Five Tips To Get Ready For A Pain-Free Tax Time

With the holiday season just around the corner, it’s a perfect time to get your financial records in order.  Tax moves you make now can mean finding more “green” to spend on family gifts and festivities.  Here are five quick tips for you to feel more prepared about your financial status as you go into year-end.

Avoid Penalties

This time of year is ideal to double-check your tax payments to make sure enough has been paid in, and even more important, to avoid overpaying so your money is not tied up unnecessarily. If you’re not sure of your 2013 tax liability, check with your tax preparer.

Balanced Books

Rather than wait until the busiest time of year for accountants and bookkeepers, you can get a head start now on catching up your books  You’ll have more of their attention and you may even avoid a rate increase if you get your books done early.  Completed bank reconciliations are a very important part of catching up.

Forms

It’s not too early to get your orders in for the forms you need at year-end like your W-2s, W-3s, 1099s, and 1096s.  That way, your forms will be onsite when you’re ready.

Records

Information that’s missing at the last minute can take up extra time and be costly.  It’s a great idea to do an audit now of W-9s to grab missing addresses and tax ID numbers of your contractors.  Also do a scrub of your employee payroll records so that your W-2s will be complete and accurate.

New Tax Changes

Be sure to check with your advisors on new laws affecting individuals and businesses next year.  One of the biggest ones making news is avoiding the fine involved regarding the new health care requirements for individuals.  And there are many more you’ll want to get up to speed on so that you’ll know how they affect your situation.

We know it’s early to be talking about taxes, but we’re also all about saving you money and time.  Try these five tips so you’ll have better peace of mind and be more prepared for year-end.

What Does Popeye Have To Do With Accounting?

You might have heard the terms “cash basis accounting” or “accrual accounting.”  Your net income number can change depending on which method your books are set up for.  Here’s a simple explanation of the difference, with a little help from one of the most famous cartoon characters in history.

Popeye and Wimpy

You might recognize Popeye the Sailor Man from the television cartoons or other media.  His sidekick, Wimpy, was the one who was always hungry and always out of cash.  One of his favorite sayings was, “I’ll gladly pay your Tuesday for a hamburger today.”

It’s All in the Timing

Let’s make today Thursday.  If Wimpy wants to pay us Tuesday for a hamburger today, here’s how it would be done for a restaurant on cash basis:

Cash basis recording Wimpy’s hamburger purchase 

Both the sale and the receipt of cash would be recorded on Tuesday.  Companies on cash basis only record the transaction when the cash is received.

But, if the restaurant’s books were on the accrual basis, it would be a different story:

Accrual basis recording Wimpy’s hamburger purchase 

Wimpy’s hamburger sale would be recorded on Thursday, the day he ate the hamburger.  The receipt would then be recorded on Tuesday, assuming Wimpy made good on his promise to pay.

You might be asking why a few days is such a big deal.  Outside of cartoon life, a couple of extra twists can happen.  It can be far more than a few days from the time you do the work to the time you get paid for it.  And often, these dates span different months and even years, affecting the amount you have to pay in taxes to various agencies.  Manipulating these dates (legally, of course) is one of many tax planning strategies that we can help you with.

Choosing for Your Business

In many cases, the government has chosen which method you must use when it comes to sales tax, payroll taxes, and income tax.  That’s part of the reason we make the required adjustments to your books at year end.

To help you run your business in a forward-thinking way, the accrual method is best.  You can record invoices for work you’ve done even though you haven’t received payment yet.  You can enter bills you need to pay before you pay them to forecast cash requirements.  Using accrual accounting, you can budget for cash flow needs as well as see more accurately what your revenue and income is looking like.

For clients who remain behind in their bookkeeping and just want to catch everything up once a year, the cash basis is adequate.  However they lose out on all the good information they could have had throughout the year to run their business better.

For other businesses, a hybrid approach between cash and accrual accounting can be the most cost effective.

A Little Help from Popeye the Sailor

What would Popeye say about all this accounting talk?

“That’s all I can stands, cuz I can’t stands n’more!”

Budgeting Breakthrough

When you hear the word “budget,” what do you think about?  Most people would say something similar to “Ugghh!” If you would rather do just about anything besides create a budget, you’re not alone.  The word “budget” brings up connotations of endless numbers, constraints, the opposite of freedom and creativity, and hard work, none of which are very desirable.

