Spending Too Much Time Waiting for Payments?

Posted by Posted on by
2

This is a guest post by Craig Keolanui of SmBizWinningTips.

According to a recent survey, over 50% of small businesses find collecting payments and late-paying customers to be the most challenging aspects of managing their cash flow and payment activities. And particularly for businesses running on low margins, late payments can be a huge setback.iStock_000019620208XSmall

Late payments can cripple a small business with cash flow problems!

Late payments not only reduce your revenue, but they also have you paying for goods (components of a sale) or services (payroll) while waiting for payments to come in. If your sales are increasing, but late payments are also taking off, you will have a revenue shortfall when you start paying your bills.

If you are not completely on top of your books, this can sneak up on you right when things start getting consistently busy. The joy of increasing sales can quickly be extinguished by the angst of having to call for payments when it comes time to pay for supplies or payroll. You have to do whatever you can to encourage early payments while deterring late payments.

There are several steps to take to encourage early payments. Invoicing in a timely manner goes a long way, but you can also try:

  1. Invoicing twice a month. Some companies cut checks on certain dates and you might receive half of the usual monthly activity a little early. Keep this in mind also for accounts that are getting bigger or keeping more money tied up.
  2. Make sure to establish contact with accounting departments at any of the businesses with delinquent account activity and send them email reminders after mailing each statement.
  3. Encourage paying off invoices as opposed to waiting for monthly statements.
  4. Give a credit on the next statement for any early payment. You can also set up a rewards program or discount for companies that pay before 15 or 20 days.
  5. When setting up accounts, give some kind of one-time credit or discount for any accounts that are set up with purchase cards (credit cards!). Accepting them eats into your margin, but you set a firm hook and make it easier to process orders and get paid in full.

Discouraging late payments can also help speed things up.  Here are some techniques to use:

  1. Charge the dreaded late fee. Make sure you spell things out and if you are just starting to establish late fees, be very specific about “invoice dates” vs. “statement dates”.
  2. Try calling clients who actually place orders to inform them of any issues getting payments out of accounting. Sometimes peer pressure will work better than any call you could make.
  3. Put up a list of delinquent accounts for staff members to act on if those customers place an order.
  4. Set yourself up to process electronic payments.  Many of these customers can be steered that direction and you can start offering it to others.

Increased sales is a good thing, but making sure you get paid for your sales is critical to keeping the cash flowing and avoiding coming up short.

Build Financial Security with a Business Retirement Plan

Posted by Posted on by
1

This is a guest post by Shabana Shiliwala, who owns The Financial Sort, a financial planning company based in Austin, Texas.

Congratulations! If you’re reading this, it must mean your business is generating enough profit to afford employees, require tax planning and give you the prospect of a healthy financial future. When you have more profit than you need to run your business operations, it’s time to start a business retirement plan.Businessman Investing

Just like parents tend to put their children first and take care of themselves last, business owners have a tendency to place the needs of their businesses before their own needs. Starting a business retirement plan is usually a low priority not only because of the effort and expense involved, but the benefits to the business aren’t obvious. Some business owners think that retirement plans only benefit employees. The reality is that they mainly benefit the business and the business owner. Most employees don’t contribute or contribute very little to retirement plans, whereas business owners who take full advantage attract higher-quality employees looking for comprehensive benefits, get large tax deductions, and build financial security for themselves and their families. The money you deposit in your own business retirement account is deductible, but unlike other business expenses, you’re not actually spending the money. You get to keep it–so not only are you saving on taxes, you’re also building a nest egg.

An accountant and broker/financial advisor can help you determine and set up the right plan for your business:

Self-employed: The SEP (Simplified Employee Pension) IRA allows you to deposit up to 25% of net earnings (net profit minus half of self-employment taxes and your deposit amount). Consult your accountant to help you determine your allowable contribution each year. Expenses are minimal and there are no required contributions, so you can skip contributions in slow years. If you need a higher tax deduction, consider the SIMPLE (see below) or the solo 401k, which has higher expenses but allows an additional contribution of $17,000 in 2012 (or $22,500 if you’re over age 50).

Small businesses with under 100 employees: The SIMPLE (Savings Incentive Match Plan for Employees) IRA allows you to contribute up to $11,500 in 2012 (or $14,000 if you’re over age 50) as long as you make an employee contribution as well. You can choose from a matching contribution of 3% where you only have to contribute for employees who contribute themselves or a 2% contribution to all employees regardless of whether they make contributions on their own. Expenses are minimal. If you’re willing to pay higher expenses for a higher tax deduction, see the choices for large businesses below.

Large businesses: A multitude of plans are available including pension, 401k and profit sharing. Expenses are higher but so are the contribution limits and the flexibility to design exactly the type of plan you want.

Now that your business is growing up, it’s time to start taking care of yourself too. A retirement plan can benefit yourself and your business. It’s important to stay on top of your financial game throughout the entire life of your business, so plan smart and plan ahead.

Time To Reconcile 1099K

Posted by Posted on by
1

Got the 1099 K and wondering what to do with it? 1099 K is a tax form sent by online payment processing companies like PayPal, eBay and the like to report how much sales you made through them in the last calendar year. They fill your basic details with the last years gross sales and send this form to the IRS with a copy to you as well.

