Everything You Always Wanted To Know About Cash Flow Statements But Were Afraid To Ask

Editor’s Note: This is one of an eight-part series about key financial terms all entrepreneurs should know. 

Never heard the term “Cash Flow Statement”? The good news is that it’s almost exactly what it sounds like! And, by the end of this article, even a financial-terms-novice can feel comfortable reviewing and discussing a cash flow statement with his or her CPA or CFO.

Feeling comfortable with a cash flow statement is imperative, because these reports are critically important to your business. In fact, CPA and entrepreneur, Bradley Klingsporn, founder of Green Bay’s Aardvark Wine Lounge, says “Many small business owners and small business accountants believe that the cash flow statement is more important than an income statement.” That’s because, “[if] the business is making huge profits, but doesn’t have anything in the bank, it won’t be able to pay its bills and it could still go under. Keeping a close eye on the cash balance is as, if not more, important than keeping an eye on the bottom line.”

What exactly is a cash flow statement?

A cash flow statement is a financial report that shows the amount of cash and cash equivalents used by a company in a given period. Cash flow statements contain three main categories. The three categories are cash flow from:

  1. operating activities
  2. investing activities
  3. financing activities.

Taken together, these three groups account for all cash coming into and going out of a business.

Why are cash flow statements important?

Staying on top of cash balance is critical to the health of a business.  This is of particular importance if you’re a business who is likely to raise money at some point. And knowing your “runway” — or how long you’re able to operate with the cash you have on-hand at the moment — is key.

When reviewing cash flow statements, entrepreneurs should be asking if the cash flows are sustainable. “If cash decreased in the period, was this because of a change that period? For example a capital purchase or large debt payment.  Or is this going to persist? For example, regular loan payments)?” Klingsporn asks. “If cash decreases are expected, is there a need for additional cash inflows? If so, how will the business get the additional cash?”

How can cash flow statements impact your financing options?

Cash flow statements allow potential financing partners to assess a company’s general health, including how quickly your company will be able to pay off outstanding debts. Although it’s not imperative to have a high cash flow to borrow money, lenders may favor companies that do. The more positive a cash flow statement looks, the easier time you likely to have securing favorable financing options.

Can I create my cash flow statement?

If you’re in the early stages of looking to raise capital and have never put together or reviewed a cash flow statement, Klingsporn’s advice is to bring in an expert. “Hire an accountant,” he says. “If you don’t want to do that, the basic process is to identify cash inflows and outflows that don’t affect net income and expenses and income that doesn’t affect cash. The former would include principal loan payments, cash from new debt, and purchases or sales of capital equipment. The latter would include depreciation and changes in receivables or payables. If that sounds confusing, see the first sentence.”

What’s next?

Just like it’s easier to travel in a foreign country when you know the language, it’s easier to raise capital (or secure any kind of funding for your business) when you’re familiar with key financial terms and their real-life applications.  Check out the other installments in this series covering The next installment of this series, where you will learn everything you wanted to know about turnover ratiodebt to income ratiopayables turnover ratiodebt service coverage ratio and current ratio


Want a Better Credit Score? Put Banking and Credit Card Alerts to Work

Staying on top of your personal and business credit scores is important if you plan to apply for business financing. Setting up banking and credit card alerts can make the job easier.  Better still, it can also potentially lead to an improvement in your credit rating.

If you’re not already using banking and credit card alerts to your advantage, here’s what you need to know.

How Alerts Can Help Improve Your Credit Scores

Personal and business credit scores are calculated differently.

Your personal FICO score, for instance, is based on payment history, amounts owed, length of credit history, types of credit used and new applications for credit. Business credit scores focus on different factors. The Experian Business Credit Score looks at your credit obligations to suppliers and lenders, legal filings involving your company and public records. Dun & Bradstreet’s PAYDEX Score is determined by how well your business pays its bills.

While personal and business credit scores can measure different things, alerts can help you stay on top of both by encouraging you to be more conscious of your accounts and credit activity. When you’re paying more attention to your credit, you may become more intuitive about what can help or hurt your score. (That’s a good thing, considering that 72 percent of business owners don’t know their business credit score, according to a Manta survey.)

Getting Started With Banking and Credit Alerts

Your bank and credit card company may allow you to set up many different kinds of alerts or notifications. When you consider the things which are most likely to impact your credit scores, specific alerts may prove useful:

  • Bill due date notifications
    Payment history is the central factor in influencing your PAYDEX business credit score; it also carries the most weight for personal credit scores. Set up bill payment alerts to help you avoid late or missed payments, which could negatively impact your credit score. Even better, ensure you pay your bills on time by pairing alerts up with automatic bill payment through your bank.
  • High credit card balance notifications
    After payment history, your credit utilization is the next most important factor for scoring personal credit. Credit Utilization is the percentage of your total credit line that you’re using. Carrying high balances or maxing out your credit cards works against you. Set up an alert to notify you when your balance hits a certain threshold.  This may help you put the brakes on spending.
  • New transaction alerts
    Fraud can affect both your personal and business credit scores if someone steals your credit card or taps into a line of credit you’ve opened and runs up a balance. An easy way to help combat that is to set up an alert to let you know when a new debit or purchase transaction posts to your bank or credit card accounts.

