By Mariette “Pete” Luchini, CPA, Cordell, Neher & Company, Wenatchee, Certified Public Accountant
As an accountant in public practice, and a small business owner, I’ve been witness to many successes and failures of individual businesses. These war stories allow for a great perspective on small business operations. With that in mind and with the assistance of my firm’s team, I have compiled a list of what we believe to be the top ten best-kept accounting secrets for small businesses.
Hire a Team
You are not too small to make good use of a team of advisors; find an accountant, an attorney, and a banker of whom you can ask ‘dumb’ questions. Negotiate the fees so you are not surprised, and meet with them at least annually to talk about what you are doing. This is especially important before any large transaction.
An LLC owned by a single person or a husband and wife is considered a disregarded entity. While the LLC may offer a layer of liability protection, the income and expense for these taxpayers can be reported on the individual’s 1040 tax return.
Get your QuickBooks file set-up properly from the start. Then, get a little one-on-one training so you record transactions where they belong. You shouldn’t have anything in the “opening balance equity” account. You can save a lot of accountant “adjusting journal entry” time at year end. In general, the more organized your QuickBooks and documents, the lower the fee for accounting services.
In tough times, cash is king. Examine capital purchases carefully to determine if the expense will generate the cash flow needed to pay for itself. If it can’t be done over a reasonable time, you may want to defer the purchase.
Mileage is very often a better deduction than actual expenses. There are apps that now do almost all of the work of tracking.
Assets purchases that cost $2,500 or less can be expensed in the year they are purchased and do not need to be capitalized on a depreciation schedule. This is on a “per unit of property” basis, so if you have a receipt with more than one item and each is less than $2,500, it’s all deductible as supplies.
Always make your payroll tax deposits. This ounce of prevention is worth much more than a pound of cure. Never ignore correspondence from the IRS, and when in doubt, get help when you need it.
Plan for Growth
Make sure you can keep up with the working capital demands of growth. Monitoring working capital and future cash flow budgeting are essential to make sure you have lines of credit in place before you need the money. Or better yet, have a plan for the growth that includes building the proper working capital to be able to finance that growth.
Know your Credits
Tax credits are better than deductions in every way as they reduce tax on a dollar for dollar basis as opposed to only reducing taxable income. Know what credits you are eligible for. Credits for social security paid on tips to employees, providing health insurance, starting a retirement plan, providing child-care, improving access for the disabled, or providing work to disadvantaged individuals are among the many credits available.
Have an exit strategy. Get some help with your financial planning. Have an advisor and an accountant that will look at all of your options, including setting up a retirement plan that might benefit the employer as well as keep employees. There are many of options that will defer taxes as well as improve diversification for the business owner’s future. Think SIMPLEs, Solo Ks, SEPS, 401Ks etc. Few people want to work forever.