Tag Archive for: Online Accounting

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

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

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

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

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

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

What is bank reconciliation?

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

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

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

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

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

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

Bank reconciliation terms to know

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

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

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

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

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

How often should you do bank reconciliation?

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

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

How To Do a Bank Reconciliation

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

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

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

1. Download your bank statement

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

2. Locate reconciliation in your software or spreadsheet

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

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

3. Reconcile the deposits

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

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

4. Reconcile checks

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

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

5. Reconcile any electronic payments

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

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

6. Compare the cleared balance to the bank balance

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

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

How to use a bank reconciliation template

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

The bank reconciliation template has three tabs. 

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

Update dates and balances

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

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

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

Review your deposits

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

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

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

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

How to record bank reconciliations

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

A journal entry

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

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

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

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

A bank reconciliation statement

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

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

A bank reconciliation statement may include:

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

Why is bank reconciliation important?

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

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

1. Fraud

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

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

2. Missing checks and vendor payments

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

3. Bank errors and financial statements

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

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

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

4. Cash flow management

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

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

Top tips for bank reconciliation

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

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

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

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

 

Free Small Business Expense Tracking Spreadsheet

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Small business expense tracking can be tedious, but it’s one that all companies–from “mom and pop” shops to international enterprises–must do. Fortunately, business expense tracking apps make the job easier. An app is ideal if you have a business with many employees, sales, and tax considerations.

For some small businesses, however, paying a subscription fee for an expense tracker may not be feasible in the beginning. In this case, they can use a free business expense tracker or template. While expense tracking will remain manual, it will keep their finances organized in one place. 

We’re sharing a free business expense tracking spreadsheet that you can use. You can jump to the spreadsheet here and scroll further to learn how small businesses can keep track of expenses for free or at little cost.

Why do you need to track small business expenses?

As you may know, you’re required to file taxes each year. Come tax time, no one wants to sift through old receipts to account for each expense. 

Once you start expense tracking regularly, you can eliminate such hassles. Moreover, up-to-date records ensure that you file tax returns accurately. Therefore, should the IRS audit your company, you won’t have anything to worry about. Besides saving you time, you’ll also want to track expenses to take advantage of tax deductions and better financial health.

Tax Deductions

Everyone has to deal with taxes every year–companies and individuals. You may be eligible for tax deductions for certain expenses or activities. If you qualify for a deduction, you can lower the tax amount you owe and use the savings to grow the business. 

While it may surprise you, many small business expenses qualify for tax deductions. However, only a small proportion of small business owners benefit from them. This is primarily due to inadequate expense tracking practices and not knowing how much you can save.

With reliable accounting software, you’ll have expense reports. These will give you a complete picture of your spending and tax deductions. If you’re unsure what counts as a deduction, you can review our list of over 20 tax deductions for small businesses.

Financial health

Data from the Bureau of Labor Statistics (BLS) shows that 20% of small businesses fail within the first year. This figure rises to 50% by the fifth year. But there’s a silver lining. 

Most of these businesses do not fail because there’s no market. Surprisingly, some companies make a lot of money and still fail. Some of the reasons for this include:

  • Financial mismanagement
  • Cash flow issues
  • Unsustainable growth
  • Poor planning

As you can see, all those factors are related to finances. By ironing up your expense tracking processes, you can significantly increase the chances of success for your business. You’ll be able to quickly spot unnecessary, unusual, and fraudulent activity that may bring your business down. 

This way, you can limit business expenses to necessary expenses and prevent costs from going overboard. In addition, you can learn how to read and interpret financial statements. 

What are common business expenses?

