Wyoming Entrepreneur Blog

Should you delegate your business bookkeeping tasks to a friend or relative?

Getting your new business off the ground in a highly competitive market will require not only knowledge and skill to produce your product or service, but will need a sound financial footing.  Many businesses are passionate about their product or service, but may dismiss the bookkeeping as effortless or trivial. Keeping track of financial data requires skills that may or may not be appropriate for a family member or friend, especially if that person does not share the passion of your business.

Before delegating the bookkeeping tasks of your company to a friend or relative, ask the following questions.

1. Does this person have the skills and knowledge to support your business’ bookkeeping needs?
2. Does he/she really understand the inner workings of your business, i.e. the terminology of your field, how you order your products, how you wish to keep track of inventory, and how you will project future expenses?
3. Will you be able to communicate your need for accurate and timely financial statements, payroll and quarterly tax preparation for the IRS?
4. Will that person have time to devote to preparing invoices or sending statements on a regular basis? What if he/she already has another job?
5. Can you mix your business with personal life without causing difficulties within the relationship?
6. Have you discussed compensation for the work?

If your answers are positive, then working with a friend or family member may be appropriate for your company. If you or that person needs some extra help getting started, Wyoming Entrepreneur offers free assistance.

However, another option may actually be more beneficial in the long run. Many businesses make the decision to hire an outside bookkeeping firm. The cost is less expensive that hiring an employee since you are only paying for the actual hours that are being spent working on your books. Often, bookkeeping services are flexible and will do part or all of the bookkeeping process, allowing a business owner to do some of the tasks, leaving the more time consuming or difficult processes to the experts…and leaving family relationships and/or friendships intact.

Communication and trust are keys to working with any bookkeeper, whether it is in-house or an outside firm.  Interview several bookkeepers to find a good fit and make sure you understand the fee structure and expectations. It is important to review reports on a regular, monthly basis. Also, make sure that taxes and bills are paid on time. When you have an active part in such a review of financial reports, your business will continue to have current information…critical for making smart decisions.

Knowing that your financial interests are being taken care with quality bookkeeping will ease the way for you to focus on your strengths, to build the business.

 

Electronic Payment of Taxes - Probably Not an Option Anymore!

    Previously, once your business’s federal tax liability (including all taxes) during a calendar year exceeded $200,000 or your payroll tax deposits exceeded $50,000, you were required to use EFTPS or Electronic Federal Tax Payment System, in the second succeeding calendar year.  However, under a proposed rule from the U.S. Treasury (REG-153340-09), any business with a tax deposit requirement would have to make deposits electronically as of January 1, 2011.  The Financial Management Service (FMS), a Bureau of the Treasury Department, beginning in 2011, is eliminating the system that enables the processing of Federal Tax Deposit (FTD) coupons.  Accordingly, these proposed regulations require the use of EFTPS for all FTDs, effective January 1, 2011, which is not that far away.  Designated federal taxes include employment taxes, corporate income taxes, social security taxes, FUTA tax, excise taxes and various other types of non-payroll withholding.
    EFTPS, or Electronic Federal Tax Payment System, is provided FREE by the U.S. Treasury Department for payment of federal taxes via the Internet or by phone 24/7.  It is handled by a secure government website that uses the highest level of security.  The system can only be accessed through a secure Internet browser with 128-bit encryption.  When you enroll or to gain access to your account, you must provide three forms of unique information – a taxpayer identity (EIN or SSN), EFTPS Pin#, and a password.  They claim it is secure, fast, accurate, convenient, easy to use and reduces penalties.  Once enrolled, business taxpayers can use the system to make all their federal tax payments via the Internet or by phone.  Both methods are interchangeable.  Via the Internet you can initiate a tax payment 24 hours a day, 7 days a week.  Also, you can conveniently schedule tax payments up to 120 days in advance of a tax due date.   It takes about two weeks after you enroll to receive an enrollment confirmation, so plan ahead.  For more information about enrolling in EFTPS, visit www.eftps.gov to get started.
    So get ready to make the change and (maybe) get rid of those paper FTD coupons, you probably won’t be able to use them after the first of the year. 

