Basic bookkeeping is a lot like preventative medicine: it’s an up-front chore but you’re much healthier and wealthier in the long run.
Freelancers are in a tough spot. Even as the world shifts to a freelancing economy (35% of the US workforce and growing!), the tax system isn’t set up for freelancers at all. So not only are freelance workers having to work a lot more than salaried employees, they have to be much more savvy and proactive about their finances. And until the government shifts to accommodate this new wave of workers, freelancers will have to fend for themselves in order to retain the most during tax season. Here are four ways freelancers can get smarter at managing their books.
1. Establish a financial tracking system.
Look, we’re not going to spend a lot of time on this one because this is what we do (and we’re trying to stay unbiased here!). But whatever software you use, be it Billy or Quickbooks or Excel or an actual physical notebook with paper in there and everything, you need to establish a financial tracking system for your business. After all, you can’t manage your books if you don’t have one in the first place.
2. Get into a routine of bookkeeping and reviewing.
We see freelancers flat out abuse their Google Calendars. There’s hardly any white space after keeping track of every meeting, all the traveling, work lunches, free time, etc. We’ve seen freelancers schedule in naps and smoke breaks (or vape breaks if you’re in LA). Yet almost all of them never schedule in 30 minutes a month to attend to their finances.
Building this into your monthly routine is, again, a preventative measure that will save you tons of hassle in the long run. We asked why this might be important to Julie DeLong, COO of Backyard Bookkeeper:
“If you get into the habit of entering and reconciling at least monthly, you won’t ever develop a backlog. You’ll also be able to enter the data while the transactions are still relatively fresh in your mind.
That second part should ring true especially for freelancers who have to deal with monthly 1099s, invoicing multiple customers, and expensing everything from meals to electricity. This is why we have always recommended freelancers get into The Money Habit starting today, since it’ll just get harder and harder to start as your career (and income) grows. Julie gives insight into what freelancers should be reviewing each month as well:
“A lot of business owners, especially freelancers, think that bookkeeping consists only of updating your bank account registers. However, this is only a very limited view of your finances. Your P&L (Profit & Loss) summarizes where your money is being spent, and also gives you a better idea of your net taxable income. Your balance sheet will reveal whether you’ve made any big bookkeeping mistakes, remind you about your receivables and payables, and help you keep track of your equity in the business. It is important to review both your P&L and balance sheet on a monthly basis.
3. Pay your quarterly estimated taxes.
Freelancers who get sticker-shock when their tax bill arrives all have one thing in common: they neglected to pay their quarterly estimated taxes.
Keep in mind, if you are self-employed and your tax liability is $1,000 or more for the year, you most likely have to pay estimated taxes throughout the year. Unfortunately, it’s sort of like having to file your taxes three extra times a year. Fortunately, however, they don’t have to be perfectly precise (hence the term estimated) and better yet, if you’ve followed the first two steps above, they should be a breeze.
Know your income for the past 3 months? Know what expenses you can deduct? Then you should have a good estimate of what you need to pay. Quarterly tax payments are actually a perfect example of how a little preventative bookkeeping medicine can make a hassle a lot less bothersome.
For your convenience, here are the deadlines for these quarterly payments:
- January 1 — March 31 (Due April 15)
- April 1 — May 31 (Due June 16)
- June 1 — August 31 (Due September 15)
- September 1 — December 31 (Due January 15)
4. Simplify your books.
The more complicated something is, the less you’re likely to spend time tackling it. This is absolutely true, and a real psychological hurdle, to managing your books. Often times, if you use a template or financial software, the base settings will show you too many accounts in general; accounts that you may not have any use for in your specific freelance work. Julie recommends you simplify your chart of accounts as much as possible, eliminating the ones that you don’t plan to use in your business:
“For example, if you work out of a home office, you can probably eliminate ‘rent expense.’ If you provide professional services and don’t sell any physical products, you can eliminate ‘cost of goods sold,’ and so on. Getting rid of the accounts you don’t use will greatly reduce the amount of guesswork required to keep things updated, as well as making it much less likely you make mistakes simply because you type in the wrong account. Also, your expense accounts should reflect broad categories, not detailed ones. I’ve seen too many small businesses waste a lot of time grouping utility expenses, for example, into expense subcategories of ‘gas expense,’ ‘electricity,’ etc. Simplifying your expense categories makes your P&L easier to look at and understand.”
By keeping it simple, you’re more likely to not be overwhelmed by finances and get more involved with the bookkeeping efforts that will greatly reduce your financial woes in the future.
Special thanks to Julie DeLong over at Backyard Bookkeeper for contributing to this post! Please visit her site for more information about bookkeeping.
The post Smarter Bookkeeping for Freelancers appeared first on Billy Accounting.
]]>- 80% of Millennials worry about preparing their taxes. (Compared to 60% of 55+ adults)
- Only 27% of Millennials seek help from tax professionals.