Businesses in varying industries have different expense profiles. Even still, there are expenses that almost all businesses have. In the expense tracking spreadsheet, you’ll find areas to record each of these expenses, including: 

  • Advertising and marketing – Costs associated with hiring a marketing agency or a consultant.
  • Auto expenses – If you use your car for business, you can expense repairs and mileage.
  • Bank charges – Fees and costs for a business bank account and credit cards.
  • Commissions – They will be recorded here if you pay out sales commissions.
  • Contract labor – This is for businesses that hire freelancers or contract employees. 
  • Interest – If you have a business loan, its interest is considered an expense.
  • Legal & professional – Consult with lawyers, accountants, and other professionals.
  • Merchant fees – These are costs that merchants like Shopify and Amazon charge.
  • Payroll, payroll taxes, and processing – Expenses related to paying employees and processing those payments.
  • Recruiting & HR – Costs associated with finding and hiring employees.
  • Training & Education – Expenses related to furthering your or your employees’ business education.
  • Software and tools – Many tools you use for your company are expenses (and tax-deductible).
  • Rent or lease – If you have a physical store or office, you can add it as an expense.
  • Utilities – Many utilities, including the Internet, are business expenses.

These are just a few examples. You’ll find more inside the small business expense tracking spreadsheet. 

What is the best way to track expenses for small businesses?

At this stage, you know why it’s important to track business expenses, but how do you do it? You have two options: business expense tracking spreadsheets or apps. 

1. Business expense tracking apps

The best options for business expense tracking are expense tracker apps. These solutions sync to your bank accounts and business credit cards and categorize your expenses. This eliminates most of the manual work and automates inputting the costs yourself in a spreadsheet. As a result, the only expenses you usually add manually are those you pay for in cash.

Such solutions generate expense reports in addition to maintaining expense records. These reports help you understand your spending habits and how they impact cash flow and financial health. You don’t have to set time aside for this. You can review your expenses using a mobile app while on the go. Overall, they reduce the amount of time you spend on expense records. 

Some business expense tracking apps include: 

  • Mint
  • Quickbooks (integrates with xendoo)
  • Xero (integrates with xendoo)
  • Zoho Expense
  • Expensify

To learn more about each app and if it’s a good fit for your company, you can view our guide to expense tracking apps here. 

2. Business expense tracking spreadsheets

While business expense tracker apps may be ideal, they’re sometimes inaccessible to small businesses. There may be a learning curve. Your company may not have many employees or complex expenses or the budget to afford a subscription. Whatever the reason, you’ll still have expenses to manage and report. 

Using this free business expense tracking spreadsheet is the ideal option. Expense tracking spreadsheets use standardized templates to help you track various business expenses and key details. It’s the perfect middle ground between expense tracker apps and other inadequate methods. 

Instead of worrying about how to record expenses, you’ll have a simple outline to follow. And you’ll have key insights such as:

  • The amount of money spent
  • The purpose of spending money
  • What the money was spent on
  • Who spent the money

The good thing about spreadsheets is that they give you flexibility. Along with the general expenses spreadsheets, you can have spreadsheets to report particular expenses. For example, this may include: 

  • Mileage reports, especially if you reimburse employees for mileage
  • Travel expense reports for long business trips

Although, it is ideal to keep everything in one central place. Otherwise, it becomes harder to manage and you might not have the full picture of your finances. 

While the purpose of each expense spreadsheet may vary, they’ll have similarities. These include:

  • Columns for filling in data such as expense descriptions, date, unit cost, vendor, and method of payment
  • Rows for each expense item
  • Columns with formulas that automatically calculate total expenses

In fairness, updating expense tracking spreadsheets requires commitment and can be tedious. However, if you are just starting out with a low budget, they can help you stay organized. Most entrepreneurs move to accounting software as their business grows because it will integrate with other tools like those for eCommerce stores, payroll, and inventory. 

How can integrating tax software benefit small businesses?

Integrating tax software can greatly benefit small businesses by streamlining the tax preparation process. By integrating their expense spreadsheets with tax software, small businesses can automate tasks such as categorizing expenses, calculating deductions, and preparing tax forms. This integration ensures that spreadsheet data is properly formatted and categorized, facilitating the efficient importation of data into tax software. Consequently, small businesses can save time and reduce the risk of human error when compiling year-end financial statements, estimating taxes owed, and filing tax returns. Integrating tax software simplifies tax preparation, enhances accuracy, and enables businesses to maximize their eligible deductions.

Small business expense tracking spreadsheet

You can get the Google sheet for small business expense tracking here. To use the sheet, you’ll first make a copy and edit the copy. 

