How to Change from an LLC to an S Corporation

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

What is an S Corporation?

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

How is an LLC Different from an S Corporation?

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

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

A small business team discusses changing from an LLC to an S Corp

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

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

Self-employment taxes

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

Tax-preferred retirement savings 

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

Easier to scale

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

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

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

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

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

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

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

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

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

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.

9 Ways for Franchisees to Outrun the Competition

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

As we’ve seen, there are a ton of fantastic, low-cost franchise opportunities out there that will give you a lot of advantages in starting up your new business. As a franchisee, you’ll still have the independence of owning your own business and being your own boss, but you’ll gain the name recognition, volume pricing agreements, and support services of an established brand. It’s the best of both worlds, and over 795,000 business owners in the United States have chosen this path. But as much as a good franchise can boost your chances of success, there is one threat to your new franchise which will always be present—your business competition.

 No matter the type or location of your business, whether restaurant, child care center, gym, or staffing agency, you will always have to know how to overcome competitors. Even if you start out in a niche that you have all to yourself in the beginning, you will soon get some competitors because success always breeds imitators. For every McDonald’s franchise out there, there is almost always a Burger King franchise across the street. If there isn’t, there soon will be.  

So how do you stay ahead of your peers in this horse race? Here are a few things you can do to outperform your business’s competition.

Know your business competition

If you don’t know all about your competitors, you can’t know how to overcome your competitors in business. The reality is that a lot of business owners don’t know as much about their competitors as they should. Make a list and call it “My Local Competitors Are….” Write down who you think your strongest competitors are, and then mystery shop them. If you sell widgets, buy a widget from your competitor and compare it to yours. Were the prices comparable? Is the quality as good as yours? Maybe even a little better? Does it have any features that yours doesn’t?

If your business is a restaurant, go and eat at the restaurant across the street. Pay attention to the cleanliness, the service, the food quality, etc. If your competitor is a hotel, spend the night and take a walk through their parking lot at night to look for fleet vehicles that can tell you which companies to make sales calls on. Now you know where you stand in comparison and what you need to do to win customers away from the competition.

Perform a SWOT analysis

If you’ve never heard of a SWOT analysis, it stands for Strengths, Weaknesses, Opportunities, and Threats. In it, you draw a map with four quadrants using those labels and compile a list in each quadrant. First, define clearly and honestly what you believe the biggest strengths and weaknesses of your business are in relation to your competitors. What do they have that you don’t? What gives you an edge over them? Knowing that, you next identify the top opportunities you have to steal business away from your competitors, and which of your competitor’s strengths pose the biggest threat to your business. A SWOT analysis is essentially a high-level business plan because now you know which holes to patch in your ship and which to exploit in your competitors.

A customer interacts with a cashier at a small business

Solicit feedback from your customers

The most successful companies ask their customers to give them feedback about their experience. Have you ever eaten at a restaurant and received a code printed on your receipt for a free drink if you take a survey? Stayed in a hotel and received a survey? Visited a business and seen a sign that says “Tell Us What you Think!” with a QR code that you can scan? The ways to solicit feedback are endless, and you’re only limited by your creativity. You need to know what your customers like and don’t like about your business, and the only way to know is to ask.

Listen to your customers

Soliciting feedback is only half the job. The other half is what you do with it. When receiving negative feedback, many business owners instinctively become defensive and dismiss it as untrue, unreasonable, or uninformed. Sure, there are professional complainers out there and we’ve all run into them at one point or another, but they’re few in number and easy to spot. The vast majority of your customers are being sincere. If you don’t already, be sure to take the time to review and respond to your social media accounts for your business. These may be the first channels that your customers use to voice a complaint or offer a compliment. 

A complaint is a gift and should be treated as such because the customer is giving you an opportunity to fix a problem before going to a competitor. The worst complaint is the one you never hear because that customer just starts going to your competition and you’ll never know why.

Create a service culture around your customers

Do you know who your customers are? Be a “lobby lizard” and spend some time in the front meeting and shaking hands with your customers and getting to know them. It’s important to create a service culture around your customers because they are generally not as loyal to brands or products, as they are intensely loyal to people and relationships where they feel valued. Even in the face of fierce competition, customers are attracted to and will be loyal to companies that put them first.

