Types Of Small Business Financing You Need To Know About

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Small business financing is vital as it can make or break your business. When first starting, there are many factors that you need to consider, such as your business plan and your financing options. When creating your business plan, it should outline your goals and objectives to have a clear idea of how to implement your plan. It’s important to plan ahead so you don’t miss any crucial steps that will bring on more than necessary. In this blog post, we will help you navigate the different types of financial assistance options to give you more insight into what could be a good fit for you.

When it comes to financing, it’s important to ensure that you’re choosing the right option for your business. Starting a small business isn’t easy and comes with many challenges, but if you take the right steps in the planning stage, it’ll make the process go more smoothly.

Without the right financing, getting your business off the ground may be hard because you won’t have enough support behind your idea. There are many financing options available, but it’s up to you to find the one you feel will work the best. Some options to fund your business include a small business loan, personal financing, or even a home equity line of credit loan.

Types of Financing Options

A small business loan can be a good option when looking for some additional financing while keeping in mind small business loans have a long list of requirements that have to be met to qualify for the loan. Cross-check the qualifications beforehand, and if all the requirements are met, it could be a good option for you. If you have been running your business for a while but are trying to qualify for a small business loan, the lender may ask to see a recent balance sheet of your business. It’s important that when applying for a small business loan, you understand the information that you’ll have to present.

Financial statements are one of the many requirements needed to qualify, so it’s important that you understand how to read your financial statements so that you will be able to discuss the information with the lender. If you don’t want to look to outside sources for financing assistance and feel that you have the ability to invest in it yourself, then personal financing may be the best choice for you. Personal financing loans are guaranteed through your personal credit history. This often makes them easier to get approved for than a small business loan if you have good credit, which might look at both a personal and business credit score.

For homeowners, another viable option is taking out a home equity line of credit loan. This type of loan allows you to borrow money against the equity you’ve built in your house. You receive the funds as a line of credit, so you’re able to access additional financing for your business as needed. This could be beneficial as it can be easier to qualify for than other loan options.

Keep your Finances Up to date 

In addition to securing the proper financing, it’s important to make sure that you’re keeping your financial history up to date. Managing your finances plays an important role in your business, as being financially sound from the beginning will set you up with a good foundation. While it’s important, it can become difficult to manage if you’re not taking the time to consistently review and record all financial activity. You must be diligent about reviewing your finances to ensure you’re not missing or falling behind on any payments. If you let this aspect of your business fall by the wayside, it’ll be overwhelming to catch up while simultaneously running your business. In order to run a successful business, you need to make sure that you’re paying attention to all aspects, financials included.

If you’re feeling overwhelmed and concerned about managing everything on your own, it may be beneficial to look at outsourcing opportunities. Outsourcing functions of your business, such as bookkeeping, will give you time back in your day to focus on running your business while allowing an online bookkeeper to assist you with the more time-consuming tasks. With the help of an online bookkeeper, they can help to keep your finances up to date so that you don’t have to worry about falling behind or missing payments. Ensuring that all aspects of your finances are taken care of will help you to get your business started on the right track and help you to focus your efforts on the growth of your business rather than worrying about its financial state. 

 

 

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Year-End Bookkeeping and Accounting Checklist for Small Business Owners

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The end of the year is a hectic time for small business owners. Between catching your breath after tax season and managing holiday sales, year-end bookkeeping and accounting tasks understandably fall to the bottom of the to-do list. 

Xendoo is here to help you avoid the year-end scramble. Check out our year-end bookkeeping checklist to organize your finances and successfully wrap up the year. 

1. Get Your Books Caught Up

The first step is to make sure that your books are up-to-date. You can do this by: 

  • Accounting for all bills and invoices, even if they haven’t been paid yet. 
  • Reviewing bank and credit card statements to confirm that they match. 
  • Recording any expenses that you paid for with personal funds. 

Accurate records ensure reliable financial statements. If your books are behind a few months, or even years, you are not alone—25% of business owners are behind on their books. 

Xendoo’s online bookkeepers provide catch up bookkeeping services, so you can focus on the future. 

2. Collect the Necessary Forms

Once January arrives, your accountant will request certain forms to close your books and file your small business taxes. Be sure to collect them as soon as possible to ensure a smooth start to the new year. 

Here are common forms and their deadlines. 

Form W-2

Business owners use form W-2 to report salary information for their employees. It also helps businesses report the taxes they withhold from paychecks. Employees need this information to file their personal tax returns. 

Business owners are responsible for sending this form to the IRS. Employers must provide the form to their employees no later than January 31st so that employees have enough time to file their taxes.

Form W-9

If you worked with an independent contractor or vendor and paid them $600 or more, you will report those payments to the IRS using Form 1099-NEC. 

The information you need to complete this form is on Form W-9, which you can collect from your contractors.

If any W-9s are missing, reach out to your independent contractors and have them complete the form before the end of the year.

Schedule K-1

CPAs provide the Schedule K-1 or Form 1065. The Schedule K-1 must be sent to shareholders and partners by March 15th. 

S-Corporation shareholders and partnership members use it to report their share of the business’s profits and losses. They’ll also include the form with your personal tax return.

Form 1099-K

The 1099-K tracks the payments received through third-party payment networks, like eBay, Stripe, Shopify, PayPal, and others. You should receive one 1099-K from each of the Online Payment Networks you use by January 31st. You are required to complete each one. 

Your gross receipts must be at least as high as the amount that you report on your 1009-K.

The 1099-K shows gross sales, which is the amount before fees are deducted. What appears in your bank account is the Net Amount, the amount after fees are deducted from the Gross Amount. The sales from each vendor must be reported as the Gross Amount, which is what appears on the 1099-K.

