Best Business Practices

Payroll is one of the most important aspects of any business, but it’s one that, when running smoothly, business owners don’t tend to think about; however, when there’s a payroll glitch, it jumps to the forefront of an owner’s mind. Here are several payroll mistakes that can cost you a bundle and how to avoid them in your business.

1. Misclassifying employees

How you classify employees when you hire them impacts how you and your employees are taxed. If you hire an office staffer to answer phones and file paperwork for an hourly wage, that is a non-exempt employee. Alternatively, if you employ an individual as a salaried Head of Operations, they are exempt. The main difference is that non-exempt employees are eligible to receive overtime pay; exempt employees are not.

There is also a distinction between employee, freelancer, and contractor. An employee receives a regular wage, while freelancers and contractors are typically paid per project. Misclassifying employees may not seem like a big deal at first, but in time, the IRS will find out, and your business will end up paying the taxes due, the associated fines, and of course, the interest on the past-due taxes.

To avoid this issue, understand the classifications and the capacity in which you hire your employees. To classify employees, be sure to use IRS definitions. For example, the IRS defines independent contractors this way: “the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

2. Miscalculating pay

There are many payroll aspects to consider, such as overtime, commissions, deductions, paid time off (PTO), and more. When it comes to calculating pay, payroll admins should keep in mind that different policies apply to each state, and that must also be considered. For example, the federal overtime law dictates that overtime wages (pay for hours worked over 40 hours in a workweek) are paid at 1.5 times the employee’s regular hourly rate. However, some states have different policies regarding overtime. For example, in Alaska, California, Colorado, and Nevada, overtime is also based on hours worked in a day. As a general rule, a business should comply with the more generous law for the employee.

In addition to overtime pay miscalculations, poor time tracking capabilities also contribute to miscalculated pay. To avoid an issue miscalculating pay, be sure to know your state’s guidelines on overtime pay. Further, be sure that your company has a reliable tracking system for keeping up with employee hours so that pay, overtime, and other payroll aspects like PTO are correctly recorded and calculated. This process will significantly reduce the chance of payroll overpayment or underpayment mistakes that could become costly payroll corrections.

3. Missing deadlines

One of the most damaging payroll mistakes for a business is missing payroll tax deadlines. Missed deadlines can cost thousands of dollars in penalties, and in extreme cases, a company’s business license can be suspended.

To avoid this critical error, use the IRS Calendar Connector to help you remember your tax deadlines. However, if you miss a tax deadline, contact the tax agency immediately because late payment penalties pile up quickly. The quicker you get in touch with the IRS, the lesser penalty you will have to pay.

4. Messy recordkeeping

What is the word a small business owner least likes to hear? There are likely a few, but “audit” has to be right at the top of the list. The anxiety that term induces should be reason enough to keep accurate, complete payroll records that are well-organized. The price you pay for not doing that could be fines, penalties, and a plethora of costly payroll-related tax issues. For example, if you accidentally file W-2 forms late, you will pay between $50 and $260 in fines depending upon how late the W-2s are filed.

The same goes for late-filed 1099 forms or any other tax-related documentation. The fines vary. For example, if you do not provide a contract employee with a 1099 form, that’s a $250 fine.

To avoid this issue, keep accurate, complete, up-to-date payroll records for all employees. Mind your paperwork like W-2 forms, timesheets, 1099 forms, and pay records. Also, be sure to retain employee records for the four-year minimum that the IRS requires after an employee leaves your company. FYI: The SBA recommends retaining payroll records for six years.

5. Missed tax forms

An extension of point four above targets the end-of-year task that some payroll admins dread – preparing and sending all the necessary tax forms to all employees, whether they are full-time (W-2), part-time (W-2), or independent contractors (1099). Remember, form 1099 is required to be sent to an independent contractor who earned $600 or more during a tax year.

To avoid this issue, make sure tax rates are in order, payroll is correctly calculated, and all forms are correctly filled out and sent to employees promptly.

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Payroll-related tax issues are avoidable. Take time to speak to your trusted tax preparer or CPA today so that you avoid these mistakes and keep your business running as it should.

Discover how our insights and experience can translate into a better bottom line for your business. Call us today at 479-242-1236 to learn more or request a consultation through our website and we’ll reach out to you to set up an appointment.

Increasing your profits requires selling more and/or spending less. While building up your sales may require an extended effort, business costs are often very ripe for a quick trimming. Here are some possibilities.

Supplies and Other Purchases

Usually, in any business, relatively few items represent a very large share of all outlays. The first step in cutting expenses is, therefore, to identify your highest costs. You may be able to trim many of these costs by making sure you always bid out significant purchases or by more actively seeking less expensive alternatives.

