Teamwork is critical to building a successful contracting business. Successful entrepreneurs engage a brain trust of employees, hire advisors who coach them, and they develop strategic partnerships with individuals and businesses.
Supporting Teams Your Business Needs to Succeed
Teamwork is critical to building a successful contracting business. Successful entrepreneurs engage a brain trust of employees, hire advisors who coach them, and they develop strategic partnerships with individuals and businesses.
Teamwork is critical to building a successful contracting business. Successful entrepreneurs engage a brain trust of employees, hire advisors who coach them, and they develop strategic partnerships with individuals and businesses.
You know your books are a mess when….
Every small business owner has the best intentions from the beginning, but heavy responsibilities and busy schedules often lead to important tasks falling to the backburner. One area that is often overlooked is the company’s financial tracking. You may have to pay monthly or annual fees for high-quality accounting software programs. However, unless you use it correctly, it will be ineffective. This can lead to a lot of confusion and mistakes. It’s tempting to just ignore the problem, but I assure you that it won’t just go away. Any issues or mistakes with your bookkeeping will grow and spread until it’s a tangled mess. If your books are a mess, you’re putting unnecessary stress on yourself and your business.
So what does it mean, if your books are a mess? Here are some common signs:
- You don’t know how much you’re spending each month.
- You have a wallet (or file folder) full of receipts or you don’t have enough receipts attached for proof.
- You’re not sure if your business is profitable.
- You’re afraid to log into your bank’s online system.
- You have leftover funds in your account every month.
- Your monthly reconciliations aren’t happening
- You never know the exact standing of your bank accounts
From an accountant’s point of view, your books are a mess when:
- There is no clear distinction between business and business owner transactions. Business owners have used personal funds for business expenses or business assets for personal purposes.
- The original documents of the transaction are obviously missing on the bank statement. If an accountant cannot clearly distinguish sales revenue from loan/capital revenue, or cannot distinguish between equipment payments and inventory payments, it is almost impossible to accurately determine your profits and tax liabilities.
- The books/records you provide to the accountant cannot be reconciled. For example, the bank statement doesn’t reconcile with the cash at the bank account, your physical inventory does not reconcile with your Inventory account, the money owed to you from your customer’s list does not reconcile with the accounts receivable account, the list of money you owe to suppliers does not reconcile with the accounts payable account or your list of physical assets does not reconcile with your asset register.
HOW TO CLEAN UP THOSE MESSY BOOKS?
1. Stop Any Further Damage and determine if you have a problem
Therefore, the first step is to prevent damage from occurring from now on. This means that all new, incoming source documents will be routed through a reliable bookkeeping system.
Before a formal inspection of a book, it must be determined whether there is a problem. Often, companies with very messy or incomplete accounting records know they have problems that need to be resolved. However, companies with smaller differences or less obvious problems may not have the vision to understand the root cause and the expertise to solve the root problem.
These common signs can signal accounting record issues:
- General ledger errors
- Negative cash or credit balances
- Asset overestimation
- Inconsistent fixed asset depreciation
- Restricted payment terms from suppliers
- Static inventory levels
- Unaccounted for interest on cash and credit accounts
- Muddled business loan records
- Missing retained earnings
- Cash discrepancies
- Unauthorized withdrawals
- Excessive business expenses
- Bank fees and penalties
- Customer and vendor invoice inconsistencies
If there are any of the above red flags, the company should clean up its accounting records.
2. Separate Your Personal and Business Account
Research shows that most start-ups and small businesses fail because they do not separate personal accounts from business accounts. This means that you will have to go through messy business books to find the correct amounts before filing tax returns and debt repayment. By separating personal and business accounts, you will have a clear picture of your financial situation and cash flow, which means you will be able to record all sources of income and expenditure.
There are most two important reasons that you need to separate your personal and business account:
- It’s much easier to ensure that you record all business income and expenses, and spend less time figuring out whether the expenses are business expenses or personal expenses
- If you choose to transition to a cloud-based accounting system (such as the online version of QuickBooks), you can save a lot of time without having to process too many transactions.
3. Track Every Expense Incurred
To clean up the accounting books, you need to establish an appropriate accounting system. Then, you will need to create a chart of accounts in which all transactions can be recorded correctly.
How does this help you?
When you label and classify all of your expenses it helps you avoid unnecessary income taxes. It also saves you money by giving your CPA tax ready booksl. You’re not paying them CPA fees to clean up your books so they can prepare your tax return.
4. Reconcile Your Business Books
Probably the most important step in getting your books in order is reconciling your bank statements.
You need to reconcile your business accounts with the actual expenditures and expenses to get the business on track.
Bank reconciliation requires disciplinary action. Many business owners get lost here because they make things pile up. Reconciling your transactions is like pulling weeds in your garden. If you spend a little time every day, it’s no big deal. But if you let them pile up, now you are really a mess.
Try scheduling an appointment with yourself once a month to reconcile your bank statements and set your budget for the coming month. You could also check in weekly to code your transactions (making your monthly reconciliation that much faster).
5. Get help when you can
Overwhelmed? Yes, keeping your books in line can be time-consuming. But it’s a necessary part of business ownership.
Your best bet is to find someone who can set up a system for you, reconcile your accounts regularly, and send you financial reports. The key is that you are prioritizing to fix your mess. A financial mess will choke your business and keep it from growing!
Not knowing how to handle your finances is not a crime. But not filing your taxes is. And besides, wouldn’t you feel a lot less stressed if you had all of this behind you?
