Choosing the Right Seminar

In the last ten years there has been a major growth in education for business owners. Some good, and a lot, not so good. Part of the challenge as business owners is figuring out what you should spend your hard-earned money on. Most new or small businesses don’t have the luxury of wasting money on mentoring, seminars. You don’t want to have regrets if a workshop doesn’t provide any real value. Here are a few tips to help you in choosing the right seminar.

Don’t Buy on Impulse

There are some effective sales people in the world. They know how and what to say to get people to jump at their golden opportunities. No matter how great it sounds, be patient. Take the time to research what you’re getting. Remember, if they have to offer you a price that makes you buy it right away, that’s a good indication that they don’t want you to dig too deep. Let that be a red flag for you. No one offering you value will ever pressure you into buying something. They don’t have to if they know what they are offering sells itself.

Ask Around

One of the best ways to see if a seminar or training is effective is to ask your colleagues and friends if they’ve ever attended. Remember to dig deep though. Anyone who has attended will most likely remain polite and say something like, “Oh yeah, it was great.” Or, “I loved it. It was fun.” Our culture loves to exaggerate superlatives. Make sure you ask them what they learned specifically or what results they experienced. If they can’t point to something significant, take note. Many times, people selling seminars are preying on an owner’s insecurity, because many owners question their own knowledge. Sometimes we even assume there are things out there we don’t know and it’s hurting us. More times than not, my clients have attended these workshops and realized they knew everything they were taught already.

Set Goals

Think about what you want to get out of a workshop you are taking. Knowing what your goals are can help you determine how much to invest in for education. Sometimes its about learning something about your industry, so mentoring with a successful colleague can be effective. Other times it’s about gaining more contacts. Maybe you decide to go to that $2,000 retreat to the Bahamas, not for an education, but to meet people that you can build profitable relationships with. For some, you may just need a pep talk to help get you motivated.

Financial Impacts

One financial consideration is to think about is how many new clients or sales you’ll need to earn to offset the cost. Based on what you’ve decided your goals to be, will you get that return on your investment? If you need to add 4 new clients to offset the cost of that amazing seminar being sold by the guy with the perfect smile, really ask yourself if what he has to offer is going to relate to you getting those additional sales. There should always be a positive return on your investment. Otherwise, it’s just not worth it and you can probably find something more effective.

Lastly, budget, budget, budget. Your money is precious. Make sure you can afford to attend. There are no magic pills or beans that grow money trees. Even with a decent return on your investment, you still have to pay the bills. It’s unwise to sacrifice necessities of day to day operations for the promise of a better tomorrow from someone who frankly may not be there tomorrow.

To close, take the time to determine what you want to achieve from a workshop. Do your research and find the best fit, and never buy on impulse. If you follow these steps, you should find yourself in a position where you’ve chosen the right seminar for you. If you have questions about taking a workshop and if it’s right for you, please contact me. I’m happy to help!

Written by Tom Barnhill, co-owner of Business by Barnhill

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3 Tips for Creating a Budget

You are probably tired of hearing me harp on the need for a budget when you are a small business. But, I feel strongly that you should have a financial plan for your business. You can use that budget to easily determine if you are meeting goals or falling short. It helps you to make decisions for your business based on fact and not assumptions, which is another one of my big pet peeves. Today, I’m giving you 3 tips for creating a budget.

Understand what a budget represents

A budget is meant to give you an understanding of what your revenue requirements need to be. You should use it to gauge and control your spending. A budget should not track every penny spent on expenses, though. Consider a budget a best guess at revenue and expenses for coming years. If you are a new business, you may have to extrapolate that information from research of your industry. If you have been in business for a year or so, you can use past years data to compile a budget.

Be Conservative

Resist the urge to make yourself feel good by planning for income you don't have yet. Make sure your income goals are realistic and achievable. Also, be realistic with your expenses. A budget is a set of guidelines that should be achievable and improved upon. Setting unrealistic expectations can give yourself unnecessary feelings of failure when you're unable to replicate those numbers

No one can predict the future

Don't spend too much time getting bogged down in the details. Sometimes the budget numbers are going to be wrong. The purpose of the budget is to give you guidelines and more importantly knowledge. Where it is truly beneficial is in understanding why there are differences between what you expected to happen and what did happen. That experience and knowledge allows you to make better more educated decisions in the future.

So, please take my advice and sit down and create a budget. If you need some help, let me know, I’m happy to help!

Written by Tom Barnhill, Co-Owner Business by Barnhill

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3 Financial Warning Signs that Your Business Needs Attention

The life of a small business owner is often hectic, so you may not take the time to analyze your financials on a regular basis. While I completely understand feeling overwhelmed by the everyday work, there are a few things you should take the time to review. Today I’m sharing three items that you can look at quickly that may be a warning sign that your business’ financial health needs attention.

Poor Cash Flow

If you are showing a healthy net profit on the bottom line of the profit and loss statement, but you consistently find that your bank account balance on your balance sheet are too close to zero, you might have poor cash flow management. If you are operating at a profit, but you never have any cash on hand, then you need to determine where the profits are going. Some places to check are loan repayment fees, paying down credit card debt or paying yourself too much. Having poor cash flow can impede your ability to operate efficiently. It could also cost you more money in the long run through overdraft fees from your bank and higher interest rates from short term loans and lines of credit.

Too Many Non-Operating Expenses

Random non-operating expenses either get categorized into a miscellaneous expense account or the office supplies expense account. If you have too many purchases from Home Goods, this could be you. Seriously, this item is really about controlling your spending and making sure the purchases you make are essential to the operating of your business. Too many unnecessary expenses will decrease your profits and impede the growth of your business.

Rising Inventory Levels

On your balance sheet, if your inventory amount rises month after month and you are not in a significant growth mode, there is a problem. Rising inventory levels indicates one of two things. The first is that you are buying more inventory than you are selling. This could be as a result in the decline in sales or you are purchasing more inventory than in necessary. Either one requires an adjustment, so that you don’t incur cash flow issues in the future.

The second could be that you are not recognizing the cost of goods sold correctly for the inventory sold. The problem with this is that it gives you a false impression that you’re more profitable than you are, because you are not recognizing enough cost. It could lead to you making decisions based on profitability that doesn’t exist.