When you’re tracking expenses or any finances, you’ll come across accounting terms like gross revenue, net income, and gross income. To use this spreadsheet, you’ll want to be familiar with them. 

What is gross revenue?

Along with the primary revenue stream, your business may have several sources of revenue. Gross revenue is the total of your business’s revenues over a given time period. It is not the same as gross profit. 

Gross revenue solely focuses on earnings. As such, it does not account for the expenses incurred, such as the cost of production. Therefore, tracking gross revenue is important as it shows the potential of a business to grow and generate profits for shareholders. 

Gross revenue is also known as the “top line” because it usually appears at the top of the income statement. Similarly, gross revenue is at the top of our free expense tracking spreadsheet. It’s important not to confuse gross revenue with net revenue. Along with the total earnings, the latter also accounts for expenses.

What is gross profit?

Unlike gross revenue, gross profit accounts for the costs of goods sold. To calculate your gross profit, you take the costs of goods or the cost it takes to produce and subtract it from the total gross revenue. The calculation will look like this:

  • Gross Revenue – Cost of Goods Sold = Gross Profit

What is total net income?

For this, you’ll need to calculate net income (NI), also known as earnings. It refers to the business’s total money (gross revenue) minus total expenses. Your expense items are on the left column of the sheet–marketing, bank charges, interest payments, etc. 

To calculate total net income, you must subtract all expenses from the total gross revenue or the amount earned.

  • Gross Revenue – Total Expenses = Total Net Income

In simple terms, net income is the money the business has after paying for all expenses. Keep in mind that the cost of goods sold (COGs) is often considered a necessary expense. It should also be subtracted when calculating total net income.

Total net income vs. total expenses

The two most important numbers for expense tracking are total net income and total expenses. It’s important to know how they’re related and how they differ.

Total expenses refer to the sum of all the costs your business incurs. On the other hand, total net income refers to the money that’s left once you deduct total expenses from gross revenues. Therefore, you must first know the total expenses to calculate the total net income. 

How to use the sheet

With our free expense tracking template, you won’t have to worry about building your own and figuring out the categories to include. It includes a list of the common small business expenses and sections for other expenses, gross revenues, refunds, and total net income. 

Depending on the expense you want to record, you need only find the right category and add it. The sheet will automatically calculate each month’s total gross revenue, expenses, and net income.

Every business must track business expenses. However, paying for an expense-tracking app may not be an option. Also, while tracking expenses manually using a spreadsheet is possible, you may want to focus on other business activities.

If that sounds like you, xendoo is exactly what you need. We have a team of virtual bookkeepers and accountants who can manage all your accounting needs. Moreover, you can also integrate xendoo with software like Gusto, Stripe, Quickbooks, Xero, and more.

The Top 5 Benefits of Catch Up Bookkeeping

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Young cafe owners sitting at table, working on their catch up bookkeeping

Whether they coach chess players or sell organic puppy food online, every small business owner shares a common driving force: a passion for growing their business. Increasing sales and gaining new customers is one part of the equation. Consistent bookkeeping provides the financial insight needed to strategize for long-term success. With so many obligations resting on the business owner’s shoulders, it can feel like there are not enough hours in the day to accomplish every task, and eventually the books may fall behind. 

Even if the books are only behind a few weeks, up-to-date records are crucial for the financial well-being of every business. Catch up bookkeeping accelerates business growth by increasing financial visibility, which enables business owners to make decisions based on accurate information and remain tax-compliant throughout the year! In this blog post, we are exploring the top 5 benefits of catch up bookkeeping!   

Reliability in Your Opening Balance

The Opening Balance is the amount of money in your bank account at the beginning of a new financial period, such as the start of the month. Be aware that your bank account does not necessarily reflect the exact amount of cash that is available to spend. For example, if your Opening Balance states that you have $50,000, but $20,000 worth of checks have not cleared yet, the actual balance is $30,000. The best practice is to consult your updated accounting software or financial statements, which provide insight into your true financial position.

The financial statements report revenue, expenses, and profitability, all of which contribute to the Opening Balance. They also guide decision-making and reveal opportunities for business growth. The more up-to-date your books are, the more reliable your financial statements (and Opening Balance) will be! 

