Archive for the ‘Uncategorized’ category

Reduce Payroll Tax Expenses with an S-Corp

May 17th, 2017

Payroll taxes are a large reoccurring expense for most employers. How can they be reduced? Setting up your company as an S-Corp may be your best solution.

As an S-Corp, the owners can take an additional percentage of their payroll-based income as straight disbursements. These disbursement allow you to avoid the employer side of the federal payroll taxes on the disbursed amounts. Speak with your CPA about determining the maximum percentage amount you can legally take.

Other than that, you are stuck with whatever payroll taxes your employees generate. But remember the total payroll tax expenses include each employee’s tax as well as the employer contributions. That number may look large to you, but realized that these employee tax amounts are not your expense, they are part of the compensation to your employees, who are the ones actually paying it. Only the employer side of taxes are a tax expense to your company.

Solid Growth Accounting Services Wins Another Award!

March 15th, 2016

Thumbtack Award 2016Solid Growth Accounting Services wins another Best of Award from Thumbtack based on customer reviews. This makes two years in a row. Thanks for the recognition, Thumbtack!

5 Ways to Improve Your Biz in 2016

November 25th, 2015

5 Ways to Improve Ur BizThere’s a new year coming, representing a new cycle and a new beginning. And that means it’s a good time to put into place the strategies, techniques and tactics that will move your company’s position forward to that next level of success. You know you want to make it happen, so get ready to make some changes. Here are five good ways to make 2016 the best year ever.

1. Stop multitasking

The fact is that multitasking causes you to be less productive, not more. Your brain can only do one thing really well at a time, and being good at multitasking is really only just being good at switching back and forth quickly. Focus all your attention on the one task at hand and only switch to the next when it’s completed.  Try turning off everything that distracts you in your office for at least part of the day, and then don’t just get busy, get working.

2. Stop doing everything yourself

Change your organizational structure from a wheel to a hierarchy. Your business can’t grow if everyone works for you, and all decisions need to come through you.  Create an organizational chart with you at the top and your employees, contractors and consultants below you in a tree-structured hierarchy. Who are your “captains” and who are your “soldiers”? But remember, no matter what title you bestow, everyone is “hands-on”, because after all this is small-business.

3. Improve your team

Once your business has grown to the point of needing employees, you will want to continue to grow it by establishing a superior team. Only hire the best people, and pay them well. This is your best place for leverage so plan on paying more. If you want to get the best people, typically, you need to pay in the top 10%. And to keep them you’ll have to challenge them, motivate them and demonstrate your appreciation. Yes, you will be a manager.

Take your time hiring the best person for the job. If an employee is not working out, fire them in the first month. With proper training, few people’s general effectiveness changes after a month. Remember the old adage, “Be slow to hire and fast to fire”.

4. Stop trying to use social media to sell your products or services

Use social media for customer service and to build prospect relationships by answering questions in your company’s area of expertise. Use your social media properties to establish yourself as the go-to authority in your niche. The business will search you out. Then put on your salesperson-hat and close the deal. Don’t expect anything more.

5. Do not outsource the math

Commit to understanding every number in your three key financial reports; the profit and loss statement, balance sheet and cash flow statement. Insist that your accountant explain and review them with you every month. If you do not understand where your business has been, you can’t forecast where it is going. It’s better to make all your business decisions based on the hard facts of your company’s performance, not a hunch or your “feel” for where you are.

Controlling Overhead Costs

May 22nd, 2015

Overhead CostsThe cost of overhead can put your company in an uncompetitive situation due to the buildup of excessive expenses incurred in the running of your company. Without a breakdown of costs into production and overhead categories, you might not realize how much you’re actually spending on the operations side of running your company. Regular financial reporting and budget variance analyses will help to maintain the appropriate cost structure in a sustained fashion.

Overhead

The costs you incur to run your business and sell your product make up overhead. These are expenses you have even when you aren’t making your product. They include expenses such as rent, marketing, phones, insurance, administrative staff, office equipment, interest, office supplies, etc.

Identify All Overhead

The first step in determining your overhead is to identify it. If you don’t record every expense you have on a budget sheet or other financial report, do so. Start by creating production and overhead reports. Production expenses are costs that apply directly to making your product, such as materials and labor. Next, break down your overhead by function, such as marketing, human resources, information technology, office administration and sales.

Create a Purchasing Process

Assign one person to review and approve purchases so that they can see all expenses that are planned to be made before they are paid. Set policies for spending, such as requiring competitive bids for purchases over a certain dollar amount. Have your purchasing manager shop for better deals on common items you buy. Consider offering a bonus if your purchasing agent meets specific savings targets without sacrificing quality.

