Author: Marie Martin

  • Things to Know Before Starting a Business

    Things to Know Before Starting a Business

    Starting a business is hard work. Follow these steps to have greater success:

    Do what you love.

    It is said that a person who does what they love for work, never works a day in their life.  Loving your work gives you something to focus on when the difficult times hit.

    Know your worth.

    Business owners, especially those just starting out, think they need to distinguish themselves on retail.  If your product is better, there is nothing wrong with charging a higher retail. Do not lower your market value to make an individual sale.

    Know what distinguishes you/your product.

    Most entrepreneurs gets into business because they know they can do it better.  Pay attention to your competition to know where you can improve and stand out.

    Know your market.

    Do your research and know who is in the market, and what they charge. You will know what to charge for your product or service.

    Plan on being busy.

    Unlike a job, you are always the owner of a business. There will always be things to do and get done.

    Have a business plan.

    It takes more than a good idea to keep a start-up going. Research how to keep your product, idea, or service going and in the public eye.

    Get licensed.

    Unfortunately, this is a step that many new entrepreneurs skip. Find out what the laws of your city, county and state need in order to do business with them.

    Keep funds separate.

    It is very easy to co-mingle personal and business funds. Take steps to ensure they stay separate.

    Make time for the family or support system.

    You will be overwhelmed. Don’t give up. Plan time for your support system to help keep you balanced. They are most likely the reason you are doing this. Include them in the process.

    Know when to outsource.

    You will not be the expert in every area of your business. Know when to outsource aspects to professionals that fulfill that gap. Bookkeeping, licensing, payroll, quarterly forms are just a few examples that come to mind.

    Do you have any questions about a startup venture?  Contact us for an appointment to discuss your new business idea.

  • 5 Things to Do Before You Quit Your Job to Start a Business

    5 Things to Do Before You Quit Your Job to Start a Business

    You are ready to take the plunge and take charge of your life.  You’re tired of working for someone else and want to start your own business. Consider the following items before doing so.

    Are you doing it for the right reason?

    Starting a business is hard work and takes a lot of commitment. Do not assume to that the time you spent working for the old boss is now free. Commit to it more than you did your previous job, or you are in danger of losing it.

    Can you weather potential financial set-backs?

    Starting a business takes an ability to weather financial storms.  Ensure that you have plan for some financial stability. When the lean times hit, you know what you are doing. You know where the money will come from during these down times.  Keep your eye on the long term goal to get through the lean times.

    Is your concept viable?

    It is easy to have a great idea.  An idea is not a plan.  Be realistic with the idea. Ensure there is a plan that can develop from that idea. If there is, work it until it blooms and flourishes. Do your homework and figure this out before embarking on your new direction.

    Are you being realistic?

    Think of all the possible things that can stand in your way. What are those obstacles? How do you overcome them? How are you supporting yourself? Have you thought of all regular expenses that you know are responsible for? It is easy to over-look things like insurance, vacation time, paid holidays, and other perks from our current employers.  Take a close look and carefully weigh out the pros and cons.  Ensure that you have planned for all needs.

    Is your support system in place?

    Developing an idea into a reality is lots of work.  You will get discouraged along the way. Who is your cheerleader?  Are people encouraging you to continue? Are the people you are responsible to in agreement with you?  Taking an idea into reality is wonderful.  Just ensure that you won’t be celebrating alone.

    If you are looking to start your own business and don’t know where to start, contact us!  We would love to help you figure out the steps you need to take to make your dream into a reality!

  • Top 10 Tasks Small Business Owners Should Consider Outsourcing

    Top 10 Tasks Small Business Owners Should Consider Outsourcing

    Most entrepreneurs don’t go into business because they do all aspects of business well.  They know their skill, task, or particular industry well so they start a business.  Successful business owners understand this concept.  They readily outsource the parts of their business they don’t want to tackle, enjoy managing, or understand.  Let’s take a look at some of the tasks you could be outsourcing.

    Marketing and Social Media

    According to Entrepreneur magazine, “Over 40 percent of companies have an executive in their organizations who is directly responsible for content marketing. Unfortunately small businesses like yours may not have the budget for that.”  So, what is a small business to do to get their products in front of customers?  Hire a marketing and social media team to hand this task.  You could start out small by outsourcing this to a writer, engaging some freelancers on Fiverr, or employ an agency.  Not only will you save money, but you are more likely to build better client relationships because your content will be higher quality.

