Today, we will be giving you bookkeeping tips to help you better organize your companies’ finances.

If you’re a new business owner or even if you already have a business up and running and want to improve the bookkeeping of your business, then this post is for you!

Bookkeeping for your business is super important and deserves your utmost attention.

We’re sure you probably heard the staggering statistic that 9 out of every 10 small businesses fail.

BUT not only that. They fail because of financial mismanagement.

This is really not a surprise to us because most business owners are not CPAs or accountants. And at the end of the day, accounting is the language of business.

So if you don’t understand that language, it makes it harder to conduct business in a profitable, successful way.

That is the unfortunate hard truth of the matter BUT we will say bookkeeping and finances are skills that can all be learned and mastered.

So to help you avoid the headache and heartache of possibly mismanaging the finances in your business, today we’re going to give you 6 helpful tips on managing the bookkeeping in your business and to make the process easier overall.

6 Bookkeeping Tips For Your Business

Bookkeeping Tip #1: Don’t Mix Personal and Business Finances

One of the most common mistakes made by business owners, especially in the beginning, is when they don’t separate their business transactions from their personal ones.

Well, let’s think about this.

Why do you need to separate your personal and business finances?

A. Well for one, your tax accountant will need to see your income and expenses for just the business to file those taxes.

And separating business expenses vs personal expenses is time-consuming.

B. There is also a possibility that you might miss out on valuable deductions because you were not able to properly identify them.

Maybe when you were separating business vs personal, you may have overlooked some possible tax write-offs.

C. The worst-case scenario is you are going to end up misclassifying personal expenses as business expenses and the IRS catches it.

And then you’ll have bigger issues on your hands which might result in penalties owed to the IRS for the misrepresentation of your business income.

In addition to these reasons, certain entity structures like LLCs and C Corporations are actually required to have separate personal and business accounts according to the IRS.

Having your own business bank account, separate of your personal account:

• Allows you to easily monitor your business expenses
• Helps you in organizing your accounting records
• Helps establish your business credit rating

Bookkeeping Tip #2: Track Your Business Transactions

So first, make sure to keep your accounting records updated and business transactions all accounted for, whether it is a sale or expense transaction.

By keeping the supporting documents, it will help you to easily track and record the transactions in your accounting records.

It will also serve as proof if you are ever audited by the IRS.

You should hold on to supporting documents for at least 6 years since this is how far back the IRS can audit your tax returns.

Supporting documents includes:

• invoices,
• receipts,
• bank statements,
• wage records,
• tax filings

You need to have a proper filing and archiving of these documents to easily locate them in the future.

There are 3 basic filing systems:

1. Paper system – so keeping paper records in a safe and secured place.
2. Electronic system on your computer’s hard drive – This will require you to scan or download and save all your documents on your computer.
3. Through online document storage – Instead of saving to your computer, you will be saving all your documents to a cloud system for safekeeping.

Bookkeeping Tip #3: Keep Track of Accounts Receivable or AR Transactions

Accounts receivable represents the amounts your customers owe you.

Sales are the lifeline of your business, that’s how you survive.

However, sales is one thing but collecting on your sales is another.

It is very important that you can monitor your outstanding receivables and keep track of the customers that owe you.

For product-based businesses, this is not so much of a concern because usually, customers pay for the product before they leave with it.

But if you are in a service-based business and perform services before you collect a payment, this tip is critical in maintaining the cash flow in your business.

In order to monitor your receivables, make a conscious effort on following up on your outstanding invoices with customers.

And if you can, offer some discounts on those who make early payments. Or even apply fees to those who pay you late.

Bookkeeping Tip #4: Review Your Financial Reports Regularly

Whether it’s weekly or monthly, as a business owner, you need to review the company’s financial reports.

There are 2 main types of financial reports you should be reviewing:

• Balance Sheet

This will give you information on the assets and liabilities your company has. This is also where you’ll find any outstanding receivables or payables (vendors you owe) and the balance of each.

• Income Statement

This will tell the sales and expenses you incurred. The bottom line on the income statement is either a profit or loss amount.

Bookkeeping Tip #5: Use an Accounting Software

Why is accounting software valuable for you?

It will give you the ability to access your financial information anytime in a concise and organized way.

It will allow you to prepare and review your financial statements, as mentioned in tip #4.

You can track your invoices, pay your bills and do monthly reconciliations (ensuring that your accounting records are complete and accurate).

Accounting software should be catered to your business so it is important to customize your:

• chart of accounts
• products and services
• customers
• vendors
• invoices

…all within the program.

Bookkeeping Tip #6: Outsource Your Bookkeeping to a Professional

Lastly, on our bookkeeping tips list, after establishing your own accounting software, you might find yourself too busy or just overwhelmed by the task of bookkeeping.

You might want to hire a professional bookkeeper or an accounting firm.

Outsourcing your bookkeeping might be better than actually hiring in-house bookkeeping because it is cost-effective.

Outsourced bookkeepers usually charge a fixed fee based on the hours worked or volume of transactions you have. Compared to an in-house bookkeeper who might require a full-time wage.

In addition, outsourcing your bookkeeping will give you peace of mind that everything is being accounted for and done correctly.

A professional bookkeeper can help do the following:

• Enter and categorize your transactions
• Do the monthly bank reconciliations for your bank and credit cards
• Prepare sales invoices
• Prepare monthly reports

Final Takeaways

We hope this bookkeeping tips post helped you not just in maintaining your accounting records but also in running and understanding more about your business’ finances.

And if you’re considering outsourcing your business’ bookkeeping, our amazing team is here to help you out. Get in touch with us today!

The post 6 Bookkeeping Tips for Your Business! What You Actually Need to Know appeared first on Small Business Accounting & Finance Blog.

Imagine you have a 20 dollar bill, and that money is earned by providing a service and as a result, the business has the freedom to spend it, invest it or save it.

Regardless of what happens to that 20 dollars next, these transactions have started bookkeeping and accounting processes.

But a lot of people are still confused when it comes to bookkeeping vs accounting. They want to know:

• What are the differences?
• Why do I need them?
• How much do they cost?

At LYFE Accounting, we’ve helped companies with their bookkeeping and accounting processes.

We’ve helped companies with preparing their financial statements. And we’ve helped companies save a lot of money with tax preparations.

So if you’re in a business, then understanding your financials is really important.

So important that according to Investopedia, one of the most common reasons small businesses fail is due to a lack of capital or funding.

And from our personal experience, most small business owners understand their expenses.

They know they have rent to pay. They have to pay their employees. They have to pay their lenders…

Where most people fail is not understanding their revenue. Thus, they end up investing a lot of profits into poor-performing products and services, which ultimately leads to business failure.

But, we can help eliminate some of those risks through proper financial processes.

So today, we’re going to give you three simple points that you should know about bookkeeping vs accounting.

Let’s go ahead and get started with point number one.

Bookkeeping vs Accounting: What’s the Difference?

I. Defining Accounting and Bookkeeping

Technically, the definition of bookkeeping is the activity or occupation of keeping records for the financial affairs of a business.

In other words, bookkeeping is about recording data and transactions.

Let’s think about the 20 dollar bill from earlier.

A good bookkeeper would be able to tell you all the transactions that led up to that 20 dollars. And all the transactions that followed it afterward.

In contrast, the full definition of accounting is the action or process of keeping financial accounts.

In other words, accounting helps you summarize all your transactions into reports.

Going back to our 20 dollars, a good accountant would be able to locate your transactions, summarize and make some honest conclusions about how you’re spending your money.

In short, bookkeeping can provide you with a very micro view of your financials, while accounting can provide you with a macro view of your financials.

II. Why Do You Need Bookkeeping or Accounting?

By now, it’s probably easy to see that bookkeeping and accounting work together. You can’t produce financial reports without data, and without a report, your data is pointless.

But that’s just scratching the surface.

Here’s an example:

Imagine you own a bakery and you sell three types of cookies. You have sugar cookies, chocolate chips, and oatmeal raisins.

Every month, you pay your expenses and you realize you’re profitable.

After a minute feeling of success, you decide you want to grow even more, so you add on a fourth cookie- a macadamia nut cookie.

Yet in the following month, the profits go down. So you decide to add another cookie. This time a snickerdoodle.

And yet it’ll cost you a bit more but you’re sure that people are gonna love them. Yet again, the following month, your profits turned negative.

And suddenly, you’re scared about your future.

