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

How Do You Pay Yourself From an LLC?

A common question that business owners ask is: How do you pay yourself? Depending on how you set up your business, the question may be how do you pay yourself from an LLC, sole proprietorship, S corps, or other business structure. 

The type of business entity you run will impact how you pay yourself and your taxes. If you’re wondering how you pay yourself from an LLC, we’ve compiled this guide to help.

Table of contents

What Is an LLC?

A limited liability company, or LLC, is a type of business structure that offers its owners limited liability protection. It means that the owners are not personally liable for the debts and liabilities of the business. 

To form an LLC, a business must file the appropriate paperwork and register with the state in which the business will be operating. You should also choose a name for your business that includes the designation “LLC.” 

Once you have done this, you will need to create an operating agreement that outlines your company’s rules and regulations. By taking these steps, you can ensure that your LLC is properly formed and protected.

Types of LLCs

There are several types of LLC arrangements, and there are also tax considerations for each one. 

  • Single-member LLCs: These LLCs have only one owner (member) and the income from the business is reported on Schedule C of the owner’s individual tax return. The business is taxed in the same manner as a sole proprietorship.
  • Multi-member LLCs: These LLCs have several owners (members) and report their income and expenses on a partnership tax return. Each owner receives a K-1 at the end of the year which contains their share of the business income.
  • Corporation: LLCs have the option of being taxed as a corporation (either an S corp or a C corp) and completing the applicable corporate tax return. C corporations pay tax at the corporate level. S corporations are pass-through entities and the owners pay taxes on their share of the profits.

Which LLC Structure Should You Use?

Choosing the right type of LLC structure will depend on your personal financial circumstances and the number of owners. Single-member LLCs must be taxed as either a sole proprietorship or as a corporation. Multi-member LLCs must be taxed as either a partnership or a corporation. 

The advantage of a multi-member LLC is that it provides its owners with the personal asset protection of a corporation while still allowing them to enjoy the tax benefits of a partnership. 

However, to maintain the protection of an LLC, it is important to keep your business and personal finances separate. For example, the business should have a separate bank account to receive payments from clients. Owners should not pay personal expenses from the business accounts.

The LLC (limited liability company) is a popular alternative to a sole proprietorship set-up for single-owner businesses. 

It gives you the same simplified income processing that a sole proprietorship enjoys, plus financial and legal protection similar to a corporation.

Here’s how you handle the owner’s salary and taxes for a single-member LLC.

The Owner’s Draw

Typically, you pay yourself from an LLC through an owner’s draw. However, because different types of business structures can fall under LLC, it varies. Let’s look at the specifics. 

What Is an Owner’s Draw?

An owner’s draw is a distribution of funds from an LLC to one or more of the owners. LLCs are often created for liability purposes, but once the business has been established, the IRS will require tax reporting of the business activity. 

The IRS requires that LLCs keep separate records for business and personal expenses. An owner’s draw allows owners to access the funds from it without having to pay taxes on those funds. 

However, LLCs are not required to make owner’s draws, and they may instead choose to reinvest the funds back into the business.

The amount that an owner draws from an LLC is at the discretion of the owner. The distribution of funds does not create a taxable event since the owner is taxed on the profit of the business, not how much money is transferred to the owner. 

The owner is responsible for determining how much working capital needs to be left in the business to meet future obligations and fund the company’s growth.

How Do You Pay Yourself From a Single-Member LLC

A single-member LLC can be treated the same as a sole proprietorship — as long as you choose to be taxed that way and not as a corporation. 

To pay yourself from a single-member LLC, you take money out of the company’s profits whenever you need it. It’s what’s called the owner’s draw, and you can take it out simply by writing yourself a check or using payroll software.

How to record owner’s draws

The most important thing about owner’s draws is ensuring that you properly document the draws. Also, to maintain the LLC protection, the owner must keep their finances separate from the company’s finances. Otherwise, the company may lose its liability protection and put the owner’s other assets at risk in the event of a lawsuit. 

