Types Of Bookkeeping Systems

Recording information for a business requires having a solid system in place. We know that keeping accurate records is important, and issuing reports is imperative, but what entry system will work best for your business?

Single-Entry System

The single entry system is an “informal” accounting/bookkeeping system in which a bookkeeper records each transaction only once as either revenue (deposit) or as an expense (check). Using this system, a bookkeeper generally records only the essentials, such as cash, accounts receivable, accounts payable and taxes paid, and includes a daily and monthly summary of cash receipts and disbursements. Because of the simplicity of this system’s nature, records of assets, inventory, expenses, and revenues may not be kept. Single-entry systems are usually inadequate except where businesses are especially simple and the volume of activity is low. An example of a single-entry bookkeeping system is a checkbook. The drawback of the single-entry system is that it does not provide a business with all the financial information needed to adequately report the financial affairs of a business.

Double Entry System

The double entry system is the standard and complete accounting system used by businesses because every transaction or event is recorded in at least two accounts. Recording a debit amount to one account and a credit amount to another results in equal credits for all accounts in the ledger. Since all business transactions consist of an exchange of one thing for another, double entry bookkeeping is used to detect and reduce errors. If at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, a bookkeeper is able to catch and correct the error easier. This system is preferred among businesses with high-volume activity because of its thoroughness, and checks and balances.

What bookkeeping system do you prefer over the other? Do you implement both? Have you found any drawbacks to using one over the other? Leave your preference and reasons in the comments below- we would love to hear from you. 

Pricing Strategies

While most restaurants sell Philly cheesesteak sandwiches for $4-5 apiece, Barclay Prime owner Stephen Starr sells his for $100. Served with a small bottle of champagne, Barclay Prime’s cheesesteak is made of sliced Kobe beef, melted Taleggio cheese, shaved truffles, caramelized onions, and shaved tomatoes on brioche bread brushed with truffle butter and homemade mustard.

Could you sell a simple sandwich for $100? I’m not sure I could, but this raises an interesting question: How do we price our goods and services? Here are some pricing strategies that should help. 

Monthly Payments. Offering a one-time payment for customers may be easy, and for some businesses, it works like a charm. But if you offer services, setting up monthly or even quarterly payment schedules can be really beneficial. It allows for a consistent point of contact between you and your clients. Personally, when I send monthly invoices, I ask for feedback, send project reports, and offer reasons why their business benefited from having me on their team. This way, my clients see that I am doing more than just asking for their money each month; I am adding something valuable to their own businesses.

Prestige Pricing: Higher prices usually mean higher quality. Luxury brands are the perfect example of this strategy. Simply improving your delivery or promise of your product can justify a higher price. Our friend in the example above who sold his sandwiches for $100 increased his perceived value by offering a bottle of champagne and homemade mustard making it the Starbucks coffee of the sandwich world!

Tiered Pricing. This is very common. Cable companies offer a “good” plan including 40 channels, a “better” plan including 60 channels, and a “best” or “premium” plan including 100 channels and free installation. Fast food restaurants offer a burger, a combo meal, and a large upgrade combo meal. Pricing tiers change a buyer’s concept of quality. They don’t normally opt for the lowest-priced option because they prefer to purchase a product that is better or even the best you have to offer.

What strategies do you use in your business’ pricing? We would love to hear what works for you.

End of Year Tax Preparation

True it is only September, but the new year is right around the corner, and now is the time to make sure you are ready to file your taxes. Isn’t that so exciting? The more organized and complete you are with your bookkeeping throughout the year, the easier this will be. But you can still take time over the next 3 months, making January-April much easier for you in 2014. Here’s a list of tasks to make sure you’re organized and are not missing anything.

