Category: business management

  • 5 Secrets of the Most Profitable Companies

    5 Secrets of the Most Profitable Companies

    Running a business isn’t easy. When you start a new company, you are unlikely to know everything there is to know about consistent success. However, there are a few secrets that every great company knows. If you want to overcome challenges that arise and take your company to the next level, here are 5 of the top secrets of the most profitable companies you need to know.

    1. Communicate from the Core

    One of the main secrets of the most profitable companies is that they communicate from the inside out. They regularly ask themselves why they are doing what it is they’re doing. Spend some time thinking about why you wanted to be in business in the first place and what your customers care about. In order to become a popular brand, you need to have a purposeful mission statement that attracts customers and encourages them to take an interest. Although people can live without a service or product, you need to prove to them that what you are offering matters through your mission and vision.

    A statement isn’t enough, though. You need to orient your business in such a way that your decisions align with your mission at each level and within each department. People will always gravitate toward genuine passion and vision. They can smell a fake and just as easily spot the genuine article. People want something to believe in, something to rally around. The best brands, business owners and brand managers, understand this. Putting your focus and energy behind something that brings you satisfaction and meaning has a way of rubbing off on others. And often, they’ll stay customers for life.

    When Apple launches new products, it describes its vision which instantly attracts people to take an interest. For instance, when Apple recently launched the new MacBook, it claimed that it wanted to engineer the lightest Mac notebook ever and managed to do the impossible. If there is one thing that you can learn from Apple, it is the fact that it engages its target audience by first promising something incredible, then by proving to them that it can conquer the impossible and provide them with the best product. It prioritizes the needs of its users to develop easy-to-use products that are a class apart. In short, speak from the heart, communicate clear objectives, only promise what you’re confident you can deliver, rally others toward your cause, and then deliver time and again.

    2. Do away with poor performers and invest in the promising ones

    Another secret that you need to know if you want your company to be profitable is to get rid of poor performers. Although this might sound harsh, you need to create the best working environment to ensure that your company grows. This means that you simply cannot let someone’s negativity affect everyone’s performance. By having the weakest links exit the building, the complainers and the ones always looking to pick apart the mission, you’re doing everyone a favor. Keeping the best improves productivity, creativity, trust, and loyalty. 

    Most of the successful companies would not be where they are today if they kept workers who only complained and failed to provide results consistently. On the flip-side, invest heavily in the development of talent that shows promise, even those who might be lagging behind but are hungry for growth and change. 

    business owners discussing secrets of the most profitable companies

    3. Walk It Out

    Quite often, you might feel stuck. Although it’s perfectly normal to feel like your business is not going anywhere, you need to do something about it. Don’t let the waves of worry and negativity take over. Think about it, run solutions and act decisively. Interestingly enough, there is a way to help this process along. Before you take on any task, you should consider, quite literally, walking it out. Studies show that exercise goes a long way in improving your decision-making skills. It allows you to think creatively by organizing your thoughts, cleaning out distraction and stress, and focusing you in new ways. 

    Now, you don’t need to head to the gym for a heavy workout. You just need to take a quick walk around your office a few times. It will work wonders. In fact, you should even encourage employees to stretch their legs when they feel stuck. It is also a good idea to host walking meetings. All you need is 4 to 6 people to brainstorm some amazing ideas. To avoid overexertion, you need to ensure the meeting does not exceed 30 minutes. Physical movement is a catalyst for cognitive movement. Creativity blossoms when the body gets working. 

    4. Be Transparent

    A secret that you will notice every profitable company follows is being transparent. The fact is that customers today value transparency more than ever before. This is why it is important that you open up about methods and processes. Now, transparency does not mean that you need to share your trade secrets. It simply requires you to be honest about your business operations. If you want customers to purchase from you repeatedly, they need to be able to trust you and have faith in your mission and product or service. Information sharing and openness go a long way in helping establish trust and loyalty.

    When you mess up, don’t hide it or try to candy-coat it. Say it like it is. Be direct. Present the necessary facts, the sincere apology and your clear plan for fixing it. Oftentimes, with brands, there is a kind of “family” dynamic going on with your audience. Be open and generous. Most will stick with you when they see your character in action. 

    5. Encourage Employees to be Creative

    Original thinking is necessary for an organization to be profitable. Too many business owners, in an effort to control everything, try to micromanage their staff, keeping them from the freedom, space, and engagement needed to develop original ideas. Encourage your people to get creative. Communicate creative thoughts and ideas even if they don’t immediately seem great. Sometimes, ideas take time and other minds to get to their greatest manifestation. 

    Don’t be afraid to spend a bit for this, to dedicate time and other resources to allow creativity to flourish. For instance, Google allows its engineers to spend time working on projects they are passionate about. This allows the company to come up with unique services. Free up your people. It will come back to you with new products, greater productivity, and a happier workplace. 

    Conclusion

    Of course, this isn’t an exhaustive list. There are many more secrets of great businesses. We’ll dive into more of them in future articles. It’s important, though, for you to grasp the keys to building a strong, trusted, innovative business, one that attracts customers, builds loyalty, and continues to develop itself and its services. Many have gone before us. We may as well learn as much as we can from them, both their failures and successes. 

    Sound Accounts cares about the success of your business. We help business owners gain the edge they need with individually tailored bookkeeping service packages. We take care of your bookkeeping needs so you can take care of your business. Connect with us today to learn more. 

    For answers to a few of your business management questions, check out our FAQs below. 

    FAQ

    What sets the most profitable companies apart from so many others?

    It’s definitely a host of things. But many of the fundamentals are consistent across the line, transparency and openness with customers and employees, consistent follow-through, encouraging creative thought and original ideas, rest and movement (mild exercise), ousting poor performers while investing in promising talent, and putting your efforts behind products and services you’re passionate about. 

    What are some things to always avoid?

    Don’t promise what you can’t deliver. If you need to wait a bit longer, do so. Solidify your objectives, and communicate clearly when you’re ready to present new things. Don’t get stingy with investing in new talent and in creating an environment where freethought can thrive. Pour into your talent pool, reward them, and build their confidence. 

    Don’t get hammered by poor lifestyle choices like unhealthy eating, a lack of exercise, too much alcohol, or avoiding time with loved ones. Your business and brand will reflect your own life and health. Be good to yourself and it will bring new life to your professional efforts. 

    How can I be sure I’m staying on the right path in my business?

    Find a good mentor. Look for someone who has shown repeated success for many years, both in business and in their personal life. You want someone who values integrity, quality, creativity, personal health, transparency, loyalty, and tenacity. 

    Even if you’re paying for their time, an amazing mentor and consultant with years of experience can often be the voice you need to help you dial in the finer details.  Make sure it’s someone with no agenda except to see you develop. You don’t want someone looking to recreate your business in their image but someone who wants the best for you and your company. 

  • Is The Cash Accounting Method Right For Your Business?

    Is The Cash Accounting Method Right For Your Business?

    There are times when cash accounting might seem like the best option. Smaller businesses and startups are free to choose between cash accounting and accrual/GAAP accounting. Timing is the main difference between the two accounting methods.

    Unlike cash accounting, which only records transactions at the time cash is paid or received, accrual accounting immediately recognizes the value the moment it is performed, spent, or earned regardless of whether you receive payment for it or not. If you are wondering whether the cash accounting method is the right option for your business or not, you have come to the right place.

    What Is Cash Accounting?

    The cash basis accounting method is usually the most basic. Cash accounting is straightforward and focuses on cash received and paid. It is normally used by small businesses and for personal accounting. A cash-based accounting system recognizes revenue and expenditure only when cash is exchanged, regardless of whether the product or service has been delivered. This helps ensure that additional complexities, such as current assets and liabilities, receivables, and payables, are not introduced.

    It also means that the sales and expenses do not reflect the exact period they accrue in the financial statements and show investments as expenses. Thus, it can be difficult to assess the performance of your business using cash accounting.

    business owner using the cash accounting method for bookkeeping

    Benefits of Cash Accounting

    Cash accounting is used to this day because it offers a few benefits. For instance, it would allow you to record advance payments made by customers in your income statement the moment you receive them instead of recording them as a prepayment until you have provided the product or service. This means that small businesses can benefit from a ton of creative freedom for manipulating their statements according to a style and context that suits them best.

    Besides, it would allow for easier internal tracking. But, even though a custom reporting system might work for you, it does not mean that it would make sense to others, such as investors and the IRS. It explains why large corporations and public companies cannot use cash accounting.

    Impacts Income, Profitability, and Taxation

    If you decide to use this method of accounting, you need to understand that it would affect your income, profitability, and taxation. It is crucial that you choose the right accounting method, as it would affect your taxation. The more profitable your company, the more money you would need to pay in taxes.

    When you make spending choices for lowering your net profit, you get to reduce your tax obligations. It is common for companies to opt for the cash method to stock up on assets and avoid appearing profitable. For instance, you would be able to pay the lease for your office for the entire period and record the expenses to decrease your profit margin considerably. Even though it might seem somewhat dodgy, you are legally permitted to do so to establish your business for success in the future. However, it is due to this reason that the IRS often does not allow companies to use cash accounting, as they can simply buy inventory in bulk to appear unprofitable. Moreover, with larger companies, you have to account for bigger complexities which make cash accounting a never-ending headache.

    When Can Small Businesses Use Cash Accounting?