If your bookkeeping is behind, there will be little to no financial data for that time period, which means you will not know your true Opening Balance for today. For example, if your account was reconciled in January, but February was skipped, the Opening Balance would be incorrect for March. This could skew your numbers going forward, and costly choices could be made based on inaccurate data. This could also affect future bank account reconciliation, as well as the balances in your revenue, costs, and expenses. It is a vicious cycle.

Catch up bookkeeping corrects these issues and provides clarity and accuracy in your financials. Once your books are caught up, keeping them up-to-date becomes second nature.

Financial Accuracy Through Bank Account Reconciliation   

A bank account reconciliation is performed to confirm that your accounting records match the information in your bank account. It is an opportunity to identify and correct any bookkeeping errors before the financial statements are finalized, as well as detect and prevent fraudulent activity in your bank account. Bank account reconciliation also ensures that you are accurately reporting your income to the IRS. The best practice is to reconcile your bank account once a month. 

Proper bank account reconciliation can only be accomplished when the books are up-to-date. By getting your books caught up, you can ensure the reliability and accuracy of your financials each month. 

 

Cash Flow Management

Catch up bookkeeping can have a significant impact on cash flow. When your books are caught up, you can pinpoint how and when cash enters and leaves your business each month. This delivers a deeper understanding of your cash needs, so you can create a plan for cash flow management. 

For example, as your books are caught up, you may uncover past due invoices, or find that you are sending out vendor payments before you receive the cash needed to cover them. 

With this insight, you can monitor your Accounts Receivable to ensure you are paid in a timely manner going forward, and find solutions for the timing of your own payments. You can also forecast future cash needs to be confident you have what you need for continued operations.   

Click here to learn more about cash flow.  

Insight into Net Income

Keeping your books up-to-date plays a vital role in calculating your bottom line, or Net Income, which is the profit that remains after all costs and expenses are subtracted from revenue. In order to know your true Net Income, all business expenses must be accounted for through accurate and timely bookkeeping. This understanding of your Net Income provides the opportunity to increase your bottom line. 

Getting your books caught up is also essential when applying for loans. Creditors and investors examine Net Income when deciding to invest in a business, as it highlights the business’s ability to pay back loans efficiently. Catch up bookkeeping determines your bottom line, so you can understand and increase the profitability of your business, meet loan requirements, and secure funding for your next venture!     

Click here to learn more about Net Income.   

Tax Compliance

As tax season draws closer, a concern that many business owners have is under or over reporting their earnings, and missing out on deductions. They may also experience a back and forth with their Tax CPA over missing documents and gaps in their financials. Breathe a sigh of relief – catch up bookkeeping takes the headache out of tax season!

By getting (and keeping) your books caught up, you can identify the deductions you qualify for, maximize your tax return, and stay compliant all year long! 

Get Your Books Caught Up with xendoo

Behind on your bookkeeping? You are not alone! 25% of business owners are behind on their books. Get a fresh start with catch up bookkeeping services from xendoo, so you can take your time back and focus on the future of your business. 

Let’s chat! We would love to get to know you and your business. Click here to schedule a free consultation.

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.

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.

Learn When You Should Outsource Your Accounting

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A man looks at an expense report on his laptop

A man looks at an expense report on his laptop

Business owners have a ton of demands on their plate, from bringing on the right staff members to marketing their products and working to improve the customer experience. But as your business starts to take off, it can leave you with a difficult choice. Should you focus on growing your core business or continue to focus on the administrative side, like managing your accounting and bookkeeping needs?

When your business was small, it was easy to handle both. But now that you’re growing, it may be more difficult to adequately cover your administrative tasks. 

Getting behind in your books can leave you frantically preparing for tax season. Without accurate financial records, it can be harder to secure funding and prepare for the future, too.

Outsource accounting services can help you stay up-to-date on your books, compliant with regulations, and firmly in control of your company’s financial future. With that in mind, here are some of the reasons why you should consider partnering with an online accounting firm.

Scaling as Your Business Grows

Your profitability depends on your ability to generate revenue and sustain growth over time. Outsource accounting services can help you accomplish this, providing a set of benefits that can help to cover back office responsibilities as you and your team focus on your core business tasks.

