(415) 418-0020 info@proteafinancial.com
Best Bookkeeping Software for Small Business

Best Bookkeeping Software for Small Business

Understanding profit and loss is important for any business, but it’s especially vital for small businesses with tight budgets. Spending too much can quickly put these small businesses in danger, while miscalculating profits can lead to overdrawn accounts. That’s why as a business owner, you need to know exactly where your accounts stand. Opting for one of the best bookkeeping software options is one way of tracking your income, expenses, and accounts receivable/payable.

There are many different types of bookkeeping software out there, though, so selecting one may seem daunting. Understanding why you should use this software, what to look for, and the benefits it offers can help you narrow down your options.

 

Why Use Bookkeeping Software?

There are several reasons why using bookkeeping software can help you more effectively run your business. First, you need some way of keeping track of all of your income and expenses. Writing them down in a notebook may work at first, but you will have to do all of the math yourself. This method can also quickly become unorganized. If you lose the notebook or any paper version of your accounts, you likely won’t have any type of backup. Even if you do try to keep two written copies, it can be easy to forget to record a transaction in one of them.

One step up from using a paper accounting method is using software such as Microsoft Excel or Google Sheets. These spreadsheet programs provide some benefits. They can do the math for you, and you can back them up to your personal cloud or to a flash drive. However, they aren’t full accounting programs. They don’t have features such as reconciliation or account management. While they’re better than using an accounting book, they aren’t perfect.

Bookkeeping software is designed specifically for accounting. Other spreadsheet programs can be used for a variety of different tasks, but bookkeeping software cannot. It includes all of the features and functions you’ll need to keep your accounts, vendors, employees, taxes, and more accurate and up to date. Information can be easily backed up and even shared with your accountant or other financial advisors.

 

What Should You Look for in Bookkeeping Software?

When you begin your search for bookkeeping software, you may feel overwhelmed. There are many options, and some of them may look almost identical. You will find many of the same features across the board, but that’s to be expected. These are the accounting and financial tools you’ll need in order to keep your accounts accurate.

One of the first things you’ll want to look for as a small business owner, though, is software that is specifically aimed at your needs. Small businesses do not have the same bookkeeping needs as large corporations. You may not need software that handles payroll, hours billable, inventory management, or other options. Make a list of the features you need in an accounting program in order to help narrow down the field. You may need to do some research into this if you’re not familiar with accounting. Sometimes, it can help to see what accounting programs offer so you can decide if you need those features.

In addition to features, price is certainly going to be a factor. You may find that some software is simply too costly for you. However, most accounting programs aimed at small businesses are affordable. Software has become even more affordable thanks to SaaS, or Software as a Service. Instead of buying the license for software, you subscribe to it. As long as you have an active subscription, you can use the software on any computer. Just download it and log into your account.

This means your books are available anywhere, too, because they’re stored in the cloud. You can make backups to your personal computer, of course, but the information will also always be synced with your online account. You’ll always have access to your accounts.

Protea Financial Bookkeeping Software Helps Small Businesses

 

Benefits for a Small Business

Once you’ve found the right bookkeeping software for your small business, you want to make certain you’re getting the most out of it. There are many benefits you will want to take advantage of. For example, most software available today, especially cloud-based software, works on mobile devices. This means you can complete a transaction and immediately invoice the customer. You can take photos of receipts or bills and immediately upload them. You can track the time you spend on a job and invoice for the time right away. You may be surprised at how convenient it is to have your bookkeeping software available wherever you are.

Another benefit is that accounting software will track all of your taxes. You input the correct rates for your location, and your software does everything for you. It will automatically insert the right amount of sales tax on your invoices, note how much tax you owe and how much you’ve paid in, and more. It makes filling out your tax forms and making payments incredibly easy. This also helps ensure that you are being compliant with all federal, state, and local tax laws.

Most bookkeeping software comes with a variety of different reporting and analytic tools. These tools will help you see where you’re spending your money, what your main source of income is, what type of spending trends your customers exhibit, and more. It can be incredibly helpful in maximizing profits while keeping your expenses under budget. Be sure you look at all of the different analytic options. You may find your software can generate reports you never thought of that provide key insight into your spending habits.

Finally, of course, a major benefit of using software is that it’s accurate. You don’t need to do any math by hand, nor do you risk making errors in transcribing numbers from a calculator to your software. The only thing you have to do is make certain you’ve entered the numbers accurately. Your software will do the rest.

 

The Four Best Bookkeeping Software Options

There are many different software options out there, but here are four of the best bookkeeping software options that many small businesses should be using to improve efficiency and accuracy:

 

Quickbooks

Quickbooks by Intuit is one of the most well-known accounting software packages available. Many businesses of all sizes use it. For small businesses, Quickbooks Online is a great option. It is designed to be scalable, so it will continue to work well for your business as you grow. It’s also widely used by accountants and other financial experts, so anyone you work with will likely understand Quickbooks. It makes use of cloud-based backups, has a mobile app, and can integrate with many third-party apps.

