Category Archives: accounting

Bitcoin for Small Business – Revolution or Racket?

Bitcoin, the newest variation on the e-wallet theme, is making a lot of noise these days. That’s not the jingling of loose change – Bitcoin is strictly a virtual currency – but rather the vociferousness of the arguments for and against this peer-to-peer electronic payment system. A closer look at Bitcoin, together with its pros and cons, is in order.

What’s It All About?

The idea behind Bitcoin first saw the light of day in 2008, in a paper authored by a mysterious individual or group using the pseudonym Satoshi Nakamoto. The motivation was to transfer value remotely via computer, smartphone or tablet independently of any central authority.

As a payment method for goods or services, Bitcoin acts as an alternate form of currency. Unregulated and based on complex algorithms, Bitcoins are seen by some as the wave of the future and by others as the next great American financial disaster in the making.

Small Business on the Bitcoin Bandwagon

Small businesses are leading the way in accepting this new invention, as they have more flexibility to update their processes than larger firms. Many entrepreneurs see distinct advantages in accepting Bitcoin over conventional payment methods.

The High Cost of Getting Paid

Traditional customer payment methods each have their own costs. For example, credit card charges place a heavy financial burden on business owners and approximately one in 100 credit card sales end up as chargebacks – charges disputed by the cardholder for which the merchant takes a loss. While cash may seem a simpler alternative, it must be counted, balanced and physically transported to the bank. It is also something fewer people are carrying around with them these days.

Bitcoin services, however, cost about 1% of sales, in contrast with approximately 3% for credit cards. Transactions may not be simply dissolved by an unhappy customer – a refund process must be requested from the merchant. There is also the additional benefit that Bitcoin currency can’t be casually siphoned off from your cash drawer.

Up to Speed

Bitcoin transactions are faster, meaning you end up with money in your pocket much more quickly than waiting to be reimbursed by the credit card companies. Ultra-portable and simple for consumers to use, Bitcoin also facilitates profitable impulse purchases.

The Cool Factor

Geeks love Bitcoin’s bleeding-edge technology and even those without an advanced degree in Computer Engineering think it’s kinda cool. This cachet may serve as a business advantage, helping a small enterprise stand out from the competition as modern and dynamic in customers’ perception.

Consumers enjoy the ease of buying and selling Bitcoin on the Internet. Payment in land based stores is equally hassle-free; all it takes is a smartphone to scan the retailer-provided QR code.

Too Good to Be True?

So what’s the catch? Still in its infancy, Bitcoin is experiencing growing pains. The currency fluctuated dramatically in value over the past year – soaring from $5 to $266 and back down to $103. Even more alarming, customer withdrawals of Bitcoin funds in US dollars were temporarily put on hold in mid-June 2013 for system “upgrades.”

Money-Transmission Laws

Banking regulators are looking askance at the new currency system, warning that users will be penalized if they breach state money-transmission laws. Senior Counsel Paul T. Crayton of the California Department of Financial Institutions recently warned the Bitcoin Foundation of potential fines of $1,000 per violation or per day for transmitting money without a license.

Last but not Least

One of the simplest but most cogent arguments against gung-ho adoption of Bitcoin is simple – not enough other people are using it. Accepting Bitcoin from your customers isn’t worth a hill of beans if you can’t then turn around and use the currency to pay your suppliers and landlord. True, you can convert the contents of your Bitcoin wallet into dollars for payment purposes, but that detracts enormously from the convenience of the system.

You Be the Judge

So the jury is out on Bitcoin. Weighing the pluses and minuses of this radical new system, you decide whether Bitcoin is right for your business.

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New Accounting Standards for Small Businesses

In an effort to simplify accounting for small business owners, the American Institute of Certified Public Accountants (AICPA) recently released an easier way for small and medium size business owners to create financial statements for any interested party (managers, banks or investors) an improved way to view a company’s finances.

What does it do?

