Do You Know Your Fixed Charge Coverage Ratio?

Do You Know Your Fixed Charge Coverage Ratio?

/in , , /by

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.

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

How to Choose the Right CPA Firm for Your Business

/in , /by

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.

 

[skyword_tracking /]

best loans for contractors

Business Loans for Contractors: The Best Choices

/in , , /by

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 financing 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 for subcontractors 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.

Help your employees withhold the right amount of taxes.

Employee Taxes: Are Your Employees Withholding Enough Income Tax?

/in , /by

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.”

should-I-stay-a-sole-propietorship

Should I Stay a Sole Proprietorship?

/in , , /by

Sole proprietorships account for the largest number of businesses in the United States. According to the most recent data from the Internal Revenue Service, nonfarm sole proprietorship tax returns totaled approximately 25.5 million. For comparison, C Corporation tax returns were around 2 million.

While extremely popular, every small business owner eventually has to answer the question: Should I stay a sole proprietorship or should I incorporate?

Sole proprietorships have several advantages, but they also come with a few significant disadvantages. Let’s run through both so you can make your own pro/con list to help you make the decision on whether or not to incorporate.

Advantages of Being a Sole Proprietorship

Simple to create– The business can operate in the owner’s name or a fictitious trade name. Creating a trade name only requires filing with the local government authority and obtaining the necessary business licenses.

No formal filings – Sole proprietorships do not need to hold corporate meetings, keep minutes or file annual reports. If you just start running a business – a landscaping business for example – you’ve become a sole proprietor without having to notify any government authority.

Owner control – The owner in a sole proprietorship has 100 percent control and makes all the decisions.

No unemployment tax – The owner does not have to pay an unemployment tax on himself. However, payment of unemployment taxes are required if the business hires employees who are paid regular wages.

Can comingle personal and business funds – Since the owner and the business are the same, one checking account can be used for both business and personal transactions. Although a single checking account is allowed, it’s still a good idea to separate business and personal transactions.

Owner keeps all profits – A sole proprietorship only has one owner;  and the owner reports all profits from the business on his/her tax returns.

Disadvantages of Being a Sole Proprietorship

Personal liability – The owner is personally liable for all the debts and contractual obligations of the business. This liability is unlimited. An owner could lose all business assets plus personal assets in the event of a loan default or adverse ruling from a lawsuit. The risk of losing a home, car, savings accounts and other personal possessions is the most serious disadvantage of a sole proprietorship.

Difficult to raise capital – Sole proprietorships cannot raise capital by selling shares of stock or interests in the business to attract outside investors. A business that needs to attract more capital to support growth will have to convert to a corporate form.

Harder to get bank loans – Banks prefer to make loans to companies with several years of business credit. Sole proprietorships must rely on the creditworthiness of the owner.

Survivability– Sole proprietorships rarely survive the death of the owner. Since the business is usually run entirely by the owner, there is hardly ever any management level person to take over the business. It simply ceases to operate.  However, with advance preparations, a business owner can pass on the business to their heirs.

Taxes

Filing a tax return for a sole proprietorship is fairly simple. The only requirement is for the owner to include a Schedule C with the personal tax return.

Schedule C is a summary of the business’s income and expenses. Losses shown on a Schedule C can be offset against other income the owner might have from other sources.

Should I Stay a Sole Proprietorship?

As a business grows, the owner will eventually face the decision of whether to incorporate or stay a sole proprietorship.

The main issues that affect this decision are liability risk and the need to raise funds.

When a business starts to borrow money to expand or finance growth, the risk to owner’s personal assets goes up. If you find yourself in the situation where you need to raise capital to expand or for growth support, then that is the time to consider the change. In addition, if you are in the situation where you need to begin adding employees, you should consider incorporation. Employees can come with their own host of liabilities and incorporation can help you manage that risk.

Because they’re simple to form and don’t require filing complicated legal documents, millions of business owners use sole proprietorships to get started. But, once they begin to grow – and risks to personal assets begin to increase – it’s time to ask yourself the question: Should I stay a sole proprietorship? The answer: looking into incoporation is the right next step.

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

/in , , , /by

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 a credit 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.

4 Smart Tech Solutions for Cash Flow Management

4 Smart Tech Solutions for Cash Flow Management

/in , , , /by

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.

Top Accounting Apps for Small Businesses

12 Must-Have Accounting Apps for Small Businesses

/in /by

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.

Accounting Apps for Small Business Meet Critical Needs

Today’s intuitive accounting apps for small 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 accounting app for small businesses, 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.

Top Accounting Apps for Small Businesses - Expensify

Source: Expensify Community

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 accounting app for small businesses 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. It is $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. This powerful app is ideal for smaller businesses and owners who have little or no experience in bookkeeping.  Kashoo offers a 14-day free trial so you can test if it will work for you. 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.

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

/in /by

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.

https://kapitus.com/data-privacy-request/

/in /by

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.

About Us

Products

Contact Us