both more open and more selective in the clients they take on. If more of the relatively creditworthy businesses opt for traditional financing, MCA providers will see a shift in their applicant pool towards higher-risk clients. This introduces an even greater need for vigilance in deal underwriting. The riskier the client, the higher the potential for default, and MCA companies must make careful decisions to avoid unsustainable losses. Rate cuts at the Fed don’t just lower the costs of borrowing—they also squeeze the margins on risk. While banks can afford to cut rates for a broad swath of clients, MCA companies operate on thinner margins due to the nature of the businesses they work with. I’ve long been an advocate of businesses embracing what initially appears to be riskier propositions, but that doesn’t come at the expense of ensuring they have a good chance of paying you back.
Additionally, the Fed’s decision also affects inflation expectations, which in turn impacts how MCA providers price their advances. In a higher inflation environment, MCAs can justify their higher factor rates more easily, as they are providing capital at a time when the value of money is declining faster. But with the rate cuts signaling a more accommodative stance from the Fed, inflation is expected to stabilize, or even decline, over time. This changes the conversation around MCA pricing. Businesses may push back harder on MCA rates, arguing that with cheaper money available elsewhere and stable inflation, the high cost of cash advances feels disproportionate. MCA companies will need to defend their pricing models in a market where the cost of borrowing is generally falling.
Of course, rate cuts can also benefit the MCA industry. Lower interest rates can improve liquidity across the market, which means MCA companies may find it easier to access their own lines of credit or syndicate deals with investors. With cheaper money flowing through the economy, investors might be more willing to syndicate MCA deals, seeing them as a worthwhile risk given the higher returns MCAs can offer compared to more traditional investments. This could lead to more efficient underwriting processes, helping MCA companies better evaluate potential clients and manage their risk portfolios more effectively.
But there is also the longer-term concern of economic volatility to consider. Interest rate cuts are often seen as a tool to stimulate a sluggish economy or to project confidence during an election season, but they can also be a warning sign that things are not going well. If the rate cut is a harbinger of broader economic challenges, MCA providers should brace themselves for increased default rates. When businesses are struggling, they may be more likely to fall behind on their payments, making it harder for MCA companies to collect on advances. The specter of recession looms over any rate cut, and MCA companies, which cater to businesses that may already be operating on the edge, must be prepared for a potential uptick in defaults.
Ultimately, the impact of the rate cut on the MCA industry will depend on how both MCA providers and their clients adapt to the new financial environment. While lower rates might make it harder for MCA companies to compete with traditional lenders, they also open up new avenues for growth, particularly if companies can leverage cheaper credit to improve their operations and attract new investors. The key for MCA companies is to remain vigilant, carefully assess their risk, and be prepared to explain the value they offer in a world where borrowing is getting cheaper. As always, the MCA industry thrives on its ability to respond quickly to market conditions, and this latest development from the Fed will be another chance for the business to prove its resilience.
Why You Specifically Need An MCA Accountant for Your MCA Business
September 11, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
Doing the books for a merchant cash advance (MCA) business isn’t like doing the books for other types of businesses. That’s something that seems pretty intuitive for those of us in the industry to understand, but often I see many business owners still trying to handle finances themselves or hand it off to a general accountant who isn’t well-versed in the MCA world, which leads to unfortunate messes that require some costly cleanup work. The reality is that while any accountant can keep basic, or even complex financial records, managing the finances of an MCA business requires more than just a surface-level understanding.
Take a situation I encountered recently: a business owner decided to use their regular accountant to handle their books, deciding that the cost of an MCA industry-qualified accountant was too much for him at that point in time. The accountant he picked was a competent elderly gentleman who produced the financials regularly and on time, and things appeared to be going smoothly until his investors realized their syndication income had been reported incorrectly. The accountant, unfamiliar with MCA-specific accounting, treated the income like a standard loan repayment and the business owner hadn’t noticed the misreporting when he passed the report on to his financiers. The investors were confused and frustrated with the mistaken report, and felt like they weren’t getting a clear picture of the company’s financial health and cash flow situation. I was actually able to help him clear up the issue, but the whole mess and subsequent (thankfully temporary) mistrust could have been avoided entirely if the accountant was someone who understood the specifics of the MCA business.
Handling the finances of an MCA business isn’t just about tracking the cash coming in and out. There are particular rules around recognizing income, such as how to deal with syndication fees, manage different types of funding, and correctly categorize income like commissions and fees. It’s also critical to understand how to report income for tax purposes versus what’s required for investor reporting. For example, recognizing income too soon or too late can have a big impact on your cash flow, tax obligations, and even how your business is perceived by others.
