( Money Matters) What we learned - Kasfia Rashid

Kasfia Rashid - “Money Matters with Kash the Bookkeeper”

IBGR.Network - PROFIT Radio. Everything a business owner needs to start, grow or exit a business. GROW WITH US.

Introduction: 
Hello! Welcome to Money Matters- Ask the bookkeeper series, the accounting show answering burning accounting questions! You know, the ones you would only ask your best bookkeeping buddy! 

Each show will have one main question from the audience with supporting questions from my various travels. Have a question to ask? Don’t be shy, step right on up! You can submit your questions directly to Hello@kashthebookkeeper.com! You may hear your question aired live across the globe! 

Wow! What a season! This is by far the most fun I have ever had creating content! We went through so many questions and covered every part of the basic accounting concepts! Thank you to everyone who contributed! 

As the season ends let’s take a look back at what we covered! 
 Listen>Apply>Engage

What is a cash reconciliation and why is it needed?
Simply put: it's "balancing your checkbook"! By comparing the balance in your bank to what your accounting system thinks is the balance, you increase your chances of catching fraud, decrease the chances of missing expenses, and ensure you always have money in the bank to cover expenses. A bank reconciliation should be completed each month for all bank accounts, credit cards, loans, and third party accounts PayPal/square/etc. Completing a bank reconciliation is the first basic implementation of an accounting process. 

What is depreciation? 
Have you ever purchased a new car or know anyone who has? Personal finance gurus advise buying a late model used car over a new car due to first-year depreciation.
According to carsdirect.com A new car depreciates or loses value almost immediately after you drive it off a dealer's lot. As a quick rule of thumb, a car will lose between 15% and 20% of its value each year according to Bankrate.com. This phenomenon is not limited to cars, but applies to every business asset other than cash. 

Depreciation allows an asset to be expensed in pieces every year. The net amount ( cost - depreciation) is known as the “book value” of the asset. The amount of cash the asset can be exchanged for is known as the “market value”. The difference between the book and market values will determine the gain or loss on that asset. As a business owner, we need to understand what the market value of our assets are, in case we need to sell them to cover our expenses or liabilities. This becomes pivotal when we are looking for funding or investors. Keeping detailed notes on depreciation is important not just for federal tax purposes, but personal property taxes as well. 

How do I build business credit?
So how can you get started? Good question. Since the SBA has been so helpful, let’s see what they recommend! In their blog they supply five simple steps to building business credit quickly!2 

1. File for a business structure such as an LLC, LLP or Corporation. If you are a sole proprietor- your business is not a separate entity and can not build credit. Once your company is a separate entity- be sure to keep your business and personal finances separate! 
2. Now that your business is a separate entity, you can file for a EIN! This is basically your business’ social security number. You can apply for a federal tax ID for free using the IRS assistance tool. While you're at it, apply for a D-U-N-S number as well. Check out the handy articles below to find out more information.3
3. Open a business bank account using your EIN # from above. This is key in protecting yourself and your business, and establishing it as a separate entity. 
4. One of the easiest ways to build business credit is to apply for net terms with vendors and suppliers. As you buy supplies, inventory, or other materials on credit, those purchases and payments get reported to business credit reporting agencies.
5. Monitor Your Business Credit Reports- There are three major business credit reporting agencies so it’s important to monitor each of your company credit files. Each agency collects data from various sources and may have different information about your company.

It’s equally important to establish a diversity of accounts with other types of business credit such as a business credit card or line of credit. Let these five simple steps serve as a starting point to building business credit for your company.

How do I put a debt schedule together?
As you build your business debt schedule, there are a few essential categories you will need to include. Adding the details of each debt gives a fuller picture of the commitments in your business allowing you to plan more efficiently.

1. The creditor or lender
2. Original date
3. Original amount
4. Current balance
5. Interest rate
6. Monthly payment
7. Maturity date (due date)
8. Collateral posted

IF this schedule is used almost exclusively for internal purposes, feel free to include notes about each debt, their function and any other information that you’d like to keep close by.

How do I pay myself?
Grab that paper and pen ladies and gents, it’s list making time! Calculating your starting salary or owner’s draw can be a daunting task. You need to fully know and understand your numbers ( personal ) and your business’ numbers before making this decision. Keeping in mind, you can change it! 

One of my favorite ways to answer this question is to utilize the ‘Profit first” method. If you have never heard of the book, check it out here:

While the book has multiple charts, figures and graphs to build a profitable business using the cash in your bank account, the basic concept is the same as an envelope system : Split each sale into the main parts of a business - Expenses, Reinvestment, and PROFIT!

Those are the lists you are going to need for your business and your lifestyle. Write down all of your “normal” expenses, your upcoming reinvestment expenses, and your lifestyle expenses. Add them all up and we have our “floor”. Next it is our job’s as business owners to bring in enough Revenue to meet that floor. 

As the business grows, so will the floor. With more revenue coming in adjustments must be made to keep the same percentage of profit across the business. 

