12 FebForget Powerball, Save Money To Win

I don’t usually play the lottery because I took statistics in college. The probability of winning is very low. However, I don’t begrudge friends and family especially when the Powerball gets up to 500 million like it did earlier this week. Anyway, you can actually save money and have a chance with accounts. Last year Congress approved the American Savings Promotion Act which allows for prize-linked banking accounts.

via Consumerist:

The basic concept is that a small part of the interest that all of the savings accounts earn is kept aside for prizes, which are awarded to random account holders. In the Save to Win program, for example, each $25 certificate of deposit that an account holder has is considered an entry in the sweepstakes. Prizes aren’t exactly Powerball level, starting at $25 and topping out with one big annual prize of $10,000 awarded to a lucky account holder in North Carolina.

What banks or credit unions in the United States are providing these saving accounts?

09 FebTurboTax Resumes E-Filing Of All State Tax Returns

Just a short time after Intuit announced on Friday that it would stop TurboTax electronic filing of all state tax returns to investigate fraudulent activity, the company announced filing would resume.
Reuters reports that the decision to continue filing returns came after an investigation by a third-party security expert found the fraudulent activity did not result from a breach of Intuit’s own systems.
The company says it will add additional security measures to combat fraudulent activities. Read more at Consumerist

06 FebTurbo Tax Is Halting State Filings

Last night, Minnesota tax commission stated that they would not taking any more Turbo Tax returns due to fraudulent returns.

Now, Turbo Tax has turned off the ability of its software to e-file state tax returns due to fraud outbreak. This has got to a be disaster for Intuit, the parent company of Turbo Tax.

Turbo Tax is not the only tax software. You can file taxes with H&R Block or Tax Slayer.

04 FebAre The Clothes On Your Back Tax Deductible?

Faux LV at the swaporamarama.

If you have to dress a certain way at work, doesn’t that mean those expensive clothes are a business expense?  [NO.]

The tax code allows deducting work clothes, but usually only if:

You wear them as a condition of your employment; and
The clothes are not suitable for everyday wear.

The clothing must not be suitable for regular wear. Think firefighters, health care workers, law enforcement, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc.).

Read the rest of the article on Forbes.com

03 FebIntuit Listens To Turbo Tax Users; Rolls Back Changes

After TurboTax customers voiced their displeasure to the changes of the features available to different tiers of the income tax return software, customers made their rage clear, and Intuit finally relented. They have rolled back the change for future editions and offered a free upgrade to users this year. If you want to file your taxes, that Turbo Tax upgrade will come on February 7. Read the full story on Consumerist

02 FebStart With A File Folder And 4 More To Dos For Taxes

Melinda Emerson (AKA Small Biz Lady) has a great list of 5 to dos to prepare for tax time.  I listed one of them below and I would add that in addition to a physical folder, also have an online folder labeled for any electronic documents related to your taxes. Keep it in your Dropbox or on your computer.

  1. Start a File Folder

If you’re a contractor and expect to receive 1099 or other tax forms from clients, they’ll start to trickle in this month. By law, you’re supposed to receive all 1099s by January 31, but it’s not uncommon for some of those to come in late.

Label a file folder “taxes” so you have an easy place to store these forms as they come in. You’ll add to this folder in the coming weeks, so keep it accessible.

01 FebShow Yourself The Money: Owner’s Draw or Paycheck

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Pay yourself first. That’s the advice that personal financial experts advice when it comes to budgeting and saving. However as an entrepreneur, the opposite is true.  You usually can’t pay yourself unless you enough have profit to cover your operating expenses and overhead. How you pay yourself may depend on your  business’ corporate structure. A business can be set up as a sole proprietor, a limited liability corporation (LLC), a partnership, an S-corp or C-corp.   A sole proprietor is not on payroll. Instead, income from your business is how a sole-proprietor receives compensation.  For taxes, you report income and/or losses and expenses with a Schedule C, since you and your business are one and the same, the business itself is not taxed separately-the sole proprietorship income is your income.

