Business Accounting - Vyde

Accounting Services for Construction Companies

Running a construction business involves much more than just overseeing projects; it requires diligent financial management and accurate accounting to ensure the company’s financial health and success. In the construction industry, where profit margins can be narrow, efficient construction accounting is essential. This article outlines eight crucial steps to help construction companies navigate the complexities of construction accounting effectively.

How Construction Accounting Differs

Accounting in the construction industry presents unique challenges compared to other businesses due to the intricacies of the field. These differences stem from the nature of construction work, specific revenue recognition methods, per-project pricing structures, job costing intricacies, fluctuating operating expenses, and various aspects inherent to construction projects.

Construction companies face a range of distinct requirements, necessitating the ability to meticulously track precise costs, competitively bid on projects, adhere to prevailing wage regulations, and manage a host of other accounting responsibilities. Here are the key distinctions that set construction accounting apart from other forms of accounting:

Project-Based

Construction enterprises operate on a project-by-project basis, often managing multiple projects simultaneously. Unlike businesses where payment typically aligns with the completion of a transaction, construction projects follow diverse payment schedules. Some may require upfront deposits, while others might entail full payment upon completion, or settlements that occur months after project finalization. Consequently, construction companies may find it necessary to generate individual profit and loss (P&L) statements for each project.

Diverse Services

In contrast to conventional businesses that usually offer a limited range of products or services, construction companies provide a wide spectrum of services. This can encompass service work, design services, consulting, engineering, material sourcing, and more. This diversity makes it challenging to track expenses accurately and calculate profits associated with each service category.

Fluctuating Overhead Costs

Construction firms experience fluctuating overhead expenses encompassing insurance, travel, workers’ compensation, materials, subcontractor fees, equipment, and various other factors. These costs must be meticulously considered in construction accounting, both at the project level and for the overall business.

Cost of Goods Sold

Unlike many businesses that primarily record the cost of products sold, construction companies have a more complex landscape. Each project incurs both direct and indirect costs that can fall into a wide array of categories. Consequently, contractors must employ effective methods for monitoring income and expenses while ensuring meticulous reconciliation of every financial transaction.

Long-Term Contracts

Construction companies often manage contracts with varying durations, including both short-term and long-term commitments. This diversity in contract timelines means that income may not arrive at consistent monthly intervals. To effectively manage cash flow and maintain accurate financial records, construction businesses require a flexible yet organized accounting system.

How to Do Construction Accounting

1. Understand Construction Accounting

Construction accounting is a specialized branch of accounting that caters to the unique financial needs of construction companies. It involves tracking construction project costs, managing revenue recognition, handling cash flow, and complying with industry-specific accounting methods and regulations.

2. Set Up Your Accounting System

To kickstart your construction accounting journey, you need a robust accounting system. This system should allow you to track business finances accurately. Key components include:

- Business Bank Account: Open a separate business bank account to keep your personal and business finances distinct.

- Accounting Software: Consider using construction accounting software tailored to the industry’s needs. Several options are available that can help streamline bookkeeping and financial management.

- Chart of Accounts: Develop a comprehensive chart of accounts that categorizes income, expenses, assets, and liabilities specific to construction.

3. Choose an Accounting Method

A construction company can use either the cash method or the accrual method for accounting. The cash method records transactions when money changes hands, while the accrual method records transactions when they are incurred, regardless of when the payment is received. Select the method that aligns with your business operations and financial goals.

4. Implement Job Costing

Job costing is a fundamental concept in construction accounting. It involves tracking all costs associated with individual construction projects. This includes material costs, labor costs, equipment costs, and overhead costs. Job costing enables you to monitor the profitability of each project and make informed decisions to protect your profit margins.

5. Recognize Revenue Accurately

The construction industry often uses two revenue recognition methods: the percentage of completion method and the completed contract method. The percentage of completion method recognizes revenue based on the project’s progress, while the completed contract method recognizes revenue only when the project is completed. Choose the method that best suits your business and complies with industry standards.

6. Track Project Expenses

Managing project expenses is critical for maintaining financial health. Keep a close eye on direct and indirect costs, such as labor costs, material costs, administrative costs, and mobilization costs. Accurate tracking of expenses allows you to monitor project profits and make necessary adjustments.

7. Monitor Cash Flow

Cash flow management is essential in construction accounting. Since construction projects often involve substantial upfront costs, it’s vital to ensure you have the necessary liquidity to cover expenses. Regularly review your cash flow statements to identify potential cash shortages and plan accordingly.

8. Stay Compliant

Construction companies must adhere to various regulations and prevailing wage requirements, which can vary by location. Stay informed about these requirements and ensure your accounting practices are compliant with industry and legal standards.

Construction accounting plays a pivotal role in the financial success of construction businesses. With accurate accounting, you can track project costs, manage cash flow, and make informed decisions to protect narrow profit margins. By understanding the unique challenges of construction accounting and implementing these eight essential steps, you can set your construction business on the path to financial stability and long-term success.

Tips for Managing Your Construction Accounting Processes

Here are some valuable steps to kickstart your construction accounting journey, ensuring that your bookkeeping and financial management stay on the right track:

1. Segregate Personal and Business Expenses

For construction firms, the initial crucial step is to establish a separate business bank account exclusively dedicated to your business finances. This separation streamlines financial management and organization. To initiate a business bank account, you will typically require a social security number or employer identification number (EIN), personal identification (such as a driver’s license or passport), a copy of your business license, and relevant organization documents filed with the state.

2. Break Down Project Costs with Job Costing

Given the project-centric nature of construction accounting, adopting a job costing system is essential. Job costing allows you to meticulously track, categorize, and report financial transactions for each project. This method ensures accurate accounting for profitability on a per-contract basis, helping you ensure that your service prices adequately cover all overhead expenses. Job costing involves calculating the cost of labor, materials, and overhead for each specific project, represented as Total Job Cost = Direct Materials + Direct Labor + Applied Overhead.

3. Record Day-to-Day Financial Transactions

Use various tools such as journals, spreadsheets, or construction accounting software to document daily transactions, encompassing accounts payable, accounts receivable, labor costs, and material expenses. Ensure that each transaction includes a description, transaction date, and revenue received. Utilizing construction invoice templates can simplify billing for clients and maintain a comprehensive paper trail of all construction projects and generated revenue.

4. Select Appropriate Revenue Recognition Methods

Revenue recognition in construction accounting differs from regular business accounting due to the industry’s nature. For companies handling long-term contracts, two primary revenue accounting methods exist:

- Completed Contract Method: Under this method, contract revenue recognition occurs upon project completion.

- Percentage of Completion Method: Revenue recognition is based on the percentage of project completion within the fiscal year, calculated by comparing incurred expenses allocated to the contract during the year to total estimated costs. Generally, construction businesses with gross receipts exceeding $10 million must use the percentage of completion method for tax purposes. Those with gross receipts below $10 million can apply the completed contract method for projects lasting less than two years but must use the percentage of completion method for longer projects. Generally accepted accounting principles recommend using the percentage of completion method for financial statements.

5. Track Business Expenses

Categorize expenses by service and individual job to facilitate tracking of both income and expenditure. Employ an expense tracker and keep receipts to monitor expenses and project profits for each job. Common construction industry expenses encompass

business registration and licensing,
bank fees,
tools and equipment,
travel expenses (including fuel),
electronics,
trade school tuition,
vehicle maintenance,
phone and internet costs,
lodging,
software subscriptions,
membership fees (unions and associations),
mileage (for tax purposes),
insurance, lease payments,
safety equipment and uniforms,
subcontractors,
employee payroll,
advertising, and marketing.

