How Do I Pay Myself and My Taxes as a C-corporation?

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Diverse group of business owners in a C-corporation, reviewing documents together

When businesses are first created, every responsibility falls on the business owner. As they juggle increasing sales, customer service, marketing, and even bookkeeping and accounting, two questions come to mind – how do I pay myself? How do I pay my business’s taxes? 

Self-payment for small business owners is far from simple. There are certain requirements for the amount you pay yourself, and even how you receive payments. That is why the xendoo team has created this guide to help you navigate self-payment and taxes as a C-corporation owner!

How to Pay Yourself as a C-corporation: Salary or Dividends  

The payment you receive depends on your role within the company. C-corporations are made up of the following roles:

xendoo provides financial visibility to C-Corp owners through online bookkeeping, accounting, and tax services.

Directors, officers, and employees in a C-corporation take a salary, which is subject to payroll taxes. Shareholders can take a salary and dividends, which are allocations of stock from retained earnings, if the company chooses to distribute profits. Some shareholders opt not to take dividends, which will be discussed shortly. 

In smaller C-corporations, one person can act as the shareholder, director, officer, and employee. Shareholders can also be involved in the day-to-day operations of the company, and are referred to as shareholder-employees. 

How Do I Pay My Taxes as a C-corporation?

C-corporations are considered separate legal entities from their owners. This means that the business is taxed at the corporate level, with dividends being taxed again at the shareholder level, resulting in double taxation. Smaller companies may choose to avoid dividend payments for this reason. 

C-corporations file their taxes using Form 1120, which reports the business’s income, losses, credits, and deductions. If shareholders take dividends, they use Form 1099-DIV to report the amount that was distributed to them. 

To ensure that your C-corporation taxes are filed correctly and on time, you can partner with an online CPA. They will help you to maximize your tax savings and enjoy peace of mind during the most stressful time of the year.

Are Salaries and Dividends Tax-Deductible?

Dividends are not tax-deductible expenses, but shareholder-employee salaries are – as long as they are reasonable. Some business owners may take high salaries in order to reduce the company’s taxable income. However, if the salary is too excessive, it could be reclassified as a dividend payment, taxed at the shareholder level. The company would then lose that excess salary as a deduction. On the other hand, if the salary is too low, it can be considered an attempt to avoid employment tax liability, which could draw scrutiny from the IRS. 

Every business is different, so the salaries that business owners take will vary. To get started, you can take a look at the factors the IRS uses to determine a reasonable salary for shareholder-employees in C-corporations: 

  • What comparable businesses pay for similar services. If an employee’s salary falls in line with what similar businesses pay for that position, the salary will be considered reasonable. 
  • Character and condition of the corporation. If the company is performing exceptionally well, an above-average salary can be considered reasonable. 
  • The role of the employee within the business. The IRS considers the hours the employee works, the duties they perform, and the contributions they make to the success of the business. If the employee receives a raise, they must also receive an increase in responsibility for their salary to be considered reasonable. 
  • Internal consistencies in establishing compensation levels. Inconsistencies in the compensation of other employees can suggest that the employee’s salary is unreasonable. 
  • Conflicts of interest in setting compensation levels. Conflicts of interest occur when there is a clash between personal interests and professional obligations. For example, if a shareholder attempted to disguise dividends as a deductible salary, the IRS would deem the salary unreasonable. 

You do not have to figure your salary out on your own. Discuss your options with an online C-corporation accountant at xendoo today! 

xendoo is Here for You

Every business owner deserves an accounting team that is dedicated to their financial success. xendoo provides online bookkeeping and accounting services to C-corporation owners, so they can make the most informed decisions for their business!

We would love to get to know your business. Click here to schedule your free consultation. 

Want to learn more about the different business entity types? Click here.

What Is Catch-Up Bookkeeping?

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Business woman working on lapto

xendoo provides online bookkeeping, accounting, and tax support for your partnership business.

When you get behind in your books, you have two choices: lose sleep or turn to a catch-up bookkeeping service to help you out. 

What is catch-up bookkeeping? Catch-up or “clean-up” bookkeeping is the method of bringing your financial records up to date.

In other words, catch-up bookkeeping lets you spend less time worrying about the past and more time focused on the future. Let’s take a quick look at what you can expect from a catch-up bookkeeping service.

How Catch-Up Bookkeeping Is Different from Ongoing Bookkeeping

Most business owners already have some sort of bookkeeping strategy in place, which might involve recording income and expenses as well as saving receipts and documenting expenses in preparation for tax season. These ongoing bookkeeping strategies are intended to keep pace with the normal flow of business.

How is this different from catch-up bookkeeping? Catch-up bookkeeping operates as an emergency solution when you get behind in your ongoing bookkeeping efforts. Catch-up bookkeeping attempts to look back through the past several months, record income and expenses, and bring your books completely up-to-date.

Catch-up bookkeeping services can also provide some strategies to keep you from getting behind on your books in the future.

The Core Steps of Catch-Up Bookkeeping

Some business owners try to get books caught up on their own. But if you got behind in your books because you lacked the time to do your accounting properly in the first place, how will you find the time to get caught up?

Instead, it might be a good idea to rely on an experienced CPA or tax professional to review your books. These financial professionals can then help you to do the following:

Gather Your Receipts and Documents

First, you want to gather as many of your business receipts as possible. This will help you to better determine your income and expenses. 