    In order to be qualified for filing taxes with the cash accounting method, the IRS requires businesses to pass their test of gross receipts or sales to make sure that organizations are under the revenue threshold, as mentioned below.

    Small business entities (C corporations and partnerships) need to generate under $10 million in annual sales over the last three years. 

    Both a sole proprietor and an S Corporations need to generate under $1 million per year or $5 million in annual sales during the past three years.

    On the other hand, the following companies will find the cash accounting method to be a great choice:

    Qualified Personal Service Firms and Small Service Businesses

    Accountants, real estate agents, consultants, therapists, lawyers, and other professionals as well as small group companies that provide services or a simple product can opt for the cash accounting method. Generally, these businesses operate as sole proprietors, partnerships, or privately held companies.

    Family-Owned Farms

    Family farms also have the option to use the cash accounting method for tax purposes as long as they do not generate over $25 million a year. Farms that are run as family entities are a special exception. Otherwise, the IRS does not raise its threshold. There are specific stipulations that you need to be aware of if you are running a farm. Although family farms may be able to use the cash accounting method for filing taxes, they would be unable to account for grains for resale, livestock costs, and other farming costs.

    Freelancers and Individuals

    The cash accounting method is also widely used by independent contractors, personal businesses, and other self-employed persons. There are certain complexities that you need to deal with in order to ensure that you are able to meet the requirements set by the IRS. Generally, the procedure is quite straightforward.

    cash accounting method tools

    What If Cash Accounting Is Not Right For A Small Business?

    After reading the above, you would have gotten an idea that using the cash accounting method is only acceptable for a few businesses. The fact is that the majority of companies, regardless of their size, realize that the accrual method offers plenty of benefits, especially if they wish to grow. Besides, you would need to switch to GAAP once your company generates over $3 million a year.

    A great reason to switch to accrual accounting from cash accounting is that it is cheaper. Your CPA would only need to file extra forms to make the switch. The earlier you adopt accrual accounting, the cheaper it would be.

    What Is Accrual Accounting?

    Accrual accounting is an accounting method that requires companies to record revenue before payment is received for goods or expenses are due. This means that you would need to account for income and expenses based on whether they have been accrued or not rather than the exchange of money. Thus, the revenue generated by the organization would be recognized in the accounting books as soon as it is earned rather than cash transactions occurring, which makes it the complete opposite of cash accounting, which only focuses on cash transactions.

    How Does Accrual Accounting Work?

    The main concept behind accrual accounting is that an economic event needs to exist to be recognized. It is based on the matching principle, which focuses on matching revenue and expenses to the period when the transaction first occurs instead of when payment is received or made.

    The accrual accounting method combines current cash inflows and outflows with future expected cash flows to provide a more accurate idea about where the company stands at a specific date.

    How Can You Qualify For Accrual Accounting?

    The thing about accrual accounting is that it is considered to be the standard for most organizations. However, only a few small businesses do not follow the method. Small businesses are permitted by the IRS to select their preferred method. However, if your revenue is greater than the specified threshold, you would need to opt for accrual accounting.

    What Are The Benefits of the Accrual Accounting Method?

    There are plenty of advantages of using the accrual accounting method, as mentioned below.

    The Option to Increase Revenue

    A major benefit of the accrual accounting method is that it allows you to increase your revenue. This can help you secure a bank loan and pay tax during a period when the tax rate has been reduced.

    A Clear Picture Of A Company’s Financial Position

    Another reason why you should consider the accrual accounting method is that it provides a clear picture of your finances. It sets the basis for preparing financial statements which you can analyze to determine where your company stands.

    Real-Time View of Finances 

    By following the accrual accounting method, you get to receive a real view of your finances. This means that you would be able to determine if your finances are in order or not.

    Good Management of Debt and Income 

    When you stick to a cash accounting method, you would have no idea about your debt and income. This is not the case with accrual accounting.

    Conclusion

    By this time, you should have the knowledge you need to understand the cash accounting method. If you are contemplating whether to opt for the cash accounting method or the accrual accounting method, it is crucial that you reach out to an expert to help you. Consult with a professional who has expertise in both of these accounting methods and can determine which method you should select so that you can organize your finances, face audits, and pay your taxes with ease. 

    Sound Accounts offers superb bookkeeping support and advice based on years of experience helping countless businesses organize their finances and use this information to make better business decisions. Contact us today to make a change in your business bookkeeping. 

    For some quick answers to bookkeeping questions, see our frequently asked questions below. 

    FAQ

    What is the cash accounting method?

    A cash-based accounting system recognizes revenue and expenditure only when cash is exchanged, regardless of whether the product or service has been delivered. This helps ensure that additional complexities, such as current assets and liabilities, receivables, and payables, are not introduced.

    It also means that the sales and expenses do not reflect the exact period they accrue in the financial statements and show investments as expenses. Thus, it can be difficult to assess the performance of your business using cash accounting.

    What is the accrual accounting method?

    Accrual accounting is an accounting method that requires companies to record revenue before payment is received for goods or expenses are due. This means that you would need to account for income and expenses based on whether they have been accrued or not rather than the exchange of money. Thus, the revenue generated by the organization would be recognized in the accounting books as soon as it is earned rather than cash transactions occurring, which makes it the complete opposite of cash accounting, which only focuses on cash transactions. 

    Accrual basis accounting might not be as simple, but it gives a more accurate picture of your long-term finances. 

    Why use the cash accounting method?

    Because of its relative simplicity, many smaller businesses utilize this system of accounting. It has the quickest learning curve and is generally considered the easiest for new business owners. 

    However, you need to do your research and likely discuss this with a qualified accountant, bookkeeper or tax professional to make sure you fall within all the rules governing this accounting method. Even if you are qualified to do so, you may want to use the accrual method if you’d like a system of accounting that gives you a broader view and a more long-term look at your finances.  

  • Guide to Free Accounting Software

    Guide to Free Accounting Software

    Whether it’s about getting more organized, keeping better records, tracking cash flow and tracking expenses, making better use of your financial statements, or finally contracting a professional bookkeeping service, developing a strong bookkeeping strategy will always change your business for the better and often enable you to grow in ways you didn’t previously have access to. 

    It’s important that, as business owners, we take full advantage of technologies that might give us a leg up in our efforts. One area that often needs an upgrade is in our bookkeeping and money management. One affordable way to get a better handle on things, especially when you’re just starting out or fairly new, is picking up a good accounting software. 

    While free options will not be as robust as paid choices like QuickBooks or Xero, several no-cost options exist that offer a range of possibilities for business owners hoping to better manage their books, simply handle invoicing with ease or take advantage of the sleek workflow and automated data organization that comes with accounting software. Let’s look at 4 choices for free invoicing or free accounting software in 2022. 

    1. Wave

    A top choice, Wave is a web-based software, which means you can access your account from anywhere with an internet connection. It may lack some advanced features, but it’s no slouch. Wave gives you the ability to connect unlimited credit card and bank accounts, and track income and expenses. You’ll also have the capability of invoicing clients and partners and scan receipts as well. 

    Some additional Wave features include:

    Journal transactions

    Bill and invoice reminders

    Payments made in foreign currency

    Customizable sales tax

    Customizable income and expense categories

    Double-entry software

    The ability to run multiple businesses through one account

    Exportable Accounting Reports

    Another great perk of Wave software is its security. It packs 256-bit SSL encryption and data backup. You’ll also get support via email, along with helpful hints from their blog, forum, and help center. Lastly, Wave expands your options by offering free add-ons like Wave Invoicing or pay-as-you-go add-ons like Payroll by Wave, that enhance your experience and give you more control over your accounting. 

    As with any product, Wave does have a few drawbacks. It carries few tax capabilities and isn’t ideal for larger companies. Still, Wave, with its strong security, thorough collection of benefits and add-ons and ease of access, makes it one of the best choices for free accounting software. 

    2. ZipBooks

    ZipBooks contains most of the features you need for basic business bookkeeping, like expense management, bank syncing, billing, invoicing, and even reports. Additional features include bank reconciliation, auto-categorization, tagging and more, plus a wide range of detailed reports. ZipBooks helps you accomplish even more with data-driven insights to enable you to make the most of your financial reports. With greater financial intelligence comes better business decisions. 

    ZipBooks offers an automated payroll option via a link with Gusto. You’ll need to subscribe with Gusto, which starts at $39 a month plus $6 per person per month. While this means an extra expense for you, Gusto is a great service that many business owners swear by. And paired with ZipBooks, can really streamline your payroll management. If you’re hoping to make online payments to your invoiced customers, you’ll need to use Square or PayPal and pay the associated fees. 

    ZipBooks is an above average choice for free accounting software. With several built-in features and some of the best intelligence and reporting insights of any free software, it’s an excellent program for many businesses. Learn more about ZipBooks here.

    business owner using free accounting software

    3. CloudBooks

    This one is sort of a cross between no-cost and low-cost. You can use CloudBooks to invoice, track expenses, create estimates, track time, easily communicate with your entire team, assign tasks, run projects, and more. However, you’ll need to upgrade and pay a very reasonable fee of $10 per month if you’d like to send more than 5 invoices, offer payments online for your invoices or brand your materials. 

    For help, you can contact CloudBooks by email or even phone. They also keep a regular blog going with some great articles, featuring not only helpful hints about using CloudBooks, but timely posts about business, accounting, media, and marketing. Check out and sign up for CloudBooks here. 