    Bookkeeping/Payroll

    Good financial reports can make or break a business.  When your reports are clear and easy to read, you can use them to plan for the future.  You can also present them to a lender if you are looking to procure a loan.  Unfortunately, it is very easy to make mistakes and end up with reports that don’t make sense.  You could also find yourself in trouble with the state or federal governments for improperly paying your taxes.  Outsourcing your bookkeeping and/or payroll can save your company a lot of money in the long run.

    IT

    We all have that relative who claims to know all about computers.  Some of us hire them to set up our networks and workstations.  But, do they really know all the ins and outs of security?  Is our business one that is subject to specific technical regulations such as HIPAA or HITECH?  Making sure that our networks and workstations are secure and won’t be hacked easily is very important to the survival of our businesses.  Our clients aren’t likely to stick around if we make it easy for hackers to steal their information.

    Office Cleaning

    Clean and tidy offices are comforting to clients.  Not many clients are going to want to return to a space that looks unkempt.  But who has the time, as a busy entrepreneur, to clean the floors and make sure the paper towels get filled?  Nobody!  Hiring a janitorial service can save you a lot of time and money by keeping your office clean and presentable.

    Taxes

    Much like bookkeeping, most business owners don’t know the first thing about business taxes.  Hiring a professional will not only save you time, but it will likely save you money as a tax professional knows what deductions to look for that you may not have claimed.  Additionally, having a CPA manage your taxes lowers your audit risk.  And, the CPA will be the one representing you to the auditor if they complete your taxes and you get audited anyway.

    Writing

    Blog posts, ad copy, website copy, biography information, oh my!  Business owners have a lot to write.  Most of us, however, don’t have the time or ability to write all of this or to stay on top of all of it.  We don’t have the understanding of all that’s required or who to write a blog post that will score high in SEO.  This is another task best left to the experts.

    Scheduling and Administrative

    It’s hard for business owners to get much done during the day.  If we allow ourselves to get bogged down with repetitive tasks like answering emails, setting appointments, and playing phone tag, we will never get anything done.  Hiring a virtual assistant to manage your schedule, answer emails, or return phone calls can go a long way to saving you time and money.

    Graphic Design

    We all need good graphics for our advertisements.  So, unless your business is graphic design, it would likely be best for you to be spending your time working on your business instead of designing graphics yourself.  With the freelancer marketplaces opening up, it is not difficult for a small business to outsource this task even with a small budget.

    Website Design, Development, and Updates

    We have one chance to make a first impression.  Our website is often the first impression a client has of our business.  Our websites must be flexible to be viewed on a wide variety of platforms from desktop computers to cell phones to tablets.  Websites must reflect our brand image and also be updated regularly so that it continues to function.  Unless you are a web designer, this can also be outsourced to a freelancer to ensure that your site is turning visitors into customers.

    Training

    Are you a teacher?  Do you know how to motivate a sales team?  What about putting together a curriculum for onboarding new employees?  If you are unsure how to do these, we suggest that you outsource this process.  Providing training or motivation for your employees and staff will go a long way toward keeping them happy and productive.  Therefore, unless you are a trainer by trade, we highly recommend that you seek out a company who specializes in training other companies and employees.

    There are a lot of other tasks and projects that small business owners can, and likely should, outsource.  Unfortunately, most of us entrepreneurs don’t want to give up that control and hand those tasks over to someone else.  However, knowing what your weaknesses are and having a willingness to give those tasks to someone who is an expert at it will save you a lot of time, money, and frustration in the long run.

    Interested in outsourcing your bookkeeping, payroll, or office management?  Call us today!  We would love to help!

  • Are You Required to Collect Sales Tax on Out of State Sales?

    Are You Required to Collect Sales Tax on Out of State Sales?

    In June 2018, the US Supreme Court issued its ruling on South Dakota vs Wayfair Inc., et al. The state of South Dakota brought this challenge to the courts. Its contention was the law requiring a business to be physically present in the state to collect taxes was unfair. Therefore, the state claimed that it put their business people at a disadvantage by having to collect sales tax. The state crafted a law that would mandate that business not in the state to collect sales tax, provided they hit certain thresholds. The Supreme Court sided with the state saying that businesses that hit the thresholds defined must collect sales tax.

    What does this mean for online and out of state retailers?

