Operations Archives

How Do You Pay Yourself From an LLC?

September 21, 2022/by Team

a self-employed person looking at a phone and doing taxes

A common question that business owners ask is: How do you pay yourself? Depending on your business entity type, the question may be: How do you pay yourself from an LLC, sole proprietorship, S corps, or C corps?

Typically, you pay yourself from an LLC through an owner’s draw. However, it depends on the specific type of LLC you have and how the IRS taxes your business. If you operate as a corporate LLC, then you’ll pay yourself through a salary.

If you’re a business owner and you’re wondering how to pay yourself from an LLC, we’ve compiled this guide to help. Let’s look at the specifics.

Table of contents

What is an LLC?
Types of LLCs
Owner’s draw (profit distribution)
How does an owner’s draw work?
How do you pay yourself as an LLC?
Single-member LLCs (one owner)
Multi-member LLCs (multiple owners)
LLCs that file taxes as corporations
How much should you pay yourself?
Get expert advice and help

What is an LLC?

A limited liability company, or LLC, is a type of business structure that many small businesses use. Setting your business up as an LLC gives you limited liability protection. It means that the owners, typically, are not personally liable for the debts and liabilities of the business.

Your business structure also impacts your taxes. LLCs are pass-through entities, so you’ll report business income and losses on your personal income tax return.

Types of LLCs

If you know your LLC type and how you handle taxes, then you can determine if you pay yourself from an owner’s draw or salary. To help you identify which type of LLC your business is, here’s a breakdown of each type and what it means.

Type of business structure	What it means
Single-member LLC	You have only one owner and you report business income on Schedule C of your personal tax return.
Multi-member LLC	You have two or more owners and report your business income and expenses on a partnership tax return. Each owner receives a K-1 at the end of the year.
LLC that chooses to be taxed as a Corporation	You’re an LLC but requested for the IRS to tax you as a corporation (either an S corp or a C corp). You must file Form 8832 and/or Form 2553 with the IRS for this category.

Often, your LLC will use an owner’s draw. We’ll explain what that means and how to use it to pay yourself and other owners.

Owner’s draw (profit distribution)

As the owner of an LLC, the IRS will consider you self-employed. You’re not an employee, so you don’t get paid a salary.

As your company grows and you hire employees, you may change your business structure and opt for a salary. A salary might be right for you because it can be more predictable—you know when your paycheck hits each month.

Owner’s draw vs. salary

Here are some of the main differences between the owner’s draw vs. salary.

Owner’s draw	Salary
You can pay yourself at regular times or whenever the funds are available. It depends on the number of business owners and how much profit your business brings in.	You’re paid like a regular employee, typically on a weekly or bi-monthly basis with a set amount each paycheck.
It’s not subject to payroll taxes. But, it’s still taxable. You must set aside funds to pay self-employment taxes and estimated quarterly taxes.	You must withhold taxes from each pay period.

How does an owner’s draw work?

LLCs must keep separate records for business and personal expenses. An owner’s draw is a way for business owners to take their business profits and pay themselves.

Most LLCs use it to distribute profits from the business to one or more owners. You’re not required to make withdrawals from it and may reinvest the funds back into your business rather than pay yourself.

Business owners decide how much to withdraw. Of course, you should leave enough money to pay vendors, cover expenses, and invest in your company’s growth.

The IRS will tax your business profits, not the money you transfer from an owner’s draw. You must still pay self-employment taxes (Social Security and Medicare) and income taxes. But, it’s not the same as when you get a salary.

Start in minutes

Bookkeeping? Taxes? CFO services?

Our bookkeeping and accounting experts keep your books clean, organized, and on time, every time.

Talk to an accountant

How do you pay yourself as an LLC?

As a business owner, how you pay yourself often correlates with your business structure and payment approach. For instance, if you are a sole proprietor, a partner in a partnership, or an LLC owner, you typically take an owner’s draw rather than a regular wage. On the other hand, if you are a corporation owner actively involved in the daily operations, you might opt to pay yourself a salary. The key factor influencing how you pay yourself lies in the nature of your business and your role within it.

Here are different LLC business structures and how owners pay themselves. Note: If you run your own business, have no employees, and didn’t register as an LLC, then you’re a sole proprietor. Sole proprietors pay themselves informally via distributions from the profit they make.

Owner’s draw (distribute profits)	Salary
Single-member LLCs	LLCs that file taxes as corporations
Multi-member LLCs and partnerships

Let’s look at how to pay yourself as an LLC in more detail below.

Single-member LLCs

You can treat a single-member LLC the same as a sole proprietorship when paying yourself.

To pay yourself from a single-member LLC, you use the owner’s draw and take money out of company profits whenever you need it. Remember, business owners must keep their personal finances separate from company finances. Otherwise, your company could lose its liability protection and put owner assets at risk in the event of a lawsuit.

How to pay yourself

To pay yourself, you’ll need to take the funds from your business bank account. You can simply write yourself a check or use accounting software to send them to your personal account. If you use Quickbooks, you’ll need to set up an Owner’s Equity account first to keep it separate from payroll.

The most important thing about an owner’s draw is to make sure you properly document each time you make a draw.

If you transfer money directly between your business and personal accounts, label the transactions. You can add a memo or document the transaction in your accounting software.

Multi-member LLCs

The IRS treats multi-member LLCs like partnerships when it comes to taxes and paying owners. (Note: A partnership is a separate business entity from an LLC that doesn’t include limited liability protection.)

How to calculate pay for multiple owners

If you own a multi-member LLC, you can take these steps to calculate how much to pay each owner:

Determine how much each member contributed to the LLC: You can do this by looking at their initial investment amount and additional contributions.
Calculate what percentage of the LLC each member owns: Typically, you’ll set an ownership interest when forming an LLC. It states how much money each member invests and what percentage of the business they own.
Distribute business profits and losses: You can do this proportionally to each member’s ownership interest. However, you can also choose to distribute them to reflect each member’s contribution to the business. For example, if one member contributed more capital, you may want to give that member a larger share of the profits.

Note that there is no requirement for distributions to be equal or fair. You should create partnership agreements that outline how to distribute pay.

To pay multiple owners, follow these steps:

Set up a draw account for each member.
Keep track of all withdrawals so you don’t overspend or run into other financial problems.
At the end of the year, report the amount you distributed to each partner on your tax return. (Form 1065 for partnerships)

LLCs that file taxes as corporations

Most LLC business owners will use an owner’s draw to pay themselves. However, if you applied for the IRS to tax your business as a corporation, you must pay yourself a salary.

You can request that the IRS tax your LLC as a C corporation or S corporation.

To pay yourself from either, you need to create a separate business bank account. Also, you must use a payroll system to withhold, report, and submit payroll taxes.