 

Gusto

Gusto provides great support to bookkeeping software, with it’s primary focus is being a payroll service provider. For small businesses with employees, it’s a great option. The software assists with tracking time, calculating insurance withholdings, and much more. Gusto is quite affordable for small businesses, too. Gusto can also help with your payroll tax filings, benefits for your team and much more!

 

Bill.com

Bill.com works with Quickbooks and other bookkeeping programs to bring automation and other features to your software. This creates one single platform you can use to handle your payments, invoices, and other tasks. The goal is to create a more efficient method of bookkeeping while keeping all of your information synced across platforms. Bill.com has tools developed specifically for small business users and provides a process for capturing and approving bills allowing you from passing paper around desks at your company.

 

Expensify

Expensify helps you track your employees expenses. This tool is very affordable, so small business owners will have no problem budgeting for it. However, it can be scaled up for mid-sized and large companies. They offer options such as optical character recognition for invoices, the option to integrate with other tools, and a variety of other functions. Using Expensify you’ll find it helps make your accounting much more efficient.

Protea Financial Which is the Best Bookkeeping Software for Your Business?

 

Which Combination is Right for You?

You’ll want to look at these four bookkeeping options plus others and compare them to your list of tools you need. Take your time and read plenty of reviews. Some applications also offer free trials, so take advantage of those as well.

 

Protea Financial is Here to Help Your Small Business Pick the Best Bookkeeping Software for Your Needs

While using bookkeeping software can certainly be helpful, it won’t be able to answer all of your questions or provide you with helpful suggestions. For that, you need a bookkeeper. That’s where Protea Financial comes in. We’re a team of virtual bookkeepers who specialize in helping small businesses with all of their accounting, bookkeeping, and other financial needs. Because we’re virtual, it doesn’t matter where you’re physically located. We’re here whenever you need us. We work with you via email, phone, and video chat.

While we do offer bookkeeping, we can also assist you with taxes, inventory management, payroll, compliance, and all other aspects of accounting. We will work closely with you and your team to accurately keep your accounting records, file your taxes on time, and assist in improving any areas of your company that are out of compliance. To learn more about how Protea Financial can help you or to get a quote for our services, contact us today.

Best Bookkeeping Software Options

Let the experienced professionals here at Protea Financial help you discover which bookkeeping software title will suit your needs!

Protea Conversations: Andrea Christensen

Protea Conversations: Andrea Christensen

Protea Conversations

Protea Financial was founded in 2014 to provide high quality out-sourced accounting at an affordable price.  Given Protea’s flexible work environment, the Company especially appealed to accountants who wanted to re-enter the work force after taking time off to start a family. This allowed Protea to attract extremely talented individuals who were previously overlooked.  Protea strives to represent people from all backgrounds and provide an environment for them to grow and succeed in a setting that provides the flexibility and acceptance of who they are as people.

We selected the name Protea because it is the national flower of South Africa and is a symbol of our connection. The Protea flower has become an ornamental flower because of its striking beauty and is included in arrangements and bouquets as a symbol of courage or daring to be better or a sign of positive transformation.

Protea Conversations in 2022 will focus on positive transformation and representation from all backgrounds. We are broadening our Conversations with the hope that these conversations will continue to create a forum to discuss the experiences, opportunities, and challenges leaders face, and how we can build a more diverse, inclusive, and successful environment for everyone.

In February we have a conversation with Andrea Christensen.  Andrea is the principal of Allstar West Insurance Services LLC which is the current iteration of H.N. Christensen Co., Inc., the insurance agency her grandfather started in 1923 in San Anselmo, California.  She is the 3rd generation to carry on their business and her daughter, Janelle Robello who is her “right hand”, brings 4 generations to the agency.

Andrea’s career has spanned more than 30 years providing service to her clients, many of whose families have been with the agency for generations as well.

Her vast experience, understanding of the current insurance climate and commitment to education set her apart from her peers.  She calls herself an “insurance nerd” and enjoys monthly classes to keep abreast of the continued changes in the coverages provided by the myriad insurance policies she sells.

A lifelong resident of Marin and Sonoma Counties, Andrea enjoys travelling with her husband, John Ranis, time outside in her vegetable garden, waterskiing and spending time with her family and friends.

Tell us about your journey into the insurance world?

I remember going to the office on weekends with my father when I was 11 or 12 and “cleaning” while he worked.  I’ve never looked back… except for the few minor jobs during school, and the time I quit for a few days over a large disagreement with my father.  I actually am very fortunate to have learned about giving within your community, Rotary International, supporting local business and referring and doing business within your community.  This is where I learned the “giving culture” I still use today and will continue to use.

 

Protea Financial Andrea Christensen

 

What has been the biggest challenge you have experienced in reaching your current success (personally and professionally)?

