We were forced to balance our expenses with our income (aka; budgeting).  We got a firm hand on what our business is spending, what we could afford to spend, and what our priorities were.  Small business owners fought hard and adapted quickly to stay open and found new and creative ways to service customers.

If you started a business in the first three months of 2020, you faced the toughest battle you ever could before your business even got off the ground.  You have now joined the ranks of many seasoned business owners who have struggled through some tough times.

This article will point out a few strategies for you to use (if you have not done so already) to help create a better business spending plan.  It may be difficult but not impossible.

Reduce Costs with a Budget Cut

First, let’s review some budget cutting strategies:

• If you are currently carrying a balance on your business credit card, contact the credit card company to request a lower interest rate.  Better yet, apply for a new credit card with 0% interest for the next 12 months and transfer the balance onto that new card.  Tip:  continue to make payments on the 0% interest card to help lower the balance when that introductory period is over.  Also, if you need to use that card, pay the purchases off immediately and add a little towards the existing balance.
• If you have loans from other creditors, request to make interest only payments for at least 3 months while you restructure your budget.
• Shorten your business hours, if possible, to reduce payroll and utility expenses.  Choose the least busiest day of the week.
• Reduce inventory to a minimum but plan for small spikes in customer traffic, especially around holidays.  Keep high demand inventory.
• Request your insurance agent to search for better rates on your business liability, vehicle, and worker’s compensation insurance.
• If you have a copy machine rental contract, contact the representative to adjust the contract to a lower monthly rate.

Breakdown your Small Business Spending

Next, let’s break open the books to review the spending habits and revenue of the past to create a new one for this year.

• For revenue, let’s speculate there will be at least a 7% increase over the total amount made last year.  Take last year’s revenue and multiply by 7%.  Add that total to last year’s sales and that will hopefully be your new revenue this year.  This will be your budget starting point.  (7% is a theoretical figure not based on anything other than the hope that more customers will venture out this year and the economy improves.)
• Hopefully you will be able to save some money from the budget cutting strategies above so you can utilize the savings elsewhere in the better business spending plan you are about to create below.
• Go through each of your expenses on your Profit and Loss statement for the past two years to come up with an average for each expense for the new year.  This will take some thought because two years ago you might have spent too much for a particular expense and in 2020 found out it was actually not a priority and spent half as much.  Plus, you might have achieved some of the budget cutting strategies above and will want to use the new expense amount rather than the average over the past two years.  You will also want to decide what is essential for your business and what is not at this time.

Use a Small Business Budget Template

To help you create this better business spending plan I have listed below two of my favorite templates:

• The Budget Template by Capterra.com is great for small businesses already in operation.  All you have to do is plug in your new yearly budget (see tabs on bottom of the template) and it auto-fills the monthly budget for you!  Click Here for template.
• The Startup Budget Template by Gusto is great for new businesses that are planning to open.  Click Here for template.

If you currently use QuickBooks Pro desktop, it already has a budget template built in to the software that uses your current Profit and Loss items.  At the top menu bar choose “Company”/”Planning & Budgeting”/”Set up Budgets.”  For QuickBooks Online click on the gear icon/Tools/Budgeting.

DMS is committed to making sure your business grows in the coming year.  Please contact us to help you create a better business spending plan for 2021 and beyond.

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How can you file a tax return if you don’t know if the loan will be forgiven, or your bank has not yet “invited” you to file an application for forgiveness by Dec. 31, 2020, or you base your “theory” on anticipating it will be forgiven?   (Yes, my bank was by invitation only, and I was not invited to apply for forgiveness until PPP Round 2 was open for applications.)

The IRS and the Treasury both issued a revenue ruling and a revenue procedure basically stating that since businesses aren’t taxed on the proceeds of a forgiven PPP loan, the expenses aren’t deductible.

In Notice 2020-32 it stated under the LAW section, “On May 2, 2020, the Department of the Treasury and the Internal Revenue Service (IRS) released Notice 2020-32, 2020-21 IRB 837 (May 18, 2020), which clarifies that no deduction is allowed for an eligible expense that is otherwise deductible if the payment of the eligible expense results in forgiveness of a covered loan.”

It further states in Revenue Ruling 2020-27 under the HOLDING section, “A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred [IF], at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.”

