Is Your Staff Classified Properly?

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The Employee VS. Independent Contractor Debate

The classification of personnel affects how much a business pays in taxes, if withholding from paychecks is necessary and what tax documents to file. Misclassification of an employee can result in penalties and additional taxes. There are many questions to ask in determining the classification of personnel. There are three main categories the IRS uses in determining the classification. They are listed below in bold:

Behavioral Control:

The first question to ask in determining classification: Does the company control what the worker does and the manner in which he or she does their job? For example, do you set the hours the worker works? Do you set the work location? Do you provide all of the resources and materials? Do you provide training? If you can control what is done and how it is done then your workers are probably employees. If you can control only the outcome of the work and not the method of reaching the outcome then your workers are probably independent contractors. However, there are other factors involved in determining classification.

Financial Control:

Can the worker realize a profit or loss? Meaning, does the employer provide the work location and all resources to perform the job. If so, then there is no profit or loss to be realized. If these items are not provided then there is a profit or loss. This will usually mean the worker is classified as an independent contractor. How do you pay the worker? If you pay a flat set fee the worker is probably an independent contractor. If you pay for a period of time, such as hourly or weekly the worker is probably an employee. Does the worker provide services to other businesses? If so, they are probably an independent contractor.

Type of Relationship of the Parties:

What is the underlying nature of the relationship? Sometimes a written contract is necessary to prove this. Does the business provide the worker with benefits, such as insurance or vacation pay? An independent contractor does not receive these type of benefits from an employer. What is the length of time the relationship is expected to last? If it is indefinitely, the worker is most likely an employee. Are the worker’s duties an integral part of the operation? If so, they are probably an employee.

It is important to note, the worker must meet multiple rules before determining their classification.

As a business owner, if you would like to hire an independent contractor it is advisable to find one that is self-employed and pay them through their company. While this alone is not enough to determine classification it can help prove the nature of the relationship.

Copyright 2014 Christi Rains, Alpha Omega Consulting & Bookkeeping, LLC

The Seven, not-so-deadly, Sins of Small Businesses

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Be Sure Your Business Isn’t Making These Common Mistakes

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During my time working with small business owners, and of course being one myself, I have found that there are certain common mistakes that can ultimately doom most businesses.  All too often, small business owners become enamored with the idea of “being their own boss” and doing something they “love”.  These thoughts often cloud the judgment of even experienced business owners in their desire to pursue the American Dream.  In order to avoid these pitfalls you have to establish a strong foundation to your business; put in place systems that will help you keep your feet firmly planted in reality while you pursue your dreams.  Below, I have listed seven common mistakes that prevent entrepreneurs from building that strong foundation for their dreams;

  1. Seek professional advice

“Concentrate on your strengths and seek help for your weaknesses.”, that is the first piece of advice I give to any new entrepreneur.  Seeking out trustworthy professionals to guide you through the start-up process will help you to avoid all manner of financial and legal problems.  Later on, when the company is up and running, these same professionals will continue to be valuable members of your team. In order to grow your business you need to be able to concentrate and put your energy into your core business. Allow the professionals to take care of tasks such as; accounting, marketing and legal affairs while you manage growing your business.

2Create a formal business plan

Creating a formal business plan is important for any business. Think of a business plan like a road map.  It can aid you in determining specific goals and be a guide to help you stay on track.  In the process of creating one you will determine the size, location and buying pattern of your target market and the feasibility of your business idea. It can also be useful when seeking outside funding from banks or other types of investors.

3. Form a legal entity

If you are thinking of starting a business as a sole proprietor or are already doing business as a sole proprietor you need to examine your threats and determine if it’s really right for you. It’s important to note that a sole proprietor is not a legal entity. There is no separation between the business and the owner. Because of this, the business will cease to exist when the owner dies. Also, this form of business does not provide any type of personal liability protection between your business and personal assets. If you want to develop a successful long term company, it is advantageous to form the proper legal entity

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Is Your Business Prepared for Year-End?

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One way to Increase Your Bottom Line Before Year-End

Have you ever been told that the way to a better and bigger bottom line is to look at your revenue streams? Determine what product or service you offer that is bringing in the most profit and focus on it.  Or brainstorm different revenue streams that could bring in not only more clients, but would appeal to a different market base.

As the last quarter of the year is approaching, I recommend to all my clients to review their financial statements.  But I recommend a different angle than just developing new revenue streams.  At this time of the year, I recommend you concentrate on an area that you have more control over. Your expenses. It is the perfect time of year to review over your last 3 quarters and see what areas of spending are larger than you anticipated.

Like a majority of small businesses one of your biggest areas of spending might be advertising.  This is the perfect time to examine your advertising campaigns and determine what is working and what might not be working for you. You can eliminate the low performing campaigns and still have time before year-end to reap some savings.  Is your phone bill pretty high?  Maybe you need to look into a plan that might be more fitting for your current usage needs. Do you have recurring payments for products or services that you aren’t using anymore? This is the perfect time to cancel unneeded fluff; savings can be found all over.

