Real-time Bookkeeping and Accounting Tailored for Growing Businesses

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In today’s rapidly evolving business environment, more than merely relying on innovation and agility is required to maintain a competitive edge; it necessitates real-time insights and data-driven decisions. Efficient bookkeeping and accounting are not mere administrative tasks for growing businesses but are strategic pillars for success. Real-time financial management empowers businesses to make informed decisions promptly, manage resources effectively, and adapt swiftly to market changes. By embracing real-time bookkeeping and accounting practices, businesses can comprehensively understand their financial health and position themselves for sustainable growth. Tailoring these practices to meet the specific needs of expanding enterprises further enhances their effectiveness, enabling businesses to navigate complexities and seize opportunities confidently. In this blog post, we delve into the significance of real-time financial management and explore how it can be customized to fuel the success of growing businesses.

The Need for Real-Time Insights

The need for real-time insights in financial management must be balanced, particularly in today’s fast-paced business landscape. Traditional bookkeeping and accounting methods, characterized by manual entry and periodic updates, are ill-equipped to meet the demands of rapidly evolving environments. While suitable for small businesses with limited transactions, these approaches falter when providing timely information crucial for decision-making.

Real-time bookkeeping and accounting offer a paradigm shift by providing continuous monitoring and instant access to financial data. This enables businesses to enhance decision-making processes significantly. With up-to-date financial information readily available, stakeholders can assess cash flow, evaluate performance, and identify growth opportunities promptly. Real-time insights empower business owners and managers to act swiftly and decisively, gaining a competitive edge in the marketplace.

Moreover, real-time financial management improves overall financial control and resource allocation. By tracking income and expenses in real time, businesses can proactively identify trends, manage cash flow effectively, and allocate resources optimally to support growth initiatives. This proactive approach enhances financial stability and resilience, mitigating risks associated with volatile market conditions.

Additionally, real-time accounting fosters adaptability, a critical factor for survival in today’s dynamic market landscape. Businesses can monitor market fluctuations, respond to emerging trends, and adjust strategies promptly based on real-time data. This agility enables businesses to stay ahead of the competition, capitalize on opportunities, and mitigate risks effectively.

In essence, adopting real-time bookkeeping and accounting practices represents a strategic imperative for businesses seeking sustainable growth and competitiveness. By leveraging real-time insights and tailoring them to their specific needs, businesses can confidently navigate uncertainties and capitalize on emerging opportunities in an ever-changing business environment.

Tailoring Solutions for Growing Businesses

While real-time bookkeeping and accounting benefits are clear, implementing these practices requires careful planning and customization, especially for growing businesses, without encountering common bookkeeping roadblocks. Here are some strategies to tailor solutions to their specific needs:

Scalable Systems:

When selecting accounting software, prioritize scalability. Opt for platforms offering flexible pricing and advanced features to adapt to growing transaction volumes and complexity. Scalable systems ensure your financial management tools can seamlessly expand alongside your business, preventing bottlenecks and inefficiencies as operations evolve. Investing in software that accommodates your company’s growth trajectory establishes a foundation for sustainable scalability, enabling smoother transitions and enhanced performance as your business flourishes.

Customized Reporting:

Customized reporting is pivotal for businesses, allowing them to develop tailored reports and dashboards aligned with their objectives. Personalized reports offer invaluable insights, whether it’s tracking key performance indicators (KPIs), monitoring departmental expenses, or assessing profitability by product lines. By providing relevant data in a format that suits decision-makers’ needs at every level of the organization, customized reporting enhances understanding and facilitates informed decision-making. It empowers businesses to identify trends, pinpoint areas for improvement, and capitalize on opportunities, ultimately driving efficiency and success.

Integration with Business Tools:

Integration with various business tools is pivotal for maximizing efficiency. Businesses create a unified ecosystem where data flows effortlessly across departments by seamlessly connecting accounting software with CRM platforms and inventory management systems. This integration minimizes manual errors, eliminates duplication of efforts, and enhances overall operational efficiency. For instance, sales data from the CRM can seamlessly sync with accounting records, providing real-time insights into revenue generation. Similarly, inventory updates can be automatically reflected in financial reports, facilitating accurate cost management. Such integration streamlines processes and empowers businesses to make data-driven decisions confidently.

Professional Support:

Collaborating with accounting specialists catering to growing businesses is invaluable. Their expertise aids in establishing robust accounting procedures, interpreting financial data accurately, and integrating best practices to foster business expansion. With their guidance, businesses can navigate financial complexities confidently, ensuring compliance and optimizing resource allocation. Partnering with seasoned professionals enhances financial management efficiency and empowers businesses to make informed decisions crucial for sustained growth.

Conclusion

In conclusion, adopting real-time bookkeeping and accounting through platforms like xendoo.com signifies a transformation in financial management for businesses. By embracing these practices and customizing them to their unique requirements, growing enterprises position themselves advantageously in the dynamic market environment. The advantages are diverse, ranging from the ability to make swift, data-informed decisions to enhancing financial control and adaptability. As technology progresses, prioritizing real-time insights becomes increasingly critical. Businesses that integrate these practices ensure their survival and pave the way for sustained growth and competitiveness. In essence, real-time financial management isn’t just a trend but a strategic imperative for businesses striving to thrive amidst constant change and uncertainty in today’s business landscape. Leveraging platforms like xendoo.com facilitates seamless integration of real-time financial data, further enhancing the efficiency and effectiveness of financial management processes.

What Is Net Income Formula and How to Use It

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a man reading a book about financial planning

Net income is one key metric that you can use to assess your business’s financial health. It is the bottom line on your income statement, also called a Profit & Loss Statement (P&L), and it tells you how much money you have remaining after deducting your costs and operating expenses from your total sales.

What Is Net Income?

Net income can be compared to “take-home pay” for an employee. It’s the amount of money remaining after taxes, insurance, and other expenses are deducted from your total pay or gross income.

Similarly, a business’s net income is the amount of money remaining after deducting all business expenses, including wages, interest, product costs, operation costs, and taxes. Net income, also known as the bottom line, net earnings, or net profit, appears at the bottom of income statements.

Net income as it appears on an income statement

Generally, a healthy, growing business will have positive net incomes and increase consistently. In other words, the more you increase revenue and decrease expenses, the healthier you are.

The net income or net loss of your business may also show up on your balance sheet as retained earnings. Retained earnings are the amount of money that is held (not distributed to shareholders) to sustain and grow the business.

How Do You Calculate Net Income?

The net income formula helps calculate the net income of either an individual or a business. 

Calculating net income is fairly straightforward for individuals. You take the total amount earned (gross income) and then deduct all expenses, such as interest payments and taxes. It is a little more complicated for businesses. 

Net Income Formula

Businesses can use the net income formula to calculate net income for any timeframe. There are two primary ways to calculate net income: revenue and expenses or gross profit and expenses. We’ll go over each net income formula and how to use them. 

Total Revenue

  • Total Revenue = Quantity Sold * Price – Discounts

Cost of Goods Sold

COGS is the cost of the product or the service being delivered. If you have a t-shirt company, it is the wholesale cost of the t-shirt, plus freight, labor, and printing costs.  If you provide consulting services, it is the cost of labor to provide the consulting.

Gross Profit

Gross profit represents the profit made on selling the product or service.  This provides insight into whether your pricing brings you the desired profit on each sale.

  • Gross Profit = Revenue – Costs of Goods Sold 

Operating Expenses

Operating expenses are running the day-to-day business, including advertising & marketing, rent, payroll, insurance, software, website, postage, auto expenses, meals, travel, and more.  These are the below-the-line (Gross Profit) costs.

Net Income

  • Net Income = Gross Profit – Operating Expenses

It’s important to note that net income can be a net loss. If your operating expenses exceed your gross profit, you have a net loss. When your operating expenses are less than your gross profit, you have a net income.

Often, when a business is in start-up mode, a net loss is not surprising.  Although a net loss has a tax benefit, it doesn’t lead to a sustainable or scalable company without further investment.

It’s also important to note that net income may include revenue that is not from your core business activities. For example, if your business owns real estate and rents out part of it or gains royalties from a past partnership, this is generally referred to as non-operating income. 

Business Net Income Example

Let’s look at a hypothetical business scenario to understand the net income formula fully. 

Marcus’ Archery, a company specializing in manufacturing and selling archery equipment, wants to calculate its net income for the fourth quarter. Here are the necessary figures to calculate net income from its accounts: 

  • Total Revenue: $20,000,000
  • Costs of goods sold (COGS): $8,750,000
  • Rent: $150,000
  • Utilities: $40,000
  • Payroll: $250,000
  • Advertising: $70,000
  • Interest expense: $70,000

According to the net income formula, Marcus’ Archery first needs to calculate Gross Profit. You would do this by subtracting the costs of goods sold, including direct labor costs, from the total revenue. 

  • $20,000,000 (Total Revenue) – $8,750,000 (COGS) = $11,250,000 (Gross Profit)
  • $150,000 (Rent) + $40,000 (Utilities) + $250,000 (Payroll) + $70,000 (Advertising) + $70,000 (Interest Expense) = $580,000 (Total Expenses)

Marcus’ Archery can now calculate its net income with all these results. You use the net income formula to subtract total expenses from gross income to do this.

  • $11,250,000 (Gross Income) – $580,000 (Total Expenses) = $10,670,000 (Net Income)

The fourth quarter’s net income for Marcus’ Archery is $10,670,000.