The new model was created for private, for-profit businesses (so not GAAP compliant) and won’t help you file taxes. Rather, it gives reliable financial statements—for business owners, lenders and bonding companies (for construction businesses). It is meant to be more comprehensive than tax or cash accounting and additionally designed to create a single format all small and medium size businesses can use. In practical terms, the new framework uses historical costs versus fair-value estimates and gives business owners the ability to adapt and produce a financial statement appropriate for their needs. There is also the hope that as more businesses adopt the new framework, more reliable information about small and medium sized businesses and therefore make it easier for those business owners to compare their growth to others.

Who is it for?

According to Entrepreneur.com, the standards are for private companies with $300,000 to $100 million in annual revenue. Bob Durak, Director of Private Company Financial Reporting at AICPA said, “What we hear when we talk to these small businesses and the CPA’s that serve them is that they are looking for another option. These new standards are likely to be used by owner-managed firms that don’t have an in-house accounting team. If a company expects to go public in the near-term, it may want to avoid these non-GAAP accounting principles.”

Do I have to use it?

At the moment the format is completely optional. However, there is also the hope that as more businesses adopt the new framework, more reliable information about small and medium sized businesses and therefore make it easier for those business owners to compare their growth to others. However, to gain that kind of acceptance it will need the blessing of accountant and bank lenders. That might not be as easy as the AICPA thought.

Last month, the Institute of Management Accountants (IMA) released a statement announcing their opposition to the AICPA option. According to their press release, “An accounting association body [in this case, the AICPA] should not be setting what could be perceived as authoritative standards, which in fact are non-authoritative and thus difficult to regulate or enforce…Private companies need to maintain credibility with sound internal controls while maintaining the freedom to innovate and create sustainable value for stakeholders. However, it is IMA’s assertion that businesses should not risk that credibility by adhering to a framework created by a group other than a national standard-setting entity.”

For More Information
Talk to your CPA or visit the AIPCA site.

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7 Low-Cost Services for Small Business Electronic Payments and Money Transfers

As life and business seem to be approaching the speed of light, the need for cheap, nimble electronic payments and personal money transferring services has only increased. But if you are relying on either your bank or a traditional payment processor to move your money, then chances are you’re swooning in fees and long waits till the money posts to your account.

 

 

But you may not have to put up with it. There are several electronic payment alternatives out there available for small business owners that can get your money to you quicker and at a fraction of the cost:

 

1. Dwolla - At Dwolla, all transactions cost a mere 25 cents, and if you are transferring less than $10 then it’s free. This goes for both P2P transactions as well as those conducted with a merchant. There are a couple of downsides, however. First, both parties involved in the transaction must have a Dwolla account. If you send money to someone who isn’t signed up, they will be asked to create an account in order to access the money. Second, the money takes a while to move through the system. In order to remedy the situation, they initiated an opt-in feature called “Instant.” that provides immediate access to the cash in your bank account. For this service you would required to pay a monthly $3 fee. If you don’t have enough cash in your bank account to make the purchase, you can have Dwolla spot you the money and then pay a $5 “late fee.”

 

2. Intuit Payment Network - Another formidable player in the money transfer game is the Intuit Payment Network (or IPN). With IPN, you can transfer money between bank accounts for a flat 50 cent fee. There are also several notable features: the money posts in 1 to 2 business days; you have the option of adding a payment button on your website; you can send payment requests to a customer’s email; and if you still want to offer payment by credit card to your customers, you can do so for a flat 3.25% fee per transaction.

 

3. Popmoney – Popmoney is a free personal payments service that works with the banking security systems already in place in many top financial institutions across the country. Popmoney allows you to transfer money electronically from your savings or checking account to anyone in the country who has a bank account and an email address or a mobile phone number. If the recipient has a bank account with any of the banks working with Popmoney, then the funds are directly deposited into the recipient’s specified bank account.

 

4. ZashPay- Like Popmoney, ZashPay is an online personal payment service that allows you to send and receive money into your bank account. If you belong to one of the over 900 banking institutions that have partnered with ZashPay, you will be able to use the service directly through your bank’s online system. Even if you do not bank at one of these institutions, you can still use the service as long as you have a checking account. It cost 75 cents to send money, but receiving funds is free.

