Management

HIRD Forms and Massachusetts Reporting Requirements – Quick Tip

Sharon M. Simeone

If your small business employed a minimum of six employees (full or part-time) in any month during the 12 months prior to the reporting due date, Massachusetts state law requires you to submit your employer-sponsored insurance offerings on the Health Insurance Responsibility Disclosure form (HIRD). Employers are required to file the HIRD form even if no group health insurance is offered.

The HIRD reporting period begins November 15th and the final due date is December 15th for the current filing year.

For more information, visit https://www.mass.gov/info-details/health-insurance-responsibility-disclosure-hird-faqs

Where Does the Money Go? Paybacks vs. Expenses

Sharon M. Simeone

You’ve helped your business survive the startup or difficult times and before you knew it, you’ve loaned thousands of dollars to your company and it’s finally paid off, literally. It’s payback time. Whether your company is reimbursing you in a lump sum or dribs and drabs, every dollar needs to be allocated. And, if accounting is not properly managed, it often leads to a string of misallocations on the books.

This is a common scenario: Upon receipt of the funds loaned to the company, the company will deposit and inadvertently post the transaction to an income account. The cash is then utilized for various expenses and liabilities and posted as such.

The next step – the payback. In the minds of the lender, a.k.a. owner, and the recipient, the loan’s purpose was to keep the company afloat; in other words, to pay necessary expenses to keep the doors open. More often than not, a disbursement made to reimburse the owner will then be incorrectly expensed to an account of choosing, usually miscellaneous which should be avoided as much as possible. These transactions create a domino effect of, to put it bluntly, a mess!

The loan was booked to income which not only creates a bogus gross profit but also increases the company’s tax liability. The payback was expensed which not only duplicates expenses previously recorded (roughly) but also may also lead to problems on the owner’s personal tax return.

To avoid misallocations that are time-consuming to investigate and adjust later, create a loan payable account to correctly reflect the original loan transaction. As funds are slowly paid back to the lender, the balance on this liability account will work its way down. At inception, when the funds are deposited into the checking account, the cash is treated like any other transaction when used. It’s expensed or posted to a liability account and business is run as usual.

No payments to the lender/owner are expensed whether the funds were used for phone bills, payroll, or staff lunches. These items have already been expensed in real-time and expensing again is double-dipping, (i.e., creating bogus expenses to the company’s profit and loss statement).

The aforementioned transactions need extra care and attention. They exceed basic data entry of everyday receivables and payables. Be selective in who manages your accounting and try to keep it to one person. A good practice is to have a month-end close which will provide the opportunity for reconciliations, corrections, and analysis of your financial statements.

If you stay on top of your monthly activity, your year-end will be quick and painless!

The Habit of Hiring Contractors

Sharon M. Simeone

It’s that time. Small business owners are scrambling to gather their paperwork in preparation for tax season. If you wear several hats in your business, you’re one of many who may be feeling overwhelmed in meeting the multitude of deadlines we’re all facing. In these challenging first months of the new year, it may be a good idea to take the time to make room for improvements now as you discover where you went wrong in the prior year.

One common oversight in the small business is neglecting to process the proper paperwork in anticipation for reporting 1099-Misc forms at year-end. If you’ve hired subcontractors, or independent contractors, throughout the calendar year and have no W-9 Form (requests for tax payer identification number) for them on file, you may find yourself making last-minute requests for information to get 1099-Misc Forms out the door.

A good habit to practice is to have the W-9 completed upon agreement of the contract for employment and prior to commencement of work. Taking it further, if you utilize an accounting software program such as QuickBooks, entering their information and denoting their vendor profile as “1099 eligible” will make the year-end process for outside service providers seamless.

Lastly, keep all W-9 Forms for a minimum of 4 years for IRS purposes. If you rehire the contractor, be sure all information is current, including the mailing address to ensure the recipient receives his/her copies of the 1099-Misc Form.