Remember to Check Credit Regularly

Checking your own credit report won’t hurt your score.  So this is something you should do at least once per year, if not more often. Review your credit to look for things that alerts might miss — a new account opened in your name that you don’t recognize or a credit reporting error that might be hurting your score. If you spot an error, dispute it with the credit bureaus reporting the information. Doing so could get the information corrected or removed, giving your credit score a lift in the process.

Looking for other ways to improve your credit rating?  Check out these articles.


Everything You Always Wanted To Know About Debt-Service-Coverage Ratio But Were Afraid To Ask

Editor’s Note: This is one of an eight-part series about key financial terms all small business owners should know.

Financial literacy is important for all business owners, but it’s absolutely critical for those who are considering raising money in the near future. Here’s everything you need to know about debt-service coverage ratio (DSCR), with an expert weighing in on why it matters.

What is debt-service coverage ratio?

Debt-service coverage ratio is a measure of a company’s ability to pay its debt based on available cash flow. It is calculated by dividing net operating income (noi) by total debt service.”Debt service” is a term that refers to all obligations due within one year. This includes short-term debt and the current portion of long-term debt on the company’s balance sheet.

Why is debt-service coverage ratio important?

Debt-service coverage ratio is important because it shows investors and lenders that you have positive cash flow. Having positive cash flow shows that you have made smart managing decisions in balancing your debt obligations and operating expenses. If you DSCR calulations show that you have a DSCR of less than one (1), that means your business has negative cash flow.  A negative cash flow indicates, essentially, that you will need to borrow money to pay off existing debts.

How can debt service coverage ratio impact your ability to raise capital?

Though varying economic conditions and differences from industry to industry impact the minimum DSCR an investor or lender will look for, generally speaking, the higher your DSCR, the easier it will be to raise capital. If your DSCR is below one (1), raising or borrowing might prove incredibly difficult — or, at least, prohibitively expensive. Conversely, if you have a high DSCR — say, above 1.5 — you can use it as a bargaining chip. Knowing that your company may be considered an attractive investment gives you the power to seek out favorable terms from potential investors and lenders.

How can you improve your debt service coverage ratio?

To better your chances of getting a loan or other infusion of capital, you will need to increase your DSCR.  Doing this may not be as difficult as you may think. One thing you can consider is looking into increasing your net operating income to cover expense.  Another is decreasing your operating expenses. With both of these, you can use the additional cashflow to pay off existing debt. All three of these – increasing your net operating income, decreasing your operating expenses, and paying off some debt – help to improve youre DSCR.

When looking to increase your net operating income, think of some ways you can quickly and easily increase your revenue such as turning excess inventory into extra revenue, leveraging tactics your customers already trust to increase your sales, and making sure you are taking advantage of every lead or potential customer that comes your way.

Giving a boost to your revenue is only one way to increase your net operating incoming.  Another quick and easy way to accomplish this is by decreasing your operating expenses. Believe it or not, there are a number of ways you can decrease operating expenses and free up some of your capital – from revisiting vendor relations and strategies, to splitting core and convenience ordering to improving your negotiation skills, you’re sure to find an area to cut expenses.   You can also find ways to increase employee productivity, and improve processes.

Ask an expert about debt-service coverage ratios:

Vincenzo Villamena, managing partner of entrepreneur-focused CPA firm Global Expat Advisors, breaks down why debt-service coverage ratio is so important for entrepreneurs to track.

Why is debt-service-coverage ratio an important metric investors and lenders consider before funding a business?

Investors and lenders use the DSCR to see if you can make your monthly loan payments.  It is also used to determine how much they can lend you safely on any economic condition. The DSCR makes you more likely to qualify for a loan and receive better terms for the loan, such as lower interest payments and higher borrowing amount.

What’s a solid DSCR business owners should strive to maintain while growing a business?

Generally speaking, a DSCR of 1.2 or better is considered good.  Although, I have seen loans given to companies with 1.1 ratio. I’ve also seen when the economy or an industry is down, the banks requiring a ratio of 1.5 or better.  So there is always a variance.

If an entrepreneur has a DSCR below 1, what explanation might he/she be able to offer to would-be investors and lenders to ease their concerns?

If the DSCR is below 1, there needs to be a good explanation to give to investors and lenders, such as a lot of R&D costs, hirings or a recent product launch in which the true revenues of the company do not reflect the YTD or LTM financials.

What’s next?

A key to success as a business owner is never being afraid to admit what you don’t know. Don’t know as many financial terms as you’d like to? No problem! Check out the other installments in this series covering The next installment of this series, where you will learn everything you wanted to know about turnover ratiodebt to income ratiopayables turnover ratio and current ratio


Six Business Financial Housekeeping Tasks to Get Done Before Year End

There may be several weeks left in the year before you officially close the books and shift your focus to next year, but getting a head start on your financial housekeeping tasks can ensure you end this year on solid financial footing — and start the next one with a plan to succeed. Here are six business tasks to complete before you ring in 2019.