Yet, the benefits of a budget are huge.  Budgets can help you with cash flow improvements, keep you on track for higher profits, and alert you to items that need further action.

From “Budget” to “Profit Plan”

To be successful with budgeting, we need to get rid of all of the connotations that go with the word.  Perhaps it might work if we rename “budgeting” to “profit planning.” And then, rather than focus on how little we should spend, let’s start with how much revenue we’re going to make.

Revenue Clarity

It’s simple to create a revenue plan if you go backwards.  What revenue goal would you like to hit this year?  Just like we would never get in a car without a final destination, a revenue plan gives us a number to aim for in our businesses.

Once you know your number, then we can use averages to come up how many sales or clients we need to generate in order to meet our revenue goal.  Here’s a quick example:  Let’s say you want to reach $5 million in revenue this year.  If you average order is $10,000, then you need 500 sales.  If you have multiple products and services, then you’ll need to sum the product of the average sale times the needed number of sales for each line.

From there, you can make marketing and production plans based on the number of sales or clients you need.

Protecting Your Profit

Think of the expense side of your “profit plan” as protecting your profit margins so that you can ensure financial gain from all the hard work you do.  Setting budget limits on spending will allow you to control overhead and other items so you can keep more of what you make.

Exceptional Reporting

A great “profit plan” report will provide several things.  You can compare budget to actual, or better yet, just be alerted to the accounts showing exceptions.  You can also get an income statement that compares the current period with the prior year period so you can see how far you’ve come.  One last option is a benchmark report which provides industry averages so you can measure how you fare compared to other companies in your industry.

A “profit plan” is a great tool for your business.  If we can help you with the process or provide you with custom reporting, please give us a call.

Five Cash Leaks To Avoid

Cash flow improvement is a hot issue for small businesses; in many businesses, it seems like there is never enough cash when you need it.  The last thing a business owner wants is to reduce their cash balance unnecessarily.  To help you preserve or increase your cash, here are five cash management leaks to avoid.

1. Bloated Bank Fees

Some banks are more business-friendly than others.  We recommend you assess the fees you are currently being charged to see if you can discontinue any unnecessary services.

•  Could you maintain a cash balance to avoid monthly fees?

• Are you being charged online banking fees and bill pay fees, and are these still necessary?

• Are you being charged for a high volume of transactions or cash drawer services, and are these competitive with other banks?

Banks, including national brands, that have not kept up with technology and have not automated a significant amount of their transactions are inefficient and must charge higher fees to cover their processing costs.  If your accounts are located at one of these costlier banks, you do have a choice.

2.   Overtaxed

Are you sure that you are paying the lowest amount of taxes you legally owe?  There are several places to look to make sure you have not overpaid taxes anywhere in your business or personally:

•  Payroll taxes

• Sales and use tax

• Franchise taxes

• State and local income taxes

• Property taxes

• Federal income taxes

• Taxes that are specific to your industry

In preparing income taxes, a few of the easiest items to overlook include carryovers from prior years and new deductions you become eligible for.  If you received a large refund this year, congratulations, but that means you gave Uncle Sam an interest-free loan on your money.  You can do better next year by estimating your tax payments and paying only what’s due.

3. The Check Is in the Mail

Customers who take too long to pay you are big cash drains in your business.  Consider changing your terms, asking for deposits, or becoming more aggressive with collections to bring your DSO (days sales outstanding) down.  When you do, you’ll get an instant, permanent cash flow improvement.

4.  Sweat the Small Stuff

You may have an eagle eye on your largest bank account, but what about your other cash stashes?  PayPal, petty cash, and business savings accounts are among the places that may not get daily scrutiny.  Make sure those accounts are properly reconciled and have the proper controls in place so funds don’t go missing.

5.  It’s in Your Interest

A nice problem to have is when your bank balances get too large and you don’t need the money immediately.  Make sure that money is still working hard for you by putting the excess in an interest-bearing account.  It’s not much these days, but every little bit helps.

Make a Dash to the Cash

If we can help you plug any of these cash leaks in your business, please don’t hesitate to reach out and let us know.