Professionally – I was a young mom (under 30) with about 5 years of insurance experience when my father had his first heart attack and could not go to the office.  There I was running a male dominated business with 8 employees all older and much more experienced than I.  Here is where “community” comes back in….3 insurance brokers in Marin County that my father knew all called and came to the office to assist me with accounts and questions and my amazing mentor and friend, Joan Capurro, (who just passed away at Christmas) who was a local banker, helped me with personnel issues.  They all helped me get through that time with no one quitting, no losses of accounts and boy, did I learn a LOT!

Personally – staying on track to grow the business and find time to enjoy TODAY.  So really it is what we all talk about these days – work life balance – what are we working for?  We need to enjoy today AND work today AND spend time with our family today…how do we fit it all in?

What are your short term goals of your career and yourself?

2023 will mark 100 years since my grandfather founded our agency.  We started as H.N. Christensen Co., Inc. and have had different names as we merged, purchased and bought out partners over the years.  My family and I are now the sole owners and I am working toward going back to a derivative of the Christensen name (as allowed by the department of insurance) and rebranding for our 100 year anniversary.

What is the best piece of advice you have ever received that has helped you in your success?

“It is a bigger feather in your cap to turn an employee around than to dismiss them” …Joan Capurro 1983

What is the piece of advice that you wished you had gotten when you were starting out?

If you are running your own business and don’t have an accounting background, take some accounting classes.  You always should hire professionals to handle your accounting, but if you don’t understand how to read your balance sheet, make projections, understand your expenses and true cost of doing business, you will have a rough road ahead.  Professionals can and will guide you in this but you are ultimately responsible for the success of YOUR business.

Also, and equally important, treat your employees well – VERY WELL – what you give will come back to you time and again.

What advice you give to others to help them be better leaders?

See above ????

Be real – be yourself – don’t take yourself too seriously -laugh at yourself – reach out to get to know who you are working with or leading and do your best.  We are all human, with time constraints – ask for help!  We can’t do everything ourselves so surround yourself with good people – that may mean professionally strong or people who “get it” – depending on what you are doing, but try to choose well and then don’t micromanage!

Can you share something interesting about yourself that will provide insight into who you are outside of the professional space?

I’m a wife, mom, auntie, grandmother, sister, friend, volunteer, businessowner, crafter, Rotarian, photographer, horseback rider, water skier, gardener and we own a 5th wheel trailer for travel.  There aren’t enough hours in the day ever! (I also love watching Women’s College Basketball and the Warriors) –  I love reading and learning – the two go hand in hand – so I read a lot.

I was the first woman inducted into the Rotary Club of Ross Valley in 1988, a club in which my grandfather was a charter member and my father was a current member.  3 men who had known me all or most of my life resigned their membership when I became a member.  I don’t consider myself unique – just a part of the time of change for women in many ways in the world, not just the work environment.  It is interesting to look back on that now.

Last, I had stopped volunteering some in 2017 and was looking for something new when ProVisors started in Marin that year.  When I left home to attend the first meeting, my husband asked me to “sit on both of your hands” so I did not volunteer for anything…. look how well I listen!  I am a member of ProVisors Larkspur and the Group Leader of ProVisors Santa Rosa 2.  It is a fabulous community and how I got to meet Zane Stevens.

As a thank you to our interview and Protea’s commitment to more diverse and inclusive leaders, Protea will make a donation to Positive Images (https://www.posimages.org/). Positive Images is a grassroots nonprofit organization serving Sonoma County since 1990. Their LGBTQIA+ Community Center hosts multiple weekly support groups, a youth leadership development program, mentorship opportunities, an LGBTQIA+ Library, resource and referral station, and a Transformation Station. They proudly offer a warm, welcoming, and affirming environment for young people to explore their individual identities, develop leadership skills, and contribute to our collective community. Positive Images staff lead LGBTQIA+ Cultural Competency Trainings and presentations that educate the greater community focusing on human connection, compassion, and inclusion. Their goal is a community where all LGBTQIA+ people are valued, compassionate community members, creating a just society.

Call Protea Financial for More Information

If you have any questions, please reach out to us here at Protea Financial!

Tips for Improving Your Accounts Receivable Process

Tips for Improving Your Accounts Receivable Process

Your accounts receivable is essentially a list of all the money your clients or customers owe you. While retailers typically receive payment for their goods when the customer purchases them, this isn’t always true. Companies that provide services often don’t receive full payments when those services are rendered. Instead, they invoice their clients. This creates a period where you’ve already supplied the goods or provided the services but have not been paid for them. You know the money is coming, but you don’t have it yet. Keeping track of your accounts receivable gives you an idea of how much money you will have to spend soon, plus it tells you which clients still need to pay.

Many new business owners aren’t experienced with dealing with accounts receivable. That’s because individuals rarely have outstanding income. However, tracking your accounts receivable is vital to making important business decisions. Here are a few ways you can improve your accounts receivable process so you can leverage that money without overspending.

