Britney Schaub, Office Assistant and Bookkeeper of New Business Directions, LLC, recently obtained her Associate’s of Science from Granite State College, majoring in Business. She is now pursuing her Bachelor’s degree.
Many families and small business owners may have seen decreases in income over the last several months. Money struggles can cause us to experience stress and worry, and none of us need that right now. Instead we need to boost our immune systems and decrease stress.
Here are some tips on how we can take back control of our finances and reduce our stress around money.
- Assess your situation.
Take an inventory of your bank accounts, credit cards, and other financial accounts. This helps you to see the entire picture. You can be financially healthy in different ways. For example, you might be low on income, but if you have healthy savings or plenty of assets, you might be just fine.
- Track your spending.
When you can see where the money is going, you can make good decisions about what changes you need to make. Using software like QuickBooks or simply a spreadsheet can help you see how much you really need for things like the rent or mortgage, food, utilities, and other necessities.
- Make any changes that you need to.
If you have more expenses than income, here are several ways to get back in balance:
- Cut any unnecessary spending. For example, trade the expensive $100+ cable bill for a $15 Netflix subscription, at least for a while.
- File your taxes early, especially if you have a refund coming.
- Avoid temptation spending if you don’t have enough for the basics. Remember what’s important and find the will to curb impulses.
- Sell some of the items you own that you no longer need to raise money.
- Get a second job.
- Get support from local nonprofits that can help you if you qualify.
- If you must, dip into your savings or 401(k).
- Ask family members to help.
- Build a budget and stick with it.
Making a plan helps some people reduce their stress a great deal. They feel good that they now have goals and can develop new habits that will work for their lifestyle.
In your software or spreadsheet, commit to monthly spending limits for each major category: housing and utilities, food, transportation, clothing, entertainment, savings, paying off debt, and other.
Each month, track how you did by comparing your actual spending with your planned spending. Give yourself a grade on how you did, and either reward yourself or make the changes you need to.
- Pay off debt.
If you have debt, make a plan to pay it off systematically. Here are some ways you can speed that up:
- Pay down the debt that has the highest interest rates. You might even be able to consolidate and refinance your debt to a lower rate.
- Make a payment every single month, even if it’s small.
- See a credit counselor for more ideas on how to get out of debt faster.
- Build a cushion for the future.
If your spending and income is balanced, but you don’t have a savings cushion, that can also be stressful. You need a safety net to fall back on for times just like these.
Decide on an amount that you can put away for a “rainy day” fund, and stick to it. It’s also never too early to start saving for your retirement years. The younger you start, the more your money will grow into a significant nest egg, providing comfort and flexibility in your final years.
- Identify any other stressors related to money.
Perhaps a relative constantly asks you for money, and this causes you stress. In this case, you may have to make a “tough love” decision to reduce your stress while maintaining family relationships. These are very personal, individual decisions that include factors far beyond finance. But if they are causing stress, some kind of action should be taken.
- Make your accounts work for you.
If possible, select credit cards that give cash back, miles, or other perks. Keep your bank balance high enough so that you don’t get charged a monthly fee, and try to get an account that pays interest. You won’t get rich from these things, but they are fun perks that help you save.
- Invest wisely so you can sleep at night no matter what happens.
Understand your risk tolerance level when it comes to investments, and avoid investments that are too risky. You’ll sleep better at night knowing your money is safe.
Hopefully, these tips will help you decrease your money stress and improve your control over your finances.
Every company should have a standard process to follow when an employee leaves the company, whether – voluntary or involuntary. Here’s a checklist you can use to compare to your own process, so that you can either confirm you’re on the right track or add some ideas to improve your current process.
- Collect the resignation letter.
While so many things are remote these days, you MUST get the employee’s resignation letter in writing and signed by them. If they don’t supply one, create a form they can sign that includes the reason for termination.
If you initiated the termination, have the employee sign the notice of dismissal.
This is not only important for general human relations records, it’s also important this year for any Paycheck Protection Program forgiveness documentation if the employee turned down a hire-back request. There may also be a requirement to submit the paperwork to your states unemployment office.
- Handle legal and benefits issues.
- Collect any company advances owed by the employee.
- Ask the employee if they have any final expense reports to file.
- Remind the employee that certain legal requirements, such as confidentiality clauses and noncompete agreements must be upheld after employment.
- Review insurance options such as COBRA.
- Let the employee know how to access their 401(k) and other benefit plans.
- Update the payroll system and cut the final paycheck.
Compute PTO and vacation balances due the employee. Calculate severance pay. Cut the final paycheck, incorporating those items.
Review the paycheck amounts with the employee, and ask them for a forwarding address.
- Collect company property.
The employee should turn over their computer equipment, including laptops, monitors, mice, keyboards, tablets, phones, beepers, printers, drives, and scanners. Don’t forget to ask for keys, business cards, name badges, security badges, gate and garage door openers, uniforms, and tools. Oh, and company cars or trucks.
- Revoke computer access.
Any user accounts held in the employee name should be revoked. Passwords need to be changed. Their email address should either be forwarded to someone else who can answer the emails, updated with an autoresponder, or revoked altogether.
Voice mail and their phone extension should also be re-routed. Take the employee’s name off any internal distribution list and remove them from the About page of your website.
- Hold an exit interview.
The business owner should hold an exit interview with the employee if they are leaving voluntarily. Ask questions such as these:
- Why did you decide to start searching for a new job?
- Was there anything we could have done to keep you employed here?
- If you could change one thing about your job, what would it be?
- Could you describe your relationship with your direct supervisor?
- Would you consider working here again?