Cash Flow vs. Net Income

These are simplified explanations of how to calculate net income. However, net income does not equate to how much money is in the bank.  We often hear questions like, “I made $100,000 this year, but why don’t I have $100,000 in the bank.”  That is because cash flow is very different from net income

Factors like credit cards, business loans, owner’s payments, or investment income affect the money in the bank but aren’t factors in net income. You can learn more about cash flow vs. profit and how to use cash flow for decision-making in our blog. 

Individual Net Income Example

We focus on business bookkeeping and accounting at xendoo. However, looking at an individual net income example can help you better understand how it differs from calculating the net income for a business.

Let’s consider Nancy, an employee at a local ski shop. Nancy receives her paycheck every two weeks with gross pay of $4,500. She also receives $200 in interest and $600 in equity as her other forms of income.  

She then pays all her taxes, including: 

  • Social Security taxes ($279)
  • Federal taxes ($450)
  • State taxes ($163.91)
  • Medicare taxes ($65.25)
  • Insurance ($280) 

These are usually automatically deducted from your paycheck. After all these deductions, Nancy has a net income of $4,061. Here are the exact steps to calculate it. 

  • Gross Income – Total Expenses = Net Income 

For Nancy, the math would be like this: 

  • $4,500 (Gross Pay) + $200 (Interest) + $600 (Equity) – $279 (Social Security Tax) – $450 (Federal Tax) – $65.25 (Medicare Tax) – $163.91 (State Tax) – $280 (Insurance) = $4,061 (Net Income)  

Because Nancy’s gross income includes equity and interest, it totals $5,300. Based on her biweekly paycheck, Nancy has an annual net income of $105,586. 

What key financial insights can business owners gain from income statements and other reports?

Business owners have a valuable resource in income statements and other financial reports. These tools offer crucial insights into a business’s financial health and can guide decision-making to foster growth. Income statements, for example, give a clear view of cash flow, offering a snapshot of profitability over time. Analyzing these statements allows business owners to grasp net income, a key measure of financial well-being. Paired with balance sheets and visual reports, income statements provide comprehensive insights into a business’s financial standing.

These reports are indispensable for tracking revenue, expenses, and profits. They help identify patterns and areas ripe for improvement. Access to current financial data allows business owners to make informed decisions rather than relying on guesswork. Ultimately, these insights enable entrepreneurs to manage resources effectively, spot growth opportunities, and steer their businesses toward success.

 

How can financial statements, including income statements, help small businesses understand their financial health?

Financial statements, particularly income statements, are crucial in providing small businesses with a comprehensive view of their financial well-being. By analyzing income statements, small business owners can gain insights into various aspects of their financial health. These statements detail important financial indicators such as sales revenue, cost of goods sold, gross profit, operating earnings, and net profit. Income statements offer a clear breakdown of the money flowing in and out of the business, enabling owners to gauge their profitability and track overall performance. Through these financial snapshots, businesses can identify trends, pinpoint areas for improvement, and make well-informed decisions based on precise financial data. Understanding and utilizing income statements can ultimately empower small businesses to optimize their financial strategies and enhance their overall financial health.

How xendoo Can Help

Net income is critical for any individual or business’s financial health. The monthly income statement report details how effective the sales and operations process is at achieving financial success.

At xendoo, generating up-to-date net income reports is one of the many bookkeeping and tax services you can access from our organization. 

With xendoo, you get a team of real people and bookkeepers who dedicate their skills and expertise to your business’s or individual finances’ success. Additionally, we integrate our services with the best software to ensure all your accounts are accurate. Get started today to meet your dedicated CPA team and expert bookkeeper.  

 

 

Accrual vs Cash Basis Accounting: What is the Difference?

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Being a business owner comes with dozens of decisions, one of which is your accounting method. Although there are a handful of accounting methods, most business owners choose between two primary types: cash and accrual.

In this article, we’ll explore the main differences between cash and accrual basis accounting, helping you determine which method is right for your business.

What is Cash Basis Accounting?

Cash accounting recognizes revenue and expenses based on when cash is deposited or withdrawn from your bank account. This accounting method focuses on cash inflows and outflows, making it more straightforward for business owners just starting out.

Let’s say that you delivered a product to a customer on December 31, but don’t receive payment until January 2. If your year-end was December 31, the transaction would not be reported in income because the customer did not pay until the next year.

The simplicity of cash basis accounting makes recordkeeping easy for small businesses, closing out the year based on the bank statement. Furthermore, if your business is set up as a sole proprietorship or single-member LLC and you report all income or loss on Schedule C, you will use the cash basis of accounting.

What is Accrual Basis Accounting?

Accrual accounting is more complex, recognizing business transactions based on when contractual obligations are satisfied. To hold invoices and receivables not paid, accrual accounting uses accounts receivable and accounts payable accounts. Furthermore, the Financial Accounting Standards Board recently passed legislation that expanded revenue recognition under ASC 606. There are five steps to recognize revenue, including:

  1. Identify the contract with a customer.
  2. Identify each performance obligation, such as installation and ongoing support.
  3. Determine the contract price.
  4. Allocate the contract price to each performance obligation.
  5. Recognize revenue once each performance obligation is satisfied.

Let’s say that you have a contract with a customer with $50,000 for delivery and $25,000 for ongoing support. Once you’ve delivered the product, you’ve completed the performance obligation, which results in the recognition of $50,000 of revenue, even if the customer has not paid yet.

Since accrual accounting doesn’t record transactions based on your bank account, there is usually more work involved for your accounting team. Especially with recent legislative changes, revenue recognition under accrual accounting is subject to more scrutiny.

Comparing Accrual vs Cash Basis Accounting

Accrual and cash basis accounting have some stark differences. Let’s break down these differences, giving you the information needed to decide which one fits your company.

Approved by GAAP

The cash basis of accounting is not a recognized method under Generally Accepted Accounting Principles. This means if you need to issue formal financial statements to your lender or investors, you will need to report on an accrual basis.

However, this doesn’t mean that you can’t use the cash basis of accounting for internal reporting purposes, but you will have more work to convert your financials over to accrual for formal reports.

Insights into Financial Health

Accrual accounting leads to more transparency in your accounting system. If you report under a strict cash basis of accounting, how will you know how much money customers owe you? What about the amounts you owe to vendors? Without tracking detailed schedules, like the accounts receivable and accounts payable aging reports, you can lose track of your cash flow.

Financial health insights are indispensable if your business is trying to grow or improve cash flow. In fact, over 80% of small businesses fail due to poor cash flow. Reporting with accrual accounting helps you better manage transactions in your checking account, promoting strong cash flow.

Required Reporting

Sometimes, you don’t have a choice in which accounting method you use. Schedule C filers are required to use the cash basis of accounting. In addition, c corporations, certain manufacturing businesses, and businesses with an average annual revenue of $25 million over a three-year period are required to use accrual accounting.

Furthermore, if your business is required to issue certified financial statements, such as through a compilation, review, or audit, you will need to use accrual accounting. This is common when you take out financing from investors and financial institutions.

Tax Reporting

Since accrual and cash accounting have different procedures for recognizing income and expenses, your taxable income can vary between the methods. The cash basis of accounting gives you more flexibility in the timing of revenue and expenses. For example, if you receive a large check from a customer on December 31, but it doesn’t clear until January 1, that income will be deferred until the next year.

With the accrual basis of accounting, the check would be reported in income, regardless of when it clears the bank. It’s important to note that both accounting methods will result in the same taxable income eventually. However, the timing of transactions will differ each year.

Choosing Your Method

Which method sounds right for your business? By default, most businesses start out using the cash basis of accounting. For Schedule C filers, the cash basis of accounting is non-negotiable. On the contrary, business returns select their accounting method on the first filed tax return. The default method is cash accounting. Double-check your business return to see what you are filing as.

Some business owners also choose to utilize a combination of both accounting methods, known as modified accrual. In this hybrid method, revenues are only recognized when they are measurable and available. For example, if it’s too hard to assign a price to each contractual obligation, you might decide to recognize revenue when the entire contract is complete. Expenses take a different approach, being recorded on an accrual basis of accounting since they are always measurable when they are incurred. 

As your business begins to grow or you need to issue formal financial statements, switching to a full accrual basis of accounting might make more sense. To make the switch, you will need to file Form 3115 with your tax return. This will result in a change to your opening equity balance with either an income increase or reduction in the current year to convert your records over. Accounting method conversions can be complex, which is why it’s best to work with an expert throughout the process.

Getting Started

Whether you are looking for more information surrounding accounting methods or are ready to make the switch on your next tax return, reach out to xendoo today. We can help you navigate converting your accounting records and reporting accurate tax returns, as we have the expertise to manage all three types of accounting methods

Whether you are looking for guidance on cash accounting, accrual accounting, or a combination of both, our team at xendoo has you covered. Reach out today to schedule your free consultation. 

Standing Out in a Crowded Market: How to Differentiate Your Business in a Competitive World

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Undoubtedly, part of owning a business is understanding that you may face high competition and crowded industries. Knowing how to make your business stand out and what sets it apart from the competition is vital to keep it from fading into the background. In other words, you need to know what sets your business apart to sell. And once you figure that out, you’ve got to shout it from the rooftops.

 

What Exactly is a Differentiator?

The basic definition of a differentiator is a unique set of benefits that sets your business apart from your competition. Understanding what you are good at and highlighting those qualities shows your customers why you are worth putting above your competition and spending more on your product.

Overall, differentiators validate your customers in their purchase, and a person who feels confident in their purchase is more likely to continue purchasing from you in the future.

Types of Differentiators

Though understanding what you’re good at may sound easy, it can be tricky to figure out.