After getting some help from an accountant, you found that your chocolate chip cookies were actually driving 50% of your profits.

And the reason your profits went down was that you cut back on chocolate chip cookies to introduce your new cookie product.

As you can see from a little bit of insight, you can make key business decisions.

In addition, a bookkeeper’s task can help you out with many other tasks such as:

• Employee payroll
• Bill pay
• Invoicing
• Reconciliation

Whereas an accountant can help you out with tasks that include:

• Tax preparation
• Loan applications
• Letter generation
• Overall setup

These are all the tasks you won’t have to worry about as a small business owner, thus giving you more time and more understanding within your business.

III. How Much Should You Spend?

The main drivers of price when it comes to bookkeepers and accountants are their level of knowledge and skills.

A good bookkeeper generally requires no schooling or experience. They only must possess the skills or cognitive ability to follow their tasks.

For this reason, an independent bookkeeper may charge anywhere in between $10 to $20 per hour based on their experience.

However, an accountant generally requires some level of education and experience.

Usually, they possess a Bachelor’s Degree and have worked in some kind of entry-level accounting position.

Most independent accountants can demand a price between $50 to $200 per hour based on their experience.

For example, a CPA or Certified Public Accountant must pass a very rigorous exam that proves their competency in accounting.

For this reason, an independent CPA can demand a higher hourly rate- usually between $200 to $250 per hour.

The key is to identify what your weaknesses are and what your needs are.

For example, if you’re looking to save some time on mundane tasks, a bookkeeper may be a good fit.

However, if you need some help understanding your financials on a deep level and preparing a tax return, then an accountant may be a better fit for you.

But if you’re just starting out or you don’t have any business yet, then you probably don’t need either.

Conclusion

When it comes to bookkeeping vs accounting, there are no one-size-fits-all.

In our opinion, it really boils down to your personal skills set, your interest, and where your business is today.

And if you need help with bookkeeping, accounting, with your business taxes, or need a reliable financial advisor to guide you- then you can count on us for that.

Simply click this link to get started!

The post Bookkeeping vs Accounting: What’s the Difference? How Should You Choose? appeared first on Small Business Accounting & Finance Blog.

Today, we’re going to give you 15 reasons why bookkeeping is important.

You heard that right, not 5 but 15 convincing and valid reasons.

We know that there are a ton of things that are important to businesses owners like:

• sales
• marketing
• training
• service delivery

…and much more.

But if we were you, we’d place bookkeeping at the top of our important list as it affects literally everything we just mentioned, which you’ll see why and how by end of this post.

In fact, if you are doubtful that bookkeeping is important, we want to pose a question that we want you to answer at the end of this article!

The question is this:

What story is your bookkeeping telling you? Is it a horror story or one where the main character is triumphant?

We’ll come back to that! So let’s talk about why bookkeeping is important. Here are 15 reasons:

15 Reasons Why Bookkeeping is Important for Businesses

1. It Helps You Stay Organized

You’re probably saying now, really, that’s what you start with? Well, hear us out.

Being organized is a skill every business owner should have. You should be able to find information regarding your business at any time.

There are a few parties that are interested in your company’s financial records – the IRS, employees, investors, lenders, and most importantly, YOU!

Being able to provide the information requested by these parties is vital to your ongoing operation.

• If you don’t have the information for yourself you could make a financial decision that could cripple your business.
• If you don’t provide records requested by the IRS, that could mean penalties and fees.
• If you don’t provide records requested by investors or lenders, that could mean a stoppage of cash flow and so on.

Being disorganized with your books could cause your relationships with these parties to be compromised or terminated altogether.

Literally, by definition, bookkeeping is the organization of financial information.

Keeping your financial records organized makes it easier to locate and provide to appropriate parties.

2. It Helps You Budget

Bookkeeping is important because it helps you budget.

When income and expenses are properly organized, it makes it easier to review financial resources and expenses.

A budget creates a financial roadmap for your business.

With a budget, you can plan for future expenses and the anticipated resources that would cover those expenses.

3. It Helps You With Tax Preparation

In most cases, your business has to file a tax return every year. Even more, you also have to file a personal return that requires your business return to be filed.

And yet every year, millions of business owners are scrambling through their desks to find missing paperwork. Sound familiar?

The tax filing process can be made more efficient by simply having a bookkeeping function within your company.

4. It Helps You With Performance Analysis

Bookkeeping is a tool used by management to analyze business performance.

The product of bookkeeping is financial statements. Financial statements should be regularly generated and used for analysis.

By analyzing financial statements, you can track your cash inflows and outflows which lets you know what business activities are working or not working.

This type of analysis allows you to focus on your company’s strengths and improve on its weaknesses.

5. It Helps You Make Better Decisions

With analysis comes better decision-making. In order to make the best decisions possible, you need to have access to all available information.

Bookkeeping is important because it provides you this information.

How can you expect to make profitable decisions without financial information to back it up?

6. It Helps You Plan For The Future

Bookkeeping presents the past financial performance of your company. In order to plan for the future, you have to have a good understanding of the past.

This includes planning for strategic purposes and tax planning as mentioned previously.

7. It Helps You Easily Report to Investors

Investors want to know the financial performance of your business to be able to want to quantify the value of their investment. Financial statements do just that.

The balance sheet, income statement, and cash flow statement all present the value of your business, which allows investors to have up-to-date and accessible information.

Investors will be able to make better, well-informed, decisions which is the ultimate purpose of bookkeeping.

Bookkeeping is not only for current investors but for future investors too.

Prospective investors are more likely to invest in your business when you have organized financial information.

Think about it, if you were an investor, would you invest in a company that didn’t have accessible and organized financial records?

8. It Helps You With Financial Management

Bookkeeping is important because it allows you to take control of your business’ finances.

Bookkeeping paints a clear picture of how you spend money.

You can see outstanding invoices owed by you or your customers. You will benefit from paying your bills on time and receiving payment for your products or services on time too.

It’s this delicate balance of cash inflow and outflow that will keep your business going.

9. It Gives You Peace of Mind

Disorganized books can weigh heavy on your mind as a business owner.

With all of the other factors of running a business, your bookkeeping should not be keeping you up at night.

When your books are complete, you can rest easy knowing that your company’s financial information is review-ready.

Banks or the IRS no longer have to give you anxiety.

Instead, you’ll find your mind at ease and more focused on other elements of your business.

10. It Allows You To Track Profit and Growth

Want to know your business’ profitability? Start bookkeeping.

For example, the income statement is one of the financial statements that is prepared from your bookkeeping.

On the income statement, you can see if your business is profitable or not. Without this information, it is impossible to know how well (or not so well) you’re doing.

Bookkeeping also helps with tracking growth.

Over time, you will accumulate months and years of data.

With this data, you can observe trends and gain a greater understanding of your business cycles and compare results across periods.

11. It Improves Your Cash Flow

How does bookkeeping help improve cash flow?

Because bookkeeping provides information regarding your outstanding invoices…

• customer/vendor name,
• amount,
• date issued, and
• due date

…which can be used to implement better cash flow policies.

Some examples are shortening the amount of time you allow your customers to pay you.

On the flip side, you can delay the payment of vendor invoices by waiting until a day or two before the due date.

By doing so, you are increasing the average amount of cash you have on hand at any given time.

12. It Provides a Greater Focus on Strategy

Tactical and strategic planning is the core of what you do as a business owner. You’re always thinking of ways to grow and develop your business.

With bookkeeping as a tool, you are closer to your short and long-term goals.

You should use the information that bookkeeping offers to focus on strategy.

You can track the results of your strategy with bookkeeping and adjust goals accordingly.

13. It Provides a Snapshot of Your Business

Bookkeeping provides financial information about your company in the form of financial statements.

Financial statements like the balance sheet, income statement, and cash flow statement all provide financial information for a set period of time.

Together, these statements take a snapshot of your business allowing you the ability to see how well your business performed.

14. It Makes an IRS Audit Easier

Let us say this… we hope you never get audited by the IRS!

But in the unfortunate circumstance that you are audited by the IRS, you want to make sure your books are in order.

Messy books prolong the auditing process, making your business more susceptible to fees and penalties.

If the IRS feels that your books are disorganized or outdated, they have more motivation to impose penalties.

When faced with an audit, it’s best to make their job as easy as possible by providing what they request in a timely manner.

15. It’s a Requirement Under Law

Last, but certainly not least, the law requires you to keep financial records for your company.