If you use freelancer platforms like Upwork or Fiverr to hire independent contractors, they may also send 1099-Ks to your freelancers instead of 1099-NECs. Since they are considered Online Payment Networks, these platforms typically send 1099-Ks to freelancers that make over $20,000 a year and have at least 200 transactions. 

However, if you paid freelancers more than $600 outside of their platforms, then you will need to send out a 1099-NEC. 

Click here to download our Tax Documentation Checklist.

3. Follow Up on Past-Due Invoices

Review past-due invoices to see what you are owed. If there are any outstanding payments, reach out to your customers before the end of the year to successfully close your books. 

4. Account for Inventory

If your business stores inventory, perform an end-of-year inventory count to make sure your totals match your Balance Sheet and your books. This review will provide insight into waste and loss management, as well as reduce inaccuracies in inventory counts and receivings.

Consider utilizing inventory management software to streamline inventory creation and order fulfillment.   

5. Review Your Financial Statements

Once you or your bookkeeper completes your bookkeeping, review your financial statements to confirm your numbers are correct.

You can also take that time to review how your business grew over the course of the year. Was there a steady increase in profits? Can you identify connections between your costs and sales? The financial statements provide visibility to confirm that you are on track to meet your goals, make projections, and prepare for the future.

Click here to learn more about the key financial statements. 

6. Reach Out for Help

Everyone deserves a supportive team of people who care. If you feel overwhelmed with year-end bookkeeping, reach out to an online bookkeeping service. 

Xendoo’s bookkeeping and accounting team provides monthly bookkeeping and accurate financial reports. We’ll give you financial visibility throughout the year and deliver insights to make strategic business decisions. 

Ring In Success

Juggling the holidays with running a business can be hectic. Although this year-end bookkeeping and accounting checklist can help you prepare for tax time, you don’t have to do it alone. Xendoo has a range of plans with flat monthly fees. You can get certified, professional online bookkeeping, accounting, tax, or CFO services to help you manage your finances and grow your business. 

Schedule a call with one of our online accountants to get started.

 

 

 

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

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

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

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

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

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

What is bank reconciliation?

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

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

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

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

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

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

Bank reconciliation terms to know

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

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

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

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

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

How often should you do bank reconciliation?

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

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

How To Do a Bank Reconciliation

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

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

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

1. Download your bank statement

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

2. Locate reconciliation in your software or spreadsheet

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

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

3. Reconcile the deposits

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

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

4. Reconcile checks

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

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

5. Reconcile any electronic payments

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

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

6. Compare the cleared balance to the bank balance

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

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

How to use a bank reconciliation template

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

The bank reconciliation template has three tabs. 

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

Update dates and balances

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

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

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

Review your deposits

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

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

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

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

How to record bank reconciliations

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

A journal entry

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

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

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

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

A bank reconciliation statement

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

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

A bank reconciliation statement may include:

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

Why is bank reconciliation important?

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

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

1. Fraud

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

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

2. Missing checks and vendor payments

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

3. Bank errors and financial statements

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

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

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

4. Cash flow management

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

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

Top tips for bank reconciliation

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

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

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

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

 

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How to Set Up Online Payroll for Your Small Business

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Doing payroll may not be your favorite part of running a business. If you haven’t yet, the first step is to learn how to set up payroll. It can be quite bureaucratic juggling all these forms—whether it’s a W-2, W-9, W-4, or something else—and by the end, you might not even know where to start. 

Not only do you have to calculate wages, but you must also account for employment taxes—income, Social Security and Medicare. On top of that, you have to factor in additional deductions for health or retirement plans. Then there’s all the paperwork you need to report to the government. 

How to Set Up Payroll

Luckily, we’ve put together this guide on how to set up payroll, with some insider accountant tips to make it less painstaking for business owners. 

1. Get an Employer Identification Number

The IRS requires businesses to get an employer identification number (EIN). Also known as Employer Tax ID, an EIN is a unique nine-digit number that identifies your business for tax purposes. While its main purpose is to help you with federal income taxes, it also comes in handy when opening bank accounts, credit cards, loans, local taxes, or setting up payroll.

When looking to get one for your business, you must fill out the SS-4 form. This document provides the IRS with information about your business, such as business structure and contact information. You can also apply for an EIN online through the IRS website to receive your number.

2. Look Up Your State ID and Requirements

In addition to EINs, your state and locality may have additional requirements. For example, a few states like Florida do not collect state income taxes. Some states like New York require a business registration number. You can find out if your state is one of them by looking at the IRS page here.

You can also use the Small Business Administration’s guide on state tax IDs to look up your state’s requirements and apply for an ID number.

3. Identify Contractors and Employees

Before you can set up payroll for a worker, you need to distinguish them as an employee or a contractor. 

An employee typically works full-time or part-time at your company’s office. A contractor is usually a consultant or freelancer that are self-employed. 

This determines how to set up payroll. You will do payroll and taxes differently for each, so it is important to classify them correctly. In addition, if you accidentally misclassify, the employer is responsible for any back taxes, penalties, and interest. Not to mention, if you misclassify a contractor as an employee, you could end up paying payroll taxes when you shouldn’t. 

4. Collect the Proper Information

Now that you’ve distinguished between employees and contractors, it’s time to collect the information you’ll need in order to set up payroll and do taxes. 

The data you need varies by federal and local regulations and employment status, but most commonly, you’ll need to know: 

  • Name
  • Address
  • Social security number
  • Deductions
  • Contact information

Employees must fill out a W-4 form, while contractors fill out a W-9 form. In addition, employees have taxes withheld from every paycheck by their employer. Independent contractors are responsible for paying their taxes quarterly through estimated tax payments and don’t have any withheld by their employer. 

When tax time approaches, you’ll need to send a 1099-MISC to your contractors and a W-2 to your employees. You’ll also need to file the forms with the IRS before January 31. 

