Do You Know Your Fixed Charge Coverage Ratio?

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

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.

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

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.

How to Choose the Right CPA Firm for Your Business

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.


Business Loans for Contractors: The Best Choices

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.

Línea de crédito

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.

Guide to POS Systems for Small Business

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 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.

Ventajas – 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.
Desventajas – Transaction fees can be slightly higher that other POS systems. Square charges more for transactions with manual entry than other POS providers.


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.

Ventajas – 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.
Desventajas – 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 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.

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


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.
Desventajas – 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.

How to Construct a Business Action Plan to Get Things Done

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.

Employee Taxes: Are Your Employees Withholding Enough Income Tax?

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.”

Do You Know How to Make a Profit Plan?

Is your business designed to make a profit? Do you have a target profit figure in mind? If not, you should consider creating a profit plan for your business. While a business plan shows the results you hope to achieve, a plan for profits details how you intend to make it happen. It puts you in charge.

To increase the chances of reaching your profit objective, follow this guide and learn how to create a profit plan for your business.

What is Planning for Profits?

In a nutshell, planning for profits requires management to make a set of decisions that describe how a company intends to reach a target profit level. As such, his plan details what actions will be taken, who will do them and when they will be done.

In this sense, a profit plan is a pro-active road map that an owner can use to take the company from Point A to Point B. It discourages wandering off on side roads and keeps the business focused on the goals.

The process of creating a profit plan forces you to make realistic evaluations of the strengths and weaknesses of your company, also known as a SWOT analysis. The results of this analysis will form the basis for determining a practical and achievable profit objective, not a pie-in-the-sky goal.

How to Create a Profit Plan

You will use the profit objective from the SWOT study to identify what steps must be taken to reach this goal. Is it a rise in sales, a reshuffling of your product mix, an increase in selling prices or a reduction in expenses?

Using your historical financial figures as a basis, identify the changes that will be necessary to reach your profit objective.

You must determine the actions needed and who will be responsible for the results. For example, you might:

  • Invest in research and development to modify product features to meet changing customer preferences
  • Expand by opening locations in other regions
  • Purchase more efficient production equipment
  • Negotiate better prices with suppliers to reduce costs of production
  • Hire additional sales staff
  • Spend more on marketing

Once you have made these decisions, the required actions can be incorporated into your profit plan. These actions can include making projections of revenues and setting costs for manufacturing products or providing services and establishing,  In addition, it should also include budgets for overhead expenses. Any additional capital investments should identify the sources of financing, either funded internally or with outside loans.

The resulting document becomes the road map that defines the company’s activities for the coming year. You can set up reporting systems with benchmarks to measure progress along the way.

How to Make Your Plan Effective

An effective profit plan should have the following traits:

  • Key managers and employees must be involved in the planning and development
  • The analysis must be thorough and address all of the company’s important short- and long-term issues
  • The plan should anticipate future trends and changes in the company’s market environment
  • You should make provisions for changes when key assumptions prove invalid

What are the Benefits of a Profit Plan?

In addition to providing a clear direction for your company, a profit plan has other benefits. A profit plan is useful for:

  • Giving managers explicit financial goals and objectives
  • Defining specific performance metrics for employees
  • Educating employees on the direction of the company to gain their participation
  • For motivating key employees
  • Establishing a foundation for making strategic decisions
  • Creating action plans as a basis for monitoring progress and measuring performance

Planning to make a profit is an important mindset for every small business owner. Profit plans create a different perspective of making something happen rather than working hard and hoping to get good results. You can increase your odds of success by taking charge of the business and directing it where you want it to go.

Small Business Budgeting -Turn Your Growth Plan into a Healthy Bottom Line

Hearing the word “budget” often conjures the image of belt-tightening. But small business budgeting is the down-to-earth process of planning for the growth and profitability of your business. It’s about translating ideas and predictions into numbers. The ROI of thoughtful budgeting includes being able to secure financing to help accelerate your growth.

So how do you go about the process of small business budgeting?

There are different approaches, but here’s one. First ask yourself: Am I where I want to be next year? If yes, that’s great, but you can’t just create your next year’s budget from the last year’s profit and loss statement (P&L). You need to think about the reasons for the results you had. Next, you need to make your best guess as to whether they’ll hold up going forward. For example, you might ask yourself questions like:

  • Is it safe to assume that the competitive landscape will remain the same? Or do I need to prepare for the possibility that competition will heat up?
  • Will I need to make any enhancements to my products or services to keep up with market conditions and technology?
  • What changes might occur in my staffing needs? If I have to replace any key workers due to resignation or retirement, how will that impact my payroll?
  • Can I count on no big changes in the cost and prices of the goods and services I consume to keep my business moving forward?
  • Is any of my equipment wearing out or becoming obsolete?
  • Should I plan for any changes in the economy, for better or worse?