If you see any of these problems, it may be the right time to seek expert advice. The important thing is not to panic, with a few simple adjustments you can set your business on a more profitable path. I find these issues are best discussed over an iced Starbucks coffee, so please reach out and let’s chat.

Written by Tom Barnhill, Owner of Business by Barnhill

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Mid-Year Accounting Checklist

Time flies by when you are having fun, or when you own a small business. The middle of the year is a great time to do a quick check on your business financials to ensure you are prepared for the year ahead. We’ve put together a quick mid-year accounting checklist that you can use to ensure your books are up to date and that you are ready to tackle the rest of this year!

Is your bookkeeping up to date?

I know that sometimes I sound like a broken record with this question but having your bookkeeping up to date on a monthly (or quarterly) basis is one of the most important ways to ensure your business’ success. With up to date financials, you can make decisions based on fact, not feeling. You will know if you can afford new equipment, if you need to save more for taxes or if you need to book more work for the end of the year. If you haven’t kept up with your books this year, now is the perfect time to catch up or hire someone to do it for you.

Do you have a budget for the rest of the year?

The word budget is not a scary word. Honestly, a budget is just an estimate of income and expenses. You need a budget, so you can measure how your business is performing during the year. If you haven’t created a budget yet, I would suggest making one for the rest of the year, so you can measure your performance during the last six months of this year.

Have you compared year to date financials from last year to this year?

At this point in the year it is good practice to compare your financials from this year to last year. If you see any major changes, either increase or decrease in income, then you should inform your CPA. Those changes could impact your quarterly and yearly tax requirements. By reviewing your financials, you can also see how your business is performing compared to last year. If you haven’t booked as much work as last year by this time, you may need to look at some new strategies for getting clients. If you are spending more on expenses this year, then last year, you should know why. All these answers can be found in your financials.

Have you taken a break?

As a small business owner, it is so easy to work 24/7 and forget to take a break from the business. It’s important to take a day or a few for yourself and your family. Summers are the perfect time for a little getaway to the beach, a road trip to a favorite winery or just a day at the spa. If you take a small break today, it will save you from burnout in the future. Trust me.

So, how did you fair on the checklist results? If you answered YES to all of these questions, then I am impressed. If you didn’t, please don’t stress. The middle of the year is a great time to tackle a few of these items and prepare for the end of the year. If you have any questions, please contact us.

Written by Tom Barnhill, co-founder of Business by Barnhill

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Preparing for an Emergency

Preparing for an emergency...when you own a business.

So today, we want to talk about something that doesn’t get much thought or discussion among small business owners. What happens to you, your family and your business when there is an emergency? If you have a long-term illness or accident, would your business be able to continue without you? Do you have a plan in place to handle a situation where you are not able to do the day to day work for your business? If you answered no to any of these questions, then you need to read this post and plan for an unforeseen emergency.

Risk Assessment

Take the time to consider the different ways your business may be vulnerable. What do I mean by vulnerable, well it could be an asteroid or a zombie apocalypse, but you know if that happens, it’s pretty much lights out anyway. Really what I’m thinking about are things that would keep you or your business from functioning normally. It could be something like a car accident, health issue or even a loved one having a problem that requires your support. We’ve all known someone who has had this happen to them,  so it just makes sense to plan for it.

Crisis Communications Plan

The first thing that comes up in an emergency is the flow of information. You need someone to help with communication, whether it’s communicating to employees, or customers. Someone that can let everyone know what’s happening and convey that the plan needs go into action. It’s good to have a partner, trusted friend, or family member that has enough information to at least reach out to your clients, advise them of the situation and be able to manage the day to day administrative tasks that need to be handled, like paying bills and answering emails. Be sure to reach out to this person ahead of time and have any information they will need in a safe place that can be easily accessed by them at any time – even without you or your voice present.

Also, be sure this person has contact information for other small business owners that can support your business. For example, if you are a photographer, provide a few other photog friends that can jump in and help with your workload. And, of course, include the contact information for your accountant, lawyer and any other business professional that supports your business. These people can be a huge help to your emergency contact – especially, if they are a wife or husband that may not know a lot about your day to day activity. 

Protect Your Financial Data

Sometimes our crazy life disasters have nothing to do with our health. It can be a fire at your building or a leaking roof or something completely random. To that end, make sure you are backing up your financial information to the cloud or at least to another location. This goes for important documents as well. Having these items in a safe secondary place can significantly improve your ability to mobilize somewhere else and keep your business on track.

Supplemental Insurance

I’m sure you have all seen the commercials on TV with a certain duck. Well, he represents a company that sells supplemental insurance. If you get into an accident and have a hospital stay or an illness with a lengthy recovery, supplemental insurance can help you pay bills and even pay you a portion of your normal salary. There are many options with supplemental insurance, but I will tell you that the monthly fee is relatively low and as a small business owner, knowing you can be out of the office for a medical reason, but still have income coming in the door is a great piece of mind.

Financial Impact Assessment

Sounds highly technical and maybe even a little scary. Easiest way to think about this is, how much money does my business need to cover the important bills if things were forced to shut down. I know with my clients, I like to see 2 months of overhead in their accounts at all times. The thought process is simple. If you have enough in reserve to pay your bills for two months while you recover from whatever emergency you’re dealing with then you should be in pretty good shape. If what you’re dealing with is going to take longer than 2 months to resolve and let you get back to normal, then a more comprehensive plan and some tougher decisions may need to be made.

Life Insurance

A lot of young, creative entrepreneurs don’t think too much about their life expectancy. Things like wills and life insurance aren’t typically spoken about with any regularity, but you should always be prepared for the worst. If you pass away unexpectedly, your debts, bills and even client disputes could fall back on your family, spouse, partner or children. I always recommend ensuring that your life insurance policy will cover any debts and ensure that your family can move forward with no concerns regarding financial stability.

Planning ahead of time for unexpected emergencies will give you peace of mind and ensure that your family is cared for in your absence. If you have more questions on this topic or if you need support creating your emergency plan, please let us know.