Click the following  link for a printable W-9 Form:

Click to access fw9.pdf

 

Non-Employee Compensation

Sharon M. Simeone

If your business paid an outside service provider $600 or more during the calendar year of 2016 and they require a 1099-MISC Form, it is due to the recipient of compensation on January 31, 2017. Reporting of Box 7 (non-employee compensation) on this form, is also due to the IRS on January 31, 2017.

Other payments reported on 1099- MISC, excluding Box 7, are due to the IRS with transmittal Form 1096 by February 28, 2017.

Click the following link for more information: https://www.irs.gov/pub/irs-pdf/p509.pdf

Keeping Your Circle Small

Sharon M. Simeone

When establishing a small business, the owner may employ a minimal staff to wear many hats in an effort to keep the company running on a small budget. This familiar scenario often leads to individuals performing tasks outside of their capabilities. The result is too many chefs in the kitchen leading to miscommunication, innocent mistakes and costly fees to correct them.

Especially in the financial management of your business, it’s best to keep your circle small and have one designated person, whether in-house or outsourced, to maintain your basic bookkeeping. Beyond basic bookkeeping, a second individual is typically employed to reconcile books, create budgets, manage the general ledger, provide periodic financial reporting, and process year-end closings. Assigning one individual to communicate necessary information and manage financial data in order to complete these tasks will eliminate errors and protect confidentiality in your financial statements and tax filings.

When creating your budget, be sure to itemize accounting fees as it pertains to your company without skimping. A cutback on this line item may incur more of an expense than needed, not only resulting in a high budget variance but decreasing your bottom line.

Audit – Quick Tip

Sharon M. Simeone

A small business may, on occasion, receive an official request from a state or federal agency to review the company’s books. But one agency that is often overlooked when it comes to audits is the insurance agency.

Your workers’ compensation provider will likely request a payroll audit upon each annual renewal or new premium application. In addition to the basics, such as the total gross payroll and number of employees, copies of quarterly payroll reports will need to be provided. The missing documents that often send the preparer of an audit scrambling are certificates of insurance from subcontractors.

To stay ahead of the game, request and receive certificates from subs prior to the start of a job. Track policy expiration dates of all subcontractors if their services are used repeatedly. Including certificates of insurance from outside service providers in your audit will save your company a considerable amount of money.

Preparing for a payroll audit doesn’t need to be a source of stress. Keeping a filing system throughout the year to document all labor disbursements, employee and non-employee alike, will help you sail through a smooth audit. And before you know it, you’ll complete the next one without a hitch!

Keeping Your Small Business Secure – Starting with the Basics

Sharon M. Simeone

We all tend to small security risks on a daily basis such as locking our doors when leaving for work in the morning or making sure we park our car in a well-lit area if returning after dark, but the small business owner needs to take extra care throughout the day when working to keep his/her business safe.

The convenience of technology has desensitized us from risky transactions that could potentially turn a business upside down. But carelessness could also play a role in detrimental errors. The simple step of neglecting to log out of your account after online banking can wreak havoc in your finances. Likewise, walking out of your office with an open file cabinet containing employee records can result in the identity theft of unsuspecting individuals.

If you’re in the process of establishing your small business, train yourself to think like a business owner. Putting aside marketing and networking, consider the small details and practice basic daily habits erring on the side of caution. This is especially important if you have office staff or outside contractors who provide their service off business hours such as cleaning or elevator maintenance. Protect your office and its contents as you would your home with your personal belongings.

If your location has a busy common area where passers-by can easily enter your space, be cautious of leaving laptops unattended. Remember to secure blank checks, file away bank and credit card statements, have your accounting programs password protected, lock up personnel information, and shut down your computers before leaving for the evening.

These simple steps will not only save you thousands of dollars and provide security to your staff, they’ll also prevent countless sleepless nights.

The Condominium Association and Self-Management

Sharon M. Simeone

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.