Specialized Skills for Every Step of Your Journey

While in-house accountants tend to be generalists, online bookkeeping firms can offer a specialized experience for every phase of your business journey. 

Outsource accounting firms can often provide experience in unique areas such as:

  • Personal financial planning and assistance
  • Forensic accounting
  • Managerial accounting
  • IT auditing
  • Non-profits
  • Tax preparation

Additionally, the financial professionals found at today’s top firms often have experience in your respective industry, providing actionable advice that can optimize your company at every step of your journey. 

Tax Planning

The specialized skills of an outsourced accountant typically include experience in tax planning and preparation. Outsource accounting services can not only ensure that your company has set aside sufficient funds to pay your annual income tax, but they can also help you to take advantage of the existing tax code to enhance profitability while staying in compliance with regulations.

This can be crucial for growing businesses. As your business expands, you may discover that rising revenues and a changing customer base can place you in unique tax situations. These needs can best be addressed by a professional accountant. Outsource accounting teams can enable you to navigate the confusing world of tax law.

Financial Reporting and Planning

Growing businesses often rely on small business loans for tasks like:

  • Increasing inventory
  • Hiring new employees or contractors
  • Investing in new technologies
  • Expanding retail or office space
  • Other overhead costs

But in order to secure a small business loan, most lenders will want to see the basic data about your financials.

If your books are “a little behind,” this can jeopardize your ability to secure the necessary funds to grow your business. 

Top-quality outsource accounting services can provide catch-up options designed to bring your books completely up-to-date. Best of all, with accurate reporting, you’ll be in a better position to secure additional funds as your business expands.

Taking Your Time Back

Your time is too valuable to spend on your books. And accounting doesn’t usually fall under your team’s core competencies. 

A core competency is a unique skill or advantage that is ultimately responsible for your company’s growth. Any business process that’s not a core competency should be outsourced, allowing your team to focus on their respective areas of specialty.

That’s why bookkeeping and accounting rank among the top tasks to outsource for growing companies. Outsource accounting services can help you with these administrative processes so that you and your team can stay focused on your core business.

Here are just a few of the additional benefits that you can expect when you partner with high-quality outsource accounting services:

Saving Time While Staying in Control

Running your company is job number one. Relying on outsourced online bookkeeping services to handle your books can liberate you from the tyranny of administration and put you back in a position to make data-driven decisions.

Some business owners are reluctant to do this since it naturally means surrendering control. But letting someone else handle your books can actually mean greater control over your company—not less.

For instance, most accounting firms rely on the latest cloud-based technology, offering access to your financial data 24/7 from anywhere in the world. And at xendoo, our professional team is never more than a phone call, text message, or email away.

You save time and benefit from up-to-date, easy-to-access information about your company’s cash flow and financial forecasting, giving you confidence that you simply can’t match by juggling your own spreadsheets and flow charts.

Keeping Your Employees Focused

Of course, you may already be wise enough to delegate these responsibilities to another team member. But think about how much more your team could accomplish if they weren’t spending time clicking around in QuickBooks. 

Your office staff could divert their attention to revenue-generating tasks as:

  • Social media management
  • Marketing
  • Contacting customers
  • Pursuing new leads
  • Negotiating with vendors

Outsource accounting services reduce the burden on your staff as a whole, allowing you to direct your team’s attention to the key processes that go into running your business.

Spending Less Time Hiring New Staff Members

When you pursue outsourced accounting for small business needs, you won’t have to interview, hire, and onboard your own staff accountant. That means you’ll spend less time assembling a job description, posting a job ad, reviewing resumes, onboarding a new employee, setting up benefits, or securing an office space.

With an outsourced accounting firm, you can rely on a partner that will be around for the long term. You’ll benefit from the reliability of a dedicated team that understands your needs and provides ongoing support.

A Fast, Reliable Turnaround

What happens if your in-house accountant needs to take a sick day or goes on a two-week vacation? Depending on the circumstances, this could bring your company—including its payroll—to a grinding halt until your staff member returns.

