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How Do I Pay Myself? August 19, 2009

Posted by Julie Duriga, CPA in Small Business, Uncategorized.
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j0438810This is a question that I answer virtually everyday.  Of course, every entrepreneur wants to get paid as often as we can and as much as our business can afford.

How you pay yourself depends on the business entity in which your business operates.  Remember the LLC (Limited Liability Company) entity is only a state entity.  There is no LLC federal tax form.  If you have an LLC entity, you are in the eyes of the Internal Revenue Service a sole proprietor, partnership or S corporation.  We say in the CPA business, they are an LLC filing as a sole proprietor.  OR they are an LLC filing as a partnership.  OR they are an LLC filing as an S Corporation.  Make sure that you know what entity you are registered at the federal level, Sole Proprietor, Partnership or S Corporation.

  • Sole Proprietor-You must have two separate bank accounts, one for your business and one for your personal affairs.  When the business gets paid, that cash is deposited into your business account.  When it is time for you to get paid, you can write yourself a check or transfer your funds over from the business banking account to your personal account.  It is important that you leave money in your business bank account (even better to set up a separate savings account)  to hold back your self employment taxes and any potential income tax you may have.  (See blog post called “Put My Taxes Into Buckets, Please.”)  In a sole proprietorship, when you pay yourself this is called an Owner’s Draw.  If you have profits in the business, even though you did not bring those profits home with you, you will still pay both income taxes and self employment taxes on those profits.  If you have employees, they can be run through payroll but you can’t run payroll on yourself in a sole proprietorship or inside of a partnership.  Every quarter, you are required to make estimated self employment taxes.

 

  • Partnership-Very similar to a Sole Proprietorship in that both profits and owners’ draws are subject to both income tax and self employment tax.    There needs to be two business bank accounts and you can do a transfer or write yourself a check from your business account to your personal account.

 

  • S Corporation and C Corporations-As an active officer of the corporation, you are required to write yourself a payroll check.   There is some flexibility as to what how much we can pay yourself in dividends but it is an IRS red flag if there is no payroll for officers in a corporation.  I love it when officers run payroll on themselves and receive a W-2.  This makes for much less of a surprise at the end of the year at tax time.  I personally converted myself to a Corporation entity so that I did not have worry about making those estimated payments throughout the year.  I will get a W-2 this year.  I may even get a small refund!  There is a really nice change.  I love Paychex for payroll.  They are reasonably priced and do their work excellently!  It doesn’t matter if you have just one person on  your payroll, the complexities of payroll are the same if you have one person or twenty five people.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

Networking Events Or Community Service? August 12, 2009

Posted by Julie Duriga, CPA in Small Business, Uncategorized.
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j0432756I love the optimistic energy of an entrepreneur, the air sizzles with hope and excitement.  When small business owners are starting their business,  I believe they underestimate how difficult and how long it takes to develop and maintain their business relationships.   Business is all about relationships, regardless of what you are selling.  People want to buy from people that they know.   How do you do that?  There are so many networking groups and opportunities to meet other people…it is difficult to decide which path to choose.

If you are starting your own business or you are currently in business for yourself, be sure to give yourself time to develop those relationships.  Make sure that you are putting yourself in front of people doing what you enjoy.  Your passion and enthusiasm will come through and people will be drawn to your positive energy. 

 I have always thought that networking events for the sake of exclusively networking were artificial.  I prefer putting myself in front of people doing what I enjoy and let the business come as it may.   It feels more authentic and genuine to volunteer as a way to meet people.  Of course, I let folks know what my business is about but when I am volunteering or participating in something that interests me, there is so much other stuff to talk about.  If you are just starting out,  consistency is critical.  Being someplace that you love to be over and over again will grow your business in a meaningful and sustainable way. 

Visit my website at www.UniversityForBusiness.com for a free preview of my video for small business owners.

