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Can You Do Your Own Bookkeeping?

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Bookkeeping yourself
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FAS 133 Accounting for Derivatives is difficult. Preparing a multi-state corporate tax return is difficult. Cost accounting for thousands of product lines is difficult. Keeping the books for a small business is easy as long as you stay organized, do not procrastinate and your books are setup correctly to start with.

 

Doing your own books will give you a thorough understanding of the expenses involved in running your company and it will also help you later as your company grows and you turn your bookkeeping over to a bookkeeping service or you hire a bookkeeper. You will know when an account doesn’t look right and you will know what questions to ask your bookkeeper.

 

If you don’t know how to setup your books, I recommend that you find a local Quickbooks expert or a remote accountant to get your chart of accounts setup correctly. They can also enter your first few transactions for you and give you some guidance on how to enter your information correctly. This would not cost you very much and could save you a lot of money that you would have to pay a CPA firm at tax time. For a small fee, you could also have them review your books once per quarter or every six months just to make sure everything looks like correct.

 

As a long-time accountant who has done a lot of bookkeeping and prepared a lot of financial statements, I think bookkeeping is easy and a lot of small business owners, especially ones just starting out, could probably handle it themselves.

If only it was as easy as just stitching! :) #receipts #bookkeeping #artistbrain

But you need to be organized and you can’t procrastinate.

 

You should create a system that works for you and your schedule but I will explain what I do every day to keep the books up to date and accurate.

 

Step 1

Reconcile the checking account every day first in the morning. If your business is really small, you should do it at least once per week. There are two reasons I recommend this.

You want to constantly be reminded of where you stand with your cash flow. A lot of problems in your financial statements can be prevented if you keep your checking account and your cash account in your accounting system in order. For example, maybe you wrote a check outside of your accounting system but forgot to record it in your books.

 

Step 2

Open and sort the mail every day. Sort checks into pile one, bills into pile two and junk mail and everything else into pile three.

 

Step 3

Make your deposit. I think it is important to be in the habit of getting the checks into your account ASAP. Go through the checks and prepare your deposit slip and don’t forget to enter all of the payments into your accounting software.

 

Step 4

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If you use receiving documents and purchase orders, match them to the vendor invoices and record them in your accounting system. This is a good time to review the invoices for quantity and price. If you see a problem with an invoice, I would recommend you still enter it but place the paper invoice into a special file to review with the vendor.

 

Step 5

Generate invoices for any material shipped or services performed on the previous day. Email, fax or mail them on the same day they are generated.

 

Step 6

Reconcile your credit card purchases. I have found that this step to be the most time-consuming step for me. I have tried several methods and what I have found is that it works best if you have two separate credit cards.

One credit card is used to purchased non-invoiced items like meals, gas and travel expenses. Use the other credit to pay for items that have already been entered into your accounting system. Some vendors will let you take 30 days or more to pay and then will accept credit card payments.

 

There are always other accounting issues like payroll and journal entries, but if you make these six steps a part of your daily or weekly routine, you will save you self a lot of trouble and headache later.

 

At some point you may consider transferring the accounting responsibility to someone else. You should probably move the accounting to a professional when the bookkeeping activity is impacting the time you need to make sales visits or build the business.

 

When my wife and I bought our house we need to paint all of the interior walls. We could have painted them ourselves but between working full-time and caring for two young children, it would have taken us a couple of weeks to do it by ourselves and painting is not a task that I enjoy. We decided to hire a painter to do it for us and it took him a little more than one day to finish and it looked better than what we could have done it ourselves. We were able to move in soon after and start enjoying our new home.

 

Another reason for not doing your own bookkeeping is that there is a lot of repetition with bookkeeping. You need to have the type of personality that is ok with doing the same thing day after day after day.

If the bookkeeping becomes a grind that is keeping you from creating more sales or working on your business, and you can absorb the additional cost, it is probably time to interview a bookkeeper or hire an outsourced bookkeeping service.

 

Just remember that a monthly bookkeeping fee is a fixed overhead cost that you would need to cover with additional sales or reduced expenses. Unless your business is making a profit, you may not be able to afford outside bookkeeping help. Until then, I think you can and should work on your own bookkeeping.

 

Let me know what you steps you take to stay on top of your bookkeeping.

 

Don’t Miss This Great Small Business Deduction

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A section 179 deduction may sound unimportant to most people, but to small business owners it can be extremely helpful. They can write off the entire amount of a qualified equipment purchase immediately and reduce their current tax bill. So, they can use that money that would have went to the IRS on the much needed equipment purchases.