Chances are, your answers to some of those questions will point to the need to roll up your sleeves, sharpen your pencil and get to work on a new budget.

Budget for Revenue, Profit Growth

Start with revenue, using the revenue categories on your P&L, assuming it’s reasonably detailed. Revenue is the hard part, but it’s also what largely determines the expense side of the budget. Before you start plugging numbers into a spreadsheet, think about and determine which of your products or services…

  • Are the most profitable?
  • Are the ones that you’re best at making or performing, and give you the greatest competitive advantage?
  • Have the greatest potential for market growth?
  • Are most likely to be in demand for a long time?
  • Can expand your capacity to produce or perform?

Then think about new products or services that you might want to introduce.  What would it take to do so? And how quickly you can generate revenue from them?

Turn a Business Plan into a Budget

These questions are the foundation of a business plan that can be translated into a budget. It might be a multi-year budget, but the process forces you to become a strategic thinker.  Or, at the very least, it will allow you to translate your existing strategic plan into something concrete.

Next on the revenue side of budgeting comes this question: How conservatively or aggressively do you want to predict your revenue for the coming year? It’s a balancing act, and depends partly on your personality. It’s OK to be somewhat “aspirational” but without living in a dream world.

If you’re planning to borrow money or seeking to draw in some equity capital from outside investors, you might choose to be somewhat conservative. It’s usually better to under-promise and over-deliver, than the other way around. Besides, it can be very disruptive to business operations when you overestimate revenue, then have to retrench on spending midstream to protect your bottom line.

Also, you can give your sales team revenue goals that exceed your budget.  This lets you aim high without going out on a limb.

In picking revenue numbers, take your recent actual numbers within each product or service category, check to see how good you were in the past at predicting future sales, and learn what you can from the forecasting process you have used so far.

Forecasting Budgeted Revenue

If this is the first time you’re making a detailed budget, take your current revenue pattern and do your best to predict the impact that all the variables that go into sales results will have in the next year. Naturally, it’s easier to do if you’re not planning to make any big changes in strategy, such as raising prices, adding new products and services, increasing your sales and marketing efforts, opening new offices, and so on.

The small business budgeting process for expenses generally follows the revenue part. An exception would occur if you were forced into budgeting higher revenue (and figure out how to generate it) by an expected big jump on the expense side, such as a major increase in the cost of an important input. For example, higher import tariffs on goods from China are having this effect for some businesses. Others may be facing higher local minimum wage standards, or steep increases in health benefit costs.

As on the revenue side, you can use your P&L as the foundation for your expense budget. If you’re not planning any big changes in your business for next year, expense budgeting can be fairly straightforward. Certain changes in expense categories can be predicted, such as wage raises you plan to give, or additional staff you plan to hire. Other categories like rent and utilities generally aren’t hard to predict.

If you’re trying to improve your bottom line and aren’t expecting a surge in revenue, you’ll need to find savings on the expense side. If instead you’re expecting a significant increase in revenue based on a new business plan, you’ll need to incorporate the new expenses associated with the plan to build that revenue. It might be something as basic as higher sales commission and bonus expenses, or that plus many other expenses.

Don’t Neglect a Cash Flow Forecast

Small business budgeting also includes a critical component sometimes overlooked: cash flow forecasting. You might come up with a realistic budget that shows a healthy profit at the end of the year. But without a cash flow budget, you could find yourself with a depleted bank account and suppliers hounding you. That’s because your expenses and revenues rarely come in at the same rate every month.

You might accurately budget a big jump in sales in June, and some correspondingly higher vendor bills and payroll obligations that must be dealt with promptly, but the actual cash generated by those increased sales doesn’t come in before late August. A cash flow forecast will alert you to whether, without drawing on other resources, you’ll have enough money on hand to pay those bills.

And if your cash flow forecast points to a need for extra funds to tide you over a dry spell, it’s time to begin a conversation with a small business lender who can help you address that need. The better your budget and cash flow forecast, the better your prospects for a productive relationship with such a lender to help you achieve your business objectives.

