Bank Reconciliations – Keeping Your Cash Flowing

A stack of untouched bank statements on the corner of a desk buried in a “pending” file not only keeps one ill-informed of cash activity but also fails to keep financial statements current. If you run your business on a cash basis with minimal bookkeeping such as opting out of entering bills and processing customer invoices, the problem complicates issues further.

Relying on cash disbursements to allocate expenses and recording deposits directly to an income account rather than accounts receivable is all the more reason to promptly process bank reconciliations and its importance shouldn’t be underestimated. Human error, omitted transactions due to forgetfulness, unrecorded bank fees, and the rare bank error will throw off your check register and create future problems in your daily activities.

Data entry on a daily basis is recommended. However, if you save up your data entry tasks on a monthly basis relying on bank statements to record cash transactions, be diligent in this task. Keeping bank reconciliations up-to-date will provide an accurate analysis of your financial statements and knowing your current cash availability will empower you to make good business decisions. Lastly, you’ll protect your credit and possibly save a small fortune in bank fees to boot.

Off the Payroll – Quick Tip

Many sole proprietors and small business owners choose to pay themselves off the payroll. When making drawings from your company or receiving compensation in the form of a payment from a client, accounting for income tax deductions is often overlooked. Falling behind with bookkeeping or failing to file proper paperwork with federal and state tax agencies is easy to do when busy schedules don’t allow for processing of these tasks.

To avoid accruing penalties and interest on unpaid taxes, estimated state (if applicable) and federal income taxes need to be paid on a quarterly basis and filed with the appropriate form. By adhering to the designated due dates and staying up-to-date throughout the year, annual tax liabilities will be kept at a minimum.

The end result – no surprises and less stress in the following year.

https://www.irs.gov/pub/irs-pdf/f1040es.pdf

http://www.mass.gov/dor/docs/dor/forms/inctax15/addl/1-es-instructions.pdf

The Condominium Association and Self-Management

Many condominium associations choose to self-manage. Instead of hiring an outside party to maintain the property and its funds, the board of managers assume the entire responsibility of the operations for the association. In theory, this type of management style comes with its benefits.

First, the board is in complete control of all matters concerning the association. These include fiscal activity, insurance requirements, repairs and improvements, and ownership issues. Second, self-management saves money. All tasks are completed by the board on a volunteer basis. Board members are paid a minimal amount, if any. Duties may include anything from balancing the books to sweeping the halls.

Many condominium associations prefer self-management under the assumption that it provides for the perfect community. They’re relying on fellow owners to care for a mutual investment. However, self-management is often a recipe for disaster and even the smallest of communities may suffer its consequences.

Typically, specific tasks will be delegated to various members of the board. One will manage the bookkeeping, another may oversee exterior maintenance and employ various contractors such as landscapers and cleaners, and another may be in charge of capital improvements. The board will initiate legal action in order to collect delinquent condominium fees. They will address questions from the association, banks, and realtors among others using condominium documents to guide them. The board, essentially, rule the kingdom.

However, positive perceptions of self-management often change while one is serving his/her term. A conflict of interest invariably arises with a disgruntled owner or two. Whether it be a challenge to the cost of a weekly cleaner or inadequate insurance coverage due to poor judgement, there’s always room for debate. Board members who live on the property rarely look forward to that awkward encounter with a neighbor for whom the foreclosure on their home has been initiated. Whereas self-management seemed like a good idea at inception, it soon brews into resentment.

A management company or financial manager will take charge of all of the aforementioned tasks and more and procure qualified outside services to complete projects when necessary. While utilizing their expertise, personal involvement will not impede progress. Confrontation with an argumentative homeowner will not dissuade them from doing their job. And while they understand they can’t please everybody, elected members of the board begin to familiarize themselves with the notion, self-managing is a “thankless job” and hostility presents itself at monthly meetings.

Whatever type of management the condominium association chooses, a utopian community is just a fairytale. No management style is without its flaws but each has its unique benefits. The objective is to maintain the property and its funds while providing peace of mind for the Board and the majority of the community; a community in which one will enjoy calling home.

Small Business Startup – Savings Tip

When starting a new small business, much of your focus is on startup costs which will consume a large portion of your first year’s budget. To name but a few: new insurance premiums such as liability, workers’ compensation and, depending on the industry, auto insurance, possibly for multiple vehicles, may require large sums. There may be security deposits if renting a location, down payments on assets required for your business, or preparing to make payments on a newly acquired small business loan.

During this startup phase, be careful to keep your operational expenses at a minimum wherever and whenever possible. Payroll will likely be one of your bigger expenses. If you’re starting small and taking on the burden of responsibilities to run your company, your payroll expense is probably already at its lowest. However, if your industry requires a staff to be out in the field, there’s a good chance your payroll expense is on the high side as you strive to make ends meet.

Review your business operations to see where you can cut back and save. One common solution among small business owners is hiring an independent contractor to “pay as you go” when the task does not need to be completed by a permanent full-time employee. Savings in payroll expenses can be reinvested in your company as you get off the ground.

And as your customer base grows, any savings will contribute to a steady paycheck for yourself.

Commingling Funds in a Small Business

When funds are scarce and liabilities are due, some business owners may be tempted to combine business and personal financial obligations. However dire the circumstances, using company funds to pay personal debt and expenses or vice versa is ill-advised.

Among the transgressions that could potentially wreak havoc on your company’s financial statements are the following transactions:

  • The deposit of business checks into a personal account.
  • The transfer of funds between business and personal accounts.
  • The disbursement of business checks to pay personal credit cards and personal expenses.
  • The use of a company credit card for personal purchases.

