7 Smart Bookkeeping Tips Every Small Business Can’t Live Without

For small business owners, bookkeeping serves as their personal scorecard. Numbers show your success and failure and give a quantifiable shape to your business results

In a small business benefit, your future is on the line. You need to have a good overview of all the expenses and revenue. Perfect bookkeeping can save you a lot of time, money, and nerves.

To help you establish an effective bookkeeping strategy, we’ve assembled this 7-tip list. If you like assessing the numbers and want to keep crucial business matters in your own hands, bookkeeping is the way out. Let’s explore more.

Never mix personal and business finances

For an up-and-coming brand manager or CEO, it may be tempting to achieve as much as possible in as little time as possible.

The over-dynamic outlook could lead to severe financial consequences. In a lot of cases, company heads will use company money for personal expenses and vice versa. Doing so will only cause additional chaos.

When your business is only starting, spending a lot of money is an attractive thought. To prevent tax-related headaches, issue a business credit card along with a separate business account. Taking care of this takes mere minutes and allows you to earn your company a proper credit rating.

“One might find it surprising that a lot of small businesses and startups fail because of improper financial allocation,” explains Josh McCarty, a marketing and economics writer at Brilliantassignment.co.uk. “Separate your finances because mistakes will happen once your business grows.”

Make use of automation

Bookkeeping was once considered a difficult and time-consuming activity. Accountants and bookkeepers had to do everything manually, but a lot has changed in recent years. With the development of AI technology and automated software, bookkeeping has never been easier. There are no more tedious instances of manually creating spreadsheets.

Bookkeeping software makes our lives easier. For one, the data you need is stored in the cloud. Unlike physical storage, cloud storage is safe from any compromising.

No matter the conditions or situation, your data will be stored safely. In addition to this initial security feature, small businesses should immediately connect their banking accounts to bookkeeping software.

By establishing this connection, you will ensure that your books are up to date and that there is no need for last minute checks.

Do regular check-ups

Most bookkeepers and companies keep track of their reports and records on a quarterly basis. A tip that will make your life easier is to check your reports on a weekly basis. The interval here will give you enough time to grow your business, but you’ll also be able to identify any changes in your revenue.

Having a clear overview of your transactions and the overall financial state is a business advantage you deserve to have.

With each new product launch or a promotion, you can see how good the move was by looking at the reports. By analyzing reports from a certain period, you can see if a move was successful or not. If it was, you can repeat it and invest more money or stop implementing it if it was a failure.

Use tracking software to monitor your employees’ hours

Running a small business can face you against some hardships. If you have a dedicated team of employees, tracking their hours might be somewhat difficult manually.

Without knowing exactly how much has someone worked, you risk budgets deficits, imprecise payments and other spending that you don’t need. To prevent this from happening, have your entire small business use time tracking software.

Employees will also find the change refreshing. With time tracking software, they will know exactly how much they’re being owed and when they have vacation time and what was their sick time.

Bookkeeping will be much easier, and your small business will grow exponentially. Integrate the tracking software and the time tracking software for ultimate efficiency and swiftness.

Always track business expenses

Brand growth is something everyone wants to feel, but not to experience. Why is this the case? When small businesses grow, there is another echelon of responsibilities that you have to take over.

Business expenses are just one of them. Even though you might feel good about having a bigger budget, you will find it annoying to file tax reports. Overspending is often a case, and precisely because of that, you need to track your business expenses.

When traveling, make sure you keep every receipt and categorize it accordingly. There are several apps that allow you to scan the receipts and store them on the cloud.

The move might seem simple, but it’s a bookkeeping tip that every small business can’t survive without. By tracking your business expenses, managing your budget and filing tax reports will be much easier.

Don’t be afraid to ask for help

At the beginning of every company’s life, you can most certainly handle all numbers by using off-the-shelf software. However, once you start experiencing growth, you might feel overwhelmed by the sheer number of tasks needed.

Keeping track of everything is important, but many companies tend to shut down because they’re hesitant to hire a professional.

Although it may seem like hiring a professional bookkeeper is unnecessary spending, it’s a massive benefit that can save you a whole fortune. Letting a professional handle your bookkeeping will free up valuable time you can use to focus on making your business grow. Associating yourself with a professional is an investment for the future.

Have your deadlines and tax obligations in a visible place

Bookkeeping is both monitoring the growth of your company and working from deadline to deadline. From tax reports to building business credit, it’s always beneficial.