Business or Hobby?

By Leonard Holler, Wyoming Entrepreneur – Small Business Development Center Regional Director and Certified Public Accountant.

Brian from Torrington asks, “If my business is losing money will the IRS say that it is just a hobby and disallow my loss?”

The Internal Revenue Service looks at unprofitable businesses with a doubtful eye. The laws and regulations, however, do not provide a specific definition of what constitutes a trade or business because no single definition can apply to all cases. Generally, a trade or business must be an activity that is carried on with a profit motive and have economic activity conducted. The problem is that the "burden-of-proof" is the business owner's.

Here are some key factors the IRS considers in determining whether activities are engaged in for a profit. However, no one factor controls the decision by itself:

(1) The manner in which the taxpayer conducts his or her business activity is important. It must be done in a business-like manner similar to other profitable operations. One should maintain complete and accurate books. Budgets and financial forecasts are helpful. It is also helpful to belong to your industry's associations, attend educational seminars and subscribe to professional magazines and journals.

(2) The expertise of the business owner is important. Have you been trained in this business, studied the industry, or consulted with experts in the field? Have you sought advice from qualified advisors and then followed it? If not, have you documented the reasons why you did not?

(3) Time and effort spent toward your business is another key factor. Are you devoting enough time to the business activity? This does not mean you specifically if you have hired competent and qualified employees. If you left another job to spend more time on this business that may be evidence of a profit motive.

(4) Is there an expectation of asset appreciation? Anticipated asset appreciation must exceed anticipated losses for this to help your cause.

(5) Your success in other profitable business ventures is an indicator that future profitability may be achievable.

(6) Relying on profits from the business for personal living expenses is an indicator you operate a legitimate business. However, occasional small profits from a business generating substantial losses would be questioned.

(7) Do you have substantial income from other sources? If so, the IRS may question your profit motive. Any tax savings from your business activity is a factor against you.

(8) Elements of pleasure or recreation derived from your business activity may indicate you are not in it for profit. Actually the "lack of appeal", other than profit, will help significantly.

(9) Start-up losses that are present do not control the distinction either, but continued losses without any attempts to improve or correct your business might indicate you are not engaged in it for a profit. There must be a good faith objective and expectation of making a profit to have the business taxed as such. If your business is struggling -- seek advice, consider its effect on your business's profitability and if you think it will make your business more profitable, why not implement the changes. It will help support your argument that you are in BUSINESS and it is not just a HOBBY.

Financial Health Check-up 2.0

About two years ago, Wyoming Entrepreneur.Biz rolled out a program called a Financial Health Check-up that uses a combination of computer software and our internal experience in the area of financial analysis to help business owners feel more comfortable with their financial reports.  Many, in fact most, business owners would rather sell their service or manufacture their product then spend time looking at numbers.  However they also realize that it is important to the long term success of their enterprise.

Our program consists of a computer analysis of the historical financial data that will compare a local business to others in the industry as well as look at trends within the business itself.  The result is an easy-to-read narrative report that can be viewed by the owner or with the assistance of an SBDC counselor.

Another aspect of this program is the ability to do some forecasting and see what the financial picture might look like if certain changes were implemented.  With any projection there are lots of variables and uncertainty, but at least it gives the business a place to start.  To learn more about this FREE service, contact Bruce Morse at 800-383-0371 or via e-mail at [email protected].

Credit Card Debt an Indicator of Business Failure

A new study out by the Kauffman Foundation finds that the use of credit card debt by start-up companies reduces the likelyhood the company will survive the first three years.