    4. Zoho Invoice

    This self-admitted “forever-free” tool is an excellent choice for small business owners looking to create and manage invoices and collect payments, all with ease. Customize your templates with brand-specific choices, track expenses, communicate with customers using your client portal, create estimates, and run time-tracking on project billing.

    Zoho is trusted by a wide range of businesses and entrepreneurs for its ease and automation. Everyone from freelancers, musicians and artists, to designers, lawyers, consultants, non-profit organizations, taxi and transportation, medical, travel and tourism, and everyone in-between, are using Zoho to manage their invoicing and payments. 

    At its heart, Zoho isn’t just one, but a suite of apps, designed to help you manage your business better in just about every way. Their offerings include programs like Zoho Books, which goes beyond invoicing to include everything you need for complete bookkeeping. From there you get to choose programs or subscribe to the entire suite and gain a serious selection of features that allow you to email, invoice, manage bookkeeping, create and track marketing campaigns, manage projects, design, handle customer service and sales pipeline oversight, and book appointments. 

    Zoho is customizable, features great mobile apps, and its interface is attractive and mostly intuitive. They’ve also made considerable upgrades over the past few years, allowing for a greater level of control and customization. 

    Free for the basic service of Zoho Invoice, which includes one user, if you’d like to step up, which will be necessary for many if not most users, there are a range of paid Zoho Invoice plans, with a graduated system of features and pricing. From there, you can move into Zoho’s wider range of business products, requiring anywhere from $30 to $250 per month for a comprehensive suite of management tools to help you take care of just about anything. 

    Conclusion

    This is by no means an exhaustive list. And we’ll look at another set of free software options in the near future. But this should at least inspire you to take a look at bookkeeping or invoicing software if you’re not already taking advantage of the features and benefits of today’s available technologies. 

    Remember, though, no program is a full substitute for an experienced bookkeeper. It’s important to create bookkeeping habits and strategies that are sustainable, comprehensive, easy-to-follow, and cover everything. A bookkeeper can make this happen for you and take the burden off your shoulders. 

    Sound Accounts helps companies from all sectors achieve greater productivity with a range of superb bookkeeping services. Don’t leave your finances to chance. Reach out today to see the difference great bookkeeping makes in your business. 

    For quick answers to questions about free accounting software, see our frequently asked questions below. 

    FAQ

    Is accounting software right for me?

    The answer to this depends on a few things. It’s really never a bad idea to pick up a quality bookkeeping management tool. These programs, whether you’re handling your own books or outsourcing, can give you quick access to basic accounting tools and a range of reports. Not to mention keeping your records organized.

     How do I choose the best software for me?

    There probably isn’t a “perfect” software for any business owner. So many of them will work just fine for most companies. It comes down to which features you need, the ease of use and the style of navigation you prefer, and how customizable your options are. You’ll also need to determine which is better for your success, a good free version or a more comprehensive paid program. 

    Is accounting software a good replacement for a bookkeeper?

    The short answer is no! While very small businesses, say one or two people, especially ones with a very basic business model, a limited range of expenses, and few customers, can manage their own books using accounting software and good habits, most growing businesses need to eventually transition to some kind of professional bookkeeping help. This might be an in-house employee or even the more versatile outsourced bookkeeping service, which offers you exactly the services you need at a price you can afford. 

  • 5 Small Business Bookkeeping Myths

    Small business bookkeeping is sometimes a contentious subject, with business owners digging in hard to set up camp on their own chosen side. Some swear by staff help, others love the ease of contracting with an outside service. Still, there are those who only want to handle it themselves. 

    There are definite pros and cons for each. And within each one, a range of responsibilities, inherent to that particular approach. Whatever your chosen bookkeeping path, it’s clear that great bookkeeping is essential for professional success. It’s also clear there is a great deal of misunderstanding surrounding the subject. Let’s look at 5 small business bookkeeping myths that often trip up business owners and how to approach them instead. 

    Myth #1 Bookkeeping is Just Data Entry

    To be sure, there is a fair amount of data entry involved in the bookkeeping process. If you’re doing it the old-fashioned way, with ledgers and notebooks, you’ll be writing down a lot of information each day. If you’re using software, it will save you a lot of time but still require you to enter certain information and go over your reports regularly. 

    But bookkeeping isn’t just entering information, it’s a lot more. It involves keeping track of and reconciling bank accounts, organizing and filing receipts and invoices, tracking expenses and payroll, understanding cash flow, credit and debt, following up with customers, partners and vendors to go over payments, verifying costs, fixing accounting errors, preparing you for business taxes, understanding capital, preparing you for an audit if necessary, and doing an analysis of detailed financial statements and reports to ensure overall financial health.. 

    Proper bookkeeping can mean the difference between a business that loses money, is prone to audits, and wanders aimlessly and one with a clear vision, well-managed finances, and a structured path toward growth. 

    business owners thinking about bookkeeping myths

    Myth #2 Bookkeeping is Expensive

    Another myth that often keeps business owners frantically trying to manage their own bookkeeping is the idea that bookkeepers are expensive. With an annual average between $30,000 and $60,000 for in-house bookkeepers, the truth is more reasonable. Beyond this, many small businesses, especially when starting out, don’t need full-time bookkeepers and would do just fine with part-time help. 

    When it comes to outsourcing, you get to pay for exactly the services or time you need. Bookkeeping service providers usually offer a range of options to meet the varying needs and budgets of their clients. So you get top-notch industry experience and the support you need without having to go through the hiring process or setting up an office. 

    Myth #3 I’m Giving Up Too Much Control

    A common belief is that outsourcing to a professional bookkeeping service means losing control of your business and finances. This couldn’t be further from the truth. Professional bookkeeping firms stake the success of their business in being trustworthy, consistent, organized, transparent, and good communicators. 

    They take data safety seriously and use a host of technologies and best practices to ensure your company’s info is protected. Bookkeeping service providers work with you to make the most of your financial management, helping you make more informed decisions and allowing you to focus on core management activities instead of using up time on bookkeeping activities. If anything, bookkeepers enable and empower you to gain greater control with more time, a clear vision, and more focused financial choices that lead to business success.

    Myth #4 You Only Need Bookkeeping Help During Tax Time

    It’s true that bookkeepers can be lifesavers during tax season, especially for small business owners who already have a lot to deal with. But if you neglect taking advantage of the organization, expertise, analysis, and advice provided by great bookkeepers throughout the year, tax time is likely to be fraught with problems, missing paperwork and records, and a lot of stress. 

    Having a bookkeeper throughout the year means your books are maintained accurately every single day. Your records are always in order. Accounting mistakes are caught early and fixed quickly, and you ensure that taxes are paid accurately and on time. Bookkeepers also help you find the maximum deductions so you end up saving money. 

    Additionally, gearing your financial focus simply around tax season is a bad idea. Your bookkeeper’s knowledge is invaluable. You’ll be able to partner with them to put your financial reports to better use, helping you streamline spending, hire more strategically, reorganize under-performing departments, and invest with greater clarity. 

    business manager's bookkeeping ledger sitting open

    Myth #5: Bookkeeping is Simple Work; I Can Handle it Myself

    It is occasionally true that there are business owners with bookkeeping training who successfully manage their own books. But this is rare and also applies mainly to companies where the business owners themselves are the only employee, or one of only a few staff members. 

    Most of the time, business owners find that bookkeeping takes more time and focus than they’d like to be spending. They find that their attention is pulled away from management tasks toward bookkeeping needs. They also discover that bookkeeping is a lot more than data entry and keeping a box of receipts. It involves consistent follow-through, good organization, analytical skills, a grasp of tax laws and details, and a desire to understand the nuances of financial data. 

    Contracting a bookkeeper means you get to lead your company instead of being stuck catching up on the books. It means you won’t miss a beat, not only during tax time, but every day. They’ll help you avoid repeat audits and use your financial data to grow your business. Bookkeepers are partners in helping you develop your dream further. While bookkeeping might seem dry and boring to you. To them, it’s an opportunity to help business owners achieve more of their goals. 

    Sound Accounts is your ideal bookkeeping specialist. We help businesses reach the next level of their development with comprehensive bookkeeping support. Contact us today to get started.

    For quick answers to bookkeeping questions, check out our FAQs below. 

    FAQ

    Why is bookkeeping so important for small businesses?

    Bookkeeping ensures organized records, prepares you for taxes, helps you avoid mistakes and penalties, enables you to make better financial decisions, gives you a clear view of performance and all aspects of your business, and equips you with the knowledge you need to move forward more objectively. 

    Is hiring a professional bookkeeper right for me?

    Most of the time, yes. Professional bookkeepers take care of managing your books and financial reports, allowing you to focus on management and leadership concerns. This lowers your stress, frees up time, helps you avoid costly mistakes and keeps you informed on performance and areas of opportunity. 

    Which is better for me, an in-house or outsourced bookkeeper?

    There are several things to consider: the amount of work needed, your budget, your ability to outfit a new office and pay benefits, the desire to have someone down the hall or across town and much more. 

    In-house bookkeepers can be great, but outsourcing is often the right move. You get all the upsides of a dedicated and experienced bookkeeper without having to pay a full salary, benefits or preparing an office with all its expenses. Bookkeeping service providers already have their own equipment and technology and establish their reputation on providing consistent service and a trustworthy relationship. 

