Tuesday, May 28, 2013

Best Practices: Bookkeeping

Not everyone enjoys the data entry and detailed tasks involved in bookkeeping.  It is an essential part of running a business, so a small business owner needs to figure out the best way to get the job done.  Many owners tackle the job themselves in the early stages of their business to conserve money and then delegate the task once cash flow allows for it.  Bookkeepers can be hired as an outsourced service provider or as an employee depending on the amount of work that needs to be done. 

The bookkeeper enters all financial transactions into the accounting system used by the business.  Transactions include purchases, sales, receipts and payments by an individual or organization. This can be old fashioned paper ledgers or software programs.  QuickBooks has the most popular accounting software available for small businesses but there are many others available. 

We recommend consulting with an accountant before you select your accounting software program to make sure you have the best program for your business.  Some programs do not have all the features certain business owners need such as inventory management or progress billing.  We also recommend that you hire an expert to help with the setup of your accounting software program.  We see far too many cases where incorrect setup leads to incorrect financial statements.  Setup and training are always cheaper than cleanups.
Once you have your accounting program set up, you will want to establish a good process for getting the data entered.  The sooner the data is entered the better so you will have the information you need to run your business.  Details such as who and why are always easier to recall shortly after the event so entering purchases and other expenses quickly is always a good policy.

Good record keeping makes it easier to have good bookkeeping.  Next time we will learn how good bookkeeping creates good accounting.

Tuesday, May 21, 2013

Best Practices: Record keeping and filing

Having good record keeping practices and organized files makes running any business easier.  It is always wonderful if you start out with good habits, but you can still start afresh if you find yourself in a mess right now!

You should always have one file or binder or box labeled Permanent Files.  Whether to use a file or binder or a box depends on the size of your business.  You will probably start with a file and move to a binder or a box as your business grows.  The Permanent File should contain your LLC Articles of Organization or partnership agreement, your Operating agreement, your FEIN paperwork, your Seller’s Permit and any other paperwork from the State, copies of your insurance policies, any patent or trademark documents.
The next file or box you need is for your tax documents. You will want a file or folder for the current year and then a box or drawer for prior years.  Your tax file will contain your Sales tax forms, your Usage folder if applicable (you put any bills that may need usage tax calculated on them in here for your tax preparer or accountant to review), payroll tax forms, estimated income tax forms.  You will also put any correspondence from tax authorities in this file after you send a copy to your accountant or tax preparer.  Correspondence from any tax authorities should be brought to your service provider immediately. 

You will want some filing system for your customer information.  Names, addresses, phone numbers, key contacts, account numbers, any contracts or agreements will all be filed for each customer you have.  If you collect sales taxes and a client has a WI Exemption Certificate, file this in the customer file. 
A final filing system is needed for all your vendors and suppliers (people or companies who bill you for products or services you buy).  This is usually done by Vendor name which is the easiest way to file and to search.  It is also the best way to file should you be audited for Sales tax compliance.  Some people like to file their bills by type: utilities, services, etc.   This method is acceptable, but isn’t advisable should you find yourself subject to a sales tax audit.  A way to compromise can be to color code your file labels for type (red labels are utility providers; green labels are inventory vendors, etc.). Make sure you have a W9 on hand for all service providers who are not Corporations.  You will need the information from the W9 to file 1099s at the beginning of each year.  You will keep this information by year so have one box or cabinet for the current year and
other drawers or boxes for prior years. 

One final note on record keeping and filing is whether all this is done with real paper and files or virtually.  More and more government filings and bill paying is done online so these documents start in the virtual world.  Anyone who keeps receipts knows how quickly they fade so scanning them into a cloud based system is a good idea.  You can scan and file/store all the above information into a virtual file cabinet at the start of each year and then you will only have the current year in paper form.  Some businesses transfer the information into the cloud monthly rather than yearly.  If your virtual cabinets and folders are well organized, you can access the information as easily as if they were in paper and you need a lot less space.

Wednesday, May 15, 2013

Best Practices: Employees Part IV

One final article on employees and then we are on to accounting!