 

Yes, they eventually have to pay the taxes that are due, but the idea is that by delaying the taxes they can get the benefit of the purchased equipment now and by the time the tax is due the equipment is making them a lot of money. The goal of Congress was to get small business owners to spend the money now instead of later.

 

Here is an example of the benefit of the section 179 deduction:

Florist Delivery Truck
Credit: Flickr

Imagine you own a growing florist business and you need a second delivery truck. You decide to finance the purchase of a truck for $50,000. In 2014, you get a deduct the entire amount of the purchase from your taxes instead of spreading the cost out over several years.

 

 $50,000 Purchase Price

-$17,500 Tax Savings the 1st Year ($50,000 x 35% tax rate)

 $32,500 Vehicle cost after tax savings

 

You would have seen the $17,500 savings eventually, but wouldn’t it be better to get that savings now, get the truck into service and increase the size of your business? If you made equipment purchases in 2014, please check with your accountant to see if the purchase qualifies and to maximize your 179 deduction.

 

Congress has recently reduced the section 179 deduction from $500,000 all the way down to $25,000. They did something similar in 2014 only to reverse it in December. This has a negative impact on a small business owners ability to plan their purchases.  If you can’t count on getting a sizable piece of your investment back at the end of the year, you will have to think more carefully about whether you can afford the purchase.

 

If your balance sheet can’t support making a large investment without putting your finances at risk, you may need to consider a working capital loan from a lender like Kabbage to bolster your bank account. These days there are many different lenders offering small business funding other than just the big banks.

 

View this attached infographic to see the impact of the Sec 179 deduction to small businesses.

Sec 179 Deduction

 

 

 

 

 

 

 

 

 

 

If you are a small business owner, notify your Representative and Senators to let them know to reinstate the full Sec 179 Deduction ASAP. Also, sign this petition at http://www.section179.org/petition.php

 

Payroll Mistakes New Small Business Owners are Most Likely to Make

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Taxes

New small business owners could be making several payroll mistakes without even realizing it. It could cost them fines and penalties from the IRS or their state revenue department.

 
Third Party Sick Pay

Third party sick pay is money paid by a disability insurance provider directly to an employee due to an illness or injury. Aflac insurance is one of the most well-known vendors, but large health insurance companies, like Humana, offer supplemental insurance and the rules apply to them and any 3rd party insurance provider.

 

What some small business owners may not realize is that under certain circumstances, the money paid to the employee is taxable income to the employee as earnings. The employer must report the earnings and withhold payroll taxes. The benefits paid by the third-party vendor and the taxes withheld should be reported on the employee’s W2.

 

IMPORTANT. If the employer paid for the premiums on behalf of the employee, the employer is also responsible for paying the employer’s share of the payroll taxes.

 

Form 8922, Third-Party Sick Pay Recap is a new requirement from the IRS for 2014. Employers must report the amount of 3rd party sick pay paid to their employees by a third-party insurer.

 

Like most IRS regulations, there are exceptions and exemptions that I won’t detail here, but if you paid for any third-party benefits for your employees, you should check with your payroll provider or accountant.

 
Fringe Benefits

Any fringe benefit an employer provides to an employee is considered a form of payment, is subject to employment tax and must be included in their pay unless the benefit is on the list of IRS exclusions. The exclusion list is long and somewhat confusing. You can find the list here.

 

If your business is an S Corp or you have highly compensated employees, you will want to consult with your payroll provider or accountant. The IRS makes several exceptions to the exclusion list for S Corp and highly compensated employees.

 

Here is a list of some of the employee fringe benefits that are subject to some type of tax and your new small business might be neglecting to report correctly.

 

  1. The value of the personal use of a company provided vehicle.
  2. Adoption assistance is not subject to income tax but is subject to payroll tax.
  3. Off-site athletic facilities not owned by the employer.
  4. Cell phones issued for primarily personal use.
  5. Non-cash achievement awards greater than $1,600 in value.
  6. Education assistance if you do not have a written plan to cover only your employees.
  7. Lodging on the employer’s site that is not required by the employer.
  8. Non-deductible moving expenses.

