10 Accounting Tips for Small Businesses to Keep the Books Balanced
In the ever-evolving business landscape, small to medium-sized businesses (SMBs) are increasingly adopting innovative tools to streamline operations and enhance financial management. One crucial determinant of success for any SMB is how it handles its monthly finances. Good accounting practices not only conform a business to regulations but also create valuable information that can help the business grow. In this article, we provide 10 actionable accounting tips to help small businesses keep their books balanced and achieve financial stability. Tip 1: Keep Personal and Business Finances Separate Maintaining separate accounts for personal and business finances is fundamental to clear and accurate bookkeeping. Mixing personal and business transactions can lead to confusion, errors, and potential legal issues. By opening a dedicated business bank account, you ensure that all business expenses and income are recorded separately. This not only simplifies tax preparation but also provides a clear picture of your business’s financial health. Actionable Advice: Start by setting up a dedicated business bank account and, if needed, a separate credit card for business expenses. This will help you track business expenditures accurately and maintain clear records. Tip 2: Use Cloud-Based Accounting Software Embracing cloud-based accounting software can revolutionize your financial management. Unlike traditional software that requires installations on individual desktops and frequent updates, cloud-based solutions offer real-time access to your financial data from any internet-connected device. This flexibility is crucial for informed decision-making and strategic planning. Recommendations: Popular cloud-based accounting software options include QuickBooks Online, Xero, and FreshBooks. These tools offer features such as automatic backups, real-time data syncing, and integration with other business applications. Actionable Advice: Choose the right software based on your business needs and get started by migrating your existing financial data to the cloud. This will not only enhance your efficiency but also provide you with accurate, up-to-date financial information at your fingertips. Tip 3: Track Every Expense Accurate expense tracking is essential for maintaining balanced books and making informed financial decisions. Every business expense, no matter how small, should be logged and categorized appropriately. This helps in monitoring cash flow, managing budgets, and preparing for taxes. Actionable Advice: Utilize digital tools and receipt management apps to log expenses in real time. Regularly update your records to ensure no expense goes untracked. Tip 4: Regularly Reconcile Your Accounts Regular account reconciliation is crucial to prevent errors and discrepancies in your financial records. By comparing your internal records with bank statements, you can identify and rectify any inconsistencies promptly. This practice helps in maintaining accurate financial records and avoiding potential issues during audits. Actionable Advice: Schedule monthly or quarterly account reconciliations. Use accounting software that automates this process and alerts you to any mismatches. Tip 5: Monitor Your Cash Flow Cash flow management is vital for the stability and growth of your business. By keeping a close eye on your cash inflows and outflows, you can ensure that your business has enough liquidity to meet its obligations and seize growth opportunities. Actionable Advice: Create cash flow statements and forecasts to predict future cash needs. Use these insights to plan for expenses, manage shortfalls, and make informed investment decisions. Tip 6: Keep Detailed Records Maintaining detailed records of all financial transactions is essential for transparency and accuracy. This includes invoices, receipts, bank statements, and tax documents. Thorough record-keeping not only aids in financial management but also ensures compliance with regulatory requirements. Actionable Advice: Implement a systematic approach to record-keeping, using both digital and physical storage methods. Regularly update and back up your records to prevent data loss. Tip 7: Set Aside Money for Taxes Preparing for tax liabilities is crucial to avoid financial surprises and penalties. By setting aside money regularly for taxes, you can ensure that you meet your tax obligations on time and avoid the stress of last-minute scrambling. Actionable Advice: Estimate your tax liabilities based on your income and expenses. Set aside a portion of your revenue each month in a separate tax savings account. Tip 8: Review Financial Reports Regularly Regularly reviewing financial statements is key to making informed business decisions. Financial reports such as income statements, balance sheets, and cash flow statements provide insights into your business’s financial performance and health. Actionable Advice: Schedule regular reviews of your financial reports. Use these reviews to identify trends, spot potential issues, and make strategic decisions. Tip 9: Hire a Professional Accountant and/or Bookkeeper Seeking professional accounting or bookkeeping help can provide significant benefits, even for small businesses. Bookkeeping involves the day-to-day recording of transactions, maintaining accurate financial records, and managing receipts and invoices. An experienced bookkeeper ensures your financial data is up-to-date and organized. On the other hand, accounting encompasses a broader scope, including analyzing financial data, preparing financial statements, and providing strategic insights. An experienced accountant can offer valuable insights, ensure compliance with regulations, and help optimize your overall financial management practices. Actionable Advice: Consider hiring an accountant or bookkeeper on a part-time or freelance basis if a full-time hire is not feasible. Look for professionals with experience in your industry and a solid track record. Alternatively, consider xendoo. xendoo specializes in providing tailored bookkeeping and accounting solutions for small businesses. By choosing xendoo, you gain access to a team of experienced professionals who can help manage your financial records and offer strategic insights, ensuring your business thrives. Tip 10: Plan for the Future Financial planning and setting long-term goals are essential for business growth. By creating a financial plan, you can align your resources with your strategic objectives and ensure sustainable development. Actionable Advice: Develop a financial plan that includes projections for revenue, expenses, and cash flow. Regularly update your plan to reflect changes in your business environment and goals. Conclusion Balanced books are the foundation of a successful small business. By implementing these 10 accounting tips, you can achieve greater financial stability, make informed decisions, and drive your business toward growth and profitability. At xendoo, we specialize in providing cloud-based accounting services tailored to the unique needs of small businesses. Our goal is
Mastering the Process of Finding the Right Bookkeeping and Accounting Support
In the dynamic world of small and medium-sized businesses, flawless financial management is key to success. Effective accounting and bookkeeping can either bolster or undermine a company’s growth. For business owners looking to streamline their financial processes, securing the right support is crucial. This guide will walk you through the steps to find the best accounting and bookkeeping services for your business. Evaluate Your Company’s Requirements Begin by identifying your company’s unique bookkeeping and accounting needs. Understanding your financial situation is essential before seeking external help: Service Types Needed: Determine if you require basic bookkeeping, payroll processing, tax preparation, or full-service CFO support. Volume of Transactions: Assess the number of monthly financial transactions. Industry-Specific Requirements: Ensure the service provider understands the financial and compliance needs of your sector. Compile a detailed list of your company’s goals and budgetary requirements. Determine Your Budget Setting a budget for bookkeeping and accounting services ensures you receive the necessary support without overspending: Average Costs of Services: Understand typical costs for various service categories. Budget Allocation: Allocate your budget based on your company’s goals and financial capacity. Establish a realistic budget that considers both your current financial status and future growth objectives. Explore Your Options Consider various options for bookkeeping and accounting support, each with its own pros and cons: In-House Accountant: Personalized service at a higher cost. Freelance Bookkeepers: Flexible and affordable but may lack comprehensive support. Accounting Firms: Access to multiple specialists and a wide range of services. Cloud-Based Accounting Services: Scalable, cost-effective solutions using advanced technology. Evaluate each option based on cost, flexibility, and the range of services offered. Evaluate Credentials and Experience Ensure your financial data is secure by choosing a provider with the right credentials and experience: Security Protocols: Look for providers with strong security measures, such as data encryption. Compliance: Verify adherence to relevant laws, including PCI-DSS and GDPR. Confidentiality: Ensure procedures are in place to protect your financial data. Certifications: Seek credentials like CPA (Certified Public Accountant) or CMA (Certified Management Accountant). Industry Experience: Check the provider’s experience in your sector. Client Reviews and Testimonials: Read past client reviews to gauge service quality and reliability. Assess Compatibility and Communication Successful collaboration hinges on compatibility and effective communication: Evaluating References: Contact references to learn about their experiences. Read Online Reviews: Gain a broader understanding of the provider’s reputation. Schedule consultations or interviews to assess communication styles and compatibility with your team. Check Technological Capabilities Modern bookkeeping and accounting rely heavily on technology: Accounting Software: Ensure the provider uses advanced accounting software like Xero or QuickBooks. Cloud-Based Solutions: Look for vendors offering cloud-based services for real-time financial monitoring. Integration with Business Tools: Verify the technology can integrate seamlessly with your existing systems. Discuss your technology needs with potential providers to ensure they are equipped with the necessary tools. Understand Their Approach to Security Your financial information’s security is paramount: Security Protocols: Seek providers with robust security measures. Compliance: Ensure adherence to relevant regulations. Confidentiality: Confirm procedures to protect your financial data. Inquire about the provider’s security protocols and ensure they are committed to safeguarding your information. Get References and Reviews Leverage online reviews and word-of-mouth recommendations when selecting a service provider: Requesting Recommendations: Speak with current or past clients for referrals. Evaluating References: Contact references to understand their experiences. Reading Online Reviews: Read online reviews for a comprehensive view of the provider’s reputation. Spend time researching reviews and contacting references to make an informed decision. Understand Their Fee Structure A clear understanding of the fee structure helps avoid unexpected costs: Types of Fees: Determine if the provider charges hourly, monthly, or per service. Inclusions and Exclusions: Understand what is included in the fees and what might incur additional costs. Get a detailed cost breakdown and compare it with your needs and budget. Make a Decision and Monitor the Relationship Choose an accounting and bookkeeping service and actively monitor the partnership: Final Choice: Make an informed decision based on your research. Regular Reviews: Periodically assess the provider’s performance. Effective Communication: Maintain open communication to address any issues promptly. Sign a clear contract outlining expectations, costs, and services. Regularly evaluate performance and address any concerns. Conclusion Effective bookkeeping and accounting support are essential for business success. By understanding your needs, setting a budget, exploring options, and conducting thorough evaluations, you can find a service that enhances your financial operations. At xendoo, our professional accounting, catch-up, tax, and CFO services are tailored to the unique needs of small and medium-sized businesses. Explore our offerings to get reliable, expert financial support that drives your business forward. Visit xendoo.com to learn more and embark on the path to financial success.
