As a business owner, what is the best way to know how you're doing financially?

Being a business owner investing time and money into a business, it is crucial to have a solid understanding of your financial situation.

What are some key points in tracking your finances?

1. Keep Receipts: Maintain detailed records of all business expenses by keeping receipts. This will help you verify transactions and claim appropriate tax deductions, avoiding potential issues during an IRS audit.

2. Separate Personal and Business Finances: Keep your personal and business finances completely separate. Using personal accounts for business transactions or vice versa can lead to confusion, inaccuracies, and problems with financial reporting and tax filings.

3. Don’t Procrastinate: It is vital that you maintain comprehensive record-keeping. The longer you procrastinate, the more valuable time it will take from you trying to backtrack and trace transactions. Ensure that you record all financial transactions promptly and accurately or it can result in discrepancies and make it challenging to reconcile accounts correctly.

4. Reconcile Regularly: Regularly reconcile your bank, credit card, and loan statements to identify and correct any errors in recording transactions. Neglecting reconciliations can lead to inaccurate financial statements and tax filings.

5. Classify Income and Expenses Properly and Effectively: Correctly categorize all income and expenses effectively and strategically. Doing this will allow you to transform your raw data into reports that deliver essential financial insights at a glance that will help you in your decision-making and business planning.

6. Track Invoices and Payments: Keep a close eye on invoices issued and payments received to maintain healthy cash flow and follow up on outstanding payments.

7. Hire Experienced Financial Professionals: Consider hiring an experienced bookkeeper and a CPA for your financial record-keeping, reporting, and tax filings. Trying to do it yourself or hiring someone inexperienced can lead to costly mistakes.

By avoiding these common mistakes and maintaining accurate and organized financial records, you can avoid inaccurate tax filings, be prepared if you ever have an IRS audit, ensure better financial management, and have a clear understanding of your business's financial health.

What additional expenses can I take for my business???

Have you been thinking of what additional expenses you can take yet for this year? Maybe this is something you haven’t considered . . .

How about claiming mileage on trips you might not have even thought about? Did you know the per diem rate for 2023 is 65.5 cent per business mile driven? This can really add up. Plus, if you have an older, used vehicle, this deduction can even add up to more than the value of your vehicle over the years.

Sometimes, it’s easy to forget the miles you add for business purposes. Have you dropped brochures or business cards off anywhere? How about running to the store and grabbing supplies? Did you meet with a potential client or customer? Did you drive anywhere to network or promote your business? What about driving somewhere to check out the competition? If you know the dates and where you drove to, these are all business mileage-related expenses.

With a record of where and when you traveled for these types of purposes, you can add up the mileage of your total round trip and multiply it by 65.5 as a business deduction.

Mileage Deduction Record-keeping

It is vital that you have records of every trip in case of a future audit. To use the standard mileage rate, you must:

1) Own or lease the car

2) Maintain a detailed log of your business-related mileage. This should include:

• Starting and ending locations

• Purpose of trip

• Number of miles driving

• The date

Exceptions

Before you claim mileage, please note the following rules:

• You must not operate five or more cars at the same time, as in a fleet operation,

• You must not have claimed a depreciation deduction for the car using any method other than straight-line,

• You must not have claimed a Section 179 deduction on the car,

• You must not have claimed the special depreciation allowance on the car, and

• You must not have previously claimed actual expenses on the vehicle you are using. Once you start claiming mileage on a vehicle, then, in later years, you can use the standard mileage rate or actual expenses. Once you use actual expenses, you can no longer claim mileage on that same vehicle.

• You cannot claim mileage for your regular commute to your business.

Be sure you’re taking all your deductions and expenses. Many business owners misfile their tax returns and lose thousands of dollars by not claiming all expenses. How does this happen? By books not being properly entered and updated. Hiring a bookkeeper keeps accounts reconciled, catches mistakes, and helps you make sure all financial records are accurate and up-to-date, reducing the risk of errors in tax filings, loan applications, or investor/partner reports. It also helps you make sure you’ve deducted all your expenses. See: https://workover.pro/articles/2023/4/20/common-business-mistakes-that-cost-you-money-not-updating-your-books

RESTAURANT OWNERS: Are your expenses too high or menu prices too low?

