There are many benefits to hiring a spouse or significant other to work for your small business. To start, a spouse can be willing, affordable, and capable of doing the at hand. Other great benefits include:

• Deducting any compensation paid as a business expense.
• Deducting health insurance to a spouse as a business expense.
• Building up social security benefits. A spouse can be employed until the minimum contribution has been made to receive full benefits. This is especially helpful if the spouse is otherwise unemployed.

But even with these great tax benefits in hiring in your spouse, is it really beneficial for your relationship?

Before being quick to take advantage of tax benefits, take these things into consideration:

• While there are cases of married couples capable of maintaining a healthy marriage while working together, there are other cases where a relationship can be put at risk and even end up in divorce because being married and working together just don’t fit well.
• Is your spouse truly capable of doing the job? Is it similar to past work experience or will it be something completely new?
• You may be married for years and think you know your spouse, but work is a different environment and new things may surface that have not surfaced at home. Irritable habits, mannerisms, frustrations and moods.
• If your marriage maintains equality as individuals, a new authority may overcome your view of equality.
• How does your spouse handle emotions? I know as a small business owner, it is very hard to leave work at work. Being emotional and taking everything that happens at work to a personal level whether it be the tone in speaking to each other, a dispute, or corrections can easily be taken home and carried into your marriage.
• Is this temporary or permanent? Set job descriptions from the beginning. If you decide the position is permanent, consider reevaluating the situation after 6 months to a year to confirm it is working out.
• Will the spouse be putting any dreams or goals on hold to work for the business?

Do you have experience working with your spouse? If so, what was your experience?

If you are considering hiring your spouse, what will be the pros and cons to this arrangement?

We look forward to and appreciate your feedback.

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While having a bookkeeper definitely simplifies your financial life and takes a huge burden off of your shoulders, a business owner needs to review their data and know the details of their business finances. It is easy to run a business and just go through the motions without really knowing the financial health of your business – until next thing you know – you are losing customers, losing money and losing your business.

I recently heard the statement, “I don’t need to see my reports.” This is a dangerous statement and just the thought should be avoided.

“Generating reports is key to managing your business’s finances and making strategic decisions,” says Peri Pakroo in How to Improve Your Financial IQ. Only by monitoring your financial statements on a monthly or quarterly basis, can you find opportunities, dangers, make important changes to your business, improve systems, pricing or customer service and so much more. To depend on someone else to make important decisions for your business is not wise.

Two of the biggest financial mistakes business owners make is 1.) failing to track in income and expenses and input them into an accounting software and 2.) failing to ask questions and let their numbers provide them with their business’s financial health.

From my experience as a bookkeeper, when a business owner leaves it up to their bookkeeper and never pays attention to their numbers, they end up in a very rough situation with their business. My recommendation is to make a recurring appointment with your bookkeeper on a monthly or quarterly basis whether in person or virtually to discuss financial statements. Before each appointment, make a list of questions you may have. Don’t be afraid to ask questions – it is okay to not be knowledgeable and it is a learning process.

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If you have an in-house accounting department or employees that handle specific tasks of your accounting, consider these tips provided by Linda Schain at AIPB.  Following these tips can prevent fraud and your A/P from appearing in an auditor’s letter.

• Require all check requests to have proper backup.
• Require all invoices to be properly approved before writing a check.
• If, for some reason, you have a duplicate of an invoice instead of the original, mark it “Duplicate”; then, before making payment, double-check that the original has not been paid.
• After a check is written, mark the invoice “Paid” and next to this, write the check number and date.
• Require the check signer to compare the check-request backup to the check before signing it.
• Do not write checks early and hold them until the due date. This lets checks lie around and suggest to vendors that your firm has cash flow problems because the dates on the checks are weeks old.
• Lock up signature devices – digitized signatures, check printers, old-fashioned signature plates and others. Your system should keep check stock locked up and not permit the person who is responsible for preparing the check to have access to check stock.
• Require proper segregation  of duties – e.g. do not permit the people who approve payment to be the ones who write or record the check.
• Don’t let the person who does A/P do the bank rec.
• Require accounting/bookkeeping employees to take a vacation which requires a different employee or outsourced professional to fill in. If there is fraud, this is when it is likely to be uncovered.

When you outsource to a bookkeeper, these precautions are taken for you. Outsourcing allows all sensitive information to be kept from employees and from going through multiple hands increasing the risk of fraud or a bad audit report.

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In Corporate America we have learned that the bottom line is what matters. The first instinct of many business owners when they receive their financial statements is to look at their bottom line, their profit. But what information can your top line, your sales figures, give you?

Paul J. Lim states in Why Sales Matter More Than Profits, “Forget that profits can always be touched up to make things appear brighter than they really are. Earnings are looking good today not because the economy is sizzling, but because companies cut costs so aggressively in the downturn.” So is your bottom line really meaningful or is there a profit because you cut costs?

