Accounting Advice from Big Business

     It’s hard doing everything for your small business, especially making time to sit down and do the books. Larger companies have an advantage in this area.  They have the capital to hire financial experts that manage their financial efficiency.  Here are 7 practices to borrow from bigger companies to manage your own business’s finances. 

1. Renegotiate your payment terms.  30 days is no longer the universal standard.  Extend your payment terms to 60 or 90 days.  Try to settle these terms beforehand, avoid breaking payment agreements.  However, if cash flow is a major issue, communicate with your vendor that you’re extending payment terms unilaterally by 15 days and stay within those terms.  Most vendors will be accepting of this.

2. Get paid upfront.  Larger companies aren’t known for extending credit to customers. As a small business owner, you deal with people on a more personal level in the day to day.  Just remember that credit is a privilege and extending it is risky for most everyone these days.  Make sure you accept credit cards, electronic transfers or electronic checks so there are no excuses for not making a payment up front. 

3. Follow up on invoices.  Larger companies most always have a follow-up plan after sending an invoice.  A call or an email to confirm your invoice was received and when payment is to be expected.  If the payment doesn’t arrive when scheduled, make another reminder call.  If you’re not necessarily good with keeping track of accounts, account apps can help with reminders for you.  Most people want to pay their bills on time, sometimes they can just get lost in the shuffle of everyday business.  Follow-up action almost always increases cash flow.

4. Extend your cash flow by paying with a credit card.  Paying an invoice with your company credit card when it is due (about 30 to 90 day) will give you an additional 30 days of cash flow.  This only works if the credit card bill is paid monthly and not used as a long-term loan.

5. Bill on time.  At minimum keep a monthly billing schedule.  This will help keep your cash flowing.  Don’t wait until the end of the month to bill, either.

6.  Move to a different state.  All states are not equal when it comes to corporate taxes.  Lots of larger companies move to states where these are the lowest.  The highest tax burdens are found in Tennessee, Arizona and Louisiana.

7. Careful accounting tricks.  With the advice of an accountant, you can learn some tax strategies that large corporations use.  

     — Treat certain operating costs as investments.

     — Change the depreciation policy.

     — Sell equipment like computers or machines (fixed assets) and recognize the income as normal sales.

     — Recognize the income of a long-term contract in one lump sum rather than when it will actually be realized. 

Escape These 5 Common Retirement Pitfalls

If you’re already contributing to a 401(k) or other retirement account, superbly done!  Pat yourself on the back, because there’s one thing about saving for retirement— it’s easier the earlier you start. Making contributions regularly will certainly help fluff your retirement pillow, but few actually have a savings goal in mind.  Knowing where you’re headed is half the battle, along with avoiding these other common retirement pitfalls.

1. Not knowing how much you need to save.  Many people have not even considered the actual number they need to reach in order to live comfortably after retirement.  You can use an online calculator, or talk to a financial planner. The number, at first, may be overwhelming, but remember that you have compounding growth on your side.  Having a goal to reach may ignite a newfound passion to make regular contributions.

2.  Not knowing how much you spend.  To better understand a retirement budget, you’ll need have to have a grasp on your current budget.  If you don’t know how much your spending on a daily, weekly, or even monthly basis, you probably won’t know where your money is going in the future.  Start tracking your spending in order to come up with a plausible retirement budget.  Keep a meticulous record for a few months, then sit down and estimate which of those costs could fluctuate up or down in retirement.  Expenses for children will likely drop, along with your dry cleaning bill or commuting costs.  Big bills such as mortgages are likely to be paid off as well.  However, keep in mind the type of lifestyle you’d like to lead once retired.  More travel, more leisure costs, etc.

3.  Not accurately budgeting for health care.  Before the word “Medicare” falls from your lips, stop to think about what won’t necessarily be covered.  Most eye exams and dental care, as well as any long-term care, aren’t covered under Medicare.  There are tools you can use, such as AARP’s health care costs calculator, that will help you estimate out-of-pocket costs you might incur.  

4.  Guaranteeing losses by responding rashly to market fluctuations.   It’s easy to panic when the stock market takes a nose dive and change your mind to a safer bet.  However, if you respond to losses rashly, you won’t be around for the gains, either.  Converting some of your holdings to cash doesn’t provide growth.  The best way to protect yourself is by diversification.  Talk to an investment planner and they can help you further diversify your portfolio beyond just stocks, bonds, cash.

5.  Keeping your head in the sand about fees.  Many financial institutions charge fees for their 401(k)s.  Some charge flat fees, others percentages, but the bottom line is you need to know what you’re paying.  Until the financial planning industry wins it’s battle for transparency when it comes to fees like this, you may have to search the fine print.  Paying even a 2% can wind up being a huge chunk of your savings.  Typically fees up to 0.5% are considered reasonable.

Getting to your retirement goals isn’t rocket science, but it does require some careful planning. Educating yourself and knowing what to plan for will help you achieve the comfortable retirement you’ve worked so hard for. 