Many small business owners like the comfort and safety of having professionals, both for accounting and tax planning. It may seem more expensive, but the impact of better long-term planning may far outweigh the cost. You can save time, effort, and even money, since paying a professional will ensure that you avoid losses, fines, penalties, and additional expenses in the long term.
Excel Consulting Solutions offers a full range of bookkeeping services and promises that in 2-3 weeks, we can clean up a whole tax year for you, so you are prepared for tax season. We believe knowing your company’s financial health is the key to maintaining control of your business.
Give us a call today 970.888.0349
Steps to Hiring your First Employee
Congratulations on your hiring your first employee. This is a great opportunity for your business to grow and for you to step more into the ownership role. It’s a big responsibility having employees. You have to pay them on time. They depend on you for a salary. They may have families. This is not a decision entered into lightly. There are also rules and regulations you have to follow on the state and federal levels.
The following is information you need to know about how to get set up to have employees in the State of Colorado.
MINIMUM WAGE
The minimum wage in Colorado for 2024 is $ 14.42 hour.
Step 1 – Register as an Employer
You will need to first get a Federal Employer Identification Number (FEIN) – Form SS-4 from the Internal Revenue Service (IRS) if they do not already have one. If you have been operating as a single member LLC or a Sole Proprietor, you may already have this number.
You will also need a Withholding Account Number from the Colorado Department of Revenue and Unemployment Account Number from the Colorado Department of Labor and Employment.
Step 2 – Employee Eligibility Verification
Each new employee will need to fill out the I-9 Employment Eligibility Verification Form from U.S. Citizenship and Immigration Services, to confirm citizenship and eligibility to work in the U.S. The employee must complete Section 1 by their first day of work, and the employer will complete Section 2 by the end of the third business day after the employee starts.
The I-9 form is not submitted, but by law, employers are required to keep the form on file for three years after the date of hire or one year after the employee’s termination, whichever is later.
Step 3 – Employee Withholding Allowance Certificate
Each employee will provide their employer with a signed Withholding Allowance Certificate (Form W-4) on the date of employment. The W-4 form determines how much federal income tax will be withheld from the employee’s paycheck. You do not need to submit the Form W-4 to the IRS, but you should make an employee folder and keep a copy on file.
See IRS’s Publication 15 – Employer Tax Guide for more information on federal withholding.
Step 4 – New Hire Reporting
When you hire a new employee, or re-hire a previous employee, the State of Colorado requires employers to report them within 20 days of hiring to the Colorado State Directory of New Hires.
Effective July 2021, Colorado House Bill 21-1220 requires employers to report Independent Contractors, also known as self-employed or contract employees, as new hires, if they provided their Social Security Number for tax purposes. If they provided a Federal tax ID (FEIN), you do not need to report these employees as new hires.
You will need to gather the employee’s name, address, Social Security Number, date of birth, and the employee’s start date or the first day the employee begins work.
Employer information includes Federal Employer Identification Number, employer name, address, and contact phone number. You then submit the new hire reporting form online with the Colorado State Directory of New Hires.
The new hire information is required through the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). This information is recorded in the State Directory of New Hires and the National Directory of New Hires (NDNH) to locate parents and non-custodial parents who owe child support.
Step 5 – Payroll
You will need to determine a frequency of pay. You can set payday as weekly, starting the following Friday. Bi-Monthly, on the 1st and 15th of the month, or monthly. You can not exceed 30 days to pay an employee. Once your pay period is established, you can not change or miss a pay period without informing your employees well in advance.
When , payroll taxes will need to be paid. Payroll taxes include:
Federal Income Tax Withholding
Employers withhold money from each employee’s paycheck to pay the employee’s federal income taxes based on the information provided in their W-4. The employer does not pay any withholding tax. It is a tax that is collected by the employer and the employer remits the withheld taxes to the state or IRS.
File federal income tax withholding reports using Form W-2, Wage, and Tax Statement with the IRS. The IRS Form 941 is due quarterly, and IRS Form 940 is filed annually to report any unemployment taxes due.
State Income Tax Withholding
Similar to the federal income tax withholding, taxes are withheld from an employee’s paycheck for state income taxes.
Social Security & Medicare
Social Security and Medicare taxes are paid under the Federal Insurance Contributions Act (FICA). The employer pays half of FICA, and the other half is paid from the employee’s wages.
Unemployment Insurance
Employers pay state and federal unemployment taxes based on a percentage of each employee’s salary. This tax is known as State Unemployment Taxes (SUTA) and Federal Unemployment Taxes (FUTA).
Step 6 – Workers’ Compensation Insurance
All businesses with employees (even a single part-time employee) are required to carry workers’ compensation insurance coverage to cover medical costs if employees are injured on the job. Worker’s Compensation Insurance is administered through the Colorado Department of Labor and Employment.
Step 7 – Labor Law Posters and Required Notices
Employers are to publicly display Federal and State of Colorado labor law posters. These posters are to be publicly displayed where they can be easily viewed by employees. These posters inform employees of their rights and employer responsibilities under labor laws.
Colorado labor law posters can be individually printed from the Colorado Department of Labor’s website.
Employee v. Independent Contractor
It is important to understand the differences between employees and independent contractors. Employers will sometimes improperly classify employees as independent contractors. To know if your employee is actually an employee or an independent contractor you can file IRS Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes, and Income Tax Withholding.
There is a lot to keep up with when hiring employees for your business. Your obligations and responsibilities as an employer don’t end there. Labor laws are complex and ever-changing. Be sure to keep up-to-date with the Colorado Department of Labor and Employment and the U.S. Department of Labor.
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