down2penny

Why Establishing An Expense Policy Is Good For Business

Mon, 21 Oct 2024 17:27:21 GMT

In the fast-paced and sometimes chaotic world of small businesses, managing expenses can be a daunting task. Without a clear and concise expense policy in place, businesses are at risk of overspending which makes it difficult to stay on budget. There is also a greater likelihood of employee fraud which, of course, comes at a cost. To avoid these pitfalls and promote a culture of accountability and transparency, creating a well-defined expense policy is essential for small business owners.

The Significance of an Expense Policy

A well-constructed expense policy serves as a comprehensive guide that outlines the rules and regulations surrounding company expenses. It helps to set clear expectations for employees, ensures compliance with regulatory requirements and helps to promote responsible spending practices. With an expense policy in place, small businesses can streamline their financial processes, minimize errors, and reduce the likelihood of fraud or misuse of funds.

Moreover, a well-structured expense policy fosters trust and transparency within the company. It is a fact that employees are more likely to adhere to guidelines when expectations are clearly outlined and this will result in improved financial management and operational efficiencies. From approving expense reports to reimbursing employees in a timely manner, an expense policy can streamline the entire expense management process and enhance overall business operations.

If your small business does not have a formal, written expense policy in place, don’t worry. I’ve got the steps to help you get on track.

Steps to Create Your Unique Small Business Expense Policy

1. Define Objectives and Guidelines

Begin by determining the goals and objectives of your expense policy. What are the permissible expenses? What documentation is required for reimbursement? Setting clear guidelines will help in laying the foundation for an effective expense policy.

2. Involve Key Stakeholders

If applicable, collaborate with finance, human resources or any other key stakeholders or owners to gather insights and input for creating the expense policy. Consider the needs and concerns of employees when formulating expense guidelines to ensure buy-in and compliance.

3. Establish Approval Processes

Define the approval process for expense claims, including who is responsible for reviewing and approving expenses. Implement clear protocols for pre-approval and post-approval to ensure consistency and accuracy in expense reporting.

4. Communicate Policy to Employees

Once the expense policy has been finalized, be sure to communicate it clearly and effectively to all employees. Provide training sessions or written guidelines to ensure that everyone understands the policy and knows how to comply with its provisions. Owners should consider requiring each employee with purchasing authority to sign a copy of the policy to confirm understanding and a willingness to abide by the established policy.

5. Regularly Review and Update

As the dynamics of your business change, it is critical to review and update the expense policy periodically to reflect evolving needs and situations. Regular revisions ensure that the policy remains relevant and effective in meeting your current business requirements.

Consistency in the application of your expense policy is critical to maintaining ongoing financial control. By establishing guidelines, defining processes, and fostering transparency, small business owners can streamline their financial workflows and promote responsible spending practices among employees. If you don’t yet have an expense policy in place, there is no better time to create one than the present. By taking these proactive steps to develop and implement an expense policy for your small business, you can lay the groundwork for responsible financial control, sustainable growth and a pathway to profitability.

A Guide To Safeguarding Your QuickBooks Online Data

Fri, 09 Aug 2024 17:23:24 GMT

Protecting your financial data is of paramount importance in today's digital landscape. As a QuickBooks Online user, there are essential security measures that you should implement to safeguard your sensitive information. Let's take a look at some best practices for securing your QuickBooks Online data to ensure that your financial records remain safe.

Best Practices For Keeping Data Safe

Strengthening Your QuickBooks Online Security

One of the first steps in securing your QuickBooks Online data is to prioritize comprehensive access controls. This begins with the use of strong passwords, two-factor authentication and careful management of user permissions to limit unauthorized access to sensitive information. Make it a point to regularly review your active user accounts and remove any unnecessary or inactive users to minimize the risk of sensitive information being accessed by those that shouldn't have access to it.

Additionally, ensure that your QuickBooks Online account is connected to a secure internet connection. Avoid using public Wi-Fi networks when accessing your QuickBooks Online data as these can leave your information vulnerable to cyber threats. Always consider using a virtual private network (VPN) to encrypt your internet traffic when away from your home or office to enhance the security of your online activities. In many cases, your internet security software will include a secure VPN application that you can use.

Implementing Effective Backup Strategies

Backup and disaster recovery are crucial components of a comprehensive data security plan. Since QuickBooks Online is a cloud-based application, Intuit routinely backs up your QuickBooks Online data to ensure that your financial records are protected in the event of a system failure, natural disaster or cyber attack. However, it is important to note that, outside of QuickBooks Online Advanced, standard backups performed by Intuit are done so at the server-level at periodic intervals. They are not real-time backups. This means that if you have a need to restore your data, it can only be returned to the point in time that the last server backup was performed. For greater flexibility and safety, it is best to consider a third-party solution that allows restoration to a specific point in time.

When selecting a backup solution, look for options that offer secure, encrypted storage and the ability to restore your data quickly in an emergency. Additionally, ensure that your backup process is automated and that you have the ability to regularly test your backups to verify their integrity and reliability.

Staying Vigilant Against Cyber Threats

Cybersecurity threats, such as phishing scams, malware, and ransomware can also compromise the security of your QuickBooks Online data. Educate your employees on common cyber threats and how to recognize and report suspicious activities. Implement strong antivirus and anti-malware software to protect your internal systems from these malicious threats.

Furthermore, stay up-to-date with the latest security updates and patches for any applications you use that integrate with QuickBooks Online as well as any devices that you use to access your financial data. These regular software updates will help address vulnerabilities and strengthen your overall financial workflow security.

