Optimize cash flow at your plumbing business

How Plumbers Can Optimize Cash Flow

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One of the main reasons small businesses fail is lack of cash. And it’s possible to have no cash even if your business is making a profit. That’s because assets, like accounts receivables, are not cash until you’re able to collect what’s owed to you by your customers. Profit, in this case, will not pay your bills. This is why it’s essential to keep an eye on cash flow at your plumbing business. Doing so will ensure that the amount of cash generated by your business is sufficient to pay your immediate operating expenses, such as business loans, payroll, and rent

Here are some key steps every plumbing business owner should take in order to optimize their cash flow.   

Automate Invoices

Choosing to automate your invoices is beneficial to your plumbing business because you’ll get paid faster. This can be done easily by using accounting software, which can automate time and expense tracking, recurring invoices, late payment reminders, billing, appointment scheduling and more for your plumbing services. For instance, FreshBooks, an all-in-one accounting plumbing software solution, can manage all your bookkeeping needs — everything from creating invoices to managing cash flow and tracking employee time. 

Overall, the faster you receive payments, the better. Anything that can help you maintain a steady cash flow to pay your employees and cover your business expenses is something worth looking into.

Forecast Your Cash Flow

Be sure to draft a forecast of your cash flow to ensure you have enough money to pay all upcoming bills. This will allow you to plan a cash flow budget, which should include an estimate of all cash receipts and all cash expenditures that are expected to occur at your plumbing business during a specific time period. You can make these estimates on a monthly, bimonthly or quarterly basis. Your cash flow budget should show you when money is coming in, when it will go out and what money remains each month after you’ve paid your expenses and recorded your income. To help with this task, you can use a cash flow management software solution. Many of these solutions integrate with various accounting software platforms if needed. 

Outsource When Needed

Outsourcing allows you to leverage outside expertise for certain workflows, such as payroll, accounting, taxes, office cleaning, marketing and more, which can benefit your plumbing business in many ways. By choosing to outsource, you can save money by converting fixed costs into a variable expense. With outsourcing, you can decrease the labor costs of full-time employees, reduce overhead and increase plumbers cash flow. Outsourcing partners are essentially subject matter experts, so they will already have the tools and know-how for specific tasks. In turn, they can reduce the learning curve and improve workflow efficiency, saving you valuable time to focus on your core business. Additionally, outsourcing can help you grow your plumbing business by freeing-up capital to secure small business funding. 

Cut Operating Costs

There are several ways to reduce costs and increase cash flow without negatively affecting your core plumbing business. You may want to start with the following:

  •  Hire an accountant to prepare your taxes. An accountant can help you discover tax breaks and deductions to keep your business growing. 
  • Review your insurance policies to make sure deductibles, premiums and liability coverage are both affordable and appropriate for your current business needs. 
  • Further, evaluate your advertising campaigns to determine if they are effective enough to justify the cost. 
  • Decrease paper filing work and paper storage at your office by using free or low-cost cloud storage

Overall, to optimize your cash flow, prioritize your needs and cut costs in places where you’re not finding value. 

Offer Flexible Payment Options

Flexible payment options – such as allowing clients to pay by cash, checks and credit cards – will make it easier for your customers to pay for your plumbing services. In addition to traditional payment methods, be sure to consider online payments or mobile payment options, which have become increasingly popular over recent years. Online payment options give your business an inexpensive, faster and reliable way to do business while offering your customers convenience and security.

There are also secure credit card payment processing solutions. EMSmobile, for instance, is specifically geared toward plumbers, roofers, electricians and other traveling business professionals. With this particular solution, you can accept payments right on the job.

Keep in mind, as with any payment method, there are advantages and disadvantages. However, to optimize your cash flow, you should offer your customers payment options that will work best for them. Doing so will allow you to get paid on time, every time.   

Stay on Top of Accounts Receivable

It’s imperative to keep up-to-date on your customers’ accounts and inquire about unpaid invoices in order to promote a positive cash flow. Do this by reviewing all of your accounts receivable on a regular basis. 

For customers paying for your plumbing services in installments, send reminders for payment when necessary. You can also try installment payment software to streamline this process. Installment payment software can facilitate your business’s ability to offer your customers the option to purchase an item over time through a set number of regular payments. You then have the choice to implement the software yourself or utilize a SaaS tool to provide installment payment capabilities. In those instances, the service will pay your business the full price of the item upfront and then remit the installment payments from the customer. This will help eliminate unnecessary strain on your cash flow. 

Stall Your Supplier Payments

Delaying payments to your suppliers when you are able to can help increase your cash flow.

In fact, many U.S. companies are holding back payments to their suppliers for longer than at any point in the past decade, according to The Wall Street Journal. This allows them to keep more cash on hand that otherwise would be tied up in their businesses.

To keep a good relationship with your supplier, it’s important to be sure that you’re not breaking any agreements before you decide to delay any payments. 

Request Deposits

Ask for a deposit when taking on a long-term contract to help maximize your cash flow. For instance, you can ask for a 10 percent deposit upfront, and after the job has begun, the remaining amounts can be paid per your agreement. This allows you to have some additional cash flow while waiting for, let’s say, the electrician or general contractor to finish up on items that they need to do in order to pass a plumbing rough-in inspection.