You do not want the payments to be miscategorized. If you transfer money directly between your business and personal accounts, you should label the transactions. You can add a memo if your bank allows it or document the transaction in your accounting software. 

For bookkeeping purposes, create a “drawing account” on your balance sheet. Whenever you take money out of the company, enter it as a debit in the drawing account. Then, enter the same amount as a credit in your personal account.

The owner of a single-member LLC is not considered an owner, so you pay yourself as an employee. Payroll taxes are calculated on the net income of the business and paid on the owner’s individual tax return. The owner’s total income determines the income tax rate. On the other hand, the self-employment tax rate is currently at 15.3% for all self-employment income.

Below is an example of the journal entries for an owner’s draw of $20,000 withdrawn from the company’s bank account.

Debit Credit
Owner’s Draw $20,000
Cash in Bank (Company Account) $20,000

Paying Yourself as a Multi-Member LLC

How you pay yourself as a multi-member LLC depends on how you are taxed. As noted above, multi-member LLCs are either taxed as partnerships or corporations.

Partnerships

You’ll also need to take into account the different ownership interests when distributing profits and losses.

1. Determine contributions

The first step is determining how much each member has contributed to the LLC. You can do this by looking at the initial investment, as well as any subsequent contributions. Once you have this information, you can then determine what percentage of the LLC each member owns.

2. Decide on how to distribute profits and losses

The next step is to decide how you will distribute the profits and losses of the LLC. There are several options for determining how to distribute profits. One way is to distribute the profits and losses 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 in partnerships, there is no requirement for distributions to be equal or fair. Your business must complete distributions according to any partnership agreements in place at the time.

3. Set up a draw account

Once you’ve determined how to distribute the profits and losses, you can start paying yourself (and your partners) from the LLC. 

The easiest way to track funds distributed is to set up a draw account for each member. You’ll need to keep track of all withdrawals so that you don’t overspend or cause problems for the LLC down the road. At the end of the year, you’ll report the amount distributed to each partner on the partnership return.

Partnerships track each partner’s net investment in the company on the partner’s K-1. The net investment includes the partner’s initial investment plus any subsequent investment plus any income from the business less any distributions. The partners’ net investment (also known as a basis) can affect how the partnership income (or loss) is taxed on their return. 

Corporations

If you were the owner of an S Corporation, you would have to pay yourself a salary as if you were any other W-2 employee. The IRS requires that you pay yourself a reasonable salary, although it does not offer guidance on what that means. 

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

S corps

S corporations are only allowed to have one class of stock. Because of this requirement, any distributions taken from an S corporation must be proportional to the shareholder’s stock ownership percentage. 

For example, consider an S corporation with two shareholders where one owns 40% of the stock while the other owns the remaining 60%. If the shareholders wanted to distribute $10,000, the first shareholder would have to receive $4,000, and the second shareholder would need to receive $6,000.

C corps

C corporations can have multiple classes of stock and, therefore, are not subject to the same restrictions requiring proportional distributions as S corporations. Distributions from C corporations are taxed as dividends on the shareholder’s income tax return.

How Much Should You Pay Yourself as an LLC?

There are a few factors to consider when setting your salary, including the type of LLC, the profitability of the business, and your personal financial needs. 

For example, if you have a single-member LLC that is not generating much income, it may not be necessary (or possible) to draw a salary. If you have a multi-member LLC that is profitable, you have to decide how to divide the profits among members. 

In addition, you also need to take into account your personal financial needs. If you have a low cost of living, you may be able to get by with a lower salary. However, if your expenses are high, pay yourself accordingly. 

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

You’ll want to ensure that you leave enough funds in the company’s account to cover future operations and obligations.

Note that if your LLC is taxed as an S corporation, then you are required to pay yourself a salary for services rendered. If the LLC does not pay the owner a reasonable salary, the IRS has the authority to reclassify any distributions as salary. As a result, they may impose payroll taxes on the distributions.