Written by Tom and Allison Barnhill, Owners of Business by Barnhill

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Answers to Your Business Credit Card Questions

I work with a lot of small businesses and almost every week, I’m asked a question about a business credit card. Some clients want to know if they should get one. If so, which one should they get. Others are worried about payment processing fees if their clients use credit cards to purchase goods. So, today, I’m picking a few of your business credit card questions and giving you the answers you need!

Can or should I use my personal credit card for business?

You can, but should you? Not if you can get a credit card in your business name but let's be honest, that's not always easy to do. If you don't have sterling personal credit you can get a starter card in the company name with a $500 limit and no benefits. Or you can use that personal card you've had for years that accumulates miles and go to Fiji....tough, tough decision....not. Using a personal card for business isn't wrong, as long as it's done properly. Here's the catch, stop using that credit card for personal reasons. If you want to use it for business, add it to your balance sheet, only use it for business, and reconcile it every month. I would never advocate commingling your expenses, so this separation is critical. The down side of using your personal credit card is that you delay the process of building up credit for your business. At the end of the day, you've got to do what is best for your business.

What credit card should I get?

It really depends on what's important to you. Do your research! 15 minutes of research can literally save you hundreds of dollars. Some of the factors to consider are annual fees vs interest rate. If a card has a lower interest rate but you have to pay $99/year to have the card, are you saving more than $99 in interest with that lower rate? If you're not, why pay the fee? The interest only hurts you if you carry a prolonged balance. If you're paying it off each month just to accumulate miles, take the higher rate, save your $99 and buy a nice dinner in Fiji. Another thing to consider is the rewards themselves. What is more important to you? Cash back or miles. Maybe your idea of a vacation is turning off the phone, closing the blinds and reading for three days straight. The miles aren't helpful if you're not the traveling sort. Take the cash back, buy more books, maybe a bottle of wine or three and have a grand old time. For research purposes, I have always found Nerd Wallet to be a pretty good resource for the latest and greatest credit card offers and they provide their own analysis.

Is there another alternative to paying all these credit card processing fees?

Let's flip to the other side of the transaction. I get asked all the time by frustrated business owners how they can avoid the credit card processing fees. Here's my answer, be glad you're young. Us old folks remember the days before mainstream credit card use and you had to hear nonsense like 'the check is in the mail'. So much more time and effort was spent on collecting money and let's face it, time is money. The time you spend collecting money is far more valuable than what you are paying in credit card fees. Try not to think about it in terms of what it's costing you and think in terms of how it's benefiting you - especially for businesses with higher volumes of transactions. Can you imagine having to collect 80 checks a month, waiting for them to clear, 2 bounce, costing you a fee from your bank? You have to take the time to track down the customer and get paid again and hope it works this time. Seriously, pay the fees and gleefully watch as your money pops into your account hassle free in two days. These fees are the friend that is kind of annoying but is really helpful. You don't have to invite them to Christmas but don't cut them out of your life either.

So, hopefully that answered some of your burning questions about business credit cards. If you have other questions about credit cards, or anything else, I’m happy to answer them. Just ask!

Written by Tom Barnhill, co-founder of Business by Barnhill

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Our Top 3 Accounting Blog Posts

I always love looking back to see which blog posts we share are the most popular with you, our readers. So, today, I’m sharing our top three accounting blog posts. So, sit back, grab a beverage (coffee, tea, wine…no judgments here) and see what you’ve loved to read or have missed.

#3 – 5 Things Every Small Business Owner Should Do at Year End

In this blog post, we share five things that your small business should do at year end to avoid any post-holiday stress. I know it’s only June, but I would recommend reading this post now, so you can see what tasks you will need to do in just a few months. Also, one of our big recommendations is to get your bookkeeping up to date and you can do that right now – no need to wait until December!

#2 – Methods for Good Record Keeping

Tom had the opportunity to speak at the Tuesdays Together DC event back in March and one of the topics he covered was methods for good record keeping, especially related to your business finances. In this post, we shared his tips on how to get a handle on your bookkeeping. One of the most popular items was to track true revenue, less fees, not the net amount. For example, if you had a $100 sale and $4 was deducted for processing fees, make sure you enter $100 in revenue and $4 in processing fees as expenses, instead of entering just $96 in revenue. If you don't do it that way, you lose the ability to track processing fees and you are understating your revenue.

#1 – 5 Questions to Ask When Hiring an Accountant

I think the reason why this post has been the most popular is that, at some point, all small businesses are going to have to hire an accountant to handle the bookkeeping and other financial tasks. In this post, we shared five questions you should ask when hiring an accountant. I loved the question that explained the difference between a CPA and business accountant. Business accountants that are not CPA's tend to understand the day to day operations of your business better and are more effective partners to helping you run your business effectively. If you are looking for an accountant to handle bookkeeping, budgeting and cash flow projections on a monthly basis, then an accountant is a great option.

So, there you have it…our top 3 accounting blog posts. Hopefully, your favorite post was here. If not, comment and tell us which one you have thought was the most helpful. We’d love to know!

Written by Allison Barnhill, co-founder of Business by Barnhill

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5 Tips for Pricing Your Services

…so your clients value your worth

Effectively pricing and presenting your services can have a big impact on your profitability. Most businesses don’t take the time to do this properly and inadvertently miss out on revenue they should be earning. Additionally, the way your represent your pricing will allow your clients to have a better experience in the purchasing process. Overall, your pricing needs to reflect your worth as a creative expert in your field. I find a lot of my clients are always concerned about their pricing and never quite know where to start. So today, I’m sharing five tips for pricing your services.

Make sure you account for your time (as well as materials)

Entrepreneurs are known for ignoring their time invested in a project, in order to keep the costs down for their clients. When you are determining your pricing, you should definitely account for any materials costs. You should also realistically estimate your time invested in the project AND how much you are worth per hour.

Establish service packages

Service packages are a great way to show value to your customers. If you package a variety of items together into one package with a single price, customers feel like they are getting more for their money. Also, create three packages – basic, standard and best. The standard package should be your main service package that the majority of your clients need. By positioning that package in the middle, your clients will be more drawn to the option. It’s not the most or least expensive…it’s just right!