 

Invoice as Soon as You Can

Why wait until the end of the month, quarter, or other period of time to send out an invoice? If you have an agreement with a recurring client that you will invoice at specific times, that’s different. However,  if you do not have such an agreement, you can invoice as soon as you provide the goods or services. Invoicing quickly puts your bill on the customer’s radar. While some may wait until the first of the month to pay, others may process payment as soon as they receive the invoice. That means you get your money much faster. If possible, send out invoices at least weekly, if not a few times a week. You may even be able to prepare and send out invoices at the end of every day. The bottom line is that the faster you invoice, the fast you start the clock, the faster you get paid.

 

Switch to Prepayment

If possible, switch from an invoicing model to a prepayment model. Your clients will pay when they order or when they come in for services rather than paying once you invoice them. Some customers, especially individuals, may be on board with this. However, if you are providing goods or services to another business, they may insist on being invoiced and paying later. That’s because they may have the same issue—their cash is tied up in accounts receivable, and they simply cannot pay you until their clients pay them.

Smaller businesses that haven’t fully moved to an accounts payable/accounts receivable accounting method are more likely to agree to prepaying or paying at the time of service. However, medium to large businesses may not be so agreeable to that agreement. You may be able to work on a prepayment model while you are a smaller business, but as you grow and begin taking on larger clients, you may need to switch to invoicing and accounts receivable.

 

Protea Financial Accounts Receivable

Offer Automatic Payments

If you have regular clients who have you on retainer or have subscribed to a specific monthly plan, you may want to consider offering automatic billing. Many payment processors have implemented this option. Instead of invoicing and waiting for the client to pay, the client provides their banking details and opts into auto-billing. Rather than invoicing the client, you may make a payment request through the processor, and that processor automatically debits the client’s account and transfers money to you.

The advantage here is that you get paid almost immediately. You don’t have to wait for the client to process your invoice and release payment. This is a much faster way of invoicing, so you aren’t waiting weeks or even months for your money. You may have to pay a small fee to the payment processor, but that fee is typically very low and won’t impact your profit margins much. 

You may have to do a little extra work—your clients will likely still want a copy of their invoice, so you’ll still have to prepare and send it to them in addition to submitting the payment requests. However, getting your money more quickly often outweighs this small amount of extra work.

 

Make Use of Automation

While using auto-billing may make a little extra work, implementing certain accounting software can reduce work and actually create a net gain for you. This software can be set up to do tasks such as automatically prepare an invoice for recurring charges. If you have clients who subscribe to your services every month, you won’t need to manually make an invoice for them. This software will do it for you, so all you have to do is send it out. You may not even have to do that—some programs can interface with your email and send invoices, payment reminders, and other messages automatically.

If you have most or all of your clients on a recurring subscription or retainer, investing in accounting software with these features can essentially eliminate the need to prepare invoices. Everything can be done automatically. You may even find software that works with your payment processor, so you don’t even have to submit payment requests. The more automated your system is, the less time you have to spend doing these tasks.

 

Avoid Dealing with Unpaid Accounts

By moving to a prepayment model or by enabling automatic drafts, you will be better able to avoid dealing with clients who do not pay their invoices timely. Sometimes this can truly be a matter of the client simply forgetting about an invoice or having some sort of emergency. In that case, a reminder email is usually enough to get them to pay. If they’re still late, you may want to reach out via phone.

However, you may have a client that dodges your attempts to communicate and goes months without paying. When that occurs, you have two choices: write off the invoiced amount as a loss and blacklist the client or, if the amount is significant, employ a debt collection agency to attempt to recover some of the funds. You may even sell off some debt to immediately recoup at least some of the costs you incurred. Either way, you’re not going to make any money when a client doesn’t pay. At best, you’ll break even or take a small loss.

Because of this, it’s a good idea to encourage clients to sign up for auto-drafts. Some businesses even offer a small discount or other benefit for clients who do. Even if you don’t, you can point out that auto-drafts benefit your customers. If you invoice monthly, you can allow them to set the day the payment is processed so they always know when the payment occurs. They also don’t have to do anything to initiate the payment, so even if they forget, it still goes through. They avoid any late fees or other costs.

 

Protea Financial Accounts Receivable Processes Your Business Needs

Avoid High Credit Usage

By better leveraging your accounts receivable, you’ll be able to avoid the temptation of making purchases on credit. Many businesses, especially new businesses, tend to make high use of credit. Once your accounts receivable are automated and you have more cash on hand, you want to make smart decisions regarding your credit.

Ideally, you’ll begin reducing your debt. While you may need to make use of credit for large or unexpected purchases, you do want to do your best to decrease your reliance on it. When you do have to dip into your credit, you should now be able to more quickly pay that debt off. You may also want to use your stronger cash flow to reduce any high-interest debt you have. The fewer claims on your cash you have, the better you can leverage your income to grow your business.