Check your retirement plans

If you don’t have a self-employed retirement plan, there’s still time to establish one, and make contributions to it. In turn, you may also find opportunities to reduce your tax burden. As Forbes explains, a sole proprietor who has a solo 401(k) in the 2018 tax year may be eligible to contribute up to $60,000 to it (based on net business income, and the business owner’s age).

If you prefer a retirement account with little costs and administrative burden, consider establishing a self-employed IRA (SEP IRA). Many providers allow you to complete account set up, funding and management entirely online.  And, you may be eligible to contribute (the lesser of) 25% of your business income, or $55,000, in 2018.

Meet with your accountant (or find one)

If you don’t have consistent contact with your accountant, set aside time to discuss your business’s current financial reality.  You should also discuss  your business goals, future plans and anticipated challenges for the remainder of this year, and next. If possible, schedule the meeting to take place at least two months before year-end.  Doing this will give you enough time to act on any recommendations for optimizing your finances before this year ends.

When you meet, let your accountant know of any additional financial moves you are considering that could have tax ramifications.  Things that could fall into this category include buying or selling new equipment or assets. Beyond the numbers on your financial statements, ask your accountant for any recommendations to improve or optimize your business finances, based on the current and future plans you’ve shared.

Confirm your estimated payments are accurate.

If your business is a sole proprietorship, partnership or S corporation, the Internal Revenue Service says you may be required to make estimated tax payments if you expect to owe $1,000 or more when you file your annual tax return. Corporations have to make estimated tax payments if they expect to owe $500 or more when filing their tax return. (Depending on your business, you may also be responsible for payroll, sales, and excise taxes).

If you picked up new clients or sales were stronger than expected, you may owe more tax than originally estimated. Ideally, your quarterly estimated tax payments are made in equal increments.  But the IRS does put the onus on taxpayers to estimate income as accurately as possible to avoid penalties.  They also expect you to ensure it remains correct based on business or tax law changes that may impact it.

Confirm tax paperwork for independent contractors you’ve hired.

If you’ve hired independent contractors over the course of the year, the IRS requires that you have their completed Form W9 (and that you keep it on file for at least four years). Sites that make it easy to hire virtual help also make it simple to hire contract help.  However, they can also make it difficult to keep in touch with contractors who are several states (or countries) away.

Regardless, the IRS also states that employers who pay an independent contractor $600 or more over the course of one year “may have to file Form 1099-MISC, Miscellaneous Income, to report payments for services performed for your trade or business.” Allow yourself the time to collect the paperwork you need from contractors so you’re prepared to issue the Form 1099-MISC tax forms. Note that you may be required to send them for payments by late January 2019.

Conduct an employee satisfaction survey.

Employee engagement may not seem financial in nature — until you consider the impact that disengaged employees have on business productivity, customer experience, and culture. Experts at Villanova University’s School of Business report that increasing your investment in employee engagement efforts by just 10% can yield $2,400 in profit (either directly or indirectly) from each employee, each year. Engaged employees are also 87% less likely to leave their jobs.  And, having engaged employees may reduce costs associated with employee turnover, hiring and training.

Take a pulse on employee engagement in your company with a basic online survey tool and questions that address what consultancy firm Deloitte says are the five pillars of employee engagement: Whether employees feel their job provides opportunities to do meaningful work, involves hands-on management with positive coaching, guidance and support, a positive work environment and culture, and trust in leadership.

If you find that you have engagement issues, your survey can provide the insights you need to address issues.  Once you know where problems may lie, you can work to improve employee productivity, engagement and satisfaction next year.

Organize your receipts and financial statements.

You have several months until tax season officially arrives.  But, the earlier you compile the receipts, mileage logs and cancelled checks you’ll need to support business-related tax deductions and credits, the less you’ll have to scramble as tax season approaches. If you rely on a bookkeeper or accountant to prepare your business tax return, ask his preference for how you should organize and transfer tax-related documents, to streamline the process (and better manage the billable hours you’re charged for their tax preparation services).


How to Handle Orders without the Danger of Too Much Inventory

You need inventory to fill orders, so having plenty of everything on hand might seem smart. There would never be a stockout and closing sales would be as easy as sending someone to the warehouse. But maintaining too much inventory may undermine your business.

Holding considerable inventory can force you to hold more product than is necessary. What you might consider, instead, is only stocking the amount of merchandise you need, and the inventory turns ratio (ITR) can help you find the inventory levels for your business.

Availability is good, but has a cost

High availability means buying, carrying, and storing a lot of product. Inventory costs money, so you end up using capital that could otherwise help grow and sustain the company. Too much money in inventory can also affect your need to finance and how much you might need.

And there are other problems: Inventory ages, not only on the books, but on the shelves. You may have products fall out of support, become discontinued, get damaged, or otherwise lose value. Then there’s the cost of storage space and increased headcount to manage the additional product.