6. Reconcile Bank and Supplier Statements

Regularly reconcile bank statements with your own accounting records, invoices, and payments. This process involves comparing bank records to expense receipts, identifying any discrepancies, and ensuring alignment between your construction accounting system and your bank account. Address any inconsistencies by contacting your bank.

7. Pay Estimated Taxes

Construction companies typically pay estimated quarterly taxes, with various methods available, including Electronic Federal Tax Payment System (EFTPS) enrollment, online payments via the IRS website, debit or credit card transactions, or mailing checks or money orders to the IRS.

Your choice of a tax calculation approach can include a “completion percentage” method, which calculates taxes based on quarterly income and expenses, or a “completed contract” method, which assesses taxes owed on each individual contract. A reliable accounting strategy should be chosen to minimize confusion during tax time, and professional assistance may be advisable.

8. Consider Hiring an Accountant (Optional)

While managing construction accounting independently is possible, the complexities of owning a construction company may lead to costly accounting errors. Similar to having project managers overseeing job sites, employing a professional accountant to handle various transactions across different jobs and services can be beneficial.

Accountants provide clarity on financial data, manage books, generate reports, estimate quarterly tax payments, maintain cash flow, and safeguard narrow profit margins.

9. Leverage Construction Accounting Software

To elevate your construction accounting beyond manual methods and spreadsheets, consider utilizing construction accounting software. This software streamlines tasks such as online invoicing, expense tracking, payment monitoring, financial report generation, and more. Clients tend to have greater trust in businesses employing accounting software due to its secure and convenient online payment capabilities. Additionally, construction accounting software equips you with the necessary tools to manage accounting effectively and make informed financial decisions.

Efficient construction accounting is imperative for the success of construction companies. It goes beyond project oversight, serving as the linchpin for financial health and long-term viability in an industry known for its tight profit margins and intricate project intricacies. The unique challenges of construction accounting, from specialized revenue recognition to complex job costing, demand meticulous attention and adherence to industry standards.

To navigate these complexities, construction companies should adhere to the eight crucial steps outlined in this article, which include understanding construction accounting nuances, setting up a robust accounting system, choosing the right accounting method, implementing job costing, and monitoring cash flow.

Additionally, practices like segregating personal and business expenses, reconciling statements, and utilizing construction accounting software can bolster financial stability and foster trust with clients.

Construction accounting is the backbone of a thriving construction business, safeguarding profit margins and ensuring long-term prosperity. By embracing its intricacies and following the prescribed steps, construction companies can fortify their financial foundations and thrive in this dynamic and challenging industry.

Frequently Asked Questions (FAQs) on Construction Accounting:

1. What makes construction accounting different from other forms of accounting?

Construction accounting differs due to the project-based nature of work, diverse revenue recognition methods, fluctuating operating expenses, job costing intricacies, and the need to manage revenue recognition across long-term contracts.

2. What are the primary challenges faced in construction accounting?

Construction accounting faces challenges like managing diverse services, fluctuating overhead costs, accurately tracking costs of goods sold, dealing with long-term contracts, and reconciling project-based revenue recognition.

3. How do construction companies manage project-specific finances effectively?

To manage project finances, construction companies employ job costing to track costs associated with individual projects, recognize revenue accurately based on project completion, and monitor cash flow meticulously.

4. Which accounting methods are commonly used in construction accounting?

The two primary revenue recognition methods in construction accounting are the percentage of completion method (recognizing revenue based on project progress) and the completed contract method (recognizing revenue upon project completion).

5. Why is segregating personal and business expenses crucial in construction accounting?

Separating personal and business expenses is essential to maintain financial clarity, streamline accounting processes, and ensure accurate financial reporting, especially for tax purposes.

Accounting Tips for Startups: Navigating Financial Success

Starting a new business venture is an exhilarating journey, but it also comes with its fair share of financial responsibilities and complexities. Proper accounting practices are the cornerstone of a startup’s financial health and success. In this comprehensive guide, we’ll explore essential accounting tips for startups, helping you establish a solid financial foundation and make informed financial decisions.

1. Choose Good Accounting Software

One of the first crucial steps for any startup is selecting the right accounting software. Modern startups benefit immensely from cloud-based accounting solutions that offer accessibility, scalability, and real-time financial data.

Invest in bookkeeping software (and possibly a bookkeeper). Bookkeeping involves systematically tracking all income and expenses, serving as a crucial element of effective financial management that equips business owners with essential data for informed decision-making.

Often, small business owners lack the accounting expertise required for this task. Consequently, hiring a dedicated professional or outsourcing the function, especially for smaller enterprises, proves to be a prudent investment.

Accounting software streamlines the time-consuming and error-prone manual bookkeeping processes, simplifying the retrieval of necessary information for crafting financial statements. Leading accounting software options like QuickBooks Online, Xero, and FreshBooks empower startups to streamline financial transactions, generate accurate reports, and maintain financial records with ease.

Cloud-based accounting software has gained substantial popularity among small businesses, with over 50% of U.S. respondents in a Robert Half survey indicating the use of cloud-based solutions for accounting and finance. While many businesses initiate their accounting journey with basic software, as they expand and confront increasing complexity, they may find it necessary to transition to an enterprise resource planning (ERP) system.

An ERP system allows the addition of modules for various business functions, all integrated into a single database, promoting efficiency and cohesion within the organization. The right software can save you time, reduce errors, and provide valuable insights into your business’s financial health.

2. Separate Bank Account

To maintain financial clarity and accountability, it’s vital for owners to have separate personal and business finances through separate bank account. Open a dedicated business bank account to handle all monetary transactions related to your startup.

This separation simplifies record-keeping, ensures compliance with tax regulations, and offers a clear view of your business’s financial well being. Additionally, consider obtaining a business credit card for expenses related to the startup. This separation makes it easier to track and manage business expenses, helping you stay organized and claim tax deductions effectively.

3. Adhere to Generally Accepted Accounting Principles

Following Generally Accepted Accounting Principles (GAAP) is essential for accurate and standardized financial reporting. While GAAP compliance may not be legally mandated for all startups, it’s considered best practice. Adhering to GAAP principles ensures consistency in financial statements, making it easier for potential investors, lenders, and stakeholders to understand your company’s financial health.

4. Implement a Robust Accounting System

Establishing a sound accounting system is fundamental to startup success. This system encompasses processes, procedures, and controls for recording financial transactions, managing cash movement, and producing accurate financial reports.

It helps you maintain financial discipline and ensures transparency in your startup’s financial operations. A well-structured accounting system is the backbone of financial stability and growth.

5. Monitor Cash Flow

Cash movement is the lifeblood of any startup. Efficient cash movement management ensures you have enough liquidity to cover operational expenses, invest in growth opportunities, and weather unforeseen challenges.

Regularly analyze your cash flow statement to track the movement of money in and out of your business. Identify trends, anticipate potential cash shortfalls, and take proactive measures to maintain a healthy cash movement.

6. Prepare Accurate Financial Statements

Accurate financial statements, including income statements (profit and loss), balance sheets, and cash flow statements, are essential for gauging your startup’s financial well being. These statements provide a snapshot of your business’s financial performance, assets, liabilities, and cash position.

Keeping these statements up-to-date and accurate ensures that you have a clear understanding of your startup’s financial position, allowing you to make informed decisions and attract investors or lenders.

7. Properly Record Business Expenses

Accurate and meticulous recording of operating cost is a foundational aspect of sound financial management for startups. This practice encompasses comprehensive documentation of all expenses associated with your business, encompassing everything from receipts to invoices and payment records. By diligently maintaining these records, startups can harness several advantages, primarily revolving around tax deductions and financial management.