  • Best Marketing Ideas for Small Business Owners in 2022

    Best Marketing Ideas for Small Business Owners in 2022

    Building a business takes so much from us as entrepreneurs. Our attention is often drawn to many different things at once. But one thing you should never lose focus on is your marketing strategy. Businesses, both large and small, often live or die on the success of their marketing initiatives. 

    Great marketing certainly takes more investment, both in money and in time. But it is an aspect of your business that holds the potential to entirely change the course of your company. Let’s look at a few of the best marketing ideas for small business owners in 2022. 

    Establish Identity: Create Your Brand and Tell the Right Story

    It may sound obvious, but a lot of companies don’t take the time they need to carve out a wholly unique brand story and identity. Especially now, with the prevalence of online commerce, social media, and international connections, establishing a clear and confident picture of your brand is a strong way to connect with people looking to link with companies, products, and creators that mesh with their values or support their needs. 

    Story is important. More and more people aren’t satisfied with good products on their own. They want to understand how and why you’re different from every other choice, and feel a connection to your goals and your brand’s attributes. 

    Work with great marketing specialists, brand developers, content marketing strategists, and trusted partners to create meaningful brands that not only exceed others in quality, but outdo them with better story and stronger identity. 

    business professionals applying their best marketing ideas

    Focus: Niche is Good

    This may seem like a no-brainer to some of you and completely unnecessary to others. You may be tempted to try and be everything to everyone, to solve all problems and provide all solutions in your field. This usually doesn’t pan out well. Instead, focus. Decide who your target audience is, why they need you and why your solution is superior. 

    Of the handful of things you feel good about doing, narrow your focus to the ones, or just one, that rises above all the others, the one your company excels at the most. Instead of spreading your resources and your marketing strategy across too many offerings, pour it all into one or two products or services in which you have the potential to affect great influence in your chosen field. 

    Start a Referral or Rewards Program

    This kind of promotion will certainly look different for every business owner. But providing your clients or customers with the ability to gain a great level of value from their purchases will go a long way to ensuring they come back and talk about you with friends and colleagues. 

    Work with your marketer to create special offers for existing and potential customers, discount clubs, or ongoing memberships that give them solid savings, members-only products, and access to information or events only available to those who sign up.

    For clients, offer perks for referring others to you. It could be a discount on present services or one on a future purchase. It might be a bump up to a higher level service, or something only your business can offer. Special programs like this can give your customers a sense of belonging and exclusivity and inspire them to keep coming back around. 

    social media is one of the best marketing ideas

    Don’t Ignore Social 

    Whether we enjoy social media channels or not, it’s definitely here to stay. And its influence on brands and companies is growing month after month. Superb video ads, humorous and informative YouTube, Facebook, TikTok, and Instagram videos and posts can really connect. 

    Authentic reviews from happy customers and letting your guard down with intimate behind the scenes looks at production, company values, personal story, and the creative process can really inspire and draw in new followers. Continually relevant content helps build dedicated communities, not just customers. 

    Automate

    Some things aren’t good for automation. Some are. Certain aspects of marketing can be automated to help you be more effective with less effort. Marketing specialists have incredible access to a wide range of technologies today. 

    These applications allow creators to write and develop marketing materials, response letters, requests for reviews and feedback, sign-up forms, blog posts, regular emails, newsletters, and social media posts, then input, schedule, and let the program do the rest of the work of posting, emailing, and gathering customer info. This also helps you get to know your audience, build an email list, and learn both better ways to market and solve customer needs.  

    Create Explainer Videos

    Most folks love these, especially if they’re both entertaining and informative. Create high quality, straightforward videos that explain how to use your products and services so users know exactly what they’re doing and gain confidence in your service. It’s also a great chance to build rapport with your audience and keep them thinking about your brand.

    Offer Live Chat

    If you can afford it, live chat can be a game-changer for your customer’s experience. No matter how much info or FAQ’s you offer, most of us prefer or need to speak with a real person. Live chat gives customers and clients a direct connection to a qualified professional who can answer all their questions, help them sign up or make purchases, and solve any issues that may arise.

    Knowing that they can reach a real, attentive person will help to establish you as the better brand and problem-solver in the minds of your customers. No matter how much technology we adopt, nothing will ever replace the comfort and confidence gained by knowing we have direct access to a caring professional. 

    Use Analytics 

    Nearly all social media platforms, online advertising providers and browsers, along with a variety of other tech creators, offer a range of analytical solutions for your marketing efforts, for understanding consumer habits, and current trends driving business today. 

    Take time to familiarize yourself with these tools and hire or contract a professional who understands analytics inside and out. The information within detailed analytical reports allows you to make better decisions for your brand and your finances. You’ll gain the knowledge you need to remain agile, to shift your focus when needed, innovate and create new and better products, reorient your brand message, spot problems early on, solve them more quickly, and connect more effectively with your audience. 

    Hire a Professional

    Whether you establish a dedicated marketing department in-house or outsource your efforts to an experienced marketing experts, there is absolutely no substitute for years of experience, market knowledge, and good education. 

    Professional marketing strategists, content creators, brand developers, and other advertising and marketing specialists pour the full weight of their skills and knowledge into your brand and message. This also allows you to focus on things where you’re often more gifted, like leading your team, managing production, connecting with customers, and refining customer experience. 

    Conclusion

    While this is only a small sampling of marketing tips for the year ahead, it’s a great place to start, especially if you aren’t already expanding your marketing efforts. Marketing is never something you want to ignore. It establishes your brand’s identity and story, helps you connect meaningfully with customers, brings greater attention from possible partners and collaborators, and ups your image within the market. We’ll look at even more marketing tips soon.

    Sound Accounts helps business owners solve all their bookkeeping needs. We offer a range of services that turn your bookkeeping from a burden into an asset. Contact us today to get started. 

    For quick answers to marketing questions, take a look at our frequently asked questions below. 

    FAQ

    Why is marketing important for my business?

    Developing a strong marketing strategy ensures you establish a solid position within your field. It creates strong brands with compelling stories, draws in new customers and helps retain existing ones, helps you build strategic partnerships and create the legacy you want. 

    What are some basics of marketing everyone should remember?

    There are many. But it’s good to start by focusing on a niche, your strongest creations, use social media and video, find ways to connect with your audience, offer top-notch customer service, offer additional perks with memberships and referrals, use analytics and partner with experienced marketing professionals. 

    Should I handle marketing on my own?

    Some business owners can, especially if they have a strong marketing background. But for most of us, even those who do understand it well, it can often take up a great deal of our time and efforts, which takes us away from other management and leadership tasks. Linking up with experienced marketers gives you access to years of experience, a deep well of creativity, brand new technology, better automation, great advice and guidance, and someone always ready to innovate and try new solutions. 

  • 5 Common Bookkeeping Mistakes every Business Owner Should Avoid

    5 Common Bookkeeping Mistakes every Business Owner Should Avoid

    Running a small business is not easy. With access to limited resources, you have to be extra careful, as you cannot afford to make too many mistakes. Chances are that you tackle almost every process on your own, including bookkeeping. While this works alright for some very small businesses, for most small business owners, it is easy to miss things. Let’s look at the value of bookkeeping and then five common bookkeeping mistakes you must avoid..

    The Importance of Quality Bookkeeping For Business Owners

    Now, you must be wondering, “Do small businesses need to worry about bookkeeping?” The truth is that every type of business, from SMEs to Fortune 500 companies, requires a close eye on bookkeeping. As errors can prove harmful, it is often necessary that you hire a bookkeeper to achieve success. Here are a few of the many benefits of a quality bookkeeper. 

    Budget: A major reason why businesses need professional bookkeepers is they help keep income and expenses organized. This information helps you plan strategies and manage both your business expenses and personal expenses.

    Tax Planning: When the year ends, you might struggle to file your tax return, either on time or with accuracy, due to a lack of access to or enough understanding of your business records, financial statements, bank transactions, and business deductions. Bookkeepers help manage tax time so that you file your return before the deadline and do so accurately.

    Organization: Your lenders, investors, customers, employees, and the IRS have an interest in your financial records. Bookkeeping helps keep financial information organized so that you can provide it to the relevant party if the need arises and so that all your financial records are close at hand to inform you during important decisions.

    Analysis and Decision Making: As we just mentioned above, bookkeeping provides financial statements and all the necessary information needed to make business decisions. You can use the information to analyze strengths and weaknesses, track short-term and long-term consumer trends, see how your investments are performing, spot problem areas early, and uncover opportunities for expansion and new development. 

    Expense Tracking: In order to find out how much profit you are making and if you are even breaking even, you need to keep track of your expenses. Expense tracking also gives you a clear view of all your expenditures, enabling you to see which expenses are yielding fruit and which ones are simply a burden. You can use this information to streamline your spending and find deductions during tax season. This is only possible through good bookkeeping.

    Improved Cash Flow: A more in-depth understanding of every aspect of your cash flow is a must for every business, allowing you to see clearly the overall health of your business and the patterns that led to its current state. 

    IRS Audit: If there is an IRS audit, you must have updated financial records. Otherwise, you could be subject to penalties. Not to mention getting yourself on the IRS’s radar, which keeps them “interested” in returning for more audits later on. 

    business owner trying to avoid bookkeeping mistakes

    Now let’s look at those 5 important bookkeeping mistakes that must be avoided. 