1. Reconcile all bank statements. This process helps to ensure that you have properly recorded your payments and expenses. It also helps you catch any possible bank errors or extra fees that you should not have had to pay.
2. Make sure you have invoiced your customers, which keeps your invoicing system organized. Also review any unpaid balances and make sure that your outstanding balances match your records.
3. Record all transactions that are not paid for with your business account. Sometimes we make charges or pay for things in cash without recording them. By reconciling credit card statements, it is easier to keep track of business expenses versus personal expenses. If you don’t record all of your expenses, your reports will show a higher profit and you will pay more in taxes.
4. Track your mileage, record trips, and keep gas receipts if possible. Your commute to and from your place of work is not allowed to be used as an expense, but any trip taken for business can add up over the year.
5. Review your categorized expenses. Office supplies and entertainment costs should be in the correct category so that you can compare costs from last month and last year. This also ensures that only deductible expenses are recorded, eliminating possibilities for record errors.
6. Make sure contact information is accurate for employees and contractors so that W2’s are properly prepared. Collect your contractors’ W9 forms because in January, you may be required to file a 1099 form for them, and you will need accurate taxpayer information.
7. Prepare a budget for next year. Take your Profit and Loss statement for this year and enter this information into next year’s budget. Then take a look at the sales and expenses for each month and make any changes if needed. Continue to review your income and expenses throughout the year.

What are you doing to make tax season a little easier for your business? If you need help organizing your records or handling your bookkeeping, that is what we do best! 

3 Rules for Writing off Entertainment Costs

When owning or running a business, we frequently go to business lunches, or attend business happy hours, or take potential clients to sports games, or even have business parties on the weekend! I like to write off business expenses as much as any other business owner, but taking advantage of entertainment write-offs can be rejected and cause all kinds of issues when dealing with an auditor at tax time.

Not to worry- with a little balance and carefulness, these 3 rules for writing off entertainment costs can save you a headache next April.

1. Conduct business First. (Or last.)
When you write off a meal or event, make sure it is revolved around business, and that business is conducted during these meetings. Personally, I like to get business out of the way first. But you can save it for dessert if you like- such freedom in owning a business! But make sure that if you are deducting a meal or entertainment outside of the office that you are either discussing business strategy, solving current problems, or figuring out the next steps to take on a new project. Simply mentioning work-life and then discussing nothing else but relationships, kids, or Hollywood gossip (guilty!) does not qualify as a valid deduction in your entertainment costs. The same goes for parties and large gatherings. Simply throwing a party is not enough to qualify as a deduction. There must be an educational speech, a new product or service reveal, or some kind of riveting sales pitch!

2. Check your guest list. 
You may not know this, but if you throw a party for employees and spouses, or an event that is open to the public, you can deduct this event 100%! But here’s the tricky part. If the party is for clients, potential clients, and independent contractors, then only 50% of the cost may be deducted. If you have a mix of all of the above, part of the cost may be written off 100%, and the remainder may be a 50%-write-off, depending on the number of guests in either category. This is a good time to talk to your tax consultant.

3. Record to defend!
It wouldn’t be fair if we threw parties and had nice dinners without having a disclaimer, right? A good rule of thumb is that if it’s too much fun, you probably can’t deduct it. So calm down, and stop smiling. Just kidding. But just to cover yourself and your business, make sure that you keep every receipt and that you record all the necessary information to ensure your deduction qualifies. Keep a record of your guest list. Record your sales pitch, speech, or product/service launch in an itinerary. I would even make sure to include pictures and a video- just to be safe! Plus, if you are dressed really fancy, you would want something to remember the event, right?

We are masters at keeping organized records of clients’ expenditures. If you need help figuring out what to deduct and how to keep it all straight, we’ve got you covered. info@journeybookkeeping.com. 

 

4 Tips When Collecting Past Due Payments

The topic of unpaid invoices is never an enjoyable one. What do you do when a client isn’t paying what he owes? Without losing your patience and professionalism, here are a few tips that work well.

1. Be friendly- You don’t want to unnecessarily burn any bridges between you and a client, so take the time to discuss current options. Even if you chose not to do business with them in the future, it is always better to take the high road, keep your cool, and try to work things out personally and rationally. You may re-send invoices and reminders, stop by a client’s office, and ask how you might be able to resolve the issue. Sometimes, you may get them to agree to a settlement; it may not be the full amount they owe, but even 60-70% is better than 0. You may also be able to work out a payment plan or an arrangement that both parties can accept. If you chose to do business with them in the future, a retainer or up-front payment can reasonably be requested.