Depending on your legal structure, the law requires you to keep financial records separate from your personal expenses.

Failing to do so, can lead to the termination of your business.

Takeaways

There you have it. Now that you know the 15 reasons why bookkeeping is important, let’s revisit the question we asked you earlier.

What story is your bookkeeping telling you? Let us know in the comments.

If you find yourself needing to implement a bookkeeping process, consider hiring a bookkeeping professional to help such as the LYFE Accounting team.

Contact us today to learn more about how we can help you.

The post Why Bookkeeping is Important [15 Things Small Businesses Should Know] appeared first on Small Business Accounting & Finance Blog.

Today, we’ll be deep-diving into the bookkeeping basics for small business.

And by the end of this post, you’ll understand the importance of bookkeeping and how to properly complete your bookkeeping in just a few simple steps.

You see, here at LYFE Accounting, we handle the books for small business owners every day.

And, we have a time-tested 6-step process that helps small businesses make better financial decisions that lead to greater profitability.

Whether you are a new business owner or a serial entrepreneur, the 6 step process we’re going to share with you will be easy to follow and hard to get wrong.

Ready to learn the bookkeeping basics for small business?

Let’s get started by answering this question first- what is bookkeeping?

Bookkeeping Basics: What Is It and Why Is It Important?

The textbook definition of bookkeeping is…

the routine, systematic method of retrieving financial information, categorizing that information, inputting it into an accounting system, and generating reports which are used by decision-makers to make better financial decisions for their business.

That’s a mouthful!

More simply, bookkeeping.

Have you ever thought about expanding your business? Of course, you have!

Most business owners would love to grow their business to the next level.

But the reason why the majority do not is that they are unsure as to the how. How can you grow your business?

The answer is in your bookkeeping and your bookkeeping should be completed every month.

Now that we understand what bookkeeping is and why it’s important, let’s discuss the 6 steps to actually perform the bookkeeping basics.

Bookkeeping Basics: 6 Step Process

Bookkeeping basics can be broken down into 6 steps.

A bookkeeping service is usually responsible for the first 4 steps but you can also do it yourself. The last 2 steps are your responsibility but the fun part.

As stated before, small business bookkeeping is there to help you make decisions.

Step 1: Gather Source Documentation

Source documents are original records containing details of a transaction. Examples include an invoice, sales order, or a receipt.

All of these documents have a date, buyer/seller, amount, and product/service provided.

This is the information your bookkeeper or yourself needs to start the small business bookkeeping process.

In today’s online world, most people don’t keep up with physical copies of all of their source documents. Instead, they rely on their bank statements to tell the story.

In most cases, bank or credit card statements have all of the information needed to substantiate a business transaction.

Keep in mind that cash transactions are not recognizable using bank statements alone.

If you have cash transactions, you have to retain the physical receipt or recall the purpose of the cash transaction and communicate that to your bookkeeper if you have one.

Your bookkeeper can then correctly classify those types of transactions.

As a tip, it’s good practice to use credit or debit cards to make and receive all payments.

This way, you or your bookkeeper can rely mostly on your bank statements to classify transactions making step 1 extremely easy.

Step 2: Categorize Your Transactions

Understanding what is bookkeeping is understanding that every transaction needs to be classified into a specific category. It is the core of the bookkeeping process.

In step 2, you or your bookkeeper will need to categorize your transactions depending on their business purpose.

There are 5 main categories that transactions fall into:

• Assets
• Liabilities
• Equity
• Revenue
• Expenses

Each one of these categories can be broken down further into subcategories. For example, you could have a subcategory for inventory that would fall under the asset main category.

The first step of categorizing is identifying which main category a transaction belongs to.

Assets are defined as resources that have some future economic benefit. For example, cash would be an asset. It is a resource and can be used in the future to benefit your business.

Liabilities are future obligations. Examples are a payroll liability or a loan from a bank.

Equity is ownership interest. Equity increases with revenue and capital contributions. Equity is decreased with expenses and distributions.

Revenue is generated by the sale of products or services.

Expenses are the costs incurred to generate revenue. Expenses could be the cost of goods sold or supplies.

Most bookkeepers will use accounting software to help with the organization and classification of transactions. Bookkeeping is no longer a pencil and paper process.

Step 3: Reconciling Your Transactions

A good bookkeeper will correctly classify transactions. A great bookkeeper will reconcile transactions to make sure everything is accounted for.

The idea of reconciling is simple. It is the process of matching all of your transactions on your bank statements to what is in your accounting software.

When you or your bookkeeper is dealing with hundreds or even thousands of transactions, it can be easy to double count a transaction or two. Or accidentally miss one.

But reconciling helps to catch all errors.

Start with the beginning balance on your statements (which should match what’s in your accounting program) and check line by line that every transaction is accounted for.

Step 4: Preparing Financial Statements

The last step for a bookkeeper is to prepare financial statements.

The process of adding, classifying, and reconciling your transactions provides the inputs for your financial statements.

There are 3 main financial statements that should be prepared: the balance sheet, income statement, and cash flow statement.

1. Balance Sheet

The balance sheet is also known as the statement of financial position. It contains asset, liability, and equity transactions.

What makes the balance sheet unique from the other financial statements is its balancing component.

Assets on the balance sheet must equal liabilities plus equity. If not, your balance sheet is out of balance!

2. Income Statement

The income statement is also known as the profit and loss statement. It contains revenue and expense transactions.

The income statement tells you how profitable you are during a certain period.

3. Cash Flow Statement

The cash flow statement has 3 components:

• cash from operations
• cash from financing
• cash from investments

The cash flow statement shows how transactions from the balance sheet and income statement affect your cash account.

Have you ever heard the saying cash is king? Well, it is true.

Investors and creditors want to know if you have cash on hand. Without cash, your business is not sustainable.

Good job! We’ve made it more than halfway through the 6 bookkeeping steps for basics for small businesses.

So, let’s move on to the last two steps. These steps are for business owners specifically.

Steps for Business Owners

Step 1: Read Your Financial Statements

So you or your bookkeeper prepared your financial statements. Now what?

Digging into the details of your company’s financial statements may not sound appealing, even for the most financially savvy business owner.

However, businesses succeed or fail based on what their financial statements are trying to tell them.

Therefore, it is critical for you to understand your financial statements and take advantage of the insight it’s giving you.

This key action is the difference between you having a more profitable business this year than you had last year.

In order to read your financial statements, you should understand how they are structured.

Structure of the Balance Sheet

Remember the balance sheet must balance. The assets are listed first and liabilities and equity are listed last.

• Assets

These are ordered in terms of liquidity or how long it will take for the asset to convert to cash.

For this reason, cash is always the first asset you will see on the balance sheet, followed by other current assets (accounts receivable, inventory).

• Long-term assets

These are listed after the current assets (i.e. equipment).

Fixed assets, like equipment, take into consideration depreciation, a contra asset, that would reduce the asset side of the balance sheet.

Think of depreciation as the amount of an asset that has been “used up”.

• Liabilities

This section is listed similarly to assets. Current liabilities appear before long-term liabilities. Current liabilities are debts due within 12 months.

Common accounts listed under current liabilities are accounts payable, wages payable, and credit cards.

Common accounts listed under long-term liabilities are bank loans, car loans, and capital leases.

• Equity

This section is listed last on the balance sheet. It shows the ownership of the business.

It is sometimes referred to as the “book value” or net worth of a business since its value equals assets minus liabilities.

Also, retained earnings is a section within equity. Retained earnings are the dollar amount of earnings reinvested in the business.

Structure of the Income Statement

The first component of the income statement is revenue (a.k.a. the top line). It is the dollar amount of product or service sold at a given time.

The revenue section may be broken down further into specific types of income based on products or services.

The next item is the cost of goods sold or cost of sales. These are the direct expenses associated with selling your products or services.

Examples are inventory costs and labor.

The difference between the revenue and cost of sales is gross profit.

The other expenses of the business are listed below the gross profit.

“The bottom line” of the income statement is the net income.

It is the amount after subtracting all of the expenses of the business. It answers the question, “what is the profit or loss of the business?”

Structure of the Cash Flow Statement

The cash flow statement tracks the cash coming in and going out of your business. These cash inflows and outflows are broken into 3 categories:

• operating
• financing
• investing

Cash flows from operations is the cash activities related to performing the regular, ongoing activities of your business.

Activities like selling products or services would be considered cash flows from operating activities.