Your company can have many types of differentiators. Some of the more popular differentiation factors are based on the customers’ experience, the price of your product, or even your specialization for a specific target market or industry. Pricing your services effectively can also be a powerful differentiator.

Say your company’s differentiator is the experience you give your customers and the personality of your business. If you go above and beyond to give your customers a great experience when they are shopping, they’ll remember it. In the best-case scenario, they will tell their friends about how friendly your employees are and how great of an experience they had.

Another example could be your expertise in serving a very specific target audience. Say you own a marketing agency that specializes in serving law firms. When a law firm looks for a marketing agency, it’ll appreciate finding one with lots of experience in its field.


Questions to Ask to Help Identify Your Differentiators?

Having trouble putting your finger on what makes your business special? Don’t worry. We have some simple tips and tricks that can help you.

Ask yourself what you do that your competition does not.

This is a chance to do market research and analyze how your competition works. Take a look at how they’re advertising themselves. What do they highlight most? What don’t they talk about? Next, list everything your business does that others aren’t talking about (or that you know they don’t do well). Then, write down a list of all the ways you overlap with your competition. Writing down your similarities and differences is a quick and simple exercise that can have long-term benefits and lead to a quick conclusion about your differentiators.

 

Ask yourself what your customers get from choosing your business. This is another way of saying you must be familiar with your customer’s experience.

Customer experience: The interaction between a business and a customer over their entire relationship.

Map out your company’s entire customer journey. What happens from the first time they hear about your brand through when they become happy, loyal customers? Putting yourself into your customer’s shoes shows you what they’re experiencing as they engage with your business and what benefits they see. From here, you can ask yourself:

What type of customers do you help?

What are your customers happiest about?

 

Still Having Trouble? Go Straight to the Source

Asking your loyal customers what benefits they get from your products or services may be the easiest way to determine your differentiators. Going straight to the source gives you a foolproof and immediate answer that helps you avoid making educated guesses.

You might ask them:

  1. Did you meet their expectations?
  2. Where did you exceed their expectations?
  3. Why did they choose you over your competition?
  4. What do they like about your business?

 

Got Your Differentiators? Now Brag About Them

Knowing how to use your key differentiators is just as important as determining them. Communicating these with your current and potential customers will help them understand how you will help them and what your business stands for. This starts by living and breathing your differentiators. Ensure everyone on your team knows what your business stands for and how you want to portray that through them.

 

The best part of understanding your differentiators is you can use them in your marketing strategy. A solid marketing plan will be useful when capitalizing on your company’s strengths. Highlight these differentiators when creating ads, posting on social media, and talking about your brand, which will let people know what you stand for and offer them. Also, a well-executed marketing strategy will give you a competitive advantage in your industry.

Overall, the real importance of differentiation in your business is to stand out and let your customers know what they are getting when using your product. Every few years, you must take a step back and reevaluate the importance and relevance of your company’s differentiators. They might change or stay the same, but keeping them core to your business can put you above your competition.

 

About xendoo

We share your passion for small businesses and are inspired by your dedication to making your dreams a reality. That’s why we’re committed to providing you with the financial visibility and support you need to thrive.

More Than Just Numbers

It’s more than simply crunching numbers. It’s about building meaningful relationships with our clients and understanding their needs. Our people-first mentality ensures you receive personalized attention and expert guidance throughout your financial journey.

A One-Stop Solution

xendoo offers a comprehensive suite of services, including:

  • Full-service bookkeeping and accounting team to free up your time and resources.
  • Hassle-free tax preparation and filing 
  • Fractional CFO Services to work with you on a  roadmap of future growth
  • A dashboard that provides real-time financial insights

Passionate about your success? xendoo is, too. We provide the financial visibility and support small businesses need to thrive and scale. Let us handle the financial burden so you can focus on what matters most – running your business and achieving your goals.

Contact xendoo today and discover how we can give you time back to grow your business.

 

 

Funding for startups: A guide to getting capital for your business

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funding-for-startups

Getting funding for your startup business is one of the most important decisions you’ll make as a business owner. The type of startup funding you choose will have long-lasting impacts including: 

  • How you structure your business and file taxes
  • What percentage of ownership or equity you and your investors get
  • How much profit your business generates and how much you keep
  • What type of bookkeeping and accounting services you need

Startup funding can cover the initial costs of setting up and running a company. It can also help you continue to grow years after you’ve launched. 

Most startups seek funding to help them reach their goals faster. For example, you might need startup funding to: 

  • Buy or repair equipment 
  • Hire additional employees 
  • Expand your business into new markets
  • Invest in new projects or products

This article will dive into funding for startups of all sizes and stages and provide guidance on choosing the best option for you.

Types of startup business funding

The type of startup funding you choose should align with your goals and strategies. There are three primary types of funding for startup businesses:

  • Self-funding
  • Loans
  • Investors 

Let’s look at the types of funding for startups in more detail to help you decide which fits your needs. 

1. Self-funding 

Self-funding, also called bootstrapping, is when you use personal funds and savings or borrow money from friends and family to fund your startup. 

Unlike other options on this list, self-funding usually comes with fewer risks. You don’t have to worry about paying off high-interest loans or giving up control to outside investors. Without investors, you retain control over how you run your business and its future direction. 

You also retain all the profits and debts. So, if your business fails, you could end up losing your personal savings. Many startups begin with bootstrapping but eventually need to raise funds to support their growth. Additionally, if your business model has high startup costs, it’s more difficult and risky to fund on your own. 

For example, businesses in the food and accommodation industries have the third-highest startup costs on average. Large-scale restaurants, breweries, casinos, and hotels generally need additional funding for real estate, equipment, and labor. 

2. Small business loans

A small business loan is a form of debt financing. You borrow money from banks and other lending institutions. Like self-funding, you retain ownership of your startup business. 

However, there are risks with this type of startup funding. As with any other loan, a small business loan comes with interest rates. 

Interest rates can strain your finances if they too are high. Additionally, a small business loan requires regular monthly repayments, which can impact your cash flow.

There are several types of loans for small businesses and startups. Also, business loans have various requirements that often include personal and business credit scores. If you’re borrowing higher amounts (over $50,000), you may need to show: 

  • Annual revenue and cash flow
  • Years in business (some require two years minimum)
  • Business plan 
  • Financial statements (balance, profit and loss, etc.)

Types of business loans

 

Traditional business loans Banks and other financial institutions offer business loans of varying amounts and interest rates. They also have specific requirements you must meet to be eligible.
Microloans Smaller loans less than $50,000. Six years is the maximum time to repay an SBA microloan. Interest rates are usually between 8% to 13%.
Small Business Administration (SBA) loans The most common are the 7(a) loans or general-purpose loans. SBA’s 504 loans are for purchasing fixed assets like real estate and equipment.
Lines of credit (LOC) Flexible loans you draw from when you need capital—you pay interest only on the amount you use.

3. Grants 

Small business grants are free money given to individuals, businesses, and non-profits. Unlike loans, you don’t have to repay them. 

Grants are one of the best sources of funding for startups. However, they come with specific conditions and requirements.

Startups must align with certain goals and objectives, such as advancing a particular industry or contributing to community development. Additionally, applying for grants can be lengthy and time-consuming. They often require a solid business plan, detailed financial projections, and rigorous documentation. 

Nonetheless, they’re particularly beneficial during the initial stages, especially if other funding options aren’t available or are too risky.

Government agencies, corporations, and entrepreneurship organizations provide thousands of grants. You can search for federal grants on the website: Grants.gov. There are specialized grants for women, veterans, and minorities. Other resources to search for business grants include: 

Several large companies fund small business grants. Here are a few examples:

Grants Award amount
She’s Connected by AT&T $20,000
Amazon grant $15,000 to $25,000
Venmo grant Up to $10,000
FedEx Up to $30,000

4. Crowdfunding

Crowdfunding is when you raise capital from a large pool of individuals. Primarily, business owners crowdfund through online platforms like Kickstarter or Indiegogo. 

It’s particularly useful when your startup has a compelling story or mission that people can connect with emotionally. 

There are several types of crowdfunding, including donation, rewards-based, debt, and equity. Rewards-based crowdfunding is the most common, and what you see on Kickstarter. Equity crowdfunding is regulated. Platforms like Republic and WeFunder help founders raise money, but there is a rigorous application process. Entrepreneurs may also need to present finances and pitch.  

republic startup funding

The type you do will impact your company and crowdfunding platforms usually take a percentage of the funds you raise.

Types of crowdfunding

 

Type What it means
Donation Individuals give money with no strings attached
Rewards-based You give supporters certain rewards like the product or service you’re launching in exchange for their funds.
Equity When you raise capital from individual investors for a private business in exchange for unlisted shares (equity).
Debt Also called peer-to-peer lending, debt crowdfunding is when individuals loan money in exchange for repayment with interest.

5. Angel investors

An angel investor is a high-net-worth individual who provides startup funds or working capital, usually in exchange for equity or convertible debt. Angel investment usually provides funding when your startup is too new or risky to attract venture capital. Angel investors are typically willing to take on more risk than traditional lenders. 

These individual investors invest in the potential of the startup founder and business, with the understanding that many startups fail, but the few companies that succeed offer significant returns.

6. Venture capitalists

Individual venture capitalists (VC) or firms fund startups that have high-growth potential in exchange for an ownership or equity stake. Like any funding method, venture capital has advantages and disadvantages. 

VCs bring more than money to the table. Ideally, they’ll have extensive experience in your industry. They may provide valuable advice and connections that help you run and grow your startup. 

You’ll share a percentage of your profits and potentially lose some control over business decisions. 

