Best Business Practices

Science fiction movies and books may portray artificial intelligence as a human-like giant brain with thousands of wires coming from it that control whole cities and their populations. The reality today is that artificial intelligence is unobtrusive, everywhere, and we are interacting with it multiple times daily without always recognizing that we are.

Artificial intelligence is being used by large corporations in a range of areas, including sales, marketing, customer service, employee training/coaching, and logistics. Small businesses can also employ artificial intelligence to improve customer service, reduce costs, and help drive revenues.

What It Is

Artificial intelligence (AI) is a branch of computer science that focuses on building smart machines capable of performing tasks that typically require human intelligence. Essentially, it endeavors to simulate human intelligence in machines. Examples of AI applications many people are familiar with include smart assistants (such as Siri and Alexa) and virtual agents that interact with customers and guide them to possible solutions. Looking ahead, self-driving trucks and cars are in various stages of development, and some vehicles already have self-driving features.

Customer Service

AI can be deployed through the use of chatbots to handle a variety of tasks, such as directing callers to the function they want (e.g., automatic payments). On a more complex level, AI can be used online to help customers with product search and discovery and respond to requests with relevant recommendations. Businesses can use data gathered from AI chatbot customer interactions to identify where in the process problems may arise and what these problems are so that they can be eliminated in the future.

Logistics

Moving goods from one point to another requires up-to-the-minute data so that what is being shipped is shipped in the most efficient and cost-effective way possible. Certain AI programs can predict points where congestion may happen and help redirect trucks and vans so that they avoid bottlenecks and slowdowns. AI essentially streamlines the supply chain. It can do something similar when it comes to warehouse management — identifying choke points that slow the movement of goods from point A to point B.

Marketing

AI marketing sets out to leverage customer data and machine learning to anticipate a customer’s next move and to nudge that customer toward either buying something or increasing his or her average order value. Businesses are using AI to attract, nurture, and convert prospects.

By tracking a customer’s online searches, AI programs can identify what products an individual might be interested in and may be considering buying. AI can target that individual with ads highlighting products or services previously identified as being of interest to the customer. This approach essentially uses machine learning to offer personalized product recommendations.

Sales Training

AI can be used to coach salespeople to improve their sales skills and help them increase their percentage of successful sales calls. AI programs exist that can analyze a number of variables that are used by the most successful salespeople and use that data to identify strategies that can be replicated and utilized by other salespeople within the organization.

As with any technology, there are costs involved in incorporating AI into a company’s operations. A financial professional can assist you in analyzing the costs and potential financial benefits of any new technological enhancements your small business may be considering.

Cash is critical to the functioning of every business. Maintaining a healthy cash flow not only allows a company to meet its financial obligations but also gives it the flexibility to take advantage of emerging opportunities.

All too often, however, small businesses find themselves in a cash crunch, struggling to pay the bills and stay afloat. The good news is that businesses can take various measures to manage cash flow more effectively.

Controlling Expenses

A good place to start is by reviewing expenses to determine if there are areas where you can shave costs by contracting with another vendor or renegotiating existing contracts. Costs for ongoing goods and services, such as utilities, shipping, and telecommunications, should be reviewed frequently to see if expenses can be reduced. And when paying suppliers, consider whether it makes financial sense to take advantage of any early payment incentives that may be offered.

Keeping Debt in Check

Debt can be a useful tool if used properly, so be sure to keep it at a manageable level. Before your business takes on a new loan, reach out to multiple lenders and compare the terms they offer. When acquiring equipment, consider whether leasing may be a better option than borrowing money to finance its purchase. For short-term financing needs, a line of credit is a helpful tool. The lender will base interest charges only on the amount your business draws from the credit line.

Managing Inventory

Maintaining excessive inventory can tie up cash unnecessarily. If your business carries inventory, avoid overstocking. Your inventory management system should be able to indicate the minimum quantities that you need to keep on hand in order to meet your customers’ needs.

