5 Ways to Speed Up Your Cash Flow

One of the biggest challenges for small businesses is managing cash flow. There never seems to be enough cash to meet all of the obligations, so it makes sense to speed up cash flow when you can. Here are five tips you can use to get your cash faster or slow down the outflow.

1. Stay on top of cash account balances.

If you’re collecting money in more than one account, be sure to move your money on a regular basis when your balances get high. One example is your PayPal account.  If money is coming in faster than you’re spending it, transfer the money to your main operating account so the money is not just sitting there. 

2. Invoice faster or more frequently.

The best way to smooth cash flow is to make sure outflows are in sync with inflows. If you make payroll weekly but only invoice monthly, your cash flow is likely to dip more often than it rises. When possible, invoice more frequently or stagger your invoice due dates to smooth your cash balances. 

Take a look at how long it takes you to invoice for your work after it’s been completed.  If it’s longer than a few weeks, consider changing your invoicing process by shortening the time it takes to send out invoices. That way, you’ll get paid sooner.  

3. Collect faster.  

Got clients who drag their heels when it comes to paying you? Try to get a credit card on file or an ACH authorization so you’re in control of their payment.

Put a process in place the day the invoice becomes late. Perhaps the client has a question or misplaced the bill. Be aggressive about following up when the bill is 45, 60, and 90 days past due. Turn it over to collections quickly; the older the bill is, the less likely it is to get paid. 

4. Pay off debt.

As your cash flow gets healthier, make a plan to pay off any business loans or credit cards that you have. The sooner you can do this, the less interest expense you’ll incur and the more profit you’ll have. 

Interest expense can really add up. If you have loans at higher interest rates, you might try to get them refinanced at a lower rate, so you won’t have to pay as much interest expense.    

5. Reduce spending.

You don’t always have to give up things to reduce spending. Look at your expenses from last year and ask yourself:

  • What did you spend that was a really great investment for your business?
  • What did you spend that was a colossal mistake?
  • What do you take for granted that you can cut?
  • Where could you re-negotiate contracts to save a little?
  • Where could you tighten up if you need to?

Managing cash flow is always a challenge, and these tips will help give you a little cushion to make it easier. 

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How to Speak “Tax”

This time of year and into April, we begin to hear a different vocabulary come to life: “Credit.”  “Exemption.”  “Adjusted Gross Income.”  It can seem as if your accountant speaks a different language from you.

While we’ll do our best to explain the tax terms we use during your appointment, we’ve compiled a list of them for those of you who’d like to be more “in the know.” Not only will this better equip you to keep up at your next social gathering, but it will allow you to ask the right questions when you meet with your tax professional.

TY = Tax Year

If you file your taxes on time, the tax year is always one year behind the year we’re in. In 2019, you will be filing your TY 2018 tax return.

FY = Fiscal Year

Fiscal year is a one-year period for accounting purposes. Most businesses make their fiscal year the same as the calendar year: January 1st through December 31st. Others run their business with start and stop dates different from the calendar year. A common fiscal year is July 1st to June 30th.

EIN = Employer Identification Number

This is a unique identification number assigned to a business by the IRS.

Form 8879 = IRS e-file Signature Authorization

This form must be signed for your return to be efiled, and it can be digitally signed.

Form 1040 = U.S. Individual Income Tax Return

This is the main form used when reporting individual income. It includes the taxpayer’s basic information, dependents, and tax calculations. If the taxpayer is a sole proprietor or a single-member LLC, their business activity is reported on their personal tax return.

Form 1120 = U.S. Corporation Income Tax Return

When reporting C corporation income, this form is used. S corporations are reported on Form 1120S. 

AGI = Adjusted Gross Income

AGI is equal to your total income subject to income tax minus specific deductions you may be eligible to take. AGI is calculated before applying the standard or itemized deduction. Many credits are subject to AGI limitations, meaning that if your AGI is above a certain amount, you may be disqualified from certain deductions and credits.

MFJ = Married Filing Jointly

This is one of five possible filing status categories.

MFS = Married Filing Separate

This is another one of five possible filing status categories. You may see these acronyms frequently in tax articles explaining how new laws affect the different types of taxpayers.

TCJA = Tax Cuts and Jobs Act

The name bestowed upon the largest tax law changes approved by Congress, many of which went into effect for TY 2018.

SSTB = Specified Service Trade or Business

This term specifically relates to Section 199A, which is a new tax law that allows for up to a 20% deduction on “qualified business income” (“QBI”) for any “qualified trade or business” (“QTB”) other than a “specified trade or business” (“SSTB”). This deduction is available to sole proprietors and passthrough entities.