Cash flows from financing relates to the capital raising activities of your business. So if your business borrows money from a bank, that is considered a financing activity.

When your business starts repaying the loan, that is a financing activity. Financing activities don’t just relate to loans but equity funding too.

So if your business issues stock to investors, that too is a financing activity.

Cash flows from investing relates to the gains and losses from your business’ investments.

If your business invests in the stock market, that is considered an investing activity. When your business buys stock in another company, that is an investing activity.

Now, the last and final step for you as a business owner is to MAKE DECISIONS.

Step 2: Make Decisions Based On The Data

One of the most important purposes of bookkeeping is to help you make better, more profitable decisions.

Every day, business owners are faced with decisions concerning all areas of their business.

Answering the age-old question, “How can I make more without spending more?”

You now have gained familiarity with the 3 most common financial statements. Now, it’s time to learn how to use these statements to make well-informed business decisions.

The balance sheet outlines your company’s assets, liabilities, and equity.

As such, the balance sheet can be used to gauge the liquidity and sustainability of your company.

Let’s take an example of a company that has $1,000,000 in net income. Their balance sheet shows 3 months of income in accounts receivable.

Knowing this information, the owner might decide to shorten the collection period to have more cash on hand.

Next, the income statement tells you the operating performance of your company. It lists out the revenues and expenses and spits out a profit or loss.

However, the income statement tells you a lot more than that.

The details of the income statement can help you focus on the strengths of your company and improve on its weaknesses.

You’re able to see which product/service lines are performing better and how much you are spending in each area.

The cash flows statement tells you how much cash your company has on hand and whether or not it’s staying afloat.

It shows if your business is able to pay its debts as they come due which is a component potential lenders and investors are interested in.

If your operating cash flow has decreased, then you might reassess some of your operating costs or pricing.

Final Takeaways

We’ve said it before and we’ll say it again.

Bookkeeping is a key action that can be the difference between you having a more profitable business this year than you had last year.

Simply because you now have accurate financial data to make smarter decisions with.

If you find that you lack the time or knowledge to do your own bookkeeping, consider LYFE Accounting for your bookkeeping basics for small business needs.

We provide you with the financial statements you need to make smart, profitable decisions. Talk to us today!

The post Bookkeeping Basics for Small Business (Everything You Need To Know) appeared first on Small Business Accounting & Finance Blog.

What is it? Why is it important? Need tips to get started? This is bookkeeping 101 for small business owners.

Today, we are going to share with you small business bookkeeping tips and tricks to getting your business finances in order!

We just saved a client over $31k in ONE MONTH because of bookkeeping!

This client improved their profit by over $31,000 after ONE month of working with me and prioritizing her bookkeeping.

Now we know what you might be thinking. You may be thinking:

• But I can’t afford a CPA to work with on a monthly basis.
• I want to do this myself.

Or maybe you just want a better grip on your small business bookkeeping so you can make decisions to grow your business

Either way, you cannot avoid doing your books. If you don’t, you’re not going to be able to file your business taxes.

And even worse, you won’t be able to run your business because you won’t know what’s going on financially.

So to prevent this, in this post we’re going to explain bookkeeping 101 for small businesses.

Specifically, we’re going to breakdown:

• What is bookkeeping?
• Why bookkeeping is CRITICAL & NECESSARY in your business?
• How does it work?
• Tips on getting started and growing your business.

Bookkeeping 101: What is Bookkeeping?

Bookkeeping is the process of tracking your income and expenses.

That’s it!

Most people like to believe it is more than that. Normally, they are just intimidated by numbers but honestly, it’s simple.

Bookkeeping is just tracking your income and expenses.

Now, how you use your bookkeeping to grow your business is the game-changer.  

Bookkeeping 101: Why Is Bookkeeping Important?

Bookkeeping can dramatically improve the bottom line of a company.

Here are the main reasons why bookkeeping is important and necessary in your business? 

1. Bookkeeping helps you budget.

When you’re properly tracking your business income and expenses, it makes it easier to manage your financial resources.

Budgeting creates a financial roadmap for your business so there aren’t any surprises. 

2. Bookkeeping is necessary for tax preparation.

In most cases, your business has to file a tax return every year. And every year, it’s a hassle.

Sound familiar? The tax filing process can be made more efficient by simply having bookkeeping within your company.  

Bookkeeping is important for filing your personal tax return too.

As a business owner, a large part of your income comes from your business. In order to know what you earned, you have to know what your business earned first.

3. Bookkeeping helps you make business decisions.

Bookkeeping is important because it helps you make better business decisions by first understanding your financial performance.

Remember, the client we referenced at the beginning that saved $31,000 through bookkeeping?

The product of bookkeeping is financial statements. Financial statements should be regularly prepared and used for decision-making.

While reviewing your financial statements, you can track your cash inflows and outflows and overall profitability.

This is what you want as a business owner…. profits.

And the only way to improve profits is through useful information. Useful information is derived from bookkeeping. That’s bookkeeping 101.

Bookkeeping 101: How Exactly Does Bookkeeping Work?

Think of bookkeeping for your small business as a cycle.

It starts with a transaction.

You could either be the buyer or seller in this transaction. It doesn’t matter because, at the end of the day, ALL transactions impact your bookkeeping.

As a result of the transaction, there should be some type of source documentation.

This could be a receipt, invoice, note payable, etc. This documentation serves as sources of information bookkeepers use to record transactions.

Now, if you’re like most business owners, you might find it tedious to keep up with every little receipt so having your monthly bank statements would be a great alternative.

The next part of the bookkeeping cycle is determining the financial effects of the transactions.

This part can be tricky and is usually where the expertise of an accountant or CPA is needed.

In general, all transactions fall into 1 of 5 categories:

1. Sales Revenue
2. Expenses
3. Assets
4. Liabilities
5. Equity

Revenue is what you made from selling your product or service. Revenue is also commonly referred to as Sales.

Expenses are costs incurred related to running your business.  For example, your advertising and office rent costs are expenses.

Assets are resources that are owned by the company with a measurable future value. For example, if you prepaid your rent, this would not become an expense until after each rental period. Until then, is considered an asset.

Another example of an asset is inventory. When you buy inventory, that is an asset because it will have future value when you sell it. It is used to produce future revenue.

Liabilities are what the company owes to creditors. For example, loans or credit cards, are considered liabilities. An easy way to think of liabilities is to just think of debt. Debt payments are not expenses.

Finally, there is equity. Equity is the degree of ownership in your business.

Owner distributions from the company or contributions to the company will typically impact the equity balance in your business.

It is very important to correctly classify each of your business transactions so that you can accurately interpret the financial performance of your business.

Classifying transactions correctly is bookkeeping 101 in a nutshell.

Bookkeeping 101: How to Get Started with Bookkeeping

Here the 5 simple steps to help you get started with getting your business bookkeeping up and running.

Step 1: You must open a business account.

If you’re a sole proprietor, you’re not legally required to do this step.

However, if you want clean and easy books, we highly recommend having a separate bank account for your business.

This is especially important for LLC or C Corp business types.

If the IRS finds out that these types of businesses don’t have a separate account, this could mean the END of their business and grounds for termination by IRS standards.

Furthermore, consider the headache you’ll avoid at tax time by having a separate account.

Instead of cycling through the year’s deposits and expenses and trying to remember what was personal vs business, everything will be centralized in your business bank account.

Most banks offer a business account option.

You just want to make sure you have an EIN or employer identification number which you can request from the IRS.

Step 2: Set up a bookkeeping system.

Bookkeeping is an ongoing process for every business. This process should be completed at least monthly to stay on top of your finances.

One great way to establish a bookkeeping system is to invest in accounting software like QuickBooks or Xero.

These programs allow you to perform monthly, weekly, and even daily bookkeeping tasks.

The best part is that most of these programs enable you to connect your business bank account.

This makes tracking income and expenses easier by eliminating the manual aspect of recording transactions.

In addition, setting up a bookkeeping system is knowing how you’ll classify your expenses.

Remember the 5 categories of bookkeeping we mentioned earlier? It comes to play here.

As transactions are coming in, they’ll need to be placed in the appropriate category.

Each transaction needs to be classified as an asset, liability, equity, revenue, or expenses).

However, it is best practice to drill down even more into what each transaction is.

For example, perhaps you sell clothing online and made a big wholesale purchase of clothes.