By implementing these best practices for securing your QuickBooks Online data, you can protect your business from financial loss, reputational damage and regulatory compliance issues. Remember, data security is an ongoing process, and it's essential to remain vigilant and continuously review your security measures to ensure the safety of your critical financial information. If you want the peace of mind that a third-party backup can provide, reach out to Down 2 The Penny Small Business Solutions to discuss the option that is best for your business.

Unraveling the Mystery of Small Business Credit

Mon, 17 Jun 2024 17:20:20 GMT

As a small business owner, you're likely no stranger to the world of personal credit, but did you know that your business has its own credit profile, separate from your personal one? Business credit is a critical component of your company's financial health and understanding it is essential for making informed decisions about your business's future. Let's delve into what it is, how you maintain a strong credit profile and what small businesses can do to improve their credit status.

Navigating the Realm of Business Credit

Business Credit and the Foundation for Growth

In simple terms, business credit refers to the creditworthiness of your business, based on its financial history, payment habits and credit utilization. A strong business credit profile can open doors to new opportunities, such as access to loans, credit cards, and other forms of financing. It can also help you negotiate better interest rates, terms, and contracts with suppliers as well as increase your credibility with potential partners and investors. On the other hand, a weak business credit profile can limit your business's growth potential, increase the cost of borrowing and make it more difficult to establish relationships with vendors.

Business credit is often measured in the form of a report with a score similar to what is done when assessing personal credit except that the scoring range is typically different than those associated with FICO scores. The Experian Intelliscore Plus , Equifax Payment Index and Dun & Bradstreet PAYDEX models provide a range of scoring between 0 and 100 while the FICO LiquidCredit Service model uses a scale that ranges between 0 and 300. Unlike consumer credit scores that can be accessed for free, business credit scores often require a paid subscription plan with one of the aforementioned credit reporting agencies.

Maintaining a Strong Business Credit Profile

So, how do you build and maintain a strong business credit profile? The process begins with establishing a business credit history. This can be done by:

Registering your business with the relevant credit bureaus, such as Dun & Bradstreet, Experian and Equifax
Obtaining a business credit card or loan and making timely payments
Keeping your business's financial records up-to-date and accurate
Monitoring your business credit report regularly to detect any errors or discrepancies

In addition to these steps, it's essential to maintain good credit habits, such as keeping credit utilization ratios low, avoiding late payments and diversifying your credit mix. By doing so, you'll be able to demonstrate your business's creditworthiness and build a strong business credit profile over time.

Improving Business Credit

If your business credit profile is less than stellar, don't worry – there are certainly steps you can take to improve it. Here are some valuable tips to get you started:

Pay your bills on time, every time. Late payments can significantly lower your business credit score.
Keep your credit utilization ratios below 30%. This will show lenders that you can manage your debt responsibly.
Don't apply for too much credit at once. This can raise red flags with credit bureaus and lower your score.
Consider working with a business credit consultant or financial advisor to help you navigate the process.

By following these tips and maintaining good credit habits, you will be positioned to improve your business credit score and overcome prior credit hurdles.

It's important to remember that cultivating a healthy business credit profile is an ongoing process, but the rewards are well worth the effort. Regularly monitor your business credit reports, address any discrepancies promptly and utilize credit monitoring services to stay informed. Foster strong relationships with your vendors and ensure that all payments are made on time. By adopting these practices, you'll safeguard your business credit and position your company for long-term success through better interest rates, larger credit lines and increased credibility with potential partners and investors.

10 Common Bookkeeping Mistakes Small Businesses Make

Fri, 19 Apr 2024 17:15:00 GMT

The process of bookkeeping is an essential function for any small business. Keeping track of financial information is not only a requirement of the Internal Revenue Service, but it's also the primary means for equipping small business owners with the tools necessary to make informed business decisions. Despite its significance, however, many small businesses fall victim to a series of common mistakes that often lead to future problems down the road. Understanding these perils—and how to avoid them—can save you time, money and stress.

The Pitfalls To Avoid

1. Neglecting to Keep Receipts

The Mistake: One all-too-common mistake is failing to keep receipts for business expenses. Some small business owners believe that scribbled notes or a collection of receipts for the majority of purchases is sufficient. However, this mindset can lead to issues if the IRS ever comes knocking on your door to conduct an audit.

The Fix: To avoid this mistake, create a systematic way to capture and store receipts. Consider using the QuickBooks Online mobile app's receipt capture function which provides a convenient way to capture and attach digital receipts to your posted transactions. Moreover, establish a routine for identifying and organizing your purchase receipts weekly to ensure that expense substantiation does not get overlooked.

2. Mixing Personal and Business Finances

The Mistake: Another common error is co-mingling personal and business finances. This often happens when owners use personal accounts for business transactions or vice versa. This practice complicates the bookkeeping process and is not best practice.

The Fix: To steer clear of this problem, make sure you open and use a dedicated business bank account for all business purchases. In conjunction, you should utilize a business bank debit card or dedicated business credit card for any point of service or online purchases. This helps to provide clarity during tax season and is a critical step in protecting personal assets in the event that legal issues arise.

3. Inconsistent Data Entry

The Mistake: Inconsistent data entry makes it very challenging to maintain a set of accurate books. If small business owners forget to input transactions on a regular basis, there is a high probability that there will be discrepancies in their financial records.

The Fix: Implement a consistent data entry schedule. Set aside specific times each week to enter financial transactions into your preferred accounting system such as QuickBooks Online. This practice fosters accuracy and ensures that your records reflect the true state of your business finances.

4. Ignoring Reconciliations

The Mistake: Failing to complete bank reconciliations on a regular basis is a serious error that many small businesses make. It is only through this process that it is possible to quickly and accurately spot discrepancies between bank statements and bookkeeping records.

