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As a small business owner, determining the ideal time to administer payroll may sound simple in theory. But the reality is that your payroll schedule must take into account a number of factors including: state regulations, cash flow needs, overtime rules, and the types of workers or contractors you hire.

Simply put, you should not only consider what’s best for the business but also what works for your team members as well. If you don’t pay your team often enough, it can have a negative impact on staff morale and employee turnover. And if you pay them too often, it could result in administrative headaches on your end.

Keep reading to learn our top tips for creating a payroll schedule that fits your small business needs.

Understanding Your Options

There are four common types of payroll schedule frequencies in the United States: weekly, biweekly, semi-monthly, and monthly. Most states have regulations that must be adhered to surrounding pay schedules. For example, many states including Idaho do not allow monthly paychecks. On the other hand, in Massachusetts, employers can only choose between semi-monthly and monthly payroll options.

As a first step, find your state on the U.S. Department of Labor website in order to ensure compliance.

  • Weekly
  • If your team is mostly made up of hourly workers, then they may prefer to receive weekly paychecks. However, this is generally not the most cost-effective option because there are processing costs each time you run payroll.
  • Bi-Weekly
  • With this option, payroll is administered every other week on the same day, typically a Friday. As there are 52 weeks in a year, there will be 26 paychecks. However, it is important to note that two months out of the year will have three paychecks since 26 does not divide evenly into 12.
  • With a bi-weekly payroll schedule, defining the work week and calculating overtime is relatively easy because each pay period has the same number of days. This makes bi-weekly payroll an ideal choice for companies who typically rely heavily on hourly workers.
  • However, one of the main drawbacks is that workers who are paid bi-weekly may find it a bit trickier to budget since they are not paid on the same date each month.
  • Semi-Monthly
  • Bi-weekly and semi-monthly may sound like equivalent terms but when it comes to payroll, they are distinctly different. In terms of semi-monthly, employees receive twice monthly paychecks on the same dates each month. This is often on the 1st or 15th of the month, though you may choose any schedule — e.g. the 16th and the 30th — as there are no state or federal restrictions in this regard. Employees who are paid semi-monthly benefit from predictability in managing their own finances. For instance, it is easier for them to set up auto payment options for their bills since they are paid on fixed dates twice per month.
  • Monthly
  • This payroll schedule is recommended for freelancers or contract-based workers, such as graphic designers or copywriters, as salaried employees would find it difficult to confidently plan for their own finances if they were only paid once a month.

See below for a summary of the four common types of payroll frequencies.

Type Frequency Number of Paychecks Per Year
Weekly Once a week on a specific day e.g. Thursday 52
Bi-Weekly Every two weeks on a specific day of the week e.g. Friday 26
Semi-Monthly Twice a month on two specific dates e.g. the 1st and the 15th 24
Monthly Once a month on a specific date e.g. the 25th 12
Cash Flow Considerations

Having a good handle on the timing of your cash inflows and outflows can help you to better plan your payroll schedule.

If you choose a bi-weekly payroll schedule, it means that you will need to have accurate cash flow projections to handle those months that will have an extra pay period. Some small business owners also find it prudent to secure alternative financing options in advance — such as a line of credit — which would come in handy should they ever find themselves in a cash crunch when it comes time to process payroll.  

Others may find it more beneficial to switch to semi-monthly as a way to optimize payroll and ensure their cash flow is more predictable (since payroll is administered on the same dates each month). However, overtime calculations can become more complex if hourly workers enter the mix.

Which Payroll Schedule Should You Choose?

It all depends on how your small business is structured. A bi-weekly payroll schedule is ideal if most of your workers are paid by the hour because it is relatively easy to calculate overtime plus employees generally look forward to the “extra” paycheck that rolls around twice per year. On the other hand, if most of your employees are salaried, then running payroll semi-monthly would be an ideal choice since you do not need to worry about overtime calculations. Processing time and costs tend to be quite low with this option as well.

Companies with bigger teams may find it beneficial to have two payroll schedules — bi-weekly for hourly workers and semi-monthly for salaried employees.

Next Steps

After ensuring that you adhere to state guidelines, at the end of the day, choosing a payroll schedule boils down to personal preference and what fits best with your needs as well as those of your employees. However, determining the right payroll schedule is just one of many critical payroll functions that must be carried out expeditiously. Remember, the responsibility lies with you as the small business owner to ensure that the process is seamless.

The good news is that you can outsource payroll to a team of experts, freeing up time to focus on your core business. By ensuring accuracy, timeliness and compliance, you can avoid the potential for an IRS tax audit and penalties.

Here at RQB, we are equipped to take care of all aspects of your payroll (from payroll processing, direct deposit to calculating employees’ work hours). You’ll benefit from access to more technology and expertise to perform payroll well, while keeping costs low and reducing risk.

Contact us to see how we can assist with your payroll needs.

As a small business owner, determining the ideal time to administer payroll may sound simple in theory. But the reality is that your payroll schedule must take into account a number of factors including: state regulations, cash flow needs, overtime rules, and the types of workers or contractors you hire.

Simply put, you should not only consider what’s best for the business but also what works for your team members as well. If you don’t pay your team often enough, it can have a negative impact on staff morale and employee turnover. And if you pay them too often, it could result in administrative headaches on your end.

Keep reading to learn our top tips for creating a payroll schedule that fits your small business needs.

Understanding Your Options

There are four common types of payroll schedule frequencies in the United States: weekly, biweekly, semi-monthly, and monthly. Most states have regulations that must be adhered to surrounding pay schedules. For example, many states including Idaho do not allow monthly paychecks. On the other hand, in Massachusetts, employers can only choose between semi-monthly and monthly payroll options.

As a first step, find your state on the U.S. Department of Labor website in order to ensure compliance.

  • Weekly
  • If your team is mostly made up of hourly workers, then they may prefer to receive weekly paychecks. However, this is generally not the most cost-effective option because there are processing costs each time you run payroll.
  • Bi-Weekly
  • With this option, payroll is administered every other week on the same day, typically a Friday. As there are 52 weeks in a year, there will be 26 paychecks. However, it is important to note that two months out of the year will have three paychecks since 26 does not divide evenly into 12.
  • With a bi-weekly payroll schedule, defining the work week and calculating overtime is relatively easy because each pay period has the same number of days. This makes bi-weekly payroll an ideal choice for companies who typically rely heavily on hourly workers.
  • However, one of the main drawbacks is that workers who are paid bi-weekly may find it a bit trickier to budget since they are not paid on the same date each month.
  • Semi-Monthly
  • Bi-weekly and semi-monthly may sound like equivalent terms but when it comes to payroll, they are distinctly different. In terms of semi-monthly, employees receive twice monthly paychecks on the same dates each month. This is often on the 1st or 15th of the month, though you may choose any schedule — e.g. the 16th and the 30th — as there are no state or federal restrictions in this regard. Employees who are paid semi-monthly benefit from predictability in managing their own finances. For instance, it is easier for them to set up auto payment options for their bills since they are paid on fixed dates twice per month.
  • Monthly
  • This payroll schedule is recommended for freelancers or contract-based workers, such as graphic designers or copywriters, as salaried employees would find it difficult to confidently plan for their own finances if they were only paid once a month.

