New Year's Bookkeeping Resolutions #8: Payroll Priority
Wednesday 26th of January 2011 11:00 AM
Payday is eagerly anticipated by employees, but often dreaded by small business employers handling the payroll themselves. Hours of administrative work goes into making tax calculations, completing government reports, depositing tax money in various accounts, and writing and signing checks. Not to mention the quarterly filing and tax-payment requirements too. If there is one thing you don’t want to mess up in your equine business, it is payroll, which leads us to the next resolution:
Resolution #8: I will pay my employees first and stay current with the payroll taxes.
Your equine business will not be a success if you do not make it a priority to pay your employees first. Nothing saps motivation and morale more than delaying your workers’ pay for one reason or another. When you are having cash flow difficulties, it may seem like a good idea at the time to just pay your employees last in order to keep current with your vendors, but that plan is likely to backfire in more ways the one. Employees may be lost and your employer reputation will be compromised.
Not only must you pay your employees first, but staying current with payroll taxes is a must as the government is not forgiving of payment lapses. If the complications of handling payroll taxes are overwhelming, consider outsourcing payroll to a service or to your bookkeeper. When considering an outsourced payroll service, don’t let price alone be your guide. The IRS said that the average business pays $845 in penalties on late or miscalculated payroll taxes. Save yourself a huge headache and let an expert handle it who will stand behind their work in front of the IRS if need be. A botched payroll can be expensive in terms of both morale and finances.
For a small equine business, payroll may seem like an onerous task, but it doesn't have to be that way. Outsource this task or use payroll software and do it yourself, making payroll your payable priority in 2011.
Indiana, Michigan, and South Carolina Need to Pay Additional Unemployment Tax
Thursday 20th of January 2011 04:14 AM
We have gotten a couple of emails and calls regarding the 940 (FUTA) taxes for 2010. So I thought I would pass this information on:
A company usually pays .008 percent for employees wages on the first $7,000.00 for each employee. But Indiana, Michigan, and South Carolina have to pay additional amounts.
This is from the IRS and this is for the YEAR 2010:
Employers in “credit reduction” states must remember to calculate a credit reduction as an adjustment to their FUTA tax on their 2010 Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (PDF). “Credit reduction” states are states that did not repay the money they borrowed from the federal government to pay unemployment benefits.
The Department of Labor determines the credit reduction states for each year, and in 2010, those states are Indiana, Michigan and South Carolina. Employers in these states must reduce their .054 credit on their Form 940: by the following amounts:
* Indiana .003
* Michigan .006
* South Carolina .003
Employers in these states must use the Schedule A (Form 940) (PDF) to compute the credit reduction and attach the Schedule A to their Form 940. More information on the credit reduction, including an example on how to calculate the credit reduction is on the Schedule A (Form 940) and also in the Instructions for Form 940 (PDF).
As a result, if employers pay wages that are subject to the unemployment tax laws of a credit reduction state, the employers must pay additional FUTA tax. Employers must include liabilities owed for credit reduction in calculating their fourth quarter deposit.
New Year's Bookkeeping Resolutions #7: Implement a Collections Plan
Wednesday 19th of January 2011 11:00 AM
Closing the sale can sometimes be the easiest part of doing business compared with collecting accounts receivables. Making decisions to whom to extend credit to and collecting accounts receivables has always been a difficult part of running any business, including an equine business, as the wrong decision or procedure for handling collections can have disastrous consequences. Have a game plan for your accounts receivables this year with the following resolution:
Resolution #7: I will implement a collections plan for my customers that begins the first day their payment is late.
The first line of defense against late payments is a complete invoice. Your bills should be accurate, detailed and easy to understand. If your client has questions, it will only lengthen the payment process. The simple truth is the longer an account goes unpaid, the more difficult it becomes to collect. That being said, the biggest problem with any business and their collection department is that in many equine businesses, there is no collection department. Whether you take on the responsibility of collections yourself or delegate or outsource the activity, it is important to have a clearly defined plan.
Develop a process to track when an account comes due and know which customers have paid and which have not. Once an invoice goes past its due date, start the very next day by following up on late payers with phone calls and letters. Sometimes sending customer statements and making friendly reminder calls is all it takes. Don’t send out new merchandise or provide additional service if bills remain unpaid. Collection agencies charge hefty fees (often 30% or more of amount collected), so try to collect as many customer payments as possible through reminder letters and calls. Create a sense of urgency within your company about collecting money and establish a daily target for cash receipts.