Do not post a la carte pricing on your website

You can post your package pricing on your website, but if you post a la carte pricing for your services too, it could open a can of worms. Clients may not want to pay for something that is included in your package pricing and if they see the cost of it listed in the a la carte pricing, they may ask you to deduct that amount from your package pricing. You don’t want that! So, just stick to package pricing online. You can always offer up a la carte options after you speak to a potential client and determine their needs.

Don’t be afraid to negotiate on price

Negotiation allows you to lower your price to support client acquisition and retention. It also can give you the opportunity to seal the deal with a client that you really want.

Avoid sales and discounts

Okay, so I know I said it’s okay to negotiate on price and that is still true. BUT, you should avoid providing sales or blanket discounts on your services. Chances are the people that are looking at the discount are really not your ideal client. And, if they wouldn’t book you at your normal pricing, then they really don’t value YOU and YOUR services. They value a deal.

By using these five tips, you can effectively price your services (and products) and know that your clients are valuing your worth. If you have questions on pricing, please contact me. I’m happy to help you!

Written by Tom Barnhill, Co-Founder of Business by Barnhill

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3 Mistakes Start Ups Make

Many businesses start up, but very few of them succeed over time. In today's post, we are sharing three mistakes that start ups make, so you can avoid them. We're also providing a special bookkeeping package for new businesses to help grow your business the correct way from the beginning. 

Mistake 1: Setting up your business as the wrong entity type

When you create your business, you have to register it with your home state and choose your business entity type. Most entrepreneurs have no idea what type of business entity they should be and end up taking advice from friends or family. By choosing the wrong entity type you can open yourself up to lawsuits that can affect your personal assets, and you could be subject to higher income taxes. We wrote a post a few weeks ago with a simple explanation of business types that includes a great flow chart so you can choose the correct business entity for your new business. 

Mistake 2: Not having a budget

People always cringe at the word budget. Why? Well, first I think it is because it seems daunting to try to capture all the "numbers" for your new business in one place. Perhaps you are having a hard time estimating expenses or you don't know what your revenues will be. The best thing I can tell you is do some research, and just start! You need a budget in place to ensure you are not over spending in the early stages of the business. You can also use your budget to track your financial goals and ensure you are meeting your projected revenues. Having even the most basic budget in place makes you accountable for reviewing your numbers regularly. The knowledge gained from understanding the differences in your budget and what really occurred is invaluable in making educated financial decisions as you grow.

Mistake 3: Avoiding the bookkeeping for your new business

A lot of new businesses have no idea how to handle the bookkeeping for their business. You may try to track things in an Excel spreadsheet or keep receipts in a box, but you aren't really tracking and analyzing the finances for your business. By avoiding the bookkeeping for your business, you can't make educated decisions for your business. You won't succeed if you are making decisions based on assumptions. Tracking your revenue, expenses and reconciling your bank accounts are the number one way to ensure you are going to succeed.

Over the years, we have realized that start ups need bookkeeping, financial reporting and advising services, but don't always have the budget to pay for professional help. To support our fellow small business owners, we have created The Ultimate Bookkeeping Package for New Businesses. With this package, you can get bookkeeping services, reports and an advising call for only $49 per month*. More details can be found here.  We're only providing a limited number of these packages to new clients, so please contact us if you are interested.

From Natalie Franke Hayes, Co-Founder of Rising Tide Society:

"The advice of 'fake it till you make it' shouldn't apply to your bookkeeping. Hiring Business by Barnhill was one of the best decisions I ever made for my business."

Photo Credit: Madison Short

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What is a Money Mentor?

What is a money mentor...and why you need one...

A few weeks ago, one of my clients said that she doesn't think of me as just her business accountant. She said that I am her money mentor. That actually got me thinking, and doing some research on the money mentor concept. The more I read about money mentors, the more I agreed with my client. I am a money mentor and I think that every small business owner needs one...right now.

What is a money mentor?

Simply put, a money mentor is a business advisor that helps you make educated financial decisions for your small business. As a small business accountant, I tend to be a money mentor for the majority of my clients. I advise on cash flow, business expenditures and investments. But, a money mentor can be a trusted industry leader, financial expert or investment professional. Of course, I'm always going to recommend that you do your homework and not trust just anyone to help make you financial decisions for your business. Ask colleagues, friends and family if they have any money mentors in their life. Referrals are always a great place to start.

Why should you have a money mentor?

 A money mentor can help explain some of the confusing financial or accounting concepts that you may encounter as you start and grow your business. They can explain your financial statements to you, what they mean and why they are so important to making solid decisions for your business.

The perfect money mentor should be someone who has worked in or around your industry for many years and have been successful. They will have invaluable knowledge of your industry that you can leverage to make better decisions for your business. They will also have many connections to contacts that can help you in other parts of your business, for example, the best CPAs, lawyers and more. This will save you valuable time and energy as you progress in your business.

A money mentor has travelled your road before and they can advise you on how to avoid problems or pitfalls in your business. They can help you make educated decisions for the long term health of your business. A money mentor will help you make budgets, so you can plan for the future and measure your success. Finally, they will be able to give you unbiased advice on how to be successful like no one else can.

So, if you are a small business owner, I highly recommend having a money mentor in your life. The partnership is one that I think will make you a more successful entrepreneur and also make you feel more comfortable with the financial health of your business. If you would like to talk to me more about the money mentor concept or how I can support you in this role, please contact me. I'd love to hear more about your business and how I can support you in making the best financial decisions to be successful in your industry.

Written by Tom Barnhill, co-founder of Business by Barnhill

Business Entities Explained

Perhaps to have driven down the street and noticed that some business signs have acronyms behind them, like Mission Wealth Management, LLC or Apple, Inc.  These three letter indicators identify the type of business entity or structure of the company.

A business entity or structure you choose for your new business will have both legal and tax related implications for you and your business.  Choosing the best type for your business is one of the first steps to business ownership.  We'll review the multiple types of business entities, share the pros and cons of each and recommend the best type of business entity for you.  It can be a little confusing, so be sure to check out the decision flow chart for a quick and easy reference.

There are four main categories of business entities, Sole Proprietorship, Limited Liability Company (LLC), Partnerships and Corporations.