How to Pay Taxes as a Single-Member LLC

The IRS classifies a single-member LLC as a “disregarded entity,” with basically the same rules as a sole proprietorship. That means you won’t have to file separate tax returns for your business and personal income.

Instead, the business profits and losses are “passed through” to your personal account. You’ll report them on your personal federal tax return — IRS Form 1040, generally with Schedule C, E, or F.

The one drawback to this situation is that you will have to pay the full amount of payroll taxes (Social Security and Medicare) by yourself. 

How to Pay Taxes as a Multi-Member LLC

If your business were a corporation, you’d split the cost of payroll half-and-half with your “employer.” C corporations will pay taxes on their income at the corporate level while S corporation profits are taxed on the owner’s individual tax returns. Some states tax S corporations so you’ll need to check on the rules in your state.

Businesses taxed as partnerships will pay income and self-employment taxes on their individual tax returns. 

Owners of LLCs—taxed as S corporations or partnerships—need to make estimated tax payments throughout the year. Business distributions you receive do not have taxes withheld, so you need to report it. 

Your estimated tax payments are based on your projected tax liability for the year. If you do not pay the required estimated taxes for your individual return, you may be subject to interest and penalties on the underpayment amount.

Still not sure about the ins and outs of bookkeeping, paying yourself, or preparing your tax return as an LLC? 

Our small business experts can answer your questions and help you decide what’s best for you and your business. Xendoo’s mission is to take those hassles off your shoulders, so you can concentrate on making your business thrive. View our plans here.

 

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

 

a store owner in a print shop

How to Create an Effective Invoice and Get Paid Faster

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.

 

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

 

tracking business expenses on paper

The Top 8 Expense Trackers for Small Businesses

tracking business expenses on paper

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.

Male Asian franchise owner, leaning on the counter in his cafe and smiling

The Franchise Landscape by Jon Ostenson

On the heels of Covid lockdowns and quarantine, we are seeing unprecedented levels of interest in business ownership with much of this interest coming through the avenue of franchising. Year-to-date, our client placements have increased well over 50% vs. 2020, which despite Covid, saw similar levels of expansion over 2019. The vast majority of these placements have come in industries outside of food and lodging, which we will touch on later.

So who are these new franchise owners? More than ever before they represent a substantial cross-section of Baby Boomers, Generation X, and Millennials. As outlined throughout media headlines, Covid has caused many across the spectrum to reflect on their current path. For many, this reflection has led to the decision point that now is the time to scratch their entrepreneurial itch.

In some cases, these newly minted business owners are jumping in with both feet, leaving their corporate roles and taking on the reins of owner-operator of a new enterprise. In other instances, they are taking a step into entrepreneurship via a ‘semi absentee’ model with the plan to put in 10-15 hours a week. The latter group is seeing business ownership as an ‘asset class. Business ownership provides tax advantages that many other investments do not. With the stock market at an all-time high, low interest rate, and only so many good real estate deals available, investors are looking at alternative options for parking their record levels of sidelined cash. 

Why are so many opting for franchising over a traditional ‘start-up’? They recognize that franchising provides them with:

• A proven playbook from which to operate.

• In some cases, a recognizable brand.

• A ‘coach’ with aligned interests on the sideline in the franchisor.

• Support and learnings of owners in other markets.

• The ability to go in with ‘eyes wide open’ via the ability to review the Franchise Disclosure Document and validate with current owners before making a purchase.

• The potential for a more attractive exit based on an apples-to-apples comparison vs. traditional startups. 

So, what industries are resonating the most with would-be business owners? I have shared in many interviews that over the past year that we have seen a leaning toward ‘Covid, Amazon, Recession resistant businesses’. 95% of our placements have been in industries outside of food and lodging. These include home and property services, automotive, health and wellness, businesses that support the senior population, children/education, and pets. There are so many unique niches within these spaces that people have never considered. In fact, through my matchmaking process, I have found that over 80% of my clients end up in a sector that they never had on their radar prior to our ‘peeling back the onion’ and building a framework from which to evaluate opportunities.

