Patricia Anderson No Comments

It’s Bonus Time

Year-end is a great time to think about rewarding your staff for a job well done in 2014.  Here are a couple of quick tips to help you make the most of bonuses while protecting your business and cash flow. Read more

  1. Timing.  Would you be better off timing bonuses in this year to reduce 2014-year taxes or to wait until next year so they impact the 2015 tax year?  It’s something to consider before you dish them out.  Do what’s best for your business.
  2. The pretty holiday envelope.  It might be tempting to hand out envelopes of cash but it’s oh-so illegal.  Making payroll in cash is illegal in most states, and bonuses are part of payroll.  Stick to the payroll system to generate your bonuses even if it’s boring, and you’ll stay out of trouble.
  3. Pesky deductions.  Bonuses are subject to payroll deductions just like any other payroll check, so please don’t forget that.  If you write a check for $1,000 to an employee, you will be liable for taxes on the gross-up, and this ranges between 20% to 30%.  So that $1,000 bonus just turned into $1,200 or $1,300, which is quite generous but might not be what you really meant!
  4. Sticking around.  Bonuses are a great motivator and can help keep employees from leaving, thereby reducing your turnover costs.  If possible, announce a bonus structure ahead of time so employees will have something to work toward and “earn.”
  5. Invisible costs of bonuses.  Bonuses will drive up your workers compensation, state and federal unemployment costs, and any other costs that are related to gross wages, so do take all of that into consideration when issuing bonuses.
  6. Beyond money.   Money is a great motivator, but you may want to provide non-cash bonuses to your employees for extra special memories.  If you do, your tax accountant can help you get the transaction recorded properly.         

Bonuses are fun for everyone, and we hope these tips will help you make the most out of them in your business.

Patricia Anderson No Comments

Catching Up with Your Contractors Before 1099 Time

In a little over a month, it will be 2015 and time for year-end accounting chores.   One of those chores is getting your 1099s out, and now is a good time to tie up loose ends so the year-end process can go smoother.  Read more

Here are some tips to do just that:

  1. Go through your vendor list and make sure each contractor that you are paying is marked in your accounting system as a contractor eligible for a 1099.
  2. Obtain a W-9 form from each contractor if you haven’t already, and update the address and federal EIN for each contractor.  This will ensure that you have the most current information for each contractor and that they will receive their 1099 promptly.If you need to make any changes in the way you are paying them or withholding taxes, you’ll have a chance to update that information as well.
  3. Ask your contractors for a worker’s compensation certificate.  If you don’t have one, you might need to add their payment totals to your payroll amounts on your worker’s compensation audit worksheet.
  4. If your accounting system doesn’t break out payment type, you’ll need to do that on a separate spreadsheet before you input the 1099 amounts.  Contractors paid with a check will require 1099s.  Contractors paid via PayPal or credit card will not.   If you have paid them both ways, you will need to break it out.  You can do the bulk of the work now and post the remainder of the year after year-end.
  5. Consider re-evaluating each contractor as to whether they meet the employee versus contractor tests from the IRS.  If you are accidentally misclassifying a contractor who the IRS defines as an employee, you will be responsible for social security, withholding, and other payroll taxes, which can add up to huge numbers for small businesses.This is a “red flag” area for the IRS, meaning they are looking to “bust” employers.  However, they also have a Voluntary Classification Settlement Program for people who have been misclassifying workers in the past and want to come clean.

Following these five steps will put you in great shape for year-end.  And if you need help catching up with your contractors or with any related issues, please let us know.

Patricia Anderson No Comments

What Is Real-Time Accounting (and Why Should You Care)?

Real-time accounting is when your books are caught up to the present and you know exactly where you stand with your account balances, revenue, and profit.  It’s truly doing your accounting in real time. Read more

The opposite of real-time accounting is getting your books done once a year (or worse, being years behind).  When you wait to do your books once a year, say at tax time, you lose the power of being able to monetize opportunities in real time.   Some examples are realizing your prices are too low and your profit margins need adjustment, seeing what’s selling well and restocking sooner than later, or discovering a worker is not productive based on your pay rates and prices.