 
Related: 6 Things The IRS Expects Small Business Owners to Know
 

Every year, one of my previous employers would hand out Christmas hams to all of the employees. Our payroll department would add the value of those $20 or so hams to our W-2. The IRS has made it clear that those small amounts do not need to be reported. The IRS calls them de minimis benefits. They are something of such little value that the administration would add an unreasonable burden to the payroll department. The de minimis rule would also apply to small gift cards, break room donuts, company picnics, etc.

 
Independent Contractors

The main sticking point about independent contractor vs employee is if a person is an employee, the employer is responsible for withholding and paying the employee payroll taxes and the employer portion of the taxes. If the person is an independent contractor, then the worker must keep track of paying their payroll taxes themselves.

 

The way to tell if a person is an independent contractor is to ask three questions.

  1. How much does the company control how the worker does their job?
  2. How much does the company control how and when the worker is paid?
  3. What type of relationship does the worker have with the company?

 

Even the IRS admits that there is no “magic formula” to determine when a person is an independent contractor. If you have any doubts, I would recommend asking your accountant so you can both agree on a plan of action in case you are ever challenged by the IRS or your state revenue department.

 
Are there any common payroll mistakes I missed? Please comment below.
 
Reference:

http://www.irs.gov/publications/p15a/ar02.html#en_US_2015_publink1000169561

http://www.irs.gov/pub/irs-pdf/p15b.pdf

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

Create Your Business Plan with Free Software

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If you are starting a business and you need a bank loan or investors, you will need to create a business plan. The SBA created a free online tool to help you.

 

US Small Business Administration

It gives you the structure and step-by-step guides for creating a business plan but the tool will not write the plan for you. You will still need to enter the information yourself.

 

After you register, you can work at your own pace come back to where you left off the next time you login.

4 Questions to Ask When Interviewing for a Bookkeeper

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There are hundreds of interview questions you could ask in a job interview. I have made a list of 4 questions to ask that are specific to hiring a bookkeeper. In addition to your regular interview questions, these questions will give you a glimpse into the personality and character of the bookkeeping candidate.  For most small businesses, a bookkeeper is in a position of trust and you want to make sure they are not only competent but also honest and dependable.

 

QUESTION 1: A general ledger account is out of balance by $.24. Describe the process you would take to discover the error.

 

MY ANSWER: “First, I would want to make sure the error is not due to a larger computer software glitch. I have worked with systems that were corrupted by updates or programming errors. I make sure my accounting systems are backed up regularly just in case the data gets corrupted. Also, I reconcile all balance sheet accounts during the month and as a part of my month end close process so I would be able tell if the problem is isolated to one general ledger account or if I have a larger problem.

If I discover an error in the accounting system due to an update, I would recover the most recent backup prior to the update. If the problem is only in one account and the balance is only $.24, I would write off the difference to an Miscellaneous Expense account. In my opinion, looking for a $.24 error is not the best use of my time or your resources.”

 

REASONING: The bookkeeper is responsible for the accounting system and the accuracy of the books. You want a bookkeeper to take ownership of their work and make sure the information is correct and protected. They may need the help of IT support or the software vendor support to correct the problem, but the bookkeeper should be proactive and responsible for the correction.bookkeeping job interview

One of my personal pet peeves is when someone spends hours trying to reconcile an account down to the penny. Professional bookkeepers are well paid and sometimes it is a waste of time and money for them to look and correct minor errors.

Obviously you want bookkeeping mistakes to be rare and small but when it comes to allocating bookkeeping time to fixing small errors I use the Cost versus Benefit rule. Is the Cost of finding the error worth the Benefit of fixing it? If the Cost is too great or Benefit too small I would correct the problem with a journal entry and move on.

 

QUESTION 2: What have you done at your previous employers to increase revenues, reduce costs, or save time?

 

MY ANSWER: “I make it a practice to review every vendor invoice to make sure the amount is correct before I enter it.  At X company, I discovered we were being charged sales tax for an item that I knew was tax exempt. I sent our sales tax exemption certificate to the vendor and they stopped charging the sales tax. I was able to save the company approximately $2,000 a year.

 

REASONING: The bookkeeping position is overhead and their department is a cost center. An experienced bookkeeper understands this and is constantly on the look out for cost and time savings that are within their control.

 

Related: Three Questions to Ask Yourself Before Hiring a Bookkeeper
 
Computer Accounting Systems
 
QUESTION 3: Which bookkeeping systems have you used and tell me which one you liked best and why?

 

MY ANSWER: “I liked X system because it had a robust and easy to use report writer. I could quickly create ad-hoc reports for the President of the company or department supervisors and get them the information they needed.