 

5. Merchantinc- National Merchant Bankcard is marketed as a top “Paypal alternative.” If you run an online business, and you are not so fond of Paypal, then you may want to consider this merchant account service that lets you process credit card transactions. It also works with eBay. The service costs just under $8 a month, with a 1.99% + $0.25 per transaction fee.

 

6. Amazon Payments Amazon Simple Pay can be used as a payment processing option for any of your online customers who have an Amazon Payments account. The service can be a bit pricey, however, if your sales volume is less than $1,000 per month on average. Otherwise, each transaction will cost between 1.90%- 2.50% + $0.30. You can also use your account to make personal transfers of funds between other account holders.

 

7. Square- With Square, anyone with an iPhone, iPad or Android device can accept credit card payments using the free app and free card reader. The service levies a 2.75 % fee for swiped transactions and a 3.5 percent fee and $0.15 surcharge for any transactions that are entered manually. The funds are deposited directly into your linked bank account, and you can send your customer a receipt by email or print it out if you’re using an iPad hooked to a wireless printer.

 

 

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Top 7 Bookkeeping Mistakes Small Business Owners Make

As the 2011 tax season comes to an end, many small business owners may be learning the hard way that sloppy bookkeeping doesn’t pay- especially when you are dealing with the IRS.

For those looking to make amends in the current year, the below are seven of the most common bookkeeping mistakes to avoid:

 

 

1. Not seeking help where needed. Good bookkeeping is a skill, not just a task to get through. Many times it pays to hire an experienced bookkeeper to handle your books properly and efficiently; other cases may require the input of a qualified accountant. At the very least, if you choose to maintain your books alone then set yourself up with a good accounting software program, like QuickBooks. There are even some good, free open source options out there, such as GnuCash and TurboCash.

2. Being lax about recording information. Bookkeeping is best done on a regular basis. Once a month is the minimum suggested period you should take to update your financial records. Anything more and you run the risk of having a demoralising large pile of papers to go through and of misplacing important receipts and documents.

3. Not establishing a set bookkeeping system. Bookkeeping becomes a lot harder if you fail to create and communicate a standard policy for how receipts, petty cash, credit cards, and other financial translations are both handled and recorded. Again, it is recommended that you seek advice when setting up your accounting system.

4. Not saving receipts. Receipts under $75 aren’t required by the IRS, but this doesn’t mean you should throw them away. Those smaller transactions can quickly add up and throwing away your paper trail can prove to be a costly mistake should you find discrepancies or gaps in your financial records.

5. Not communicating with the bookkeeper. If a small business owner hires someone to take care of the books, then it is vital that there be an open and up-to-date flow of communication from the business owner and management regarding any changes to the company accounts or to any financial transactions.

6. Not having up-to-date accounting software and backups. Most accounting software programs are updated on a regular basis by the developers with fixes and other useful improvements or extensions. You should make it a habit to keep your software updated. Moreover, you should set up at least one or two methods of data backup to ensure that your financial data is not lost.

7. Miscategorising or overcategorising financial entries. As I mentioned in number three above, you need to set up a standard system for recording transactions and it definitely pays to get advice on how to go about doing that. Putting your financial transactions in the wrong categories can make it very hard to reconcile your books and accurately determine your tax obligations.

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Why Choose Web-Based Accounting for Your Business?

Ever since the concept of cloud computing entered pop culture a few years ago, it has gained in popularity and usage among consumers and businesses alike who were quick to harp on the advantages of operating in the “cloud” and using Software as a Service (SaaS) applications in particular. While users may still be a little wary about uploading sensitive business data into a cloud application, advances in security technology are wining over many skeptics.

 

If you are running an e-commerce site for your business or if data needs to be accessed from off-site locations, then you might want to consider web-based accounting solutions.

