Welcome to 2019! It’s that time again; January is a good time to go through your recurring expenses and make adjustments as needed. In addition to the increase in the minimum wage rate for 2019, the standard business mileage rate deduction has also increased.
Effective 1/1/2019, the new rate is 58 cents per mile, up from 54.5 cents in 2018. Take advantage of these pennies. They add up to significant savings at year-end.
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A small business will often employ an outside payroll service to execute their payroll and all that it encompasses including filing the required federal and state payroll reports and making tax payments. If your business opts for an outside service, you may be familiar with the reports submitted to you upon completion of your periodic payroll. But, as you know, the procedure doesn’t stop there. Accounting must then be completed.
The reports contain all details for each paycheck, tax liabilities, and payroll fees for the period; all of which become part of the company’s financial statements. However, a common occurrence for the busy owner who wears many hats is just giving the reports a quick glance to confirm the operating fund has the cash requirements to cover the scheduled deductions. The reports are then set aside for a thorough review at a later date. The problem that arises is just that – the later date.
A frequent mistake when recording the payroll out of period is taking a shortcut by making a lump sum entry and ignoring individual paychecks and their actual dates. This is especially true when a company consists of a high number of employees as doing so will save time in bookkeeping tasks that have already fallen behind. Unfortunately, this method will not only create a headache when reconciling your bank statement, but will also create inaccurate tax liabilities and expenses which will lead to bigger issues at year-end.
Reconciling to the payroll reports each pay period is crucial for expenses and liabilities to be 100% accurate. To accomplish this, record actual gross wages and accrue tax liabilities in real time. In so doing, data will be contributed for processing of annual tax returns throughout the year.
This is a bookkeeping task that needs prompt attention and one more way to save money. Your tax accountant will earn more billable time with other clients!
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!
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.
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.
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.
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.
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.
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Contemplate the past week and plan to make room for self-improvement where needed in the coming week.
- Unplug and take a nap.
- 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.
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.