As a business owner, you can set your business up as a employee or an owner. The question is whether you take an owner’s draw or do you get a paycheck. I have done bookkeeping for several businesses and there are pros and cons of each. It basically comes down to taxes. The upside of being of sole proprietor is that you can yourself how much you want within reason. If your business just got a big sale and the overhead is covered by other income, then you can give yourself a “bonus”. Conversely when business is slow, there may be times when you don’t take a draw for the sake of the business’ profitability. For taxes, after subtracting any money that the owner loaned to the business, the amount left is taxable income. Whereas, if you are an owner on payroll, then the payroll taxes are taken out just like any other employee. The owner files person income taxes, and then the business files taxes separately.

Bottom line: There is more of a separation of the owner from the business when the owner is on payroll. He or she pays taxes like any employee, and the company pays taxes separately. When you are a sole proprietor, you have to more cautious of intermingling business and personal.  Your taxes are typically a 1040 with a Schedule C where you enter both income and expenses of your business. If you need help handling payroll, then check out Xero cloud accounting. Xero now handles payroll so it is even easier.

28 JanH&R Block Offers Free Software to TurboTax Users And Discount To Uber Drivers

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Some people are incensed about the changes to Turbo Tax.Turbo Tax has apologized.  H&R Block is offering free software for existing Turbo Tax users to switch. I have used both in the past, and I actually like the UX of H & R Block online version better. However I haven’t seen Turbo Tax in two years, so the site may be different.

In addition, H& R Block has partnered with Uber to provide discount on tax preparation for Uber drivers.

Regarding 1099s, all of the H&R Block software programs can import data from 1099s. If someone is exclusively self-employed, they will probably want to look at using the Premium version to get maximum features and forms. The Premium version of the software can be used to prepare and issue 1099s to contractors.

The 1095A tax form is new and it is the form used for the Affordable Care Act.  Check out the infographic  which shows what you need to know about it.

 

12 JanSix Reasons To Break Up With The Spreadsheet For Your Small Business

A few weeks ago, I spent time tutoring a teen who was having some difficulty with algebra. To help her with the subject, I directed her to do problems online via Khan Academy. One thing I noticed is that she hated to answer a question if she wasn’t sure of the correct answer or she would guess.  When it comes to solving mathematical problems, it seems that people want to guess when they are not sure of the work. Guesswork is defined as the process or results of guessing.  I am not sure how much “work” is in guesswork. With accounting and bookkeeping, there is no need to guess thanks in part to accounting and bookkeeping software, online banking and the cloud. This is why you should resolve to ditch the spreadsheet and move to online cloud accounting like Xero.

Good accounting is accurate, complete and timely.  Today it is easier to have accurate, complete and timely  data because of automation.  Think about the processes of bookkeeping. Bookkeeping is basically data collection of business activities.  Back in the day, this collection of data is on several pieces of paper.  Sales receipts, expense receipts, invoices, checks and bank statements are just some of the paper used to record business activity.  The General Ledger is a basically a notebook created just for bookkeeping.  Entries were made manually in pencil.  It is so hard to imagine writing everything down now. Plus, my handwriting is awful since I mostly type, text or click. The problem with manual entries whether in a notebook or in a spreadsheet is human error.  Numbers can get transposed. Decimals could be in the wrong place. Amounts can be rounded.

Break up with your spreadsheet.  It’s not giving what you want when you want it. It’s not saving you time or money, and it doesn’t give the whole picture of your business. Below are six reasons why you need to upgrade your bookkeeping for 2015.