This list will get you started, and if you run across another tax term, feel free to reach out and ask us what it means.

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Money and Marriage

One of the biggest things that can cause fights in a marriage is money. No matter where you are in a relationship, it’s a good idea to discuss these major money topics so you’ll know where you stand. 

Show me the money:  Combine or keep separate or both

One of the best ways to avoid conflict is to put your money into three separate piles: yours, your spouse’s, and a joint set of accounts. In this arrangement, each of you has control over some money that is all your own. The household spending will then come out of the joint account, and you both will make contributions to it on a regular basis. 

As a couple, you’ll need to discuss who will pay for what as well as what your regular contribution will be to the joint account. This is no small discussion. The more thorough you are, the less conflict you’ll have over money.

One spouse or partner will normally handle the joint finances, and it’s typically the person with the most accounting knowledge. However, you both should have access to this account in case of emergency. 

Savings and future purchase goals

Do you have goals about upcoming large purchases?  These might include:

  • A home purchase or improvement
  • Children’s education
  • Health care needs
  • Saving for retirement
  • A car purchase
  • A second home purchase
  • A vacation
  • Another item such as a boat, furniture, technology gadgets, a plane, or something else
  • A nest egg or cushion

If so, calculate how much you need and make a plan to set aside the money you need in the time frame you agree on. 

Spending

Do you like to spend more than your spouse? Or is it the other way around? When money is flowing, there is usually no problem. When money is tight, that’s when the problems come in. 

When there are conflicts in the area of spending, the best course is to focus on priorities. If you can agree on your priorities and goals, it can often shift spending habits.  

Budget

You may want to set a budget to stick as close as possible to expected spending limits. Start by recording current spending in these areas, and then agree on the amounts you want to spend in the future. 

  • Rent or mortgage payment
  • Utilities, including electric, gas, water, garbage, phone, internet, cable
  • Food and supplies, including grocery, kitchen items, liquor, and eating out
  • Entertainment, including travel, vacations, local events, holiday decorations, Netflix subscriptions, tech gadgets, books, etc.
  • House maintenance including repairs, cleaning, lawn care, appliances, and decorating
  • Automobile, including gas, insurance, licenses, and maintenance
  • Clothing and accessories, including dry cleaning
  • Health care, including pharmacy, doctor’s visit, and HSA contributions
  • Personal care, such as haircuts, nail care, etc.
  • Tuition and/or education expenses
  • Contribution to retirement and savings accounts
  • Charitable contributions
  • Taxes, including federal, state, local, school, and property
  • Paying down credit card or student loan debt

Retirement

What does retirement look like to both of you? Having this conversation will be enlightening. Know that dreams and goals can change over time as retirement approaches.

You’ll want to have an idea about what you’d like to spend during your final years so that you can make plans to start accumulating that wealth now. The sooner you start, the more years you have to build up your retirement assets. 

Monitoring your progress

Keep an eye on your account balances to make sure everything is as it should be. Review bank and brokerage account statements and/or your budget once a month or at least once a quarter so there are no surprises or trends that sneak up on you.  

When you reach your goals, reward yourself. Managing money is hard work, and you deserve to pat yourself on the back when a goal is achieved. If there is anything we can do to help you make your financial dreams come true, please reach out any time.  

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Moonlighting in the Gig Economy and Taxes

Are you one of the thousands of people who are working gig-type jobs for Uber, Lyft, DoorDash, Grubhub, or companies like them? Whether you’re full time or just moonlighting a few hours a week, the paperwork for this part of your taxes will be a little different. Here’s what to expect. 

What Documents Will You Receive?

Both Uber and Lyft provide two different tax forms:

  • 1099-K, which reports the grand total of fares for rides that you provided
  • 1099-MISC, which lists the amount you’ve earned from incentives and referrals.  If you’ve earned less than $600 in incentives and referrals, a 1099-MISC will not be issued.  Check your tax summary to see whether you have income to report in addition to the income listed on the 1099-K

To calculate the gross income amount, add the amount listed in box 1a on the 1099-K form and the amount listed in box 7 of the 1099-MISC form.

What Expenses Should You Keep Track Of?