My motto has always been, “your numbers tell a story. “ You can use sales figures to assess which segments of the economy are healed – and which have a way to go, says Lim.

But the question is how do you get your sales to give you this information? How can this information help your business?

QuickBooks is a highly customizable accounting program and knowing how to customize your QuickBooks to your industry, your services, and your target market help you get the most of your sales figures.

QuickBooks can become your accounting and CRM solution in one – it’s just knowing how to use the most of it. By having an organized accounting setup, maintaining accurate and detailed customer information, and taking advantage of fields like Customer Type or creating custom fields, QuickBooks can provide you with all the information you need to boost your business.  Once these areas are being utilized, there are multiple reports that can be customized, ran, and memorized with what you need to know.

Custom fields can be used to track industry, number of employees, annual revenue, and other specific information about your customers. As this information is entered and managed, custom customer sales reports can tell you what industries are doing well, which industries are hurting the most, what customers need special attention, who are your VIP customers, what needs customers may have and other pertinent information. Ultimately, this information will provide you marketing opportunities that lead to an increase in your own sales figures and have a valuable rise in profit.

The next time you receive your financial statements and are tempted to look at your bottom line, make sure to look at your top line for an accurate view of your business standing and the business world around you.

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Paid holidays. Under federal law, paying part-time and summer help for holidays is optional any time of year.

Paid vacation. No law requires paid vacation, but if you give paid vacation, some federal and state laws apply.

Benefits. Providing health insurance or other benefits to temporary and part-time employees is optional; if not available, it should be so stated in a written benefits plan.

Federal W-4. Obtain from all summer employees, even students working part-time and foreign students.

FIT. Withhold from all summer employees unless their W-4 results in no withholding.

FICA. Withhold from all workers, even those receiving Social Security benefits and high school students, unless under 18 working for sole-owner parents.

Subscribe to our newsletter for more information on rules for the owner’s children, sole proprietorship’s,  and high school kids.

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Tips on improving cash flow:

Bill early and often. An early bill is likelier to prod recollection of the good product/service provided. If payment is not received within 30 days, promptly bill again.

Avoid cutting fees. Unless you know your prices substantially hurt sales, keep what you believe are reasonable rates based on your market.

Keep time sheets current. If you offer any service (e.g. car dealers that do repairs) accurate time sheets assure proper billing.

Calculate realization, which is total revenue divided by billable hours. The higher the realization rate, the better your company is doing.

Be responsive to clients. Address any client.customer questions or concerns quickly and thoroughly – this increases the likelihood of prompt payment and new sales.

Reassess and rank exiting clients based on what you do for them and revenue generated v. the cost. Assess which clients cause more problems and see if there is a pattern. Also rank or reassess specific kinds of customers, groups of company products or services, or other categories.

Reassess service pricing. Consider hourly v. daily, weekly, etc. rats v. fixed fees v. per job.

Conduct client surveys. Feedback is an invaluable way for a company to improve operations, which in turn improves client relationships, which results in speedier payments.

Lastly, if your company is a holdout that still requires cash or check, consider credit cards. They increase cash flow and cut A/R costs.

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Phew!!! You made it through tax season and it’s finally over. No need to worry until next year, right?

Think again…

Turn your procrastination into preparation! The stress, anxiety and overwhelming feeling most business owners experience before and during tax season can easily be transitioned to peace of mind. How? By using the months of April through February to Organize, Identify, Outsource, Budget, & Forecast.

Organize

Organizing your documents will make your bookkeeping & tax season a whole lot easier….and cheaper! Manage your documents by creating a file system that includes file folders for your bank accounts, expense accounts, income accounts and a folder for your receipts (Don’t throw them away!). Yes we are in a web 2.0 world with dozens of software providing online document management, but the IRS still requires paper back up. Stay consistent by creating a file system for your computer files to help you find things faster. If you do a lot of emailing or receive a mass amount of emails, creating email inbox subfolders with different categories will also help you find things faster and keep any important reference documents handy.

Identify

If you are a seasonal business like us, you will know that specific times of the year can be slower than your peak business months. What do you do during these slow times? By identifying dangers and opportunities you can use the most of your slow times for other important business matters that will make your business processes efficient and eventually will contribute to your growth.

Identify Dangers

Do you need to cut hours? Increase hours? Give your employees a bonus? Train your employees? Do you need to cut expenses? Do you need help managing your cash flow? Are you taking advantage of tax credits or future deductions? Do you have the right resources and professional consultants available to you?

Identify Opportunities

Are you taking advantage of marketing opportunities? Do you have systems in place or have you streamlined your processes? Do you know where your business is headed? Do you have a budget? Are there any tasks you can outsource? Have you taken the time to become knowledgeable in your industry and in bookkeeping & taxes?