Starting A New Business? Beware of Any Old Business Debts

     Making the move from a sole proprietorship or partnership to an LLC or Corporation is a smart business move.  It protects your personal assets from being threatened against business debts.  Unfortunately, any old business debts accrued before the conversion means your personal assets can still be threatened from that time.  Often if you don’t pay off your old debts before forming the new corporation or LLC, or pay them down in a timely fashion after the conversion, creditors could potentially go after your newly formed business to pay off your old debts.

What’s in a name?

     Being adamant about only using your new corporate or LLC name for business transactions is essential.  Sign all contracts and checks under your new name.  In order to fully establish all that’s required to retain the benefits of LLC status, call the bank where your business holds an account to learn exactly how to endorse your checks.  It is usually using the company’s name, or your current position.

     Its also a very crucial step to change your letterhead, any marketing materials, business licenses and permits, etc. to clearly state your new status.

Notify Clients and Suppliers.

     As soon as the conversion to a corporation or LLC is completed, your new priority is to send a notification letter to your customers, suppliers and clients notifying them of your new business structure.  Make note in the letter that business conducted moving forward should be done using your new name, which can be the same as your old, just tacking “LLC" or “Inc." to the end.

Formalities, please.

     It is important now to distinguish your new corporation or LLC as a separate entity from you.  One of the main guidelines is to have regular meetings as per your structure’s bylaws or operating agreement and to document these meetings.  Following the formalities of your business operation deters creditors from potentially claiming your new structure as a sham to avoid them.

Build your Business’s Credit

     It may be hard to get a credit line or take a loan out from a bank without making a personal guarantee, which is something you want to avoid.  Unless you can prove to the bank that your cooperation or LLC has enough assets to cover the debt, they may want to have your personal signature.  Just as you would work to build your personal credit, you can establish your corporation’s or LLC’s credit.  You can either take out a couple business credit cards, or establish a trade lines of credit with your suppliers.  If a vendor won’t work with you without a personal guarantee, you can usually find someone else who will, especially if you can offer an upfront payment for the first few transactions.

     There are a few ins and outs to operating as a corporate or LLC business structure.  As long as you are aware of the regulations and operate accordingly, you can enjoy the benefits of a corporate or LLC structure and your personal assets will remain protected.

Christmas Came Early - Know Your Tax Return Today!

Most people have a steady paycheck that they rely on, this can be true for many people along many different industries. A good tip that I offer my clients is to look to the past to know what will happen in the future. Taxes don’t really change much so as long as you have a consistent paycheck and your deductions are the same as last year’s then you should have a pretty good idea of what your tax return is going to be next year.

Have things changed since last year? Did you make any significant lifestyle changes such as: getting married, buying a house, retirement, new employment? If the answer is yes to any of those questions, then your taxes will be probably much different and you’ll need someone to help you ensure you are getting all the deductions needed.

Most simple taxes can be done and filed on your own, however if you have one of these big changes happening in your life you may to make sure that you have a tax accountant or an expert to ensure that you get the maximum deductions. Some people like to think that they can take shortcuts and save money by doing it themselves, however - hiring an expert can save you more. Sometimes covering way more, typically taking care of the fee you’re paying a tax consultant and also a bigger return.

Black Friday & Tax Deductions for Your Business

Black Friday is here, and with it a very crazy shopping season. You may be spending quite a bit of money on different gifts but one of the biggest selling categories during this season is electronic devices such as computers, tablets and smartphones.

When you are making your purchases this season, think of what are some of the things you could purchase for your office or work. Big ticket items like electronics, sometimes cost hundreds of dollars and could hold a tax write off. However, you need to be careful if you use these items for personal use since this could potentially get you in trouble with the IRS if you claim them as a deduction.

We found an excellent article by Entrepreneur magazine that details what consists personal use since this can sometimes be a gray area.

Some of the highlights from the article include:

"Tax Write-Off: Cell Phone Bill

If you use a cell phone as part of your business, this could be a big deduction for you. So don't make the mistake of mixing business with pleasure by sneaking too many personal calls onto your cell phone bill.


* Expert Opinion: "Because of the way a cell phone can be used, it's come under scrutiny, so people need to keep good records and keep their actual telephone bill so they can demonstrate that a majority of the calls were business calls,"

 * How to Do It Right: Take a look at your cell phone bill to make sure you receive an itemized report. Because cell phones are considered listed property, you need to keep detailed records of their use. In the case of a land line, it's a good idea to have a separate phone number for your business since the IRS won't let you allocate the cost of a single phone in your home to your home office.

Tax Write-Off: Home Office Computer


It's not a good idea to mix your business world with your personal life. So experts recommend never using your home office computer for personal tasks if you can help it.

* Expert Opinion: "If this is the only computer in your house, you'll have to calculate the percentage of total time you use it for business purposes,"

* How to Do It Right: Ideally, your best option is to purchase a laptop and dedicate it to being your personal computer. This way you can avoid any messy situations come audit time."

In other words, it’s never really a good idea to mix personal use of electronics when it comes to taking them as a tax deduction, but if you choose to get something with the intention of using it exclusively for work then by all means we encourage you to save some money this Black Friday and hopefully get a nice deduction once tax time comes around.


For more tips and tricks don’t forget to visit
www.AccountingWorksSolutions.com
or give us a call at
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To read the full article from Entrepreneur Magazine click here