Additionally, venture capital firms may expect high investment returns within a relatively short timeframe. Partnering with the wrong VCs can pressure your startup to grow rapidly and prioritize short-term gains over long-term stability.

Venture capitalists typically invest in a business during the early stages (Series A and B funding rounds). Investing in early-stage companies may be riskier, but if a business succeeds, the return on investment can pay off.

7. Startup funding rounds

Startup funding rounds are stages in the lifecycle of a startup where you raise capital from external investors. These rounds provide the financial fuel to help your startup grow and move toward profitability. 

Here’s a brief overview of what each round entails:

Startup funding round What it is Median amount 
Pre-seed  The earliest stage of informal funding when you pool funds from your own savings or from friends and family. You may use these funds to do market research and develop your product. Not available
Seed funding Seed funding helps you get your business off the ground. 
It’s the first official stage of funding. You may get funding from angel investors or close friends and family in exchange for convertible debt or a percentage of ownership (ideally less than 10%) of your company. 		 $2.3 million
Series A This is the first major series of external, equity-based funding for a startup. Usually, your business will have traction and a proven business model or demand. $12 million
Series B  At this stage, you have a well-established product and a significant user base. The funding you get is for business development, increasing market share, and achieving broader market expansion. $25 million
Series C (and beyond) Rounds are for if your business is already successful and wants to expand, innovate with new products, or acquire other businesses. Series C and further funding rounds often involve private equity firms, hedge funds, and other institutional investors. $42 million

Data source: Crunchbase

8. Incubators and accelerators

Incubators and accelerators are programs that support startups. They differ based on the stage of the startup and the type of support they offer.

Incubator programs support companies at the earliest stages. They help you develop your idea by providing resources such as office space, legal guidance, and access to a network of industry professionals.

Accelerators support more established companies looking to scale up quickly. These programs are usually time-limited. They run for a few months, during which startups receive intense mentoring, education, and networking opportunities.

Often startup incubators and accelerators are used interchangeably. 

Here are some examples: 

Keep in mind that these have a rigorous application process that includes financial projections and pitches. 

What you need to know before getting startup funding

Before you embark on the journey of securing startup business funding, there are several factors you need to consider:

  • Understand your business needs: You should know how much funding you need and what you will use it for. This includes knowing your operational costs, projected growth, and future financial needs. Working with an accounting service or virtual CFO with startup experience can help. They’ll be able to pull together many of the necessary financial documents.
  • Evaluate funding options: Before moving ahead with startup funding, you must first understand the pros and cons. Funding has lasting impacts on the future of your business so it’s not a decision to take lightly.
  • Prepare a business plan: A comprehensive business plan is a requirement for some types of startup funding. It should include details about your business model, market analysis, sales and marketing strategies, and financial projections.

Get support for startup funding 

Securing startup funding is a pivotal process that can significantly influence the trajectory of your business. Seeking professional advice is not just recommended—it’s essential. 

xendoo can give your startup the financial expertise and support it needs during the funding process. 

We provide CFO services, bookkeeping, accounting, and tax preparation for growing businesses. With a team of financial experts in your corner, it’s easier to provide a clear and accurate picture of your finances for potential funding. Investors and lenders will expect to see balance sheets, income statements, and more. A bookkeeper or accountant will help you prepare with organized, accurate financials.

Need a bookkeeper, accountant, or CPA? Schedule a call to learn more about how xendoo can help your business, whether you’re funding a startup or need ongoing bookkeeping and accounting.

FAQs

How much do you need to fund a startup?

How much funding your startup needs varies based on your industry and business model. However, successful startups generally need between a few thousand dollars to millions for the first year. Create a detailed business plan to estimate your specific needs accurately.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

Best business banks of 2023

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The biggest rule of thumb when running a company is to keep your personal and business finances separate. To do that, you need to choose the best business bank for you, which may not be the same one you use for your personal finances. 

Business bank accounts have different terms and benefits than personal accounts. As an online accounting service, xendoo works with many companies and business banking services. 

The best business bank for you depends on your particular needs. But there’s much more to consider. Some banks are stronger in commercial lending, while others have stronger lines of credit. 

We’ll compare the best business banks and their features to help you decide which options are right for you. Review each bank’s rates and services to determine which suits your needs.

  1. Wells Fargo
  2. Chase
  3. Bank of America
  4. Mercury (for global and online-specific companies)
  5. Citibank
  6. Capital One
  7. PNC
  8. US Bank
  9. TD Bank
  10. Cogent Bank (or similar regional banks)

How to choose a bank for your business

Choosing a bank is a big decision in your business journey. However, there’s no one-size-fits-all business banking solution. Factors like your monthly revenue, number of cash payments, and company structure (LLC, S corp, C corp, etc.) will influence which features you need most. You may also want to get startup funding or a loan from the same place you do your banking.

Although these factors may vary, there are some criteria all companies should look at when choosing a banking partner. Here are the features we looked at to evaluate the best business banks.

View-only access, wires, and online banking

As a baseline, all business banks must have robust technology to support VOA (view-only access), wires, and online statements. You can share view-only access to your bank statements with bookkeepers, accountants, and other trusted financial partners. They’ll only be able to view, not make changes to, the data they need to record and manage your finances.

Fees and costs

Some banking services come with fees and financial requirements that might not be obvious at first. Common banking fees include: 

  • Transaction limits and fees 
  • Monthly account maintenance fees
  • Deposit limits and fees

Opt for a bank that provides transparency in its fee structure and offers the best value.

Annual Percentage Yield (APY)

In simple terms, APY is how much an account can earn in a year through interest. However, it’s not the same as interest rate because it also includes compound interest. 

For example, let’s say you open an account with 1% APY and your first deposit or principal balance is $20,000. Then, every month you deposit another $20,000. Instead of only earning interest on the original amount, compounding interest factors in the updated account balance.

In-person locations

If you run an online business and rarely have cash transactions, a bank with in-person locations might not be a priority for you. Instead, it might be more convenient to look for online banking solutions.

If you have cash transactions, which is common with franchises, retail stores, and restaurants, physical bank locations are more important. You might need to make frequent cash deposits and prefer in-person service.

10 Best business banks 

Whether you’re considering switching banks or starting a business checking account for the first time, you can compare features, fees, and more below.

1. Wells Fargo 

Best for: Companies that want loans, business checking, and in-person banking.

Wells Fargo is one of the oldest banks in the United States. However, its reputation has taken some hits in recent years. But, that also means that it is under heavy scrutiny from regulators and is focused on regaining consumer trust. 

  • Monthly fee: $10-$75 per month
  • Minimum deposit requirement: $25​​
  • Transaction limit: 100-250 monthly
  • Deposits: $5,000-$20,000 fee-free cash deposits
  • APY: None
  • Member FDIC: Yes
  • ATMs: Over 12,000 ATMs in 40 states

Overall, Wells Fargo has a huge physical presence, which might be a fit if you value in-person banking. But, its past actions and high fees for overdrafts, transactions, maintenance, and more make it less than ideal. 

Pros Cons
Physical locations in over 40 states High monthly fees and other costs
You can open an account online No free checking accounts

2. Chase

Best for: Companies of all sizes that want a wide range of business and personal financial services (checking, savings, financing, mortgage, etc.)

Chase offers many types of business banking accounts to suit different business sizes and needs. Let’s take a closer look at each in the comparison below.

  Business Complete Banking Performance Business Checking Platinum Business Checking
Monthly fee $15 (waived with $2,000 minimum balance) $30 (waived with a $35,000 minimum average balance) $95 (waived with a $100,000 minimum average balance)
Minimum deposit requirement Not available Not available Not available
Transaction limit 20  250  500 
Deposits  Unlimited electronic $5,000 free cash deposit limit Unlimited electronic$20,000 free cash deposit limit  Unlimited electronic $25,000 free cash deposit limit
APY No No No
Member FDIC Yes Yes Yes

Chase has locations in over 29 states and over 16,000 ATMs. It might be convenient if you need in-person banking and already have a personal banking account. 

chase

If you have a lot of monthly transactions or don’t want to worry about banking fees, then Chase isn’t the best business bank for you. 

Pros  Cons
Multiple checking account options to suit different business needs Monthly fees, but they are waived if you meet the account balance threshold
Wide network of branches for in-person service No APY for business checking 

3. Bank of America

Best for: Businesses that have large, monthly cash deposits and need in-person services.

Bank of America has two business banking accounts: Fundamentals and Relationship. The Fundamentals account is more suitable for small-to-medium businesses while Relationship is for larger enterprises.

bank of america

Each account has various fees and requirements. Here’s the breakdown for the Fundamentals account: 

  • Monthly fee: $16 (waived with $5,000 monthly account balance)
  • Minimum deposit requirement: $100
  • Transaction limit: 200 per month 
  • Deposits: Free up to $7,500 and a .30 charge per $100 over
  • APY: Not available
  • Member FDIC: Yes
  • ATMs: Over 4,500 locations and ATMs
Pros Cons
One of the largest and most established banks  Complicated monthly fees and requirements can mean more expensive banking costs
Branches and ATMs all over the country for in-person banking and cash deposits  

4. Mercury 

Best for: Growing global and online-only startup businesses. 

One of the reasons why xendoo partners with Mercury is that it’s tech-enabled banking at its finest. Compared to traditional banking platforms, it has an incredibly, user-friendly interface.

It has an API, so businesses can integrate other financial tools and services they use. For example, you can connect bookkeeping, payments, payroll, and more to your Mercury business banking account. This way, it’s easier to keep track of and manage your finances. 

mercury

It also has Mercury Raise, a program that helps connect startups with investor funding. 

You can sign up for a business banking account in 10 minutes. 