    This decision lays the foundation for state to rewrite their tax code. South Dakota is currently the only state with the appropriate laws on the books, while others currently have pending legislation.  The business world doesn’t yet know the impact of this change, but they are watching closely.

    Are states allowed to collect sales tax now on all sales?

    This ruling does not allow the states to simply flip the switch and collect taxes. They must first go through the hoops of defining what the parameters are to collect. Those states with sales tax are likely to enact legislation allowing them to collect. The states might struggle with ensuring it will hold up to legal challenges. This could be a lengthy process of sorting out and understanding the impact on businesses.

    Next steps for online and out of state business.

    It is impossible to know when and how individual states are going to react to this decision. But it is almost a certainty that they will act quickly. Because it is difficult for states to ignore a new revenue stream.  If you are unsure if you are affected, reach out to us and we can help you out.  After all, you are in business to do what you do best.  Let us help you with the continued changes in tax codes.  Contact us today!

  • Unfiled Tax Returns

    Unfiled Tax Returns

    A non-profit came to us one day because they received a bill from the IRS for over $120,000 plus penalties and interest for failure to file their tax returns.  They were in a panic and had no idea what to do.  This is where we stepped in.

    The Issue

    This non-profit thought they had been compliant.  That is, until they realized their treasurer had been stealing money from them.  Additionally, they had no idea that the treasurer hadn’t been filing the non-profit’s tax return for the past three years.  Per the IRS, “the maximum penalty for any return is the lesser of $10,000 or 5 percent of the organization’s gross receipts for the year.  For an organization that has gross receipts of over $1 million for the year, the penalty is $100 a day up to a maximum of $50,000.”

    The Plan

    First, we knew we had to work quickly.  We had to get all their information into a QuickBooks file so that we could produce financial statements.  Then we had to have a tax preparer utilize those statements to file the past due tax returns.  Lastly, we had to put together a letter explaining the situation this non-profit was in and their plan to keep this from happening in the future.

    The Work

    We quickly started putting together their numbers for the years they had not been compliant.  This was not an easy task as they did not have all the information readily available.  They had to go to their bank and request paper copies of their prior year bank statements because they were no longer available to download online.  They also had to speak to their bank and request copies of checks that were written because they had no idea what some of their expenses were.  Once we had all the information together, we entered it into QuickBooks and produced financial statements.

    The Wait

    As soon as we had everything together and handed it off to the tax preparer, we put together the letter explaining the situation the non-profit was in and the systems they had in place to ensure future compliance.  Our letter also outlined the financial situation this penalty was putting them in and asked that the penalties and interest be waived.  We knew that the IRS might not be so lenient, but we had to ask as trying to pay this amount would surely put this non-profit out of business.  Once our CPA put the tax returns together and sent them in with our letters, all we could do was wait.

    The Outcome

    Several weeks passed without any word from the IRS.  Then, approximately two months later, our non-profit client called us.  They were giddy with excitement!  They had just received a letter from the IRS informing them that all fines, penalties, and interest had been dropped.  The non-profit owed nothing to the IRS.  They couldn’t thank us enough!  So, if you find yourself in a situation with the IRS, give us a call.  We would be more than happy to help you work your way through these issues and we have an amazing CPA that we partner with to take care of your tax issues.

  • Bookkeeping Tips

    Bookkeeping Tips

    How will you know if your business is profitable if you aren’t tracking the income and expenses of your business?  I understand it isn’t everyone’s favorite thing to do, but it is an essential step necessary to understand the health and viability of your business.  So, with that in mind, we will discuss some of the top bookkeeping tips for a small business owner.

    Stay organized

    Whether you use a filing cabinet, or a shoe box, it is imperative that you keep your receipts organized.  Even if you simply paper clip them by expense type this will help make it easier for you to enter the data into your accounting software or file your taxes.

    Business and personal finances MUST remain separate

    As a small business owner, you should have a separate business bank account.  Not only will this save you time and energy when you are sifting through expenditures, but it will also help you keep track of income for your business.  This may be difficult at first, but it will save you a lot of time and headaches in the long run.

    Plan for big expenses and taxes

    Budgeting for inventory, computers, repairs, maintenance, and taxes will save you a lot of worry regarding these expenses in the future.  Setting aside a little money monthly will keep your cash flow steady throughout the year.  This move will keep you from having to get a loan or make cutbacks at the end of the year to pay for your taxes or make necessary repairs.

