Update financial-management-policy.md

docs/finance/financial-management-policy.md

@@ -1,63 +1,74 @@
 # No Clocks, LLC Financial Management Policy
 
-> Last updated on **2024-08-15** by **Jimmy Briggs**.
-
 >   [!NOTE]
->   This policy provides a structured approach to managing our company's financial systems, addressing the *unequal equity issue*, and *setting up a framework for ongoing financial management and planning*. 
->
->   Adjustments can be made to reflect any additional specifics or preferences we have and all items should be agreed upon by both partners after review.
+>   - This policy draft aims to provide a strong foundation for managing our company's financial systems while addressing the unique challenges we currently are facing.
+>   - This policy provides a structured approach, addressing the *unequal equity issue*, and *setting up a framework for ongoing financial management and planning*. 
+>   - Adjustments can be made to reflect any additional specifics or preferences we have and all items should be agreed upon by both partners after review.
+
+> Last updated on **2024-08-15** by **Jimmy Briggs**.
 
 
 ## Contents
 
-[TOC]
+- [Purpose](#purpose)
+- [Scope](#scope)
+- [Policy](#policy)
+  1. [Financial Transaction and Bookkeeping Management](#1-financial-transaction-and-bookkeeping-management)
+  2. [Partnership Equity Management](#2-partnership-equity-management)
+  3. [Tax Management and Withholding](#3-tax-management-and-withholding)
+  4. [Revenue Recognition and Client Payments](#4-revenue-recognition-and-client-payments)
+  5. [Financial Projections and Planning](#5-financial-projections-and-planning)
+  6. [Compliance and Reporting](#6-compliance-and-reporting)
+  7. [Policy Review and Updates](#7-policy-review-and-updates)
+- [Resources and References](#resources-and-references)
 
 ## Purpose
 
-**Purpose:**
-
 This policy outlines the procedures and responsibilities for managing, accounting, and reconciling all financial transactions related to the operations of No Clocks, LLC. It is designed to ensure accurate bookkeeping, compliance with tax obligations, proper revenue recognition, and equitable management of partnership equity.
 
 ## Scope
 
-**Scope:**
-
-- This policy applies to all partners and employees of No Clocks, LLC involved in financial management, including transaction handling, bookkeeping, accounting, tax preparation, revenue tracking, and financial projections.
-- The policy also applies to any transactions made by a partner for purposes of salary or payroll that affect equity distributions such as transactions from a personal account meant for business use or a withdrawal from a business account for personal reasons. 
-- It covers all financial accounts associated with the company, including but not limited to:
-    -  Relay Accounts:
-        - Operations Checking
-        - Finance Checking
-        - IT Checking
-        - Marketing Checking
-        - Growth Fund
-        - Emergency Savings
-        - Tax Withholdings
-    -  Stripe
-    -  PayPal
-    -  Square
-    -  GitHub Sponsors, etc.
+This policy applies to all partners and employees of No Clocks, LLC involved in financial management, including transaction handling, bookkeeping, accounting, tax preparation, revenue tracking, and financial projections.
+
+The policy also applies to any transactions made by a partner for purposes of salary or payroll that affect equity distributions, including transactions from a personal account meant for business use or withdrawals from a business account for personal reasons.
+
+It covers all financial accounts associated with the company, including but not limited to:
+
+-   Relay Accounts:
+    -   Operations Checking
+    -   Finance Checking
+    -   IT Checking
+    -   Marketing Checking
+    -   Growth Fund
+    -   Emergency Savings
+    -   Tax Withholdings
+-   Stripe
+-   PayPal
+-   Square
+-   GitHub Sponsors, etc.
 
 ## Policy
 
 ### 1. Financial Transaction and Bookkeeping Management
 
-1.  **Transaction Recording:**
-    -   All financial transactions must be recorded in both QuickBooks **and** Relay immediately upon occurrence. The individual responsible for the transaction must categorize, explain, and detail the transaction as well as upload all relevant documents, receipts, invoices, etc. to both QuickBooks and Relay. 
-        -   This includes transactions made from business accounts (Relay, PayPal, Square) and any personal account transactions related to business activities`**`.
-    -   Transactions should be categorized consistently in alignment with the chart of accounts.
-
+1.  Transaction Recording:
+    -   All financial transactions must be recorded in both QuickBooks **and** Relay immediately upon occurrence. The individual responsible for the transaction must categorize, explain, and detail the transaction, as well as upload all relevant documents, receipts, invoices, etc., to both QuickBooks and Relay.
+    -   This includes transactions made from business accounts (Relay, PayPal, Square) and any personal account transactions related to business activities.
 
-`**`: *In the case of a transaction occurring outside of a tracked business account for business reasons, the transaction should be treated as an expense request and should be *emulated* as if made by the business account. This is done by withdrawing the correct amount from a business account depositing into the personal account, adding necessary memo and note to the withdrawal in Relay, and finally, marking the transaction appropriately in QuickBooks as an expense. 
+> [!NOTE]
+> In the case of a transaction occurring outside of a tracked business account for business reasons, the transaction should be treated as an expense request and should be *emulated* as if made by the business account.
+> This is done by withdrawing the correct amount from a business account, depositing it into the personal account, adding necessary memos and notes to the withdrawal in Relay, and finally marking the transaction appropriately in QuickBooks as an expense.
 