New hires often fill out a W-4 when they start but may need to update it if their circumstances change, such as getting married or having a child. You should collect these forms from your employees and contractors before their first work day. While you’re at it, you should also collect their direct deposit information to set up their paychecks.

5. Set Your Payroll Schedule

Most businesses set their payroll schedule to biweekly, or every two weeks. However, this can differ depending on the nature of your business. 

Plus, some states have strict guidelines on when and how to pay employees. For example, California requires meal and rest breaks. Although these don’t have to be paid, you might be surprised that many states don’t require breaks at all, except in special circumstances.

You’ll find that payday guidelines differ by state, with some requiring weekly, daily, semi-monthly, or nothing at all. These are just a few examples of how much it can vary by state. 

It’s important to familiarize yourself with your state’s payroll and labor laws, especially now that more people are working remotely across state lines. Otherwise, it can lead to costly mistakes and penalties. You can find labor guidelines by visiting your state’s labor department website. 

6. Create an Employee Handbook With Policies

In addition to figuring out how to set up payroll, you’ll need to communicate your payment schedule and other policies with your employees. After all, they need to know how and when they’ll be paid. The best way to do this is by creating an employee handbook with your company’s policies.

An employee handbook is a document that outlines your company’s expectations, rules, and procedures. It ensures everyone is on the same page and knows what’s expected of them. Plus, it can help you avoid legal problems down the road.

There are a few key things you should include in your employee handbook, such as:

  • Salary
  • Holidays off
  • Sick days
  • Overtime policy
  • Vacation days
  • Other benefits and compensation

You’ll also want to outline the exact payroll schedule and how payments are calculated and administered. Methods of compensation you’ll be using may include: 

  • Salary – a set rate or fixed payment that an employee receives for performing their job duties 
  • Hourly – an hourly rate that you calculate based on the number of hours an employee works
  • Commission – often used in sales, a commission is a percentage of the revenue generated from sales
  • Tips – usually given to service industry workers, tips are voluntary gratuities given by customers
  • Supplemental wages – covers anything else such as back pay, severance pay, bonuses, and accumulated sick leave

7. Choose Payroll Software

Fortunately, you no longer have to manage payroll with cumbersome spreadsheets and manual data entry. Payroll software—either as part of your accounting system or a stand-alone app—automates much of the work for you. 

It can also help you comply with applicable regulations and filing requirements. Employees can easily access their pay stubs and W-2 forms come tax time.

When choosing payroll software, there are a few things you should keep in mind: 

  • Ease of use – Look for software that’s easy to set up and use. In most cases, the software should be able to integrate with your existing accounting software.
  • Cost – While you don’t want to skimp on quality, you also don’t want to overspend on features you won’t use. 
  • Compliance – As we mentioned earlier, payroll software should help you stay compliant with applicable regulations. Gusto, for instance, offers compliance support for federal, state, and local taxes. It also provides automatic tax filing and direct deposit.
  • Reporting – Look for comprehensive reporting software to track your payroll data and make informed budgeting decisions about your business. 
  • Security – Xendoo, for instance, uses 256-bit SSL encryption to protect your data.

You can also ask these questions to help you decide on the best payroll software for your business.

  • Does the accounting software you already use have payroll functionality? If not, can you add a plug-in to it?
  • Is the stand-alone software compatible with your system as well as the systems your financial consultants use?
  • Is it cloud-based?
  • Does it keep real-time records?
  • Does it provide accurate reports?
  • Does it have features relevant to your business, such as time-sheet processing or direct deposit payments?
  • Is it scalable?

There are many payroll software tools out there. Xendoo partners with Gusto. It provides a wide range of features, including direct deposit, time-sheet processing, and comprehensive reporting.

8. Submit Payroll Taxes on Time

The IRS states that employers must report the wages paid and any other related employment taxes such as:

  • Federal income tax withholding
  • Social security and Medicare taxes
  • Federal unemployment (FUTA) tax

Payroll taxes can be tricky to navigate, but it’s vital to ensure that you submit them on time and in full. The IRS offers several resources to help businesses with employment taxes, including an online payment portal, e-file, and direct deposit options. Typically, you’ll need to deposit federal income tax withheld and Medicare taxes monthly or semi-weekly. 

In addition, different payroll forms have different reporting due dates. If any of these are late, you may be subject to penalties.

  • W-2s: January 31
  • 1099-MISC: January 31
  • 940: January 31
  • 941: April 30
  • 943: April 30
  • 944: April 30
  • CT-1120K: April 15
  • CT-1120: April 15
  • Schedule H: April 30

With the right payroll software and a small business bookkeeper, you can automate most of your payroll duties.

9. Archive Payroll Records

Employers are required by the government to keep records for the current and previous three tax years. Your online payroll software will be a big help with this, but may not do everything — especially since local requirements can vary. In addition, you must keep some paper records, such as tax forms. 

Archived information should include:

  • Employee’s name, address, and social security number
  • Dates of hire and termination (if applicable)
  • Copies of all relevant forms supplied to (and by) the employee
  • Amounts and dates of all wage, annuity, and pension payments
  • Fringe benefits and expense reimbursements
  • Sickness or injury payments
  • Tax deposits you made
  • Copies of returns filed and confirmation numbers

As a small business, it’s vital to comply with government regulations. One such regulation is proper payroll management. Setting up and maintaining your company’s payroll doesn’t have to be complicated or time-consuming. 

Xendoo plans integrate with various accounting and payroll tools like Xero and Gusto. You can check for current online payroll offers here. With the right tools and resources, you can quickly get started and keep your team on track with their paychecks. If you need help getting started, contact us today or start a 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.