See below for a summary of the four common types of payroll frequencies.

Type Frequency Number of Paychecks Per Year
Weekly Once a week on a specific day e.g. Thursday 52
Bi-Weekly Every two weeks on a specific day of the week e.g. Friday 26
Semi-Monthly Twice a month on two specific dates e.g. the 1st and the 15th 24
Monthly Once a month on a specific date e.g. the 25th 12
Cash Flow Considerations

Having a good handle on the timing of your cash inflows and outflows can help you to better plan your payroll schedule.

If you choose a bi-weekly payroll schedule, it means that you will need to have accurate cash flow projections to handle those months that will have an extra pay period. Some small business owners also find it prudent to secure alternative financing options in advance — such as a line of credit — which would come in handy should they ever find themselves in a cash crunch when it comes time to process payroll.  

Others may find it more beneficial to switch to semi-monthly as a way to optimize payroll and ensure their cash flow is more predictable (since payroll is administered on the same dates each month). However, overtime calculations can become more complex if hourly workers enter the mix.

Which Payroll Schedule Should You Choose?

It all depends on how your small business is structured. A bi-weekly payroll schedule is ideal if most of your workers are paid by the hour because it is relatively easy to calculate overtime plus employees generally look forward to the “extra” paycheck that rolls around twice per year. On the other hand, if most of your employees are salaried, then running payroll semi-monthly would be an ideal choice since you do not need to worry about overtime calculations. Processing time and costs tend to be quite low with this option as well.

Companies with bigger teams may find it beneficial to have two payroll schedules — bi-weekly for hourly workers and semi-monthly for salaried employees.

Next Steps

After ensuring that you adhere to state guidelines, at the end of the day, choosing a payroll schedule boils down to personal preference and what fits best with your needs as well as those of your employees. However, determining the right payroll schedule is just one of many critical payroll functions that must be carried out expeditiously. Remember, the responsibility lies with you as the small business owner to ensure that the process is seamless.

The good news is that you can outsource payroll to a team of experts, freeing up time to focus on your core business. By ensuring accuracy, timeliness and compliance, you can avoid the potential for an IRS tax audit and penalties.

Here at RQB, we are equipped to take care of all aspects of your payroll (from payroll processing, direct deposit to calculating employees’ work hours). You’ll benefit from access to more technology and expertise to perform payroll well, while keeping costs low and reducing risk.

Contact us to see how we can assist with your payroll needs.

Our Experts Are Ready
Book your free demo today to learn how a virtual bookkeeper can save you time and money for your business.

The post How to Choose a Payroll Schedule for Your Small Business appeared first on Remote Quality Bookkeeping.

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The breakeven point shows you how much product you need to sell in order to cover the cost of doing business. It can also be used to determine when your business will start to make a profit.

Therefore, it’s no surprise that breakeven analysis is a key component of most business plans, especially for startup companies. After all, it helps to predict whether your business idea will be viable or not.

Keep reading to learn how to calculate the breakeven point for your small business.

How to Calculate the Breakeven Point

Your company will break even at the point when revenues and expenses are exactly the same.

In order to calculate the breakeven point, you need to have a few numbers handy:

    1. Fixed costs – as the name suggests, these expenses remain constant regardless of output, e.g. rent, insurance premiums, payroll, shipping costs.
    2. Variable costs – are tied to production levels and rise as your sales volumes increase, e.g. hiring freelancers to handle an unusually large order.
    3. Selling price – this is the amount you charge customers for a single unit of your product.

Breakeven point (in units) = Fixed costs / (Selling price per unit- Variable costs per unit)

Pro tip: Input your fixed costs, variable costs and selling price into a spreadsheet to ensure that your calculations are accurate. Using a spreadsheet will also enable you to seamlessly plot a graph to show the breakeven point at different sales volumes and prices.  

Example:

Dianne is a cake shop owner who wants to determine how long it will take to break even. Her fixed costs are $5,000 per month. It costs her $8.75 to make each cake which she then sells for $25.

Using the breakeven point formula, Dianne must sell approximately 308 cakes per month $5,000 / ($25-$8.75) in order to sustain her business. From here, Dianne can also determine the required sales volume per week (77 cakes) and per day (10 cakes) assuming that Dianne’s Cake Shop opens every day of the week.

Ways to Lower Your Breakeven Point

The lower your breakeven point, the faster your path to profitability. You can either adjust your pricing strategy, lower your fixed expenses, cut production costs or a combination of all three.  

Adjust the price per unit

With an understanding of how to calculate the breakeven point for your small business, you can now set a price that helps your company breakeven faster. For example, if Dianne increased her price to $30, her breakeven would now be 235 units. But is $30 a realistic price to market her baked goods?

Overall, the most effective pricing strategy will incorporate a mix of qualitative and quantitative factors taking into account:

  • the competitive landscape;
  • the perceived value of your product; and
  • your business goals.

Reducing fixed costs

For many companies, staffing costs make up the biggest line item when it comes to their fixed expenses. But, identifying areas where staff functions can be automated or replaced with an outsourced function can help to significantly improve your breakeven point. After all, having fewer fixed costs means you need to sell fewer units of your product in order to cover them.

You could also consider reducing the cost of your monthly lease by moving to a cheaper location or subletting your current space if possible in order to lower your fixed costs.

Increasing the contribution margin

If you’ve already successfully lowered your fixed costs or if you are unable to lower them any further, then you might turn your attention to your variable expenses next. The contribution margin represents the amount of money a company has to cover its fixed costs after it pays all of its variable expenses. The equation is:

Contribution Margin = Sales revenue – Variable costs

Using the original example above, let’s assume that Dianne realizes that she will only be able to sell 300 cakes in a given month and that she is unable to lower her fixed costs below $5,000. Her contribution margin would be $7,500 – $ 2,625 = $4,875. This indicates that Dianne is heading for a loss because her contribution margin is insufficient to take care of her fixed expenses.

Net Profit or Net Loss = Contribution margin – fixed Cost  

However, if Dianne were able to cut production costs by $2 per unit by finding a cheaper baking ingredients supplier, the new contribution margin would be $7,500 – $2,025 = $5,475 for a net profit of $475 ($5,000 – $5,475). Making such a change highlights the company’s operational efficiency and puts Dianne on a much faster profit trajectory.  