Firstly, maintaining meticulous records of business expenses is instrumental in reducing taxable income and subsequently lowering your tax liability. This not only ensures that you are not paying more in taxes than necessary but also allows you to take full advantage of available deductions, ultimately contributing to your startup’s financial well being.

Additionally, it enables transparency and accountability in your monetary transactions, providing a clear overview of where funds are allocated within your business. This information is invaluable when making strategic decisions, as it helps identify areas where cost-efficiency can be improved and resources can be allocated more effectively. In essence, proper expense recording serves as a foundation for a well-organized and fiscally responsible startup, facilitating both tax optimization and efficient financial management

8. Choose the Right Accounting Method

Startups can typically choose between two accounting methods: cash accounting and accrual accounting. The method you choose affects when you recognize revenue and expenses. Understand the implications of each method and select the one that aligns with your business operations and goals.

Choosing the right accounting method is crucial for startups, as it profoundly impacts financial recording and reporting. Startups typically have two primary options: cash accounting and accrual accounting.

Cash Accounting recognizes revenue and expenses when actual cash changes hands, making it straightforward and suitable for smaller startups. It offers clear insights into cash flow and can defer taxes until payment receipt, benefiting businesses with irregular income.

Accrual Accounting records revenue when earned, regardless of cash flow, and expenses when incurred, providing a more accurate financial picture. It suits larger or complex startups, though it’s more intricate. Accrual accounting enhances financial reporting accuracy and ensures compliance with accounting standards.

Factors to consider include business size, tax implications, financial reporting needs, and cash flow management. Consulting an accountant or financial advisor can guide startups in choosing the method aligning best with their goals and regulatory requirements.

9. Plan for Taxes

Tax planning is an integral part of startup accounting. Be prepared to handle payroll taxes, income taxes, and any other applicable taxes based on your business structure. Consider working with a tax professional or using tax software to ensure accurate tax returns and compliance with tax laws.

Tax planning is indispensable for startups, encompassing a comprehensive grasp of various tax obligations, such as income taxes and payroll taxes, unique to their business structure. Collaborating with tax professionals like CPAs or tax advisors is often prudent due to intricate tax laws and regulations, ensuring compliance and minimizing tax liabilities. Additionally, employing tax software can streamline income and expense tracking, tax calculations, and form generation, enhancing accuracy and efficiency.

Focusing on compliance is paramount in tax planning to avert penalties, fines, and legal complications that can adversely affect a startup’s financial standing. Simultaneously, optimizing tax liability entails exploring deductions, credits, and incentives to alleviate the tax burden, freeing up resources for reinvestment or business growth.

In summary, tax planning is a multifaceted facet of startup accounting that necessitates understanding tax obligations, professional collaboration, tax software utilization, compliance assurance, and tax liability optimization, collectively fostering financial stability, legal adherence, and capitalization on available tax advantages.

10. Seek Professional Guidance

As a startup owner, you wear many hats, but managing complex financial matters may not be your forte. Consider partnering with accounting professionals or firms specializing in small businesses.

They can offer expert guidance in cash flow management, help with tax preparation, and ensure that your financial records are accurate and compliant with regulatory requirements.

Effective bookkeeping process and financial accounting is the cornerstone of a successful startup. Implementing these accounting tips for startups can help you establish a solid financial foundation, navigate the complexities of financial management, accounting process and set your business on a path to sustainable growth. By making informed financial decisions and leveraging modern accounting tools, your startup can thrive in today’s competitive business landscape.

Ready to take your startup’s financial health to the next level? Don’t navigate the complexities of accounting and bookkeeping alone. Get the expert help you need with Vyde! Our dedicated team offers comprehensive business accounting, tax, and bookkeeping services tailored to empower startups like yours. With Vyde’s support, you can establish a solid financial foundation and set your business on a path to sustainable growth. Make informed decisions and leverage modern tools with Vyde by your side. Contact Vyde today to thrive in the competitive business landscape!

Frequently Ask Questions:

How do I choose the right accounting software for my startup, and why is it essential?

Choosing the right accounting software depends on your business needs. Look for cloud-based options like QuickBooks Online, Xero, or FreshBooks for accessibility, scalability, and real-time financial data. It’s essential because it streamlines financial transactions, generates accurate reports, and simplifies financial record-keeping.

What’s the significance of maintaining a separate bank account for my startup’s finances, and should I get a business credit card?

Maintaining a separate bank account is vital to ensure financial clarity and compliance with tax regulations. It offers a clear view of your business’s financial health and simplifies record-keeping. Getting a business credit card for startup expenses makes it easier to track and manage expenses, helps with organization, and allows you to claim tax deductions effectively.

Why should startups adhere to Generally Accepted Accounting Principles (GAAP), and is it legally required?

Adhering to GAAP principles is essential for accurate and standardized financial reporting. While it may not be legally mandated for all startups, it’s considered best practice. Following GAAP ensures consistency in financial statements, making it easier for potential investors, lenders, and stakeholders to understand your company’s financial health.

How can I establish a robust accounting system for my startup, and what are the benefits of doing so?

To establish a robust accounting system, define processes, procedures, and controls for recording financial transactions, managing cash movement, and producing accurate financial reports. The benefits include maintaining financial discipline, ensuring transparency, and providing a stable backbone for financial stability and growth within your startup.

Why is monitoring cash flow crucial for startups, and what steps can I take to ensure a healthy cash flow for my business?

Monitoring cash flow is crucial because it ensures you have enough liquidity to cover operational expenses, invest in growth opportunities, and handle unforeseen challenges. To ensure a healthy cash flow, regularly analyze your cash flow statement to track money movement. Identify trends, anticipate potential cash shortfalls, and take proactive measures, such as managing expenses, to maintain a robust cash flow.

Finding the Right Bookkeeper for Your Business

Are you looking for reliable bookkeeping services for your business? Like many business owners, you may not know where to start. When you are passionate about your business but the numbers are overwhelming and challenging for you, competent and professional bookkeeping services can easily take care of the dollars and cents on your behalf. If you would like to be truly profitable and successful, you have to keep tabs on your business finances.

As a small business owner, if you do not know where you stand on a monthly, quarterly, or annual basis, your chances of surviving and growing can decrease considerably. There is no doubt that a bookkeeper can help manage your finances, provide valuable insight, and can have a big impact on the trajectory of your small business.

Here are five things you should consider when hiring the right bookkeeper for your business.

1. The Right Experience and Expertise

When you start researching potential bookkeepers or bookkeeping companies, find out about their experience level. It is no secret that every industry has its unique quirks when it comes to financial record-keeping. Check to see if the company or candidate has experience and confidence that they can navigate the ins and outs of your industry.

In addition, make sure you have the right experience for the right role. Instead of having one person try to tackle all your finances, look for a team of specialized individuals who work well together. Having someone who specializes in bookkeeping focus on your books and an accountant who specializes in tax do your taxes can improve accuracy and save you money.

While a company website will certainly offer some valuable insights into their experience, you should ask a few important questions. Some of them are:

How long has the candidate or company been in the bookkeeping industry?
What type of clients do they serve?
Do their services meet your business needs?

Accounting and bookkeeping is not an easy science. So, for a business that is starting out or growing, you need to have somebody who has been successfully doing this job for quite some time.

2. Communication is Key

If you are not good with numbers, you need a professional who will help you understand and appreciate the numbers. So, it is important to make sure that your communication style and the communication style of your bookkeeper work well together.

Some bookkeepers or bookkeeping companies charge extra for financial reviews or consultations. Ask about potential additional costs and be sure to factor those into your budget. It’s good practice to meet with your bookkeeper or accountant at least once per quarter to get a better gauge on your business finances.