This all adds up to money your business will have to spend on maintaining a constantly full inventory level.

Increasing inventory turns

Instead of more inventory, consider replenishing stock more frequently. So long as there are enough products on the shelf to satisfy orders that will come in until the next delivery, you can keep customers happy and reduce costs.

This is why you need to look at the ITR. ITR shows how frequently you replace stock over a given period – such as each month, each quarter or each year.

Calculate inventory turns by dividing the cost of goods for the sales you make in a period by the value of your average inventory over the same period.

The idea is to push inventory turns as high as you can to make better use of that inventory.

Setting the right turns level

Finding the right ITR can be a challenge. If you drive turns too high, you may miss filling orders in a timely basis because you don’t have the products you need. Too low, and it means cash is locked up.

Balance inventory turns with sales, vendor stock availability, supplier reliability, and minimum order sizes. Sales fluctuations like seasonality or outsized importance of certain products can also make it tougher to monitor and control ITR. Arrival of new stock in a timely manner becomes more critical.

There is no magic way to know what ITR will be right for your company, but understanding how ITRs work may help you test stock levels and optimize for your operations.


4 Smart Tech Solutions for Cash Flow Management

Small businesses are increasingly using technology across disciplines to grow, attract top talent, and sell products and services. So, applying a digital approach to cash flow management is a natural next step. Four types of tech, in particular, may prove invaluable for improving your business’s cash flow efficiency.

1. CRM Software

Customer relationship management (CRM) software is useful for maintaining customer records, but there are more applications to CRM for small businesses. CRM software can improve cash flow by improving your sales records, and by ensuring that your business focuses its energies on the most profitable activities consistently. For example, that may be attracting and converting a new customer base or taking proactive steps to retain existing customers.

2. Automation

Automating cash flow systems may yield multiple benefits. First and foremost, it’s a time-saver. Rectifying accounts becomes streamlined when your accounts payable and accounts receivable systems are automated.

Automation can also make it easier to monitor cash flow within your business accounts. If your cash flow system is centralized, you can easily see – at a glance – how much cash you have on hand and what payables or receivables are still outstanding.

Additionally, automating can make settling accounts easier for your customers and vendors. When payments to vendors are automated and customers are able to receive and pay invoices via auto payments, it’s possible to smooth out cash flow bumps and know when money is coming in or going out.

3. Virtual Accounts and Digital Payments

Virtual account management is a way to manage multiple business financial accounts under a single umbrella. Your virtual account can be tied to various physical bank accounts in order to act as a gatekeeper. Payments to vendors and payments received from customers move through the virtual account, making reconciliation less of a hassle and resulting in fewer banking fees.

Accepting digital payments through virtual accounts provides another tech-driven cash flow enhancement. Allowing customers to pay using PayPal, Apple Pay, Google Pay and similar payment apps can make settling invoices more convenient and it may offer the added bonus of allowing you to avoid expensive credit card processing fees.

4. Data Analytics

Big data analysis isn’t just for large corporations; small and medium-sized enterprises can also leverage data analytics for improving cash flow.

By analyzing trends in your payables and receivables data, you can generate more accurate cash flow forecasts. Specifically, you can drill down and see how something such as developing a new product or implementing a price change might affect your cash flow. Data analysis can also help you identify and plan for seasonal dips in cash flow, or find out-of-the-ordinary activity that could impact cash flow negatively. Bottom line, data analytics can help you be more insightful when it comes to cash flow management.


7 Mistakes New Small Businesses Make

A great idea is only one part of what makes a business successful.

From not researching your market to not vetting or training your employees, there are plenty of pitfalls small business owners can make that could be easily avoided with a little knowledge and preparation.

Here are seven common missteps to avoid in your small business.

1. Not performing market research.

Making sure customers want your product or service enough to pay for it is an important piece of initial market research. So is having what you’re selling priced at a profitable point, and one that doesn’t price you out of the market.

The Small Business Administration (SBA) says low sales is one of the top reasons a small business closes. That’s why they recommend conducting market research before starting a small business by looking at the following factors:

  • Demand: Is there a desire for your product or service?
  • Market size: How many people would be interested in your offering?
  • Economic indicators: What is the income range and employment rate?
  • Location: Where do your customers live, and where can your business reach?
  • Market saturation: How many similar options are already available to consumers?
  • Pricing: What do potential customers pay for these alternatives?

It is also important, once your business has been established, to continually look into each of these areas to ensure that your product and services portfolio continues to be relevant and profitable.

2. Not preparing for a cash flow crunch.

Many small businesses face cash flow problems at some point in their early stages. In fact, WePay reported in May 2017 that 41 percent of businesses had experienced cash flow issues in the past year and 16 percent had experienced payment fraud.

Projecting when a cash flow disruption might happen and making sure you have access to funds, or enough in reserve, can be difficult. That’s why the nonprofit SCORE has a variety of free financial templates for small businesses, including a cash flow budget worksheet.