  1. Automation.  There’s nothing automated about a spreadsheet. Sure, there may me be formulas in your spreadsheet, but for the formulas to work; data must be entered. The data is entered is manually, so there’s no automation.
  2. Timeliness. Quick  question- What’s your accounts receivable balance as of today?  Spreadsheet can’t get you real-time information from your bank or POS system.  If you needed that information right away, you would have to stop what you doing and start to calculate from a few data sources.
  3. Completeness. Your business may have more than checking account, Paypal or Square account.  All of these can be in one place with a cloud accounting system.
  4. Reporting. Sometimes you, your CPA or advisory board just wants a financial report of your business. Profit and Loss, Balance Sheet or Sales Tax are commonly requested reports. These reports can be generated with a few clicks.
  5. Less time on bookkeeping.  Once you add all the accounts and bank feeds for your business, then you don’t have to keep checking on it. Have you heard the expression, “a watched pot never boils”?  You can’t grow your business if you have to spend so much time recording what goes on in the business. Be in the moment.
  6. Saves you money.  With accurate, complete and real-time data, you can make better and cost-effective business decisions.  That will save you money in both the short run and the long run.

 

05 JanAddressed To The Ninety-Nines: Time To File 1099s For Freelancers

Happy New Year! Did you procure the services of independent contractors/freelancers last year? Did you send payments to any of the independent contractors totaling $600 or more?

If so, then you are required to file these forms to the IRS and ensure that the contractors received copies to those people by the end of the month. This year January 31 is a Saturday, so you actually have until February 2. [Note: This is also the deadline for W-2s, but many businesses outsource their payroll services, so their payroll vendor will take of that for them.]

Back in the day, you had to get the paper forms from Staples or order them online. Now you can e-file and do everything online.

To e-file the 1099s, you need four things:

  1. Full name of independent contractors (legal name that they use for tax purposes)
  2. The correct mailing address of the contractor
  3. The total amount paid to the independent contractor. If less than $600, there’s no need to file.
  4. Tax identification number or social security number.

If you are using Xero, you can run a report to get a list of the total amount paid to vendors. Also, going forward it is best practice to obtain W-9s from independent contractors when they initially start work.  Then you can be proactive and have a good sense of how many 1099s you will have to prepare next year.

1099s don’t have to be sent out to independent contractors who live in another country and do not file taxes in the United States. Please consult a CPA or the IRS.gov if you have more questions.

 

19 DecFind Your People: Six Steps To Hiring The Best

Whether you have many employees or only one, your employees are an extension of your brand. It is important to hire someone who can not only fulfill the responsibilities of the job description, but also can be a brand ambassador as well. You want an employee that represents your brand and fits in well with the company culture.  Xero has an excellent small business guide on hiring the right employees.

The first step in hiring is to figure out what you need.  It’s important to delegate things that take up lots of time or that someone else can do better. A  good potential hire is both a specialist in an area and a generalist who can multitask.

  1. Create a job description. It should be detailed but not an exhaustive list of what you want in an employee.
  2. Next, ask your friends and friends of friends. Most employers interview and hire people who are one or two degrees of separation from them.  Post your job description on LinkedIn and email friends that may know someone.
  3. Post where job seekers are looking.  For example, if it is a nonprofit, you can post on Idealist.org.
  4. Screen well before a face-to-face interview.  Do your homework. Check out candidate online and social media presence to make sure the candidate is well-suited to your business’ culture.
  5. Take notes during the interview especially since you could be interviewing several people.
  6. Keep an open mind, but trust your gut. Just because a candidate looks different that you what you expect doesn’t mean that they can’t do the job.

My motto is to “Hire slowly; fire quickly”. If an employee is not doing well, communicate with them immediately. Remind them of your expectations. Take corrective action if needed. However if the work doesn’t improve, then take steps to let them go.

 

 

 

15 DecRecognize The Importance of Bank Reconciliation

Figuring out exactly how much money is really available is your business bank account can be an attempt to hit a moving target. Just when you think you know it, something else pops up. Although the advent of online banking makes balancing your books is a bit easier, a bank reconciliation is necessary.
It’s the only way to figure out the difference between the balance in your bookkeeping and your bank balance.

Some small business owners think don’t see the need to do bank reconciliations because they look at their bank balance online. They get banking alerts on their smartphone. They downloaded banking apps.