With an outsourced financial firm, you have the reliability of a remote team and can avoid the time delays associated with unexpected absences or delays.

Reduce Costs and Increase Accuracy

Outsource accounting services can reduce costs, all while ensuring greater accuracy for your financial records. These benefits are seen in several ways:

Reduce Staffing Costs

Did you know that a typical certified public accountant (CPA) can charge roughly $40 per hour? The number climbs even higher if you need someone with specialized experience. 

Hiring an in-house accountant can be cost-prohibitive for small businesses, whose margins are often already razor-thin.

Outsource accounting services typically operate on a monthly fee. xendoo, for example, offers plans starting at $195 per month. These monthly fees are a mere fraction of the costs of hiring an in-house accountant.

Reduce Errors

Errors can cost you, especially when it comes to your annual taxes. In many cases, business owners may face penalties for errors made in their tax reports, along with consequences for failing to file appropriate documentation on time. 

Outsource accounting teams can minimize these errors, eliminating the expense associated with mistakes.

Optimize Costs

Accounting firms can streamline tax preparation to help grow businesses. But the advanced reporting features that they offer can also help you to streamline every aspect of your business.

Advanced analytical data can help you refine your business strategy and find ways to reduce costs. It can also help you to plan for seasons of increased demand, which may be particularly helpful information for retailers or eCommerce companies.

Get Paid Faster

Businesses often lose money from unpaid invoices. Online accounting services can speed up the invoicing process, ensuring that you can send invoices and receive payments faster than ever before.

Eliminating the delay between delivery and payment can ensure a healthier revenue stream and keep money from getting lost in a sea of outstanding invoices. 

The reporting features offered by modern accounting firms can alert you to outstanding payments that need to be collected, giving you better control over your company’s cash flow.

Reduce Fraud

While no business owner wants to consider themselves to be vulnerable to fraud, an online accounting service can minimize your risk by handling your finances through a secure cloud-based platform.

This professional team might also be able to help investigate employee fraud by closely examining your books, saving your business the money that could otherwise be lost from white-collar crime.

The Best Time Is Today

If you’re wondering when to invest in an outsourced accounting company, the best time is now.

At xendoo, we offer our clients online bookkeeping features and accounting services that streamline every aspect of their businesses. We can save you time, save you money, and help your business thrive and grow.

If you’ve been spending your time trying to stay focused on two things at once, it’s time to go “all in.” Give us a try today by signing up for our free trial. Get out of the back office and back to doing what matters most.

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:

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.

How To Find The Right Online Accountant For Your Business

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hiring a bookkeeper

hiring a bookkeeper

Every small business owner should have access to an accountant. A small business accountant can provide guidance at every stage of your company’s development, and they can be invaluable when it comes to tax preparation, succession planning, and more. An online accountant can also deliver these services at a price that fits the limited budget of modern business owners. 

But finding the right accountant is about more than just cost. Today, we’ll go over the best features offered by online accountants for small business owners so that you can find the right fit for your company.

What to Look for in an Online Accountant

What should you expect when you’re searching for online accountants for small business needs? 

We’ve narrowed it down to these five essential features:

Industry Experience

Online accountants are not hard to find, but the key is to find an accountant whose skill set matches the needs of your business. 

What type of business do you run? Are you a service provider, a retailer, or exclusively eCommerce? Is your business structured as a partnership, an LLC, or an S Corp?

These questions will be critical in finding the right accountant. You’ll need to partner with an online accountant who has clear experience in preparing tax returns and financial documents for companies that have a similar profile to yours. 

Ideally, you’ll want an online accountant who has worked for companies of a similar size, revenue stream, and industry, too.

But don’t limit yourself to accountants that work with companies of your size. After all, most entrepreneurs entertain dreams of growing their businesses. This will also require the assistance of an accountant who has worked for companies that are larger than your own. 

Finding an accountant who has experience in working with companies your size and larger can set you on a positive trajectory, knowing that your accounting help will scale with your business.

Access to Tools

The right accountant for small business owners might also need to have some experience in cloud-based systems, especially if your business relies on such software as part of your regular operations.