The Fix: Schedule regular monthly reconciliations, ideally as soon as the month ends and your bank has issued a statement for the prior month. By comparing your bank statements with your records, you can catch errors early, reducing the risk of fraud and inaccuracies that could compromise the financial health of your business.

5. Not Using Bookkeeping Software

The Mistake: Relying on spreadsheets or even pen and paper for bookkeeping remains a common practice among small businesses as a means to save money on recurring expenses. Unfortunately, this method is cumbersome, inefficient and often leads to errors.

The Fix: Invest in reliable bookkeeping applications like QuickBooks Online. Transitioning to cloud-based tools streamlines the process, reduces the likelihood of mistakes and provides valuable financial insights through the use of native reporting features.

6. Failing to Track Expenses

The Mistake: Many small businesses overlook the importance of tracking every expense. They abide by the "close is good enough" mantra to exclude minor costs. This approach can lead to inaccuracies in budgeting and reduces the amount of deductible business expenses.

The Fix: Utilize tools such as the QuickBooks Online mobile app to categorize and track every single expense. If the expense is relevant to your business, include it. Over time, including all of your expenses will benefit you come tax time.

7. Underestimating the Value of Professional Help

The Mistake: Many Small business owners often believe that they can manage their own bookkeeping without any professional guidance. This approach almost always leads to costly errors oftentimes requiring additional billed time from your tax accountant.

The Fix: If you are a startup, consider hiring a professional accountant or experienced bookkeeper at the onset to help you structure your records and establish sound accounting workflows. This will save you significant money in the long run. If you are an established business, utilize the expertise of a professional to provide you with invaluable feedback on the health of your business, guidance for navigating complex financial regulations and tips to help mitigate the risk of costly financial recordkeeping errors.

8. Overlooking Tax Obligations

The Mistake: Failing to account for tax obligations can lead to significant financial repercussions for a small business. Unfortunately, some businesses neglect to set aside funds for taxes, thinking they can cover it when the time comes. This is a short-sighted approach that can have real consequences especially as it relates to cash flow.

The Fix: It is imperative to create a tax strategy that includes setting aside funds on a regular basis. Consider keeping a separate tax savings account and transferring funds there on a regular basis. This will help you avoid last-minute scrambling and potential cash flow issues when tax payments are due.

9. Waiting Until Year-End to Get Your Books in Order

The Mistake: Unfortunately, many small businesses wait until the end of the year to prepare their financial records for tax season. This procrastination compounds a business owner's problems as rushed work leads to mistakes which could cause inaccuracies in your tax return.

The Fix: Adopt a proactive approach by maintaining your company's books throughout the year. Take time to dive into your books on a regular basis so you can gain a better understanding of your business’s financial health. That way, you can feel better prepared for tax season with insight into your tax obligations at year-end.

10. Ignoring Financial Reports

The Mistake: Lastly, many small business owners overlook the value of financial reporting. This mistake severely limits their understanding of the business's performance and hampers potential opportunities for cost savings and growth.

The Fix: Regularly review key financial reports, such as profit and loss statements, balance sheets and cash flow statements. In addition, capture and review reports specific to your business to monitor key performance indicators. By understanding the data available in these reports, you can obtain a level of financial clarity that will enable you to make data-driven decisions.

A business owner is tasked with responsibility for every aspect of their business including what it takes to keep the doors open, their customers happy and their employees feeling valued and appreciated. This requires significant time and effort. Add in the maintenance of business finances and you can see how overwhelming things can quickly become. Without adequate attention given to your business finances, you are likely to experience a number of problems. Try to make it a point to improve your knowledge of what it takes to maintain a sound set of books or involve a seasoned professional to help. Either way, make sure that your financial recordkeeping commands the attention it deserves as the risks associated with poor execution can be damaging to you and the long-term health of your business.

5 Essential Financial Reports That Every Small Business Owner Should Know

Mon, 12 Feb 2024 18:05:26 GMT

Successful small businesses thrive on informed decisions and the foundation for these decisions lies in a comprehensive understanding of financial data. As a small business owner, tracking the right financial reports can mean the difference between strategic growth and stagnation. Let's explore the five essential financial reports that every small business owner should be familiar with before making important financial decisions.

The Cornerstone of Sound Decision Making

Mastering the Balance Sheet: Understanding Your Financial Snapshot

The balance sheet is a powerful tool that provides a clear picture of your business's financial standing at a specific moment in time. It outlines your assets, liabilities and equity, thereby giving you a snapshot of your company's overall financial health. By regularly reviewing your balance sheet, you can identify areas for improving cash flow, make informed decisions about investments and debts and ensure your business is on a stable financial footing.

Diving into the Income Statement: Tracking Your Profitability

The income statement, also known as the profit and loss (P&L) statement, is a crucial report that tracks your business's revenue, expenses and net income over a specific period. This report helps you understand the profitability of your operations, identify any areas where costs are high and make strategic decisions to improve your bottom line. By closely monitoring your income statement, you can make data-driven decisions to help you optimize your pricing, gain greater control over your expenses and maximize your profits year after year.

Analyzing the Cash Flow Statement: Navigating the Ebb and Flow of Cash

The cash flow statement is the unsung hero of financial reporting, as it provides a clear understanding of the movement of cash in and out of your business. This report tracks the sources and uses of cash, including operating activities, investing activities and financing activities. By closely monitoring your cash flow, you can identify potential cash flow issues, plan for upcoming expenses and ensure your business has the necessary funds to operate smoothly.

Exploring the Accounts Receivable Report: Knowing What Your Customers Owe You

The accounts receivable report is a vital tool for managing your business's cash flow and customer relationships. This report tracks the outstanding invoices owed to your business, allowing you to identify any late payments or potential issues with your payment processes. By regularly reviewing this report, you can take proactive steps to improve your collection efforts, offer incentives for timely payments and ensure your business maintains a healthy and stable cash flow.