 

Call the Experts at Protea Financial to Help Improve Your Accounts Receivables 

You have a lot of work to do leading, maintaining, and growing your business. You’re also probably not a financial expert, so dealing with your accounts receivable, invoicing, and following up with clients who haven’t paid isn’t exactly something you want to focus on. Dealing with your finances in general, may be something you took on because you’re the head of the business and someone has to do it. You may not be ready to hire someone full-time to serve as your chief financial officer or accounts expert, either.

That doesn’t mean you can’t have a professional on your team, though. Here at Protea Financial, we provide virtual bookkeeping, accounting backup, payroll, compliance, and other solutions to companies that don’t need someone in-house but still want an expert to handle things. Whether you only need a few hours here and there for invoicing and payroll or want the advice of a virtual CFO, we’re here for you.

As a virtual bookkeeping team, Protea Financial is available when you need us no matter where you are. We work with you via email, phone calls, and teleconferencing, and we can take on as much or as little of your bookkeeping tasks as you’d like. We work with everything from small businesses to those that have grown to include multiple sites or have locations in several states. If you’re in need of an expert to help you organize your accounts receivable and improve your processes, contact Protea Financial today.

Learn the Differences

Learn the Differences Between Cash and Accrual Accounting Today!

Major Differences Between Cash and Accrual Accounting

Major Differences Between Cash and Accrual Accounting

One important thing a business owner has to do when setting up their business is determine how they are going to handle their accounting. Many people operate their business accounting like a checkbook, but that’s not always the best option. A checkbook typically follows the cash accounting method, but for a business, using the accrual method may be a better option. Before you decide which method works best for you, let’s take a look at how cash accounting and accrual accounting work and in what ways they’re different.

 

What Is Cash Accounting?

While both methods of accounting are valid and can be used, cash accounting does seem to be the default for new business owners. This is because it is essentially how most people keep their checkbooks or online banking. It’s an easy method to use.

Cash accounting simply adds to the account when you receive a payment and deducts from the account when you pay something. It doesn’t take into account any invoices, bills you haven’t paid, or anything other than cash you have on hand or have actually spent. It doesn’t deal with account payable or accounts receivable at all.

When you look at your account, you will know exactly how much money you currently have on hand. You don’t need to do any math or take into account any outstanding invoices or bills—you know exactly what resources you have on hand. Cash accounting is easy for most people to understand and perform, especially for those who don’t have a degree in accounting and have a relatively small business.

However, cash accounting isn’t perfect. One of the biggest downsides is that it only looks at what you have currently spent. If you have bills for several thousand dollars that you haven’t paid yet, those expenses aren’t considered. This means if you spend too much, you may not have the funds on hand to pay those bills. You also aren’t taking into account outstanding invoices and other money that’s coming in. You could avoid making a necessary purchase because it looks like it would run your account low, when in actuality, you have a large amount of money coming in soon and could make the purchase.

 

What Is Accrual Accounting?

Accrual accounting, on the other hand, tracks expenses and income when they are billed or invoiced for. In other words, when you ship out a product with an invoice to a customer, you record that invoice as income right away. You don’t wait until the customer pays that invoice. Transactions are recorded when they occur, not when they are paid for. While the cash accounting method may seem more intuitive to new business owners, when all businesses are taken into account, most use the accrual method.

There are a few different reasons for this. First, it gives you a larger, more accurate idea of where you stand. You know what expenses you’ve committed your funds to, so you don’t have to worry about spending so much that you can’t cover your bills. You also know what you have coming in, so you can make purchases or payments as needed knowing that you have money coming in.

However, on the downside, you do have to keep an eye on your actual bank account. You may have thousands of dollars in outstanding invoices on your books, but if those clients haven’t paid you yet, your actual cash on hand may be much, much less. You could easily overdraw your account if you spend based on what you will have rather than what you currently have. You will need to carefully keep an eye on your accounts and on your actual cash flow to make certain this doesn’t happen.

Protea Financial Accrual Accounting

How They Differ  

Now that you have an idea of what cash accounting and accrual accounting are, let’s look at how they’re different. Cash accounting is focused on the money you actually have on hand and transactions that have occurred. Accrual accounting, on the other hand, looks at revenue you’ve earned or debt you have committed to, even if money hasn’t actually traded hands yet.

 

Example:

Let’s look at an example of how these two methods would treat a set of transactions. Assume that for one month, your business sent out an invoice for $2,000, received a bill for $500, was paid $1,000 from a previous month’s invoice, and paid $100 on a bill from the previous month.

If you were using the cash accounting method, you would only look at the cash that actually came in or went out from your accounts. This means your ledger would show a balance of $900. That considers the $1,000 payment you received from the previous month’s invoice and the $100 you paid out on the bill. The invoice sent for $2,000 and the bill you received for $500 aren’t recorded because you haven’t received that money or paid that bill yet. They will be recorded when that money actually comes in.

On the other hand, a business using the accrual method would show a profit of $1,500 for this month. That’s because it would look at the $2,000 invoice and the $500 bill you received. This method wouldn’t record the $1,000 payment for the previous month’s invoice or the $100 bill. Those two items would have been recorded in the previous month, so they would already be on your books.

