Thanks to all the attendees of our webinar, Easy Breezy Small Business Bookkeeping, featuring Eli Mitchell from Bench.co.
If you missed the webinar, you can view the video playback on our Kabbage KamWebinars YouTube Channel and view the slides on our SlideShare. Both the slides and video are also embedded at the bottom of this article for you.
It’s Tax Season
Resources you can look into to better manage the tax season is the IRS.gov website, as well as the Bench blog where you can read the latest about tax deadlines and filings.
There are extensions available for C-Corp and S-Corp to extend their deadline from March 15th to September 15th. Keep in mind that an extension to file, means only an extension to file, not an extension to pay.
Piercing the Corporate Veil
One of the key things that Bench share with small businesses that are reaching out to them is that they need to think about running their businesses as a separate part of their lives.
Piercing the corporate veil is a critical part of it, but ultimately, you can save time and money, build your small business credit and maintain your privacy by keeping these two separate.
When you co-mingle personal and business transactions, what you’re ultimately doing is including your personal live in your business. Keep them separate to allow yourself to effectively communicate about your business and allow yourself to build business credit with lending agents. It pays off to be disciplined and keep these things separate.
There are some easy strategies to keeping personal and business expenses separate:
- Find the best payment solution method for your business. Try Nerdwallet to compare and find the best payment account solutions for your business.
- Know exactly which are business vs. personal expenses. Check out Bench’s tax deductions guide on bench.co/syllabus to help you better define which expenses should be considered personal vs. business related.
- Pay yourself a salary. It’s about moving money from your business to your personal account so there’s a clear transaction.
- Set up good habits. In the case you’re a single member LLC, a sole proprietor or member of a partnership you typically can’t be part of a payroll. However, that doesn’t mean that you can’t set up good habits. If you’re disciplined, your draw could resemble what a payout could look like. The best way to do this is to define what your monthly income is and set up a spending plan based on this information.
- An S-Corp’s should be part of a payroll. Often, a misconception is that sole shareholders of S-Corp’s that earn a bunch of money don’t pay themselves a salary. This is not a good practice as the IRS has a requirement that says you should have a reasonable compensation. With this in mind you need to make sure that’s happening. A reasonable compensation is defined as what you would pay a third party to do the same job you’re doing.
- Get a business account AND have a personal bank account. A sole proprietorship is a great way to get started, but in the eyes of the IRS there is no distinction between your business vs. personal life. Setting up a foundation for success in your business means that you should have a business bank account, as well as a personal account and keep these two separate.
Regular Use of Your Income Statement
The income statement gives the business owner a sense of profitability over a period of time. The equation to figure out your profitability is:
Revenue – variable & fixed costs
Something that is very important to include in an income statement is the proper categorization of expenses. Ensure that cost of goods sold (COGS) are recognized at the right point in time if you’re going to be doing your bookkeeping on an accrual basis, as well as make sure that you are capturing all those capital expenses on your balance sheet, because they’re going to be depreciated over time.
Should I Go Cash or Accrual Basis?
To make your accountant happy you’ll need to answer this not so easy question: should I go cash or accrual basis? And what happens in the case of people that are doing cash basis, but should actually be doing accrual?
The latter can cause more work for your accountant, and ultimately their fees will be higher as they’ll have to collect documents that you haven’t been tracking all year long. Then, they’ll have to reconcile and make adjustments in your books.
Doing accrual basis is more difficult than doing cash. You’ll have to stay on top of your accounts receivables (AR) and accounts payables (AP) and having an established inventory tracking system.
The Pros and Cons of Accrual Based Bookkeeping
- You get to analyze your business on a deeper level. This means having your AP & AR in your balance sheet.
- Your inventory is going to be tracked on your balance sheet and only recognized as COGS once sold.
- It’s more time sensitive.
- More difficult and error prone.
The Pros and Cons of Cash Basis Bookkeeping
- You recognize your revenue and expenses when that cash balance changes.
- You only recognize a cash expense when you actually send the cash to pay a vendor.
