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Phoenix Bookkeeping Services - Your Guide to Finding the Best

Phoenix Bookkeeping Services – Your Guide to Finding the Best

Whether you’re just starting your business or you’re fine-tuning your financial strategies, a professional bookkeeper can be a tremendous help.  They can balance your daily expenses and earnings, and manage your invoices. By handing these jobs over to a Phoenix bookkeeping service, you can lower your risk of error and use those extra hours to create strategies to grow your business.

Why You Need a Bookkeeper

Regardless of the company’s size, having a great bookkeeping service is an essential part of any business. Efficiently kept books do a lot more than make filing your tax returns easy. Bookkeepers can expertly put together a balance sheet or profit and loss statement that can help determine credit worthiness when you apply for a loan. They can also show you where you need to spend less or more money, how much you’re making, how much you’re spending, who takes the longest to pay you and who gives you the most business.

But where do you find a bookkeeper, and what do you need to know to ensure that you hire the best? Well, here are four keys to finding the best Phoenix bookkeeping services.

Experience

Bookkeeping services vary, so it’s a good idea to find a Phoenix bookkeeping service that knows your accounting software, and understands your industry and clients. Some bookkeepers focus on corporate businesses, where they typically become proficient one thing, like accounts payable. There are also bookkeepers that specialize in small businesses, with experience in all facets of bookkeeping.

Technology Skills

The best bookkeeper will have strong technology skills. During the interview process, make sure that they not only have experience with your software, but the same version. Also ask them how if they stay current with new technology.

Business Acumen

Choose someone who has a strong business acumen and exercises sound judgment. They are a valuable addition to any business because they can assimilate information and innovate bookkeeping related strategies and solutions. These abilities ensure a more profitable future.

References and Reviews

Since you’re going to be entrusting the bookkeeper with sensitive financial information, make sure they’re trustworthy. Ask the Phoenix bookkeeping service you’re considering for referrals, and do your due diligence by contacting them. A bookkeeper is an important part of a growing business, however hiring the wrong person can hinder your business operations and consume much-needed cash flow.

If you’re struggling to keep your books in order, contact us today. Our Phoenix bookkeeping services can ensure you have accurate data so that you can make the best decisions for your business.

Why You Need a Great Bookkeeping Service for Your Business

Why You Need a Great Bookkeeping Service for Your Business

Hiring a great bookkeeping service can not only keep you from losing your sanity, but it can also help protect you from a potential lawsuit because your books are a mess. All businesses need a great bookkeeping service on their team.

What is bookkeeping?

The first thing you should know about bookkeeping is that it’s not just a tax savings tactic. Bookkeeping includes documenting, storing and retrieving financial transactions for businesses, individuals, and nonprofit organizations. Bookkeeping in the past involved copying numbers into a ledger book; today it involves downloading data from your bank into your accounting software system. Clearly, downloading is much faster and less vulnerable to input errors, but the initial setup of your bookkeeping system has become much more critical to your success.

Why is Proper Bookkeeping Important?

It’s common for small businesses to make bookkeeping mistakes during their early years. They usually lack knowledge when it comes to the appropriate bookkeeping practices. Those that don’t keep their books current make their situation even worse. Hiring an experienced bookkeeper will help you avoid devastating pitfalls that can have a negative impact on your business. Good bookkeepers notice developing trends, see important patterns and are highly skilled; abilities that not only protect the companies they work with but improve their bottom line.

Once you get to the point where your books suffer because your business is thriving, it’s time to hire a good bookkeeper. With a good bookkeeper on your team, potentially costly mistakes will be found faster, and your business will operate more efficiently. Let’s face it, as the owner of a small business, you need to spend your time doing the things you do best and not doing the bookkeeping.