    1. Poor Organization

    One of the most common bookkeeping mistakes reported is poor organization. Without a well-organized system, both for physical as well as updated software for records, copies, financial reports, invoices, receipts, and all other important info, you risk inaccurate or late tax filing, missed savings from deductions, inaccurate data during meetings and a sense that you never quite have the information you need at hand to make strong business decisions. 

    It’s important to implement a proper filing system for your physical files, where everything is always exactly where you need it. Be sure to print regular reports from your accounting software programs and backup computer files in the cloud and on external hard drives to keep things secure. You can also take pictures of receipts and invoices so you’ll always have electronic copies if fire, flooding, or theft takes place. 

    2. Improper Record Keeping

    Another common bookkeeping mistake, this problem has the potential to mess up your whole system and put you at risk for audits and penalties. It is absolutely imperative that you record expenses right away, that you keep track of mileage and travel costs, business equipment, outsourced work, employment expenses, and all other expenses in a detailed manner.

    If you keep ledgers and notebooks, save receipts and invoices, and take time each day to record and file everything without fail. While using accounting software will greatly streamline your bookkeeping, you must still enter all information consistently and look over your reports to ensure accuracy. Don’t procrastinate. And if your bookkeeper has concerns, meet with them right away to reconcile all financial data. 

    3. Failing to Reconcile Bank Accounts

    The next bookkeeping mistake that should be avoided is not reconciling your bank accounts. For starters, you must create separate bank accounts for business activities and personal expenses. Otherwise, expenditures will get mixed up, payroll will become a hassle, taxes and possible deductions will be convoluted, and you may risk an audit. Ensure that each bank statement is reconciled each month, or better yet, on a weekly or daily basis, to identify potential issues early on and take action immediately. 

    4. Not Using Accounting Software

    As we live in a world where technology in some form is necessary for just about everyone, especially those running a business. It’s unwise to overlook accounting software. While there are still some of us who seem to excel at using books and ledgers, utilizing a good accounting software program allows for an extra level of accuracy, accountability, and analysis. 

    5. Forgetting Sales Tax

    A common error in bookkeeping is forgetting sales tax. You must account for it and report it to stay on the right side of the law. Failure to report and collect sales tax would result in your business facing fines and penalties. Make sure to calculate it properly, set it up within your registers, accounting software and other financial records, so that you have accurate reports and tax payments. 

    Conclusion

    These, of course, are only a few of the many bookkeeping mistakes common to business owners. While they are easy to make, the resulting consequences are often hard to undo. Avoid the stress, audits, worries, and confusion of poor bookkeeping practices. If you keep your own books, get some training and guidance from an experienced bookkeeper. And if you feel you’d rather not take a chance, reach out to a professional with considerable experience. 

    Sound Accounts has been helping individuals, and businesses organize their books for years. We provide complete support or exactly the level of service you need for continued success. Contact us today to get started. 

    For quick answers to bookkeeping questions, check out our frequently asked questions below.

    FAQ

    Why is good bookkeeping so important for me as a business owner?

    Timely and accurate bookkeeping keeps you organized, prepares you for tax season, helps you spot money-saving deductions, gives you an in-depth understanding of your cash flow and each area of your business, so that you can see what is working , what isn’t and why this is so. Bookkeeping equips you with the knowledge you need to lead better and make stronger business decisions. 

    What are some common mistakes in bookkeeping?

    Poor organization, filing taxes late, not accounting for sales tax, failing to reconcile your bank accounts, not taking advantage of helpful software and other technologies, not recording expenses and many others.

    What are some of the consequences of poor bookkeeping?

    Poor bookkeeping practices lead to IRS penalties, audits, lost financial data, outdated information leading to unfocused business decisions, poor relations with business partners and employees, underperforming departments and investments, and even legal trouble. 

  • How to Make Your Business Run Smoother with the Right Bookkeeping Strategy

    How to Make Your Business Run Smoother with the Right Bookkeeping Strategy

    One of the most important aspects of running a successful business is having a strong bookkeeping strategy in place. There are many ways to keep books, but it can be difficult to decide which method or combination of methods will work best for your company.

    Approaching your bookkeeping deliberately and objectively is key to your success. No matter what methods or tools you use, the choice to consistently manage your books, keep detailed records, and plan for taxes and important financial decisions, helps you to not only protect yourself against stress, financial losses, and penalties, it gives you a greater understanding of the mechanisms that drive your success in each area of your company. Let’s look at some important options for keeping your books and help you develop a bookkeeping strategy that’s perfect for your business.

    Why a strong bookkeeping strategy is vital for your success

    A strong bookkeeping strategy is vital for any business. Why? Because it establishes a foundation of knowledge that can’t come from anywhere else. The information you gain from keeping your books consistently brings a level of clarity to your decision-making you wouldn’t have otherwise been able to attain.

    It sets a precedent for smart spending, better resource management, and long-term decisions based on hard facts and historical data instead of feeling and guesswork. The right strategy also helps you file your taxes accurately and avoid costly errors and multiple audits. Bookkeeping is far too important to your success to ignore or procrastinate on. You deserve the best for your business and so do your customers and professional partners. Better bookkeeping means better business and greater control of your future.

    bookkeeper working to develop the best bookkeeping strategy

    Bookkeeping Options

    There are many options when it comes to managing your books. Some business owners prefer to do it all themselves, either the classic way with ledgers and notebooks or with excellent software like QuickBooks Online, Xero, or FreshBooks. Others prefer or simply need, because of the size and complexity of their business, to have a full-time bookkeeper in-house. Still, others like to outsource to a professional team or individual, to ensure thorough bookkeeping that doesn’t miss a single detail. And for many, a hybrid approach, combining a mix of these is best.

    Each one carries its own advantages and disadvantages, allowing you to custom-fit the right approach to meet the unique needs of your business. Let’s look now at each one.

    The right bookkeeping strategy for me

    As we’d mentioned above, there’s no one-size-fits all approach to bookkeeping, to your method of accounting. It depends partially on your business model, your available time and resources, and how you want to organize your staff in the best way possible so you can lead and manage better. There are a variety of methods and tools that can be used, and there are benefits and drawbacks for each. The best choice is the one that works best with your business.

    Handling it on Your Own

    If you’re hoping to take care of your books completely on your own, there are some things to be aware of. Handling your own bookkeeping forces you to learn a new skill, a very important one at that. You get to tackle the ins and outs of basic accounting, budgeting, resource management, and financial projections. These are all things every good business owner should master.

    Taking time yourself to go over financial statements, enter financial data and check on other reports from your accounting software develops a sense of ownership in the financial health of your business. You can go old-school and keep a ledger, logs and notebooks, recording everything in well-organized books. Or, for a more comprehensive and helpful solution, getting familiar with online or software-based programs is a great move.

    Still, taking this responsibility upon yourself is often daunting. It means a lot of time spent on accounting tasks and organizing records and less time for other vital management activities. Additionally, because it often isn’t a manager’s primary skill set, they may miss important details, forget to account for something, or lose out on valuable money-saving techniques that professional bookkeepers are trained to spot.

    Taking on all the bookkeeping yourself helps you learn new things and get focused on your finances. But it also might tire you out, cause greater stress, and steal from your time and energy. You’ll also need to learn how to navigate your chosen bookkeeping programs. Software takes time to master and you may need to take a few training courses or get some one-on-one coaching to ensure you understand it completely.

    Resident Bookkeeper

    Keeping an in-house bookkeeper is often an excellent choice for many businesses. With their training, education, and experience, they’ll be solely focused on making sure every aspect of your books are exactly where they need to be. They will organize your finances, keep track of your balance sheet, verify bank statements, prepare you for tax time, create better systems for data and records, and help you make sense of complex or lengthy financial reports to help you make better decisions surrounding budget and resources.

    The upsides of a bookkeeper are many. But this option comes with several costs. You’ll have to pay a salary and benefits to a full or part-time employee, along with establishing a dedicated office for this person with the need for furniture, computer hardware and additional tools like copiers, printers, and more.

    Outsourcing

    One of the best solutions to bookkeeping is outsourcing your needs to an individual or team. This affords you complete bookkeeping support, accurate records, and the knowledge you need to manage your finances more strategically. Professional bookkeeping services bring top-notch industry practices with them, ensuring a consistent level of work day in and day out.

    Also, this is precisely what they do: focus on your books. With in-house bookkeepers, there is often a tendency to take on additional responsibilities, from answering phones and dealing with customer concerns, to placing orders and fielding certain employee matters. With an outside contracted bookkeeper, you’ll get someone entirely dedicated to the work of keeping your finances in order.

    Outsourcing gives you a complete bookkeeping solution without having to pay additional benefits or putting together an office for an in-house department. Outsourced bookkeepers will also work with you to improve your level of organization, preparedness and financial knowledge, which helps you avoid penalties, save money on taxes, and give you the tools needed for better budgeting.

    Hybrid

    Often, companies find that a combination of methods works best for them. A business owner may take care of some things themselves, while keeping an in-house employee part-time, to take care of basic bookkeeping, data entry, and organization. Then, they may contract an outsourced bookkeeper to help with larger, more complex projects, taxes, and making sense of financial reports.

    business owner and bookkeeper working on bookkeeping strategy

    How to leverage your bookkeeping strategy toward greater success

    One of the best things about consistent bookkeeping isn’t merely its tendency toward greater organization and records-keeping, but its ability to enable you to make more strategic financial decisions. Better bookkeeping means a greater understanding of your resources, of each department’s expenses and performance. It gives you not only a micro but a macro view of performance over months and years. This kind of information doesn’t simply help you stay current and save on taxes, it provides you with the information needed to make more specific, more informed choices about the direction of your company. Better bookkeeping lays the foundation for innovation and growth to flourish.

