The Entrepreneur’s Paycheck

As business owners, we may be so busy making sure the bills get paid and the product gets out the door that we may not be quite as proactive about our own compensation.  To pay themselves, many new business owners take what’s left after employees and vendors have been paid, and that ends up being their paycheck.

I’d like to propose a whole new way:  entrepreneurs should be paid three times, once for what they do, second for the risk they take, and third for the going concern they’ve built.  If you’re not getting paid three times, here’s how it can work.

First:  Your Services  

Just like the employees and contractors we work with, we should get paid for the actual work we perform in our business.  Most of us wear many hats in our business, and we should get paid for all those hats!

As your business grows, the tasks you initially performed will be delegated to employees.  They would never go without a paycheck, and you shouldn’t either.

The amount you pay yourself should be similar to the market rate you would have to pay someone if you hired someone else to do the jobs you are doing.  As your company grows, you will be going up the management ladder and your salary should increase accordingly.

Here’s an aha for some new business owners just starting out:  If you have cash flow problems paying yourself or others, then you might have one of two problems:  The goods and services you sell may not be priced correctly, or the number of clients you have may need to increase so that you reach an acceptable volume in your business.

Second:  Your Risk

After you’ve paid yourself for the jobs you are doing in your own company, there should be something left over: profit.  As a business owner, you have earned that profit; it’s your reward for taking the risks that go with business ownership.

If there’s no profit left over, then there could be a number of problems.  This is where accounting professionals can help you review the revenues and expenses in your business and see where things are not adding up.    

So far, your paycheck and your profits get you paid twice as an entrepreneur, and that’s the way it should be.  But there’s also a third way.

Third:  Your Going Concern

A third way to get paid is when you sell your business.  There are many things you can do throughout the years to boost your business valuation, and the more you can do that, the higher the proceeds will be from your business.

Financial Success

One of the factors that can increase all three forms of compensation is your financial skillset.   Building your financial skills by working with accounting professionals can help you price your goods and services accurately, improve your cash flow, hire employees at the right pay rates, and implement many more financial success factors in your business.

When you’re ready to review your entrepreneur’s paycheck, feel free to call on us for expert financial assistance.

Planning for an Awesome 2013

For businesses with fiscal years that coincide with the calendar year, the slate of revenues and expenses will be wiped clean on New Year’s Day.  Starting with a clean slate gives us a chance to reflect on our 2012 results before we enter 2013 and experience the hope that comes with a new year.  

Hindsight is always valuable, and we can learn important lessons from our past mistakes that we can now more objectively look back on.  We can take those lessons and incorporate them into our plans for the new year so that we can continue to learn, grow, and prosper.  

To create your plans for an awesome 2013, here is a list of questions and documents to consider in your business.

Revenue Plan

We can make budgeting more fun by looking at the revenue side first.

• Are you happy with your 2012 revenue levels?
• What new product or service lines can you roll out in 2013?
• Are there any product or service lines you should close in 2013?
• Should you raise prices?

A revenue plan is useful because it can feed into your annual budget as well as drive your marketing plans.

Staffing Plan

Business is more fun when you have the right team to support your vision.

• Is your current team sufficient to support your business goals for 2013?
• In what areas do you need more help?  Should you hire or outsource?
• Are there any team members that are not pulling their weight?
• Was there a turnover that you would have rather not had?  How can you retain your best talent?

Master Budget

Your revenue plan and staffing plan can feed into your master budget, which can be loaded into your accounting system.  Tracking actuals against plan and prior year numbers will help you determine how you’re staying on track throughout the year.

Special Projects Plan

What special projects should you consider for 2013?  This might include a move, new fixed assets, or replacing systems and processes that you are outgrowing.

Disaster Recovery Plan

Each year, we watch the news and see people and businesses that were affected by extreme weather events, fires, theft, or other disaster.  Are you protected?

• Is all of your data backed up to a remote location that is away from your local area?
• Do you have the necessary insurance coverage for all areas of your business?
• Are you comfortable with the risks you are taking in business and are you prepared for the worst-case consequences of those risks?  If not, take action to reduce your risks.  


Planning for Awesome

Planning helps you become more successful, and it reduces the risks of doing business.  There are many more types of plans, and it’s up to you to decide which ones will benefit your business.  If we can help out in any way, please reach out and give us a call.

Your Year-End "To Do" List

It’s almost the end of the year, and although the holidays are coming, there are a few tasks you need to address before year end. Getting your financials in order now will start you off right for the New Year. A Step Up wishes you a very merry holiday season and a prosperous 2013.