Customers line up at a small business coffee stand

Sell the product, not the price

Try to avoid price wars with your business competition whenever possible, because that’s just a race to the bottom. Somebody else will always be able to absorb more loss than you until one of you is forced out of business. Instead, focus on creating value for your customer by providing a good product at a fair price combined with great customer service. Cheap isn’t always a bargain, and customers are often willing to pay a slightly higher price if they see a strong value proposition for their money. You don’t necessarily need to be the cheapest, you just need to create the most value.

Know your numbers

We’ve already established the benefits of outsourcing your bookkeeping and accounting to a professional accounting firm, and one of the most important is that you will receive professionally prepared financial statements that will give you an accurate and complete picture of what’s going on with your business. 

Do you know exactly what your margin is? Do you know your year-over-year performance in each category? If you don’t have that information at your fingertips, you’re flying blind. This is where Xendoo can help because we offer a complete suite of affordable bookkeeping and consulting services that can keep you on top of your business competition and help you make the right choices.

Prioritize your time

There are dozens of ways time gets away from us because it seems like there’s always a fire that needs to be put out. Being a business owner means everyone wants a piece of you, and you have to figure out how to balance everything and keep the wheels on the wagon. Start each day by taking five minutes to write down all the tasks that need to be done that day, and then prioritize them. In fact, studies have shown that just writing a to-do list can help reduce your anxiety.

Go down your list by priority and scratch them off as they get done. Additionally, by using technology, cloud software, and business automation, you can eliminate some time-consuming tasks, allowing you to focus on the big picture and beat the competition. 

Only do what only you can do

In addition to prioritizing your time so that the most important things get done first, you need to spend it as efficiently as possible so that you can complete the maximum number of tasks on your list. If you feel like you have to do everything in your business yourself, that means you’re a great employee but a terrible manager. Effective management is about delegation. There are some things that only the owner can tend to, but a lot of things – like accounting – can be either outsourced or delegated to someone else to allow the owner to focus on staying ahead of the competition instead of cleaning windows.

Business competition is a guarantee, but it doesn’t have to be a problem. Did you notice how many of these tips revolve around customers? That’s because, without them, you’re out of business. You may be the business owner, but you work for them because they can fire you at a moment’s notice and go to your competitor. Just remember that as a franchise business owner, you can choose your own destiny by focusing on your customers, creating value for them, and building relationships with them. 

 

Do that, and you will always stay one step ahead of the competition.

 

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.

 

Cash Flow Management for eCommerce: 4 Tips for Smooth Sailing

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

Cash flow is a measure of your business’s liquidity and ability to pay its debts from sales revenue. Cash flow management can be one of the most challenging aspects of being an online business owner. Your business can be profitable but still have a negative cash flow because profit calculation takes into account assets like inventory that you can’t use to pay bills. 

E-commerce businesses have an edge in cash flow management by virtue of the immediacy of the transaction, but that doesn’t mean online retailers are immune to cash flow problems. The customer has to pay you before you ship the item, so that means you don’t have to deal with an accounts receivables ledger full of aging accounts. But you still have operating expenses that can deplete your bank account, and you might end up having a lot of cash tied up in inventory before being sold. Fortunately, there are some things you can do to smooth out the turbulence and keep your cash flow – and your business – on an even keel. Read on to see our cash flow management tips to keep your eCommerce business sailing smoothly. 

Minimize Inventory

If your inventory is sitting on the shelf for more than 30 days, you have too much. You can’t afford to have that much cash tied up doing nothing. Use stock-keeping units (SKUs) to track the sell-through rate for each item in your inventory. The sell-through rate is the ratio of inventory sold during the month to new inventory added. If you see that an item’s sell-through rate is too low, you need to dig deeper and find out why. Are you producing too much of it? Is demand for it falling? Maybe some of the cash tied up in that product can be shifted to a more popular item that’s selling better, or it might even need to be discontinued. Don’t be lured in by bulk discount offers from suppliers unless you know for sure the item will move quickly. The right inventory management software can help you make sense of what is going, out, coming in, and just sitting there. 

