Business and Personal Tax Planning (Scroll down)
Bookkeeper vs. Finance Professional (Scroll down)
Why Small Business Bookkeeping? (Scroll down)
This month’s business blog will discuss some if the issues related to personal and business tax planning. While I am in no way a tax expert, it is important to have general tax understanding in order to guide all my clients to healthy financial management. As such, this blog will deal with some of the pitfalls and suggestions for tax planning, as we edge toward the end of the calendar year.
Very soon, Q3 three will be behind us and the leaves will begin to turn. It’s sad to say, but fall will soon be here! With this approaching certainty, there is another certainty right around the corner: annual tax filing will soon be here as well.
Understanding your business and personal tax status now will help to avoid misunderstanding and disappointment in 2017 when taxes will be prepared and filed. Remember that it is often true that your business results (profitability/loss) will flow directly into your personal tax returns, depending on how your business is structured. Often, business owners are pleased to see a profitable year, followed by shocked to be saddled with a tax liability for which they are not prepared to pay. That being the case, HBC offers the following advice:
- Study and understand exactly how your business results impact your personal taxes. It is possible, given a profitable year that you will, at maximum, be required to make quarterly tax payments or, at minimum, wisely escrow some of your salary/distributions for the impending tax liability to come. Be aware and be prepared!
- Think now about ways in which you can legitimately decrease your profitability and thus reduce your tax bill. It is common for business owners having a good year to making business purchases that they have been holding off on.Remember that reducing your overall income will help to offset some tax later. However, do it the right way! Be sure the expense is legitimate and passes the sniff test. It is not worth an audit issue later!
- Speak to your tax preparer now. This is a great time to connect with your tax preparer because 2015 business/personal taxes are largely done and 2016 tax prep has not really kicked off yet. Spend some time talking through your desired outcomes, your current business status and fully understand your options and likely liability coming soon.Be sure when you meet with them, you take your profit and loss statement (hopefully one HBC has prepared for you!) so that they have context.
Don’t wait! Now is the time to fully understand what is likely coming at you in early 2017. Don’t be surprised, be informed!
All my best,
Why Small Business Bookkeeping?
Many small business owners ask, “Why should I bother with bookkeeping?” As a finance and accounting expert, I often think, “Oh boy, where do I start?!”
There are several logical and convincing reasons for a small business to have their books buttoned up throughout the year. Here are just a couple:
1. Annual income tax is always looming. Ultimately, all of our business decisions drive toward one common goal and one common outcome. Our common goal is to make a decent living and for those who are especially motivated, to make a lot of money in the process. However, there is one common outcome that aligns with this goal – we must pay Uncle Sam at the end of the year. Proper, accurate and timely bookkeeping feed into our tax preparation. What many small business owners often don’t understand is that lazy, sloppy or lack of bookkeeping not only costs you more at tax time (because tax accountants have to clean up the mess before they can do your returns) but also puts you at risk of either underpaying or overpaying your taxes. To the savvy business owner, the risk is not worth it. They learn very early on to button up their books!
2. Educated business decision making comes from proper accounting. I am often hard on my clients in asking them difficult questions about their vision, aspirations and profitability. “How is your business doing financially? How do you know it’s going well?” If a business owner cannot produce a P&L as evidence of strong financial viability, I am generally skeptical of their premise that the business is going well. I would much rather work with a business owner who can produce a P&L showing a net loss than a business owner who claims strong profitability but has no proof. This is not to say owners who lack a P&L are poor business people, but it does suggest that they could be making unwise business decisions by lacking full visibility to the strengths and weaknesses of their financial business functions.
3. An up-to-date P&L offers exposure to business opportunities at a point-in-time. Even business owners who may consider themselves as lacking financial understanding and savvy, a cleanly prepared P&L offers many intangible and immediate benefits. A business owner can quickly scan a P&L statement or complete a brief comparison of previous quarter, last year to date, etc in order to flesh out significant variances. Often, this variance analysis can be surprising because the owner is so engrossed in the business day-to-day, they lose sight of what’s going on in the weeds. The more granular the P&L is produced, even down to the product or service line level, the more insights it can provide. This valuable insight can frequently lead to small tweaks that produce immediate and significant positive results. But…how can one expect to note these sometimes subtle and slow changes without the information to make decisions?!
