Increasing your profits requires selling more and/or spending less. While building up your sales may require an extended effort, business costs are often very ripe for a quick trimming. Here are some possibilities.

Supplies and Other Purchases

Usually in any business, relatively few items represent a very large share of all outlays. The first step in cutting expenses is, therefore, to identify your highest costs. You may be able to trim many of these costs by making sure you always bid out significant purchases or by more actively seeking less expensive alternatives.

For many companies, inventory carrying costs are a very significant expense. Focusing on matching your inventory quantities more closely to your short-term needs could result in significant savings.

Telecommunications and Other Services

The ongoing services you buy may also offer the potential for cost savings. Revisit your choice of telecommunications vendor and your usage.

Look carefully at your costs for financial services. If you borrow or maintain a line of credit, always compare the rates from more than one financing source before you commit. Make sure you are not paying higher-than-necessary fees for your company’s checking and deposit services.

Cash Management

To control cash outlays, take advantage of discounts for early payment whenever possible. And look to delay payments for as long as you can without giving up discounts.

On the receiving side, deposit all receipts daily. And always actively pursue collection of any invoices that are past due. To help control your working capital needs and, therefore, your credit costs, try to match any new liabilities to your anticipated cash flow.

Fixed Expenses

One other category worth examining is fixed expenses that are long-term commitments. While you usually can’t change these quickly, be aware of when a window for change will open and prepare well in advance by considering lower cost alternatives.

To learn more ways to control your business costs give us a call today. Our trained staff of professionals are always available to answer any questions you may have.

Buy or lease? It’s a decision many small businesses face. Owning real estate certainly can have advantages, including the opportunity to build equity. But many small businesses in need of space choose the rental route instead.

Cash Flow Considerations

By leasing, a company can avoid taking on debt to acquire a property. Less debt on the balance sheet may allow the company to finance other things, such as receivables or inventory and equipment purchases. And the upfront cash commitment needed to enter a lease agreement may be much lower than the down payment required for a property purchase.

Shopping Tips

If your business is looking around for the right rental location, here are a few suggestions to keep in mind. Not all of these tips are appropriate for all businesses, but some may help you get a lead on a good spot — and a good deal.

• Find an eager landlord. Rental spots that have been on the market for a while could have some negative features, but they may be worth a look. If you find a location that suits you, you might also find a landlord who is anxious to negotiate.

• Think about the term. A long­term lease locks in your rental rate — and that can be an advantage if you expect the market to trend upward. But leasing for short periods is often less expensive than leasing for longer periods. If your business is in its formative years, significant changes may lie ahead, so a short-­term arrangement could be more practical, too. Adding an “option to renew” clause can help keep your costs down and your options open.

• Divide and conquer. Could you make do with two smaller spaces instead of one large space? The more flexible you can be, the better your chances of finding a good deal.

• Check rental comps. Commercial property markets can be very localized. Rents may vary considerably between one locality and another just a few miles away. Unless you’re limited to a specific location, compare rates in several areas.

Owners of closely held C corporations are often interested in withdrawing profits from their companies in ways that minimize taxes. What are the options?

Pay Salary/Bonus.
If the owner is a company employee, taking more salary or a year­end bonus is an option, as long as the total amount of compensation the owner receives is reasonable. The company deducts the payments as a business expense; the owner is taxed on the money. The “cost” of this option depends on the corporation’s and the owner’s tax rates. Payroll taxes are an added expense.

Pay Family Members.
Reasonable amounts paid to an owner’s family members for services actually rendered to the company are deductible by the corporation and are taxable at the family members’ own tax rates. Often, these rates are much lower than theowner’s. Pay a Dividend. Dividends the company pays out will, in effect, be taxed twice — once at the corporate level (dividends are nondeductible) and once to the owner personally. No payroll taxes will be due. With the individual tax rate on qualifying dividends currently capped at 20% for taxpayers in the 39.6% regular bracket (and 15% for most other taxpayers), this option may have more appeal.

