ABC Solutions

Money and Marriage

One of the biggest things that can cause fights in a marriage is money. No matter where you are in a relationship, it’s a good idea to discuss these major money topics so you’ll know where you stand. 

Show me the money:  Combine or keep separate or both

One of the best ways to avoid conflict is to put your money into three separate piles: yours, your spouse’s, and a joint set of accounts. In this arrangement, each of you has control over some money that is all your own. The household spending will then come out of the joint account, and you both will make contributions to it on a regular basis. 

As a couple, you’ll need to discuss who will pay for what as well as what your regular contribution will be to the joint account. This is no small discussion. The more thorough you are, the less conflict you’ll have over money.

One spouse or partner will normally handle the joint finances, and it’s typically the person with the most accounting knowledge. However, you both should have access to this account in case of emergency. 

Savings and future purchase goals

Do you have goals about upcoming large purchases?  These might include:

  • A home purchase or improvement
  • Children’s education
  • Health care needs
  • Saving for retirement
  • A car purchase
  • A second home purchase
  • A vacation
  • Another item such as a boat, furniture, technology gadgets, a plane, or something else
  • A nest egg or cushion

If so, calculate how much you need and make a plan to set aside the money you need in the time frame you agree on. 

Spending

Do you like to spend more than your spouse? Or is it the other way around? When money is flowing, there is usually no problem. When money is tight, that’s when the problems come in. 

When there are conflicts in the area of spending, the best course is to focus on priorities. If you can agree on your priorities and goals, it can often shift spending habits.  

Budget

You may want to set a budget to stick as close as possible to expected spending limits. Start by recording current spending in these areas, and then agree on the amounts you want to spend in the future. 

  • Rent or mortgage payment
  • Utilities, including electric, gas, water, garbage, phone, internet, cable
  • Food and supplies, including grocery, kitchen items, liquor, and eating out
  • Entertainment, including travel, vacations, local events, holiday decorations, Netflix subscriptions, tech gadgets, books, etc.
  • House maintenance including repairs, cleaning, lawn care, appliances, and decorating
  • Automobile, including gas, insurance, licenses, and maintenance
  • Clothing and accessories, including dry cleaning
  • Health care, including pharmacy, doctor’s visit, and HSA contributions
  • Personal care, such as haircuts, nail care, etc.
  • Tuition and/or education expenses
  • Contribution to retirement and savings accounts
  • Charitable contributions
  • Taxes, including federal, state, local, school, and property
  • Paying down credit card or student loan debt

Retirement

What does retirement look like to both of you? Having this conversation will be enlightening. Know that dreams and goals can change over time as retirement approaches.

You’ll want to have an idea about what you’d like to spend during your final years so that you can make plans to start accumulating that wealth now. The sooner you start, the more years you have to build up your retirement assets. 

Monitoring your progress

Keep an eye on your account balances to make sure everything is as it should be. Review bank and brokerage account statements and/or your budget once a month or at least once a quarter so there are no surprises or trends that sneak up on you.  

When you reach your goals, reward yourself. Managing money is hard work, and you deserve to pat yourself on the back when a goal is achieved. If there is anything we can do to help you make your financial dreams come true, please reach out any time.  

Five Tips to Get Ready for a Pain-Free Tax Time

With the holiday season just around the corner, it’s a perfect time to get your financial records in order.  Tax moves you make now can mean finding more “green” to spend on family gifts and festivities.  Here are five quick tips for you to feel more prepared about your financial status as you go into year-end.

Avoid Penalties

This time of year is ideal to double-check your tax payments to make sure enough has been paid in, and even more important, to avoid overpaying so your money is not tied up unnecessarily. If you’re not sure of your 2013 tax liability, check with your tax preparer.

Balanced Books

Rather than wait until the busiest time of year for accountants and bookkeepers, you can get a head start now on catching up your books  You’ll have more of their attention and you may even avoid a rate increase if you get your books done early.  Completed bank reconciliations are a very important part of catching up.

