Monthly Archives: May 2014

ACCOUNTING CONCEPTS THAT EVERY BUSINESS OWNER SHOULD KNOW

confusedYou may have just opened your business, but your business is D.O.A. without an understanding of accounting and recordkeeping requirements. Here’s a primer of twenty accounting concepts that every business owner must know: 

#1: Account Types

There are six Account types that are used in every business:

Asset – An item that your company owns.  Current Assets include those items that can be converted to cash within one year, such as Checking and Savings Accounts, Inventory, and Accounts Receivable.  Fixed Assets include those items that are not expected to be converted to cash during one year of normal business operations, such as Loans Receivable, Machinery, Equipment, and Furniture and Fixtures.

Liability – A debt that your company owes.  Current Liabilities include Accounts Payable, Credit Card Liabilities, Sales Tax Payable, and Payroll Taxes Payable.  Long Term Liabilities include Loans Payable, Notes Payable, and Mortgage Payable.

Equity (or Capital) – The net worth of your company.  Equity comes from two sources: money invested by owners or shareholders, and profits and losses earned by your business.

Revenue– Money that comes into the company and earned from sales or services.

Cost of Goods Sold – The cost of goods and materials held in inventory and then sold.

Expense – Money that is being spent by the company on business-related items.

#2: Financial Statements

There are two Financial Statements that are important to every business.

Balance Sheet – A report that summarizes the financial position of your company.  It shows the value of your company’s assets, liabilities, and equity as of a specific day.  It is called a Balance Sheet, because the value of the Assets is always exactly equal to the combined value of the Liabilities and Equity.

Profit and Loss Report – A report that summarizes your income and expenses for the month,  so that you can tell whether you’re operating at a profit or a loss.  The report shows subtotals for each Income or Expense account that has been set up.  The last (bottom) line shows your Net Income or Net Loss for the month.

#3: Petty Cash

A signed and approved petty cash voucher is always needed in order to reimburse the Petty Cash Fund. When a check is written to reimburse the Petty Cash Fund, the account number(s) to use for the expense account distribution should be all the expense account numbers and amounts based on the petty cash receipts.   Ex.-“Office Expense” $49.16; “Auto Expenses” $14.75; “Meals”  $36.09.  These three individual expense accounts should be listed as the expense accounts, and not Petty Cash.

#4: NSF, Credit Card, and Misc. Fees

These fees are often overlooked and are not subtracted from the company’s checkbook balance.  When they aren’t subtracted, the checkbook balance is incorrect and you may run the risk of overdrawing your account by writing checks and not having sufficient funds to cover them.  These fees should be recorded immediately as deductions in the bank account register.

#5: Purchase of Machinery, Equipment, and Furniture

Those specific items that will be used by the business for over one year should be coded to the specific asset account entitled “Machinery,”  “Office Equipment,”  or “Furniture and Fixtures.”  They should not be coded to the expense accounts entitled “Office Expense,”  “Repairs and Maintenance,” or  “Shop Supplies” etc.  The bottom-line invoice amount (which includes sales tax and possible delivery charges) should be entered.

#6: Year-End Bonuses

Payroll taxes such as Federal Withholding, Social Security, and Medicare must be withheld from the gross amount of the bonuses.  If you’re in doubt as to what should be the gross amount for, let’s say, a $100 net bonus check, please call us before you write the check.  When we discover that you didn’t withhold payroll taxes from a bonus check, we’ll have to calculate the taxes for you.  You’ll then end up paying the IRS both the employer’s and employee’s portion of Social Security and Medicare tax, which can be avoided.

#7: Loan Payments

When you write a check for a loan or note, the amount paid must be distributed to two accounts—for the loan principal (a liability account) and for the loan interest (an expense account).  The breakdown for these two amounts should be listed on a separate amortization schedule.  If you don’t have this schedule, please call the lender or your CPA. The loan interest is deductible as an expense on your Profit & Loss statement but the loan principal amount is not deductible on your Profit & Loss statement.

