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.
- 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.
- 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.
- 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!
- 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.”
- 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.
- 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.
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.
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.
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. 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.
The Balance Sheet is an important report in your business’s financial statements. Most small business owners are unsure of what all of the numbers mean on this report, so let’s see if we can shed some light on what they mean.
A Summary of Balances
One big characteristic of a balance sheet is that it represents one date in time, for example, 12/31/2014. The numbers represent balances, and since the balances change daily, a balance sheet only represents one point in time versus a range.
There are only three parts to a balance sheet, and the easiest part to understand is the assets, or what you own. Most balance sheets start off with cash balances, and these typically represent what you have in the bank less any uncashed checks that could reduce your account once they come in.
If customers owe you money that you have invoiced but not collected, you might see an Accounts Receivable balance on your balance sheet.
If you sell products, the cost of all of them that you haven’t sold yet and that you may have stored in a warehouse is in the Inventory account.
If you own equipment, furniture, cars or trucks or something similar that lasts for years, you will have a balance in Fixed Assets for what you paid for these items. If it’s been a while since you’ve owned them, you may have a Depreciation account, and when you net the two, your Fixed Asset values are reduced.
All of the above are assets and they are listed in the first section of a balance sheet.
What You Owe
If you owe money for taxes, to vendors, or to employees, then it will show in the Liabilities section which is the second of three major sections of a balance sheet. Day to day unpaid bills are in an account called Accounts Payable.
If you have bank loans, they usually each have a separate account like a bank account does. Each bank loan account represents the principal due on a loan (the interest you pay goes to another place).
The final section of the balance sheet is Owner’s Equity. It is the section that will vary the most depending on the type of entity your business is set up as. For example, if your business is a corporation, then there will be a common stock account which will represent the original amount of money you put into the business; it will match the Articles of Incorporation that you drew up when you incorporated. This amount will rarely ever change for the life of the business.
There is also usually an account called Paid-in Capital which is how much additional money you’ve put in or taken out of the company beyond the common stock balance.
A corporation will also have a Retained Earnings account. This reflects accumulated profit (or loss) through the years of operation.
If your business is set up as a partnership, the equity section will include an account for each partner that represents their balance in the firm, which is the net amount of money they have put into the business over the years plus or minus the business income or loss through the years.
Keeping It Simple
These are the very basics of the numbers represented on your balance sheet. If you have questions about any of the numbers, please feel free to reach out and ask.
The technology side of the accounting industry is rapidly changing and expanding. Literally hundreds, if not thousands of new companies and new software applications have sprung up to help small businesses automate their processes and save time and money.
The best way to profit from all of this innovation is to first identify where you can best use the technology in your business. Here are three places to look:
1- Paper Chase
What business tasks are you still using pen and paper for? Look what’s on your desk or in your filing cabinet in the form of paper, and that will be your next opportunity for automation. For example, are you still hand-writing checks? There’s an app (or two) for that.
Sticky notes and to do lists have been replaced with Evernote. Business cards you collect can go in a CRM (customer relationship manager). All of your accounting invoices and bills can be digitized and stored online.
Make a list of all the manual and paper processes you do every day and look for an app that can make the task faster for you.
2- Fill the Gap
Take stock of what systems you already have in place. The opportunity to fill the gap is where you might have systems that should talk to each other but don’t. If you need to enter data into two different places, there may be a chance to automate and/or integrate the systems or data. For example, your point of sale or billing system should integrate well with your accounting system. A few other examples include accounting and payroll, CRM and accounting, inventory and accounting, project management and time tracking, and time tracking and payroll.
The more your systems integrate and work as a suite, the better.
It could be you have your systems automated, but the systems are not the best choice for your business requirements. If your systems don’t meet many of your business requirements, it may be time to look for an upgrade or a replacement.
If you are performing a lot of data manipulation in Excel or Access, this might also signal that your systems are falling short of your current needs. Look where that’s happening, and you will have identified an opportunity for improvement.