Breakeven Analysis and Startup Costs

Business owners can also tweak the breakeven calculation to determine the sales volume required to recoup their initial investment. Simply use the dollar amount of the initial investment in place of fixed costs as follows:

Breakeven point (in units) = Initial Investment / (Selling price per unit- variable costs per unit)

Using our fictional example above, let’s suppose that Dianne invested $20,000 in industrial grade kitchen equipment prior to officially launching her business. In this case, she would need to sell 1,231 cakes in order to earn back her investment.

Next Steps

Understanding how to calculate the breakeven point for your small business is just one key component in conducting cost-volume-profit analysis. If you don’t have a background in accounting or if you would rather spend your valuable time as a business owner on revenue-generating tasks, then you might consider the services of a virtual CFO. By hiring a part-time, remote CFO, you can reap the benefits of an in-house CFO, at a fraction of the cost. You won’t have to worry about costs associated with a salaried employee such as paying for travel time, benefits, insurance, or payroll taxes.

At Remote Quality Bookkeeping, we offer virtual CFO services to review key metrics and ratios per month or per quarter including the breakeven point. The best part? Our plans are customizable, which means you only pay for the exact CFO services you need.

Let us provide you with the financial expertise you need to strategically manage your business growth. Contact the team at Remote Quality Bookkeeping today to find out more about our virtual CFO services.

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Book your free demo today to learn how a virtual bookkeeper can save you time and money for your business.

The post How to Calculate the Breakeven Point for Your Small Business appeared first on Remote Quality Bookkeeping.

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A sole proprietor running a cash-only business with just a few customers and suppliers may get by just fine with a spreadsheet to keep track of income and expenses. However, for more complex business models, the benefits of investing in accounting software cannot be overlooked. By automating your business finances in this way, you can expect to benefit from a greater level of accuracy, better decision-making, and more efficient allocation of resources.

But with hundreds of options in the accounting software market, choosing the right platform for your small business needs can be an overwhelming process at best. Here are the top 3 areas to keep in mind when making your selection.

Small Business Accounting Software Features

The first step is to determine which of the following are applicable to your specific small business needs.

  • Invoice customers – The faster you can bill customers the sooner you can get paid. The best accounting software will allow you to create customized invoices and keep track of late-paying customers, giving you real-time visibility when it comes to your accounts receivable.
  • Integrate with bank accounts and credit cards – The ability to connect your bank accounts with your accounting software allows you to seamlessly gain access to updated data, track your expenses for tax purposes, and pay your vendors.
  • Pay bills – In addition to setting up bill pay in your accounting platform, you can also create recurring payments to vendors and suppliers. The best accounting systems will send you notifications when you make successful payments and automatically update your books thereafter.
  • Inventory Management – Most product-based companies need an effective inventory management system that not only offers a centralized view of stock but also a methodology for replenishing materials in the most efficient way possible to meet customer expectations.
  • Budgeting – Creating a budget is one thing but actually sticking to it is another. A good accounting platform will not only walk you through the steps to create a budget but also allow you to run Budget vs Actual reports so that you can make informed decisions for your business.
  • Payroll – All-in-one accounting platforms will allow you to pay your employees via direct deposit or checks. Speeding up your payroll processing could have a positive impact on employee morale and retention rates.
  • Reporting capabilities – The ability to pull up at-a-glance financial snapshots of the most vital aspects of your business will help to transform the decision-making process.
Online Accounting Software

Unlike desktop platforms, online accounting software is cloud-based which means that you can run the application once you have an internet connection. Here are some additional benefits of leveraging the cloud for your small business accounting needs:

  • Real-time decision-making
    Perhaps the biggest selling point is that cloud accounting software gives you 24/7 access to financial data wherever you are and on whatever device you may be using. Therefore, you no longer have to worry about making business decisions using out-of-date information.
  • Cloud security is top notch
    Did you know that the cloud is one of the most secure ways to store data? For example, if your desktop or laptop is stolen, the loss of traditional accounting software and data could be detrimental to your business. Likewise, in the event of a natural disaster, there would be no downtime if your data is in the cloud. In addition, there is no need to worry about data backups, software bugs, operating systems crashing or user errors. In the cloud, data backup is done automatically.
  • Estimates
    If you create bids or quotes for customers prior to the start of a job, the online accounting software should allow you to create an itemized estimates on-the-go. The best programs such as QuickBooks will allow you to easily convert your estimates into invoices once the job is complete.
  • Scalability
    Unlike traditional accounting software where only one person has access to data, online accounting platforms offer multi-user access making collaboration as seamless as possible. Furthermore, your accounting platform can grow along with your business with little effort.
  • Automatically sync data
    When you give another application permission to access your files, those programs sync data with your accounting platform. For example, the QuickBooks mobile app “syncs PayPal transactions, links business cards with American Express, imports sales data from Square and more.”
Cost Considerations

Did you know that there’s an accounting software platform to meet every budget? However, aside from the monthly subscription cost for online accounting software, there are a few other considerations to keep in mind. First, it is important to note that the more specialized the software, the higher the cost. This usually only impacts companies that fit into one of the following categories: manufacturing, construction, and any other project-based operation. You should also consider implementation and training costs as well as examine future needs as your business grows through different seasons.

Final Thoughts: Why Accounting Software Alone May Not Be Enough

Regardless of which accounting software you choose, remember that at the end of the day, it is ultimately a tool. Tools can be very powerful, but only in the hands of the right person. Unless you are an accountant by trade, chances are you will have a tough time doing the books yourself. However, hiring outsourced professionals like the team at Remote Quality Bookkeeping will give you peace of mind.

We have access to state-of-the-art technology and likely have the more robust and efficient versions of the accounting software that you or your in-house bookkeeper currently use.

Furthermore, outsourcing critical back-office tasks such as payroll to a team of experts free up your time to focus on revenue-generating activities such as building better client relationships, exploring new partnerships, and expanding your business.

Choosing an outsourced bookkeeper like Remote Quality Bookkeeping is also a cost-effective option because we allow you to easily customize the scope of work so that it fits your budget. Leveraging our scalability means you get to save the time, cost and hassle of hiring someone in-house. In turn, you can use the additional time and money to gain a competitive edge and effortlessly scale your own business.

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The post How to Choose Accounting Software for Your Small Business appeared first on Remote Quality Bookkeeping.

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According to a LinkedIn survey, 70% of SMBs have hired freelancers in the past, and 81% plan to do so again in the future. These numbers should not be surprising considering the many benefits of bringing on independent contractors rather than full-time employees.

Hiring freelancers can be a great way to access talent from a much wider pool of qualified applicants across the country. In addition, with independent contractors, you only pay for what you need when you need it without having to worry about costs such as payroll taxes or benefits like medical insurance that are associated with employees.