 #8: Payroll Tax Payments

When coding the check written for the monthly Form 941 payroll tax deposit, either the account “Payroll Tax Deposits” or else “Payroll Tax Liability” should be used.  Both of these accounts are liability accounts. Payments should never be coded to “Payroll Tax Expense,” an expense account.  (For QuickBooks users: Use the “Pay Payroll Liabilities” feature).

 #9: Credit Card Payments

When coding the check written for the credit card payments, individual expense accounts should be used for the specific items charged – ex. Office Expense, Meals & Entertainment, Repairs & Maintenance, etc.  Personal items charged should always be coded to the account “Distributions” (S Corporation)  or  “Shareholder Loan” (C Corporation).

 #10: Sales Tax Payments

When coding the check for the payment of sales tax liability to the state, the account number for the account “Sales Tax Payable,” a liability account, should be used.  Do not code these payments to “Sales Tax Expense,” an expense account.  (For QuickBooks users: Use the “Pay Sales Tax” feature).

 #11: Checks Written For Personal Expenses

Since these expenses are not business expenses, business expense accounts should never be used.  Instead, these personal expenses should always be coded to the account “Distributions” (if your company is an S Corporation)  or “Shareholder Loan” (C Corporation).

#12: Retained Earnings

Never code any Checks or Deposits to the “Retained Earnings” account.  This account should never be used in a transaction, unless your CPA gives you end-of-the-year journal entries to make that will increase or decrease the “Retained Earnings” account.

 #13: Miscellaneous Expenses

Don’t code any check amounts to “Miscellaneous Expense.”  This is a “hot” item for potential IRS audit.  You may need to create a new account for the specific item.  If you’re unsure of where to code this item, please call your CPA.  It’s always better to be “too specific” than to be “too general.”

 #14: Consistency in Recording Expenses

Always be consistent when coding a specific expense amount that could be considered to be ambiguous.  For example, when you code a check to pay for auto insurance, be consistent in either using the “Auto Expense” account or else the “Insurance” account.  The choice is up to you, but it’s important that you continue to use whatever account that you choose for all other subsequent checks to pay your auto insurance.  Another example where you should use consistency is in recording fees for printing checks.  Be consistent in coding the check to either “Bank Charges” or else “Office Expense.”

 #15: Recording Deposits

When deposits are recorded, be sure to only code receipts from customers as Sales Income.  Any other amounts received should be coded to their specific individual accounts.  For example, amounts put into the business from shareholders should be coded to “Shareholder Loan” and not to “Sales.”  Amounts received as refunds, rebates, loan repayments, etc. should be coded specifically to their specific account.

#16: Recording NSF Checks

If a customer’s check bounces in the current accounting month, then void the customer’s check payment.  However, if the customer’s check bounces in an accounting period following the accounting period that it was recorded as a payment, these steps should be followed: (1) Record the bank charge for the NSF check in the checking account register, (2) Record the NSF check in the checking account register.  Enter the customer’s name as the Payee, the amount of the NSF check in the payment column, and either Accounts Receivable (accrual basis) as the Account to be debited.

 #17: Recording Bad Debts

If a customer’s account becomes uncollectible in the current accounting month and the original sale was recorded in a prior accounting month, a credit memo should be prepared for the specific customer to reverse the customer’s invoice(s).

#18: Non-Deductible Expenses

There are a few business expenses that aren’t deductible when preparing your corporation’s income tax return at the end of the year.  These expenses should be tracked separately and include: (1) Penalties paid to the IRS (not Interest, which is deductible). (2) Business gifts over $25 per person per year.  These non-deductible expenses need to coded to an expense account called “Non-Deductible Expenses” and should be clearly defined as to what they are for.

#19: Vendor Payments

All payments to vendors for services for $600 or more must be tracked because a 1099 form must be given to them in January of the following year.  Be sure to separate amounts paid for services rendered as opposed to amounts paid for reimbursements, materials, or supplies.

#20: Voiding Checks

All checks should be entered in the account register—whether they’ve been used or unused.  Be sure that the monthly numerical sequence of checks is accounted for by including all voided checks and checks held but not yet released.  These checks should be recorded with zero amounts until they are released.