They also have a non-traditional approach to business loans with Mercury Venture Debt. If your startup has raised venture capital (VC) funds in the past year, you could be eligible. Instead of looking at cash flow and other financial indicators, it looks at your investment team.

  • Monthly fee: $0
  • Minimum deposit requirement: $0
  • Transaction limit: Unlimited, including savings account
  • Deposits: Unlimited
  • APY: Up to 5.10% yield with Mercury Treasury (as of writing)
  • Member FDIC: Yes (up to $5 million)
  • ATMs: Not available
Pros Cons
Free checking and savings accounts No cash deposits
Helps startups with funding through Mercury Raise and its Venture Debt loan program. It doesn’t accept some businesses (i.e. cannabis or businesses with many cash transactions)
No overdraft fees  
You can connect bookkeeping, accounting, payments, and other tools  

5. Citibank

Best for: Businesses that maintain a high monthly balance to avoid fees. 

Citibank has also been around for a long time, so it has all the basic business accounts and some extras. It has several options for business checking accounts as well as savings accounts, credit cards, loans, and more. 

However, it doesn’t have a free checking option. There are monthly fees unless you maintain an average monthly balance over $5,000 to $10,000, depending on the account you use. 

  • Monthly fee: $15-$30
  • Minimum deposit requirement: $1
  • Transaction limit: Limited free transactions (250-500 depending on the account)
  • Deposits: $5,000-$2,000 free cash deposit limit
  • APY: Not available
  • Member FDIC: Yes 
  • ATMs: 2,300 ATMs
Pros Cons
Full suite of business services  All business checking accounts have fees (some are waived with a monthly balance)
  Must open an account in-person at a local branch

6. Capital One

Best for: Small businesses that want to build credit and make many purchases with a credit card.

Capital One is most known for its credit cards. However, it also offers personal and business banking services. There are two checking account options: Basic and Enhanced. 

capital one bank

One drawback is that each account has monthly fees. Capital One waives them for account balances that average $2,000-$25,000 or more in the last 30 to 90 days. Its basic account also has fees for monthly cash deposits over $5,000. Then, you’ll pay $1 for every $1,000 over. 

  • Monthly fee: $15-35 
  • Minimum deposit requirement: $250 
  • Transaction limit: Unlimited
  • Deposits: Unlimited
  • APY: Not available
  • Member FDIC: Yes
  • ATMs: Over 70,000 through Capital One, MoneyPass, or Allpoint
Pros Cons
Business credit cards that offer cash back, travel, and other rewards No free business checking
Business cards integrate with Quickbooks, Xero, and other accounting software Monthly fees and cash deposit limits

7. PNC

Best for: Small business owners that don’t have more than X transactions each month. 

PNC has a wide range of banking account options. For example, it has specialized accounts for non-profits and law firms. Most organizations, however, will choose from two primary checking accounts for businesses. Here’s a comparison of the features for each.

  Checking  Plus
Monthly fee $12 (waived with a $500 minimum monthly balance) $22 (waived with a $5,000 minimum monthly balance)
Minimum deposit requirement $100 $100
Transaction limit 150  500
Deposits  $5,000 cash deposits $10,000 cash deposits
APY No No
Member FDIC Yes Yes

PNC has over 2,500 locations and 9,000 ATMs. It has a decent mobile app and in-person services. However, you must go to a PNC location to open an account. Also, some fees like overdraft costs and a monthly fee for direct integrations with Quickbooks and other software can add up. 

Pros  Cons
Wide selection of business accounts to choose from, including industry-specific ones A monthly fee for some software integrations
Strong mobile app  Lower cash deposit and transaction limits
In-person banking services Monthly fees, but they’re easy to waive

8. US Bank

Best for: Startups that are also interested in easy loans and lines of credit.

US Bank has several business checking account options, including specialty ones for non-profits. Here are the three most popular options and a comparison of each.

  Silver Gold Platinum
Monthly fee $0 $20 $30
Minimum deposit requirement $100 $100 $100
Transaction limit 125 300 500
Deposits  $2,500 free cash deposits $10,000 free cash deposits $20,000 free cash deposits
APY No No No
Member FDIC Yes Yes Yes

US Bank has over 4,000 ATMs and branch locations in 26 states. It also offers many business loan options, including SBA and Quick Loans. Quick Loans focus on growing businesses with equipment, vehicle, and other purchases.

Pros Cons
Includes a wide range of business checking and loan options Its checking account terms can be difficult to compare 
Offers merchant services like payment processing and point-of-sale options for a fee Monthly deposit limits are low with a complex tracking method 

9. TD Bank

Best for: Small businesses that want 24/7 support and more flexible in-person banking hours.

TD Bank has all the bells and whistles you need for a business checking account including mobile deposit, online bill pay, and ACH transfers. You can also apply for loans or lines of credit, but there is a vetting process.

However, like most established banks, it has a monthly fee, so you could be charged if your account doesn’t meet the average monthly balance requirements. 

  • Monthly fee: $10-35 
  • Minimum deposit requirement: $250 
  • Transaction limit: 200-500 free transaction limit
  • Deposits: $5,000 cash deposit limit for most accounts
  • APY: 0.05% APY for a business interest-bearing account
  • Member FDIC: Yes
  • ATMs: A few hundred (mostly on the east coast) 
Pros Cons
Interest-bearing checking account options No free business checking accounts
Some banks are open weekends and Sundays  It’s mainly located on the east coast 

10. Cogent

Best for: Best bank for local small businesses with complex regulation and banking needs. 

Cogent Bank stands out with its commitment to providing customized services. For example, many big banks don’t offer accounts to cannabis companies because of the regulation. However, Cogent provides banking to cannabis and other industries with complex financial needs like blockchain and healthcare. 

Another feature that sets Cogent apart is its Insured Cash Sweep® (ICS) service. It splits deposits that are over $250,000—the FDIC-insurable limit—into smaller chunks and sends them to member banks. You get interest-bearing and FDIC-insured cash deposits without the trouble of setting up and managing multiple accounts.

You can open a business banking account with Cogent online within minutes. Most will choose between two checking account options.

  Business Checking Business Edge Checking
Monthly fee $0 $50 (waived with $50,000 average monthly balance)
Minimum deposit $0 $0
Transaction limit 200 transactions per month 500 transactions per month
  • Monthly fee: $0 for business checking
  • Minimum deposit requirement: $0
  • Transaction limit: 200-500 transactions per month with a $0.50 charge per transaction over the limit
  • Deposits: Same as transactions
  • APY: None
  • Member FDIC: Yes
  • ATMs: 8 Florida locations
Pros Cons
Customized banking solutions  Transaction limits
Experience in highly-regulated industries  

There are many business banking options, which can make researching all the features and choosing one a daunting task. Ultimately, the best business bank for you should offer a range of features with few banking fees. 

FAQs

Which bank is best for a business account? 

The best bank for a business account varies based on your specific business needs. Low fees, high APY, and a range of business-oriented services like merchant services can influence this decision. Researching and comparing the terms of each can help you make the right choice.

How are business and personal checking accounts different?

Business and personal checking accounts differ in terms of fees, transaction limits, and additional services. Business accounts cater to higher volume transactions and provide access to business credit. They also make it easier to manage payroll, invoicing, accounting, and more.

What banks offer free business checking accounts?

Many banks offer free business checking accounts, though conditions may apply. Banks such as Mercury, BlueVine, and Grasshopper Bank provide free checking options, but you should review each bank’s specific terms and conditions, including minimum balance requirements and transaction limits, to ensure it suits your business needs. Many other banks will also waive monthly fees if you meet certain criteria.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

LLC vs. S corp: Which is right for your business and taxes? 

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One of the most important decisions for business owners is which type of business entity to form. Your business structure impacts your tax savings, accounting practices, and how you pay yourself. 

Examples of business structures include: 

  • Sole proprietorship
  • Partnership
  • Limited liability company (LLC)
  • S corporation (S corp)
  • C corporation (C corp)

Businesses often weigh the pros and cons of forming an LLC vs. S corp. xendoo does online accounting, bookkeeping, and taxes for businesses, so it’s a question we answer frequently. 

In this article, we’ll explore the differences between an LLC vs. S corp, and help you decide which structure is best for your business.

Why your business structure matters

Choosing the right business entity is crucial for several reasons, including:

  • Liability protection: Some business types provide legal protection for your personal assets, while others don’t. For example, sole proprietorships are unincorporated businesses without personal liability protection. A sole proprietor is responsible for the business’s debts and liabilities.
  • How you pay yourself: With some LLCs, you can pay yourself by withdrawing funds from an owner’s draw. In others (like corporations), you’ll need to pay yourself a salary.
  • Tax classification: Your structure impacts how you file taxes, the amount of taxes you owe, and which tax deductions you can claim.
  • Ability to raise capital: Some entity types have many options for raising capital, while others are very limited.

What’s the difference between LLC vs S corp?

Overall, LLCs have a more flexible structure, while S corps can save money on taxes in the long run.

The biggest differences between LLCs and S corps are ownership, taxes, and management structure. Here’s a breakdown of each.

  LLC S corp
Ownership No restrictions on the number of members or their citizenship status. Must be 18 years or older. Limited to 100 shareholders who must be US citizens or resident aliens.
Taxes Taxed as a pass-through entity. Subject to self-employment taxes. Taxed as a pass-through entity. Saves on payroll taxes by paying owners a salary and distributions.
Management structure May choose between member-managed or manager-managed Managed by shareholders and officers 
Reporting Most states require filing annual reports along with an annual reporting fee or tax More complex reporting requirements than LLCs. Must file yearly reports and documentation with the state

Below, we’ll look at LLCs and S corps in more detail to help you decide which is the best option for your company. 