How Web-Based Accounting Works

With web-based accounting services all your business’ financial information is stored and backed up on the service provider’s servers. You can access, add, and manipulate the data via an online portal. Many of these services offer a full, customizable range of features including: general ledgers, invoicing capabilities, accounts payable, accounts receivable, expense reports, financial reporting, and a collection of advanced features. The cost for a basic package will run you an affordable $5-$20 dollars a month.

There are several advantages to using an online accounting application versus a desktop version, namely: information can be accessed on demand from any location, application updates are conducted by the service provider, and many providers automatically sync online transactions with accounting records.

If you are interested in web-based accounting, you can start your search for the right service by looking at what QuickBooks and NolaPro have to offer. There are many other smaller companies offering their own versions-often with different levels of usability, features, and of course, price, so it pays to shop around a bit before deciding on a service.

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Handling Bounced Customer Checks and How to Bounce Back

Aside from being a logistical headache, bounced customer checks levy a significant expense to small businesses in terms of both time and money, and these costs often go way beyond the actual face value of the check.

 

 

As economic recovery continues at a snail’s pace, and consumer dollars are stretched ever further, the occurrence of bounced checks will likely rise. So what can you do if you suddenly find yourself holding a handful of bounced checks? Actually, quite a lot.

 

Bounced Checks, A Ripple Effect

 

Bounced checks are expensive. Bankrate.com recently reported that the average bank charges a hefty $27.04 for dealing with a bounced check. Then there is the time factor. A bounced check requires staff members to spend time tracking down the customer in order to illicit payment. Finally, bounced customer checks can also wreak havoc on a small business’ cash flow, creating an uncomfortable situation where anticipated money is so close, yet so far.

 

Reducing the Costs of a Bounced Check:

 

Bounced checks are inconvenient to deal with but fortunately there are several things small business owners can do to help minimize the impact and occurrence of bounced checks as well as increase the debt collection rate:

 

  • Use a collection agency. You can sell the debt to a collection agency that will take on the responsibility of collecting the amount owed from the customer.

  • Use a check verification system. At point of sale, it is possible to compare the signature of the check you are receiving against a national database of people who have written checks, and have not made good on them, and if the name comes up you can insist on another method of payment.

  • Get bank notification the first time a check doesn’t clear. Normally a bank will try to clear a check twice before alerting you. Instead, you can opt to have your bank to tell you after the first attempt so you can communicate with the customers bank to see if they have funds available to pay you. If they do you can redeposit the check.

  • Electronic Check re-presentment. After a check has failed to clear twice, you can check with the customers bank to see if funds are present, if they are then you can electronically debit the check and receive the funds

 

 

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September 12, 2010

Does Your Small Business Need an Accountant?

As a small business owner, keeping overhead costs to a minimum may be top priority. So, when it comes to accounting issues, it may be tempting to tackle the job on your own rather then spending precious capital on hiring a professional accountant to do the job.

 

But is this really a wise move or could you possibly end up losing more than you gain?

The following are some questions that small business owners should ask themselves to determine if they should hire an accountant:

  • Are you really saving money by doing your own bookkeeping? How much time and resources are being put aside to do the job on your own?
  • Do you need professional help in establishing your accounting systems for quarterly and year-end reports?
  • Will you need to complete year-end paperwork for your business, such as W-2 and 1099 forms?
  • Are you aware of what taxes you are obligated to pay and when they are due?
  • Do you need professional help for company payroll?
  • Do you know what expenses are tax deductible?
  • Do you know how to separate personal expenses and business expenses for tax purposes?
  • Do you understand financial statements?
  • Do you know what health insurance is best for you and your employees?
  • How difficult and time consuming is it for you to remain informed regarding tax law changes?

 

If you decide in the end to take professional accounting help, it does not mean that you should dump all the accounting matters on an accountant and walk away – it always pays to be well informed about your business’ cash flow, tax obligations, and overall financial health. Although accounting functions generally get easier the longer you are in business, take a good look at the questions above and consider whether it is really worth the time and hassle to deal with your own accounting.