From Startup to Success: How Proper Accounting Practices Fuel Business Growth
It is exciting to start a business, but beyond having a great idea, one needs to work out many things as well. Small and medium-sized enterprises (SMEs) frequently need help shaping their brand in a constantly changing environment where invention, market comprehension, and efficient management are key factors. One crucial thing that may become a success or failure determiner for a startup is how it handles its financial affairs. Good accounting practices not only conform a business to regulations but also create valuable information that can grow the business. This article discusses how entrepreneurial accounting helps progress from a startup to success. Understanding the Essence of Bookkeeping Accounting combines precise and well-kept bookkeeping, which is vital in every flourishing business. Bookkeeping ties these deals together by registering any financial transaction: sales, purchases, receipts, and payments. Maintaining flawless and up-to-date records for small business owners involves keeping records of how income and expenses are split, how cash flow is managed, and how taxes are prepared. Based on my experience, the critical idea of a successful SMB accounting system is in high demand. Bookkeeping hit the boundary of causing calculated mathematical operations, including all processes of systematic transaction recording, accurate expense tracking, and the efforts in managing the cash flow. Getting bookkeeping help from expert firms like xendoo may jump-start your small business’s journey to success. Not only does it aid in time management, but it also guarantees the accuracy of financial records in line with regulations. The fact that xendoo.com exists as an accounting outsourcing firm makes it, unlike an ordinary accountant or calculator. When a CEO outsources the handling of the finances to the experts, they can free time and gratis it again to impelling business growth while upgrading their company’s finances. This allows them to channel their energies into what they do best – their most apt trade. Challenges Faced by Small Business Owners Accounting requirements can be challenging for many small enterprises because they grow without basic operational procedures during the initial business period. Time pressure, resource scarcity, and the lack of professional skills that contribute to the quality of financial management are relatively common obstacles. As a result, wrong entries in bookkeeping may emerge, which can result in financial discrepancies, missed tax deadlines, and, in the end, exactly, threaten the sustainability of the business. In addition, companies with expanding operations and a large quantity of paperwork will see a wide variety in their transactions boom at an equal charge. During those moments, guide bookkeeping systems cannot reply to operational worries, making printing errors vital. Small commercial enterprise owners increasingly turn to outsourced bookkeeping services, which offer a strategic alternative for financially retaining a commercial enterprise, even permitting the owner to pay attention to their number one duties. The Advantages of Outsourced Bookkeeping Engaging a bookkeeping company is like a gift in a box since businesses can handle bookkeeping alone or pay high organization accounting fares. Another main advantage is the availability of talented accountants, no complete staff hiring, and, therefore, managers. These experts ensure compliance with the rules and, if necessary, inspect compliance through audits and checklists. Unlike these, contracting out in one way or another allows the proprietorships to grasp all over their production schemes, connections, and clients to achieve all-over productivity and scalability. Moreover, software of such power helps individuals navigate processes that let them eliminate errors or missteps and take quick actions from the software, making them a top competitor. Driving Business Growth Through Effective Financial Management In today’s competitive world, where rival features are constantly emerging, agility and adaptability are crucial for either survival or growth. Well-structured accounting practices provide small business owners with the necessary inputs for decision-making, identification, and handling of risks, as well as opening up to the opportunities that may be available. Through precise financial records, businesses can focus on the trend of cash flow, monitor expenses, and identify when efficiency is sliding low or the company is overspending money. Furthermore, strategic financial planning empowered by outsourced bookkeeping services supports businesses in devoting the resources where they are needed and choosing the investments that make the best economic sense. All these financial decisions are taken if you deal with expanding operations, new products, or entering new markets, but they create a base for sustainable development and profitability. Moreover, outsourcing the bookkeeping processes will associate the business with credibility and reputation, build trust with shareholders, and invite investment or partnerships. Credible and trustworthy financial reporting will favor transparency and fiscal responsibility, again showing that these features are essential for building a marketplace. Navigating Growth: Solutions Offered by xendoo.com xendoo.com gives small and medium-sized businesses (SMBs) the tools they require to explain and manage their financials and, in turn, to grow sustainably and remain competitive. xendoo.com, being a bookkeeping expert platform, helps local businesses (SMBs) take control of their finances and minimize time and resources that can be used to perform their core business activities. By carefully developing and optimizing tax planning strategies, xendoo.com translates those savings into business growth, boosting financial resources strategically. Apart from CFO services outsourced through xendoo.com, owners and business managers can set strategies that place them in superior decision-making characteristics. SMBs, having a partnership with xendoo.com, could work with a group of relying professionals with the required competencies and tools for the successful handling of financial challenges and for maximizing profit. Success as SMBs see the light at the end of the tunnel with xendoo.com by their side, and it’s just a matter of time before they reach the echelons of successful businesses with confidence and clarity of purpose, finally digging their feet deep in the path to a sustainable future. In conclusion, accounting discipline is necessary for the growth and sustainability of small and medium-sized enterprises. To eliminate difficulties in financial accountability, entrepreneurs should consider the utility of outsourced bookkeeping. Such a move would boost the overall development of the business. It is catching up because effective bookkeeping makes perfect record-keeping, a strategic tool
The Backbone of Growth: Why Bookkeeping is Essential for Scaling Your Business
Small Business Owners are almost always forced to balance various aspects to ensure their operations run smoothly. Apart from taking care of day-to-day chores and making growth plans, business owners always have a lot on their plates. However, one aspect worth highlighting is bookkeeping. While often overlooked and sometimes seen as routine by small business owners, it is the foundation for growth. Bookkeeping is the backbone of growth for small businesses. This article delves into the role of bookkeeping in scaling up small businesses and the benefits of outsourcing this task to professionals like xendoo.com. Understanding the Importance of Bookkeeping In reality, bookkeeping is more than just keying in transactional data; it involves financial analysis to ensure that the business remains healthy financially. Good bookkeeping will ensure that small businesses have accurate, current reporting of financial statistics on a company. It provides a platform to record revenue, control outflows, maintain up-to-date liquidity, and make well-grounded decisions for the future of the business. Bookkeeping is essential and even more critical for small businesses attempting to grow. It lays the groundwork for the financial plan and the budget. Through these tools, one can dedicate time to expansion and areas affected by risks. There must be sufficient information for businesses to address their opportunities and overcome challenges with an enterprise account. Challenges Faced by Small Business Owners Although it is undeniably vital, keeping accurate bookkeeping records for small businesses can be challenging for many owners. The reality is that most small businesses face these challenges: limited time, resources, and skills are among the factors that make it difficult to have accurate and complete accounting records. An issue that small businesses also face is the intricate tax laws and regulations, which make things more complicated. All small business owners, however, have to be wary of poor bookkeeping practices and their consequences. Only complete or reliable financial documents may result in missed chances of taking tax deductions and due date penalties, discouraging the firm from pursuing the tax deductions. Moreover, it can also cause legal problems. It can also be challenging to raise funds or find a pool of investors; thus, the business may need to improve its growth mission. Outsourcing Bookkeeping: A Smart Solution Handing over bookkeeping tasks to a third party can be a very effective way for a small business with bookkeeping struggles to cope. Outsourcing provides the owners with the freedom to run the business and allows experts to manage the financial records. Money is conserved, and resources are utilized efficiently because the books are always up-to-date and accurate. xendoo.com helps small businesses run by providing accounting services according to their specific requirements. Whether you need help with daily bookkeeping duties or catching up on your past-due debt, xendoo.com is always available to help you. Their team of veteran professionals who are aware of the distinctive problems affecting small businesses and may even provide you with all the support that you need to grow. Along with expanding a business comes the escalating number of bookkeeping tasks. Delegating financial reporting to xendoo.com is a sure means of ensuring that the balance of your business’s size and efficiency remains. xendoo.com has helped several small enterprises save time and money by outsourcing their bookkeeping to xendoo.com. Partnership with xendoo.com has resulted in improved operations, the allocation of fewer resources, and, ultimately, better financial outcomes for these companies. xendoo.com Your Partner in Financial Success xendoo.com is not confined to mere bookkeeping services; it is your companion for better business dealings. xendoo.com has a team of experienced professionals actively assisting small businesses’ success. They offer a broad range of services to streamline financial management and enhance growth. The strength of xendoo.com lies in its capability to develop unique and personalized solutions for businesses of all sizes. Whether you’re a start-up business aimed to secure a sound financial basis or a well-established one endeavoring to go big, Xendo.com’s experts plan thoroughly with you, considering your business specificity and defining a roadmap of the firm’s goals. The Spine of xendoo.com‘s services lies in effectiveness and reliability. At xendoo.com, we use current technology and standard accounting procedures to provide timely and accurate financial reports that are always compliant. Besides the function saving you time, it minimizes the chance of mistakes, and you avoid penalties. From identifying cost-saving opportunities to boosting future sales, the experienced Xendo.com advisors are here and ready to offer guidance to help you grow. Besides being just a bookkeeping company, xendoo.com also offers various services catering to all your financial requirements. Whether you need tax preparation CFO services or a catch-up service to repair your finances, xendoo.com can help you. The website xendoo.com allows small enterprises to succeed in this challenging world through custom solutions, strategic advice, and broad services. Are you a business owner seeking profitability and success at the next level? Give xendoo.com a try and experience the difference. Conclusion: Invest in Your Business’s Future with xendoo.com In summary, records management is a default for scaling your business. You can get a snapshot of the financial state of your business if you invest in the art of correct bookkeeping, which will help you make the right choices regarding the future of your business. Through xendoo.com, you can only relax and be sure that there is no possible threat your records might face. About xendoo We share your passion for small businesses and are inspired by your dedication to making your dreams a reality. That’s why we’re committed to providing you with the financial visibility and support you need to thrive. More Than Just Numbers It’s more than simply crunching numbers. It’s about building meaningful relationships with our clients and understanding their needs. Our people-first mentality ensures you receive personalized attention and expert guidance throughout your financial journey. A One-Stop Solution xendoo offers a comprehensive suite of services, including: Full-service bookkeeping and accounting team to free up your time and resources. Hassle-free tax preparation and filing Fractional CFO Services to work with you