 

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The Small Business Guide to Revenue vs. Profit

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When running a small business, you’ll want to track revenue and profit. What is revenue vs. profit? Is one metric more important than the other?  

While revenue and profit measure your business’s financial performance in different ways, the two metrics are closely intertwined. They are often used to gain a better understanding of your overall financial health. 

What precisely is the difference between revenue and profit? Read on as we take a closer look at these two key metrics and explore how you can use them in your business.

What is Revenue? 

Revenue, also known as gross sales, is the total amount of money your business brings in through sales of products or services. 

For example, you’d find your annual revenue by adding up the total sales for the year. It would only include the income derived from your business’s primary activities. It does not include other types of income, such as investment returns or earnings from other sources. Revenue is included in your income statement, along with gross income and net income. 

Revenue and Cost of Goods Sold (COGs)

When calculating revenue, you should also consider the cost of goods sold (COGS), which are the direct costs associated with producing your product or service. 

Deducting COGS from your revenue will give you your gross profit, which is the amount of money you have left after subtracting all the costs associated with creating your product or service. Since COGS is a cost of running a business, it’s recorded as a business expense on your income statement. 

Revenue and Net Income

Since revenue represents the big number at the top of your income statement, it is often referred to as the “top line”. Net income, on the other hand, is known as the “bottom line”. In basic terms, net income is revenue minus expenses.

While revenue alone can’t tell you much about your business’s overall financial health, it is a valuable starting point. You can use it to understand your performance, particularly when compared to other businesses in your industry.

How Do You Calculate Revenue? 

To calculate your revenue, you need to start with the average price of your product or service. Then, multiply this figure by the number of units sold. With this revenue formula, you can calculate the total revenue for the period in question.

Revenue = (average price per unit sold) X (number of units sold)

Your bookkeeper or accounting software will typically handle this calculation and report it on your company’s income statement. You will have the net sales(gross revenue minus any returns), cost of sales, and net revenue on your revenue report. By subtracting the COGS from the net sales, you will have the net revenue for the period.

For example, suppose you own a bakery that sells scones for $5.00 each, and you sell 1000 scones over a month. To calculate the gross revenue for the month, you would multiply 1000 by $5.00 to get $5,000 in total revenue.

  • Example: (1,000) X ($5) = $5,000 gross revenue

You will need to deduct the direct cost of sales associated with producing the scones from gross revenue to get the net revenue. Suppose the cost of flour, sugar, eggs and other ingredients used to make the scones is $1,500 for the month.

  • Gross revenue – direct cost of sales = net revenue 
  • Example: ($5,000) gross revenue – ($1,500) cost of sales = $3,500 net revenue

Dividing the net revenue by the gross revenue will give your business’s gross profit margin, which is an extremely important metric for evaluating profitability.

What is Profit? 

Profit, or simply net income, is the amount of money your business is left with after subtracting all expenses from revenue. In financial slang, it’s called the “bottom line” since it’s represented by the last figures in an income statement. 

While revenue is a critical metric for evaluating the success of your business, profit is what ultimately determines whether or not your company is sustainable in the long run. This is because profit is what’s left after you’ve covered all your costs and expenses. 

You can use it to reinvest back into the business, pay dividends to shareholders, or pay yourself a salary. The higher your profits, the more successful your business will be over the long term.

How Do You Calculate Profit? 

While Xendoo sends you a monthly report with your business’s updated profit and loss statement, understanding how to calculate profit is an essential part of being a small business owner.

To calculate your business’s profit, you need to start with your total revenue for the period in question. Then, deduct all expenses from this figure to get your net income.

  • Net income formula: total revenue – total expenses = net income

When you dig into expenses, it can get more complex. For example, you may go a step further and factor in the EBIT (earnings before interest and taxes), depreciation, amortization, rent, and business taxes into the equation. This will give you your business’s net profit for the period.

For example, let’s say your business had total revenue of $100,000 in a year. COGS accounted for $10,000. You had $5,000 in depreciation expense, $5,000 in interest expense, and $18,500 in business taxes. 

To calculate the EBIT, you’d do this: 

  • $90,000 net revenue – $5,000 depreciation= $85,000 EBIT

Therefore your EBIT for the year is $85,000.

  • Net profit = taxable income – business taxes
  • Net revenue – interest: $85,000 – $5,000 = $80,000 (taxable income)
  • Example: ($80,000) taxable income – ($18,500) business taxes =  $61,500 net profit 

Revenue vs. Profit: What is the Difference? 

In the simplest terms, revenue is a business’s total income, while profit is the amount of money a firm keeps after subtracting all costs. 

Revenue is important because it indicates whether or not a business is generating income. However, profit is what’s left after all expenses have been deducted. It indicates the overall success of a business.

If you’re running a small business, it’s critical to understand the difference between revenue vs. profit to make informed decisions about how to grow your business. A business can be generating a significant amount of revenue but still be operating at a loss if it is spending a lot of money on expenses. 

While a single dip in revenue or profit is common, a long-term trend of high revenue but low profit is much more dangerous. If profit is consistently low, it could indicate that your business model is not sustainable. Without a strong understanding of revenue vs. profit, it can be challenging to assess your business or make smart decisions about how to invest in its future.  

Revenue vs. Profit Example 

To help you better understand the difference between revenue vs. profit, let’s take a look at some examples. When public companies release their annual reports, many feature their revenue numbers prominently on the first page.

Revenue 

To understand revenue, let’s look at Microsoft’s financials for 2021. In their annual report, Microsoft reported total revenue of $168,088 million from product and service sales.

Microsoft's annual report

Product revenue accounted for $71,074 million while service and other accrued $97,014 million totaling the $168,088 million. Microsoft’s revenue increased by 17.5% from 2020 when they reported $143,015 million in product and service sales.