Monitoring the Accounts Payable Report: Staying on Top of Your Obligations

The accounts payable report is the counterpart to the accounts receivable report, as it tracks the outstanding bills and invoices your business owes to its suppliers and vendors. By closely monitoring this report, you can ensure timely payments, negotiate better terms with suppliers and identify any areas where you may be overspending. This report also helps you plan for upcoming expenses and helps to ensure that you stay in the good graces of your most important business partners.

In the dynamic world of small business ownership, reporting holds the key to understanding your progress towards achieving the financial objectives that you have set forth. A commitment to monitoring these five essential financial reports can provide you with a comprehensive understanding of your business's financial health and help you to unlock the full potential of your small business. In QuickBooks Online, you can find each of these reports in the Reports section under the Standard tab or by using the search bar in the Reports section to find the report by name.

Virtual Cards And The Future Of Online Payments

Wed, 13 Dec 2023 08:35:55 GMT

It is safe to say that digitalization has infiltrated nearly every aspect of our lives. The days of swiping cards have given way to tapping them and walking around with your bulky wallet is no longer a necessity thanks to cashless transactions and e-wallets. Virtual cards are a cutting-edge innovation in the online payment space and small business owners should get familiar with the convenience, security, and superior user experience that virtual cards offer.

So What Exactly Are Virtual Cards?

Virtual cards, also known as digital cards or e-cards, are essentially online representations of physical payment cards (like your standard credit card), designed for use in e-commerce and other digital transactions. They are issued by banks or other financial institutions and are linked to an active bank account that serves as the funding source. Like their tangible counterparts, virtual cards contain critical payment information such as the cardholder's name, card number, expiration date, and CVV code. However, unlike physical cards, virtual cards exist in digital form only and the card number, expiration date and security code are all unique. This means that every virtual card you use is different and can only be accessed via dedicated mobile apps or virtual wallet platforms.

Why Virtual Cards Make Sense

There are plenty of reasons why the use of virtual cards by small businesses continues to grow exponentially.

Less Prone To Fraud

One of the primary advantages of virtual cards is their advanced security features. Traditional credit or debit cards are prone to theft, fraud and unauthorized charges as physical cards can be easily misplaced, lost or stolen. Virtual cards, on the other hand, mitigate these risks by removing the physical card altogether. The absence of a tangible card greatly reduces the chances of unauthorized access to sensitive card information.

Seamless Online Shopping Experience

By storing all payment information digitally, virtual cards eliminate the need to repeatedly enter card details for every online purchase, thereby streamlining the checkout process. With just a few simple clicks, users can quickly authenticate transactions which makes online shopping faster and more convenient. In addition, you no longer need to rely on a merchant for safely storing your credit card details online for future transactions which, in turn, makes the whole experience significantly less worrisome.

Greater Expense Control

One item that sets virtual cards apart is the precise spending controls that they offer business owners. Users can create multiple virtual cards, each with a designated spending limit, and use them for specific purposes such as online subscriptions, utility bills or online shopping. This feature makes it easier to stay within budget and cap spending on certain categories of expenses as business owners can establish spending limits on each virtual card so they don't overspend. Just consider how useful this can be when you purchase recurring SAAS (software-as-a-service) subscriptions. Now, you can take back control of auto-renewal payments by limiting the amount that the card can be charged by the vendor. This means that you no longer have to be surprised by annual subscription auto-renewals for software that you never intended to continue using.

Increased Purchasing Flexibility

Entrusting purchasing responsibilities in a small business is almost always limited to a select few individuals because the risk associated with having multiple credit card holders has always been too high. Now, however, spending authority can be extended to more employees because you can establish strict spending protocols so only the amount needed can actually be charged to the virtual card. If an employee no longer needs purchasing authority or they leave the company, it’s as simple as deleting the virtual card or changing its authorized spending limit to $0.

What Makes Virtual Cards So Secure

Unlike payments using traditional credit cards, virtual cards eliminate all of the inherent vulnerabilities of physical cards, such as skimming, card cloning, or interception of card details during online transactions. What sets virtual cards apart from their traditional counterparts are the unique set of security features this type of payment offers.

Limited Exposure of Sensitive Data

When making an online purchase with a virtual card, the user's actual card details are never exchanged with the merchant. Instead, a unique card number and CVV code are generated for the specific transaction. Therefore, even if the virtual card details are compromised, the attacker would not be able to use them to make any additional purchases.

Single Use Nature and Expiration Settings

Virtual cards typically have an expiration date tied to a single transaction or a specific time period. This attribute further strengthens security because even if the virtual card details are intercepted or stolen, they become useless after the transaction is complete or after the expiration date has passed.

Transaction-Specific Security Measures

Virtual cards may also come equipped with additional security features, such as dynamic CVV codes that change periodically. This frequently changing CVV adds an extra layer of security making it more difficult for fraudsters to exploit the card details.

Suspicious Transaction Alerts

Many banks and financial companies that issue virtual cards offer real-time transaction alerts via mobile apps or email. This enables users to quickly detect any unauthorized activity or suspicious transactions and allows for prompt action to be taken such as freezing the virtual card or reporting the incident to the card issuer.

Are Virtual Cards Too Good To Be True?

The list of benefits is long, but it’s important to mention just one item that might prove to be challenging with a virtual card. Refunds can sometimes be tricky due to the single-use nature of virtual cards used to make online purchases. If a merchant requires refunded items to be credited to the same card that was used for the original purchase, it might result in a merchant store credit being issued instead. The best way to steer clear of this predicament is to refrain from using a virtual card if you think there a chance that you may seek a refund for the purchase at a later date. Despite this less-than-ideal scenario, the benefits of virtual cards from a security standpoint far outweigh any potential inconveniences.