Raise Your Pricing

Raising your prices won’t necessarily affect your customer base, but it can make a big difference to your bottom line and cash flow. Play around with the numbers and try to predict what will happen if you raise your prices by 10 percent or 20 percent. Then, evaluate the market to ensure you remain competitive. You may even realize that you’re pricing your services too low to begin with.

By considering these cash flow tips, you’ll be on the right track to having the necessary cash to sustain or grow your plumbing business. Keep in mind, you can always work with your accountant to review how cash circulates through your business if you’re having trouble developing a solid system to track cash flow.

 

how to determine if you are going to get an irs audit

What Red Flags Will Trigger an IRS Audit, and How to Minimize Them

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Is there an IRS audit in your future? Don’t simply hope the answer is no. How you handle your small business’ finances – in the way you spend money and how you document those transactions – can increase or minimize whether you’ll face IRS scrutiny. Focusing on red flags that’ll trigger an audit will help protect you and your business more efficiently. What the IRS says about the “examination process” includes a hopeful prospect: “Some examinations result in a refund to the taxpayer or acceptance of the return without change.”

Don’t count on it. And, remember: An IRS audit can inflict pain even if you come out smelling like a rose. The process of pulling together every financial record you need could put a strain on you and your bookkeeping department.

IRS Audit Triggers

So, what triggers an audit? General factors, according to the IRS, include the following:

  • “Related examination.”

This means: If the IRS audits one of your customers or suppliers, and asks questions about your tax returns, you might be next in line for scrutiny.

  • Information matching.

If there’s a discrepancy between your bank reports for the IRS (and you) and the interest it paid you over the course of the tax year, and what you report in interest income, a bright red flag goes up. Keep in mind that credit card transaction processors are required to file a 1099-K form to the IRS summarizing total payments you received that way.

  • Local initiatives.

Sometimes, regional IRS offices decide to focus on particular business sectors because it has found a lot of abuse there. There’s not much you can do to reduce your changes of an audit in this scenario.

Also, all things being equal, the type of business that you are – whether you’re a C Corp, or a Sub S or sole proprietorship – can affect your odds of being audited. That’s because it’s easier to blur personal and business finances when your personal and business finances are combined in a single tax return.

Another factor is the size of your business. The larger the company, the more money there is to be reclaimed by the IRS in a typical audit scenario if there’s any abuse. So, you’re more likely to stay below the IRS’s radar if your revenue is $1 million than if your revenue is $10 million. Even so, that doesn’t mean that you shouldn’t grow your business merely to lower your chances of an IRS audit.

Automated Audit Trigger System

The heart of the IRS audit process is called the “discriminant function system,” or DIF. The IRS assigns varying DIF scores to taxpayers–individuals and businesses–based on numbers and ratios they report. Like Google, the IRS doesn’t reveal anything about the DIF. Still, there’s plenty of evidence of where it focuses.

A basic example is the ratio of your total claimed business expense deductions to your overall business income. Of course, you can operate at a loss from time to time. But if that happens often, the IRS will probably take a closer look. Still, you’ll be vindicated if all of your expenses are legitimate.

The DIF focuses on areas typically prone to abuse, such as business meal charges and travel. If you frequently expense for these reasons, keep detailed records and receipts. This goes for expenses of at least $75.

Since 2018, you’re required to separate your food and drink expenses from the entertainment portion. The cost of the entertainment portion (e.g. theater and sporting event tickets) isn’t deductible. As always, keep notes on the purpose of business meals, who attended, and your relationship to those individuals.

Here are some additional areas of IRS scrutiny for statistical anomalies when looking for audit candidates:

  • Independent contractor overload.

If you use a lot of support from freelancers to whom you issue a 1099 instead of a W-2, this might trigger the IRS. Be sure you classify freelancers appropriately.

  • Home office deductions.

Remember: You can’t deduct the cost of an entire room if you’re only using the corner. The time you spend working in that room compared to everything else you use it for, matters.

  • Business use of a personal automobile.

This is an abuse-prone area, too, like food, drink, and entertainment expenses.

  • Sloppy math.

You might think an error involving an inconsequential amount of money isn’t a big deal. To the IRS (and probably the DIF system), small errors can be an indication of larger errors also present and worthy of discovery.

  • Large cash transactions.

In the unlikely event you are paid $10,000 or more in cash in a single transaction–and fail to report it on IRS form 8300–you could be audited.

There’s no set way of escaping the possibility of an IRS audit. But, by paying attention to red flags and preparing to answer possible questions about your expenses, you’ll save yourself a lot of grief in the long run.

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Know Your States -- and Their Sales Tax Laws

Know Your States — and Their Sales Tax Laws

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Walk around any neighborhood and on just about every front step you’ll see boxes containing merchandise that was purchased online. What you see has everything to do with sales tax laws.

Consumers consistently turn to online shopping.  It’s convenient and is often less costly than buying from a brick-and-mortar store. For years, sales tax laws didn’t cover online orders. Forty-five states collect sales taxes on in-person purchases but couldn’t apply them to online ones – until now. A 2018 U.S. Supreme Court ruling now gives states collection rights for online sales tax. This was the result after South Dakota sued the online retailer, Wayfair.

