Welcome to the second part of our three part series of the most important financial statements for a small business owner to know. The income statement, which can also called the P&L (profit and loss statement), is another important financial statement for your small business. We are going to start with a overview of how the statement is arranged, then we are going to dive into how to read the statement in a meaningful way.
As a small business owner, the ability to read financial statements will give you a better idea of how your business is doing. There are many different financial statements but I've narrowed it down to three to focus on. If you dedicate your time to learning these three statements inside and out it will give you a great idea of the financial position of your small business. This will be a three-part blog series starting with an in-depth look at balance sheets how they are structured and how to use them to your advantage when evaluating your business.
No matter the size of your business keeping up with large amounts of receipts can be frustrating. Now you do not have to spend hours sorting through stacks and stacks of crumpled up receipts and waste valuable time. With Wave Accounting’s new app, keeping track of your expense receipts is much easier. All you have to do is take a picture of your receipts throughout the year as you spend. Then the app connects to your Wave account where you can track and review all your expenses.
In today's market, online reviews play a vital part in acquiring new clients. According to annual BrightLocal Consumer Review Survey in 2016 84% of people trust online reviews as much as personal recommendations. The majority of people will visit the website after they read positive reviews. The most common thing I hear after informing business owners of the importance of reviews is this, "I know they are important but no one ever leaves us a review." The most important thing you can do as a business owner is ask. 7 out of 10 consumers will leave a review if they are asked so do not be afraid of asking your patrons for a review. Obviously good reviews of your business are a plus, you do not need me to tell you that, but let's talk about some of the advantages that are less obvious.
Marketing has changed since social media has risen to prominence. Word of mouth has always been one of the most effective marketing strategies. Since we, as consumers, ask those we trust about buying advice for products. This is how word of mouth has become the superior marketing strategy if you as a business owner can tap into this resource. What if we could use a powerful tool like social media to accomplish the same goals as word of mouth?
One of the many perks of being a large corporation is that you are eligible for larger tax breaks. They can write off things that normal small businesses just do not have the means to do so. For instance, large corporations can write off research and experimentation. It does not make sense for a small business to spend money on research just to receive a tax break because they have much less revenue.
Great businesses are the most efficient. The great entrepreneurs know how to work efficiently and grow their brand. They know when additional resources are needed and when technology can impact their business for the better. Setting SMART goals and knowing how to use technology to your advantage will increase your business’s efficiency.
One of the greatest pieces of advice that most people often forget is the KISS approach. Keep it simple silly is such good advice, when put into practice can save a lot of headaches in the future. One of the greatest tools you have today, to assist you in running your business efficiently, is your phone. I know that the phones today can seem overwhelming, but the advantages are there. There are many programs, QuickBooks, Expensify, and more, that have mobile apps for your phone. These can help your stay connected to the office even when you’re out. They also have the added benefit of being a cloud backup for your data.
Another way to keep your business efficient and on track is to set up SMART goals. If this is your first time reading about SMART goals, it is an acronym for how to set a goal that is Specific, Measurable, Achievable, Relevant, and Time-Bound. If you want to read more in detail about SMART goals this link provides a deeper understanding. Remember, after setting these goals you should revisit them often, and do not be afraid to failure. Set a goal that you believe you can achieve but will challenge you and your business. Failure is a learning opportunity that will teach you a valuable lesson, that you hopefully will not make again.
How did red nose day help last year you ask?
By strengthening its Early Steps to School Success and Head Start programs in more than 20 counties in 5 states across America, Save the Children is supporting moms like Michaela – a teen mother who, before her son Liam’s birth, was anxious about her baby’s future, as well as her own.
But through Save the Children’s Early Head Start programs in northwestern Arkansas, Michaela is able to give -7-month-old Liam the chance to develop essential early learning and social skills, while affording her the time to further her own education and career aspirations as an early-childhood educator.
If you receive a letter from the IRS remember that this does not mean they are automatically going to audit you. They could be looking for clarification or additional information. Once you receive a formal audit figure out what part of your returns is being audited. Only provide the specific information that the IRS requests to prevent broadening the audit. Make sure you are polite and quick to respond. With that being said, here are 10 red flags for the IRS that are in no particular order.
1. Claiming Business Deductions for Personal Expenses
Keep detailed books on exactly what is business related and what is personal. Higher than average deductions can also be a red flag for the IRS to audit you.
2. Math Errors
Having math errors can cause the IRS to look more closely at your return. Make sure your receipts add up to your 1099-K.
3. Claiming Fair Market Value for Real Estate
Claiming incorrect fair market value on your real estate can pique the interest of the IRS. Especially if you claim lower than normal fair market value.
4. A Sole Proprietorship with a Net Loss
Since there is commingling of funds in a sole proprietorship it is unlikely to have multiple years of net loss. The IRS tends not to audit startups in their first year. Though having the majority of your first 5 years in the red will throw some red flags.
5. Cash Transactions
Since banks will turn into the IRS your credit card transactions the IRS has a hidden algorithm to determine about how much cash sales your business should have had.
6. You’re Self Employed or Work Exclusively in Your Own Business
7. Claiming 100% Business Use of a Vehicle
If you plan to claim the vehicle for business use keep detailed mile logs of when and where the car was used for business means.
8. Shifting Income to Tax Exempt Organizations
Donating large amounts of money to charities to avoid taxes is considered tax abuse.
9. Consistent Late Filing
Consistently filing and paying your taxes late will draw unwanted attention from the IRS. If you will not be able to make a deadline always file for an extension.
10. Taking an Early Payout from Your 401K or IRA
The IRS finds that almost 40% of people who take early payouts file their returns incorrectly. If you take an early payout from your Roth, expect that you may be audited.
When you start your own business, it is common to make mistakes especially when it comes to accounting. Skipping small accounting tasks seems like it would save time, but it ends up costing time and sometimes even money in the future. It is better to get into a habit of taking care of accounting tasks early so they become less of an ordeal towards the end of the fiscal year. The focus should be clean, clear, and accurate accounting that will make your life easier. So, here are a few tips to help with your small business accounting.
Separate your business funds from your personal funds. Even if your business consists of only you. Create a separate account for the business and the business only. This not only allows you to make your reconciliations and end of the year deductions easier, it also lets you keep close accounting of your cash flow.
Many accounting professionals that work with small business owners will tell you that often they see the business owner not applying payments to open receivable accounts. It seems almost too simple to point out but it is easy to forget. Leaving receivable accounts open can cause major headaches down the road.
Reconcile all your accounts as soon as the statement is available. This process will be much easier now since the rest of your records should be accurate. Not reconciling accounts can reduce the amount of deductions you will receive.
Understand the tools and functions of your accounting software. Whether you are using QuickBooks or another software, understanding exactly what it can do and its limitations are important to making good use of your time.
Read the entirety of Terms of Credit agreements. Reading long terms can be monotonous at first but It can save you money in interest and other fees.
When first starting out it is easy to keep track of the small books you will be keeping. It is important to set up in a way that you can grow and scale without exponentially raising the amount of work you must put in to maintaining your books. You can set up automation in some online cloud based accounting that will allow your business to scale without you having to maintain all the accounting records by hand.
Use this tips for your benefit to learn from the mistakes that others have made in the past. Professionals are always ready to help with high level expert advice for small business owners.