Other documents to gather include:

  • Customer invoices
  • Debt collections
  • Business expenses
  • Vendor payments

With this approach, you’re trying to do two things. First, you’re attempting to find paperwork to document your business transactions. But secondly, you will determine whether there are any outstanding debts that you owe to your vendors and any outstanding invoices that your customers have yet to pay.

This will be particularly important when tax time rolls around, as these receipts can help you to determine your earnings for the year and write off any business expenses or bad debt that you incurred.

Reconcile Your Bank Accounts

Next, your accountant can help you to reconcile your bank accounts. What does this mean? During the reconciliation process, your financial professional will compare each transaction in your accounting records with the same transaction on your bank statements.

Ideally, the two numbers should match, but if they don’t, you’ll need to address any errors to ensure that your financial records are accurate.

If this process sounds time-consuming, that’s because it is! In many cases, this is the step that adds time to the catch-up process, since your accountant will have to spend a while sifting through your financial data. 

Separate Personal and Business Expenses

It’s critical that you keep your personal and business expenses separate. Not only can mixing them create confusion, but you could find yourself personally liable if something should go wrong in your accounting.

At the very least, you should have a business bank account and use this account for any transactions that involve your company. Some companies prefer to open multiple accounts to organize department budgets or to use one account for income and another for vendor payments, for example.

Separating these expenses will make it easier for you and your accounting team to manage your books and to be fully prepared for tax time. Keeping your personal expenses separate will also make it simpler to file your personal tax return.

Collect W-9s, 1099s, and W-2s

Do you have employees? Have you hired any independent contractors during the tax year? If so, you’ll need to distribute the appropriate tax documents before the end of the year.

If your business has employees, you’ll need to file Form W-2. If you paid an independent contractor more than $600 over the course of a year, you’ll need to use two documents. You’ll give a W-9 form to each contractor. They’ll complete their tax information and return it to you. You’ll then use this data to file Form 1099-MISC with the IRS.

Enjoy the Benefits of Accurate Financial Data

This process can take some time, but once it’s complete, you’ll be caught up with your books. You can breathe a sigh of relief and look forward to the benefits of accurate data, along with a more complete understanding of your company’s cash flow.

While we’ve highlighted the importance of getting caught up before tax season, there’s never a bad time to catch up on your books. Staying up-to-date throughout the year can even help you to plan ahead so that you can reduce the stress that often comes with tax season.

 

Catch up thumbnail webinar

How Much Does Catch-Up Bookkeeping Cost?

Understandably, many business owners find themselves wondering: “What is catch-up bookkeeping going to cost my business?”

The answer to this question depends on how far behind you are in your books. The longer it takes to reconcile your accounts and bring your records up-to-date, the more you can expect to pay for catch-up services.

xendoo offers catch-up bookkeeping for small businesses starting at $195. This catch-up bookkeeping cost is negligible compared to the peace of mind you’ll have knowing your financial records are current and accurate. 

Get Caught Up with the Experts at xendoo

You’ll rest easier knowing that your books are being handled by a financial professional. That’s why xendoo offers expert-level catch-up bookkeeping services for small business owners. We’ll help you to get caught up and give you the tools to remain current on your books in the future.

 

How Do I Pay Myself and My Taxes as a Partnership?

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Two young black business owners working on a computer

Every partnership owner faces the unique challenges of self-payment, tax filing, and maximizing their tax savings. Although they would rather focus on growing their business, taxes and payroll often take up too much of their valuable time. 

If the self-payment struggle is all too familiar to you, xendoo is here to help. We have created this guide to help you pay yourself and maximize your savings as a partnership owner!

How to Pay Yourself as a Partnership Owner: The Owner’s Draw or Guaranteed Payments 

Partnership owners pay themselves by taking an owner’s draw or a guaranteed payment, with profits distributed to each member based on the partnership agreement. Note that partnership owners are not permitted to take a salary, as the IRS states that you cannot be both a partner and an employee. 

The Owner’s Draw

An Owner’s Draw differs from a regular salary in that you can take money from the company’s earnings as needed, rather than on a scheduled basis. Depending on how well your business is performing, you can draw more or less, allowing for flexibility in your payments.

 

If your business is profitable, subtract liabilities (any debt your company owes) from assets (items of value the company owns). The remaining amount is referred to as ownership equity, which is what you will take your draw from. This amount is reflected on the Balance Sheet, under Owner’s Equity. Once you determine the amount you want to take, it can be transferred from your business bank account to your personal account.  

 

Because the Owner’s Draw is taken from ownership equity, it reduces the funds that can be used for operating or growing the business. Partnership members must balance how much they need to support themselves and what the business needs to thrive.

 

Guaranteed Payments

What if your business is in the early stages, and not producing profit yet? The solution lies in guaranteed payments. 

 

Guaranteed payments are a minimum amount that is guaranteed to be paid to a partner regardless of business profitability. The payments must be made even if the result is a loss for the business. They provide a consistent income to partners as the business grows and becomes profitable. Note that if the business is operating at a loss and providing guaranteed payments to partners, that loss must be funded through debt or investments (equity) to ensure that the necessary expenses of the business can be paid. 

 

Discuss your options with an online partnership accountant at xendoo. They will provide the financial insight needed to make the most informed decision regarding self-payment in your partnership! 

How Do I Pay My Taxes as a Partnership Owner?

Partnerships file their taxes using Form 1065, which determines that each partner is reporting their income correctly. Each partner must complete an accompanying Schedule K-1, which breaks down their share of the profits and losses. They also report this information on their individual tax return (Form 1040), with a Schedule E attached. The owner’s draw is not subject to payroll taxes, but it is considered personal income and is taxed accordingly. If partnership members take the owner’s draw, they must pay estimated taxes, which helps decrease their tax bill. 