There’s always that question restaurant owners are asking . . . are my expenses too high or menu prices too low? It’s something you need to evaluate regularly. This involves a careful analysis of your financials and customer feedback. Here's a guide to help you assess and adjust accordingly:

1. Calculate Food Cost Percentage:

• Determine your food cost percentage by dividing the cost of ingredients by the menu price and multiplying by 100. A healthy food cost percentage typically ranges between 25% and 35%. If yours is higher, it could indicate that your menu prices are too low.

2. Evaluate Competitor Prices:

• Compare your menu prices to those of similar establishments in your area. If your prices are significantly lower, it may suggest that you have room to increase them without alienating your customer base.

3. Analyze Profit Margins:

• Examine your overall profit margins. If your net profit margin is lower than industry averages or below what's needed for sustainability, it may indicate that your menu prices are insufficient to cover costs.

4. Conduct Customer Surveys:

• Collect customer feedback through surveys or direct conversations. If customers consistently mention that your prices are too low for the quality of the food and service, it could be a signal to reevaluate your pricing strategy.

5. Monitor Sales Trends:

• Track sales data for each menu item. If certain items consistently sell out or are ordered more frequently, it may suggest that customers are willing to pay more for those items.

6. Review Operational Costs:

• Evaluate your operational costs, including rent, utilities, labor, and other overhead expenses. If these costs are high, it may put pressure on your pricing structure. Consider ways to optimize operations and reduce unnecessary costs.

7. Understand Customer Perceptions:

• Consider the perceived value of your offerings. If customers perceive your food and service to be of high quality, they may be willing to pay more. Focus on enhancing the overall dining experience.

8. Account for Local Economic Factors:

• Take into account the economic conditions of your locality. If the cost of living is high, customers may be more accepting of higher menu prices.

9. Regularly Update Prices:

• Prices should be periodically reviewed and adjusted to reflect changes in costs and market conditions. Don't be afraid to make small, strategic adjustments over time.

10. Implement Value-Added Strategies:

• Instead of simply raising prices, consider implementing value-added strategies. This could include introducing premium menu items, combo deals, or loyalty programs to maintain customer satisfaction while increasing revenue.

11. Track Industry Trends:

• Stay informed about industry trends and pricing strategies. If your prices are lagging behind current trends, it might be time for an update.

12. Consider Seasonal Variations:

• Adjustments to menu prices can be made seasonally to account for fluctuations in the cost of ingredients or changes in customer preferences.

13. Evaluate Portion Sizes:

• Assess portion sizes in relation to prices. If portions are generous, customers may be more accepting of slightly higher prices.

14. Seek Professional Advice:

• Consult with a restaurant consultant or financial expert to conduct a comprehensive analysis of your pricing structure and operational costs.

15. Monitor Profitability Over Time:

• Regularly review and analyze your financial reports. If profitability is consistently a challenge, it's essential to reassess your pricing and cost management strategies.

By combining financial analysis with customer feedback and industry benchmarks, you can gain insights into whether your menu prices need adjustment and if your costs are appropriately managed. It is vital that your financial records are always up to date so that you can access current financial reports. This allows you to regularly revisit and refine your pricing strategy which is a key aspect of running a successful and sustainable restaurant.

Do you know your profit and loss last month?

When I ask business owners if they know their profit and loss for last month or this year-to-date, I am so surprised at how many say they don’t know. Are you also that last-minute business owner who waits until the end of the year to catch up on your books?

Keeping tabs on your monthly profit and loss is crucial for many reasons. What are the advantages of keeping up monthly instead of waiting until the end of the year?

1. Increase Profits

Regularly monitoring your P&L helps you assess the overall financial health of your business or personal finances. It provides a snapshot of your income, expenses, and profitability, allowing you to gauge your financial stability and make effective changes that will improve your bottom line.

2. Effective Decision-Making

A monthly P&L statement provides valuable insights that can aid in decision-making. Whether you're a business owner or managing personal finances, understanding your profit and loss helps you make informed decisions about budgeting, investments, and future financial and business strategies.

3. Identifying Trends

Regular monitoring of P&L statements allows you to identify trends in your income and expenses. Recognizing patterns over time can help you anticipate financial challenges or opportunities, enabling proactive adjustments to your financial strategy.

4. Performance Evaluation

Tracking monthly P&L helps evaluate the performance of different departments, products, or services. It provides insights into what aspects of the business are contributing the most to profitability and where improvements or adjustments might be needed.