1. Invoice your clients for all outstanding time and expenses. You want to be sure that invoices are sent for all work done during the year, and many of your customers will want to pay you for this work now to lower their tax liability. Make it easy for them to do so! Receiving payments at the end of the year also gives a cash basis business a bit of flexibility. You can count the income in this year by using the check date on the payment in QuickBooks. Or move it to next year by using the date you received or deposited it (be sure this is actually in 2013).

2. Review your open receivables and determine if any should be sent to an outside collection agency for assistance or if they are un-collectible. If you are on an accrual basis, you can write these off as bad debts and lower your business profit totals. Even if you are cash basis, getting these off your books gives you a truer picture of what is outstanding for the new year.

3. Reconcile all bank accounts, credit card accounts and loan accounts. You need accurate balances to make informed decisions for the future. Ensuring that the totals of your accounts match the bank also improves the likelihood that you haven’t missed any deductible expenses.

4. Prepare a budget for next year. Review this year’s reports and set a plan for realistic growth next year. What income categories were profitable? What expenses can be trimmed? Set a plan for how you will increase revenue and lower expenses in the coming months. You can also enter this information into QuickBooks, and then you can compare how you are actually doing against your plan from month to month.

5. Double-check all employee addresses and social security numbers. Make sure that employee paycheck names and Social Security numbers match their SS cards and W-4 data. Remind employees to submit new W-4 forms if there has been a change in their filing status due to marriage, divorce or dependents (birth, adoption, child turning 21), or if they want to retain their federal ‘exempt’ status.

6. Ask your payroll service (if you use one) for a W-2 adjustment run, or run a Payroll Summary report before closing out 2012 to verify and correct:
- excess SS withheld
- additional amounts paid to employees that must be captured on W-2s, including relocation expense reimbursements, personal use of company vehicles, company-paid educational assistance and other taxable items that were paid outside of the payroll system;
- manual or voided paychecks not in your system;

7. Review 2012 paychecks outstanding more than two pay periods so you have time to void and reissue in time for 2012 W-2s.

8. Get address and social security numbers for all 1099 contractors. Send W-9 forms to obtain this information if needed. Review all names, addresses and tax ID information as well as the categories of payments made for accuracy.

9. Meet with your CPA to review your preliminary totals. There are things you can do now to reduce your business tax liability, such as contributing to a retirement plan or paying employee bonuses, but they often must be done before December 31st. It also may or may not be a good idea to make a large equipment purchase at this time. Depreciation deductions are not as favorable if the majority of the year’s purchases were made in the last quarter. Corporations will need to calculate and pay out shareholder distributions by the end of the year. Talk to your CPA about your tax strategy for this year. Of course, you will want to have your records in order and caught up to reap the most benefits from your meeting.

A Step Up Bookkeeping is available for assistance with getting your record-keeping caught up. Give us a call for a no-obligation consultation at 603-679-2022.

Compliance Checklist: Seven Items You May Have Forgotten

Running a business is filled with regulations everywhere you turn.  These can drain precious time away from the core of your business, but if you ignore them, there could be huge financial consequences you may be risking without even realizing it.  The best way to handle them is to understand your exposure, consult with any experts you need to bring in, create a checklist, and make sure you’re in compliance.

Here’s a head start in creating that checklist.  This is by no means a comprehensive list.  These items apply to most businesses and are often overlooked.   Go through the list to make sure there aren’t any surprises for your business.  If there are, feel free to contact us, and we’ll help you find out where to get answers.

1. EIC notice to employees.

It’s now required annually to notify certain employees about the Earned Income Credit so that more people who need it can take advantage of it.   If you have employees, the next deadline for this compliance item is the first week of February 2013 and can be met if you get the right W-2 forms.  Details are in IRS Publication 15.

2. Corporate meeting minutes.

Just about the first thing the IRS will ask for in an audit is your corporate meeting minutes.  If you are incorporated as a C Corp or S Corp, you need properly formatted and executed documentation of the annual shareholders’ meeting, even if it is just you.  The risk in not having it includes a potential increase in tax liability from undocumented deductions.
 
3. PCI compliance.

PCI stands for Payment Card Industry, and if you take credit cards, you may have compliance requirements under this industry standard.  The standard is designed to provide the cardholder with a minimum acceptable level of security, and your requirement is to maintain certain processes and procedures to safeguard the stored credit card data.