Profit 

To understand revenue vs. profit, let’s look at Microsoft’s annual report again. Only this time, we’ll look at net income. The figure appears at the bottom of the income statement, which indicates how much profit a company has earned after accounting for taxes and all expenses.

Microsoft’s net income was $61,271 million in 2021. This was an increase from 2020 when they reported $44,281 million in net income. But how did Microsoft get to this number?

To calculate net income, we take the total revenue and subtract the cost of goods sold (COGS), operating expenses, interest expenses, and taxes. Microsoft reported these numbers (in millions):

  • Total revenue: $168,088
  • Total cost of revenue: $52,232
  • Gross margin: $115,856
  • Research & Development: $20,716
  • Sales and marketing: $20,117
  • General and administrative: $5,107

Subtracting this from the gross margin gives you an operating income of $69,916. But they also had other income of $1,186, so total income before taxes accounted for $71,102. Provision for income taxes totaled $9,831.

To get the net income, we subtract the provision for income taxes from the total income before taxes, which gives us our final figure of $61,271 million.

As you can see, revenue is just the first step in understanding how much profit a company has earned. To get an accurate picture of your business performance, you need to look at revenue and profit.

Although Xendoo provides profit and loss statements to all its customers, it’s crucial to understand where these numbers come from and what they mean for your business. 

Keep in mind that Microsoft is a huge public company. Revenue and profit for a small business will likely be much simpler. 

How Do You Increase Revenue? 

While increasing your small business revenue is an excellent way to grow and boost your bottom line, it isn’t easy.

Every business is unique, and there is no one-size-fits-all solution to increasing revenue. However, a few proven strategies can help you increase your revenue.

  • Increase your prices –  If you are priced below competitors, or your prices haven’t increased in a while, it may be time to consider a price increase to drive more revenue. However, avoid very high prices as they might scare away your customers and reduce revenue.
  • Boost sales quantity – In most cases, increasing your sales volume is the best way to grow your revenue without necessarily having to increase your prices. You can run a marketing campaign, boost brand awareness and outreach through online advertising, or hire a salesperson to help you close more deals.

How Do You Increase Profit? 

In addition to focusing on revenue, focus on profit margins and work towards increasing them. It is relatively easy to increase profit compared to revenue, and you can do it in several ways.

  • Reduce your costs – Evaluate your business expenses and work towards reducing them without compromising on quality or hurting your bottom line. You could renegotiate contracts with vendors, cut down on unnecessary expenses, or automate specific processes to reduce your costs.
  • Manage your debts – Debts can significantly drag your profits and hurt your business’s bottom line if not managed properly. Work towards reducing your debts and interest payments by refinancing high-interest loans, consolidating multiple debts into one loan, or exploring government grants and tax incentives.
  • Outsource tasks and services – In some cases, it might be more cost-effective to outsource certain tasks and services rather than doing them in-house. This could help you save on costs and increase your profits. For instance, you can outsource your accounting and bookkeeping to a professional service rather than hiring an in-house accountant.

Revenue and profit are two metrics that every small business owner should track. There are important differences between revenue vs. profit. While revenue is a valuable indicator of how much business you are doing, profit determines your long-term sustainability. 

It is crucial to understand the key strategies and tactics that can help you increase both your revenue and profit margins. Whether it is increasing your prices, boosting sales quantity, or reducing costs and debt, there are several ways that you can grow your business’s top line and bottom line. The key is to stay focused, persistent, and diligent without losing track of your profitability goals.

If you want to better understand your business’s financials, Xendoo is here to help you. We are an online accounting and bookkeeping service that can help you understand your revenue and profit margins. Contact us today to get your free trial and let us get bookkeeping hassles off your plate.

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Free Small Business Expense Tracking Spreadsheet

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

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

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

Why do you need to track small business expenses?

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

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

Tax Deductions

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

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

With reliable accounting software, you’ll have expense reports. These will give you a complete picture of your spending and tax deductions. If you’re not sure what counts as a deduction, you can review our list of over 20 tax deductions for small businesses.

Financial health

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

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

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

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

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

What are common business expenses?

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

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

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

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

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

1. Business expense tracking apps

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

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

Some business expense tracking apps include: 

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

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

2. Business expense tracking spreadsheets

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

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

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

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

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

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

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

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

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

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

Small business expense tracking spreadsheet

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

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

What is gross revenue?

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

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

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

What is gross profit?

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

  • Gross Revenue – Cost of Goods Sold = Gross Profit

What is total net income?

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

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

  • Gross Revenue – Total Expenses = Total Net Income

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

Total net income vs. total expenses

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

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

How to use the sheet

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

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

Tracking business expenses is a task every business must do. However, paying for an expense tracking app may not be an option. Also, while it’s possible to track expenses manually using a spreadsheet, you may want to focus on other business activities.

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

 

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

How to Outsource Bookkeeping – A Guide

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Since starting your business, you’ve likely filled multiple roles–from product and customer service to bookkeeping and sales–at some point. However, as your business has grown, you may have felt like you don’t want to spend your time doing some of those tasks. 

For instance, you’ve probably asked yourself: Should I outsource bookkeeping?

Whether or not to outsource is a common question many small business owners face. Tasks like bookkeeping are ideal to hire outside help. Others like sales may be better to manage in-house. There are a few ways that you can hire a bookkeeper. Primarily, businesses choose virtual bookkeepers or local bookkeepers.

In this guide, we’ll dive into everything related to outsourced bookkeeping from what it costs to how to outsource it. You can click to go to a particular section below or scroll down to start from the top. 

When should I outsource my bookkeeping?

If your business is new and you don’t have significant revenue or budget to hire outside help, you’ll probably try DIY bookkeeping first.