Five Places To Find More Profits

It’s always a good idea to be on the lookout for ways to increase your profits, and luckily, there are many ways to do that.  One way is to focus on cost-cutting, and here are five places that are good to periodically review for cost-cutting possibilities.

Telephone

Re-negotiating with the phone company every one to two years is a really good idea.  Many telecommunications companies will often bargain with you or offer you a new deal just for checking in with them.

Has your business changed?  Do you need all those extra features you are paying for?  Could you do without those extra lines?  Would another phone plan save you money on long distance or international calls?

The risk is low:  one quick call will let you know if you can save money in this area.  It’s worth it to give it a shot, and while you’re at it, you can call your smartphone provider too.

Travel

Travel is always a great area to look into for possible ways to save.  Are all trips necessary and profitable?  Are there any meetings that can be done virtually instead of face-to-face?  Virtual tools such as GoToMeeting can make travel unnecessary.

What trips can be cut this year?  Can the number of people sent per trip be cut?  Can travel arrangements be made early to save money?  Are booking dates flexible so you can compare and find the lowest rates?  Is a taxi or rent car cheaper?

Dues and Subscriptions

Paying our annual dues for the club or association we’ve belonged to forever may be a habit, but is it beneficial for your business?  We might enjoying seeing everyone once or twice a year at the meeting, but we may not necessarily have to have a membership to do that.  Sometimes paying the guest rate is more affordable than the member rate if we are attending infrequently enough.

Review a list of organizations and publications you and your employees are part of, and choose which ones you are truly benefiting from.   If being an officer in one of your organizations is not getting you any new business, then you may eliminate a time drain by bowing out and letting someone else volunteer.

Labor

As your business grows, it can be a challenge to decide who to hire next.  The first place to look before you decide should be your existing employees.  What tasks are they doing that you are paying them too much for?  For example, do you have a manager doing clerical work?  If so, you may be able to piece together an administrative job that frees your current staff from all the clerical work they are doing.

It’s worth a look to see where your current employees are being overpaid and find someone to do those parts of the job.  You’ll save labor costs and come out ahead in the long run.

Fixed Assets and Equipment

Another place to save money that can be significant is purchases of large items such as furniture, automobiles, and production equipment.  It’s a good idea to get three bids from reputable vendors so you have a choice.  Going with the lowest bid is not always a good move; going for the highest quality is.

Look in these five places, and let us know how much you find to increase your profits.  As always, if we can help, let us know.

Are You Vulnerable To Fraud?

According to the Association of Certified Fraud Examiners (ACFE), over $3.5 trillion is projected to be lost to fraud worldwide in 2011 alone.  The typical organization loses 5 percent of its revenues each year.  While we have a lot to think about as entrepreneurs, we do need to take time to educate ourselves about this unfortunately common business loss.

The Fraud Triangle

An easy way to understand fraud is to learn about the Fraud Triangle.  The creation of the Fraud Triangle is credited to Dr. Donald Cressey, a well-respected criminologist and sociologist who made significant contributions to his field.

Three components need to be present in order for fraud to occur:

1. Motivation (or Need)

2. Rationalization

3. Opportunity

When fewer than three legs of the triangle are present, we can deter fraud.  When all three are present, fraud could occur.

Motivation

Financial pressure at home is an example of when motivation to commit fraud is present.  The fraud perpetrator finds themselves in need of large amounts of cash due to any number of reasons:  poor investments, gambling, a flamboyant lifestyle, family requirements, or social pressure.  In short, the person needs money and lots of it fast.

Rationalization

The person who commits fraud rationalizes the act in their minds:

• I’m too smart to get caught.

• I’ll put it back when my luck changes.

• The big company won’t miss it.

• I don’t like the person I’m stealing from.

• I’m entitled to it.

At some point in the process, the person who commits fraud loses their sense of right and wrong and their fear of any consequences.

Opportunity

Here’s where you as a business owner come in.  If there’s a leak in your control processes, then you have created an opportunity for fraud to occur.  People who handle cash, signatory authority on a bank account, or financial records with poor oversight could notice that there is an opportunity for fraud to occur with the ability to cover the act up for some time.