For many companies, inventory carrying costs are a very significant expense. Focusing on matching your inventory quantities more closely to your short-term needs could result in significant savings.

Telecommunications and Other Services

The ongoing services you buy may also offer the potential for cost savings. Revisit your choice of telecommunications vendor and your usage.

Look carefully at your costs for financial services. If you borrow or maintain a line of credit, always compare the rates from more than one financing source before you commit. Make sure you are not paying higher-than-necessary fees for your company’s checking and deposit services.

Cash Management

To control cash outlays, take advantage of discounts for early payment whenever possible. And look to delay payments for as long as you can without giving up discounts.

On the receiving side, deposit all receipts daily. And always actively pursue collection of any invoices that are past due. To help control your working capital needs and, therefore, your credit costs, try to match any new liabilities to your anticipated cash flow.

Fixed Expenses

One other category worth examining is fixed expenses that are long-term commitments. While you usually can’t change these quickly, be aware of when a window for change will open and prepare well in advance by considering lower cost alternatives.

To learn more ways to control your business costs give us a call today. Our trained staff of professionals is always available to answer any questions you may have.

Find out how you can save time and stop worrying about the numbers and leave the accounting to us! Call our Fort Smith, AR accounting firm* today at 479-242-1236 or request a consultation.

Slow paying customers, seasonal revenue variations, an unexpected downturn in sales, higher expenses — any number of business conditions can contribute to a cash flow crunch. If you own a small business, you may find the suggestions that follow helpful in minimizing cash flow problems.

Billing and collections. Your employees need to work with clear guidelines. If you don’t have a standardized process for billing and collections, make it a priority to develop one. Consider sending invoices electronically instead of by mail. And encourage customers to pay via electronic funds transfer rather than by check. If you don’t offer a discount for timely payment, consider adding one to your payment terms.

Expense management. Know when bills are due. As often as possible, pay suppliers within the period that allows you to take advantage of any prompt-payment incentives. Remember that foregoing a discount in order to pay later is essentially financing your purchase.

Take another look at your costs for ongoing goods and services, including telecommunications, shipping and delivery, utilities, etc. If you or your employees travel frequently for in-person meetings, consider holding more web conferences to reduce costs.

Inventory. Focus on inventory management, if applicable, to avoid tying up cash unnecessarily. Determine the minimum quantities you need to keep on hand to promptly serve customers. Systematically track inventory levels to avoid overbuying.

Debt management. Consider how you use credit. Before you commit to financing, compare terms from more than one lender and keep the amount to a manageable level. For flexibility, consider establishing a line of credit if you do not already have one. You will be charged interest only on the amount drawn from the credit line.

Control taxes. Make sure you are taking advantage of available tax breaks, such as the Section 179 deduction for equipment purchases, to limit taxes.

Develop a cash flow budget. Projecting monthly or weekly cash inflows and outflows gives you a critical snapshot of your business’s cash position and shows whether you’ll have enough cash on hand to meet your company’s needs.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track. Don’t wait, give us a call today.

Find out how you can save time and stop worrying about the numbers and leave the accounting to us! Call our Fort Smith, AR accounting firm* today at 479-242-1236 or request a consultation.

To lease . . . or not to lease. This is an issue business owners often face. If you are weighing the pros and cons of leasing versus buying, here are some things to keep in mind.

Cost
Evaluating costs is more complicated than comparing the price of leasing a piece of equipment versus its purchase price. You will also want to consider these issues:

• How soon will the equipment need to be upgraded or replaced? Highly technical or specialized equipment becomes obsolete quickly and may be a good candidate for leasing.
• How will you arrange for service and repair? Leasing arrangements often include maintenance of the equipment. If you’re thinking of buying, research the equipment’s repair history as well as the cost and availability of reliable service.
• How long will you need the equipment? If your use will be short term, then leasing may be the better option.

Cash
If you’ve been leasing your equipment, then your costs have been predictable. Purchasing equipment can substantially alter your cash flow. Be sure you consider how purchasing your equipment might affect your business’ finances.

• Can you save money by buying or leasing equipment? If — and when — cash savings will be realized is an important factor for you to weigh.
• Do you have the cash available to purchase the equipment? If you use cash for a down payment, you may have less cash for operating and other business expenses.
• How will financing your equipment purchases affect your ability to get credit for other things? If you anticipate having future credit needs, you may want to avoid adding equipment loans to your current debt load.

If you’re weighing leasing versus buying, give us a call. We can help you look at how the various options will play out.

Find out how you can save time and stop worrying about the numbers and leave the accounting to us! Call our Fort Smith, AR accounting firm* today at 479-242-1236 or request a consultation.