Review Contracts

If you outsource functions or sign leases, rebid your contracts annually, even if you end up using the same vendors and suppliers each year. Rebidding contracts prevents longtime contractors from inflating their fees, or encourages them to offer more services to keep your business. Frequently this will result in lower costs. A multi-year contract will usually favor the vendor. So, if you haven’t shopped your insurance in the past two years, do so, and discuss with your current provider how to reduce your premiums. Ask your utilities providers to visit your workplace to perform an audit and recommend how you can cut your monthly water, gas and electric bills. This annual process is a lot of work, but it sure pays off.

Improve your bookkeeping and accounting practices

From the start of the business, ensure that your accounting reports keep you aware of spending and revenue. This will help you analyze where you have over spent and where you can cut down on unnecessary expenditures. Well organized and up-to-date books have benefits beyond tax issues.

Technology will help improve productivity

There are many cloud-based tools now that will help your business save money, such as online invoicing, project management and others. Most vendors will offer a free trial period. The resulting efficiencies will reduce overhead costs.

Keep the head count constant

Efficiency is gained when revenue per employee grows. Technology, lean techniques, process engineering, etc. all are ways to free up time so employees can become more productive without having to add new headcount to grow. What if you could replace your lowest 10% of performers with new people that matched your top 10%? This would result in a huge productivity boost at virtually no incremental cost. There are a lot of techniques to improve productivity, but the point is that constantly growing headcount certainly will result in overhead growth that won’t necessarily result in profitable revenue growth.

Contemplate hiring freelancers or contract employees

There are certain functions in almost any business that can be outsourced to reduce the cost of space and other overhead. If you are hiring a full time employee, there are payroll expenses, health insurance and other costs that may be associated; this will slowly eat into profit.

Keep an eye on energy consumption

Switch off lights and other equipment when not in use. This might reduce energy consumption by 20%. If possible, use laptop computers instead of a standard desktops. Laptops consume approximately 80% less energy.

Reduce your phone bills

Use Skype, Google Chat or other chat services to get in touch with your employees or freelancers. You can also use web conferencing tools, such as GoToMeeting, to meet with clients online or make a presentation. It will significantly reduce your travel cost.

Ask vendors to own “their” inventory

Have vendors keep title to their inventory until sold. Normally inventory acquired from a vendor is held in your warehouse for use in manufacturing or resale to your customers. But why think of it as your inventory? It hasn’t been used yet so why can’t it still be their inventory? Best planning results in “just-in-time” delivery so there is no inventory. But this isn’t always possible, for instance, in industries like retail where a certain amount of inventory is necessary for your customers to by when they walk into your store. But again, why are you paying them and then sitting on their inventory? They need to own the inventory until time of sale.

A dollar gained in revenue is a very good thing assuming it leverages the current cost structure. But remember, only a small portion reaches earnings. A dollar saved from cost, however, goes directly to the bottom line. So while focusing on the top-line, don’t forget to engage in a systematic approach to controlling costs as a way to ensure long-term value creation.

5 Clean-Ups for Your Books at Tax Time

March 1st, 2014

Tax Time ClockYour best effort to organize your books always falls by the wayside because something more urgent (or more enjoyable) comes along.  As a self-employed, unincorporated, or home business owner, can your business survive a tax audit? Is your record keeping system setup to increase the likelihood of a smooth flowing audit (it will happen eventually)? If you do your own bookkeeping, do you know if you are following good practices? Do you know what common bookkeeping errors to avoid?

If you’re serious about minimizing your business taxes, the first things to do are to clean up your books and get them up to date.  The first place you can save money related to taxes is by not being charged by your tax preparer to sort through a year’s worth of disorganized invoices, bank statements and receipts. Below are five things you can do to avoid paying extra for your tax preparer’s time, and/or to minimize the expense of an audit should this be your unlucky year.

1. Separate Your Business and Personal Finances
Find areas where you’re mixing business and personal finances, something you should always avoid. The temptation to mix your finances is huge, especially given the trend toward more sole proprietorships. The vast majority of businesses are sole proprietorships launched with credit cards, home equity lines of credit, and other personal financial resources. But this is all the more reason to be very disciplined about keeping things separate, as these kinds of companies are among the most commonly targeted for an IRS audit.

When you commingle funds, the true performance of your business quickly becomes hard to pin down. It’s a challenge to establish hard numbers for expenditures and revenues. Your and tax filing becomes more complex (and expensive due to added hours required).

The benefits of keeping clean books include potential tax advantages in the deductions you won’t miss. Keeping clean books can also keep you under the IRS radar, thus avoiding “distracting” audits. Additionally, it just makes good business sense at a strategic level because well-organized books provide clarity about the true performance of your business so you’re better equipped to make important decisions, impress lenders and investors, attract partners, and potentially sell the business for top dollar.