Utilize Fringe Benefits.
Certain fringe benefits are deductible by the corporation but not includible in the owner’s gross income. Examples include qualifying group life insurance, health care benefits, and disability insurance. (Most fringes must be provided on a nondiscriminatory basis to other company employees.) To the extent an owner is paying for these items individually, having the company pay for them increases the cash available to the owner.

Take a Loan.
If an owner borrows money from the corporation, the owner is not taxed on the loan amount. The loan must be a legitimate debt, with proper documentation and timely interest and principal payments.

Lease Assets to the Company.
An owner might consider leasing property to the corporation. The company deducts the lease payments; the owner includes the amounts received in income and deducts expenses associated with the rental activity.

If you run a small business, you already have a full plate. The last thing you need is for the IRS to question any of your business expense deductions. But it could happen. And that’s why having records that prove your expenses is so important. Even deductions for routine business expenses could be disallowed if you don’t have appropriate records.

What Records Are Required?

Except in a few instances, the tax law does not require any special kind of records. You’re free to have a recordkeeping system that is suited to your business, as long as it clearly shows your expenses. In addition to books that allow you to track and summarize your business transactions, you should keep supporting documents, such as:

• Canceled checks
• Cash register receipts
• Credit card sales slips
• Invoices
• Account statements

The rules are stricter for travel, entertainment, and transportation expenses. You should retain hotel bills or other documentary evidence (e.g., receipts, canceled checks) for each lodging expense and for any other expense of $75 or more. In addition, you should maintain a diary, log, or account book with the information described below.

Travel. Your records should show the cost of each separate expense for travel, lodging, and meals. For each trip, record your destination, the dates you left and returned, and the number of days spent on business. Also record the business purpose for the expense or the business benefit you gained or expected to gain. Incidental expenses, such as taxi fares, may be totaled in reasonable categories.

Entertainment. Record the date the entertainment took place and the amount of each separate expense, along with the name and address or location of the place of entertainment. Note the business purpose for the expense or the business benefit you gained or expected to gain and the nature of any business discussion or activity that took place. Also list the identities and occupations of the individuals you were entertaining or other information that indicates their business relationship to you.

If the entertainment was directly before or after a business discussion, be sure to indicate the date, place, nature, and duration of the discussion and the individuals who took part in both the discussion and the entertainment activity. For a business meal, you must prove that either you or your employee was present.

Transportation. As with travel and entertainment, you should record the amount and date of each separate expense. Note your business destination and the business purpose for the expense. If you are deducting actual car expenses, you’ll need to record the cost of the car and the date you started using it for business (for depreciation purposes). If you drive the car for both business and personal purposes or claim the standard mileage rate, keep records of the mileage for each business use and the total miles driven during the year.

Don’t Mix Business and Personal Expenses
Things can get tangled if you intermingle business and personal expenses. You can avoid headaches by having a separate business bank account and credit card.

Assessing finance charges is a complicated process. But if you have a lot of late payments coming in, you may want to consider it.

There are many reasons why your customers send in payments past their due dates. Maybe they missed or misplaced your invoice, or they’re disputing the charges. They might not be very conscientious about bill-paying. Or they simply don’t have the money.

Sometimes they contact you about their oversight, but more often, you just see the overdue days pile up in your reports.

You could use stronger language in your customer messages. Send statements. Make phone calls if the delinquency goes on too long. Or you could start assessing finance charges to invoices that go unpaid past the due date. QuickBooks provides tools to accommodate this, but you’ll want to make absolutely sure you’re using them correctly – or you’ll risk angering customers and creating problems with your accounts receivable.

Setting the Rules

Before you can start, you’ll need to tell QuickBooks how you’d like your finance charges to work. It’s at this stage that we recommend you let us work with you. There’s nothing overly difficult about understanding finance charges in theory: you apply a percentage of the dollar amount that’s overdue to come up with a new total balance. But setting up your QuickBooks file with the finance charge rules you want to incorporate may require some assistance. If it’s done incorrectly, you will hear from your customers.

Here’s how it works. Open the Edit menu and select Preferences, then Finance Charge | Company Preferences.