    Too many companies don’t get deliberate enough about their bookkeeping. They’re constantly playing catch-up, entering financial data late, procrastinating on updates and financial reviews, not tracking their expenses consistently, and leaving one of the most important parts of their business to an afterthought.

    Great bookkeeping isn’t simply a maintenance practice. It is a key component of your ability to manage with clarity, and to move your business into its next stages of growth. It should be one of your top priorities. The companies that budget well, stay organized, keep great records and study their financials inside and out, have a much easier time spotting problems, discovering strengths that could be capitalized on,  seeing opportunities that might be available to them, and simply managing their overall business financials with greater success. 

    The right bookkeeping strategy allows you to worry less and spend that energy on core principles of management, like leading, innovating, product development, and customer experience.

    Conclusion

    A strong bookkeeping strategy can help your business run smoother. It can also help you identify important trends so you can make better decisions. But with so many options, how do you know which bookkeeping strategy is for you?

    The key to finding the right bookkeeping strategy for your business is understanding your needs. A good place to start is in talking with an experienced bookkeeper and with business owners you trust who have implemented a strong bookkeeping strategy that is yielding positive results for them. This can help you identify gaps in your current strategy and find the right solution for your business.

    Think about what matters most to you, whether handling some aspects yourself is ideal or perhaps contracting someone to take over to free up your time for other aspects of business. No matter what you choose, it’s important that you take bookkeeping seriously, that your finances become one of your top priorities. After a short while, you’ll see the evidence piling up that confirms how valuable an asset great financial management can be.

    Sound Accounts is your ideal small business bookkeeping partner. For years, we’ve been helping businesses of all kinds find their way out of confusion and into clarity by managing their books so they can manage their business. Contact us today to make a positive change in your company’s bookkeeping strategy.

    Check out our frequently asked questions and answers below for quick information about bookkeeping strategies.

    FAQ

    Why is having a focused bookkeeping strategy important?

    Being deliberate about bookkeeping is one of the strongest things you’ll ever do for your business. It keeps your budget in view, helps you understand how each department is performing and where they can improve, lets you spot possible weak spots early on, gives you a deeper view of profitability and expenses, and equips you with the information you need to make decisions that have the potential to drive your business forward.

    How do I know which strategy is best for me?

    Whether it’s handling all your own bookkeeping yourself, keeping a full or part-time in-house bookkeeper, outsourcing to a great individual or team, or mixing these for a hybrid approach, make sure to choose a method that removes, instead of adds, stress to your life. Choose a strategy that gives you a clear interpretation of your financial data continually, so you can make business decisions with greater confidence. Choose a strategy that provides the maximum level of tangible benefits while remaining affordable enough to justify any costs involved. Other factors that go into this decision are the type of business involved, number of employees, and your available time and resources. You can discuss bookkeeping possibilities with an experienced bookkeeper, accountant, and other business owners. 

    What happens if I don’t have a clear bookkeeping strategy?

    Leaving your bookkeeping to an afterthought, full of procrastination, disorganization, and inconsistency leaves you vulnerable to poor performance, waste, tax penalties, audits, miss opportunities and investments, and the eventual failure of your business. Missing this key step can take a great business idea and give it over to a bad business plan. It’s not something you ever want to ignore, but one of the most vital components of your business. 

  • How to prepare for a small business tax audit

    How to prepare for a small business tax audit

    A small business tax audit is a common and unwelcome surprise for many business owners. Preparing for one can be difficult, stressful, and time-consuming. But, it shouldn’t be. If, as business owners, we are completely honest in our reporting, keep meticulous records, detailed expense reports, organize all receipts and payment slips, and log all related activities thoroughly, we can avoid most of the headache.

    It’s important to stay in compliance with the Internal Revenue Service (IRS). If you don’t comply, you may end up paying more in taxes or even owe additional penalties and open yourself up to future audits. No one likes an audit. But with these tips, you’ll be prepared for the possibility and ready to navigate your audit with confidence.

    Why am I being audited?

    The reasons that might trigger an audit for your business can vary. The IRS looks at several factors when making sure your business is accurately filing and paying taxes. Here are some of the most common reasons:

    • Claiming excessive deductions for things like meals and entertainment or other questionable expenses.
    • Filing and paying your taxes late repeatedly.
    • Sizeable reimbursed business expenses.
    • Abnormally large charitable contributions
    • Claiming 100% use of a company vehicle
    • Running a cash-intensive business
    • Claiming losses for several years in a row

    Remember, auditors can look back as many as six years into your business records. Keep records for each year organized by year and category and stored in secure waterproof and preferably fireproof containers. Back up computer files on the cloud and external hard drives so no information ever gets lost.

    business owner and bookkeeper preparing for a small business tax audit

    Be honest

    The first and most important step in preparing for a small business tax audit is to be honest. Just like with your personal income, honesty is indeed the best policy. Many people try to fudge numbers, exaggerate expenses, under-report income, or rely on guesswork for certain items. This sends up red flags for the IRS to come looking and sets a terrible precedent for inaccuracy and falsehood in your business dealings, something that has far-reaching consequences in many areas of life, not only your finances and reputation, but in your relationships as well.

    What items should I bring to a small business tax audit?

    When you receive notice of an upcoming tax audit, it is important to put together all necessary documentation. This includes all receipts, billing records, documents on purchases, income statements, payroll records, expense reports, and all other related documentation. Here is a short list of items to bring to a small business tax audit.

    Bank Statements, Receipts and Canceled Checks

    Your auditor will want access to all bank statements, for both personal and business accounts, all receipts related to every kind of payment or expense, and any canceled checks, invoices, or sales slips. If you pay cash for some expenses, save all paperwork, including notes, receipts, and cash vouchers.

    Books and other Physical Records

    If you keep formal bookkeeping and accounting records like ledgers and notebooks, your auditor will request these. This isn’t required by the IRS, but it can save you time and help keep you organized. If your systems are a bit less formal, like boxes of register tape and a checkbook, make sure these are on-hand, complete and in chronological order beforehand.

    Electronic Records

    If you do your bookkeeping primarily on a computer, either with software or cloud-based applications, you will need to provide the auditor with full access to all information through printed reports for anything they request. Make sure you’re doing everything you need every single day to keep your electronic records accurate and up-to-date.

    Appointment Books, Schedules, Diaries, and Logs

    These items will provide verification of your business appointments, meetings, travel, and other professional activities for which you might incur business-related expenses. Most of the time, business owners plan on claiming certain deductions based on expenses like travel, meals, lodging, auto, and more. Keeping as much information as you can, which verifies your expense claims, will help you both save money during tax season and move through the audit process with greater ease.

    Keep Detailed Records & Stay Organized

    We’ve discussed keeping all documentation and having it ready. However, in addition to having ready access to these, it is important that the information is complete and detailed. Document all income and expenses daily so you can easily account for them.

    For example, try to be as specific as possible with your logging activities. If your business accepts cash, include the date, time, location, and who the transaction was with on your log sheet. If you accept credit or debit cards, then keep records of these transactions as well.

    Keep invoices with every purchase made. This includes any furniture bought for your office space or supplies purchased for your factory. These receipts should be filed away neatly in order by date with corresponding details listed on them (i.e., vendor name, total cost of item/purchase, additional notes or arrangements).

    Make sure to keep detailed records of both personal and business-related items. For instance, if you use your business credit card (with its company logo) for personal purchases like clothes or gasoline; keep those receipts. You will need to report this expenditure during the audit process because it’s considered a “double deduction.”

    Be sure to carefully log all mileage driven by employees who are using their car for work-related purposes. Mileage logs must account for every mile claimed and should include dates and destinations. Consider keeping a log or book of appointments and schedules and notes about each one. This will let you link certain travel times and expenses with their corresponding events and meetings, allowing you to account for each mile or travel expenditure.

    Report All of Your Income

    No matter what kind of business you run, it is vital that you are reporting all income, both your own income/salary/bonuses, along with all employees and partners. Also, make sure records are precise when reporting revenue and profit figures for your business. Mistakes in these areas can cost you money, time, and credibility. Concealing any income will only come back to haunt you later, and may interfere with your ability to continue conducting business.

    If you are self-employed, don’t forget about income from other sources, too. If you sell items on eBay or work gigs for friends, for example, list these on your tax return. The IRS has a multi-step process they ask people to follow in order to report all income accurately. These steps include:

    1) Collecting all of your receipts and organizing them by category

    2) Deciding what needs to be reported on the calendar year or fiscal year

    3) Adding up the total amount of expenses incurred

    4) Determining what type of business you are conducting (sole proprietorship, partnership, corporation)

    5) Figuring out if you have any special considerations like depreciation or itemized deductions

    6) Reporting all of this information correctly on your tax form

    Review your Expenses

    Expenses are a major part of a small business tax audit. In order to pass an audit, you should review your expenses to ensure that they are all accounted for and that you have the right documentation. The IRS will want records for every expense throughout the year. Make sure you label each receipt with the date, type of expense, and how much was spent.