How much should you pay yourself as an LLC?

When setting your salary, consider the type of LLC, your business profitability, and your personal financial needs. There are many methods that business owners use to estimate how much they should pay themselves. For example, you could get a general idea with the 50-30-20 rule.

50-30-20 method

In personal finance, individuals use the 50-30-20 rule to help set their own budgets. It breaks down after-tax income by setting aside:

50% for needs (housing and other bills)
30% for wants
20% for savings

You can adapt it for your business, too. First, ensure you have set aside enough to cover your regular expenses (vendors, suppliers, software, payroll, etc.). Then, you could divide your profit up like this:

50% for paying yourself and other owners
30% for saving for taxes
20% for reinvesting into your business

This isn’t a foolproof or exact method, though. It’s more of a starting point; you’ll need to assess your situation and refine it for you and your business goals.

Ultimately, there is no single answer to this question. The amount you pay yourself should be based on factors specific to your business and your circumstances.

How Am I Taxed As The Owner Of A Single-Member LLC?

As the owner of a single-member LLC, your tax treatment is similar to that of a sole proprietorship. This means that the IRS considers your LLC to be a disregarded entity, with the business and owner being legally separate entities. The profits and losses of the LLC “pass through” to you as the owner, and you will report this income on your tax return. This also means that your LLC is not required to file a separate tax return. While you are not required to file a separate tax return for your LLC, it’s important to understand that each state may have its tax-filing requirements for LLCs. Therefore, you should review your state’s rules to ensure compliance with any additional filing requirements.

Additionally, as the owner of a single-member LLC, you can elect to be taxed as a corporation. If you choose this route, you would be considered an employee of your LLC and may need to pay yourself a salary instead of taking a draw. This decision could impact your self-employment taxes, have other tax consequences, and potentially require additional paperwork.

Get expert advice and help

You can also work with an outsourced CFO (chief financial officer) or CPA (certified public accountant. Xendoo offers online CFO, tax, accounting, and bookkeeping services for businesses.

When you work with us, you get access to a team of bookkeepers, CPAs, and finance experts in one place. In addition to advising you on how to pay yourself as a business owner, here are a few more examples of how we can help:

Preparing and filing your business taxes and making sure you get all the tax deductions and credits available to you.
Providing monthly financial statements and insight into your business health.
Managing your day-to-day bookkeeping and accounting tasks.

To get started, you can view our plans here or schedule a chat with an expert. We’ll schedule a 20-30-minute call to learn about your business and unique needs. Then, we’ll help you decide which services best suit you and your goals.

How to Create an Effective Invoice and Get Paid Faster

August 5, 2022/in Operations /by Team

Are you trying to figure out how to create an invoice? With about 61% of most payment delays being due to billing issues, you don’t want to fall in the same pit as the rest. In fact, you want to get paid as soon as possible for the goods or services you provide.

Creating an invoice doesn’t have to be a daunting task. This article will show you how to create an invoice step-by-step, using a template or software, and give you some expert tips.

What Is an Invoice?

An invoice is a sales or business document that shows what products or services a customer has purchased, how much they cost, and the terms of the sale. Issued by the seller to the buyer, it indicates that the buyer owes the seller money for goods or services provided.

Generally, invoices help the business keep track of its inventory, make payments on time, and reorder products as needed. It also comes in handy when the business needs to do its taxes at the end of the year.

What Information Should You Include on an Invoice?

When preparing an invoice, you’ll want to include certain information, so your customer knows exactly what they’re paying for and when the payment is due. Here’s a list of the minimum information you should include on your invoice:

Your logo and branding
A unique invoice number
Issue date and payment due date
Your business and your recipient’s address, phone, email, and other contact details
Description of goods and services
An itemized list of the quantity, unit price, and amount
Total amount due
Payment terms and details

Some of the exact details may change from invoice to invoice. For example, each invoice needs a unique invoice number, and the description of products may differ. However, your branding and contact information will remain the same.

Let’s look at each of these parts in more detail with a step-by-step guide to how to create an invoice.

How to Create an Invoice

There are many tools and templates that you can use to create an invoice. The look may vary depending on what you use, but these steps tend to be consistent.

1. Brand Your Invoice With Your Logo

Branding your invoice makes it look more professional. It also helps to make it clear that the invoice is coming from your business.

Your business logo should appear at the top of an invoice, usually in the right or left header. You might also include some of your brand colors throughout the invoice, but it is not necessary. The most important part is to ensure that you have all the necessary information and it’s accurate.

2. Add Your Business Information

You’ll need to provide your business information to make it clear where the invoice is sent from. This usually appears near the top under your letterhead as “from” with your business name and address.

You may use your standard letterhead: business name, address, phone number, and email. Or you may provide specific contact info for your accounts payable department.

3. Update Customer Info

You’ll also need to show who the invoice is sent to with your customer’s business name, address, and contact details. Use the name of the organization that will be issuing payment if it’s different from the DBA, or doing business as, name.

This usually appears towards the top, beside, or near your business information. It may be preceded by “issued to” or “billed to”.

4. Add a Unique Invoice Number

Each invoice you send out should have its own unique number. This can be a combination of numbers and letters. You can create your own numbering system, as long as it follows a consistent format. Some ways that you can generate invoice numbers include:

Chronological order by year and the invoice issued – For example, 2022-01 would be for the first invoice of 2022. The next one would be 2022-02 and so on.
Starting with a customer code – An invoice billed to Xendoo, might start as XEND0001.
A combination of chronological and customer code – A company called Walls and Doors might be invoiced as WD-2022-01, WD-2022-02.

In addition, if you are invoicing for construction, the invoice may also include your job or project number.

5. Update the Issue Date and Due Date

You need two dates on your invoices. The first is the date that the invoice is issued, in other words, when it is sent to your customer. If you are using invoicing software, this should update automatically.

Next, you’ll need a payment due date. If a payment is overdue, you can point back to the date listed on the invoice.

6. Products and Services Sold

This is an itemized list of everything you’re billing your customer for. Each line should include a brief description of the item, the quantity, the unit price, and the total price. Add up all the numbers in the total price column and put that grand total underneath.

If you’re selling physical goods, you may also want to include the SKU or stock keeping unit. This is a unique code that identifies each product you sell. It helps you keep track of inventory and can be scanned at the point of sale. If it’s relevant to shipping, you might also want to show the weight of the goods.

7. Additional Charges and Discounts

Next, list and subtract any discounts you’ve promised to the customer. Add shipping charges (if applicable) and sales tax.

8. Payment Terms and Methods

Clearly state your late fees and on-time discounts. Some invoices will include the amount you owe if paid on or before the due date, and then the charge if payment is after the due date. This can help you avoid late and missed payments.