    Watch your accounts receivable

    Sometimes clients simply forget to pay their invoices.  If you are regularly keeping an eye on what your clients owe you, you will make sure your income remains regular.  If you are using accounting software, you can run an accounts receivable report on a regular basis (we recommend weekly or monthly) to stay on top of amounts owed to you.

    Don’t get behind on reconciliations

    We are all busy.  However, waiting until the end of the year to reconcile all your bank statements is far more stressful than doing them regularly.  We highly recommend that you reconcile all your accounts monthly.  It is easier to remember what you purchased a few weeks ago and make that correction to your accounting software than months later.  Additionally, your financial reports may not be accurate if you are missing transactions or have incorrectly recorded deposits or expenses.

    Review your books regularly

    We recommend business owners give themselves a set time each week or month to review their books.  Owners who do this have a broad overview of their business and a better understanding of their cash flow.  They actively have their fingers on the pulse of their business.

    Pay attention to your payables

    Forgetting to pay your bills can not only affect your credit, but also your tax payments.  Stay organized, pay on time, and keep your payment receipts just in case you need to prove that payment was made.

    Understand cash flow

    Knowing what income and expenses your business will have on a regular basis is critical.  Think of your cash flow as a storage tank.  We need to keep the tank full to pay our bills and meet our obligations.  This is done by monitoring the cash that flows in (receivables) and the cash that flows out (payables).

    Find a good adviser

    Having a good adviser can be invaluable.  It can be overwhelming to understand your software, the ins and outs of payroll, or how to file your quarterly taxes.  A good advisor can walk you through what you need to understand, offer bookkeeping tips, and help you fix any errors you may have made.

    Know when to outsource

    Lastly, there may come a time when you are SO busy working on your business that you don’t have the time anymore to manage the books.  This is not a failing.  In fact, continuing to do the books when you don’t have the time or knowledge is far more detrimental to your business than outsourcing this task.  If you feel overwhelmed with the task of keeping your books, don’t feel you understand it well enough, or have questions, call us!  We would be more than happy to help so you can focus on your business!

  • Outsourcing Payroll

    Outsourcing Payroll

    Ask just about any CPA and they will tell you they don’t feel their clients have the expertise to properly manage payroll processing.  Most will even suggest that their clients’ time would be more productive spent working on other aspects of their businesses.  We tend to agree with them.  Keeping up with the demands of payroll is not easy and it’s time consuming.  Here are some of the other reasons you should consider outsourcing your payroll.

    Saves Time

    If your business uses paper time sheets, you are stuck calculating the time to pay your employees.  Regardless of how many employees you have, you will also be spending time each pay period with data entry and checking your accuracy.  Working on your business is a better use of your time.

    Saves Money

    When you hand your payroll to an expert, you can cut costs as you will not have to train employees or develop a payroll department in your company.  Additionally, time saved is money saved.  You won’t be calculating payroll each pay period; printing, signing, and distributing paychecks or pay stubs; generating reports for bookkeeping and accounting use; or preparing and paying payroll taxes and returns.

    Avoid Mistakes and Penalties

    According to the IRS, 40% of small businesses pay an average penalty of $845 each year for late or incorrect filings and payments.  Not only do these errors add up, but mistakes to paychecks anger your employees. Outsourcing your payroll burden to a trained professional can take the load off of you, the business owner, and keep your employees happy.

    Compliance

    While the cost of penalties and interest is high, each mistake you make opens your business up to an audit.  Payroll regulations change frequently, sometimes throughout a year, and staying on top of these changes is not at all easy for a small business owner.  Payroll experts understand the law.  That is what they are trained to do.  If there are mistakes, they will make corrections and handle the liability of any errors they make.

    Technology is Expensive

    Investing in the latest technology is expensive.  Payroll providers must invest in high performing software, technology, and support to remain competitive and cost effective for their clients.

    Data Security

    Much like technology, investing in the infrastructure to keep your data safe is expensive.  Payroll providers make fraud protection measures affordable by sharing their costs across multiple clients.

    Peace of Mind

    We all know our employees mainly work for their paychecks and/or benefits.  When you hand your payroll processing off to an expert, you can rest assured that the expert will manage any issues that arise with payroll.  Most payroll experts also have processes in place to insure the accuracy of their work.

