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Do you do taxes?
How do I document credit card charges?
What are fixed Assets?
Why should I care if Fixed Assets in my business get expensed when
they should be depreciated?
What is a cash business and how does this effect my business?
What is the benefit of using an accrual based accounting system over
a cash basis (this has nothing to do with whether your business is
considered a "cash business")?
Should I incorporate?
Can I pay myself without an official payroll?
Can I pay my employees without an official payroll?
Do I have to pay sales tax?
What are fixed and variable costs and why are they important to my
business?
What is the cost of service and why is it important to my business?
How can financial statements help me?
Do you do taxes?
Yes. We are experienced at preparing a variety of business and individual tax returns. We also provide tax planning and consulting.
Depending on your status, a monthly or quarterly accounting rather than an annual one will streamline the tax process.
How do I document credit card charges?
Use original documentation/receipts from the authorized card holder. For example, if it were a company card the revolving credit account would be charged every time an item is paid.
Credit card statements are generally not an acceptable method of documenting expenses. The statement would serve to reconcile the company's account. Using the statement as a source document may cloud the actual ownership of a legitimate business expense.
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What are fixed Assets?
Fixed assets are property put into service. They include anything from a new phone to an automobile to a building. Land is a fixed asset even though you state its value separately from the structures on it. Sometimes it is difficult to tell if a repair or small appliance is an asset, improvement, or a cost of doing business. A close inspection can determine the correct accounting treatment.
Fixed assets also include physical items acquired in your business that are used year after year. A service life of the item is established to compute depreciation, which is expensed as a cost.
The benefit of owning such an item is that you realize its value over its expected life. This more reasonably approximates its economic value. It also allows for properly stated asset value, income, budgets and tax calculations.
You should keep invoices for fixed assets in a safe place and avoid mixing them up with general payables.
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Why should I care if Fixed Assets in my business get expensed when they should be depreciated?
If a fixed asset is expensed, there is no longer a record of it on the books. But if you depreciate a fixed asset, it will remain documented on your balance sheet for its entire economic life.
Documenting your fixed assets is an important step in the business planning process. It helps you understand what your business has, what its worth is, and so forth. An established business might use this information to consider its necessary investment, cash flow, operation expense, budget, return on assets, value, and goodwill, depending on what is important at the time.
Once a small business grows it's easy to lose track of what fixed assets the company owns. This will be important when seeking additional capital or loans, or considering property taxes and for insurance purposes.
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What is a cash business and how does this effect my business?
A cash business is one where sales are primarily in physical cash notes or other "legal tender." Restaurants or grocery stores typically handle a significant portion of their receipts in cash.
Deciding to maintain safe practices and controls is integral to establishing and growing your business. Once you can get past certain fixed costs then every extra dollar in revenue becomes pure profit less your product or service costs. The key to successful business include a positive overall attitude to safeguard business assets and put procedures in place to achieve those goals.
What is the benefit of using an accrual based accounting system over a cash basis (this has nothing to do with whether your business is considered a "cash business")?
An accrual system more reasonably approximates the actual results of operations and the asset or liability balances that a company carries at a given time. Cash systems are simpler and less time consuming/costly to calculate which is why small businesses and some privately held companies rely on it. However, for income tax purposes the value of your inventory and fixed assets are recorded at their accrual value and may be considered a modified accrual even if the business has declared a cash basis.
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Should I incorporate?
Given the new Limited Liability Company organization status that has swept the nation, it is easier than ever to protect your personal assets and create a distinct business entity.
However, if you register your vehicles, insurance, or land in your personal name, or use your business checking as if it were your personal checkbook without keeping good records, then it may not be clear whether there actually is a distinct business entity. If an accident occurs in the course of business, and the vehicle or land involved is registered to an individual, you can be sure that plaintiffs will seek damages from the individual.
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Can I pay myself without an official payroll?
That depends on the type of business entity. A "C" or "S" Corporation likely would need to have a real payroll. Paying taxable dividends instead of salaries might be a problem if there are passive investors.
An LLC or Sole Proprietor typically does not pay itself but rather creates a "drawing" account. The draw doesn't necessarily mimic your income but generally if there is income then there is draw available. As a sole proprietor, you're better off writing checks to yourself and paying your personal expenses from your personal checking account. However, any personal items paid from the business are generally considered a draw.