Your bookkeeper needs to present your business finances in a simple way that makes sense and also keeps you informed at both the frequency and level that you prefer.

3. They Must Have Attention to the Detail

Numbers can be challenging and tricky to deal with. Keep in mind that even a small error or mistake in figures could impact your company. Look for a bookkeeping company or individual that has a thorough review process so you can have confidence your reports are accurate. A bookkeeper’s ability to give attention to the smallest details can ensure that mistakes or errors are minimized.

4. Look for Transparency and Trustworthiness

When it comes to bookkeeping, transparency must be among the first things that you should look for in a candidate. The bookkeeper you choose should be able to give you an instant and reliable quote for their services without any hidden fees that may pop up after several months of working together. There is no doubt that this is the type of transparency and honesty that you need in the bookkeeper who will be handling your business finances.

Also, note that any bookkeeping professional that you hire should be a reliable and trustworthy candidate. You will entrust this professional with confidential and sensitive financial details of your business. Choosing an individual or company that you could rely on and trust would give you peace of mind.

5. Up to Date on Tech

The financial industry is continually evolving, and while the principles of bookkeeping and accounting might not change, there are ways your bookkeeper can make your financial data more accessible and digestible than ever before. Look for a bookkeeper who is open to adopting innovations and can keep up with changing technology to provide you with the best experience.

The right bookkeeper for your business should be adept at using standard bookkeeping software and tools, and they should also have an innovative mindset to help you have better insight and make informed business decisions.

There is no doubt that hiring a bookkeeping professional or company can be an important decision for your business. An excellent bookkeeping partner will be with you and help you every step of the way as your company grows.

Can I Write Off a Vacation as a Business Expense: Your Ultimate Guide

One of the perks of being a small business owner is the tax deductions you can take advantage of, including how to write off a business trip or vacation. You just need to know your motives before you go!
To begin, you need to understand your trip needs to have a business purpose for it to be eligible as a tax deduction. The key element to writing off your trip is that its primary purpose is business.

When it comes to the topic of how to write off vacations—and all business expenses—the IRS requires your trip to be both ordinary and necessary to be deductible.

In IRS lingo, ordinary means it’s an expense “that is common and accepted in your business,” while necessary means “an expense that is helpful and appropriate for your business.”

Keeping those ideas in mind, here are some key tips for writing off your vacation.

Common Business Activities That Require Travel

Common business activities that you should consider on your trip include:

Attending a convention or seminar: Take a look at the calendar and see if there is a convention or seminar that would be beneficial for you to attend in an area where you can also enjoy some needed rest and relaxation.
Meeting with clients, partners, or potential customers: As you are traveling to new destinations, consider the customers, potential clients, or partners you might have in the area. Set up times to meet with them to gain new insights for your business.
Meeting with vendors: Research the area to see if there are any vendors or potential vendors or partners you would want to meet with. Then, set up appointments in advance.
Conducting business research: This can be a bit of a grey area, so make sure your reasons are sound. As you prepare for a trip, see if there are any research opportunities you can take advantage of in that area. Traveling to Hawaii just to do some research on Google will not be a compelling enough justification in case of an IRS audit. Scoping out a local market, meeting with researchers, or taking advantage of resources specific to that area will create a much stronger case.

Business Expenses That Are Tax-Deductible

Business expenses that are tax-deductible include:

Plane tickets
Rental cars
Gas
Taxis or other transportation expenses
Seminars
Conventions
Meals
Research expenses
Employee expenses
Hotel rooms or other accommodations
Business activities

It’s best if you pay for these expenses using your business bank account to avoid comingling your accounts. That way, all your trip expenses are in one place and easy to find. However, if you do pay for some things with a personal card, you can still get the tax deduction. Just make sure to keep good records and keep track of your receipts and notes in case of an audit. Learn what to do after you file your taxes.

IRS Requirements: Knowing How to Write Off Vacations

The IRS has several requirements that each small business owner must abide by which are important to know when learning how to write off vacations, including:

Majority: The majority of the days of the trip must be business-related. However, it’s important to note business days include weekends, travel days, convention or seminar days, and days you meet with clients or conduct research.
Planning: Make sure conventions and appointments are planned in advance and meetings with vendors are scheduled. This will help demonstrate the intention of your travel was business. Save emails or documents that could help demonstrate this in case of an audit.
Documentation: Save all your receipts over $75.00 and any lodging expenses (even under $75.00).
Notes/minutes: Hang onto brochures or keep notes of business meetings. These will provide proof that you attended these business activities during your travels.
Reasonable: Keep in mind that all expenses need to be reasonable to write-off. The main write-offs include travel (plane tickets, rental cars, gas, taxis, etc.), accommodations (hotel rooms), employee expenses, business activities (conventions, seminars, employee activities, etc.), and meals (groceries, restaurant receipts, etc.).

So you’re probably wondering, “Where does the vacation come in?” Let’s look at an example:

Enjoying Vacation with Business

If you wanted to visit a friend in Chicago and stay for a few days, take a look at your schedule. You could travel by plane on Thursday (business day), attend a seminar Friday (business day), and visit your friend on Saturday (business day) and Sunday (business day) since weekends are automatically considered business days. You could them take Monday, Tuesday, and Wednesday for vacation days before traveling home Thursday (business day). The majority of the days were considered business days and all your flights, meals, and accommodations are deductible.

2 Travel Days = Business Days
1 Seminar Day = Business Day
2 Weekend Days = Business Days
Mon-Wed = Vacation Days

4 Business Days + 3 Vacation Days = Business Trip

International Vacations and Increased Deductions

Examine if it would be beneficial for you to travel internationally for your business. You can increase your national network as well as develop your cultural understanding of another country.

If you are traveling internationally, you may be able to deduct more expenses than a vacation located in your domestic country. International vacations need to have a quarter of the time dedicated to business. However, if your vacation doesn’t consist of mostly business you can still write off a percentage of your trip.

Taking Your Family on a Business Trip

What happens if you take your family on a vacation but still attend business activities? Do you miss out on all the tax deductions?

If the trip still meets the criteria above, you can still take advantage of writing off your trip, but calculating the write-off might be a little trickier. For example, you can write off your plane ticket but not your family’s plane tickets.

Here are the expenses you can still write off:

Your hotel room or accommodations
Your rental car, gas, and transportation
Your plane ticket
Your portion of the meals
Convention or seminar passes and expenses
Research expenses
Employee expenses
Business activities

Other expenses you can’t write off include:

‌Souvenirs
Family or friend plane tickets
Family or friend meals
Family or friend additional hotel rooms or accommodations
Excessive expenses

Again, it’s best if you can pay for business expenses with a business card, so separate restaurant checks or buy plane tickets separately where possible.

What if a family member is an employee?

If a family member is an employee and goes on the trip with you, you can write off their travel expenses as long as they attend and contribute to planned business activities. For example, they could attend the convention or seminar, participate in business conversations with clients, engage in research, etc.

This goes back to the discussion about ordinary and necessary. Would it be commonly accepted for a business in your line of work to send multiple employees to an event like this? Is it helpful and appropriate for your business? If so, then you can write off both of your expenses.

Common Mistakes to Avoid

Now that you know the expectations for a business trip and the expenses you can write off, let’s review a few common mistakes small businesses make when trying to take a tax deduction on a trip:

Not having a strong business tie or plan ahead of time.
Not keeping receipts, travel plans, business notes, brochures, and other documentation.
Not using a business bank account to track business expenses. Again, you can still write off expenses paid with your personal account, but this is not ideal.
Trying to write off expenses that are excessive and unnecessary. This can raise a red flag for the IRS.
Not taking advantage of the fact that weekends are automatically considered business days, whether or not you conduct business activities on those days. Extend your trip to include weekends if you want to enjoy a little extra vacation time!