What Do You Mean? I Have To Be A Salesperson? July 23, 2009

Posted by Julie Duriga, CPA in Small Business, Uncategorized.
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Sales?I have been thinking the past few weeks about what entreprenuers really want.   I believe entrepreneurs want to do their technical work in the best possible way with the freedom of being their own boss.  Their technical work is their trade or craft.  For some reason, it escapes most of us who start a business that we have to know sales, accounting, marketing and about fourteen other elements of knowledge are required to have a successful business.   I believe learning how to sell is at the top of the list as one of the most important qualities of the fourteen elements of successful entrepreneurship.

Sometimes, I think that sales people would have an easier time learning to be a CPA than I have learned sales.  There is a magic in sales.  I don’t think it can be learned,  some of us have more of the magic than others.   I love to meet a good sales person and I enjoy a good sales pitch.  Don’t you? 

So many of entrepreneurs focus on their technical knowledge and lack the understanding that as stated in Michael Gerber’s E-Myth book,  “people buy feelings.”  They buy to a small extent  based on being impressed with what we know and our credentials but rather how do we make them feel.   We all want good feelings.    Most entrepreneurs are focused on their technical knowledge with no ability to sell the good feelings associated with their product.    We all sell good stuff!  Make sure that you frame your words around your value and what you bring to the table whether it is peace of mind, relaxation, joy, self confidence or any other great feelings you can deliver to them.

This is one issue that I have had as a CPA…my customers don’t really want to buy tax returns.  Who does?  I equate the tax return with buying tires.  You have to have tires and tax returns.  They know they have to but they don’t really want to buy the feeling of having their tax returns prepared and filed for them.  It is one of those interesting issues, that you will never the full wrath of the IRS until you do not comply with their random rules that quite frankly don’t make any sense.  When people come to my office they are buying the sense of avoidance to stay out of trouble.  I have tried to frame the tax return as peace of mind and we can help you save money but it is a tough sell.    I wonder how a fantastic sales person would approach selling tax returns and accounting services.

I think I will go and read The Greatest Salesman In The Worldby Og Mandino which I picked up at Goodwill for fifty cents….

For additional information on how to run your small business, please visit us on the web at www.UniversityForBusiness.com.

5 Ways to Improve Cash Flow In Your Business June 17, 2009

Posted by Julie Duriga, CPA in accounting, Small Business, Uncategorized.
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There are so many ways that good accounting can save you a fortune,  this topic is virtually unlimited!  If we do a great job managing money that is owed us (money that is owed to us is a receivable) we might avoid borrowing or we could make money by charging interest on monies owed to us.  Receivables are an excellent place to start in our quest to make and to save a fortune.

  • Just Starting Your Business?  Terms for payment absolutely should be ” Due Upon Receipt.”  After all, you have just started your business and cash flow is probably a  little light.   You may want to appear as though you can afford to give terms of 15 or 30 days.  For most of us when we are starting,  this isn’t possible to give longer terms.  Use “Due Upon Receipt” or  ask for payment before they even before leaving the place of business.   It may even be necessary to say when they call for an appointment to say,  “Bring your checkbook.”

 

  • Watch Your Receivables Closely-If you see you have a customer who is not paying in the manner you have outlined, give them a call and see if they need help.  Check in and see if perhaps they need to make payment arrangements.  Don’t let your customers stray and put you at the bottom of the list because you are not making contact with them.  Unfortunately, it is your responsibility at times, to make collections calls.

 

  • Charge Interest!  If your business has been put in the position where your customers need your business to carry them for a short period of time, it is perfectly acceptable to charge interest.  Of course, if you are going to charge interest, this needs to be disclosed upfront on the first invoice what your intentions are.  For example, “10% interest is charged after invoice is 30 past due.”

 

  • Offer a 2% discount if your customers pay within ten days.  This is a great way to help your customers save money and for you to make sure that you get paid as quickly as possible.

 

  • Factoring?  There are companies that offer what is called factoring.  This means they will buy your receivables from you and your customers send the company the money instead of your business.  They buy your receivables from you at a lower price than what they believe they will collect.  This process gives you the upfront cash and the factoring company takes over from there.   This is usually only used if your business is in tough times but it is an option.