What’s an LLC? 

A limited liability company (LLC) combines the liability protection of a corporation with the tax benefits and flexibility of a partnership. 

The key points to know about operating as an LLC are:

  • Limited liability companies are separate legal entities from their owners (called members). This limited liability protects the members’ personal assets from the company’s debts.
  • LLCs have a flexible tax structure, with the option to pay taxes as a corporation or as a pass-through entity. 
  • There are no restrictions on the number of LLC owners. 
  • Members usually pay themselves through distributions, following the guidelines set in their operating agreement.
  • The specific requirements to form an LLC can vary depending on the state where your form your LLC.

Requirements for an LLC generally include:

  • Choosing a unique business name.
  • Naming a registered agent, who’ll accept legal documents on behalf of the LLC.
  • Filing articles of organization with information such as the LLC’s name, purpose, address, duration, management structure, and members. 
  • Paying taxes and fees based on the state requirements.
Advantages of LLCs Disadvantages of LLCs
Protects the owner’s personal assets Subject to self-employment tax, meaning a possible higher tax bill
It’s a pass-through entity, so you include business income on your personal tax return. This way you avoid double taxation (where the corporation and shareholders pay tax on the same income). Fewer options for raising capital compared to corporations
Offer greater flexibility in management and ownership structure The multi-member structure can become complex

How LLC taxes work

LLCs don’t pay corporate income tax. Instead, they pass through their tax liability to the business owners. In an LLC with multiple owners, each owner includes their share of the company profits and losses on their personal income tax returns.

However, LLCs have the option to choose a corporate taxation structure with the IRS. Choosing a corporate tax structure can be an advantage for high-income-earning LLC members. 

In an LLC with a corporate tax structure, the LLC would file a corporate income tax return and pay the corporate tax rate instead of passing the liability on to the members. 

LLC ownership

LLCs have a very flexible ownership structure, with the only requirement being that members need to be at least 18 years old.

An LLC can have one or multiple members, with no maximum number of members. Also, owners can be individuals, corporations, other LLCs, or foreign entities.

LLC management structure

An LLC provides its members with more flexibility than an S corp. There are two types of LLC management structures: member-managed and manager-managed. 

In a member-managed LLC:

  • Each member has the authority to make decisions on behalf of the LLC.
  • Each member has the responsibility to play an active role in the management and operation of the business.

In a manager-managed LLC:

  • One or more individuals act as the LLC manager. 
  • Only the manager has the authority to manage the company.
  • The manager can be a member or a non-member. 

Unlike in a member-managed LLC, members of a manager-managed LLC can’t make decisions on behalf of the company. Members also can’t interfere with the LLC manager’s operational decisions.

Most LLCs include their management structure with their articles of organization.

What’s an S corp? 

An S corporation is a corporation that chooses to pass its tax liabilities and tax credits to its shareholders for federal tax purposes. 

An S corp is a tax classification. It offers the same personal liability protection as a traditional corporation without a corporate income tax.

Most S corps start as traditional corporations (called C corps). To avoid double taxation, or for other reasons, corporations can file an S corporation election with the IRS. However, not all corporations meet the requirements for an S corp status.

Advantages of S corps Disadvantages of S corps
Provides limited liability protection for shareholders Ownership restrictions, such as 100 members max and only one class of stock
As a pass-through entity, it’s not subject to corporate income tax Must pay a salary to shareholders
Can save on employment taxes by paying shareholders both a salary and dividends Complex tax filing requirements

How S corp taxes work

S corps pay taxes as pass-through entities. Instead of paying the corporate tax rate, shareholders report their share of income and losses on their personal income tax returns.

S corps need to pay their shareholders a reasonable salary and withhold employment taxes like Social Security and Medicare (roughly 35% to 40% of the shareholder’s total take). They can also pay out dividends to shareholders from the company’s remaining profits.

This distribution would not be subject to employment taxes which would equate to a 15.3% tax savings. It can help companies save money on income taxes in the long run while avoiding double taxation.

S corp ownership

To qualify for S corp status, the corporation must meet the following requirements: 

  • Be a domestic corporation
  • Have only allowable shareholders (individuals, certain trusts, and estates)
  • No more than 100 shareholders
  • Only one class of stock
  • Not be an ineligible corporation (certain financial institutions, insurance companies, and domestic international sales corporations)

S corp management structure

S corps have specific requirements regarding their management structure. An S corp must have shareholders and officers.

  • Shareholders: Owners of the company 
  • Officers: Manage the day-to-day operations of the company

Shareholders can play a dual role by choosing a shareholder-officer position, instead of hiring officers.

Some companies also have a board of directors, but it’s not mandatory. If the company has a board of directors, the shareholders typically elect them. 

S corps must also follow certain corporate formalities, including holding annual meetings and maintaining proper records of company activities. Regulations vary by state, but they usually include recording meeting minutes. 

How to choose between an LLC or S corp 

Choosing between an LLC and an S corp depends on various factors, including your business goals, structure, and tax considerations. Below are some guidelines to help determine the right one for you.

When to choose an LLC

Choose an LLC when you want:

  • A more flexible and less formal business structure
  • Fewer administrative requirements
  • Greater flexibility in management, ownership, and profit distribution
  • Flexible payroll requirements

Small businesses and startups that need operational flexibility would operate best as an LLC.

When to choose an S corp

Choose an S corp when you want:

  • A corporate legal business structure without being subject to double taxation
  • Potential tax advantages, particularly if you’re a business with substantial profits
  • Consistent income and benefits for owners while enjoying the tax advantages of pass-through taxation
  • To attract outside investors for rapid growth

Growing, high-income earning companies can see potential tax advantages from choosing an S corp status.

Choose the best entity type for your business

If you’re unsure which entity type to choose, you can use a tax service like xendoo.

Our in-house CPAs can help save money on taxes, outsource your bookkeeping, or get personalized advice like choosing between LLC vs. S corp.

FAQs

Which is better for taxes: LLC or S corp? 

The answer depends on your specific circumstances. However, an S corp can provide potential tax savings for businesses with higher profits because they allow for structured tax planning and savings.

LLCs may be more advantageous for businesses with lower profits or companies that need flexible operational and payroll requirements.

Why choose an S corp over an LLC?

An S corp can offer tax savings by potentially reducing self-employment taxes. It can also be a more appealing structure for businesses with plans for significant growth or attracting outside investors.

Do S corps pay self-employment tax?

No, an S-corp does not pay self-employment taxes. Instead, owners receive a reasonable salary and have payroll taxes withheld from their paychecks.

They also receive distributions from the company’s profits, but they aren’t subject to tax.

Can you switch from an LLC to an S corp?

Yes, it’s possible to switch from an LLC to an S corporation by filing the required forms with the IRS. You also need to qualify as an eligible entity for S corporation status and follow the specific steps the IRS outlines.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Year-End Bookkeeping and Accounting Checklist for Small Business Owners

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Smiling young Asian business owner working on computer and drinking coffee during the holidays

The end of the year is a hectic time for small business owners. Between catching your breath after tax season and managing holiday sales, year-end bookkeeping and accounting tasks understandably fall to the bottom of the to-do list. 

xendoo is here to help you avoid the year-end scramble. Check out our year-end bookkeeping checklist to organize your finances and successfully wrap up the year. 

1. Get Your Books Caught Up

The first step is to make sure that your books are up-to-date. You can do this by: 

  • Accounting for all bills and invoices, even if they haven’t been paid yet. 
  • Reviewing bank and credit card statements to confirm that they match. 
  • Recording any expenses that you paid for with personal funds. 

Accurate records ensure reliable financial statements. If your books are behind a few months, or even years, you are not alone—25% of business owners are behind on their books. 

xendoo’s online bookkeepers provide catch up bookkeeping services, so you can focus on the future. 

2. Collect the Necessary Forms

Once January arrives, your accountant will request certain forms to close your books and file your small business taxes. Be sure to collect them as soon as possible to ensure a smooth start to the new year. 

Here are common forms and their deadlines. 

Form W-2

Business owners use form W-2 to report salary information for their employees. It also helps businesses report the taxes they withhold from paychecks. Employees need this information to file their personal tax returns. 

Business owners are responsible for sending this form to the IRS. Employers must provide the form to their employees no later than January 31st so that employees have enough time to file their taxes.

Form W-9

If you worked with an independent contractor or vendor and paid them $600 or more, you will report those payments to the IRS using Form 1099-NEC. 

The information you need to complete this form is on Form W-9, which you can collect from your contractors.

If any W-9s are missing, reach out to your independent contractors and have them complete the form before the end of the year.

Schedule K-1

CPAs provide the Schedule K-1 or Form 1065. The Schedule K-1 must be sent to shareholders and partners by March 15th. 

S-Corporation shareholders and partnership members use it to report their share of the business’s profits and losses. They’ll also include the form with your personal tax return.

Form 1099-K

The 1099-K tracks the payments received through third-party payment networks, like eBay, Stripe, Shopify, PayPal, and others. You should receive one 1099-K from each of the Online Payment Networks you use by January 31st. You are required to complete each one. 

Your gross receipts must be at least as high as the amount that you report on your 1009-K.

The 1099-K shows gross sales, which is the amount before fees are deducted. What appears in your bank account is the Net Amount, the amount after fees are deducted from the Gross Amount. The sales from each vendor must be reported as the Gross Amount, which is what appears on the 1099-K.