What Is Net Income Formula and How to Use It
Net income is one key metric that you can use to assess your business’s financial health. It is the bottom line on your income statement, also called a Profit & Loss Statement (P&L), and it tells you how much money you have remaining after deducting your costs and operating expenses from your total sales. What Is Net Income? Net income can be compared to “take-home pay” for an employee. It’s the amount of money remaining after taxes, insurance, and other expenses are deducted from your total pay or gross income. Similarly, a business’s net income is the amount of money remaining after deducting all business expenses, including wages, interest, product costs, operation costs, and taxes. Net income, also known as the bottom line, net earnings, or net profit, appears at the bottom of income statements. Generally, a healthy, growing business will have positive net incomes and increase consistently. In other words, the more you increase revenue and decrease expenses, the healthier you are. The net income or net loss of your business may also show up on your balance sheet as retained earnings. Retained earnings are the amount of money that is held (not distributed to shareholders) to sustain and grow the business. How Do You Calculate Net Income? The net income formula helps calculate the net income of either an individual or a business. Calculating net income is fairly straightforward for individuals. You take the total amount earned (gross income) and then deduct all expenses, such as interest payments and taxes. It is a little more complicated for businesses. Net Income Formula Businesses can use the net income formula to calculate net income for any timeframe. There are two primary ways to calculate net income: revenue and expenses or gross profit and expenses. We’ll go over each net income formula and how to use them. Total Revenue Total Revenue = Quantity Sold * Price – Discounts Cost of Goods Sold COGS is the cost of the product or the service being delivered. If you have a t-shirt company, it is the wholesale cost of the t-shirt, plus freight, labor, and printing costs. If you provide consulting services, it is the cost of labor to provide the consulting. Gross Profit Gross profit represents the profit made on selling the product or service. This provides insight into whether your pricing brings you the desired profit on each sale. Gross Profit = Revenue – Costs of Goods Sold Operating Expenses Operating expenses are running the day-to-day business, including advertising & marketing, rent, payroll, insurance, software, website, postage, auto expenses, meals, travel, and more. These are the below-the-line (Gross Profit) costs. Net Income Net Income = Gross Profit – Operating Expenses It’s important to note that net income can be a net loss. If your operating expenses exceed your gross profit, you have a net loss. When your operating expenses are less than your gross profit, you have a net income. Often, when a business is in start-up mode, a net loss is not surprising. Although a net loss has a tax benefit, it doesn’t lead to a sustainable or scalable company without further investment. It’s also important to note that net income may include revenue that is not from your core business activities. For example, if your business owns real estate and rents out part of it or gains royalties from a past partnership, this is generally referred to as non-operating income. Business Net Income Example Let’s look at a hypothetical business scenario to understand the net income formula fully. Marcus’ Archery, a company specializing in manufacturing and selling archery equipment, wants to calculate its net income for the fourth quarter. Here are the necessary figures to calculate net income from its accounts: Total Revenue: $20,000,000 Costs of goods sold (COGS): $8,750,000 Rent: $150,000 Utilities: $40,000 Payroll: $250,000 Advertising: $70,000 Interest expense: $70,000 According to the net income formula, Marcus’ Archery first needs to calculate Gross Profit. You would do this by subtracting the costs of goods sold, including direct labor costs, from the total revenue. $20,000,000 (Total Revenue) – $8,750,000 (COGS) = $11,250,000 (Gross Profit) $150,000 (Rent) + $40,000 (Utilities) + $250,000 (Payroll) + $70,000 (Advertising) + $70,000 (Interest Expense) = $580,000 (Total Expenses) Marcus’ Archery can now calculate its net income with all these results. You use the net income formula to subtract total expenses from gross income to do this. $11,250,000 (Gross Income) – $580,000 (Total Expenses) = $10,670,000 (Net Income) The fourth quarter’s net income for Marcus’ Archery is $10,670,000. Cash Flow vs. Net Income These are simplified explanations of how to calculate net income. However, net income does not equate to how much money is in the bank. We often hear questions like, “I made $100,000 this year, but why don’t I have $100,000 in the bank.” That is because cash flow is very different from net income Factors like credit cards, business loans, owner’s payments, or investment income affect the money in the bank but aren’t factors in net income. You can learn more about cash flow vs. profit and how to use cash flow for decision-making in our blog. Individual Net Income Example We focus on business bookkeeping and accounting at xendoo. However, looking at an individual net income example can help you better understand how it differs from calculating the net income for a business. Let’s consider Nancy, an employee at a local ski shop. Nancy receives her paycheck every two weeks with gross pay of $4,500. She also receives $200 in interest and $600 in equity as her other forms of income. She then pays all her taxes, including: Social Security taxes ($279) Federal taxes ($450) State taxes ($163.91) Medicare taxes ($65.25) Insurance ($280) These are usually automatically deducted from your paycheck. After all these deductions, Nancy has a net income of $4,061. Here are the exact steps to calculate it. Gross Income – Total Expenses = Net Income For Nancy, the math would be like this: $4,500 (Gross Pay) + $200 (Interest)
LLC vs. S corp: Which is right for your business and taxes?
One of the most important decisions for business owners is which type of business entity to form. Your business structure impacts your tax savings, accounting practices, and how you pay yourself. Examples of business structures include: Businesses often weigh the pros and cons of forming an LLC vs. S corp. xendoo does online accounting, bookkeeping, and taxes for businesses, so it’s a question we answer frequently. In this article, we’ll explore the differences between an LLC vs. S corp, and help you decide which structure is best for your business. Why your business structure matters Choosing the right business entity is crucial for several reasons, including: What’s the difference between LLC vs S corp? Overall, LLCs have a more flexible structure, while S corps can save money on taxes in the long run. The biggest differences between LLCs and S corps are ownership, taxes, and management structure. Here’s a breakdown of each. LLC S corp Ownership No restrictions on the number of members or their citizenship status. Must be 18 years or older. Limited to 100 shareholders who must be US citizens or resident aliens. Taxes Taxed as a pass-through entity. Subject to self-employment taxes. Taxed as a pass-through entity. Saves on payroll taxes by paying owners a salary and distributions. Management structure May choose between member-managed or manager-managed Managed by shareholders and officers Reporting Most states require filing annual reports along with an annual reporting fee or tax More complex reporting requirements than LLCs. Must file yearly reports and documentation with the state Below, we’ll look at LLCs and S corps in more detail to help you decide which is the best option for your company. What’s an LLC? A limited liability company (LLC) combines the liability protection of a corporation with the tax benefits and flexibility of a partnership. The key points to know about operating as an LLC are: Requirements for an LLC generally include: Advantages of LLCs Disadvantages of LLCs Protects the owner’s personal assets Subject to self-employment tax, meaning a possible higher tax bill It’s a pass-through entity, so you include business income on your personal tax return. This way you avoid double taxation (where the corporation and shareholders pay tax on the same income). Fewer options for raising capital compared to corporations Offer greater flexibility in management and ownership structure The multi-member structure can become complex How LLC taxes work LLCs don’t pay corporate income tax. Instead, they pass through their tax liability to the business owners. In an LLC with multiple owners, each owner includes their share of the company profits and losses on their personal income tax returns. However, LLCs have the option to choose a corporate taxation structure with the IRS. Choosing a corporate tax structure can be an advantage for high-income-earning LLC members. In an LLC with a corporate tax structure, the LLC would file a corporate income tax return and pay the corporate tax rate instead of passing the liability on to the members. LLC ownership LLCs have a very flexible ownership structure, with the only requirement being that members need to be at least 18 years old. An LLC can have one or multiple members, with no maximum number of members. Also, owners can be individuals, corporations, other LLCs, or foreign entities. LLC management structure An LLC provides its members with more flexibility than an S corp. There are two types of LLC management structures: member-managed and manager-managed. In a member-managed LLC: In a manager-managed LLC: Unlike in a member-managed LLC, members of a manager-managed LLC can’t make decisions on behalf of the company. Members also can’t interfere with the LLC manager’s operational decisions. Most LLCs include their management structure with their articles of organization. What’s an S corp? An S corporation is a corporation that chooses to pass its tax liabilities and tax credits to its shareholders for federal tax purposes. An S corp is a tax classification. It offers the same personal liability protection as a traditional corporation without a corporate income tax. Most S corps start as traditional corporations (called C corps). To avoid double taxation, or for other reasons, corporations can file an S corporation election with the IRS. However, not all corporations meet the requirements for an S corp status. Advantages of S corps Disadvantages of S corps Provides limited liability protection for shareholders Ownership restrictions, such as 100 members max and only one class of stock As a pass-through entity, it’s not subject to corporate income tax Must pay a salary to shareholders Can save on employment taxes by paying shareholders both a salary and dividends Complex tax filing requirements How S corp taxes work S corps pay taxes as pass-through entities. Instead of paying the corporate tax rate, shareholders report their share of income and losses on their personal income tax returns. S corps need to pay their shareholders a reasonable salary and withhold employment taxes like Social Security and Medicare (roughly 35% to 40% of the shareholder’s total take). They can also pay out dividends to shareholders from the company’s remaining profits. This distribution would not be subject to employment taxes which would equate to a 15.3% tax savings. It can help companies save money on income taxes in the long run while avoiding double taxation. S corp ownership To qualify for S corp status, the corporation must meet the following requirements: S corp management structure S corps have specific requirements regarding their management structure. An S corp must have shareholders and officers. Shareholders can play a dual role by choosing a shareholder-officer position, instead of hiring officers. Some companies also have a board of directors, but it’s not mandatory. If the company has a board of directors, the shareholders typically elect them. S corps must also follow certain corporate formalities, including holding annual meetings and maintaining proper records of company activities. Regulations vary by state, but they usually include recording meeting minutes. How to choose between an LLC or S corp Choosing between an LLC and an
What happens if you get audited and don’t have receipts?