- Communicate this change to your staff and customers.
Let your staff know immediately after the employee leaves that they will not be coming back. Don’t go into detail about the termination; that information is private.
If the employee was involuntarily terminated, assure your staff that their jobs are safe (if they are) so they don’t ruminate or spread false rumors.
If the employee worked with customers, each customer should be notified and given the name of the new staff member that will be handling their issues.
Follow these steps to protect your company when an employee is terminated. If you have any questions about this process, please don’t hesitate to reach out.
Paying bills might not be fun, but paying bills you shouldn’t pay or have already paid in the first place is even worse. There are many risks that can part a small business owner with their hard-earned cash, and here are five to watch out for when it comes to your bill-paying process.
- Fraudulent invoices
Some companies will send marketing documents disguised as invoices to businesses. You may have to read the fine print to notice it’s not really an invoice. In some cases, it’s simply outright fraud, trying to get you to pay something that is not owed.
Many times, these invoices look official, similar to legal filing requirements, but don’t be fooled. Examination of the fine print can save you a lot of money.
Set up procedures to catch these types of invoices. Managers should be careful not to approve these invoices for payment. Bookkeepers should be trained to question their supervisors about these invoices.
- Item(s) not received
Three-way matching can prevent paying an invoice for which the goods were never received. Put into place a couple of procedures to prevent this accounts-payable error:
- Have warehouse staff match the shipping receipt to what’s in the shipment when it arrives.
- Have accounts payable staff match the marked-up shipping receipt to the invoice when it comes in. If the invoice shows that more items were billed for than received, a call to the vendor to correct the invoice is in order. The invoice amount should be adjusted on the books and a check can be cut for the reduced amount.
- Wrong amount
Sometimes the wrong price can be listed on the invoice. If this happens, there may have been a misunderstanding during the sales process. A call to the vendor is needed in this case as well so that a corrected invoice can be issued.
- Math error
This hardly happens in these days of computers, but it can. All invoices should be reviewed for reasonableness. If it doesn’t make sense that something should cost so much, it probably shouldn’t. In rare cases, a price may have been entered wrong or a computer bug could have occurred.
Spot-checking the invoice’s math can save money if an error has been made.
- Duplicate invoice
This happens way too often. We may get an emailed invoice; then the same invoice comes in the mail. We need procedures in place to keep it from being paid twice.
Many accounting systems do this automatically, but if one character is off related to vendor name, or if the invoice number is off, the system could break down. Review a list of disbursements monthly to make sure payments don’t get duplicated.
Procedures are the answer to reducing accounts payable errors and making sure you pay only the invoices that are truly due.
If you need help putting procedures in place for accounts payable, please reach out – we’re happy to help.
At first glance, this article topic might seem too simple. After all, to get paid, don’t you just take money out of your business? Well, yes, but there is much more to it in the long run as well as from an accounting side. Let’s take a look.
The Traditional Paycheck
If you’ve ever worked for someone else, you probably received a paycheck every few weeks. It took care of three major things:
- Your regular pay that you live off from day to day
- Taxes you owe to the federal and state government
- Benefits. Depending on the employer, you might have received health care, retirement contributions, and vacation and holiday pay.
The employer took care of the needs you have today as well as some of your future needs.
Your Business Pay
Now that you’re the employer – of yourself, your business must cover all the items mentioned above. How it does that depends on the type of entity you chose when your business was formed.
If you are doing business as a sole proprietor, you take draws from your business instead of paychecks. A draw is simply a cash withdrawal that reduces the ownership investment you have made in your company. The draws do not include any kind of taxes, including self-employment taxes; these need to be deposited separately, usually through quarterly estimated tax deposits to the IRS and to any relevant state agency.
As a sole proprietor, you’ll likely need to find your own health insurance. And the most important thing you’ll need to do is plan for your retirement by investing in IRAs or otherwise saving money that is earmarked for your retirement.
From an accounting standpoint, owner’s draws are shown in the equity portion of the balance sheet as a reduction to the owner’s capital account.
If your business is formed as a C Corporation or an S Corporation, you will most likely receive a paycheck just like you did when you were employed by someone else. You will also be responsible for making the payroll tax deposit, funding the retirement plan, and paying for health care insurance.
From an accounting standpoint, corporate payroll, taxes, and benefits are all considered expenses and are shown on the income statement. Any money taken out additionally is a reduction to the owner’s capital account, and this is shown in the equity section of the balance sheet.
Rules for Shareholder benefits and additional distributions are complex, so please reach out to your tax professional for guidance.
If your business is formed as a partnership, each partner will be paid distributions based on the partnership agreement. Typically, that means receiving a base salary and a portion of the profits. You can also take money out of the partnership. Taxes are not included; you are responsible for making your quarterly estimated payments. Plus, you will also be responsible for paying self-employment taxes.
For benefits like retirement plans, partners can be eligible, but the tax treatment of these and other benefits is not necessarily the same as it is for a W-2 employee. Again, the rules are complex for deductibility, so it’s best to contact a tax professional to find out more.
Evaluating Company Profits
It’s critical to understand where your wages show up on your books so that you can truly understand your business’s profitability. With corporations, the salaries are included in the expenses, so net income is after, or net of, salaries and payroll taxes.
With sole proprietors and partnerships, the net income figure on the income statement does not include owner salaries because there aren’t any. Instead, only the equity section is impacted. Net income for partnerships and sole proprietors should always be high enough to at least “cover” an amount equivalent to a “so-called salary” for all of the active, participating owners.
If you have questions or need help understanding how business owners get paid, please feel free to reach out any time.