- Only 17% of Millennials actually hire a tax professional. (Compared to the national average of 29%)
So in short, most Millennials know they need help with their taxes, but only a small percentage of them do anything about it. Why do we think that is? Well, it is probably a bunch of things:
1. Millennials don’t trust the government (ie. capitalism).
It’s fairly safe to say that the younger generation has been disillusioned with what the economy has to offer them since they became adults. As an article in The Atlantic puts it:
The House and Senate measures shower enormous benefits on households at the top of the economic ladder, a group that by all indications is older and whiter than the population overall. Then it hands the bill for those benefits largely to younger generations, who will pay through more federal debt; less spending on programs that could benefit them; and, eventually, higher taxes.
Add to this the recent GOP tax cuts that most economists agree is kicking the can down the road so Millennials will have to pick it up later. So for the first time in modern history, the next generation will have a substantially worse economic prospect than the aging adults of today. It’s no wonder why Millennials would rather not think about money and overall distrust money professionals.
2. Younger people have less money to stress about.
This is simple. In general, even if you don’t get the absolute maximum deduction from your taxes, unless you own a business or real estate or have complicated investments, there’s a perception that you don’t leave all that much money on the table. Sure, Millennials want to get every cent back, but if they don’t have much to begin with then they also don’t feel like they have much to lose. Younger earners often feel this way, and that’s fair. Everyone gets more serious about taxes as their wealth grows. This is a classic reason why Millennials (aka, any younger generation) don’t put in the effort of seeking out tax professionals.
3. Millennials are saddled with a bad relationship with fiances from the start.
Lest anyone forgets, Millennials became young adults weighed down by the largest amount of student debt ever. Because of this, many of them have felt shoehorned into a certain financial path. As LendKey put it:
Upon graduation, many had a hard time finding wwell-payingjobs and that has increased their feelings of stress. A large proportion of many millennials’ incomes is now going towards repaying their student loan debt…. Millennials are therefore more likely to make career decisions that are related to their student loan debt. They might look for a high paying job rather than one that provides them with more personal satisfaction or they might take a job where the employer offers student loan repayment benefits. It’s also lead many to focus their financial goals narrowly around student loan repayment and that means that they are likely to be behind on their retirement savings.
If that doesn’t cause a generation to be upset and stressed about dealing with personal finances, we’re not sure what will.
And yet, according to a Boston Research Technologies survey (via USA Today): Millennials spend four hours a week tending to their personal finance! Generation X spends 2 hours. Baby Boomers spend just one. This stat shows that Millennials do care very much about getting their finances in order, despite not wanting to deal with accountants. In essence, Millennials want good accounting but don’t want to deal with accounting.
So how does the accounting industry approach this can of worms?
Accounting for Millennials
It comes down to meeting them where they are. There is a clear shift away from traditional accounting methods:
FIS Global’s US Consumer Banking PACE Index shows that 63% of Millennials use their phone and 33% use their tablets to do their banking. They’re on the move constantly, especially since they are embracing freelancing and the gig economy more than any previous generation. Traditional accounting software wasn’t built with mobile in mind, which is a big part of the reason for the shift in usage.
Next, Millennials are tired of corporate-speak and complicated legalese. A report by Zuula showed that it’s all about plain language and authenticity when communicating effectively with this group. Remember, accounting has to overcome the general distrust that Millennials have as discussed above. A friendlier, more personal approach is key for them to adopt any product, but especially when it comes to their money. Keep the software simple, easy-to-understand, and personable.
Finally, Millennials are for lack of a better word, impatient. (Ok, some better words are “efficiency-oriented,” but that doesn’t roll of the tongue so nice.) They want things to happen instantly, and can’t be bothered with wading through extraneous things to get to their goals. This is why mobile apps have evolved to load instantly and do just one or two things really, really well. Accounting software should keep this KISS principle in mind. An overabundance of features may be a turn-off for Millennials looking to do just a few bookkeeping tasks in a short amount of time.
Young adults want to manage their money better, but the right accounting software has to meet them where they are instead of trying to shoehorn them into a way of bookkeeping that was built for a different generation. Keep it mobile, keep it friendly, keep it focused. Software that can do these things have a much better change of adoption by Millennials than others.
This article was first published on UpWork.
Billy strives to KISS for Millennials and modern freelancers looking for a personal accounting solution. Check out how it works with a free trial today.
This post is written by Robert Woo and first appeared on Upwork.
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]]>The post Looking for a FreshBooks Alternative? We’ve Got You Covered appeared first on Billy Accounting.
]]>“It’s the easiest to use one out there without sacrificing what you can do.”
“It’s really easy use and full-featured.”
Whenever we ask why our new customers came to Billy, these are the responses we get. Turns out, when it comes to accounting software, people really want just two things: 1) be easy as all get out to use, and 2) have all the features they need to get the job done. If you’ve given FreshBooks a try but are still looking, here’s why Billy might be the right choice for you.
1. Billy gives you an unlimited number of clients at every tier.
FreshBooks puts a cap on the number of clients you can have in your account, depending on their tiers. Just take a look at their pricing model:
As soon as you start working with a 6th client, you’ll have to upgrade to Plus (and likewise with your 51st client). That’s almost like punishing you for growing your business! Even the smallest freelancers we work with grow beyond 5 clients very quickly, and even if they don’t, it makes no sense to delete previous clients from your accounting software to accommodate the new ones. What if the other client comes back?