5. Tax Compliance

Understanding your profit and loss is essential for tax compliance. Up-to-date financial records are necessary for tax returns and preparing for your expected tax liability at the end of the year. A monthly P&L statement can streamline the process and avoid last-minute adjustments and catchups.

6. Early Detection of Issues

Regular monitoring of P&L can help you identify financial issues or challenges early on. Whether it's a decline in profitability, unexpected expenses, or declining sales, early detection allows you to address issues promptly and prevent them from escalating.

7. Saves Money

Knowing your monthly profit and loss helps you manage your finances more effectively. It enables you to allocate resources efficiently, negotiate better terms with suppliers, and optimize your overall financial strategy.

In summary, understanding your profit and loss on a monthly basis is a fundamental aspect of effective financial management. It provides the information needed to make informed decisions, plan for the future, and ensure the financial health and sustainability of businesses.

I don’t have time, how can I keep up monthly???

Keeping up monthly is vital to your business, but, as a business owner, it’s hard to find the time. Hiring a bookkeeper will not only save you valuable time but will save you money by helping you make effective and timely financial decisions. It also saves you money from having your CPA fix mistakes or ask you questions.

What monthly reports do I need?

To be most effective, make sure your bookkeeper provides you with monthly financial reports. These should include profit and loss (both year-to-date and monthly comparisons) to help keep up on changes that are happening in your business. You also need monthly and year-to-date reports showing percentages of your income and expenses to help you see where you are overspending and underproducing.

Common Business Mistakes That Cost You Money . . .

Not Updating Your Books

Things get very messy quickly. Your financial records become disorganized and hard to understand and ends up costing you money.

What happens when your books are not updated?

You waste valuable time trying to catch up on bookkeeping. You end up neglecting areas of your expertise, neglecting customers, or neglecting strategic planning resulting in loss of potential income.

You lose a ton of money in taxes or penalties. Keeping accounts reconciled catches mistakes and helps you make sure all financial records are accurate and up-to-date, reducing the risk of errors in tax filings, loan applications, or investor/partner reports. It also helps you make sure you’ve deducted all your expenses.

You can’t make effective decisions. By having updated books, you can understand the financial health of your business finances by being able to produce regular financial reports and analyses. This helps you make financially smart decisions and understand your cash flow. Knowing your cash flow helps you pay your bills on time or invest in growth opportunities for your business.

You have no idea how to cut costs or increase income. You can save money with updated books by being able to identify areas where you can cut costs and maximize profits.

You end up spending more money. It’s vital to know the balance of your accounts when spending money. Updated books also saves money on hiring someone to catch up on the books or the cost of extra work needed from the CPA at the end of the year.

So, in short, it's super important to stay on top of your bookkeeping if you want to keep your business healthy and avoid any nasty surprises. Make sure you're updating your books regularly and keeping accurate records of all your financial transactions.

Are you unintentionally lowering the value of your business?

Are you planning on eventually selling your business? Take action now to start increasing its value.

“I’ll give you a discount if you pay me cash.”

Has someone ever told you that? Business owners offer a discount, not just because they’re getting cash, but because they are not reporting the cash as income in their businesses. Yeah, that avoids paying higher taxes, but that not only puts you at a costly risk if you get caught by the IRS, but you are lowering the value of your business. Without accurate tax returns that show your true income, you cannot sell your business for its true value based on your actual revenue. Your value is based only on what you’ve reported, and you’ll have to sell your business for less than what it’s worth. In addition, this can scare away potential buyers who may question your honesty if cash is not accounted for.

I have cash sales but need to use it to pay contractors.

You don’t report cash income because it’s used to pay contractors. Unreported cash sales used to pay contractors once again puts you at risk for a costly IRS penalty. IRS requires you to report all gross income and send 1099s to your contractors. In addition, you are not showing actual revenue in your books and your profit and loss is inaccurate. Because you’re not reporting it, your cash flow looks much lower than it actually is which, once again, lowers the value of your business and lowers the asking price. This also adds doubt and scares away any potential buyers because your cash is not accounted for.

What would a potential buyer want to see?

When thinking ahead to the sale of your business, think about what a buyer would want to see. If you were the buyer, does the business look appealing to you? Does it look like a great investment? Start keeping accurate records of your income and expenses, making sure your statement categories accurately reflect your business so a potential buyer can easily understand how you’re making money and where it’s going. Start increasing your value now, and if possible, go back and fix your mistakes.

How to Avoid Common Small Business Tax Mistakes That Can Cost You Money

Don’t wait until tax time again to catch up on your bookkeeping and tax issues. Take action now!