The court decision almost immediately filled states’ coffers. Twenty-three states saw a five percent increase in year-over-year sales tax during the third quarter of 2019, according to a study by the nonprofit Urban Institute. The study attributed most of that growth to the new online sales tax laws.

While a boon for state budgets, online sales taxes have stressed small business owners. The internet opens the door to customers beyond a business’ geographic reach. The varying rates and rules for each state’s online tax is, understandably so, a source of confusion and frustration.

Getting Caught in a Nexus

Before the Wayfair ruling, a state could only tax companies that had a physical presence within its borders. But now, economic activity in a state – the “economic nexus” – can trigger an online sales tax. This can happen even if the business has no physical presence there.

Many small business owners feel as if they’ve been sucked into a complicated nexus of varying rules and expectations. That’s because what is subject to the online tax and what is owed differs from state to state. Some states have uniform standards for companies to follow, but other states, usually the big ones, have their own rules to sort through. Further complicating things, Alabama and Louisiana are two of five states that let their municipalities administer their own taxes.

Many small businesses typically lack the staffing and insight to grasp it all. As The Wall Street Journal recently reported, while larger businesses have the people and technology to keep track of online sales in each state and what that means for taxes, small businesses don’t have the means to keep up.

“Small businesses are definitely the ones that are really adversely affected,” Clark Calhoun, a state and local tax attorney in Atlanta, told the Journal. “A bigger business is typically going to have more robust sales-tax software,” he said, and “a better sense of where their products are going and will be well over the sales thresholds every single year.”

You Need a Scorecard to Keep Up

About those online sales thresholds. Some states exempt out-of-state sellers from paying online taxes if they had $100,000 or less in sales or fewer than 200 transactions in the state per year. A few other states don’t have a transaction threshold but have one for total sales. Some states set a $200,000 minimum, while California, New York, Tennessee and Texas set a $500,000 minimum. Kansas doesn’t have one.

The Federation of Tax Administrators, a group that represents state taxing authorities, created a handy chart that outlines the expectations for remote sellers. FTA, however, urges business owners to always double-check with a state in case of any changes.

Small businesses could turn to a marketplace facilitator to handle the sale and the burden of collecting tax. As The Wall Street Journal noted, 38 states and the District of Columbia now have laws requiring marketplaces such as Amazon, Etsy and eBay to collect and remit sales tax on behalf of third-party sellers.

Indeed, those marketplaces could relieve a burden for small businesses, especially with these big online sellers benefitting from a grace period that gives them time to align their procedures with the many state laws. Forbes notes that all but one state with marketplace facilitator laws allows up to three years to be fully compliant with online tax laws.

Do Your Online Tax Homework

Still, not every business wants to put the fate of its goods in the hands of Amazon or eBay. If you’re one of those businesses, having a deeper understanding of the vast online tax landscape should be a priority.

That won’t be easy, though. In the Journal of Accountancy, a publication for CPAs, attorney David Brennan points to how the U.S. has more than 10,000 tax jurisdictions. “While it is possible in some states to register at the state level for counties and municipalities, in other cases the law requires a separate registration in each state, county, and municipality” he wrote. On top of ensuring that they are registered with every possible government entity, businesses also have worry about the many different exemptions to goods. For instance, using Brennan’s example, many states tax the sales of clothing but a few exempt them, while some apply a cost threshold.

Two pieces of advice that Brennan offers to CPAs who represent businesses can also apply to small businesses themselves. First, know your company’s sales and number of transactions for each state and determine potential economic nexus exposure. This requires knowing which products and services are taxable in which states. Also, know the sales tax collection requirement in those states and whether there are any exemptions.

Don’t Go it Alone; Find Expert Help

Even though it’s best to know your businesses’ internet sales inside and out, trying to figure it all out against the backdrop of every state’s expectation might be too much when you already have a long list of financial obligations. You can seek the counsel of an accountant or go a step further and outsource all tax and accounting work to an outside service. Financial services provide not only expert advice but also, more often than not, the latest accounting software. They’ll bring a fresh perspective to your online sales and will already work closely with federal, state and municipal tax and revenue departments.

The expectations and chance of risk are far too enormous to try to handle this alone. Online sales introduce small businesses to a whole new world of customers, but also a whole new world of complexity. As daunting as the vast online sales tax landscape might be, with the right help and proper approach, your business won’t have to sweat the many small details and instead focus on serving your many virtual customers.

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Do You Know Your Fixed Charge Coverage Ratio?

Do You Know Your Fixed Charge Coverage Ratio?

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Usually when someone mentions a company’s coverage ratio, they’re referring to the ability of the business to pay its debt obligations. Specifically, they’re referencing a financial metric known as the times-interest-earned ratio. But, a company has more fixed obligations than its principal and interest loan payments. The fixed charge coverage ratio includes all of a company’s fixed obligations–not just its debt service coverage.

What are a Company’s Fixed Charges?

Every business has fixed obligations they must regularly meet, regardless of sales volume or profits. Here are a few of the fixed obligations in addition to loan payments that most companies have to make:

Insurance premiums covering vehicles and property
Rent for offices and warehouses
Licenses and fees
Employee wages and salaries
Lease payments on equipment
Property taxes
Utilities

A company’s cash flow must be enough to at least pay these obligations or it could go out of business.

What is the Fixed Charge Coverage Ratio?