Our FreshBooks alternative gives you unlimited customers and contacts at every tier. With Billy, you never have to worry about having to upgrade your plan just because your business is expanding. Look, we want you to upgrade because of the other great features and services we can bring to a growing business, not just because you take up more server space. FreshBooks wants you to upgrade at 6 clients; Billy doesn’t need you to even at 6,000.
2. Billy has more features at every tier.
When it comes to features, we are the FreshBooks alternative you’re looking for (sorry, we just watched the new Star Wars. No spoilers, promise!). One big thing that every user needs, at every level, is recurring invoices. Even if you have just five clients, who wants to recreate the same invoice every month? It’s a hassle that you shouldn’t ever have to deal with, no matter how much you’re paying for your accounting software. Check out Freshbook’s pricing plan again:
You only get recurring invoices when you upgrade to their Plus plan. We at Billy think every customer should get access to this feature. It’s not only something every single business owner uses, no matter how many clients, but it’s sort of the whole point of an easy-to-use accounting software option. Invoicing is annoying, we know that, and we’re not going to cripple the lower-tier plan by not providing a necessary feature. You need it. We know you need it. And it’s there, no matter what.
Another feature that every Billy user gets is double-entry accounting. You can follow the link to learn what this is, in-detail, but the gist is that come tax-time, your accountant won’t have to re-enter all your financial data again into whatever software they use (probably Quickbooks), and then spend another 6-8 hours reconciling bank transactions. With double-entry accounting, it’s enter it once and it’s done. Your accountant will thank you. And even if he/she doesn’t, that’s still hours shaved off their bill. That’s thanks enough. Billy has double-entry accounting for all users at every tier. FreshBooks doesn’t.
3. Billy is less costly as your business grows.
This final thing is sort of a no-brainer, so it’s awkward to even write about: Billy simply charges less than FreshBooks as you grow. Here’s our pricing plan:
At the middle tier, you’ll save $6/month over FreshBooks. At the highest, $11/month. Billy gives you more features for less, and in this way, we’re not just a FreshBooks alternative; we’re also the Quickbooks alternative. And if we weren’t easy to use, we wouldn’t have such stellar user reviews on Capterra.
So if you’ve tried what’s out there and are still looking for the right accounting software to grow your business with, give Billy a chance. Our alternative to FreshBooks (and others) is a rapidly growing product that can help you balance your books while taking a smaller bite out of them. Give it a free spin and tell us what you think.
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]]>The post It’s December. Is Your Money Right? appeared first on Billy Accounting.
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Say what you will about Scrooge, but he was fiscally responsible.
While there are dozens of things you can and should do, sometimes it can get overwhelming. So here are some very simple way to make sure you get your money right before the end of 2017, that have the best bang for the buck.
1. Get your business expenses, expensed.
If you own a small business or freelance, you can expense many purchases that have to do with your work. In fact, it’s one of the biggest ways to reduce your tax bill. So if you have business needs you were going to spend money on anyway, it behooves you to make those purchases before the end of the year. Not only will you take advantage of the holiday discounts, expensings these items in 2017 might make a lot of financial sense considering the proposed Republican Tax Plan that looks like may pass. Since it will raise the standard deduction for next year, many may no longer itemize expenses. So now’s the time to do it. Go ahead, upgrade your Billy subscription. It counts!
Furthermore, if you’ve neglected to expense items, you’ll want to do that now. Many freelancers neglect to submit their expenses to their clients, and even when they do, the clients may take a long time to respond. Take a look at your books and make sure that anything that was expensed in 2017 was actually submitted and processed in 2017. It wouldn’t be the first time we hear about freelancers kicking themselves over a big expense that had to wait until January.
We can expense stock photos, right?
2. Use your health insurance and FSA.
While the effectiveness of the annual checkup has been up for debate recently, that pertains to healthy individuals. If you have a condition, especially one that you’ve been putting off getting checked, it’s a good time to visit your health professional and take advantage of what your health insurance provides annually. The IRS allows you to deduct many of these expenses, such as preventative care (check ups), treatments, and even dental and vision care, as well as prescription medication. Even if you just get your pills refilled before the end of the year, that can help reduce your tax bill.
Of course, if you have a Flexible Spending Account (FSA), it’s important you use it up before the end of the year. Unlike an HSA (Health Savings Account), it doesn’t roll over year-to-year (generally, some employers have exceptions). If you don’t, it’s just money down the drain! Use your FSA to pay for prescriptions, copayments, and other health care costs.
3. Balance your books rigorously.
A common mistake we see are small-business owners who end up having a different record of payment than their contractors. For whatever reason (ie. human error), what your accounting spreadsheet or software shows that you’ve paid out may not match what your contractors are claiming to have received. That can result in big headaches for you and them during taxes so it’s important to make any 1099s are accurate. Now is the time to check your books and make sure your math is right to avoid complaints by both your contractors & vendors and the IRS.
Furthermore, the more you can make sure your books are correct, the less time you’ll need to spend with your accountant. Remember, they may not have your best interests at heart, so be your own tax advocate by knowing where you stand with your expenses, a general sense of what you want to deduct, and gathering all the documentation you and your accountant will need. And tracking down an important missing receipt now will be a lot easier than waiting until April.