Sole Proprietorship

A Sole Proprietorship is the most simple and also most common structure chosen to start a business. A business with this structure has only one owner and there is no distinction between the owner and the business.  A Sole Proprietorship is not a legal entity. The owner of the business is entitled to take all of the profits from the business, but they are also responsible for all of the businesses debts, losses and liabilities. For tax purposes, since the owner and the business are considered the same, all business income is reported on your personal income tax return.  Finally, while it's inexpensive to set up, your personal assets may be at risk if the business incurs any lawsuits or files for bankruptcy.

Limited Liability Company (LLC)

An LLC is a hybrid type of legal structure that provides the liability protection of a corporation, with simpler tax returns, and also provides options for multiple owners or members.  Members of the LLC can be one single individual, multiple individuals or even other LLCs.  If the LLC incurs debt or is sued, the members' personal assets are usually exempt.  For tax purposes, LLCs are not taxed separately and members would pass through profit and losses of their company to their personal taxes. 

Partnerships

A partnership is a single business where one or more individuals share ownership.  There are two types of partnerships, general and limited.  General partnerships assume equal responsibility for profits, liability and management decisions.  In this case, a creditor could choose to go after any and all partners for collection of debt.  With a limited partnership, some partners have limited liability and also limited input within the business.  This is typically a good option for investors in short term projects.  For tax purposes, a partnership must file an annual information return to report income and losses, but the company itself does not file income tax.  Profits and losses are passed through to the partners and show them on their personal income tax returns.

Corporations

A corporation is an independent legal entity, separate from its owners, which means greater protection from personal liability in case the company is sued or files for bankruptcy. Corporations are generally more complex than other business entities and tend to have costly administrative fees and complex tax and legal requirements.  For tax purposes, the corporation must pay income tax on it's profits.  Shareholders of the company who are also employees will have to pay income tax on their wages.  A S-Corp is typically the most common type, while the C-Corp is mainly set up for large or high profile ventures.

Our Recommendation

For most of our clients, we recommend setting up your new business as an limited liability company or LLC. It is typically inexpensive to setup and has little effect on your income tax filing as the earnings from the business still pass through to your personal income tax return. The benefits far outweigh the costs (filing fees in your state, etc.) as it provides a significant amount of protection for the owner because assets that belong to the owner personally are protected. The one thing to keep in mind with an LLC is to ensure your personal and business transactions are kept separate.  Simply put, do not use your business credit card or bank account to pay for any personal items.  If you do, and your business is sued for any reason, the opposing side can try to prove you used business funds for personal items and although you claim to be an LLC you are not acting as one.  Therefore, your LLC can be invalidated and your personal assets will not longer be protected.

*Disclaimer: The information above should not take the place of legal and tax advice from your lawyer and certified public accountant.  We always recommend consulting with professionals prior to setting up your business and we are happy to put you in touch with lawyers and CPAs that specialize in small businesses.

Written by Tom and Allison Barnhill - Owners of Business by Barnhill

Methods for Good Record Keeping

This past Tuesday, Tom spoke at the Tuesdays Together meet up in DC. One of the topics he covered during his presentation was methods for keeping good records, especially related to your business finances. Today, I'm going to share some of the tips that he covered at the meeting. Hopefully, these will help you get a handle on your bookkeeping, and if you have questions, we are here to help!

Reconcile bank accounts, credit cards and Paypal

On a monthly basis, you should reconcile your business bank accounts using your bank statements. Also, don't forget to reconcile any business credit cards and Paypal. Paypal can often be overlooked, but you need to ensure that those payments and processing fees are captured in your books.

Track true revenue less fees, not net amount

When tracking your revenue from sales using Paypal or even credit cards, be sure to track your revenue less any processing fees. For example, if you had a $100 sale and $4 was deducted for processing fees, make sure you enter $100 in revenue and $4 in processing fees as expenses, instead of entering just $96 in revenue. If you don't do it that way, you lose the ability to track processing fees and you are understating your revenue.

Avoid using cash for business purchases

When you use cash for making business purchases, you don't typically have any electronic record of the transaction -- either on your bank account or credit card statement. You will have to keep track of those cash receipts and enter them manually into your bookkeeping software. It's easier for tracking purposes to just stick with a debit card or credit card for purchases.

Find a bookkeeping software (Quickbooks, Wave, etc.)

There are a variety of bookkeeping software options available to small businesses. Tom prefers to use Quickbooks Online or a desktop version of Quickbooks. But, I do know that a lot of creative businesses prefer to use Wave or Xero. The important thing is to make sure it has the ability to let you reconcile your bank accounts. In the long run, it's best to just choose the one that appeals to you most and start using it regularly.

Set aside money for taxes

Be sure to set aside money each month for your quarterly and yearly tax obligation. It's much easier to save a little at a time throughout the year, than to worry and stress about having to come up with a large sum of money when April rolls around. Many businesses have the amount of money they should set aside calculated by their CPA. This amount is based on their performance the previous year. If you are experiencing significant growth or decline, contact your CPA and have these amounts recalculated so you don't have any surprises at tax time. 

Let us know if you have any specific questions we can answer. Also, if you are feeling a little overwhelmed with your bookkeeping or need help getting your books in order for taxes, please contact us.

Written by Allison Barnhill, co-founder of Business by Barnhill

5 Questions to Ask When Hiring an Accountant

At some point, you are going to have to hire an accountant to handle the bookkeeping and other financial tasks for your small business. It might seem like an overwhelming undertaking but honestly, if you ask the right questions, you will find the perfect accountant. Here are five questions that I recommend asking your potential new accountant. 

1. Do you have experience with businesses like mine?

An accountant that works with similar businesses as yours is likely to understand the complexities of your business and advise you better than an accountant that doesn't specialize in your area. For example, an accountant that works with wedding photographers would understand the seasonality of the business and be able to advise you on how to manage your cash flow throughout the year.

2. How long have you been practicing?

Accountants with experience are less likely to make errors than someone with less years practicing. Also, accountants that have been working for years have worked with so many more businesses and are able to advise you better to make financial decisions for your business. While hiring a new accountant is not necessarily a bad decision, you should just be aware that they could be getting some on the job training with your business' books.