Tax reports have to be filed, but even the most important deadlines can be missed if you’re overwhelmed. Thus, before undertaking anything new, you should write down all upcoming deadlines and obligations.

Having visible dates will allow you to run your small business without unnecessary stress. Additionally, missing deadlines and ignoring obligations will only bring you problems with the law.

The IRS has many useful tools for calibrating your calendar. If you’re more of an old-fashioned person, you can write them down on a piece of paper. Knowing your deadlines allows you to plan accordingly and increase revenue.

To conclude

Every small business relies on impeccable bookkeeping. Implementing these tips will require minimal effort and bring you maximal results. Remember to always be organized, prepared, and aware of upcoming deadlines. With recent developments in technology, you will rely on software to do the heavy lifting. Just by implementing these tips, you will ensure a fast and beneficial period of business growth.

Guest Post: About the Author

Scott Mathews is a professional content writer in such topics as bookkeeping, work productivity and marketing. Scott`s the biggest passion is blogging and travelling. He regularly takes part in different career growth conferences and contributes his posts to different  websites. Contact him on Facebook and Twitter.

Navigating Business Credit: What it is and How to Establish it

Small businesses play no small role in the U.S. economy. According to the U.S. Small Business Administration (SBA), there are 29.6 million small businesses in the United States, which account for 99.9% of all the nation’s businesses.

Small businesses clearly make up the backbone of the US economy. However, many small business owners remain perplexed by the concept of business credit and how it works. More often than not, small business owners take on personal loans and use personal credit cards to fund their businesses, which can lead to financial and organizational headaches. This article aims to do three things:

  • Help small business owners understand the elusive concept of business credit
  • Highlight the factors that affect business credit scores
  • Assist them in building business credit

What Is Business Credit?

Business credit is a line of credit offered to a business that the business can use to pay unexpected expenses, or expected operating expenses when there is a lack of available cash.

Your business credit scoresare represented by numbers that signify whether your business is suitable for loaning money to or doing business with.

There are three primary credit bureaus (Experian, Dun & Bradstreet, and Equifax) that uniquely calculate business credit scores. Each has a different scoring algorithm. Experian and Dun & Bradstreet’s credit scores both range from 0 to 100, while the Equifax scoring scale ranges from 101 to 816.

Similarly to personal credit, those issuing credit to you will rely on your business credit scores in their decision making. The higher your business’ credit scores, the more likely you’ll be able to secure larger credit limits as well as more rewards and benefits.

What Factors Affect Business Credit Scores?

While your business credit scores vary depending on the specific credit bureau’s algorithm, a few general factors that underlie these scores are:

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Trends over time
  • Public record frequency and dollar amount
  • Delinquencies such as liens or bankruptcy
  • Credit utilization (the percentage of your total business credit that is being used)
  • Demographics such as years on file, Standard Industrial Classification codes and business size

5 Tips To Build Business Credit

Creating business credit is not something that happens automatically. It requires multiple steps on the part of the business owner. Building business credit will not only benefit the business’ credit scores, but open more credit card and loan options for the business. These funds allow the business to keep growing.

In the instance that you have never incorporated your business, or you are starting a small business from scratch, this quick guide will direct you down the path of building your business credit.

1. Incorporate Your Business

The first step on the road to building business credit is to separate yourself from your business through incorporation. Through incorporation, your business will become a distinct legal entity from your person. The U.S. Small Business Administration provides an in-depth guide to launching your business, including incorporation, which would be recommended for all budding entrepreneurs and small business owners.

2. Obtain an Employer Identification Number (EIN) from the IRS

An EIN identifies your business for credit and tax purposes. It’s essential to get an EIN number for an SBA loan. In most cases, it is necessary to have one to open business bank accounts. An EIN allows business owners to separate their social security numbers from their businesses’ credit profiles.

3. Register with Dun & Bradstreet

When a business applies for business credit, lenders and suppliers commonly perform a credit check through Dun & Bradstreet. Register and set up a company profile under Dun & Bradstreet’s database in order to start establishing credit. Dun & Bradstreet will issue a nine-digit DUNS number that is universally used to identify businesses.

4. Open a Checking and Savings Account for Your Business

Open both a checking and savings account in your business’ name. This is done using your recently provided EIN and DUNS numbers. By doing this, you’ll separate your personal and business finances.