2- Check records- Before you start demanding money, it is good to get into the habit of checking your records. Your client may have already made a payment that was not properly documented (I speak from experience). Oftentimes, clients feel that your end of a contract was not upheld so they do not feel that they should have to pay you (yes, this has happened to me too). However, I keep very accurate records of the work that I complete and I compare it with the contract or agreement we both signed, so that there is no confusion. When you can approach a client with records of work you completed, they cannot dismiss you, making it a little easier for a client to see that they should pay you what they owe- business karma can be a you-know-what.

3. Work up chain of command– If the invoice is correct and your contact person is vague about when you can expect payment, you might need to start working up the chain of command. The higher up you go and the more authority that person has in the business, the more important it might be for them to protect their company’s reputation. In fact, sometimes, a person higher in authority will immediately recognize that action needs to be taken and will bypass the “middle man” who may be dragging their heels a little bit. It might be as simple as asking the right person. Not only can you resolve the current problem, you might even be able to negotiate faster payment terms for future invoices if you chose to continue doing business with them.

4- Hire a collection agency or lawyer- This is no fun for either party, so avoid this measure for as long as you can. I have waited 6 months before doing anything about an unpaid invoice. Collection agencies are scary enough to businesses that even a threat may push them into writing a check. Plus, we all hate annoying collections calls, so people tend to avoid having to deal with them at any cost. Their services range in price, but are usually affordable, especially if an unpaid invoice is over $500. This is a much better alternative than hiring a lawyer, who can charge several hundred an hour for services. Some very large debts may require this, though I have never had to go this far.

 We would like to hear from you? Have you had to collect money from a client? What worked? What didn’t? Leave us a comment or shoot us an email at info@journeybookkeeping.com. 

Preparing for a New Employee

I remember starting a new job once a few years ago. I was so excited to start that I went shopping for new clothes. On my first day, I got up early to look as professional as I could, but when I showed up, I was horrified to find that I had worn the EXACT same outfit as my new boss. Both the shirt and the slacks were identical. Now, we can’t guarantee to save your new employee from having some embarrassing moments on his or her first day, but we can give you some tips on preparing your office to welcome them and make them feel more comfortable. 

Prepare the Workspace and Environment

We like working in office spaces that are open, without desks clustered together. When employees sit out in the open with their team members, they feel more of a part of something big instead of an exclusive limb left off somewhere.

Welcome and Equip New Employees for Success

Equip your new employee with a welcome packet of sorts- include a history of the company, a mission statement, goals, values, and maybe some press releases or media attention. Let them know important things like where the restrooms and cafeterias are, a list of other employees and team members or who they can go to for answers to certain questions. I would have liked to have a map of everyone’s work spaces and offices to avoid other embarrassing work situations, but that is for another blog! Allow your new employees to know when important weekly meetings are, and what they can expect in their first days or weeks, as well. This takes away some of the anxiety that comes with unfamiliar places and customs.

Train Team Members Together

If you are hiring more than one person at a time, it is a good idea to have them start at the same time. This provides an immediate opportunity for new employees to create a relationship with someone they can identify with (each other) and it helps them feel a little more integrated when they aren’t “the only ones”. This also allows trainers to work with more than one person at a time, making this process cost- and time-efficient.

Establish Expectations and Responsibilities

This part isn’t much fun, but it is a crucial element in both individual and organizational development, establishing a foundation for future success.

A new employee should feel welcomed, and comfortable, but once they are in the door, it is time to work! Make sure to take the time to establish all of their responsibilities- daily, weekly, and monthly. Make sure they understand deadlines, who they report to, what their exact job description is (if it was not discussed in detail before), and current processes. Let them know whether a process is open for improvement or customization or if a process must not be changed. Some team members like the ability to be creative and find solutions, but some bosses prefer that processes stay the way they are unless discussed. (I learned this the hard way years ago.)

Integrate Newby’s with the Team

A developer at Warby Parker created a little program called “Lunch Roulette.” After each weekly team meeting, this software application randomly selects two groups of four people to go to lunch on the company’s tab, so that no more than one person from each department is in a group.