However, at the same time, you should keep in mind several other important considerations when it comes to remaining compliant with the IRS and managing payroll for freelancers.

Step 1: The 3 IRS Tests

Incorrectly classifying workers as independent contractors is one of the biggest payroll mistakes that small business makes which can result in IRS penalties. Worker classification is critical because it determines whether you must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax from a worker’s pay. On the other hand, when you classify workers as independent contractors, then it generally means that you, as the small business owner are not on the hook for payroll taxes. The freelancer is responsible for paying self-employment taxes in addition to income tax on earnings.

The IRS outlines the following three factors in determining worker classification:

  1. Behavioral: A worker is deemed an employee if the business has the right to instruct and control the duties they perform, for instance, where and when the work is carried out.
  2. Financial: One important consideration is the mode and frequency of payment. In general, an independent contractor either charges a flat rate fee or invoices by the hour. In addition, freelancers will typically use their own supplies and materials to complete assignments.
  3. Relationship: The permanency of the relationship is an important determinant of worker classification. An expectation that the relationship will only exist until the completion of a specific project is usually a good indication that the worker is a nonemployee.

Note: If you incorrectly classify an employee as an independent contractor, then you will likely be liable for unpaid payroll taxes for that worker in addition to other IRS penalties.

Step 2: Onboarding Your Freelancers

There are a number of pieces of information that your freelancers will need to fill out prior to the start of an engagement. And this should include a Form W-9. Remember, you will need the data from this tax document in order to complete and submit Form 1099-MISC Reporting for Nonemployee Compensation which is due by January 31st each year — provided that you exceeded the IRS’ threshold of $600 in cumulative payments to independent contractors during the tax year.

Of course, outside of the W-9, there are many other moving pieces to consider when onboarding freelancers such as issuing non-disclosure forms, setting up time tracking software, connecting them to the internal team and collecting project information. Using the professional bookkeeping and payroll services offered by Remote Quality Bookkeeping allows you to streamline the tax compliance part of the onboarding process for new freelancers so that you can focus your attention on getting them up to speed with your work requirements. In addition, you’ll gain peace of mind knowing that all the documentation — such as the contractor’s TIN — will be there exactly when you need it in an easily-accessible digital form.

Step 3: Payroll Management for Independent Contractors

One important factor that often gets overlooked when working with freelancers is the payment method. However, this should be discussed and agreed upon before they begin working for your company. Keep in mind that freelancers today expect multiple payment options outside of checks since paper checks are slow and inconvenient. These additional options include PayPal, credit card, direct deposit, and Square Cash among others.

You will also need some way to keep track of inputs including the freelancer’s fee or hourly rate, the number of hours worked and agreed upon payment frequency. If you are only working with a single freelancer for a short-term one-off project then you could very well get by with manual processes.

However, as you add more freelancers and more projects, chances are, if you are using manual processes to tabs on these data inputs, the frequency of late and incorrect payments will likely increase. This can lead to:

  • Late fees. Many freelancers include a late fee on their next invoice as a way to ensure that past due amounts are settled sooner rather than later. This can either be in the form of a percentage or a flat fee. In addition, some freelancers will set up accruing late fees, which means that the fee will increase for every month that it is overdue.
  • Bad reviews. If you are consistently late with payments, freelancers may leave a negative rating for your small business on LinkedIn or Glassdoor, which could impact your ability to hire more freelancers in the future.

Even if you invest in systems to automate payroll, the potential for making errors still remains especially because payroll tax requirements are ever-changing. However, by outsourcing payroll, you can transfer the burden of payroll tasks to a team of experts, allowing you to focus on what matters most — growing your business. In addition, by ensuring accuracy, timeliness, and compliance, you can avoid the potential for an IRS tax audit and penalties.

At RQB, we can handle all aspects of your payroll including processing paychecks in QuickBooks as well as direct deposit for all employees and contractors. You can also expect to pay a fraction of the cost of hiring an in-house employee to handle these functions since Remote Quality Bookkeeping passes on the benefit of economies of scale to our customers.

If you are not yet an RQB client, take a minute to look at our testimonials – and contact us to see how we can help with your payroll needs.

Our Experts Are Ready
Book your free demo today to learn how a virtual bookkeeper can save you time and money for your business.

The post How to Manage Payroll for Your Independent Contractors in 3 Steps appeared first on Remote Quality Bookkeeping.

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According to the Small Business Administration, only about 50 percent of small businesses survive for a five year period. And, just one third are able to make it to the 10-year mark. While these statistics may not seem particularly encouraging, by identifying some of the common root causes of financial distress, you can take steps to steer things in the right direction before it’s too late.

Here are the five biggest financial warning signs your business should be aware of:

Receivables Keep Climbing Month After Month

Many businesses offer credit terms to some of their customers. This is known as your accounts receivable (or AR for short) and represents the balance of money owed to a firm for goods delivered or services delivered. Accounts receivable is an asset on the balance sheet.

Related: 3 Financial Statements Every Business Owner Should Understand

Unfortunately, not all customers pay on time and if your receivables are growing too high it can signal trouble for your cash flow.

Best Practices:
  1. Create an accounts receivable aging report – this is a powerful tool to help you pinpoint how much is due from each customer and which invoices need the most urgent attention.
  2. Automate your invoices – the faster you can get your invoices out to your customers, the faster you are likely to get paid.
  3. Shorten payment terms – you don’t always have to offer net 30 payment terms to your customers. Shorter terms will often encourage laggards to be more prompt with settling their invoices.
Your Business is Heavily Dependent on Nonoperating Revenue

Your small business revenue may be comprised of operating revenue and nonoperating revenue. Operating revenue refers to the revenue you receive from your business’ main activities. For example, if you own a bakery, your operating revenues would come from selling pies, breads, and other similar goods. If you own a massage spa, your revenues would come from the sale of your services such as facials.

On the other hand, as the name suggests, nonoperating revenue refers to money earned from activities that are outside of your core operations. Examples include dividends, royalties, interest, and rental income. Nonoperating revenue will appear after operating revenue on the income statement.

Best Practice:

Since nonoperating revenue is typically irregular, your business should rely on the money earned from core business operations to cover day-to-day expenses.

Related: 23 Bookkeeping Terms Every Small Business Owner Should Know

Your Inventory Levels Are Rising

Inventory refers to the stock of saleable goods or raw materials that will be used in creating items for sale. Not every business holds inventory but if yours does, then proper inventory management is key.

Successful inventory management is all about striking the right balance between having enough inventory to satisfy customer demand but not so much that your carrying costs spike.