You can make your own tax decision on the statement shown in the above paragraph.  However, some tax professionals and government officials wanted more clarity and rallied to the cause for more guidance.

On January 6, 2021 the IRS and the Treasury Department issued a notice IR-2021-04, stating they “issued guidance” today, Revenue Ruling 2021-02.  The notice states “[they] are allowing deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP).”

That is good news…but wait.  All that is forgiven Federally will all be reversed in the State of Wisconsin because it mostly conforms to an outdated version of the Internal Revenue Code (IRC).

Then on February 18, 2021, Governor Evers signed a bill (AB-2) that will conform the State to Federal tax treatment of forgiven PPP loans, among other provisions.  What that means is, if it is an eligible expense on the Federal tax return, then it is treated the same on the State tax return.  Now that’s great news!

The fuss and confusion are now over with.  You are now free to categorize your expenses paid with PPP funds as business expenses.  And, if your PPP loan has not been forgiven yet, keep it categorized as a short-term liability until it is fully or partially forgiven.  The portion that is forgiven should be categorized as other income (nontaxable) and not included in gross business income.

Diversified Management can help your small business manage accurate financial records. For a free consultation or more information contact us by filling in the inquiry form or calling us directly.

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Money management is a critical skill to have as an entrepreneur. Keeping your finances in check and planning ahead can help your small business thrive, today and far into the future. It is also important to create a revision schedule that allows you to maximize income over time Use this guide to master small business budget management.

Benefits of Having a Business Budget

Why take the time and energy to hammer out a small business budget? It can prevent you from going into the red by spending money you don’t have. It enables you to set monthly revenue goals and control cash flow. Sticking to a budget will leave enough room each month to pay your bills and business debts. Budgeting can bring many other benefits to business as well:

• Project overhead costs so you can accurately set your prices
• Compare your prices to competitors and make changes to the budget as necessary
• Adapt to changing conditions, such as slow sales months
• Allocate resources to certain projects
• Monitor your business’s overall performance
• Predict and prevent problems before they occur
• Set goals and encourage staff motivation
• Plan for the future

Managing your money is a key to business success. You need to have open visibility into the resources available to your business to remain profitable. Managing a budget gives you a roadmap to track where your company is going. Your budget does not have to be complicated. You simply need to include the right numbers to keep track of what’s coming in and what’s going out.

What to Include in Your Small Business Budget

Creating a small business budget starts with identifying a few key numbers; mainly, your revenues, expenditures, and profits or cash flow. First, estimate your projected sales for the budget period. Most small businesses plan budgets annually, but you can assign whatever period makes you comfortable. Then, identify the direct costs associated with your sales. This may include the costs of materials and manufacturing. Next, identify fixed costs (overhead costs), such as:

• Rent or mortgage payments
• Utilities
• Costs of staffing (don’t forget to include yourself)
• Vehicle expenses
• Equipment costs
• Printing costs
• Marketing expenses
• Professional costs, such as insurance

If this isn’t your first business budget, analyze your past budget. What were your successes? Failures? How was your performance last year, and how does it align with your targets for this year? Use last year’s figures as a guide, but factor in your current sales plans and business environment. Draw up your budget as realistically as possible. Your budget should let you easily monitor costs, expenses, working capital, sales, and other key numbers.

Use Your Budget to Measure Small Business Performance

A strong, carefully calculated budget gives you a guidelines on which to base future financial plans. It lets you realistically estimate future sales, set limits for expenses, and ultimately evaluate business performance. The difference between your income and expenses gives you a critical insight into how your company is doing. The larger that number, the more profitable your business. If that number starts to shrink, assess what your company could be doing differently to save money. During high points, put money aside to cover the slow seasons. That will keep your business stable year-round.

Managing Your Budget

Once you’ve created your small business budget worksheet, manage your budget by keeping an eye on it regularly. Updated it as needed, and check in on your income vs. expenses regularly. Identify places you may be able to trim expenses, such as office costs, or invest more money into projects that will grow your business during a profitable period. If you do not have the time to dedicate to your budget, hire a dedicated accountant to do so for you. Keeping track of your budget through tight management is critical for the future health of your company.

Why You Should Review Your Budget Often

It is not enough to set your budget and forget it. Your small business budget is something you must review often for optimal financial planning. Evaluating your budget – and your performance through your budget – gives you the information you need to adjust areas of business to improve the way you do things. Your budget can help you find motivation to improve customer service or communication with suppliers, for example. Reviewing your budget often gives you the power to conquer many aspects of business, such as:

• Greater ability to plan.