A business savings account is not mandatory, but is an intelligent move for any small business owner. A business savings account can assist when an unexpected cost arises and it can also be used as security for taking out a small business loan.

5. Obtain a Business Credit Card & Responsibly Manage Your Finances

Business credit cards are key to building business credit. It’s recommended that these credit cards should be commercial in nature and used for business expenses. Business owners should put any business credit accounts in the name of the business using their EIN and DUNS numbers.

It should be noted that not all business credit cards are created equal. Different business cards provide different types of rewards and benefits. Business owners should do their research and find business credit cards that aligns with the goals of their businesses.

While obvious, it is imperative to maintain excellent financial behavior to build business credit. Make sure to keep your credit card utilization low, pay all bills on time and in-full, and use a variety of credit.

Conclusion

Building strong business credit is not something that’s automatic or instantaneous. It requires business owners to be proactive and behave with financial responsibility. Time and excellent financial behavior are necessary ingredients in establishing high business credit scores for your small business. By understanding the core business credit concepts and following these tips, your business credit scores should be flourishing in no time.

Guest Post: About the Author

Courteney Reed is dedicated to empowering people to make smart financial decisions. As a financial industry analyst, she is driven to provide the most current and highest quality information available.

Six Tips to Raise Your Business Credit Score

A high business credit score will allow you to secure more financing for your business. Business credit scoring works almost like personal credit scoring—credit lenders will report business loans and repayment history to credit agencies, who will then calculate a business credit score.

Because a good business credit score is essential for securing business loans, it is important to keep it as high as possible. If your business has accumulated too much debt and failed to repay some loans on time, your credit score may have suffered. However, it is still possible to improve your score by following six simple tips.

Check Your Credit Report

Having a clear understanding of your credit history is the first step towards building a healthy credit profile. You can talk with a credit reporting agency to assess your credit score—some, like Equifax Small Businessoffer consulting services to help you manage your business credit profile.

Once you get your report, you will know where you stand and what you have to work with. Credit reports will also show you which accounts harm your credit score the most; these will be your first targets. Make a list of all the high interest loans that you had trouble paying off and prioritize which accounts to focus on first.

Pay Your Bills On Time

Building up a reputation for consistent and timely repayment is essential to improve your business credit score. Your late payments may hurt your credit score more than your current outstanding debt.

You should always strive to pay all your bills on time, even if you have to stick to the minimum amount. If possible, pay in advance. Keep up this consistent repayment behavior and make sure that vendors report it to the credit bureaus to raise your score.

Don’t Close Your Accounts

Although it is important to reduce your overall debt, closing all of your accounts will not improve your credit score. Do not only think about the money you owe, but also consider the money you could borrow. This is where credit utilization comes into play, which is a way of measuring how much debt you have versus how much credit you could take on.

For example, if you apply for a business credit card account, your available credit will increase, thus reducing your credit utilization. Moreover, you can use a balance transfer credit card to move debt from a high-interest credit card and pay off the loan at zero percent interest.

If you have credit accounts that you don’t use anymore, do not close them. Having a relationship with several lenders will give you access to more financing sources.

Try to capitalize on your good relationship with lenders and repay high-interest loans that you’ve had for a while. In fact, credit reporting agencies will rank you higher for having long-term accounts with several lenders.

No Credit Equals Bad Credit

If you do not have any credit, you cannot have a credit history. Lenders and financial institutions want to see your history of paying off loans to give you more loans. If you have no history of this, they don’t know if you’ll be a good financial candidate. If you have no credit history, start with taking out and repaying small loans.

Build on Your Positive History

 Lenders are more likely to report a bad experience to credit bureaus than a good one. If you have been a loyal bank customer, ask them to report on the positive experiences. The more lenders assess your creditworthiness, the better your business credit score will get.

If you have failed to repay some lenders on time, do that as soon as possible. In fact, negotiate with them, and, if possible, offer to repay the debt in full in exchange for withdrawing any information about late payments that they have provided to credit bureaus.

If the positive experiences outnumber the negative ones, even at high debt levels, your business credit score will improve.

Keep Your Personal Finances Separated

Your low personal credit score may have an impact on your ability to find financing for your business. One way to prevent your personal credit score from lowering your business credit score is to keep your accounts separated. Do not make personal purchases on a business card, and then write them off as a business expense. Your company’s bank account should be completely independent of your personal one.