Virtual cards have quickly emerged as a secure and user-friendly alternative to traditional payment methods for online purchases. By leveraging emerging technology to eliminate physical cards, virtual cards provide greater protection against fraud, offer complete spending controls and a safe and convenient online shopping experience. As the world continues to shift towards a digital-first approach, virtual cards are uniquely positioned to reshape the online payment landscape for years to come.

If you’d like to explore firsthand the benefits of virtual cards as part of a streamlined spending platform that integrates with QuickBooks Online, consider getting to know my partner, Ramp, and seeing how it can benefit your small business today. You can find more information here .

Mastering The Sport Of Receipt Wrangling

Tue, 10 Oct 2023 08:17:40 GMT

It’s hard to imagine that the key to the accuracy of your tax return may very well depend upon a collection of crumpled slips of white paper, but the reality is certainly true in the minds of the Internal Revenue Service. From what seems like the dawn of modern American taxation laws, many small business owners have struggled with the responsibility of consistently capturing and storing the evidence of their business expenses.

Years ago, we only had to worry about those cash register receipts that were spit out after every in-store transaction. But now, receipts can be distributed in other ways like via email, vendor dashboard downloads or even text message. With all of these avenues varying by vendor, how can a small business owner keep track of it all? The secret lies in having a reliable system in place.

THE EXPECTATIONS OF THE INTERNAL REVENUE SERVICE

In general, the IRS considers business expenses to be tax deductible. Therefore, approved business expenses offset your taxable income and reduce your overall income tax obligation. This is one of the fundamental benefits of owning a small business. With this advantage, however, comes the Internal Revenue Service’s expectation that small business owners will only claim legitimate business expenses that qualify for deductibility.

According to the Internal Revenue Service in Publication 535, a deductible business expense must be both “ordinary and necessary.” Ordinary expenses are those that are common and accepted in your industry and necessary expenses are those that are helpful and appropriate for your particular business. Some common deductible business expenses include rent or lease payments, payroll, consumable supplies, interest, marketing, taxes and insurance.

To motivate business owners to follow the rules associated with properly accounting for business expenses, the Internal Revenue Service has equipped itself with a powerful tool to encourage compliance – the audit. This time-consuming, detailed process allows the Internal Revenue Service to review the expenses you have claimed as deductible business expenses to assess their legitimacy and accuracy. If you cannot substantiate expenses to the satisfaction of the Internal Revenue Service, the expenses will no longer be considered deductible.

So why might this be important? Well, any expense disqualified by the Internal Revenue Service will have a direct effect on your net profit. When you remove these expenses from your books, your profit will subsequently increase assuming all things remain the same. What compounds the problem is that it will result in a situation where you have underreported your profit on your audited tax return which means you didn’t pay enough income tax. Now, not only will you have to pay the additional tax due but you will also have to deal with the consequences of it being paid late which means you will likely be subject to fines and interest penalties on the amount of net income you didn’t report accurately. It’s a problem you definitely want to avoid.

EXPENSE SUBSTANTIATION – THE BASICS

Deductible business expense substantiation is critical to a small business owner’s chances of surviving an IRS audit as it provides the background and rationale for the incurred expense. Typically, expense substantiation comes in the form of receipts or invoices. For expenses, the IRS requires that all supporting documentation include the following:

The payee (who you purchased the item or service from)
The amount that you paid
The method of payment that you used
The date the expense was incurred
A description of the item or service that shows why it would qualify as a business expense

Some business expenses require additional details. Examples include:

Business Meals (Include the names of the attendees and the business purpose for the meal)
Rideshare Expenses ( Include your destination and the business purpose for the trip.)
Gifts (Include recipients name and their relationship to the business.)
Lodging (Include dates of stay and the business purpose for the hotel stay.)
Parking (Include location and the business purpose for incurring the parking expense.)

Be sure that when you store copies of these receipts, you record the additional details needed so you don’t have to try to remember the circumstances surrounding the expense if you go through an audit years later.

DEMYSTIFYING RECEIPT PRESENTATIONS – THE BUSINESS MEAL

Since meal receipts are quite common, let’s take a look at how these are often presented for substantiation purposes. Most meal receipts are consistent with one of these three types:

THE “AT LEAST I GOT ONE” RECEIPT

Look familiar? This meal receipt is usually just the signature portion of the credit card receipt that shows the date, dining establishment, payment method and total along with the cardholder’s signature. This is the most common type of business meal receipt unfortunately.

THE “OH…SO CLOSE” RECEIPT

Presenting this type proves that the cardholder knows what slips of paper to keep after signing for the total at a restaurant, but it still falls just a bit short. It is an improvement over the single signature slip in that it includes the itemized portion of the bill which shows all of the items ordered and their corresponding prices. However, it doesn’t include those added details about the meal that the IRS requires such as who was there and why you were meeting. This is certainly a better option than the first, but there is room for improvement.

THE “MIC DROP” RECEIPT

The cardholder that presents this receipt is a true hero in the minds of the IRS. This receipt includes the signature slip, the itemized food and drink bill as well as notes confirming who was in attendance and the business purpose of the meal. Receipts presented and stored in this manner give business owners reason to feel confident in their expense substantiation protocols and training. Simply store them digitally and forget about them. Job well done!

ARCHIVING YOUR RECEIPTS – THE FINAL ACT

So far, we’ve covered why expense substantiation is so important, what information you need to gather from the businesses your company patronizes as well as when and what additional details the IRS may want you to record. Now what? You need to keep the information safe and secure so you can quickly and easily access them in the event of an IRS audit.