Before committing to an accountant, make sure to go over these requirements, and ask about their prior experience. This will ensure that you hire an accountant whose experience matches the evolving needs of your company.

Dedicated Support

Some business owners might feel nervous that hiring online accountants for small business needs will deprive them of the personal touch of a regular employee. This concern is perfectly understandable, but the right accounting firm can offer dedicated support in the way that you choose. 

You need an online accounting service that relies on the latest and best accounting software. You want a provider who can minimize accounting errors and ensure a greater level of accuracy. This is especially important during tax season, where errors can lead to an audit and potentially result in penalties and fines. 

Online software also means that you’ll be able to access your company’s financial information anytime, anywhere

xendoo provides a number of ways to keep clients connected to the process. Our online bookkeeping features include regular monthly reports that will keep you up to date on your cash flow and other financial data. 

All of our dedicated professionals are available on your terms, whether that be through email, text message, or a phone call. We’ll work with you to communicate when you want and how you want, so you never feel out of touch with your online CPA.

Streamlined Processes

Modern business owners face a variety of financial needs, including:

  • Bookkeeping
  • Payroll
  • Tax planning
  • Tax preparation
  • Budgeting and planning
  • Personal tax preparation and filing

Partnering with online accountants for small business needs such as these can ensure that important processes are completed on time and with total accuracy.

Some business owners find that this is a welcome change from trying to juggle their own books. If you find yourself falling behind, some accounting firms offer catch-up accounting services, which can help you bring your books up to date. 

xendoo, for instance, offers catch-up services to clients who have fallen months or even years behind.

By reconciling your books regularly, your small business accountant can ensure that you always have a clear picture of the financial health of your company. 

Understanding your cash flow can be invaluable when it comes to long-range planning, and it can also save you the hassle and expense of penalties from filing a late tax return.

Streamlining your financial processes can even be helpful for obtaining future business loans. Usually, lenders will expect to see a report of your company’s financial status. By having recent reports relating to your income and expenses, you’ll be able to gain access to the funds you need to grow your business.

Strong Reviews

Once you locate a few online accountants for small business owners, you’ll want to narrow down the field a bit further. What are other customers saying about this accounting service? 

While every accounting firm will boast of its strengths, the real evidence of its success is found in the testimony of its clients!

Typically, you won’t have to look far to find online reviews for an accounting firm, though the best online accountants will feature customer reviews and testimonials directly on their websites. 

These reviews provide several relevant clues about the nature of the firm. First, it communicates that other business owners have benefited from the services of an online accountant. Second, skimming through these reviews may help you locate companies that operate within your industry, which helps you to know whether an accounting firm “gets” the unique needs and challenges you face.

You might also check to see whether an accounting firm has received any third-party awards or certifications. xendoo, for instance, is accredited by the Better Business Bureau and currently holds an “A” rating, the highest rating available.

Transparent Pricing

Finally, you want to find an accountant that offers transparent pricing. How much does an accountant cost? An accountant for small business owners will usually charge around $40 per hour, according to the Bureau of Labor Statistics, though it’s not uncommon to find accountants that charge significantly more. 

An online accountant costs less than an in-person service, though you’ll want to make sure you find an accounting firm that offers transparent pricing. 

By “transparent,” we mean that there should be no hidden fees. You don’t want to find yourself “stuck” with an online accountant who later demands additional money for their services. It’s vital that you know what to expect and how much you’ll be charged for financial services.

At xendoo, we offer several clear plans designed to fit the needs of your business. Our most popular plan will cost only $395 per month. 

Many business owners find that partnering with online accountants for small business services can save a significant amount of money that would otherwise be spent on a full-time employee.

xendoo: Find an Online Accountant for Small Business

Where can you find an online accountant that ticks all these boxes? xendoo strives for excellence in all these categories, thanks to our dedicated team of professionals.  

At xendoo, we provide a variety of accounting and bookkeeping solutions that can be tailored to the needs of your business. 

Our friendly team of experts can straighten out your books, help you prepare for tax season, or provide the data you need for long-term success. 

Want to learn more? Take us for a test drive by signing up for our free trial, and see how xendoo can bring your business even further into the future.