Best Practices:
  • Calculate and monitor the following key inventory ratios
    • Inventory turnover = COGS / Avg. Cost of Inventory on Hand
      The result signifies the number of times inventory is sold and restocked in a particular time period (usually one year).  
    • Days sales in inventory = 365 / Inventory turnover
      The result indicates how many days, on average, it takes to sell inventory.
  • Compare your company’s metrics to those of similar companies in the industry as a starting point to determine how much inventory you should keep on hand.
Customer Retention Rates Are Consistently Slipping

Did you know that it is between five and 25 times more expensive to acquire a new customer than it is to retain an existing one? Ensuring your existing customers are well-served not only helps you to keep customer acquisition costs low but increasing customer retention by just 5 percent can boost profitability by 25 to 95 percent, according to Harvard Business Review.

Best Practices:
  • Create a loyalty program for long-standing customers.
  • Create a referral program to reward customers for spreading the word about your business.
  • Celebrate milestones such as birthdays and customer anniversaries with a special coupon code.
  • Surprise your customers with freebies “just because”.
  • Create a recurring reminder (e.g. once a month) to send a checking-in email or phone call.
Falling Margins

Too many business owners only focus on top line (revenue) growth and ignore margins altogether. Maintaining or improving profit margins gives your business scope to innovate, attract new talent, invest in new technology, and prepare for growth.

Your gross margin is the difference between revenue and cost of goods sold, expressed as a percentage. This is an indicator of your business’ ability to cover the remaining expenses outside of the cost of goods sold. Having a high gross margin generally means that you are in a better position to have a robust operating margin and a healthy bottom line if your operating and other expenses are well managed. The operating margin is calculated by subtracting your overhead expenses from your gross revenue and just like the gross margin it is expressed as a percentage of revenue.

Best practices
  • Managing Cost – There are many areas you can look at in this regard such as securing cheaper office space, outsourcing certain functions, or going paperless. Leave no stone unturned when it comes to reviewing every expense item that your business incurs.
  • Review pricing strategy – How well are your products and services priced? Is it time to raise prices or perhaps remove low-margin items from your product or service offering altogether?
Next Steps: Get Professional Help

As a small business owner, you may feel as though you have limited options that are both affordable and effective when it comes to accessing professional advice from a financial expert. However, hiring a virtual CFO, also known as an outsourced CFO, allows you to unlock invaluable financial insights in order to streamline your operations, improve cash flow management and scale your business — at a much more affordable price point than bringing on an in-house CFO.

Contact the RQB team today to see how we can meet your small business financial needs!

Our Experts Are Ready
Book your free demo today to learn how a virtual bookkeeper can save you time and money for your business.

The post 5 Biggest Financial Warning Signs Your Small Business Should Be Aware Of appeared first on Remote Quality Bookkeeping.

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With another new year fast approaching, one of your small business goals may be to catch up on your bookkeeping. Indeed, one of the most common mistakes that small business owners make in this regard is mixing personal and business expenses also known as piercing the corporate veil.

Even if you’ve been comingling your transactions since the inception of your business, it isn’t too late to get a handle on this key aspect of small business bookkeeping.

Why Should You Keep Personal and Business Expenses Separate?Reduces Legal Liability

The legal protections that come with establishing your business as a separate legal entity (more on the types of a business structure below) mean very little if your business and personal finances are muddled. If, for example, your corporation is on the line for $10,000 and a judge cannot find sufficient separation between your personal and business finances, they may find you personally liable and seize assets to pay off your creditors.

Showcases Professionalism  

For example, when dealing with a vendor or customer, a check drawn on a business checking account looks much more professional and makes a statement that your company should be taken seriously.

Gives You Peace of Mind

In the event of an IRS audit, the burden of proof rests with you as the small business owner. Said another way, you must be able to “prove (substantiate) certain elements of expenses [in order] to deduct them” according to the IRS. Keeping organized, separate records saves you from having to dig through an old shoebox of receipts to determine which purchases went toward legitimate business expenses and which funded personal needs.

Saves Money

Overall, at the end of the year, all your income and expenses will be in one place, making your accounting and bookkeeping more straightforward and, in some cases, less expensive.

5 Tips to Keep Personal and Business Expenses SeparateCreate a separate entity for your business

The entity, or structure, you choose for your business makes a significant impact on your accounting needs and the type of income tax return for you’ll have to file. According to the IRS, “The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute.”’

Related: What Do The Legal Entities Mean in Terms of Taxes?

Open a business bank account

Once you establish your business as a separate legal entity, you will then need to open a business bank account. If there is ever any doubt as to whether you are operating a business or a hobby, one of the first things the IRS checks is whether you have a business bank account or not.

Aside from being able to more accurately keep track of transactions with your business bank account statements, you’ll have fewer headaches come tax time or in the event of an IRS audit. The Small Business Administration offers some additional tips for finding a small business bank account that will meet your needs on this page.

Use a business credit card for business expenses

If you are a small business owner, then it is highly recommended to use a business credit card for business transactions. This is yet another milestone in creating a financial identity for your business because a business credit card is an excellent tool to build healthy credit and increase your company’s purchasing power.

Go paperless

If you are not keeping your receipts safe and organized for the business or worse, if you typically misplace them or lump them in with your personal receipts, then you will have a difficult time in the event of an audit.

The good news is that you can take advantage of technology solutions to make this process easier than ever. Many accounting software platforms such as QuickBooks allow you to upload scanned copies of your receipts so that you can get rid of physical paper altogether.

RQB Tip: QuickBooks’ mobile app makes it easy for users to attach photos of receipts and even has the functionality to “sync PayPal transactions, link business cards with American Express, import sales data from Square and more.” This is a perfect feature if you are often on-the-go while running your small business.

Pay yourself a salary

If you are an employee of your corporation, then it’s time to determine “reasonable compensation” for yourself based on your responsibilities. A good starting point will be to research comparable salary ranges for similar roles within your industry. On the other hand, if you are a sole proprietor or a partner, you can take an owner’s draw by writing a check to yourself from the business bank account.  

RQB Tip: You should only pay yourself out of business profits and not revenue, i.e. the amounts left over after you have accounted for expenses such as payroll, overheads, taxes, etc.

Bonus: Leave it to the Professionals

Keeping your business and personal transactions separate can be challenging, especially considering all the other tasks you likely have to juggle as a small business owner. If you would like to focus more on strategic, revenue-generating activities in the new year, then it’s time to consider transferring these critical tasks to a team of experts, thus freeing up your time to focus on value-added activities such as building better client relationships, exploring new partnerships, and expanding your business.

The best part? It doesn’t have to cost an arm and a leg. In fact, RQB will help customize the scope of work you require and tailor solutions that make sense for your budget. Leveraging our scalability means you get to save the time – as well as the cost and hassle of bringing on an in-house bookkeeper. In turn, you can use the additional time and money to gain a competitive edge and scale your own business with ease.