 

Analysis of the Example:

In the accrual method, your overall account balance would show $2,400 to date because it would include the previous month’s invoice/bill, the recently sent invoice, and the recently received bill. However, the cash method would show $900 to date because the two unpaid items would not be included.

As you can see, this is a fairly large difference. However, both of these methods have their use. Let’s say you want to buy a new business laptop for $1,200. You would buy it right away, so there wouldn’t be a bill to pay. If you use the cash method, you wouldn’t make the purchase because you would see you only have $900 cash on hand. With the accrual method, though, you could make the purchase. It would instantly overdraw your account by $300, though, if you didn’t look at your cash on hand first.

On the other hand, if you need to buy something for $1,200 that will be billed, you may hesitate if you only have $900 on hand. If you know that you’ll have $2,400 once all outstanding invoices/bills are dealt with, though, you may feel more comfortable making the $1,200 purchase since you’ll know you will have the cash to pay that bill later.

Protea Financial Cash and Accrual Accounting Differences

How Each Method Impacts Taxes

The two methods impact your taxes differently. When you use the cash method, you report all income you actually received during the standard tax year. Likewise, you deduct any expenses that you actually paid. However, if you use the accrual method, you report income you’ve received plus any income you can “reasonably estimate.” This means if you invoice for a specific $1,257, you include that as income during the current tax year even if that money is not in hand. However, if you aren’t certain of the exact amount, you may need to make an adjustment. If you estimate $1,300 for income but actually invoice a client for $1,250, you will make the adjustment of $50 in the next tax year. The same is true of expenses. Include any expenses for debt that you have committed to, and make any adjustments during the tax year those adjustments occur.

Understanding how the two different methods affect your taxes can be confusing. The IRS has a number of regulations for each method. The best thing you can do is talk to a professional accountant or bookkeeper so you fully understand how to report your taxes every year. Better yet, retain the services of a professional so you know your tax reporting will be done accurately.

 

Which Option is Right for You?

Both methods are valid ways of accounting. However, typically, small businesses and other companies that do not actually sell products or have an inventory use the cash accounting method, while larger companies with inventory or that make a large amount of money per year should use the accrual method. Again, if you have any questions about which method would be the best for you, ask a professional.

Where can you find an experienced bookkeeper to ask? Here at Protea Financial, we have a staff of experts who are ready to assist you. Our virtual bookkeepers, payroll experts, compliant professionals, and others can help you with accounting and taxes. We will ensure that you are compliant with all IRS rules, report the correct income in the correct year, and take all deductions you are legally entitled to.

Our virtual bookkeeping services are perfect for small businesses that don’t need to hire someone full-time but still need an expert. If that’s what you need, give Protea Financial a call today to learn more about what we offer and how we can assist you with all of your financial needs.

Learn the Differences

Learn the Differences Between Cash and Accrual Accounting Today!

Small Businesses, Sales Tax, and How One Mistake Could Close Your Business

Small Businesses, Sales Tax, and How One Mistake Could Close Your Business

All small businesses in the United States must collect and remit sales tax to the city and state in which they are doing business. Typically, this means you must file a monthly or quarterly sales tax form in the state you live in, but if you do business in multiple states, it means you will need to file in all of those states. It can quickly become complicated, especially if you’re a new business owner who isn’t familiar with how sales tax works. Unfortunately, one small mistake with your sales tax can be very costly. In some cases, it could even be costly enough to force you to shut your doors.

 

The Basics of Sales Tax

Sales tax is defined as being a government-set tax on the sale of any goods and/or services. It’s typically a percentage of the price of the item or service, and it’s normally collected from the buyer at the point of purchase. The business holds this sales tax out from their profits and regularly pays it to their state on the required basis.

 It sounds simple enough, but it can get more complicated. You do pay city and, in some cases, county or regional sales tax as well as state sales tax. Fortunately, in the U.S., most states collect all of this tax and split it as needed. You don’t have to pay your city sales tax separately. Unfortunately, while that does make sales tax easier, there are a number of factors that make it more complicated.

 

What Makes Sales Tax Complicated?

If you have a brick-and-mortar business in one location, sales tax is fairly straightforward. You do have to learn how to calculate it, of course. You’ll need to know your state sales tax amount and any additional amount to add for your city or location. Some cities may pass a temporary sales tax increase to raise funds for a specific project. For example, they may add half a cent to all purchases made within the next 18 years to fund a new city park or to renovate all of the local schools. This sales tax is usually voted on by residents.

 

How to Pay Your Sales Tax

Once you know how to calculate it, you’ll need to know when to pay and what forms to file. Fortunately, this process has become much easier thanks to the internet. Most states have an online sales tax portal where you can fill out the correct forms, submit them, and make an online payment. You shouldn’t have to mail in any paperwork.

When to pay can be a little more complicated. Some states require businesses to submit a monthly sales tax report. However, if you make below a certain amount or only do sporadic business in the state, you may qualify for quarterly or even yearly filings. This cuts down on the amount of paperwork you have to do.

