Whether you’re an independent personal trainer, manage a team, own a studio or a franchise, cash is king! Let’s face it, if clients or members aren’t coming in the door, your doors wouldn’t be open. We love the fitness industry because we’re fitness nuts ourselves. On our days off you can find us in the gym or outside hiking or cycling. So naturally thought we would pair one of our passions with another here at iAccounting Solutions; help businesses plan and better manage their taxes and finances.

Income & Expenses

This may be a no brainer but we’ve met so many business owners that don’t do track their income and expenses. Here’s a little test: Can you tell me, within a few mouse clicks, what your net income was last month? If not, then you may want to consider upping your “tracking game” and here’s why.

Tracking your income and expenses is a major part of your cash in’s and out’s. Knowing what expenses are higher than normal, or if your revenue is on track, or not, can mean you’re working for nothing! You also get what I call “the magic number”, or Net Income. Net Income tells you how much profit your business is making and is a gauge for knowing how much tax you’re going to pay. For example, you “think” you’re making money because you have cash in the bank, but your Net Income is less than you think. Conversely, you may think you’re not going to pay tax on much at all but your Net Income could give you a higher bill.

Additionally, using software connected to your bank can make this process of tracking much easier. And if it’s easy, you’re more likely to do it! Revenue is not the only thing to be aware of. Expenses play a large role in whether or not your business is profitable. Having a report where you can look at all the revenue and expenses with a critical eye can be invaluable when you’re figuring out if you’re meeting your goals. This should be your first step in managing your cash flow.

Lastly, keep in mind that any loan payments do NOT affect Net Income. Instead, those payments are tracked on a different report called the Balance Sheet. More on loans later.

Profit Margins

If you’re tracking income and expenses then you can figure a very important thing: how hard you’re working for your money! Looking at your net income and cost of sales as a percentage are referred to as your “profit margins”. This is good measurement of how efficient your business is using its resources or charging for products and services. For example, a Cafe may have a 9% profit margin, which is really good for the industry. However, if you run a personal training business that number should be closer to 15%-20%. If you’re lower than what you should be then that means something isn’t right. It may mean you’re not charging enough, or it may mean you’re expenses in proportion to your income is too high. But if you know the number then you can start analyzing and drilling into the problem areas.

If you don’t have one, you should map out a “Profitability Formula” for your business.

If you don’t have one, you should map out a “Profitability Formula” for your business. That sounds complex but it’s really not. All it is is planning how much you’re going to charge vs. your costs to make sure your business is going to turn a profit.

Liabilities

Keeping your debts under control and knowing how much you owe is paramount to keep your business thriving. Not only cash flow wise but mentally. If you feel like you’re on a sinking ship and there’s no way out then you’re not going to be able to manage your cash effectively to “dig your self out”. One of the best ways that I’ve advised clients to get themselves out of debt it to do what I call “Skim the gross”. Skim the Gross means that you’re choosing one debt to focus on and you’re taking a certain percentage from your Gross Revenue and paying it towards your debt. You do this as soon as it enters your bank account. The idea is that if you take it off the top that you won’t miss it. It’s kind of like taxes being taken out of your paycheck, you don’t see them so you never miss them!

One of the best ways that I’ve advised clients to use to get themselves out of debt it to do what I call “Skim the gross”

Staff/Labor Costs

Perhaps one of the largest expenses we have as businesses is your Labor costs. It’s a no brainer that labor should always produce more than they require in cash but how do you measure and know if you’re getting enough out of your staff? One way is to figure out how much your staff costs are in relation to your revenue. This is often called Labor vs. Revenue ratio and is simply calculated by dividing your staff costs by your revenue and getting a percentage. That percentage should be in the 30% to 40% range for a healthy gym or personal training studio.

For example, let’s say your business’s Gross Revenue is $30,000 in one month. Your staff costs are $10,000, which works out to be 33%(10k/30k)–you’re within range. Let’s say the same example but your staff costs are $15,000. That’s 50%–that’s too high.

If you’re too high you need to focus on getting that number down to a reasonable range of 30%-40%. A few things to look at are your pricing for services, your staff pay rates, and also the market or neighborhood you’re in. All those come into play when determining if this is a healthy cost for your business.

