Payroll Liabilities

Payroll is perplexing. It would seem straightforward enough, but if you offer health, dental or retirement benefits to your employees, the calculations become more complicated. And how can you be sure you are doing it correctly?

Maybe you outsource your payroll. You should still perform a verification calculation to make sure your service is correct. As an employer, it is your liability.

Maybe you are using your accounting software for payroll. Do you know how to set up the payroll module to perform the correct calculations?

Simple explanation of payroll calculations.

What is the difference in Accrual and Cash Accounting

Accrual verses Cash Accounting can be one of the more difficult accounting concepts for non-financial people to understand. For the small business owner, every transaction is on a cash basis. They understand revenues and expenses, but what is all this accrual stuff?

Why not just use cash as the method for looking at profit and loss. After all, when the bills are paid, the cash account is checked to see how cash is available.

Accrual accounting records revenues earned and expenses incurred for the specific period. For example, paying the annual business insurance premium depletes cash in the month paid. This insurance is going to cover the business for a 12-month period, but the cash outlay occurs in one month or over a nine-month period.

When trying to obtain a line of credit or a business loan, the bank will ask for the financial statements of the business. The statements will include the Profit & Loss and the Balance Sheet. One thing to remember, a Balance Sheet is always on an accrual basis. Balance Sheets record Assets, Liabilities and Owners Equity, which includes the net worth of the business.

Since the cash basis method of accounting only shows revenues received and deposited in the bank, and expenses paid by cash, check, ACH or credit, the Profit and Loss statement may not fairly represent the business sales and revenues.

Cash Basis may seem simpler to use for the business owner. But using a cash basis can have results that make it more difficult to monitor the business profitability on a monthly basis. While your sales may be booming, your customers may be delinquent in paying. Using the cash method, you may see revenues well under the actual monthly sales. Or the net profit is distorted because there were larger purchases in the given month. Accrual accounting takes these events into account when creating the monthly Profit and Loss statement.

Choosing an accounting method is necessary when preparing the taxes for the entity. The method of accounting must be chosen and stated on the first tax return submitting for the business. When choosing, the method chosen should most closely represent income and expense, and the IRS suggests that the method chosen be used for the business record keeping.

In order to fully understand the difference in accrual and cash accounting methods, refer to my article on Helium.

Business Bookkeeping, Payroll and Accounting

When did it become so complicated? Now that you have your small business or home business running, there are more issues to deal with that you hadn’t thought about.

How do you deal with the never-ending payroll taxes and the federal and state filings and payments?

There are customer deposits to apply to outstanding invoices, checks to be written, and cash management.

You need to spend time making your products. You want to spend time selling your service. And now, there isn’t enough time in the day to do everything you want to do.

Do you have to hire a CPA, or a full-time employee to take care of the bookkeeping and accounting issues?

No. Allowances, my bookkeeping and accounting service, can provide the help you need at a price you can afford.

You pay only for the services you want. You pay by the hour, or by the monthly assignment. And you don’t have any additional expenses, like employer social security or medicare payments, state unemployment taxes, federal unemployment taxes, or benefits.

It makes sense, as you are trying to make a profit, that you keep your costs low.

Allowances, penstruckbiz.com, can do this for you. Visit my website and complete the form letting me know what you need. Or send me a quick comment here, and I will get back to you.

Small Business-Ways to Cut Costs

Electricity

This is an easy, simple fix. Turn it off. At their desk, employees have a radio or CD player, a fan, a heater, a computer, and other office equipment, like calculators and printers. Require employees to turn these off each evening.
If you don’t run a second or third shift, power down machinery each night. It is less expensive to bring an employee in 15 minutes before start to power these up.
When replacing equipment, purchase energy efficient. Use copy machines, monitors and faxes that power down when not in use.

Purchases

Analyze who you spend the most with, and ask for a discount. While inventory controls may only want to stock immediate use, if you have the space, buying in bulk can save money.
Take advantage of all discounts vendors offer. Pay your bills on time. This can improve your credit rating and your business financing rates.