Sometimes in a matter of seconds. With the X system I had the option to save the report as a .PDF document or an Excel spreadsheet and I could email the report to them.”

 

REASONING: This answer will vary greatly depending on the systems they have used but what I look for is some enthusiasm and some detail descriptions. Your bookkeeper candidate should be an expert in the accounting systems they have used and should know every trick and every quirk.

 

QUESTION 4: Tell me about a time you faced an ethical dilemma.

 

MY ANSWER: “When I was working at X company, a vendor did not send me an invoice for material I was 100% certain we had received. I accrued the expense in the books and waited for the invoice to arrive. After a month had passed, I contacted the vendor for a copy of the invoice.
 
In researching the shipment, the vendor’s accountant discovered that the paperwork was lost and was never turned in to the accounting department for billing. Even though my call to the vendor ended up costing my company some money, I still feel it was the right thing to do. It was a legitimate expense that we owed to the vendor and I would not have felt right about cheating the vendor.”

 

REASONING: If someone is willing to cheat a vendor, customer or the government, they are just as likely to cheat you too. There might be some shades of grey in life but in the interview you don’t want to hear a hint of dishonesty from your potential bookkeeper.

Even if the error would be in your favor. I am amazed at stories I have read like this one about a bookkeeper who was caught stealing from several different businesses over several years. In my opinion, honesty is the most important quality in a bookkeeper.

If you find exaggerations in their resume or their answers to your interview questions don’t sound genuine and honest, I would move on to the next candidate.

 

Related: Bookkeeper Embezzles from Building Supply Business

 

These questions will help you hire a great bookkeeper, but I would also recommend doing a background check on any prospective bookkeeping new hires. I would also recommend contacting not only their references but also former employers. The bookkeeper will be responsible for your money and you want to make sure you find one you can trust.

I don’t like simple knowledge based questions in a face to face interview. For example, “What is the difference between an Income Statement and a Balance Sheet?” I find them to be demeaning to ask that question to a bookkeeper with 20 years of experience. I would recommend a written test or computer test so you can compare the results of all of your candidates to one another.

I would be interested in hearing your response to my interview questions and answers. Please comment below.

 
 

6 Things the IRS Expects Employers to Know

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Taxes

Running a small business is not easy and the IRS does not make it any easier. I’ve listed six things that inexperienced small business owners may not even realize but the IRS expects them to know.

 

1. Reporting New Hires

You probably know that employers need to verify that each new employee is legally eligible to work in the United States by completing the I-9 form but you may not know that the IRS also requires employers to report each new hire to a state new hire registry. Employers have to report the employee name, address, social security number and the date of hire.

The new hire reporting helps states speed up child support collection. If a new employee with a garnishment wonders how the State found him so fast, this reporting process is how they do it. If you use a payroll service provider, ask them to report the new hires for you electronically. In Indiana, click on this link  to access the New Hire Reporting Center.

If an employer fails to notify the State, the fine can be up to $25 per newly hired employee, and if the employer intentionally fails to report based on an agreement between the employer and employee, the penalty can be up to $500 per newly hired employee.

 

2.  Backup Withholding for Vendors

If you have independent contractors or vendors that you issue a 1099 to and if they do not supply a valid SSN  you are expected to withhold 28% of the payment and pay that money to the IRS. Most often employers issue 1099’s for rents, commissions, non-employee compensation for services like cleaning or IT support and royalties among others. Most often the 1099’s are issued for sole proprietors and independent contractors.

The preferred form for a vendor to supply the information needed for the employer is the W-9 form. It is simple form with space for the name, type of organization, address and Social Security Number or Employer Identification Number.

Before the Affordable Care Act (ObamaCare) was passed, one of the many controversial parts of it was a requirement for all vendors to be subject to backup withholding and to be issued 1099’s. It was a method to ensure vendors were paying tax to the IRS similar to the way payroll tax withholding ensures employees are paying tax. The idea was eventually dropped because of the administrative nightmare it would cause especially for small businesses, but I expect to see the idea come up again in the future as a way to increase revenue for the federal government.

There are no specific penalties for not collecting W-9’s from vendors. The IRS only states that employers are subject to penalties.

 

3. New W-4 for Exempt Employees

Employers know that every new hire must complete a W-4 Employee Withholding Allowance Certificate to help determine the correct amount of income tax to withhold on the employee’s paycheck. If an employee wants to change their withholding allowance, the employer should require the employee to complete a new W-4. Most employers don’t know that the IRS requires them to collect a new W-4 every year from employees claiming an exemption from withholding.