99 Euros? Oh no, what did I buy??
4. Meet with your accountant or advisor.
Meeting with your accountant in December? Not as strange as you might think! As we’ve written before, accountants get super busy once February rolls around as they prep for their busiest season: tax time. And that means one big thing: they will raise their rates. Catching them during the off-season will not only be cheaper, but they will be less frazzled. Meet with your accountant now and go through your books at their cheaper rate. They may even have additional tips on how to save more money before the year is up.
If the meeting goes really well, you might not need to see the accountant again at all come time to actually file your taxes. They will already be familiar with your books and documentation at this point, and those are hours saved and money kept in your pocket. You can even sweeten the deal by giving them a holiday gift for meeting with you in December, and then write off that business gift! Fun fact: the IRS allows you to deduct up to $25 for a business gift to any one person per year. Why not spend it on your favorite accountant?
5. Treat yourself for getting your money right.
Look, it’s the holidays. If you’ve done the preceding steps, you more than any other freelancer or business owner deserves to treat yourself, guilt free! Heck, maybe you can afford that new iPhone after all, considering all the money you just saved!
Happy holidays, from everyone here at Billy!
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]]>The post Getting into The Money Habit appeared first on Billy Accounting.
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Pictured here: NOT college ramen that costs 30 cents a pack.
After a couple months of running out of cash, I decided to try an exercise to see where all my money was going. I saved every single receipt for every purchase and put them into envelopes labeled with the month. If I bought gum, I kept the receipt. If I didn’t get a receipt, I jotted down the price on a scrap of paper and put it in the envelope. I was meticulous about it, probably because I had no money to do anything else remotely fun.
At the end of each month, I reviewed where exactly all my money was going. I did this for a full year and learned a lot about how I spent and saved in the process. It was my very first money habit, and that shoebox of monthly envelopes taught me a ton about personal finance and was pivotal in helping me keep to a budget.
Graduating from the shoe box
Fortunately these days there are much smarter people than me with even better money habits than stuffing receipts into an envelope. As a serial entrepreneur and former CEO of Billy, Zeke Camusio knows all about better money habits to subscribe to. In his eBook The Wealthy Freelancer, he outlines how spending just 15 minutes each week on these habits impacted his own finances in huge ways. He writes that The Money Habit (TMH):
- Lowered my taxes significantly. By recording all my business expenses in a timely manner, I’ve been able to comply with all the IRS regulations and legally lower my taxes significantly.
- Eliminated paper receipts from my life. The IRS requires that we keep receipts for all our business expenses for the last six years, but I didn’t like the idea of having a drawer full of paper receipts. Luckily, TMH makes it really easy to store all my receipts digitally.
- Made it easier to get paid on time. TMH has helped me keep track of the payments I receive, remind my clients to pay overdue invoices and see how much money I’d be receiving in the near future.
- Saved me valuable time. I’ve been able to automate boring tasks like invoicing clients and sending payment reminders, so I can spend my time growing my business, cranking out client work or walking in the park.
- Reduced the risk of an IRS audit. By reconciling my business bank account and double-checking that all my transactions are properly categorized, I’ve been able to proactively find errors that might have triggered IRS audits.
- Helped me take control of my cash. TMH shows me how much money I make, how much I’ll have coming into my account in the near future, how I’m spending my cash, how much money I need to set aside for taxes every month, and how well my business is doing. In short, TMH has helped me take control of my money.
New habits, new money.
Saving more than you think
Those envelopes in the shoebox helped me save some amount of money, but these new habits can help anyone save a whole lot more. According to Sandy Botkin, former IRS tax attorney and senior tax law specialist (and current CPA), small business owners leave between $4,000 to $10,000 on the table every year because they were squandering deductions. This includes freelancers who may be a one-person shop, so it’s clear that the savings can be significant.
Think that’s not likely for you? Check out this list of potential deductions from Freelancers Union and think again. Deductions you may not have considered include:
- Advertising costs for your freelance business
- Continuing education
- Bank fees
- Retirement contributions
And the best way to make sure none of these deductions fall through the cracks is to get into The Money Habit of categorizing and documenting your expenses. This way, when you do work with an accountant come tax season, you’re not wasting time tracking down receipts, but using this time to track down worthwhile deductions together.
Get into the Habit today
It takes just 15 minutes a week to develop the habits that will save you thousands of dollars each year, and the best part is that it’s so easy. Download The Wealthy Freelancer and spend your first 15 minutes learning about the other habits to get into. It’s an invaluable resource for seasoned and budding freelancers to make sure they get their money right!
Discover how to lower your taxes without increasing the risk of being audited by the IRS. Learn why it’s up to you – not your accountant – to track your expenses, and why doing your taxes once a year can result on most of your deductions being rejected.
Download Now
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]]>The post Busting Your Bookkeeping Excuses appeared first on Billy Accounting.
]]>“Why are you talking about bookkeeping? That’s boring and everyone hates it,” he said.
He was also doing some freelance work, so I tried to explain how putting in a little bookkeeping time can translate to big savings, but he wasn’t into it.
“I just don’t like numbers.”