This means scanning and attaching digital copies of your receipts and invoices to the corresponding transactions in QuickBooks Online or utilizing a receipt capture application to take a picture of your receipt or invoice to allow the expense transaction information to be seamlessly and securely pushed directly to QuickBooks Online where it can then be posted to your general ledger.

For some small businesses, they like to attach the appropriate receipt or invoice to the applicable transaction in QuickBooks Online and also store it digitally in a separate internal or cloud-based repository. The process is one of personal preference so long as the data is safe and accessible.

QuickBooks Online has a receipt capture functionality that allows you to use the QuickBooks Online app to upload pictures of receipts that you take using your mobile device. These receipts are then listed “For Review” in your accounting system. While pending review, you can verify the proper account to post the expense to as well as add any other details that you want before it is posted to your books.

For more enhanced receipt capturing functionality, there are third-party applications that integrate with QuickBooks Online and often provide a more customized approach. These applications have more streamlined and organized client interfaces and are generally much more visually appealing in presentation and structure. They also often provide archiving features within the application which allow for quick and easy online storage of any receipts or invoices submitted through the application.

Keeping track of receipts and invoices to substantiate business expenses is an obligation that most small business owners would rather ignore, but the consequences of doing so can be perilous if you are ever faced with an IRS audit. To achieve peace of mind, it’s important to understand what the IRS requires and implement a system that makes the process of expense substantiation simple, fast and efficient for you and your employees. Taking the time to develop a routine for handling business expenses will save you time and money down-the-road – something all small business owners can appreciate.

The Magic Of QuickBooks Online Tags

Sun, 13 Aug 2023 15:42:06 GMT

In this second installment, we look at the robust Tagging feature available in QuickBooks Online. Introduced in 2020, tags allow you to categorize transactions in multiple ways to allow you to aggregate data in any manner that you deem helpful to running your business. By creating customized tags for your business and grouping them in related categories, you can run reports that provide you with more focused financial information. Since their purpose is simply informational, they don’t affect your books in any way so you can use them as much or as little as you want.

To give you an example of how tagging could be useful, let’s say that you own a small graphics design business where you help other small business owners create dynamic marketing materials that they can use to promote their business. As part of your new customer paperwork, you typically ask how they first heard about your services and give them a list of options like Google search, Facebook Ad, word-of-mouth, website or returning customer for instance. With the tagging feature, you could create a group of tags called ‘Source of Business’ and then create tags for each of the categories listed. Then, when you generate your customer invoice or sales receipt, you can designate an applicable ‘Source of Business’ tag to that transaction. The magic happens when you run a report that shows you all of the transactions associated with each tag. This can provide you valuable information on how your customers are finding you and how much revenue is being generated by each source. This can ultimately help guide your marketing strategy.

By using your creativity, you can generate a number of different tag groups and apply various tags from different tag groups to the same transaction. Keep in mind, however, that QuickBooks Online has a limit of 300 unique tags that you can create and use and the number of tag groups is capped at 40 for all QuickBooks Online versions except QuickBooks Online Advanced which allows unlimited tag groups. There are absolutely no restrictions on the number of times that you use each tag in QuickBooks Online.

Tag Along and Let’s See How It Works

STEP ONE

STEP TWO

STEP THREE

STEP FOUR

STEP FIVE

STEP SIX

STEP SEVEN

To apply a tag to a transaction…

Important Note To Remember: You may select as many tags as you would like for a particular transaction.

Once the Tags field is filled with the tags that you want to use on a particular transaction, simply save the transaction as you normally would and the selected tags will remain associated with the saved transaction.

Making Sense of It All

Once you have tagged transactions, the value of tagging really comes into focus. Now, you have the ability to get detailed income and expense data sorted by the tags that you created. Let’s see how you can access that information.

STEP ONE

STEP TWO

STEP THREE

STEP FOUR

STEP FIVE

STEP SIX

If you instinctively gravitate to the Reports section of QuickBooks Online when analyzing financial information, you will be pleased to know that you can also find two tagging reports available there – Profit and Loss by Tag Group and Transaction List by Tag Group.

The quickest way to access these reports is by entering the word “tag” in the Reports search box as shown below.

Then, simply highlight which of the two reports you would like to run. In both cases, once the report is selected, make sure that you designate the Report Period that you desire and also the Tag Group that you would like the report to display which can be selected from the “Display Columns By” dropdown. The default selection is “Ungrouped Tags” and if you have tagged all of your transactions, the report will not produce any relevant data so make sure that you choose a specific Tag Group from the “Display Columns By” dropdown.

It’s as simple as that!

As you can see, there are numerous advantages to using tags in QuickBooks Online to sort data in a manner and format that you find valuable. Keep in mind that tags do not affect your books in any way. They are simply there to allow business owners greater flexibility and more customized insights into their financial information. It’s a great feature and one that I encourage you to try out. #Happytagging!

5 Tips To Help Business Owners Keep Business And Personal Expenses Separate

Fri, 16 Jun 2023 15:06:21 GMT

If you are a solopreneur or you are in the planning stages of your new business, it can be a challenge to keep your business expenses separate from those of a personal nature. Oftentimes, these expenses get co-mingled and that makes it challenging come tax time when you have to isolate the income and expenses of your business. The best approach to deal with this is to make sure you pay for personal expenses with personal funds and business expenses with business funds. Here are 5 tips to help you keep things straight:

1. Open A Business Checking Account at the Same Bank That You Do Your Personal Banking

This is one of the most important steps and should be one of the first actions that you take when you are serious about starting your business. By opening a separate bank account, you will be able to carefully manage your business expenses and control the funds going into and out of your business. Keep in mind that to open a business checking account, banks will require you to have a Federal Employer Identification Number (FEIN) from the Internal Revenue Service. This is a nine digit number issued to your business to identify it for tax purposes. Not every business owner is required to apply for a FEIN, but if you want to take advantage of the perks that come with a business bank account, you must have one. The IRS offers a handy questionnaire to determine whether or not you are required to get one and you can find the link to the page HERE .