You should also list the methods of payment you accept, like a check, cash, credit card, PayPal, or bank transfer. If you prefer how you want to be paid, you can also state that here. For example, “Preferred payment method is by wire transfer within 10 days.”

In others words, you should provide all details that customers need to pay the invoice.

9. Customer Reference

Some customers use their own job or purchase order numbers to track their expenses. If they give you a number like this, be sure to include it, as it will expedite their payment process.

Invoice Tools and Software

Many small business owners start out using a free invoice template. A template is fine if you only have a few customers. As your business grows, it may become cumbersome and time-consuming to update manually each time you invoice.

Eventually, you’ll want to transition to invoicing software. There are many options out there. At a minimum, the invoicing software you choose should:

Track invoices
Send automatic payment reminders
Create recurring invoices and quotes
Monitor income and expenses

It’s a good idea to also look for one that can double as your accounting software, or that will easily integrate with your current accounting tool. For example, many Xendoo clients use Xero.

Xero

One of the best billing software programs available, Xero is perfect for small businesses and freelancers. It hosts a variety of accounting features that can help you monitor your cash flow and make informed financial decisions. With Xero, you can integrate over 700 apps, making it highly customizable.

Besides Xero, here is a list of some of the best invoice tools to consider:

Quickbooks
Zoho Invoice
Wave Accounting
Freshbooks

Invoice Template

If you are using an invoice template, there are also many options at your disposal. Whether you are in the construction industry, product sales, or something else, there is an invoice template that suits your business.

You can easily find templates through sites like Etsy or Canva if you’re just starting out but want your invoices to look custom and professional.

Creating an Invoice Manually

If you prefer not to use an invoice template or software, you can create an invoice manually in Google Docs. To do this, start by writing “INVOICE” at the top of a blank page.

Below the word “INVOICE,” add your business name, address, and contact information. On the right side of the page, add the date and invoice number. This will help you keep track of your invoices.

Then, add a description of the goods or services you provided and the quantity and price. If you are providing services, you may want to include the dates you rendered the services.

For example, if you were a small home goods and plant shop, the description section of your invoice may look like this:

Description (or Item)	Quantity	Unit Price	Amount
Canvas tote bag	1	$25	$25
Flower Bouquet – 24 Mixed	2	$64	$128
Citrus Scented Candle	3	$24	$72
Large Burgundy Rubber Plant	3	$80	$240
Small Coffee Plant	10	$18	$180

		Total	$645
		Tax	$38.70
SUBTOTAL			$683.70

Remember, you may need to add sales tax, which can vary by location. For the above example, we used a general 6% tax.

A service-based business would look similar, but the descriptions would describe services rendered vs. product names.

Description (or Item)	Quantity	Unit Price	Amount
Logo	1	$1,000	$1,000
Landing Page Design	2	$2,000	$4,000
Branding Style Guide	1	$3,000	$3,000

Finally, calculate the total amount due and add your payment terms. This will let your customer know when they need to pay the invoice. Once you have finished creating the invoice, you can save it or print it out and send it to your customer.

Another option, and what we recommend, is to use invoicing software.

Tips for Getting Paid Faster

Creating the invoice is just one part of a protocol that can significantly reduce your time and effort. Here’s the bigger picture:

Advise customers upfront, preferably in the contract, of your billing and payment expectations. Don’t just surprise them after the job is done.
Send invoices more frequently. Establish a schedule, say once a week, to ensure that invoicing doesn’t get put off until you “have more time.”
Keep itemizations brief. If the customer requests more detail, send it in supporting documents.
Copy the same language from the customer-approved quote into the invoice, to help prevent misunderstandings or disputes.
Use a smart invoice template. Integrate with your spreadsheet software to automatically fill in customer information and standard pricing, calculate total charges, add taxes, perform bank reconciliations, send past due reminders, and more.

When it comes to how to create an invoice, there are many options available—from software to templates. Invoicing software is the most efficient way to create and send invoices, but you can start with an invoice template. The important part is that you are able to easily and accurately track the products or services you have provided and the payments you have received.

Xendoo understands how hard it is for small business owners to find time for accounting chores like invoicing. Our monthly services include Xero accounting software that offers robust invoicing tools to get you paid faster. Contact us today to learn more about how we can help you grow your business.

The Top 8 Expense Trackers for Small Businesses

November 19, 2021/in Operations /by Team

Tracking business expenses is one of the smartest things you can do to take control of your company’s finances. With better organization, you’ll find that your business is more streamlined and profitable, and you’ll be dealing with fewer headaches when tax season rolls around.

If you ever find yourself facing an IRS audit, proper tracking provides the documentation you need to validate your income and deductions.

Thanks to the many business expense trackers available, tracking small business expenses is easier than ever. You’re probably already familiar with some of the top choices on the market, but let’s take a closer look at the top 8 expense trackers for small businesses.

Expensify

Tracking business expenses often starts with saving your receipts. Expensify allows you to scan your receipts and import the details into the app. You can then organize expenses by category and create reports to highlight trends in your company’s spending patterns.

Employees can use the app to easily send reimbursement requests to supervisors and business managers, and staff will appreciate the rapid, next-day reimbursement feature offered through the app.

Expensify provides an ideal receipt-capturing solution for tracking expenses on the go, and the app can even handle foreign currency. You can also sync your company credit card, so company expenses are pulled in automatically.

The free version of Expensify allows for a certain number of receipt scans, after which the service costs $4.99 per month.

Mint

Mint is a great free tool for independent contractors and freelancers. Mint lets you scan your bank and credit card statements and upload them directly into its expense-tracking platform.

The app lets you set budgets and financial goals, as well as track your credit score. Mint also allows users to set alerts and reminders for big purchases or remind them of due dates for time-sensitive expenses such as utility bills.

Admittedly, Mint’s features are limited, but this system can be ideal for smaller companies or the self-employed.

QuickBooks

As a small business owner, you may already be familiar with Intuit QuickBooks as an accounting software platform. Admittedly, QuickBooks is a powerful tool and can be used to manage literally every financial aspect of your business. You can use QuickBooks to perform such processes as:

Running payroll
Accepting online payments
Tracking bills and expenses
Tax planning and preparation

The QuickBooks app also allows you to scan your receipts and import this data into the system. You can later use this data to generate expense reports and track sales tax. Business owners can expect to pay at least $12.50 per month for QuickBooks’ basic package, though this price will rise with the addition of advanced features.

Few tools are as powerful as QuickBooks, but that tends to be a double-edged sword for most small business owners. QuickBooks can be ideal for those who already have some knowledge of how to use the software or for businesses that have a team devoted to tracking business expenses and keeping up with the books.