Most small businesses are unlikely to go through an IRS audit, but it’s possible. What happens if you get audited and don’t have receipts to back your expenses? It’s a common question and concern for many business owners. The best way to avoid headaches during an IRS audit is to keep accurate business records and bookkeeping year-round, including tracking receipts. Receipts are a paper trail for your business transactions and taxes. Without them, it’s harder to prove your tax deductions and other records are accurate. However, forgetting or misplacing receipts happens, especially when you’re busy running a business. The IRS regularly deals with missing receipts, so there are guidelines for what businesses can do if they don’t have receipts. xendoo’s bookkeepers and CPAs have years of experience managing business records. Below, learn everything you need to know about IRS audits and receipts. Table of contents Why do businesses need receipts? Receipts are records and proof of payment for the income and expenses your small business claims on tax returns. Without receipts, you may not be able to prove that a business transaction took place. Businesses should keep receipts for record-keeping, but also to claim tax deductions and credits. For example, if you’re traveling away from home for a business trip, you could deduct travel expenses, which would save you money on taxes. However, you’ll need to prove that the travel was for business purposes and keep receipts for items like: Receipts businesses should keep Receipts aren’t the only records businesses should keep; they help you track your income and expenses. Companies track a lot of receipts. Some examples of costs that you’ll need receipts for include: Since this isn’t an exhaustive list, it’s best to track all your business receipts and update your records regularly. To make the process simpler, many small business owners use business expense tracking and receipt apps. A bookkeeping service can also advise you on which records and receipts to track (and in some cases, do it for you). What happens if you get audited and don’t have receipts You have several options if you’re audited and don’t have receipts. Because the IRS regularly deals with missing receipts, there are standard steps businesses can follow. In most cases, you can track down receipts or provide other documents, which we’ll outline later, to prove an expense. The worst-case scenario is that the IRS may remove some business tax credits and deductions you claim. Audits aren’t as big a deal as movies and the media make them out to be, especially if you keep organized business records. There are many reasons the IRS might audit a business, but most happen due to random selection or tax errors. If the IRS audits you, you’ll receive a notification letter. From there, you’ll communicate with your auditor and provide the documents they ask for. The IRS doesn’t always share what triggered an audit, but these are some red flags: Although tax professionals and CPAs are familiar with tax laws and can help you navigate an audit, they focus on avoiding audits first. Business tax services prepare and file taxes for you, so they’ll catch inaccuracies and mistakes before you send tax returns to the IRS. What to do when you don’t have receipts If you don’t have receipts and you’re worried about an IRS audit, you have two options. If you don’t do either of the above options, you’ll likely take the loss of deductions or credits. Depending on your situation, you may need to pay IRS fees. Let’s look at the steps you can take when you don’t have receipts. 1. The Cohan rule Missing receipts are so common that since the 1930s, a legal rule has outlined options for taxpayers who don’t have them. It’s called the Cohan rule, and in some cases, you can use it to claim deductions if you’re missing receipts. In a nutshell, the Cohan rule says that: The Cohan rule has helped many small business owners prove their expenses when missing receipts. However, the IRS can reject your deductions even if you follow the Cohan rule. For example, you can’t claim the Cohan rule if your deductions include certain expenses like entertainment. You’ll also need to explain and document the: 2. See if vendors will provide invoices and receipts To provide the IRS with documentation, you can reach out to vendors to request duplicate receipts. Since most vendors use online invoicing and billing systems, they’ll have copies of your records. Keep in mind that some vendors might charge a fee for their time to retrieve past invoices, receipts, and other statements. 3. Find checks, credit card, or bank account statements If you’re unsure where you made a purchase or can’t contact them to provide copies, search through old checks and bank and credit card statements. Going through these documents can tell you: You can use this information to reach out to vendors and ask them for receipts or use it to prove your expense is legitimate. Getting copies of the receipts is ideal though, since it will show exactly what you spent money on to count as a tax-deductible expense. 4. Review your calendar and emails Reviewing your calendar and email will help you narrow your search for receipts. When you make a purchase, companies often send payment confirmation and a copy of your receipt to your email. If you know the company’s name, purchase date, or other details, you may find it by quickly searching your inbox. If you don’t, looking through your calendar could reveal where you were on certain days. It’s especially helpful to find when you travel for business so you can claim those travel expenses. Although this method helps you find transaction details, the IRS doesn’t accept calendars or emails as proof of business expenses. 5. Look at location data and maps on your phone A similar method for searching for transaction details is to use location data on your phone. Your phone stores a lot of information
Small Business Owner’s Equity Guide
If you’re a small business owner, you know that keeping track of all the moving parts can be challenging. Most small business owners keep track of their profit and loss statement, but the owner’s equity is equally important (and often overlooked). In this guide, we will explain what owner’s equity is and how to calculate it. We will also give tips on how to grow your equity and protect it from potential risks. What Is Owner’s Equity? Owner’s equity is the portion of a business’s assets that the owner or shareholders possess. This applies to you, regardless of if your business is a sole proprietorship, partnership, or corporation. Also, owner’s equity can be considered the residual value of a company’s assets after liabilities are paid. For example, if a business has assets of $100,000 and liabilities of $60,000, the owner’s equity will be $40,000. Why Do Businesses Record Owner’s Equity? No one wants to think about the end of their business which they have spent so much time and effort building. Yet, it is important to consider. Owner’s equity will give you some insight into the outcome of company liquidation. It represents the amount of money that would be left over for owners if the company was liquidated. If you sell your business, it will also be taken into consideration. For corporations, owner’s equity is also a critical factor in determining a company’s stock price. The higher the equity, the more valuable the company is considered to be. Additionally, it can increase through profitability and investment. It can decrease through operating losses or share repurchases. How you record equity can depend on the type of company structure. Sole Proprietorship In a sole proprietorship, the owner and the company are one and the same. The owner of a sole proprietorship has complete control over the equity of the business. However, this also means that the owner is personally responsible for any debts or losses incurred. In a sole proprietorship, the owner’s equity is equal to the assets of the business minus any liabilities. Despite the overlap between personal and business for a sole proprietorship, it’s still best practice to maintain separate accounts. Corporation By contrast, a corporation is a separate legal entity from its owners. The owners of a corporation are known as shareholders or stockholders. In a corporation, the shareholders own the equity of the company. This means that they have some control over how the assets of the business are used, but they are not personally liable for the debts of the business. But it also means, in the case of bankruptcy, that the owner’s equity is first used to pay off any outstanding liabilities of the company before being distributed to shareholders. Ultimately, when it comes to ownership structure, it is up to each individual business to decide which type of structure is right for them. What Do You Include in Owner’s Equity? Owner’s equity is the portion of a business’s assets that are held by the business and not distributed to the owners. This can include various types of stock and retained earnings. The balance in the owner’s equity account will increase when the company makes a profit and decrease when the company sustains a loss. It can also be increased through investment in the business. When calculating owner’s equity, it is important to only include those assets that are owned by the business owner(s), whether they are shareholders or a sole proprietor. This means that any liabilities or expenses must be deducted from the total value of the assets. The result is the owner’s equity. It can be a positive or negative number, depending on whether the value of the assets exceeds the amount of the liabilities. Also, it may include the following: Common Stock Preferred Stock Prior Years’ Retained Earnings Current Year Earnings Less Current Year Distributions and Dividends Examples of Owner’s Equity There are several different types of owner’s equity, including common stock, preferred stock, retained earnings, and treasury stock. Common Stock Common stock is the most basic type of ownership interest in a corporation and represents the residual claim on a company’s assets after all debts and liabilities have been paid. Preferred stock gives holders priority over common shareholders in terms of dividend payments and asset distribution in the event of liquidation. Retained Earnings Retained earnings are typically profits that a company has reinvested back into the business instead of paying out as dividends. Treasury Stock Treasury stock is stock that has been repurchased by the company and is not currently outstanding. How to Calculate Owner’s Equity If you own a company, it’s important to understand how to calculate your owner’s equity. This figure represents your personal investment in the business, and it can be a helpful tool for tracking the health of your company over time. To calculate your owner’s equity, simply subtract your total liabilities from your total assets. This will give you your equity stake in the business. Keep in mind that your equity can increase or decrease depending on your financial performance. If you’re looking to attract investors, strong equity can be a valuable selling point. Owner’s equity = Company’s assets – Company’s liabilities – Less funds withdrawn by owner(s) By understanding how to calculate this figure, you can gain insights into the financial health of your business and make more informed decisions about its future. Where Does Owner’s Equity Appear on the Balance Sheet? It appears on the balance sheet as a positive number, representing the assets that the owner has put into the business. For publicly traded companies, the owner’s equity can be spotted on the balance sheet. Below is an example from a recently filed 10-Q for Caterpillar. In the example, you can see that the shareholders’ (owners’) equity is $15,759 million. This means that the combined investment by shareholders since the company’s inception is $15,759 million. Privately held companies will see the owner’s equity on the balance sheet below the liabilities as well. However,
What Is the Bad Debt Expense Formula?