Owner Pay

Unless you like working for free (I don’t know how does!) then you have to figure out how to pay your self for your blood, sweat, and tears that you’re putting into your business. Now the “how-to” of paying your self has a lot to do with what type of entity your business is–that’s a whole nother topic for a future blog post. However, when all is said and done you need to plan and budget your compensation into your profitability formula for your business. Whether it’s a salary, commission on sales, or hourly rate, plan and do it! If not, then it’s like you’re working for free and will most likely burn out and lose interest. If that happens, “adios” to your business!

Estimated Taxes

We all love taxes right?! I don’t know anyone that loves having the conversation at the end of the year where they learn they owe tax! A good way to manage this, and also sometimes required by the IRS, is to pay Estimated Taxes. In short, this is basically prepaying your tax liability for the upcoming year. This is a great way to manage your tax liability and not have a huge bill at the end of the year. Plus, when you attack your taxes proactively your whole mindset changes and something you used to fear goes away and you can devote more mental energy to positive things in your life.

There are different ways to do this but the simplest approach I’ve found is to again use the “Skim the Gross” method that I explained earlier. Skim some off the top of your Gross revenue and transfer into a savings account that is hard to access. That way you won’t be tempted to dip into it and you’ll have funds ready to make your quarterly payments.

when you attack your taxes proactively your whole mindset changes and something you used to fear goes away and you can devote more of your mental energy to positive things in your life.

 

Be Open to Change

While these all may sound great, it takes some planning and structure to succeed at mastering your cash flow. If you need a system, give us a shout. We’ve help clients with this all the time and have it down to an art and can help you make it easy.

Lastly, Be open to change so you can “roll with the punches”. Because the punches will come and you’re going to feel like giving up before you become successful–100% guaranteed! But don’t give up, make changes in your business to make it profitable, try new services, re-write your business plan after a year or two, you get the idea. Do-what-it-takes to get your business where you want it and throw some elbow grease into the mix. Everyone I’ve seen do this have met their goals and is getting what they want out of their business, which is Financial Freedom!

 

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Every business owner goes through the process of deciding how to hire someone when they get to the point where they’ve outgrown their current situation or just need a bit of extra help.  You’ve found the right candidate and now you need to decide whether or not to hire a contractor or employee…this is where you need to be very careful!

Watch out for the pitfalls

While your first inclination is to hire contractors to save paying FICA and Workers Comp, you should be aware of the rules that the IRS and state can nail you on.  Yes, there may be two sets of rules that you have to abide by!  We’ll explain each one, and since we live in California, the rules here as well.

What the IRS Looks For

The IRS is mainly looking at two factors; Control & Relationship.  Control is what it sounds like, do you have control over how your worker does their work and when they do it?  Do you determine how much you pay the worker?  If the answer is yes, then you most likely have an employee, not a contractor.

Under the Relationship test, does your relationship with your worker resemble an employee or contractor?  Are there written agreements, do you pay for benefits, do you reimburse your worker for expenses?  If it walks like a duck, quacks like a duck, then you most likely have an employee.

Under the Control test, you give up when and how the worker perfoms the work. For example, you take your car to the mechanic for some work.  You walk in and the mechanic tells you how much it’s going to cost and how long it’s going to take to do it.  Now you’re hoping it’s fast because you need to pick up the kids, but you can see what I’m getting at here.  You really don’t have any control over the mechanic in how and when they do their work.  In this case, we’re describing a contractor relationship.  

California

In California, we take it to another level! Oh, how we love the Golden State! New legislation for 2019 enacted more rules for determining contractor status.  (Even if you’re not in California you might as well take heed as I’m sure states will soon follow California’s lead)

California gives you the “ABC” test to help you determine whether or not you have a contractor or employee relationship:

A – Control

This refers to whether or not the worker is free from the control of your business in connection with their performance of the work. Thus, if you are telling the worker when and how to do their job then you are probably going to fail this test.

B – Business

Additionally, the worker should be performing work that is outside the normal course of your business.

C – Customarily Engaged

In connection with A & B, the workers must be engaged in an established trade or business of the same nature as the work performed.