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How to Determine the Value of Your Business

After considering the various pros and cons, you have decided to sell your business. Over the years you may have invested a good deal of sweat, hard work and energy (not to mention cash) into your “baby.” But knowing how to put a price tag on your investment can be difficult. Nevertheless, you certainly want to get a fair price.

 

What factors should you consider when evaluating your business’ net worth?

There are a number of facts you need to know. First, keep in mind that there is no exact science when it comes to determining the value of your venture. Be that as it may, smaller businesses tend to sell for 2 to 4 times cash flow. In the event of a very small business, the multiple could be as low as one. On the other hand, mid-sized businesses may sell for 3 to 6 times cash flow. This multiple could be even higher for some businesses.

Here are some tips on how to come to a reasonable value for your business:

  • Look at your business’ cash flow. Cash flow is a vital element in determining your company’s value: Smaller businesses are evaluated based on Seller’s Discretionary Cash Flow (Owner’s Salary & Benefits + EBITDA (Earnings before Interest, Taxes, Depreciation, & Amortization). Mid-sized businesses are generally evaluated at EBITDA  or EBIT (Earnings before Interest & Taxes).

 

  • What does the future look like? The actual value of a business is dependent on its future performance. Future performance depends on the business’ current performance and forecasts for the future, as well as what the buyer actually plans to do with the business once acquired.

 

  • What is the buyer’s ROI? The buyer’s Anticipated Return on Investment (ROI) is also a vital factor affecting a business’ valuation; the higher the potential return and the lower the risk involved, the greater the value. But, where the risk is high, like for example, where sales are historically inconsistent, then the lower the value of the business, even if things could change in the future.

 

  • Take stock of both hard and soft business assets. A company’s assets are an important factor to consider when determining value. There are hard assets, such as equipment, furniture, and inventory, and there are soft assets, such as patents and software. Are all of the business’ assets for sale? Do you plan to include accounts receivable and inventory?

 

  • What is the business’ history? Has it built up a good image or brand? Is there a loyal customer base? Will the current workers stay with the new buyer?

 

  • What does the market look like? Is this business operating in a volatile or high risk industry, such as food services? Is there a lot of competition from other businesses?

 

Evaluating your business properly is not a simple undertaking since it concerns several factors, many of which are hard to quantify. It is recommended that business owners looking to sell their business consult with an expert in the field in order to reach a realistic estimated price.

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November 18, 2009

10 Tips to Protect Your Business’ Online Bank Account

Online banking may offer a great deal of ease and convenience, especially for owners of small and home-based businesses, but it exposes the account holder to a sea of unscrupulous fraudsters and hackers. In one fell swoop, a business’ entire financial health can be compromised and a business owner’s personal assets can be decimated.

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Many small business owners may not be aware that according to federal law losses in private consumer accounts due to fraud are typically covered by the banks that hold them. The Federal Electronic Funds Transfer Act (EFTA) requires banks to reimburse consumer fraud victims within 10 days of a reported incident of fraud. Commercial accounts on the other hand receive virtually no protection from fraud or theft.

If your small business relies on online banking, then pay attention to the following tips to help keep your assets and your business safe:

1. Know your bank’s policies. Make sure that you are clear about what your bank is doing to protect your account and what it will do if your account is compromised by hackers. You should also know how your bank wants you to report any unauthorized charges or suspicious activity.

2. Choose a bank that has a solid fraud monitoring system and policy. One way to reduce your chances of becoming a victim of fraud is to do business with a bank that takes a proactive approach to online banking fraud. It should have a reliable monitoring system in place to detect suspicious account activity and should have a history of responding quickly to suspicious behavior.

3. Keep your anti-malware software and firewall protection current. Make sure that your system and browser software is up-to-date, and that you have installed reliable anti-virus, anti-spyware, and firewall protection.

4. Monitor your accounts for suspicious activity. The sooner you catch and respond to any irregularities and missing funds in your account the greater your chances of recouping the lost money. If your bank offers transaction alerts, then make sure to sign up for this service.