Well, I report my income and file my Schedule C. Why this?Reconcile-1099k
IRS is working very hard to bridge the tax gap so that the reported income by individuals is closer to their actual income (which apparently isn’t the case in reality). The 1099K form last year was an attempt to achieve that goal, so that the IRS gets to know first hand how much you earned in online sales.

But why did I get this form and not others?
It looks like your gross sales crossed $20,000 and you have made at least 200 transactions with a payment processor. That is the criteria that the IRS uses to decide who to send it to.  If you haven’t received the form, it is perfectly okay. No reason to fret at all!

Alright, what do I have to do now that I got it?
Not much really. Open up your accounting software and reconcile the data. Chances are you would panic when you see the strangely bloated sales number on the 1099K form but make note that these are gross figures and they do not take into account the refunds or returns you made.

Run the Payment Received Report in Zoho Books
There is a nifty report called ‘Payments Received’ in Zoho Books. If you have kept track of all your client payments or better still configured the online payment gateway in your accounting software then this report will list out all the payments received by you.Check out our guide on how to run the Payment Received report.

Remember not to fret if the data doesn’t match as it’s perfectly normal considering its the ‘gross sales’. Your talent hence lies in your extraordinary abilities to keep track of every expense you incurred. It’s all about being awesome at record keeping.

Year End Accounting: Read these tips before you close your 2012 books!

Posted by Posted on by
1

The good news is that the world didn’t end on 12/21 as the Mayans had predicted. The bad news is: you still need to work on your accounting and taxes for 2012. Here are some tips in the form of a checklist so you can avoid overpaying or underpaying the taxman. It’s important you do this before you close your books for 2012. Happy 2013!

Reconcile your bank accounts

If you have been manually entering the bank transactions, it is imperative that you reconcile the bank balances with the actual bank statements. Look for the usual culprits like cancelled or uncleared checks. Give this a skip if you have setup a feed for online banking and have forgotten how to enter the bank transactions.

Complete your invoicing

Send the invoices for all the services you have rendered; products that you have sold and for any task that remains unbilled.

Record all your supplier bills

Ensure that you haven’t missed entering any supplier bills. Filter your inbox for e-mails from your suppliers — pull out that shoe box and if you see any bills that you have missed entering in your accounting system, do it right away.

Write off bad debts

The world isn’t a nice place always and you might have customers who are unlikely to pay you their dues. Let’s hope there aren’t invoices that you would be writing off. However, if that were to happen, then write off the invoices sent to such customers.

Get to the bottom and look for outliers

Compare the reports of the current financial year with the previous year’s and see if everything’s kosher. If something looks unreasonable, don’t fret! Use a magnifying glass and get ready for the great reporting drill-down. Dig and Drill until you are convinced till the last penny. Even pennies matter in business!

Record your depreciation

If your business has any fixed assets, you have to account for depreciation expenses. Zoho Books doesn’t have a form for this, but manual journals will come in handy. Consult your accountant, if this applies to your business.

Handle prepaid expenses

If your business has paid in advance for the insurance or other services, you would have recorded that as ‘assets’. You will have to categorize these as ‘expenses’.

Close out the owner’s draw

Any money you have withdrawn from your business for personal expenses is typically recorded under a temporary account. You have to close this account and transfer the balance to an equity account that reflects your stake in the business.

Get started with 1099s now

If you are using sub-contractors, you have to send them 1099 by Thursday, January 31 2013. Identify your 1099-MISC vendors, cull out the relevant details and use the services of an online 1099 filing service to send the forms across.

Don’t miss the last (s)mile:

If you spend time on the road for your clients, don’t miss recording the mileage. You can claim deductions for that!

 

I hope this checklist will come in handy for your year end and beyond. In addition to this list, invite your accountant to your Zoho Books organization and allow him/her to review your numbers from the comfort of his office or home. If you have been using an accounting software now and have done your books manually before, you must have realized much of the rigmarole associated with the manual accounting, like transferring of balances from income and expense accounts to retained earnings (sorry if this sounds like the ‘Accountantspeak!’) has completely gone. If you are still doing your books manually, the best gift you can get yourself this new year would be an online accounting software that you can count on!

 

Have an amazing 2013!

Passing A Tax Audit With Speed

Posted by Posted on by
0

This is a guest post by Craig Keolanui of SmBizWinningTips

Are you facing an unexpected audit from either the state or Feds? If so, you might be seized with panic, worry or doubt. A tax audit is never easy, but keeping things highly organized and following instructions is the key to getting through the process with speed and confidence.

Reframe it as a presentation to an investor or client for your services and much of that consternation and doubt will pass and so will the time it takes for the audit.

You will receive a list of information required. Follow it carefully.
Be prepared to reveal two-three years of data, but follow the specific details in the notice you receive as it can be the difference between passing and failing.

Offering to provide more information than requested may actually make things worse and add time or further scrutiny to the audit. It is best to adhere to the instructions, providing more information only if it is requested.