  You cannot plan for the future if you are in the dark about how much money you will have at that time. Without budget reviews, you could be headed toward bankruptcy and not even know it. Regular reviews put the power in your hands to map out your budget, avoid disasters, and predict the future of your company.

• Transparency with goals.

  Keeping up with a budget lets you and your staff see how far away you are from your sales goals. This lets you map out benchmarks and motivate employees to reach certain numbers each period, and ultimately make more money.

• Visibility into unnecessary expenditures.

  Your small business might have needed a service when you first started, but now you may realize it is an unnecessary expense. Reviewing your budget often gives you opportunities to eliminate expenses, save money, and increase your bottom line.

• Effective cash flow management.

  Using an up-to-date budget helps you successfully manage your business’s cash flow. You and your team can identify what goals you need to hit for the next budgeting period and what you need to do to make them a reality.

• Greater profitability.

  Reviewing your budget gives you the power to be flexible with your expenses and make changes to achieve greater profitability. Keeping track of how your company is faring lets you play with different strategies in each budget period. Then, you can stick with the one that works the best.

Reviewing your small business budget lets you decide whether it’s time to make some revisions. Revising your budget as your business grows, shrinks, or changes gives you the ability to achieve your objectives. In fact, many experts suggest revising your budget monthly. Keeping a close eye on your budget lets you control spending, stay realistic about your company, and plan for the future.

How to Revise a Small Business Budget

Don’t wait until debt swamps your company to make necessary budget cuts. Instead, review and revise your budget often to stay in control of your company’s profitability. Set aside time to revise your finances at every monthly or quarterly business review. If you experience cash flow changes, you should also revise your budget. Once it’s time to make a few revisions, get the whole team involved. If you have multiple departments, a head from each should be in on the budget revisions.

Revise your budget according to the needs of short-term projects and long-term goals. If you recently debuted a new product or service, revise your budget until you have actual numbers for manufacturing costs and sales income. Make allowances for single events, such as a major problem with defective products. Revising for allowances can help your company avoid bankruptcy if an unexpected problem occurs. These types of revisions can keep your company healthy no matter what comes your way.

Budget revision is not a one-time thing. It is an ongoing process. Your small business is dynamic. It needs a flexible, transparent, and up-to-date budget to stay on top. Revising your budget regularly is part of smart money management. If you need professional help with creating, managing, reviewing, and revising a small business budget, partner with the experts at Diversified Management Services, Inc. We can help you follow a business plan and set up important accounting processes, to help you achieve your short- and long-term goals. Contact us today to start with a customized business plan.

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Why Is Financial Management Important?

Many small business owners are not accountants. They are creative thinkers and entrepreneurs who may not have a background in money management. If this sounds like you, it is important to understand the value of at least basic financial knowledge. If you do not know the basics, you are missing vital insights into how your business is doing. To successfully grow your business over time, you need some of the essential facts about financial management. Even if you hire a financial planner or accountant, you should personally have a grasp on the most essential pieces of information to better manage your business.

Accounting 101

You cannot successfully manage a small business’s finances without at least knowing the basics of accounting. Accounting refers to the process of maintaining financial records. Accounting software helps you stay organized. The right software program makes it easier to input data and understand your profits and losses. You can monitor your revenue and expenditures, and receive alerts when something is amiss. If you do not have the time to dedicate to accounting, hire a professional to handle financial management for you. Trusting your finances with the right person can make all the difference to the success of your small business.

How to Create a Budget

Budgeting is another mainstay in small business financial management. Without a solid budget, you have no guidance for your future endeavors. Your company needs a strict, strong budget to guide business decisions. Otherwise, you could end up in the red and forced to close your doors. Here are a few basics of budgeting you should know:

1. Expenditures.

A list of all your start-up costs and ongoing expenses, including insurance costs, supplies, manufacturing costs, rent and utilities, advertising, permits, stock, staff wages, and equipment costs.

2. Income.

An up-to-date projection of revenue coming in, typically from product or service sales. You should estimate the sales your business will make during your budgeting period (typically one year). Your gross revenue is a sum of all the income you have received from customers, before taxes or deductions.