 

Guaranteed payments are tax-deductible to the partnership, and are treated as self-employment income for the partnership members. They are reported on the Schedule K-1, and noted as income on the Schedule E. If the partnership members choose to take guaranteed payments, they will pay both income tax and self-employment taxes as individuals. 

What are the Tax Advantages of Filing as a Partnership? 

No Double Taxation 

The partnership itself does not pay income taxes. Partnerships are considered “pass-through entities”, meaning that profits and losses “pass through” the business to the partners, with each paying a portion of the total income tax of the business’s earnings. In this situation, profits and losses are only taxed at the personal level, which allows partnerships to avoid double taxation. 

 

Even with a significant tax advantage, taxes can still be stressful. Talk to a small business CPA at xendoo. We provide online accounting for partnerships, as well as online bookkeeping services so you can stay tax-ready all year long.

xendoo is Here for You

You are not alone as you navigate self-payment, tax filing, and all the financial ins and outs of your partnership. xendoo is here to help! Our online bookkeeping and accounting team provides partnership owners with the financial insight needed to make the most informed decision regarding self-payment and partnership taxes! 

 

Are we a fit for your partnership? Get started today with a free consultation.

 

Want to learn more about the different business entity types? Click here.  

How Do I Pay Myself and My Taxes as an S-corporation?

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White female business owner and black male business owner using a laptiop, looking happy about business performance

When businesses are born, business owners are likely not daydreaming about taxes and payroll. Yet, they still face the unique challenge of figuring out how to pay themselves, file their taxes, and maximize their tax savings.

As their business grows, many business owners opt for S-corporation Election due to the tax advantages it presents, but they must be mindful of how much they pay themselves, in order to remain compliant in the eyes of the IRS. Unless they moonlight as an experienced accountant, self-payment and tax filing can be confusing and stressful for small business owners – understandably so!

Like most things involving taxes, it gets complicated. That is why we have created this comprehensive guide to help business owners pay themselves and maximize their savings as an S-corporation!

How to Pay Yourself as an S-corporation: Salary and Distributions

Under other business structures, you simply take a share of company profit as your payment. In an S-corporation, you have the option to pay yourself in two ways: 

  • Salary, your wages or reasonable compensation. This is considered taxable income to the payee by the IRS.
  • Distributions, the earnings that are paid as distributions to you as the owner. These are not employee wages and are not taxed as self-employment income in an S-corporation.

For example, if your business produced $100,000 in profit, you could take a reasonable salary of $40,000, and the remaining $60,000 as a distribution. It may seem strange to receive payment in two different forms, but it comes with significant tax savings, which will be discussed shortly. 

How Much Do I Pay Myself as an S-corporation? 

The short answer is, it depends.

S-corporation shareholder-employees are required to receive a reasonable salary, which is generally defined as at least what other businesses would pay someone in that role for similar services. Every business is different, so the exact amount that business owners pay themselves will vary. 

To determine your reasonable salary, you can start with the U.S. Bureau of Labor Statistics, which provides insight into compensation across different industries. This will give you an idea of what you should be paying yourself based on your field and the profit you produce. 

Some of the factors the IRS considers to determine a reasonable salary are:

  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Distribution history
  • Payments to non-shareholder employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar services
  • Compensation agreements
  • Use of a formula to determine compensation

You must be careful to pay yourself a reasonable salary. Paying yourself a salary that is too low (or none at all) can draw scrutiny from the IRS, as it is considered an attempt to avoid paying self-employment taxes.

The good news is that you do not have to figure it all out on your own! The xendoo team is more than happy to help you determine your reasonable salary. Speak to one of our online accountants to learn more.

How Do I Pay My Taxes as an S-corporation?

The first step is to elect to be taxed as an S-corporation. To qualify for S-corporation status, your business must meet the following requirements:

  • Your business must be incorporated in the United States.
  • Your business may only have certain types of shareholders, including individuals, and certain trusts and estates. They may not be partnerships, corporations, or non-resident alien shareholders.
  • Your business cannot have more than 100 shareholders.
  • Your business can only have one class of stock.
  • Your business cannot be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

If your business meets all of this criteria, you can move forward by filing Form 2553, and sending it to the IRS. If your company has multiple shareholders, each of them must sign and submit this form as well. Once approved by the IRS, you will file your S-corporation taxes using Form 1120S. 

To minimize error and maximize tax savings, partner with an online Tax CPA at xendoo. We file your taxes for you so you can focus on growing your business. 

What are the Tax Advantages of Filing as an S-corporation? 

No Double Taxation 

C-corporations are taxed twice, with the business paying corporate income taxes, and shareholders paying taxes on their share of the income. On the other hand, S-corporations are not subject to corporate income tax. Instead, shareholders file a Schedule K-1 along with Form 1120S, which reports their share of the company’s profits or losses. This allows S-corporations to avoid double taxation.

No Self-Employment Taxes (on Distributions)

Another key advantage of S-corporations Election is that the distributions owners receive are not subject to self-employment taxes! 

Every small business must pay self-employment taxes to fund social security and medicare. If your business operates as an LLC, you are required to pay self-employment taxes on your entire share of the profit, regardless of how you use the money. On top of that, you will also be taxed at your personal income tax rate. As the owner of the S-corporation, you only pay self-employment taxes on your reasonable salary. The distributions you take are exempt from self-employment tax! 