The fixed charge coverage ratio, FCCR, shows the ability of a business to pay all its recurring fixed charges before deductions for interest and taxes. The formula to calculate the FCCR is as follows:

Fixed Charge Coverage Ratio = (Earnings before interest and taxes [EBIT] + Fixed charges before taxes)/(Fixed charges before taxes + interest)

Let’s illustrate with an example. Suppose Company A has an EBIT of $110,000, interest charges of $10,000 and other fixed obligations of $115,000 before taxes (leases, insurance and salaries). Its FCCR would be as follows:

FCCR = ($110,000 + $115,000)/($115,000 + $10,000) = 2.0

The FCCR shows the amount of the company’s cash flow that fixed costs consume. In the case of Company A, an FCCR of 2.0 means the company generates $2 in EBIT for each $1 in fixed costs.

How do Lenders Use the FCCR?

Lenders use FCCR to gauge a business’s financial health and ability to repay its loans. They want to know that a company can meet all its obligations even if sales decline.

Generally, lenders prefer an FCCR of at least 1.25:1. Higher ratios mean that the company can more comfortably cover its fixed costs with its current cash flow. It also shows that the company can take on more debt and still meet its obligations. An FCCR less than one means the business does not have enough earnings to cover its fixed costs. In this case, the owner could be forced to dip into reserve savings to cover the deficit.

How Can a Small Business Owner Use FCCR?

A business owner can use it to learn where the company currently stands and look for ways to improve. Tracking the FCCR over time will let you see if the company’s financial health is improving or declining.

You should know your FCCR before submitting a loan application. An FCCR of 1.25:1 makes lenders less inclined to offer a loan. As a result, you’ll know that you need to improve your FCCR.

If your FCCR is low, you could look at ways to improve marketing and increase sales. Or, on the other hand, you could analyze fixed costs to see if any expenses could be reduced. Owners can use this information to find which projects they can pursue without straining the business’s financial resources. Constructing various “what if” scenarios of different loan arrangements and the effects of changes in revenues and expenses will let you see the resulting FCCRs in the future.

Besides a high FCCR helping you to get financing, it is also assuring to you and your employees to know that the business is healthy and on a solid base for growth.

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2020 new year small business plan

A Small Business New Year Checklist to Help You Ring in the 2020s

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After crunching for year-end deadlines, the arrival of a new year–and decade–gives you a chance to take a breath, reevaluate your business and get back on track. Depending on the seasonality of your products, January may be a good time to make changes and begin long-term projects to help your company run better. Here’s a list of items to consider adding to your Small Business New Year Checklist for 2020 and beyond.

Formal Goal Setting

This may be the year to start setting clear business goals if you haven’t done so in the past. What do you want to get out of your company? What are some areas of potential improvement? Are you happy with the amount of business you bring in, or would you like to try new strategies to increase growth? Setting formal goals with a supporting action plan can help you propel your business forward.

Implementing Process Changes

If something is simply not working and causing you unnecessary stress, the start of the new year is a good time to revamp a broken process. Does your equipment need to be upgraded? Have you outgrown your manual record-keeping system? Would you benefit from technology that streamlines financial recordkeeping?

Develop a Budget

Goal setting and strategizing are big picture tasks. Experienced owners also recognize the importance of setting a detailed budget to keep spending in check. At the very least, start tracking your business spending. Open a separate bank account or credit card to help determine where the company’s money goes. Look for opportunities to improve profitability by lowering expenses.

Review Insurance Coverage

Has your business changed significantly in the last year? You should review insurance policies annually and add new items to coverages to reduce loss risk.

Tax Preparation

The beginning of the year is also tax prep season. Resolve to start the process early and know when your deadlines are. You may also want to research small business tax credits that you may qualify for.

Tax Planning

As you prepare tax forms for last year, keep an eye out for opportunities to save in the future. If tax laws change, research the ways they may affect your company. Consult with a tax expert, if warranted.

Facilitate Growth

You may need to invest in your business and prepare to handle more customers and higher sales volumes to increase growth. A new truck, expanding to another storefront, or hiring more employees will increase your expenses in the short-term, but also help to facilitate expansion. To help manage cash flow during growth periods, look into business financing options.

Start the new decade off right by using this small business new year checklist: set clear goals supported by tangible actions steps. Develop a budget and keep an eye on cash flow to determine how you’ll manage your company through the coming weeks and months. The new year is a chance to start over and improve your business aspirations. It is the perfect time to make improvements and upgrades to your company.

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Audit vs. Review: How to Choose the Right CPA Firm for Your Business

How to Choose the Right CPA Firm for Your Business

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You feel pretty confident in the accuracy of your financial statements. But, you know that “trust me” won’t cut it with outsiders when you’re looking for a loan or investment capital. And, perhaps, you just want some reassurance that whoever is doing your books (even if it’s you!) is up to the task – and honest. If this is you, it looks like it’s time for you to to face the audit vs. review and compilation question. This is where CPAs, and the assurance services they provide, come into the picture.

Audit vs. review

There are tiers of assurance services and levels of scrutiny that CPA auditors can apply to your books, with corresponding confidence levels. It ranges from a “compilation” at the low end, to a full-blown audit at the top. Each has a different purpose, and price tag.

