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.
The best way to get smarter about how to invest your marketing dollars is to document and measure what’s happening now in your business. Once you’ve measured, you can then improve. Here are three metrics to measure in your marketing:
The first step is to look at all your marketing costs. They may be in one account or several. Some of the places to look for marketing expenses include:
- Advertising – for online or print ads, trade shows, sponsorships, and other advertising costs
- Dues and subscriptions – for membership fees to networking and professional associations
- Education – for marketing training
- Marketing – for obvious reasons
- Office supplies – for graphics subscriptions and fees
- Payroll, salaries, and wages – for allocation of employee time spent on marketing projects
- Printing and postage – for flyers and direct mail
- Professional fees – for marketing consultants, coaches, designers, and writers
- Software/Technology – for marketing software and apps
- Travel – for trade show or conference attendance
Once you have aggregated these costs, you’ll have a good idea of what you’re spending on marketing and you can calculate the first metric: Marketing Spend. The formula is:
Total marketing costs / total gross revenue = Marketing spend
This gives you a percentage.
Most companies spend five to ten percent on marketing. Higher growth companies will spend close to ten percent, and stable growth or slow growth companies will spend close to five percent. Large companies will spend more, from nine to 12 percent of gross revenues, than small companies. There may also be benchmarks for your specific industry, which you can find by reviewing trade publications and websites.
CAC – Cost to Acquire Customer
Next, you’ll look at how much it costs on average to acquire one customer. To compute this, count the number of new customers for any period of time, and use this number in the following formula:
Total marketing costs / number of new customers = CAC
Revenue per Customer
Revenue per customer is a good measure in many companies. It can tell you how much, on average, a customer will spend at your company over a period, adding up all the orders, projects, visits, or engagements for that customer. The formula is simple:
Total revenue for a period / total number of customers for the same period = Revenue per customer
A similar metric that’s valuable is how much a customer will spend at your company in their lifetime. That’s called CLV or customer lifetime value. Use the same formula above but compute it based on the longest period of time you have records for.
When you can compare revenue per customer or CLV with CAC, you can determine how much you can afford to spend to acquire new clients.
Let us know if we can help you calculate these metrics so you can become wiser about how to invest your marketing dollars.
All business functions need to run smoothly, including your accounting system, to maximize profits in your business. Here are five signs you can check for to determine if it’s time to upgrade or replace your current accounting system, or if you need more training on the features of your existing software.
- Not enough users
If your current system limits the number of users you can have in the system at any one time, this could be a major enough reason to switch to a larger option. If you’re not sure how many users you currently have a license for, we can help you find out. It might be as easy as buying more licenses if you’re not at the maximum capacity. But if you’re already at maximum, it may be time to look for a better accounting system with room for you and your business to grow.
2. System is Outdated
If your accounting system runs on desktop-based software that’s upgraded every year and you have not paid for or installed the upgrades, then your system is outdated. If it’s been sunsetted, that means the software company no longer supports that version. You are at major risk for the software crashing, getting buggy, getting hacked, or worse, permanently breaking.
The cost of getting the system current may be better spent looking for a new alternative, or moving to a cloud-based system where updates occur automatically.
3. Lack of functionality
It is commonly the case that your business has grown so much that it’s outgrown your original accounting solution. That’s good news! It’s time to find a solution that will scale better for your business, as you might be missing important features that are costing you more time and money than if you were on a system that offered those features.
Something that we see regularly, is that there is existing functionality in a software solution that is not being utilized because users aren’t aware that the feature exists. Spend time learning everything you can about what your software solution provides for features.
4. Lack of reporting and analytics
If you’re unable to receive the reports and analytics you want to run your business better from your current accounting system, it may be time to switch. With better data comes better decision-making and if lack of data is costing you money, then it’s time to find a more robust system. Again, users may not have the knowledge or training they need to customize the reports and analytics that already exist in your software solution.
5. Lack of integrations
Thousands of apps exist to expand accounting systems’ core functionality. If your current accounting system lacks integration capabilities or does not have apps that are built to integrate with it, you may be missing out on additional functionality. This include mobile apps; it’s quite common now to do much of your accounting work from your mobile phone or tablet.