3. Net profit.

Also called net income, net earnings, or your bottom line. The difference between your projected expenses and revenue, or net profit, is the amount of money your company is making for the period. This number lets you assess how well – or poorly – your company is performing.

4. Cash flow.

Your cash flow forecast will anticipate projected revenue and expenditures over a 12-monoth or shorter period. Cash flow gives you insights into whether you will have extra money or need to trim the budget, so you can make smart decisions for the future.

Budgeting puts you in control of your business. It gives you insights into where you are doing well and where your business plan may need work. Knowing and understanding your small business’s numbers can give you a handle on finances now and in the future. This can help you avoid dangerous mistakes, identify what makes the most profit, and have a plan on how to capitalize on moneymaking opportunities.

Most Important Money Management Documents

Managing small business finances takes a lot of paperwork. Your accounting department will need to keep up with certain documents to pay your taxes, apply for business loans, and track your profitability. Understanding what documents you need to track your spending and map your future finances can help you get started. A few of the most important documents to know are as follows:

• Balance sheets.

Balance sheets provide a snapshot of where your business currently stands financially. It lists your company’s net worth based on assets and liabilities. Your accounting department should generate balance sheets regularly to keep track of how things are going. Set aside time at least once per month to analyze balance sheets.

• Profit and loss sheets.

Profit and loss statements, or income statements, summarize a year’s worth of business income and expenditures. This allows you to determine your net profit (or loss) for the year. An accurate profit and loss sheet can give you guidance as to what to change in the future.

• Cash flow statement.

Your small business needs enough cash on hand to cover monthly bills and expenses. A cash flow sheet tracks your revenue and expenses during a specific time period, such as a month. Cash flow gives you insights into whether you need to cut back on expenses to meet your financial responsibilities for the period.

• Forecasts.

One of the main advantages of staying on top of financial management is the ability to make accurate predictions about the future stability of your company. Revenue forecasts take past performance to project the future income of your business. Forecasts can help you make educated decisions about your company, such as whether you have enough income to hire a new employee or create a new product.

Keeping up with financial documentation helps you avoid unwelcome surprises, such as learning you don’t have enough in your monthly budget to cover business expenses. It also gives you the information you need to make smart decisions for the future. You may want to wait on hiring someone new, for example, if your profit and loss sheet shows that your company is currently breaking even. Creating and reviewing accurate, detailed financial documents can keep you informed about the state of your business.

Common Challenges in Small Business Financial Management

Small business financial management is complex. Whether you are new to business planning or an established owner, you could encounter common challenges that throw your budget off track. Recognizing potential roadblocks is the first step in planning and preparing for them. You can typically prevent finance issues with accurate financial planning. Ignoring your budget, however, is asking for problems such as:

• Cash flow interruptions.

Issues with cash flow can occur during slow periods. If you do not plan your budget ahead to accommodate cash flow crunches, you could encounter serious problems – such as not being able to pay your employees. Use cash budgets and financial planning to cover dry spells during the year so you don’t have to go into debt.

• No money for production.

If your profit and loss statements are showing lack of funds to continue production, leverage available assets as a solution. Raise money by using your assets as collateral to secure loans or increase the equity in your business. Be careful, however, not to leverage too many assets. This could be the equivalent of handing over ownership of your business.

• Paying taxes.

Do not ignore tax planning in your financial management solution. The Internal Revenue Service is very strict when it comes to a business paying their taxes. Learn about the current tax laws and follow all applicable rules. Take advantage of opportunities to save on your taxes, and pay on time to avoid penalties and interest.

Knowing what to expect puts you ahead of the game. You can confidently map your strategy, make room to accommodate potential pitfalls, and track how your company is doing with smart financial management. Thinking ahead about the specific problems your company could face based on personalized information about your finances can put you in the power seat. Keeping up with financial documents is the best way to foresee and avoid major issues.

Do You Need Help With Small Business Financial Management?

Managing the money at your startup can feel overwhelming – especially if you do not have a background in accounting. Luckily, you don’t have to tackle financial management alone. Diversified Management Services, Inc. can help your small business stay on track and capitalize on opportunities for growth with comprehensive solutions. We can handle bookkeeping, accounting, payroll, and other tasks for your small business in Southeastern Wisconsin. Whether you need QuickBooks training or want to develop a personalized system to successfully manage cash flow, we can help. Submit our contact form today for more information.