However, most businesses prefer to outsource their bookkeeping, especially as they grow. These are some of the top signs that it is time to outsource your bookkeeping:

  • You’re spending several hours each week doing accounting and bookkeeping tasks yourself.
  • You plan to get funding through investors or business loans and need accurate financial statements.
  • Your books are behind, and you need to catch up.
  • You’re spending a lot of money hiring full-time, in-house bookkeepers or a local bookkeeper.
  • You aren’t sure about your current cash flow or financial health.
  • Tax season is coming up, and you don’t feel prepared to file your taxes.
  • You simply have no desire to learn bookkeeping or to do it yourself.

Why should I outsource my bookkeeping?

At first, you might be hesitant to trust an outside bookkeeper with your financial data. There are so many benefits to outsourcing your bookkeeping, as long as you choose a trustworthy CPA or bookkeeper. The top benefits of outsourcing your bookkeeping include:

Up-to-date books and more time for business

Small business owners are notorious for spending a large amount of time on administrative work, like employee scheduling, preparing payroll, and bookkeeping. It is estimated that small business owners spend 120 working days per year on administrative tasks like bookkeeping. Still, nearly 25% of businesses are behind on their books. 

Hiring a bookkeeper allows you to free up more time. With the time saved, you can focus on the tasks that excite you most as a business owner. Although bookkeeping it’s extremely important to the health and success of a business, it is not necessarily a task that most entrepreneurs enjoy doing.

Cost-effective bookkeeping

If you’ve attempted to do small business bookkeeping on your own, you already know that it can take a lot of time and money. Even if you utilize programs like Quickbooks or Xero, you can’t automate all your bookkeeping needs.

If you’ve hired an hourly bookkeeper or accountant, the cost per hour adds up fast. Xendoo offers pricing plans with a flat-rate monthly fee, so you can easily budget for your bookkeeping each month.

Business loan and funding preparation

As your business grows, your bookkeeping and accounting needs grow too. If you want to take out a loan or open a line of credit, your lender will want accurate financial statements. It can take hours to do this on your own, and it might not be accurate.

Bookkeepers have experience doing this for multiple clients, so they can put financial statements together quickly in a way that’s presentable for your potential lender.

Experienced bookkeepers can also help you by:

  • Advising you on tax savings. You’ll have a better idea of what you can deduct and how to reduce your taxes.
  • Providing answers to your financial questions. Bookkeepers can help you learn about financial reports, cash flow, depreciation, and more.
  • Identifying opportunities to improve profitability. They’ll have a clear picture of where you improve your business finances.
  • Keeping you tax-compliant and secure. Bookkeepers are familiar with tax laws and other legal considerations, so you won’t miss deadlines or have noncompliance penalties.

How do you outsource bookkeeping?

There are two primary options to outsource bookkeeping–virtual bookkeepers or local bookkeepers.

Virtual bookkeepers

If you hire a bookkeeper online then that would be considered a virtual bookkeeper.  Xendoo, for example, is a virtual bookkeeping service. Our team of bookkeepers works with you virtually, no matter where you a located in the United States. 

However, there are some differences between Xendoo’s bookkeeping services and other virtual bookkeepers. For instance, you might hire a freelance virtual bookkeeper that performs the same tasks that a regular bookkeeper would–they just do them online. 

The drawback of hiring an individual freelance bookkeeper is that they tend to be more expensive. Like an in-person, local bookkeeper, freelancers usually charge an hourly rate vs a set monthly payment.

They also may not have as many resources as a bookkeeping firm or company. For instance, when you get a Xendoo plan you also get perks like access to accounting software like QuickBooks and Xero. 

Another advantage of virtual bookkeepers is that because they work online, they tend to be familiar with different eCommerce platforms, payment processors, and other online financial services. Therefore, they can help you integrate your business banking account, expenses, and other financial data into a secure accounting system. With that, you can view your financial health, prepare for taxes, or plan for your business future at any time. 

Local bookkeepers

If you hire a bookkeeper that has an office or business location near you, that would be considered a local bookkeeper. Local bookkeepers usually charge by the hour and it tends to be expensive.

For instance, it is not cost-effective if you need to book more than one or two hours a month. This might make sense if you are booking an hour for a bookkeeping consultation a month. However, in this case, you would still be responsible for doing your own books.

If a local bookkeeper is managing your books and you have a complex business with many employees and revenue streams, it’s probably going to take more than a few hours a month. Those hours can get expensive.

In most cases, you don’t need a local bookkeeper unless:

  • You want to meet with your bookkeeper in person on a regular basis.
  • You keep your financial information in physical records only. 

Whether or not you use a local bookkeeper is based on your preference. Today, most accounting and bookkeeping tasks are performed online anyway. Therefore, the majority of businesses prefer online bookkeeping, because it’s more accurate, cost-effective, and easier.

How much does outsourced bookkeeping cost?

The size of your business and the number of monthly expenses you incur play a large role in the pricing for outsourced bookkeeping services. To get a better idea of how much outsourced bookkeeping costs, let’s compare it with some other bookkeeper options.

In-house bookkeeper cost

An in-house bookkeeper is usually considered a full-time employee, which means they would get a salary and benefits package. According to Salary.com, the cost to hire a full-time entry-level bookkeeper is $45,446. That is just the base salary and doesn’t include benefits or bonuses.

Of course, the cost rises in cities that have a high cost of living. It also increases when hiring bookkeepers with more years of experience. For example, in San Francisco, the living wage is higher. The average annual salary for business and finance professionals is $84,198, according to MIT. 

Most small businesses don’t have enough bookkeeping needs to justify paying a bookkeeper year-round for their services. They may consider a freelance bookkeeper or an hourly bookkeeper, however, that might be just as costly.

Local or freelance bookkeeper cost

If you look at any freelance marketplace you’ll find that the cost for freelance bookkeepers ranges widely.