Excel

Sometimes, the tried-and-true method works best. Microsoft Excel can be a simple, straightforward way to manage your company’s expenses without the bells and whistles of other tracking systems on this list.

The program already contains bookkeeping templates that you can start using for your small business, with spaces for recording income and expenses. Excel users can take advantage of automated formulas to perform calculations with the click of a mouse.

The data in your Excel spreadsheet can easily be migrated to other programs to allow you to create reports and share data with business partners and lenders or simply monitor your company’s finances over a long period.

The flipside to Excel is that it offers no receipt-scanning capabilities or other advanced features. This limit means that you (or your employees) will have to manually enter your expenses as they occur, which increases the possibility of data being overlooked or entered incorrectly.

Xendoo

As a small business owner, tracking business expenses can become a distraction from your core business activities. So why not outsource your books to a team of financial professionals?

This approach, of course, is the philosophy of Xendoo, who can provide expert-level online bookkeeping services for a fraction of the cost of an in-house accountant.

How can Xendoo help you keep track of your expenses? First, the Xendoo team understands that busy entrepreneurs can sometimes get a little behind. It’s not unusual for business owners to have an envelope full of business receipts that haven’t been recorded in the books.

Getting behind in the books once in a while is perfectly understandable, but it can keep you in the dark when it comes to your company’s health, and it can become a total nightmare when you need to file taxes.

Xendoo’s catchup bookkeeping services can help you catch up on your expenses, ensuring that your books are accurate and up-to-date.

But Xendoo can help with much more than this. When you partner with Xendoo, you’ll gain access to a team of experts who can provide ongoing services to manage all of your bookkeeping needs.

This service can be a great help when it comes to tracking business expenses, and the Xendoo reporting tools allow you to keep your finger on the pulse of your company.

Wally

Wally is a budgeting app that has largely been marketed toward millennials. The eye-catching, colorful graphics and social networking feature mask the true power of this tool. Wally uses artificial intelligence AI to integrate your financial accounts and provide insight into your spending habits.

This tool has largely been marketed for individual use, offering young adults a snapshot of their financial priorities and helping them develop better financial discipline. But the features of this app could easily be translated to the world of business and may be great for freelancers and solo entrepreneurs.

That’s not to suggest that you can’t use Wally with teams. Wally allows you to set up groups of users and pool data, which could be useful when collaborating on projects and tracking business expenses. Wally also enables users to set due dates and send reminders, ensuring your bills are always up-to-date.

The AI reporting features could also highlight trends and patterns in your company’s finances, providing insight that can help you refine your strategy and adjust spending for future goals and projects.

Wally offers a free version, though its advanced account-linking features will require a monthly fee, starting at $3.99 or $32.99 when billed annually.

Goodbudget

As the name suggests, Goodbudget is a software platform that allows you to create and manage a budget. Goodbudget relies on what’s called “the envelope method.” This method means that you’ll develop a series of expense categories and then deduct your expenses from the appropriate category as they occur.

For example, if you have an “envelope” for supplies, you would set a monthly budget for that envelope, then subtract from that category the next time you buy printer ink. The goal, of course, is to stick to the budget for each individual envelope.

This approach makes Goodbudget one of the simplest tools for first-time users. Suppose that you’re new to the business world. In that case, Goodbudget’s intuitive “envelope” system can help you think more carefully about how to categorize your expenses and how to manage the budget of each individual category.

Unfortunately, this might mean that the app requires more attention than other services on this list. You’ll not only have to manually enter your expenses as they occur, but you’ll also have to input data into respective categories.

Similarly, reporting features are fairly minimal, which means that you won’t be able to spot trends when tracking business expenses. This minimalism makes Goodbudget a great tool for solo entrepreneurs and freelancers but a bit lacking for growing companies.

Zoho Expense

Zoho has already been a big name in the small business community, offering a library of great tools for entrepreneurs. Zoho Expense is their solution for tracking business expenses, with some great features that make it ideal for companies of any size.

Zoho Expense allows you to scan receipts and input data as expenses occur, and you can use the built-in GPS to track mileage for your business trips. This design makes it great for business owners or employees who are on the go, and you can also set per diem rates for employees.

The reporting features are also quite advanced, offering you the ability to pin receipts to expense reports and sort expenses by category.

The app also syncs with business credit cards to keep track of all of your business transactions. If you use other Zoho products for your business, you can integrate data to provide a powerful financial tool for your small business.

Zoho Expense starts at $5.00 per user per month, though you’ll need a minimum of three users to deploy their service.

Do More than Keep Track

Tracking business expenses is the foundation of a good financial strategy. That’s why Xendoo offers cutting-edge solutions for today’s modern businesses.

Our accounting services can help you stay caught up with your books and provide advanced analysis to help you optimize your business. Experience our free trial, and see why countless business owners have trusted Xendoo for their accounting needs.

How to Choose the Right Software to Simplify Your Real Estate Accounting

June 25, 2021/in Operations, Small Business Tips /by Team

Editor’s Note: This post was originally published in June 2018 and has been revamped and updated for accuracy and comprehensiveness.

Let’s face it, bookkeeping for a business in the real estate industry is complicated. That holds true whether your niche is sales, management, construction, or tax and legal services. Unlike some other types of business, you must deal with variables like fluctuating income, expenses, payroll, and property values, not to mention a heavy load of government regulations.

All these factors must be accounted for completely and accurately to control profit margins, satisfy clients, and be prepared for tax filing. It’s a big hassle if you’re doing it the old-fashioned way, creating custom spreadsheets and writing down transactions in a ledger. However, the right real estate accounting software will do many accounting tasks for you automatically, leaving you free to focus on your core business.

Real estate business payroll

Processing payroll is a core function for any business. Using accounting software that takes some of the hassles out of completing payroll each period can save you time and keep your records accurate year after year.

Your business may have one or more of these types of workers:

• Commission

• Salary plus commission

• Salary

• Independent subcontractors

As it relates to real estate accounting specifically, choose software with a payroll feature capable of calculating commissions and tracking those amounts for income tax withholding. Similarly, you should categorize payments made to independent contractors, as those are typically not subject to withholding.

Real-time remote work tracking

Whether your people are out on a building site or showing homes to prospective buyers, a cloud-based management app will give them access to the office. At the same time, the office is tracking their activities. Info on everything from materials used to schedule changes can be updated and shared with everyone in real-time.

A system that integrates all departments saves time and money for workers and managers. It also means that data from the field is incorporated into the books automatically, eliminating duplicated effort and potential errors for the accountant. The inherent challenge with real estate accounting is the many moving parts involved—everything doesn’t happen in the same place. Leveraging technology to automatically collect all of this information and incorporate it into a bookkeeping system is sure to lead to better results.