Today’s cloud accounting systems and bank feeds allow you the potential for real-time accounting, where the benefits include:

  • Better cash flow management
  • Faster correction of pricing, hiring, stocking, and margin mistakes, saving money and increasing profits faster
  • Faster identification of any tax liabilities as well as the ability to reduce or eliminate penalties from paying late or underestimating taxes due
  • Ability to see whether you are making a profit or a loss
  • Potential to catch fraud or identity theft much faster if you become a victim
  • Lower accounting costs when errors snowball over time
  • More peace of mind
  • Ability to be more proactive in your business management, capitalizing on opportunities that show themselves in the numbers

Consider moving to real-time accounting if you haven’t already.  For example, if your books are done annually, moving to quarterly or monthly services will begin to provide the advantages listed above.

Patricia Anderson No Comments

How Understanding Assets vs. Expenses Can Make You Rich

Assets and expenses both have a “debit” balance on the financial statements, but that’s where their similarities end. Spending on one can make you rich and spending too much on the other can leave you broke.  Read more

An expense is money you may need to spend, but after a year, there is nothing lasting to show for it. An asset is a tangible resource that is still worth something after a year or more and that belongs to you or your business. The best assets grow in value over time, but some lose their value too. Real estate typically goes up in value, while a car loses value, or depreciates heavily, in its first few years.

The best example of an asset versus an expense is spending on a mortgage versus rent. When you pay a mortgage, you own more of the property than you did last month. One day, you can sell your ownership in the property and get cash or another asset in trade. When you pay rent, there’s nothing left at the end of the month. There’s no accumulated value.

Generally speaking, spending on an asset builds or at least better preserves your wealth. Spending on an expense drains your worth because you don’t own anything at the end.

The path to building your wealth is to spend on assets when you have a choice and minimize expenses when you can.

In the book “The Millionaire Next Door,” one of the top examples to build wealth is to avoid replacing your car as long as you dare. It used to be a habit for some families to replace their car every two years. With today’s reliable models, you can go between five to ten years without having to replace your car. Although a car lasts more than a year and is considered an asset, it still loses value every year.

Investing in assets and reducing expenses will build your business’s net worth and increase profits. Look for ways you can apply this to your business and watch your money grow. As always, reach out if you’d like to know more.

Patricia Anderson No Comments

What’s Your Hourly Worth?

Time is the most precious resource on the planet, but sometimes we don’t treat it that way. In our businesses, it’s important to get everything done, but we can also get overwhelmed with all the little things that need to be done to take care of customers. Read more

One of the big differences between highly successful entrepreneurs and less successful ones is how they manage their time: the more successful simply value it more and treat it as the scarce commodity it is.

A great exercise to bring this home is to track what you do in one day. You can write a diary as you go through the day or simply recall what you did at the end of the day. List the tasks you did; then write the hourly market rate of each task you did next to the task.

Did you spend time on low-level tasks such as email cleanup, filing, order-taking, order filling, or handling routine customer questions? Or did you spend time calling up power partners, dreaming up new products or services, or restyling your marketing message so that it’s more impactful and reaches more customers?

What was the average hourly rate of the tasks you did today? Multiply that by 2,000 hours and compare it your gross revenues. If your gross revenues were higher than the value of the tasks you did today, then your revenue might be stagnant. If your annualized day was worth more than your gross revenues, then congratulations; you’re moving up and giving yourself a raise. Your business is likely growing.

If you’d like a raise, then the first thing to do is to start delegating the lower level tasks that are eating up all your time. They might be a comfortable way for you to pass the time, but they could also be keeping you stuck, overwhelmed, and moving toward burnout.

We all have the same amount of time each day. If we can free up our time to focus on more powerful action items that move our business forward instead of the chores that clog our progress, then our success will accelerate.