3. Not securing financing before you need it.

Even if you start with personal funds and cash from friends and family, sooner or later you probably will need additional funds.

While 57 percent of new businesses used personal savings, according to the SBA, 73 percent of small firms used outside financing. The key to securing financing is planning ahead.

There are a variety of options including:

  • business lines of credit
  • short-term loans
  • medium-term loans
  • short-term line of credit
  • medium-term lines of credit
  • SBA loans
  • equipment financing
  • merchant cash advance
  • invoice financing
  • crowdfunding
  • personal credit cards

4. Not having a website.

It seems almost unthinkable, but according to a Clutch business research survey, 29 percent of all small businesses in the U.S. still don’t have websites. And in the Midwest, 42 percent of small businesses still don’t have websites.

Websites like Squarespace.com and Wix.com make it easy to create your own business site without having to know coding.

5. Not hiring the right team for your culture.

Hiring employees with the right skillsets is important, but so is finding employees who fit with your company’s culture. Look for their passion for the industry, not just their interest in the position. Ask open-ended questions to get a sense of how they think, versus how they respond, especially if your company rewards creativity and problem-solving skills.

Some companies will have perspective employees do a “test run” before an official hire is made to help the job candidate and company decide if the fit is right. For example, why not try 30-days of contract work with a potential new employee before making them full time? Just be sure to check your local employment laws beforehand.

6. Not understanding your creditworthiness as a business.

Unlike your personal credit score which tends to be based on the same financial information across providers, there isn’t one single business credit score methodology that covers everything for lenders.

For example, Dun and Bradstreet rates businesses via a viability rating, a supplier evaluation risk rating, a delinquency predictor score, a financial stress score, a D&B rating and its most well-known Paydex score.

The Paydex score looks at your payment history for the past two years and rates your company. Scores range from 1 to 100 based on your promptness to pay bills.

A score of 80 to 100 is good. The reason, if you score an 80 it means you promptly paid your bills on time. Anything higher means you pay your bills before the payment was due. And, a score lower than 80 indicates a late payment.

Business credit scores help pinpoint your company’s creditworthiness by looking at how much credit your business has used, type of customers, and if you pay your bills on time.

There are plenty of other factors and systems including Equifax Small Business, which doesn’t give a single score, Experian’s Intelliscore Plus and FICO Small Business Scoring Service.

The better your scores, the better the lending rates and your borrowing power may be. Concerned about your company’s credit score? Here are some ways to start improving your business credit score.

7. Not learning the basics of accounting.

Most entrepreneurs don’t start a company because they love accounting. But without some basic skills, it can be hard to keep track of what is going on financially. Even if you offload everything to a bookkeeper, you still need to understand how to read financial statements, and understand what income statements and balance sheets are saying.

Thanks to mobile technology, business owners now have a variety of accounting apps designed for businesses that provide easy ways to understand your business’s finances and to keep on top of accounting.


12 Must-Have Accounting Apps for Small Business Needs

Statistics show that 40 percent of small business owners consider bookkeeping and calculating taxes the most unappealing aspect of running a business according to score.org. About 47 percent of respondents hate the financial costs, and 10 percent dislike having to keep up with ever-changing regulations.

Apps for Critical Business Needs

Today’s intuitive apps for businesses offer simple ways to keep on top of your business records while commuting, traveling to clients or working at home. You can do payroll or generate W-2 forms while waiting for the game on New Year’s Day. You probably won’t need all 12 of the must-have apps, but you can choose the apps that are best suited to your business, company size and other criteria. Some of the must-have business accounting apps for today’s lean and mobile businesses include:

1. WagePoint

WagePoint, the online payroll service for businesses, solves one of the most challenging issues for business owners–keeping accurate payroll, deducting the right amounts, filing reports and delivering payroll on-time. There is no business task that is more mission-critical. The online service, which you can access from a mobile app, handles direct deposits, new hire onboarding, contractor payments and deductions for local, state and federal taxes. The service also handles the onerous duties of deducting court-ordered withholding and printing W-2 forms at the end of the year.

There are no setup fees. Semi-monthly and bi-weekly payrolls cost a $20 base fee and $2 for each employee. Weekly payroll costs a $10 base, and quarterly payroll costs a $75 base fee. Payroll preparation typically generates costly errors when self-prepared. A professional online payroll service can ensure that employees are classified correctly, and the service keeps you informed about evolving labor regulations.

2. Expensify

The Expensify app, which automates expense reporting, is designed for staff members and outside salespeople. The app offers one-click receipt scans, next-day reimbursements, automated workflow approvals and automatic synchronization with your record-keeping software. It’s also used by some of the most respected companies in the world including Uber, Forbes, Snapchat, Square, Pinterest and CBS Interactive. Additionally, it can even flag receipts that require staff approval. The cost for the service is $5 per month for each active user during the month.

3. Xero

The Xero mobile bookkeeping app allows you to manage your business from any iOS or Android device. You can upload your receipts with your phone’s camera and review the receipts of your staff to approve expenses. The app allows you to store critical customer information, send invoices immediately after completing work and set custom levels of access. You can try Xero for free and choose from Starter, Standard and Premium plans that run between $9 and $70 per month.