Future Consequences of Having Poor Bookkeeping

Inadequate bookkeeping practices can lead to a long list of problems including:

  • Late creditor payments and a poor commercial credit rating
  • Banking records that are impossible to maintain efficiently, having a disastrous effect on your business
  • Inventory overages or shortages due to financial mismanagement
  • Under-reported or unreported items, like investment income, rental income, revenues, or other types of earnings
  • Tax problems with the IRS or local and state government agencies
  • Incurring late fees and various other penalties, causing devastating hits to your budget
  • Late payments, overdraft fees, and even account closure status
  • When it comes to payroll, employees can end up with erroneous year-to-date earnings on their end of year W2 form and pay stubs

If you have poor bookkeeping habits, it’s time to contact a professional service to discuss creating a system that’s right for your business.

Bookkeeping is critical for business success. Contact us today if you’re interested in our bookkeeping services!

Should You Use Accounting Apps in Your Business?

Should You Use Accounting Apps in Your Business?

Accounting apps are a type of computer software that is used by business owners or accounting and bookkeeping professionals to manage and perform a variety of accounting tasks. The most basic accounting apps, often referred to as “personal finance managers”, are single entry programs that automate tasks like record keeping and check writing. Double entry accounting apps incorporate functions for accounts payable, accounts receivable and general ledgers. More advanced programs also include functions for inventory, invoicing, payroll and fixed assets. Several of the higher end accounting systems on the market even support time billing and sales analysis.

Features Available in Accounting Apps

You may be thinking that accounting apps are all basically the same, but they’re not. While the primary function is similar, some have several other features, functions, and services built in as well. Some of the most indispensable features include the following.

Security

Businesses of all sizes need to have their financials under control if they want to succeed, and the best way to ensure this is to use an efficient and secure accounting app. Financial data can be lost or tampered with, releasing important financial secrets, profits and sales data. If the damage is bad enough, it can be devastating for the company.

Reporting and analysis

In today’s complex business environment, information is power. This is why the accounting apps you consider should include great analysis and reporting features. Apart from helping business owners obtain insight into important financial activities, reporting and analysis capabilities help businesses conform to industry and government regulations.

Scalability

Look for an accounting app that’s scalable, meaning that it can be upgraded to, or already accommodates, a substantial growth in the number of users, transactions, and financial data. Before you sign up for an accounting app, make sure to have the vendor confirm that they have you covered when it comes to scalability.

Advantages of Accounting Apps

Accuracy is critical for all business related computations because mistakes have the potential of leading to substantial losses or other problems. Accounting apps can prevent you from making these types of mistakes. Accounting programs also improve workflow, improve record organization, and the right one can be modified to expand as the business grows. These apps make it possible for you to see finances at a glance and are developed to suit one purpose, to manage your financial tasks.

Disadvantages of Using Accounting Apps

A disadvantage of using accounting apps is the learning curve, which can feel daunting.  But using the app can far outweigh the potential for mistakes for business owners who are still trying to do the bookkeeping manually.

Accounting apps have hundreds of features that can benefit your business and workflow. That said, nothing is a substitute for accurate and systematic bookkeeping. Let us help you get your financial side of the house in order. We’ll put your mind at ease.

5 Consequences of Using Spreadsheets in Your Business

5 Consequences of Using Spreadsheets in Your Business

Initially, spreadsheets were designed as computerized simulations of traditional paper accounting worksheets. While in some cases spreadsheets still serve a purpose, this old school financial management strategy can lead to inefficiencies and errors that will eventually have a major impact on the business’ value. Following are 5 reasons why spreadsheets will ruin your business and how to avoid it.

  1. Keeping Financial Data Up to Date

If you use spreadsheets, you need to consider who controls the master to know which version of the file is up-to-date. What happens if several people need to use it at the same time? With spreadsheets, you need to email what you think is the most recent version to and from recipients which opens the door to errors. With good accounting software, approved individuals can sign in between devices online. This is one of the most beneficial differences because you’ll always know that the numbers you’re seeing are current.

  1. Errors Go Unnoticed

Meticulously reviewing spreadsheets and looking for errors is an undertaking that no one enjoys doing, meaning that errors are certain to slip past undetected. Studies have shown that errors have even slipped by professional auditors whose main function is to comb through them to identify errors in formulas and data.