Shot of two boxes on a table about to be shipped to customers

Get Creative with Sales

At the risk of stating the obvious, one of the best ways to keep a positively manage cash flow is to get more sales from your eCommerce business. The big question, though, is how to do that. What’s the best way to drive traffic to your site and increase the conversion rate of your visitors, and maybe even do a little upselling in the process? Here are a few ideas you can try for driving website sales.

  • Offer free shipping on larger orders to encourage bigger quantities
  • Create a loyalty program for repeat customers
  • Offer Buy One, Get One (BOGO) on items with a high margin
  • Bundle high-margin products with best-selling products
  • Cross-sell by offering related add-ons at check-out
  • Offer a recurring purchase option for consumable products
  • Offer incentives to “abandoned cart” visitors
  • Use a human or automated chatbot to engage with visitors
  • Implement a Search Engine Optimization (SEO) strategy to improve your site’s rank in search results.

If each of these strategies can increase your site’s average order by just 1 or 2%, that can quickly add up to 10% or more extra revenue coming into your bank account to help ease the cash flow. If you do go the free shipping route, make sure to read our tips on how to reduce shipping costs

Manage Your Payables

The other side of cash flow management is what’s going out to your accounts payable. You need to maximize the amount of time the cash stays in your bank account instead of going to your suppliers. When you set up contracts with suppliers, try to negotiate the terms. Standard terms will typically be 30 days, but some suppliers may be willing to go as far out as 60 or 90 days if you ask. Whatever the terms are, you should generally wait until the end of the term to make the payment so you can hang onto the cash as long as possible. Watch out for late fees, though. However, if your supplier offers discounts for early payment, they may be worth taking advantage of.

Consider an Inventory Loan

If you’ve done your best but still find yourself in a cash crunch and need to restock inventory, an inventory loan may be an easier option than a traditional bank loan. Lenders will look at more than just your credit history and will take into account your sales history and the stability of your business. Inventory loans can be either lump-sum loans or lines of credit with the bank that you can use over time. You won’t be able to finance the entire cost of your inventory, but you can expect to be able to cover around 50% of the cost through a loan.

Managing your cash flow wisely can be the difference between success and failure for your eCommerce business, even if you’re showing a profit on the books. Xendoo’s suite of products and bookkeeping services for small businesses can help you know exactly where your money is going so that you can manage it more effectively. Contact Xendoo today to start your free trial and see how we can help your small business grow.

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.

 

When You Need to Hire a Pro: Online Accounting Service for Small Business

Your business is growing (congrats!), but entering invoices, expenses, and paying bills take up far too much valuable headspace—it’s headspace that you need to focus on your offerings and your clients. It’s time to go beyond merely tracking the ins and outs of your books and to start focusing on accounting and the financial health of your growing business. Choosing an online accounting service for your small business is the best way to keep your books updated, in compliance, and thriving. An online accounting services team can quickly become an integral resource for your small business — providing so much more than just your monthly reports — you’ll receive a trusted partner that helps you focus on your goals.

You need a solid business plan

Every small business needs a solid business plan — something to help you navigate the short term and work towards success in the long run. An accountant can help you devise a solid business plan as you get started writing one or updating your existing plan. An online accounting services team can determine areas for growth within your small business by providing insight on cash flow patterns, inventory management, pricing, and business financing, as well as providing advice on property and equipment leasing and purchasing. They can help you prevent getting audited by the IRS by setting up your bookkeeping system right the first time and preparing and guiding you through an audit, if necessary. 

Online accounting services ultimately create financial forecasts to make better decisions in your business while working alongside you to create a business budget that will support your business goals. Xendoo’s online accounting service provides you with Quickbooks and Xero, plus end-to-end service with a U.S.-based financial team—bookkeeping, tax consulting, and tax filing all under one roof, available 24/7. Xendoo also helps small business owners with their personal filings, so you don’t have to worry about a thing.

You need to figure out the best legal structure for your SMB

One of the first steps when starting a small business is determining the best legal structure for the business. But it is no small task! There are a handful of options to choose from, and they can be incredibly confusing to sort through. An accountant can help you analyze each option and look into the things you must investigate before deciding. 