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10 Types of Small Business Financing

You have many different options when trying to decide how to finance your small business. Some of the basic opportunities may first come to mind, such as a small business loan or securing investments. Yet there are several other choices you may not know of, such as factoring or state grants. Read about each potential option thoroughly before making your decision. Each will have pros and cons. Here are 10 of the most common options:

1. Self-funding.

Self-funding your small business puts you in the best place financially, since you will not owe anyone interest or start off indebted to someone else. If you start a business with enough capital in a savings account, you won’t have to repay anything. Consider tapping into your 401(k) or selling some of your assets to gain working capital to start your business. You may also be able to partner with someone else who can split the startup costs with you. Just make sure if you self-fund that you have enough to cover the costs without going bankrupt.

2. Sales revenue.

If you already have a successful business, use available sales revenue from that business to fund your new venture. You could also use sales revenue from customers you already have lined up, if they are willing to wait to receive end products. Using existing sales or income gives you all the benefits of self-funding without having to drain your savings accounts. Business growth may be slower with this strategy, but you will not have to pay back a loan.

3. Family and friends.

Turn to family and friends for loans before you turn to banks. Family and friends will most likely give you a better deal on interest – or, if you’re lucky, not charge interest at all. However, borrowing money from people you know can present problems, such as friends trying to become board members of your business or have a say in decision making. Draw up an actual contract with clearly defined repayment terms to avoid issues down the road.

4. Small business loan.

A small business loan is best for startups with few assets and moderate annual income. Obtaining a small business loan involves proving to a bank that your company is a good investment. You will need to establish your revenue, income generated, business plan, number of employees, and some type of collateral for the loan. Learn more about small business loans through the Small Business Administration.

5. Credit cards.

Although it may be possible to max out credit cards to fund your small business, this is a risky route that should be a last resort. You can destroy your credit score and end up with thousands of dollars in interest payments and penalties if you fall behind on your payments. Paying off just the minimum can create a hole of debt you are stuck in for years. Using credit cards responsibility, however, may be able to help you escape the occasional cash flow crunch.

6. Investors.

Investors believe in your business and want to help you by lending you money. You need to win over investors by demonstrating your company’s ability to survive economic downturns and rough patches. First, research investors or venture capital firms to find one that is reputable. Share your business plan with the investor, and cooperate with the due diligence review of your company. If the investor bites, work out the terms of the investment. Note, however, that venture capital investors may become actively involved in your company. You should at least keep investors in the loop when you make major changes or sales.

7. Peer-to-peer lending.

This type of loan is easier to get than a small business loan, and generally has lower interest rates. This loan goes to your personal accounts rather than business accounts. You need a good credit score to qualify for this type of loan (around 640 or higher). The maximum amount you can typically receive through a peer-to-peer loan is $25,000.

8. Crowdfunding.

Crowdfunding uses funds from a large group of people who do not expect financial returns on their investments. You can start a crowdfunding campaign on many different sites, often for free, and pitch your passion project to the masses. If people are intrigued, they will contribute to your startup by giving you funds. You can then repay these crowdfunders with a product or service once you’re up and running. Unlike typical investors, crowdfunders will not have a say in how you run your business.

9. Factoring.

Factoring can get you cash up front to help cover the costs of running your business. You can sell your accounts receivable to a factoring company for cash up front, rather than waiting for your customers to pay their invoices. Factoring is most appropriate to cover gaps in cash flow, especially if you have a lot of outstanding accounts receivable. One of the cons, however, is that most companies charge a fee that equals a percentage of the total amount.

10. Grants.

State and federal grants may be available to help start your business. You do not need to repay grants, making them an excellent source of startup capital. The Small Business Administration establishes certain size standards for different industries. If you meet these standards, you could qualify for a small business grant through a state or federal government agency. Start by at your state’s Small Business Development Center. This is a network of sites that can give you advice on how to finance your business. It may have information about available grants.

Obtaining funds for your small business takes looking in the right places, as well as knowing your goals and current financial situation. Establish your goals for your startup. Then, analyze the current sources of capital that may be available to you. Look at your credit score, personal financial history, and business expertise. Then, assess your ability to pay back a loan. Assess interest rates you might receive based on your credit history. Research the key differences between sources of funding to make an educated decision moving forward.