An employee can claim an exemption from payroll withholding on the W-4 form if he or she had no income tax liability last year and expects no federal income tax in the current year. If the employer does not receive a new W-4 from the employee every year by February 15th, the employer must begin withholding from the employee’s paycheck based on the last W-4 form without the exemption or withhold at the single rate and no exemptions. This should quickly prompt the employee to complete a new W-4 once they see how much their paycheck decreases.

Most penalties apply to employees who complete a fraudulent W-4 to avoid withholding but the IRS states that employers are subject to penalties for not collecting W-4’s from their employees.

 

4. Ensure Payroll Taxes are Paid

If a small business owner decides that payroll is too time consuming or too complicated to handle on their own and they decide to outsource payroll to a third-party, the small business owner is still responsible for making sure payroll taxes is paid. The IRS recommends that you enroll in the U.S. Treasury Department’s Electronic Federal Tax Payment System (EFTPS) to monitor your account and ensure that timely tax payments are being made for you.

If the small business owner trusts someone to process their payroll and the payroll tax deposits are not made due to fraud or incompetence, the business owner is still responsible for making the payments plus paying penalties and interest.

 

Related: You Are Responsible for Filing your Payroll Tax Returns

 

5. The difference between an Employee and an Independent Contractor

If a small business owner controls how and what work a worker performs the worker is an employee and not an independent contractor. That means the small business owner must withhold income taxes and pay social security, medicare and unemployment tax on the workers wages. If the worker is an independent contractor, the worker is responsible for paying their own taxes.

Both the federal and state government are really cracking down on the classification of independent contractors. If a small business owner classifies a worker as an independent contractor but the government says they are an employee, the small business owner will be liable for the income tax withholding regardless of whether the employee paid income tax.

If you feel that you may be inaccurately classifying your employees as independent contractors, the IRS  has a program called Voluntary Classification Settlement Program (VCSP) to give you an opportunity to correct your error and reduce your tax liability.

 

6. EIC Notification

The IRS states that employers must notify employees with no payroll withholding that they may be eligible for a tax refund because of the EIC (Earned Income Credit). This is a link to a notice that explains the EIC to the employees.

The notice must be handed directly to the employee or send it by first-class mail to the employee’s last known address. Posting the notice on an employee bulletin board will not meet the notification requirements.

 

Please contact me  if you are a small business owner and feel you need help making sure you are in compliance with both State and Federal tax regulations. I will be happy to help you. When it comes to the IRS, what you don’t know can hurt you.

 

Go to this IRS publication http://www.irs.gov/pub/irs-pdf/p15.pdf  if you would like more information on what the IRS expects employers to know.

 

 

[schema type=”person” name=”Steve Webster” city=”Jeffersonville” state=”Indiana” ]

How to Stop Your Bookkeeper From Stealing From You

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Trust your bookkeeper

“Trust but Verify”, was a phrase made famous by U.S. president Ronald Reagan when discussing U.S. relations with the former Soviet Union. The same should apply to a small business owner’s relationship with their bookkeeper.

 

 

According to the Association of Certified Fraud Examiners, the smaller the company, the more likely fraud will ruin your business. http://www.acfe.com/rttn-highlights.aspx  They noted that small companies typically employ fewer anti-fraud controls than larger companies, which increases their vulnerability to fraud. You may not be able to hire an internal auditor to help you catch a bookkeeper that is stealing from you, but if you put the following these five recommendations you will greatly reduce the chance for bookkeeping fraud and possibly eliminate it completely.

 

Review the Bank Statement

Open the bank statements and reconcile the bank account yourself every month. If you don’t have the time or the expertise to reconcile the account, look through the cancelled checks for any unknown vendors and look for unusual ACH payments. Even if you sign all of the checks personally, your bookkeeper can transfer money to his own account or setup ACH payments to his friends and family. Question your bookkeeper about one or two payments. Ask him even if you already know the answer. Also ask to see the supporting documents. If a bookkeeper is thinking of writing a fraudulent check or sending a fraudulent wire, he will certainly think twice about it if he knows you review the bank statement.