Summing up California

Photo by Vital Sinkevich on Unsplash

As you’re now most likely thinking about what this means for your business, these new rules rule out a lot of what has gone unchecked for many years–hiring just anyone to get around payroll taxes and workers comp insurance. To illustrate, here are a few examples:

Example 1: You run a personal training studio and hire other personal trainers to come in and run training sessions. That’s an employee.

Example 2: You’re a physician in private practice and you hire office staff. This is an employee because they will most likely fall under the “Control” test.

Example 3: You’re a church and you hire a consultant to help you with leadership and other efficiencies. That’s a contractor.

Example 4: You’re a real estate agent and hire a transaction coordinator to help you move all your listing and sales through the administrative pipeline. But they work from home and you don’t dictate their schedule. You can most likely get away with hiring them as a contractor.

These rules can be tricky…no matter what state you live in

The worst thing for you to do is to guess at these rules. Feel free to reach out or comment if you find yourself stuck and caught in the web of employee vs. contractor rules!

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We love the holidays and the season of gifts, getting together with family and friends and frankly just kicking back.  But as you un-plug for a few weeks this is a great time to think about the new year and making positive changes for your business.  Here’s our top tips for changes you can make to start the new year off on the right foot.

Utilize Technology To Automate

Find your self doing the same tasks over and over again?  Look into automating those with tools like Zapier and others.  I’m not saying to take the human out of where it counts, but updating email lists etc. doens’t require a human touch.  When you’re able to reassign tedious tasks you can spend more time on meaninful activities.  For example, if you send out a MailChimp email to your client based on an action by them, why not use Zapier to automate that, plus update your MailChimp list at the same time.  Really, the possibilities are endless.

Setup A Budget

Creating a budget is the first step in planning to make sure you meet goals.  Setting up thresholds and goals will help you measure your progress throughout the year.  It can even be easily done in your accounting softwar like Xero or QuickBooks Online.

Beyond tracking the income and expenses, it forces you to think about what you plan to do and set goals.  That act is alone is a lot more than what a lot of business owners do!  easily take, forgranted–it has a throughout positive effect on how you treat your business.

Implement Some Tax Planning

Now, you have probably heard lots about taxes this past year and rightfully so, 2018 has seen some of the most extensive tax reform laws in decades!  Knowing why they mean and translate for you in your business is no small feat but that doesn’t mean you should keep your head in the sand.  Planning now can save you tons of tax if you play your cards right.   For example, IRS section 199 outlines hefty tax savings for small business owners under a certain income threshold.  This translates into huge tax savings for a lot of businesses.  

Fortunately for you, if you’re reading this blog you’re in the right place to get help if you don’t understand or know how to apply it to you.  There are also tons more opportunities to save tax so it may be worth your while to schedule some time with your tax planning expert.  Or, give us a call if you don’t have one.

Get Your Books In Order

I call ‘net income’ the magic tax number because it’s what drives most of the tax liability when you operate a business.  But you’re never going to know what that is unless you keep good records of your income and expenses.  Let’s face the hard truth, the days of paper and spreadsheets for tracking this should be over.  Online accounting software like Xero is so easy to use and so cheap that it’s a no-brainer.  Plus, using something like Xero is a great way to get ALL of your business on one place for invoicing, bills, document storage, etc.

Level Your Business Up

During this time when you’re taking some time off or away from the desk think about waysin you can make small changes to improve the quality of life.  Think in terms of plenty  and ditch the scarcity mindset.  When you do you’ll see big changes at how you handle stress and how you visualize success.  For example take implementing a CRM like Active Campaign or Hubspot costs a monthly fee, but did you think about how much time you can save with automation and how you can better serve your customers by having a system in place to put them in?

When you’re able to spend a little you make big gains in your mentality for growth.  Remember, unless you invest and work on your business there is huge rewards.

In closing I hope you’re able to use some or all of these points to have successful new year going into 2019!  Don’t forget, growing your business is like steering a large ship, you do it with small course corrections and in time you will get where you want to go!