If your business is going through some rough times, do not be afraid to take out a small business loan. Of course, the final goal should be to grow your business, so choosing the right option is important. Get your credit score report, identify the worst “offenders,” prioritize, create an action plan and start working on removing those black spots from your credit history. By being consistent, you will be able to bring your business credit score to “excellent.” It’s always worthwhile to consider hiring a professional to help you improve your business score. Talk to a representative from CreditRepair.com to discuss your options.

Guest Post: About the Author

Renata Ilitsky is a writer and editor for CreditCardsReviews.com. She is a freelance content writer with over 10 years of experience. She specializes in creating unique and engaging content for any industry. To read some of Renata’s other work, please view her writing portfolio.

A Small Business Guide to Building Business Credit

While most small business owners are well aware of personal credit scores (like those from FICO), the concept of business credit remains more elusive. Though 65 percent of business ownersuse credit for business purchases, only 50 percent of those cards are in the business’ name. This article tackles the basics of:

  • What business credit is
  • What affects business credit scores
  • How to establish a business credit profile
  • Ways to maintain a good credit score

The Basics of Building Business Credit

For many people, discussing credit or credit cards has become a social taboo. In a study by Experian, the average American’s credit card debt has creeped up 3 percent from last year. The good news is despite the rising debt, credit scores have also increased.

The reality is you need credit to purchase a home, a car, and to sometimes to get business credit. The best way to wrangle this beast is to increase your financial literacy on how credit works, and to get an in-depth knowledge on the ways personal credit differs from business credit.

For small business owners, keeping their personal credit in good standing and separate from their business ventures is crucial. Though, it’s still something that not many people fully understand. Let’s dive into how a business owner establishes a business credit.

What is Business Credit?

Business credit is the result of the information collected by business credit bureaus. They look into your business trade credit transactions in order to create your business credit report. They use your business name, address, and federal tax identification (FIN), otherwise known as your employer identification number (EIN).

Based on your company’s business credit transactions, the business credit bureaus will compile the data and create a report that determines your business’ credit profile. This affects the amount of money your business can be granted, the types of credit cards you can open, and whether or not your business is deemed financially trustworthy.

Establishing Business Credit Profile

Before the major credit bureaus Dun & Bradstreet, Experian Business, and Equifax Business can begin  compiling the data necessary to provide a credit report, you need to incorporate your small business. With sole proprietorships and general partnerships, the business is legally considered the same as the owner. Incorporating a business or forming an LLC creates a separation from the individual, this provides protection to the owner’s personal assets.

Dun & Bradstreet uses a 9-digit DUNS (Data Universal Numbering System) number to identify every business that has a credit file. The Small Business Administration reports the DUNS code is “the most widely used number for identifying companies in the United States.”

With personal credit, your history is automatically tracked; however, if you have a small business, you or your vendors have to voluntarily send your information to business credit bureaus in order for it to be reviewed. Your business needs to have a federal tax identification number or employer identification number (EIN). The process for obtaining this is fairly easy. Go to the IRS websiteto access the EIN Assistant page, and click on “Begin Application” at the bottom to get started. The EIN is required on federal tax filings and to open a business bank account in the name of the corporation or LLC. The EIN is like your small business’ social security number.

The next step would be to open a business credit profile with all three of the major credit bureaus in order to have your information tracked. Each credit bureau calculates business scores differently, so it’s important to note their range and how they rank high credit risks compared to low credit risks.

Factors that Determine Your Credit Score

Business owners are responsible for opening their business credit profiles to establish business credit. Once a credit profile is open business credit card issuers may need to be notified to report credit transactions specifically to business credit reporting agencies. The Experian and D&B credit scoring system uses a range from 0-100; the higher the number, the lower the risk. Equifax’s scoring system ranges from 101 to 816. The primary determining factors of a business’s credit report can be:

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Credit utilization
  • Trends over time
  • Public record recency, frequency, and dollar amount
  • Demographics such as years on file, Standard Industrial Classification codes and business size
  • Delinquencies such as collections, bankruptcy, and liens

Building Your Business Credit Score

In order to begin sending positive activity to the business credit bureaus you should be conscious of keeping your credit utilization low, and managing a variety of credit. Begin by opening a business checking and savings account, apply for small business credit cards in your company’s name, and obtain a small business loan using your business savings account as collateral.