You can deduct certain items you spend on your job as long as you keep good records and receipts. Here are a few items you might have been charged for:

  • Commissions and fees taken by the ridesharing service
  • Tolls and parking fees
  • Convenience items for passengers, such as water or gum
  • Bookkeeping fees and bank charges
  • Vehicle costs (lease payments, gas, maintenance and repairs, car registration, insurance)
  • Mileage (listed in your driver summary as “on trip mileage”)
  • Cell phone expenses (business use percentage)

How Your Income Is Calculated

We will use the information you provide to calculate your net profit—that’s why it’s crucial that you keep detailed records and accurately capture your expenses.  We’ll enter your gross income and subtract expenses, leaving you with net profit.  You pay two types of taxes on your net profit:

  1. Your regular tax rate (based on your income level) and
  2. Self-employment taxes.  Since you are self-employed, you are responsible for paying the employer’s share of taxes, which is currently 15.3 percent of your income.  This is over and above the amount of tax you pay based on your tax bracket.

Be prepared this tax season by keeping your expense receipts and records and being ready for your tax bill.

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How to Save More in 2019

Many people in their retirement years have regrets about not saving more during their earning years, but you don’t have to be one of them. All you need to do is be realistic and proactive about saving. It’s all about paying your future self.    

Circumstances can arise that can erode savings you hoped would be there for retirement. Some of those events include not being able to work due to poor health or a bad job market, unanticipated hospital bills, a divorce, overestimating Social Security benefits, bad investments, procrastination, and simply not realizing how much you need to live on. 

The good news is you can prevent future regrets by making a strong savings plan now. As a small business owner, you may not have a retirement plan, so it’s essential that you create one for yourself. You earn an income today. Put some of that income toward paying your future self, and pay that “bill” first each month or each paycheck. 

To be proactive and build as much savings as possible, take these steps:

  1. Increase your financial skills by learning how to fund your retirement, including all that traveling you’d like to do.
  2. Take care to manage your investment risk and be realistic about investment returns. In good markets, purchase rather than rent or lease so you are building an asset.
  3. Put as much aside as you can, and try living just below your means.
  4. If you do have periods where you are out of work, try living frugally until your income is back to normal.
  5. Optimize your business profits and apply some of them to your savings plan.
  6. Minimize taxes where possible so you can keep more of what you make.
  7. Make everything work twice as hard for you:
    1. Get credit cards with loyalty programs.
    2. Sign up for frequent customer programs to earn points.
    3. Make sure your bank is giving you the best deal on interest.
  8. Sell unused belongings on eBay and put the money in savings.
  9. Cancel used subscriptions and memberships for both your personal and business needs and move the saved money to savings.
  10. Periodically reach out to vendors to get a better deal on the expenses you incur. This could be for phone plans, utilities, and any other routine expense. Put the difference saved in savings.
  11. Select cars and trucks with good gas mileage and also high resale value. Consider that using Lyft or Uber may be cheaper than maintaining a car, depending on how much you drive.  Put the difference in savings.

There are hundreds more ways to save more, and these will get you started in the right direction for 2019.

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Sales Tax Checkup

Collecting sales tax is one of those things that most businesses need to do on a regular basis.  It’s also a chore that is somewhat done by machines and administrative personnel. If the rules change and the procedures go out of date, business owners who are not watching for these changes could be taking risks they don’t realize they have. 

In 2018, the world of sales tax was turned upside down by one court case: South Dakota vs. Wayfair, Inc. Wayfair is a mid-sized furniture retailer based in Boston, MA that the State of South Dakota sued to collect sales tax from. Wayfair has no physical store or presence in South Dakota but was selling to residents in South Dakota.  The Supreme Court held that Wayfair needed to collect tax from the South Dakota residents they were selling goods to. 

From Physical Nexus to Economic Nexus

The court case, which was decided June 21, 2018, changed the rules of online interstate sales. Previously, most states required businesses to collect sales tax if they had a physical presence or nexus in the state, meaning they had an office, building, warehouse, or even employees in the state.

Now, many states are rewriting their rules to follow economic nexus, which is when a company has (enough) customers in a state. Alabama, Arkansas, Colorado, Connecticut, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New Jersey, Nevada, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington, Wisconsin, and Wyoming all have economic nexus laws that are effective now or will become effective on January 1, 2019. And this list is ever-changing.

Many of the states have a threshold of $100,000 of sales in one year in the state before a business needs to collect and file sales tax. 

Changes in What’s Taxable

Businesses also need to review changes in items that have become taxable that were not previously taxable. Retail goods that are physical are pretty straightforward, but services are not. All states tax services differently, and states change what’s taxable over time.

This means you should periodically review all of the products and services you sell to determine if you are collecting tax on the proper sales. Better yet, have a professional do it so you don’t have to wade through legal laws.

Rate Changes

Periodically, sales tax rates will change.  This is the easiest change to keep up with as your sales tax authority will usually notify you of these changes. 