When a small business makes sales on credit, there’s a chance of having bad debt expenses. Most businesses use the bad debt expense formula to account for them. Even the customers with the highest credit record can go bankrupt and fail to pay their debts. Tracking and recording these debts gives you an accurate picture of your financial standing. In this post, we will dig deeper into how to calculate bad debt expenses and what they mean for your business. What Is a Bad Debt Expense? When a company sells goods or services on credit, the risk of customers failing to pay the amount owed is always there. The longer they take to clear the payment, the higher the chances of not paying at all. Bad debt expenses are the part of accounts receivable that a company considers non-collectible. In other words, you were unable to collect payment for your product or service. Accounts receivable (AR) refers to the funds due to a company for products or services. It is the amount of money that customers owe you. After multiple unsuccessful collection attempts, businesses record bad debt expenses in the general ledger as a negative transaction. They are part of the operational costs under the income statement. When Do Bad Debt Expenses Happen? Bad debt expenses occur when a customer cannot pay outstanding bills for goods or services purchased on credit. Customers can fail to pay their bills due to financial difficulties or a disagreement over the delivered products or services. For instance, a customer may dislike how a printing order turns out and refuse to pay. If they make no effort to negotiate the payment terms for an extended period, you might consider writing their invoices as bad debts. Writing off these debts helps you avoid overstating assets or revenue while giving you an accurate picture of your company’s financial position. What Is the Bad Debt Expense Formula? Accounting for your debts is good business practice. The bad debt expense formula accounts for the total bad debts from past sales. There are two ways to do this: Direct or write-off method Allowance method Let us look at each technique in detail. Direct or Write-off Method When many of your clients pay off their bills, and you have fewer bad debts remaining, you might opt to write them off one at a time. This mostly happens when the invoice surpasses the deadline, and it becomes clear that the customers won’t pay. The IRS states that you should only write off bad debts after you have made all possible attempts to recover the amount without success. So, if you cannot contact the buyer or develop a repayment plan with them after numerous attempts, it might be time to write off the bad debts. In such a case, you will make a simple transaction record in your ledger account where the bad debt expense equals the account receivable value. The write-off method has no formula since actual values are recorded as expenses in your book of accounts. The write-off method may seem like an easier way to deal with doubtful debts than the allowance method. For one, you only have to record two transactions. Another upside is that it reduces the tax burden because you can write off the bad debt expenses from your taxable income. It also gives an exact amount of bad debts rather than an estimate. However, there are downsides to using the direct write-off method. It fails to uphold the Generally Accepted Accounting Principle (GAAP) which states that businesses must recognize expenses during their incurred period. With this method, you might not recognize bad debt expenses until the next accounting period. Theoretically, this is not the correct way of identifying bad expenses. Another downside is that, since you record it as a credit to accounts receivable, it can cause balance sheet inaccuracies. Allowance Method With the allowance method, you account for bad debts ahead of time. If you do a lot of product or service deliveries on credit, you’ll want to use the allowance method. Also known as allowance for bad debts, this method sets aside a percentage of overall credit sales for bad debts. Using your historic or past data on bad expenses, you predict the percent of future bad expenses from all credit sales. The allowance is always an estimate because you are trying to predict the future based on the past. However, it can help you plan ahead for bad debt expenses and budget appropriately. You can use the bad debt expense formula to estimate the amount that you need to set aside. Percentage of bad debt = total bad debts/total credit sales For example, assume your business has been operating for several years and the overall credit sales in the last accounting year were $500,000. Out of the total credit sales, $50,000 ended up being non-collectible. You’ll want to account for these bad debts prior to the next accounting year by setting up an allowance. Here is how to do it. Percentage of bad debt = $50,000 (total bad debt expenses) / $500,000 (total credit sales) That gives you a bad debt allowance of 10%. If this estimate is practical for future unpaid invoices, create an allowance for doubtful accounts at 10% of this year’s anticipated credit sales. If your business is relatively new, the allowance method may not be accurate or reliable. It also will not work if you have a massive non-recoverable debt that is considered an outlier. The large amount can skew your bad debt allowance. How to Record Bad Debt Expenses Keeping a record of bad debts helps maintain balanced statements while allowing you to make better financial decisions. Nonetheless, you can only record bad debts if you use accrual-based accounting. Those using cash accounting principles cannot do this since they have no recorded bad debt to undo or balance. Recording bad debts using the direct write-off method involves debiting the expense account and crediting the accounts receivable with
Free Small Business Expense Tracking Spreadsheet
Small business expense tracking can be tedious, but it’s one that all companies–from “mom and pop” shops to international enterprises–must do. Fortunately, business expense tracking apps make the job easier. An app is ideal if you have a business with many employees, sales, and tax considerations. For some small businesses, however, paying a subscription fee for an expense tracker may not be feasible in the beginning. In this case, they can use a free business expense tracker or template. While expense tracking will remain manual, it will keep their finances organized in one place. We’re sharing a free business expense tracking spreadsheet that you can use. You can jump to the spreadsheet here and scroll further to learn how small businesses can keep track of expenses for free or at little cost. Why do you need to track small business expenses? What are common business expenses? What is the best way to track expenses for small businesses? Small business expense tracking spreadsheet Why do you need to track small business expenses? As you may know, you’re required to file taxes each year. Come tax time, no one wants to sift through old receipts to account for each expense. Once you start expense tracking regularly, you can eliminate such hassles. Moreover, up-to-date records ensure that you file tax returns accurately. Therefore, should the IRS audit your company, you won’t have anything to worry about. Besides saving you time, you’ll also want to track expenses to take advantage of tax deductions and better financial health. Tax Deductions Everyone has to deal with taxes every year–companies and individuals. You may be eligible for tax deductions for certain expenses or activities. If you qualify for a deduction, you can lower the tax amount you owe and use the savings to grow the business. While it may surprise you, many small business expenses qualify for tax deductions. However, only a small proportion of small business owners benefit from them. This is primarily due to inadequate expense tracking practices and not knowing how much you can save. With reliable accounting software, you’ll have expense reports. These will give you a complete picture of your spending and tax deductions. If you’re unsure what counts as a deduction, you can review our list of over 20 tax deductions for small businesses. Financial health Data from the Bureau of Labor Statistics (BLS) shows that 20% of small businesses fail within the first year. This figure rises to 50% by the fifth year. But there’s a silver lining. Most of these businesses do not fail because there’s no market. Surprisingly, some companies make a lot of money and still fail. Some of the reasons for this include: Financial mismanagement Cash flow issues Unsustainable growth Poor planning As you can see, all those factors are related to finances. By ironing up your expense tracking processes, you can significantly increase the chances of success for your business. You’ll be able to quickly spot unnecessary, unusual, and fraudulent activity that may bring your business down. This way, you can limit business expenses to necessary expenses and prevent costs from going overboard. In addition, you can learn how to read and interpret financial statements. What are common business expenses? Businesses in varying industries have different expense profiles. Even still, there are expenses that almost all businesses have. In the expense tracking spreadsheet, you’ll find areas to record each of these expenses, including: Advertising and marketing – Costs associated with hiring a marketing agency or a consultant. Auto expenses – If you use your car for business, you can expense repairs and mileage. Bank charges – Fees and costs for a business bank account and credit cards. Commissions – They will be recorded here if you pay out sales commissions. Contract labor – This is for businesses that hire freelancers or contract employees. Interest – If you have a business loan, its interest is considered an expense. Legal & professional – Consult with lawyers, accountants, and other professionals. Merchant fees – These are costs that merchants like Shopify and Amazon charge. Payroll, payroll taxes, and processing – Expenses related to paying employees and processing those payments. Recruiting & HR – Costs associated with finding and hiring employees. Training & Education – Expenses related to furthering your or your employees’ business education. Software and tools – Many tools you use for your company are expenses (and tax-deductible). Rent or lease – If you have a physical store or office, you can add it as an expense. Utilities – Many utilities, including the Internet, are business expenses. These are just a few examples. You’ll find more inside the small business expense tracking spreadsheet. What is the best way to track expenses for small businesses? At this stage, you know why it’s important to track business expenses, but how do you do it? You have two options: business expense tracking spreadsheets or apps. 1. Business expense tracking apps The best options for business expense tracking are expense tracker apps. These solutions sync to your bank accounts and business credit cards and categorize your expenses. This eliminates most of the manual work and automates inputting the costs yourself in a spreadsheet. As a result, the only expenses you usually add manually are those you pay for in cash. Such solutions generate expense reports in addition to maintaining expense records. These reports help you understand your spending habits and how they impact cash flow and financial health. You don’t have to set time aside for this. You can review your expenses using a mobile app while on the go. Overall, they reduce the amount of time you spend on expense records. Some business expense tracking apps include: Mint Quickbooks (integrates with xendoo) Xero (integrates with xendoo) Zoho Expense Expensify To learn more about each app and if it’s a good fit for your company, you can view our guide to expense tracking apps here. 2. Business expense tracking spreadsheets While business expense tracker apps may be ideal, they’re sometimes
How to Set Up Accounting for a New Business: A Full Guide
If you are reading this, then it probably means you’ve just launched or intend to start a new business in the near future. As you try to figure out which need to prioritize in your new venture, it is crucial that you first learn how to set up accounting for a new business. While it might seem mundane, good accounting is integral to the success of any business. You may have the best managers and staff, but it’s impossible for your business to flourish without properly monitoring and managing your money. An experienced accountant can help you get your business set up faster and create a system for accurate accounting that grows with your business. However, we know that money can be tight for new business owners. Learning the basics of accounting can help you better understand the inner workings of your new business. As you grow, it’s easier to outsource or delegate the responsibility to a professional, so you can focus on other parts of your business. If you are only just starting out and have no clue where to begin, this article is for you. We will take you through the essentials of setting up your accounting for a new business. 1. Separate personal and business finances As any established business owner will tell you, you need to treat your business as a separate entity to yourself. This means separating your business and personal finances. In fact, it is a legal requirement of LLCs and corporations to manage their business incomes in separate bank accounts. On the other hand, sole proprietors have a bit of leeway. They can use their personal accounts for business, but we strongly advise against it. Here’s why: It will make it easier to file taxes for your business (since they are separate from your personal accounts) Your accountants and bookkeepers can monitor the account more freely It protects your individual assets in case of lawsuits or bankruptcy Having business financial records will increase chances of getting funding from investors or creditors It makes it easier to monitor your business cash flow Separating your business accounts go beyond setting up separate bank accounts. Here are some additional steps for new business. Establish your business officially Before you can get your business a bank account, you’ll need to register it with the state. Your business needs a name and other personalized details for you to open an account. Get a business bank account Just like you would a personal account, you should open both a checking and savings account for your business. This way, your money can be kept in an organized manner. The rule of thumb is to keep a majority of your revenue in the checking account and then a small portion in the savings account to cover such things as emergencies and taxes. It is recommended that you set aside and save at least 30% of your total income for taxes. To open a business bank account, you’ll need a few details. They include: Business name Business license Social security number Employer identification number Organizing documents Get a business credit card Getting a business credit card comes with its share of benefits, but mainly, it will help establish a credit rating for your business. With the right card at hand, you can even get travel points or back cash rebates each time you make a purchase. Track business expenses Other than preventing instances of petty theft, tracking your expenses can help save a ton of money in tax deductibles. If you are keen, you’ll find a plethora of small expenses within your business are tax-deductible, meaning you can claim them on your tax return. However, the condition is that you have records of the expense. The IRS demands that you have with you any documentation proving income credits or deductions that appear on your tax return. A few fundamental documents you should make sure to keep include: Credit card and bank statements Bills Receipts Invoices Canceled checks Proof of payments Previous tax returns Financial statement from your bookkeeper W2 and 1099 forms Now, as you may know, storing paper receipts can get a little messy. And while they can just as easily be stored in a shoebox, it is better to keep them in an organized manner to allow for easy tracking. You can store them in a file, organize them by date or alphabetical order, or use an expense tracking system. Alternatively, you can take photos of the paper receipts and store them online using software like QuickBooks online. If they are electronic receipts, you can either leave them stored in your computer or online storage systems like Expensify. 2. Choose a bookkeeping system and accounting method Before we get into accounting methods, it is important to know what bookkeeping entails and how it all fits in. To break it down, bookkeeping is simply the day-to-day act of recording transactions in business and reconciling bank statements. Accounting, on the other hand, is a higher-level process. It involves closely examining how the company is progressing and using data obtained from bookkeeping to build financial statements. How to record business transactions There are a few methods you can use to manage your books. DIY (by hand) – If you choose to do the bookkeeping yourself, you can make the entries manually using software like Wave or QuickBooks. First-time business owners that start with Excel spreadsheets regret it, so we advise using cloud accounting software. Outsourcing – If you’d rather spend your time managing other aspects of your organization, you can leave it to a professional bookkeeper. This can be either a remote or part-time local bookkeeper. In-house – This is usually the most expensive option. If you have the funds, you may employ a full-time in-house accountant or bookkeeper and leave everything to them. Choose an accounting method Once you have decided on a suitable bookkeeping solution, the next step is to determine which accounting methods to use. In this case, there are
How Long Does It Take an Accountant to Do Taxes?