If you haven’t fully documented your business-related reasons for travel or had a spontaneous lunch with potential clients or business partners, you may still be able to write off some expenses related to that trip. Tax deduction rules allow 50 percent of entertainment and meals to be written off when your vacation has a small portion of business-related activities.

Instead of thinking, “how can I write off my vacation?” think “how can I add a vacation to my business trip?” As a small business owner, you want to save money, and what better way to save than planning a trip around your business!

If you have additional tax tips or questions, reach out to our team today or sign up for a 30-day free trial with Vyde! We are here to save you time, money, and stress by handling your small business bookkeeping and taxes.

FAQs:

What qualifies as a deductible business trip or vacation?

Your trip must primarily serve a business purpose and meet IRS requirements of being both ordinary and necessary for your business. Weekend days automatically count as business days.

What are common business activities that require travel?

Attending conventions, seminars, meeting clients or partners, meeting vendors, and conducting business research are examples of activities that can justify a business trip.

Which expenses can be tax-deductible during a business trip?

Expenses such as plane tickets, rental cars, gas, accommodations, meals, seminars, and research costs can be deducted. However, excessive or personal expenses like souvenirs are not deductible.

Can I write off a family vacation if I conduct business activities during the trip?

Yes, if the trip meets IRS criteria and you maintain proper documentation. You can deduct your portion of expenses related to business activities, but not those of family members.

What are common mistakes to avoid when attempting to write off a business trip?

Common mistakes include lacking a strong business purpose, failing to keep proper documentation, not using a business bank account for expenses, attempting to deduct excessive expenses, and not considering weekends as business days.

Interested in Learning More?

Schedule a free consultation with our team!

Top 4 Numbers That Drive Your Business Success

Are you looking to build your business?

As small business owners, it is easy to get distracted by the length of our to-do list and lose sight of the important factors that drive our business’ success. It’s also easy to ignore financial reports when we don’t know how to translate the numbers on the report into key insights about the health and value of our business.

As a certified public accountant and founder of Vyde, I wanted to provide you with some of these key insights that can drive your business success.

1. Sales

Let’s start with the business basics—sales, also known as revenue. As business owners, we understand that the money we generate is our lifeblood. This is what allows us to function from day to day, earn a comfortable living, pay our employees, and invest in growing and improving our business.

But what do we do with those sales numbers after we see the reports? Increasing sales and revenue is important, but if that is the only number we focus on, we could run into problems in the long run. Driving up sales will not impact the bottom line if we have to increase spending to get there. That’s why the next numbers are important to evaluate as well.

2. Gross Margin

When you look at a profit and loss statement, you will see your revenue, your variable expenses (also known as cost of goods sold or cost of sales), your fixed expenses (expenses that don’t change from month to month, such as rent), your total expenses, and your net profit.

Gross profit is what you are left with when you take your total revenue and subtract your variable expenses. In effect, you are taking your sales and subtracting what it costs to make and sell your product or service. While this is an important number to keep tabs on, a much more telling number is your gross margin.

Gross margin helps you gauge your efficiency so you can work toward a healthier bottom line.

You can figure out your gross margin by dividing your gross profit (total revenue minus cost of goods sold) by your total revenue and multiplying that by 100 to get a percentage.

Gross Margin = (Total Revenue – Cost of Goods Sold)/Total Revenue x 100

A low gross margin means you will want to make some adjustments to reduce your costs; a high gross margin means you are maximizing your profits.

Another way you can calculate gross margin is to simply divide your cost of goods sold (or variable expenses) by your revenue. You can then subtract that number from 1 and multiply it by 100 to get your gross margin.

Gross Margin = 1 – (Cost of Goods Sold/Total Revenue) x 100

As both your gross profit and gross margin increase, you will start to see improvement in your business. There is no one percentage that represents the ideal gross margin. Driving your gross margin higher at the expense of quality or customer service will have negative repercussions. As you are setting your goals, research healthy gross margins in your industry and look at the ways other businesses improve their efficiency. Understanding these numbers will help you set goals and work toward a healthier bottom line.

3. Net Profit

This is your bottom line. Your profit and loss statements should provide you with a net profit, but you can also easily calculate this by subtracting all your expenses (variable and fixed) from your revenue.

Net Profit = Revenue – All Expenses

Your net profit is the money you have available to pay yourself and invest in future ventures. It is also the money you will be taxed on at the end of the year, which leads us to the fourth number you should be tracking.

4. Taxes

One problem many first-time business owners run into is not properly preparing for their taxes. No one wants a surprise bill come tax season.

The best way to prepare is to meet with a tax professional to create a plan. We encourage all our clients at Vyde to meet with us twice per year to plan for the upcoming tax season. There are many variables that go into calculating your taxes, including spouses, dependents, what other jobs you hold, self-employment tax, deductions, tax credits, your tax bracket, etc. That’s why you can make a more accurate plan by sitting down with a professional. However, if that is not an option for you, the general rule of thumb is to set aside 25% to 30% of your net profit for taxes.

As you track these four different numbers over long periods of time, you will start to generate month-over-month and year-over-year comparisons that allow you to identify trends, strengths, and weaknesses in your organization.

Evaluating these numbers regularly will help you drive your business success to the next level.

Have questions? We’d love to answer them and talk to you about setting up a financial strategy for your business. Contact us today!

What to Look for in an Accountant

Accounting and tax software have made it possible for small businesses to get along without having an in-house accountant. Depending on the business’s complexity and the owner’s appetite for accounting tasks, small businesses can thrive for years with just an occasional phone call with an accounting software’s customer support line.

However, as businesses grow, accounting issues get more complex, and tax filings become too cumbersome for owners to handle. That’s when you hire an accountant — either a firm or an employee — to take on the financial tasks that eat up your spare time.

Accountants can alleviate the administrative burden of running a business, leaving owners with more time to focus on doing what they love. But with so many options available for accounting services, how do you know what to look for in an accountant and what’s best for your business needs?

Follow these tips and get your small business accounting in order with the right accountant!

Overview: What Does a Small Business Accountant Do?

With all the help accountants can provide, it’s no wonder why accountants are a business owner’s best friend. A small business accountant can maintain the books, analyze financial results, file business taxes, and consult with owners to expand the business’s bottom line.

Small business accountants are best known for carrying out day-to-day bookkeeping. They track sales and expenses, and keep an eye on cash flow. Some small business accountants also run payroll.

At the end of the accounting period, accountants produce financial statements — balance sheets, income statements, and cash flow statements — to give you an overall picture of your company’s financial health. Experienced accountants use the financial data to prepare your business taxes, a task most business owners would be happy to get off their plate.

Aside from rote bookkeeping and tax filing, the most significant value-add from a small business accountant is financial analysis and teaching basic accounting concepts. Through financial ratio analysis, accountants pinpoint the areas where your business could improve efficiency, boosting your bottom line. Business owners lean on their accountants to suggest changes to the business model that can yield profits.

Budgeting also falls within a small business accountant’s wheelhouse. Integral to creating a realistic growth plan is a financial forecast to reel in your unwieldy dream sequence. A small business accountant tends to be a jack-of-all-trades able to answer most financial questions you have. However, you can find accountants who specialize in the areas that meet your business needs. For example, if you need someone to maintain your accounting software, you’ll want to hire an experienced bookkeeper. If you’ve decided you’re never filling out another tax document, find yourself a small business tax accountant.