Together you can determine the impact it will have on your taxes, your personal liability, the cost, and problems that could arise if you need to dissolve the registered entity, among many other things. There are benefits and disadvantages to registering your business that you have to consider. Whether you register as an LLC, Corporation, Partnership, or as a Sole Proprietorship, an accountant can help you determine what’s best based on your current status, your financials, and your goals.

You’re spending too much time on your finances and not enough time on your business

Small business owners are notoriously time-starved—struggling with marketing and sales with employee management, bookkeeping, and so much more. Not to mention providing the goods and services they set out to deliver in the first place. Choosing to work with an online accountant like the team at Xendoo will instantly take some of the heaviest, most important work off your plate. Online accounting software keeps your books up to date and tax-ready, giving you the ability to forecast and make strategic decisions as needed.

Need to finalize your marketing budget? Need to quickly determine whether or not you can hire a new employee? In the past, you likely had to sit down with your books for hours to attempt to find an answer. With an online accounting team on your side, you can quickly access your up-to-date financials and have a sounding board to help you make big decisions.

When you need to deal with government red tape

This year has been so hard on small businesses. As the government continues to implement and propose new measures to help companies manage the economic consequences of the COVID-19 pandemic, you need to know how to account for the assistance. The accounting and financial reporting implications can vary depending on whether the assistance is considered a loan, a grant, or an income tax benefit, among others. 

With approvals and funding of Payroll Protection Program (PPP) loans ongoing, there will be key accounting considerations that a CPA or accountant can make sure you’re aware of, so you can continue to navigate the changes and make smart decisions for your business.

When you have been audited

Many businesses are required to have a financial statement audit or a review with the IRS at some point. An audit sounds daunting because it truly is! Managing an audit can unexpectedly pull you from your regularly scheduled business – sucking up time, energy, and money. When you’re audited, you need a CPA to perform the audit services and issue the IRS’s required reports. Your CPA will help you ensure everything is in order and save you time and expenses.

CPAs are considered fiduciaries with a legal duty and power to act on behalf of and in their clients’ best interest. It’s important to note that non-CPA accountants are not considered fiduciaries to their clients, meaning they cannot represent their clients before the IRS during an audit.

Buying, selling or growing your business

If you’re considering selling your business, an accountant acts as a financial advisor – helping to ascertain your material assets and liabilities: what you own, what you owe, and what will be included in the sale. Thanks to Xendoos online accounting support, you’ll have all your up-to-date records ready when you are.

More importantly, an accountant can generate a picture of your income over time and assign concrete value to the more fluid and variable aspects of your business: past earnings, cash flow, balance sheets, equity statements, and the company’s performance related to economic and market conditions at large, as well as any liabilities that may be lurking under the surface. That CPA tax expertise is also important. An accountant will utilize your online accounting software to organize, document, and verify your small business’s tax filings, as well as give you a sense of the other party’s tax status.

Xendoo can help you with online accounting services, taxation solutions, and so much more – and will become a trusted resource for your small business. With accurate, up-to-date records at your fingertips, Xendoo’s online accounting software for small businesses plus their dedicated team of financial advisors will allow you to grow your business, meet your goals, and spend more time focused on the reasons you started your small business in the first place.

How Do I Pay Myself and My Taxes as a Single-Member LLC?

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’s.

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

Paying Yourself: The Owner’s Draw

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. Thus you would need to create a separate bank account; use a payroll system; and withhold, report, and submit payroll taxes. A lot of hassle for just one person, right?

An LLC, on the other hand, can be treated the same as a sole proprietorship — as long as you choose to be taxed that way, not as a corporation. That means you can take money out of the company’s profits whenever you need it, in what’s called the owner’s draw, simply by writing yourself a check.

For bookkeeping purposes (if you’re doing your own books), 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.

Paying Income Tax

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, and will be reported 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) all by yourself. If your business were a corporation, you’d split the cost half-and-half with your “employer.”

The rules for paying state income tax vary, so be sure to check how your state treats the LLC as a taxable entity.