I’ve seen businesses try to use standard accounting methods and find themselves with financial statements that don’t accurately reflect their operations. In one case, a company overstated its income because it applied a generic accounting approach. This not only increased their tax burden but also strained their cash flow. They needed someone who understood the nuances of the MCA world to correct these issues, adjust the income recognition methods, and align them with industry standards.
Another challenge everyday CPAs struggle with is keeping up with the constant changes in MCA deals – from advances in different repayment stages to syndication agreements with external investors. Without careful tracking, discrepancies can quickly arise, and they’re often not noticed until they’ve become significant problems. Even for businesses using cash basis reporting because their revenue is under $10 million annually, it’s crucial to handle things correctly. Deferring tax liabilities by timing income recognition can be a smart move, but only if done accurately. Otherwise, there’s a risk of audits or having to pay back taxes with penalties. I’ve helped businesses navigate these tricky waters after they ran into trouble because their previous accountant didn’t know when to use cash basis versus accrual basis reporting.
A good MCA accountant knows how to navigate the specifics of your business. They understand what to watch out for, how to manage the unique aspects of the industry, and how to avoid problems that could end up costing you time, money, or reputation. I’ve seen too many businesses suffer preventable setbacks by either doing it themselves or relying on someone who didn’t have the right knowledge. The cost of hiring an accountant who specializes in MCA is minimal compared to the potential financial losses from mishandled books or compliance errors.
At the end of the day, having an accountant who understands the MCA industry isn’t just a nice-to-have; it’s a necessity. The complexities of this business require a specific set of skills, and working with someone who gets that can help you keep your business running smoothly and avoid unnecessary headaches in the future. Make sure you have the right support in place to protect your business and keep things on the right track.
When $10 Million Was Lost In MCA Deals
August 19, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
In the high-stakes world of merchant cash advances (MCA), trust is a precious commodity, and when that trust is shattered by a longtime partner, the fallout can be catastrophic. Imagine investing tens of millions in what you believe to be a thriving MCA business, only to discover someone you know is siphoning funds through an intricate web of deceit. This isn’t a hypothetical scenario—it’s a grim reality many MCA investors face, and it serves as a stark warning to us all.
Here’s one story from a couple of years back that an industry friend of mine told me:
The betrayal began innocuously enough. The investor trusted the MCA company he was syndicating deals with well, and the owner seemed competent and trustworthy. But beneath this carefully cultivated facade lurked a sinister scheme. This owner had also secretly established his own ISO and collection agency. With access to insider knowledge and an unchecked commission structure, he was in a prime position to execute a brazen and ongoing theft.
The owner submitted deals to his own funding company through his ISO and then funded them with syndication from investors. Then the deals would default. For months, the ISO maintained an exceptional high default rate. When the investor asked the owner what was going on, the owner would express his own puzzlement. He would show his syndicators how deals looked like they were progressing well initially, before they would inevitably crash out and default. Confident that they were backing the right man for the job, the syndicators kept on giving him money. Yet these deals were doomed from the start and designed to fail. By intentionally backing poor investments, he set the stage for his collection agency to step in once the deals inevitably defaulted.
The brilliance—and the horror—of his scheme lay in its simplicity. He manipulated the commission structure, securing an arrangement where he received full commission if a deal stayed active for just over a week. The deals only needed to appear stable for a short period before crumbling. Once the facade of success faded, the deals were swiftly handed over to his collection agency, ensuring he reaped the benefits from every angle.
In effect, he was stealing from his investors and partners in four ways. The first, he was stealing part of their investments before he ever put it into deals, and then of the deals that worked out, he skimmed off as well. The rest he put it into purposefully bad deals- after collecting a quick commission on- and then promptly stole from his own collections firm to top it all off.
As I delved into this case, the warning signs became glaringly apparent. Unusual commission arrangements should have raised immediate red flags. A commission structure that disproportionately rewards short-term success is ripe for exploitation. Moreover, conflicts of interest, like owning related businesses, should never be overlooked. The funder’s ownership of an ISO and a collection agency created an inherent conflict, one that he deftly exploited.
Another alarming sign was the pattern of poor-performing deals. Consistently funding bad deals isn’t just bad luck; it’s a symptom of deeper issues. High turnover in collections, especially when tied to the same individual, is another glaring indicator. A deeper investigation into these patterns could have unearthed the fraud much sooner.