Cost depends upon the amount of time spent performing the service, and the level of complexity (also impacting time requirements and thus cost). The range is wide, say from around $2,000 to $10,000, $20,000 or more.

A compilation of financial statements technically does not belong in the same category as assurance services because the CPA isn’t passing judgment on the accuracy of your financial statements, as they do in the audit vs. review area. A compilation, which does not need to be performed by a bona fide CPA, is basically just a set of financial statements compiled by an accountant using your financial records.

The accountant (or CPA) who performs the compilation should know your industry enough to understand your numbers, and adapt them to standard financial statement formats. Those statements will then be understandable to anyone who needs to look at them.

If the CPA has questions about where some numbers come from, you need to provide clarification. If the accountant / CPA isn’t satisfied with your answers, they quit the engagement.

Even if the accountant has no problem compiling the statements with a compilation, a letter accompanying those statements must be shared with anyone you give them to, making it clear that no opinions are expressed about their accuracy. The letter should describe the process used to perform the compilation, and any issues that arose.

Who Uses Compilations?

There’s a lack of assurance that goes with compilations. You might use them to seek a small loan or a larger one if you pledge sufficient collateral.

The entry level assurance services category is the review. According to the American Institute of CPAs (AICPA), the review service “is one in which the CPA performs analytical procedures, inquiries and other procedures to obtain limited assurance on the financial statements and is intended to provide a user with a level of comfort on their accuracy.” To produce a review, the CPA needs to gain a basic understanding of your business and your accounting procedures and principles.

Still, in performing a review, the CPA “does not contemplate obtaining an understanding of your business’s internal controls, assessing fraud risk, testing accounting records through inspection, observation, outside confirmation or the examination of source documents ordinarily performed in an audit,” the AICPA explains.

A review is only performed by a CPA who has no ties to you that could compromise the CPA’s independence.

“Material Modifications”

A report accompanies a report, giving the CPA’s opinion on any  necessary “material modifications” for statements. This will bring them in line with applicable accounting standards.

A review may get you by if you’re applying for a larger loan and prospective lenders will tell you what they need. They’ll provide a basic level of assurance, too. But a review is closer to a compilation than an audit, which involves significantly more digging on the CPA’s part. The audit is the gold standard of financial statement scrutiny. It provides what the AICPA describes as a “high level of comfort” in terms of accuracy.

An audit only reassures yourself, lenders, investors or prospective business buyers that your financial statements are solid. And if the auditor does have some issues with your numbers or your internal accounting quality control systems, anyone reading the audit report will know that, too.

A Roadmap for Improvement

Any reported weaknesses in your financial controls can give you a roadmap on how to improve them. Once you fix the deficiencies, your next audit report will be cleaner.

However, an audit report indicates that it only provides ‘reasonable’–as opposed to absolute–assurance of your financial statements’ integrity.

Think about an audit vs. review and keep this in mind: In an audit, the CPA can’t rely on numbers from last year’s statements as the starting point for the current year’s audit. Instead, the auditor might first need to perform tests on the prior year’s numbers (and possibly earlier years). That suggests that the sooner you have an audit performed, the less expensive it will be.

There are steps you can take to reduce the cost of an audit, or for that matter, a review. Make sure your bookkeeping system is reliable, and that your financial records are easy to decipher. Consider bringing in a pro in to clean things up before you engage a CPA.

The CPA tells you the documents you need for and inspection. Be sure to have all your papers ready before the review or audit.

Pick an appropriate auditor to get an efficient audit. Large CPA firms tend to be more expensive than mid-sized or smaller firms. You probably don’t need a large national firm. However, a firm that’s large enough to have experienced auditors might be cheaper than a tiny firm. If it can perform your audit more efficiently, take it into consideration.

The public accounting industry is highly competitive. Don’t hesitate to shop around. Before signing an engagement letter, gain a high comfort level with a firm. Check the firm’s client references, fees, promised turnaround times, scope of services, audit procedures and technology infrastructure.

Choose wisely and build a strong relationship with a CPA firm. This can benefit you not only in assuring your financial statements are trustworthy, but ultimately help you to build a strong financial foundation for your business.

 

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best loans for contractors

Business Loans for Contractors: The Best Choices

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Contractors need different types of capital to run their businesses. They use long-term capital to finance equipment purchases and short-term capital to smooth out temporary fluctuations in cash flow. Here are the best loans for contractors with descriptions of their collateral requirements, application procedures and repayment terms.

Line of Credit

A business line of credit is a valuable and flexible source of funds for a contractor. It allows you to make “draws” as needed against the maximum approved line of credit. You will only pay interest on the amount of loan drawn down. If you repay the loan, you can come back later and borrow again. These types of loans are known as “revolving” lines of credit.

Lines of credit help smooth out short-term fluctuations in cash flow. They can be used to meet payroll expenses, pay suppliers and provide cash during slow periods. They can be drawn down at any time.

Lines of credit are usually secured by the contractor’s assets, such as accounts receivable, inventory and equipment. The amount of the loan is based on the lender’s appraisal of the worth of the company’s assets and its financial leverage. For example, a lender might advance 80% of the value of accounts receivable but only advance 50% of the book value of inventory and equipment. The maximum line of credit would be the sum of these appraisals.

The application and approval process for a line of credit is usually very quick.