5 Hacks to Streamline Your Financial Record Keeping

Staying on top of your financial record keeping can be a challenge, especially when you already have a full plate running your business. However, the benefits of having a strong financial records system is critical. Whether you’re filing taxes or trying to understand your performance, accurate financial statements are key — and those are built on strong record keeping. Score reports that 82% of businesses that fail don’t understand their cash flow. Here’s how to avoid that trap and streamline your process in five quick steps.

Use Software or an Accountant

If you’re going it alone in developing a system for financial record keeping, it’s natural that you’d struggle. There are three easy options that can streamline your process:

  • Work with an accountant: Hire an accountant who specializes in small business accounting. They can develop a system that works for you and help you track, record and consolidate your records each month.
  • Hire a service: Increasingly, there are combo service-and-platform solutions that offer small business accounting as a recurring service. and Xendoo are two popular options.
  • Use software: If you prefer to manage your accounting internally, consider leveraging a solution like QuickBooks or Freshbooks. Manage billing, expenses and compiling your full profit-and-loss statements in one platform.

Implement a Month-end Close Process

Falling behind is the death knell for reliable financial record keeping. Implement a month-end close process where you submit all expenses, pay your bills, capture receipts, and reconcile accounts.

Doing this every month gives you real-time visibility into your financial situation and highlights issues to address before they become urgent problems. One strategy that can speed up the process is using an expense management app, such as Expensify or Wave.

Expense Management: The Key to Profit and Taxes

As a small business owner, deducting the business expenses that keep your organization running is crucial. It helps you really understand your profits and only pay the taxes you owe. However, every expense must be fully documented during that process.

los IRS has strict record keeping standards about substantiating any expenses. Record each expense, and retain two documents: a receipt showing what the purchase was for and confirmation that you paid it. For example, if you pay a vendor for a specific service, retain the receipt that outlines the provider, service and totals. Make sure you also keep proof of payment like a canceled check or credit card statement.


Using your car for business can be a significant expense. However, tracking those expenses and capturing them on your financial statements and tax returns gets complex. Every trip must be logged, and then substantiated with other documents that show mileage throughout the year to separate business mileage from personal mileage. Consider automating the process with an app such as Mileage IQ. With these tools, simply download the app to your smartphone, and it will track the miles you drive. You add trip details directly into the app, and then have all the data on hand to the strictest reporting standards in case of an audit or future questions.

Use a Business Expense Template

When you work for a corporation, you submit expense reports to get reimbursed. These expense reports show the receipt, business justification and payment information for each purchase. Once they’re approved by management and accounting, you’re reimbursed.

Using a business expense report approach for your business can streamline financial record keeping in your own business. Create a template that fits your needs and records the essential details for each expense: the date, vendor, expense description, amount, payment type and business purpose. Jot down a few details about how you used the expense or how it relates to your business for later reference.

It’s important to have a plan for your financial records management. Not only does it give you deeper visibility into how your business performs, but it makes the financial management of your enterprise fast and easy. Whether a question arises regarding a business expense or you need to quickly apply for a small business loan, having your records in order allows you to quickly complete everything, and then get back to what matters most: running your business.

¿Debo ser propietario único?

Los propietarios únicos representan el mayor número de negocios en los Estados Unidos. De acuerdo con los datos más recientes del Servicio de Impuestos Internos, las declaraciones de impuestos de propiedad única no agrícola totalizaron aproximadamente 25.5 millones. En comparación, las declaraciones de impuestos de la Corporación C fueron de alrededor de 2 millones.

Si bien es extremadamente popular, todos los propietarios de pequeñas empresas eventualmente tienen que responder la pregunta: ¿Debo ser propietario único o debo incorporar?

Las empresas individuales tienen varias ventajas, pero también tienen algunas desventajas importantes. Analicemos ambos para que pueda hacer su propia lista de pros / contras para ayudarlo a tomar la decisión de incorporar o no.

Ventajas de ser un propietario único

Simple de crear- La empresa puede operar en nombre del propietario o un nombre comercial ficticio. La creación de un nombre comercial solo requiere la presentación ante la autoridad del gobierno local y la obtención de las licencias comerciales necesarias.

No hay presentaciones formales - Las empresas individuales no necesitan celebrar reuniones corporativas, guardar actas o presentar informes anuales. Si simplemente comienza a administrar un negocio, por ejemplo, un negocio de paisajismo, se ha convertido en propietario único sin tener que notificar a ninguna autoridad gubernamental.

Control del propietario - El propietario en una propiedad única tiene el control del 100 por ciento y toma todas las decisiones.