Unfortunately, well-meaning business owners often make bookkeeping way too complex. They may turn to solutions that are outside their scope of understanding, spending countless hours and money on solutions that are either set up incorrectly, or worse, they become frustrated and scrap it all together. There are several leading products that business owners choose in the industry, including Peachtree, QuickBooks, Microsoft Excel, or even the traditional paper ledger. All of these tools are good in their own time and place. Remember…the goal is to offer crucial insights into your business – the journey should be driven based upon your end goal!
While future blog posts will focus in best practices in bookkeeping, this blog was intended to begin the discussion about WHY you should be managing your books on a timely and accurate basis. As always, should you have questions or wish to consider a working with an expert in this area, we would love to hear from you at Heneke Business Consulting!
Make it a great and profitable day!
Heneke Business Consulting (HBC)
Bookkeeper vs. Finance Professional
This month’s blog was motivated by a recent interaction I had with a client, which has played out many times over my past two years as a small business consultant. It stems from the principle that many of us, both as product and service providers, have had to ‘clean up the messes’ of someone else’s actions in the past.
When I speak to others about my business model, I try to explain that my target market of clients is sandwiched between two distinct groups of competitors; the CPA firm and the inexpensive bookkeeper. Many, perhaps most, small businesses cannot afford the price tag of a CPA firm. These firms provide fantastic value but are just out of reach for many. On the other hand, many small businesses are seeking that $10-$15/hour bookkeeper to keep their books in line. While these employees exist, they also often come at a cost. My services have always come in right between these two areas – I am not and never claim to be a low cost provider, but I am also not going to cost what a CPA would. I play the middle ground.
Unfortunately, there are significant differences between a bookkeeper and what I do, and while it’s often tempting to go with the low price option, more often than not, this comes at a higher cost later. Let’s examine a few reasons why.
Bookkeepers are often not trained in accounting
It’s true. Many bookkeepers could not describe what a general ledger is or if an asset account typically holds a credit or debit balance. I have come across this many times in my years of consulting…I ask for an accounting explanation for a transaction and hear, “I just copied/pasted what I did last month.” This is a very quick signal to me that this person does not know why they are doing what they’re doing. In other words, if you, as a small business owner, want to know why something is the case with respect to your books, the best your bookkeeper may be able to do is guess. It’s a sad reality, but some bookkeepers are just very astute in QuickBooks (or whatever software you use) but have no understanding of accounting. Worse, they likely have no experience in budgeting or cash flow management either.
Bookkeepers are often not trained in income tax
This is also sadly true, and, I’d argue, more frequent than bookkeepers who aren’t trained in accounting. What does this mean to your small business? It suggests strongly that your bookkeeper does not have an eye toward your year-end financials and how these financials impact both your business and personal income tax. Now, it’s important to note that I, too, am not formally trained on income taxes. I am not legally entitled to file on anyone’s behalf other than my own. However, I understand how taxes typically work and certainly understand how to create a clean, accurate and timely P&L that can help to lower your tax liability as well as represent your business in a complete picture. If someone allows a person to do their books without tax experience and knowledge, they are doing a disservice. Additionally, the business owner is at risk of paying more taxes than they need to be.
Bookkeepers are often not strategic or long-term thinkers
It probably seems as if I’m really knocking bookkeepers in this blog post – maybe I am – but my observations have been confirmed over many times. Unfortunately, many traditional bookkeepers are hourly, block and tackle, transactional types of people. This isn’t to suggest they’re bad or uneducated – it merely suggests that your business might need more. Strategic thinking and long-term planning is something every business needs. Why wouldn’t you choose to link strategy and finances? Many bookkeepers fall well short in this quest, primarily because it’s just not their job and it’s not an interest to them. However, my argument is that the best performing businesses have found a way to connect their strategic finance professional with their accounting functions in order to create an integrated machine of business wealth.
As a small business owner, I get it. We’re all looking for low cost solutions to keep our cash flows adequate and to remain profitable. The problem with this notion is that low cost can mean low value. Most of us have probably cut a corner at some point in our pasts, only to regret it later and, worse, pay more than if we’d just selected the higher cost provider the first time around. One of the most unfortunate messages I have to deliver in my business is to confess that their previous bookkeeper just didn’t cut it – and now, in order to get things back to stable, I will need to overhaul the entire set of financial records. The disdain this brings business owners is not enjoyable to me. I hope that word will spread that hiring a professional, while more costly short-term, will pay for itself in the long run!