If you’re still confused, don’t panic — call our office today at (727) 391-7373.  We’re only a phone call away.

SURPRISE YOUR CUSTOMERS TO BUILD LOYALTY

customerloyaltyCustomers generally expect to get what they pay for. If you go beyond that to deliver something extra and unexpected, you can set your company apart from the competition. To that end, here are five ways to surprise customers and beat “the other guys.”

1. Get to know people personally. Do you reach out to customers soon after a purchase is made, just to see whether they’re satisfied? Think about the positive impression you’ll make on customers by doing so. Making contact can be as simple as inviting customers to take an online survey or as involved as making a phone call or sending a personalized email or a handwritten thank-you note. Longtime loyalty stems from gestures like these.

For example, salespeople at The Mitchells Family of Stores in Fairfield, Connecticut, contact customers by phone, email or handwritten note, “not trying to sell them anything, but letting them know we’re available to do alterations, or to come to their home and look at their closet to see what is still wearable,” says CEO Jack Mitchell.

2. Offer help even when you don’t benefit from doing so. Like every other business, you have a customer-service policy and need to maintain certain standards. But when a valued client makes a special request, it may make sense to deviate from the rules. For example, you could provide free shipping on an exceptionally large order. Or, if you can’t satisfy a customer’s particular need, you could make a referral to a business that can. Customers are often surprised by this level of attention, and they’ll remember a business that provides it.

“Be willing to refer customers, even to your competitors,” says Maria Korolov, editor and publisher of Hypergrid Business. “Then, when the customer is in a market for whatever it is you’re selling, they’ll remember you and come back.”

3. Solicit feedback. Is there a place on your website where visitors can easily offer suggestions or voice a complaint? Making the process simple shows how much you value your customers’ opinions. When a problem occurs with your service or product, offering a candid admission of the error — as opposed to excuses — may help you retain a potentially alienated customer. Always follow up with anyone who complains to let the customer know the problem has been resolved.

“The right follow-up can often rescue a customer,” notes Richard White, founder and CEO of UserVoice.

4. Be generous with discounts. Customers expect markdowns on goods or services from time to time. What they may not expect is a surprise 5 percent discount on their next invoice with a note saying, “Thank you for being such a great customer.” Consider offering other special discounts or free samples as rewards to loyal customers. This tactic also can be useful for repairing your relationships with complaining customers (see #3).

5. Keep your top employees happy. In a bricks-and-mortar setting, customers put a lot of emphasis on how well they’re served by employees. Staff members who do an outstanding job of assisting customers are often a small business’s most valuable asset. Take care of these employees in order to keep turnover to a minimum.

Visitors to your website or your store won’t always make a purchase. But it’s still important to be gracious and attentive to their needs, no matter what. “The key is to always make your customer happy,” says Nicole Leinbach Reyhle, founder of Retail Minded. “If they remember a great experience in your store [or website] — even without a purchase — they are more likely to return again.”

by Lee Polevoi on  Read more: http://blog.intuit.com/marketing/surprise-your-customers-to-build-loyalty/#ixzz31srqCjR9

TEN PERSONALITY TRAITS THAT EVERY SUCCESSFUL ENTREPRENEUR HAS

Whether I’m out on the speaking circuit, working with startups, back in Ann Arbor teaching MBAs, or just socializing in a coffee shop, I’d say there’s one question I’m hit with more than any other.

It comes in different forms, but the essence of the question is the same: “What does it take to be a successful entrepreneur?”

Over the years, my answer has evolved. But I’ve found myself settling on ten traits that are shared in common by virtually every truly successful entrepreneur I’ve met, observed or studied. The true rock stars are all:

1. Passionate

You need to be driven by a clear sense of purpose and passion. Typically, that passion comes from one of two sources: the topic of the business, or the game of business-building itself.

Why do you need passion? Simply because you’re likely to be working too hard, for too long, for too little pay with no guarantee that it’ll work out… so you need to be motivated by something intrinsic and not money-related.