To illustrate, let’s revisit the example from earlier:

Your business makes $100,000 in profit. 

As a single-member LLC, you will pay $15,300 in self-employment taxes.

If you file the S-corporation Election, you pay yourself a reasonable salary of $40,000. The remaining $60,000 is taken as a distribution from profit. You will pay $6,120 in self-employment taxes only on your salary. The remaining $60,000 is exempt, resulting in a tax savings of $9,180 compared to the LLC!

For quick reference, take a look at the chart below:

S-corporation Election is a simple, yet effective, way to maximize your tax savings. Are you ready to take the next step? Schedule a free consultation with a xendoo accountant today! 

xendoo is Here for You

You are not alone as you navigate the waters of self-payment and tax filing. xendoo Online Bookkeeping, Accounting, and Tax is here to help! We move at the speed of business, so you can make informed decisions faster – like deciding if an S-corporation Election is right for your business!

Want to learn more about the different business entity types? Click here. 

Click here to access Form 2553.

Click here to access Form 1120S.

Click here to access the Schedule K-1.

Celebrating Women’s Small Business Month: Thoughts from xendoo CEO and Founder, Lil Roberts

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A female small business owner smiles inside her boutique shop

National Women’s Small Business Month celebrates women’s achievements in business, and highlights what they bring to their communities as small business owners. We took a moment to interview xendoo founder and CEO Lil Roberts, to get insight into what it takes to be a successful entrepreneur, and the importance of women leading in business. 

Build Up Your Team

What encouragement do you have for women who are in male-dominated industries? 

Shift your mindset. Do not let who dominates the industry define your role within it. Succeeding in business is all about excelling at what you do best, and building up a team that compliments the areas that you lack experience in. A multifaceted team is what makes a business thrive. When your team is growing their skills and knowledge, when your customers are happy, that is where you will find true success in your business.

It is crucial to focus on the problem that needs to be solved, and build a team that is as passionate about solving that problem as you are. That is what success looks like in every industry, no matter who it is dominated by. 

Inclusive by Nature

What is the importance of women leading in business?

Lil smiled and recalled a moment in which she had the opportunity to speak to Frances Frei, Senior Associate Dean for Executive Education at Harvard Business School. Frei shared her experience of solving problems with a team of women and immigrants, referencing studies that prove that when women lead, everyone wins. That is not to say that people and businesses cannot thrive under male leadership – they do. It simply highlights that women tend to be inclusive by nature, and adept at empowering those around them to do and be their best. This leads to the creation of supportive, passionate teams and therefore, successful businesses. 

Hats Off to You 

To all female business owners and entrepreneurs, we are rooting for you. Happy National Women’s Small Business Month from your friends at xendoo! Take time to celebrate your business and your amazing team this month. Focus on what you love – growing your business. xendoo has your online bookkeeping covered. 

Schedule a free consultation with one of our accountants. We would love to get to know you and your business, and partner with you as your bookkeeping, accounting, and tax team! 

 

Watch the full interview with Lil below:

Bookkeeping Services Rates: A Complete Guide

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A man in an oxford shirt looks at his bookkeeping on his laptop

A business owner integrates her accounting software for her eCommerce site

Keeping up with the books is more than mere paperwork. Maintaining clear financial records can keep your business running smoothly and efficiently, all while providing you with a clear picture of the health of your business. 

Chances are that your time is too valuable to spend clicking around in QuickBooks. But can you really afford the cost of modern bookkeeping services? Today, we’ll take a closer look at common bookkeeping services rates, so you can find the best fit for the needs of your business.

How Bookkeeping Services Rates Are Calculated

Small business bookkeeping costs can depend on the education and experience of your bookkeeper. The services of a bookkeeper cost between $18 to $23 per hour for an in-house bookkeeper, while the services of a CPA range from $40 to $60 per hour.

The cost of online bookkeeping services tends to be cheaper overall, but the final price will be impacted by three critical factors:

Complexity

Bookkeeping costs usually reflect the amount of work involved. Basic bookkeeping services tend to be the simplest, and therefore, they might be the most cost-effective. 

More complex services, such as tax planning and catch-up services, will require additional time and attention. The more time spent, the more expensive these services tend to be.

Advanced services such as tax planning and preparation also tend to be cyclical. You may find that you have a greater need for a CPA during particular seasons of the year, which can make it slightly more challenging to budget appropriately.

Online bookkeeping services offer flat-rate packages, which means that you’ll be able to connect with a professional team that can provide these financial services with the utmost skill. 

You won’t have to worry about the complexity of the task or the time needed for completion. Instead, you can simply match the size of your business to the appropriate package, and your bookkeeping team will handle the rest.

Services

Bookkeeping and accounting costs are influenced by the type of service being performed. Online accounting firms can provide a full range of financial services, including:

  • Bookkeeping
  • Catch-up services
  • Business tax preparation
  • Tax filing
  • Personal tax preparation

The simplicity of basic bookkeeping makes it the most cost-effective option. But if you rely on an online accounting firm to assist with your tax documents, you can still save a considerable sum, since your bookkeeping team and CPA will be working hand in hand.

Catch-up services will vary in cost. The exact price will depend on how many months you’re behind. But the true value of these services is the peace of mind that comes from knowing your books are up to date.