Instead of labeling this as inventory, you might find it more useful to label it ‘Summer Inventory’ or ‘Winter Jackets’

Let’s take another example. Perhaps you’re just starting out and are investing a lot into advertising.

You might consider creating subcategories for Google ads, Facebook ads, and print advertisements. This way you can track how much you’re spending in each category.

In accounting, we call this setting up your Chart of Accounts (or COA). This is basically your rubric for classifying transactions in your business.

Step 3: Reconcile your transactions.

Reconciling your transactions is the practice of determining any difference between the balance shown on the bank statement and in your bookkeeping system.

You want to make sure that none of your transactions are missing or double-counted in your bookkeeping program.

Performing a bank reconciliation at least monthly will help you catch errors or even billing mistakes made by your vendors.

Step 4: Prepare your financial statements.

Once everything is categorized and reconciled, you can prepare your financial statements.

Specifically, you should prepare your balance sheet, income statement (or P&L), and cash flow statement.

The balance sheet shows you your outstanding balance in assets, liabilities, and equity.

The income statement shows your profit or loss for a specific period.

The cash flow statement shows the movement of cash related to financing activities, investing activities, and operating activities.

Each of these reports should be prepared and reviewed at least monthly.

And don’t worry, the bulk of work has already been done once all of your transactions are classified and reconciled. Preparing the reports is usually the easy part.

Step 5: Start making business decisions.

There is very little point in doing all of these steps if you aren’t using this information to make better business decisions.

The textbook definition of accounting is centered around one major concept: business decision-making.

As a business owner, you are faced with business decisions day in and day out. And in any decision you make, there are considerations, mostly related to finances.

Intelligent business owners use their bookkeeping to determine things like:

• Would X add value to my company?
• Can I afford X?
• What are the financial implications of X?

These are just a few questions you might ask yourself.

Ultimately, the answers to these types of questions and more are found in your bookkeeping.

Bookkeeping 101 Recap

There you have it. You have just learned the basics of bookkeeping in your business or bookkeeping 101 as we like to call it.

To recap, here are the major items you need to know.

• What is Bookkeeping?

Bookkeeping is simply the tracking of your income and expenses.

• Why is Bookkeeping important?

Bookkeeping is important because it helps you budget, prepare taxes and make business decisions.

• How to Get Started with Bookkeeping? 

To start the bookkeeping process, you need to:

1. Open a business bank account

2. Set up a bookkeeping system.

3. Categorize and reconcile your transactions.

4. Prepare your financial statements.

5. Use those financial statements to make critical business decisions.

If any of this sounds a bit overwhelming, you may want to consider engaging an experienced bookkeeper or accountant to help you tackle this process.

The post Bookkeeping 101: What is it? Is it Important? How to Get Started appeared first on Small Business Accounting & Finance Blog.

They say, “behind every successful business, there’s a good accountant.”

While the quote is simple enough to understand, the context runs deep. Basically, every type of business will encounter financial issues or obligations.

A talented CPA can remedy the situation by offering various accounting services.

If you own a small business, you should understand the popular accounting services and assess your need for one. Some are focused on taxes, while others are meant to improve cash flow.

Here are some of the most common accounting services for your business:

Bookkeeping

Bookkeeping is a commonly requested service from CPAs.

Bookkeepers are responsible for updating a company’s financial information through accounting software. Therefore, a bookkeeper must be tech-savvy.

Key Tasks for Bookkeepers: Financial Updating, Financial Monitoring, Accounts Payable & Receivables

Tax Accounting

Perhaps one of the oldest trades in the world is tax accounting. This is a sub-discipline which involves numerous accounting methods focused on taxes. Governed by the Internal Revenue Code, tax accounting is considered formal and complicated.

Rather than worry about tax rules and policies, you should focus your energy on finding a reliable tax accountant. CPAs can do tax accounting, and they can even formulate specific tax solutions.

Key Tasks for Tax Accountants: Tax Prep, Tax Planning, Financial Tracking, Financial Review

Management Accounting

Even though management accounting can help small businesses, this service is geared effectively for medium-scale and large-scale companies. Management accountants coordinate with managers in recording and analyzing a company’s financial data.

A skilled and determined CPA can commit to a long-term management accounting duty. As your business grows, the CPA specializing in management accounting can provide great assistance.

Keep in mind that management accounting tends to be costly, depending on the size of your business. If you want to save money but don’t want to cut down on the benefits of management accounting, be prepared to look for a CPA who’s willing to offer a flexible deal.

Key Tasks for Management Accountants: Budget Planning, Budget Review, Financial Assessment, Investor Relations

Forensic Accounting

Whenever there’s suspected fraud in a company or organization, forensic accounting can greatly help. Basically, forensic accounting is a discipline focused on financial discrepancies within an agreed time period. Forensic accounting is a highly specialized service.

Because forensic accountants deal with sensitive company data, they need to work with utter discretion. Also, forensic accountants have a clear knowledge of laws and policies. More often than not, forensic accountants coordinate with law enforcement agencies.

Before you get the service of a forensic accountant, you should do a preliminary investigation. This will ensure that all sources of company data are reliable. Plus, you will be able to see the full weight of the suspected fraud.

Key Tasks for Forensic Accountants: Fraud Investigation, Tracking of Missing Funds, Financial Discrepancy Analysis

Management Consulting

Technically, management consulting is a discipline that’s somehow different from general accounting services. Still, some CPAs provide this service and it helped many companies globally.

Management consultants provide an in-depth analysis of your company’s performance. This may or may not be limited to financial advisory. Management consultants also work on special performance review projects.

To gain the most benefits from a management consulting service, take the company review as a framework and set new goals from there. Just remember to keep your new goals aligned with your company’s primary vision.

Key Tasks for Management Consultants: Company Performance Review, Creation of Periodic Company Reports

Auditing

Auditing is an accounting discipline focused on financial verification. Accounting auditors are responsible for checking and reviewing a company’s financial records.

Getting the service of an accounting auditor is situational. You probably won’t need an auditing service all-year round, but it helps at least once. Remember that it’s better to hire an auditor instead of receiving an unexpected visit from an IRS auditor.

Key Tasks for Accounting Auditors: Financial Review, Financial Auditing

How to Pick the Best Accounting Service For Your Business?

Set Your Business Goals & Priorities

Goal-setting is an important part of a small business journey. If your goals are not clear, then you will encounter troubles in growing your business. The same thing applies to searching for accounting services.

By having a clear grasp of your business goals and priorities, you will know which type of accounting service is essential. If your business is about to encounter tax issues, for example, then you should consider getting a tax accounting service.

Talk to a CPA who’s ready to help you. Relay your business goals and priorities. From that point on, the CPA can suggest the best accounting service for your business.

Know Your Financial Situation

One of the main responsibilities of a business owner is to understand the financial situation of his or her business. If you think that your business is about to encounter financial problems, sit back and re-strategize. Or better yet – contact a trustworthy CPA.

CPAs can always handle multiple types of financial accounting services. Just explain your financial situation and a good CPA will propose the right service.

Envision the Best CPA

It’s always important that you treat CPAs as partners of your business. By doing so, the CPA will be happier to work with you. Try to envision the best CPA for your business so that you can manage your expectations properly.

Review Your Company’s Five-Year Plan

A five-year plan is an excellent period for measuring your company’s progress. Based on statistics, many small businesses fail within a five-year window. Of course, some small businesses succeed as well.

By analyzing your company’s five-year plan, you will have an idea which type of accounting service brings the best results. To make your searching process easier, discuss your five-year plan with an accounting firm. From the relayed data, the firm can refer to the best CPA.

Top Qualities of A Dependable Accounting Firm

The best way to secure the services of a CPA is to reach out to an accounting firm. Since there are hundreds of accounting firms operating in the US, it can be difficult to make a choice. However, the process can be easier for your business if you have a checklist of excellent accounting firm qualities.

These are the best accounting firm qualities to watch out for:

Professionalism

Professionalism is a highly required trait, not just in accounting, but in other industries as well. An accounting firm with a high sense of professionalism understands your needs on a greater scale.

A simple situation that highlights professionalism is the way the firm responds to your inquiries. If the firm lets you wait for more than 24 hours, then it’s not worth your time. A professional accounting firm responds fast and values your time.

Another way to measure professionalism is the firm’s way of responding. The accounting firm must be friendly, considerate, and client-oriented. The quality of the response shouldn’t be limited to phone but in other aspects as well – like social media or email.