Sin impuesto de desempleo - El propietario no tiene que pagar un impuesto de desempleo sobre sí mismo. Sin embargo, se requiere el pago de los impuestos de desempleo si la empresa contrata a empleados que reciben salarios regulares.

Se pueden combinar fondos personales y empresariales. - Dado que el propietario y la empresa son iguales, se puede usar una cuenta de cheques para transacciones comerciales y personales. Aunque se permite una sola cuenta de cheques, sigue siendo una buena idea separar las transacciones comerciales y personales.

Propietario mantiene todas las ganancias - Un propietario único solo tiene un dueño; y el propietario informa todos los beneficios del negocio en sus declaraciones de impuestos.

Desventajas de ser un propietario único

Responsabilidad personal - El propietario es personalmente responsable de todas las deudas y obligaciones contractuales de la empresa. Esta responsabilidad es ilimitada. Un propietario podría perder todos los activos comerciales más los activos personales en el caso de un incumplimiento de préstamo o una decisión adversa de una demanda. El riesgo de perder una casa, un automóvil, cuentas de ahorro y otros bienes personales es la desventaja más grave de un propietario único.

Difícil recaudar capital - Las empresas individuales no pueden obtener capital mediante la venta de acciones o intereses en el negocio para atraer inversores externos. Un negocio que necesita atraer más capital para apoyar el crecimiento tendrá que convertirse a una forma corporativa.

Más difícil obtener préstamos bancarios - Los bancos prefieren otorgar préstamos a empresas con varios años de crédito empresarial. Los propietarios únicos deben confiar en la solvencia crediticia del propietario.

Supervivencia- Los propietarios únicos rara vez sobreviven a la muerte del propietario. Dado que el negocio generalmente es administrado por completo por el propietario, casi nunca hay una persona de nivel administrativo que se haga cargo del negocio. Simplemente deja de funcionar. Sin embargo, con los preparativos anticipados, el propietario de un negocio puede pasar el negocio a sus herederos.


La presentación de una declaración de impuestos para un propietario único es bastante simple. El único requisito es que el propietario incluya un Anexo C con la declaración de impuestos personal.

El Anexo C es un resumen de los ingresos y gastos del negocio. Las pérdidas que se muestran en un Anexo C pueden compensarse con otros ingresos que el propietario pueda tener de otras fuentes.

¿Debo ser propietario único?

A medida que el negocio crezca, el propietario eventualmente se enfrentará a la decisión de incorporar o permanecer como propietario único.

Los principales problemas que afectan esta decisión son el riesgo de responsabilidad civil y la necesidad de recaudar fondos.

Cuando una empresa comienza a pedir dinero prestado para expandir o financiar el crecimiento, aumenta el riesgo para los activos personales del propietario. Si se encuentra en una situación en la que necesita reunir capital para expandirse o para apoyar el crecimiento, ese es el momento de considerar el cambio. Además, si se encuentra en la situación en la que necesita comenzar a agregar empleados, debe considerar la incorporación. Los empleados pueden venir con su propio conjunto de responsabilidades y la incorporación puede ayudarlo a administrar ese riesgo.

Debido a que son fáciles de configurar y no requieren la presentación de documentos legales complicados, millones de dueños de negocios usan propiedades únicas para comenzar. Pero, una vez que comienzan a crecer, y los riesgos para los activos personales comienzan a aumentar, es el momento de hacerse la pregunta: ¿Debo seguir siendo un propietario único? La respuesta: investigar la incoporación es el siguiente paso correcto.

Métricas financieras clave para pequeñas empresas: los números que debe seguir

Al igual que los conductores observan el panel de instrumentos en sus automóviles mientras conducen, los propietarios de pequeñas empresas deben controlar continuamente las métricas de rendimiento de su empresa. Un propietario necesita saber qué está funcionando y qué no. Eso es parte de la gestión de un negocio. Al igual que es parte de conducir un coche. Un indicador de temperatura del agua que entra en la zona roja necesita atención inmediata; lo mismo con una métrica financiera que indica que la compañía se está quedando sin efectivo. Las métricas financieras clave para pequeñas empresas se dividen en cuatro categorías principales:

  • Beneficios
  • Liquidez
  • Influencia
  • Eficiencia

Dentro de estas cuatro categorías, hay siete métricas centrales que actúan como los indicadores clave de rendimiento más importantes cuando se trata del flujo de efectivo:

Métricas financieras clave para pequeñas empresas

Medidas de Ganancias

Ingresos - Esto puede parecer obvio, pero sin ingresos, nada más sucede, especialmente las ganancias. Y todos los ingresos comienzan con las ventas. Por lo tanto, la primera métrica a observar es su número de ventas más reciente; Puede ser diario, semanal o mensual, dependiendo del tipo de negocio,

¿Están sus ventas al nivel que deben ser? Las comparaciones de las cifras de ventas con el presupuesto ayudarán a mantener a todos en curso para alcanzar el objetivo de ingresos.