Once you’ve created a business credit profile it’s important to maintain exemplary financial behavior. The goal is to be considered a low risk to banks and other financial institutions. This is accomplished by paying your bills on time and in-full by the end of each month.

Business credit is an intangible asset, according to the NSBA Small Business Access to Capital study. 20 percent of small business loans are denied due to business credit. Of businesses surveyed, 27 percent claimed that they were not able to receive the funding they needed. For those 1-in-4 businesses, the most frequent effect the lack of funding caused was preventing the owners from growing their businesses.

Conclusion

As a small business owner, it is imperative to begin building your business credit profile to maximize your company’s funding potential. Stay informed and up to date with your credit reports, and your business will become a trustworthy borrower.

Guest post: About the Author

Courteney Reed, is a financial industry analyst dedicated to empowering people to make smarter financial decisions.

Finance 101: Keeping Your Business Finances Organized

Managing your company’s finances is the most important part of running a business. Surprisingly, some business owners don’t know the first thing about organizing their finances. This is not only a problem because they can’t pinpoint exactly how much loss or profit they generate in a year, but for other, more serious concerns.

Companies often experience negative cash flows, especially during the startup phase. Some businesses are seasonal, and need a cash reserve to carry them through the slower months. If your business thrives, it will need an investment of funds to sustain growth.

If there is no management of funds, financial planning and savings, it can be detrimental to a business. In this article, we present Finance 101: Keeping your business organized with these tips:

Separate Personal and Business Finances

This may seem like no brainer, but many small business owners don’t realize they must maintain their personal and business finances separately. They charge both types of expenses on the same credit card, finance their business goals with personal loans and transfer profits into their personal banking account.

This presents a major headache at tax time, when either the business owner or their tax accountant must separate every expense into different categories, causing confusion. Plus, fusing finances can raise a red flag and lead IRS to audit your business.

Invest into Accounting Software

If you cannot afford to hire a dedicated accountant to manage your business expenses, purchase accounting software. Although there is likely to be a small learning curve with every new program, this is an efficient way to enter all of your spending, sales, payroll information, etc.

If the software is cloud-based, it will securely maintain your records online, making them accessible anywhere at anytime. This will cut down on your paper usage and make it much more efficient to view and change your financial information at any time.

Register for an Employer Identification Number (EIN)

Just as you require a social security number (SSN) to open personal accounts or register for government issued documents, your business needs its own tax number, called an EIN. You can easily apply for an EIN on the IRS website for free by following this link. This will be required to open credit cards and financial accounts, as well as retirement plans.

Consult a Professional

Every state and some cities have different laws and regulations about running a business. To make sure you are in compliance with these rules, are filing your taxes properly and know the ins and outs of payroll law, it is advantageous to consult a professional about these matters at least once per year.

These can involve certified public accountants (CPA), labor law attorneys and Human Resource administrators. You are not required to hire these professionals on permanently, but can use their services on an as-needed basis.

Although you will need to pay for their expertise, making sure you are following the law will save you from paying penalties or risk ruining your brand image and losing your business.

IOU Financial is committed to helping small businesses become financially secure. We specialize in hassle-free, easy and secure small business loans of up to $300,000. Contact us today at www.ioufinancial.com to speak to us about qualifying for our loans.

3 Ways to be Smart about Business Expenses as a New Business Owner

New business owners become overwhelmed by expenses, taxes, and financial issues in a short time. With so much to do and manage, it is challenging to keep tabs on expenses. But, if you want to stay in business, you must keep your spending in check, stay on top of your tax responsibilities, and prioritize tasks and expenses. Our tips will show you how to do it all.

  1. Hire a Financial Advisor Specializing in Small Businesses

It seems strange to emphasize keeping expenses in check and then suggest hiring a financial advisor, but it is the best way for you to comply with tax laws, make smart purchases and investments, and protect your assets as your business grows. Your best move is to choose a financial advisor who has ample experience in assisting small businesses and who understands the ever-changing tax laws.

If you work from home, you especially need a financial advisor to help you determine whether claiming your home office is the best way to proceed with your taxes. It also is more challenging for small business owners who work from home to keep their personal and business expenses separate, and a financial advisor will ensure you do things by the book to avoid penalties or fees. Your financial advisor also will help you find areas to save costs and prevent you from using too much of your personal money to grow your business.