It’s a pretty common excuse that freelancers and business owners use to procrastinate on their general accounting tasks. And we get it: you’d rather be doing the work you love than crunching the numbers you don’t, even though we all know how necessary it is.
But bad bookkeeping will cost you money. So let’s tackle your top excuses head-on and see if we can’t get you to power up that calculator.
“I just don’t like numbers/math”
Let’s get this one out of the way first. We hear this excuse a lot, and if you’re reading this, there’s a good chance you’ve made this excuse as well. But the truth is that general bookkeeping for your small or midsize business (SMB) or freelance work just doesn’t involve much math.
It’s a common misconception that basic bookkeeping requires a head for math and numbers. That’s not true at all. It’s mostly about entering expenses and income into your accounting system, and letting the system do all the math for you. If you can copy/paste, you can do general bookkeeping for your business and personal needs. – Naomi Granger, CPA
This excuse is like not tipping at a restaurant because you can’t figure out 20% of the total. Nonsense.
Basically, if you can add, subtract, and punch numbers into an Excel spreadsheet, you have all the tools you need to do most of the bookkeeping your business needs. Can it get more complicated? Sure, but only if you really dive into forecasting and projections. Just doing the basics is easier than pi.
“My bookkeeper/accountant does it all so I don’t have to”
This excuse is common, especially for growing SMBs. The owners realize that things are getting complicated as they scale, and hire a firm or an individual to deal with the paperwork that they should be handling. The problem here is that these SMBs will pay for just a few hours of this service each year, usually right before tax time.
This approach costs you money.
The reason is because accountants don’t always have your back. Not only will they charge a hefty fee by the hour (especially during tax time!) to simply sort through your receipts, but they just won’t push very hard to figure out the maximum tax breaks for your business. Why? Because they’re just not as invested in your business as you are. No one is.
The reality is that this excuse is similar to saying “I go to the dentist twice a year so I don’t have to brush my teeth.”
Maybe your oral and financial hygiene will survive, but there will be more problems and costs in the long run.
Doing basic bookkeeping on your own (organizing invoices, tracking profit/loss) will save you a ton in fees, keep you accountable for your business’s financials, and make sure nothing slips through the cracks that could save, or cost, you money.
“I don’t have enough time to deal with it”
The phrase “time is money” is never more true then when you’re running a small business. It feels like every hour not spent on your business is money lost. But you’d be surprised to learn just how little time it takes to keep your books balanced.
A report by score.org shows that the majority of small businesses spend less than 80 hours on taxes, payroll, and working with an accountant in an entire year. That comes out to about 1.5 hours a week, and that’s including way more than general bookkeeping as working with accountants usually takes a bulk of that time during tax season.
And remember, getting started is the biggest time sink, as you’ll have to clean up bad data and figure out your best method of keeping track of your income and expenses.
Once that’s set, the subsequent weeks will be easier and quicker. You can save even more time by ditching Excel and utilizing an affordable accounting software solution that can automate tedious, repetitive tasks such as monthly invoicing. In essence, it usually comes down to just 15 minutes a week to achieve bookkeeping goodness.
“I just don’t enjoy it”
This excuse is what we consider a more honest version of the first excuse on this list, because if you did enjoy something, you could put up with even the boring parts. If you liked bookkeeping, you’d bear the math involved.
While it’s impossible to force anyone to enjoy invoicing and tracking P&L, it helps to figure out exactly why you may be procrastinating on this “unenjoyable” task. According to 5minutebookkeeping, here are a few reasons:
- We don’t know what to do
- We don’t know how to do it
- Our need for perfectionism
- Our fear of failure
If these reasons strike a chord in you as to why there are negative feelings involved with bookkeeping, that’s okay! You’re not alone. Now that you’ve identified why you’re slacking here, you can address the reason or reasons.
When our clients get started, they often feel a mix of all four. We always advise them to start small. Just spend 15 minutes at the end of each week doing the basics. Don’t know the basics? Spend those 15 minutes reading about it.
Trust us, it’s not rocket science to keep your books straight. Just committing a little time each week can drastically change your mindset in this area, and potentially save you a ton of money.
This post first appeared on Capterra on October 19, 2017.
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]]>The post Why Receipts are Worth Their Weight in Gold appeared first on Billy Accounting.
]]>PAY YOUR ACCOUNTANT LESS
Tax prep for SMBs isn’t cheap. Rates can easily run between $100 to $400 per hour for tax accountants. So the last thing you want to happen is to have them spending their billable hours tracking down the receipts you should have kept organized in the first place. It just doesn’t make sense to pay $200 for each hour your accountant spends looking for a $10 ream of paper expense back in June.
In order to be as efficient with their time as possible, having your receipts organized and handy is a no-brainer way to slash your tax prep bill. And no, the “shoebox method” doesn’t cut it; you’re still handing over a mess for your accountant to waste her time on.
These days, technology is your friend when it comes to saving receipts because everyone has a camera on their smartphone. Get into the habit of snapping a photo of your receipts as they come in, and instead of a stuffed shoebox at the end of the year, you’ll have a digital folder (ideally dated by the week or month), ready to be easily reviewed by your tax prep professional.