Auditors have a limited amount of time to spend on each audit and more information will only lead to more effort spent trying to find something wrong with your records. After all, they are trained to find errors.

If and when more information is requested, buy time to provide it in an organized manner.

Organization is paramount to success.
The rule is “quality” over “quantity”. Make sure any reports are flushed out with details, in proper order or sequence and labeled. If you use a program like Zoho Books, make sure all reports are from Zoho Books and not hasty recreations from Excel or another program. If one year doesn’t match a previous year, you are better off inputting the information in again to ensure that all the reports are the same format. Believe it or not, presentation makes a difference as it will make your business appear professional, organized and on top of tax issues.

Organize your information in the chronological order in which it is requested and use folders or any dividers to keep it organized. Highly organized information will not only speed up the audit, but also reinforces the perception that you have little to hide.

Know your numbers and the information provided.
If it takes too much time to answer any questions, be assured that further details will be requested and your audit will proceed at a snail’s pace. Your reports and professional organization can be rendered useless if you can’t answer the simplest of questions.

Start by knowing “what” each report is and then proceed to understanding the details. Have answers to questions such as: Why were sales so inconsistent or why payroll fluctuated year to year?

Auditors are looking for inconsistencies and illogical spikes because they are most likely to lead to more revenue generation over simple accounting mistakes.

If your numbers do not match, know why.
Mistakes happen and many companies are caught underpaying taxes, so don’t feel like a criminal, unless you have reason to, of course. Any error that you catch and bring up to an auditor, will lead to less scrutiny. If you can explain the justifiable error and bring it up beforehand, the taxing agency can often help ease the burden for any penalties. In any case, understand an audit is to generate revenue and not to throw people in jail.

There is no need to be nervous, stressed or feel like the world is crumbling under your feet. Audits happen and more often than not are passed without incident. Follow these basic steps and you can sleep easier at night.

Making unwanted travel a deductible expense

Posted by Posted on by
0

This is a guest post by Craig Keolanui of SmBizWinningTips

You might have heard of planning a vacation around a trade show or convention that you can attend, but consider those trips you want to take but don’t necessarily want to spend money on, such as weddings or other family events.

It would be nice to write off some of these expenses and, if done carefully, it is entirely possible.

Most often these trips involve expensive airfare and covering your business in your absence, so getting a tax break is the best way to recoup some of these costs. The key is to mix business with pleasure and the rest is as easy as keeping organized receipts.

What else can be accomplished on your trip?
Make your personal trip a business trip. Network with old friends and read up about conventions or events involving small businesses in the destination city’s publications or websites. Attend a convention, trade show or a conference or anything that can directly relate to your business. Make sure to keep some type of documentation to justify the travel expenses.

Hold onto the ticket stubs, notes from a conference, brochures or any material that supports the reason for taking the trip.

Evaluate possible deductions prior to the trip.
You obviously will pay more for last-minute travel arrangements, in some cases, so your airfare will be the first thing on the list. If you have to rent a car, that will follow, but don’t forget to log mileage and document your driving to and from any scheduled appointment or meeting. All travel meals will be worthy of 50% of the expense, but eating at the homes of family or friends will make the trip less costly.

Be careful about what else you try to expense. It would be unwise to try to write off flowers that you purchase for Aunt Edna’s bedside or the wedding gift you bought, unless the bride or groom is a client.

If your trip is prolonged, have more than one business reason.
If you stay over a week and plan on deducting the hotel room and meals, it is smart to have more than one business engagement to attend. This will help keep things above board if you were to face an audit.

Last-minute personal trips happen all the time, and operating a small business provides some advantages to offset the cost. In an occupation where long hours are spent and time is very short, it’s important to maximize every opportunity to save money.

Just In: New estimate statuses to better track potential business

Posted by Posted on by
0

Last week’s flavor was saving time with bulk printing. This week we are planning to get you more organized with regard to your potential business.

The average life of an estimate undergoes several trials and testing phases before it reaches the ‘invoiced’ stage. Along with Draft, Sent and Invoiced, we’ve now introduced three new estimate statuses in Zoho Books and Zoho Invoice – Accepted, Declined and Expired.

When a client approves the proposal, you can mark the estimate as ‘accepted’. All the accepted estimates will give you an idea on how to prioritize and plan your time so you can manage multiple projects comfortably.

Declined estimates could be a due to a lot of reasons even including the low budget. But if you have a trail of declined estimates for specific customers, analysis of that will give you insight on how to change your modus operandi the next time.

As a freelancer or small business owner you cannot have clients hanging onto your estimates forever. An expiry date acts as a catalyst for an earlier discussion and merry times ahead.

Classifying estimates helps to track them better and it gives a better idea of the potential business coming your way.

Now, with an approved estimate in hand, the next thing you would want is to create an invoice. Wouldn’t it be awesome if the software already took care of that!

Just head over to the ‘Settings‘ tab and select the option ‘Yes‘ to convert an estimate to invoice as soon as it is approved. Once the project is complete, head to the Invoice list and there you’ll find the ‘new invoice‘ in the draft status waiting for your next move.

Read more about estimate statuses in our help documentation. Hope you like it. Check it out and do share your feedback right here.