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Guess what?  We’ve been busy since tax season ended making things more efficient so we can better serve our clients.  We’ve upgraded our practice management to Karbon.  Karbon allows us to do a number of things we couldn’t do before, but what we’re really excited about is how it allows us to communicate with our clients more efficiently.

In the coming months, you may see us ask you questions or for statements through Karbon.  They will come to you in an email as “Client Tasks”.  To demonstrate how this works I’ve made a quick tutorial on how this works.

We’re looking forward to working with you in this new system that we’re sure will make things easier in getting us information.  Please leave a comment or shoot us a message if you have any questions!

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modern-bill-paying-dashboard

How many paper checks do you write per month?  15, 50, 100?  If so, then you’re not along.  Most US based businesses still rely on paper checks to pay bills, employees, and contractors, and it’s costing you hundreds of dollars!  Keep reading to find out how.

Moving Paper Costs Money

Processing checks isn’t that simple.  Think about all the work that goes into writing a check.  From getting an invoice, to entering it into your accounting system, to printing the check, and then finally mailing it.  That process takes time and multiple people touching it, which costs money!  And don’t even think about errors and mistakes that are made due to having so many people involved.

Beyong staff costs to make that workflow happen, how about paper and postage?  Now, you may say that a stamp doesn’t cost that much, but how about the other costs?

  • Stamps
  • Paper supplies
  • Staff time to process
  • Approvals

The cost for each busienss will be different based on how many checks you write and your process.  But, those costs up and I’m sure they’re substantial.

 

Use a Modern Solution to Save You Money

Like we said, “moving paper costs money”, so stop and integreat a modern service like Bill.com to help save you headaches and money!  Using a cloud-based system like Bill.com will help you do just this.  Recording, paying bills, approvals, documents storage, and syncing with your accounting system all from within one login is what makes Bill.com such a powerful and time saving tool.

This is how it works:

  • Scan, email or fax your bill into Bill.com
  • Process the bill and assign the vendor and expense account online using their easy to use dashboard
  • Gain necessary approvals
  • Schedule the payments to go out ACH or by check (yep Bill.com will handle printing and mailing the check for you)
  • Sync bills and payments happens automatically in the backround

That’s it–only 5 steps all from within one system!

 

Stop Bleeding Money and Make the Switch

 

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Switching to a new Accounts Payable system/workflow can be scary and daunting.  We can help!  We can help you find out if it makes sense for your organization, develop an implemenation plan, and even provide ongoing support.

Contact us for a free consulation and learn more about how much you can save by switching to a modern solution and by ditching the paper!

 

 

 

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audit-proof-your-business-with-evernote

 

Going through an IRS Audit can be a big deal if you’re not prepared.  But with today’s technology, we’re going to show you an easy way to make sure you have all the documentation you need to prove your business expenses.  I’m not saying that all audits are the same, but most of the ones we’ve helped clients through ask for substantiation, or proof, of certain expenses that you’re claiming on your tax return.  If you can’t provide adequate records and prove the business purpose, then the IRS could disallow those expenses—and you don’t want that!

 

Use Technology

We spend lots of time vetting out new technologies to find the ones that work well, and the ones that don’t.  Part of this process is actually using the apps, and analyzing a few things: 1. How easy is it to use and 2. Does it work well with a general small business work process?  Our favorite app for retaining information is Evernote.  If you’ve never heard of Evernote (that would be surprising), we recommend checking them out on the web.  We’re going to show how to use Evernote to audit-proof your business.

 

Introduction to Evernote

Evernote is a like a central hub for all data you want to put into it.  For me, I use it like an external hard drive for my brain!  The power of Evernote lies within it being accessible on every device you own, easy to get information into it, and easy to find the information later when you need it.  For the purpose of this post, we’re going to cover:

  • Using your mobile device to scan receipts
  • Organizing into Notebooks
  • Using tags
  • Using other services to connect to Evernote

 

Overview

To audit proof your business you need to track key elements about your expenses.

  • Date you purchased
  • Amount
  • Who you purchased from
  • Business purpose

Most of the time a receipt covers all that quite nicely.  The only thing you should add is Business Purpose (which we’re going to show you).  You should also keep bank/credit statements, and even cleared checks.

