The Benefits to small business owners of Outsourcing Bookkeeping and Payroll Services to an Accountant

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There are several advantageous reasons why  small business owners should consider outsourcing their bookkeeping and payroll services. Taxes are complicated and the IRS continually makes payroll more difficult each year. The following highlights several advantages to outsourcing accounting-related services to an accountant.

 Time – By outsourcing standard bookkeeping and tax-related services, employees can spend more time on company-related work instead of being distracted by payroll taxes, business invoices, IRS updates, regulation changes, etc.

 Money – Instead of hiring a full-time accountant or bookkeeper, consider saving money by outsourcing. Not only will companies save annual salaries, they can also save money in valuable and costly benefits.

 Experts –By choosing an accountant with a Business Owners Package, customers receive access to unlimited email and telephone consultations, including ways to minimize taxes. Skilled staff are able to effectively manage payroll and bookkeeping services, helping ensure government-related tax compliance.

 Focus – Outsourcing bookkeeping allows companies to avoid stretching full-time bookkeepers too thin, as they often have other tasks to complete, such as administration functions, reception tasks, etc.

 Teamwork – Hiring an experienced bookkeeper in the DC area gives a small business company access to a team of experts that offer bookkeeping services, priority payroll services, hosting of QuickBooks and software support, personal and business taxes and much more. Bay Business Group’s team of experts specializes in monthly financial statement preparation, tax returns, bank account reconciliation, payroll, cash-flow management, budgeting assistance, tax planning and projections, part-time on-demand Controller and accurate up-to-date financial records. Forgoing last minute tax surprises, companies can access their financial information online 24 hours a day, seven days a week.

 Systems – Because you want an expert who is informed about the latest government tax codes and law changes, outsourcing helps pay for up-to-date knowledge, which ultimately saves companies valuable money in the end. Companies have access to the latest tax codes, without spending precious money paying bookkeepers or on staff accountants to attend seminars. Additionally, as an added bonus, if you are using an accountant that hosts your software for you, all data is backed up every night, ensuring that companies’ records are well documented and IRS audits do not turn into a nightmare.

Whether a company grows or decreases in size, Bay Business Group is there to help offer valuable, up-to-date outsourced accounting services. Switch accountants and be pleasantly surprised by the easy transition.

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Can a business grow too fast?

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Most businesses hope to grow. They consider themselves successful if growth is taking place, and the faster the growth the better. Can too much business growth be bad for a company? It can be if the growth is not adequately planned.

For example, an established company that doubles its sales volume in a year may find itself strapped for cash, for working space, and for trained personnel.

For most established companies, a 12% to 15% annual growth rate would probably be manageable. The ideal growth rate for your company depends on the unique circumstances in your firm and industry.

A new company (starting with zero sales) must obviously grow more rapidly than an established one. Some new businesses may double their sales each year for the first five years or so before reaching the level where a 15% annual rate is healthy.

Rapid growth often requires more inventory and more space. And it may require money to fund additional work-in-process or accounts receivable. Who will fund the growth? A 15% growth rate can probably be funded by retained earnings. A more rapid rate may require an injection of outside capital. If the owners can’t provide the money, will it be the suppliers (increasing the accounts payable) or a banker (new short-term debt)?

Every business should have a written business plan with its growth projections clearly identified. The plan should include provisions for the finances, space, equipment, and personnel that such growth will require.

Your company’s growth should be both workable and profitable. Please contact us for assistance with your business planning.

Marriages end, and so do business ventures

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If your business is owned by two or more persons, a buy-sell agreement is one of the most important legal documents your business can have. This document provides for the “buyout” of an owner’s interest when that owner leaves. These are the areas that a buy-sell agreement should typically address.

* Describe the events that will trigger the agreement, such as a divorce, disability, death, or notice that an owner simply wants to leave.

* Set a value for each owner’s interest, or provide a formula to value each interest at a later date. Your agreement might require an independent business appraisal.

* Without a method to set the value, there could be some serious problems. Let’s say you and your partner reach a point where you can no longer work together. You believe the company is worth $2 million. Your partner refuses to sell, but he makes you a $100,000, take-it or leave-it offer for your 50% interest. You could face a drawn-out legal battle to settle things.