Modern business owners may also have specialized needs that require the attention of an industry professional. eCommerce, for example, can represent a sizable portion of a company’s revenue. For this reason, ideally, you’ll want to partner with a professional who specializes in eCommerce accounting—but again, finding the right person can be costly!   

Outsourcing these services is often less expensive than relying on traditional, in-person employees. Online accounting costs can vary, but small business owners can often find flat rates and packages tailored to the size and needs of their small business. 

Even if you only need basic bookkeeping, a flat-rate approach can be much more affordable than hiring a traditional employee. If you want additional services (such as tax preparation), an online firm can easily provide supplemental services.

The real value of online bookkeeping services, of course, is that small business owners get to spend less time on administrative tasks, devoting more time to the revenue-generating activities of their business. Partnering with an online firm can take basic financial tasks off your plate without expanding your workforce.

Communication

As a business owner, it’s important to have direct access to your financial data and your bookkeeping team at all times. The frequency and quality of your communication will have considerable bearing on your bookkeeping services rates. 

Unfortunately, in this department, you get what you pay for. Small business owners may feel frustrated after hiring an accounting firm if they find that their online team is hard to reach for questions or concerns.

The best accounting firms will provide three important things. First, their online financial software will offer total transparency so that business owners have access to their business data anytime, anywhere. 

Secondly, an online financial team should be able to adapt to your communication style, whether that be a phone call, email, or a standing appointment for a teleconference call. 

Third, outsourced accounting firms will provide regular reports regarding your cash flow and the overall health of your business. The best firms will make these reports available on both mobile and desktop platforms, so you’ll never be out of the loop when it comes to the financial strength of your company.

The Different xendoo Packages

xendoo offers a total of five core packages, each of which depends on your company’s total revenue:

  • Essentials ($395/mo): Bookkeeping for less than $50,000 in monthly expenses
  • Growth ($695/mo): Bookkeeping for less than $75,000 in monthly expenses
  • Scale ($995/mo): Bookkeeping for less than $125,000 in monthly expenses

Discounted rates are also available for annual subscribers.

Each package includes a dedicated team and monthly bookkeeping services, as well as the following features:

  • Cash basis bookkeeping
  • Modified accrual bookkeeping
  • Xero accounting software
  • Profit and loss statements
  • Balance sheets
  • Monthly trend graphs
  • Mobile apps
  • Standard chart of accounts

Select plans also include services for tax consulting and filing. For more information about these plans, visit our pricing page.

Flat-rate plans will be more cost-effective than hiring your own team. A bookkeeper will generally run about $25 per hour, depending on their skill level. If you hired a part-time employee to spend 20 hours a week handling your books, you’d be spending $500 per week! 

Even if you could cut this time in half, you’d be looking at $1000 a month in bookkeeping costs alone.

Do you need advanced services, such as tax preparation and filing? Today, a typical CPA costs $40 per hour, according to the U.S. Bureau of Labor Statistics. In 2017, the Journal of Accountancy claimed that a CPA costs as much as $60 per hour.

Compare these hourly rates to xendoo’s prices, and you’ll see why small business owners have come to rely on xendoo for quality and affordability. Our online bookkeeping services rates can provide your small business with industry-leading services at a price that’s perfect for your small business.

Affordable Bookkeeping Services with xendoo

The advantages of xendoo couldn’t be clearer. Even our most advanced package will cost significantly less than hiring a part-time bookkeeper! 

By partnering with xendoo, you’ll have access to some of the best minds in the financial industry, including those who specialize in eCommerce and other common business niches. 

Our customers have come to rely on us for everything from bookkeeping to tax preparation. We can even lend a hand if you’re behind in your books!

Sign up today for a free trial and explore all of the features that xendoo can offer you and your business.

How Franchisors Can Build a Strong Item 19

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A black female franchise owner, holding her Item 19 report, thinking about the future of her business

How Much Money Can I Make?

As franchisors work to sell franchises, one question they will always be asked is, “how much money can I make?”. The answer to this question can be found within one section of the Franchise Disclosure Document: Item 19.

In order to create a compelling Item 19, franchisors need financial data on the performance of each franchise location. Typically, it is up to the franchisees to keep their books up to date and share that data with the franchisor. But, like many small business owners, they juggle countless responsibilities, may not understand the complexities of accounting, and bookkeeping understandably falls by the wayside. 

An Expert Team

Without the right tools, building a strong Item 19 can feel like a massive undertaking. But, with the support of a franchise bookkeeping team, franchisors can receive timely, accurate information that will help them build a compelling Item 19!

What is Item 19? 

Item 19 is a section in the Franchise Disclosure Document (FDD), a document that must be presented to individuals who want to purchase a franchise. The purpose of Item 19 is for franchisors to lay out the financial performance representations (FPR) of the franchise. It paints a picture of how potential franchisees can expect to perform and estimates how much money they could make should they join the franchise.

Why is Item 19 Important?

Item 19 is more than just a rundown of financial performance. It is a powerful tool that aids in decision making, builds trust between the franchisor and potential franchisee, and sets realistic expectations.

  • Decision Making. A strong Item 19 helps franchisors attract and select the ideal franchisee candidates. It also ensures that a franchise brand is a solid investment, and helps the franchisee compare their options to determine if they are joining a successful business. 
  • Trust and Transparency. Item 19 signifies financial transparency and creates trust between the franchisor and potential franchisee. It shows that a franchisor knows their numbers, and has no issue disclosing them. The more information that can be provided on financial performance, the better. This transparency creates strong relationships between franchisors and their franchisees. 
  • Realistic Expectations. Item 19 allows the franchisor to set realistic expectations for financial performance. While a franchise may be profitable as a whole, individual success can vary. An Item 19 that contains data-backed projections of how much potential franchisees could realistically make provides the clarity they need to make an informed decision. 