Once you’ve managed to find a professional accounting firm, stick to it. Sooner or later, you might need the expertise of a CPA. In that case, you are just one call away from getting the help that you need.

Reliability

A reliable accounting firm can help your business in many possible layers. Reliability is an important trait that will measure a firm’s effectiveness in every possible accounting area.

If an accounting firm is reliable in all aspects, you can ask for different kinds of solutions. Very likely, a CPA from that firm is also reliable enough. The same strategy is applicable if you are looking for a CPA focused in one area.

Credibility

An accounting firm handles delicate financial matters and documentation processes. For the sake of your small business, you need to find an accounting firm that’s backed up with strong credentials.

Some of the common credentials that you can look for are educational backgrounds, achievements, certifications, and past work experience.

Bear in mind that credibility is more than just achievement on paper. You can also measure a CPA’s credibility by the way he or she suggests a key solution for your business.

Integrity

Undeniably, integrity is one of the hardest traits to measure. At first glance, there’s no accurate way to determine if a CPA firm has a deep sense of integrity.

The real basis of integrity is the operational mindset of the firm. If the accounting firm is willing to forego moral principles just to attain a certain goal, then that’s a red flag. You’d be better off seeking accounting services elsewhere.

Once you’ve started working with an accounting firm, you will be able to observe its operational methods on a daily basis. Now, you can determine the firm’s level of integrity.

Innovation & Creativity

Innovation is a remarkable trait that can measure the competence of an accounting firm. If the firm is innovative, then it can offer modern solutions to your accounting problems. On the other hand, an innovative CPA will have fresh ideas that can help your business.

Just like innovation, creativity can go a long way. Even though accounting is all about numbers and information, a creative CPA can string solutions in the least unexpected way. Perhaps this CPA can find a tax issue that has been bugging your company for years.

Flexibility

A flexible accounting firm can handle all types of accounting troubles and situations. Even if your schedule is constrained, the firm must be flexible enough to provide as soon as possible.

Accounting is constantly moving – just like your business. So, it pays a lot to have a flexible accounting firm by your side.

Steadfastness

Many company owners and businesses forget about the real importance of steadfastness. This is a strong quality which separates a mediocre CPA firm from a good one.

A steadfast accounting firm is unwavering in terms of its operational beliefs, policies, and general strategies. Such a firm is aware that no half-measures can be made during an accounting period.

So if you want to ensure the long-term financial stability of your business, contact a steadfast accounting firm.

Breadth of Knowledge

An accounting firm must be knowledgeable in all fields of accounting. Even if a client requires one or two basic accounting services, a knowledgeable firm can present many solutions.

For example, your small business needs a general accounting oversight service. With the help of a knowledgeable accounting firm, the oversight service can reach other areas like tax prep, financial management, and long-term business plan assistance.

However, if you need a specific accounting service, a knowledgeable firm can offer more solutions in the given area. This translates to better results for your business.

CONCLUSION

Choosing an accounting service for your business is a smart yet delicate move. Make sure that you’re prepared before reaching out to an accounting firm.

In case you’re ready, call us today and we’ll help you schedule a consultation with one of our CPAs!

The post Accounting Services: What Are They and How to Pick One For Your Business? appeared first on Small Business Accounting & Finance Blog.

You’re not alone.

Most people who want to start a business don’t know where to begin.

From registering your business name to setting up your accounting system- there are numerous steps involved in becoming a business owner.

Not to mention, you need to have a developed product/service idea.

It can be overwhelming. 

So much so, numerous business ideas go unfulfilled because prospective entrepreneurs are paralyzed by all of the steps it takes to open a business.  

Don’t let this be you.

And even if you’ve ‘started’ a business in the past, are you sure you did everything necessary in the beginning to be successful?

In this article, you’ll learn the steps necessary to start a business. 

1. Research, Research, and More Research

The very first to business setup is research.

Hopefully, you already have a business idea or concept. Now, it’s time to do your homework.

One fundamental area of your research is finding out if there is a market for your idea. Answering the question, “Do consumers need or want what I am offering?”

All businesses must solve a problem that someone is experiencing. 

For example, before 1923, there were countless car accidents caused by the lack of traffic lights. 

Garret Morgan, having witnessed one, decided this was a problem that needed to be solved. And did so, with the invention of the traffic light.

Or it can be as simple as selling small, airplane-friendly, containers, travelers can use to transport liquids on a plane. 

The problem? People can’t bring oversized liquids on a plane.

The solution? Small containers to put those liquids in. 

The more problem-specific you are, the better. It paints a clear picture of what you’re selling and is, therefore, easier to sell to consumers. 

2. Develop a Business Plan

It not only good to have your ideas in your head but also on paper. The next step in a business setup is to develop your business plan. 

A business plan documents your future objectives and strategies. It is essentially a guide that will navigate you from the beginning stages to the mature stages of business. 

There are 8 major components to a business: 

1. Executive summary
2. Company description
3. Market analysis
4. Organization and management
5. Service or product line
6. Marketing and sales
7. Funding request (if applicable)
8. Financial projections

You may need to conduct more research to develop each section of your business. If you’re unclear about financial projection, consider seeking the help of a CPA.

3. Choose an Entity Type

A big part of business setup is deciding on an entity type. The entity type you choose will impact your business liability and tax filing.

There are 5 main entity types to choose from:

1. Sole Proprietorship
2. Partnership
3. Limited Liability Company
4. S Corporation
5. C Corporation

For a more in-depth break of these types, check our blog on Choosing an Entity Type for Your Business – Tax and Legal Considerations. 

In general, picking an entity type for your business is a critical step in a business setup.

Once you choose the entity type that’s right for you, you’ll need to file the appropriate paperwork with the state.

Keep in mind, if as your business grows and things change, you can update your entity structure.  

4. Register Business Name

Probably one of the most important aspects of a business setup is your business name. Make sure to consider all of the implications of the name you choose before setting one in stone. 

Once you have a name, you need to make sure it is not being used or trademarked. If not, you’ll need to register it. 

Typically, this is done through your state when you file to be a business entity. 

Another great way to register your name is to buy the domain name (or website URL). This will be useful if you plan to have a website. 

5. Apply for an EIN

An employer identification number or EIN, is a unique 9-digit number that is assigned by the Internal Revenue Service to your business. It is similar to a social security number for an individual.

Getting an EIN for your business is necessary if you don’t want filings and reportings under your social security number. 

You’ll also want to apply for one if you plan to open a business bank account and establish business credit. 

Applying for EIN is simple and free. You will need to file a Form SS-4 which is found on the IRS website. 

6. Licenses and Permits

Depending on the industry, you may be required to file applicable business licenses or permits. 

For example, hairstylists need a cosmetology license to do hair. Or liquor stores must have a liquor license to sell alcohol. 

You’ll need to do your research into what licenses you’ll need to operate your business. It would be devastating to get shut down years afterward for a license that should have been granted as apart of business setup. 

7. Accounting System

Every business needs an accounting system. Having an accounting system in place before you start making sales will ensure you effectively manage all of your transactions from the start. 

Your accounting system will help you stay within budget, set prices, send and receive money, make decisions, and file taxes. 

Setting up your accounting system is best done by an accountant for the most accuracy. 

When setting up an accounting system, consider what software features you need. (Cloud-based, multiple users, budgeting, payroll, etc.)

Starting a business is not easy but the steps are manageable. Once you do all of the above business setup steps, you’ll have all of your most important bases covered. 

Remember, Rome was not built in a day. It will take time to complete certain things like developing a business plan or setting up an accounting system. But with hard work and consistency, you’ll be on your way to being a successful business owner. 

If you need help getting started, contact the accountants at LYFE Accounting! We’re here to help!

The post Business Setup 101: Where to Start? appeared first on Small Business Accounting & Finance Blog.

This can be measured by analyzing reports and financial results. With the proper accounting help, measuring your company’s progress will be easier.

But is there a way to maximize the services offered by an accountant?

Yes, there is.

 Here are some strategies to help you get started!

1. Be Transparent 

A business is like a fortress – it’s filled with passageways and departments that can be overwhelming to navigate at times. An accountant’s expertise can deal with such a problem.

A professional accountant can highlight the real financial problems within your business. There might be financial discrepancies or a looming tax error that can put you in trouble someday. No matter how observant you are, it’s wise to rely on professional accounting help.

But an accountant’s support can only go so far if you’re not transparent. 