When I was a controller in a multi-site corporation, with hundreds of million dollars in revenue per year, the CEO and President of the company would frequently review the accounts payable register and would occasionally ask me questions about invoices that were due to be paid. I thought at the time that the CEO should have too much time on his hands to be involved is such mundane tasks as reviewing the AP register, but just knowing that someone else was looking at the report made me more aware of the invoices that were entered.

 

Related:  “A Trusted Friend” Steals $103,000 from Therapy Business

 

Close prior periods

Once you close a period, preferably a monthly period, lock the period with password protection to prevent any transactions from posting into prior periods and make sure you or your outside accountant or auditor are the only ones with access to the password. An easy bookkeeping trick is to hide fraudulent activity in prior periods that are not normally reviewed again. If you review your financial statements monthly, you may notice a $5,000 expense that a bookkeeper paid fraudulently but you are unlikely to notice it if the bookkeeper enters the expense into last month’s books, or last year’s books or the books from two years ago.

You probably have enough to do already and don’t have time or the need to look at financial statements from previous periods. A bookkeeper that is stealing from you knows that. Besides, closing your prior periods is an accounting best practice to prevent both intentional or unintentional posts to prior periods.

 

Review the Payroll Register

If your bookkeeper processes your payroll, you should review the payroll register every pay period for unauthorized pay increases not only to your bookkeeper but also to her friends. Review it every pay period because a sneaky bookkeeper could raise their pay for one payroll and change it back before the next one for a one time bonus. She could also wait until you are on vacation or on a business trip to make the change.

 

Review Credit Card Statements

Although it may not add up to a lot of money, I think one of the easiest ways for a bookkeeper to steal from you is with the company credit card. Because of the cryptic descriptions in the statements, it can be difficult sometimes to tell the source of a credit card charge and if the charge looks legitimate or not. If you send your bookkeeper to the office supply store for paper, you won’t know that he also charged a printer or computer unless you review the receipts. I have seen credit card charges for strip clubs, spas and online dating sites. If you at least scan your statement monthly, you will be able to catch most of the big-ticket items.

 

Separation of Duties

You may have a very small staff, but as much as possible don’t let you bookkeeper do everything in the office. For example, you can assign someone else to pickup and open the mail. Have that person make a deposit list of the checks received and compare it to the actual deposits in your bank account. Don’t let your bookkeeper have sole control over printing checks, signing checks and reconciling the bank account. Unless you have some oversight you are asking for trouble. If your staff is small and your time is limited, you can hire an outside accountant to perform certain tasks for you. If you bookkeeper knows you have a second set of eyes looking at her transactions, she will be less likely to steal.

A bookkeeper is in a position of trust and you should be allowed to trust him to take care of your finances, but it is your name on the door and ultimately it is your responsibility to make sure your business finances are handled properly.  Follow these five recommendations to help greatly reduce the likelihood of your bookkeeper stealing from you and possibly shutting down your business.

If you have any other ideas to prevent or discover bookkeeper fraud, please describe them in the comments section.

 

 

 

[schema type=”person” name=”Steve Webster” city=”Jeffersonville” state=”Indiana” postalcode=”47130″ ]

Is it Time to Get a New Accountant?

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Steve Webster Small Business Bookkeeper

Hopefully, as a small business owner, you develop a long-term relationship with a great accountant that earns every penny you pay him or her. But, if your accountant starts to exhibit the following 4 bad business practices, it might be time to get a new accountant.

You aren’t getting the support or advice you need.

As a small business owner, a great accountant should not only be able to pay your bills on time, figure your taxes and prepare your financial statements, they should go above and beyond and help you save money in ways you weren’t expecting. For example, the “fiscal cliff” that you hear so much about will likely impact the taxes your business will have to pay in 2013. Has your accountant communicated with you how your business will be impacted and what strategies you can put into place to avoid higher taxes. Most accountants prepare for year-end taxes and your accountant should be communicating with you prior to the end of the year.

 

Related: Indiana Employers Will Pay Higher Taxes in 2013

 

You don’t understand what your accountant is talking about.

Overworked bookkeeper

Accountants are accountants and we can’t help using accounting jargon. However, if you are not an accountant you should expect to understand what your accountant is explaining. You are paying for their expertise and advice. Some accountants are better able to explain themselves in writing as opposed to verbally so ask them to send you an email for clarification if you don’t understand. Ultimately, you want a relatable accountant that you can work with to help your business succeed.

 

Their fees are too high or you receive unexplained bills. 