* Outline a funding plan. Different purchase and financing plans can be used to cover different situations. For example, cross-purchase agreements allow the remaining owners to buy an exiting owner’s share. A redemption agreement allows the company to buy back an exiting owner’s share. Financing options might include owner financing (an installment contract) or life insurance, in the case of an owner’s death.

* Prevent unwanted transfers. Generally owners don’t want a business associate they didn’t choose. Yet this could happen if one owner divorces, dies, or sells his shares to an outsider.

A buy-sell agreement is designed to provide fair compensation to an exiting owner, while making it possible for the remaining partners to continue in business. We can work with you and your attorney to develop a buy-sell agreement or to review your existing agreement. Call us.

Elect S corporation status by March 16

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If you own a small business, you have until March 16, 2015, to choose S corporation status for this year. In order to become an S corporation, you’ll need the unanimous approval of all shareholders.

The principal advantage of an S corporation is that you avoid paying double taxes. In a traditional C corporation, profits are taxed at the corporate level, and they’re taxed again when paid to individual shareholders as dividends. In an S corporation, there are no taxes on earnings at the corporate level. Instead, profits or losses flow directly through to the shareholders. They pay taxes only once, when they report their share of earnings on their individual tax returns.

Another advantage: Doing business as an S corporation can be attractive in the early, unprofitable years of a start-up business. That’s because operating losses flow through your personal tax return, perhaps offsetting other taxable income. Losses are available to the extent of your basis in your stock plus loans directly from you to your corporation.

There are some trade-offs for these tax benefits, though. If you’re an owner-employee and own more than two percent of the company, you’ll receive less favorable tax treatment of some fringe benefits. There are also ownership limitations. The company can have only one class of stock, there can’t be more than 100 shareholders, and all of the shareholders must be U.S. citizens or residents.

Despite these drawbacks, doing business as an S corporation can still offer some tax planning advantages. If you can meet the ownership requirements, it might be well worth considering an S corporation election. Contact our office for an in-depth analysis of the pros and cons for your company.

Watch out for aggressive phone scams again this tax season

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The Treasury Inspector General for Taxpayer Administration (TIGTA) is warning taxpayers about one particular category of tax scams that has proven to be very widespread, very aggressive, and very relentless. Callers claim to be IRS employees, and they tell their intended victims that they owe taxes that must be paid immediately using a prepaid debit card or wire transfer. The fake IRS agents threaten those who refuse to pay with arrest, deportation, or loss of a business or driver’s license. The scammers have been operating in every state in the country.

Here are some practices used by the scammers that taxpayers should watch out for:

* Use of automated robocall machine.

* Caller gives fake IRS badge numbers.

* Caller knows last four digits of victim’s social security number.

* Caller ID is changed to appear as if the IRS is the caller.

* A fake IRS e-mail is sent supporting the scammer’s claims.

* Follow-up calls are made claiming to be from the police department or motor vehicle licensing office, with caller ID again supporting the claim.

If you receive one of these fake calls, complete the “IRS Impersonation Scam Form” on TIGTA’s website, or call TIGTA at 800-366-4484.

Update your beneficiary designations

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Who have you designated as beneficiaries for your insurance policies and retirement accounts? If you can’t remember, you’re not alone. But it’s worth checking. If you make the wrong decision, it could affect who inherits those assets. In some cases, it could also change the taxes your beneficiaries will pay and the value they’ll receive. Here are some key facts about beneficiary designations.

What are they?

* When you designate a beneficiary for an account, you are naming the person you want to inherit that account.

* Your designation determines who will inherit the assets in the account, regardless of what your will might say. Generally, the assets will bypass probate and go straight to the person or institution you named.

* You can designate a person or group of persons, a charity, a trust, or your estate. You may also want to designate a secondary or backup beneficiary in case the primary is no longer living.

Why are they important?

* It’s important to keep beneficiary designations up to date because they determine who will inherit the assets in your accounts. Changing your will won’t change the beneficiaries.

* There can be tax implications too. With a traditional IRA, your choice of beneficiary can affect how quickly withdrawals must be made and taxes paid. That can change the value of the IRA to your beneficiary.

How do you update them?

* First, find copies of all your current designations. Contact your insurance company and plan trustees if you can’t locate the documents.