Note that you always have to file your sales tax report regardless of how much money you made for that period or how much sales tax you owe. Even if you had no income and, therefore, no tax to pay, you still have to file a report that states you had zero sales for the period.

 

Filing in Multiple States

If you only do business in one state, you will only need to file for that state. However, if you operate businesses in multiple states or often travel to other states for events such as trade shows, you will need to register for a sales tax number in every one of those states. Each state defines what is called a nexus or presence in the state. If the tax regulation determines that you do have a nexus in that state, you will have to pay sales tax there.

This is one area where you may need to consult with a bookkeeping expert to determine where your nexus or nexuses are. Typically, if you sell goods or provide services in a state, you have a nexus there, but it’s not always so cut-and-dry. Online sales have added an entirely new level of complexity to sales tax as well.

 

Selling to Tax-Exempt Organizations

Another complication you may face is if you provide goods or services to an organization that is classified as tax-exempt. The most common type of exempt business is classified as a 501(c)(3), but there are other exemptions. These businesses are usually nonprofit organizations, and as such, they do not have to pay sales tax. Because states differ in how tax exemption works, you will want to consult with a professional to fully understand how to process and report these sales.

Protea Financial Sales Tax

Common Mistakes Small Business Owners Often Make

Many small business owners make simple, yet very costly, sales tax mistakes. The first is simply failing to submit their sales tax paperwork or make a payment. Some new business owners don’t fully understand how to apply for their sales tax number or how to remit the collected taxes. Others may not remember to file or not understand their state’s online filing system. This is especially true if they have no sales to report for a period. Missing a filing may result in a late fee or other fines. If you miss too many filings or make mistakes on multiple filings, you may be audited.

 

Wrong Tax Amounts

Another common mistake is failing to collect the correct amount of sales tax. You will have to pay the correct amount calculated from your sales whether or not you actually charged your customers the right amount. If you find that you haven’t collected enough sales tax, you will have to make up the difference from your profits. Even if you were off a small percentage, that can add up if you had a large amount of sales.

 

Submitting the Wrong Tax Payments

If you don’t enter the correct amount of sales, you may not calculate the correct amount of sales tax you owe. This can be very easy to do if you have multiple locations or often sell at trade shows. It’s also possible to submit an incorrect payment, though most online systems have reduced the chance of making this mistake. If you do submit the wrong amount, you will need to amend your return. If you don’t catch this mistake and are later audited, you may be fined or otherwise penalized. You will also have to pay any back taxes you owe.

 

Math Errors Can Add Up

While less common now, it’s still possible to make a basic math error on some tax forms. By filing online, you may not need to do any calculations at all. If you do, be sure to double-check your figures. Again, submitting an incorrect form means you’ll later need to amend it if you find the error. If you don’t find these errors and are audited, you can still be fined—honest mistakes are not always easily forgiven when it comes to taxes.

In extreme cases, such as constantly filing late tax forms or consistently making errors, the state’s tax commission may be empowered to void your sales tax permit. This means you cannot legally sell goods or services in the state, which is likely to lead to closing your business.

 

Keep Up with Changing Laws

Tax laws do change, especially at the local level. A new sales tax increase may be voted into effect, an old increase may end, and there may be special events such as tax-free weekends to encourage spending. All of these things affect your business, and you’re going to need to keep up with them. Failing to do so can cost you a good amount of money, especially if you get audited and multiple tax reports are flagged with errors.

 

Don’t Risk Making Mistakes—Hire a Virtual Bookkeeper

A virtual bookkeeper is a great resource to help you handle your sales tax. These experts understand how sales tax works and keep up with the changing regulations. They will be able to advise you on how to apply for the required sales tax numbers and can handle all of the tax reporting for you.

Virtual bookkeepers have an advantage over local bookkeepers, too, because they have clients across the country. This means they have to know how multiple states handle sales tax. They may even be familiar with international reporting and with handling online sales. If they don’t know something, they know where to go to find the right information.

Working with a virtual bookkeeper means you don’t have to try to figure out sales tax on your own. All you have to do is collect it from your customers. Your bookkeeper will keep track of your sales, how much tax you owe, and can file your sales tax reports for you. You’re free to focus on running your business while they take care of the books.

 

Protea Financial Offers Bookkeeping and Other Virtual Accounting Services

Protea Financial has years of experience in virtual bookkeeping, payroll, tax compliance, and other accounting tasks. Our team understands the various sales tax regulations across the country, and we’re ready to help you set up to file your taxes. Whether you’re a new business that periodically sells at trade shows in a single state or a small business with locations in a handful of states, we can help. Contact Protea today to discuss your sales tax needs.

Don't Risk Your Business

Your business is not worth the risk. Know what you’re doing, or hire someone who does!

