As a small business Owner, you’re not always able to hire or bring in-house all the people you need to effectively run your business, so that means outsourcing some of the more critical jobs. The first three critical functions most small businesses outsource are Accounting, Legal, and (digital) Marketing. This article is the first of a three-part series involving unconventional wisdom on Outsourcing: “How to form a virtual team, with three key professionals: your Accountant, your Lawyer, and your Digital Marketing team”.
Next, I want to make it clear that I am not an Accountant, and neither do I play one on T.V., but here is some good old fashion wisdom on fine tuning one of the most important members of your small business team: your Accountant! Like so many others, your business is probably too small to have a CFO (Chief Financial Officer). Most small businesses in the U.S. struggle to even have a bookkeeper, let alone a high-priced financial manager. But everyone has an accountant – well, at least once a year they do because of income tax preparation — and you’ve now become the smartest gal on the block because you’re taking the bold step to “virtually” promote your Accountant to CFO of your small business.
Now she doesn’t know of all the clever ways you plan to use her expertise (that’s the unconventional wisdom of the smart money), but here is a condensed list of what I feel are some basic services your small business should be receiving from your newly appointed CFO (a.k.a., your Accountant) to not only keep you afloat, but more importantly, save you money, keep you out of hot water, and make your business purr like a kitten.
- Basic Bookkeeping or what I often refer to as “maintaining separation between Church and State” — i.e., avoid mixing personal with corporate expenses. Mixing personal and corporate expenses is one of the dumbest mistakes we, as small business owners, make in running our business. It is what accountants refer to as “co-mingling of funds” and is one of the most common pitfalls of small business ownership. I am always surprised when I bring on a new client and in the process of qualifying them, I see in their bank statements the consistent confusion of expenses between personal and business. Starbucks, Krispy Kreme doughnuts, Chick-Filet, Panera Bread – what the heck is everyone doing at Panera Bread? Am I missing something? Had I known it was so popular I would have bought stock in the company years ago, but it seems to appear in all my client’s business bank statements. Are 4-6 expenses per month at Panera Bread really bona fide business expenses? My guess is that this is not a bona fide business expense and your small business is co-mingling its funds when it mistakenly tries to attribute these expenses to your company. In general, 50% of meals and entertainment expenses are deductible per the IRS, but there are so many nuances on how to treat this, and rules have also changed recently as part of the Trump tax law, that to be on the safe side, ask your Accountant and get their clear guidance on this so that you optimize the deductions available, take the right ones, and avoid the wrong ones and by doing so, don’t waste your small businesses’ most precious commodity — its cash.
- Not Claiming all your Deductions — Your small business is likely entitled to several specific tax deductions that can significantly reduce your tax bill. If you don’t claim these, you’re paying more than your fair share of taxes, which not only doesn’t make sense, but also can have a major impact on your company’s bottom line. The myriad of expenses ranging from loan interest, employee expenses, mileage, home office expenses, can be confusing and it’s important to appropriately take advantage of any business deductions you can. Additionally, to those of you who have minority-owned businesses, there are a number of tax breaks and credits potentially available to you, so you really need your Accountant to take a close look into the ones potentially available for Women-owned, Afro-American, Asian, Indian, Hispanic, Veteran owned businesses. One more good reason to hunker up to your Accountant – but don’t get too close though, since we are all still practicing social distancing.
- PPP Loans and Forgiveness – this is the newest need for small businesses due to the COVID-19 pandemic – how to appropriately handle the PPP (Payroll Protection Program) loans from your local bank as part of the CARES Act? How do you maximize the potential for loan forgiveness as dictated by the Federal government’s (still changing) guidelines? Your accountant is the best person to help you with this and you wisely should be working hand-in-hand with them to make sure you follow the guidelines to the tee, and in doing so, maximize the allowable forgiveness and minimize the loan payback.
- Making mistakes due to waiting until the last minute to file – very few people I know actually love doing their taxes (really more like no one that I know…) and I think it’s safe to say it’s something that we all easily procrastinate doing. It’s human nature that whenever you wait too long to get started on something, you’re going to rush to get it done. And, when you rush, you’re likely to make mistakes. Your taxes are no different. To avoid what can be costly mistakes, it’s a good idea to get your business information together early. This includes updating income records, gathering expense documents and business expense receipts. It also means you should send out any W-2s and 1099s you owe to any employees or contractors.
- Failing to File for an Extension if you need extra time – this naturally follows from #4 above, but as the deadline for tax filing for your small business approaches, you may think that being a few days late is not a big deal. Wrong. Filing late is a sure way to incur late filing penalties that can really add up. If you need more time, make sure you request an extension to file before the deadline. It’s super easy to do and will give you up to six additional months to submit your tax return.
- Keeping you out of trouble with IRS by helping you avoid two common errors:
- Shorting Your Reported Income – there is nothing an IRS auditor loves more than seeing unreported or underreported income. Make sure you report every dollar of taxable income you make, even if it includes books you sold to your mother (like in my case), or a service you provided to your best friend’s sister. Not doing this can call unnecessary attention to your business and potentially put you in the crosshairs of federal and state tax authorities.
- Neglecting to Pay Estimated Taxes – If you are filing as a sole proprietor, partner, S-corporation shareholder, and/or self-employed individual through an LLC, you typically have to make estimated tax payments. If you meet the requirements for paying estimated tax every quarter, payments are due on April 15th, June 15th, Sept. 15th, and Jan 17th (following year). Even if you request an extension to file your business taxes, you still need to pay by the filing deadline any taxes you think you will owe. If you don’t, you will likely incur penalties and interest. Make sure you estimate the tax you believe you will owe and remit payment. By staying on top of these deadlines, you can avoid paying more later.
- Ignoring Tax Law Changes — From time to time, tax laws change, as they did for Corporations when President Trump signed the Tax Cuts and Jobs Act in December 2017. For instance, did you know that you can no longer take a deduction for business entertaining on clients with tickets to sports contests or shows? Rules related to writing off business meals have also changed. Knowing the tax law changes and following them are part of any responsible business owner’s required tasks. Make a point to meet up with your Accountant to learn about the current tax laws, so you can avoid mistakes, save money, and more accurately complete your tax returns by stipulated deadlines.
So, there you have it – the first member of your virtual small business team – your friendly and beloved Accountant. As a follow-up to this article, and while you are still feeling fired up about accounting, let your fingers do the walking and call up your Accountant to schedule a sit-down meeting with your him or her, to lay out a plan for addressing some of the suggestions I’ve outlined in this Blog.
Stay tuned for part two of this series, when I’ll discuss the importance of having good legal counsel.
Thank you and my sincerest wishes to stay safe, stay positive, and have faith – there is an end in sight.
To learn more about how business owners can scale and drive more growth, through tools like Factoring and other important considerations, please check out the list of blogs on this website, or you may contact us directly at [email protected]. You can also find me on Twitter and LinkedIn.