Oct 27, 2021 By: Turnkey Trading Partners Many of Turnkey’s clients, and NFA members as a whole, are one to two person operations. This, of course, means that one individual is in charge of trading, accounting, compliance, sales, operations, marketing, and all of the other responsibilities that come with operating in the futures space. With that in mind, this article is focused on one of the most time-consuming, and stress-inducing aspects of running a business: accounting. Turnkey’s hope is that highlighting some common pitfalls will help those reading save both time and money. Don’t utilize cash transactions – It is vital to establish a company bank account and to run operations through it. Cash transactions should be avoided, as they are more difficult to track for accounting and accrual purposes. Having a bank/credit card statement provides a paper trail to keep up with company expenses and income. Don’t pay for expenses with personal accounts – A common mistake frequently made by startup firms is that business expenses are paid from personal accounts. When this happens, a formal expense reimbursement and repayment policy must be in place and well documented. This is often difficult for startup firms to manage consistently as it is easy for a one-person operation to conflate business and personal expenses. Similarly, doing this also transfers liabilities onto the company’s balance sheet which can complicate accounting, impact net capital, and risk errors in other CFTC filing requirements. Generally, it is not in a firm’s best interest to record expenses this way. Don’t operate on a cash basis – All CFTC registrants and NFA members must present their books on a US GAAP Accrual basis. Unfortunately, in Turnkey’s experience, as firms grow, they don’t increase their accounting capabilities. Ultimately as startup firms expand it becomes increasingly difficult to properly report company financial information on a cash basis. Generally speaking, at some point, most successful brokerage and trading operations either have to hire an industry experienced internal accountant or must consider retaining knowledgeable third-party accounting support. GAAP standards require accrual accounting; it is important to have any unpaid bills entered into the financials. Storing all vendor invoices and maintaining recurring bill payments is highly recommended as it will allow for proper financial reporting. This is also key for audit reviews; Turnkey assists with dozens of audits a year and is aware that NFA frequently asks for vendor invoices. Firms must have these on file to provide when asked; good record retention policies will save future headaches Don’t overlook the importance of consistent invoicing – Not all regulated firms are paid commissions or advisory fees in an automated or predictable fashion. For those firms that invoice customers to collect fees, it is critical to have a clear and consistent invoicing process. Booking company receivables in a timely fashion and properly aging those receivables are extremely important practices. An incorrect process, supporting documentation, or inaccurate aging can materially affect company accounting records. Don’t forget to communicate changes to your trading programs – Any changes to a customer’s account should be communicated clearly between trader, the account owner, FCM, and the performance accounting third party. If a fee or trade level change is not communicated clearly to the accountant, it can lead to a miscalculation of rates of return and fees. Miscalculations will invariably lead to corrections and, possibly, filing amendments or regulator involvement. Did you know that Turnkey offers accounting services to companies of all sizes? We offer day-to-day bookkeeping and accounting services for CTAs, CPOs, IBs, Swap and Forex firms. Our methods and work product conform to both CFTC and NFA reporting guidelines. For more information on Turnkey performance accounting and book keeping contact us today!