Certainly, franchising is not right for everyone. For instance, I have to explain to a handful of my clients that they are ‘too entrepreneurial’. They are not willing to live within the franchise system, desiring to put their fingerprints all over a new business. However, for many would-be business owners, the support and resulting success rate that is found in franchising prove to be a perfect fit. Based on what we are seeing both at a macro level, as well as on the ground, franchising is poised for even more strong growth in the years ahead!

 

Jon Ostenson is a consultant, investor, author, and international speaker specializing in the area of non-food franchising. He draws on his experience as both the President of an Inc. 500 franchise system and as a multi-brand franchisee in serving clients across these capacities.

Connect with FranBridge here jon@franbridgeconsulting.com   Recent podcast interview

 

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

 

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

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.

A person works on their laptop.

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. 

A real estate records her numbers for the week on a laptop,

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.

 

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

 

A restaurant with patrons

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

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.

An employee hads a customer their food order.

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.

 

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

A woman looking at a laptop

Best Small Business Invoicing Practices

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.

 

A bookkeeper shows a business owner how to set up an invoice

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.

A hiwte thank you note with black cursive writing sits on a table

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.

 

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

a chef cooking while talking to another person

Using Your Food Effectively: Three Tips to Control Food Costs for Restaurant Owners

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

As a restaurant owner, you have a lot of expenses on your plate every month that a partner like Xendoo can help you manage, such as providing tax tips for restaurants. Like rent and insurance, many of those are fixed and are beyond your control except when it’s time to renegotiate those agreements. But others are variable and are within your power on a day-to-day basis. By far, the two most significant of these variable expenses are food and labor, and there are things you can do to minimize both without sacrificing customer service or menu quality. Labor is relatively straightforward, but food costs can often be an elusive target for new restaurateurs. Let’s take a look at some things that you can do to reduce food costs and increase your bottom line.

What Is Food Cost?

Put simply, your food cost is the ratio of what you spend on groceries to your front-of-house sales and is almost always expressed as a percentage. For example, if you have a good restaurant bookkeeping system in place and know that your monthly Sysco invoices are $30,000 and your sales for the month are $100,000, your food cost for that month is 30%. Of course, lower is always better when it comes to ways to reduce food costs, but 30% is the generally accepted ideal for most restaurants.

several plates of food with similar ingredients sit on a table

Reduce Food Costs: Know Your Plates

There is a science to menu planning, and it involves a lot more than just deciding what dishes you are good at preparing. First, you need to know exactly the cost of ingredients for each dish you offer on your menu, which is often called the “plate cost.” Calculating your plate cost can seem complex at first glance, but it’s fairly simple once you get the hang of it. Before you can calculate anything, you need to be sure you have standardized recipes with clearly defined units of measurement and quantities.

Make a list of each ingredient in the dish and do the same calculation for each one. You need to know the unit of measurement your supplier uses (the purchase unit), what your supplier charges you for it (the unit purchase cost), and the yield. Yield will only apply to some items that require trimming or peeling (like meat or potatoes) before they can be used, resulting in some waste that needs to be calculated into your cost. Standardized yield charts are available from most vendors. These three numbers will give you your actual unit price for the ingredient.

Menu Engineering: Putting it all together

Next, think about how you prepare your dish and define the unit of measurement called for in your recipe (the serving unit). Next, figure out how your serving unit relates to your purchase unit and calculate your serving unit cost. For example, if you buy ketchup by the pound and serve it by the ounce, you would divide your purchase unit cost by 16 to get the price per ounce. Lastly, define the quantity of serving units in the recipe (portion size).

That may sound like a lot of numbers, but you can calculate your plate cost with these numbers in hand. Let’s take the example of a side order of french fries. You buy Russet potatoes for $2 per pound, and let’s assume four potatoes to the pound. After peeling, you have 19% waste (an 81% yield). Your recipe calls for 8oz of potatoes on the order, so it’s easy to calculate the plate cost from there. At $2 per pound with 81% yield, your actual cost per usable pound is $2.47. Divide that by 16 to get the price per ounce ($0.15) and multiply by 8oz called for in your recipe to get your plate cost of $1.20 for an order of fries. Sticking to the 30% food cost rule, you should be pricing this menu item at no less than $4.00.