    If doing your own payroll is taking up too much time, you’re getting hounded by state or federal reporting agencies, or you are concerned about the security of having an employee with access to their coworkers’ sensitive information reach out to us.  We would be more than happy to help!

  • Get Paid Faster

    Get Paid Faster

    Most small businesses pour their hearts and souls into the work they do for clients.  We understand their disappointment when the invoice has come due and the client still hasn’t paid.  Silently checking the mail doesn’t help but pestering your client isn’t the best answer either.  Here are some ideas to get your invoices paid more quickly.

    Most small businesses pour their hearts and souls into the work they do for clients.  We understand their disappointment when the invoice has come due and the client still hasn’t paid.  Silently checking the mail doesn’t help but pestering your client isn’t the best answer either.  Here are some ideas to get your invoices paid more quickly.

    Stick to a Schedule

    Your clients will appreciate it if they know when to expect an invoice.  Some businesses send out invoices weekly, some once or twice a month, and others do so when a project is complete.  Whichever you feel is most appropriate for your business, choose it and stick with it.  Clients should only receive one-off invoices on rare occasion.

    Positive Reinforcement

    Some clients work best with positive reinforcement.  Giving even a small 1-2% discount for early payment may be all the incentive some clients need to get their payments to you quickly.  Before going this route, make sure it is something you can afford and feel comfortable with.  You want the client to pay you early, not leave you feeling cheated.

    Negative Reinforcement

    Other clients react more quickly when they are concerned about penalties.  In the case of invoices, these negative reinforcers come in the form of late fees.  This method sends a clear message that you find late payments unacceptable.  Come up with a reasonable amount such as 1.5% or $15.00, whichever is greater and stick with it.  Anything too large may cause clients to leave you for someone else with less stringent terms.

    Convenience

    In this day, nearly all of us are motivated by convenience.  We suggest you offer your clients multiple ways to pay you.  Accepting credit cards, doing bank transfers, taking payments through PayPal are all easy and convenient ways to get your clients to pay you much more quickly than dropping a check in the mail.

    Require Deposits

    One of my clients builds computers for their customers.  Some of these machines cost thousands of dollars.  To reduce the amount of credit they offer to their clients, orders over a certain amount require a 50% deposit.

    Shorten Credit Terms

    Do you have a customer who is habitually late?  Perhaps you have a new customer and you may not feel comfortable offering net-30 terms to at the very beginning.  There is nothing wrong with shortening your terms from net-30 to net-15.  Some clients will respond well to this, much like they may respond well to late fees and penalties.

    Follow Up

    One to two weeks before a client’s invoice is due, reach out to them by phone or email.  Make sure they have all the information necessary to pay their invoice.  If they don’t, make it your priority to get it for them.  We have found that some clients haven’t paid their bill because it may have been lost in the mail or, in the case of emailed invoices, it ended up in their junk mail box.  Most clients want to pay you on time.  But they can’t pay you if they never received the invoice in the first place.

    Ask for Late Payments When You Call

    When you do a follow-up phone call or email, ask them to contact you by phone with their credit card information.  This allows you to take care of the invoice payment in a convenient way for the client and helps them avoid late penalties and fees.

    Know When to Ask for Help

    Successful accounts receivable management means you must know when to ask for help.  You have the option of reporting late payments to credit bureaus, contacting a debt collection lawyer, or even looking into receivables factoring which could allow you to get your hands on cash fast while the factor goes after the late payment.

    Do you need help managing your invoicing and accounts receivable?  Give Sound Accounts a call today for a quote!

  • Protect Your Identity

    Protect Your Identity

    The thieves are eager to submit tax returns under your name and claim your refund dollars for themselves. The IRS is already warning consumers against new email scams that target specific email accounts. Scam phone calls are also abundant. So what steps can consumers take to protect their identity?