4 Things to Consider When Looking for a Small Business Accountant

Ask yourself the following questions before starting your search.

1. What Accounting Services Are You Looking For?

Make a priority list for the tasks you’d like the accountant to take on. Searching for an accountant is easier when you have a job description for the role.

A small business accountant’s task list could include:

Audit preparation
Day-to-day bookkeeping
Accounts payable
Accounts receivable
Tax preparation
Payroll
Financial statement drafting
Financial planning and analysis
Budgeting

Consider not only your company’s current needs but also those in the near future. For example, don’t search for a bookkeeper when you think you’d eventually like to turn over payroll duties to someone else. You can likely combine these two tasks into an accounting clerk position.

2. Hiring a Firm or an Employee

You’ll want to determine whether you want an in-house accountant or a firm to manage your business’s accounting workload. Each has benefits and drawbacks, and it comes down to how much accounting help you need.

For example, hiring an in-house accountant, either part-time or full-time, ensures a certain dedication of your accountant’s time. However, small businesses that don’t have a constant need for accounting work might find that a firm can bring 360-degree service at a fraction of the cost. Hiring an employee can be costly when you add wages, employer payroll taxes, and other benefits.

If you’re unsure which route to take, put your feelers out to firms first. You can test-drive a firm by giving them just a portion of your total accounting workload before deciding whether to continue. Hiring an employee requires commitment.

3. Determining Your Budget

Knowing your budget might also help to answer my previous question. As you search for an accountant, consider how much you’d like to spend on accounting services.

Your budget should reflect the services and expertise your business requires, considering the complexity of its accounting issues. Where your business is located also influence the going rate for accounting services.

Research is the best way to build a budget for accounting help. If you’re looking to hire a firm, get some quotes. When looking for an in-house accountant, check out websites such as Glassdoor.com to see what accountants in similar companies earn. Another way of gaining information is asking a peer or other small business owners and gaining insight through them.

4. How Software Can Lighten Your Accounting Workload

If your business doesn’t already have accounting, payroll, and tax software, now might be a great time to introduce it. Software can take on most of the automated aspects of accounting.

It’s not a perfect solution: There will still be many aspects of your accounting you will have to manage yourself. It might be worth paying extra to have a professional handle your financial statements and taxes to ensure accuracy and save you the hassle.

How to Find an Accountant For Your Small Business

Like in all professions, reputation is paramount. Ask your trusted family, friends, and colleagues for accounting firm recommendations.

Make sure you’re talking to people who have hired these accountants to do similar work. For example, a great personal tax accountant might not have the specialty or interest in running your S corporation’s payroll.

Use the local society of CPAs directory.

If you’re looking for the expertise of a CPA, check out the website of your local society of CPAs. They commonly have directories of local individuals and firms with filters to help you find professionals with a specialization in your industry who can meet your accounting needs.

Search online.

Perhaps nobody you know has a recommendation. You can still find a great accountant for your business with an online search.

If you’re looking to hire an employee, create a recruitment plan and post your job description on a few online job boards.

When searching for an accounting firm, make sure to checkout clients’ online reviews before you call for a quote. But take online reviews with a grain of salt: People usually only find time to share glowing and hateful reviews, with little to nothing in between. But if you find a firm with nothing but bad reviews, consider striking it from your list.

3 Best Practices When Hiring a Small Business Accountant

Keep these tips in mind when hiring your accountant.

1. Look For Experience That Fits Your Needs Now and In The Future

Say you need a bookkeeper today, but you know that tax season is coming up. Hire an employee or accounting firm with the skill set to do both.

You want an accountant who can grow with you and help you tackle any accounting needs that may come your way. When you’re interviewing potential accountants, ask them about the type of accounting software they’re comfortable using and what they do to stay up to date with the latest accounting and tax laws.

Business owners who’ve aced Accounting 101 can ask targeted questions during an interview to assess whether the candidate is ready to take on all they’re looking for.

2. Shop Around

Interview at least three firms before choosing one. Accounting firms can differ greatly on price, and you don’t want to get into a situation where you realize only years later that you’ve been overpaying for services.

Likewise, interview multiple candidates before hiring an in-house accountant. Make sure you’re making the job posting widely available so people from different backgrounds can apply. A diverse pool of applicants is essential in any hiring process.

3. Conduct Background Checks and Check References

Accountants have access to your business’s most private information, from employee records to bank account information. You’ll want to run a background check and ask for references before turning your books over to someone new.

Get Back to Business By Hiring an Accountant

Not everyone is like us at Vyde and loves talking about and practicing accounting. That’s probably for the best. By hiring an accountant, or using accounting services, you’ll be able to get back to doing what you love and have more time to focus on growing your business. If you’re still unsure of where to start, here’s an easy option: try Vyde free for 30 days and see why hundreds of businesses choose our services everyday!

Try Vyde Free

Taking Advantage of the Home Office Deduction

Are you self-employed and using your home for business? If so, you may qualify for the home office deduction. Here at Vyde, we want to help all of our clients stay compliant, stay organized and save on taxes. Here are some guidelines and tips to help you take advantage of your home office to maximize your tax savings:

Can you claim a home office deduction?

There are requirements you need to meet to qualify for a home office deduction: Do you use an area of your home regularly and exclusively for business? Are you self-employed?

If you answered yes to both questions, you likely qualify. It’s important to note your workspace does not need to be a separate room or even an office to qualify. For example, if you use half of your basement to create and ship custom word-working projects and that space is dedicated to your business, you could claim a home office deduction for that workspace.

How do you calculate your home office deduction?

There are two ways to calculate a home office deduction: the simplified and standard methods. For either option, you will need to know the square footage of the dedicated workspace in your home.

Simplified Method

To calculate the home office deduction for the simplified method, multiply the square footage of your office space by $5. That’s it!

Is your home office 300 square feet? Great! The IRS gives a $5.00 deduction per square foot for any space that is used exclusively for business (maximum of $1,500 for a 300-square-foot space). For example, if you are using an office that is 150 square feet, with the $5.00 deduction, that amount would be $750.00. It’s that simple!

Standard Method

With this method, you deduct the actual expense of your office. For expenses that only impact your office (such as paint, office decorations, repairs to your office, etc.) you can deduct 100%. For other expenses (such as depreciation, rent or mortgage, property taxes, home insurance, utilities, maintenance, and general repairs), you can deduct a percentage of those expenses. To calculate this percentage, divide the square footage of your office by the square footage of your home. This tells you what percentage of your home your office takes up. For example, if you have a home that is 2,000 square feet and a home office that is 200 square feet, you could deduct 10% of your utilities, rent, repairs, etc.

Still have questions?

At Vyde, we help businesses save time, money, and stress by taking care of their bookkeeping and taxes. If you have additional questions about the home office or other deductions, our team would love to help! That’s our specialty. Reach out to our team or try our services for free to schedule a consultation with one of our accountants.

How to Catch Up on Bookkeeping in 6 Simple Steps

Small businesses owners have many tasks to juggle just to be able operate their business efficiently. These tasks can include: daily operations, marketing, sales, products, processes, management and more. Those tasks can quickly become overwhelming for small business owners. While many day-to-day activities of owning a small business differ based on industry, bookkeeping does not.

Every business involves bookkeeping. Delayed or inaccurate bookkeeping can swiftly become a financial disaster for any business. How can you grow your business, secure capital, or even file taxes correctly without accurate and up-to-date books?

Suddenly, your finances are a mess. You’re wondering how you got here and how to catch up on bookkeeping fast. Sound familiar? Investing in bookkeeping services like Vyde streamlines your bookkeeping processes and helps you grow your business. You can also take steps now to start climbing out of the financial mess into which you’ve somehow fallen.