Look in these three areas in your business, and I bet you’ll not only find an app for that, you’ll also find some freed up time and money once you automate.
Getting payroll done has gotten so much easier than it used to be for small business owners. But there are still some minefields when it comes to state and federal compliance. We’ll take a look at six of them in today’s article.
1- Business or Personal?
A great admin might want to help you in any way they can, including personal errands. But time spent having your admin fetch your dry cleaning and drug store prescriptions is not deductible as a business expense, even if it makes you more productive at work.
Be sure you separate your business payroll from personal payroll to avoid tangling with the IRS on this issue.
2- New Hire Report
It’s not every day that a small business needs to hire additional help, and the New Hire Report is easy to overlook. It’s due to your state within a certain number of days of your new employee’s hire date. Some payroll companies will file it for you, and some won’t, so it’s best to check so that you don’t make the common mistake of forgetting to file this report.
3- Worker’s Compensation
When you have employees, you need worker’s compensation. When you bring on your first employee, you’ll need to overcome this learning curve of figuring out what you need.
Even if you’re a veteran employer, you may have coverage holes in your worker’s compensation coverage. Do you have employees who work at home? Are you sure they are covered? In some states, employees have to be specifically named in the policy before they are covered to work at home.
Be sure you ask the right questions so there’s not a risky gap in this essential protection for employers.
There are both state and federal notices that must be posted for employees to be able to read. California is especially zealous and liberal about issuing fines (up to $17,000 per location) for employers that do not have their posters, well, posted on workplace walls.
5- Employee versus Contractor
The proper classification of a worker as a W-2 employee or a 1099 contractor has long been an area of scrutiny for the IRS. The IRS has rules as well as court cases that have established the guidelines that exist in this area.
If you classify a worker incorrectly as a contractor when they should be an employee, then you can be held liable for paying employment taxes on that contractor.
Bonuses can often be a spur of the moment thing or something that’s done at the very end of the year when we’re occupied with the busy holiday bustle. It can be easy to forget that the bonuses need to be run through payroll like all other wages so that the proper deductions and taxes can be calculated.
Use these six items as a checklist to avoid these common mistakes as well as reduce your business risk in the payroll compliance area.
Summer is a great time of year for most businesses to pause for just a little while to take stock, congratulate yourself on what you’ve accomplished so far this year, and make big plans for your future. Here are five summertime strategies to help you regroup, reassess, and rejuvenate your business.
1- Mid-Year Review
If your business runs by the calendar year, 2014 is already more than half over. This is a perfect time to stop and reflect where you’ve been, what you’ve accomplished, and where you want to go next. You can make this process as informal or formal as you want. Some firms hold complex retreats; you may simply need some quiet time on a weekend where all your family is busy doing something else.
If you’ve never done any planning and feel like you need a guide, consider the book, The One-Page Business Plan written by Jim Horan.
2- Take a Vacation
There’s nothing better to rekindle your creative juices than to get away from the business for a while. Summertime is when most people take vacation, so if your business is not having its busy season, this might be a good time to go away for a while.
If you’re anxious about being away from your business, you’re not alone. In your annual planning process, plan for and block out your vacation time way ahead of time. Book the reservations with no refunds several months in advance so that you won’t chicken out at the last minute. There is life beyond your business, and you will be a better business owner when you take regular breaks away.
Take time to pat yourself on the back and congratulate the people around you for the goals you’ve reached and the efforts your team has made on your behalf. We all could use more praise and more celebrations in our lives. Perhaps you can organize a party, or if you are not the partying type, a quiet word individually with your team can go a long way, maybe more than you know.
4- Prune Your Projects
Is your plate too full? Most of us would say “yes” to that question, so the next step is to ask yourself what you can afford to stop doing that doesn’t make sense. Is there a project or two that can wait? If so, decide to stop stressing about not getting it done and give yourself permission to put it on the back burner for now.