But, Kash, this is all very complex, can’t you give me some easy to follow steps to calculate this? 

Well…………… okie.. Since you asked so nicely! 

I use this method in my personal life. 

For each $100 in sales :

• $30 should be set aside for taxes/savings right off the top. 
• $35 -$50 should be used to run the business/ reinvest
•  $20 to the owner 

How do I track my personal expenses along with my business?
The term personal financial statement refers to a document or spreadsheet that outlines an individual's financial position at a given point in time. The statement typically includes general information about the individual, such as name and address, along with a breakdown of total assets and liabilities. Income and expenses are also included if the statement is used to attain credit or to show someone's overall financial position. This can be tracked on a separate sheet. This includes all forms of income and expenses—typically expressed in the form of monthly or yearly amounts.


How do I turn my service based company into a product?
Creating something is easy, creating something that sells is the goal. It hardly matters how many products we have, if no one wants them or can use them, but thankfully, we aren’t starting from scratch. If you are already able to provide services, that means you have SOMETHING that SOMEONE is willing to pay for. In a service industry, that SOMETHING is usually a goal with the SOMEONE simply wanting to achieve that goal. How they get to their goal and what they use is where we come in.  

Your books and records holds all of this information from your customer list to your services offered and pricing. As your product list starts and grows, add them to your accounting records and track the funds coming in from each category. If you are producing several different lines of products, use classes to create miniature profit and loss statements per income stream. Lastly, you can add sub-categories under the cost of goods section to track production materials. Once set up,  be sure to review your product lines each month to make sure they are profitable!


How do I price my product/service?
The first step in pricing your products or services is to validate them in your own mind and then in the minds of your customers. Follow these quick steps to validate your product idea.

1. Check the marketplace to see if your product already exists. If it does, look at ways you can improve it, market it differently, or add value to the existing business who has the product. 
2. ASK PEOPLE! Ask everyone! Ask your friends and family, network, coworkers, product testers, etc. Get as much feedback as you can! Ask VALUE questions when asking for feedback. 
3. Plan the numbers. How much is going to take you produce, market, and maintain your product

How do I account for start up costs?
Startup costs are the expenses you incur before your business begins active operations. The costs might be associated with opening a new business or facility, acquiring a business, introducing a new product or service, conducting a business in a new area, or starting a new process or operation in an existing facility. Startup costs are usually associated with one-time activities. Small business startup costs can sometimes overlap with fixed assets and inventory costs. Ask an accountant to help you properly organize your books.

Examples of startup costs for a new business include:

• Investigating whether to create or buy a business
• Organizing a partnership or corporation
• Opening a facility
• Consulting fees
• Advertising
• Wages to train employees
• Travel costs for securing distributors or suppliers

Startup costs do not include:

• Deductible interest
• Taxes
• Experimental costs

Other eligible business start-up costs include:

• Customer surveys
• Market research expenses (publications, focus groups, consulting, etc.)
• Product research
• Site selection costs (i.e. money you spend searching for and securing an office or workspace)
• Professional and consultant fees
• Costs associated with acquiring an existing business
• Costs of leasing a business property
• Equipment costs

Organizational costs: These are any costs involved in the actual formation of a corporation, partnership or LLC. 

Typical qualifying organizational costs include:

• Incorporation fees
• Partnership filing fees
• Legal fees for services incident to the organization of the corporation or partnership, such as negotiation and preparation of the partnership agreement
• Accounting fees for services incident to the organization of the partnership
• The cost of organizational meetings
• The cost of temporary directors

When should I start hiring employees? 
Before finding the right person for the job, you’ll need to create a plan for paying employees. Follow these steps to set up payroll:

1. Get an Employer Identification Number (EIN)
2. Find out whether you need state or local tax IDs
3. Decide if you want an independent contractor or an employee
4. Ensure new employees return a completed W-4 form
5. Schedule pay periods to coordinate tax withholding for IRS
6. Create a compensation plan for holiday, vacation and leave
7. Choose an in-house or external service for administering payroll
8. Decide who will manage your payroll system
9. Know which records must stay on file and for how long
10. Report payroll taxes as needed on quarterly and annual basis

The IRS maintains the Employer’s Tax Guide, which provides guidance on all federal tax filing requirements that could apply to the obligations for your small business. Check with your state tax agency for employer filing stipulations.

What are some ways to save on taxes? 
Setting up books and records is the quickest and easiest way to track expenses and income for estimating taxes. This is easily done with computer-based recordkeeping solutions that enable you to handle this matter yourself, like QuickBooks Online. QBO,for short, can easily store required receipts for expenses, issue invoices for revenue and track inventory all in one place! 

Maintain best practices for certain recordkeeping. For example, if you use your personal vehicle for business, you need to track your business mileage, QBO has that option as well.  Or, if you reimburse your employees for expenses like meals or travel, these transactions need to be processed carefully.

F1.13.4NA