  1. Time Consuming

Spreadsheets are time-consuming and put businesses at a considerable disadvantage. Spreadsheets slow down processes and have a noticeable impact on how long it takes to get work done. A significant amount of time is spent consolidating, correcting and modifying spreadsheets. And when used in collaborative, repetitive business processes, they become huge time wasters. Closing the books more efficiently and faster is a perennial objective, which is why successful businesses are moving away from using spreadsheets.

  1. Unsuitable for Adaptive Business Practices

Spreadsheets are typically created by people who have little knowledge when it comes to the software’s functionality. Ultimately, their spreadsheet files turn into highly personalized applications. What this means is that when someone else takes over during a large scale business change, the new person put in charge might have to start over again from scratch. We live in an age when significant changes are consistently transforming the business landscape. Acquisitions, mergers, new technologies, and management buyouts can have an effect on today’s companies. If an organization doesn’t have adaptive business practices in place, it could easily be left behind or worse, face extinction.

  1. Fraud Vulnerability

Of the previous spreadsheet drawbacks listed here, this one has the potential of being one of the most damaging. Fraudulent manipulations in company spreadsheet files have resulted in billion dollar losses. The primary reason behind this vulnerability is the lack of controls, which makes it easy to modify values and formulas without being detected.

Spreadsheets vs. Accounting Apps

Accounting applications are the best solution for businesses because they are built to make it possible to record your accounting data efficiently with minimal mistakes.  They are also more easily audited. Although they are created for the specific purpose of accounting, they include contact management as well. Spreadsheets, on the other hand, leave too much room for error and are much more time-consuming.

Spreadsheets vs. Bookkeepers

Many new business owners spend more time and money than they save when they attempt to do their bookkeeping themselves. According to the Small Business Administration, not having a bookkeeping system in place and bad bookkeeping are the top reasons why many new businesses are unsuccessful. Also, as a business expands, it outgrows simple financial tracking solutions, and the bookkeeping gets more complicated, making it essential to hire a bookkeeper.

Although spreadsheets can be helpful at times, they can also ruin your business. That’s why it is important to consider using accounting software and a reputable bookkeeper for your business. Contact us today!

Why You Should Issue 1099-MISC in Your Business

Why You Should Issue 1099-MISC in Your Business

These days businesses rely on additional services from contractors and freelancers for tasks that don’t require employee headcount. This means that it’s essential for them to understand IRS rules and varied prerequisites for issuing 1099-MISC forms in their businesses. Unfortunately, a lot of business owners “wing it” when it comes to following the rules and requirements because keeping up with changes can be so aggravating that many entrepreneurs simply give up. This can be a dangerous and costly move with penalties adding up quickly. Fortunately, filing the 1099-MISC isn’t complicated. Here’s what you need to know.

1099-MISC Defined

Generally speaking, you’ll need to issue a 1099-MISC to anyone you’ve paid a minimum of $600 for services related to your business. This includes materials, rent, awards, prizes and other income payments made during the year. You don’t need to submit a 1099-MISC for payments made for personal functions.

A 1099-MISC form helps independent contractors report their earnings to the IRS. It’s similar to a W-2 that an employee receives from their employer.

The IRS requires companies to report payments to the IRS and recipient through a 1099-MISC. The form displays total payments that you provided to an entity or person during the year that you’ve received services for. It contains personal information, including name, address and either employer identification or Social Security number. Beyond the basic personal information, it classifies every type of payment in individual boxes on the form based on the grounds for your payment. For example, if you paid for contract work the annual earnings should be acknowledged as non-employee compensation.

Business Legal Obligations

There are a wide range of transactions that require you to submit a 1099-MISC to the person or entity who received your payment. A few of the most common transactions include paying:

  • $600 or higher in compensation in exchange for services rendered
  • $600 or more to a law firm or attorney for legal services
  • Payments you make to rent commercial real estate, like a warehouse or office.
  • $10 or more in royalty fees
  • Awards or prizes of $600 or more
  • Direct sales of at least $5,000 of consumer products to a buyer for resale through a non-retail establishment

In addition, if you ever end up paying a lawsuit settlement, you’ll be required to report all of the payments you make apart from the ones that compensate an individual for their physical injuries or medical expenses.