Business bank accounts offer many benefits to the small business owner. The single biggest advantage is the clarity it will provide you when it is time to prepare your tax returns. By having a separate bank account that maintains the finances of the business exclusively, you will have a much easier time gathering the figures required at tax time. Other advantages include the ability to accept credit card payments from your customers. Most merchant service providers require a dedicated business bank account in order to process business sales transactions. Maintaining a business bank account also helps to open doors to securing small business loans or lines of credit with your bank down the road.

Ideally, you want to open the account for your business at the same bank that you maintain your personal bank accounts for reasons of simplicity and convenience. When you maintain both personal and business bank accounts at the same bank, you have the ability to link the two accounts inside the online banking portal which makes it a real breeze to transfer funds between the two accounts. This comes in handy when you are in the infancy stages of your business and you are frequently making equity deposits to fund your early business operations. Likewise, once you are established and you want to withdraw funds to pay yourself, moving the funds is as simple as setting up a bank transfer between your business account and personal account.

If you are a sole proprietor and you find that a Federal Employer Identification Number (FEIN) is not required of you and you prefer not to apply for one, you still have options. However, opening a business bank account would not be one of them. In this case, you should at least consider opening a separate personal bank account and treating it as if it was a business bank account by restricting funds entering and exiting this account to business-related transactions only. This will similarly ease the stress associated with untangling your personal and business funds.

2. Apply For A Business Credit Card

So much of what we purchase today is done so online. Many products and services, especially those of a recurring nature, require a credit card on file for monthly payment processing. One of the quickest ways for a business owner to over-complicate their bookkeeping is by using a personal credit card to remit payment for business-related expenses. Not only does this create more work at tax time, but it also leads to a greater probability that these legitimate business expenses slip through the cracks of your accounting workflow and fail to be recorded as such. Remember, legitimate business expenses help reduce your net income and in turn, the amount of tax that you owe so forgetting them costs you money.

The safer option when you are starting and running a business is to secure a business credit card that is tied into your accounting system. That way, you can use that credit card exclusively for business-related purchases. When you connect that credit card account to QuickBooks Online, you will also have all transactions imported directly into your accounting system so you never miss recording a business expense.

When you consider a business credit card for the first time, you want to pay close attention to the card benefits and features offered by the issuing bank. Some of the items you will want to compare include the following:

Annual Fee

Some cards collect an annual administrative fee for your use of the card. However, there are many options that do not.

Welcome Bonus

When you open a business credit card account, many banks will offer you significant rewards points or cash back upon spending a pre-determined amount over the course of the first few months of card ownership. In some instances, the issuing bank may offer you no interest financing for a period of time after you open your account. This can really come in handy with cash flow when you are just starting out and have a number of significant purchases to make.

Ongoing Rewards
Some cards allow you to accumulate a certain number of rewards points for each dollar you spend using the card and these points can be redeemed for products, services, travel, gift cards or additional discounts. Other cards may offer you a percentage of cash back on every purchase you make using the card. Still others may offer a combination of both or perhaps no rewards at all.

Purchase Protection
Many business credit cards provide protection against fraudulent or unauthorized charges. Likewise, some cards also provide protection in the event the vendor fails to deliver on your purchase as expected. This may also apply to travel in the event of a delay, interruption or cancellation of your plans due to circumstances beyond your control. This feature can provide you with a real peace of mind especially when buying online.

Ongoing APR

This is the rate of interest that you would pay on purchases if you carry balances over to another billing period. These can vary from bank to bank.

One thing to keep in mind before applying for a business credit card is to check your personal credit report for any inaccuracies. If you find something amiss, try to rectify the problem with the credit reporting agency before applying for your business credit card. This will give you the best chance to get approved and allow you to access higher credit limits which usually come in handy when running a business.

3. Set Up A Schedule To Compensate Yourself

When starting up a new business, it is not uncommon to see business owners pay for business expenses with personal funds. This is not ideal and causes plenty of unnecessary work at tax time as we have mentioned. For more established businesses, a similar problem rears its ugly head – paying for personal expenses with business funds. Many times, this is because business funds may be more plentiful and easily accessible to the business owner. The situation can also be exacerbated by the fact that business owners fail to compensate themselves on a regular basis so personal funds may be insufficient to cover certain personal expenses.

To lessen the temptation to pay for personal expenses with business funds, it is important to compensate yourself at regular intervals so that you have personal funds available to you to pay for personal expenses. This type of compensation is oftentimes as simple as an equity withdrawal such as a guaranteed payment where funds are withdrawn from a business bank account and deposited into a personal bank account.

By adopting this strategy, business owners can increase the flow of cash into their personal accounts so personal funds remain readily available. Owners can then feel less compelled to use business funds to cover non-deductible personal expenses due to inadequate cash reserves in their personal bank account.

4. Reimburse Yourself In A Timely Manner For Any Business Purchases You Make With Personal Funds

When occasions arise where business expenses have been paid using personal funds, it’s important to make sure that those purchases find their way into the company’s books. This is accomplished most effectively by reimbursing yourself with funds from your business immediately. By doing so, there is less of a chance that these business expenses get overlooked at the end of the year when you are preparing all of the documents necessary to file your annual tax returns.