If you use freelancer platforms like Upwork or Fiverr to hire independent contractors, they may also send 1099-Ks to your freelancers instead of 1099-NECs. Since they are considered Online Payment Networks, these platforms typically send 1099-Ks to freelancers that make over $20,000 a year and have at least 200 transactions. 

However, if you paid freelancers more than $600 outside of their platforms, then you will need to send out a 1099-NEC. 

Click here to download our Tax Documentation Checklist.

3. Follow Up on Past-Due Invoices

Review past-due invoices to see what you are owed. If there are any outstanding payments, reach out to your customers before the end of the year to successfully close your books. 

4. Account for Inventory

If your business stores inventory, perform an end-of-year inventory count to make sure your totals match your Balance Sheet and your books. This review will provide insight into waste and loss management, as well as reduce inaccuracies in inventory counts and receivings.

Consider utilizing inventory management software to streamline inventory creation and order fulfillment.   

5. Review Your Financial Statements

Once you or your bookkeeper completes your bookkeeping, review your financial statements to confirm your numbers are correct.

You can also take that time to review how your business grew over the course of the year. Was there a steady increase in profits? Can you identify connections between your costs and sales? The financial statements provide visibility to confirm that you are on track to meet your goals, make projections, and prepare for the future.

Click here to learn more about the key financial statements. 

6. Reach Out for Help

Everyone deserves a supportive team of people who care. If you feel overwhelmed with year-end bookkeeping, reach out to an online bookkeeping service. 

xendoo’s bookkeeping and accounting team provides monthly bookkeeping and accurate financial reports. We’ll give you financial visibility throughout the year and deliver insights to make strategic business decisions. 

Ring In Success

Juggling the holidays with running a business can be hectic. Although this year-end bookkeeping and accounting checklist can help you prepare for tax time, you don’t have to do it alone. xendoo has a range of plans with flat monthly fees. You can get certified, professional online bookkeeping, accounting, tax, or CFO services to help you manage your finances and grow your business. 

Schedule a call with one of our online accountants to get started.

 

 

 

What Is Deferred Revenue? Journal Entry and Examples

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what is deferred revenue

As a business owner, you may have heard the term deferred revenue before. But, what is deferred revenue and what does it mean for your business accounting? 

Deferred revenue is money that you receive from clients or customers for products or services that you haven’t delivered yet. In accounting, deferred revenue can affect your balance sheet and profit and loss statement. 

You need to understand how to recognize your revenue and record it on the profit and loss statement to do accounting properly. We’ll take a closer look at deferred revenue and what you need to know for your bookkeeping and accounting. 

What is deferred revenue?

As mentioned, deferred revenue is money that a company has received but hasn’t earned yet. This usually happens when a company sells a product or service but does not deliver it until a later date. Deferred revenue only applies to businesses that use accrual basis accounting.

An example of deferred revenue is if a customer buys a one-year magazine subscription. The company will recognize the revenue over the course of the year rather than when the customer pays. 

Recognizing revenue gradually helps companies match their expenses to the revenue they are actually earning. This provides a more accurate picture of your financial health and performance. 

Deferred revenue can also be used as an accounting tool to smooth out bumps in income or expenses. By deferring some revenue, a company can even out its cash flow and make its financials look steadier and more predictable. 

However, deferred revenue can also create problems if it is not managed carefully. If you overdo it, you may misrepresent your earnings and violate accounting rules. 

For this reason, companies need to exercise caution when recognizing deferred revenue. Make sure that you manage it transparently and stay compliant with accounting standards.

When do you use deferred revenue?

Companies that use cash basis accounting do not have deferred revenue. In cash basis accounting, a company considers the money it receives as revenue when it receives it.

Deferred revenue applies to companies that use accrual basis accounting. This method accounts for revenue when a company performs the services. 

Is deferred revenue an asset or liability?

In accounting terms, deferred revenue is classified as a liability because it represents a future obligation. When goods or services are delivered, deferred revenue becomes revenue. 

Deferred revenue increases your company’s short-term liabilities. It may also be taken into account when you apply for loans. It’s important for a company to understand its future obligations and ensure that it has funds to provide the services or products. 

Deferred revenue vs. accrued expenses

On the other hand, accrued expenses are expenses that a company records before they’ve made a payment.

Like deferred revenue, accrued expenses only apply to companies that use accrual basis accounting. Cash basis companies don’t record expenses until they pay the vendor.

For example, let’s say a company hires a cleaning service to clean its offices monthly. The cleaning company does not bill the client until the year is completed. The company should still recognize the monthly expenses for the cleaning services. 

In the example above, the company would record a cleaning expense each month (i.e. $500). Then, it would increase the accrued expense account.

Accrued expenses are different than accounts payable. For an expense to be recorded in accounts payable, you need to receive an invoice or request for payment. For accrued expenses, you haven’t received the invoice, and the final amount due may not have been determined yet. 

How does deferred revenue work?

When a company receives funds to cover future work, it’s considered deferred revenue. This can include deposits or down payments. These funds are deferred revenue regardless of whether the company invoices the client.

The company will not record the money as revenue until services are performed or goods are delivered.

It’s important to review the deferred revenue account on a monthly basis. This ensures that you record all revenue for delivered work on the profit and loss statement. 

Recording deposits as deferred revenue prevents companies from paying taxes on revenue that has not yet been earned. For example, if you offer a refundable deposit and a client cancels a project, you’ll have to return the funds. You don’t want to pay taxes on that deposit, since you had to return it. 

How do you make a deferred revenue journal entry?

To record a deferred revenue journal entry, you first need to create a deferred revenue liability account. These accounts are generally current liabilities unless you expect the project to take several years. In that case, you would consider it a long-term liability.

To record the funds that you receive, the deferred journal entry debits the bank account. Then, it credits the liability account to show your obligation to provide future services.

Debit Credit
Cash in Bank $X
Deferred Revenue $X

If you invoice a customer for future services, the journal entry would debit accounts receivable instead of cash in the bank.

Debit Credit
Accounts Receivable $X
Deferred Revenue $X

Note that neither of the entries above will affect the profit and loss statement. The initial recording of deferred revenue only affects the balance sheet.

When a company fulfills its obligation by providing goods or services, it recognizes the revenue. When this happens, it reduces the deferred revenue amount and increases the company’s revenue.

Debit Credit
Deferred Revenue $X
Revenue $X

Deferred revenue example

Consider a pool company that installs backyard pools. The projects typically cost $100,000, and the company collects an initial deposit of $1,000 to start scheduling the work. Once the work has started, the company collects an additional 50% of the purchase price. The final payment is collected when the pool is fully permitted by the city. 

In this example, the company would record the following journal entries for deferred revenue. 

1/1/2021: Initial Deposit for Jones’ pool

Debit Credit
Cash in Bank $1,000
Deferred Revenue $1,000

3/1/2021: Collection of 50% of the purchase price when work starts (less initial deposit already received)

Debit Credit
Cash in Bank $49,000
Deferred Revenue $49,000

8/31/2021: Collection of remaining balance and recognition of revenue on completion of the project

Debit Credit
Cash in Bank $50,000
Deferred Revenue $50,000
Revenue $100,000

Note that the last entry above is the first time that it affects the profit and loss statement. 

Though, when you record the final entry, you should also record an entry to adjust the inventory or other expenses associated with the project. This will ensure that the revenue and expenses are accurately matched up on the company’s profit and loss statement.

The initial receipt of deferred revenue is straightforward since you’ve received revenue you have not earned yet. Determining when the revenue has been earned can be trickier and should be done with caution.

Understanding deferred revenue is important to maintain accurate books with accrual basis accounting. Companies need to understand their obligation to customers to ensure that they have the funds available to meet their obligations. 

However, you don’t have to manage all the ins and outs of accounting or deferred revenue on your own. Bringing in a professional can free up your time and help you get organized books all year round. 

xendoo offers online bookkeeping, accounting, tax, and CFO services at a range of pricing plans. You can also schedule a free, no obligation 20-minute consultation with one of our accountants to learn more about xendoo and how we can help you with all your business finance needs.

What Is Bank Reconciliation: Template and Step-By-Step Guide

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A person works on their laptop.

A person works on their laptop.

This article was updated on October 19, 2022 with new links, resources, and templates. 

Bank reconciliation may sound like a daunting task for a business owner, especially those without an accounting background.

As a business owner who already has too many tasks and not enough time, you may overlook or put off this important task. You need to know how much money in your bank you can spend. Bank reconciliation helps you do that.

Skipping out on bank reconciliation is not something you can afford to do. It is a necessary part of running a business. However, with these bookkeeper-approved tips and tricks, you can make bank reconciliation almost painless. 

We’ll explain what a bank reconciliation is and why you need it for your accounting and bookkeeping. Plus, we’ll share a free bank reconciliation template. 

What is bank reconciliation?

Many business owners check the balance in their online bank account or most recent statements. They assume that the number in front of them is the amount of money they have available to spend.

The problem with this approach is that it doesn’t account for the items that don’t appear on your bank statement yet. 

Let’s say a business has a bank balance of $20,000. The owner writes a check for new equipment that cost $8,000. However, the supplier hasn’t cashed the check yet. So you need to factor it into your balance. The true balance in the account is not $20,000. It’s $12,000 since the $8,000 is already promised to someone.

If the owner forgot about the outstanding check and withdrew $15,000 from the company’s account, the check would bounce.

A bank reconciliation also helps you identify transactions that went through the bank but weren’t recorded in the company’s accounting system. As more businesses opt to pull in direct bank feeds for their companies, this is less of an issue. But even direct pulls from bank accounts can have glitches that leave some transactions unrecorded.