    Webinars

    The FTC offers multiple free webinars and Twitter chats to talk about this issue. We suggest you visit them to participate, however, here is a sampling of some of their offerings:

    • January 29, 2 p.m. EST — The FTC and the Identity Theft Resource Center co-host a webinar for consumers about tax identity theft, IRS imposter scams, how to protect yourself, and recovery steps for victims.
    • January 30, 2:30 p.m. EST — The FTC, AARP Fraud Watch Network, AARP Foundation Tax-Aide program, and the Treasury Inspector General for Tax Administration invite consumers to a webinar about tax identity theft and IRS imposter scams.
    • January 31, 11 a.m. EST — The FTC and the Department of Veterans Affairs co-host a Twitter chat for service members, veterans, and their families about minimizing your risk of tax identity theft and recovering if you’re a victim.
    • January 31, 1 p.m. EST — The FTC, the Department of Veterans Affairs, and the Treasury Inspector General for Tax Administration discuss tax identity theft, IRS imposter scams, and what to do if you become a victim. This is a closed webinar for Veterans Administration employees, patients, and contractors.
    • February 1, 1 p.m. EST — The FTC and IRS offer a free webinar for small businesses about tax identity theft, imposter scams that target businesses, cybersecurity, data breaches, and free resources for your business, employees and customers.
    • February 1, 3 p.m. EST — The FTC and the Identity Theft Resource Center invite consumers to join a Twitter chat about tax identity theft, its warning signs, and what to do if it happens to you.

    Additional Tips

    Aside from educating yourself with the webinars and chats listed above, below are some steps you can take to keep your tax identity safe.

    • File your return early. Early filing makes it difficult for identity thieves to file a return on your behalf.
    • Respond to all IRS mail promptly.
    • Learn to recognize and avoid phishing emails, threatening calls, and texts posing as your bank, credit cards, or the IRS.
    • Don’t click on unknown or suspicious links or open attachments from strange emails.
    • Don’t care your Social Security Card with you.
    • Shred old bank and tax documents as well as credit card offers.
    • Stay informed of data breaches that may affect you and put a fraud alert on your credit record if you find you were a victim of a data breach.
    • Protect your mail by installing a lockable mailbox.
    • Become well versed in your credit and bank statements. Therefore, we suggest that our clients pay attention to credit scores and freeze credit information if they won’t be applying for credit anytime soon.
    • Place credit freezes on anyone under 18, the disabled, and the elderly as they are the most likely to become victims to identity theft.
    • Be sure that no financial transactions may be authorized by email. This can help prevent fraudulent wire requests.

    If You’re a Victim

    First, don’t panic. Being notified that a return has already been filed for you can be frightening.  However, the IRS has made tax-related identity theft a top priority. Here is what the IRS says you should do if you are a victim of identity theft from the IRS:

    • All victims of identity theft should follow the recommendations of the Federal Trade Commission: File a report with the local police.
    • File a complaint with the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
    • Contact one of the three major credit bureaus to place a “fraud alert’ on your account:
      • Equifax – www.equifax.com, 800-525-6285
      • Experian – www.experian.com, 888-397-3742
      • TransUnion – www.transunion.com, 800-680-7289
    • Close any accounts that have been tampered with or opened fraudulently.

    If your SSN has been compromised and you know or suspect you may be a victim of tax-related identity theft, take these additional steps:

    • Respond immediately to any IRS notice; call the number provided.
    • Complete IRS Form 14039, Identity Theft Affidavit. Use a fillable form at IRS.gov, and send according to instructions.
    • Continue to pay taxes and file your return.
    • If you previously contacted the IRS and did not have a resolution, contact the Identity Protection Specialized Unit at 800-908-4490. They have teams available to assist.

    The IRS has greatly reduced the time it takes to resolve identity theft cases.  Unfortunately, these are extremely complex cases, frequently touching on multiple issues and multiple tax years. It can be time consuming. A typical case can take about 120 days to resolve.

    Contact the Taxpayer Advocate Service toll-free at 877-777-4778 if you are experiencing financial difficulties and are unable to get your issue resolved.

  • Mistakes to Avoid

    Mistakes to Avoid

    It can be difficult to monitor and measure a growing business.  With added growth, your reports can become more complex, making it even more important that you avoid certain mistakes.  Below, we discuss some accounting mistakes you can avoid to keep your finger on the pulse of your business.

    Skipping Routine Accounting Tasks

    More often than not, a business owner has just been too busy to take care of their accounting needs and has to call us for help.  Nothing has been reconciled or even recorded for months on end, they’ve reached a tax deadline and they are in a panic.  While we don’t mind taking on projects such as these, it’s much easier on our client’s stress levels if bookkeeping is done on a routine basis.