Forms

It’s not too early to get your orders in for the forms you need at year-end like your W-2s, W-3s, 1099s, and 1096s.  That way, your forms will be onsite when you’re ready.

Records

Information that’s missing at the last minute can take up extra time and be costly.  It’s a great idea to do an audit now of W-9s to grab missing addresses and tax ID numbers of your contractors.  Also do a scrub of your employee payroll records so that your W-2s will be complete and accurate.

New Tax Changes

Be sure to check with your advisors on new laws affecting individuals and businesses next year.  One of the biggest ones making news is avoiding the fine involved regarding the new health care requirements for individuals.  And there are many more you’ll want to get up to speed on so that you’ll know how they affect your situation.

We know it’s early to be talking about taxes, but we’re also all about saving you money and time.  Try these five tips so you’ll have better peace of mind and be more prepared for year-end.

What Does Popeye Have to Do with Accounting?

You might have heard the terms “cash basis accounting” or “accrual accounting.”  Your net income number can change depending on which method your books are set up for.  Here’s a simple explanation of the difference, with a little help from one of the most famous cartoon characters in history.

Popeye and Wimpy

You might recognize Popeye the Sailor Man from the television cartoons or other media.  His sidekick, Wimpy, was the one who was always hungry and always out of cash.  One of his favorite sayings was, “I’ll gladly pay your Tuesday for a hamburger today.”

It’s All in the Timing

Let’s make today Thursday.  If Wimpy wants to pay us Tuesday for a hamburger today, here’s how it would be done for a restaurant on cash basis:

Cash basis recording Wimpy’s hamburger purchase

Both the sale and the receipt of cash would be recorded on Tuesday.  Companies on cash basis only record the transaction when the cash is received.

But, if the restaurant’s books were on the accrual basis, it would be a different story:

Accrual basis recording Wimpy’s hamburger purchase

Wimpy’s hamburger sale would be recorded on Thursday, the day he ate the hamburger.  The receipt would then be recorded on Tuesday, assuming Wimpy made good on his promise to pay.

You might be asking why a few days is such a big deal.  Outside of cartoon life, a couple of extra twists can happen.  It can be far more than a few days from the time you do the work to the time you get paid for it.  And often, these dates span different months and even years, affecting the amount you have to pay in taxes to various agencies.  Manipulating these dates (legally, of course) is one of many tax planning strategies that we can help you with.

Choosing for Your Business

In many cases, the government has chosen which method you must use when it comes to sales tax, payroll taxes, and income tax.  That’s part of the reason we make the required adjustments to your books at year end.

To help you run your business in a forward-thinking way, the accrual method is best.  You can record invoices for work you’ve done even though you haven’t received payment yet.  You can enter bills you need to pay before you pay them to forecast cash requirements.  Using accrual accounting, you can budget for cash flow needs as well as see more accurately what your revenue and income is looking like.

For clients who remain behind in their bookkeeping and just want to catch everything up once a year, the cash basis is adequate.  However they lose out on all the good information they could have had throughout the year to run their business better.

For other businesses, a hybrid approach between cash and accrual accounting can be the most cost effective.

A Little Help from Popeye the Sailor

What would Popeye say about all this accounting talk?

“That’s all I can stands, cuz I can’t stands n’more!”

Budgeting Breakthrough

When you hear the word “budget,” what do you think about?  Most people would say something similar to “Ugghh!” If you would rather do just about anything besides create a budget, you’re not alone.  The word “budget” brings up connotations of endless numbers, constraints, the opposite of freedom and creativity, and hard work, none of which are very desirable.

Yet, the benefits of a budget are huge.  Budgets can help you with cash flow improvements, keep you on track for higher profits, and alert you to items that need further action.