Of the many nightmares misuse of cash creates is the confusion to be had when filing tax returns. Explaining to the IRS the differentiation between business and personal transactions when merging them is a headache you don’t need.

Commingling funds discredits the financial profile of your company. The statement of cash flows is skewed. The balance sheet is inaccurate and discrepancies surface on the profit and loss statement. The result being inaccurate tax liabilities and a bogus bottom line.

Preventing the aforementioned scenarios is simple.

  • Have a buffer. A minimum savings of six months of expenses will suffice and continue adding to it. Keep separate savings accounts for your personal and business expenses.
  • Create a budget and stick to it. Both a business and a personal budget will keep you on track and prevent overspending.
  • Limit credit card debt and pay off balances within a short period of time.
  • Deposit business checks into your business account and pay yourself. This allows disbursement of funds from the appropriate sources of income.

Remember that commingling complicates your bookkeeping and jeopardizes the progress of your business. Business income is used to support business operations which includes your paycheck.

Abiding by this simple rule of keeping distance between your business and personal financial obligations will help ensure the stability and success of your small business.

Time Tracking

In our high-tech society, few business operations use a manual timekeeping procedure. A favorite of the entrepreneur who provides services at multiple locations for a multitude of clients is a call-in time tracking service.

This automated service has dual roles. Billable time is recorded in order to invoice the client at a later date and hourly time is tallied on a timecard for payroll processing. An employee will call a designated phone number from any location to “punch in.” Upon completion of a job, a second call allows the employee to “punch out” thereby closing out the assignment. However, this system isn’t without its drawbacks; one of which is its lack of employee supervision.

On the occasion that a timecard appears to have exceeded the allotted time for an assignment, a business is confronted with a dilemma. The actual cost to the client will show a discrepancy in the proposed cost and the payroll will be over budget. A solution to the problem may be to provide a more accurate estimate of time in future proposals. However, a common problem is an employee failing to follow the proper procedure in reporting time.

A disobedient employee may pad his/her time by calling in with a cell phone before reaching the destination and after leaving the location thus increasing his paycheck as well as the client’s billable time. A benefit to using an automated time tracking system is its ability to reveal the source of a call.

A thorough of review of timecards in addition to enforcing a policy to have all employees call in from a landline at the location where the work is taking place will ensure that company time is tracked properly and honestly.

Ultimately, clients will be satisfied and payroll expenses will be on budget.

Employee Spending

Preventing misuse of employee company credit cards and monitoring employee spending could be a major component in cutting costs if abuse of your reimbursement policy is present. Verify receipts are actual company expenses and collect reimbursement forms at scheduled intervals rather than random requests from employees.

Was that dinner on Friday night business related? Was the last toll over the bridge en route to a business meeting? However small reimbursements may be, multiple offenses could damage your bottom line.

Consider setting credit limits on company cards and track expenses diligently. Adhering to this policy and procedure may reveal where attention is required without having to make budget cuts.

Rewards

A benefit to both small business and individuals alike is bargain shopping. Store brands are often manufactured by name brands so you’ll likely find the same quality from its counterpart at a discounted cost.

Many retail stores, including supermarkets and office supply stores, offer savings and rewards programs for customer loyalty. Signing up for rewards cards with stores you patronize on a regular basis will earn periodic coupons, members-only sales, and some may offer free shipping for online purchases.

Whether buying vitamins, cereal, copy paper, or staples, be a frugal shopper. Buy generic and redeem your rewards.

The Weekend Challenge

Taking two days out of your week to refrain from frivolous spending is a challenge worth every penny. Doing this on a monthly basis will surely increase your savings if you put the cash away. Spending it later defeats the purpose.

Before starting any challenge it’s important to be mentally prepared. Once you’ve decided to commit, prepare for moments of weakness triggered by boredom, temptation, and restlessness. Having a plan will help and below are a few tips.

  1. Plan ahead and make it your mission not to spend any money over the next two days (except for essentials like fuel and groceries). No coffee runs, impulse snacks from the 7-11, or random shopping trips. Tell friends and family so that they don’t tempt you into attending costly social events. Plan free activities to keep yourself busy.
  1. Work on that home project you’ve been putting off for months or give your house a thorough cleaning. Not up for work? Relax. Garden or lounge in the backyard and enjoy the fresh air.
  1. If you’re a social butterfly, you don’t have to convert to being a hermit. If you skip Saturday night out, invite your friends over for Sunday brunch. Make it a potluck where each guest contributes a food item. You’ll save on groceries and time and still enjoy your friends. Or just invite them over for coffee and chit-chat.
  1. Living simply doesn’t equate to confinement. There are plenty of outdoor activities free of charge. To name a few, take your dog to the park, go to the beach, hike, exercise, or volunteer.
  1. Reconnect with your loved ones or enjoy quiet time on your own. Take up a hobby, prepare home-cooked meals, or fire up the grill and cook whatever is on hand. Use the opportunity to clear out your fridge.
  1. Contemplate the past week and plan to make room for self-improvement where needed in the coming week.
  1. Unplug and take a nap.
  1. Focus on the end result. On Monday morning you’ll know that you’ve saved money and, perhaps, started the process to correct a destructive overspending habit.

After completing this challenge, you’ll have practiced self-discipline; a useful skill for any healthy habit you’re trying to achieve.

The Swap

Raising children is expensive. You’re providing shelter, food, clothing, and saving for a college education for their future. Small savings on the lesser priorities will help your household budget stay on track.

Consider the toy swap. No doubt, kids love toys. They also tire of them quickly. When replacing the old with new, consider networking with other parents and swap one of your child’s toys for one of theirs. The toy that bores your child is a brand new one to another child.

You’ll make a small dent in your budget and connect with other families. And your children will be part of the transaction in playful way.