Menu Engineering: Reuse Ingredients

Mexican restaurants are often cited as one of the most profitable restaurant categories. One of the key reasons is the relatively small number of common ingredients used in most menu items. Think about it: how many things on a Mexican menu can you make with some ground beef, chicken, tortillas, cheese, beans, and rice? A lot. Having common ingredients among dishes means you don’t have a lot of different items sitting around on the shelf not being used if a particular dish isn’t selling well. Avoid menu items that call for ingredients—especially expensive ones—that are unused in any other dish.

Take Regular Inventory

A good, detailed inventory taken regularly is important in figuring out how to reduce food costs because you need to know which items are running high and whether you might have food walking out the back door at night. No one likes to think that someone on the staff might be stealing, but the sad reality in the restaurant business is that theft does happen. Therefore, always have the inventory conducted and signed off by at least two people to reduce the inventory shrinkage. Other reasons for an item running high may be poor preparation resulting in unnecessary waste or spoilage from incorrect rotation.

Compare Foodservice Vendors Regularly

You have several options for foodservice vendors, and just because you’ve chosen one doesn’t mean you have to stay with your current choice. The vendor that had the best pricing a year ago, or even six months ago, may not have the best prices today. Food prices fluctuate based on market supply and demand, and vendors often try to entice new clients with low introductory pricing that they can’t maintain for long. So be sure that you’re shopping your options regularly to keep them honest.

Produce delivered to market with classic vw bug on cobble stone street in front

Check-In Your Food Truck

When your truck comes in, be sure that someone checks off each item on the invoice and verifies the correct quantity before the driver leaves. Foodservice vendors will often run out of stock in the warehouse and either make substitutions or omit back-ordered items. Be sure that your rep knows what substitutions are and aren’t acceptable and what items are critical for your business. You should receive a credit for any back-ordered items, but sometimes the vendor might make an oversight, or the driver might simply make a mistake unloading the order. You can’t afford to pay for food you never receive, right?

First In, First Out

One of the most common reasons for spoilage is the lack of proper rotation on the shelf. When the food truck comes in, ensure that the person putting it away understands that new items always go in the back and older items get rotated to the front. It’s often tempting when things get busy to stick the new inventory in the front where it’s most convenient. A periodic spot check of expiration dates will usually reveal whether your team is rotating items properly.

Prevent Cross-Contamination and Spoilage

The way you store perishable items can sometimes affect their shelf life. Be sure that your cooler is set at the recommended temperature (28-32° for fresh meats) and that items in the cooler are correctly stored to prevent cross-contamination of microorganisms that can lead to early spoilage or even sickness. In addition, be sure that raw meats, poultry, and seafood are placed on bottom shelves to prevent meat juices from dripping onto other foods and causing contamination. 

Run Daily Specials

Daily specials are a great way to offer a tasty variety to your customers and get rid of that extra inventory lingering in the pantry a little longer than it should. Train the front-of-house staff to sell the specials effectively and promote them on social media. If you offer a buffet, that’s also a great way to reduce food costs while keeping your customers happy.

Food cost will always be one of the challenges of the restaurant business, but it doesn’t have to be a nightmare. Using these tips, you can help keep your food cost under control and tame one of the biggest variables to your profit margin. If you are already close to the ideal food cost of 30%, congratulations, you’re ahead of the curve. But if not, you now have the tools to figure out where your grocery money is going and make sure you’re getting the most bang for your buck. Xendoo is here to help, so be sure to reach out and discover the full suite of services that Xendoo offers to restaurant owners just like you.