As always, Heneke Business Consulting is here to help! Contact us anytime for your business consulting and financial needs!
Heneke Business Consulting (HBC)
Greetings to all clients, friends and acquaintances of HBC!
I hope everyone is doing great this near-end-of-the-tax season day. With the tax deadline falling on a weekend, some of you are enjoying an extra couple of days in finalizing those ever-so-tricky personal filings. This is the time of the year where I am glad HBC doesn’t do personal returns as a core piece of our business. Weekends and evenings are cherished things in the lives of two traveling professionals and with our daughter being young, working over the “busy season” just does not sound like a great time!
That being the case, you’ve probably noticed that my business blog has largely been lonely over the past several months. Certainly this is not because there was nothing to write about all these months, rather, it has been a tremendously busy time for the business, me personally and our family. Back in late 2016, we lost my father to his fight with Parkinson’s disease. As we moved through the holidays, business picked up for the usual end-of-the-year routine. On top of this, my teaching/coaching/speaking schedule has increased dramatically, putting me on the road more than ever, while still chipping away at my PhD (target graduation date is 2019). However, the worst of the worst has now passed, year-end is behind us and we are starting to head into spring, when I often intentionally lighten my calendar to enjoy Minnesota’s relatively few weeks of warmer weather, outdoor activities and the like.
But that hasn’t stopped me from pondering ways in which I can assist others in their personal and financial goals in 2017! In fact, there are two significant things that I would like to announce. One item you may already know if you have been taking note of my Facebook page:
1. One of the many core reasons I wanted to start my own consulting business was to give back to the community.In 2017, it is my goal to give back a significant portion of our top line gross revenues, somewhere around 10%.In pursuit of this mission, I will be establishing a secondary Facebook page that targets families in need in Southeast Minnesota.
My reasoning for this philanthropic viewpoint is two-fold. First, my wife and I have been extremely blessed with two successful careers and more than we could ever need in life. It is important to us as a family to help those who may not be as blessed as we are. Second, we want our young daughter, Ryan, to understand the concept of giving back to others and somehow grasp how fortunate she is to have food on the table, a roof over her head and clothes on her back. As we know, not all kids have this.
Throughout the year, I will be asking people in need reach out with their family requests. Requests receiving most serious consideration will be those who can demonstrate financial strife as well as requests for children and child supplies. We are so excited to make even these small strides to make others’ lives better.
2. Those of you who know me well, know that one of my own personal passions in life is living in manner for which we all have financial freedom, such as living debt free, increasing personal wealth and just generally having a good understanding of our own personal financial choices.For years, I have pondered ways in which I can help others through my own teaching and financial philosophies, which, in fairness, probably align with many of the big names in the industry.
In addition, I have worked personally with several friends and family in helping them to establish a budget, understand their spending and assess their financial and family goals. About a year ago, I put together a series of activities for a budgeting class at RCTC and the students were very enlightened by what they learned about their own spending.
Why am I telling you this? As an exciting next step in the progression of services offered by HBC, I will be launching a new personal finance service over the summer targeted at individuals and families that really want to get a handle on their spending, budgets and lifetime financial goals. This will be offered as a combination of hands on, guided tools, a delivered cohort class whereby participants work through several steps of discovery together and one-on-one counseling/coaching from me. In doing so, I am developing some new information that will be published on the HBC website (look under the “Learn About Us!” section in coming weeks), including videos and information, as well as a place for those who get in early to receive substantial discounts on participation!
I believe the opportunities to build out an additional area of my business, focused not just small businesses but individuals/families on a national and international scale, combined with something that is important to millions of people, will offer HBC a new, unique opportunity to serve a larger market and impact a greater number of people. This, in combination with my own passion for this topic as well as years of experience in paying down debt and creating financial cushion, gets me very excited about the road the lie ahead! Stay tuned as I continue to drop nuggets of information about this new service offering! If you wish to learn more about this opportunity sooner, don’t hesitate to reach out. My plan is to launch the first course just after the 4th of July.
I wish everyone a great Spring!