Equipment Loans

From vehicles to high-priced heavy equipment, contractors need all types of equipment to perform their work. Equipment purchases for large amounts should align with the useful life of the asset. Equipment purchase loans are payable over several years, usually up to five years with monthly payments.

Lenders will require down payments of 10% to 20% but will finance the rest of the purchase price. This enables contractors to buy big-ticket items that may have otherwise been out of reach.

The collateral for an equipment loan is typically the equipment itself. This leaves the contractor’s other assets, such as receivables and inventory, available for collateral for other loans.

Small Business Administration Loan

Because of their long repayment terms and low interest rates, SBA loans are highly desirable. Lenders guarantee up to 85% of loans to contractors. This way, they have solid security in case the borrower defaults.

To finance long-term working capital needs and businesses with seasonal fluctuations, you can use funds from an SBA loan.

The hard part is that SBA loans are difficult to get. Only the most creditworthy applicants receive approval. Borrowers must have several years in business with good revenues and a strong credit history.

SBA loan applications require a considerable amount of paperwork and can take several months to get approved. SBA loans are highly desirable if you have the credentials and time to wait.

Accounts Receivable Financing

Under an accounts receivable financing agreement, the lender agrees to make advances up to a certain percentage, say 80%, of the contractor’s total accounts receivable outstanding. Repayment terms are either weekly or monthly. The contractor retains ownership of the receivables and assumes the risk of non-payment from the customer.

To make up short-term deficits in cash flow as needed, use funds from an accounts receivable agreement.

Invoice Financing

Invoice financing, also known as factoring, lets a contractor receive an advance against the company’s receivables. The factor typically will make an advance to the contractor of up to 80% of the invoice amount and collect the balance from the client at due date. Funds from factored invoices normally go into the contractor’s bank account the next business day.

In a factoring agreement, the lender, known as the “Factor”, purchases invoices from the contractor. They assume the responsibility of collecting the debt. Factoring fees can range from 2% to 4% of invoice value.

Approval for this type of invoice financing is based more on the creditworthiness of the contractor’s customers than the credit rating of the contractors themselves.

Loans for contractors range from lines of credit and receivables financing to meet short-term cash needs to equipment loans and SBA loans for long-term purposes.

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guide to pos systems for small businesses

Guide to POS Systems for Small Business

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Small businesses face stiff competition, and they need every advantage they can get. Sometimes, an advantage can be found in an unlikely place, such as your point of sale (POS) system. POS systems provide an array of functionality that can help you with marketing, employee management, inventory management and payment processing, among others. So, getting the right system that meets the needs of your business is one way to gain an edge. But, how do you know which POS system is right for you?

Let’s start with the basics.

What Are POS Systems For Small Business?

By definition, a point of sale is where a sales transaction takes place. It could be at a register in a brick-and-mortar store, on a mobile device or even online.

A POS system combines hardware and software that retailers use to process sales transactions. It is not just a credit card processing system.  In reality, a POS can handle a variety of back-office functions in addition to processing credit card payments.

What Functions Does a POS Perform? A POS can have the following capabilities:

Scan barcodes – Use a barcode scanner to quickly input product and sales data into the system.
Process card payments, returns and exchanges – The credit card reader should input the customer’s credit card data from swiping a magstripe, dipping cards with chips or accept contactless payment such as Google Pay and Apple Pay. For mobile sales, you can connect card readers to tablets and smartphones per the headphone jack. Purchases made through your website can be processed with online POS software.
Track customer history – Keep records of customer profile data and sales history. Collect customer contact information and create lists for email marketing.
Keep records of employee performance and time management – Track employee clock-in and clock-out data and record sales performance for commissions.
Track inventory – Maintain current inventory in-stock levels of products and issue alerts for low stock amounts to reorder and prevent missed sales. Store supplier information, wholesale costs and discounts and issue purchase orders.
Produce reports- Produce sales performance reports. For example, track top sellers, identify slow movers and predict seasonal fluctuations.

What are the Key Elements of a POS System?

Pricing – POS systems can cost as little as $0 per month up to $300 per month. All systems charge a payment processing fee. They can be cheap or very expensive to operate, depending on the additional functions provided.

Hardware – POS systems typically work on most Android devices, iPhones and iPads. If you have one of these already, you can start your POS with a low-cost or free card reader and few other hardware costs. However, if you don’t have a barcode scanner, you’ll need to purchase one. Additional hardware costs could be anything from a printer for receipts to a cash drawer.

Plans – POS plans should range from a free (or low-cost) option with little more than the capability to process credit card payments, but have the flexibility to add more sophisticated data tracking and reporting as the business grows.

Top POS Systems for Small Businesses

Square

Square is the POS of choice for mobile businesses. Additionally, it’s also an economical favorite for retailers with physical stores. Many users conduct all of their business with just an iPad and a basic Square plan.

Advantages – Square has a basic plan with a zero monthly cost, making it easy to get started with a POS system. The software is intuitive and easy to use.
Disadvantages – Transaction fees can be slightly higher that other POS systems. Square charges more for transactions with manual entry than other POS providers.

Lightspeed

Lightspeed offers more than 40 detailed sales, inventory and analytic reports. It provides nearly any type of data analysis that a retail business would need.