Breeze through tax time

The topic of taxes will come up again and again in the search for the right real estate accounting software—and for a good reason. Taxes aren’t only necessary because they are a legal requirement but also because they can represent such a significant expense. If your real estate business holds properties, for example, the property taxes alone can take a big chunk out of your bottom line.

You can’t get away from paying taxes, of course, but you can use good accounting software and a tax filing service like Xendoo to make sure you don’t pay more than your share.

Streamline operational expense recording

One of the best real estate accounting tips you can receive is to enter all of your transactions each day. Suppose you wait until a week before your tax return is due to get your books updated. In that case, you’ll be facing a major headache and the likelihood that there will be errors beyond tax filing. Keeping your figures up to date will also reveal when and where you’re losing money. This makes it easier to make sound decisions and avoid spending too much time on a losing endeavor.

Consider accounting software that integrates with your bank, recording every transaction automatically and saving you a great deal of time and paperwork. Plus, you’ll be ready for an audit any day of the year. Many real estate professionals – and professionals in other industries – feel like they are constantly behind on accounting. The key to getting ahead of the game is not to spend more of your precious time on the task but rather to streamline it using the right real estate accounting software.

Financial reports data access

Using cloud-based software allows you to see your financial reports or share data with your accountant anytime, anywhere. And with no need for in-house servers to store your data, you’ll mitigate the risk of losing your data and bring down IT expenses as well. If you are currently storing all of the financial data for your business on a single computer in your office, you are playing with fire in terms of data loss risk. Turning to the cloud leaves you with off-site storage that is backed up and secure.

Two noteworthy options

Most real estate businesses won’t need to take their accounting software search beyond two of the market leaders—Xero and QuickBooks Online. Each of these options includes all of the features you are likely to need to keep the financial side of your business in order. And, as an added bonus when working with Xendoo, we can provide you with a discount on either one of these two excellent accounting platforms.

Xendoo believes that cloud-based accounting is the right choice for any real estate business looking to increase growth while reducing inefficiencies. By automating bookkeeping chores, we eliminate the hassles, the mistakes, and more than half the costs of traditional accounting. Our real estate accounting service will leave your business ready at every moment to meet challenges and seize opportunities for success.

How Your Small Business Can Prepare for Florida’s Minimum Wage Increase

June 14, 2021/in Accounting, Operations, Small Business Tips /by Team

In recent years, we’ve seen a reopening of the debate over minimum wage. Advocates are currently pushing for an increase to $15.00 per hour by 2026, with the door open to possible increases in the years after that. If you’re a worker, this is good news. A slight bump in the Florida minimum wage can increase the pay you receive, compensating for rising costs of living and other expenses. However, if you’re a small business owner, this wage increase can lead to tough decisions. Unless you’re a corporate giant, it can be tough to maintain your current roster of employees if you have to pay them more.

In this post, we’ll help you to prepare for the coming changes in the Florida minimum wage. We’ll also provide suggestions about the best ways to navigate the road ahead.

What is the Current Florida Minimum Wage?

As of January 1, 2021, Florida’s minimum wage has increased from $8.56 per hour to $8.65 per hour. Tipped employees have seen a recent increase in their wages, rising from $5.54 per hour to $5.63 per hour.

According to federal law and in some states, like Florida, employers may pay tipped workers less than the mandated minimum wage. This is called a “tip credit” as employees earn enough in tips to make up the difference. The “credit” is the amount the employer doesn’t have to pay. So for employers, the applicable state or federal minimum wage minus the tip credit is the least amount the employer pays tipped employees per hour. If an employee doesn’t make enough tips during their shifts to earn the hourly minimum wage, the employer has to pay the difference.

Are There Plans to Change the Florida Minimum Wage After 2021?

These changes will not stop in 2021. In November of 2020, Florida residents voted to raise the Florida minimum wage to $15.00 by 2026. The minimum wage increases will take place in a phased approach, raising the minimum wage each year on September 30. The proposed schedule will run as follows:

$10.00/hour on September 30, 2021
$11.00/hour on September 30, 2022
$12.00/hour on September 30, 2023
$13.00/hour on September 30, 2024
$14.00/hour on September 30, 2025
$15.00/hour on September 30, 2026

While there are no specific plans after 2026, the minimum wage increase may increase based on changes to the federal Consumer Price Index for Urban Wage Earners and Clerical Workers in the South Region.

How Should Small Business Owners Prepare for Florida Minimum Wage and Paid Leave Increases?

If you’re a business owner, don’t panic. At Xendoo, we understand the unique challenges facing today’s small business owners.

Here are some suggestions on ways that your business can prepare for changes in the Florida minimum wage:

Audit Your Expenses

How much are you already spending on overhead, supplies, and operating costs? You may be able to cut a few corners with certain expenses or by eliminating wasted spending. The money you save can be channeled into your human resources budget.

Determine Your Budget

Using these increased wage figures, calculate your new operating budget. Forecasting your operating expenses will let you know what you’re dealing with and provide an idea of what your income needs to be to maintain your profit margin.

Update Your Tech Stack

A tech stack refers to the digital tools you need to run your business. An update can help you to automate your social media presence, streamline scheduling, or integrate automated forms into your company’s website. These improvements optimize your business without the need for additional personnel or work hours.

Check Your Employee Classifications

How many full-time employees do you need? How many part-time employees do you need? Of course, you don’t need to start considering downsizing, but at the same time, it can be helpful to consider what your future needs may be.

Staff Accordingly

You may find that in the future, you can get by with fewer staff members. Perhaps you can rely on part-time staff to fill roles that you currently staff with full-time employees.

Gradually Increase Prices

Your new operating costs will probably push you to increase your prices to maintain your profit margin. However, raising prices slowly will give your loyal customers time to adjust while still ensuring you get the revenue you need.

Outsource Your Back Office

Are you still handling your own bookkeeping and accounting? Paying an employee to handle these specialized tasks may put a strain on your operating budget. Instead, outsource these tasks to a company like Xendoo. We can keep your company up and running without allocating your employees to do the job.

Contact Xendoo Today

The increase in the Florida minimum wage might mean big changes for your business. At Xendoo, we can help you stay ahead of the curve, adapt to these changes, and remain healthy and profitable.

We understand the challenges that Florida small businesses face. We can provide small business owners with Florida bookkeeping services that ensure accuracy and efficiency so that you don’t have to allocate precious resources to maintaining the books.

We can also help you with your Florida tax preparation, helping you to navigate the laws and changes that are likely to come your way in the immediate future.