Just go down your Profit and Loss statement and review each category, looking to see the specific vendors and charges. You may be surprised at what you find. This is also a good time to verify that each transaction is coded to the proper account. If not, move it to the proper account so you can get a true statement of your expenses. This part is extremely useful with tax time right around the corner.

If you are reading this and thinking, “But I don’t have a Profit and Loss statement. How do I get one?”.  You should contact me. I am more than happy to discuss with you how to go about getting and utilizing a system to track your income and expenses.  This will also allow you to have proper reporting and be ready at tax time.

Copyright 2014 Christi Rains, Alpha Omega Consulting & Bookkeeping, LLC  www.aobookkeeping.com

SEEK PROFESSIONAL HELP BEFORE IT’S TOO LATE!

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Why is it important for finance and accounting functions to be handled by accounting professionals?

Accurate and current books are imperative to operational efficiency. If your business isn’t booking sales and payments on a regular basis then you will not know the current financial position of your company.  If you are not paying bills on time then you are not only paying late fees but are unable to take advantage of early pay discounts offered by some vendors. This also prevents companies from producing financial statements or short and long-term projections.   Continue reading

Do you want to save time and money in your business?

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Rule #6

THE IMPORTANCE OF USING AN ACCOUNTING SYSTEM

One of the most important factors for a small business’ financial health is to use an accounting system. Accounting systems track revenue, expenses and produce financial statements.  They can save a business owner valuable time and money when compared to the alternatives.

Do you use Excel? While Excel might seem like the simple solution, it really isn’t the best use of your time. Why spend your time using a completely manual process when you could be using an automated one?

Are you a shoebox client? Are you not using any type of method during the year to track income and expenses? Do you just toss your receipts in a box and forget about them until tax time? Do you rely on your tax preparer to sort through your paperwork and determine your income and expenses right before the dreaded tax filing deadline? If this describes you, how do you know the performance of your business without proper and routine tracking of sales?

Your time is the most valuable asset your business has.  Use it wisely to grow your business.

The advantages to using an accounting system are numerous. I touch on some of the main advantages below.

  • Tracking Income 

Entering your financial information into an accounting system will automatically track all income. You will know what customers have paid and what invoices are outstanding. Knowing on a regular basis what amounts are owed to you can help you be proactive in collecting past due amounts.

  • Tracking Expenses

You will know what vendors have been paid and what items are open. Having this information can aid you in paying bills on time and avoiding late fees and penalties.

  • Financial Statements 

An automated financial system allows for financial statements and activity reports to be generated quickly, and accurately. Your financials are critical to assessing the health of your business. If you are a shoebox client, reports are not possible during the year.  As well, if you are using Excel you will need to manually prepare reports.

Having all of your information located nicely within an accounting system can help you save time and money, prepare your taxes and increase your bottom line.  A business can’t truly know their financial outcomes without proper tracking. If you are using Excel or are a shoebox client, I urge you to think about moving to an automated system. Your time is the most valuable asset your business has.  Use it wisely to grow your business.

One final point, as important as having and using an accounting system is, it is equally important to ensure it is managed properly.  If you are unsure of how to use an accounting system or how to accurately account for transactions you should seek professional help.  Too many business owners try to do it themselves and find themselves owing penalties and interest on incorrectly filed sales and income taxes.

If you would like to discuss how to get setup on an accounting system please contact us. We handle system set ups, training and routine review for accuracy.

Copyright 2014 Christi Rains, Alpha Omega Consulting & Bookkeeping, LLC

The number one way to lose your business and self

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Rule#1

THE IMPORTANCE OF FORMING A LEGAL ENTITY 

Q. My business is a Sole Proprietorship. Is this classification significant? 

For the most basic business, such as a hobby, this designation is fine. Unless you use dangerous equipment, sell a product, have high liability or hire employees. But keep in mind, a Sole Proprietorship is not a true legal entity. It does not provide personal liability protection, which means there is no separation between the business and the owner.  If sued, your personal assets can be taken. As well, if business debts cannot be paid with business assets then your personal assets can be taken.  

There is a large misconception in the business community that this entity form is acceptable due to the ease and low cost to form

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Why keep personal and business expenses separate?

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Follow these steps and eliminate reporting headaches!

There are so many reasons to not mingle business and personal bank accounts and transactions.  Whether you are a sole proprietor or have formed an entity, such as LLC or corporation, one of the first steps in forming the business is to set up a business checking account.  This business checking account should only be used for the business. It should not be used for personal expenses or personal deposits.  This applies to credit cards too.

This is something I run into all too often.  It’s one of the first questions I ask a new client and one of the first requests I have before taking over their books. I beg of you, please don’t mix business and personal expenses.

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