6 Accounting and Payroll Mistakes That Could Cost Your Business

Wednesday August 20 10AM PT

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1.  How do you maximize your tax deduction and minimize tax exposure?

2.  How frequently should you pay and file taxes to avoid tax penalties?

3.  How do you manage receivables to get cash back into your business?

4.  Is accrual or cash accounting best for your business?

5.  How do you avoid misclassifying employees and contractors?

6.  What payroll and accounting reports do you need to keep on file?

What We Will Cover Today

#1

How do you maximize your tax deduction and minimize tax exposure?

“I’ll take care of these receipts when I prepare my tax return”

but…

Receipts are faded and unclear

You’ve lost some of them

You can’t remember what some of them are for

What Can Go Wrong? #1

●  You miss expenses on your tax return, which

means you have fewer deductions

●  You mis-categorize an expense because the

receipt is unclear, and end up triggering an audit

●  If you have any spending problems you may not

notice them until tax time, instead of when you

could have nipped it in the bud

#1

A Lot Can Go Wrong

●  Track your expenses as they come in

●  Automate the task

●  Monitor your spending and make adjustments as needed

#1

What Can You Do?

●  Add expenses to your accounting solution

as they come in to track every dollar your

company spends.

●  Keep up-to-date records of your expenses

so you can flag issues as they come up

●  Use a provider like FreshBooks to set up

automatic expense import.

#1

Track Expenses As You Go

#2

How frequently should you pay and file taxes to avoid tax penalties?

“I’ll reconcile my tax payments at the end of the year”

but…

IRS and states regulate your tax payment schedule

The frequency of paying employees and employee

taxes is not for you to decide

#2

What Can Go Wrong?

●  You pick the wrong schedule for paying your

employer taxes

●  You forget to file the right forms at the right

times

●  You get fined: 40% of small businesses get fined

an average of $850 per year

#2

A Lot Can Go Wrong

#2

What Can You Do?

●  Do your research up front

●  Pay attention to IRS and state notices mailed to you

●  Consider offloading some of the work

#2 Learn the regulations or outsource it! ●  Learn what your local, state and federal tax obligations

are

●  Check with your state’s department of labor to see if

you need to pay taxes on a semi-weekly or monthly

basis

●  Understand what your filing requirements are (usually

quarterly and annual)

●  Use a full-service payroll provider if you don’t want to

worry about any of this

#2 State Regulations Can Be Overwhelming

Arizona Dept. of Economic Security

Arizona Dept. of Revenue

California Dept. of Industrial Relations

California Employment Development Dept.

California Franchise Tax Board

Colorado Dept. of Labor & Employment

Colorado Dept. of Revenue

Connecticut Dept. of Labor

Connecticut Dept. of Revenue Services

Florida Dept. of Economic Opportunity

Florida Dept. of Revenue

Georgia Dept. of Labor

Georgia Dept. of Revenue

Illinois Dept. of Employment Security

Illinois Dept. of Revenue

Massachusetts Dept. of Revenue

Massachusetts Labor & Workforce Dev.

Nevada Dept. of Employment, Training &

Rehabilitation

Nevada Dept. of Taxation

New York Dept. of Labor

New York Dept. of Taxation & Finance

North Carolina Dept. of Labor

North Carolina Dept. of Revenue

Tennessee Labor and Workforce Dev.

Texas Workforce Commission

Utah Dept. of Workforce Services

Utah State Tax Commission

Washington Dept. of Labor & Industries

#3

How do you manage receivables to get cash back into your business?

“If I just focus on getting customers and delivering good service,

my business will succeed” but…

collecting receivables is just as important

invoices come in at an unpredictable rate

What Can Go Wrong? #3

●  You send the invoice right away, but forget to

follow up

●  You put off invoicing and invoice for the wrong

amount

●  Worst of all, you could potentially forget to

invoice

#3

A Lot Can Go Wrong

#3

What Can You Do?

●  Invoice as soon as the project is finished

●  Track the work you do as you complete it

●  Automate follow ups

●  Use online payments to speed everything up even more

●  Our users, on average, get paid 5 days faster. If they're using

online payments it can be as many as 11 days.