Are you a small business owner who wants to avoid costly tax mistakes? Are you looking for some practical tips and advice to help save you time and money? Tax season can be one of the most stressful times of the year, but it doesn't have to be. By familiarizing yourself with common tax mistakes that small businesses often make and learning how to effectively minimize them, you can save yourself from potential financial losses in the long run.

Have an Accurate Record of Your Income and Expenses

Being a small business owner, maintaining accurate records of your income and expenses is the key to success in the long run. Without careful tracking, it can be difficult to meet all of your financial obligations throughout the year. Keeping tabs on both sides of the ledger allows you to make smarter decisions about taxes, budgeting, and cash flow. While this task may seem daunting at first, in reality, it can be done with relative ease. As a starting point, create a comprehensive spreadsheet that accounts for each transaction that occurs in your business's day-to-day operations. From there, you can use accounting software or an outsourced accountant to manage the rest. Finally, if you need help ensuring accuracy or want additional guidance when preparing taxes, don’t hesitate to contact a professional accountant without delay.

Understand How Much You Owe in Taxes

As a small business owner, understanding how much you owe in taxes is one of the most important steps when it comes to filing your tax return. Being aware of your current financial situation and taking advantage of the resources available can help you avoid costly mistakes. Education on topics such as deductions and income limits can allow you to make more informed decisions to help keep your taxes manageable. If needed, additional support from a professional tax preparer can ensure accuracy and peace of mind. Don't let confusion and anxiety around taxes put unnecessary strain on you and your business, make sure you understand what you owe!

Hire A Tax Specialist

Conscientious small business owners know that filing taxes on time is essential not only to stay in good standing with the IRS but also to avoid costly penalties. Staying up to date with taxes also helps small business owners better understand their financial picture as they continue to grow. Taking a proactive approach by hiring a tax specialist can help a business owner save time and money by avoiding common tax mistakes such as double taxation, omitting expenses, or overpaying the government. No matter what, making sure your taxes are filed on time is key for any successful business and its owners. And if you need help, don't be afraid to reach out—after all, taking control of your finances should always be stress-free!

Don’t Miss Out on Business Tax Deductions

As a small business owner, taxes can be overwhelming and it's easy to miss out on tax deductions that could save you money. Don't fall victim to this common mistake - make sure you stay informed on all the latest tax deductions allowed in your area so you can maximize the financial benefits your business is entitled to! Make sure you understand how to deduct wages, expenses, and other payments related to your business. With some taxation knowledge and an understanding of what deductions are available for your business, there could be great potential for reclaiming some of the hard-earned money that has gone out through various transactions over the course of a year. If in doubt, please take advantage of professional help or get in touch with an accountant who knows the necessary details and will ensure you don't miss out on any deductions you're entitled to.

Hire a Professional to Help with Your Taxes

Filing taxes doesn’t have to be a headache for small business owners! In fact, it can be quite simple with the help of a professional. A certified accountant can help at every step of the process and ensure no common tax mistakes are made. Experienced professionals understand the complexities of the filing system and will make sure you remain compliant with current regulations. The peace of mind that comes from knowing your taxes are filed correctly is invaluable, so take the time to find an accountant you trust. And if you need extra assistance? Don’t hesitate to contact us - we’re here to help!

Stay Up-to-date on Changes in Tax Laws

Staying abreast of changes in tax laws is essential for small business owners. Even the slightest oversight can have serious legal and financial repercussions, so it is critical that you stay up-to-date on new regulations and understand them fully. From filing deadlines to what deductions are available, it can be daunting to keep track of everything – but fortunately, there are plenty of resources out there. Reviewing the latest news articles and newsletters from reliable sources, attending seminars or webinars, and consulting with your accountant or other tax professionals – these are all great ways to make sure you’re current with the ever-changing business climate. If you’re ever feeling overwhelmed by any aspect of tax law, don’t hesitate to reach out for help – talk to one of our experienced professionals today who would be glad to answer any questions you may have!

Although making mistakes on taxes is often avoidable and easily corrected, the best practice is to prevent them from happening in the first place. By following the simple tips we have provided like; having an accurate record of your income and expenses or by staying up-to-date about current changes in tax laws, you can make sure that your small business's finances are in order. It would be wise to reach out to a professional to help if you need it. We hope these tips will make filing your taxes more manageable and stress-free!