Deduct every last business expense
Fortune 500 companies probably don’t worry too much about expensing that $200 business dinner, but owners of SMBs sure do. Ever lose the receipt after one of those? That’s $200 you won’t legally be able to deduct from your tax bill because the proof is gone. Whoops. If you’re a freelancer, not keeping track of your business expenses such as travel, meals, or office supplies can hurt even more come April when you realize you can’t prove that, yes, they were indeed business expenses that should be deductible.
This is another big reason to get into the habit of keeping your receipts: not only to be able to deduct them from your tax bill, but to receive reimbursement from your clients when there are work expenses. Gas for travel, meals on the road, these costs add up quickly. The freelancers and SMBs we work with are regularly shocked when they see how much it all totals in a year once they actually start tracking every expense.
SAVE A TON IF/WHEN YOU’RE AUDITED
Did you know that the IRS may ask for receipts from up to six years ago? No small business owner expects to get audited, but if and when it does happen, having kept a good record of your receipts can mean the difference between paying out hundreds of dollars versus thousands of dollars. SMBs should always keep their major receipts on file for six full years, ideally digitally because the ink on receipts do fade over time. These include:
- Paid/unpaid invoices
- Medical expenses (especially for self-employed)
- Childcare expenses
- General office-related expenses (for big-ticket items)
- and work expenses that haven’t been reimbursed.
Not having these receipts can cost you big in two different ways: 1) the cost of preparing for the audit, and 2) the penalty after the audit. We’ve covered point one above, but keep in mind that if you hand over the IRS that messy “shoebox,” they’ll be the ones charging you by the hour to go through all your documents. And that’s not going to be cheap. Again, having your receipts already organized will save you money in case an audit happens.
And guess what? Having your receipts most likely means your taxes were done right, which means there won’t be a penalty after the IRS gets through with you. Is it any wonder why we think receipts really are worth their weight in gold?
CONCLUSION
Keeping your receipts equals keeping more of your money. Either keep them organized manually, or use software like BillyApp to manage them for you; but just get into the habit of saving them. You’ll be thankful you did when you see just how much you’ll save!
This post is written by Robert Woo and first appeared on Upwork.
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]]>The post 5 Tips to Invest Less in Your Accountant and More Into Your Business appeared first on Billy Accounting.
]]>1. DO YOUR OWN BOOKKEEPING
Here is an excellent breakdown of how to go about bookkeeping, so let’s delve more into the why you shouldn’t leave this task to your accountant: because you’re literally paying someone else, at $145 an hour, to do something as simple as organizing receipts. When you have to figure out what Section 179 expensing is, that’s a great time to work with your accountant. When you need to jot down the cost of a ream of paper into Excel or an accounting software program, not so much. It’s simply not worth your accountant’s time, and your money, to perform end-of-the-year bookkeeping.
Instead, you should set up a routine at the end of each week (or month at the very least) to tidy up your books. If your income and expenses are fairly simple, using Excel to keep track of things should be fine, though it can quickly suck up your time. (For other options, see tip #4 below!) By the way, accountants do not like so-called “shoebox clients” (who hand over all their receipts in a shoebox for them to deal with), and they’ll be thankful to not have to deal with the hassle because…
2. EDUCATE YOURSELF ON DEDUCTIONS
Your relationship with your accountant may be long and storied. You may think he/she is as invested in your business as you are. But at the end of the day, professional accountants have their own business to worry about and you’re just another client in their books. So while your goal is to maximize returns to improve your business, the main goal of your accountant is to limit their own risk exposure:
“Inaccurate tax returns, bad investment advice, or other mistakes could lead to a professional liability lawsuit. Finance professionals could be sued for these errors and the losses their clients suffer as a result.” According to Accounting Web, “11 percent of all accounting malpractice lawsuits come from mistakes in bookkeeping and miscommunications with clients about their expectations for your work.”
The more knowledgeable about deductions, the more you can lead the conversation with your accountant. Instead of waiting for them to say “oh yes, you can deduct this,” you can be proactive: “I’m going on vacation. Here are a few ways I think I can write it off. What do you think of XYZ?” We’re not telling you to know as much as your CPA (although it’s honestly not rocket science!). Rather, knowing the broad strokes when it comes to deductions can empower you to make sure your accountant is working for your business, and not theirs.
3. SEPARATE YOUR PERSONAL AND BUSINESS ACCOUNTS
One of the biggest mistakes newbie entrepreneurs make is maintaining just one bank account and one line of credit for both their personal and business income/expenses. Not only does this make it difficult to keep track of your day-to-day financials, but it provides a big headache for your accountant as well which directly translates to more hours and more pay.
Of all the tips on this list, this might be the biggest no-brainer to do. All it takes is a small up-front effort of opening a new checking account and a credit card account. Then at the very least, come tax time you can hand over just the business side of your financials to immediate cut down on your accountant’s sleuthing time. There are other benefits too, including building up your credit score, fraud protection (if one card gets hacked, the other is safe), and extra bonuses and points depending on the type of business credit card you get. This is something you can and should do today if you haven’t already.
4. INVEST A LITTLE TO SAVE A LOT
Putting in the up-front effort of bookkeeping using Excel is definitely better than nothing, but luckily we now have much better ways to do your own business accounting. So, if you’d rather not deal with the hassle of cells and equations and want to automate this process as much as possible, accounting software almost always pays for itself in the time and money you’ll save.