The RQB team wishes you a happy and prosperous 2019!

Our Experts Are Ready
Book your free demo today to learn how a virtual bookkeeper can save you time and money for your business.

The post Getting Caught Up on Small Business Bookkeeping: 5 Tips to Keep Personal and Business Expenses Separate appeared first on Remote Quality Bookkeeping.

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In our most recent blog post, we shared tips for optimizing your accounts receivable in order to boost cash inflows. But when it comes to money leaving the business, you also need to have a solid plan in place especially in regards to accounts payable.

What is Accounts Payable?

Think of this as an IOU to your creditors or suppliers that must be satisfied within a certain time frame to avoid default. Managing accounts payable — current liabilities on the balance sheet — is one of the most crucial bookkeeping tasks in order to:

  • Avoid duplicate or overpayment
  • Prevent fraud
  • Avoid late payment fees or interest
  • Maintain good credit standing
  • Anticipate future cash flow needs
7 Accounts Payables Best Practices for Your Small Business Automate, automate, automate

There are many benefits that come from automating manual bookkeeping processes such as accounts payable, especially if you manage a large volume of bills and vendors:

  • If you have a supplier or a vendor you need to pay on a regular basis, you can save time by creating an automatic recurring payment reminder in QuickBooks Desktop. The software allows you to schedule monthly, weekly or daily reminders for payments. Based on the alert option you selected, you will either receive a reminder to create the check or print it when the next billing cycle is due.
  • QuickBooks Desktop also allows you to set up an automatic payment by selecting “Autopayment” or “Epay”. The best part of this feature is that you will not need to print and mail physical checks to settle your accounts payables. Everything will be done seamlessly for you within the software.
  • In addition, in QuickBooks, you can run an A/P aging report, which shows you, at-glance, a list of all outstanding vendor bills. You can organize this information based on the number of days each one is past due.
Take advantage of early payment discounts

You may already be offering early payment discounts to your own customers as a way to boost on-time payments. But does that mean you should always take advantage of the same principle when you’re on the other end of the transaction settling vendor invoices? Not necessarily.

Even if the discount may seem enticing (especially for a large bill), you must first assess your current cash position and upcoming cash flow needs before making a decision. Taking advantage of early payment discounts is only recommend during flush months when you have more than enough cash flow to meet business expenses such as payroll in the next 60 days.

Build good vendor relationships

Maintaining a good working relationship with your vendors can come in handy especially in the event of a cash flow crisis when you may need to request extended payment terms. While it may be tempting to select vendors solely based on price, we recommend selecting vendors who can provide the greatest value to your small business.

  • Take the time to share your growth objectives and where appropriate, key data that drives your strategy. Knowledgeable vendors will usually be able to provide guidance and feedback into the industry that you likely won’t be able to find elsewhere.
  • Communicate new product launches in advance. By giving your vendor(s) a heads up when there are significant changes to the product line up in your business, they can begin to make preparations to meet your needs.
  • Be a good customer. Unless you run a cash-based business, then you know all too well the feeling of frustration when your customers pay late. Don’t be that customer to your vendor. Pay on time or communicate well in advance if you foresee any issues so that alternative arrangements can be made.
  • Accept accountability. The supplier isn’t the only party who’s responsible for ensuring a successful working relationship. Indeed, we recommend treating your vendor relationships as partnerships and accepting responsibility for any shortcomings on your end that may affect a supplier’s ability to deliver good or services on time.
Reconcile your accounts

Accuracy is key when it comes to monitoring cash outflows. Bank reconciliation is essential if you want to have an accurate view of your cash flow position and know exactly where your business stands on a consistent basis. If you’re not familiar with bank reconciliation or perhaps find it to be a tedious task, then you can outsource this function to an online bookkeeper like Remote Quality Bookkeeping (RQB).

Our banking specialists will update all of your bank accounts and credit cards in QuickBooks once per week as part of our bookkeeping services. These weekly cash reconciliations ensure that all reports will be accurate and up-to-date. This will help you to make informed business decisions. At the end of each month, our team will also reconcile your accounts and send you an email with any questions regarding income and expenditures from the past month.

Establish internal controls

Not every small business needs a formal purchase order system but at the very least you should create a process flow for submitting and approving purchasing requests. This should include appointing a purchasing manager and taking appropriate steps to prevent fraud such as rotating employees. You should also establish payment control best practices such as requiring an additional check signer for payments exceeding a certain dollar amount.

Outsource accounts payable functions

Remote Quality Bookkeeping can take control of the entire accounts payable process for your small business and post your bills to QuickBooks. Thereafter, we will schedule a remote session with you to determine which bills you want to pay and when. Once you’ve approved the bills that need to be settled, we will pay them on your behalf. Alternatively, you can use our mobile solution to approve payments from a smartphone for an even more convenient experience.

By transferring these tasks to a leading online bookkeeping services provider, you can focus on doing what you do best: serving your customers.

Contact the RQB team today to see how we can help meet your needs.

Learn How You Can Save
Book your free demo today to learn how a virtual bookkeeper can save you time and money for your business.

The post Top 7 Accounts Payable Best Practices for Your Small Business appeared first on Remote Quality Bookkeeping.

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If you’re like most businesses, then there’s a good chance that you offer credit terms to some of your customers. This is known as your accounts receivable or AR as it represents the balance of money owed to a firm for goods delivered or services rendered but not yet paid for by customers.

In a perfect world, all your customers would pay their invoices on time or even a little early. But this isn’t always the case. If customers are taking a long time to settle their invoices it means that cash will not enter your business as quickly as you need it to. And, we don’t have to tell you just how important cash is to the day-to-day running of your business as well as its long-term viability.

So, how can you properly monitor your AR? One effective tool is to put together an AR Aging Report.

What is an Accounts Receivable Aging Report?

An accounts receivable aging report helps you to understand how much is due from each customer. A typical report lists outstanding invoices in 30-day groupings as follows:

  • 1 to 30 days
  • 31 to 60 days
  • 61 to 90 days
  • 91 days and over

You can also drill down by customer for those that have outstanding invoices which were issued at different intervals. For instance, Bobby Smith’s aging report might look something like this:

  • $150       one month overdue
  • $300       two months overdue
  • $660       more than three months overdue
7 Best Practices to Optimize Your Accounts Receivables

As you can see, the AR aging report indicates which invoices you need to urgently follow up on. Most accounting software platforms will allow you to easily run these reports so that you can identify collection issues sooner rather than later and deploy a plan to get customers to pay faster.

This is where the services of an online bookkeeper like Remote Quality Bookkeeping can come in handy to take these tasks off your plate. In the meantime, here are some best practices you can begin to implement.