How to Successfully Manage Repayment

If you use a common strategy that requires repayment of an investment or loan, map out a strategy on how you will repay what you owe. Planning exactly how and when you will repay your debts can help you avoid significant issues such as owing thousands of dollars in interest or missing payments and suffering penalties. Knowing exactly what you are getting yourself into can inform your business strategy for the future and let you proceed with confidence. Here’s how to tackle loan repayment:

• Calculate interest rates. Before you sign on for a loan, find out your interest rates. These can vary significant depending on your credit history and the terms of your loan. Understand the predetermined interest rate on your loan and factor it into the total amount you will owe the bank or investor.

• Understand the terms. Read the fine print on your loan documents. One of the most important terms to know is how long you have to repay your debt. Some lenders may have a deadline, while others do not. Even with an imposed deadline, however, you should map out exactly how long it will take you to pay off a loan. This can inform your financial management for the future.

• Sign up for automatic payments. Most loans require monthly payment installations until you have paid back what you owe. If you can, schedule automatic payments to banks or lenders. Automatic payments sometimes come with perks such as lower interest rates. It can also protect your credit score and save you money in penalties by preventing late or missed payments.

• Master financial management. Create a strong business plan that includes how you will manage your company’s finances for at least the next 12 months. Draw up a budget that includes any payments you need to make on loans as one of your expenses. Stick to your budget to repay your debts without sinking the company. Having a smart financing plan can expose opportunities to save money.

Have a plan for how you will manage repayment before you ever agree to financing. Look toward the future when deciding which funding option to accept. Choose the option that will work best for your startup in the long run. If you need assistance setting up your company, creating a business plan, mapping out cash flow, or managing other money matters, contact Diversified Management Services, Inc.

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Online Scams

Online scams are not new, but are ever-evolving as scammers think up new ways to scare small business owners into revealing too much information.

• Phishing. Tried-and-true, this scam has been around for years – mainly because it works. A bank, credit card company, or some other reputable service has supposedly sent your business an email. In it, they ask for login credentials, account information, or other sensitive information, and ask that you either reply to the email or click on their supplied link to log in. Once you do, the scammers have all the information they need to access your business accounts.
• Tech support scams. Scammers inundate your business’s computer with popups, locks, or emails which claim your business is in danger due to computer insecurity. Pay them, and they’ll fix the issue, they say. Instead, the scammers now have your money as well as access to critical information on your computer such as passwords and account information.
• Invoice scams. Scammers know your business responds to multiple invoices at a time, and they’re counting on your inattention. Fake email or paper invoices are sent in the name of services you may actually use, in the hope that they’ll be paid.

Phone and Other Scams

Most of these scams have been around for decades, with a few new twists scammers are using to make them believable for 2019.

• Utility company or IRS scams. These phone scams tend to work via a representative claiming to be from the local utility company or a government agency like the IRS phoning the business during prime or rush hours, claiming immediate shutdown of power or IRS penalties if the business owner doesn’t pay up.
• Unordered office supply scams. The scammer calls to confirm a common office supply order or verify your business’s address. Once you say yes to an unrelated question, unauthorized supplies are sent to your business address, complete with a recording of your voice saying ‘yes,’ supposedly to the new order. The supplies come at a high price and with threats for non-payment.
• Government worker impersonation. Scammers appear at your business or send an email or letter claiming to represent government agencies threatening to suspend your business license or impose fees if you don’t make a payment. Other scams involve selling official compliance posters that should be offered free of charge.
• Overpayment scams. Pseudo-potential customers pay by check via mail, only to realize too late they’ve overpaid. Pay them back via wire transfer, and you’ll soon find out their original check is bad.

How Can Your Business Avoid Scams?

These are some of the most common, but certainly not all of the scams targeting small businesses today. Make sure you and any employees are aware of ways your business may be at risk. A reputable bank or government agency will never request full account information via email or by phone, so train employees with access not to give it. Finally, verify all invoices and payments to ensure your money is going where you intend.

Diversified Management can help your small business avoid scams. For a free consultation or more information contact us by filling in the inquiry form or calling the number listed.

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What to Do:

• Do review your statements. Credit card companies are not without fault, and credit card fraud is rampant. Make sure to account for all charges made on your business’s behalf by you or your employees. Missing a statement means you’re missing an entire month of any fraud that may be occurring, and that’s a miss you’ll pay for later.