    We understand that business owners are strapped for time.  However, doing all of the bookkeeping in a rush can lead to errors that will take far more time to untangle later.  Unreconciled bank accounts can be one of the issues that lead to these errors.  There are many times when small costs or expenses simply don’t get recorded in accounting software.  Reconciling your accounts with your bank allows you to catch these expenses, making sure that your software is accurate.

    Lastly, we see clients who simply record deposits as they are received instead of applying payments to open receivables.  This also leads to incomplete or incorrect software data and could lead you to send a past due statement to a client who has already paid their bill.

    Assuming Profits Equals Cash Flow

    Cash is king!  Every business needs sufficient cash flow to continue operating on a daily basis.  Unfortunately, many clients do a poor job forecasting expected cash flows.  For example, a client closes a deal for $50,000.  Expected expenses for this project are $20,000 leaving the client to believe they’ve just made a $30,000 profit.  Sadly, this isn’t always the case.  Could the project run over time?  What if the client pays late?  Maybe expenses are unexpectedly more than $20,000?  Each of these factors will impact the amount of cash flow available to the client at any time.

    Our company offers a regular cash flow report.  The formula we use is:

    (Current bank balances + anticipated Accounts Receivable)  – (uncleared/unpaid expenses + payroll expenses + budgeted expenses) = Cash Flow

    Most of our clients forecast their cash flow on a monthly basis, looking forward to the month ahead for anticipated expenses and income.  This helps them properly prepare for the month ahead.

    Not Saving Receipts

    Having a perfect expense report is great.  You feel good that you’ve recorded all of the little transactions into your software.  Then, you are audited by the IRS; without receipts, your expenses reports are useless.  Receipts are the proof that the IRS needs that you really did have a business meeting over dinner and that you didn’t just take your family to dinner on the company’s dime.

    Not Backing Up Accounting Software

    So far this year, I’ve helped three clients who needed to rebuild their company files.  Why did they run into this issue?  They made the mistake of backing up their software to an external hard drive or cloud solution.  One system crash or error can be all it takes to wipe out your files and all of your company data.

    I recommend that all of my clients schedule routine backups of their software.  My recommendation is that it should be backed up each time it’s touched.  If you or your staff is working on the software daily, back it up each night at 1 or 2 in the morning when nobody is working on the file.  If you only touch it weekly, set it up for a weekly backup or to back up each time you close the file.

    Backups need to be stored on an external drive, a server designated for the task, or to a cloud solution.  Backing up these files to your computer that stores the accounting software is almost as dangerous as not backing up at all.

    Doing Too Much Yourself

    We get it.  You’re a small business owner with limited revenue.  Doing the bookkeeping in-house seems a great way to keep costs low.  Sadly, this often ends up costing the company more money in the long run.  A knowledgeable bookkeeper will be able to manage your software and data much faster than you can.  Your job is to run your business.  This means it is often worth it to spend a few bucks to make sure that your books are done correctly the first time rather than spending hours trying to figure out how to correct an error you made.

    Not Planning for Inventory

    If your company sells product, it must stay on top of its inventory.  Businesses that don’t manage their inventory risk sales loss if product is not available.  Therefore, companies with product must plan to have product on hand at the end of the month to fill customer needs the first few days of the following month.  A simple formula for this is:

    Beginning inventory + purchases – sales = ending inventory

    If your company projects it will sell 200 widgets in February, your beginning inventory in on February 1 was 50 widgets, and the company wants 30 widgets in inventory at the end of February, the formula would be:

    200 projected widget sales + 30 ending inventory – 50 beginning inventory = 180 purchased

    This means that, in order to meet projected sales and to have 30 widgets on hand at the end of February, the company must purchase 180 widgets.

    Mismanaged Debt

    Companies can get money to operate their businesses in a few ways.  You could sell shares of your company by issuing stock or borrow money and take on debt.  If a company decides to take on debt and doesn’t monitor the amount of debt borrowed over time, they may run into difficulties repaying that debt.

    To monitor this, we suggest a formula called the debt-to-equity ratio.  This formula is:

    Total debt / company equity

    In many instances a typical ratio is 2 to 1, or $2 debt to every $1 of equity in the company.  Firms with a ratio of 3-to-1 or 5-to-1 may see this as a red flag that their debt is becoming unmanageable.

    Take a Deep Breath

    If you find that you are making these mistakes with your company, relax.  Sound Accounts is here to help you either get organized or by taking over your bookkeeping so you can do what you do best; run your business!