Other companies hold “team-building” meetings where they are all encouraged to work together to solve problems or mysteries. These can be fun! Often times, companies will rent a space for team-building games every few months so that new employees get a chance to bond with their co-workers, and existing employees have the opportunity to strengthen their bond.

We would like to hear your stories and tips on how you integrate new employees into your business. What has and hasn’t worked for you? Leave your comments below or shoot us an email at info@journeybookkeeping.com. We love to hear from our readers! 

5 Ways to Avoid a Tax Audit

I can’t speak for everyone, but I know one of my biggest fears when filing my taxes is that the IRS will target me for an audit. I have found a few tips that can prepare you for an audit- or just help you avoid it in the first place. The total number of audits conducted increased by 13% in 2012 from the year before. Some taxpayers can get flagged for an audit if they make mistakes that raise questions as to whether or not they’re reporting all of their income, from forgetting to report even small amounts to paying taxes for your babysitter! Overall, the probability of being audited is still low (the IRS audited less than 1% of taxpayers last year), but just in case, here are some things to keep in mind.

1. Check your math.
The IRS caught more than 6 million math errors on tax returns in 2010, including over-estimating deductions, under-estimating what was owed, and calculating incorrectly. Filing electronically may help people catch some of these errors, but experts say taxpayers should be very careful to claim deductions appropriately. It also helps to use exact numbers instead of rounding; if something seems out of line, consider a red flag being thrown up!

2. Report losses accurately.
If you’re reporting losses on your tax return from business, partnership, or rental property, be aware that showing losses for several years in a row will flag your tax return. Eventually the IRS will want to see profits, or they might just deny your losses. Also, writing off losses as a hobby is a big “no no”. For you to claim a loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. You cannot mix income and deductions between businesses and hobbies.

3. Be consistent.
The IRS looks for consistency. If you report expenses that seem significantly higher this year than last without increased income, they could flag you. Also, if you are in the same business, but claim deductions that you have not claimed in the past, they have a reason to take note. The key here is to make sure that increased expenses are matched with increased income. Keeping accurate records of when and why extra costs are incurred will help in case of an audit.

4. List all of your income.
Not reporting all the income listed on 1099 forms invites an audit from the IRS, including investment income, payments for freelance jobs, and interest earned from a bank account. Once concern is raised in one area, the IRS will most likely scrutinize other areas of your tax return as well, including deductions and credits. If they start checking into past years, you could be charged late payments and penalties.

5. Document deductions if self-employed.
The IRS keeps an eye on income and deductions reported, especially by self-employed taxpayers. If you are self-employed, claiming deductions for travel expenses, keep a detailed log of trips, dates, and copies of receipts so you may prove the distinction between personal and travel costs. Deducting home offices is still tricky, too, so be sure that your work area is used exclusively for business; family room/offices do not count.

Bookkeepers are excellent when helping you keep accurate records of income and expenses. We would be happy to assist you in maintaining accurate records. Contact us, and let us now how we can help!

7 Reasons to Hire a Bookkeeper

The time you spend operating your business from day to day should be focused on what brings income and makes your business profitable. Outsourcing the other tasks is part of what keeps a business running smoothly and efficiently  If you are wondering whether or not hiring a bookkeeper is right for you, here are 7 reasons why you should consider hiring one.

A bookkeeper does the day-to-day hands-on tasks, including making sure new employees file all the right paperwork for the company’s payroll, submitting invoices in a timely manner and following up on them, and paying the bills.

A bookkeeper tracks company expenses and can assure that every cost has been entered  and correctly recorded into software, such as QuickBooks, so that the business is ready for tax time or reports to creditors or investors.

A bookkeeper sorts out all of your receipts from miscellaneous expenses, including taxi rides, meals, conferences and other expenses he has placed on his company’s debit card.

A bookkeeper shows you how expenditures stack up against a budget.

A good bookkeeper will not bill clients incorrectly or miss important payments.

A bookkeeper helps you identify financial trends in your business and can help you strategically plan where your money is going, how you can save, and where you may be able to exercise tax benefits.

A bookkeeper hired outside of your company (or contracted) can work part time from home, their office or even your office if you need them to. This way, there is no need to hire a full-time in-office bookkeeper.