    You can use a spreadsheet or an online expense tracker to keep track of your expenses throughout the year. You might also find it valuable to keep a paper copy in your office as well as a digital copy on your computer or phone. You can never be too prepared when it comes to both business accounting and taxes. If you’ve been keeping receipts in a shoe box for years, now is a good time to organize them so they’re easy to find when it comes time for an audit.

    Documentation is key to passing an audit, so make sure you save all receipts and documentation related to these expenses for at least six years after the date of purchase or last activity. That way, if there’s ever any question about what’s deductible, you will have everything you need on hand.

    Understand Your Tax Code

    One of the best things to do before a tax audit is to gain an understanding of your tax code. You can visit the IRS website or ask your accountant to help you identify which tax code category your business falls under.

    There are four categories of business tax codes: Sole proprietor, partnerships, corporations, and S-corps. Sole proprietorships are taxed as if the owner is running their personal finances through their business. Partnerships are taxed as if there were two entities with one entity providing services and one entity receiving services. Corporations are taxed on the corporate level before any distributions are made to shareholders. And S-corps pay taxes on both the corporate level and at individual shareholder level after money is distributed to them by the corporation.

    It is always wise to consult with a professional when needed, especially when preparing for an audit, or when you simply want greater organization and more control of your own bookkeeping. They can save you from costly mistakes and penalties and further headaches down the road.

    Plan for the Unexpected

    It is good advice for any area of life. We often only plan for trials when they are thrust upon us. It is far better to stay organized and prepare for eventualities ahead of time. This is why we purchase insurance for our homes, our cars, our businesses and ourselves. 

    This is why we put up fences for security and a better roof for weather protection. Planning ahead when it comes to taxes and audits is a smart move. It will not only prepare you for your interactions with the IRS, but ensure that your bookkeeping is done with precision every single day.

    Conclusion

    There are many things to think about before your audit, but the most important are honesty, staying organized, keeping detailed records, and knowing your tax code. Audits may not be comfortable, but they don’t have to be something that completely throws us off track. The key is to think ahead, plan long-term, and operate your business and finances transparently and honestly. And never hesitate to connect with an experienced professional for help with your regular business bookkeeping needs, along with special help before and during an audit.

    Sound Accounts is your all-in-one bookkeeping and payroll tax partner. We’ve helped businesses of all kinds manage their books successfully and make better decisions with increased awareness of their finances. Contact us today to get the help you need right when you need it most. 

    For answers to questions about small business tax audits, check out our frequently asked questions below. 

    FAQ

    Why is my business being audited?

    Reasons for an audit vary widely from business to business. Yet, the most common include Claiming excessive deductions for things like meals and entertainment or other questionable expenses, filing and paying taxes late, sizeable reimbursed business expenses, large charitable contributions, claiming 100% use of a company vehicle, running a cash-intensive business, claiming losses for several years in a row, and other reasons. 

    What should I remember when preparing for an audit?

    First, be honest about everything, your income, expenses, profits, contributions, wages, and every other financial matter. This will keep your business above board and ensure you don’t run into trouble with the IRS. 

    Throughout the year, keep detailed records of everything, if possible, both in hard copy as well as on the computer or in the cloud. Make sure to have full access to electronic accounting files, receipts, expense reports, invoices, payroll, checkbooks, ledgers, notebooks, bank accounts and any other financial reports or pieces of accounting evidence for up to six years back from the current year. 

    Can bookkeepers help me with an audit?

    Yes, definitely. Bookkeepers and accountants are not only helpful when preparing you for your audit, since they are deeply involved with your bookkeeping from day to day, but they are able to get you organized and up-to-date on everything so you have a much better chance of not being audited in the first place. 

  • 7 Hidden Costs of In-House Small Business Bookkeeping

    7 Hidden Costs of In-House Small Business Bookkeeping

    If you are like many small business owners that do their own bookkeeping, then you may never have considered the hidden costs that come with it. Bookkeeping is often seen as a “necessary evil” and something that can be easily outsourced to an expert.

    Certainly, there are times when handling your own books or having a dedicated staff member to do so makes sense, especially if you only have a few employees, if it’s just you or you have plenty of time to focus on it and feel comfortable with accounting software and financial analysis. However, if your business is growing or you have several factors to consider, like more employees, several departments, or you need greater clarity and understanding from your financial reports so you can make more informed decisions, you may want to consider outsourcing to an experienced accountant. Here are 7 costs business owners sometimes forget to factor in when deciding to keep their small business bookkeeping in-house. 

    business owner handling his own small business bookkeeping

    4 Costs of Handling it Yourself

    Time & Freedom

    These two go hand in hand, time and freedom. One leads to the other. If you’re taking care of your business bookkeeping on your own, this is especially true. You work hard to manage your resources, your people, and your products and services, and of course, your customer interactions.

    This often throws accounting to the back burner, the end of the day, or pieced out here and there between other things. This means that one of the most vital processes to your long-term success is never given the attention it deserves. Active, consistent accounting not only keeps your finances in order, but helps you make better decisions for the future of your company. And don’t forget, more time spent on accounting for you means less time for every other part of your business.

    Also, if you are pouring a lot of time into it, that not only means less time for other management activities, but less personal freedom. Having to fit in accounting on top of everything else can cut into meal times, take you away from family gatherings and events, and steal opportunities for engaging in the activities you love.

    Accuracy

    Accuracy is important in every aspect of your business, but especially in your finances. Maintaining proper records of all expenses, handling payroll, and paying your taxes on time and properly, is something that can’t be taken lightly.

    If you’re new to bookkeeping, aren’t comfortable with it, or too tired to fully engage with it, mistakes become more common. Errors in finances lead to missed tax savings, audits, missed opportunities for growth and investment, and poor resource management.

    Software

    Accounting software is phenomenal these days. With time-tested favorites like QuickBooks or newer ones like Xero, there are several programs offering comprehensive accounting management and a range of tools that cater to every kind of business. These programs enable you to manage cash flow, business expenses, payroll taxes, balance sheets, and other accounting tasks required of you as the business owner. 

    It’s important, though, that you take both your business finances and learning your accounting software seriously. Make time to learn your program completely and familiarize yourself with every feature that might save you time and money, and allow you greater organization. Accounting programs make life a lot easier, but only if you dedicate yourself to becoming a pro with them. Software can help you run your business better, but it takes time to learn and money to purchase.

    Stress

    If you’re incredibly busy already, or don’t possess a natural affinity for bookkeeping, the next ingredient in the pot may be more stress, a lot more. Managing your finances and reports can be frustrating and confusing, especially when it’s just you taking it on.

    Added stress means more accounting mistakes, less patience with employees, customers and family members. Stress bleeds into home life, decreases overall health, disrupts sleep and diminishes creative thought.

    professional accountant handling small business bookkeeping

    3 Costs of Hiring an Employee to Handle Bookkeeping

    Wages & Benefits

    Hiring a full-time staff member to manage your bookkeeping can bring you peace of mind as they can solve many problems for you. Still, this means that you must consider the cost of wages, either full or part-time and benefits.

    Keeping a staff member, or a few of them, to take care of accounting often means offering a solid annual salary and benefits for them and their family. As you know, the cost of benefits adds up quickly.

    Overhead: Equipment & Space

    Keeping a bookkeeper in-house means dedicating a space for them. This means either carving out space in an existing room, renovating, or adding onto your structures. Your accountant needs a quiet, solitary space, where they can focus on making sense of your finances, organizing and analyzing reports, and keep vital documents and data safe from intrusion and theft. Creating this space is a must. But it will take an investment of both money and proper planning.

    Whether you’re doing the books on your own or hiring an employee for it, you’ll need equipment like fast computers, network hardware, copiers, fax machines, phones, printers, and software and cloud-based applications to manage everything with relative ease. All these items take a financial investment, sometimes a considerable one.

    Training

    Bookkeeping is not a simple task, especially for small business owners. After all, most of us didn’t go to school to learn how. That’s why it’s important to train your staff, yourself, or hire someone who is familiar with the process. One hidden cost of doing your own bookkeeping is this training.

    If you’re new to bookkeeping, you’ll need to learn the basics of accounting and keep up on changes in tax laws. You or your bookkeeper needs to take advantage of continuing education courses to stay updated on current developments in the field. Education courses and in-house training can be expensive and take time away from other business matters.

    Conclusion

    Doing your own accounting might be a good idea for tiny businesses, those needing to save money up front, and those who enjoy learning new skills and are fully committed to remaining consistent with their financial management. But handling these things yourself or hiring an employee means a considerable investment of time, money, and focus. This can steal from other leadership and personal opportunities and cost more than you might think.

    Often, a great solution to this is outsourcing your accounting and bookkeeping work to an outside accountant or bookkeeping service. Professional accountants have years of experience, know tax code inside and out, can navigate and decipher complex reports, and work with you to make more strategic financial decisions.

    Outsourcing your bookkeeping is an investment. But you won’t have to carve out space in your building, purchase new equipment, or pay for training and benefits. You’ll get a top-notch financial professional to watch over your books so you can relax and focus on everything else that matters to you.

    Sound Accounts is your one-stop small business bookkeeping shop. We help business owners from every sector succeed by managing their books, making sense of their budget and reports, and presenting them with ways to improve their already strong business. Contact us today to get started.

    For answers to bookkeeping questions, see our FAQs below.