-2.  **Personal Use of Business Accounts:**
+1.  **Personal Use of Business Accounts:**
     -   Business accounts are to be used solely for business-related expenses. **Exceptions must be documented and approved by both partners.**
-        -   The partners must agree upon what is deemed as personal vs. business. If one partner uses the company to pay for cell phone bill and the other does not, this must be accounted for and discussed before hand.
+    -   The partners must agree upon what is deemed personal vs. business. If one partner uses the company to pay for a cell phone bill and the other does not, this must be accounted for and discussed beforehand.
     -   Any personal expenses paid from the business account by a partner must be recorded as an equity draw and adjusted in the partner’s equity account.
-3.  **Payroll and Salary Management:**
+
+2.  **Payroll and Salary Management:**
     -   Salaries or withdrawals must be recorded accurately, with appropriate documentation. Given the unequal equity contributions, any withdrawals by a partner should be classified as either salary or an equity draw and reflected in the financial statements.
     -   No partner may use business accounts for personal expenses without proper documentation and mutual agreement.
-4.  **Bookkeeping and Accounting:**
+
+3.  **Bookkeeping and Accounting:**
     -   Monthly reconciliation of all accounts must be conducted to ensure accuracy in financial records. This includes comparing QuickBooks entries with bank statements and receipts.
     -   A professional bookkeeper or accountant should review the books quarterly to ensure compliance with accounting standards and tax regulations.
 
@@ -66,9 +77,11 @@ This policy outlines the procedures and responsibilities for managing, accountin
 1.  **Equity Contributions:**
     -   All equity contributions must be documented and recorded in the partner’s equity account.
     -   Since one partner has made more significant contributions while the other has taken withdrawals, an equity adjustment must be calculated quarterly to ensure fairness in ownership percentages.
+
 2.  **Equity Draws and Adjustments:**
     -   Equity draws should be minimized and documented as withdrawals from the partner’s equity account.
     -   Any adjustments to equity, such as compensating for unequal contributions or withdrawals, should be agreed upon by both partners and recorded in QuickBooks.
+
 3.  **Equity Review:**
     -   Equity accounts should be reviewed quarterly, with adjustments made to reflect any significant differences in contributions or withdrawals.
 
@@ -77,15 +90,17 @@ This policy outlines the procedures and responsibilities for managing, accountin
 1.  **Tax Withholding:**
     -   A portion of all revenue should be withheld in a separate tax account to cover estimated taxes.
     -   The amount withheld should be calculated based on projected annual revenue and current tax rates.
+
 2.  **Tax Compliance:**
     -   The company must adhere to all federal, state, and local tax obligations. Quarterly estimated tax payments should be made to avoid penalties.
     -   A tax professional should be engaged annually to review the company’s tax strategy and filings.
 
 ### 4. Revenue Recognition and Client Payments
 
 1.  **Tracking Incoming Revenue:**
-    -   All client revenue must be tracked from initial quote/proposal through to final payment. This includes maintaining records of quotes, proposals, invoices, contracts, and agreements.
+    -   All client revenue must be tracked from the initial quote/proposal through to final payment. This includes maintaining records of quotes, proposals, invoices, contracts, and agreements.
     -   Invoices should be generated through QuickBooks or Stripe and linked to the corresponding client account in the financial system.
+
 2.  **Revenue Allocation:**
     -   Revenue must be allocated in the financial records to reflect where each dollar goes, including operational expenses, taxes, payroll, and equity distributions.
     -   A detailed revenue report should be generated monthly, showing all income, expenses, and the allocation of funds.
@@ -95,6 +110,7 @@ This policy outlines the procedures and responsibilities for managing, accountin
 1.  **Financial Forecasting:**
     -   Monthly financial projections should be developed based on current revenue, expenses, and historical data. These projections should include expected revenue, operating expenses, tax obligations, and potential equity draws.
     -   Projections should be reviewed by both partners to ensure alignment with business goals and financial stability.
+
 2.  **Budgeting:**
     -   A budget should be established annually, with monthly reviews to compare actual spending against the budget. This will help manage cash flow and identify areas where adjustments may be necessary.
     -   Any significant deviations from the budget should be discussed and addressed by both partners.
@@ -104,13 +120,14 @@ This policy outlines the procedures and responsibilities for managing, accountin
 1.  **Internal Controls:**
     -   Internal controls should be established to prevent unauthorized transactions and ensure accuracy in financial reporting. This includes regular audits and segregation of duties.
     -   All financial reports, including income statements, balance sheets, and cash flow statements, should be generated monthly and reviewed by both partners.
+
 2.  **Reporting and Documentation:**
     -   Comprehensive financial reports should be prepared monthly, detailing income, expenses, equity changes, and tax obligations. These reports should be accessible to both partners and retained for future reference.
     -   All documentation related to financial transactions, including receipts, contracts, and tax filings, must be maintained and organized for easy retrieval.
 
 ### 7. Policy Review and Updates
 
-This policy will be reviewed quarterly, or as needed, to ensure it remains current with the company’s operations and financial practices and must be approved/signed-off by both partners.
+This policy will be reviewed quarterly or as needed to ensure it remains current with the company’s operations and financial practices. It must be approved and signed off by both partners.
 
 ***