The banking sector is the latest industry to dramatically change how it operates in response to the current economic environment. The most visible change for consumers are new requirements for taking out a mortgage.

Here are some tips for working with banks and other lending institutions in the midst of tighter lending requirements and a heightened awareness of staying healthy.

Save more for a mortgage downpayment. New requirements for taking out a mortgage are requiring borrowers to put down at least 20% and have a credit score of 700 or better. Unfortunately, the average credit score of U.S. citizens under the age of 50 is below 700. The short-term reality is that you may need to save for a bigger downpayment and actively manage your credit before getting your dream home.

Take advantage of your bank's mobile app. Social distancing is changing the way we interact in public and banking is no exception. Traditional bank tellers, drive through options, and in some cases entire branches, are being replaced with digital banking options and mobile deposits. This trend will surely accelerate in the aftermath of COVID-19. For the branches that remain open, visiting will likely be more restrictive. Smaller capacity banking spaces and appointments might be required to help banks control the flow of traffic.

Use digital payments for your purchases. While cash might still be king in the U.S. economy, consider using "germ-free" digital payments as retailers are steering customers toward electronic transactions. With businesses needing to adapt to new spending habits, innovation is going to steer towards digital payment technologies and make paying with cash more difficult in the future.

Look for lending deals. During these uncertain times, banks will be putting more effort into connecting with their customers. Bank leaders are making it a priority to personalize the banking experience with proactive marketing campaigns. Be on the lookout for special deals offered by lending institutions to help keep you as a customer.

What better place for online thieves to target than a database that contains 300 million+ Social Security numbers and a treasure trove of financial information?

The IRS has 52 Internet applications to help U.S. citizens comply with their tax obligations. But these online portals, which collect, process and store large amounts of personal information and tax data, are also a potential gateway for online criminals and identity thieves.

While the IRS’s electronic authentication security controls have improved, the Treasury Inspector General recently said that the IRS’s internet applications are not yet compliant with the National Institute of Standards and Technology guidelines.

Here’s what you can do to protect your tax-related identity and information while the IRS tries to improve its security controls:

• Use the IRS’s Internet applications judiciously. Think you need to use one of the IRS’s online applications? Consider requesting or obtaining certain information via the U.S. Postal service. Simply decide if you’re willing to take a risk using an application that isn’t compliant with the National Institute of Standards and Technology.
• Get an IP PIN. An Identity Protection PIN (IP PIN) is a six-digit number that helps prevent filing fraudulent federal income tax returns. If you are a confirmed victim of identity theft, the IRS will mail you an IP PIN after the fraudulent tax issue has been identified. If you are not the victim of tax-related identity theft, you can voluntarily ask the IRS to issue you an IP PIN if you live in certain states. Additional states will be added until the IP PIN program is available nationwide.
• Review your credit report once a year. Check your credit report for any unauthorized activity or errors. This periodic review can often be the earliest warning that your private information is compromised.

Your bookkeeping system is the financial heart and lifeblood of your business. When set up and operating properly, your books help you make smart decisions and seamlessly turn your financial data into useful information. Here are four key characteristics to build and maintain a healthy bookkeeping system:

1. Select the proper accounting method

   There are two different methods for recording transactions: cash-basis and accrual-basis. In general, cash-basis records a transaction when payment is made where accrual-basis books the transaction upon delivery of the good or service. Cash-basis is easier to track and a useful option for smaller businesses and sole-proprietors. Where as larger businesses who buy from vendors on account (accounts payable) generally use accrual-basis accounting.

   Selecting the proper method affects any related financial transactions and how your financial statements are displayed. A correct approach will also include consideration of outside factors, including: IRS rules (businesses with more than $25 million in gross receipts must use accrual-basis), bank covenants, and industry standards. Once a choice is made, it can be changed but it must be properly reported to the IRS.

2. 

   Create an account structure that fits the company

   Every business has a chart of accounts included in their bookkeeping system. These accounts sort the business’s transaction data into six meaningful groups. They are assets, liabilities, equity, income, cost of goods sold and other expenses. Each group will often have numerous accounts and sub-accounts associated with them.

   Having the right mix of accounts created and grouped in an organized fashion will help you properly classify transactions and prepare usable financial statements. The proper account structure for your company will mesh with your specific information needs.

3. Enter accurate and timely transactions

   The value your data provides is dependent on each transaction being recorded correctly and on time. Entering transactions in the wrong account can cause major issues down the road. Financial reporting that is delayed can hide problems that need immediate attention. Some transactions are relatively straightforward, and some are more complex (like payroll, accruals and deferrals).

   It’s important to have someone who understands both your business and the accounting rules enter your transactions in a timely fashion. In addition, a good month-end close process that involves reviewing each account, will find mistakes from the initial entries.

4. Establish financial statements for decision-making

   The main financial statements are the income statement (income - expenses = gross profit), the balance sheet (assets = liabilities + equity) and statement of cash flow. Each statement has a specific purpose:

   • Income statement. The income statement shows company performance for a select period of time; typically monthly with a full year summary. At the end of each year the income statement restarts.
   • Balance sheet. The balance sheet displays a company’s overall health as of a certain date. It is perpetual. This means it doesn’t end until the business is closed or sold. It includes one line that summarizes the current year and prior year results from the income statement.
   • Statement of cash flow. This statement summarizes the inflow and outflow of cash. It ensures you know whether you have enough cash and the pattern of your cash position over time.

If properly executed, your bookkeeping system will turn out accurate financial statements that can be used for several tasks - financial reporting, budgeting, forecasting, raising capital, applying for a loan, tax reporting and decision making. Feel free to call with any questions or to discuss bookkeeping solutions for your business.