Does your current accounting system have any of these red flags? If so, please reach out. We can help you find a best fit for your accounting needs, and help you with additional training.
Many small businesses have become extra innovative and resourceful when it comes to cash flow. Here are some ideas to help make it through the next few weeks or months.
Rearrange your 2020 budget
There are a lot of things you may not need to spend money on this year. They can be re-appropriated to cover payroll if the revenue slows down. Here are a few obvious ones:
- Travel expenses
- Transportation expenses
- Conference fees
- Office utilities should be reduced if you are working from home
- Office supplies that you won’t need to spend on if workers are working from home
Keep in mind that certain transportation expenses and utilities may be covered under the forgiveness portion of the SBA Payroll Protection Program (PPP).
Trim the fat, then go a little leaner if you have to
Some of these may not be too palatable, but they may help to save your business.
- Cut executives’ pay as much as possible during this temporary time
- Freeze hiring
- Offer early retirement
- Ask workers if they want to voluntarily reduce their hours
- Offer extra days of unpaid leave (and require a minimum if you need it to avoid layoffs)
- Cut training expenses
- Cancel dues and subscriptions
- Slash marketing costs
- Cut contractor expenses
- Cut employee benefits
- Put a hold on 401K matches, if allowed
- Cut all other unnecessary expenses
Keep in mind that decreases in payroll and employee benefits may affect the forgiveness portion of the SBA Payroll Protection Program (PPP).
Get the cash flowing
Get your creative entrepreneurial juices going and find a way to boost revenue.
- Move your service to delivery if it works for your industry
- Move your products to those that are in need. Designer masks, anyone?
- Move your service to a virtual version
- Offer a new service
- Acquire and sell an item in need
- Got extra space? Find a renter
Get a tax refund
The new laws provide for a couple of ways you can get a tax refund.
- File your 2019 return ASAP if you’re due a refund and use that money in your business.
- If you have losses from 2018 and 2019, check with your tax professional to see if you will benefit from amending those returns to take advantage of the carryback provisions of the CARES Act.
Speed up your cash flow
There are literally hundreds of things you can do to permanently improve your cash flow. Here are a few:
- Negotiate with your vendors to extend credit or term out your payments to them.
- Work on collections and get your accounts receivable balance lower.
- Invoice faster and tighten the pay terms.
There are many options right now to borrow money. PPP might be the best game in town, but it’s not the only one.
- Take money out of your 401K to use in your business.
- Use your stimulus check in your business.
- Use your bank line of credit if it is still available.
- Take advantage of the EIDL, PPP loan, employee retention credit, or the deferred taxes option from SBA and the Treasury.
- Borrow money from a relative or friend.
- Check locally in your bank, credit union, city, county, or state for small business programs.
- If your insurance premiums are based on Revenues or Payroll, such as Workers Compensation, you may be able to request a refund of premiums mid-term.
Every penny counts for some small businesses, so use any and all of the ideas above so you can ride this situation out.
And if we can assist you with your cash flow projections or creating or modifying your budget, just reach out.
Three Vital Business Roles for Success and Balance
A passionate visionary, a get-your-hands-dirty operator, and a responsible, finance-minded executive, are what author Chip Conley describes as what investors look for in a management team when they consider providing startup money to new businesses, in his book The Rebel Rules: Daring to Be Yourself in Business.
Even if you’re never going to seek venture capital money to fund your business, this tidbit of advice makes a great strategy question to consider for your business, especially if you are an entrepreneur. Do you have these three roles in your company?
If you’re not sure which leadership role you play or who plays what role on your team, consider reading Predictable Success by Les McKeown and taking the quiz at https://getpredictablesuccess.com/styles-quiz/
The passionate visionary is a creative idea person. They have the technical knowledge that supports the service or product that will be created and offered. They see the market need, and just how to sell and position the product so that clients or consumers will want the offering.
The visionary often has more ideas than budget. The finance role can evaluate the profitability of the visionary’s ideas and prioritize the projects. The operator can execute the visionary’s ideas.
The visionary provides strategic direction for the company and keeps the market offerings fresh.
If your business is missing a visionary, you might also struggle to keep your practice full as often (but not always); the sales function could fall to the visionary. You might also find yourself getting stagnant with your service offerings and falling behind the marketplace.