In order to avoid IRS penalties, it’s important to be aware of reporting deadlines for the 1099-MISC. You’ll need to give the recipient of the payment a copy of the 1099-MISC no later than January 31st, right after the end of the tax year that you made the payments in. In addition, you’ll need to file the 1099-MISC with the IRS by February 28th. The IRS may give you more time if you file electronically.

Setting up processes and systems to issue 1099s can help you save time and money every year. If you’d like to discuss how I could help your business improve productivity and efficiency, schedule a free consultation here.

Why Is Professional Judgment Important In Accounting?

Why Is Professional Judgment Important In Accounting?

With the progressively complex nature of today’s global business practices, it’s important to have reliable financial information for your business. Accountants are professionals and due to the nature of their industry, are expected to apply professional judgment. Having the ability to make a professional judgment is essential for accountants, but it can be challenging,

Professional judgment is a required skill for principles-based accounting strategies, including auditors, preparers and regulators of financial statements. That said, making professional judgment calls can be difficult, and there isn’t necessarily one right answer in most cases. There is a learning curve, but it’s possible to recognize and take the logical steps necessary to better navigate through judgment calls, including asking common sense “what and why” questions.

What is Professional Judgment in Accounting?

Professional judgment is the process of drawing a conclusion or arriving at a decision when there are several possible alternatives to choose from. It is a process that is unbiased, logical, consistent and objective.

Accountants make use of pertinent information and balance intuition, knowledge and experience to make the best call. Unfortunately, many accountants don’t have a thorough process in place and fall into common judgment traps. Many of these judgments end up being shortcuts that can help simplify complex accounting tasks but may lead to less than optimal judgments and can cost your business in the long run.

It’s important that you have a good relationship with your accountant so that you can express your concerns and support for professional judgment with your business tax records. Make sure that every item in question is assessed according to the law. If professional judgment is needed, you should work with your accountant to understand the impact that the decision will have on your business.

Following a Sound Professional Judgment Process

Peace of mind comes when you hire the right people for the right job. Accounting is not easy. Your accountant is responsible for providing regulators, directors, managers, investors and others with reliable, up-to-date, comparable financial and accounting reporting information. It’s important that he or she stays on top of the law, receives the training required to make good business calls and follows a consistent process.

By persistently following a good judgment process, understanding risks and vulnerabilities, and having the right competent accountant on your team, you’ll be able to monitor your company’s risks (including fraud) and strategies. Be consistent in your judgment process. If you chose path A for one item, use the same process for the next one in question. Following an expert judgment process equates to improved risk management and business outcomes.

If you need help creating a consistent, repeatable and efficient judgment process for your business, call me today. I can help you implement the right systems and people to take your business to the next level.

Strategies for Operating a Cash-Strapped Business

Strategies for Operating a Cash-Strapped Business

Cash flow is the lifeblood of any business and a fundamental factor when it comes to growth and longevity. Today, cash-strapped businesses are easily forced to the brink of failure with the difficult process of trying to get credit or a bank loans. It’s important that entrepreneurs understand from the get go that they can’t operate for long if their cash outflow is greater than cash inflow. All companies, especially startups, need to conscientiously monitor their cash flow to prevent disruption to the business.

Strategies for Operating a Cash-Strapped Business

A substantial percentage of cash flow challenges arise because business owners haven’t invested enough time estimating the potential revenue streams achievable and balance it against their obligation to pay out expenses. As a business owner, you should know the importance of calculating precise cash flow forecasts. If you don’t appropriately estimate your cash flow for the day, week, month and quarter, you’re going to be putting your company at risk.

From the first day you start your business, you need to track and manage your cash flow, including paying your employees, vendors and others against the time frame in which you collect payment from your clients. Make sure that you time cash inflow to arrive before payments to others are due. You should also set up cash reserves to smooth out the bumpy road.

Quality Product or Service is First!

You should always focus on the quality of your products and services before you decide to cut costs. Your business won’t survive if what you’re offering is fatally flawed. You may decide to outsource some of the work to keep employment expenses low.

