Bookkeeping procedures make businesses stronger, more valuable, and efficient. Follow these best practices and it can save thousands or tens of thousands of dollars in the long run.
Set up a list of accounts to classify all of your transactions. Doing so will allow the summary of the accounts in the form of financial statements. Analyzing these useful data tools gives management or ownership the power to analyze money made and money spent. Furthermore, they compare periods so financial anomalies can be found quickly and addressed immediately.
Some businesses handle mostly cash transactions, and conversely, some handle primarily credit or debit card transactions. Then there are some that take only online forms of payment. No matter what form of payment a business accepts payments or uses to pay its bills, reconciliation of balances drives bookkeeping procedures. If a running balance does not get reconciled periodically, businesses handicap themselves with the inability to see if they lose money or make money.
Every operation that gives their customer terms for payment has accounts receivables, or funds owed from customers for sales. Because receivables represent hard-earned revenues, they require close monitoring and maintenance. The more stale, or old, a receivable gets, the harder it is to collect those debts. Money takes time and effort to earn. Staying on top of owed funds ensures payments in a timely fashion.
Paying bills on time and in full remains mistakenly highly underrated. No one wants to wait on money they earned. Similar to receivables, accounts payable need monitoring regularly to asses their age. Overdue payments make vendors angry. They will care less when the business contracts them to do a job the next time. In contrast, vendors paid quickly will work harder, respond faster, and reciprocate with a positive attitude.
Human psychology says checklists and to-do agendas give a sense of fulfillment and pride. Accordingly, clearly outlining revenue targets and milestones will product desired results ten-fold. Without goals to work towards, owners, management, and employees find themselves lost and without purpose.
Create budgets for expenditures and compare performance to the forecast regularly. In doing so, owners and managers can save a business from failure and give it staying power through difficult times.
Exercise hyper vigilance when watching the financials for variances and anomalies, especially regarding revenues and expenditures. Awareness prevents losing income and overspending. Additionally, a careful eye on all transactions will catch mistakes that throw off your financials, so diligence and review is crucial.
Don't ever sit on inventory because in most cases, inventory can have a shelf life. If inventory does not moving out the door, it rots in a warehouse. Track inventory with a fine-tooth comb so capital doesn't get stuck awaiting sale.
Furthermore, constantly take actual inventory counts weekly or monthly. This prevents theft, spoilage, and provides an accurate picture of what inventory needs to move.
Always pay sales taxes and employee withholding taxes on time. These "trust" taxes do not belong to the business; they belong to the local, state, and federal governments. Due to this, businesses failing to pay these face severe consequences that will jeopardize everything.
Following these basic rules of bookkeeping could determine the success of a venture, while neglecting these fundamentals could bring detriment to even the most promising enterprise.
In the world of business software, there are certain fundamental tools constantly used. One of these is a POS, or Point of Sale, software. Whether you are a retailer, wholesaler, manufacturer, or a producer, the right software is an integral cog in the wheel of success. The following are 5 features your POS (Point of Sale) absolutely must have.
It may seem obvious, but a POS software that accurately tracks sales is the number one priority. It is shocking how many POS systems are unable to calculate a sale, apply a discount, or apply a tax correctly. These are just basics.
Coming in at a close number two on the priority list is customer support. It is arguably just as important as revenue tracking. In an ideal world, we don't need help from others; however, the world is far from perfect. More often than not, support takes a backseat in the exploration process.
At some point in the lifespan of a POS system, you will undoubtably need assistance. Whether you have immediate questions about getting everything set up, or a year later once the system is fully integrated, a helping hand gives peace of mind. Accordingly, there are certain attributes you should expect from your support team.
First, 24/7 availability is a must — via phone, email, or live chat (our preference). At any time of day, a human needs to be available to answer your most pressing questions within a reasonable amount of time. Not having the necessary support could result in an inability to accept transactions and a loss of sales. There is absolutely no excuse for missing out on revenue. Secondly, support should be unlimited and included in your subscription. Be weary of companies trying to charge additional fees for their support.
Another crucial function of a POS system is inventory management. Inventory "leakage" and lack of tracking remains one of the biggest vulnerabilities for businesses that hold a stock of products to sell. Employees steal and customers are not always honest about what they receive. These sad truths ultimately lead to reductions in your bottom line. The best way to keep a handle on this is with good inventory tracking features and protocols that limit losses.