To reconcile the bank, your company should compare the transactions. With bank reconciliation, you compare your bank statement against the transactions in your accounting software to ensure that everything is recorded.

Bank reconciliation terms to know

There are several commonly used terms in bank reconciliations that you should be aware of. 

Deposit in transit: Deposits that have been sent to the bank (either electronically or through a visit to the bank) but that have not been posted to the company’s account at the end of the period. This does not include payments expected to be received in the future from customers.

Outstanding checks: Outstanding checks are any checks written by the company prior to the end of the reconciliation period. They have not been cashed by the recipient yet. 

Not sufficient funds (NSF): A check may be rejected if the account does not have sufficient funds to cover the amount of the check. An NSF check may show up as being cashed by the bank with a reversal of the amount when the check is flagged for NSF. Most banks charge fees for NSF checks and these need to be recorded as well. 

Stale Checks: A stale check is one that has gone uncashed for a long time, usually over six months. Depending on the purpose of the check, the company may consider voiding it. Some checks, such as payroll checks cannot be voided and need to be remitted to state agencies. 

How often should you do bank reconciliation?

While bank reconciliation can be performed at any time, it is usually a monthly task. Your bank generates a monthly statement anyway, so each month you should compare your bank statements to your internal accounting records. 

The process of bank reconciliation is nothing more than confirming that what appears on your bank statements matches what you see in your accounting software. But, how does bank reconciliation work? 

How To Do a Bank Reconciliation

Each month, your business will conduct several transactions, so you’ll see money coming in and going out. Those transactions should all be tracked in online accounting software like QuickBooks or Xero. 

Also, you should see those transactions in your bank account (or accounts), usually a day or two after they occur. 

The details of doing a bank reconciliation will vary from software to software, but the basic process is the same across the board. 

1. Download your bank statement

The very first step of any bank reconciliation is locating your bank statement. The bank statement gives you the beginning and ending bank balances along with the activity for the period (which is usually one month). 

2. Locate reconciliation in your software or spreadsheet

If you are using accounting software such as Xero or QuickBooks, there is a section of the software designed specifically for bank reconciliations.

Once you open up the bank reconciliation module, you will find a list of all the deposits and withdrawals that are in your books. If you are using a spreadsheet to reconcile your bank, create a new copy of your template for the current period.

3. Reconcile the deposits

If you have already recorded all of your deposits in your accounting software, you should be able to match each deposit to a line item on the bank statement.

Bank statements will list cash and electronic deposit separately. Deposits from different electronic sources (credit cards, Paypal, Zelle, wires, etc) will show up as separate deposits on the bank statement. It will also try to include a description (although it’s sometimes a bit vague) of the deposit.

4. Reconcile checks

Reconciling checks is the easiest step in a bank reconciliation. Your bank statement will list each check in numerical order. For each check that appears on the bank statement, you cross off the check number in your accounting software or spreadsheet.

Once you’ve checked off all the cleared checks in your accounting software, you can verify the total amount of checks paid.

5. Reconcile any electronic payments

Though most companies are diligent about recording checks written to vendors and employees, electronic payments are more often overlooked within the company’s records.

Electronic payments include ACH payments, merchant fees, bank fees, and interest payments. If any of these payments have not been recorded, they should be recorded during the bank reconciliation process. 

6. Compare the cleared balance to the bank balance

Once you’ve checked off all the cleared checks, electronic payments, and deposits, you will have calculated a cleared balance for your books. This balance should match the bank statement at the end of the reconciliation period. If the balances don’t match, you’ll need to go back and investigate the source of the discrepancy. If the balances match, you’ve completed your reconciliation.

To make it even easier, we created a free bank reconciliation template here. 

How to use a bank reconciliation template

First, to edit this bank reconciliation Google Sheet, you’ll need to go to “File”, then “Make a copy”. You’ll be able to edit the copy for your purposes. 

The bank reconciliation template has three tabs. 

  • Template – This shows you how to use the template. It has the instructions and explanation for each row of the bank reconciliation.
  • Bank Rec – This tab includes an example of bank reconciliation to show you how to reconcile a bank account. 
  • Checks – In this tab, you can track checks written during the period of time you are tracking.

Update dates and balances

To get started, update the dates for the period you are reconciling. For simplicity, we’ll use the month of January 2021 as an example. 

Start by inputting the bank balance as of December 31, 2020, into Cell B5 and Cell C5. Take the ending bank balance and put the figure in C9. 

Continue grabbing numbers from the bank statement for the deposits (input into B6), checks that cleared the bank (input into B7), and other transactions such as electronic withdrawals (input into B8). Once you’ve entered these numbers, the template should calculate the ending bank balance in Cell B9. The calculated value in B9 should match the ending bank balance you input directly from the bank in C9. If these figures don’t match, go back and review the inputs in B5-B8.

Review your deposits

The next step is to review the deposits in your books. Identify any deposits in January 2021 that your bank has not received. This might include check payments or electronic deposits that are in pending status as of January 31, 2021. Total these payments and put the value in B10. 

It often takes vendors a while to cash checks. You should have a list of checks written prior to January 31, 2021, and note which ones have not been cashed. (See the Checks tab of the workbook for an example of how to track this.) The total of these outstanding checks should be entered in C11. 

In B12, you’ll want to identify any other pending transactions. These may include debit and ACH payments that are in pending status as of January 31, 2021. 

After you’ve entered these figures, calculate the cash available in B13. These are the funds in your bank that are free for your company to spend.

How to record bank reconciliations

In your accounting software, each bank transaction should show up as “cleared” once the bank processes it. In electronic systems, once you’ve processed a bank rec in the system, a “cleared” tag will appear. For manual systems, you will have to manually identify the cleared transactions. See the Checks tab for an example of how to track cleared checks.

A journal entry

You may need to make journal entries to record missing transactions that are in your bank account but recorded (yet) on your books. A common example is the interest payment from the bank each month. You won’t know exactly how much interest the bank has paid you until you have your statement. As a result, you should record the interest income during the bank reconciliation process. 

If your bank paid you $3.64 of interest in the month of January 2021, you would make the following entry:

1/31/2021 Debit Credit
Cash in Bank $3.64
Interest Income $3.64

Other common entries made during the reconciliation process are electronic payments, deposit adjustments, and bank fees.

A bank reconciliation statement

When you complete the bank reconciliation process, you’ll create a statement. 

A bank reconciliation statement is a summary of the reconciliation. It will highlight the reasons for any discrepancies between the bank balance and the cash balance in the accounting system. 

A bank reconciliation statement may include:

  • Bank balance – The balance provided on the bank statement will be noted, along with the date of that balance.
  • Additions and deductions – Any deposits in transit or checks going out that have not yet reached the bank will be noted on the statement and adjusted from the bank statement balance. 
  • Bank activities – Events that occurred on the bank side and that have not yet been accounted for in the company’s books will also be shown on the reconciliation statement. Bank fees and charges that you owe the bank should come out of the account. 
  • Adjusted cash balance – This is where the bank reconciliation statement shows that the books are in order – the adjusted cash balances should match when all outstanding transactions have been included. 

Why is bank reconciliation important?

It’s easy to take bank reconciliation for granted and believe that your accounts are going to match up properly each time. Hopefully, most of the time, they do, but that’s not guaranteed. 

The bank reconciliation process spots issues that directly impact your business’s health and future. Examples of why your business needs bank reconciliation include: 

1. Fraud

Perhaps the most important reason to reconcile bank statements regularly is to track and prevent fraud. If you see a deposit in your accounting software, but it never lands in the bank, where did it go? 

You want to spot this kind of issue right away so you can look into it further. A legitimate, honest mistake may lead to a missing deposit—or someone could have stolen the money. 

2. Missing checks and vendor payments

For example, if you send a check to a vendor, you want to be sure that they received that check in an appropriate amount of time. If a check still hasn’t cleared your bank a couple of weeks after you sent it, follow up to confirm that the vendor received it. Without bank reconciliation, you would miss it and may receive a past-due notice from that vendor.

3. Bank errors and financial statements

Though the main purpose of reconciling your bank is to calculate the cash your business has available, it also gives you the opportunity to verify that the bank has not made any errors. Since most banking is done electronically and through computer systems, bank errors are rare, but not unheard of. 

Common bank errors include checks that clear for the wrong amount or incorrect deposits. 

By checking the bank activity each month, you can contact your financial institution in a timely manner when there is still an opportunity to correct the error.

4. Cash flow management

Running a small business means ensuring that your company has the funds to continue its operations. A bank reconciliation lets you calculate the cash available to cover expenses. Simply checking the bank does not give you the full picture. The balance may not include payments (and deposits) that the bank hasn’t processed yet.

There are many reasons why an accountant is important, and performing regular bank reconciliations is high on that list. 

Top tips for bank reconciliation

Before we wrap up this discussion, we’d like to pass on three quick tips to help make bank reconciliation a useful part of your accounting process. 

  • Do it regularly. You should do bank reconciliations at regular intervals. For most small businesses, that is going to mean once per month – but you can adjust this schedule based on your needs. 
  • Keep your books up to date. Performing a bank reconciliation will take much longer if you need to update your internal books from the previous month before you can compare those records to the bank statement. 
  • Take your time. If performing the reconciliation on your own, set aside enough time so you don’t need to rush through the task. Doing it quickly is going to greatly increase the chances of a mistake. 

Understanding the importance of bank reconciliation and making time in your schedule to complete this task are two different things. All the motivation in the world can’t magically open up time for you to spend going over bank statements and clearing up any issues. 

This is where xendoo comes into the picture. Bank reconciliation is just one of our many bookkeeping services, so we can take this and more off of your plate each month.