4. Google Analytics

Google Analytics, while not exactly an app, is a critical service that allows you to monitor your apps, improve the customer experience, increase conversion rates and gain critical insights into your marketing efforts. The basic service is free for anyone to use, and you can measure the impact of any business apps that you’re using.

5. FreeAgent

The FreeAgent app is great for non-accountant types who need a reliable app to track expenses, monitor payments and sync your bank account. Data is always backed up to the cloud, so you never lose information.

6. Gusto

Payroll is such a critical area for businesses that this list includes two services. The second recommended payroll app, Gusto, advertises that its service is easier to use than other payroll services. The plans start at $45 per month, and it might be a better deal for some companies depending on their needs. The app makes it easy to enroll in health benefit plans, deal with IRAs and 401(k)s and file monthly or quarterly payroll reports at local, state and federal tax departments.

7. Wave

The Wave app, which handles business invoicing, is a great investment for small business owners because you can use the app to send professional-quality receipts, invoices and payments. Even neighborhood businesses can look like multimillion-dollar companies. The app accepts credit cards and bank payments, so your company gets paid faster. The most amazing thing about this app is that it’s free–free software for invoicing, bookkeeping and receipt scanning. However, you will pay for the POS system that allows you to accept mobile payments. Each credit card transaction costs $0.30 plus 2.9 percent of the total, and bank debits cost 1 percent of the total with a minimum charge of $1.00.

8. Pushover

The Pushover app for simple notifications works with Android, iOS and desktop devices, and you can use it to send unlimited push notifications. The app comes with a free seven-day trial, and the system integrates with other Web apps, software and almost every programming language.

9. Need a Budget

The Need a Budget app is ideal for businesses that must focus on cash flow to survive. Planning and tracking expenses can make the difference between having enough inventory for the busy season and struggling to earn enough income to cover basic expenses. It’s easy to get caught in the trap of reduced cash flow because of slow-paying clients, financing difficulties and seasonal slowdowns, but this intuitive app can generate a budget based on uploaded bank statements. If cash flow is a problem, this app offers an ideal solution for proactively financing your business through careful budgeting.

10. FreshBooks

The FreshBooks mobile app is free to try and works with both Android and iOS phones and tablets. The app includes almost all the features that are available on full versions of the software, so you can handle your record-keeping chores while on the go. The basic plan costs $15 per month, and you can bill up to five clients. The Plus plan–at $25 per month–allows you to bill 50 clients. If you have more clients, the Premium plan costs $50 per month. Also under this plan you can bill and manage up to 500 clients. FreshBooks includes time-tracking and project-management tools. It costs $10 to add each employee to the system.

11. Nutcache

Nutcache, This app is perfect for invoicing and time management needs. This will help your business to create an unlimited amount of invoices, adding your logo, and sending them in bulk to your various client. The features that it offers are for expenses, reporting, and online payments. It will also allow you to communicate with customers globally with its multilingual interface!

Their pro plan is $5 per user/per month when paid on an annual basis, and $6 on a month to month basis. The other plan is the Enterprise. This will cost $12 per user/per month on an annual basis, and $15 when paid monthly.

12. Kashoo

The Kashoo app facilitates using the cloud to keep the books. Kashoo offers a 14-day free trial, and the powerful app is ideal for smaller businesses and owners who have little or no experience in bookkeeping. Owners can choose from monthly or annual payment plans, and the software comes with four introductory videos that walk customers through basic entry tasks. The app doesn’t include any predefined or custom documents, but seven invoice templates are included. There are no hidden fees, and the plan costs $19.95 per month.


5 Quick Ways to Increase Available Cash for Your Business [Infographic]

[vc_row][vc_column][vc_column_text css=”.vc_custom_1527618248768{margin-bottom: 0px !important;}”]Ever wish you had a little extra cash lying around?

Here’s some good news for you – You probably do have that cash, you just haven’t realized it yet.

Don’t let yourself be a part of the 82% of businesses that fail due to cash flow issues!

 

Cash flow problems can strike a business owner at any given moment. It’s important to stay vigilant and up-to-date on exactly what could be causing the situation.

One of those causes which might be less evident at the outset is a little thing called fees. Take a deeper dive into this cash killer within the article “Different Fees That Affect Small Business Cash Flow.”[/vc_column_text][/vc_column][/vc_row]


How to Decide if You’re an S Corp or an LLC

But how can you decide if it’s better for you to structure your business a Limited Liability Company (LLC) or S corporation (S corp)?

Maybe you’re launching a new business or your company is entering a growth period. Either way, as a small business owner you’ll want to protect your assets in case of bumps along the way.

Here are some important factors to consider if you are trying to decide how to move beyond sole proprietorship:

Location.