3. Can I talk to a few of your current clients?

It's always a good idea to get references when you are hiring anyone for professional services -- especially an accountant. Of course, the accountant will likely only give you the contact information for clients that are happy with their services, but you will get a sense of the quality of their work, responsiveness and overall work ethic.

4. Are you a CPA?

Not all accountants are Certified Public Accountants and that is okay. Actually, business accountants that are not CPA's tend to understand the day to day operations of your business better and are more effective partners to helping you run your business effectively. If you are looking for an accountant to handle bookkeeping, budgeting and cash flow projections on a monthly basis, then an accountant is a great option. CPA's are definitely key for helping you determine your quarterly tax obligations and preparing your yearly income taxes. Unfortunately some CPAs will focus on only the tax implications to make business decisions and not what is actual best for operating your business on a day to day bases.

5. Do you have a yearly contract for services?

Some accountants may require you to sign a contract to have them handle your accounting for a year at a time. Other accountants might only work on a month to month basis. A yearly contract may save you money in the long run, but you should ask this question up front. If you aren't sure the relationship is going to fit for long term, then you may not want to sign a year long contract.

I hope this helps you in hiring your accountant and honestly, I hope you ask me these questions very soon! Please contact me if you would like to chat.

Written by Tom Barnhill, co-founder of Business by Barnhill

All About Cryptocurrency

First let’s start of with, what is cryptocurrency?

Cryptocurrency is digital way of exchanging currency that doesn’t require a bank. It came to fruition through a programmer (or series of programmers) working under the alias Satoshi Nakamoto. They described it as a ‘peer-to-peer electronic cash system’. Although it’s taken a few years to catch on, it is now accepted by giants such as Amazon, Microsoft and Overstock.com. This begs the question, if and when will this trend trickle down to small businesses. Here are some pros and cons to accepting cryptocurrency.

No processing fees

That’s right, I said no processing fees. Processing fees are by far the biggest complaint I hear from my clients. The 2-3% that gets lost on every transaction. The reason there aren’t processing fees with cryptocurrency is because it is handled electronically without the assistance of a third-party vendor that is needed to “process” the payment. There are however two things to note. The first is to have a digital wallet that you need to utilize cryptocurrency, you may be charged a monthly fee by the provider of that wallet. This fee is usually about $30. The second is that some cryptocurrency exchanges will offer an expedited processing fee of 1% to make your money available to you more quickly after an exchange has occurred. This is not a required fee and therefore a convenience which is a far cry from the 2-3% mandatory charged by credit card companies.

All transactions are final

Unlike credit card companies where you always operate under the threat of a chargeback with little or no recourse to contest the assertion, all cryptocurrency sales are final. This puts the power of refunding money and enforcing your refund policy back in your hands. There is of course the flip side to this which is you are bound buy the same rules if you use cryptocurrency to make purchases.

Transaction speed

Most cryptocurrency transactions require less than ten minutes to verify and process. Someone pays you with cryptocurrency, ten minutes later it shows up n your wallet and is available to use. This is significantly better than the 2-3 days required to wait on money being available through credit card payments. The only downside is converting cryptocurrency to currency used in centralized banking can take a couple of days to process. If you receive payment and need it to make a purchase using the dollar instead of cryptocurrency, you’ll be back at the mercy of your bank and the amount of time it takes for the cryptocurrency to be converted to cash.

Sounds to good to be true right? Well like all things in life there’s bad with the good and here are a couple of reasons to be cautious of cryptocurrency.

Volatility

Sounds ominous and it can be. Cryptocurrency is gaining in acceptance and use at a rapid rate. Therefore, the value of cryptocurrency has skyrocketed but that also means it can decline just as fast. A government moves to ban cryptocurrency and the value plummets. If you’re invoicing clients on a Net30 basis, the value of your cryptocurrency at the time you invoiced may be different than when payment is due 30 days later. This can lead to you giving your client a big discount unintentionally. Then you’re left with holding that cryptocurrency until it’s value increases again. In some cases, your digital wallet provider will immediately convert payments to dollars to avoid crashes in value.

The government hates cryptocurrency

They can’t regulate it, track it or take it away from you. For us as individuals, this is a great thing. An untaxable, anonymous form of payment. The reality is that with the rise in popularity, there will come a time when the government decides they need to intervene to make sure they get their cut of your money. Cryptocurrency is playing in their currency’s sandbox and they’re only going to tolerate it for so long. No one knows what extent the governments will take to regain financial control and therefore there’s some risk in using it as a means of currency.

So, what does this mean for small businesses? It means there’s a valid form of payment that can be a benefit both you and your clients. Whether you’re ready to take on cryptocurrency, only you can decide.

Written by Tom Barnhill, co-owner Business by Barnhill

Creating Your Small Business

It's a new year and a lot of you might be thinking about starting your own new business. There is so much more to creating a business than picking out a logo and printing up business cards. You must take a few steps to ensure your business is created correctly and legally. Below is a list of recommendations to follow, but we always advise that you speak to an expert for more information.

Apply for an EIN or an electronic identification number from the IRS

An EIN is a unique identifier applied to your business for all future communications with the IRS. It helps differentiate between you personally (SSN) and your business (EIN). Applying can be done electronically or by paper. We recommend applying electronically because it is completed immediately and you’ll be able to print out a .pdf letter from the IRS with your EIN number. Use this link to apply for your EIN electronically. Mailing can take up to 6 weeks to get a letter from the IRS. Once you have that letter, keep the electronic format because it will be requested from any number of sources for example, your bank, your state government, suppliers and lending institutions. And, please note, that you can’t look up the letter online at a later date. You have to call IRS and that can be a challenging and time involved process.

Register your business with the state, which includes registering your trade name

First, you need to see if the business name you want is available, meaning that no other business in your state is using that name. In Maryland you would go to this site and search. If your name is available, go to this site to register your trade name. Using this site, you will provide the trade name, along with all personal information and define how your business is going to be structured (LLC, Sole Prop, etc). You submit it for approval and depending on the state, it can be instant or take up to 2 weeks to approve your business. In Maryland, the average response is 3 to 5 business days. You will typically get an email with your approved articles of organization, which is a .pdf document that provides all the information you gave the state. It’s simply proof you are a legitimate business in the state you applied. Within a week after that, you will show up in your state’s database as an active, in good standing business. Creditors, lenders and banking institutions will look here to determine if you are a legitimate business.