  1. Create a Budget… and Stick to It

Your financial advisor also will help you create a budget for your small business or your home office. It is critical that you stick to your budget because you don’t want to stretch your new business too thin in the early stages.

In fact, the Bureau of Labor Statistics reports that about 80% of businesses with employees survive their first year in business, 66% survive their second year, and about 50% will survive their fifth year. However, only about 30% survive their tenth year. Why do so many small businesses fail? For many of them, the answer is lack of sufficient capital and cash flow problems. One study shows that 82% of businesses fail due to cashflow problems.

The lessons new business owners must learn are that they need to manage their expenses wisely, and they need to have enough capital to grow. The solution to these common issues is to prioritize your needs by creating and sticking to a budget.

If working from home is the best way to start your business, do so to save overhead costs. You’d be surprised by how much you can accomplish with the perfect workspace in your home and the right technology. You’ll likely be able to get off the ground with reliable, high-speed internet, a laptop or tablet, and a reliable printer and phone. There are even online payment systems that allow remote business owners to receive one-time or recurringclient payments from the comforts of a home office. Reliability and convenience are much more important than spending too much for the latest technology, phones, or gadgets.

  1. Make Priorities

As a new business owner, the bulk of the work will fall to you. Because your time is money when you’re in charge, you need to be as productive as possible and make time for yourself and your family. That may be easier said than done if you work from home, so set your hours based on when you are most productive and make time for your family to strike a work-life balance. The perk of working from home is setting your schedule, so do so wisely.

You’ll also need to prioritize your workday tasks. While answering emails is an important part of your role as a new business owner, other tasks will suffer if you spend too much time checking your inbox and replying to emails that are not urgent.

To spend less time on email, set up an automatic response and take advantage of canned responses. You’ll still respond to customers promptly, but you’ll also be more productive if you schedule time for email throughout your day. It’s also important to prioritize record keeping for tax purposes and to create a system for filing receipts and other documents that will support your business expense claims each quarter.

New business owners succeed when they make smart decisions about expenses. Make it easier on yourself by hiring a financial advisor specializing in small business, creating and sticking to a budget, and making priorities.

Guest post: About the Author

Ms. Fisher has spent more than 20 years as a CPA, and is currently working on a book about financial literacy (due out in 2018). She also runs Financiallywell.info.

Retirement Planning for Small Business Owners

It’s not uncommon for business owners to consider their businesses as their retirement plans. At retirement age, the plan is to sell the business for cash, or to give the business to a family member in return for a share of future wealth. It might work out, but it’s risky, because if your business fails, your retirement plans end up in shreds. Short of bankruptcy, a troubled business would be hard to sell and bring in less money than anticipated. Many owners might face the prospect of delaying retirement until the business “picks up.”

It need not be this way. An orderly approach to retirement planning will help you provide for your later years independent of the ups and downs of your business. Here are five steps to take to save money for retirement:

Do the math:

Figure out how much money you will need for your retirement lifestyle, especially if you don’t receive a lot of money from your business. This is frequently a wake-up call to get your retirement plan moving. Check out online retirement calculators from financial service companies such as Vanguard, TIAA and Fidelity and many others. Use these resources to help you nail down future spending.

Get help:

You are probably an expert on your business, but don’t assume that extends to retirement planning. If you don’t have a solid finance background, hire a financial adviser to organize your retirement planning. It’s a good idea to use one who charges a flat fee rather than one who takes commissions on your trading. The best ones usually have an accreditation, such as Certified Financial Planner.

Begin a diversified retirement plan:

You don’t need to spend a fortune on your retirement plan, but you should make a long-term commitment to it. It will cut your current taxes and allow your money to grow tax-deferred. Here are for options that make sense for small businesses, suitable for sole proprietorships, partnerships, limited liability companies and corporations:

  1. SEP-IRA: A good choice for one-employee companies, because you must fund the plan for all employees. Its works like a traditional IRA, but in 2018 you can contribute up to 25 percent of total compensation or $55,000, whichever is less.
  2. SIMPLE IRA: A plan for owners of companies with up to 100 employees. You and your employees make pre-tax contributions directly from your paycheck. The 2018 contribution limit is $12,500, or $15,500 if you’re 50 or older.
  3. Solo 401(k): Good for self-employed. You can contribute up to 25 percent of your compensation, plus up to $18,500 ($24,500 if 50 or older) in employee contributions, for a total maximum up to $54,000 in 2018.
  4. SIMPLE 401(k): For business with 100 or fewer employees. You and your employees can contribute up to $18,500 a year. You can borrow from your account and make no-penalty withdrawals under certain circumstancees.