Whether an operation is making products, buying products, or selling products, inventory is at the core of every transaction. The POS system must have the ability to keep track and list all products. It should run reports that give inventory valuations on a cost basis, and it should notify when it comes time to order more. While looking around for options, be sure that the POS software can differentiate products with variations like size and color.
There but two certainties in life, and we know them all too well; death and taxes. Sales tax is complex, especially when selling goods in multiple states that have different rules and rates. A POS must have an accurate and up-to-date method of tracking sales taxes at the time of sale.
An important note to remember; sales tax is a "trust" tax. This means it is not a tax that a vendor pays, but a tax businesses are "trusted" to collect from customers on behalf of the state. What does this mean? It means that if an entity underreports sales, the state considers that act as withholding their tax revenue. Unlike income taxes, "trust" taxes can endanger owners' personal assets and livelihood. For this reason, sales tax payments are calculated and paid with the utmost care.
Missing payments and penalization from the inevitable audits can not only jeopardize a business, it can threaten everything owners' have built to this point. All businesses should hiring a professional to assist with tax payments and filings. Spending money on these experts could save thousands or tens of thousands of dollars in the long run.
Without reporting, management is like a ship lost at sea with no compass in a stormy night. Consequently, sales reports, cost of goods reports, tax reports, and inventory reports are just a few of the must-haves in a POS's reporting system.
Other reports to look for are ones that help with your receivable accounts. That is, money owed from customers that did not pay up front and have payment terms. Knowing who owes what, when a payment is due, and how long it takes to receive payment will secure revenues, both in past and in future. It is essential that there is a system in place to track these fundamental accounting reports.
Similarly, payable account report show is owed to vendors. Like receivable reports, taking into account the payables report will give a realistic picture of what is being made or lost. Often, businesses neglect including payables in the balance sheets and the change in payables in income statements. This exclusion of information could skew profits and be detrimental to management's decision-making abilities. If a company doesn't realize its debts, profits are irrelevant.
Some tracking and POS systems will link to accounting software account(s), export excel sheets, and integrate with other useful systems like employee time tracking. These integrations make workflow more efficient and save valuable time.
That being said, beware of how systems integrate. Many business owners and managers think the perfect solution lies in linking software, only to find the developer of the POS was not competent. Sometimes mistakes are made in linkage, and if someone is not monitoring the imports and exports closely, it can completely ruin all the data that kept the books accurate.
If you are looking for a reliable solution for your selling and tracking woes, and you feel overwhelmed by the features and options available, reach out for a consultation. NATIVE RECORDS has worked with the best and the worst. Being masters at assessing software, we can point you in the right direction.
Starting a new business on your own can be both intimidating and rewarding at the same time. Hopefully with a solid business plan and proper guidance those stepping-out on their own will be successful — and as any experienced business owner or investor knows, it’s not just what you earn, but how much you can keep after tax. To make this process a little easier, here are some basic tax considerations a new business owner should take into account.
Pay yourself a “fair” salary
If you are the owner of a successful business that elects to be taxed as an S-Corp, there are significant advantages once you reach a certain threshold of income. Let’s say that your business has a net profit of $100K for the year — the IRS would allow a portion of those earnings (let’s say $40K) to be exempt from self-employment taxes (15.3% federally). Keep in mind, however, that you still have to pay income tax on the income that flows through to your personal return.
Take advantage of depreciation
The idea of investing in a rental property is nothing new. Real estate has historically retained its value well over the years with the exception of a few areas in the wake of the mid-2000’s housing crisis. The tax is relatively low on your rental income — as a passive investment, the profits are not subject to self-employment taxes. Furthermore, rental property owners are allowed to deduct a non-cash expense called depreciation. Residential buildings are depreciated over 27.5 years and commercial buildings over 39 years — so the former category gets a higher deduction for the depreciation. Notwithstanding all the tax benefits of owning a rental property, it should also be mentioned that the IRS basically forces you to take the depreciation expense because if you sell your building at some point down the line, they decrease your cost basis by whatever depreciation you have claimed at that point. This concept of “depreciation recapture” can be avoided by doing what is called a 1031 exchange and can get a bit complicated.
Under Section 1031 of the code, a taxpayer can defer the realization of capital gains and associated federal income tax liability on the exchange of certain types of property. This means that you can save yourself from paying capital gains tax on your asset value gain if you buy another property. From the time you close on your sold item, you have 45 days to find an applicable property, and then another 135 days to acquire the replacement property.