Most of the time you get what you pay for, but if you feel you are paying your accountant too much it doesn’t hurt to get quotes from other accounting firms to compare. There is a chance, however, that your accountant is raising his prices because he wants you to leave and he needs the high fees justify your account. If that is the case, you are probably better off looking for a new accountant.

 

The accountant doesn’t call you back or return your emails

Most of the time when you contact your accountant it is for something very important. An unreturned call or email can cost you money depending on the urgency of the request. If your accountant is not communicating quickly enough it is probably because his office is too small to handle your account, he is just too unprofessional or he just doesn’t care enough about your business. Regardless of the reason not returning calls and emails is poor customer service and would be a good reason to find a new accountant.

 

If you can think of any others reasons to change accountants, please leave them in the comment section below.

 

 

 

After You Make the Sale Don’t Forget to Collect the Money

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Collections

You closed the deal and you made the sale. Great!

But if you made the sale on terms, your job is not finished. A successful business can close down if it runs out of cash. If you sell on extended terms, sooner or later (hopefully sooner), you will realize that your increased revenue does not mean increased money in the bank. You have to make sure you receive payment in an agreed upon amount of time.

Money

Photos Used With Permission

 

For this reason, as a small business owner, you should have your bookkeeper run and monitor the Aged Accounts Receivables report on a regular basis (monthly at a minimum). An Aged Accounts Receivables report shows you how much money you are owed by each customer and the age of the account. The report is typically broken down into columns of less than 30 days old, 31-60 days old, 61-90 days old and over 90 days old. Some accounting software systems, like QuickBooks, will let you manipulate the columns to show different categories.

Why do you need to be diligent in reviewing your Aged Accounts Receivables report? Selling on terms comes with a cost. As long as the money remains unpaid to you, you can’t use that money to pay your employees or buy supplies. If you have a line of credit, you don’t have the money to pay down the line which cost you interest. Also, the longer the account remains unpaid the less likely you are to see the money because it may mean they are having financial trouble.

 

Related: Don’t Neglect the Bookkeeping

 

I am not suggesting that you not sell on terms. A lot of businesses couldn’t operate if they didn’t have accounts receivable. But I am suggesting that you or your accountant monitor your Aged Accounts Receivables report and act quickly on accounts to keep them from becoming too old.

If you are experiencing problems monitoring your aging receivables, contact me and I can work with you to develop a plan that will help you manage these accounts more effectively.

 

 

 

 

[schema type=”person” name=”Steve Webster” city=”Clarksville” state=”Indiana” postalcode=”47129″ ]

 

My Estimated Tax Payment Advice

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Taxes

Income tax systems in the United States are called pay-as-you-go-systems. That means you pay your income tax throughout the year either by having your employer withhold your tax and pay the government on your behalf or if you are self-employed, by you making estimated tax payments. Small business owners, which include S-Corp shareholders, and the self-employed have historically been less compliant which leads to a greater number of penalties and higher penalty amounts than taxpayers as a whole.

Estimated tax payments are required when you expect to owe at least $1,000 in the upcoming tax year after subtracting withholdings and the lesser of 90% of the tax on your upcoming tax year return or 100% of the tax on last year’s return.  For example, if you owed $10,000 in last tax year and you expect to owe $10,000 this tax year, and you have a spouse with a job or second job with anticipated employer withholdings of $9,000, you would not need to make estimated tax payments because you would have already paid 90% of your tax through employer withholdings. If you do not have any employer withholdings from a spouse’s job or your own job then you would need to make estimated tax payments of $10,000, $2,500 per quarter, throughout the year to avoid underpayment penalties.

 

Related: New IRS Reporting Requirement for Payroll Departments

 

According to accounting and tax research, one of the main causes of the underpayment penalty for the self-employed and small business owners is a lack of cash flow. The government requires quarterly tax payments on April 15th, June 15th, Sept 15th and Jan 15th next year. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due  a refund when you file your income tax return.

My advice to business owners and the self-employed is to make smaller monthly payments instead of making larger quarterly payments that may put your business in a tight cash flow crunch which can then cause an underpayment tax penalty. Smaller monthly payments can be more manageable and the IRS does not prevent you for doing so as long as the total quarterly tax is paid by each quarterly deadline. Check with your accountant and see if this method doesn’t save you money in the long run.

http://www.irs.gov/publications/p505/ch02.html#d0e5961

 

 

 

[schema type=”person” name=”Steve Webster” city=”Sellersburg” state=”Indiana” postalcode=”47172″ ]