Bookkeeping services aside, if you’re eager to learn how to catch up on bookkeeping alone, you can follow these six simple steps to get the ball rolling.

1. Gather Your Receipts

If your receipts are scattered all over, it’s time to call them in. You’ll need to gather all of the receipts, invoices, and other financial documents related to your business, including records like:

Bank statements
Credit card statements
Business expenditures
Business revenue
Customer accounts
Bad debt expenses
Vendor accounts
Receipts for non-deductible items
Deposits / ATM slips
Reconciled bank statements

Additionally, if you have customers who are overdue on their payments, we recommend sending out pending invoices to those customers to avoid potential bad debt expenses.

2. Reconcile Bank Accounts

Next, it’s time to double-check your records. Take time to sit down with your credit card and bank statements. These statements should always match your business records, vendor accounts, and customer accounts.

If you find a discrepancy or if they don’t add up, locate the error before moving on to step three. Unfortunately, discrepancies and human error are common problems for business owners who aren’t using a team of experts.

3. Separate Personal and Business Expenses

An essential step to knowing how to catch up on bookkeeping is to take measures to prevent your books from becoming messier in the future. If you already separate your personal and business expenses, great. You can move on to step four. If not, you’ll need to separate those expenses to keep your books up to date.

We always recommend keeping personal and business accounts separate, including bank accounts, credit cards, and other finances. Accounts that are tangled together create unnecessary stress when doing your bookkeeping or filing your taxes. Additionally, you could potentially be held personally liable for any loans for your business.

If you’re unsure what purchases or expenses qualify as a business expense, review what items the IRS considers to be in that category.

4. Go Paperless

Going paperless will make your life easier whenever it’s time to update your books. Now’s a good time to start because you’ve already gathered your documents and receipts. Create digital records of all these financial documents independently or by using online tools, software, or a Vyde account.

5. Collect Tax Documents

Tax season is an important time of the year for all American workers, but most businesses need to file additional forms for the tax year.

Did you pay an employee or independent contractor this year? You’ll likely need to file at least one of the following forms:

Employees: W-2 Forms

You must file a W-2 for all your employees for the tax season.

Independent Contractors: Form 1099-MISC and W-9

You’ll only need to file additional forms for independent contractors that you paid more than $600 during the tax year.

Your independent contractors must complete a W-9 form and return it to you. This form contains their taxpayer information, which you’ll use on the 1099-MISC form. The 1099-MISC form is required to track your payments to independent contractors and ensures they receive their tax documents. Get your tax documents in order, including what you’ll need for the above forms. Then, once your bookkeeping is up to date, keep it updated.

6. Have Everything Reviewed by a Tax Professional

Now that you know how to catch up on bookkeeping, we strongly recommend using a tax professional. A tax professional removes much of the stress of tax season and can verify your financial information related to your return.

Additionally, using a tax professional will ensure that your business receives the tax deductions to which you’re entitled. Most tax professionals provide guarantees in the event of an audit and will represent you, speaking to the IRS on your behalf.

Catch Up on Your Bookkeeping With Vyde

As a business owner, you have plenty of obligations outside of bookkeeping, and you’re likely not an expert. You wouldn’t handle your legal work, so why go at bookkeeping alone?

Vyde provides flexible business solutions that fit your needs and budget. We make bookkeeping for small businesses simple so you can focus on what you do best. The peace of mind about bookkeeping and taxes that we provide help you save time, stress, and money along the way. Contact us to start on your path to getting caught up on your business’s bookkeeping today!

Frequently Asked Questions:

1. Why is bookkeeping important for small business owners?
Bookkeeping is essential for tracking business finances, ensuring accurate tax filing, and making informed financial decisions. Without it, businesses can quickly face financial problems and lose track of revenue and expenses.

2. What happens if I delay my bookkeeping tasks?
Delaying bookkeeping can lead to disorganized finances, missed tax deductions, inaccurate financial reporting, and even potential tax penalties. It’s crucial to stay on top of your books to maintain financial health.

3. How can I prevent mixing personal and business expenses?
Keep separate bank accounts and credit cards for your personal and business transactions. This not only helps in accurate bookkeeping but also protects your personal assets from business liabilities.

4. What documents should I gather to catch up on bookkeeping?
You should collect receipts, bank statements, credit card statements, invoices, and any other financial documents related to your business. These are crucial for accurately recording income and expenses.

5. Should I hire a tax professional after catching up on my bookkeeping?
Yes, hiring a tax professional ensures your financials are reviewed for accuracy, helps you maximize deductions, and protects you in case of an audit by the IRS. A professional can provide peace of mind during tax season.

Do I Need an Accountant for My Small Business?

Why do you need an accountant for your small business? Your business does not have a lot of cash flow or many employees making filing taxes easy, right?

As a small business owner you might think filing your own taxes on top of all the other tasks you juggle will be easy, but filing your own taxes is a huge responsibility for small business owners.

Take it from us, though: after a certain amount of progress as a company, doing your own business accounting isn’t likely worth your time, especially if your background isn’t in finance. The truth is that small mistakes in your finances can add up and may cost you a lot in the long run. Here’s why you need an accountant for your small business and when you’ll know it’s time to find one.

Should I Hire an Accountant for My Small Business?

If you’re asking this question and your small business is already doing well, the answer might be “Yes.” Accounts do much more than just your taxes every year, although that is arguably one of the most valuable services any accountant has to offer your organization.

The world of business finance can be complicated, even if your scope of operations isn’t exactly titanic. Running into trouble with the IRS will usually end up being an absolute nightmare, even for very small infractions—hiring a business accountant early is one way to prevent trouble before your books have a chance to get ahead of you. However, this won’t always be an affordable option for some.

The power of an accountant on your team is undeniable, which then begs the question: when do I need an accountant for my small business? At what point does the payoff outweigh the costs associated with a professional accountant?

When Is the Right Time to Hire an Accountant for My Small Business?

After your business begins to flourish, your finances may become significantly more complicated. This is especially the case as you begin to make more new hires and earn more income—and, of course, spend more money, too.

Your job as a leader is just as important as any job you can delegate to somebody else. Small business owners will usually be excellent multitaskers by nature. Eventually, your stack of hats will become so tall and unwieldy that it’s likely to fall over.

As soon as your finances begin to overwhelm you daily or weekly—losing track of receipts and invoices, for example, or simply not having time to document every transaction required for a complete account of your company’s activity—the time to hire a dedicated company accountant or bookkeeper has probably come to pass.

You may have an external bookkeeper preparing your finances early on for tax season. However, the investment in a certified accountant may eventually end up paying for itself. An internal accountant will be more familiar with tax codes and regulations and will be worth having if an audit comes along.

Why Do I Need an Accountant for My Small Business?

Are you running your finances for your business on your own? It may seem like a practical role to take on at the beginning of your venture, which is why so many small business owners end up giving it the ol’ college try.

After a certain point, however, a lack of expertise and even simple naïveté may cost you dearly. An innocent mistake may compound into something much more expensive in the long run—why waste your time trying to wade through something an accountant will have no trouble doing perfectly for you?

A business accountant can save you more than money in the event of an audit; they’ll also save you a lot of time as they take the minutiae of your finances off of your plate as a small business owner.