To identify potential issues with your own ISOs, run a report over a three-month period detailing the total dollar amount and number of deals funded by each ISO. Compare these figures to the defaults from each ISO. If the percentage of defaults from an ISO significantly exceeds their contribution to your portfolio, it indicates a potential problem. Additionally, track the recovery rate from your collection firm; less than 25% recovery may signal issues with the contracts, merchants, or the collection firm itself. Conduct periodic audits to ensure that funded merchants are legitimate and not misrepresented.
Preventing such betrayal demands vigilance and a multi-faceted approach. Background checks should be thorough and updated regularly to catch any emerging conflicts of interest. Transparent and standardized commission policies are essential, avoiding complex arrangements that can be manipulated. Regular audits and monitoring can serve as an early warning system. Advanced analytics and an industry CRM such as Orgmeter or MCA Track can detect irregular patterns, flagging potential issues before they escalate. Beyond the technical measures, fostering a culture of honesty and transparency is vital, and employees should be trained to recognize and report suspicious activities.
This true story of betrayal within this company serves as a dramatic reminder of the dangers lurking within our businesses. Trust, once broken, is difficult to rebuild. By remaining vigilant and proactive, we can protect our companies from those who seek to exploit our trust for their gain. With the right measures, we can safeguard our investments and ensure the integrity of our industry.
How The PPP Reporting Oversight Harms MCA Companies
July 18, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
deBanked’s recent story covering the news about how the Small Business Administration (SBA) failed to report many Paycheck Protection Program (PPP) loan charge-offs to credit agencies is a major concern for merchant cash advance companies.
As the deBanked article explained, a new report from the Office of the Inspector General (OIG) found that the SBA did not report 37% of PPP loan charge-offs, and missed deadlines 97% of the time. The OIG report stated that the SBA’s automated system was supposed to report these loans, but it did not always work correctly. As a result, many delinquent borrowers could still get new loans because their bad debt wasn’t reported. The report also pointed out that a large portion of early PPP loan charge-offs were linked to potential fraud, which makes the lack of reporting even more serious.
This oversight could cause real problems for our industry. As an accountant working with MCA companies for over a decade, I understand firsthand how important accurate credit reporting is for making sound and fully informed decisions on which merchants our clients choose to invest in and help advance.
For MCA companies, this incomplete reporting leaves a critical gap in the information that funders rely on. Without accurate credit information, it’s harder to assess the risk of advancing capital to any particular merchant, which can lead to higher chances of defaults and financial losses when you don’t have a complete history that includes any times they’d skipped payments or defaulted. The missing data from the SBA means MCA companies might unknowingly fund high-risk businesses, which ultimately harms the cash advance company itself.
To work through this situation, funders need to take stock of how they evaluate prospective merchants to work with.
First, it’s important to do thorough background checks using multiple sources of information. Relying on just one credit report isn’t enough, especially now that we know there might be gaps. Cross-referencing data from various sources will provide a more complete picture of a merchant’s credit history.
We can also require merchants to provide more documentation and financial information before approving funding deals, removing a complete reliance on credit reporting agencies that have now proven themselves fallible. Pairing up the complete history that they provide along with their credit reports, and continuous tracking of the deal on a strong internal MCA CRM that lets you know of any hiccups, is a proactive approach that helps in making informed funding decisions.
It’s vital to develop strong risk management strategies. This might include setting stricter funding criteria, diversifying the types of businesses we lend to, and keeping enough reserves to cover potential losses. By being cautious and prepared, we can protect our companies from the financial risks posed by incomplete credit reporting, and eliminate our over reliance on that one source of information.
Let’s use this opportunity to ensure we are making the best funding decisions possible, and continue to have healthy companies built on stable foundations.
Why It’s Important To Understand How You Report Syndication Income
June 25, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
In the world of Merchant Cash Advances (MCAs) where financial reporting is complicated and extremely detailed, understanding how to handle syndication income is crucial. Syndication income, which often includes management fees, plays a pivotal role in the operations of many MCA companies, helping fund deals and enable the business to grow to the next level, while also often (hopefully) proving a lucrative investment for the syndicator.
It’s essential to grasp the various approaches to recognizing this cash injection and the implications it has on financial reporting. Let’s explore the strategies that MCA companies typically apply and the accounting principles that guide them.
Companies have diverse methods for charging syndicators, each with its own set of nuances. Some MCA companies opt for a straightforward flat fee upfront. Others choose to charge a flat fee as funds are repaid with each payment, and there are those who employ a combination of both – a smaller upfront fee coupled with fees assessed as funds are recovered. Understanding which method you typically use is the first step in accurately recognizing syndication income.
Most MCA companies operate on an accrual basis, where income is recognized when earned, regardless of when funds are received. This approach is predicated on the notion that once a syndication fee is charged, it need not be refunded even if the MCA deal defaults. Consequently, income is recognized at the moment fees are charged.