There may be shareholder loans to the company as a result of a capital contribution. This could be a source of cash payments that don't affect the capital or drawing balance. Such loans may, in effect, be an easier way to keep track of certain types of transactions between owners.
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Can I pay my employees without an official payroll?
Using the term "employee" implies that you have a payroll. A non-payroll "independent contractor" should be limited to, say, 30 hours a week to establish less-than-full time status.
The Department of Labor has several rules that employers must follow if they want a worker to be treated as an independent contractor and not an employee. Among them are:
"The individual (i.e., the worker in question) must be free from direction and control in connection with the performance of the service, both under his or her contract of hire and in fact; and
The individual's service must be performed either outside the usual course of business of the employer OR outside all the employer's places of business; and
The individual must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the services performed.
Proof that the individual is an independent contractor includes proof that the person has his or her own business, for example: a business card, listing, advertisement in the phone book or a publication, a tax identification number, etc."
By not following the rules you will expose yourself to numerous gray areas including issues of workers compensation insurance. Hiring uninsured labor is a danger not only to you but also to your customer. That is why savvy customers often request proof of insurance for on-site jobs. If your independent contractor cannot furnish proof of insurance then you need insurance for uninsured subcontractors too.
There are other dangers in using independent contractors without following all the legal guidelines. For example, there may be issues regarding whether or not they are permitted to work in the USA. Or a "contractor" who seems to be working as an employee, upon being terminated, could file for unemployment compensation and get you into serious trouble with the Department of Labor.
For all these reasons, you may be better off hiring workers through a qualified temporary employment agency.
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Do I have to pay sales tax?
This depends on the type of business you are in. When you register your business with your state you will be able to determine if you are subject to sales tax.
Technically you are not paying sales tax but collecting and remitting it to the proper state authority. The state will give you a certificate permitting you to collect the tax.
It can be extremely complicated to pay sales tax and determine the proper liability from month to month. New York State has recognized this and offers a vendor collection credit of up to $150 to ease the pain of the process. It is very easy for a company's sales tax liability account to fall behind if nobody is paying attention to it. Therefore, you need to integrate the tax into your business. You should also determine if you are paying the tax based on cash receipts or the total sales receipts including amounts still due from customers.
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What are fixed and variable costs and why are they important to my business?
There is a basic accounting concept that says once you cover your fixed costs then every dollar of sales you receive is pure profit, excluding remaining variable costs.
This is of course within the relevant range of possible business activity. For example, a limousine cannot be on the road for more than 24 hours a day. Apart from the limousine's fixed cost (its purchase price), it is also going to incur variable costs such as fuel and maintenance costs based on its use. These costs are also known as fixed / controllable and variable / non-controllable costs, respectively. A proper budget will recognize this and will also account for the limousine's fixed cost over its expected usage period as a non-cash charge or depreciation (especially when incorporating cash flow into a budget).
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What is the cost of service and why is it important to my business? How can financial statements help me?
The cost of service plays an important part in your business income. It is deducted from revenue in arriving at your "gross margin." All other costs are known as operating costs and are deducted from the gross margin to calculate net income and your net margin percentage. Examples of operating costs, also called selling, general, and administrative costs, include management salary, rent, insurance, professional fees, bank fees, filing, registration, permit, memberships, annual fees, applications fees, dues, and subscriptions.
A percentage based income statement will give you an idea of how much margin you get from each incremental dollar of revenue. For example, your business may have an industry average net margin of 15% while you are making only 10%. A percentage analysis of your income statement will help you determine which particular costs you need to control to raise your net margin percentage. However, obviously a big focus is always on the "top line," i.e. revenue.
In a strict sense and according to Generally Accepted Accounting Principles, all costs associated with providing a service go towards gross margin. However, in reality a small business might include variable core service costs in the cost of service. This is because generally substantially all costs excluding marketing are service costs. Variable costs, as discussed, will increase with rising revenues and activity.
The balance sheet shows your business's assets and liabilities. It ties into and complements your income statement. You can gauge the health of your business by calculating common financial ratios from balance sheet figures. You can also calculate how much draw or dividends you can make.
While a balance sheet is not required for the sole proprietor or single member LLC, it is unwise to ignore this item since it states in plain language the business's financial position. It is necessary for obtaining capital or loans, and it tends to highlight opportunities to grow the business - opportunities that may not be discernible in budgets and business models.
Strictly Accounting CPA stresses a full set of financials and an accounting system that efficiently matches your current operation. The tax returns we prepare for you tie into your financial statements.
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