Prevention

Once you understand a little about fraud, prevention is the next step.   To some degree, all three points on the triangle can be controlled; however, most fraud prevention programs focus on the third area the most:  Opportunity.  When you can shut down the opportunity for fraud, then you’ve gone a long way to prevent it.

The Typical Fraud

The median cost of an occupational fraud case was $140,000, according to the ACFE.  It goes undetected for a median time frame of 18 months.   The most likely way to discover fraud is a tip from an employee who works at the victim organization.

Small Business Vulnerability

Small businesses are the most vulnerable to fraud, because they employ the least amount of fraud prevention controls.  Here are just a few quick tips to help prevent fraud in your organization:

• Create a culture within your organization that deters fraud and provide employees with education about fraud prevention to reduce rationalization.

• Tighten down access to financial areas, segregate duties, and use other internal control best practices to reduce opportunity.

• Provide financial literacy programs to employees to reduce need or motivation.

• The ACFE recommends that small businesses provide employees with an anonymous way to report suspicious activity.

While we hope fraud never happens to you, it makes good sense to take preventative steps to avoid it.  Please give us a call if we can help you in any way.

Five Favorite Freebies You Can Steal

If you’re looking for ways to boost your productivity, technology is a great place to start.  The good news is there are many free options available.  Here are five favorites you might not know about.

1. Bridge lines.

If you need teleconference lines, you’re in luck:  there are many high-quality options that are completely free.  You can have several people, even hundreds, dial into a line and conduct a meeting or training session via the phone.  You can record the session and download the recording as an MP3 file that can be played on an iPod.

Some of the more creative ways to use these free teleconferencing services include:

•  Staff meetings when someone is absent so they can listen later.

• Free teleconference, providing tips to all your clients.

• Free teleconference, allowing prospects to call in and sample what you offer or find out what you’re like to work with.

• When you need to record anything. (You often need 2 people on the line to be able to record, but not always.)

• To record a quick training session or how-to that can be distributed later.

• To have a client record a testimonial you could put on your web site.

• To record a meditation or therapeutic session you can listen to over and over again.

• If you’re a coach or trainer, you can record the client training session and give the download as a service perk.

Our favorite:  http://www.freeconferencecallhd.com.

2. FileZilla.

The FileZilla client version allows you to transfer large files between computers that are connected to the Internet using FTP (File Transfer Protocol).  It’s handy for many reasons:

•  When you need to load large files such as videos or audios to your website

• When you need to upload something to an artist, a transcriptionist, a warehouse, or other supplier

• When you have documents such as white papers that you want people to have access to but don’t want to have to keep contacting your webmaster

Download the FileZilla client and find out more here:  http://filezilla-project.org/

3. Gmail.

It’s just a great idea to have a backup email address in addition to the primary email address you use.  Gmail is perfect for this.

Go one productivity-boosting step further, and make your gmail account the one you use for all that email you don’t need to read as frequently.  This could include notifications from social media like Facebook, Twitter, and LinkedIn, blog notifications, list posts, Google alerts, and any other nonproductive email, you don’t need to respond to.

Open your Gmail account less often than your primary email (even once a week if you dare) and gain that productivity boost.  You’ll have freed your inbox from a bunch of clutter and can focus on your clients’ and employees’ emails instead.

Visit this site to find out more:  https://mail.google.com

4. WordPress.

WordPress is free blog software that you can install on your web site or blog site.  Once installed, it’s super-easy to use for both blogging and a website.  You can add photos, graphics, white papers, videos, and audios to the library to put on your blog or your site.

It’s also great for search engine optimization; the search engines love it and will rank you higher when you blog and post fresh content.

Visit http://wordpress.org/ to find out more.

5. Ning.

Ning is a community platform where people can come together and post a profile, participate in discussions, join a group, and interact.  Not all business models will benefit from Ning, but many of you are involved in a club, church group, nonprofit organization, or community where Ning could be very helpful.

Ning is almost free, at $19.95 per year or $2.95 per month, but it’s such an amazing platform, I include it here.  Whenever you’d like to have a private (or public) community of people who are joined by a common interest, Ning can provide that extra online community connection that can help you group interact and bond even more.

Find out more about Ning at http://www.ning.com.

What are your favorite freebies?