Asking questions like these will help you identify areas of improvement and resolve them before your peak business months and before tax season. Instead of looking at slow times or hard economic times as a restraint, look at it as an opportunity. What are you always saying you wish you had time for? We all recite over and over again “I wish I had more time for……” And if that blank is a vacation, hey! Take it!

Outsource

You may know the saying, “a small business owner wears all the hats.” But now-a-days it doesn’t have to be that way. There are many resources and affordable solutions for small business owners made possible by today’s technology. You don’t have to be an employee for your business, instead you should manage it. Outsourcing to Independent Contractors, Virtual Assistants, Virtual Bookkeepers, Virtual Marketers- even Virtual Offices and Receptionists gives you the ability to extend yourself and offers you the help and expertise you need.

Take a moment and imagine the following:

Only having to provide your CPA’s contact information to your bookkeeper. Your bookkeeper handles all communication with your CPA/Tax Preparer. Imagine your books up-to-date, your financials nicely organized with categories and transactions coded appropriately. Imagine them provided to your CPA/Tax Preparer in a professional portfolio, ready to go for your tax preparation. Imagine no stress when tax season arrives because it is all done for you.

Turn this imagination into reality by outsourcing to a Virtual or On-Site Bookkeeper. Take advantage of having your books maintained throughout the year, take advantage of tax deductions, prevent tax penalties or audits, avoid liability for errors or theft, save money, and be prepared for tax season.

Budget & Forecasting

A budget is vital for a small business, especially now. Having a budget is helpful when the economy is uncertain because it will help manage your cash flow and deal with short-term financial needs. In a previous article on budgeting, we provided 4 ways to create a budget:

Create what-if-scenarios – Create several scenarios for your company and for the economy and how they can affect your clients/customers and your company.

Zero-Based Budgeting – Zero based budgeting starts at zero (instead of using previous year numbers)

Quarterly Budgeting – Helpful to do a quarterly budget vs. an annual budget especially if you are a small business and have a harder time managing your cash flow or depending on your industry.

Rolling Forecasts – Forecasting 12-18 months out. This will help you spot problem projects and will allow you to adjust to changes in the economy.

By using these resources throughout the year, your business will be organized and prepared when tax season arrives. It is tempting to put it all off and just wait for January, February, even March to contact a bookkeeper, but in reality organizing your business files, managing and keeping your books up-to-date, identifying dangers & opportunities, and budgeting throughout the year, will make tax season a whole lot easier and it will allow you to run your business efficiently while providing the quality service your customers deserve.

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A recent client with over 5 employees discovered employee theft. This can only be discovered when you’re monitoring your books very closely. Even with this good-size staff, theft was not discovered until the books were cleaned up and brought up to date. The company had discovered theft before, but other issues were found as they dug deeper into their financials, and as they set up new systems to track the money on a real-time basis rather than on a monthly or quarterly basis.

Employers don’t realize how crucial accounting and internal controls are to their business’ survival. When every staff member is accountable to a superior, and that superior is accountable to the owner, and the owner has trusted external professionals taking care of the check and balances, they’re protecting their investment and hard work by preventing these sticky situations. In situations like this is when I see the value of what I do. I enjoy helping business owners stay organized, focused, and productive. My favorite part of bookkeeping? The sighs I hear from business owners at the end of the day when they feel they’ve taken control of their business.

When considering “should I hire or should I outsource?” consider this: Should I keep financial matters confidential with an external professional? As another client said to me not long ago “money does funny things to people.”

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The rules are as follows:

• Insurance contracts. Owners who borrow on their life insurance, endowment or annuity contracts and use the proceeds for business purposes can take a business deduction for interest paid. For loans on insurance covering an officer, employee or individual financially interested in the trade or business, the interest deduction is limited to loans of $50,000 or less.
• Mortgages. If the proceeds of the mortgage are used for business activities, the interest portion of the mortgage payment may be deducted. If the mortgage is paid off early and a penalty is paid for early repayment, the penalty is deductible as interest expense.
• Points. These loan origination fees are interest paid in advance and there-fore are expensed pro-rata over the life of the loan.
• Mortgage-related costs, such as commissions, abstract fees and recording fees are amortized over the life of the loan and should not be deducted as interest in the year incurred. Note: Mortgage-related costs are added to cost basis only for home mortgages, not for commercial ones.
• Commitment fees/standby charges (payments made to make funds available to the business on a standby basis, such as interest on unused funds for a line of credit from a bank). When the loan privilege is exercised (when the business actually borrows the money), the interest is deducted over the life of the loan. If the loan is not taken and the right to borrow expires, the commitment fee is taken as an expense in the year that the right to the loan expired.

Interest and penalties on income taxes owed are not deductible by the business.

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