 

 

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

 

Tips for Managing Restaurant Labor

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

As a restaurant owner, you know very well that managing your expenses can be a real headache. It doesn’t take long for high food or restaurant labor costs to start eating away at your bottom line. Fortunately, Xendoo is here to help. Aside from fixed expenses like rent and insurance, food cost and labor cost are the two most significant expense categories that an owner will wrestle with daily. We’ve already shown you how to manage your food costs, so let’s take a look at some tips for managing restaurant labor costs efficiently.

What Is Restaurant Labor Cost?

It’s a given that without your cooks, servers, bartenders, and hosts, your restaurant is nothing more than a grocery store with tables. Hiring the right team to give your restaurant legs and make it go is essential. But bringing on that team entails some restaurant labor costs because you have to pay them. Your restaurant labor costs are the ratio of what you spend on payroll during the month to your gross sales for the month. Restaurant labor cost is almost always expressed as a percentage.

If you have Xendoo’s bookkeeping for restaurants, all the figures you need should be at your fingertips. For example, if your gross sales for the month are $100,000 and you spend $25,000 on payroll, that means your restaurant labor cost for that month is 25%. Unlike food cost, there is no set labor percentage at which you should be running because labor varies widely in different segments and markets. But generally speaking, your restaurant labor cost should be between 25% and 35%.

a server stands by a booth full of customers

Break Down Your Payroll by Category

Servers are paid very differently than cooks or managers, so it’s often helpful to break payroll down into groups so you can see exactly which restaurant labor costs the most. Staff should be cross-trained to give you the flexibility to shift things around when you need to cut some costs. For example, front-of-house staff may offer some accessible opportunities to trim things down a little.

Depending on your current labor laws you can cross-train staff for certain roles. If your hostess is making $8 per hour and servers are making $2.13 per hour, maybe you could try staffing an extra server during slower times and make that person responsible for greeting guests who walk in. The same goes for bartenders, who are typically paid more than servers. If your servers are properly cross-trained, they should be able to fill in as a bartender during slow times. They don’t have to be experts in everything, just good enough to carry a little extra water when things are slow.

Calculate Restaurant Labor Cost Daily

Naturally, you will want to study your restaurant labor costs on your monthly P&L along with other expenses like filing taxes, but it’s also helpful to look at it daily. If something is amiss, you don’t want to let it go unchecked for a whole month, do you? It’s easier to manage it day-to-day when your memory is fresh about what happened that may have affected your labor. Run an end-of-day report and give it a quick once over to compare sales to payroll and adjust the next day’s schedule accordingly if you need to.

A restaurant owner looks at his POS system for scheduling.

Use Smart Forecasting

Many modern point of sale (POS) systems offer features to help you analyze your sales patterns by day and hour and create forecasts to help you schedule staff very accurately. If your system doesn’t offer these features, it might be worthwhile to consider upgrading. If you need to do forecasting by hand, sit down and compare the upcoming week to the same week last year and factor in any changes in the market. For instance, if you did $20,000 in sales the same week the previous year but you’ve been averaging 10% more year over year, then you would forecast sales of $22,000. Multiply that number by your target food cost, and then you know what your payroll budget is for the upcoming week.

Beware Turnover Cost

The restaurant industry is notorious for having a ridiculously high staff turnover rate. As an owner, you need to understand both obvious and hidden costs to employee turnover. The obvious restaurant labor cost is training time. You have to pay an employee to shadow another employee during training, essentially doubling the restaurant labor cost of that position for that period. That can spike your labor cost in a big way, but there are also more subtle restaurant labor costs associated with turnover.

A new, inexperienced employee will make mistakes that a more seasoned employee might not make, and those mistakes come with a price tag. Whether it’s unnecessary food waste, a customer refund, or a lost sale, it’s a cost that eats into your bottom line. So you should consider whether, in some cases, it might be advantageous to pay just a little bit more than the market average to keep those experienced employees and avoid turnover costs.

Xendoo is here to help you keep your restaurant’s bottom line as healthy as possible, and by using these strategies, you can keep those pesky restaurant labor costs in line. Be sure to check out Xendoo’s full suite of services for restaurants to find other ways Xendoo can help boost your profits.