Ask yourself what one thing you could do today that will make all the difference in your profits, revenues, goals, or simply peace of mind. And get that thing done.
Try these five summertime tips to rejuvenate your business.
As an entrepreneur, you are responsible for shaping your business success. Any habits that sabotage your success in your personal life can often carry over to your business. Becoming aware of these is the first step to success.
Here are seven success-boosting habits to double-check against your own.
1. Being able to say “No.”
Do you say “yes” to too many things that don’t serve your life purpose, help your family, or move your business forward? If so, you’re not alone. Saying “yes” in a weak moment when you feel like you can do it all can be a downfall for many entrepreneurs. It can also distract you from success if you are not working on the right things for you.
You may need to re-evaluate the value of your time and your priorities. Practice making smart decisions by having a structure and a higher purpose that helps you decide what you should and shouldn’t do with your time, money, and life. And if you tend to be one of those who says “yes” to everything, you may need to practice saying “no” in front of the mirror to break your habit.
2. Hiring fast and early.
The best time to hire is just before you need your new team member. It can be easy to put off hiring if you fill with dread when you think about large stacks of resumes and endless phone calls. Not hiring soon enough can cost your business in reduced service and sales. The smartest entrepreneurs stay ahead of the game in this area.
3. Strategizing proactively.
How much time do you spend in reactive mode versus proactive mode in your business? Reactive mode includes answering emails, fighting fires, serving clients, and managing employees. Proactive mode includes developing new products and services, creating and implementing your revenue plan, and training employees.
Sometimes we have to really push ourselves to look beyond the daily fires. One way to do that is to plan time every day for proactive activities and be ruthless about keeping that time slot on the calendar.
4. Setting tight scope and polite boundaries with customers.
Successful entrepreneurs set clear boundaries when it comes to delivering their products and services to customers. Especially in service companies, it’s not always clear to the client what’s included in a fixed fee contract unless it’s clearly spelled out.
If you are asked to do something that’s not included in the contract, you now have a choice. Do you give it away for free, or do you have a change order process where you can easily provide an estimate for that extra work?
5. Measuring results.
Only what can be measured can be improved, and smart entrepreneurs know this. Track — in real time, not a year later — what’s important to you. New customers, new leads, closed sales, revenue per day, sales per day, monthly net income, certain costs, profit margins, profit per customer, profit per job, and profit per location are just a few of the many metrics you can choose to track for your business.
Once you measure it, you can now set goals to improve it.
6. Curbing irrational spending.
Invest in things that will last, such as your own education, great systems, team training, and assets that you really need. Avoid spending on items that are used up quickly, such as elaborate entertainment expenses that don’t generate significant revenue, excessive utilities, and stopgap equipment.
This area can be a tough one to evaluate objectively because there can be emotion and attachment involved in the spending. Let us know if you need help in this area; we can help you look at your spending with fresh eyes and provide a new perspective.
7. Maintaining focus.
Great entrepreneurs have clear focus. If you have too many projects going on at once, you end up delaying all of your project completion dates, and nothing gets finished. Ask yourself, what’s the most important thing I can do today? And work on that until it’s done. Then ask yourself the same question again, and wash, rinse, repeat your way to success.
Which of the seven habits are you best at? Celebrate your natural gifts while keeping an eye on the habits you need to work on. That will move you to the success you deserve.
Most of us spend a lot of time browsing the Internet, and that means using browser software. Google Chrome is the most popular browser with roughly 40 percent market share. Internet Explorer follows with about a 30 percent share and Firefox is third with less than 20 percent.
Since most people use Google Chrome, we’ll use that browser to describe our five productivity tips. If you don’t use Chrome, you can still look for the features we list on your browser of choice.
Better with Bookmarks
Do you have a half dozen or so sites that you like to visit every day? If so, bookmark them on a toolbar so that you have one-click access. In Chrome, click the icon with three horizontal lines that is located on the web address bar at the top of your browser. We’ll call this the Chrome Commands button from now on. Mouse over “Bookmarks,” and make sure “Show Bookmarks Bar” is checked.