Still not sure about the ins and outs of bookkeeping, paying yourself or preparing your tax return as a single-member LLC? Our small business experts can clear things up, answer your questions, and help you decide what’s best for you and your business. At Xendoo, our mission is to take those hassles off your shoulders, so you can concentrate on making your business thrive.

 

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.

 

Get Paid Faster with Online Payment Options

“Pay now!” Having this button on your digital invoice can shave 20 days or more off the time you usually wait for customers to pay. People love the convenience and flexibility of online payment. And that often translates into immediate action.

Here’s how small businesses can make online payment work for them.

Online Payment Methods

There are a variety of instant payment methods that don’t even require customers to visit their bank’s website. The most popular ones include:

• Automated Clearing Houses
Well-known providers include PayPal and Stripe

• Credit Cards
MasterCard, VISA, American Express, and Discover are among the most recognized. Customers like this option because it gives them the flexibility to pay you on time even if they don’t have the money right now. Then their debt becomes the credit company’s headache, not yours.

• Debit Cards
Customers transfer payment directly to you from their bank.

• Direct Debit
Customers authorize automatic, recurring payments from their bank to you. This option is ideal for retainer agreements or ongoing services which you would normally bill monthly.

Using a Merchant Service Provider

Merchant service providers are companies who will handle the online payments for you. Choose one that specializes in the online payment method you’ve decided to offer (it’s unlikely that you will find it necessary to offer more than one or two methods). Getting set up is usually free; after that, there will be a fee per transaction.

To work with a merchant service provider, you will need online invoicing software. If you have the software already, there should be a section for add-on apps with a list of providers that can integrate with your software. Choose your provider and use the wizard to install the app yourself, or have your accountant do it.

It’s important to note that you don’t have to accept online payments every time; the service can be switched on and off as often as you like. Many businesses prefer not to offer online payment if the invoice is for more than $5,000, because the transaction fee would be too high.

Dealing with Transaction Fees

Fees that you can typically expect are:
• Credit and debit cards: 2% to 4% of the invoice value
• Direct debit: not more than $2 (depends on the amount of the transaction)
• Stripe and PayPal: 2.9% of invoice value plus $0.30

For accounting purposes, transaction fees are a business expense that can be deducted on your income tax. Also, be sure to integrate this expense into your bookkeeping for the order, so that your profit is calculated correctly.

For small businesses that are more vulnerable to cash flow gaps when payments are late, online payment can be a dream come true. By making it easier for the customer to pay, you can expect more on-time payments — and one less obstacle standing in the way of growing the business you love.

 

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 Track Deferred Revenue for SaaS Businesses

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

What Is Deferred Revenue

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

How to Record the Payment

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

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

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

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

 

SubscriptionRevenue Subscription Revenue
DR $6,000 CR $500

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

Why Deferred Revenue Is Better

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

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

See for yourself with a one-month free trial.

 

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.

 

Thinking About a Second Location? Do These 5 Things First

Is becoming a multi-location business right for you? We’ve put together a series of steps to analyze the factors involved and help you make a smart decision.

1. Determine whether you’re in a position to expand.

There are many signs that your business has outgrown its single location, including not enough space to handle the current volume, worsening customer service due to heavy traffic delays, and a need for your product or service in other territories.

The first step is to evaluate whether you’re ready for the additional challenges of operating multiple locations. Be sure to examine:

• Financial ability to absorb the costs of opening a new location

• Staff that can handle operations at your original location while you’re birthing the new one

• Increased demands on your time and energy before, during and after the launch

2. Create a vision of your ideal new space.

Before you begin actual planning, do some dreaming. Will it be a carbon copy of the original location? Or do you want improvements and modifications based on what you’ve learned in your current location or different market conditions in the new one?

3. Choose a location.

This step is critical because a bad location or landlord can ruin your business. Carefully examine space configurations, customer accessibility, and lease terms, bearing in mind that you’ll probably be committing to at least a 5-year deal. Keep a checklist of the features your new location must-have.

Even finding the right real estate agent can be difficult. As a small business owner, you probably won’t be at the top of their priority list. Be prepared to do a lot of looking on your own, through commercial real estate websites and simply walking the streets.