* Review them and decide what changes you’d like to make. Make an appointment to go over the changes with your tax or estate planning advisor.

* Send your updated designations to the account trustees. Make sure you receive confirmations and keep copies in your records.

Every new business needs a record system

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Many small start-up businesses are off and running before any record system has been set up. There is money deposited into the new business checking account, some from invested funds and some from sales. Money has been paid out for equipment and supplies, some by check and some by cash out of pocket or from sales receipts.

This informal method of cash receipts and disbursements needs to be formalized. The bookkeeping system does not need to be complicated. In most cases, you can continue to operate much as you have. You just need to do it in a way that leaves a few more tracks.

For example, make all purchases by check. The small miscellaneous cash paid-outs from your pocket (or the petty cash box) are reimbursed by a check with a listing of the expense codes. All your cash receipts are deposited into the bank. No more taking cash from the till for lunches, supplies, etc.

If all the money received by the business is deposited into the bank and all expenses are paid by a company check, the proper journal entries are easy to create from the bank statement.

If you are starting a new business, don’t wait until the end of the year and surprise your accountant with a box of miscellaneous receipts. That is the most expensive and least effective use of your accounting information. In addition to setting up the proper record system, your accountant will provide you with guidance on other business, tax, and financial matters.

Check your tax withholding for 2015

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Withholding too much tax from your wages isn’t a smart financial move. Review how much you’re having withheld in 2015 to see if it matches the actual tax liability you expect to have. If an adjustment is needed, file a new Form W-4 with your employer.

Not all “income” is taxable

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There are several sources of revenue that are not subject to income tax.

Here are the most common sources of money that are not taxed on your federal income tax return:

* Borrowed money such as from banks or personal loans.

* Money received as a gift or inheritance from family or friends.

* Money paid on your behalf directly to a school or medical facility.

* Most life insurance proceeds.

* Cash rebates from businesses when you buy an item.

* Child support payments.

* Money you receive for sustaining an injury.

* Scholarships for tuition and books.

* Disability insurance proceeds from a policy purchased with after-tax dollars.

* Up to $500,000 of profit for a couple selling their personal residence.

* Interest received on municipal bonds.

If you have included any of these on your income tax return for the past three years, you can amend your return for a tax refund.

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.

Does your business make use of your financial statements?

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Many small business owners pay too little attention to their financial statements. This is due in part to not understanding just what the statements have to offer. In fact, many may not be able to tell you the difference between a Balance Sheet and an Income Statement. Read more.

COMPLETE ARTICLE:
Many small business owners pay too little attention to their financial statements. This is due in part to not understanding just what the statements have to offer. In fact, many may not be able to tell you the difference between a Balance Sheet and an Income Statement.

Think of them this way. The Balance Sheet is like a still picture. It shows where your company is at on a specific date, at month-end, or at year-end. It is a listing of your assets and debts on a given date. So Balance Sheets that are a year apart show your financial position at the end of year one versus the end of year two. Showing how you got from position one to position two is the job of the Income Statement.

Suppose I took a photo of you sitting behind your desk on December 31, 2013. And on December 31, 2014, I took a photo of you sitting on the other side of your desk. We know for a fact that you have moved from one side to the other. What we don’t know is how you got there. Did you just jump over the desk or did you run all the way around the building to do it? The Income Statement tells us how you did it. It shows how many sales and how much expense was involved to accomplish the move.

To see why a third kind of financial statement called a Funds Flow Statement is useful, follow this case. A printer has started a new printing business. He invested $20,000 of his own cash and borrowed $50,000 from the bank to buy new equipment. After a year of operation, he has managed to pay off the bank loan. He now owns the equipment free and clear. When he is told his net profit is $50,000, he can’t believe it. He might tell you that he took nothing out of the business and lived off his wife’s wages for the year. And since there is no cash in the bank, just where is the profit? The Funds Flow Statement will show the income as a “source of funds” and the increase in equipment is an “application of funds.” The Funds Statement is even more useful when you have several assets to which funds can be applied and several sources of funds such as bank loans, vendor payables, and business profit or loss.

Don’t be afraid to ask your accountant questions about your financial statements. The more questions you get answered, the more useful you will find your financial statements. Accounting is sort of a foreign language. Learn to speak a little of it.