For instance, if an MCA company charges an upfront syndication fee, that fee is immediately recognized as income. The same principle applies when fees are assessed as funds are repaid – income is recognized in real-time as payments are received. However, it’s important to note that there are exceptions to this rule. In some cases, MCA agreements dictate that if only a portion of the funds is recovered, a corresponding portion of the syndication fee must be refunded. In such instances, income is not recognized until funds are actually recovered, and the syndication fee income is allocated over the duration of the advance.
So, why does this matter, and how does it impact the financial landscape of MCA companies?
First and foremost, it has a direct bearing on financial reporting. Accurate accounting practices are essential not only for internal financial management but also for external stakeholders, including investors, regulators, and auditors. Understanding when and how to recognize syndication income ensures that financial reports reflect the true financial health of the MCA company, both for yourself and the syndicators.
Moreover, the chosen approach to recognizing syndication income affects cash flow. An upfront recognition of income may paint a more favorable cash flow picture, while a deferred recognition approach may better align cash flows with actual funds received from MCA deals. This can impact budgeting, planning, and investment decisions.
Furthermore, it influences the perception of risk and profitability. MCA companies that recognize income upfront may appear more profitable on paper, while those that defer income recognition may appear less so. This can impact investor confidence and the overall attractiveness of the MCA company as an investment opportunity.
Understanding the various approaches and their implications is essential for accurate financial reporting, effective cash flow management, and informed decision-making. Whether income is recognized upfront, as funds are repaid, or deferred until funds are actually recovered depends on the specific terms of MCA agreements and the associated risk and profitability considerations.
Ultimately, the goal for MCA companies is to employ accounting practices that not only comply with industry standards but also provide a transparent and accurate representation of their financial standing. By mastering the art of recognizing syndication income, MCA companies can navigate the intricate financial landscape with confidence and clarity.
MCA Businesses Must Protect Themselves Better
May 28, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
A couple of weeks ago, deBanked covered the story of Mark Csantaveri, a key figure behind three fraudulent companies that defrauded over 50 distressed small business owners with outstanding cash advances–and their cash advance funders–of over $3.4 million.
Together with his co-conspirators at MCA Cure LLC, LDMS Group LLC, and Evergreen Settlement Group LLC, Csantaveri allegedly set up these fake debt settlement companies to prey on people with cash advance deals in place. Promising a fantastic debt restructuring system that could lower their payments by 80% and under the guise of negotiating with the funders, Csantaveri told his victims to direct the payments meant for their funders to an escrow account. He then promptly forwarded the money to his own personal accounts, leaving the merchants trying to figure out what happened when their funder contacted them asking what happened to their payments.
Happily, Csantaveri and his cronies have been charged for their crimes and face decades of prison and steep fines, but these stories are too common in our industry. Every few weeks we hear of businesses getting cheated and defrauded, and unfortunately rarely are the schemes particularly imaginative or unusually unavoidable. deBanked has been on streak recently, publishing blockbuster features about the underbelly of the merchant cash advance business, and yet despite all the warnings, it just keeps happening over and over again.
Cash advance companies have an obligation to proactively protect themselves. And luckily, there are clear ways to do that.
Preventative Step 1: Clearly communicate with the merchant.
Merchant cash advance is a hungry game, and we’re always chasing the next client, the next close, the next commission. This need for speed is often an asset, but when we’re dealing with clients in perilous financial situations who are desperate for quick fixes, it is extremely unwise to deal with them hastily.
It must be clearly communicated to clients the terms of the deal they are accepting, and what exactly they are committing to. They must be reminded that the only people authorized to negotiate the terms of this arrangement are the two parties that signed it, and there are no “white knight saviors” that have any way of interceding on their behalf. If they’re having trouble meeting their obligations, they should feel comfortable letting their funder know, and both parties can work together on finding a mutually beneficial solution.
Preventative Step 2: Actively monitor your deals.
Making sure to actively stay on top of deals is how to avoid things going sideways.
Thanks to industry-customized CRMs such as MCA-Track, LendSaas and Orgmeter, merchant cash advance companies can keep in regular touch with their merchants, while easily tracking the progress of the deals throughout their term lengths.
For example, MCA-Track allows funders to monitor the bank activity of their merchants to see if they’re putting themselves in further financial entanglements by diverting payments, taking on additional advances, or are having outgoing payments bounced. If a funder sees any of that happening, they can step in and connect with the client to proactively ensure everything is still in order, and if it’s not, iron out any issues before they balloon into a much larger problem.