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

 

A retail shop displays an open sign in their window.

How to Make a Budget for Your Retail Store

As you look to grow your retail business and ensure you can maintain long-term stability, you will need to create and follow a retail budget. It’s one of the most important tools in small business retail management and can guide you as you make decisions, navigate unexpected changes, and work towards increasing cash flow and optimizing your profit. 

Your budget is something you make annually and adjust regularly based on actual expenses. This is where a skilled bookkeeper or accountant comes in handy! They can help make sure your budget predictions are accurate, and assist you in adjusting it throughout the year.

Being able to handle unexpected expenses on the fly is perhaps a budget’s greatest strength. A small retailer might face anything from windows suddenly covered in graffiti overnight to a global pandemic that forces them to temporarily close their doors. Budgets can help you hope for the best while planning for the worst. Here are the most common expenses a small business owner should consider when making a retail budget. 

Staffing

Everyone knows that retail business owners must regularly budget for their sales associates and store managers’ compensation, but don’t forget to plan for the associated payroll taxes and employee benefits including their time off. Additionally, consider additional labor costs for marketing, graphic design, inventory buying, facility maintenance, and order fulfillment and shipping. Keep in mind that Xendoo can help cut costs here by providing retail bookkeeping and accounting at a lower rate than on-staff employees.

A retail store front with a bike leaning against a post in the foreground

Photo by Sherzod Max on Unsplash

Facility Costs

When you first open your brick & mortar retail business the list of expenses associated with getting your physical space up and running is long. Painting, installing new lighting and hardware, choosing merchandise fixtures, installing electrical outlets, and a security system. Landscaping, adding in new vinyl graphics for your doors and windows, and don’t forget about signs. And there are more costs to maintaining your facility than one might expect. You will need to budget for unexpected expenses like plumbing problems, roof leaks, and ongoing maintenance such as replacing lights, signs, and store fixtures as needed. If your business has a second location, you’ll need to make sure you budget separately for each space.

Marketing

Your annual marketing budget will change throughout the year. As you plan it out, keep in mind what times of year are best for sales – around holidays like President’s Day and Memorial Day, and as the seasons change. Plan to budget for paid social media and influencer marketing throughout the year, as well as any email marketing expenses you may incur. And don’t rely solely on digital marketing – your business may get great exposure by marketing through community partnerships, events, and even by mailing postcards to your customers.

Inventory

Inventory buying is one of a retail businesses’ most important and strategic costs to budget for. Retailers must prioritize inventory accounting, and keep a variety of things in mind like current trends, seasonal changes, and what sold well this time last year versus what didn’t. You’ll need to consider discounts and deals your vendors offer throughout the year, as well as freight charges. An excellent tool to consider using as you budget for inventory is an open-to-buy plan. An open-to-buy plan is an inventory management system that shows you how much inventory you can buy throughout the year.

Security

Even the smallest of retail businesses need to budget for loss prevention. Keeping your inventory numbers accurate will help you determine how much shrinkage affects your business. Do you need to increase your security? Perhaps you need to invest in security cameras or loss prevention training for your employees. According to the National Retail Federation, retail shrinkage is on the rise —totaling $61.7 billion in 2019, which is up from $50.6 billion the year before.

Technology

As you plan and review your budget, look for spots where technology might be able to save you money. Are the systems you are using, like an eCommerce platform, credit card machine, and merchant services, or your accounting software too expensive? Are there cheaper solutions? Spend a bit of time researching options and you might find better solutions. Some of your providers might even work together, for instance, Xendoo customers get a discount on Xero and Quickbooks software.

 

Trust us, we know that staying on budget is often easier said than done, especially for small business owners who are stretched for time. A quality bookkeeper or accountant like the team at Xendoo can help you plan and stay on budget, as well as find areas where you can save money through accurate, timely reports and advice. Become a budgeting pro with Xendoo today.

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