Invest simply:

Index funds are simple and cheap, and you will always get average performance, year after year. If you know when you are going to retire, you can buy into a target-date fund that adjusts its investments based on your age. Consider also a REIT investment.

Pay yourself first:

When business gets slow, it’s tempting to cut back on your contributions, and that might occasionally make sense. But resist the temptation if you can, your retirement will thank you for it.

Reasons You Should Have a Business Credit Card

If you are self-employed or the owner of a business, you should seriously consider getting a business credit card and use it exclusively for your business-related purchases. Picking the right card can save you time and money – let’s see why.

Taxes:

Your business expenses are tax-deductible. The easiest way to keep track of these expenses is to charge them to your business credit card whenever feasible. Furthermore, you can deduct interest charges and/or annual fees on your card, as long as you use it exclusively for business. Those fees aren’t deductible on a personal credit card, even if you charge some business expenses on it. At tax time, you can look at your business credit card transactions for the tax year for a quick summary of your deductions, which will save you time (and money if you use a tax preparer). By the way, the IRS frowns on intermixing personal and business spending, and you might attract unwanted attention if you mix your spending on the same card. It might also help to show the IRS your business is a business, not a hobby.

Credit history:

Using a business credit card for your LLC or corporation will create a credit history for the business. That’s very important, especially if you pay your bills on time. Having a good credit history should result in a good credit score for your business and easier access to business loans.

Bonus points:

Most self-respecting credit cards, whether personal or business, reward you with bonus points or cash back on your purchases. The problem with personal cards is that they might not reward you for the kind of expenses your business incurs. For example, a personal card might reward grocery store purchases but not social media advertising. It’s smart to get a business credit card that offers rewards on purchases like search engine advertising, internet services, business travel, shipping costs and so forth. Some of these purchases might not earn you any rewards on your personal card. You might be able to pool your points from your business and personal credit cards if they come from the same issuer.

Bookkeeping:

If you make all your purchases on a personal credit card, you’ll have to waste time every month separating the business purchases from the non-business ones. Yes, you can still deduct business expenses charged on a personal card, but why do the extra work and risk overlooking several expenses? You can export your business card transactions directly into accounting programs like QuickBooks and save a lot of time. Business credit card statements are often more detailed, and this comes in handy if you have employees who get their own copies of your business credit card, which most issuers will provide you for free. By setting up your business card, you can quickly give one to each new hire. Don’t forget, you collect all the rewards on your employees’ purchases when they use your business card.

A business credit card is a no-brainer for sole proprietorships, partnerships, and limited liability companies. There are a few cautions to be aware of when choosing a corporate business credit card:

Fees:

Many personal and small-business credit cards have no annual fees. However, many corporate cards have fees, some of them on the high side. Also, many of these credit cards charge a higher interest rate compared to personal cards.

Grumbling:

Your suppliers and vendors might grumble if you pay them with a corporate credit card, because the transaction fees they have to pay on these cards are much higher.

Abuse:

If you have employees sharing a corporate card, be on the lookout for any personal purchases they make with it. First, they are stealing from you if they do this. Secondly, even if you don’t catch it, the IRS might, especially if you deducted personal expenses as business ones.

Tax Checklist for Business Owners

Tax season is no reason to panic if you plan in advance. Owners of small business should take steps, whether they do their own tax preparation or use a CPA. Here’s a checklist of important preparatory actions:

Bookkeeper:

If you use a bookkeeper, set up a meeting, even if she doesn’t prepare tax returns. She probably knows the answers to most of your questions and can ensure all your accounts from the previous year are fully reconciled. Your balance sheet should reflect any addition or disposal of assets.

Mileage log:

If you use a vehicle for business, make sure your mileage log is complete and up to date. If you don’t have a smartphone app that automatically logs mileage, get one and use it. Failure to keep a log can cost you an important deduction.

Bank statements:

Gather all your bank statements for the tax year, and use them to ensure your balance sheet balances match bank balances.