The fix for a missing visionary is to develop a sales and marketing team and/or a research and development team that can serve these functions.
The operator is an action person who can execute. They get things done. They can find and hire the right team. They can develop the systems, job descriptions, procedures, and processes that makes the company unique.
The operator takes the visionary’s ideas and makes them happen. They need the visionary’s ideas because they would rather take someone else’s ideas and work with them than create their own. They also need the support of the finance executive to stay on budget and to focus on one project at a time or avoid hiring too many people.
A business without a good operator never gets the product to market and may also constantly be short of team members.
Responsible, Finance-minded Executive
The finance expert helps to make the dollars work for the company. They can tell us how much we need to sell and how much we can spend. They can also provide capital sources for the company via investors or loans.
The finance executive loves numbers and can help to make sure the company’s operations are profitable. They’ll work closely with the operator to make sure that the right number of people are hired at the right salary levels. They’ll work with the visionary to plan and budget for new sources of revenue and new product lines.
Without a finance executive, a company often spends more than they bring in and may not have a viable profit plan. They may also run out of cash which can cause problems with creditors and investors.
This is the role we can not only help you fill, but also help you build your financial literacy to the level that you need for the stage your company is in now and for the future.
Your Business Success Trinity
As you were reading, which role are you? Which role jumped out at you that might need shoring up in your business? You might be strong in one area and need to outsource another while keeping a strategic eye on things overall.
Look at each of these roles and objectively assess your business. How are all three roles being served in your company? Which ones need more development for your business to grow?
Getting clear on your company’s roles can very well take you to the next level of success.
Which trends impact your business the most? Which ones speak to you? Feel free to reach out to discuss any of these ideas with us.
Your Thoughts on Money
How do you feel about money? Does the word itself evoke a feeling abundance, or scarcity? Does your brain repeat common beliefs like “Money doesn’t buy happiness” or “All rich people are selfish?” Does money scare you? Excite you? Do you feel deserving of it?
The way you perceive money matters. What your inner thoughts are telling you about money can impact on a subconscious level your ability to earn more or keep what you have.
What are your current behaviors towards money? Are you a spender or a saver? Your behavior may be driven by your beliefs and emotions. If you’re not happy with your behavior toward money, there’s an opportunity for you to change the relationship you have with it.
Once you can bring your beliefs and behaviors into your awareness, ask yourself if they are serving you well or hindering you? You may want to find some sort of happy medium that fits your needs. Everyone has different circumstances, but if you can change your beliefs and then your behavior towards money, then you might see a change in your ability to meet your financial goals.
The ultimate goal is to be content with the relationship you have with money. If you’re not happy with the relationship you have with money, there is opportunity for you to do some work in that area. And if we can help, please feel free to reach out.
You’ve received them—probably more than once—and every single time, they’re painful, tedious, and unsolicited. Robocalls . . . Need we say more? You can experience a robocall, or an automated telephone call delivering a recorded message, on both a personal and business phone line. From scammers scamming to political parties politicizing, these calls can get in the way of your daily business activities, stop productivity, and simply annoy the life right out of you.
Here’s how you can fight them.
Don’t Let the Robocalls In
Unfortunately, robocalls can plague all types of calls, whether it’s a cell phone, analog, or VoIP call.
First, if or when you receive a robocall, hang up. Easy enough, except, you know you will eventually get another call, and then another, and more after that. These calls keep coming . . . like cockroaches.
Put your name on the National Do Not Call Registry; it’s free! Will it sufficiently work? No, not always. Yet, taking this step is proactive and it might keep one or two callers from connecting with you.
When an unwanted call does come in, there is often an option to “press a number” that is supposed to delete your number from the robocall registry. Viewpoints are split on this idea, as some say it works and others believe it does the complete opposite of what it’s intended to do. We recommend taking your chances and pressing that number. However, if you’re on the fence, don’t worry; we have more options for you!
Try downloading a call-blocking app, such as Nomorobo or Robokiller. These are subscription apps that don’t discriminate against carriers. You can also check with your particular provider to see if they offer any special blocking option. For example, Verizon has the Caller Name ID app. Both iPhones and Androids have built-in call-blocking features, while Samsung has a “Smart Call” feature to squash this issue.