Ideally, you don’t use your personal funds for business expenses, but if you do, make it a habit of cutting yourself a business check for the exact amount of the purchase as soon as you realize your mistake. Also, be sure to substantiate that check by including all documentation related to the purchase such as the receipt or an invoice detailing the nature of the expense.

5. Use A Unique Business Email Address For Online Business Purchases

When you make a purchase online, your email address is nearly always a requirement. This helps vendors track purchase history and provide buyers with digital receipts that are sent to the associated email address. The reality is that there are a number of vendors such as BestBuy.com, for example, from which you might make both personal and business purchases. As we have discussed earlier, the key is using a unique form of payment for these vendors so that personal purchases are made with a personal credit card and business purchases are made with a business credit card.

To simplify the substantiation step for business expenses, it is a good idea to register a business email address at these “dual purpose” vendors so that you can more easily track the business receipts. Without a separate email address for your business purchases, you will have all of your personal and business receipts sent to the same email inbox. Then, you will be forced to sort through the inbox to distinguish between the personal and business purchases. The responsibility becomes even more challenging if you inadvertently use the same form of payment at the vendor for both business and personal expenses. If you do, you will have to spend time sorting through your inbox for those receipts related to your business. Time that you likely don’t have.

Consider using a unique business login and email address at all vendors that you purchase from online. That way, you can keep a clean record of your business purchase history with that vendor and quickly gather the backup necessary to substantiate the expense.

It’s impossible to understate the importance of separating personal expenses from those related to your business. The Internal Revenue Service has strict guidelines for what qualifies as a deductible business expense and if you overlook those rules by including personal expenses in your business financials, you jeopardize the integrity of your numbers and subject yourself to penalties and interest in the event of an audit. If you use personal funds for business expenses, you potentially miss out on the deductions associated with IRS-approved business expenses which help reduce your taxable income. As a small business owner, do yourself a huge favor and take steps to ensure you keep your personal and business spending separate. You will have more accurate business financials and you will save yourself valuable time each spring when tax time rolls around.

down2penny

Why Establishing An Expense Policy Is Good For Business

The Significance of an Expense Policy

Steps to Create Your Unique Small Business Expense Policy

1. Define Objectives and Guidelines

2. Involve Key Stakeholders

3. Establish Approval Processes

4. Communicate Policy to Employees

5. Regularly Review and Update

A Guide To Safeguarding Your QuickBooks Online Data

Best Practices For Keeping Data Safe

Strengthening Your QuickBooks Online Security

Implementing Effective Backup Strategies

Staying Vigilant Against Cyber Threats

Unraveling the Mystery of Small Business Credit

Navigating the Realm of Business Credit

Business Credit and the Foundation for Growth

Maintaining a Strong Business Credit Profile

Improving Business Credit

10 Common Bookkeeping Mistakes Small Businesses Make

The Pitfalls To Avoid

1. Neglecting to Keep Receipts

2. Mixing Personal and Business Finances

3. Inconsistent Data Entry

4. Ignoring Reconciliations

5. Not Using Bookkeeping Software

6. Failing to Track Expenses

7. Underestimating the Value of Professional Help

8. Overlooking Tax Obligations

9. Waiting Until Year-End to Get Your Books in Order

10. Ignoring Financial Reports

5 Essential Financial Reports That Every Small Business Owner Should Know

The Cornerstone of Sound Decision Making

Mastering the Balance Sheet: Understanding Your Financial Snapshot

Diving into the Income Statement: Tracking Your Profitability

Analyzing the Cash Flow Statement: Navigating the Ebb and Flow of Cash

Exploring the Accounts Receivable Report: Knowing What Your Customers Owe You

Monitoring the Accounts Payable Report: Staying on Top of Your Obligations

Virtual Cards And The Future Of Online Payments

So What Exactly Are Virtual Cards?

Why Virtual Cards Make Sense

Less Prone To Fraud

Seamless Online Shopping Experience

Greater Expense Control

Increased Purchasing Flexibility

What Makes Virtual Cards So Secure

Limited Exposure of Sensitive Data

Single Use Nature and Expiration Settings

Transaction-Specific Security Measures

Suspicious Transaction Alerts

Are Virtual Cards Too Good To Be True?

Mastering The Sport Of Receipt Wrangling

THE EXPECTATIONS OF THE INTERNAL REVENUE SERVICE

EXPENSE SUBSTANTIATION – THE BASICS

DEMYSTIFYING RECEIPT PRESENTATIONS – THE BUSINESS MEAL

THE “AT LEAST I GOT ONE” RECEIPT

THE “OH…SO CLOSE” RECEIPT

THE “MIC DROP” RECEIPT

ARCHIVING YOUR RECEIPTS – THE FINAL ACT

The Magic Of QuickBooks Online Tags

Tag Along and Let’s See How It Works

STEP ONE

STEP TWO

STEP THREE

STEP FOUR

STEP FIVE

STEP SIX

﻿ STEP SEVEN

Making Sense of It All

STEP ONE

﻿ STEP TWO

STEP THREE

STEP FOUR ﻿

STEP FIVE ﻿

﻿ STEP SIX

5 Tips To Help Business Owners Keep Business And Personal Expenses Separate

﻿ 1. Open A Business Checking Account at the Same Bank That You Do Your Personal Banking

2. Apply For A Business Credit Card

3. Set Up A Schedule To Compensate Yourself

4. Reimburse Yourself In A Timely Manner For Any Business Purchases You Make With Personal Funds

STEP SEVEN

STEP TWO

STEP FOUR

STEP FIVE

STEP SIX

1. Open A Business Checking Account at the Same Bank That You Do Your Personal Banking