Customer Service is Second!

Providing superior customer service will give any business a competitive edge. Sure, most consumers want to save as much money as possible on transactions, but they also expect a positive customer service experience.

Before you cut prices to match or beat the competition, focus on improving your customer service skills. When customers email, message or call, make sure that they receive real help instead of empty promises or excuses. If you have a designated customer service employee or department, ensure that they can quickly and efficiently respond to dissatisfied customers. If you cut employment costs by outsourcing this function make sure that you’ve picked a good agency and that you’re following employment law.

By having a well thought out customer service strategy in place, you’ll give your clients a reason to continue doing business with you, regardless of whether your prices are somewhat more expensive than your competitors. Mistakes are going to happen, but if you have effective customer service strategies along with a great product or services in place, most consumers will be more likely to overlook the occasional mistake.

When it comes to business success, cash is always king and cash flow should always be priority #1. Let’s work together to come up with a strategy for your business. Call me today to discuss.

Why Are Net Income and Cash Flow from Operating Activities Different?

Why Are Net Income and Cash Flow from Operating Activities Different?

It’s important for businesses to understand cash flow. Cash is what keeps a business operating smoothly. You obviously need profit, but equally as critical is your cash flow. You must have a firm understanding all the financial facets of your business, from net income to cash flow from operating activities. Here are the basics.

What is Net Income?

Net income is the mathematical outcome of gains and revenues, minus the cost of products and solutions sold as well as losses and expenses. Net income appears on your income statement as a net gain. If the net amount is negative, it is referred to as a net loss.

What is Cash Flow from Operating Activities?

Cash from operating activities is net cash inflow documented in the first section of cash flow statements. Cash from operating activities is focused on the outflows and inflows from primary activities such as providing services, buying and selling merchandise, etc.

Cash from operating activities doesn’t include the amount of money spent on capital expenditures such as new facilities or equipment, cash garnered from the sale of long-term assets or cash utilized for other long-term investments. `

Here’s How They’re Different

Net income and cash flow from operating activities are different for many reasons.

  • Reason #1: Cash flows from operating activities include specific items that are addressed distinctly on the income statement. Non-cash expenses, including depreciation, share-based compensation and amortization need to be included in order to calculate net profit. These types of expenses are incorporated back into net income on the associated cash flow statement. They reduce net income but do not affect net cash flows.
  • Reason #2: Net income is a line item found in the operating activities area of the cash flow statement. Cash flow from operating activities includes the sum of net income, changes in working capital and changes for non-cash expenses. Increases of existing assets, including accounts receivables, inventories, and deferred revenue are viewed as uses of cash. Reductions in these types of assets are considered sources of cash. In the same manner, decreases in current financial obligations, including accrued expenses, accounts payable and tax liabilities are considered are considered uses of cash.
  • Reason #3: Another reason they are different has to do with timing. Differences exist between the recognition of revenue and expense and the various underlying cash flows.

Once you understand the difference between net income and cash flow from operating activities, you’ll be on your way to fully comprehending the health of your business. But, what happens when your business is cash strapped? I’ll share strategies in my next post so stay tuned.

Balance Sheet Basics: Long-term Assets and Liabilities

I shared the basics of short-term assets and liabilities and how you can use that information to make sound business decisions in my previous posts. long term assetsLong-term assets and liabilities are just as important and extend past the current year.

Sometimes it’s helpful to assess long-term assets against long-term liabilities to gain a picture of the money coming in to your business and leaving it in the future. To do this, you’ll need to understand what long-term assets you have and compare them to long-term liabilities.

Long-term assets

This asset type is used for things not quickly converted into cash, which cannot be sold or consumed within a year or less. They include:

  • Investments—Investments that are not expected to be sold within the year such as bonds, common stock, investments in assets not used in operation, long-term notes, pension funds or plan-extension funds. These assets are reported on the balance sheet at historical or market value.
  • Fixed assets—Items that have a lifespan longer than one year and are used in operations such as machinery and equipment and buildings. They are depreciated over time.
  • Intangible assets—Intangible assets are things like patents, copyrights, trademarks, franchises and organization costs. These assets may have infinite life and are not amortized.