Invest in your state’s AMT-free municipal bonds
While interest rates are still quite low by historical standards, these investments may make sense for high earning individuals. The interest income (but not capital gains) you generate from the bonds are exempt from taxation. Calculate your tax equivalent yield to determine whether investing in your state’s AMT-free municipal bonds make sense.
At the time of this writing, the IRS is allowing people that are self-employed to save up to $56K per year for retirement. You can then deduct your contributions from your taxable income, thereby deferring the taxation.
For those interested in becoming self-insured, the tax code offers a nice incentive. In combination with a High Deductible Health Plan (HDHP), individuals are able funds that are not taxable if the proceeds are used for qualified medical expenses. These HDHP contributions are deducted from your taxable income on your return.
For those who are self-employed, but need money to be more readily available — there’s a way. The IRS allows business owners to deduct their health insurance premiums as an adjustment to income.
A major misstep many new business owners make when starting out is failing to plan well for their end-of-year tax bill. This is especially a problem for individuals leaving work as an employee where their income tax was withheld by their employer.
In order to avoid making this mistake a small business should pay estimated taxes to the IRS if it expects to owe taxes of $1,000 or more for the year ($500 if you operate as a corporation). Not only will paying estimated taxes help you avoid IRS penalties, they will prevent (at least some of) the sticker-shock when you file your tax return.
Are you occasionally perplexed at how some companies seem to effortlessly out-perform others? Or why some just can’t be overcome? If a company wants to stand a chance in a competitive industry, business owners must create and act on a sound business strategy.
Companies like Amazon have been successful for years and have been able to expand because their strategy is succinct with their vision. Amazon is known as the most customer-centric company in the world. They accomplished this through the meticulous creation of a seamless customer experience where people can search and discover almost everything they need online.
A strategy is a multi-tiered timeline of planning that enables your company to reach specific goals and envisions the future in which you will thrive. It is also a practical tool set that outlines the types of products or services you plan to build, as well as the customers who you are focusing on serving to make profits.
A solid strategy has verified and validated assumptions that can be presented as fact and built upon — there must be a strong understanding of the environment and market in which you plan to thrive. The strategy must be in alignment with the objectives and vision, and if those elements aren’t set in place, they must be. For example, Google’s vision is to provide the best internet experience to users. Now it is common nomenclature to “just Google it.” Every service and creative act that Google provides are in alignment with their core objectives.
Strategies help you in every aspect of your business from making investment decisions, how to prioritize projects and other activities within your organization, as well as optimize resources to generate above average returns.
Specific and Long-Term Objectives | The plan must be long-term and realistic. Think about what type of products/services you want to create. Who is your end user/consumer and what markets access these people?
Opportunity | Carefully analyze the current opportunity that presents itself as well as how it may develop over time. Collect facts and data points that reveal the reality of your assumptions and be open them. Look for opportunities that may be contrary to your original ideas.
Innovation | Make sure that the products or services that you plan to provide are differentiated and aligned with the possibilities and capabilities of your business.
Competition | Study the competition and make sure that your strategy still keeps you competitive. Find the market that is either not served or underserved and be the first to capitalize. Then you can capture the market share, build your brand and make it very difficult for others to compete or even enter.
Economies of Scale | Keep your costs of goods/services low while remaining innovative. Create unique features to offer and maintain high-quality customer service.
Time to Market | Carefully evaluate your “build versus buy” options for the products and services you plan to provide. It may be cheaper to outsource certain aspects of your business to a third-party vendor who has already assumed the risks and startup costs.
Testing | Continually review and update your strategy to make sure that you are not only on track, but that your plan stays relevant considering the constant and rapid change of technology, local and global economies, and consumer interests. Don’t be afraid to test out theories and ideas cheaply to ensure their validity.
Risks and Failures | Factor in risks and create room for your organization to accept failures. Collect insights gained from personal and observed success and failure to learn from and improve your future.
Stakeholders | As soon as the plan is finalized, it is important to share it with collogues and employees to get everyone on the same page. It is crucial that guidance is offered to explain the reasoning behind the decision-making and how these initiatives apply to their positions. If applicable, it is also important to create a similar but separate plan to share with other more external stakeholders like investors, partners, and suppliers. It will be necessary for them to understand the paths of future or shifting revenue impacting shareholders.
It is never too late to create and implement a realistic and effective business strategy. If you are having trouble knowing where to start or how to take your company to the next level, you may want to consider contacting specialists.