Deadlines for Paying and Reporting

The frequency with which you pay and report sales tax will vary based on the volume of sales and tax you collect. When a limit is reached, you may need to pay more often. 

Sales Tax Apps to Make Your Job Easier

There are many great sales tax software add-ons that can help you collect and report the correct sales tax amounts. At the large firm level, there is Vertex and Avalara. At the small firm level, TaxJar is popular. We can help you integrate these apps with your accounting software.

Your 5-Item Checklist

The five items above are the things you should be monitoring with regard to sales tax liability, reporting, automation, and risk. States have strong penalties but also have amnesty programs on a regular basis.

If you plan to sell your business, the owner will most likely conduct a sales tax audit. If it’s determined that you owe sales tax, it will greatly reduce the value of your business. 

If you need help from us to measure your exposure in this area, please feel free to reach out. We can either handle the engagement ourselves or refer you to a sales tax expert.

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Business Planning Made Easy for 2019

2019 is right around the corner, which makes today the perfect time to think about your business goals and where you want to be one year from now. As year-end wraps up, you’ll soon know your financial numbers for 2018. You’ll then be able to evaluate how you did and map out a new plan for 2019. 

If you’re like many small business owners, you may have started your business without a business plan. Most businesses don’t need a long 20-page document that will just gather dust on a shelf. But you might want to consider putting together a short, 1- to 2-page concise document that includes the basic components of a typical business plan: mission, vision, strategies, and objectives. 

A mission statement describes what the company is in business to do. And while you could simply state a mission similar to “Our mission is to sell our products and services,” you may want to think bigger than that in terms of how you want to be known or to impact more than your customers. 

A vision statement describes your company’s future position.  It’s what you aspire to be.  It could again be, “Our vision is to sell more products and services than any other business.” Or it could be more inspiring and uplifting. 

Your business strategies support how you’ll get from where you are to what is stated in your mission and vision statements. While there may be many ways to accomplish your mission and vision, strategies are the approaches you’ll take to get there. 

Goals are measurable destinations with a timeline that are created from your strategies. Objectives finally get down to the nitty gritty and state the tactics and action plans you need to execute to put all of this work into play. 

Each of these items can be written out on a few lines, taking up all together no more than a few pages. The benefits of having a concise business plan are many: if you think of an idea you want to do, you can check the plan to make sure your idea falls under your vision, mission, and strategies that you’ve laid out for the year.  If it doesn’t, then you’ll know that your idea would take you off track from your plan, and you know how easy that can happen these days with all of the distractions and options available to us.      

You may want to add additional sections to your plan depending on your strategies. If you plan to launch a new product or execute new marketing strategies, you might want to add a Market Summary section. If you seek new funding, you might want to have a section on funding options. With business planning, it makes sense to do what’s relevant, and nothing more or less. 

We wish you the very best in 2019, and if we can help you with the financial portion of your business planning, please reach out.

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Is the New 1040 “Postcard” Tax Return Form as Easy as It Claims to Be?

The IRS unveiled a draft of the new 2018 Form 1040 over the summer which consolidates Form 1040, 1040A, and 1040EZ into one supposedly simpler postcard-sized form. The only problem is there are now 2 pages of the postcard 1040 and six new schedules. Here’s a link to the draft 1040 form for 2018 and a run-through of how things were re-arranged. 

The front page is informational—filing status, taxpayer name(s), address, SSN(s), and dependent information.  Since health care coverage reporting is still required in 2018, a checkbox is present to indicate whether you had full year health care coverage or an exemption.

Page two – or postcard two — is a condensed version of the “old” Form 1040 and moves many items that previously appeared on the front of the 1040 to newly created schedules:

  • Schedule 1, titled “Additional Income and Adjustments to Income,” reports amounts that had previously been listed on lines 10-37 of the prior 1040 version and incorporates total income/losses from Schedules C, D, E, and F, as well as adjustments to income such as educator expenses, self-employment tax deduction, and student loan interest paid.
  • Schedule 2, “Tax,” combines lines 44-47 (tax, alternative minimum tax, APTC — Advance Premium Tax Credit — repayment) of the old 1040 and condenses it to a single amount that is reported on line 11 of the new 1040.
  • Schedule 3, “Non-Refundable Credits,” combines lines 48-55 (foreign tax, dependent care, education, retirement savings, child tax credit, residential energy, other credits) of the old 1040 and condenses it to a single amount that is reported on line 12 of the new 1040.
  • Schedule 4, “Other Taxes,” combines lines 57-63 (SE tax, unreported Social Security/Medicare tax, additional tax on retirement plans, household employment taxes, homebuyer credit repayment, health care responsibility, additional Medicare tax, net investment income tax) of the old 1040 and condenses it to a single amount that is reported on line 14 of the new 1040.
  • Schedule 5, “Other Payments and Refundable Credits,” combines lines 65-74 (income tax withholding, estimated tax payments, EIC, additional child tax credit, AOC, net premium tax credit, amount paid with extension, excess Social Security) of the old 1040 and condenses it to a single amount that is reported on line 17 of the new 1040.
  • Schedule 6, “Foreign Address and Third Party Designee,” is a new informational form which allows taxpayers, who live in a foreign country, to list their country, province, and postal code.  This form also gives taxpayers the ability to list a third person allowed to discuss with the IRS any issues the taxpayer may have.