Even though the banks offer “real time” bank balances, it is not the whole picture. Since some transactions posted in the afternoon (i.e. deposits) usually don’t appear until the next day whereas debit card transactions at a store or restaurant are immediate can show up any time of day. For online purchases, the approval may happen right away, but you may not be billed until the item is shipped. Online banking sites use the terminology like “pending transactions” and “uncollected amounts”. These transactions have yet to be cleared.

A small business, especially a retail business, has cash inflows and outflows daily. Those are recorded in your bookkeeping. Whether you are maintaining the books via a paper general ledger, a spreadsheet, or accounting software, you have to reconcile to the bank statement. It is best practice to reconcile monthly. When reconciling the bank statement, the balance per books is the balance of the Cash account in the general ledger that pertains to the bank account. Resolving the difference between the balance per book and the balance per bank is what a bank reconciliation. It is not a math problem. It is more like a scale. The goal is to have the same amounts on both sides. Accuracy, completeness and timeliness are the three things that may cause the unbalance.

Accuracy. Banks do make errors, but typically the data from the bank statement is correct. There’s less of a chance of error. However the amount entered from the books may have been entered manually. It’ s so common to transpose numbers and that can cause an unbalance.

Completeness. A monthly bank reconciliation should include all transactions for the whole month. For example, a December reconciliation has to include from December 1st through the end of December 31st.

Timeliness. Most of the differences between the bank and the book are due to pending transactions. It is good practice to make deposits as soon as you can so that they clear at the bank right away.

Xero makes bank reconciliation easy and painless. Xero recognizes repeating vendors. You can set up bank rules so that it knows which expense accounts are associated with a vendor.

The bottom line is that bank reconciliations are important. They give a balanced view of a business’ operating cash flow.

09 DecBill, Bill, Bill: A Sale Is Not A Sale Until You Invoice

“Bills, Bills, Bills” is a song by Destiny’s Child. In that song, they’re talking about bills you have to pay. As a small business owner, your main concern is the opposite which is to bill, bill, bill. The word “bill” in business can be confusing since it has more than one meaning. A bill is used as both a noun and a verb. As a noun, a bill is “an amount of money owed for goods supplied or services rendered”. As a verb, bill means to send a note of charges for goods or services.

The word bill is synonymous with invoice when used as verb. I personally prefer the word invoice because it is like a mnemonic, “you have to INvoice a customer to get INcome.” Standard invoice terms include when payment is due. The most common invoice terms is net 30 which means payment within 30 days. However, as the small business owner, you can set payment terms to be can be “due upon receipt” or “net 15″.

To encourage payment before the end of 30 days, some businesses offer a discount. For example, “2/15 net 30″ means if payment is received within 15 days of the date of the invoice, then the customer receives a 2% discount. Discounts for early payment are good for regular and repeat customers, but not good for one-off customers.

Because it is crucial to manage cash flow, it is important to invoice customers as soon you can since actual payment may not happen until a month later. A sale is not really a sale until an invoice is sent to a customer. For a service professional like a website designer, it is best practice to invoice for partial payment when the work starts and invoice again when work is completed. Some of my former bookkeeping clients would send an invoice to customer for 50% of the work at the beginning of the job and then send another invoice at the end.

To make invoicing easier, Xero lets you set up recurring invoices easily so that you can set monthly invoices for customers. That way you can “set it and forget it”. The more you bill, the quicker you will get paid.

05 DecManaging Inventory: Taking Stock Of What’s Important

Inventory matters. With your business, you are not only selling the brand but also the product or service as well.  The consumer retail industry lives and dies during the holiday season so it is important to manage inventory.  Optimal inventory should be just above “Goldilocks level”. Remember the fairy tale Goldilocks and The Three Bears where Goldilocks only what the middle bear’s stuff because it was “just right”? In fact,  there’s a  Goldilocks principle that says that the preferred state is between the margins-not too little or not too much.

When it comes to inventory for the holiday season, it is best have a little more than just enough.  As it gets closer to Christmas, sales can increase significantly on the weekends when people are free to browse and shop.

