• Business

    How To Give Your New Business A Great Foundation

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    TOPS FIVE STEPS TO GIVE YOUR BUSINESS THE BEST FOUNDATION

    So you turned that fun hobby or project you enjoy into a money-making business, sometimes completely by accident!  But now the kids are back in school and the leaves are starting to change color (and if you’re near Seattle like I am, the rain has started falling).  You know it’s getting close to year-end and your business records consist of some hand-written invoices and envelopes of receipts.  You’re going to have to make some sense of all of this for taxes and beyond.  Or you need to purchase a new piece of equipment and your lender wants financial statements. Where in the world do you go from here?  I’m going to lay out my preferred steps for taking your business finances from messy and confusing to organized and providing you with the information that you need to run your business successfully.

    First, and one of the most important things you can do in your new business is to establish business checking and savings accounts.  I highly recommend your local credit union or Relay.  You are much less likely to be paying monthly fees and might even earn a little interest on your savings.  More about the savings account later.  It is very important for you to make business purchases from this checking account (and all income gets deposited into this account as well).  The IRS is looking for you to not be co-mingling funds, which simply is more proof that you are running a business and not just a hobby.

    Second, even if you do not use accounting software like QuickBooks Online, you should categorize your expenses.  Either use a free spreadsheet like Google Sheets or even just write a one- or two-word note on your receipt.  Depending on your industry, you’re going to use categories like Advertising and Marketing, Job Supplies, Equipment Rental, Office Supplies, etc. If a purchase is for a specific customer’s job, noting that can also help with job costing, or calculating your exact income and expenses for each specific job.  This in turn will help you and your bookkeeper calculate your profit margins.

    Third, keep the very best records you can!  Every single event in your business needs to be recorded *somewhere*.  Every purchase, every sale, every deposit, everything.  Have a safe place to store this information – a filing cabinet, receipt organizer, or any other dedicated storage.  Make digital backups by taking phone pictures of your receipts or scanning your invoices.  You almost can’t retain too much information.

    Fourth, much like my example above, you need to keep EVERY receipt of everything you’ve purchased for your business or with your business funds.  Keeping your receipts does not make every purchase tax deductible, but it will give you a clear picture of where you are spending your money.  It also covers your obligation with the IRS to provide proof of those items that are deductible.  

    Fifth, and last, is to set money aside for taxes.  This is what you’re going to use that savings account for.  You put 25% of every dollar that your business earns into the account, and you don’t touch it until it’s tax time (or hopefully you are making quarterly estimated tax payments).  This is also where you should be transferring any sales tax collected.  Please remember that if you collect sales tax, that is never YOUR money.  You are holding it to remit to the state.  The best practice is to transfer the amount charged as soon as you invoice your customer (as the tax is considered collected at the time of invoicing, NOT at the time of payment).

    There are many more actions you can take to make the financial aspects of your business clear. But these steps will help you tremendously and give you a great foundation either for continuing to keep your own books or hiring a bookkeeper.  

    If you have more questions or would like to book a consultation, please email me at catherine@southhillbookkeping.com or click on the Work With Me>Schedule a Meeting at the top of this page.  

  • Blogging, Business

    Are you aware of these 5 dangers to your business?

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    Welcome to the South Hill Bookkeeping & Tax blog!  We’re going to start things off with a compilation of what was a very popular series I posted on Instagram.  

    These are five dangers that you may be putting your business in and you may not know it. 

    First up today is mixing business and personal monies.  Guys, this is a big one and one that I see so often.  One of the first things you should do when starting a business is to open (at least one) business checking account and use it for EVERYTHING pertaining to the company.  Pay all bills from it (including paying yourself!), and receive all business income into it.  If you have more expenses than income at the beginning, you will likely need to transfer money in from “personal” accounts.  That’s ok, it’s just coded as an Owner’s Investment.  But please do remember that just because you pay for something from your business account, that does not make it tax-deductible.  

    Second is tracking cash.  In today’s world (including my bookkeeping and tax prep business), so much is done digitally that it can be very easy to overlook inputting expenses you pay, or income you receive, in cash.  This can potentially have a large impact on the deductions are you able to take when filing your tax return, or even the tax you owe due to misreporting your income. 

    It is a great idea to get in the habit of jotting a quick note on your receipt saying what you paid for or who paid you and taking a picture of your receipt with your phone.  If your bookkeeper or accountant uses QuickBooks Online (or similar), this picture can be loaded into the software to make coding the nature of that cash much easier.

    Third is that subject that no one really likes – taxes.

    Guys, there are no two ways to say this – you just have to pay them.  This is where working with a bookkeeper can help you to keep track of what (and who) you owe.  For example, here in Washington, if you run a construction company, and you are charging both for an item to install AND the installation labor, you have to charge your client sales tax.  Then there are the quarterly estimated tax payments to be made.  And last but definitely not least are the payroll taxes if you have any employees (or, even if you are solo, but have an S Corp entity and therefore have to pay yourself on payroll).  Federal payroll taxes are filed quarterly, most states have unemployment taxes, possibly paid family and medical leave tax, and potentially more.  One of the smartest tips I have to help with this is to have a second checking or savings account set up.  Move monies over to cover those taxes (a certain percentage for income tax, or your employer share of payroll taxes at each payroll run).  This way the money is set aside and you can (and should) consider it “hands-off”.  

    I know this isn’t everyone’s favorite topic, but one of the biggest reasons I’m in this business is to make sure other small businesses succeed, and this one can have a massive negative impact on both your business and you personally.

    #4 will cover not paying attention to financial reports, and why that’s not a good idea.

    So you get this packet of paperwork every month (or quarter) from your bookkeeper and it’s just lists of numbers, right?  Well, sort of.  But really what it is is the pulse of your business.  We kind of learn in our younger years just to look at the bank balance, and then we’re good to go.  But that’s just a tiny part of the picture.  Your business’s financial reports (should) show you exactly where you are spending your money and if that’s a problem.  It will show your cash flow, how much equity you have in your company, and if you’re making a lot of sales but losing money.  Without knowing all of these things, you just don’t have a clear picture of how your business is truly “doing”. 

    If you don’t have a bookkeeper to produce these reports for you, or your current bookkeeper/accountant does not offer this service, please find someone to help with this.  It is literally the health of your precious business that you work so hard on.

    Last but certainly not least – (not) hiring a professional.

    If you are building a house, do you just hire the carpenter to do the framing, electrical, plumbing, etc?  Not a chance!  Because they are not the professional for that job.  They put years of experience and training into what they do, but they don’t do everything.  And you shouldn’t either.  If you truly want the job done correctly, you go to that professional.  I’m guessing you aren’t in the accounting industry, so why are you trying to do that job?

    Did you also know that there is a good chance you could SAVE money by hiring a professional bookkeeper?  How much time do you spend trying to figure out how much money you made on that project you just completed?  Or how in the world do I get this payment recorded to that invoice?  I recently spoke to a general contractor who was using FOUR(!!!) days a month to do his own bookkeeping.  Oh my gosh…how much money could he have been making if he wasn’t choosing to be stuck in his office for four days a month?  It almost certainly would have been multiplied times more than a digital-based bookkeeper would have charged him.  Consider this for a moment.  What if he wasn’t using workdays to get that bookkeeping done, but weekends?  How much time are you losing with your family (or sleep, or your beloved hobby)?

    Let’s get you that time back.  I want you to enjoy your business and your life outside of it.  Hiring a professional bookkeeper is one of the best business decisions you can make.  If you would like more information, you can schedule a consultation right here on the website by clicking on “Work with me > Schedule a Meeting” or emailing me at catherine@southhillbookkeeping.com.