Advantages – The basic plan starts at $99/month and upfront purchases of hardware can approach $700, but you will receive extensive and sophisticated data analysis and reports.
Disadvantages – The ecommerce feature is only available at an additional monthly fee. Shopify and Square offer ecommerce platforms for free. Unlike other POS providers, Lightspeed requires a contract, which means you’re stuck if you don’t like their system.

Shopify

Shopify has a reputation as one of the best POS systems for ecommerce. It’s easy to set up and has a wide range of options that are customizable for any small business. It also scales up as a business grows.

The plans range from a basic option at $29/month up to the Advanced Shopify at $299/month.

Advantages – Shopify has affordable subscription and processing fees and offers a 14-day free trial. Its ecommerce tools are some of the best.
Disadvantages – Data reporting on the Basic Plan is limited. Shopify doesn’t have a free subscription plan; options with more features gets expensive.

ShopKeep

ShopKeep is designed especially for cafes, bars, boutiques and specialty shops. It offers very detailed product and inventory tracking and goes further by keeping track of recipes and ingredients, for example.

Advantages – It offers helpful features for sales staff management, inventory control and reporting.
Disadvantages – It doesn’t have fixed-price plans. Company representatives prepare a custom quote for each business application. Generally, higher business volumes reduce the credit card processing fee. ShopKeep offers a free version, but limits the number of items in inventory, number of employees and registers. Even the sales amount is restricted without an upgrade.

 

How to Choose a POS System

Use the following criteria and ask yourself these questions to determine the best POS systems for your small business:

  1. Price – Is the software and hardware reasonably priced with low monthly fees for a small business?
  2. Payment processing –Do the transaction processing fees compete with other providers?
  3. Inventory management – Does the system produce inventory data that you actually need?
  4. Customer data management – Does the system collect customer profiles, keep lists for email marketing, track customer purchase history, have a customer loyalty option, and offer gift cards?
  5. Employee data – What information does the system provide for individual employee performance?
  6. Customer support – Does the provider have free, live support, and is it available 24/7?
  7. Integrations – Does the system integrate selling, marketing and accounting reports?
  8. Analytics and reporting – What data do the reports provide? Can data be exported? Will the system produce visual charts and graphs?

Making Your Choice

First, decide what you want in a POS system. If it’s just processing credit card transactions, a free card reader with processing charges per individual sale and no monthly fee is good enough. But if you’re looking to add customer data for marketing, inventory management and tracking employee performance, then you’ll need to purchase a system that provides those additional functions.

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The importance of a business action plan

How to Construct a Business Action Plan to Get Things Done

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You’ve probably heard about the importance of creating a business plan to plot the growth and development of your business. So you outline your goals to increase sales, reduce costs and improve profits. But then what happens?  Setting goals is fine, but they need something that brings them to life. Something that makes everything happen. That something is a business action plan.

Here’s how to construct an action plan for your business that brings your goals to life.

What is a Business Action Plan?

While a strategic business plan outlines the overall growth, direction and development of the company, an action plan converts those objectives to identifiable tasks.

Quite simply, an action plan is a carefully thought-out listing of all the things that have to be done to turn your goals into reality. Let’s take an example.

Suppose one of your goals is to increase sales by 10% by hiring an additional salesperson to make more outside calls to potential new customers. The steps to achieve this objective might be as follows:

  • Write up a job description
  • Post your the postion on jobboards
  • Review the resumes that you receive and select 10 candidates to interview.
  • Schedule in-office interviews over the next three weeks.
  • Take one week to go over interviews to choose a candidate and make a job offer.

Each objective in your strategic plan needs a detailed list, like the one above, of the tasks needed to accomplish the goal.

What are the Components of Action Tasks?

Effective action-oriented tasks follow the SMART outline. They are:

Specific – Setting a goal to increase sales is too general. But saying you want to increase sales by 10% is specific. This way, you take last year’s figure, suppose it was $850,000, add 10% or $85,000 and you have a new specific target of $935,000.

Measurable – Progress towards achieving a goal must be measurable. Weekly sales reports, for example, will track the movement along the path to a revenue goal.

Attainable- Employees must genuinely believe that it is possible for them to reach the objectives. If they don’t feel the objective is realistic and reasonable, they won’t even try.

Relevant – Goals must conform to the company’s business model and customer demographics. The goal should be worthwhile, match other company efforts and applicable in the current economic conditions.

Timely – Set a target date. Establish a deadline to keep the focus on tasks leading to long-term goals.

Which Resources are Needed?

Identify the resources needed to carry out each action task. How much will it cost? How many people will be needed? Will you need to purchase any additional physical assets?

In our example, someone has to write the job description, place the ad and make sure the ad is paid for. How many hours of an employee’s time will this take, and how much will the ad cost?

Communicate the Plan to Your Employees

Get your employees involved. Let them know what your plans are and explain how these actions fit into the company’s business strategy.

Ask for their input and solicit suggestions. Employees are much more likely to support your plan and participate in its implementation if they are part of its creation.

Designate a person to be in charge of each task. Someone has to accept responsibility for the execution of the assignment.

Set Timelines for Each Task

Each task must have a specific time to complete and a deadline. Without timelines, work will expand to fit the time allowed.