You can limit your cell phone calls to “contacts only” by setting the “Do Not Disturb” feature on your smart phone, but is this a realistic option for business owners who often need to take calls from people not yet in their contacts?
Again, try contacting your service provider to see what options they offer. You may also consider purchasing a call-blocking device. Some of the call-blocking devices on the market can block up to 5000 numbers, such as the CPR V5000, which is available for less than $90.
A little trickier to fight, contact your Internet provider to see if they have a service to stop robocalls coming in via VoIP. With some clever searching, you may find an innovative blocking option online. Though, if you find a compatible match, it could be costly. Always report the unwanted call to the Federal Trade Commission.
Stop the Robocall Madness Now
The truth: Robocalls are becoming more frequent each year thanks to the double-edged sword that is the Internet. These calls show no sign of stopping. If you want them to end, you need to take action—and right now!
Does your business ask your customers for their credit card numbers at any time during the sales process? If so, it’s essential that you honor the privacy of your customers’ private data as well as stay in compliance with the Payment Card Industry rules.
Every business that has an account with a merchant services vendor is required to follow PCI (Payment Card Industry) compliance when collecting and storing credit card data. There are many different levels of compliance depending on the technology you use to capture and store credit card data. These levels depend on whether you use a point of sale terminal, the customer hands you their card, orders are entered through an online shopping cart, or a combination.
In all cases, there are several no-no’s that you’ll want to share with your team to make sure they are properly trained:
- Never ask a client to send a credit card number via unsecure email.
- Never take down a credit card number over the phone on paper before entering it into your system. If you do, you need to shred the paper immediately.
- Don’t ask clients to take a photo of their credit card to send to you.
If you need to use credit card authorization forms in your business, you’ll need to consider the proper collection of these forms as well as the proper storage. Storing a credit card outside any system requires you to follow further PCI compliance steps.
- After a client has signed and completed the credit card authorization form, you will need to provide a secure, encrypted email connection for them to send it back to you. Alternately, you can set up a private client portal for them using SmartVault, ShareFile, or another generic portal or file transfer app. Just sending a pdf via email is not a great idea unless the PDF is password-protected and the password is sent via secure, encrypted email.
- Once you’ve received the form on your end, you’ll need to keep it in a secure place. If you print or download it, you’ll need to follow physical building security protocols to stay in compliance with PCI as well as to protect the customer data.
It’s not a surprise that so many credit cards get hacked each year. It’s inconvenient to customers and vendors when their credit card gets compromised, and much of this can be prevented through proactive and safe measures. Respect your customers and help them keep their credit card data safe.
Looking for fresh, effective ways to grow your business in 2020? You’ve come to the right place. In today’s market, it can be difficult to stand out from the crowd, gain new customers or clients, and increase your company’s revenue. Note: We said difficult, not impossible! Below, you’ll find six fun, easy tips to help you achieve your goals and make your business bigger and better as it enters the new decade.
- Freshen Up Your Marketing
Have you ever given your house a new coat of paint? Well, consider giving your business one, too! Not literally, of course, but by freshening up your marketing techniques, clients and prospects will see you in a new light. For example, maybe it’s time for a new logo, more customer reviews to place on your site, or a new angle on your social media posts. Finally, give that old, tired website a facelift: add some new photos, offer a colorful promotion, or add new team members. Change is good and helps keep people (and Google search algorithms) interested.
- Enhance Your Product or Services
Nothing piques an individual’s interest like a new product! If you can, try to add a new product to your existing line. Or, if it makes more sense, simply add features to products you already offer. You have room to be creative here. Think about what your clients really want and try to give it to them.
- Meet with a Financial Advisor
Do you have a financial advisor? Now is the time to meet with him or her and discuss your future goals. Specifically, ask about new opportunities (i.e. investments) to grow your company’s revenue. Now—the start of a new year—is the perfect time to invest in new assets, get funding for new projects or ideas, and cut any unnecessary costs. You are in control of your company’s finances, so make sure money is going where you want it and need it to go. (And if we can help, let us know!)