Type in your favorite site URL. To add it as a bookmark on your bookmarks bar, click the star on the right side of the web address box. It will turn gold, and then you can name your page as well as select whether you want it more prominently in the bar or simply in your list of bookmarks. Repeat this for each of your most visited sites.
Now that all of your sites are listed on your bookmarks bar, you can visit them in one click.
Enlarge the Page
If a page is too small and you want to enlarge the entire thing, you can do so with your mouse wheel. On your keyboard, hold down the CTRL key and roll your mouse wheel away from you while you’re on a web page. The page will get larger. Roll your mouse wheel toward you to reverse the effect and make a page smaller.
You can also customize your fonts by going into Chrome Commands, Settings, Advanced Setting, and Web Content. You can find your font options there.
Do you need something you downloaded earlier today and forgot where you put it? Access it again here by typing this into the web address box or selecting “Downloads” from the Chrome Commands. Hey, even better, if you need this a lot, make it a bookmark.
If you’re a history buff – that is, if you closed a browser screen and find you want to re-visit that page, then look for the History command under the Chrome Commands button. It’s super-handy and will save lots of time when you need to backtrack.
Tired of filling out forms? Chrome will do it for you by remembering certain fields and matching them up with their form fieldnames. You can have Chrome remember addresses and credit cards; however we can’t really recommend the latter for security reasons. Manage this feature and its settings by clicking the Chrome Commands button and Settings. Scroll to the end and look for Advanced Settings, then look for the Autofill area and Manage Autofill Settings.
While browsing, have you ever come across a word or phrase you don’t know or want to know more about? If so, highlight it right there on the web page and then right-click. Select “Search Google for “the phrase you highlighted” to bring up the information you want.
Most of us have never had a formal class on our browsers, but it’s not a bad idea. Hopefully, until you can get to that class, these tips will help you discover a little more about the browser you use every day.
If the IRS kept all or a portion of your federal refund, it may be because you owe money for certain delinquent debts. If you are in arrears for one or more of these obligations, the IRS or the Department of Treasury’s Financial Management Service (FMS), which issues IRS tax refunds, can offset or reduce your federal tax refund or withhold the entire amount to satisfy the debt.
Here are some important facts you should know about tax refund offsets:
If you owe federal or state income taxes, your refund will be offset to pay those tax liabilities. If you had other debt, such as child support or a student loan debt that was submitted for offset, FMS will take as much of your refund as is needed to pay off the debt and send it to the agency authorized to collect it. Any portion of your refund remaining after an offset will be refunded to you.
You will receive a notice if an offset occurs. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency.
You should contact the agency shown on the notice if you believe you do not owe the debt or if you are disputing the amount taken from your refund.
If you filed a joint return and you are the spouse who is not responsible for the debt, but are entitled to a portion of the refund, you may request your portion of the refund by filing IRS Form 8379, Injured Spouse Allocation. If you know that your spouse has outstanding debts and anticipates an offset, you can attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ. If not, you can file it after you are notified of an offset.
If you file a Form 8379 with your return, write “INJURED SPOUSE” at the top left corner of the Form 1040, 1040A ,or 1040EZ. IRS will process your allocation request before an offset occurs.
If you are filing Form 8379 by itself, it must show both spouses’ Social Security numbers in the same order as they appeared on your income tax return. You, the “injured” spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379, but, to speed up processing, attach a copy of all Forms W-2 and W-2G and any 1099s where federal income tax has been withheld that relate to the Form 1040 you already filed. Send Form 8379 to the Service Center where you filed your original return.
If you reside in a community property state, overpayments (refunds) are considered joint
property and are generally applied (offset) to legally owed past-due obligations of either spouse. There are exceptions; please call for additional details.
The IRS will compute the injured spouse’s share of the joint return for you. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.