While there are many flavors of accounting software to choose from (here’s a link comparing the top four options out there), it’s important to find what you actually enjoy using. Your accountant may recommend you buy Quickbooks, but if it ends up being so painful to use, you’ll never actually do the bookkeeping. The best software is the one where you will log into every week and not have a panic attack! Try a few free trials and look for “feeling” over function, as much of the software available will have similar features anyway. This way, you’ll remove the psychological barrier to tracking your expenses and logging your invoices, which will directly translate into hours saved when working with your accountant.
Whichever software you choose, you’ll be saving at least $1000 come tax time by not using your accountant for remedial tasks.
5. CONSULT YOUR ACCOUNTANT BEFORE TAX SEASON
If you’ve used a ride-share app like Uber or Lyft, you know that when things get busy, prices start surging. Suddenly, a $10 trip can cost you $40 at the wrong time. The same thing happens with CPA during their busy season: tax time. It’s common practice for your accountant to implement surge pricing because, well, they can. March and April are their peak busy months, and if you want to get their attention, you’ll have to pay up. Your best bet to save money is to solicit their time before their prices go up.
This doesn’t mean just to book time with them in February. Rather, if you’ve followed the above steps, you already have your books kept, educated yourself, and got organized. So rather than waiting until tax time to speak with your accountant, get their input throughout the year instead as issues come up. For example, say you’re going on a two-week vacation in August and you want to write off as much of that as possible. It’ll be much more cost-effective to have that conversation with your CPA before you travel, instead of handing over receipts in April for him/her to deal with. An hour of their time in August will be cheaper than an hour in April.
CONCLUSION
Every dollar saved from your accountant is another dollar in your pocket. These tips can save SMBs literally thousands of dollars with just a little bit of up-front work.
This article first appeared on Upwork.
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Maybe not this 101.
One of the best ways to sleep better at night is to have a solid projection of how much money you’ll have coming in and going out over the next 12 months. In order to do this, we’re going to demystify a boring/scary term for you: cash flow forecasting. It’s dry, dull, but potentially one of the best things you can do to gain peace-of-mind as a freelancer.
What is it?
Cash flow forecasting is something that almost every business does, from enterprise-level to startups. In essence, it’s a data-driven prediction of money coming in and going out, so you’ll have a good idea of how much money you’ll have over the next year. In short, it’s a way to know you won’t suddenly run out of cash.
While it’s easy for businesses with CFOs and accountants on payroll to forecast cash flow, we find that most freelancers don’t have a formalized process of performing this important task. Sure, they have a general sense of “money in, money out” but many shy away from doing the actual math, keeping track of their invoices, and refining their calculations as work changes. But not only can it provide more financial stability, it can also show you the path to grow your freelancing business (more on this later).
How to get started
Let’s start with just one upcoming month. What income assumptions can we make for next 30 days? Let’s say:
- You have $10k of operating cash (money earmarked strictly for business) that will be the baseline.
- Most of your clients will pay the full invoice within 30 days and you’ve invoiced $4500. (Say 90% of your invoices will come in)
- There is a chance a new client will come onboard. If so, you would invoice $1000. (Say 50% chance)
And the assumptions for your expenses for the next 30 days:
- You’ll “pay yourself” X amount of dollars as your base salary.
- You have business credit card payments.
- You have business travel expenses.
- You have overhead (rent, internet, etc).
- You have estimated taxes. (Say 20% of income)
Toss all this into Google Sheets and bake at 425 degrees. Then, your basic cash flow forecast for next month will look something like this:
There you go! October is forecast! Now you immediately see at least one thing: you expect October to decrease your Operating Cash amount (from $10,000 to $9,640). Now, if everything goes better than expected (100% of what’s invoiced comes in, the new client definitely signs on), then you’d see a surplus. But by having those key assumptions, you are factoring risk into your forecast. In case things don’t go as planned, this projection is what you have a high probably of dealing with in October.
Since you don’t want your Operating Cash to dip, this cash flow forecast shows you that you need to be proactive. Do you need to send a courtesy email to a client who is consistently late with payment? Do you need to bring another client on board? Do you need to cut expenses somewhere? This is great insight into building and sustaining your freelance business, and you may not have realized it without doing this forecast.
Projecting for future months
Now that you’ve done one month, it’s a simple matter of filling in the blanks for subsequent months. By factoring in more assumptions (perhaps you want to pay yourself a bit more, you have months of heavier travel expenses, you expect another new client in a few months, etc), you have a data-driven forecast to work with:
Again, what do you see at a glance? Well, your Operating Cash isn’t changing much, which is probably a good sign since you’ve factored in an additional $500 a month for your salary starting in January. Are there adjustments you need to make? Does this money work out for you through the next 6 months? What about 12 months?
Keep in mind, you should revisit this forecast as things change. It will only get more accurate as you update past months to their actuals, and update assumptions with new information. If you use an accounting app like ours, you can refer to your profit/loss statement once a month for this purpose. And now that you have this living, breathing document of your cash flow, you can quickly make a change to a row and see how it affects your bottom-line 3 months from now.