Don’t make the mistake of extending credit to customers who aren’t credit worthy, in order to make that additional sale or that sale will end up costing you. Keep your invoices rolling and make it a priority to stay on top of your accounts receivable to collect your payments on time this year!
New Year's Bookkeeping Resolutions #6: Negotiate Rates
Wednesday 12th of January 2011 11:17 AM
Keeping costs low is a necessary way of life for most start-up companies and small businesses, including equine businesses. Negotiating rates with your vendors is a key way to control your costs. However, not everyone is comfortable negotiating. Many dread the adversarial nature of negotiation. Overcome your fears this year and make this your next resolution:
Resolution #6: I will negotiate rates with my vendors to try to decrease my costs.
Start by getting to know (as best as you can) the vendor with whom you’re negotiating. Even a few small details about them could help during the negotiation and lead to a more profitable relationship. Keep your objective in mind as you enter the negotiation. A successful negotiation will be one that falls between your goal and your bottom line. Here are some good questions to get the negotiation process started with your vendor:
§ What can you do to reduce our price per unit?
§ Can we save money by being flexible on our delivery dates?
§ Is there a lower cost version of the same product or service?
§ How much do your best customers pay for this same product?
§ Do you offer a cash discount?
§ Can you extend the highest volume discount to us at our volume?
§ Will the price go down if I order more? Can you offer me that price now?
Asking one or more of these questions will get the ball rolling and open up a line of discussion that will let you know how willing your vendor is to work with you on price. Another money saver is to negotiate payment terms. Whether it’s getting an extension on terms or pursuing discounts for prompt payment, both are proven ways to reduce costs. When negotiating payment terms, leave it for the last part of the negotiation – concentrate on securing other concessions first, and then close with payment terms.
Give negotiation a try this year and you might be surprised that sometimes all you need to do is ask for a discount.
New Year's Bookkeeping Resolutions #5: Prompt Payment
Wednesday 5th of January 2011 09:33 AM
How do you go about paying bills for your equine business? If you are like most, you probably put off writing that check until the very last possible minute - either because you misplaced the statement, are waiting to have enough money in the bank, or hate dealing with paperwork. Putting off paying bills will only lead to more problems and cost you more money, which is why you need the following resolution for 2011:
Resolution #5: I will pay my bills on time and avoid late fees, penalties and interest.
If you are paying late simply because you are disorganized and have a bill phobia, then you will incur added interest and late fee charges that could be easily avoided. Some vendors may even give you a discount if you pay by a certain time. Getting organized and paying your bills on time is even more important for business owners than for consumers. Dun & Bradstreet is a credit bureau that only monitors business credit. It maintains data based not only on whether you pay your bills on time, but gives a higher "Paydex" score to businesses that pay bills in advance. The higher your Paydex score, the better deals you may be able to get when you apply for loans to expand your business.
Start the new year by establishing a regular schedule - whether that means handling each bill as it comes in, sitting down with the checkbook on the 1st and 15th of every month, or handing the whole thing over to someone else. Contact your vendors to see if they offer automatic bill payments. Each month, payments will be automatically charged to your business credit card or debited from your bank account, and you’ll never have to worry about due dates or missed payments again.
In addition to saving your business money, paying on time will also help establish a good reputation in your business community and ensure excellent future service from your vendors. Most importantly, keeping current on your accounts payable tells you that you are taking the right steps to keep your business viable.
IRS Audit Red Flags continued - last of them for now
Monday 3rd of January 2011 10:42 AM
And final tips to the IRS red flags...
10. Unreported Taxable Income
The IRS discovers unreported taxable income when its computers match the taxable income you reported on your tax return with information gathered from banks, brokerages and customers of independent contractors. The most common example of this is unreported bank interest. To help avoid omitting income on your return, review last year's tax return to make sure you have the necessary 1099's, etc. from mutual funds, banks and other sources . Report income exactly as it appears on the 1099 Form. One of the most commonly audited items for the self employed and employees of companies who use their car in business is the deduction for business transportation. You need to keep good records of all tax deductible automobile expenses and a mileage log showing business miles driven. Try to keep the mileage log on a daily basis including the date, beginning and ending odometer readings, the location, the business purpose, and the client. At a minimum, record the automobile's odometer reading at the beginning and end of the tax year and have a calendar that you could use to reconstruct your deduction.
11. High Auto Mileage