Managing your accounting is critical for long term success.  Even more importantly, it is critical if your business has receivables, to be attentive to them.  If you are attentive and proactive with your receivables, it is possible to avoid borrowing money.    It is possible for your business to make money by charging interest on invoices that go over 30 days.   Manage your receivables as if it were cash because your receivables are cash!  If you would like additional information on how good accounting can save you a fortune, visit us at our website at www.UniversityForBusiness.com.

Eight Vocabulary Words Every Small Business Owner Needs To Know May 27, 2009

Posted by Julie Duriga, CPA in accounting, Income Statement, profit, Small Business.
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Words To Grow Your Business 

Tomorrow I am speaking at the annual Mountain BizWorks Women In Business Conference.   My break out session is going to be a great review for small business owners.  I will to reconnect the business owners with their income statement and the terms needed to understand this statement.  I  realized yesterday that I needed to jot down some topics to talk about at the conference.   I  also realized that I needed to start a blog.  So, here I am a new blogger, writing my first blog and while drafting some discussion topics for the conference tomorrow.

  • Income or Profit and Loss Statement-This statement shows how much revenue you have generated and how much in expenses you have generated.  It also gives us important historical information but we can use our income statement to make decisive and informed decisions.  We can count on our numbers to tell us a story, sometimes it is a story we want to hear and sometimes the story can be uncomfortable.

 

  • Revenue-This number represents what you have earned selling your goods or services.  Revenue is the dollar amount that you have actively earned during the normal course of your business.   If you receive a loan, this is NOT revenue.  If you receive cash at the time you have completed your sale, then your cash in the bank and revenue would most likely be the same.   If you invoice your customers, then your revenue versus what you have in your bank account could be dramatically different.

 

  • Cost of Goods Sold-This number represents what the cost of the goods or services that you have sold cost you.   If I sell a dress for $20.00 (this is my revenue) and I paid $5.00 for this dress, my cost of goods sold is $5.00.   Measuring cost of goods sold for those of us in the service business is a little tricky.  If we are selling other people’s time, we should classify that person’s time as cost of goods sold.  Manufacturing cost of goods sold is complex, bigger than the scope of this blog, but certainly worth a blog entry of its own.

 

  • Gross Profit-This calculation is simply found by subtracting our cost of goods sold from our revenue.  Hopefully, we have more revenue than our cost of goods sold.   Gross profit is represented as a dollar figure.  Looking at the dress example above, our gross profit is $15.00.

 

  • Gross Profit Margin-This calculation is a percentage figure.  Again, referring to our dress example above, our gross profit margin is 75%.  We arrive at this figure as follows: Gross Profit/Revenue.  Try it yourself and see if you get the same answer.  Two calculations are necessary.  First, figure the gross profit and then you can figure out your gross profit margin.  This is one of the most important figures in your business.  Your gross profit margin might reveal that you need to raise your prices or find a new supplier or that everything is just fine.  Of course, the higher the gross profit margin, the better you are doing financially

 

  • Expenses-These are cash outlays that are required  to operate your business.   In business,  expenses are any cash outlay that contribute to the continuation of the business.  Rent, utilities and advertising are examples of expenses.  Equipment that you purchase is not considered an expense.    If you are paying back loans, the principal payment is not an expense but the interest portion is an expense. 

 

  • Net Profit or Net Income-This is also known as your bottom line.  This is simple addition and subtraction.  Your net income or net profit is found by subtracting all of our expenses from our revenue.   Our net profit is what is left over after all of our expenses have been accounted for.  If we had $100.00 in dress sales and $50.00 in expenses, we are left with $50.00 in net income.

 

  • Net Profit Margin-Like our gross profit margin figure, this is one of the most important figures of your business.  The higher the net profit margin, the better.  In our example above we have a 50% net profit ($50.00/$100.00).

These eight vocabulary words will help you understand your income statement with a new empowered approach.  I want to help you love your numbers and I want you to have a relationship with your numbers.  I want you to make all of your business decisions only after reviewing your numbers.   Your numbers need you! 

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!