    FAQ

    Is handling my bookkeeping in-house a good idea?

    It is sometimes. If it’s just you or you only have a couple of employees, taking care of the books yourself can save you time and help you learn a valuable skill. It also forces you to focus on key financial drivers you may have been missing. However, it is an investment that is often remedied by contracting a professional accountant.

    What are some costs of in-house bookkeeping?

    Depending on whether you do it yourself or hire an employee, these costs include the time it takes to learn accounting programs, employee training, renovations or building a dedicated office, new equipment and software, employee wages and benefits and the sacrifice of your personal time and freedom.

    When is it a good idea to outsource my bookkeeping?

    If your business is growing or you have more than enough in your budget to pay for the service, outsourcing your bookkeeping work gives you a dedicated professional with years of experience, who will manage every aspect of your books, taxes, and help you make sense of your financial reports.

    It is a good idea anytime you want to free up your time to focus on other aspects of business management, find that your business and finances are becoming more complex, or simply want someone who knows accounting inside and out to handle things for you so you don’t have to worry.

  • Small Business Tax Deductions: Which Expenses can I Write Off?

    Small Business Tax Deductions: Which Expenses can I Write Off?

    When you’re a small business owner, it’s natural to want to know all the ins and outs of the tax code. But sometimes you have so many expenses that it’s hard to keep track of which ones can be written off. As a result, you may miss out on deductions that could add up over time. In this article, we’ll go through several of the most common expenses for small businesses and help you decide which ones are worth taking a closer look at.

    Which expenses can a business owner deduct?

    With such a staggering array of expenses, it isn’t easy to know which of them can be deducted, what you should focus on to save the most money, and how to do it correctly. Here are 14 expenses you can deduct from your taxes.

    Utilities: Unlike the rules governing personal taxes, which do not allow deductions for these personal expenses, utilities such as electricity, gas, oil, water, trash and telephone bills, can usually be deducted for businesses. With the amount most businesses pay annually on these resources, it pays to keep track of your numbers and look for this deduction.

    Insurance: The majority of businesses take out some form of insurance, if not several. The cost of health coverage for the business owner, as well as business continuation insurance are deductible. Other types of deductible insurance policies include liability coverage, property insurance, malpractice, worker’s compensation, auto insurance on company vehicles, and employee life insurance paid for by the company. When it comes to health insurance, a small business may qualify for up to a 50% tax credit under the qualified small employer health reimbursement arrangement (QSEHRA).

    Rent on Business Property: If you rent your business property, you may deduct your rental payments or lease from taxes. If you run your business from home, you can do an eligibility test with the IRS to see if you are entitled to any deductions based upon home use. Certain types of deductible home business expenses include insurance, utilities, mortgage interest, repairs, and depreciation. There are specific rules to abide by and limitations that apply when calculating expenses and deductions as it pertains to the use of your home for business purposes. To learn more, see IRS Publication 587. And whenever questions arise, consult with a qualified accountant for answers.

    Auto Expenses: If you have a car specifically for business, you can usually deduct anything considered a car expense such as payments, fuel, repairs and insurance. You must keep records that prove business usage and record mileage. You can rely on the IRS standard mileage rate, which is $0.58 cents per mile.

    It is important, though, to keep in mind that if you use your car for both business and personal purposes, you need to divide your expenses based upon actual mileage used for each purpose. You may refer to IRS Publication 463 for more information regarding travel, entertainment, gift, and car expenses.

    Office Supplies: Boxes, paper, pens, pencils, paper clips, staplers and staples, copier and printer ink, you name it. All these costs may be deducted from taxes.

    Office Furniture: Furniture is generally considered an office supply, so can therefore be deducted as a qualified expense. 

    Travel Expenses: If, as a business owner, you are frequently on the move, it is worth researching this deduction. Types of deductible expenses include airfare, lodging, tolls and taxis (UBER & Lyft). Certain limitations apply: You must be away from the area or city where you regularly conduct business and you must be away from your tax home for more than a full workday.

    Employee Salaries: Usually, your employee salaries are tax deductible, including bonuses and commissions. These deductions, however, do not apply to sole proprietors, LLC members and partners, as these members are not considered employees.

    Advertising & Marketing: If you can prove it is directly related to your business, you may deduct regular advertising and marketing costs, including business cards, billboards, print and digital ads and more. It also includes contracting individuals to design logos, write copy for content marketing, write scripts for video ads, or design and implement any other marketing or advertising tool.

    Interest: If you have one or more business loans, you’re making interest payments. Those payments are usually tax deductible as long as you’re using the entire loan strictly for business purposes. To qualify, it must be a traditional loan through a lender, like a bank or credit union. It can’t be a personal loan from a friend or family member. The business owner must also be legally liable for the debt.

    Contracted Labor: If you use independent contractors as part of your workforce, you can deduct compensation made to these individuals. To do so, you must issue a form MISC-1099 to any contracted worker making over $600 (cumulative annually), and a 1099-K if they are paid by credit card or with PayPal or similar apps.

    Legal and Professional Fees: Whether it’s an attorney, a team of lawyers, or a professional accountant, you can deduct 100% of these fees.

    Rent and Depreciation on Equipment and Machinery: If you lease equipment for your business, you can deduct these costs. Whether it be office machines like fax, phone, computers, monitors, copiers and printers, transport vehicles like trucks and vans, or heavy machinery for production or farming, you can take advantage of this deduction. You must deduct it over the course of several years. You need to claim a Section 179 deduction. This allows business owners to deduct up to the limit of $1,050,000 and a maximum value of $2,620,000 for property during a single tax year. For many businesses, this can be a significant deduction, given the volume of equipment many companies use.

    Start-up and Organizational Costs: To be honest, this one isn’t actually a deduction. The IRS sees start-up costs as a capital expense. They are viewed simply as an investment since the money invested hasn’t left the business; it has merely been transformed into an asset. Capital expense deductions are usually calculated over several years. This is called amortization. This enables businesses to accurately assess their profitability. For specific information on this process and your possible savings, see IRS publication 535.

    This is not an exhaustive list. There are many more deductions available to business owners. Take time to study your options. Seek information from the IRS and meet with an accountant to discuss all your options. It is important that you file correctly when claiming deductions and that you don’t miss out on additional savings. A qualified accountant can make sure you’re covered.

    business owner working on small business tax deductions

    What are some things you can’t deduct from your taxes?

    Gifts: This one is mixed. You can deduct the first $25 of gifts to clients. After that point, there is no deduction.

    Regular Commute: Mileage incurred while driving to and from your regular place of business cannot be deducted. However, there are a few exceptions. You must have a qualifying home office and be forced to commute each day to a temporary mobile workstation/location outside of your metropolitan area. This exception is decided upon on a case by case basis by the IRS. You must consult a tax professional for more information.

    Penalties and Fines: You cannot deduct the cost of fines and penalties, even if you incurred them during business activities. Sorry, no breaks for parking and speeding tickets, or other similar penalties.

    The importance of documenting everything and keeping receipts

    When it comes to your business expenses, it’s important to keep thorough records. This will help you if you ever have to dispute your deductions for any reason, whether it be during an audit or in hopes of getting approved for a loan. Plus, maintaining complete records ensures you have the best chance of tax savings. Keeping meticulous records can seem like a hassle at first, but it will actually make things easier down the line because you’ll know exactly what the IRS needs from you.

    These days, there are so many programs that help us keep track of our expenses much easier than we used to. From QuickBooks Online and Xero, to apps like Evernote and others, many programs allow you not only to enter your figures manually, but even take photos of receipts and categorize them. Whether you box up your receipts or take photos of each one, make sure you have a visual record of them all.

    The importance of quality accounting professionals during tax time

    When it comes to finding and understanding every possible tax deduction, one of the most important investments is to hire a great accountant. When you hire an accountant, they’ll be able to keep track of your income and expenses, but they’ll also be able to save you money by catching mistakes and helping you reduce your tax bill.

    They also help you spot patterns and make better, more strategic decisions about the direction of your business. It’s vitally important for small businesses to have a quality bookkeeper or accountant who can handle the complicated process of filing taxes correctly and helping the owner manage their finances with confidence.

    Conclusion

    Business tax deductions can save you a lot of money. And there are a lot of them to make use of. Study up, consult with a tax professional and hire an experienced accountant to get the most out of your deductions.

    Sound Accounts can help you get the most out of your business tax deductions. We help business owners from every market sector understand all their tax options, save money, manage their accounting, and make the most of their resources. Reach out to us today for the accounting and tax support you need.  

    For quick info about small business tax deductions, check out our frequently asked questions and answers below. 

    FAQ

    Why is it important to understand business tax deductions? 

    There are countless expenses involved in running a business. Many of them provide you with the possibility of tax savings, sometimes significantly. It is important to have a firm understanding of these, both so you can save the most money possible, and so that you file everything correctly to avoid costly errors. 

    What expenses can I write off?

    There are too many to list here. But they include rent, utilities, equipment and machinery, travel expenses, interest payments on loans, office supplies, salaries, contracted work, legal fees and much more. Both the IRS and a qualified accountant will help you better understand how to navigate the world of business tax deductions. 

    How do I make sure I’m filing my taxes correctly?

    The best way to ensure accuracy is by hiring a qualified accountant. They will help you make sense of your expenses, find every possible deduction that might save you money, and educate you on what to do in the future to stay organized.