Automate Invoicing

As a rule of thumb, the faster you can invoice clients, the faster you will get paid. QuickBooks allows you to automatically create and send invoices to your clients saving you time and helping you to improve your cash flow management. The software also provides the ability to keep track of outstanding invoices so you can have real-time visibility when it comes to your accounts receivable.

In addition, by automating the invoicing process you can reduce manual error and ensure that your invoices are as accurate as possible before they are sent out.

Clearly Communicate Payment Terms

Be sure to communicate payment terms with your customers in each invoice. Net 30 (meaning, your customer has 30 days to remit payment) is one of the most commonly used invoicing payment terms.

Offer Discounts

You can also consider offering discounts to customers who settle their invoices early. For example, with a 2/10, net/30 discount, customers will receive a 2 percent discount if they settle their invoice within 10 days, otherwise, regular payment terms will apply. One of the main pitfalls associated with an early payment discount is that it comes at a cost to your business but in many cases, it is worth it in order to receive the cash flow boost.

Be More Selective

By examining your AR Aging Report, you can begin to identify “repeat offenders”those customers who are late time and time again. There is no law that says you have to keep extending credit terms to these individuals. In fact, we recommend switching to a cash on delivery (COD) policy for customers who are frequently tardy.

Shorten Terms

Similarly, there’s no rule that says that you have to offer net 30 payment terms. Oftentimes, using shorter payment terms prompts laggards to settle faster.

Optimize the Collections Process

A consistent and methodical approach is necessary in order to improve the collections process. This should include a game plan for negotiating payment plans. RQB will be able to take over these steps to send collection notices to delinquent customers.

Start Accepting Online Payments

If you are not yet accepting online payments, then you already feel the impact of delays like checks being lost in the mail. Offering more convenient methods of payment will help to encourage your customers to pay faster. There are several ways to accept payments online:

  • Credit Cards – Mobile payments solutions will allow your small business to accept credit card payments. The fees are considerable but the tradeoff is that you get paid faster.
  • Other options – PayPal and Square are examples of online payment gateways that your customers might be interested in using. PayPal will also deduct a percentage fee, just like with credit cards, but again it may be worth it to offer this is a payment option.
  • ACH – ACH is the abbreviation for Automatic Clearing House, the vast network that carries out electronic payments in the United States. According to Intuit, “This payment method is similar to receiving a check, except that you’re eliminating paper and automating the creation of a digital account record, along the way.” Unlike credit card or PayPal, you pay a flat fee per transaction making this a much more cost-effective option. Even if you haven’t used ACH in your business as yet, there’s a good chance you have already used it in your personal life, e.g. when you pay a utility bill online and enter your bank account and routing number. You can leverage this same secure gateway in your business operations.
Final Thoughts

“Doing the books” is not something that comes naturally to most small business owners. And this includes being able to optimize accounts receivable. Aside from understanding how to put together an AR aging report, it is critical to turn the insights gained into an actionable plan to speed up collections.

Choosing bookkeeping services like those offered by Remote Quality Bookkeeping will help take these tasks off your plate so you can focus your energy on what you do best — delivering superior customer service.

Our Experts Are Ready
Book your free demo today to learn how a virtual bookkeeper can save you time and money for your business.

The post What is an Accounts Receivable Aging Report? appeared first on Remote Quality Bookkeeping.

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While we don’t recommend doing the books on your own (unless you’ve got an accounting background), it’s still important to have a good grasp on the drivers of your business finances. That being said, let’s take a look at the 23 bookkeeping terms every small business owner should know.

  1. Accounts receivable – many businesses offer credit terms to their customers and accounts receivable represents the balance of money owed to a firm for goods delivered or services rendered but not yet paid for by customers.
  2. Accounts payable – think of this as an IOU to your creditors or suppliers that must be satisfied within a certain time frame to avoid default.
  3. Single entry bookkeeping – records money as it comes in and out of the business in a simple spreadsheet, with one entry for each transaction. This method is recommended for cash businesses or those with a very simple structure and a low volume of activity.
  4. Double entry bookkeeping – every transaction affects two accounts i.e. for every debit in one account, there must be an equal credit in another. This bookkeeping methodology allows you to anticipate your cash flow needs as it track accounts like inventory, accounts payable or accounts receivable.
  5. General ledger – this provides a complete record of all income statement and balance sheet transactions (more information on these financial statements below). According to Investopedia, a “general ledger represents the formal ledger for a company’s financial statements with debit and credit account records validated by a trial balance.”
  6. Trial balance – this is a statement of all debits and credits under the double-entry method of bookkeeping.
  7. Bank reconciliation – the final total of debits and credits must match in order to complete the reconciliation of your accounts. Bank recon is important because it allows you to detect fraud, prevent overdrafts, identify bank errors and forecast cash flow.
  8. Cash flow – this refers to the movement of cash and cash-equivalents (short term, liquid assets such as treasury bills) into and out of a business. Positive cash flow allows your business to meet current obligations, reinvest and plan for future growth.
  9. Break-even point – this is the sales volume at which a business can exactly cover its fixed and variable expenses.
  10. Income statement – outlines your business’ profitability over a period of time (for example: a particular month, quarter or year). For this reason, the income statement is often referred to as the profit & loss (P&L) statement. It shows revenue (sales of goods and services) minus expenses.
  11. Balance sheet – this is another key financial statement that provides a snapshot of your company’s financial position as at a specific date. Just like taking a family portrait every Christmas and compiling a photo album, you can compare the “pictures” of your business, year to year to identify any changes.
  12. Asset – this refers to any resource owned by your business that can be measured and has value. Examples include cash, accounts receivables, inventory, land and equipment. Assets also include prepaid rent.
  13. Liability – think of a liability as the opposite of an asset. These are the obligations of your business — amounts you owe to creditors. Liabilities typically have the word “payable” in their accounting entry. For example: notes payable, accounts payable, interest payables and salary payable.
  14. Equity – the amount remaining when you subtract your liabilities from your assets. In other words, your business is financed by debt obligations (liabilities) and owner investments (equity).
  15. Liquidity – describes how quickly an asset can be converted to cash. Without a good degree of liquidity, your business runs the risk of not being able to pay the bills, or worse case, keep its doors open.
  16. Working capital – this is the most basic measure of liquidity. It is calculated as follows: Current (short-term) Assets minus Current (short-term) Liabilities.
  17. COGS –  also known as, COGS or cost of sales, this metric refers to all expenses directly tied to the sale of products in your inventory. For a service-oriented business, this represents the cost of services rendered.
  18. Days Sales Outstanding – is a measure of the average number of days that it takes for accounts receivables to be collected. This is a useful metric to keep a handle on because it impacts cash flow management.The formula is:

    (Accounts receivable ÷ Annual revenue) × Number of days in the year
  19. Revenue – represents the sales a company earns from providing a service or selling a product. Also known as Sales, this is the first line that appears in the Income Statement.
  20. Gross Margin – is the difference between revenue and cost of goods sold, expressed as a percentage. This is an indicator of your business’ ability to cover the remaining expenses outside of the cost of goods sold.
  21. Expenses – refers to money spent or costs incurred to generate sales. Examples include wages, utilities, office supplies, marketing, etc.
  22. Fixed costs – as the name suggests, these expenses remain constant regardless of output e.g. rent.
  23. Variable costs – are tied to production levels and rise as your sales volumes increase e.g. hiring freelancers to handle an unusually large order.