Set up your appropriate tax accounts with the state, which can include sales tax, withholding taxes and personal property taxes.  

Now that you have a legitimate business you have to determine which taxes you are responsible for paying.  Each state has different requirements for sales tax. If you are going to be selling any type of product or a taxable service, you will need to set up a sales tax account with your state.  For Maryland, go here to set up your sales tax account.

If your business will have employees (not including yourself), then you need to set up your withholding tax account. This account is used to pay the payroll taxes that are withheld from the employees pay checks. If you don’t plan to have employees immediately, you can always set this account up later, when you hire your first employee. For Maryland, you use the same website as above to set up this tax account.

Every business has to have a personal property account. In some states, it is automatically set up and it is simply a way for the state to keep track of what assets the business has on a year to year basis. Many businesses don’t have tangible assets, like land, buildings or equipment, but you still have to file annually to indicate that you don’t have any property (in most states). In the state of Maryland, whether you have assets or not, you have to file a personal property tax return, along with a $300 filing fee. Failing to do so, can result in the revocation of your business license, even if you have no assets.

Once these accounts are set up it is your responsibility to file appropriate reports even if the amounts are zero. For example, if you set up a sales tax account in June and don’t sell any product until December, you will still need to submit sales tax filings to the State stating that you had $0 sales during that time period. If not, you will be subject to penalties and interest for failure to file.

Create an operating agreement

An operating agreement is a set of rules and guidelines that structure your business and how it functions. It is extremely important to have this document in cases where a business has multiple owners. The types of items that are included in an operating agreement include the roles and responsibilities of each owner, the process of ending a partnership, voting rights, allocations of profits, losses and dissolution process.

Open your business bank account

Now that you have the above items in place, you can go to the bank of your choice and open a business checking account in the name of your business. This step comes later in the overall process of setting up a business because most banks require you to have a legitimate business in place in order to open a business checking account. You need a business banking account to create a separation from you personally and your business entity. 

Choosing a bank comes down to a few key factors. It is up to you to determine how important each of those factors are. Our advice would be to choose a bank that you can establish a relationship with the branch manager. It gives you a point of contact if you ever have any problems or questions and they will understand your needs better over time. For example, having a relationship with a branch can come in handy if you need to get a deposit in on that day and you are close to the 2pm deadline. You can call ahead and let them know you are on the way and they can hold the deposits for you. A great branch manager will notify you when there is an issue with your account and can sometimes help defer any bank fees.  Another item to consider when choosing your bank is the online capabilities, like mobile deposit, cell phone apps and the ability to download monthly statements online easily.  If you have access to a credit union, like Navy Federal Credit Union, they typically offer the most complete package for a small business owner and would be recommended.

We know this is a lot of information to digest in one sitting, so please let us know if you have any questions about setting up your new business. We're happy to help walk you through the process and make it as easy and pain free as possible.

Written by Tom Barnhill, Owner of Business by Barnhill

5 Things To Do For Your Business NOW

The first week of a new year is a great time to take stock of your business and see what changes may be needed. We've put together a list of five things you should do now to make sure you head into 2018 with a business that is ready to succeed.

Set Goals

The beginning of the year is the perfect time set goals for your business for the coming year. You may choose to set goals for yourself professionally or personally. Also, we highly recommend putting together a financial budget for the coming year, so you can see how your business is performing compared to your budget and projections for 2018. We've created a yearly budget template and attached it here, so you can get started.

Update Social Media Profiles

Now is the time to go into all of your social media accounts and ensure that your information is up to date. Check phone numbers, email addresses and even your general details or description to ensure the profiles reflect your business for the new year. Also, be sure to check your About page on your website. A lot of business owners have information about the number of years in business, or other details like number of years married or ages of children. Be sure to make sure these are up to date.

Review Pricing

Each year, you should review your pricing to ensure you are charging appropriately for your services. If you felt overbooked and overworked in 2017, it may be time to raise your rates for 2018. Also, do your research to ensure you are competitively pricing yourself in the marker.

Evaluate Your Brand

As we start a new year, you should take a look at your brand to ensure it is reflecting exactly what you want to project to your clients and potential clients. Has your business grown or evolved over the past year? If so, chances are you need to ensure your brand is still in line with your business. Your logo is part of your brand, so you can evaluate if it needs an update - perhaps new colors or an overall change. Finally, take a look at your headshots and see if they need a refresh. You change over time, so your photos should reflect that too.

Make a Technology Assessment

If you are like me, you don't want to think too hard about the technology you use everyday. I just like my laptop to open up and work. Of course, that type of blind use can lead to problems in the future. The new year is the perfect time to take a look at the health of your computers, printers, routers, phones and more. Also, do you need a new technology or software to be more successful with your business in 2018? Sit down and answer these questions to ensure you aren't left in a dire situation later in the year.

Are there any other tasks that you always do at the beginning of the year for your business? I'd love to hear them! If you are feeling overwhelmed or need help with any of the tasks on the above list, please contact us. We'd love to help get your year started on the right foot.

Written by Allison Barnhill, Co-Owner Business by Barnhill

Tax Reform Information

Our tax consulting partner, Sandra E. Schultz, CPA, shared a post on her site recently that reviews the tax reform provisions that were included in the house bill (HR1) that passed both the House and Sentate recently. Please see below for more information and a comparison chart.

Provisions: This is a synopsis of some of the provisions included in the House bill (HR 1) that was passed by a vote of 227 to 205 on November 16, 2017, and the Senate’s version of the bill as passed on December 2, by a vote of 51 to 49 – both along party lines. This synopsis does not include any conference amendments made after the December 2nd Senate version. 

There are significant differences between the two bills, and both the House and Senate must pass the same legislation before it can be sent to the president for a signature. This involves a reconciliation process between the two houses of Congress. Most sources expect that most of the provisions of the Senate version will prevail during the reconciliation process in an effort to get the legislation pushed through before Christmas. 