From “Budget” to “Profit Plan”

To be successful with budgeting, we need to get rid of all of the connotations that go with the word.  Perhaps it might work if we rename “budgeting” to “profit planning.” And then, rather than focus on how little we should spend, let’s start with how much revenue we’re going to make.

Revenue Clarity

It’s simple to create a revenue plan if you go backwards.  What revenue goal would you like to hit this year?  Just like we would never get in a car without a final destination, a revenue plan gives us a number to aim for in our businesses.

Once you know your number, then we can use averages to come up how many sales or clients we need to generate in order to meet our revenue goal.  Here’s a quick example:  Let’s say you want to reach $5 million in revenue this year.  If you average order is $10,000, then you need 500 sales.  If you have multiple products and services, then you’ll need to sum the product of the average sale times the needed number of sales for each line.

From there, you can make marketing and production plans based on the number of sales or clients you need.

Protecting Your Profit

Think of the expense side of your “profit plan” as protecting your profit margins so that you can ensure financial gain from all the hard work you do.  Setting budget limits on spending will allow you to control overhead and other items so you can keep more of what you make.

Exceptional Reporting

A great “profit plan” report will provide several things.  You can compare budget to actual, or better yet, just be alerted to the accounts showing exceptions.  You can also get an income statement that compares the current period with the prior year period so you can see how far you’ve come.  One last option is a benchmark report which provides industry averages so you can measure how you fare compared to other companies in your industry.

A “profit plan” is a great tool for your business.  If we can help you with the process or provide you with custom reporting, please give us a call.

Five Cash Leaks to Avoid

Cash flow improvement is a hot issue for small businesses; in many businesses, it seems like there is never enough cash when you need it.  The last thing a business owner wants is to reduce their cash balance unnecessarily.  To help you preserve or increase your cash, here are five cash management leaks to avoid.

1. Bloated Bank Fees

Some banks are more business-friendly than others.  We recommend you assess the fees you are currently being charged to see if you can discontinue any unnecessary services.

  •  Could you maintain a cash balance to avoid monthly fees?
  • Are you being charged online banking fees and bill pay fees, and are these still necessary?
  • Are you being charged for a high volume of transactions or cash drawer services, and are these competitive with other banks?

Banks, including national brands, that have not kept up with technology and have not automated a significant amount of their transactions are inefficient and must charge higher fees to cover their processing costs.  If your accounts are located at one of these costlier banks, you do have a choice.

2.   Overtaxed

Are you sure that you are paying the lowest amount of taxes you legally owe?  There are several places to look to make sure you have not overpaid taxes anywhere in your business or personally:

  •  Payroll taxes
  • Sales and use tax
  • Franchise taxes
  • State and local income taxes
  • Property taxes
  • Federal income taxes
  • Taxes that are specific to your industry

In preparing income taxes, a few of the easiest items to overlook include carryovers from prior years and new deductions you become eligible for.  If you received a large refund this year, congratulations, but that means you gave Uncle Sam an interest-free loan on your money.  You can do better next year by estimating your tax payments and paying only what’s due.

3. The Check Is in the Mail

Customers who take too long to pay you are big cash drains in your business.  Consider changing your terms, asking for deposits, or becoming more aggressive with collections to bring your DSO (days sales outstanding) down.  When you do, you’ll get an instant, permanent cash flow improvement.

4.  Sweat the Small Stuff

You may have an eagle eye on your largest bank account, but what about your other cash stashes?  PayPal, petty cash, and business savings accounts are among the places that may not get daily scrutiny.  Make sure those accounts are properly reconciled and have the proper controls in place so funds don’t go missing.

5.  It’s in Your Interest

A nice problem to have is when your bank balances get too large and you don’t need the money immediately.  Make sure that money is still working hard for you by putting the excess in an interest-bearing account.  It’s not much these days, but every little bit helps.

Make a Dash to the Cash

If we can help you plug any of these cash leaks in your business, please don’t hesitate to reach out and let us know.