LLCs and S corps are both legal entities after you file with a state-level secretary of state. There’s also a pay a one-time filing fee. Both offer limited liability protection, where company owners aren’t typically responsible for their business’s debts and liabilities. Although you can file in any state, Delaware is overwhelmingly the most popular for multiple reasons, including a separate court for businesses. Nevada and Wyoming are also “business friendly.”

Taxes.

S corps and LLCs business owners calculate taxes based on their net profits or losses. Typically S corporations usually pay more in taxes – thanks to payroll taxes and state taxes. However, they can vary according to the state.

Both must file annual reports, pay ongoing fees and are popular because of their pass-through taxation and liability protection. Unlike C corporations which may face double taxation and can expect taxes at the corporate and personal levels, LLCs pass their company income through the tax returns of the company owners. Similarly, S corporations typically avoid double taxation by passing through income, usually by paying out dividends while also protecting owners’ personal assets from corporate liabilities.

S Corp

S corporations are taxed under the Subchapter S of Chapter 1 of the Internal Revenue Service code. They typically don’t pay any federal income taxes, since profits and losses are passed through its shareholders. Shareholders then must report these earnings, or losses on their individual income tax returns. There isn’t an official LLC tax classification; so LLCs can elect to be taxed as a sole proprietorship, partnership or corporation. Check with the IRS for more details.

LLC

LLCs are popular with a lot of start-up businesses because of fewer complications and expenses to set up. Many business owners consider S corps because they may have more ideal self-employment taxes than an LLC. In an S Corp, an owner can treated like an employee and paid a salary. Although the company owner’s salary is still subject to Federal Insurance Contributions Act – commonly known as FICA –taxes, the net profit isn’t subjected to the same Social Security and Medicare taxes.

Ownership.

An LLC is considered the most flexible and tax-efficient business entity. There aren’t restrictions on shareholders or equity classes. However, it can also be more expensive to form. Many states require LLCs to create an operating agreement, similar to corporate by-laws. It helps to structure your financial and working relationships. If there are co-owners, this agreement establishes the percentage of ownership, everyone’s share of profits and losses, responsibilities and exit agreements.

While anyone, including non-U.S. citizens and residents can own or be members of an LLC, that’s not the case for S corporations, which have stricter requirements. An S Corp must be a domestic corporation, where only U.S. citizens, and certain qualifying trusts, are shareholders. You can’t have more than 100 shareholders and may only have one class of stock. S corps can’t have ownership by other S corps, LLCs, partnerships or many trusts or C corporations. LLCs don’t have such restrictions and do have permission to have subsidiaries.

Organization.

While S corps are required to adopt bylaws, hold annual shareholder meetings, keep meeting minutes and issue stock, LLCs have less stringent guidelines that are recommended but not required. This includes holding annual member meetings, documenting company decisions and procedures as well as issuing member shares. S corps must have a board of directors and officers who elect officers to manage the day-to-day operations of the business.

Some company owners choose to become an S corp if they intend to stay small, not borrow money and only plan on having individual shareholders from the U.S.. Otherwise, some owners who think they may take on debt or equity from investors opt to become an LLC.

While these organizational forms are similar, the differences are nuanced enough to invest time to evaluate your choices. Do so with your accountant or attorney. Deciding what the best fit is for your goals can mean avoiding additional costs down the line as your business changes.


Keep Your Money: 5 Often-Overlooked Small Business Tax Breaks

You work hard to run your own business, so why not claim all the eligible tax deductions. However, when dealing with the general stresses of preparing for tax time, many business owners often overlook a number of deductions and credits. Missing out on these tax breaks can add up to losing out on a lot of money.

These are five often overlooked small business tax deductions you should know:

1. Section 179 Software Depreciation

Many small business owners may be familiar with the tax savings related to depreciation on capital investments like equipment and machinery. However a large number are not aware that under IRS Section 179 you can also claim software depreciation. As long as your business was profitable in 2016, this valuable tax write-off applies to off-the-shelf software for business use. Read more at IRS: Electing the Section 179 Deduction.

2. De Minimis Safe Harbor Deduction

An alternative to the Section 179 deduction is the de minimis safe harbor limit, which now has a new higher limit. In legal terminology, the term “de minimis” means “so minor as to merit disregard.”

Yet recent changes should make business owners sit up and take note! Recently increased from $500 to $2,500, this IRS-set limit “dictates whether an asset purchased by a business can be immediately expensed; or if it must be capitalized and then depreciated over time,” says Jonathan Duong, CFA, CFP, president, founder and owner of wealth advisory firm Wealth Engineers, LLC.

“Under the increased limit, business owners can accelerate the tax deduction they take on items like computers, tablets, and smart phones – which often cost more than the previous threshold of $500,” he says. Duong explains the higher limit simplifies bookkeeping for many business owners because there’s no need to track depreciation over several years for low-dollar assets. “There are a few requirements in order to utilize this deduction, so business owners would be wise to ask their accountant about it and verify that they qualify,” he suggests.