As you can see, there are many moving parts involved in bookkeeping. All of these are business critical functions but they take a considerable amount of time away from your core business. If you would like to focus more on strategic, revenue-generating activities, then outsourcing your bookkeeping needs might be the solution you didn’t know you needed.

With virtual bookkeeping services like those offered by RQB, you can transfer these tasks to an entire team of experts, leaving you more time to do what you do best: grow your business.

In addition, RQB will help customize the scope of work you require and tailor solutions that take into account your budgetary constraints. Leveraging our scalability means you get to save the time – as well as the cost and hassle of hiring an in-house bookkeeping. In turn, you can use the additional efficiencies to gain a competitive edge and effortlessly scale your own business. Be sure to reach out to the RQB today to see how we can meet your needs!

Our Experts Are Ready
Book your free demo today to learn how a virtual bookkeeper can save you time and money for your business.

The post 23 Bookkeeping Terms Every Small Business Owner Should Know appeared first on Remote Quality Bookkeeping.

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Whether you use accounting software like Quickbooks, an Excel spreadsheet or your an old school ledger book, the ultimate goal of bookkeeping is to reconcile a trial balance. Said another way, the final total of debits and credits must match in order to complete the reconciliation of your accounts.

As you may already be aware, this is often a tedious process since it involves comparing your record of transactions to your bank statement and importantly, being able to explain any discrepancies. However, it is essential if you want to have an accurate view of your cash flow position and know exactly where your business stands on a consistent basis.

That being said, let’s review the basics of bank reconciliation for small business and how you can reconcile your accounts using QuickBooks.

Reasons to Conduct Bank Reconciliation

Here are the main benefits of bank reconciliations:

  • Detect Fraud. According to Chron, “Because bank reconciliations match a company’s disbursed checks with the cleared checks on the company’s bank statement, a careful review based on appropriate controls and procedures helps to reveal fraudulent activities.” Examples include unauthorized payments to employees and vendors.
  • Prevents Overdraft. Many banks offer overdraft protection but this comes at a fee. By conducting bank recon on a consistent basis, you’ll know exactly how much you have in your account thereby reducing the potential for overdrawing.
  • Identifies Bank Error. The most common occurs when the bank records an incorrect amount on your bank statement. You should always notify your bank of any discrepancies that you come across during the bank reconciliation process.
  • Allows You to Forecast Like a Pro. The ability to create forecasts for your small business is an incredibly powerful tool. And having accurate data is an important starting point to achieving that goal.
Bank Reconciliation in QuickBooks

Be sure to sync QuickBooks to your bank, credit cards, PayPal, Square and any other payment system you may use. This will authorize QuickBooks to import and organize your transactions, making reconciliation a much simpler process.

Step 1: Click the Gear icon>Tools>Reconcile

Step 2: Choose the account you want to reconcile. In general, you’ll only need to reconcile your bank and credit card statements.

Step 3: Enter the Ending balance and Ending date. This refers to the amount of money you had in your bank account or that you owed on your credit card at the end of the statement period, respectively.

Step 4: Hit “Start Reconciling”.

Step 5: Compare balances.

If you have connected online banking to QuickBooks as suggested above, you’ll notice that some of the transactions will already have check marks beside them in the Reconciliation window. These are pre-approved transactions that have been downloaded directly from your bank or credit card company. Transactions with no check marks were manually entered by you or another employee and have yet to be reconciled.

This is where the fun begins!

Armed with a copy of your bank statement, you can begin to check off matching transactions one-by-one by checking the box. The aim is to confirm the amounts (and the dates) of transactions.

Reasons Why Balances Don’t Match

Here are some of the most common reasons for discrepancies during the bank reconciliation process:

  • Manually entered transactions: When recording manually, there is much more room for mistakes such as transposition errors. Fortunately, these are usually easy to spot. If the discrepancy is divisible by 9, then you’ve got a transposition error. For example, let’s say that you wrote a check to a vendor for $253, but you manually entered the transaction as $235 in your accounting software. In this case, the reconciliation difference would be $18; a number divisible by 9.
  • Incorrect Ending balance or Ending date: You can go back and update these inputs in QuickBooks by using the Edit feature in the Reconciliation Window.
  • Missing Transactions: Check for missing transactions that appear on the bank statement but which you might have forgotten to record in your account software. Add any missed transactions to QuickBooks under the appropriate category.
  • Deposits in Transit and Outstanding Checks: If you accepted a check on the closing date of the bank statement, there’s a good chance that this transaction will appear on your next statement balance. In this case, you will need to adjust (increase) your bank balance by the total amount of deposits in transit. On the other hand, if you wrote checks close to the end of the statement date, they likely have not yet cleared. In this case, you should adjust (decrease) your bank balance by the amount of the outstanding checks. In QuickBooks, the Missing Checks Report and the Check Detail Report are useful tools to identify discrepancies related to checks.
What to Do When You Can’t Get an Account to Reconcile

According to QuickBooks, “As long as the difference is small relative to your bank account balance, don’t waste time spinning your wheels. Most reconciliation modules allow you to label the difference as a reconciliation error.” There’s a good chance that you will be able to identify the missing transaction when you reconcile the books next month.

Final Thoughts: Choose Bank Reconciliation Services to Save Time

Bank reconciliation is yet another business critical function to add to your already long to-do list as a small business owner. Transferring this task to a team of experts frees up your time so you can focus on growing your business instead of running your business.

At Remote Quality Bookkeeping, our banking specialists will update all of your bank accounts and credit cards in QuickBooks once per week as part of our bookkeeping services. These weekly cash reconciliations ensure that all reports will be accurate and up-to-date. This will help you to make informed business decisions. At the end of each month, our banking specialists will also reconcile your accounts and send you an email with any questions regarding income and expenditures from the past month.

To find out more about Remote Quality Bookkeeping bank reconciliation services, click here.

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The post Bank Reconciliation for Small Businesses: Why It’s Important and How to Do It appeared first on Remote Quality Bookkeeping.

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