How to Build a Strong Item 19

What do franchisors need to build a strong Item 19? Put simply, clear, accurate financials. The key elements that create a powerful Item 19 are: 

  • Average Gross Profit
  • Average Gross Sales
  • Cost breakdowns of goods and services
  • Operating cost insights
  • EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
  • Industry-specific data points (number of customers served, number of services provided or products sold, etc.)

These metrics provide financial insight into the franchise, clearly lay out the costs and obligations of a franchise purchase, and set realistic expectations for financial performance. 

The amount of information franchisors are able to share in Item 19 largely depends on the information their franchisees deliver. How can franchisees provide reliable, accurate information to their franchisors? It comes down to consistent monthly bookkeeping. 

The Necessary Resources 

Franchises have unique needs when it comes to bookkeeping and accounting, such as tracking royalties and advertising fees, and sometimes, multi-currency support. All of it needs to be properly recorded in accounting software so monthly reports can be produced. Franchisors need a team of trusted experts with knowledge of the franchise space, so they can receive accurate data from their franchisees.

  • Consistent Monthly Bookkeeping. In order for franchisors to build a strong Item 19, they need up-to-date financial records for each franchise location. A bookkeeper can provide visibility into financial performance on the franchisee’s behalf, so franchisors have access to the information they need across all locations. 

An online bookkeeping service is particularly helpful in this situation. Instead of hiring multiple bookkeepers, the franchisor can rely on a single provider who delivers uniform services for each location – no matter where they are located.  

  • Accurate, Up-to-Date Reports. Accurate monthly reports are crucial to creating a solid Item 19, as all information is legally required to be accurate, truthful, and backed by numbers. A well-documented financial history showcases franchise growth and profitability and helps franchisors create a compelling Item 19. 

Expert Bookkeeping for Franchise Businesses

xendoo Online Bookkeeping is a leading provider of online bookkeeping and accounting services for franchise businesses. Our franchise-focused team provides franchisors with timely report delivery and visibility into financial performance for each location.

Are we a fit for your franchise? Let’s talk! Schedule your free consultation today.

The Best Small Business Bookkeeping Solutions

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As a small business owner, your time is best spent on the revenue-generating features of your business— not hunched over a computer screen scrolling through QuickBooks! 

Thankfully, a reliable bookkeeping solution is just a click away. What should you look for in an accounting or bookkeeping service? Today, we’ll highlight five of the best small business bookkeeping service solutions.

Online Bookkeeping Service for Your Small Business

When your business is small, it can be tempting to try to handle the books yourself in order to cut costs. Even if this works for a while, it’s simply not a sustainable model. Small business owners should be focused on growing their core business, not on the back-office demands associated with small business bookkeeping.  

Adding another staff member often seems like a natural solution, but modern bookkeepers can cost well over $40,000 per year. Not only do these costs eat into your profits, but the addition of office personnel could also take up valuable space in your facility. 

Online bookkeeping services provide a simple, elegant solution that can save you time, money, and the headaches you get from trying to juggle the needs of your small business! 

Today’s accounting firms can handle a wide variety of SMB bookkeeping tasks, including:

  • Invoices 
  • Payments 
  • Costs 
  • Expenses 
  • Financial statements 
  • Corporate tax preparation  
  • Payroll

By outsourcing your needs to an online accounting firm, you gain the benefit of industry-leading expertise, all without breaking your budget.

Some business owners are leery of outsourcing their sensitive financial data to an online company. But at xendoo, we value communication with our clients. Our bookkeepers and CPAs are available by phone, text, and email, so you’re never out of touch with our skilled team.

In fact, many customers are surprised at the ways that small business bookkeeping solutions increase financial transparency. This is possible because your financial data is instantly available to you at any time, no matter where you are. This may be especially important for businesses that process digital or online transactions, providing up-to-the-minute reporting regarding your cash flow.

Catch-Up Bookkeeping Services

Roughly one out of every four business owners are behind in their books. Sound familiar? Sure, you keep telling yourself that you’ll get caught up “someday,” but the longer you ignore the problem, the worse it will become. Some small businesses can quickly find themselves months or even years behind in their bookkeeping.

This is deeply problematic because it prevents entrepreneurs from knowing what’s really going on in their company since they lack access to current financial data.

Getting behind in your books also can leave you vulnerable to fines and audits when it comes to taxes or payroll. 

If you ever need a business loan, lenders will expect to see copies of recent financial statements. Without accurate, up-to-date information, you may be denied a crucial loan. 

So what can you do if you do get behind? Small business owners can take advantage of “catch-up” services. As the name suggests, these small business bookkeeping solutions are designed to bring your financial records fully up-to-date.  

If you’ve gotten behind in your books, this bookkeeping solution just might offer you a huge sigh of relief. Accurate, current financial data will provide you with a fuller picture of the health of your business, which can enable you to better plan for the future.

At xendoo, we don’t merely offer catch-up bookkeeping services to bring your books up to date — we keep you up-to-date by reconciling your books on a weekly basis! This gives you the freedom and confidence to focus on your business, knowing your financial needs are in expert hands.   

Business Tax Preparation and Filings

Taxes represent a unique SMB bookkeeping demand. On the one hand, tax preparation is a yearly chore, but on the other hand, business tax codes can be complex, and ever-changing. 