5. Don’t easily give out sensitive information. Be on alert and act with caution if either your bank or credit card company asks you to verify your account information. Keep in mind that they already have this information on record.

6. Be mindful of your paper trail. Printed banking and credit card information should be disposed of properly (i.e. shredded or rendered unreadable). To be safe, where possible you can opt to receive electronic statements instead of paper ones.

7. Conduct transactions from secure computers. Use your own computer and where possible avoid conducting sensitive transactions on the go over a wireless Internet connection. You could also have one computer that is specifically dedicated to online banking transactions and purchases to reduce the chances of picking up a virus.

8. Pay attention to the what you open on your computer. Only open emails from people you know and trust, be careful with emailed links, and pay special attention to email attachments. Make sure to scan attachments even from people you know before opening them. Make it a practice of avoiding and even blocking pop-ups.

9. Pay attention to the look and feel of your bank’s online system. If the logo suddenly seems out of place or the bank seems to be asking you for seemingly irrelevant information then it could be a red light signaling that something is off.

10. Personalize your security controls. Some banks allow their account holders to customize their online transactions (i.e. disabling some of them, while enabling others, or placing certain restrictions or requirements) so that actions, like international wire transfers, for example can only be done in person.

 

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Top Small Businesses Financial Accounting Mistakes

It is common among cash-strapped small businesses for the owners and their employees take on many responsibilities simultaneously. The job of financial accounting and general bookkeeping thus often goes to someone within the business who has not been formally trained for the task. Though this may be an effective way to reduce expenses, it could lead to some costly mistakes down the road.

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Even if your budget is tight, you should make an effort to avoid these common pitfalls in small business accounting:

1. Not hiring a professional or hiring someone who is unqualified for the job. These days cost-cutting has become a top priority among small business owners trying to keep their ventures going. However, there are several instances where the experience, know-how, and counsel of a qualified professional, such as a bookkeeper, tax preparer, or accountant is needed. Cost-cutting sometimes loses its value when the necessary “corners” are cut out.

2. Not establishing formal accounting policies and procedures. Creating clear accounting policies and procedures helps to ensure consistency and accuracy in the processing of transactions. This is particularly important when a business has several employees who may additionally share jobs and responsibilities. Common areas to consider include: the management and usage of petty cash, a system for employees to be reimbursed for business expenses, how to set up the filing system for clients, projects, or complex transactions, and finally how to keep the lines of communication open between management, employees, and the individual(s) who maintain the financial recording.

3. Not making use of available programs and tools. These days small businesses have access to a wealth of software programs and services that are specifically designed to help small businesses with their accounting, payroll, and tax obligations. While some of these options, such as Quickbooks, come at a cost; there are several free or low-cost open source programs available that can do a pretty decent job. There are even some mobile phone apps that can greatly enhance the way the transactions are recorded.

4. Leaving out the fundamentals of bookkeeping. Due to lack of know-how, experience, or time, many small business owners make the mistake of leaving out some fundamental bookkeeping steps, such as reconciling the books and bank statements every month, saving receipts (even for purchases less then $75), and properly tracking reimbursable expenses.

5. Being ignorant of current accounting rules and legislation. Since the person (or people) who are recording the financial information often have received any training, it opens the door to some common, yet potentially costly consequences. Often, seemingly harmless mistakes can attract the unwanted attention of the IRS. A few common examples include: not properly classifying employees versus independent contractors, consultants, and freelancers, not deducting the sales tax from the total sales, not claiming the full amount of tax deductions or using the tax deductions incorrectly, even using nontraditional expense categories or putting itemized expenses in the wrong category.

6. Not setting up back up systems. Business owners who do not establish a system for backing up financial data are asking for trouble- especially if data is only recorded electronically. There are several ways to back up your precious financial information: periodically transferring the data to a CD, purchasing an external hard drive, relying on tape back ups, or using online back-up services. Each option has its pros and cons, and you should do your research in order to find the most suitable match for your business. In addition, it is a good idea to have some hard copies of information on hand.

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