- Update Your Organization Chart
Could you benefit from hiring a new employee or two? Maybe your company could prosper with the creation of a new position? It’s time to update your organization chart and see what your business needs to grow for 2020. You may discover that you need additional staff and/or a position to help things run more smoothly and effectively.
- Excite Your Team
Don’t forget to take care of your own! Remember, without your employees, where would your business be? Could you make it by yourself, without any help from staff? Therefore, remind your workers that you care for them and that they’re appreciated. The gesture can be as big or small as you want. For example, you could add an employee perk or benefit. Or, consider doing something small yet meaningful, like a team dinner or bonding event—anything to help show your employees that they’re more than just staff.
- Strategy, Strategy, Strategy
We’ve saved the best and most important tip for last: strategy. Remind yourself why you got into this business in the first place, as well as what your goals are and what you want to accomplish. Then, take a look at your current strategy. Will your strategy help you achieve those goals? If so, then great; you’re on the right track! But if not, then it may be time to rework that business strategy.
Think about what you need to do or change to reach those goals, and then work on incorporating them into your business plan. It could be you just need a minor tweak or two, or maybe your company requires a larger kind of shift. Either way, only you can determine whether or not your strategy is working.
It’s a new year—a new decade—and change is good! Let 2020 be the year that your business really takes off and grows. Now is the best time to accomplish all of your goals, and whether you use the list above or have ideas of your own to increase revenue, remember that only you can make a successful change happen.
Ever wonder why you’re so busy this time of year? As you probably already know, there are a lot of extra tasks needed to be completed for year-end. While much of it is required by the government, clean-up and adjustments are vital to keeping your books accurate.
Here are just some of the items that are performed at year-end:
- Just about every asset on your balance sheet needs to be verified in some way or other:
- Petty cash accounts need to be reconciled and reimbursed as of year-end
- Bank accounts need to be reconciled with the bank statements. This includes PayPal.
- Accounts receivable balances and all other receivables need to be tied to each customer and any amounts determined to be uncollectible need to be written off.
- A physical inventory count needs to be taken and the inventory account should be adjusted accordingly.
- Fixed assets need to be reconciled to their fixed assets ledger and depreciation should be properly recorded.
- Goodwill accounts need to be checked and amortization adjusted.
- Prepaids, deposits, and all other asset accounts need to be adjusted if necessary.
- Liabilities and equity need to be adjusted too:
- Accounts payable balances and all other payables need to be tied to each vendor.
- Credit card accounts need to be tied to the statements and reconciled.
- Liabilities that haven’t been recorded need to be added to the books.
- Loans need to tie to lender statements, and interest paid on loans needs to be properly expensed.
- The Equity accounts need to be checked and tied out to prior year balances.
- Corrections and adjustments need to be made:
- Any misclassifications and corrections need to be made on the books with adjusting journal entries or other classification tools.
- If the client is a cash-basis taxpayer, a reversing journal entry needs to be made to get the correct tax numbers.
- A clean set of reports can now be run and used.
- If you have payroll, employees need to be sent their W-2s before the end of January, and the federal and state government need a copy of the W-2s with a W-3 transmittal.
- For employees, you may also be required to have an up-to-date W-4 signed by them.
- For employers, your federal unemployment 940 return is due.
- If you have contractors, they need to be sent their 1099s before the end of January, and the IRS needs the 1099s and the 1096 transmittal.
- For contractors, you must also have an up-to-date W-9 form from them. You may also need to request an insurance certificate, or you may get a surprise at your workers compensation audit.
- For vendors who claim exemption from sales tax, you’ll need to be sure you have an exemption certificate in your files from them.
- If you pay sales tax annually, your return and payment are due.
- Your personal federal, state, and local income tax and returns are due in the spring, or they can be extended until later in the year.
- Depending on the type of entity your business is organized as, you may have franchise, federal and state tax returns to file. This deadline comes up sooner than the individual tax return due date.
- This is a good time to file and store your receipts in case you are ever asked for them. For long-term storage, thermal receipts should be copied or scanned in before the ink fades.
- This may be the perfect time to start thinking about paperless document storage!
We are often so busy this time of year because of all the extra work we must do over and above the normal monthly load. If you have questions about any of this, please reach out anytime.