4. Put the plan into action.

Every business and industry will have its own requirements, so we can only discuss this process in a very general way. Your implementation may include:

• Design the space with an architect and/or interior designer

• Build out the space, install fixtures

• Order additional inventory

• Train staff to run the original location and make decisions without you

• Hire and train additional staff for the new location

5. Optimize the launch.

Before opening day, give your new baby its best chance to thrive with some or all of these activities:

• Clear your schedule of any other commitments

• Make existing customers aware of the new location through social media and other marketing channels

• Invite press coverage — post press releases, add a newsworthy gimmick (such as a contest or celebrity appearance) to your grand opening event

• Have a soft opening to iron out the glitches

• Advertise the grand opening to the general public

 

Throughout the process of opening a second location, your financial status could be the difference between success and failure. As small business specialists, Xendoo can help you make the right moves, explain your numbers, and set you free from time-sucking bookkeeping tasks. After all, you have enough on your plate!

 

Check us out with a one-month free trial.

 

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.

 

States with No Income Tax

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

• Alaska

• Florida

• Nevada

• South Dakota

• Texas

• Washington

• Wyoming

• Tennessee will be completely tax-free by 2021

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

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

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

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

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

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

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

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

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

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

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

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

 

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.

 

Make New Customers But Keep the Old

One is silver, but the other is gold! The old song is talking about friends, but it’s equally true of your existing customers — they are your most valuable asset.

Long-term, loyal customers put money in your pocket with repeat business, new customer referrals, and positive social media reviews. Here are eight tips to increase the LTV (lifetime value) of your customers.

Exceed Their Expectations

Giving customers more than you promised is a strategy that’s been proven successful time and time again. Throw in a bonus item with their order, offer a discount coupon for their next purchase, or deliver their package in two days instead of the five you promised.

Provide Outstanding Customer Service

Don’t make it hard for customers to get their problems resolved. You can convert complainers into satisfied customers with full warranty coverage, no-question return policies, multiple ways to reach customer service (email, phone, live chat), and prompt response.

Ask What They Want

Do you really know what your customers think of you? If not, you won’t be able to address problem areas in your business that are impacting your ability to retain customers. Start by frequently monitoring online reviews and reports from your customer service team. Take your information gathering to the next level with customer surveys; this data will also be useful for your marketing plan.

Become a Trusted Advisor

Not every contact with customers should be about making a sale. Position yourself as the go-to authority with communications about your field of expertise — blogs, email newsletters, Instagram or Facebook posts, and so on. This not only shows customers how much you have to offer to the relationship, it helps keep your business at the top of their mind when they are ready to buy again.

Personalize Your Communications

Marketing data shows that using the customer’s name significantly increases response rates. And in this day and age of digital customization, it’s perfectly easy to include not only their name but all sorts of relevant information in your email, direct mail piece or website sidebars/pop-ups. Consider showing similar items to the ones they looked at, complimentary items to go with their purchase, a special offer for their birthday or anniversary, or a reminder that it’s time to renew their subscription or restock their favorite item.

Incentivize Their Loyalty

Reward your best customers for their repeat business with a frequent shoppers program, discounts for referring new customers, and discounts or freebies for sharing the word about your business on their social media pages. (Of course, all these activities benefit your business as well as the customers!)

Show the Inactives Some Love

Don’t just give up on customers you haven’t heard from in a year or more. A “we want you back” special offer may be all it takes to get them back on board. Your CRM software should be able to track and sort customers by their last active date, giving you an instant list to pursue.

Make the Sales Process More Convenient

Consider some advanced digital features that make it faster and easier for customers to shop and buy. Amazon, for example, stores existing customer information so that they can place an order with just one click. Many e-commerce websites allow customers to save their favorites as they browse, so they can find them again quickly when they’re ready to order. Fitness and beauty businesses email automatic reminders when it’s time for the next class or haircut. Grocery and drugstores offer scannable store cards that instantly access and process paperless coupons at checkout.

The LTV of your customers is much greater than the cost of the goods and services they buy. They can also act as partners in promoting your brand and bringing in new customers. That’s why a customer retention plan is important to any business. Keep them happy, and you’ll be reaping the rewards for years to come!

 

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.