Best Small Business Invoicing Practices

May 28, 2021/in Bookkeeping, Operations, Small Business Tips /by Team

Is getting people to pay their invoice balance a challenging part of running your own business? You are not alone. According to a report in Entrepreneur, on average, small businesses had $84,000 in unpaid invoices. Waiting weeks and sometimes months for the checks to arrive and managing cash flow in the meantime can be daunting, to say the least. Since invoicing isn’t the most exciting aspect of your business, we want to share these tips for small business invoicing to help you get paid faster, increase client relations, and save time and money.

What is an invoice?

An invoice is a bill generated by a vendor that lists details and costs for goods and services provided. You’re likely already invoicing your clients, but don’t forget it is a legally binding contract. Making sure your small business invoicing system is up to snuff can save you headaches down the road.

Setting Expectations

Review your contract template and make sure you set expectations for invoicing. Likewise, make sure your invoice aligns with what is in the contract. Include payment schedule, estimated totals, and project milestones for payment.

Consider your software

As you strategize for creating, sending, and organizing your invoices, we recommend automating as much as possible. Your accounting software likely offers a way to do this. At Xendoo, we use QuickBooks Online and Xero, which both have invoicing solutions and are known for being the best accounting software options.

If you’re considering an invoicing program separate from your accounting, ensure the two integrate and consider online payment processing. Clients love having the option to quickly pay online, so make sure your software can integrate with payments. The easiest method is the simplest—at Xendoo we offer solutions with online bookkeeping services, accounting, invoicing, and integrated payment processing all in one.

Make sure you include these basics in your invoices

Dates: Include invoice creation date. Consider including the date the good or service was delivered in the summary.
Unique invoice number: Especially important when sending multiple invoices to the same client.
Client’s P.O.: During the contract phase, find out if your client uses Purchase Orders (P.O.s). A P.O. is an agreement between a vendor and a customer that outlines the purchase details and is issued by the client before work is performed.
Contact information for all parties involved: Include name, address, phone, and email for both companies’ project and accounting contacts.
Payment terms: Terms indicate how long the client has to pay you and are determined initially. Net 30 (due in 30 days), Net 60, and Due Upon Receipt are popular terms.
Summary description of goods/services provided: Make it concise! A common way to summarize is to refer to completed milestones that were outlined in your contract.
SKU numbers: If your company uses SKU numbers for goods/services, make sure to include them. SKUs are helpful when you need a pricing breakdown and to determine what goods are taxable.
Totals: Include the cost for each line item, subtotal, taxes or discounts, and the final total.
Late/early payment details: Consider charging an added percentage if the payment is late and a discount for early payments.
Method of payments accepted: Indicate all options for how to pay and details. Let them know who to make a check out to and where to mail it, and include a link to pay online.

Be straightforward

Make your summary description brief while ensuring the client will understand how you arrived at the total. Do everything you can to make it easy for your client to pay you. Keep your invoice to one page.

Send invoices as soon as possible

An invoice should be sent promptly when the project has been completed. Your client will use the invoice as the first step in processing your payment and likely has internal steps to take before paying you. Therefore, the quicker you send the invoice, the quicker you get paid.

Give your customer multiple ways to pay your invoices

Consider including a “Pay Now!” button on digital invoices. Clients love the convenience of online payment and often take immediate action. And these online payments can sync with your accounting software and help you avoid the “checks in the mail” scenario. If you are issuing an international invoice, indicate which currency you accept.

The Art of the Follow-up

Frustrations aside, you must send professional follow-ups when you haven’t received payment. Consider making a schedule for follow-up emails in advance and writing templates, customizing them for each client. This might make the process quicker and less frustrating.

Also, consider using read receipts. They are a great way to track when your communication was received and when to follow up.

When a few emails aren’t enough, call your client. A brief, friendly call gives you another opportunity to connect with your client. They are likely receiving invoices from multiple vendors. Stand out by offering a friendly, professional demeanor.

Don’t Forget to Say Thanks!

Once you’ve received payment(s), send a thank you note. It’s an opportunity to remind your client what a positive experience it was to work together.

Communication Strategy and Branding

Consider your invoice a branding opportunity! Xero and QuickBooks offer customizable options to add to your logo, colors, and fonts. If you’re planning to mail a thank you note, keep it on-brand, too.

Streamlining your small business invoicing process can help you retain customers, increase cash flow, and increase stability. In addition, your customers will remember your professionalism and gratitude. Sign up for Xendoo today, and let us help with bookkeeping and accounting for your small business.

Bringing Home the Bacon: A Profit Growing Guide for Restaurateurs

May 14, 2021/in Accounting, Bookkeeping, Operations, Small Business Tips /by Team

Editor’s Note: This post was originally published in February 2017 and has been revamped and updated for accuracy and comprehensiveness.

It’s no secret that the restaurant business is tough, even in the best of times. Really tough. Even before the COVID-19 shutdowns, industry analysts estimate the failure rate for new restaurants in the first year was somewhere around 60%, with another 20% shuttering the doors before the 5-year mark. That’s only gotten worse during the pandemic, with hospitality being one of the industries hardest hit by shutdowns and restrictions. However, as bleak as that reality may seem, the restaurant industry is still viable, and there are things you as an owner can do to help increase restaurant profits and make sure you stay in the 40% that do well.

Understanding Profits: Gross vs. Net

When discussing how to increase restaurant profits, it’s important to distinguish between gross profit and net profit. Gross profit for a restaurant is defined as the price of the item minus the cost of goods sold, i.e., food cost. For example, if your signature lasagna dish sells for $20 and the ingredients to make it cost $7, your gross profit on that item is $13, and your profit margin is 65% (13 divided by 20). Industry norms and best practices suggest that food costs should run somewhere around 30%, which means that if your total sales for the month are $100,000, you should be spending roughly $30,000 with your foodservice vendor. Food costs that run higher than that can often be an indicator of excessive waste or theft (often referred to as shrinkage), so it’s essential to know your gross profit margin.

Net profit is the amount left over after ALL operating expenses are deducted, not just food costs. That includes expenses such as labor, food cost, rent, utilities, equipment repairs or leases, insurance, etc. Because it consists of a much more expansive list of expenses than gross profit, net profit will necessarily be a much smaller number. Typical net profit margins have shrunk in recent years but typically hover around 3-5%.

It’s critical to stay on top of your books and know exactly what your margins to increase restaurant profits because if you’re playing catch-up bookkeeping, you’re flying blind. Generally, when discussing how to increase restaurant profits, most people mean net profit because it’s the one that keeps the lights on for your business. With that in mind, there are two ways to boost your bottom line – you can increase sales or lower expenses. So let’s look first at ways to boost your sales numbers and increase your average ticket price or cover the average.