• Do pay the full balance. Whenever possible, pay off the full balance at the end of the month. Many small business cards allow you to keep 0% interest as long as there isn’t a carryover balance, but rack up some debt and you’ll be paying interest. This can make it harder to pay the full balance the next month and lead to a slide that ends in a huge pile of debt.

• Do pay on time. Even a day-late payment can result in a large service fee and hurt your credit in the process. Since credit cards are just one more in your business’s already large slate of expenditures and receipts, set a reminder or routine that helps you remember to make your payment.

• Do use your rewards. Credit cards for small businesses often come with rewards – contact your provider or read your statement to find out what yours are. Whether it’s cash back or airline miles, make sure you’re using them to get the most out of your cards.

What Not to Do:

• Don’t mix personal and business funds. Commingling is against the law in some cases. In others, it can make tax filing more difficult, or affect your eligibility for grants and contracts. Your safest bet is to keep personal and business finances completely separate.

• Don’t overspend. This sounds obvious, but can be difficult. Formulate a budget by viewing expected revenues, subtracting expenses, and making sure your credit card spending doesn’t put your business in the red.

• Don’t forget card security. Fraud is at an all-time high, so be wary of credit card scammers, employees who may be using a card improperly, and devices such as skimmers and scanners. As mentioned earlier, reviewing your statements is necessary to catching fraud before it becomes unmanageable. In addition, keep track of passwords, access information, and your physical card so it doesn’t fall into the wrong hands.

Business credit cards can be an asset if you manage them well. Follow these tips for handling your credit cards properly, avoiding common pitfalls, and ensuring your business maintains a good credit rating.

Diversified Management has a wealth of financial services geared toward keeping your business healthy. Request a free consultation by filling in the inquiry form or calling the number listed.

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Which Forms Do I Need?

• If your business is a sole proprietorship or a single-member LLC, you’ll need to file Schedule C forms, as well as Schedule SE self-employment forms.
• If your business is a corporation, you’ll need to file form 1120.
• If your business is an S corporation, you’ll need to file form 1120S, as well as Schedule K1 Shareholder’s Share of Income, Loss, Debts, Etc, and Schedule SE self-employment forms.
• If your business is a partnership or multiple-member LLC, you’ll need to file form 1065 as well as a Schedule K1.

What Other Information Should I Collect?

To file Schedule C, make sure you also come prepared with your information regarding cost of goods sold. In addition, you’ll need receipts for all deductions, such as travel, hotels, mileage, and meals. You should gather information for assets purchased for business purposes, as well as the amount of any depreciation. Finally, if you operate your business out of your home, collect receipts for any expenses to that end, such as office furniture, internet, or phone bills.

Corporations should include income information like gross receipts, costs of goods sold, capital gains, dividends, rent and interests. Deductions include the usual travel, meal, and transportation expenses as well as business supplies, legal fees, startup costs, salaries, maintenance, taxes, licenses, and many others. Finally, taxable income and tax from a schedule, fewer payments made and credits earned, are calculated. This is not a complete list, so refer to the 1120 or 1120S for a more comprehensive list of what information you need.

Partnerships or multiple member LLCs should gather beginning of year and end of year balance sheets, profit and loss calculations, and a calculation of the cost of goods sold. In addition, you should prove any deductions such as travel, hotels and mileage with receipts, along with any assets purchased and their depreciation, such as vehicles or equipment. Finally, partnerships must pay state partnership taxes, so check the laws in your state.

What Are My Tax Filing Dates?

• Those filing Schedule C taxes will do so along with personal income taxes, on April 15th. If April 15th falls on a weekend, use the next business day.

• Partnerships or multiple-member LLCs filing partnership taxes must do so on or before March 15th. If March 15th falls on a weekend, taxes are due on the next business day.

• Corporations and S corporation taxes are due, dependent on the corporation’s fiscal year-end. For corporations with years ending December 31st, tax returns are due April 15th, or if the date falls on a weekend, the next business day. For corporations with fiscal years ending on any other date, tax returns are due on the 15th day of the 4th month after the fiscal year-end.

Filing taxes can be complicated, even for seemingly simple Schedule C returns. To ensure accuracy and make sure you’re finding all your potential deductions, consider using a professional tax preparer. Diversified Management has a wealth of tax tips and other business planning information. Reach out via our online form or call for a free consultation today.