While the 1040 form may have been simplified, it requires multiple new supporting schedules to be filed along with it.  All prior schedules remain, with the possible exception of Schedule B (Interest and Ordinary Dividends), whose fate is uncertain in 2018.

There are more changes in the tax laws and procedures than there have been in more than 30 years. But don’t worry, we’re on top of it for you, and if you have questions, feel free to reach out any time.

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Being Grateful

With holidays approaching, this is the perfect time of year to take a moment and reflect on all of the things we are grateful for.  Being grateful may sound a bit trite, but it’s also the number one, hands down, fastest way to bring more positivity and less negativity into your work and life.

Acts of gratitude are selfless and done unconditionally. You can use gratitude as a private exercise of reflection or you can express your gratefulness to show people that they are appreciated.

You don’t have to wait to feel gratitude; you can invoke it proactively. 

If you don’t have a gratitude practice, consider starting one. Science has gotten involved in studying gratitude, especially in the field of positive psychology, and the benefits to health and well-being are enormous. It can benefit your business, too, when you show appreciation for business partners, employees, customers, and vendors. 

Here are five easy ways to bring more gratitude into your work and life:

  1. Think of five clients you can send thank you notes to. You can write them by hand or send a greeting card with a thank you message. 
  1. On your customer service email templates, add a line before the closing that says, “We appreciate your business.” It does make a difference. 
  1. Quick, right now, think of five things you are grateful for and list them off the top of your head. After you’re done, you should feel a little bit happier than you did a few minutes ago.  Use this tool after you feel a negative emotion to move you back into positivity faster. 
  1. ________________
  2. ________________
  3. ________________
  4. ________________
  5. ________________
  1. Find part of your day that you don’t love, such as your commute to work. Change it to your gratitude commute, finding things along the way to be grateful for. You might be surprised how great you feel when you arrive at work. 
  1. Let one of your employees know that you’re grateful for the work they do for you. You can do this verbally, with a note, or with a gift.  

When you practice gratitude, you can’t help but feel happy for the things you have in your life.  Try these five things on a regular basis to bring more gratitude and positivity into your work and life.

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Tax Planning is Key This Year

If there ever was a year for tax planning, now is the time!  Some people and businesses will be in for a big surprise this year because of all of the changes in the tax law for the 2018 year.  Many people will be underwithheld on their federal and state taxes, meaning they will owe big; others could be overwithheld, meaning the IRS is tying up money that’s theirs now!

Wouldn’t it be nice to know in advance how your situation will be impacted by the hundreds of changes in the tax laws this year?  When you know your situation, you can make decisions before the year ends to change the outcome.  You can take advantage of every strategy, deduction, and credit you are entitled to.

Planning gives you peace of mind, whether you get an affirmation that you will receive a refund from the IRS or if you owe money…if you know in advance, it will make a difference.

When working with your tax professional, they will:

  • Project your income (W-2 earnings or business earnings) through the end of December
  • Maximize your deductions
  • Make recommendations of things you can legitimately do to change the result before the year ends
  • Educate you on any changes in tax law or limitations 

Here are a few things your tax pro may require:

  1. Year to date paystub
  2. Current income/expenses, if self employed
  3. Current income/expenses of rental properties owned, if any
  4. Stock sale data, including basis information
  5. Information on any major changes from the prior year, such as a solar purchase, house sale/purchase, etc.

Tax planning can achieve the greatest benefit for your unique situation.  Don’t rely on (mis)information from your neighbor or colleague for strategies to implement!  Seek professional tax advice and get educated on the laws and consequences relating to your unique situation.  Your tax professional can warn you of something you might not have known or give you different scenarios for you to consider.  The key is knowing your options, so that you can make decisions that will provide the greatest benefit for you and your family!

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