As tax season looms, you may be wondering whether you should have an accountant prepare your taxes. In addition to considering how much an accountant costs, you’ll also want to consider how long an accountant will take to do taxes compared to trying to do it yourself. How do you know when to bring in a tax professional? Complicated tax situations like inheritance, small business taxes, or other big life changes usually warrant bringing in a certified public accountant or CPA. How Much Time Does it Take an Accountant to Prepare Taxes? The time it takes an accountant to do taxes depends on the complexity of your return and how quickly you make your tax information and necessary documents available to them. It is better to plan ahead before the tax filing deadline. You can ask an accountant to have a better understanding of the timeline required to complete the process. There are a few ways that you can speed up the process. Cost and Time Considerations A number of factors affect the time it takes to file taxes. Not all of these will be the responsibility of the tax preparer. First, you must make sure that you have all of the required documentation available for the tax preparer. Documentation includes any statements of income you have received from an employer or other entity, as well as any other tax forms for expenses. Some of the most common forms include: W-2 1099-NEC 1098 The W-2 is used to report income earned from an employer, as well as the payment of any taxes. A 1099-NEC includes independent contractor earnings. The 1098 form is a statement of any mortgage interest or insurance premiums paid. Deductions are another consideration. If you prefer to itemize rather than take the standard deduction, you’ll need to have receipts available. Typical items that are itemized include: Medical and dental expenses Mortgage interest State or local property tax All of your receipts should be organized and provided to your tax preparer. Tax Preparation for Small Business Owners Business owners will have more complex taxes. Businesses are able to claim certain deductions for expenses incurred throughout the year, but they need to have appropriate evidence of these expenses. Gathering this documentation may take some time, especially if you haven’t kept track of your receipts during the year. Online accounting software can assist in managing small business income and expenses. The cost of the tax preparation and filing varies. More complex returns will incur higher fees. Often you may offset the cost of these services with your tax refund if you are eligible for one. If you choose to use a local accounting firm that specializes in tax return preparation, you will pay significantly more. However, if your tax situation is complex, it pays to engage the services of true tax professionals. xendoo has a variety of plans that are priced to meet tax needs for businesses of all sizes. The accounting team will be familiar with tax law and tax code and can make sure to include all deductions available to you. xendoo’s team can also assist you with tax planning to mitigate your tax expense in future years. How Much Time Do You Spend Preparing Your Return? If you have filed your own tax return in prior years, you may have spent a significant amount of time to ensure you filled it out properly. When you did, you likely had to gather all of your tax forms and expense records. Then, check that you included each applicable tax form, including form 1040. You may have struggled with situations that required more complexity, such as capital gains or business deductions. Perhaps you had significant medical expenses that required you to itemize rather than take the standard deduction. Whatever the reason, you likely spent significant time and effort preparing your own tax return. At the end of the process, you may not have even been entirely comfortable that your return was correct. This oversight is why it makes sense to hire someone to handle tax preparation for you. Plus, if you have errors in your tax preparation, it can slow the process down. Tax professionals can prevent common errors so that your taxes are filed faster. Is It Worth Getting an Accountant to Do Your Taxes? There are three main types of qualified tax preparers. These include enrolled agents (EAs), certified public accountants (CPAs), and tax lawyers. Other individuals may prepare taxes through retail firms, but often they will not have received education specific to tax. Thus, if your tax situation is complex, it makes sense to hire someone to prepare your taxes who has the education and experience that fits your particular situation. While there is an expense associated with hiring a qualified tax preparer, doing so saves you time, energy, and potentially even money. Tax preparers are generally familiar with most of the IRS tax code and must stay up to date on any changes that are made. They will be aware of deductions that you may not know you qualify for. If you own a business, it is likely that you will need the services of a tax preparer. Business taxes are typically much more intricate than personal tax returns. They involve a number of different considerations, especially if your company has employees, equipment, or investments. Tax consulting services can assist you with ensuring your business tax return is properly completed. Tax Accounting Software Some people decide that engaging the services of a professional isn’t necessary, especially if they have simple returns and have some knowledge of tax. They may choose to utilize tax software to prepare their returns. To prepare yourself for tax time, there are a few online accounting software options that may help. When you get a xendoo plan, you can also sync to online accounting software and tools through our partners. These include: Xero Quickbooks Although these tools can make the tax filing process easier, there is still some heavy lifting that
Accounting for Startups — Starting Off on the Right Foot
Author’s Note: This blog post was updated on February 22, 2022, to include new information, resources, and links. Accounting for startups means more than just keeping up-to-date financial statements and records. Startup founders wear many hats, from sales to accounting. Accounting may not be on the top of the list, but it is critical to business health and growth. A business that sets appropriate accounting policies from the beginning will have a better chance of success than one that doesn’t. Does a Startup Need an Accountant? When opening a new business, there are many decisions to be made. Startups may not need to have an accountant on staff if the business is simple and hasn’t generated a lot of revenue yet. As a startup grows, it will become more important to have the right accounting tools and expert advice. Business owners gain a competitive advantage by having a strong accounting system set up from day one. An accountant helps startups plan for the future. They can assist with services like payroll, catch up bookkeeping, tax planning, and more. Why Is Accounting Important for Startups? When first launching a business on a tight budget, it’s tempting to choose a cheaper accounting solution such as Excel spreadsheets. However, that “cheap” solution can turn out to be more expensive. It can’t prevent human error, can cost many unnecessary man-hours, and in the end, not meet your needs. Instead, it’s wise to have an accounting strategy planned out in advance. Working with xendoo’s accounting system you can accurately account for all of your company’s financial needs. For example, accurate accounting records can assist startups in obtaining a business loan or investment. Both investors and commercial lenders will look at your books during the funding process. They will be more likely to supply you with funds when you show a clean set of accounting books. However, accounting services can help startups with many more aspects of their business. What Are the Benefits of Startup Accounting? Not having proper accounting records from the inception of your business can result in problems down the line. xendoo uses a cloud-based accounting system for the many ways it saves startups time and money. There are several benefits of using a cloud-based accounting system. Here are a few ways that xendoo helps startups with their accounting. Startup Accounting Expertise That Scales If you are unsure about how to handle accounting tasks (or simply don’t have the time to do so), it’s worth the cost to use a service like xendoo that specializes in accounting for startups. Your accounting should scale with your business needs. As your business grows, its accounting gets more complicated. If you choose to handle accounting tasks on your own, you may find yourself stretched for time. Instead of focusing on scaling the business, you may spend too much time on administrative work. Time-Saving Accounting Automation xendoo can sync with your bank, so every transaction is automatically entered into the bookkeeping system. It saves many hours of work and avoids the risk of error when a human operator transcribes the numbers. Instead of spending lots of time at month-end trying to reconcile financial transactions in the general ledger, cash transactions have already been booked accurately. You no longer need to wait for bank statements or credit card statements. You can know your cash position by having your cash transactions automatically posted in real-time. You’ll be able to make better decisions on upcoming expenses and have better insight into the financial health of your business. Other entries may also be recorded automatically, such as depreciation on equipment or other fixed assets. Cost Savings xendoo can save you serious money on your office staff. You may be employing multiple staff members to handle your accounting tasks, but it may not be necessary. Our trained accountants can handle the accounting transactions for multiple industries, including ecommerce, professional services, and retail. Our expertise allows us to easily accommodate the needs of your business. The cloud-based accounting system ensures that your financial records are up-to-date and accurate. Plus, you can message your xendoo CPA team anytime for a fast response. Offering more remote and part-time work options enables you to reduce your full-time office staff, as well as the overhead costs of accommodating them. Because data is stored in the cloud and not your servers, IT expenses can be trimmed. Employee Tax Forms and Payroll If your startup hires employees or independent contractors, accurate records become even more important. A startup accountant can ensure that payroll is handled properly and the requisite taxes are withheld and paid to state and local governments. There are other tax issues that a startup accountant may assist you with, such as sales taxes, local taxes, and accounting for any fixed assets. Accurate records will help you prepare for your business tax returns at year-end. From a tax perspective, startup founders can save a lot of time and effort with books that are ready to go for tax season. There’s no need to scramble for records related to business expenses — they’ll already be recorded in the xendoo cloud-based accounting system. Financial Reporting One huge advantage of working with xendoo is that you’ll have an accounting system in place that provides you with the reports when you need them. You don’t have to read paper receipts or sit at your office computer to see financial reports or bank transactions. This enables you to respond to changing conditions as they happen, minimizing the risk of losses or missed opportunities. xendoo provides accurate financial reporting, including a balance sheet and income statement. The accounts payable and receivable reports include an overview of outstanding accounts, so you can make quick business decisions based on current information. Startup accounting with xendoo can also help you reach out to customers who are overdue on their invoices. Complete, accurate, and up-to-date financial reports are available at any time. Every entry is tax-coded, so no extra work is needed to prepare for filing
Best Real Estate Accounting Tips for Agents and Brokers
Editor’s Note: This post was originally published in November 2019 and has been revamped and updated for accuracy and comprehensiveness. As the owner of a new real estate business, you’re probably aware of the unique characteristics of your industry. You take a personal interest in the real estate market, and you are excited to do great work for your clients, whether buying or selling pieces of property. But here’s the thing—running a real estate business is about more than making great deals. Accounting plays a major role in staying organized, managing taxes, and making smart decisions in any business. Why accounting is important for real estate businesses Setting up your real estate accounting system the right way will enable you to minimize the labor and stress involved in large-value transactions, extreme income fluctuations, employee pay formulas, and government regulations. These tips are for you if your business is: Real estate broker or agent Property management Building construction Residential sales Real estate investment management Another reason to keep accurate financial records is that you will probably have to show them to interested parties at some point. These entities include: Lenders Shareholders Creditors Government bodies (e.g., the IRS) There are many motivations to keep accurate books. And, contrary to popular belief, doing so does not have to be a major headache or hassle. With a service like xendoo, you can outsource your bookkeeping and tax work to focus on what you do best. For more information, check out this post on how to choose the right software to simplify your real estate accounting. Learn the Regulations Did you know that it is not just real estate transactions that local and state commissions oversee? These bodies also oversee the financial management of a real estate business, so playing by the rules is essential. Therefore, it’s a good idea to familiarize yourself with their requirements before making any decisions about your bookkeeping system. If the language is unclear, consult a professional accountant who specializes in real estate. It’s far better to spend extra time setting up your accounting procedures properly at the start than trying to untangle a mess when you run into trouble later on. Choose Who or What Will Do Your Real Estate Accounting For real estate professionals, the most viable options are: Hire an accountant as a full-time employee Outsource accounting