Figure 1: Before you can start adding finance charges to overdue invoices, you’ll need to establish your company preferences.

What Annual Interest Rate percentage do you want to tack onto late payments? This is an issue we can discuss with you. Too low, and it’s not worth your extra time and trouble. Too high, and your customers may stop patronizing your business. And do you want to set a Minimum Finance Charge? Will you allow a Grace Period? If so, how many days?

You’ll need to assign an account to the funds that come in from interest charges. This needs to be an income account. In our example, it’s Other Income.

The next decision, whether to Assess finance charges on overdue finance charges, needs consideration – and some research. This may not be an option depending on the lending laws in the jurisdiction where your business is located. So again, if you want to charge interest on unpaid and tardy finance charges themselves, let’s talk.

When do you want the finance charge “countdown” to begin? When QuickBooks identifies a transaction that has not been paid within the stated terms, do you want the added charge to be applied based on the due date or the invoice/billed date?

Note: If your business sends statements rather than invoices, leave the Mark finance charge invoices “To be printed” box at the bottom of this window unchecked.

Applying the Rules

QuickBooks does not automatically add finance charges to your customers’ invoices. You’ll need to administer these additions yourself, though QuickBooks will handle the actual calculations.

Open the Customers menu and select Assess Finance Charges to open this window:

Figure 2: You’ll determine who should have finance charge invoices created in the Assess Finance Charges window.

Make very sure that the Assessment Date is correct, as it has impact on QuickBooks’ calculations. Being even a day off makes a difference. Select the customers who should have finance charges applied by clicking next to their names in the Assess column. QuickBooks will display the Overdue Balance from the original invoice, as well as the Finance Charge it has calculated.

• If you choose not to apply finances charges to a customer because he or she has provided a good reason for the late payment, be sure the box in the Assess column is unchecked.
• If you want to change the finance charge due for a valid reason, you can type over the amount in the last column. This would be a rare occurrence and should be exercised only after consulting with us.

Important: If there is an asterisk next to a customer’s name, there are payments or credit memos that have not yet been applied to any invoice.

When everything is correct, click the Assess Charges button at the bottom. QuickBooks will create separate invoices for finance charges for each customer who owes them.

We can’t stress enough the importance of consulting with us before you start to work with finance charges enough. Keep your company file accurate and your customers happy by getting this complex accounting element right from the start.

If you have been considering putting a drug testing program into place, you’re not alone. Up to 60% of new hires are now required to pass a drug test before beginning a new job. This isn’t surprising as drug use costs employers $81 billion dollars annually. Pre-employment drug testing can save your company money and keep your employees safe.

Studies show that 9% of part-time workers and 7% of full-time employees use illegal drugs. While you may think that drug users are unemployed layabouts, actually over 70% of those with substance abuse issues hold a job of some kind, and over half of adults working know of an employee that has come to work while under the influence of drugs or alcohol.

It has been found that by drug testing new hires, you can improve your employee morale as well as productivity. By having a drug free work environment, you will reduce downtime, theft, accidents, and absenteeism and therefore increasing your bottom line. In addition, drug testing for new hires can help protect your company from law suits filed by an employee that is injured on the job by a coworker that is abusing drugs.

The two most common types of drug screening are the 5-panel and the 10-panel. The five-panel tests for cocaine, amphetamines, opiates, phencyclidine, and marijuana. The 10-panel test will also detect more prescription medications as well as additional recreational drugs.

Keep in mind that as an employer, you are also legally allowed to randomly drug test on a regular schedule even after a new employee has been hired. You also have the right to request the drug test to be taken in a short time span. A variety of specimens can be used for all of these drug tests including urine, hair, nails, blood, and saliva.

While some may find drug testing for new hires intrusive, for an employer, it is all about protection and productivity. Drug testing before someone becomes an employee can save you costly issues down the road.

 

While rules and regulations for workman’s comp insurance change from state-to-state, there some general guidelines you need to know and follow no matter where your business might be located.