It’s not unusual for the hourly rate for freelance bookkeepers to range from $21 per hour to $60 per hour.  However, more experienced freelance bookkeepers will charge upwards of $75 or more per hour, especially if they are doing complex bookkeeping or accounting tasks.

If your business has a lot of bookkeeping needs, a local or freelance bookkeeper who charges by the hour usually is not cost-effective. When you only get an hour of their time, you probably won’t get all your bookkeeping questions or concerns answered.

Outsourced bookkeeper cost

Of all the bookkeeping options, outsourcing tends to be the most cost-effective for small businesses. This is because you’re not hiring a full-time staff member or being charged an hourly rate.

Outsourced bookkeeping services usually charge a set monthly fee. These are popular with small businesses because the bookkeeping services come in packages based on your needs. 

It’s easier to budget for a monthly cost that’s the same each month. Plus, it costs half of what you could end up paying for an hourly bookkeeper. That’s why Xendoo offers this pricing structure with a variety of package options to fit your specific company’s needs. 

How does outsourcing with Xendoo work?

If you choose to go the outsourced bookkeeping route, you’ll be paired with a dedicated bookkeeper. Plus, because we are a team of financial experts, you’ll also get access to a CPA and an accountant. 

Your expert bookkeeper will set up a digital accounting system for you if you don’t already have one. This means that we’ll take your sales and revenue data, expenses, payroll, etc, and put it all together in one financial dashboard. You’ll be able to access it anytime–desktop or mobile–and get monthly reporting with balance sheets and profit-loss statements. If you’d like to learn more, you can schedule a consultation with our team here.

 

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

The Top 5 Benefits of Catch Up Bookkeeping

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

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

Reliability in Your Opening Balance

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

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

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

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

Financial Accuracy Through Bank Account Reconciliation   

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

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

 

Cash Flow Management

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

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

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

Click here to learn more about cash flow.  

Insight into Net Income

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

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

Click here to learn more about Net Income.   

Tax Compliance

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

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

Get Your Books Caught Up with Xendoo

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

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

Two men go over real esate regulations at their desk.

A Complete Guide to Reading Financial Statements

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Two men go over real esate regulations at their desk.

You’ve been in business for a while, and your next steps require you to obtain a small business loan. Your lender responds to your request favorably but asks to see your company’s recent balance sheet. 

With little experience in reading financial statements, this request makes you freeze in your tracks, uncertain of how to express the success of your growing business.

If this scenario sounds in any way relatable, it’s time to become more familiar with the process of reading financial statements. The better you understand these documents, the better you’ll understand your business. We’ll help you learn to read and interpret your financial statements and show you how they impact your company.

What Financial Statements Are

If knowledge is power, then the strength of your small business lies in your ability to generate and analyze financial reports. Think of these documents as the “report card” for your company. 

That analogy might conjure up some unpleasant memories for some, but the point is simple: just as a report card shows areas of strength and weakness, your financial statements show areas where your business is thriving, as well as highlight areas that could use some attention.

Your financial statements, therefore, contain valuable information about your company’s financial health. You can use this information to learn from the past and devise a strategy for your company’s future.

What sort of business financial statements will you be expected to read as a business owner? Typically, your company will rely on three basic types of financial statements. These are:

  • Balance sheets
  • Income statements (also called “profit and loss statements”)
  • Cash flow statements

Each of these documents describes your company’s finances, just through a different lens. The process of reading financial statements can help you better understand where your money came from, how much money you have at the moment, and any liabilities you have moving forward.

Why Leveraging Understanding of Financial Statements Is Important 

While accountants and financial professionals use these statements all of the time, small business owners need to be familiar with the core documents that govern their finances.

In this article, we’ll provide a beginner’s guide to reading financial statements. We’ll cover the three main documents you should be familiar with and touch briefly on shareholder reporting.

Balance Sheets

Your company’s balance sheet is one of the most basic and comprehensive financial statements you’ll be reading. Accounting software will set up a balance sheet according to the following equation:

Assets = Liabilities + Shareholders’ Equity

Typically, your company’s assets will be listed on the left side of the balance sheet, while liabilities and the shareholders’ equity will be listed on the right. However, it’s not unusual for some companies to list these categories from top to bottom. Let’s explore each of these three elements in greater detail. 

Assets refer broadly to anything your company owns. Assets include your company’s money, as well as anything you own that can be sold or converted into cash. Naturally, this includes cash and extends to various types of physical and even non-physical property. Assets can include such items as:

  • Physical property/retail space
  • Product inventory
  • Commercial vehicles
  • Trademarks/patents
  • Business investments

Assets can be further broken down into current and noncurrent assets. Current assets include anything that your company can convert to cash within a year. 

Non-current assets refer to items that a company does not anticipate converting to cash. This category would include “fixed” assets, which are those things needed to run the business.

Liabilities, by contrast, refers to money your company owes to others. This category contains financial obligations that include:

  • Money borrowed from a bank
  • Rent owed for the use of a building or commercial space
  • Money owed to vendors for supplies and materials
  • Payroll money owed to employees
  • Taxes
  • Costs for environmental cleanup projects
  • Any obligations to provide products or services for customers.

Liabilities can also be broken down into current and long-term liabilities. Current liabilities generally refer to money owed within the year, while long-term liabilities refer to money owed over longer periods.

The difference between a company’s assets and liabilities is referred to as the shareholders’ equity, sometimes called the “book value” or simply the net worth.

Thus, your balance sheet forms a comprehensive snapshot of your company’s finances at any given point in time. When reading financial statements, you’ll likely start with your balance sheet and then turn to other sources of information for more detailed reporting data.