4. Document retention.

While it’s a great thing to go paperless, you may get caught by surprise if you are not downloading and preserving the items you used to have on paper.  The IRS and other agencies still need proof of these items in order to approve the deduction.  This includes invoices that are coming via email in PDFs, bank statements you’ve gone green on, and direct deposit payroll stubs, to name a few.

Fax copies fade after a few years and can catch you by surprise when you go to look up an old record and can no longer read it.  It’s best to scan fax receipts in so they will stay readable for the length of the retention period.

You’ll also want to keep up-to-date on how many years it’s necessary to maintain these items in the case of an audit.

5. New hire reporting.

In small business, most of us are hiring so infrequently that it’s easy to forget this one.  Most state unemployment agencies require that you report new hires within about three weeks of their start date.  The purpose of this is to track fathers who have missed child support payments.

6. Changes in state tax compliance.

As geographic borders disappear and our business expands, we need to regularly re-evaluate state requirements on income, franchise, and sales tax obligations.  It can be too easy to “do things the way we’ve always done them” and forget that as our business expands into new territories, new obligations can arise.
If we’ve hired a virtual employee in another state, we may have new obligations.  If we’ve earned money during a speaking engagement in another state, we may have income to report in that state.    And, of course, if we open new offices in another state, we have new compliance items to deal with.

7. Payroll posters.

Surprisingly, the highest payback item in this list for those of you that have employees may be posting your payroll posters.  Compliance usually costs less than $100, and the fines avoided can be as much as $17,000, a pretty big dent, no matter how big your small business is.
Small Business Compliance

Are You Vulnerable to Fraud?

Three components need to be present in order for fraud to occur:

1. Motivation (or Need)
2. Rationalization
3. Opportunity

When fewer than three legs of the triangle are present, we can deter fraud.  When all three are present, fraud could occur.

Motivation

Financial pressure at home is an example of when motivation to commit fraud is present.  The fraud perpetrator finds themselves in need of large amounts of cash due to any number of reasons:  poor investments, gambling, a flamboyant lifestyle, family requirements, or social pressure.  In short, the person needs money and lots of it fast.

Rationalization 

The person who commits fraud rationalizes the act in their minds:

• I’m too smart to get caught.
• I’ll put it back when my luck changes.
• The big company won’t miss it.
• I don’t like the person I’m stealing from.
• I’m entitled to it.

At some point in the process, the person who commits fraud loses their sense of right and wrong and their fear of any consequences.  

Opportunity

Here’s where you as a business owner come in.  If there’s a leak in your control processes, then you have created an opportunity for fraud to occur.  People who handle cash, signatory authority on a bank account, or financial records with poor oversight could notice that there is an opportunity for fraud to occur with the ability to cover the act up for some time.

Prevention
 
Once you understand a little about fraud, prevention is the next step.   To some degree, all three points on the triangle can be controlled; however, most fraud prevention programs focus on the third area the most:  Opportunity.  When you can shut down the opportunity for fraud, then you’ve gone a long way to prevent it.

The Typical Fraud

The median cost of an occupational fraud case was $140,000, according to the ACFE.  It goes undetected for a median time frame of 18 months.   The most likely way to discover fraud is a tip from an employee who works at the victim organization.

Small Business Vulnerability

Small businesses are the most vulnerable to fraud, because they employ the least amount of fraud prevention controls.  Here are just a few quick tips to help prevent fraud in your organization:

• Create a culture within your organization that deters fraud and provide employees with education about fraud prevention to reduce rationalization.
• Tighten down access to financial areas, segregate duties, and use other internal control best practices to reduce opportunity.
• Provide financial literacy programs to employees to reduce need or motivation.
• The ACFE recommends that small businesses provide employees with an anonymous way to report suspicious activity.

While we hope fraud never happens to you, it makes good sense to take preventative steps to avoid it.  Please give us a call if we can help you in any way.

Six Quick Productivity Tricks So You Can Go Home Early

If you have an endless to-do list, you’re not alone these days.  Most of us are constantly looking for ways to work smarter and get more done.  Here are six quick tips to help your productivity so you can go home early.

1. Group tasks

If you have lots of errands to run during the week, why not set aside one day or a part of a day to get them knocked out all at once?  It saves start/stop time and may also save gas and time getting dressed up (if you work at home).

You can also try grouping tasks such as personal care appointments, doctor’s appointments, sales calls, and client visits.  Your schedule will be freed up in big blocks of time so you can focus on creative projects without having to constantly watch the clock.