Review Your Menu Pricing

As we noted above, your food cost should be around 30% of your menu price, so you’ll need to calculate the plate cost of each menu item to help increase restaurant profits. To do this, first, make a list of each ingredient required to prepare the dish. Next, choose which unit of measure your foodservice vendor uses for the items (e.g., do you buy it by the pound, gallon, dozen, etc.) and identify your unit cost from your vendor. There may or may not be a yield percentage for the item, which would be waste from trimming or peeling the item before use. For example, certain cuts of meat may require trimming away fat or gristle, which reduces its useful yield. These can usually be found in standardized yield charts available from many vendors.

Finally, do a similar calculation for the way you prepare the dish:

1. Select the correct serving unit, which is usually as simple as the unit of measure that your recipe calls for.

2. Calculate the serving unit cost by dividing the cost per measure by the number of serving units per measure. The cost per measure for items with no yield is the unit purchase price, and for items with a yield, the unit purchase price is divided by the yield percentage. For example, if you buy ground beef for $4 per pound and your serving unit is ounces, the serving unit cost would be $0.25 per ounce ($4 divided by 16 ounces to the pound).

3. Select your portion size, which is the quantity called for by the recipe.

A simple plate cost for a hamburger and fries might look like this, assuming four potatoes to the pound and six slices per tomato:

Ingredient	Purchase Unit	Purchase Unit Cost	Yield	Actual Unit Cost	Serving Unit	Serving Unit Cost	Portion Size	Portion Cost
Ground Beef	Pound	$4.00	N/A	$4.00	Ounce	$0.25	5	$1.25
Bun	Dozen	$6.00	N/A	$6.00	Each	$0.50	1	$0.50
Tomato	Pound	$1.89	N/A	$1.89	Slice	$0.31	2	$0.62
Mustard	Gallon	$13.00	N/A	$13.00	Ounce	$0.81	1	$0.81
Potato	Pound	$2.00	.81	$2.46	Each	$0.62	1	$0.62
								$3.80

So we can see that the plate cost for this hamburger and fries meal is $3.80. Sticking to the rule of 30% food cost, the menu price of this item should be $12.50. If it’s less than that, it’s probably eating into your bottom line.

Identify Your Menu Hits and Misses

Now that you know your plate cost for each item on your menu, it’s time to compare those to some sales reports from your point-of-sale (POS) system to see where your profit is coming from. Create a spreadsheet with four categories and label them “HIGH PROFIT/HIGH SALES,” “HIGH PROFIT/LOW SALES,” “LOW PROFIT/HIGH SALES,” and “LOW PROFIT/LOW SALES.” Then, put each item on your menu into one of those categories to see where each item falls. Dishes that fall into the “LOW PROFIT/LOW SALES” category are candidates for removal in favor of more profitable offerings. Also, consider running daily specials that combine high-profit, low-sale items with big sellers to help move those lower selling items to get that incremental revenue.

Up-Sell and Cross-Sell Effectively

It’s impossible to overstate the importance of staff training in proper selling techniques to increase restaurant profits. Train your service staff to offer customers an appetizer or cocktail before starting their meal, and train them to make quality recommendations. If you are a full-service restaurant and serve alcohol, educate your staff about wine types and selections that you carry. Distributors will often send a representative to do this training for you at no cost. Armed with that knowledge, the staff then knows that the new full-bodied cabernet that just came in yesterday goes wonderfully with a steak dinner and can offer that to a customer considering the steak. The result is a happier customer with a higher ticket who will tell his or her friends about your knowledgeable staff. Run contests to reward the servers with the highest average ticket for the week to encourage up-selling.

In addition to some general restaurant bookkeeping tips, let’s look at some specific ways to manage your operating expenses and keep your bottom line healthy.

Watch Your Invoices Closely

Food prices constantly fluctuate due to various factors, with some items varying wildly. It’s important to know exactly the current price of a pound of shrimp. If that price begins to rise due to an oil spill, hurricane, or another event that causes a shortage, it might be prudent to take the shrimp cocktail off the appetizer menu for a little while if the price gets too high. Also, some food service vendors will try to get your business by initially offering you low prices that they can’t sustain with the intention of creeping the prices up slowly in the hope that you won’t notice. This practice is called “speeding.” Be sure to regularly compare pricing from different vendors to ensure that you’re getting the best price when your food truck comes in.

Manage Your Labor

Along with food cost, labor is the other big variable expense that operators can control to increase restaurant profits. Labor is often a very fine line to walk. Too much labor during slow times is an unnecessary expense and may dilute tips among servers and affect their morale, while too little staffing can result in poor customer service and quickly land your business in Yelp hell. Many modern point-of-sale (POS) systems include advanced scheduling that uses sales history to predict how many servers you will need at any given time. Many POS systems can even suggest your best-selling servers on your busiest shifts for you. If you have such a system, take advantage of these features to keep your staffing lean and mean. If you don’t, it might be cost-effective to consider upgrading.

Stick to Multi-Purpose Ingredients

When planning out your menu, try to avoid items that require ingredients that aren’t used in any other dish. For example, if nothing else on your menu uses shrimp, you should probably avoid putting the shrimp cocktail on your appetizer menu because shrimp is expensive and has a short shelf life. But if your menu includes a grilled chicken salad and lemon pepper chicken, the chicken quesadilla pinwheels might be a better appetizer for you. By sticking to ingredients that are used in multiple dishes, you can cut down food costs and waste significantly.

Take Regular Inventory

Taking regular inventory is one of your best tools to detect waste and theft, so set a schedule to take a detailed inventory regularly. Compare it to your sales report to see if the sell-through rate matches what you expected from your sales report. That way, you know which items are moving and which are sitting on the shelf too long, and whether you might have some product walking out the back door at night. Have it conducted by at least two people to ensure that it’s done accurately and honestly.

Get a Handle on Your Bookkeeping

Good bookkeeping for restaurants is essential, and as a restaurant owner, you probably don’t have the time to be doing your books. Your focus needs to be on doing what really matters – growing your business and improving your bottom line. That’s where a partner like Xendoo can help by offering a full suite of business bookkeeping products and services to help you know where every dollar is going. Outsourcing is more affordable than you might think, and it can pay for itself very quickly. Economists call it “opportunity cost.” It’s the hidden cost of foregoing one opportunity in favor of another because you don’t have time to do both. Yes, assuming you have the knowledge, you might save a few dollars in accounting fees by doing it yourself, but how much will your business operations suffer because you’re spending all your time on that?

How to Change from an LLC to an S Corporation

May 10, 2021/in Operations, Small Business Tips /by Team

Remember back when you had to decide on a name to register your new business, forming a limited liability company—LLC? Now your small business has grown up thanks to your hard work and dedication. You may have outgrown your current legal status and it’s time to change from an LLC to S Corp to gain additional tax benefits that you’ve earned! Since determining the status of your business is important to its success and potential, we’ll break it down for you.

What is an S Corporation?