What exactly does a small business accountant do? Their duties may cover any and all of the following essentials:

Bookkeeping: Documenting every fiduciary transaction passing through your small business is an enormous responsibility. All purchases, sales, payments, and paper trails must be maintained and kept up to scratch.
Payroll: This may include helping you oversee and carry out payments, filing your employees’ and contractors’ tax documents correctly, and, as mentioned, documenting all of the above.
Tax preparation: Unless you would rather outsource the professional responsible for closing out your books at the end of the year, you’ll need a small business accountant to create your reports and prepare your affairs to file. A great accountant will also be a lifesaver in an IRS audit—if you’re following the rules, they’ll be able to find the mistake and rectify it, incurring as few penalties as possible.
Insight, analysis, and interpretation: Unless you’re a financial expert, it always pays to have somebody who knows what they’re talking about behind the wheel. They may be able to help you navigate problems like overspending, helping you spot issues in your financial statements throughout the year. You might also find that they have a lot of helpful advice on where you could be investing more generously for the sake of growth and your future.

No matter what line of work you’re in, these generalized responsibilities will apply to any small business, whatever stage of development it’s in. You may know the trade better than anybody on your staff, but without the right partner to guide your hand as you make essential investments in your enterprise, your business might end up not seeing its full potential—or simply fall flat.

The need for a business accountant after finding your place in your industry is more than obvious—what about for brand-new businesses, though? Should start-ups hire a business accountant if they can afford it? To us, it’s simply another way to win.

Do I Need an Accountant for My Small Business Start-Up?

Depending on how established your small business is, your accountant might become a vital part of your organization as you scale. Defining your business goals is one thing—making it all happen realistically and practically is another matter entirely.

A great accountant can offer guidance at these pivotal intersections—helping you choose the right business structure, for example, and ensuring that everything you plan on accomplishing is feasible and compliant with every relevant body of authority (including the IRS!). They’ll also be extraordinary resources to lean on when applying for business loans, working with angel investors and other investments, and perhaps even when applying for small business grants.

A sudden windfall will do nothing for you if you have no idea what to do with it. Business accountants act as trusted confidants and will be able to help you manage your money wisely. Investing in yourself is another critical skill to master. An objective set of professional eyes will lead you to smart financial moves you might not have considered on your own.

What Can the Right Small Business Accountant Do for You?

Why do I need an accountant for my small business? For the same reason, you hire a professional to manage your IT systems. Are your business’s tax problems perplexing you? A small business accountant is almost certainly the solution. The time to delegate has arrived.

If you’re unsure where to begin, contact us for advice on all things financial. The earlier you get our team involved, the more we’ll be able to do for you once tax season finally rolls back around.

How Long to Keep Financial Records

Have you ever wondered how long to keep financial records such as receipts, bank statements, and credit card bills? You’re not alone! Rather than keep everything forever and let the stacks of paper reach the ceiling, develop an organized system of keeping receipts for the recommended amount of time.

Remember, the IRS recommends keeping tax-related documents for at least six years. An audit can be performed up to six years after filing if an error is suspected, and you’ll want proof of your purchases if that happens.

How Long to Keep Financial Records and Why

Determining how long to keep financial records depends on several factors, including the record type and whether it’s for personal or business documentation. Whether you’re keeping the record for one month or 10 years, record-keeping best practices dictate you should store documents electronically (go paperless when you can), and always backup your files by saving them in the cloud. At Vyde, our accounting experts help our clients save and organize important financial information in a secure online portal so the information never gets lost and is easily accessible.

Below is a detailed summary of how long to keep financial records, categorized from the least amount of time to the most.

1 Month

The key to successful record retention is staying organized. Set up an efficient monthly system and you’ll be more likely to stick with it. For instance, write the type of expense on each receipt and put it in a dedicated file each month. You’ll want to keep utility payment receipts, bank withdrawals, and deposit slips until you receive your monthly statements. After you’ve had time to review your statements, you can dispose of the receipts.

Keep the following documents for one month:

Receipts for non-deductible items
Deposits / ATM slips
Reconciled bank statements

1-3 Years

You will need proof of payments and any business financial activity in case of disputes, identity theft, or fraud. Therefore, create a file for all banking and investment records for both your personal and business accounts.

Keep the following documents for one to three years:

Paystubs
Bank records
Insurance policies
Investment statements
Mortgage statements
Receipts for charitable contributors
All business-related documents

7+ Years

You might be wondering how long to keep bank statements. Err on the side of caution. This will be helpful if you claim a loss or a bad debt deduction.

Keep the following documents for seven or more years:

Income tax returns (federal and state)
W-2s and 1099s
Medical bills
Contracts
Receipts for tax-deductible items
Mileage records
Canceled checks
Real estate tax forms
Credit cards statements that contain purchases used as tax deductions
Retirement plan contributions

Forever

Why should you keep some items permanently? Some documentation has no expiration date, such as birth certificates and social security cards. Plus, these documents can serve as proof of identity. For paperwork like auto titles, or other purchases, store the related documents for as long as you own those items.

Keep the following documents permanently:

Birth certificates
Social security cards
Passports
Education records
Auto titles
Investment statements
Home improvement receipts*
Receipts from major purchases*
Wills
Current insurance policies
Medical records
Pension / retirement contracts
Property agreements
IRA contribution records
Mortgage documents
Life insurance policies
Safe deposit box inventory

*for insurance purposes

Where to Store Your Financial Records for Safekeeping

Keep vital personal documents, like birth certificates, passports, marriage certificates, etc., in a secure place, such as a home safe, fire-safe container, or a bank’s safe deposit box.

Documents such as tax returns, receipts, bank statements, or pay stubs can also be kept in a safe deposit box or simply a locked file at home. For electronic documents, store them in a password-protected folder on your desktop or another secure location.

At Vyde, we help our clients save and organize important financial information in our secure online accounting portal. We not only complete your bookkeeping and taxes, but we also provide easy access to tax returns and other important business documents.

Why You Should Shred Discarded Documents

You may be tempted to toss old financial records in the trash. But if any of those documents contain sensitive personal information, like your account or social security numbers, you’ll want to shred them first. This reduces the risk of identity theft.

Shred any document that contains:

Social Security numbers
Account numbers
Personal signatures
Birthdates
Phone numbers
Email addresses
Confidential information (medical, financial, or legal)

The Benefits of Record Keeping

Knowing how long to keep financial records is important because it can help you stay organized. This is crucial if you’re a business owner, as you’ll want to have everything readily available should you be audited or need to go to court. Organizing your records can also help you prepare accurate financial statements and tax returns, stay compliant, access important reports, apply for loans, and plan for the future.

Vyde Can Help!

Need help organizing your business financial records? At Vyde, we can help with your business accounting and taxes. We’ll handle your books throughout the year so we can keep you organized and maximize your tax savings, all for a minimal monthly fee. Contact us today!

1. How long should I keep financial records for utility payments and bank transactions?

Maintain utility payment receipts, bank withdrawals, and deposit slips for at least one month. Review your monthly statements and dispose of these receipts afterward.

2. What financial records should I retain for one to three years?

Preserve documents like paystubs, bank records, insurance policies, investment and mortgage statements, receipts for charitable contributions, and all business-related documents for one to three years.

3. Which documents should I retain for seven or more years?

Keep income tax returns, W-2s, 1099s, medical bills, contracts, receipts for tax-deductible items, mileage records, canceled checks, real estate tax forms, and credit card statements used for tax deductions for seven or more years.

4. What documents should I keep permanently?

Essential documents like birth certificates, social security cards, passports, education and medical records, auto titles, investment statements, wills, insurance policies, property agreements, and certain receipts should be kept permanently.

5. Where should I store financial records for safekeeping?

Keep vital personal documents in a secure place at home or in a bank’s safe deposit box. For electronic documents, store them in a password-protected folder or secure location. Vyde offers a secure online portal for organizing and storing financial information.

Resources

Category: Business Accounting