That is why many business owners look for small business bookkeeping solutions that can assist with the complexities of tax preparation and filing. Not only can a professional accounting firm save you money, but they can also provide the best protection from common errors that can leave you and your business vulnerable to audits.

Keep in mind that your filing status depends on the structure of your business. Partnering with an online accounting firm like xendoo can ensure that you file the appropriate form. You can feel confident when you’re working alongside a CPA who is familiar with businesses ranging from partnerships to LLCs to S Corps and beyond. 

Additionally, consulting a CPA can also help you to take advantage of existing tax codes, maximizing your deductions and ultimately saving money. These bookkeeping solutions not only take the hassle out of tax season, but their tax strategy and planning services can help you keep more of your profits.

Bookkeeping services can also assist you with your personal income tax preparation. This can be a lifesaver, as business owners often face tax situations that are complex. xendoo offers personal tax preparation as an add-on to many accounting packages.

Accounts Payable and Receivable

One of the reasons that small businesses fail is that they don’t always get paid on time. Some businesses simply don’t know how to collect money from overdue accounts. We 

Unfortunately, there are many cases in which business owners can only collect their debts through persistent effort and regular contact with their clients. But once again, today’s entrepreneurs often lack the time for this kind of due diligence.

Online services can provide small business bookkeeping solutions that automate and manage your invoicing and collections process. At xendoo, we rely on advanced online bookkeeping software that can be used to create and submit invoices, collect payments, and monitor every step of the process. 

Most businesses will likewise owe money to vendors and suppliers, and this process can likewise also be managed remotely by an online bookkeeping service. 

By relying on this same service for tax planning and preparation, small business owners can have peace of mind that their income and expenses will be recorded accurately when it comes time to file taxes.

Financial Reporting and Insights

Financial reporting might be one of the most advanced small business bookkeeping solutions available today. While the other services we’ve listed are focused on your company’s historic or current performance, financial reporting helps you plan for the future.

Financial reporting allows you to track, analyze, and generate reports about your business income. This data can help you to monitor cash flow, resource units, and the overall financial health of your small business. It’s like having access to a professional business consultant, tasked with preparing reports and data with precise accuracy.

 This can be important data to have if your business has any investors, who may want to see the progress your business is making. Additionally, these reports may be required when you want to receive a business loan or open a line of credit to facilitate growth.  

The insight provided by these reports can also serve as a catalyst for future business growth. Negative financial trends might alert you to an area that needs to be adjusted, while positive trends can encourage you to continue focusing on areas of success. 

This data can also help you manage your growth, allowing your business to scale with the natural trends of the market.  

Trust xendoo for Small Business Bookkeeping Solutions

If you’re a small business owner, the choice is increasingly clear — you need to partner with an online bookkeeping service. Chances are that you’ll be relieved to have someone else shoulder the burden of maintaining and reconciling your books. 

Why not see for yourself? Sign up today for a free trial, and see what xendoo can do for your business.

4 Signs Your Business Needs Online Bookkeeping

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Bookkeeping is Holding You Back

Business owners know their companies like the back of their hands. They are the head of every department and perform the work of multiple people. Of all the roles they play, our customers express that the bookkeeper role is their least favorite. 

DIY bookkeeping holds business owners back from fully focusing on their business, which is why they decide to outsource it. Is it time for you to do the same? Let’s take a look at 4 signs that it could be time to hire an online bookkeeper! 

#1. Bookkeeping Takes Time Away from Your Business… and Your Life

Assess what bookkeeping is costing you. Is it taking significant time away from running your business? Let’s break it down. 

Suppose your time is worth $200 per hour, and you spend 10 hours per month doing your books. That costs you $2,000 per month just for bookkeeping! How much could you increase your sales? What else could you accomplish with that time? 

How does bookkeeping affect your personal life? Before partnering with us, many of our customers were up late at night and missed out on time with loved ones due to bookkeeping. Whether you are closing sales or enjoying a family dinner, your time is valuable. DIY bookkeeping does not make sense when you could be spending your time on the things that matter to you.

#2. Your Books are Behind

It is impossible to evaluate your business’ financial health when your books are behind. Old data cannot predict cash flow, track your revenue, or indicate if you are profitable. Out-of-date books may prevent you from making the best financial decisions for your business.

A professional bookkeeper can bring your books up to date. Bookkeepers input and classify your monthly activity. They also generate vital monthly reports such as Profit & Loss statements and Balance Sheets, which display your total income and expenses and your assets and liabilities, respectively. They also provide actionable insight to the current state of your finances. xendoo bookkeepers reconcile your books weekly to keep you on track for future success.

Guess what! You are not alone. 25% of business owners are behind on their bookkeeping. Whether you are behind a few months or a few years, xendoo will bring your finances up to date in no time. To get your books caught up, click here.  

#3. You are Not Sure if You are Doing Your Books Correctly

DIY bookkeeping leaves room for error, especially in the hectic life of a business owner. It is rarely anyone’s area of expertise (or passion). If your numbers are not adding up, do not wait until tax season to figure out why.      

Bookkeepers connect the dots between your sales, expenses, and profits to ensure business growth. They know how to properly categorize your transactions, keeping your books compliant and ready for tax season. At xendoo Online Bookkeeping, you can rely on your dedicated team of finance experts to deliver accurate statements and financial peace of mind year-round.