services Accounting software used by management or other designated employees Hiring an accountant to work in-house is undoubtedly a powerful approach, but it will be costly and likely beyond the scope of many real estate businesses. On the other end of the spectrum, acquiring accounting software to manage the books yourself or amongst your team might be difficult if no one has proper accounting training or the time to dedicate to ensure your books are up to date. Even minor accounting mistakes can add up to bigger ones down the road. It’s the middle ground – outsourcing accounting tasks to a third party like xendoo – that will make the most sense for many real estate agents and brokers. This option keeps the costs down while still freeing up your time and utilizing experts to make sure the work is done properly. Select Your Accounting Method You have two choices: cash basis or accrual. Once you make a choice, you must stick with it, unless you submit a change request to the IRS. (Your first tax return shows the IRS which one you chose in the beginning — you don’t have to submit any forms for that.) Cash basis accounting is often preferred by small businesses because it’s easier to maintain, and it tells you how much money you actually have in the bank on any given day. Accrual accounting is usually the choice of larger companies because it portrays a more accurate portrait of your real estate business’s financial performance. Accrual accounting also allows you to better your long-term plan, which is helpful if you are thinking about expanding your business. Create a Chart of Accounts This complete index of your company’s transactions is essential for knowing how you stand. It will save you many hours of work when you need to measure performance, generate a report, locate past transactions, or prepare tax returns. The chart of accounts is organized into categories for easy sorting and retrieval. These categories can be anything you need. Under Assets, they might include Cash, Accounts Receivable, and Vehicles. Under Liabilities, you might have sub-accounts such as Accounts Payable, Loans, and Payroll. Keep Business and Personal Transactions Separate Don’t fall into the bad habit of pulling out your business credit card or checkbook to pay personal expenses — or vice versa. Without fail, it will cause more problems than it solves, including inaccurate books, tax mistakes, and cash flow issues. Real estate accounting shouldn’t be complicated, and this is one of the golden rules that can keep things simple—don’t make personal purchases with business accounts. Opening a separate bank account and a credit card strictly for your business will also make you look more professional to your customers, creditors, and investors. Fool-Proof Accounts Receivable Collecting payments that are owed is one of the biggest headaches for small businesses. Prevent delayed and missed payments with an automated invoicing system that: Sends invoices promptly Includes all the necessary information Offers several convenient ways to pay Tracks and contacts delinquent payers With an automated system in place, you’ll save time and avoid missing out on revenue that slipped through the cracks when you were too busy to track it down. Reconcile Your Bank Account Every Month Reconciling your bank account means checking that the transactions listed on the bank statement match what you have in your books. This process will identify any discrepancies so you can figure out why they happened and make a plan for avoiding those issues in the future. Usually, it’s something simple like a financial transaction that’s recorded in your books, but the bank hasn’t processed it yet. However, it could be
How to Choose the Right Software to Simplify Your Real Estate Accounting
Editor’s Note: This post was originally published in June 2018 and has been revamped and updated for accuracy and comprehensiveness. Let’s face it, bookkeeping for a business in the real estate industry is complicated. That holds true whether your niche is sales, management, construction, or tax and legal services. Unlike some other types of business, you must deal with variables like fluctuating income, expenses, payroll, and property values, not to mention a heavy load of government regulations. All these factors must be accounted for completely and accurately to control profit margins, satisfy clients, and be prepared for tax filing. It’s a big hassle if you’re doing it the old-fashioned way, creating custom spreadsheets and writing down transactions in a ledger. However, the right real estate accounting software will do many accounting tasks for you automatically, leaving you free to focus on your core business. Real estate business payroll Processing payroll is a core function for any business. Using accounting software that takes some of the hassles out of completing payroll each period can save you time and keep your records accurate year after year. Your business may have one or more of these types of workers: • Commission • Salary plus commission • Salary • Independent subcontractors As it relates to real estate accounting specifically, choose software with a payroll feature capable of calculating commissions and tracking those amounts for income tax withholding. Similarly, you should categorize payments made to independent contractors, as those are typically not subject to withholding. Real-time remote work tracking Whether your people are out on a building site or showing homes to prospective buyers, a cloud-based management app will give them access to the office. At the same time, the office is tracking their activities. Info on everything from materials used to schedule changes can be updated and shared with everyone in real-time. A system that integrates all departments saves time and money for workers and managers. It also means that data from the field is incorporated into the books automatically, eliminating duplicated effort and potential errors for the accountant. The inherent challenge with real estate accounting is the many moving parts involved—everything doesn’t happen in the same place. Leveraging technology to automatically collect all of this information and incorporate it into a bookkeeping system is sure to lead to better results. Breeze through tax time The topic of taxes will come up again and again in the search for the right real estate accounting software—and for a good reason. Taxes aren’t only necessary because they are a legal requirement but also because they can represent such a significant expense. If your real estate business holds properties, for example, the property taxes alone can take a big chunk out of your bottom line. You can’t get away from paying taxes, of course, but you can use good accounting software and a tax filing service like xendoo to make sure you don’t pay more than your share. Streamline operational expense recording One of the best real estate accounting tips you can receive is to enter all of your transactions each day. Suppose you wait until a week before your tax return is due to get your books updated. In that case, you’ll be facing a major headache and the likelihood that there will be errors beyond tax filing. Keeping your figures up to date will also reveal when and where you’re losing money. This makes it easier to make sound decisions and avoid spending too much time on a losing endeavor. Consider accounting software that integrates with your bank, recording every transaction automatically and saving you a great deal of time and paperwork. Plus, you’ll be ready for an audit any day of the year. Many real estate professionals – and professionals in other industries – feel like they are constantly behind on accounting. The key to getting ahead of the game is not to spend more of your precious time on the task but rather to streamline it using the right real estate accounting software. Financial reports data access Using cloud-based software allows you to see your financial reports or share data with your accountant anytime, anywhere. And with no need for in-house servers to store your data, you’ll mitigate the risk of losing your data and bring down IT expenses as well. If you are currently storing all of the financial data for your business on a single computer in your office, you are playing with fire in terms of data loss risk. Turning to the cloud leaves you with off-site storage that is backed up and secure. Two noteworthy options Most real estate businesses won’t need to take their accounting software search beyond two of the market leaders—Xero and QuickBooks Online. Each of these options includes all of the features you are likely to need to keep the financial side of your business in order. And, as an added bonus when working with xendoo, we can provide you with a discount on either one of these two excellent accounting platforms. xendoo believes that cloud-based accounting is the right choice for any real estate business looking to increase growth while reducing inefficiencies. By automating bookkeeping chores, we eliminate the hassles, the mistakes, and more than half the costs of traditional accounting. Our real estate accounting service will leave your business ready at every moment to meet challenges and seize opportunities for success. [av_sidebar widget_area=’Blog Post Disclaimer’ av_uid=’av-om2w’]
Tips to Increase Retail Sales for Your Small Business
This past year has been incredibly hard on retailers, especially small businesses. Retail sales plunged more than 20% between February and April last year, but with pandemic restrictions easing, the industry is starting to recover. As folks are venturing out more, it’s the perfect time to refresh yourself and your sales associates on tips to help increase retail sales and work towards building your business back up! Make your customers feel safe Many people are finding it tough to return to their pre-pandemic selves quickly and are still moving with caution. Help them feel at ease by reminding them they are safe in your shop. Take note of what protocols major retailers are following. For example, hand sanitizer can be available at the entry and the register. Use signage to share your mask policy, cleaning protocol, and any policies on the dressing room or how to use ‘tester’ products. The safer customers feel, the more likely they are to purchase, which will help increase your retail sales. Curbside pickup and local delivery Many stores began offering curbside pickup and local delivery in 2020, and most customers have become accustomed to these services. Keep in mind that today’s customers value convenience, so continue to offer these alternative methods moving forward. Train your staff While refreshing your team on cross- and up-selling, ensure they are up to speed on the basics, too. For example, do they need a reminder on any specials or promotions you offer? Ensure they are experts on your store’s products and are as informed as possible on your customer service expectations. Please encourage them to think ahead about how they might answer specific questions customers might ask, including all frequently asked questions. If your staff can put your customers at ease, they are more likely to purchase from you than your competitors. The savviest sales associates know how to cross-sell and up-sell. When a customer is interested in one particular item, the savvy salesperson suggests a corresponding item to go along with it. “If you like that, you will love this, too!” Up-selling suggests a more expensive alternative to the item the customer is already interested in buying. “Oh, that one you have is great, but have you seen this (more expensive) version?” If your customer leaves with an item they will enjoy more and feel like they got a great deal, they are more likely to be a repeat customer, which can further help increase retail sales. Merchandising Make the way you merchandise or display your products a priority. Keep your displays fresh and regularly move merchandise around the store, creating a sense of newness and having your regular customers look at products they may have otherwise passed. Feature new and seasonal products near the entrance. Keep everything clean and organized, and ensure it’s easy to navigate the store. Keep popular and inexpensive items near the registers to encourage impulse purchases during check-out. It would be best to keep up on your inventory accounting to ensure that those displays have enough product. Make it personal 80% of companies are more likely to purchase from a company that offers them a personal experience. So, how might your store offer a personal touch? Branded items are a great way to connect with your customers creatively – ensure your logo or taglines are on bags, receipts, and automated email receipts. Consider slipping an extra treat into shopping bags, too. Perhaps a small button or magnet with your logo and website. And the best way to get personal is to connect with your customers. Make it a priority to chat, remember their names, and take note of the types of products that interest them. Loyalty programs Customers love loyalty programs! Many small businesses still enjoy using classic “buy 10, get 1 free” style punch cards, but there are great digital-focused loyalty programs, too. Options like Loopy Loyalty and Smile.io encourage customers to shop with you again and engage with your brand. And get creative! These programs offer ways to customize the program to match your branding and speak to your customers. As you build your loyalty program, ensure you aren’t creating an unattainable goal. Earning $5 for every $25 you spend feels much more exciting than earning $1 for every $50, right!? Make time to analyze Small retail store owners are notoriously stretched for time, but it’s essential to set aside time to review what sales tactics are working and what aren’t. Look at the numbers and strategically think about what might have led to increases or dips in sales on any given day. This is where having professionals like the team at xendoo manage your retail bookkeeping can go a long way. You can quickly review the numbers through accurate and timely reports and determine the most effective sales strategies. It’s an exciting time for retailers to have a fresh start! Seize the opportunity to train your staff on new sales tactics, refresh your inventory offerings and displays, and get creative with new ways for your customers to engage with your brand. By outsourcing your bookkeeping and accounting to the team at xendoo, you’ll save time and money, and you’ll finally have the data you need to be more strategic about increasing retail sales and remaining profitable.