 

Using Evernote to Achieve Audit Protection Bliss

At the very basic level, Evernote is structured as Notebooks and Notes that live within those Notebooks.  You can also use Tags to help you organize and search easier.

Keep Receipts

Step 1: Create a Notebook called Receipts

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Step 2: Use the mobile app to snap scans of your receipts as you make purchases

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Notice that the Notebooks is “Receipts” and we’re using a tag called “office supplies” so that we can easily search for office supplies.  Also, you’ll notice we put the business purpose as the name of the note.  You can do this on your computer, or on your mobile device.

Step 3: Do the same process for every receipt you get.  Evernote will become your repository for all your receipts.  You can easily search for your receipts by tag if you want to see all of your Office Supply receipts.

Keep Bank Statements

After using Evernote you’re going to find more useful ways to use it in your everyday life.  One key feature is being able to keep and store attachments in notes.  Now, downloading your bank statements and putting them in Evernote is not that hard, but it’s also not that convenient.  Remember we said that one of the key features to apps we use is convenience?

The solution to this is to use an Evernote Marketplace app called File This.  File This is simply an app that will automatically retrieve your bank, credit card, utility statements, and put them where you tell it.  While it will export directly to popular cloud-based file sharing apps like Google Drive & Dropbox, you can also connect it to Evernote.

Once you have it File This connected to Evernote, your bank statements will automatically appear in the designated Notebook within Evernote.  File This is pretty robust and even has a free version for you to get started on.

 

Start Scanning!

Scanning your receipts and storing bank statements within Evernote will start you down the path of preparedness if the IRS decides to “knock on your door”.  Of course, in order for this system to work you have to be committed and adopt it as a workflow/system you use in your day to day life.  We use this system, we have clients using this system, and we can tell you that with a bit of discipline, it works!

Want to learn more about Evernote?  I’m an Evernote Certified Consultant so drop us a line and we’ll help you figure which version is best for you, and discuss how you can use it in your business.

Here are some useful links where you can sign up for free trials:

Evernote Basic

Evernote Plus

Evernote Premium

Evernote Business

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How to Choose payroll service blog post

Whenever I mention payroll to business owners I see the telltale signs of them “checking out” mentally, and it’s not surprising!  With terms like FICA, Workers Comp, Unemployment and ObamaCare, it’s no wonder small businesses are confused and sometimes just downright disgusted by it.  In fact, we often tell clients that if they get one thing right in running their business, make sure you hire a competent payroll service!

We want to help you understand how to make the right choice in choosing a payroll service.  So let’s get into it!

Taxes

Penalties on payroll tax errors are some of the most stringent that the IRS will shell out.  So you need to get this right!  Payroll companies will work payroll taxes in one of two ways: impounding and you paying the taxes yourself.

Impounding means that the payroll company takes the taxes from your account, holds on to them, and then pays them on time to the IRS and state agencies.  Sure, they make money on holding onto your funds, but they also take full responsibility for making the payments on time.

Some providers make it pretty easy to pay the taxes yourself via ACH and electronic payments.  However, it’s up to you to press “Submit” and make them on time.

The Verdict:

Use payroll services that impound.  It’s easier to manage cash flow because the taxes are taken out right when you run payroll and the payroll company assumes the responsibility to make the payments on time.

Direct Deposit and Checks

This may seem like a pretty basic thing but did you know that you can save yourself some time and costs by ONLY offering direct deposit?  Direct Deposit is a great way to pay your employees because they get paid right into the accounts.  Checks can be used, but they also create a headache when it comes time to reconcile your bank account.  Payroll companies also charge to push that paper around.  Have employees that don’t have a bank account?  Give them a “Pay Card’ that has it’s own routing and account number and you can “load” it with their pay each pay period.

The Verdict:

Use a payroll service that focuses on direct deposit and you will most likely save money on monthly service fees, postage and mailing, and time when reconciling your bank account.

Integration with Other Apps

Do you use accounting or online scheduling software like Xero or Deputy?  Use a service that ingrates with them to eliminate data entry and make running payroll, easy.  If using online scheduling, within a few clicks you can approve timesheets and send them straight to payroll.  This alone can save you hours each pay period.