Margen de beneficio bruto- El margen de ganancia bruta es una medida temprana de la eficiencia de las operaciones de una empresa. Muestra la eficiencia con la que una empresa utiliza sus materias primas y mano de obra directa para fabricar y vender un producto o servicio a un precio que produce una ganancia bruta.

El margen de beneficio bruto debe ser suficiente para pagar todos los gastos generales fijos y obtener un beneficio. En algunas industrias, un margen de ganancia bruta de 25 a 30 por ciento puede ser suficiente; otros necesitan una ganancia bruta de 50 por ciento o más. Un cálculo del plan de ganancias de la compañía o el nivel de ingresos de equilibrio determinará el margen de ganancia bruta requerido para su negocio.

EBITDA - Es bueno saber que está obteniendo un beneficio neto, pero la prueba real es el EBITDA. Eso es ganancias antes de deducciones por intereses, impuestos, depreciación y amortización. El EBITDA revela los verdaderos beneficios operacionales de una empresa sin los efectos de los costos de financiamiento, impuestos y asientos contables no monetarios.

El monitoreo del EBITDA es importante porque es un indicador del flujo de efectivo de las operaciones.

Liquidez para Operaciones de Apoyo

Radio actual- Su ratio actual es el activo corriente dividido por el pasivo corriente. El momento del ciclo de flujo de efectivo desde el inventario hasta las cuentas por cobrar hasta el efectivo no es perfecto. El inventario puede ser más lento para vender y entregar; Los clientes pueden tardar más en pagar sus facturas.

En el lado del pasivo, los gastos y las facturas a los proveedores tienen montos específicos y fechas de vencimiento; no hay ningún misterio allí. Por esta razón, necesita más activos actuales que pasivos actuales. Una proporción buena y cómoda es tener $ 2 en activos actuales por cada $ 1 en pasivos actuales. Tener menos podría indicar que puede comenzar a tener problemas para pagar sus facturas a tiempo.

Siguiendo la tendencia de tu radio actual puede proporcionar advertencias anticipadas de los próximos problemas de flujo de efectivo, especialmente si el índice cae por debajo de 1.5.

Apalancamiento financiero

Coeficiente de endeudamiento - Algunas deudas son buenas; aumenta el retorno de la inversión de un accionista. Pero demasiada deuda puede ser peligrosa. Los prestamistas tienen un calendario estricto para los pagos de capital e intereses, y esperan recibirlos, independientemente de la disponibilidad de flujo de efectivo de la compañía.

Eficiencia de Operaciones

Cuentas por cobrar vencidas - La métrica de vencimiento de las cuentas por cobrar realiza un seguimiento de todas las facturas de los clientes y / o notas de crédito pendientes de pago. Si bien la mayoría de los clientes pagarán sus facturas antes de las fechas de vencimiento, a veces los clientes pueden tener problemas, ya sean sus propios problemas de flujo de efectivo o un mantenimiento deficiente de los registros, lo que les impide pagarle de manera oportuna. Debe intentar realizar un seguimiento de las facturas en intervalos de 30 días (30 días de retraso, 60 días de retraso, 90 días de retraso, etc.) para poder utilizar esta información para priorizar los procedimientos de cobro.

Volumen de ventas de inventario- El inventario representa una inversión importante para la mayoría de las empresas, por lo que convertir el inventario en ventas rápidamente es importante. El volumen de negocios es el número de veces que una empresa compra, vende y reemplaza su inventario en un año. Se calcula dividiendo el costo anual de los bienes vendidos por el nivel de inventario promedio. Dependiendo de la industria, las tasas de rotación de inventario pueden alcanzar de 10 a 12 veces por año.

Una disminución en el volumen de negocios podría ser una señal de que algunos productos no se están vendiendo bien, y los precios deberían reducirse para poder retirarlos.

Los propietarios que monitorean regularmente estas métricas financieras clave para pequeñas empresas tendrán un buen sentido del pulso de su negocio, al tiempo que les permitirán detectar problemas potenciales y tomar medidas correctivas antes de que se vuelvan perjudiciales para la salud de su negocio.

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