Monitor the Progress

Create procedures to receive regular progress reports for each action task. The responsible employees must be aware that they will be monitored, weekly if necessary, to make sure things are moving along. If obstacles appear or deviations from the expected timelines occur, adjustments can be made to get back on track.

Business action plans are the means to convert strategic ideas into reality. Tasks that are created with action plans using the SMART method with employe participation will have the highest likelihood of success.

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Help your employees withhold the right amount of taxes.

Employee Taxes: Are Your Employees Withholding Enough Income Tax?

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In 2019, many Americans had a rude awakening: their tax refunds weren’t as big as they’d expected. Many people owed instead of getting a refund. Employee taxes, such as federal income tax withholding, seemed to have been under-withheld.

Changes to the tax code left employers and employees alike wondering what steps they could take to avoid tax surprises in future years.

The key to helping employees avoid under-withholding is taking a proactive stance on employee taxes. The experts below can help your team understand what happened with the changes to the tax code. From there, they offer actionable advice to help employees get their withholdings updated to minimize surprises.

Why some taxpayers were caught off-guard

“You fill out a W4 when you get a new job, and then you don’t think about it again until you have the next first day of the next new job,” says Ben Watson, CPA and CFO of Dollar Sprout. The “set it and forget” nature of the W4 form means that life changes, but the information on your W4 form doesn’t. Out-of-date information can lead to under-withholding employee taxes, especially in a year with significant changes to the tax code.

Even if employees had taken steps to update their W4, the form itself might have been the reason for under-withholding. “It’s possible that the current version of the W4 form hasn’t been the best tool to help employees get the right withholdings, even if they go step-by-step through the worksheet,” says Brenda Soucy, an IRS Enrolled Agent and manager with Lopez, Chaff, & Wiesman Associates Inc.

Soucy adds that multiple income streams can also create an under-withholding situation. “If you have a bunch of smaller jobs where you make $20,000 on each job, your withholding on those jobs assume this single job is your only income,” she says. “But if you have three of those $20,000 jobs, that’ll put you in a higher tax bracket.”

The rise of the gig economy adds to the scenario Soucy describes. Jobs like rideshare driving and delivery services typically don’t withhold employee taxes. Employees might not have increased withholdings at their full-time jobs to account for their increase in income, leading to under-withholding.

New tools to estimate withholdings

While launching a year later than changes to the tax code, there are new tools that will help with adjustments.

The first new tool is a revised W4 form. Estimated to arrive for employer use in December 2019, Soucy says the new form “takes many new factors into account, like dependents, other income, and multiple jobs.”

These changes point toward more accurate estimates for withholdings moving forward.

The IRS has also released a new online withholding calculator. Employers can distribute a link to the calculator to employees and invite them to update their W4 form withholdings, even before the new W4 form is released.

Steps employers can take

In addition to the new tools from the IRS, employers can help educate employees about changes to the tax code.

Watson suggests that employers partner either with their existing financial services partners or look to firms in the community to provide education.

“Reach out to your tax firm. Reach out to your payroll provider. Ask them, ‘What do we need to know?'” he says. “By inviting partners to share information about tax code changes, the burden doesn’t fall on employers to pass this information on to their employees.”

Atiya Brown is a CPA and consumer debt management specialist who also advocates for employers to bring in specialists to keep employees up-to-date each year.

“The changes that happen in an employee’s life aren’t necessarily something employers know about or even think about,” she says. “By having someone come in and explain all these new changes – changes to deductions, the W4 form, the new online withholding calculator – employers are taking a proactive stance.”

Brown also adds that employees can forget that they’re in control of their withholdings. “When employees have the perception that an employer under-withheld their taxes, their employer does what the employee told them to do on their W4 form.”

By empowering employees with up-to-date tax information annually, your company can play a role in demystifying a seemingly complex process.

To put your company ahead of the pack, here are a few additional tips from the experts above that can help pave the way to more accurate withholdings.

Don’t forget about employee benefits.

“Don’t just offer benefits. Offer the education to help employees understand the tax implications of their benefits,” says Watson. When you invite financial partners to educate employees, make sure they thoroughly address the breadth of your company’s benefits. And, just as important, how each of these benefits impacts an employee’s tax situation.

Have open conversations about gig income.

Brown wants employers to embrace the reality that many employees might have a side hustle to make ends meet. “Employees should know that they can increase their withholdings at their employer to account for income from a gig job,” she says. “Employees can even specify a specific additional dollar amount to be withheld from each paycheck.”

Conversations like these can also help employees avoid end-of-year tax surprises.

Engage Human Resources.

“Have HR put together a week each year with the sole purpose of encouraging employees to update all of their information on file with the company,” says Watson. HR departments can build annual agendas that include lunch-and-learns and “CPA Days”.  During these events, employees can receive general tax information, benefits education and enrollment, and more. Employee taxes are a very human topic with wide-reaching effects on an employee’s life beyond the workplace.

While companies could see payroll taxes as something unpleasant to discuss, employers can lead a narrative that creates happier employees.

“As an employer, you want your employees to be happy,” says Brown. “If employees perceive that their under-withholding is something that’s their employer’s fault, that’s a source of tension in your company. Education has the potential to create happier, more empowered employees. Whichever avenue employers choose to pursue employee education, whether a webinar or lunch-and-learn, that’s a step toward decreasing potential tension.”

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