The Verdict:

Search out payroll services that are open that integrate with other apps that you use.  Who knows, you may even discover an app you can use for your business this way!

Advanced HR Features

Some businesses have 1-5 employees, some have 50.  And depending on how many you have, will determine how much help you’ll need managing them.

If you have a large staff to manage, payroll companies like ADP have robust services beyond just running payroll that offers on-site HR reps that can come out “do your dirty work” for you, a.k.a.hire and fire.  They can also help you navigate the tricky waters of the ACA (ObamaCare) and provide employee handbooks, amongst other things.

If only a few employees, then a company like Gusto is often a good choice.  While they don’t provide robust HR services, they can offer very competitive rates on Workers Comp insurance, and make managing your employees pretty easy.

The Verdict:

Make a choice based on your payroll needs and employee size.

Pricing and Cost

This is what it boils down to right?  There are two methods that payroll services use to charge their fees: a flat fee per month, or fee per pay period.

Flat fee per month gives you a predictable cost each month.  Generally, there is a base cost and then a per-employee-per-month cost.  So as long as you know how many employees you’re paying, your fee is pretty predictable.  And, these companies don’t charge for anything extra like W-2’s and quarterly reports, as long as you are a subscriber.

Per-pay-period providers charge each time your run a payroll.  For most businesses, this is twice per month.  They will also charge additional fees for W-2’s and quarterly reports.  There are also other charges for mailing checks, etc., so make sure you have the payroll service spell our EVERY thing that is going to cost before you sign up.

The Verdict:

Use a service provider that charges a flat fee per month.  There is less confusion on fees and it’s generally cheaper each month.

Make it Happen!

As you can see, there’re lots to consider when choosing the right payroll service provider for you.  We can help you make that choice and get you in touch with the people to make things happen.   Have questions, leave a comment or reach out to us on our Get In Touch page and we’ll be happy to help you make the best decision for you and your business.

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App PowerPack Post

Unless you’ve been under a rock the past 5 years, I’m sure you’ve noticed the era of cloud-based apps has far outpaced its desktop counterparts.  We like cloud-based apps a lot—for good reasons that are too many to go into here.  You can check out this BLOG POST  to see a previous post about cloud-based apps. We like them so much that we’ve completely transitioned our business to using cloud apps for us and our clients.  We spend lots of time vetting out the ever growing list of cloud-based apps, and have come to rely on 3 core apps.  These apps are our top pick to make our “PowerPack” of apps that we set up with each client.

  xeroXero – Accounting

Xero touts itself as “beautiful accounting software”, and we agree.  From the first time you log in, you can tell right away that Xero has taken design pretty serious.  But that doesn’t mean that it lacks in power and functionality.  Features include: invoicing, quotes, purchase orders, A/P (bills), document management, real-time cash flow tools, contact management, powerful reporting, and much more.  Perhaps one of it’s best features is the eco-system of software add-on’s that integrate with Xero.

hubdoc_logo_full  Hubdoc – Receipt and Statement Management

Trust us, we know how daunting it is to manage all the paper for running a business!  Hubdoc solves this issue with automation and storage.  The idea behind the system is:

  1. To be a repository for your bank and utility statements by connecting to your online accounts and pulling the statements automatically
  2. To serve as an easy way to get the information from receipts, into your accounting system.  Simply snap a pic of any receipt using the mobile app on your device, and Hubdoc will read the date, amount, and vendor.

 

By integrating with Xero, Bill.com, and Google Drive, you can have a completely paperless system that allows you to automatically keep bank, utility statements, and store digital copies of your receipts.

 

 

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Expensify – Expense Reports and Mileage Tracking

Expensify has revolutionized the way you track and submit expenses for reimbursement.  From single to a team of several employees, expense reports for mileage, personal expenses, and travel can easily be imported into Xero and even reimbursed via ACH straight from within the app.  For most of our single-owner businesses, it works perfectly for keeping track of money you spend on personal accounts.  Enabling GPS on their mobile app makes it a breeze to track your auto mileage as well.

 

 

Want to know more about these “Power Hitter” apps?  Leave a comment or reach out to see how they can benefit your business and even get them for free as part of one of our monthly service plans.