• Both bills cut both individual and corporate tax rates 
• Both bills largely repeal the state and local tax deduction 
• Both plans increase the standard deduction 
• Only the Senate bill repeals the Affordable Care Act requirement that individuals buy health insurance 
• The conference committee will reconcile the two bills for a final vote and signature from the President

Link to original post can by found here.

Written by Sandra E. Schultz, CPA

End of the Year Accounting Tips

As we reach the end of the year, there are a few things you can do to make tax season a little bit easier.

1. Don't wait until December 31st to get up to date on your bookkeeping for the year. With the holiday season quickly approaching, it will be harder to find the dedicated time you need to get your accounting up to date for your business. Also, at beginning of the new year, support professionals like bookkeepers and CPAs get busy very quickly and it will be hard to find help, if you need it.

2. Find your CPA now. Good CPAs for small business owners book up quickly and get very busy at the beginning of the year. Finding your CPA now both reserves your spot for tax season and also gives you more time to discuss your situation allowing you to make any necessary adjustments before the end of the year

3. Review the list of people you may have to send 1099s. Make sure you have their W-9s on file and if you do, confirm you have the correct mailing address. If you send out 1099s to the incorrect address and have to have them re-issued later, it will cost you a lot more money and time.

4. If you have accounts receivable, get aggressive now about collecting outstanding payments. It gets more difficult to collect money as you approach the end of the year, because many companies are trying to hold onto cash.

5. If your business is growing and your income has increased significantly, talk to your CPA now, to see if you need to adjust your estimated tax payments to the IRS. You can avoid a large payment during tax season by handling this now.

Speaking of CPAs, don't forget that we have a partnership with Sandra E. Schultz, CPA and are currently taking on new clients for the coming tax season. If you want to ensure your small business is prepared, please reach out to me directly at tom@businessbybarnhill.com.

Written by Tom Barnhill, Owner of Business by Barnhill

Are Meals and Entertainment expenses deductible in the course of business?

Unreimbursed meal expenses incurred while out of town overnight on business are always deductible but generally limited to 50% of the cost. The focus of this article is the deductibility of meals and attendance at events in the form of business entertainment.

The first qualification is meeting the “ordinary and necessary” requirement, which applies to all deductible expenses needed to carry on a business. Ordinary and necessary is broadly defined to mean customary or usual and appropriate or helpful.

Next it must meet one of two tests: the “directly-related test” or the “associated-with test.”

• Directly-Related Test – In order to meet the directly-related test, the meal expense must be incurred in the active conduct of business and be for the taxpayer and business guest. Under the directly-related test, actual business discussions are required during the meal, and the taxpayer must show that he or she anticipated a specific business benefit from the meal, even if the benefit never materialized.
• Associated-With Test – The associated-with test is somewhat more liberal, because it allows deductions for meal or entertainment expenses incurred the same day either directly preceding or following a substantial and bona fide business discussion.
  
  Entertainment at shows, sporting events, night clubs, etc., can qualify under the associated-with test if its purpose is to get new business or encourage the furtherance of a business relationship. For meals, you or one of your employees must be present; otherwise, the expense is not deductible.
  
  If non-business guests are invited to an otherwise allowable “associated-with business” entertainment event, the expenses must be allocated between the business and nonbusiness guests. The expenses related to the non-business guests are nondeductible. However, the spouses of the taxpayer and of his or her business guests or associates are considered business guests for this purpose. 

Meal and entertainment expenses are deductible up to an amount not considered “lavish” (reasonable under the circumstances). Also, the taxpayer (or a representative of the taxpayer) must be present. The representative could be, for example, the taxpayer’s employee, an attorney or an independent contractor who performs significant services for the taxpayer. You also must be able to establish the amount spent, the time and place, the business purpose and the business relationship and names of the individuals involved. You should keep a diary, account book or similar records with this information and record the details.  A timely kept record carries more weight in an IRS audit than one created months or years after the event occurred, when memory can be hazy. For expenses of $75 or more, documentary proof (receipts, etc.) is also required.

A final word: even after you have jumped through those hoops, in the majority of cases, only 50% of the qualified expenses are actually tax-deductible.

Written by Sandra E. Schultz, CPA

5 Accounting Mistakes that Businesses Make & How to Avoid Them

For a lot of small business owners, managing the bookkeeping for your business can be a very time consuming and even confusing. I'm going to give you the top mistakes I see my clients make, so you can avoid them with your business.

1. Not reconciling your accounts (bank, Paypal, etc.)

While putting all of your invoices and expenses into your accounting program is important, you need to complete the process and reconcile your various accounts too. If you skip this step, you can also miss expenses that could save your money in the future. And, don't forget to reconcile your Paypal account, also.

2. Adding expenses for items like uniforms and gas without knowing what's allowed

While you may think you need a new wardrobe for your new business, it may not be allowed as an expense according to the IRS. You also need to know when you can expense gas charges and when you cannot. Ensure that you know what expenses are allowed, so you aren't exposed to tax liabilities later.

3. Not separating business and personal expenses

It is always best, and if you are an LLC, it is required that you keep your business and personal expenses separate. This means you should have a business bank account and if a business credit card, if needed. Tracking expenses and payments is much easier when it is all going through the same bank account

4. Entering payments for loans incorrectly and not understanding the difference between the principle and interest portions

If you have a business loan, you need to enter your payments correctly in your accounting program. Also, ensure you understand how to track the principle and interest portion of that loan payment and how that can affect your tax liabilities.

5. Paying for business expenses personally and forgetting to count them as business expenses

Even though you are supposed to keep your business and personal expenses separate, there may be times where you use personal cash or credit card to pay for a business expense. In these cases, you need to remember to track that expense in your business accounting program. You don't want to miss that tax break at the end of the year.

By avoiding these mistakes you will make certain that you have a more accurate accounting of your business operations. This will allow you to make smarter, more well informed decisions about your business as you grow. Additionally, you will make sure that you aren't making errors that can cause you to wither miss out on tax savings or worse find out later that you money in taxes, plus penalties and interest.

Written by Tom Barnhill, Owner of Business by Barnhill