So you have researched what you need to do to be an employer, spent the time crafting the position you are going to fill, interviewed and hired the best candidate-now what?  Now you need to make sure that the training continues.  Employees need regular performance reviews to continue to grow and develop.  An employee should have a performance review at least once a year, preferably more often than that. 

Using the job description you created for each position, ask the employee to rate him/herself on each task.  Then, do so yourself and compare the answers.  Make sure you let the employee knows what he/she is doing right as well as what areas need improvement.  Be specific: don't say reduce the amount of accounts receivable that are over 60 days.  Instead ask the employee to make weekly phone calls to accounts which are overdue.  Problem solve together on how to improve performance. 

Employers can also ask employees what the employer can do better!  Creating and maintaining a positive environment is a best practice for any business.  Employees are often the face of your business so make sure they are presenting themselves and your business in the best light.

Tuesday, May 7, 2013

Best Practices: Employees Part III

We have reviewed the best way to prepare for hiring employees which means planning what the position will look like and reviewing all the laws and regulations regarding employment.  We also talked about the best way to hire an employee.  Now we will discuss what to do once you have found the right employee for your business.

Once you have hired your employee, you will need to have him/her fill out a myriad of paperwork.  All employees must complete an I-9, a W-4 and the state equivalent (WT-4 in Wisconsin).  The I-9 should be filed in a folder with any other I-9s you have/will accumulate.  The other forms will go into a folder for that specific employee.  You will also need to complete the online New Hire filing in the State of Wisconsin https://wi-newhire.com/ 

If the position you are filling warrants it, you will want to have an employment contract signed by the employee and this will also go into the employee's folder.  It is a good idea to have initial employment contracts reviewed by your attorney.  If you don't need a contract, you will still want to provide the employee with written employment policies and the job description you created for the position before you started the hiring process.  The employee should sign these to acknowledge he/she has received them and read them and this should also be placed in the folder.

It is always a good idea to have employees start with a probationary period.  An employee is considered an at-will employee during a probationary period which means they have no expectation of continued employment and can be removed for any reason prior to the end of the probationary period.  The fact is, no matter how thorough the interview process, you never know how well the employee will work out until they get started.  Using a probationary period assures the business that only the employee who is a good fit with work ethic, attitude, competency and skills will remain part of the team.  The probationary period is typically at least three months and can be as long as 12 months. 

Creating a solid training process is another must for employers.  Employees will perform only as effectively as their training so putting the time into bringing a new employee into the business is very important.  This should include written manuals with policies and procedures as well as hands on experiences.

Once again, the secret to success in being an employer is to plan, plan, plan.  Plan how to be an employer, plan how to advertise for an employee, plan how to train your employee. 

Wednesday, May 1, 2013

Best Practices: Employees Part II

This week we will go into greater detail on some of the laws and rules you need to be aware of before you become an employer.  As we noted last week, the Department of Labor and the State of Wisconsin have websites with all the information you need as an employer. 

Some things to look for on these websites:  The information you need to maintain in employment files for each of your employees, the posters you need to have displayed somewhere in your business, the rules about unemployment insurance (both state and federal) and the rules for filing and paying payroll taxes.

A key piece of information regarding payroll taxes: The Federal Government takes payroll taxes very seriously and failure to remit taxes withheld from employee paychecks is considered theft.  Falling behind on remiting payroll taxes has severe consequences.  Paying 1-5 days late can result in a 2% penalty, 6-15 days late brings a 5% penalty and 16+ days means 10% penalty.  Depending on the amount the business was to remit, this can be a significant amount of money.  The government can also proceed with civil proceedings such as filing liens against your property until the taxes are paid in full and criminal proceeding can and do occur and can result in imprisonment. 

The Federal Government is also allowed to go after personal assets if a business fails to remit payroll taxes even if the business is an LLC.  This is how seriously they take payroll taxes!

Again, the message to take away from this article is to do your homework before you become an employer.  There are many different payroll tax providers who will assist in setting up your payroll process or teaching you to maintain the system.  Unless you have experience with payroll, it is advisable to use one these experts to get you off on the right foot as an employer.