We at ValueMetrik CFO want to send a shout out to all our community bankers here in the Arkansas River Valley and across the country.  We all know that healthcare professionals around the country are on the front line of this war against COVID19 and that they are our true heroes.  However, our bankers have been brought into the battle of helping small businesses survive over the last couple of weeks, and they have emerged as our “small business heroes.”

Bankers have been put in a very difficult position recently.  It’s almost as if there’s no way for our community bankers to win in this situation.  Their small business customers are flooding in loan applications requesting funding immediately while banks generally are not staffed to handle the surge in volume and the rules surrounding the new loan program have been a challenge to digest.

It’s been a “pressure-cooker” situation for bankers to be sure.  We at ValueMetrik CFO, like many other financial management consultants and accountants have been coordinating with many bankers and small businesses in our area to help arrange loans under the new Paycheck Protection Program (PPP) recently.  Throughout, we’ve witnessed bankers going above and beyond to do everything they can to be responsive to the needs of their small business customers. Bankers have been working long days. Most of them worked all weekend last weekend, so many have been working for 10 days, straight, as of the date of this message.

Bankers will get this job done for their customers. But even after doing all the work and figuring out all the new rules, let’s face it, this is not a hugely desirable rush of business for banks.  That is, bankers are straining to make all these loans that stand to generate only very low amounts of interest income. The interest rates are extremely low and many of the loans may only be on the books for two or three months.  As a former banker, I know that’s not a way for banks to make money, so it seems there’s little, if any, financial upside for banks in making PPP loans.

That being the case, PPP loans are one thing bankers are working their butts off for really just to serve others, and we want them to know we appreciate them for that.  Concerning is that, instead of receiving praise and “thank you” right now, we suspect most of them are just on the receiving end of frustration and complaints from impatient, if not desperate, business owners.

It’s understandable because small business owners are nervous, upset, and scared about the uncertainty surrounding us right now.  But we at ValueMetrik CFO have been so impressed by the efforts we’ve witnessed recently by our community bankers to rise to the challenge.  We appreciate their efforts and we know they are doing their best to take care of our small business community. In our view, they are motivated not by an opportunity to make money, but by their sense of duty to our community and their desire to be a part of the solution.  Bankers are working to do the right thing regardless of the unprecedented risk they may be taking in making these loans and regardless of a general lack of appreciation for their efforts.

For those reasons, we think our small business community should see our bankers as the small business heroes they are and go out of their way to support and thank our community bankers for putting forth so much effort to help us fight this battle.  But, hey, don’t pick up the phone and call our bankers to thank them right now… they don’t have time to chit chat. Don’t flood their inboxes with long “thank you” emails. Instead, just be patient. Know they are working hard for you right now. They are very aware of how time is of the essence in getting PPP loans out to small businesses.  Respond to their requests for information as quickly as possible and be kind and courteous in your communication. Let them know you appreciate them by the way you interact with them while they’re working their butts off for you. Then, when the moment is right… and you’ll know when that is, please be sure to express appreciation for all their efforts.

Take Care and Be Safe,

Darren Brewer, ValueMetrikCFO

It’s a given that businesses need to be profitable to survive. A key element in making a profit is pricing. Here are some suggestions that can help you get your pricing right.

Identify Your Costs

If you don’t know what your product’s or service’s total costs are, you can’t price them accurately. What makes up total cost? The components may include:

• Cost of materials or merchandise
• Labor costs, including salaries plus benefits
• Overhead costs, such as taxes, rent, insurance, marketing, utilities, and transportation

Determining how much you need to charge just to cover your costs is an essential first step in setting prices. Be sure to reevaluate your costs regularly. If you are experiencing difficulty moving certain products at an acceptable profit, your costs could be too high.

Know Your Customers

Customers generally fall into distinct categories. Some are very price sensitive. Others focus less on price and more on convenience. The implied status or exclusivity of certain goods and services is very important to certain other customers. Once you identify the type of customer you are targeting, it becomes easier to set your prices accordingly.

Know Your Competitors

Knowing what your competitors charge for similar products or services helps you position your business in the marketplace. For example, if you determine your competitors focus on low prices, you can decide if you want to differentiate your business by focusing on superior service.

Leveraging service as a value proposition may justify charging higher prices than your competition. Or there may be other differentiators that allow you to charge higher prices, such as exclusive merchandise or highly knowledgeable employees.

Experiment and Monitor

Look for ways you can sell options, service contracts, and add-ons to a primary product or service, perhaps by offering several “packages” at different prices. Or consider applying discounts based on the quantity ordered.

Continuously monitor your prices and your profitability. Knowing which products or services are making you money allows you to make data-driven decisions about inventory and pricing.

We invite you to call our office at 479-242-1236 to learn more or request an introductory consultation through our website.