Paper and Printing

These are necessary costs for business. I don’t advocate re-using paper in printers, as this reduces the life of the printers, due to ink buildup and debris. But I do suggest that you use recycled toner and ink cartridges. You may have to try one or two providers, but recycled cartridges produce excellent quality.
Shop paper. Choose four paper providers and get quotes. The larger providers will allow you to place an annual order at a reduced price, and warehouse the paper for you.

Employee Costs

Employee costs are always an issue. As you seek ways to reduce these costs, keep in mind that benefits are a big part of an employee’s choice to stay. With the skyrocketing costs of health insurance, it may be wise to ask the employee to contribute a larger portion to retain benefits.
Take advantage of state probationary periods for new employees. Most states have a 28-day policy, where these employees are reported quarterly and receive a lower unemployment rate. You will know within 27 days whether the employee will work out or not, don’t pay higher rates.

Credit Cards and Travel

Establish limits and accountability for company credit cards. Be vigilant. Set up a travel policy based on the IRS current per diem rates. These are the reasonable food and lodging costs of a day’s travel. While employers want to make travelers comfortable and happy, they don’t want to pay for mini vacations.

Business Insurance

Shop this insurance at each renewal date. Even if you have a broker, shop some on your won. Remember, brokers make commissions from their recommendations.

Be Creative

Based on your specific business needs, brainstorm ways to save costs. You may be able to move to 10 hours days four days a week, and save a day of electricity, paper and printing, and more. There may be a scheduling method of production that is more cost efficient. There are possibilities.

To learn more, see my article on Helium. http://www.helium.com/items/1463052-cost-control

10 ways to make Home Based Bookkeeping Easier

Debits towards the window, credits towards the door. Or, Debits on the right, credits on the left. What does this mean to your business? You have cash coming in, and cash going out. You need to concentrate on sales, blogging, contacting customers, and providing service. You know that accounting is part of the business, but, frankly, it’s a pain and you don’t want to deal with it.
These are 10 things you can do to keep your accounting simpler.

1. Keep track of your cash coming in. On ebay, seller has summary reports to let them know what they have sold for the last sixty days. Paypal has account activity reports. These are good tools to use, but also use a columnar pad or spreadsheet to show your income, and keep track of when it was deposited in the bank.

2. Make your expense tracking easier. If you share a checkbook with your business, it is more difficult to separate the business expense from personal. Open a checking account for your business. Open a credit card just for your business. And don’t share.

3. If you open a business checking account, do it where you do your personal banking. This will enable you to share funds.

4. Keep track of what you purchase to make your product. This is your cost of goods sold, and will help you to markup your items to ensure you are making a profit.

5. Use a spreadsheet to track your expenses. Create one spreadsheet, named "My Business", and use the individual sheets within this to log sales, cost of goods, and expenses.

6. Buy a simple plastic bin for holding files. Using hanging folders, label them "Jan Sales", Jan Cost of Goods, Jan expenses, etc and file your customer invoices and receipts by month. If you only want to track detail every few months, this will make it simpler.

7. Don’t let your filing stack up. Do this every day. It takes 10 minutes a day, and you won’t have to suffer anxiety looking at the stacks.

8. Order you supplies on-line and have them delivered to your home. The delivery will come with a packing slip, which will make it simpler to separate the items into Office and Cost of Goods. It also saves your valuable time.

9. Use a spreadsheet to keep track of your customers. Keep all their information in one place, including phone, address and email contacts. Also track when you last called them, worked for them, etc. You can also use this to track the hours you worked for them.

10. Consider purchasing accounting software, such as QuickBooks Pro. After the initial setup, this makes your life much simpler. You can track cash in from customers, inventory items and their costs, jobs you are working on, customer information, information on people you pay, and also how many hours a day you work for each customer.