Protea Conversations: John Comfort

Protea Conversations: John Comfort

Protea Financial was founded in 2014 to provide high quality out-sourced bookkeeping and accounting at an affordable price.  Given Protea’s flexible work environment, the Company especially appealed to accountants who wanted to re-enter the work force after taking time off to start a family. This allowed Protea to attract extremely talented individuals who were previously overlooked.  Protea strives to represent people from all backgrounds and provide an environment for them to grow and succeed in a setting that provides the flexibility and acceptance of who they are as people.

We selected the name Protea because is the national flower of South Africa and is a symbol of our connection. The Protea flower has become an ornamental flower because of this striking beauty and is included in arrangements and bouquets as a symbol of courage or daring to be better or a sign of positive transformation.

Protea Conversations in 2022 will focus on positive transformation and representation from all backgrounds. We are broadening our Conversations with the hope that these conversations will continue to create a forum to discuss the experiences, opportunities, and challenges leaders face, and how we can build a more diverse, inclusive, and successful environment for everyone.

In January 2022, we spoke to John Comfort. John developed a passion for IT when serving in the military nearly 3 decades ago.  After the military, John obtained his BS in Business at Sonoma State University. During and after college, John has been engaged in IT projects and services for numerous organizations ranging from a single location to over 800 locations with the most challenging industry being Banking. He founded his first outsourced IT service company over two decades ago and eventually went solo until recently due to client interest and feedback in the area. John has an aptitude for solving IT and cybersecurity problems, helping organizations enhance their competitive edge by leveraging technology to improve the efficiency of processes in the business environment. If there were just two strong points that could be assigned to him, it would be root cause analysis (problem solving) and implementing technologies in creative ways to benefit businesses. After designing network security and infrastructure for middle market clients, he broadened his focus to include smaller businesses, guiding them in the protection and accessibility of their vital data.

John is currently President of Linked MSP, a new startup Managed Services Provider with offerings in three key areas: general IT consulting, fully Managed IT Services, and Cybersecurity services. He enjoys spending quality time over a lunch or dinner with clients to get to know them and their needs. ‘Conversation over a meal is always a more relaxing and engaging environment’ he says. Frequently he finds topics come up over meals that have helped solve upcoming technology and non-tech hurdles. On his free time, he would spend time riding dirt bikes in the mountains with his sons. But since they’ve moved on, he spends the extra time with his wife Melissa puzzling or looking for ways they can visit their children more often, or even trying a new restaurant with a nice glass of local wine! Between John & Melissa they have six children.

 

Tell us about your decision to get into the IT world and your journey to start Linked MSP?

My career began in the US Navy programming small proprietary applications. After finishing my term with the Navy, I entered college on a computer sciences track. During college, I was hired by a large integrator in Los Angeles building servers and migrating systems and is essentially what got me into IT. After moving to Sonoma County in 1997, I started an IT consulting firm (in 2000) providing IT services to the SMB market. In 2009 I left the company to consult independently for customers in a number of sectors including wineries, financial, manufacturing and large estates. In 2017 Linked MSP was formed in response to clients’ requests to contract with them, as it is difficult to find quality service providers with the knowledge, skillset and attention to detail required for today’s challenges.

 

Protea Financial John Comfort Conversation IT Services

 

What has been the biggest challenge you have experienced in reaching your current success (personally and professionally)?

Finding good employees has been and continues to be the biggest challenge in the IT space. The second most challenging aspect is educating customers to understand that there is a heightened importance of IT and Cybersecurity today compared to what it was even 5 years ago.

What are your short term goals of your career and yourself?

Short term goals are to continue to build Linked MSP and provide IT service excellence.

What is the best piece of advice you have ever received that has helped you in your success?

Anyone can be good at what they do, but few choose to be excellent.

What is the piece of advice that you wished you had gotten when you were starting out?

Stick with computers! (this was in high school, in the late 80’s before I had any interest in computers)

What advice you give to others to help them be better leaders?

Work hard, have integrity, take care of your customers through attention to detail and forward thinking.

Can you share something interesting about yourself that will provide insight into who you are outside of the professional space?

I enjoy riding dirt bikes in the mountains with my sons, noodling around the technical trails that comb through the forest, reading, and puzzling with my wife.

As a thank you to our interview and Protea’s commitment to more diverse and inclusive leaders, Protea will make a donation to Positive Images (https://www.posimages.org/). Positive Images is a grassroots nonprofit organization serving Sonoma County since 1990. Their LGBTQIA+ Community Center hosts multiple weekly support groups, a youth leadership development program, mentorship opportunities, an LGBTQIA+ Library, resource and referral station, and a Transformation Station. They proudly offer a warm, welcoming, and affirming environment for young people to explore their individual identities, develop leadership skills, and contribute to our collective community. Positive Images staff lead LGBTQIA+ Cultural Competency Trainings and presentations that educate the greater community focusing on human connection, compassion, and inclusion. Their goal is a community where all LGBTQIA+ people are valued, compassionate community members, creating a just society.

Call Protea Financial for More Information

If you have any questions, please reach out to us here at Protea Financial!