Income Statements

An Income statement (also known as a “profit and loss statement”) records the impact of revenue, financial loss, and business expenses over a given period. While this period is often a year or a full quarter, larger enterprises might regularly generate them to keep ahead of any noticeable trends. 

Your income sheet is commonly included as part of a quarterly or annual business report and has two general uses. First, an income statement can be used to evaluate your company’s overall profitability and may highlight areas for improvement, such as areas where you should minimize overhead costs for the sake of the business.

Secondly, income statements can help identify financial trends. For instance, there may be periods of seasonal demand for certain products and services, which can be planned for in the future to capitalize on these financial patterns.

When reading financial statements of this type, it’s extremely important to understand both the structure of the document and its vocabulary. At the top of your income sheet, you’ll find the total sales revenue made during a given accounting period, let’s say a year. 

Then you go down the sheet, making deductions for each item on your list. At the bottom of the sheet, you’ll find the final amount that your company earned (or lost) during this period.

Yes, this final figure is known as the “bottom line.” But if you want to change this last figure, you’ll have to understand the types of deductions that you’ll find between your gross and net profits. Understanding your income statements will require you to understand the following key terms:

  • Revenue: How much money your company has received
  • Expenses: How much money your company has spent
  • Cost of Goods Sold (COGS): How much it costs to make your products
  • Gross Profit: Total revenue minus COGS
  • Operating Income: Gross profit minus operating expenses
  • Income Before Taxes: Operating income minus non-operating expenses
  • Net Income: Your pre-tax income, minus the amount paid in taxes
  • Earnings Per Share (EPS): Your net income divided by the total number of shares
  • Depreciation: How much value your assets have lost over time
  • EBITDA: Earnings before interest, taxes, depreciation, and amortization

If this list seems overwhelming, just look closer. You’ll see how most of these terms simply depend on one another. 

For example, calculating your gross profit will allow you to calculate your operating income, which will let you calculate your income before taxes, which you will then use to determine your net income.

In other words, as you work your way through your income statement, each step builds on the one that precedes it until you finally arrive at your bottom line.

Once you gain more experience with reading financial statements, you’ll appreciate this level of detail. Your income statements will reveal how each line item described above directly impacts the overall profitability of your business and will also highlight ways in which you can refine your business processes to minimize loss and drive revenue.

Cash Flow Statements

Cash flow statements record the movement of cash in and out of your company. This recording is a bit different from your income statement, which illustrates total profitability.

Your cash flow statement describes how much actual money your company has to work with, cash that you can need for purchasing new assets, making new investments, or simply paying the bills.

There are three distinct sections of your cash flow statement, based on the type of financial activity that it describes:

  • Operating activities
  • Investing activities
  • Financing activities

Understanding each of these sections will help you understand your cash flow statement as a whole.

Your operating activities refer to your cash flow resulting from net income or loss. Accounting for operating activities will require you to reconcile your company’s net income with the actual cash you either received or used during your operating period.

This calculation means that your cash flow statement will need to adjust your net income for non-cash items such as depreciation and other expenses, as well as record any cash used for other operating expenses or liabilities.

The result shows the movement of cash within your company during the specified period. Most software can generate cash flow statements for any given period, though they are typically prepared either quarterly or annually.

 Next, your cash flow statement records the cash movement associated with investing activities. 

This calculation generally means two things. First, it can mean purchasing long-term assets, which include property, equipment, inventory, or the purchase of securities. You would record all of these purchases on the cash flow statement to represent cash leaving the hands of a company.

Second, it can reflect a company selling any of these assets. Again, your company’s assets include anything that you can convert into cash. When this happens, your cash flow statement will record the change in the section on investing activities.

Finally, your cash flow statement will include cash flow based on financing activities. What types of activities does this include? This section can include selling your company’s own stocks or securities or borrowing from banks and other financial institutions. 

These activities are recorded as cash flowing either into or out of your company. For example, when you pay back a loan, it would be recorded here as the use of cash flow.

How Your Books Influence Your Financial Statements

Earlier, we compared your financial statements to a report card. But the reporting data will be meaningless if it’s not up-to-date and accurate. Yet because many business owners have to juggle multiple responsibilities, it’s easy to fall a little behind.

Getting caught up in your bookkeeping is the first step. Having accurate, up-to-date books will ensure that you’re able to generate meaningful financial statements. Using caught up books will let you create each of these types of reports with precision and pinpoint accuracy.

Remember, the financial reports we’ve discussed aren’t just important for evaluating your company’s past; they can be useful for drawing a roadmap for your company’s future. You should use only the best and most reliable data for generating these reports, which can then be used to refine your strategy moving forward.

 Otherwise, you’re going to be faced with quite a few headaches. Not only will you be unable to assess the financial strength of your company, but your lack of reliable reports will jeopardize your eligibility for small business loans. 

If you don’t get your books caught up by tax season, you could find yourself faced with additional tax penalties for failing to accurately report income. For this reason, many business owners discover that reading financial statements becomes a lot more reliable when they outsource their financial processes to an online firm. 

Relying on a team of experts can ensure that your books are up-to-date, accurate, and can be used to generate the kinds of reports you need to make informed business decisions.

Better Reporting, Better Business

Reading financial statements gets easier with time and experience. Soon enough, you’ll wonder how your business ever survived without these important documents. You’ll also wonder how you can improve the accuracy and immediacy of your reporting procedures.

The answer is to partner with one of the best accounting firms in the industry. Xendoo can help you catch up on your books, provide ongoing accounting services, and even provide access to advanced reporting features, so you always stay in the loop regarding your company’s financial performance.

See for yourself by signing up for our no-obligation free trial. You’ll get access to the features that can take your business from good to great and improve your trajectory for the future.

tracking business expenses on paper

The Top 8 Expense Trackers for Small Businesses

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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.