Long-term Liabilities

Long-term liabilities incorporate items that you anticipate liquidating outside of the current year or cycle of operation. They are reported as the value of all remaining payments and include:

  • Notes payables—This amount usually carries interest and is the amount your company owes to a creditor.
  • Long-term debt—Current portion of a net debt that is payable over a long-term.
  • Deferred income tax liability—Taxes due in the future for income already received and reported in your financials. A future tax liability is created when a company’s tax payable is less than its tax expense.
  • Pension fund liability—Post retirement benefits of current or retired employees as contributions that are necessary for future payments.
  • Long-term capital-lease obligation—This is a written agreement under which a property owner allows a tenant to use and rent the property for a specified period of time.

Understanding your liabilities is important. They are a claim against your business assets. Investors will want to know why you’re issuing new debt so be sure to note the reason why. Debt isn’t bad, especially if you have it because you’re investing in optimizing your processes and becoming more efficient.

The combination of your long-term assets and liabilities gives creditors and other interested parties the ability to see how your business is doing beyond the current year. It can help them decide whether or not they will extend credit to your business.

Analyzing Short-term Receivables and Payables to Make Sound Business Decisions

When you’re trying to determine what money is coming in compared to money you need to pay out, you’ll need to review short-term assets against short-term liabilities.payables and receivables This helps you understand where you need to make changes in your policies and procedures to ensure your business stays cash flow positive.

Accounts Receivable s vs. Accounts Payable

Accounts receivable is money owed to your business for purchases made by customers, suppliers, and other vendors. It’s an asset. Accounts payable includes all short-term obligations owed by your business to creditors, suppliers and other vendors.

As you review your balance sheet, you may decide to change your terms or policies if your business isn’t thriving with your existing procedures. You can get an in-depth look into your accounts receivables with the Accounts Receivable Aging Report. Be sure to look closely at your terms and existing customer base and review the following:

  • Terms—What types of terms have you given customers? Do you give them a 30-day window to pay or is payment due immediately.
  • Customer behavior—Do some customers pay on time while others seem to take forever?

Just as you review your customer’s terms and behaviors, you should also take the time to review your supplier’s terms and behavior drilling down to the Accounts Payable Aging Report.

Notes Receivables vs. Payable

Many small business transactions are finalized with credit. Often times smaller business lend or receive money with promissory notes where one person promises to pay the other one back at a certain time under certain interest terms.

Notes receivables that are due within one year are current assets. These are promises to pay you for money you’ve loaned to others. Notes that cannot be collected on within one year should be considered long-term assets. Notes payables represents money owed on a short-term collection cycle of one year or less. It may include bank notes, mortgage obligations or vehicle payments.

As a small or mid-size business, notes receivables are likely to be promissory notes or employee advances. Perhaps you’ve given a customer a loan because they couldn’t make the payments on the product or service they bought from you. To avoid legal fees or the embarrassment of a collection agency calling on them, they agreed to transfer their delinquent accounts receivable balance to a promissory note. (Note: I don’t advise that you do this without the counsel of your attorney)

Notes payable could be a line of credit, accrued payroll and withholding taxes and the current 12 months of a vehicle loan that’s setup as a contra account to separate the current balance of a long-term note. The remaining balance of the loan will be found under long-term payables.

If you discover that you have a large number of outstanding notes receivable, you should consider taking measures to reduce the amount of write-offs you may see as the debt becomes uncollectable. You may even want to put a policy in place to ensure that you don’t lend out more than your business can afford to lose.

You may also want to create an account called Allowance for Doubtful Accounts. This account can accrue a bad debt balance that can be used to write off any notes payable that later become uncollectible.

Timing is important with receivables and payables. You could run into serious cash flow issues if you have a ton of money coming into your business in the next 60 days, but owe your suppliers money in the next 30 days. Timing is critical in everything, but especially in accounts and notes receivables and payables.