#4. Tax Season is Chaotic

When tax season rolls around, do you drop off a 30-pound box of receipts at your accountant’s office and hope for the best? After all the back and forth, are you disappointed by your tax refund? 

A chaotic and unrewarding tax season is a surefire sign that it is time to hire a bookkeeper. Your bookkeeper’s meticulous organization of your finances sets you up for smooth sailing during the most dreaded time of the year. 

Best of all, because your bookkeeper understands your business and your finances, they recognize every opportunity to maximize your tax savings! You will never have to worry if you pay too much in taxes. With a bookkeeper on your corner, you can walk into tax season prepared – and you will walk out knowing you maximized your tax savings!

The Importance of Bookkeeping

Bookkeeping is vital to the success of every business. It provides insight into your financial health and drives your decisions. When your books are in order, you can strategize effectively and plan for growth. Keeping your books compliant and up to date is crucial throughout the year so that you are ready for tax season. Consistent bookkeeping habits maximize your deductions and make an otherwise stressful time, a breeze. 

Bookkeeping is preventative care for your business. It puts a microscope on your finances to help you catch small problems before they snowball. A professional bookkeeper can take the stress of bookkeeping off of your plate so you can fully focus on running your business. 

xendoo Does it for You

Bookkeeping does not have to be an uphill battle. Let xendoo’s expert online bookkeeping and tax team handle the hassles so you can have more time for what you love!

Schedule your free consultation today!

 

 

 

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.

 

xendoo vs. Pilot: Comparing Online Bookkeeping Services for Small Business Owners

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Bookkeeping is critical to the financial health of every business, but business owners rarely have the time (or desire) to manage it themselves. To take their time back, many business owners choose to outsource their bookkeeping and accounting. There are many options available, from traditional CPAs to tech-savvy online companies. So, how do you choose the right financial partner for your business?

Today, we will take a look at two popular providers: xendoo Online Bookkeeping and Pilot. Both provide quality online bookkeeping and tax services, but there are some key differences in features that will help you weigh your options:

  • Online bookkeeping and tax services 
  • Accounting software 
  • Accounting methods

In this blog post, we will explore these key differences so that you can make the best choice for your business!

Online Bookkeeping and Tax Services 

Most of xendoo’s online bookkeeping packages are tax-inclusive, with prices starting at $295 per month. Plans can be paid monthly or annually, whichever works best for you. We reconcile your books weekly, and deliver your reports as early as the 5th business day of the month, depending on the plan you select!

Pilot offers three online bookkeeping plans, with prices starting at $599 per month, all of which are paid annually upfront. Tax services are available at an additional cost and must be purchased separately.  

If you are behind on your bookkeeping, xendoo and Pilot also offer catch-up services so you can get previous months’ books in order! 

Accounting Software

Most small business owners manage their finances in a variety of ways, the more software options, the better! That is why xendoo works with both Quickbooks Online and Xero. Depending on the nature of your business, one of these options will be able to meet your specific needs. 

 

Pilot only offers Quickbooks Online. If you are already working in Xero, they will have to switch you to QBO and leave your history behind. While QBO is a solid option, it may not be the ideal choice.  

Accounting Methods

Accounting methods determine when income and expenses are recorded in your financial statements. They affect how cash flow, profitability, and business performance are tracked. The method used depends on your business and tax needs. 

 

xendoo and Pilot use different accounting methods, with one exception: cash basis accounting. Depending on the plan you select, xendoo will use a cash basis or modified accrual basis. Pilot defaults to an accrual basis on all plans, but you can request a cash basis. 

 

  • Cash basis accounting is a method in which revenue is reported only when cash is received, and expenses are noted when money leaves your account. It is often used by small businesses because of its straightforward nature. 
  • Accrual basis accounting records income once it is invoiced to the customer and records expenses once the bill is entered (even if it has not been paid yet). This is a complex method, used mostly for businesses with $5 million or more in annual revenue.
  • Modified accrual basis accounting combines the best aspects of accrual and cash basis. It recognizes prepaid expenses and offers accrual for inventory and other Balance Sheet categories.

 

As accrual basis accounting is the most complex method, it is the most expensive and time-consuming method to complete. Even if your business needs to account for inventory and accounts payable and receivable, the accrual basis method may not be necessary. The modified accrual method can meet your business needs in a cost-effective and timely manner. 

 

We recommend speaking to your accountant to determine the ideal accounting method for your business. 

Try Us Out

xendoo offers a free trial in which we complete your bookkeeping from the previous month, plus the Profit and Loss Statement and Balance Sheet, so you can experience the xendoo difference for yourself. If you decide that xendoo is not the best fit for you, we will gladly connect you with others in our network so you can find your ideal financial partner. The data and reports are yours to keep in your QuickBooks Online or Xero account. If you choose to partner with us, you will have access to a comprehensive customer portal, with data-driven visualizations, and your financial reports at your fingertips 24/7.

 At this time, Pilot does not offer a free trial. They do weekly demos where business owners can tour the platform and ask questions.

 

For a brief summary of how xendoo and Pilot compare, check out the chart below:

 

Who is Right for You? 

It depends! Every business owner needs financial visibility into their numbers for effective decision-making and growth. If you are looking to simplify your books, xendoo is the best choice for timely, accurate, and worry-free bookkeeping, accounting, and tax services for you and your business. 

xendoo is a team of real people that care about you and your business. Allow us to handle the hassles while you put more money in your pocket, reduce your stress, and get back to doing what you love. So, are we a fit for your business? Let’s talk! Schedule your free consultation today!