2. Resilient

If you’re going to build a startup, you’ll need a spirit of determination coupled with a high pain tolerance. You’ll need to be willing and able to learn from your mistakes – to get knocked down repeatedly, get up, dust yourself off, and move forward with renewed motivation.

People will constantly tell you your baby’s ugly, that your business won’t work. Now, you should listen carefully and be open to constructive criticism. But after a while, having the door slammed in your face repeatedly can be withering, and the best entrepreneurs learn to feed off the negativity and actually gain strength from it.

3. Self-Possessed

You need a strong sense of self. You can’t be threatened by being surrounded by talented, driven people. To truly succeed, you’ll need the self-confidence to surround yourself with people “who don’t look like you”… that is, people with skills, background and domain knowledge that complement your own. And check your ego at the door: you shouldn’t be too proud to make coffee for the team, empty the waste baskets, or do the bank runs.

4. Decisive

You’ll need to develop a comfort-level with uncertainly and ambiguity. Entrepreneurs gather as much information as they can in a short period of time, and then MOVE, MOVE, MOVE!! The attitude is that it’s not going to be perfect… We only have 9% or so of the data from which to base our decision… but if we wait to have all the information, we’ll never get moving… and be mired in indecision. (Big organizations are really good at this – the mired thing – saying, We don’t have enough information, so let’s continue to study… form a committee or a task force)

5. Fearless

On the sliding scale from “risk-averse” to “risk-seeking,” it shouldn’t surprise anyone that entrepreneurs tend to be closer to the latter. But you don’t need to be a nut-case, the sort who bungee-jumps without a helmet. Smart entrepreneurs develop an intuitive ability to sniff out and mitigate startup business risk. But you know you’re going to fall down, and feel comfortable with that fact and that you’re going to learn from your failures and adjust as you go.

6. Financially Prepared

You’ll need the right personal financial profile to make the leap. This doesn’t mean that only the rich can be entrepreneurs. But unless and until you’ve got the personal financial ‘runway’ (ability to go without a steady paycheck and subsidized benefits) of at least 18 to 24 months (ideally longer), you might hold off on quitting your day job.

Consider launching the startup as a side-business if that’s possible, while continuing to work the 8-to-5 shift to cover the bills. Or approach your boss about going part-time. Then, once your business generating cash flow, you can dial back on your hours, or submit your resignation and go full-time with your startup.

7. Flexible

I challenge you to find an entrepreneur running a startup four or more years old where that business doesn’t differ dramatically from the vision sketched out in their original business plan. The point is that the folks who stay on their feet are the ones who stay flexible and adjust to new information and changing circumstances.

8. Zoom Lens-Equipped

Can you ‘pan out’ to see a compelling big vision for your business, then ‘zoom in’ and focus on near-term startup goals? Successful entrepreneurs can facilely move back and forth between these two views. They’re able to articulate the big picture, while simultaneously managing and executing to the ‘zoom-in’ picture.

9. Able to Sell

Whether you’re a born extrovert or introvert, as a founder/CEO, you’ll find yourself always selling. You’ll be selling your vision to prospective partners and funding sources. You’ll be selling prospective recruits on why they should quit their day jobs and join this startup they’ve never heard of. You’ll be selling your products and services (yes, you’ll probably be personally closing at least the first few sales). You’ll be selling your employees on why they should remain calm and stay with the ship when the seas inevitably get rough.

10. Balanced

You may not start out with a fool-proof gyroscope, but to survive as an entrepreneur, you’ll need that strong sense of perspective. How to maintain simple, clear focus. How to be at peace with, and learn from, a failure. Understanding that not all battles are worth winning, and when to walk away. Knowing that most in your startup aren’t as entrepreneurial as you – that this may be a very cool job for them, but it’s still a job. Knowing when to go home and give your loved ones a hug. When to go for a run.

Read more: http://www.businessinsider.com/traits-of-successful-entrepreneurs-2013-2#ixzz31YB56K6V

If you are curious about whether you have these personality traits for entrepreneurship, please visit us at http://www.LStortzCPA.com