There is a wide range of bookkeeping needs, depending on the type of business you own. We are skilled at assessing your needs and creating a custom plan for you, whether you are looking for basic services, Quickbooks, services, or additional office services, we are here for you. Be sure to check out our Services page to see more options.

5 Productive Ways to Spend your Tax Return

If you are expecting to or have already received a tax return this year, you are probably pretty excited! It’s like a bonus right? Well, actually, this money was yours to begin with. Think of it as the IRS’s nice way of saving it for you.

Now you may have ideas of a wild weekend or a fancy new toy you could purchase with this money, but before you do that, let’s consider 5 other choices that may be a little more helpful to your financial situation. Evaluate your needs, and treat this check like you would any other paycheck before spending it all.

1. Pay off a high interest debt or credit card. If you have a lot of debt, one of the most productive things you can do with your tax refund is to pay off loans that cost you the most to carry each month. Pay down any Payday loans, credit cards, private student loans, car loans, or anything that, once paid, will increase your monthly cash flow and eliminate high interest payments each month.

2. Consider home improvements or refinancing. With good credit and a healthy understanding of the mortgage re-finance market, you may be able to take advantage of the record-low interest rates, saving you thousands of dollars on interest each year. If you are content with your mortgage rate, go through your home and decide if your tax return could be allotted to pay for kitchen repairs, a new roof, upgraded energy-efficient appliances, curb appeal, a new paint job, or maybe even a new pool.

3. Increase (or start) an emergency fund. Emergency funds are there for peace of mind. One would hope this money would never need to be used, but sometimes, without a backup plan, even a small financial surprise can send you into panic mode. It is prudent to maintain about 6-8 months worth of savings in an account to cover all types of emergencies, and you will be well-prepared when something unexpected comes up. As a good habit to follow up on, once your savings account has been established, continue to set aside a set amount or percentage each month.

4. Spend it on things you or your family needs. It is spring time, so it may be time for a round of new tennis shoes or sandals for the family. Take inventory, check with each member of your family, and find out what is pressing, including new clothing, school or activity supplies, medical or dental needs, or vehicle repairs.

5. Invest in family time. Perhaps you have everything you need, or maybe you allot a percentage to each of the ideas above and you have money remaining. One of the best investments you can make is time with your family. Plan a spring or summer trip together, even if it is a short weekend trip. Cut extra expenses by driving or camping. Go explore, see new tings, laugh, get dirty, enjoy each other. You will create memories that way outlast tax season!

We would love to hear how you chose to spend your tax return this year or even in the past. Have you don’t anything exciting or unique, or something that we mentioned here?

Business Taxes

Businesses pay a lot of taxes for several different things each year; these include income taxes, sales taxes, and payroll taxes. Sometimes, it’s difficult to keep them straight, so here is a simple breakdown.

Taxes payable represents a liability or an obligation a business needs to pay. This liability needs to pay taxes to several agencies, including the federal government, the state government, and the city government. You may chose to pay your business’ taxes monthly, quarterly, or annually, depending on its size and obligation. Taxes payable increases when the company gains additional tax obligations and decreases when the company makes payments.

Income tax refers to money the company owes based on its earnings. All businesses except partnerships must file an annual income tax return. (Partnerships file an information return.) The form you use depends on the business entity you have established. You can read more about which business entity is right for you here.

Sales tax refers to money the company collects from customers within their borders and sends to the state tax collector. In most states, each retail sale is taxable, and recently, more states have expanded the scope of their sales taxes to encompass leasing transactions and even some services. As the business owner, you are responsible for knowing what items or services are taxed at which rates.

Payroll taxes refer to money your business owes based on employee wages. They include federal unemployment tax, state unemployment tax, Social Security tax and Medicare tax. Businesses use an employee’s W-4 form to calculate how much federal income tax should be withheld from each paycheck. It’s important to remember that all money an employer pays its employees is subject to payroll tax, not just standard salary, wages and tips. Be sure to keep excellent records so that you are able to file and pay this tax properly.

Do you need help keeping excellent records? Contact us to Find out how we can help you get organized.