The study, The Use of Credit Card Debt by New Firms, indicates that while credit card debt can provide needed short-term financing, over-reliance on credit cards drain liquidity from the business and negatively impact its financial stability.  The study suggests that every $1,000 in credit card debt will increase a firm's chance of closing by 2.2%.  This means that a firm with $10,000 in credit card debt will be 22% more likely to fail!

The full study is available on Kauffman's website at: http://www.kauffman.org/uploadedFiles/kfs_credit_card_debt_report.pdf. 

If you are an entrepreneur, what has been your experience with credit card debt and your business?

Protect Your Accounting Data Two Ways

Today's guest blogger is Becky McCray from Small Biz Survival. Her bio follows her post!

From Becky McCray...

As the last invoices and statements come in and you finish up your 2008 accounting, it's time to backup your accounting records. Here are two important ways you protect your data.

1. Take a backup offsite

Yes, offsite can include online. The goal is to be sure you don't keep all the copies of your accounting data in the same building. In the event of a disaster, you will be glad you went offsite.

2. Run your year-end reports on paper.

Why paper? Because you need to keep data up to 10 years. Will you still be able to open those zipped backup files in 10 years? Will you still have the same accounting software? Probably not. Paper is your best data insurance over the long term. Store these off-site as well.

Here are the three types of reports you want to get on paper, along with the likely report titles:

• Your basic financial position: Profit and Loss, and Balance Sheet
  
• Detail of every transaction: Transaction Detail by Account
  
• Important payroll tax totals: Employee Earnings Summary

The basic financial and detail reports document your company's year. The detail of every transaction for the entire year is going to take some time, so you may want to print it month by month, rather than all year at once. The payroll tax reports protect you in case an employee ever questions withholding, perhaps even years after the fact.

I honestly hope you'll never need your backups. But you'll feel better once you get them done.

Becky McCray is a small town entrepreneur. She writes about small business and rural issues, based on her own successes and failures. She is the co-owner of a small town retail liquor store and small cattle ranch. As a consultant, she helps small businesses to maintain their web presence and helps rural nonprofits and governments with grant writing and project management.

The 5 Days of Christmas......Accounting Style

On the first day of Christmas my part time help found a box of uncategorized receipts for the year.

On the second day of Christmas my part time help found 2 unpaid invoices from 6 months ago and a box of uncategorized receipts for the year.

On the third day of Christmas my part time help found 3 returned checks, 2 unpaid invoices from 6 months ago and a box of uncategorized receipts for the year.

On the fourth day of Christmas my part time help found 4 checks to deposit, 3 returned checks, 2 unpaid invoices from 6 months ago and a box of uncategorized receipts for the year.

On the fifth day of Christmas my part time help found 5 IRS LETTERS, 4 checks to deposit, 3 returned checks, 2 unpaid invoices from 6 months ago and a box of uncategorized receipts for the year.

Do these verses look familiar? The New Year is a perfect time to think about starting a manual or software accounting system for your business. The key to using either system is in the initial set-up. Software company's advertise how "easy" it is to get started using their accounting package, and it is. Everything is great until the business owner has his taxes prepared or tries to get a loan only to find out the set-up was incorrect from the start!!!!!

Has anyone had a similar experience? How easy was it to fix the problem?

Unless you have an abundance of time on your hands, make sure you have an accounting professional set up or review your work prior to inputting data the first time.

 

Financial Analysis: What's All the Excitement About?

Ok, so maybe analyzing financial statements is not the most exciting thing to do.  It probably ranks right up there with listening to an economist for 4 hours.  However most small businesses could take advantage of a better understanding of their current financial position in order to make the business more successful and profitable.  That's where we can help.  Wyoming Entrepreneur.biz has invested in a program that assists businesses in understanding the financial numbers in a way that is not intimidating.  We call this service the Financial Health Check-up.  With very little effort - basically the business supplies at least 2 years of financial statements - we can generate an easy to understand report that points out possible areas for improvement and strategies to get there.  To learn more, check out the hot link on www.wyen.biz.