…..
Cash flow forecasting for freelancers shouldn’t be intimidating! Rather, it should be a small investment of your time and brainpower to make sure your business is heading in the right financial direction.
This article first appeared on Forbes on September 20, 2017.
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Of course, easy doesn’t mean I’d get it right every time.
Now that the math is a tad more complicated, I quickly learned a lot about the accounting of an SMB. Here are 4 things that running a small business has taught me.
1. Numbers shouldn’t be painful.
Accounting is a lot like working out: it shouldn’t be easy, but it also shouldn’t be painful. If your shoulders hurt lifting weights, you may have something wrong with your technique. And the same goes with reviewing your weekly numbers. If it’s painful to review your sales and expenses, then that’s a sign that you’re doing it wrong.
For example, I always used to drag my feet on figuring out an accurate cash position for the business. This required reconciliation of invoices and expenses, calculating late fees, and using estimates for various projected deals. Then I realized: I hated doing it because I was doing it ad hoc. I was calculating the same numbers from scratch each time, which was not only a waste of my time, but a method that was prone to mistakes. So I sat down and created a cash flow forecast in an easily edited/updated doc and just like that, my cash position pain-point went away.
It’s a good lesson to learn: if there is a part of the accounting process you hate, figure out a way to make it easier. Because if you don’t, you might neglect an important part of your business that dearly needs your attention.
2. Cash is everything, so get paid.
Speaking of cash flow, what happened to the 80s and 90s when it was so easy to get a small business loan at crazy low interest rates? And remember how high interest rates were on the other side? My parents used to get 5% interest from a simple savings account! Apparently those were the days.
“Back in my day, we had something called a pension!”
Today if you don’t have cash-on-hand, you can’t pay your bills; and if you can’t pay your bills, no one’s coming to bail you out. The lesson I quickly learned is that in order to not run out of cash, I needed to make getting paid on time a priority. And the best way to do that is to take steps to make sure late or non-payments never happen in the first place, because preventative measures are much easier than dealing with late invoices after the fact.
I already wrote a post about this on AOL Finance for freelancers a while ago, but those tips still apply for small business owners:
- Don’t be afraid to charge late fees.
- Make your payment terms (and late fees) visible on your invoices.
- Make it ridiculously easy for them to pay you.
On that last point, a small business like BillyApp relies on recurring payments from customers and I’ve learned that giving clients plenty of payment options leads to less late payments. Consider payment apps like Stripe that will let your customers pay online using a credit card.
3. Break down big goals into small goals.
I’m not sure I’ve ever been as intimidated as I was when I first looked at our annual revenue goals. I don’t want to say I had a panic attack, but that bottle of red wine sure went fast. If you’re a small business owner, I’m betting you can relate.
RIP to all the stress balls I popped.
One of the best lessons I learned is to break down these big, lofty goals into something way more actionable. Let’s say you have a year goal of $100,000 in revenue. Your service costs X amount of dollars, so you can figure out how much you need to sell in one year to hit that goal. You also know your conversion rate is about Y%, so you know how many leads to get in a year. Break this down to per-week, and all of a sudden you have manageable numbers to hit.
The same idea applied to accounting as well. Thinking of the annual tax day is stressful, to say the least. I know to get the best return, I needed the most accurate numbers. So I broke it down to weekly tasks: account for all expenses for this week, invoice all my partners for this week, review my books and make sure nothing’s awry for this week. One good accounting week turns into two, then into a month, then months, and before I knew it I had an immaculate accounting file by the time taxes rolled around. Honestly, if my accountant assigned letter grades, I’d have gotten an A.
So spend an hour at the end of each week balancing your books, or use an automated system to do it for you. Managing the numbers as you go will make taxes a breeze in a year.
4. Accountants don’t always have your back.
Speaking of accountants, I learned something working with them too: their goals are not necessarily aligned with your goals. Strange! Don’t they want my business to succeed as much as I do? Well, unfortunately no one will ever want your business to succeed as much as you, the owner, will.
Accountants want two things: 1) to do a good enough job getting you good enough tax breaks so you’ll be happy with their work and come back next year; and 2) to not get sued. And the latter will always outweigh the former, if you had to ask. They really, really don’t want to get sued. This means they won’t push very hard to figure out the best tax breaks for your company. They know what breaks are safe, and they usually just go with what has worked in the past.
Now, I’m of course not advocating anything illegal or unethical when it comes to avoiding taxes, but it does behoove your small business to cut down your tax bill as much as possible in the right ways. That’s why when I started educating myself on the basics of taxes for businesses, I ended up raising a lot more questions and observations with my accountant that ultimately led to saving thousands on my tax bill. All legit! The difference was that I was utterly invested into saving every penny for my business while the accountant was just doing the usual.
It’s not that accountants are bad at what they do. Trust me, I desperately need my accountant and it’s also why Billy gives you access to a world-class accountant in our University. But understanding my company’s tax implications was an incredibly valuable lesson I learned to empowers me to engage with my accountant as a true partner, to save as much money as possible.
What lessons have you learned in running your own SMB?
This article first appeared on Business 2 Community on September 19, 2017.
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