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Retirement Plans

Individual Retirement Plans and 401k’s are a great deduction. The IRS allows an individual to deduct up to $18,000 deposited annually into their retirement fund, plus up to 25% of their income. When it comes to employees, there are more opportunities for deductions because the government is actively funding retirement through match funding programs such as SIMPLE (Savings Incentive Match Plan for Employees) IRA and SEP (Simplified Employee Pension) IRA.

Home Office

Most home businesses and self-employed individuals do part or most of their work from home. As a result, there are many deductions associated with having a home office. Remember that the IRS may require documentation that the office is used solely for business and not for personal use. Bills such as the internet, phone lines, mortgage interest, repairs, and utilities are all possible deductions. The IRS may also want the dimensions of your home office and other physical details, so be sure to check the IRS website for details.

Travel Expenses

Use of your personal car for business purposes is deductible. The IRS puts out a standard mileage rate every year, so be sure to check it with each new tax year. Use a log to record the accurate use of the vehicle for work. If you want to claim the actual expenses the car incurs rather than the mileage, you can record and deduct bills such as payments, registration, insurance, repairs, garage rent, licenses, tolls, and depreciation. Train, plane, and bus tickets are also deductible if the travel was for business purposes.

Rent

If you rent a storefront or office for your business, you can claim it as a deduction. However, if you lease the property or make payments toward ownership of the property, the rent is non-deductible. You must be able to prove that this property is for business purposes.

Education

Books, online courses, college classes, and research used to improve the standing of you or your business are tax deductible. This ranges from purchasing e-books to taking seminars on business methods. Furthering your education is a business expense.

Advertising

Any marketing or advertising expenses for the business are good tax deductions. Newspaper or print ads, social media ads, commercials, radio spots, or promotional materials count as advertising. Keep an accurate record of how much you spend on business promotion throughout the year.

Insurance

Any insurance you take out for the business is deductible. That means housing insurance for home businesses, business insurance, car insurance for the company car, event insurance, and many others. If the insurance policy protects part or all of your business, it is applicable to your deductions. Health insurance premiums are not a deduction but are a credit instead.

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1. Relationship selling. Over the last few years, research has shown that people are more willing to buy from brands that they feel a personal connection with. Creating and nurturing relationships with customers makes them feel valued, which in turn makes them want to support your business. The best way to build relationships with customers is to show that a business is run by people, not a faceless corporation.
2. Use the web. Social media can be a gift to small business owners. It is a cost-effective way to begin immediately building relationships with customers, without a middleman. Everything done on social media is free advertising, so take advantage of it. Begin funneling funds for print ads into Facebook, Instagram, and web ads instead.
3. Define your brand. Customers want to connect with businesses that they can easily identify with. That means creating a business brand that people want to be a part of. Selling outdoor supplies? Create an adventure-loving explorer persona and tap into the wanderlust market. Identify and define your brand clearly.
4. Advertise “small business.” These days, people are becoming more aware of how they spend their money. They want to move away from buying from big corporations and instead support small businesses. Don’t be afraid to advertise that you are a small business, especially in your local area. When customers purchase from your business, they will feel like they are supporting a community that they are a part of.
5. Offer deals. Promotional deals and events are an old trick of the trade, but they work just as well today as ever. With the internet and social media, there are more opportunities to publicize deals and entice customers. Don’t be afraid to make a little less on a good deal if it opens your business up to new customers who will come back for more.
6. Give out freebies. Everyone likes to get stuff for free. Create online contests to create a wider customer base and promote your brand. Even if customers don’t win the free prize, you will have a new connection with them and the possibility for future sales.
7. Create a loyalty system. This goes back to relationship selling and helps nurture community. It can be as simple as giving a free product after a certain number of return sales to your business or offering sneak peeks at new products. Give them something that lets them know you appreciate their continued support.
8. Email marketing. Email marketing is one of the most effective marketing approaches today. Once a customer arrives on your landing page, entice them with a discount for signing up for your newsletter. You now have regular and direct contact with those customers.
9. Partner with other businesses. The best way to succeed is to work together. Find another small business whose products complement your own and create a marketing deal. Offer a contest together or put on an event. You have now doubled your potential customer base and sales.

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