Keeping inventory levels right is vital since it not only controls costs but also serves as a barometer of a business’ overall health.  First, pay attention to your top sellers.  Whether you are using Square, Shopkeep or some other Point-of-Sale (POS) system, there is a report that will show which inventory items are consistently selling well.  Use this data as a guide to determine which items should be increased in your inventory.

Next, look at the bottom of the list to the inventory that is not selling.  One thing that may be a quick fix is to change where it is displayed.  If you are selling offline,  move the inventory in the store next to items that are selling or that are complimentary. If you are selling online, you may not be able to change your website as easily, but you can feature items in your newsletter or social media.

Another reason that an inventory item could be under-performing is its price. The most obvious answer is that the price is too high. That can be true; however, sometimes it is because the price is too low. While working as sales representative for artisan jewelry designer, the owner actually increased the price of some pieces and  sales actually increased. I think that customers perceived more value from the higher price.
This is an important distinction.  Value tends to more important than bargain for people especially when shopping for others.

The last reason that an item in your inventory is under-performing is that doesn’t fit with the brand of your business. For example, if your business is known for selling vegan leather accessories, then suede shoes should not part of your product line.

It is essential to establish good relationships with vendors. Despite all the technology and apps, small business retail  is based on maintaining relationships with all vendors.  That way, you can reach out to them to deliver product immediately if you sell out. Vendors can be lifesavers to your business when it comes to maintaining inventory level. Some vendors will even suggest other products to sell and may offer a discount.  You have to communicate with them often and let them how sales are going. They may offer advice on what works best.

The accounting of sales inventory is pretty easy with Xero.com.  When you add a new vendor invoice into Xero to pay it, you can associate each line of invoice to inventory item that you are selling. You can enter unit price and description as well.  If your business needs a more robust inventory management software,  check out  TradeGecko which can be integrated with Xero as part of Xero’s Add-On Marketplace.

Managing inventory is taking stock of what is going with you business. You can’t afford to ignore it.

01 DecCash Rules Everything Around Me: Managing Cash Flow For Your Business

In real estate, the adage is “location, location, location”. For small business, the adage should be “cash, cash, cash”. Whether it is a service or product-based business, cash is necessary and positive cash flow is the goal.

There are some many business apps and software dedicated to the “front end” of the sales cycle. The sales cycle is the time between the initial contact being make with a client or customer, the identification of services or goods to be procured, the acceptance of purchase, and the transaction that completes the sale. There is lead generation, marketing and CRM software but the critical part of running a business often gets ignored. The back end is the bookkeeping. It’s not sexy but necessary.

After the sale is made, then the cash cycle begins. You either end up with cash, credit card transaction or an accounts receivable. Think of it as a race and the finish line is your business’ bank account. Cash is the fastest. Cash is a sprinter. For retail businesses during the busy holiday season, it is important to make cash deposits daily. This cash can be immediately turned around to pay for expenses and employees. Depending on the price point of your products, you may have lots of cash transactions, but for a smaller amount per sale.

Credit card sales are not as fast, but can be powerful. Credit card sales are like Olympic hurdlers. They take a bit longer, but they are substantial. A few years ago, I worked as a sales representative for a jewelry designer at a holiday market in New York. While working there, I noticed that the average credit card sale was always higher than the average cash sale. The downside is that are merchant fees and the fact that it takes up to three days for the proceeds from credit card sale will be deposited into your business account.

Accounts Receivable is definitely the slowest of the three, but it may be the most consistent. Accounts receivable are the long distance runners. Professional service-oriented businesses are more focused on accounts receivable because their sales are usually recurring. For example, if you are bakery that has set up a business account with an office to provide baked goods every week for a set price, then you just have set a recurring invoice and you should receive payment monthly.

No matter how fast or slow the money hits the bank, you have to have a good way to record it. Xero.com is a back end software of the sales cycle. It’s where you can manage you cash flow easily and reach the finish line.