First, as an employer, you are required to protect employees that are killed on the job, are injured, or become ill. Most employers obtain either state sponsored or private insurance. Others will use self-insurance. Regardless of which option you select, it is the employer who foots the bill.

Secondly, workman’s comp is a state based program as opposed to a federal program. Most states require some form of workman’s comp, and as the employer, you are expected to accept the rules and regulations. For those businesses with under four employees, there is an exemption to carrying the coverage, at least in some states.

Next, workman’s comp pays four different types of benefits. These are survivor’s benefits, disability benefits, rehabilitation benefits, and medical benefits. The injured employee or their heirs receive a lump sum payment which then relieves the business of any further liability.

Also, employees are covered with a few exceptions. These exceptions include business owners, independent contractors, unpaid volunteers and domestic employees in private homes.

In addition, workers’ comp is paid on the no-fault basis. This means that regardless of who is at fault for the injury, the employee receives the benefits, and the business does not have to admit liability.

Finally, even when an employee is outside of the workplace, they may be covered. This can include traveling for business purposes, running work related errands, or attending a required business social event.

The state rules and regulations for workman’s comp insurance can be tricky, but they do protect both the employee and employer. When purchasing this insurance, it is always best to work with a professional that can ensure your business’s needs are met.

As a business owner, you’re always looking to save employee associated costs. One of the largest of those costs is health care. That’s why employers across the country are moving towards high deductible health plans. These plans still allow the company to provide insurance while saving money at the same time.

For sometime now companies have been looking for ways to share the cost of insurance with their employees. High deductible healthcare plans are one way to do this. These plans tend to have deductibles ranging from $1,000 to $10,000. These larger deductibles bring down the cost of monthly premiums for both the employee and employer.

Some studies also show that when employees have to pay a larger share of their health care costs they tend to live healthier lifestyles which in turn decreases medical spending.

It also means less sick days and higher productivity while at work. This alone can save companies substantial amounts of money as sick days cost US companies $576 billion dollars annually.

In 2018 a new tax on what are considered Cadillac insurance plans will go into affect. This tax will increase company’s employee costs, so many companies are getting ahead of the issue and dropping these high end plans and replacing them with high deductible insurance plans now.

According to data from 54 large US companies with a combined employment force of 13 million, healthcare costs for these companies was reduced from 6.6% to 3.4% over a three year period. Even though this is short-term data, it does suggest that businesses that utilize high deductible health plans will save money on employee insurance costs over time.

While the switch from traditional insurance to a high deductible health plan may seem difficult, that is the direction the country is taking. In 2006 only 4% of employees had one of these plans and currently 20% does. Going forward, when looking for a competitive edge, businesses will need to consider making the switch.

If you have a foreign bank account that has not been reported to the IRS, then you could be facing serious civil penalties and even criminal penalties. These penalties fall under the Foreign Bank Account Report, (FBAR) violations.

First, it is important to determine if you are required to report your foreign bank account.
It comes down to being able to say yes to the following four questions:

• You are now a US citizen or permanent resident or have been in the last six years.
• You have had a foreign bank account for a year or longer since 2008.
• Your balances in all of your foreign accounts exceed $10K
• You have not reported the account through the FBAR paperwork to the IRS.

The civil penalties for not filing the FBAR will be the greater of 50% of your bank account or $100K. The IRS has also indicated that it is willing to charge these penalties cumulatively for up to four or even six years.

This means that you can be charged these penalties for each year you have had the foreign bank account and not reported it to the IRS regardless of the fact that the penalties may well out pace the actual dollar amount in your account.

In addition to expensive civil penalties, you can also face criminal penalties. If the IRS determines that you willfully knew that you should have filed a FBAR and didn’t, they can charge you under FBAR violation laws as well as normal criminal tax prosecution laws.

A criminal prosecution typically occurs when a person has a large amount of taxable income in their foreign bank account that has not been claimed on their tax return.

A tax accountant or tax attorney can walk you through your options if you find yourself in this situation, as the IRS does offer voluntary disclosure programs, but even with taking advantage of one of these programs, you will still suffer the sting of IRS penalties.