To become transparent with your new accountant, you need to share some important financial documents. These documents are the records of your company’s activities. 

Business transparency is not a one-time affair. Being honest about your company’s activities will allow your accountant to formulate the proper strategies needed. 

2. Discuss Business Goals 

At first, you might keep some business goals to yourself. But as your business continues to grow, you eventually have to share it with your team. But do you have to share them with your accountant?

If you want to obtain properly optimized accounting help, then the answer is yes. 

To understand this better, try to imagine goals as ‘virtual signposts.’ These signposts will help the accountant establish long-term strategies aligned with your company’s objectives.

For example: Let’s say, you want better cash flow this year. By sharing your goal with your accountant, he or she can monitor financial areas that need to be improved.

3. The “E & E” Concept – Efficiency & Effectiveness

Efficiency and effectiveness are two factors that must be combined to produce tremendous results in any industry. In maximizing professional accounting help, these factors are also valuable.

An efficient accountant can deliver optimum results within a limited time frame. Following that, an effective accountant can introduce useful strategies for your business.

To analyze the accountant’s performance using the efficiency factor, you need to focus on the way he or she accomplishes a task. Is the process straight to the point? Or perhaps there are loops and bounds to go through? 

Using the effectiveness factor, focus on results. Are they completing the larger task at hand? Are they making your accounting process easier?

4. Think Long-Term

A business-driven by a short-term vision will have a lesser chance to grow compared to a business with long-term vision. To get the most from your new accounting help, you need to think long-term. 

An accountant who will help you for the long-term is a ‘must-have’ on your team. Just consider the tax management improvement that an accountant can offer. More than that, your company’s financial state will become better. 

As you think long-term, you can form new goals for your business. New goals will take time to implement, and you definitely need accounting advice for that. 

Why You Should Really Get An Accountant Today?

At this point, if you are still wondering about the immediate need for an accountant, then you need to shift your focus to the Tax Cuts & Jobs Act.

The Tax Cuts & Jobs Act or TCJA is a massive overhaul of the Internal Revenue Code. Many articles and provisions were changed, particularly the ones affecting small and medium businesses.

Of course, you can still opt to do your own taxes but this will cause you a great deal of stress. Just imagine combing through one tax item after another. It’s possible to miss a deduction or commit a serious tax error!

A single tax error can lead to potential delays in processing your tax return. Eventually, you might receive a letter from IRS – along with some penalty fees. 

A talented tax accountant can help you deal with the rigors of the new tax law. In fact, right after TCJA became active, the demand for accountants increased. 

The Best Traits of A Helpful Accountant

Any accountant can contribute something to your business. But when it comes to the level of contribution, the good outweighs the mediocre. 

Before signing a deal with an accounting help provider, you need to remember the important traits of a reliable accountant.

Organization Skills

The field of accounting is loaded with tons of details, numbers, and complicated formulas. In that sense, you won’t find an accountant without at least the basic levels of organizational skills.

But if you want to receive the best accounting help, you need an accountant with topnotch organizational skills. This accountant will scan all layers of your business to find a lingering tax issue. Or perhaps the accountant just needs to sort all financial items into a neat documented file. 

If you’re also expecting your business to grow in 5 years, then you need a well-organized accountant by your side. A five-year period is a long time, and this might lead to problematic tax clutter. Do not underestimate the rate at which tax clutter grows!

Communication Skills

You may think that accounting is just concerned with numbers. However, communication skills are also important. If an accountant can’t communicate effectively, his or her expertise can barely help the business. 

Nowadays, it’s better to have excellent communication skills in physical and digital means. Through proper communication, you and your accountant will be on the same page.

Knowledgeable

Seeking accounting help from an accountant who has little related knowledge is a risky move. Whenever that accountant encounters a difficult financial hurdle, he/she might take shortcuts that can affect your business. 

A helpful accountant must be knowledgeable enough to help you with various tasks like simple bookkeeping, tax prep, budget control, and financial assessment. The accountant must also be aware of recent changes brought by TCJA. Not all tax provisions will concern your business, but most of them will have a clear impact.

If the accountant also knows about your industry, then that’s a bonus. This shows that the knowledgeable accountant can bring your business forward by suggesting creative strategies.

Professionalism

Professionalism is considered a catch-all trait which involves other positive work aspects. An accountant who has a great sense of professionalism knows the importance of duty and its implications. A professional accountant will exhaust all possible options before failing to meet a goal.

You can also consider respect as a major factor in professionalism. A professional accountant knows when is the right time to introduce new ideas or to simply focus on the task at hand. After all, professionalism is about setting priorities.

Disciplined

A disciplined accountant has the initiative to finish tasks on time. He or she also knows how to own up to any mistakes.

You can say that an accountant is disciplined if he/she looks for additional means to help your business. Perhaps you need assistance in making a new business plan or concept. The disciplined accountant will provide help before you can even ask.

Remember…

Hiring an accountant for your business is a smart move indeed. But if you can maximize the accountant’s services, then the result can benefit your company more. 

So call us today if you need a competent accountant for your business!

The post 4 Ways to Maximize Accounting Help From a Professional appeared first on Small Business Accounting & Finance Blog.

If you own a business and pay yourself or someone else, payroll accounting is involved.

What is payroll accounting? Payroll accounting is the recording of employee compensation.

Employee compensation includes:

• Wages
• Salaries
• Commissions
• Bonuses
• Hourly employees
• Overtime pay

Payroll accounting not only includes income earned by employees but also taxes withheld.

Some common payroll taxes are:

• Federal withholding taxes
• State withholding taxes (if applicable)
• Social security taxes
• Medicare taxes

Other elements that involve payroll accounting are health insurance, retirement accounts, and wage garnishments.

Some of these items may look familiar to you. Many of them are clearly reflected on your paycheck.

However, they are all not accounted for the same way. Some items represent liabilities and others are expenses.

Let’s take a deeper look into payroll accounting and how it should be recorded.

Salary & Wage Types

Before you hire anyone, you will need to first decide their salary and wage type. How much are you going to pay them? Will they be an hourly or salary employee?

Next, you’ll need to figure out how often you will pay your employees. Common pay periods are monthly, bi-weekly, semi-monthly and weekly.

Benefits

Establish what fringe benefits you will offer your employees. Fringe benefits are considered a form of payment for work performed. As an employer, you will have to make contributions towards these benefits, as well as your employees. You will have to decide how much you will contribute towards 401k plans or health insurance coverage.

Form W-4

You’re now ready to hire your first employee. When you do, you will have to collect certain information from them regarding how you should withhold money from their check. This information can be gathered by having them fill out a Form W-4.

The completion of Form W-4 is the starting point for payroll accounting. For a newly hired employee, it is one of the first forms he or she completes.

Form W-4 is intended to tell you how much of your employee’s income should be withheld from their paycheck and remitted to the IRS. Completing this form correctly is the sole responsibility of the employee. Your responsibility is to withhold the correct amount and send the funds to the appropriate agency.

Form I-9

Form I-9 is a requirement for all employers. It is a form that verifies the citizenship and/or right to work in the United States for each of your employees.

Section 1 of Form I-9 is completed by the employee. They provide general demographic information, like name and address. They also have to specify their eligibility to work in the U.S. Options include a U.S. citizen or an alien authorized to work.

Section 2 of Form I-9, is completed by you, the employer. Here is where you specify the acceptable documents provided by the employee. Examples include a passport, permanent resident card, driver’s license and birth certificate.

Direct Deposit Form

If you decide to pay your employees electronically, they will have to complete a direct deposit authorization form. The form includes a section for the employee’s bank account information and a signature line authorizing this method of payment.

Paying your employees via direct deposit is cheaper and faster than writing checks. You save money by not having to order checks. You save time because you don’t have to physically write checks. The payroll process becomes more automated when done through direct deposit.

Now, you understand all of the information you need to pay employees. Let’s take a deeper look into the details of payroll accounting.

Recording Payroll

Payroll accounting mostly involves recording expenses, liabilities, and cash.

Some common expenses are:

• Wages
• Payroll taxes
• Fringe benefits

Payroll expenses can also be a liability to your company depending on when your payroll period ends and when you pay you actually pay your employees. For example, if your pay period is December 17th through December 31st, but you pay your team on January 7th, a wage expense has incurred in December and a liability since it has not be paid yet.

Fringe benefits are an expense to your company. Most of them are tax-deductible, such as health insurance and educational assistance.