There are many circumstances where you’ll be confronted with choices to make about mixing personal and business finances. For example, you might have to use personal credit to purchase assets, or you might have to move money from a personal account to a business account to cover a shortfall. Perhaps you’ll need some extra cash personally and will want to take that cash out of the business. The key is making sure that you do this in a completely organized and well-documented way to minimize any negative impact.

2. Reconcile Your Bank (and Credit Card) Statements
Reconcile all of your business bank statements through the end of December. Since the review of bank statements is part of any IRS audit, you want to make sure that you don’t miss any transactions that are relevant for the tax year.  

The business checking account in your books contains a record of the transactions (checks written, receipts from customers, etc.) that involve all of the checking account activity. The bank also creates a record of the company’s checking account activity when it processes the company’s checks, deposits, service charges, and other items. Soon after each month ends the bank provides you with a bank statement. This statement lists the activity in the bank account during that month as well as the ending balance. Verify that the amounts on the bank statement are consistent with the amounts in the company’s books and vice versa. This process of confirming the amounts is referred to as reconciling the bank statement. The benefit of reconciling the bank statement is that you need to know that the amount of money reported in your books is the same as the amount shown in the bank’s records.

Because most companies write hundreds of checks each month and make many deposits, reconciling the amounts on the company’s books with the amounts on the bank statement can be time consuming. The process is complicated because some items appear in the company’s checking account in one month, but appear on the bank statement in a different month. For example, checks written near the end of September are deducted immediately on the company’s books, but those checks will most likely not clear the bank account until early October. Sometimes the bank decreases the company’s bank account without informing the company of the amount. For example, a bank service charge might be deducted on the bank statement on September 30th, but the company will not learn of that amount until it receives the bank statement in early September. From these two examples, you can see why there will likely be a difference in the balance on the bank statement vs. the balance in the company’s books. It is also possible (perhaps likely) that neither balance is the true balance. Both balances may need adjustment in order to report the true amount of cash on hand.

After you adjust the balance per bank to be the true balance and after you adjust the balance per books to also be the same true balance, you have reconciled the bank statement. Now do the same for your business credit card statements.

3. Automobile Expenses
Automobile expenses can be a major expense for a small business. You should maintain a log to keep track of where and when business travel occurred, who was seen, and what was the business purpose of the trip. While some individuals only track business use, I recommend keeping the log for all auto expenses, since those who itemize their deductions can also deduct transportation as a medical expense, and as a charitable contribution deduction if active in a charity. The business tax returns will want to know when you placed the vehicle in service, and the amount of the business, commuting and personal miles for each vehicle for the year. And if you are audited, your business travel log will be scrutinized and compared to the business appointments shown in your calendar and other journals you should be keeping. Just keeping a mileage log without notes and explanations will not be acceptable.

4. Non-Employee Compensation
You should review your records on the independent contractors you have paid to see if the government must be notified of their non-employee compensation. Employees receive a W-2 form to identify their income and withholding tax. Similarly, independent contractors who make $600 or more receive form 1099-MISC from you, with the federal and state governments receiving a copy. Contractors who are corporations are exempt from receiving this form, but individuals, partnerships and limited liability companies must receive them. If you wait until year-end to obtain the contractor’s social security number or employer identification number you might not be successful in obtaining that required information. Have your contactors fill out form W-9 to give you the needed information.

5. Check for Inconsistencies, Reasonableness, and Discrepancies
Having your bank statements reconciled and having your financial information up to date, will give you an appropriate starting point to check for general accuracies, or inaccuracies, in your books.

Before sending your information to your tax preparer, perform some type of reasonableness test on your income statement.  If you see something that doesn’t look right there is a good chance that it isn’t.  Make sure to investigate all items that do not meet these tests and ensure that there is a good explanation for each of them.  A common error is to have the same items reported in December and in January.  One method to analyze the books and find errors is to review income statements and other financials on a month to month basis, where inconsistencies are more easily identified.

Finally, run a balance sheet for the last day of the year and compare this against the balance sheet you provided to your tax accountant for your tax return last year. If any account balances have changed from amounts entered on your prior year return, make sure to identify what has changed.  Doing this yourself will save you money since your accountant will charge you to do it as part of your tax preparation.  To minimize tax issues, try to identify discrepancies and bring them to the attention of your tax preparer.

So schedule time on your calendar now to work on these items and decide now what your deadline is to getMoney Down the Drain your books and records ready for tax season. If this process is painful for you, remember that it’s easier to file your business records and update your and bookkeeping system on at least a monthly basis. If you stick to a regular schedule then next year at this time you’ll be ready for tax season.  Then again, your best efforts to organize your books may still fall by the wayside because something more urgent (or more enjoyable) comes along.  If that’s you, contact me as I can take all this pain away, and your books will be clean, accurate, up to date and ready for your tax preparer to spend the least amount of time(and money) on your returns.