Out-of pocket-expenses:

You need to recognize business expenses you paid with personal accounts and credit cards. These are deductible even if you didn’t use a business account. Scan your personal credit card and bank statements to identify business expenses to file on your Schedule C or corporate tax return. Then, before the end of the year, write reimbursement checks from your business bank account to your personal account to capture the deductions. If you miss the end-of-year deadline, debit your expense account and credit an equity account.

Personal expenses:

You need to make sure you don’t deduct personal expenses paid for by a business account. This can sometimes happen if you grab the wrong credit card. Either repay the business for these expenses of enter a transaction to debit an equity account and credit to your checking or credit card account.

Received 1099s:

Gather all your 1099s, including the credit-card-related 1099-Ks. The IRS doesn’t look kindly upon taxpayers who don’t declare all their income, which is what 1099s report. PayPal, Stripe and all other payment processors prepare 1099-Ks for payments of $20,000 or more, or if you receive more than 200 payment transactions per year. Never declare less gross income than the sum of your 1099 receipts.

Issued 1099s:

If you made payments to contractors, consultants and other non-employees, you need to issue them 1099s for amounts greater than $600. But don’t issue 1099s if you paid via a credit card or payment processor, because they will issue 1099-Ks. Check with your bookkeeper to ensure you have issued all required 1099s.

Asset purchases:

Pull the receipts for your purchases of business assets such as cars, furniture, computers and any other items that you expect to last at least one year and cost more than $500. You might have to depreciate assets worth more than $2,500 instead of expensing them, and you also might qualify for Section 179 deductions and bonus depreciation.

Interest:

Remember to deduct your interest expenses. Even though IOU Financial charges low interest rates, every penny of interest is deductible, so take advantage of this gift from Washington. Tax-deductible interest lowers the after-tax cost of borrowing, so keep that in mind when you need cash from IOU Financial, your source for business loans.

13 Finance Terms You Should Know as a Business Owner

Entrepreneurs bring all sorts of skill-sets to their venture, such as the ability to sell, or to organize activity, or to raise funding. Some might have a business background, but others might need to learn the ways of business while on the job. Here are 14 terms you and every entrepreneur should know, because they involve central concepts that affect your business.

Accounts receivable:

Money owed to your business by clients. Typically, you invoice a client and receive payment some time later. An account is receivable until it is paid.

Assets:

Economic resources your business owns. Current assets are items like cash, receivables and inventory. Long-term assets include equipment, buildings, vehicles, furniture and patents. You utilize assets to generate income.

Capital:

These are the total resources available to your business, and is equal to your equity and debt. Working capital is equal to current assets minus current liabilities, and represents the resources available to run day-to-day operations.

Cash flow:

The movement of money into, through and out of your business. Inflows bring in money and include collections of sales revenues, tax refunds, and interest earned. Outflows are expenditures of cash and include payment of expenses and acquisition of assets.

Depreciation:

The decrease in the value of long-term assets due to the passage of time. Depreciation is a tax-deductible expense that spans a set number of years.

Equity:

Your ownership interest in your company. It is equal to your assets minus your liabilities. Equity is evidences by stock shares distributed to owners based on their percentage of ownership.

Expenses:

The costs of running your business, including rent, salaries, legal costs, advertising, taxes paid, and utilities. A good business tries to minimize expenses while not skimping on essentials.

Financial statements:

Highly structured reports that indicate your business’ financial condition. They include the balance sheet (a snapshot of assets, liabilities and equity), income statement (revenues and expenses for a given period), and cash flow statement (inflows and outflows for a given period).

Liabilities:

Debt owed by your business. Current liabilities are due within one year and include obligations to pay credit-card balances, invoices from suppliers, taxes due, and wages earned but not yet paid. Long-term liabilities include mortgages and loans that mature in more than one year.

Losses:

Negative net income, created when your costs exceed your revenues. If you have too many losses, the chances are that your business will fail unless you have other sources of funds.

Profits:

Also called net income or the bottom line, these are revenues minus costs for a given period. Profits can be drawn off by owners or accumulated in an account called retained earnings. You can use profits to expand your company.

Revenues:

Also called gross income and sales, this is the money you earn from operations. You direct your marketing and sales activities to generate revenues.

Valuation:

A number representing how much your business is worth. Valuation is important when you are seeking funding from investors.

You don’t need to be a financial expert to have a successful business, but knowing basic financial terms will help you communicate with other stakeholders. For those wanting to broaden their knowledge, the Internet is loaded with learning resources, and many colleges offer continuing education courses that might be useful.