Embracing the available platforms to remain vigilant, and consistently reviewing the sustained health of your deals can help avoid a lot of stress down the road.
Preventative Step 3: Have a go-to financial professional.
This is the step I am personally passionate about for obvious reasons.
Better Accounting Solutions has had the privilege of serving the cash advance industry for well over a decade, and I’ve been a consistent evangelist for companies to embrace outside financial counsel–particularly those with experience in our business–to avoid getting into these issues in the first place.
Businesses need independent financial experts to ensure transparency, prevent bias, and avoid conflicts of interest. The benefits of using MCA experienced firms (any firm!), instead of in-house accountants, are obvious: it removes the danger of assuming a myopic view of what is happening in the industry only analyzed through the lens of just one company, ensures trust and transparency between funders and syndicators, and prevents misappropriation of funds.
Sometimes businesses settle on using any accounting firm, with no experience in MCA accounting, but that can lead to more issues than you had before they were engaged. The danger lies in you thinking everything is being handled and in compliance with the relevant regulations, when in fact they don’t know how to navigate the challenging financial world of our industry.
The industry as a whole is tarnished when crooks are able to circumvent systems meant to protect us all. Staying financially aware and employing these best practices is the key to ensuring it can’t happen again.
After Tax Day: A Guide for MCA Companies
April 23, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
Congratulations- you’ve survived Tax Day!
About 130 million tax returns were filed by Monday’s April 15 deadline, and business owners, employees and accountants will all breathe a sigh of relief and wait for the refunds to roll in.
Let’s explore what the next few months look like for those that successfully lodged their documents in time with the IRS, and those that didn’t.
I Am Amazing Because I Filed My Taxes On Time
Yes, you are incredible. Good job!
Having successfully sorted through your finances and organized it for the IRS, now is the best time to set yourself up to have an easier time filing in 2025.
Here’s a quick checklist of things you can fix now to make your life easier:
- Did you give yourself enough time to send W-2’s and 1099 documents to your employees and contractors?
- Did you make sure your employees and contractors have gave you a filled out W-4 or W9 on time?
- Were all your deals categorized and classified correctly by your bookkeeping company,or did your accountant have to constantly follow up with you to ensure he understood what deal was doing what?
- Was every deal conducted in different states accounted for tax purposes?
- Did you have all your documentation available and in order?
- Is your industry tailored CRM getting you all the information you need?
- Did your accountant prepare you for any taxes or surprise liabilities you may have incurred?
Knowing the answers to these questions can help you understand whether you had a great experience during this year’s tax season, or if you should begin to explore and implement new processes to shore up your team, books and reporting structure going forward.
I Have Not Filed Taxes Yet For Many Good Reasons
Yes, you are incredible too, and we can’t judge you for having very good reasons to miss the deadline. Here’s some information you need to know:
What happens if I miss the tax deadline but expect a refund?
If you’re sure you are due a refund from your 2023 tax return, you won’t face any penalties for an individual return late. You have up to three years to file and still get your refund, which might take four to six weeks to receive after you file. But for business and partnership filings, most states on your partnerships and business returns for filing late even if you don’t owe anything.
What are the consequences of missing the deadline when I owe taxes?
If you miss the deadline and owe money without filing an extension, you will face penalties for both late filing and late payment, plus interest on the owed amount until it’s fully paid. The state you are in will determine how severe the penalties will be.
What are the specific penalties for late tax filings?
The IRS imposes a failure-to-file penalty, typically 5% of the unpaid taxes each month, capped at 25%, and a minimum penalty if over 60 days late. There’s also a failure-to-pay penalty, about 0.5% of unpaid taxes per month, also capped at 25%.
Can I still file for an extension if the deadline is near?
Yes, you can file for an extension by the tax deadline, which gives you six more months to file your tax return. However, you need to estimate and pay any taxes owed by the original deadline to avoid penalties, and some states won’t even accept the extension unless the estimated taxes are paid.
What if I can’t pay the full amount I owe right away?
You can arrange a payment plan with the IRS if you can’t pay immediately. Short-term plans for up to 180 days are available at no cost, though interest and penalties still apply. For longer needs, long-term payment plans are available with varying fees.
Working with an experienced tax accountant specializing in your industry, in this case merchant cash advance accounting, can ensure you’re always on top of your finances and handle the specific challenges of your field effectively. This specialized knowledge helps in correctly filing tax returns, spotting potential tax reductions, maximizing returns and customizing strategies specially tailored for your business. If you’ve got any questions on your 2023 taxes or how to plan ahead for 2024, your friends at Better Accounting Solutions are always here to help.