The IRS does put limits on certain fringe benefits, so make sure to check out those guidelines on the IRS website.

Payroll Taxes

There are taxes associated with payroll accounting. Employees pay a certain of amount taxes based on how they completed their W-4. As the employer, you also have to pay taxes.

Based on the Federal Insurance Contributions Act, you and your employee have to pay a 7.65% tax. Also known as FICA, this is a mandatory tax expense for the employee and employer that is used to fund social security and Medicare in the U.S. It is based on the gross wages earned by the employee.

More specifically, 6.2% goes towards social security and 1.45% goes towards Medicare. Combined, 7.65% in FICA taxes.

Not to be confused with FICA, FUTA taxes are paid only by the employer. Used towards funding Federal Unemployment, FUTA is a tax based on the first $7,000 of wages you pay each employee.

State withholding taxes (if imposed) are based on W-4 information for the employee but there is also an employer portion too.

SUTA taxes represent state unemployment taxes. SUTA is only paid by the employer on behalf of each employee. SUTA is an unemployment insurance. Funds collected are used for individuals who are laid off from their jobs.

How to Pay Your Payroll Taxes?

Once you have withheld the proper amount of Federal, FICA and Medicare taxes, you will need to calculate your portion in FICA, Medicare and SUTA taxes.

Then, pay these amounts to the appropriate agencies, either monthly or semi-weekly, depending on the size of your company.

You report your payroll taxes on Form 941 quarterly. For FUTA taxes, you report these amounts on Form 940 annually.

Payroll Software

There is numerous payroll software out there that can make the process of recording, filing, and paying employees’ wages and taxes more efficient.

Payroll systems today have the capability of tracking hourly employees, calculating wages and taxes. Payroll systems can remove the human error associated with manually completing payroll.

When it’s time to file payroll tax forms, like the 941, most of the information can be auto-filled based on previous payroll runs.

Typically, streamlining your payroll accounting comes in 1 of 2 options. Either do it yourself, using the software of your choice or outsourcing the process completely. It is cheaper to do payroll accounting yourself but there is a greater peace of mind knowing an expert is handling it for you. You are least likely to have errors and you can rely on their expertise in planning to offer fringe benefits, changing from hourly to salaried employees or help with special situations.

Who will manage your payroll accounting needs?

LYFE Accounting can help you with your payroll accounting. Whether you hired your first employee or have 100 employees, we are here to serve you with all of your accounting needs. Contact us today!

The post The Basics of Payroll Accounting appeared first on Small Business Accounting & Finance Blog.

In fact, many business owners today are looking for accountants to help them with tax and bookkeeping concerns. 

While you can find an accountant through a few minutes of research, there are some other strategies you can utilize. 

Here are some of the ways to choose the best accountant for your small business.

Prepare Questions

Before searching for the best accountant, you need to prepare a list of questions. 

Preparing questions is important because they can help you assess the accountant’s skills and ensure you asked everything you wanted to.

Here are some questions to help you get started:

“Do you have experience in my niche or industry?”

Most accountants can work with all business industries, but some providers are specialized. By knowing who has professional experience in your business niche, you can easily pick the best small business accountant.

“Can you help me with tax issues?”

The best accountant should be able to help you with tax-related situations like filing tax returns. 

However, some accountants are only focused on bookkeeping, auditing, and management consulting. If you need help with small business taxes, make sure to ask this question.

“How can we communicate?”

With the help of the internet, there are countless ways to connect with someone. But if you prefer one communication tool over another, you should ask the accountant about this. 

“What do you think about my current business accounting system?”

At first glance, the question seems open-ended and focused on getting the accountant’s opinion. But this simple question can determine if the vetted accountant is a great fit for your business.

By asking this question, you can observe the accountant’s way of thinking and attention to your business. At this stage, the accountant can even make suggestions regarding your company’s current accounting system.

The aforementioned questions are enough to help you sort the best small business accountant. 

Discuss Goals & Expectations

Discussing your business goals with your team is a great way to put everyone on the same page. And if you want to get the best accountant from the start, you must open up regarding your small business goals, milestones, and expectations.

Why is a preliminary discussion of goals important? 

This strategy is necessary for finding the best accountant because you can figure out the accounting service that will work for your small business. 

If you can discuss goals with the best accountant or CPA, you can manage expectations. This strategy is even more important if you plan to expand your small business within a few years.

Goal discussion should be as brief as possible. It’s efficient to keep your points outlined so that you don’t meander off to other confusing and unnecessary topics. 

Know About the Different Areas of Accounting

Proper knowledge can help you prevent errors in running a business. The same thing can be said in terms of hiring the best small business accountant. 

Before you even start your search, learn more about the different areas of accounting. You don’t need to explore them all – just the ones that you think are helpful for your small business.

Tax Accounting

Tax accounting is a popular service. Since every business might be exposed to tax issues, there will always be a significant demand for tax accountants. 

Managerial Accounting

Do you want to improve the long-term financial performance of your business? 

In that case, you can’t go wrong with managerial accounting. This type of accounting service aims to optimize your company’s financial data to avoid future discrepancies. 

Managerial accountants can also work with your management team in terms of handling financial data and preparing important documents. 

Auditing

Similar to managerial consulting, an auditing service is focused on financial data management. The only difference is that auditors review your company’s data to ensure that there are no discrepancies. Auditors are also inclined to review past financial records and can work side by side with tax accountants.

Choose: Enrolled Agent or CPA?

A CPA can bring the best value to your small business. A CPA is a reputable accountant licensed by the state. Many CPAs typically have their own practices and offices, but others work internally for companies. 

An Enrolled Agent or EA holds the highest credential given by the IRS. EAs are licensed on a federal level, which makes them valuable for large-scale businesses, organizations, and corporations. 

Perhaps one distinguishable trait is the fact that an Enrolled Agent is more focused on taxation instead of accounting services. Still, the Enrolled Agent can handle daily accounting tasks. 

For small businesses, typical accountants and licensed bookkeepers are ideal enough. CPAs and EAs are known for their competitive rates, but they can offer top-tier accounting expertise which will benefit your business for the coming years.

The Irrefutable Qualities of the Best Accountant for Your Business

By knowing about the qualities of the best small business accountant, you can hire the right one.

Keenness to Detail

The best accountant knows how to handle financial details in a smooth and accurate way. It’s normal for financial details to fall into disarray, especially if the business has been around for years. Just imagine the number of receipts, documents, and other data sources that a business owner must handle.

If you have a reliable detail-oriented accountant by your side, most financial errors and inconsistencies can be avoided. Accountants have developed their own personal detail management strategies. With this detail management skill, your business will gain the proper leverage that it needs.

Effective Data Gatherer

Data gathering is an important process that’s part of any accounting service. The best accountant must know how to gather data in the most efficient way possible. If data is gathered accurately, you don’t have to worry about discrepancies and lost documents.

Great Communicator

An accountant who can communicate effectively is a big plus for your small business. If the accountant doesn’t know how to communicate properly, important details will be lost. 

Many experts have also noted that communication becomes more valuable as the business expands. If there’s a specific tax change, for example, the accountant must be able to relay it to the business owner. 

Diverse Accounting Knowledge

By now, you’re possibly aware that accounting covers different areas that are relatively different from each other. 

The best accountant for small business doesn’t know every bit of information from these areas, but his or her knowledge should be diverse enough.

This accountant can help you not only in bookkeeping but in general financial advisory and tax concerns. 

Grace Under Pressure

Accounting is full of pressures – especially if you’re trying to meet a specific deadline. 

The best accountant knows how to maintain his or her composure under pressure. This trait is important because losing your marbles will cause you to lose traction as well. 

An accountant who easily breaks down under pressure can compromise your small business in the long run. So make sure that you pick the best accountant who can handle pressure with grace.

And If You Choose the Best Accountant…

The best accountant for small businesses might charge premium rates. This is normal because you’re availing a top-tier accounting service. 

Consider the best accountant service as a remarkable investment for your company’s future. Don’t worry too much about rates – think about the results that you can get. 

The good thing is that most accounting service providers for small businesses have flexible packages that you can choose from. 

Conclusion

Finding the best accountant shouldn’t be too difficult – as long as you apply the discussed strategies. 

If you’re ready to get the services of a virtual accountant or bookkeeper, schedule a call. Our certified accountants are ready to help!

The post How to Choose The Best Accountant In An Efficient & Effective  Way appeared first on Small Business Accounting & Finance Blog.