Under “S” corporation status, the small business owner’s income, losses, deductions, and credits “flow through” to you and are reported on your personal tax returns and assessed at your individual income tax rate. S Corp status is great for small businesses because you have the LLC protection from losses beyond your capital investments, while still providing you with the flow-through taxation.

How is an LLC Different from an S Corporation?

As an LLC owner, you could lose everything you have invested in the business, but your personal home, bank account, and other assets are protected. The main differences between an LLC and an S Corp are:

An S Corporation isn’t a business entity like an LLC—it’s an elected tax status.
LLC owners must pay self-employment taxes for all income. S corp owners may pay less on this tax, provided they pay themselves a “reasonable salary.”
LLCs can have an unlimited number of members, while S Corps are limited to 100 shareholders.

Why you should consider changing from an LLC to an S Corp

Here are three great reasons to change from an LLC to an S Corp:

Self-employment taxes

S Corp distributions aren’t subject to FICA/self-employment taxes. This is one strategic way to minimize self-employment taxes, making it a great business structure for consultants, sole-proprietors, and more. If you have an S-Corporation and are active in the business, you must pay yourself a market-rate salary for your work The IRS won’t let you pay yourself entirely in distributions to avoid self-employment tax.

Tax-preferred retirement savings

You can contribute more to retirement accounts with an S Corp than an LLC because with an S Corp you can set up a Solo 401(k) in addition to a Roth IRA.

Easier to scale

S Corps allows for a smoother transition from a C Corp. Stockholders are required to report their percentage of the profit/loss whether or not they actually receive that money as a distribution. If you own 100 percent of an S Corp and it makes X dollars in profit, you can keep that money in the business to make purchases next year. You are still required to report the profit on your individual tax return. If you anticipate keeping a significant amount of money in the business, you may be better off as a C Corporation.

How do I change from an LLC to an S Corporation?

If you decide to change from an LLC to an S Corp for federal tax purposes, you can simply make an election for the LLC to be taxed as an S Corporation. All you need to do is fill out a form and send it to the IRS. Once the LLC is classified for federal tax purposes as a Corporation, it can file Form 2553 to be taxed as an S Corporation.

With this approach, you don’t change the actual entity type, only the federal tax classification. Even though the IRS classifies the LLC as S Corp, it is still an LLC and may be taxed as such by the state where it is formed.

To change the actual entity structure you must formally change the LLC to an S Corporation with the formation state. If the simple conversion process is not allowed by the formation state, then you can do the following:

send the IRS a letter informing them of the structural change
choose to be an S Corporation by filling out IRS Form 2553
cancel the LLC while filing with the state for a new corporation

Is Switching from LLC to an S corp right for my business?

When you’re ready to change from an LLC to S Corp, we recommend that you consult an accountant or tax preparation services to make sure there are no mistakes that could cause you to lose your money-saving tax status. Your Xendoo team of small business accounting experts can help you find the right solutions for your small business, and take the hassles of tax prep and filing off your shoulders. Whether it’s the 1120S, 1120, or 1065, Xendoo’s CPAs will file the right return for you, right on time.

With bookkeeping, tax consulting, and tax filing all under one roof, your U.S.-based Xendoo financial team is here to answer all your questions and to file your business and personal taxes. We’ll do what we do best — and let you get back to doing what you do best to make your business a success. Sign up today.

How to Track Deferred Revenue for SaaS Businesses

January 13, 2020/in Operations, Small Business Tips /by Team

Subscriptions are the most important revenue stream for software-as-a-service (SaaS) businesses. Yet many accountants don’t correctly record that revenue in the company’s books. This makes it difficult to see your true financial position and make informed decisions.

What Is Deferred Revenue

Say your customer pays you $6,000 for a 1-year subscription. Instead of recording that entire amount in the month, it was received, you divide it up evenly among the 12 months of the year — $500 per month.

How to Record the Payment

Since you obviously haven’t yet created balance sheets for the entire year, you’ll need a way to credit the subscription payment on your balance sheet (not your income statement). In the month you receive the payment, debit the full amount in Accounts Receivable and credit the full amount in Deferred Revenue, like so:

Accounts Receivable	Deferred Revenue
DR $6,000	CR $6,000

The next month, debit the monthly amount of $500 from Deferred Revenue and credit it to Subscription Revenue. Follow the same procedure each month for the rest of the year.

Deferred Revenue	Deferred Revenue
	CR $6,000
DR $6,000	CR $5,500

Subscription Revenue	Subscription Revenue
DR $6,000	CR $500

If you want to be even more detailed, you could do daily entries instead of monthly. In that case, you would divide the monthly amount by the number of days in that month.

Why Deferred Revenue Is Better

• It keeps your income statement uncluttered and more accurate
• It’s easier to see whether your recurring revenue is growing, and by how much
• It’s easier for investors and banks to understand your business performance
• It allows you to calculate gross margin and recurring gross margin
• It allows you to determine metrics such as customer lifetime value or CAC payback period

Need assistance setting up a chart of accounts, balance sheets, and income statements for SaaS deferred revenues? Xendoo’s small business experts have all the answers at their fingertips.

See for yourself with a one-month free trial.

States with No Income Tax

November 7, 2019/in Operations /by Team

Imagine being able to erase what you thought was an unavoidable cost of living or doing business. That’s exactly what you can do if you reside or locate your business in one of the seven — soon to be eight — U.S. states that don’t have an income tax:

• Alaska

• Florida

• Nevada

• South Dakota

• Texas

• Washington

• Wyoming

• Tennessee will be completely tax-free by 2021

Two more states don’t tax income from wages or earnings. However, they do tax income from interest and dividends on investments:

• New Hampshire: When interest and dividend income for the tax year exceeds $2,400 ($4,800 for joint filers) plus additional exemptions for age, blindness, and disability.

• Tennessee: When interest and dividend income for the tax year exceeds $1,250 ($2,500 for joint filers). This tax will be phased out over the next three years.

What if you live in a tax-free state but earn income in a taxable state?

You will have to file a non-resident tax return in the taxable state.

What if you live in a taxable state but earn income in a tax-free state?

ALL your income — including what you earned in the other state — must be reported on your state tax return.

Of course, you must still file a federal income tax return, no matter what state you live in.

Can you register your business in a state other than your home state?

For both LLCs and corporations, the answer is yes, you can. It’s an excellent way of saving on business taxes and also taking advantage of other money-saving breaks for businesses.

However, it can have drawbacks, such as extra fees, increased paperwork, more logistics hassles, and possible denial of protection against legal and financial liabilities. What you save on income tax may be less than what you lose on these other expenses.

Before you make a decision on what’s best for your business, be sure to consult your Xendoo CPA team about the tax issues, as well as a lawyer about the relevant state government regulations.