- There are fewer data points. You only manage when the cash change hands.
- Operating on a cash basis will help you build a strong foundation of understanding for how to manage your business.
- Less granular reports.
- Inventory tracking limit.
- No AR/AP on your balance sheet.
How Do You Define When You Can Go Cash Vs. Accrual Basis?
Ultimately, you need to pick the method that’s best for you. IRS’ rule is to pick the one that best represents your expenses. $1 million dollars is the threshold for when you need to start tracking inventory and if you have to track inventory, then you typically have to be on accrual basis.
Cloud for Small Business
There are a ton of great solutions out there for small businesses to handle specific tasks. Enjoying your independence as a business owner is the best part of running a small business, which is why it comes down to your personal decision on which software you think will be the most efficient in helping you run your small business.
Some of Bench’s Preferred Cloud Solutions
For Invoicing / AR: Freshbooks
- Does great work for small businesses
- Strong invoicing and AR system. Easy, simple and cost-effective to use.
For Mileage Tracking: MileIQ
- Good to use if you travel with a car for your business
- Easy to use on your phone and it tracks all mileage logging
- Tracking mileage is important in order to get business reductions
- Helps you keep mileage records if you ever get questioned by the IRS
For Payroll: Gusto
- Automated experience for payroll and benefits
- Handles all local, state, and federal tax filings for you
For Reimbursements: Expensify
- Saves a lot of time as you can automatically import card transactions, as well as add cash expenses
- Easy to use as it streamlines expense reports and approval process
- You can snap a photo of your receipts and it adds the expense automatically into a useable format
For Managing Passwords: password
- You create one cryptic password that can access all of your passwords
- Very secure
For Cloud Reception: Ruby Receptionists
- For business owners on the go and that don’t have a physical office
- Good for when you need someone to manage your phone
For Sales Tax: TaxJar
- Sales tax is extremely complex and difficult to keep up with. This software automates sales tax reports in all states for simplified filing.
For Bookkeeping: Bench
- Cloud based accounting and bookkeeping firm that provides online software and professional bookkeeping services
- Operates on a cash basis for clients
- The go-to site for reliable bookkeeping every month
Takeaways During the Q&A Session:
- The biggest difference between an LLC business vs. an S-Corp entity is that LLC’s offer more flexibility to operate your business how you want. As an LLC, you can offer members/stakeholders different types of ownerships and rights. As an S-Corp entity, on the other hand, everything needs to be pro-rata. This means that there are strict requirements to how you can divide rights between members/stakeholders. Also, you can only have US tax residents as part of an S-corporation.
- Xero and Quickbooks are wonderful solutions that offer robust features and if you take the time and put effort into learning the platforms, these can be very powerful solutions for you. The biggest difference between Bench and other accounting solutions such is that Bench offers a “we want to do it for you and make it as easy as possible” solution, vs. a do it yourself solution, which is what Xero and Quickbooks offers. Through Bench you can easily communicate with your bookkeeper and accountant to do your books for you.
- Investing in cloud solutions can get expensive, so how do you justify paying for all these different solutions? If cost is a factor, you have to do a cost analysis of what’s most important to you: cost vs. time. As we all know, time is precious, and how much time are you going to be spending on learning a new software? Basically, finding the must-have cloud solutions for your business comes down to a cost benefit analysis and an individual preference based on what’s most precious to you, cost vs. time.
- Best cloud solution to track inventory for eCommerce, Bench recommends looking into Ordoro and Stichlabs.
- Best cloud solution to track inventory for brick and mortar retail and restaurants, Bench recommends POS systems such as Lightspeed and Shopify POS.
We hope you found the information useful, and that you now have a better idea on how to manage your accounting and bookkeeping. To learn more about Bench and to start a free trial, visit their website.
Have questions about how Kabbage can help grow your small business? Leave us a comment on Twitter: @KabbageInc, or email us at email@example.com. You can also sign-up for our free small business newsletter to get access to more webinars and business tips by entering your email in the form at the top of the sidebar of this blog.
Thanks for listening in, we hope to see you next time!