How Outsourcing Accounting Can Help Grow Your Small Business
Small business owners are notoriously short on time. They manage everything from sales and marketing to employee scheduling and benefits, not to mention being an expert in whatever good or service it is that their business offers. And there are hurdles every step of the way as you try to grow your business. Hiring an outsourced accounting service can help you tackle many of these including ensuring you don’t pay too much in taxes, that you have time to focus on sales and marketing, and that you are able to prepare thorough financial reports for investors. Why is an accountant important in a business? Accountants consider the big picture strategy needed to keep your business strong and growing. They can answer your questions about financial reports, cash flow, depreciation, and more. They can give tax savings advice, such as when to make capital purchases, what you can deduct, and how to reduce taxes on capital gains. They can identify opportunities to improve profit margin and business growth and keep you legal – preventing missed deadlines and noncompliance penalties. When you’re looking to grow your business but don’t have the time or resources to do so, hiring an outsourced accountant or outsourced accounting service like xendoo can free up your time and provide insights and ways into how you can increase your cash flow, strategically prepare for your taxes, and focus on what you do best. How does outsourcing accounting help your business grow? It’s not just keeping track of your financials. Outsourcing an account can help your business grow in the following ways: Accountants help save money We can tackle the reinvestment more in detail here and use the tax preparation anchor here. Accountants help small business owners save money in many ways, including through strategic tax preparation. They help you make smart decisions on your operating expenses, when to make big purchases, and what deductions you can make. Many small business owners spend too much money on taxes – an accountant can help you prevent overspending on taxes and help you strategize on how to cut costs in every area of operation. The money you spend on an accountant is an investment into your business and will help you grow by saving you money in the long run and leaving you with more money to invest back into your business. Accountants help save you time Time can be spent on marketing and other business growth while they look into the books. Small business owners have enough on their to-do list – when you’re looking to outsource some of the work and focus on growing, outsourcing accounting and bookkeeping services are the best choices. Bookkeepers and accountants will do a better job at a quicker pace than a small business owner who is strapped for time and whose talents might lie elsewhere. You’ll be able to focus on sales, marketing, and all of the other ins and outs of growing your business when you aren’t worrying about accounting. Outsourced accounting services are scalable As you grow so can your services without the need to hire FTE. Your outsourced accounting team can easily grow as your small business does. You won’t need to hire a full-time employee to handle your accounting when you have a scalable outsourced accounting team on board. You can skip the hassle of hiring and managing a full-time employee as you grow (and save on the need to offer expensive benefits, too!) by hiring outsourced accounting services like xendoo. Better business analysis Gives you accurate insights into your business strengths and weaknesses, which is important if you want to expand. Investors will want to see accurate books. As you grow you will continuously need better analytics on your business. An outsourced accounting team can provide accurate insights into your business strengths and weaknesses, helping you strategize on how to grow. And when you’re ready to take on investors or apply for a line of credit the banks and investors will want to see accurate and detailed financial reports. By having an outsourced accountant on your team, you will be able to show investors and banks precise, up-to-date records and prove you take your finances and the growth of your small business seriously. Help increase cash flow Keep track of outgoing and incoming money. Can find ways to help you save money long term with paying on time or ahead, and chasing down delinquent invoices. A key strategy to growing your business is taking charge of your cash flow. Outsourced accounting services like the team at xendoo can keep track of your incoming and outgoing money and can help you find ways to save money in the long term – through strategic tax preparation, cutting operational costs, and paying your bills on time or even ahead of time! And they can help you chase down delinquent invoices from clients who are behind on paying you. Your accounts payable and receivable will be closely monitored and managed without you ever needing to worry about it. Outsourcing accounting can help you grow your business. By outsourcing your accounting, you can save money on hiring a full-time accountant, plus, it will give you more time to focus on running your business and creating value for your customers and your employees. xendoo is all about providing timely and accurate financial information to business owners allowing them to make strategic decisions. If your business is struggling, know that there is a better way and xendoo can help. 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When You Need to Hire a CPA
Bookkeeper? Accountant? CPA? Which one does your business need, or does it need all three of them? Actually, it depends. Staying on top of your business’s finances is key for a small business owner, but you may need more than day-to-day bookkeeping. When you have more questions than a bookkeeper can answer, you’ll probably need to look into CPA services. Fortunately, xendoo has you covered. Read on to see if online CPA services are best for you and your business. What is a CPA? It’s important to understand the differences between a Certified Public Accountant, CPA, and a regular accountant. A CPA is an accountant who has met specific state and education licensing requirements and passed the CPA exam. So, accountants with the title of CPA offer a higher level of financial analysis for you and your business and can act as a fiduciary on your behalf. At that same time, an accountant can give you tax savings advice, such as when to make capital purchases, what you can deduct, and how to reduce taxes on capital gains. They can answer your questions about financial reports, cash flow, depreciation, and other accounting processes and identify opportunities to improve profit margin and business growth. Additionally, they can help set up business accounting systems, teach you best practices, keep you legal, and prevent missed deadlines and noncompliance penalties. What does a CPA do? Certified Public Accounts can be the financial strategist for Fortune 500 companies or advisors to neighborhood businesses. CPA act as consultants on many issues, including taxes and accounting. Generally, online CPAs services include: Prepare financial statements Identify red flags and growth opportunities Prepare and file taxes Plan capital purchases and other investments Strategize for scaling the business When should I hire a CPA? Whether you’re starting or growing your business, an accountant can help set up financial systems and analyze data so that you can make smarter business decisions. They have the power to forecast business success, diagnose financial health issues, and increase revenue—saving you significant money, time, and hassle. So while a bookkeeper focuses on the everyday tasks that maintain your business’s finances, accountants consider the big picture strategy to keep your business strong and growing, and a CPA has an even higher level of financial analysis to assure you’re making the right moves at the right time. How much does a CPA cost? Budgeting for bookkeeping and accounting services is tough for a small business. Traditionally, bookkeepers have charged an hourly rate; the more time they spend on your books, the more you have to pay. Typical rates are: Bookkeeper — $30 to $90 per hour CPA — $150 to $450 per hour Or you may only need an accountant for an occasional project such as tax preparation. Tax return (unincorporated) — $200 to $500 Tax return (incorporated) — $800 to $1,800 Financial statement — $1,000 to $2,500 Audit — $2,000 to $5,000 This is why accounting for a small business can become expensive. Plus, you may decide you only need an accountant for an occasional project such as tax preparation, financial statement, or audit, which costs a fixed amount that can add up, or you may not have allotted this in your end-of-the-year budget. A popular option with small businesses is an accounting service that charges a fixed amount every month. It’s easy to budget for, and it can cost less than half what you would pay an hourly accountant for the same amount of service. That’s why xendoo offers a monthly pricing structure to our clients, charging a fixed amount every month. It’s easier to budget for bookkeeping and inline CPA services monthly and cost less than half of what you would pay an hourly accountant for the same service amount. The right account professionals for your business A small business accounting service will file your taxes, but you’ll need to have your bookkeeping in order so you can provide them with the data and reports they need. xendoo’s online team of bookkeepers and CPAs will handle everything for you – they will manage all of your bookkeeping and accounting and will file the right return for you, right on time. Plus, xendoo also takes care of all the filing that goes along with your tax return to itemize your business deductions. Ultimately, it’s best for you and your business to have both a bookkeeper and an accountant. Making xendoo your financial partner means joining a community of small business owners who love working with xendoo’s bookkeepers and CPAs. xendoo’s online CPA accounting services are ideal for small businesses because the more eyes looking out for your business, the better. Your dedicated financial team provides the perspective on your finances that can help ensure you’re able to anticipate problems and have the appropriate solutions ready to go. In gaining a complete picture of your company’s financial health, you can confidently grow your business.
Pass-Through Deductions: What It Is and Who Qualifies
One of the best small business-friendly aspects of the Tax Cuts and Jobs Act (TCJA) is the 20% deduction you can take on your income tax if your business is a pass-through entity. Here’s what you need to know about it. What Is the Deduction The TCJA was passed in 2017 and first applied to 2018 tax returns. Provision 199A of that law states that you can deduct 20% of your “qualified business income” which was earned from a “qualified trade or business.” What Is a Pass-Through Entity Any business structure that allows you to receive income as an “owner’s draw” rather than as a regular employee is a pass-through business. The money is “passed through” from the company account to your personal account. You only pay income tax on it with your personal return; you don’t have to file a separate return for the business. Pass-through entities include:• Sole proprietorship• Partnership• LLC (limited liability corporation)• S-Corporation However, there are some restrictions. Taxable Income Restriction • Less than $157,500 (single, married filing separately, head of household) or $315,000 (married filing jointly): you qualify for the full 20% deduction.• $157,500 – $207,500 or $315,000 – $415,000, respectively: your deduction may be less.• More than $207,500 or $415,000, respectively: you are not eligible for the deduction. Specified Service or Trade Restrictions What your business does may disqualify it from the deduction. Here’s the list of excluded fields, as issued by the Treasury Department in August 2018: • Health• Law• Accounting• Actuarial science• Performing arts• Consulting• Athletics• Financial services• Brokerage services• Any business where the principal asset is the reputation or skill of one or more of the employees or owners• Any business that consists of investing and investment management, trading or dealing in securities, partnership interests or commodities But don’t give up if you see your business in one of these categories, because there are numerous exceptions. For example, in the Health category, healthcare providers who provide services directly to patients — such as doctors and dentists — are not eligible. On the other hand, health clubs, spas, medical research companies, and those who sell pharmaceuticals or medical devices may qualify for the deduction. In the case of businesses who both provide services and sell products, eligibility is determined by sales:• Less than $25 million in gross receipts and less than 10% of your business comes from disqualified services; or• More than $25 million in gross receipts and less than 5% of your business comes from disqualified services Employee and Property Restrictions There are two further conditions that could affect how much of a deduction you can take. They are:• Business that pay W-2 wages• Business that owns “qualified property” such as real estate or other tangible assets that can be depreciated If your business fits either of these descriptions, your deduction will be the lesser of:• 20% of qualified business income (or the “tentative deduction”); or• The greater of:o W-2 wages paid x 50%; oro W-2 wages paid x 25% + the unadjusted basis (cost) of your qualified property x 2.5% Still confused about the pass-through deduction? Your xendoo small business expert can clear things up, answer your questions, and help you get every tax break you deserve.