#3 Automate Your Invoicing in the Cloud ●  Access invoices whenever and wherever you need

them

●  Allow for collaboration – everyone can work within the

same system at the same time

●  Always know how much money you have outstanding

●  Give you and your client a paper trail– trace the dollars

you have received back to a “paper” record and your

client has a document showing the money they owe.

Tax officials love this.

#4

Is accrual or cash accounting best for your business?

#4

Definitions of Cash vs. Accrual Accounting

●  Cash Accounting: This type of accounting recognizes revenue

when cash is received and expenses when cash is paid out.

Under this method, there is no accounts receivable or payable.

●  Accrual Accounting: This type of accounting recognizes

revenue and expenses when they are earned, regardless of

when cash is paid in or out.

#4

Cash Accounting vs. Accrual Accounting

Cash Based Accrual Based

Visibility into Cash Flow

Good Ledgers correspond directly to cash on hand

Poor Ledgers account for expenses or revenue not yet paid

Visibility into Long Term Trends

Poor Balances for a particular period can be biased by an influx of payments, regardless of when the sales were actually made

Good Business owners can use trends to predict future costs and revenue

Accounting complexity

Low Income and expenses are recorded in tandem with cash in/out

High Recorded income and expenses do not necessarily reflect cash on hand

“My business is too small for my accounting methods to have any

impact” but…

Your accounting method is a direct insight into the

health of your business

Inaccurate accounting can lead to fines

What Can Go Wrong? #4

●  Under accrual accounting, your business reports

revenue before receiving actual payment, and

you are short on cash this week or month.

●  Under cash accounting, you don’t have a clear

view on your company’s growth because you

only report revenue when cash comes in. You

end up under-investing in your fast growing

business.

#4

A Lot Can Go Wrong

#4

What Can You Do?

●  The choice is yours!

●  Most small businesses choose cash-based accounting because it

is simpler and gives a clearer picture of cash on hand.

●  As you grow, you should consider accrual-based accounting

because it is a better reflection of your company’s long-term

financial health. It also follows accounting’s matching principle.

#5

How do you avoid misclassifying employees and contractors?

#5

Pop Quiz!

Which of these workers qualifies as an independent contractor?

A.  Newspaper carrier paid for each copy delivered

B.  Knife salesman who works on commission, rents his own

office, and pays his own staff

C.  Consultant who works part time for a marketing firm

“I only use contractors infrequently so I shouldn’t have to worry

about the rules” but…

You may be underpaying payroll taxes

Improperly classifying your employee as a contractor

can lead to significant fines

What Can Go Wrong? #5

●  You would be underpaying taxes owed to the

government (employees can cost 25-30% more

than contractors)

●  Nearly 30% of employees are misclassified as

contractors

●  Your business could face serious legal and

financial penalties (states are cracking down)

#5

A Lot Can Go Wrong

#5

What Can You Do?

●  Follow the following charts to best classify your employees.

●  Work with a payroll provider that will properly pay payroll

taxes on behalf of your employee or contractor.

#5

#5

#6

What accounting and payroll reports should you keep on file?

“I filed the proper forms, I’m done!” but…

You may be legally obligated to keep certain

documents on file!

You could lose visibility into your business finances.

What Can Go Wrong? #6

●  May not be prepared if you get audited

●  Don’t keep the necessary employee and

employer tax records on file, leading to potential

fines or additional tax payments

●  Lose payroll records; can’t deliver employment

verification

●  May miss financial warning signs and

opportunities

#6

A Lot Can Go Wrong

#6

What Can You Do?

●  Develop a few go-to reports and metrics for your business

●  Know what documents you need to keep on file

●  Develop a system for storing records

#6

Store your Tax Records

●  Forms to store:

o  I-9: 3 years

o  W-4: 4 years after termination;

o  Employer tax records: 4 years

●  Store forms digitally:

o  A cloud storage system enables you to store

forms digitally and access them any time

o  Modern accounting and payroll providers will

store forms for you and your employees

#6

Develop a Dashboard

●  Metrics to track:

o  Which invoices are outstanding, and how old?

o  How much have I spent, and on what?

o  What work will I be able to bill for soon and for

how much?

●  Reports to create:

o  Accounts Aging

o  Expense Report

o  Profit and Loss

Questions?

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800-936-0383

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support@freshbooks.com

866-303-6061