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receipts
If you’ve been in business for any amount of time, you’ve probably heard something about keeping your receipts.  And we’ve heard some good myths about when and when you don’t have to keep them.  We’re here to set the record straight and tell you exactly when you need to keep receipts.

First, let me explain that there are different suggested records for different types of transactions.  For example, what you keep to prove the purchase of inventory is different than gas for your car.  We’re going to explore two categories today: General, and Travel/Entertainment expenses. But there are many more that we’re not discussing today.

General Expenses

What are they?

General expenses are things like paper, utilities, cell phone, etc.  Those types of expenses must be be proved with a bank/credit card statement, receipt, or invoice that shows the date, amount, and busienss purpose.

How long should I keep records for?

Generally speaking, you’ll want to keep records for at least 3 years from when you claimed them on your tax return.  The good news is that you can keep them in paper form, or electronically.  We’re a big fan of using the mobile app for Xero to take a snapshot of the receipt, and recording the transaction right on the spot when it happens.  You can also use other systems like Evernote, Google Drive, Dropbox and Box to store your records.  If you choose to keep paper, then have a good file system organized by year and type of expense, at the very least.

 

Travel & Entertainment Expenses

What are they?

41131785-business-team-on-the-way-to-meetingsJust as it sounds, expenses you incur to travel, take clients out to lunch.  It also covers lodging, rental cars, transportation, and a host of other things.  See IRS Publication 463 that is referenced below for more things that qualify as travel and entertainment expenses.

 

 

How should I keep records and for how long?

The trick here is to have “adequate” records.  There are 4 main points that you must prove in order to have a deemed adequate expense in this category:

  1. Amount
  2. Time (for travel)
  3. Place or Description
  4. Business Purpose

What that basically means is that you must have a receipt, log book, or some kind of record that proves those 4 main points for each expenses you deduct.  Estimates don’t count.  The long and short of this is: that you keep all receipts/invoices for each expense in this category.  There are only a few exceptions, one of them being that if your expense in under $75 (except lodging), you can simply provide bank statements to prove you expense.  Of course there are more exceptions, but we don’t have time to go into them in this post.

And like above, you should keep these records for 3 years after you file the tax return for the year you’re taking the deduction in.

 

The IRS has some pretty elaborate articles and publications on this topic.  We referenced IRS Publication 463.  Feel free to check it out if you need to dive in a bit deeper.  Or, leave a comment and reach out to us and we can help you navigate the murky waters of business deductions.

 

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“My bank says I have $5000, but my Profit and Loss says I made $10,000… huh?!”

Ever asked this question?

With this post, let’s dive into one of the most mis-understood and under-used reports that you have in your accounting software arsenal: Statement of Cash Flows (aka Cash Flow Statement).  This statement will answer the very question may have plagued you for some time now.

In short, this report follows one of the most important things in your business: CASH.  It tracks where the cash came from, and where it went.  The report breaks up your income and spending into three different categories: Operating, Investing, and Financing activities.

Here’s a brief explanation of each:

  1. Operating Activities: this is income and expenses from regular revenue and expenses in your business.  For example, sale of services/products that you provide, and money spent on supplies.
  2. Investing Activities: this is money spent on selling and purchasing assets.  For example, you buy a new computer and sell an old vehicle that the business owns.
  3. Financing Activities: this is money that you or an investor infuses into the business, or money taken out by owners.  For example, you contribute money into the business to cover expenses, or you take money out of the business to pay your self as an owner/shareholder.

Now, let’s show you what a statement looks like.  For this post, we’re using a statement from Xero.  QuickBooks will give you one that looks a little bit different, the differences are minor, and it tells you the same thing.

Xero Cash Summary Demo Company US

Or, here’s a downloadable version of the same report:

Demo Company (US) – Cash Summary

This report answers the question “where did my cash go?”, and will show you where the cash went.  At the very least, this report should help you understand your business activities so that you can make better decisions.  If you need further help making sense of this, or maybe your business has a unique situation, please don’t hesitate to reach out and contact us.

So now that you know more about your cash, what are you going to do with it?
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