3. Casualty and Theft Loss Deduction

While tax deductions for personal property loss due to disasters (i.e. flood, hurricane, tornado, fire, earthquake,volcanic eruption and theft) may be well-known, business owners may not realize that the Casualty and Theft Loss Deduction covers business property loss as well. Additionally, if that loss was from a federally claimed disaster area and warranted public or individual assistance, you can treat the loss as having occurred the previous year, so that it can be claimed on your current taxes. See the IRS Business, Casualty, Disaster & Theft Loss Workbook for more information.

4. Mileage and Auto Loan Deductions

Every time you hop in your personal vehicle to drive somewhere for your business, you’re accumulating eligible mileage deduction. And, you may never even think of it!

The standard mileage rate for the 2016 tax year is $0.54 per mile. However, if you claim a section 179 deduction for the vehicle you won’t be able to claim business mileage as well. And don’t forget that if you have a car loan but use your vehicle for business sometimes, you can also claim a portion of your auto loan interest. Find out more at IRS Transportion.

5. Research & Development Deduction

Have you spent money researching how to improve or test a product in your business? If you’ve incurred costs to “eliminate uncertainty about the development or improvement of a product,” your business could be eligible for the Research and Development (R&D) deduction. Significant changes regarding the R&D deduction were signed into law as of January 1, 2016. It is now possible for qualified businesses to use the deduction to offset alternative minimum taxes (AMT) and the Social Security portion of employer’s payroll taxes.

Even smaller businesses may have eligible expenses in this area as well, including product costs incurred to develop:

  • The formula
  • An invention
  • A patent (including the associated attorney’s fees)
  • A pilot model
  • The process
  • Technique
  • Development of internal-use software

 

Review the IRS’ Research & Development page for more details.

As a time-strapped small business owner, you may not be as ready for tax season as you’d like. Yet carving out even a few hours to do your tax research could be worth it. After all, you don’t want to leave money on the table when tax time rolls around.


Don’t Just Ask Your Accountant About Taxes!

People often perceive tax time as an opportunity to save, by digging deep for deductions; However, approached correctly, tax time can also be a chance to grow. This tax season, take the opportunity to ask your accountant questions that go beyond the paperwork for this year’s filing. Here are eight questions to ask your accountant this season:

How Else Can You Help My Business?

Accountants aren’t usually business coaches or financial advisors; however, the good ones are whizzes at analyzing and understanding a mass of business data. They can suggest ways to better manage your cash flow, software programs that can improve your invoicing, and other tactics to make your business more profitable.

“The great accountants look at business as a circle where sales and marketing and finance and HR are all tied together,”Sageworks founder Brian Hamilton told Entrepreneur. “They can pull data on the operations of all of the various areas of the business together to provide more meaningful insight.”

Am I Using the Right Legal Structure?

Just as your business changes over the years, the business structure you need might change as well. Ask your accountant if, for example, it makes sense to shift from a sole proprietorship to an LLC or make other revisions to your business structure.

“Changing your business structure can separate your personal assets from those of your business, thereby protecting them if your business should be sued,” entrepreneur Nellie Akalp writes in All Business. “Also, you might find some tax advantages by switching to a different legal structure.”

What’s Effecting the Growth of My Business?

Growth is the life blood of any business. Your accountant can guide you on profitable growth in different ways. They include determining the true cost of employees when salaries, insurance, training and all other costs are factored in.

When Should I Make a Large Equipment Purchase?

If you run a construction business and your truck breaks down, you likely have to buy a new one immediately. However, many large equipment purchases can be more adroitly timed. Your accountant can help you evaluate the quality of your equipment, letting you determine if old equipment is holding you back. They can also help identify any tax breaks and cash-flow advantages from how you time your purchase. Your accountant can also suggest if you should get rid of a building, equipment or assets that are no longer paying off.

“Investing in capital purchases, like new equipment for a small business, often has positive tax benefits. But without the right timing and planning, equipment purchases don’t always mean cost savings,” explains accountant Joe Lauzen.

How Can I Take Care of the Health of My Employees?

Your accountant isn’t going to sell you a health policy or measure your workers blood pressure, of course. However, your accountant can be a valuable resource in determining the total cost of your labor force and how much you can spend on health care on a monthly basis. Additionally they can advise on how to negotiate the ins-and-outs of the regulations regarding health care.

Is There Anything I Should Do to Increase My Savings?

Your accountant can analyze your expenses, determine how to reduce bad debt, restructure financing, identify valuable customers and many other steps that can limit the amount going out while maximizing what’s coming in.

How Should I Prepare For Next Tax Season Now?

Many time-pressed entrepreneurs have trouble seeing past this month, let alone to next year. However, your accountant can advise on steps to minimize your taxable income throughout the year, so you maximize your return in 2018.

How Should I Start a Second Business?

Many entrepreneurs are serial sorts – when the bug of running their own business hits them, they want more. If you are going into start-up mode, your accountant can advise you on tax breaks, such as advertisements and travel to land new customers, that you can take even before you’ve opened your doors.

Tax time is a perfect time to ask your accountant questions about other topics. Take a few minutes to ask your accountant a few simple questions and you could improve your future, instead of just simply maximizing your return.