2. Use checklists

Checklists are best when you have a task you need to repeat.  They’re great when you’re stressed and don’t want to forget a step (such as in packing your suitcase for a trip).  They’re also great for tasks that repeat infrequently (Now how did I do that last time?)

Stop and take a minute to create your checklist the next time you perform a routine task that you will repeat in the future.  You’ll thank yourself the next time.  


3. Organize your email

If you are using Microsoft Outlook for email, consider getting it to work as hard as you do.  As your email comes in, you can have Outlook sort the low-priority emails that come from lists, Google alerts, social media notifications, and subscriptions into folders.  Create a subfolder in your inbox called “lists.”  Then set a Rule to have that type of email go into the “lists” folder.  This one step will substantially de-clutter your inbox.  

4. Delegate more

If you’re a little wary about delegating, try this exercise:  Look at your to-do list and put an hourly rate next to each task that you are doing.  If someone paid you to do that job, what would you get on the market?  Then look at the tasks with the lowest dollar value next to them.

If you feel your time is worth more than the lowest rated tasks on your lists, it’s time to help someone else out who is unemployed so you can be freed up to use your more valuable skills.

5. Order online

When is the last time you’ve been to the office supply or pharmacy when you know they deliver?  (Yeah, me, too. Enough said.)

6. Avoid long learning curves

Whenever you realize a task will have a really long learning curve, then it’s a red flag that it’s time to find someone to hire to do it for you.  Here are several examples:

• Doing your taxes and researching all the tax law changes
• Installing a new accounting system and customizing it
• Learning about every new social media platform out there
• Writing a legal contract
• Creating a report
• Troubleshooting a computer problem

Create an Easy, Head-Turning Elevator Speech

You’re sitting in a room with 30 other business entrepreneurs.  Each of you has one minute to introduce themselves to the group.  You are number 25 to speak.  Will anyone listen?  What can you do or say to catch your peers’ attention, be memorable, and have them approach you for business?  Most importantly, what can you do to get every business card in the room wanting what you have (so you can go to fewer networking meetings and get back to running your business)?

The good news is you don’t have to be a poet, a writer, or a great speaker in order to attract attention and desire.  All you need to do is put yourself in your potential customer’s shoes for a minute.  What is it about your business, your products and services, and you that would interest a potential buyer?  Why should they care?  Why should they stop what they’re doing from their busy life and listen to you?  It’s easier to answer than it sounds.  Here’s a formula to help you along.

“I help “my ideal client” “get a certain result” through “my products or services.”

Let’s fill in these three blanks by using some examples:

• I help “young families” “find their first house” by “providing mortgage lending services.”

• I help “people with broken pipes” “keep their homes dry” through my “plumbing services.”

• I “protect families from financial disaster in times of crises” by providing “insurance services.”

• I help “women who want to have beautiful hair” “keep their hair healthy and vibrant” with “my all-natural, organic hair salon services.”  

Now fill in the blanks for your business.  You may have to try a couple of variations until you hit on the perfect one for you.  But this formula beats saying “I’m a hairdresser,” “I’m a plumber,” or “I’m a mortgage lender.”

This is a great start to your elevator speech, but just a start.  Now add a second sentence that describes a project you just completed with another client similar to the one you’re talking with.

“For example, I just closed on a home last week with a mom, dad, the cutest 4-year-old twins, and a yorkie.  They got a great rate, and their payment is low enough so they can afford to start saving for the kids’ college right away.”

One more sentence and you’re done.  This one’s your call to action.  What do you want interested prospects to do, and how can they sample your product at a low risk to them?

“I have a free report, “10 Mistakes to Avoid When Buying Your First House.”  If you’d like a copy, please hand me your business card and I will email you the details.”

“I offer a free risk analysis so you can see if you have any major risk exposures.  To set up an appointment, hand me your business card, and I will get you setup free of charge.”

Put all three parts together and you have a very nice elevator speech.

“I help young families find their first house by providing mortgage lending services.  For example, I just closed on a home last week with a mom, dad, the cutest 4-year-old twins, and a yorkie.  They got a great rate, and their payment is low enough so they can afford to start saving for the kids’ college right away. I have a free report, 10 Mistakes to Avoid When Buying Your First House.  If you’d like a copy, please hand me your business card and I will email you the details.”

Don’t be surprised at the flood of business cards that will come your way when you put this in action at your future networking meetings.