Simplifying Billing and Collections

Employees who handle billing and collections should have specific, clear guidelines. By standardizing the process, you help ensure your business will be paid promptly. You can speed up payments by offering discounts for early payment or by encouraging your customers to pay using electronic funds transfer. To help minimize the problem of unpaid accounts, consider making follow-up calls or sending email or text message reminders within a set period after you have provided goods or services or when a bill’s due date passes. Minimizing Taxes When Possible

Deductions and credits can help your business limit its tax burden and boost its cash flow. A knowledgeable tax professional can keep you informed of any special tax breaks that may be of value to your business, such as the energy credit for the acquisition of various types of alternative energy property.

Make Planning a Priority

Identifying the causes of reduced cash flow and taking steps to rectify a cash flow crunch is critical to the ongoing success of your business. Proper cash flow planning can help you make better use of budgets and employ financing and capital more effectively to increase revenues as well as boost profits. If erratic cash flow is a recurring issue for your business, it can be helpful to gain the insights and the input from an experienced financial professional.

As a small business owner, you probably think about tracking expenses and keeping up with tax deductions, but these aren’t the only critical accounting tips you should know. Whether you’ve been in business for a while or you’re a new start-up entrepreneur, read on for our 8 best accounting tips.

1. Outsource your bookkeeping.

For every business, bookkeeping is critical. This essential task is keeping organized records of your business’s income and expenses. If you’re like most small business owners, bookkeeping isn’t in your primary skillset. And even if it is, you probably don’t have time to crunch numbers and keep records. By outsourcing this critical task, you will free up your time; put this vital function in a professional’s capable hands and check one business owner-related stressor off the list.

2. Keep accurate records.

In addition to having someone overseeing your bookkeeping, it is up to you as the business owner to make sure you keep accurate records for your business. For example, you’ll need to account for:

• Gross receipts are sales, deposits, credits, recipes, invoices, etc.
• Expenses include all receipts, canceled checks, or anything else that shows the cost of doing business.
• Fixed assets should be recorded so that annual depreciation can be calculated.

Pro tip: For tracking receipts, you may want to use a receipt scanning app on your smartphone. It makes it easy to scan and store receipts electronically instead of maintaining a large paper file.

3. Keep an accurate inventory.

Keeping accurate inventory records provides you with current data that reveals whether you can take on client requests or additional projects with inventory on hand and when you need to order stock. It also helps you identify trends over time and make basic predictions about your business operations. All of these factors allow you to plan and strategize about your business. This ability is critical to developing and maintaining a small business over time.

4. Separate personal and business accounts.

The most important reason to keep your personal and business accounts separate is taxes. As a business owner, you can deduct expenses like travel and office supplies; however, you must provide supporting documentation for these expenditures to claim them. Lumping personal expenses in with business expenses makes a tedious mess of separating expenses and could knock you out of some deductions. It is best to have a separate line of business credit, separate credit cards, and a separate bookkeeping system to be safe.

5. Have (and maintain) a budget.

You should have developed a budget when you created your business plan to make projections about revenue and expenditures. But beyond that, you must maintain a working budget at all times. This approach helps you stay on track with what you spend versus what you take in, and it provides accountability so that if you do get off track with your spending, it is readily apparent and can be corrected quickly.

6. Work with a tax professional.

When the average business owner attempts to complete their taxes, it costs them about 40 hours in valuable time. And even then, chances are, a professional’s help will be needed to ensure the business is getting all the deductions to which it is entitled. So why not start with a pro? After all, tax preparation fees are a tax-deductible business expense.

7. Plan ahead.

When a small business implements the accounting tips on this list, it allows for planning with accuracy. Accuracy is the key term. Anyone can guess what might happen, but only with accurate records and observations about business patterns can you confidently make targeted predictions. For example, a small business that tracks income and expenses can detect patterns that reveal the best time for large investments and expenses.

8. Monitor business performance with financial statements.

Again, we cannot emphasize the importance of logging income and expenses. It helps in the day-to-day operation of your small business and provides information about overall business performance. For example, income statements help your business determine profit or loss, a balance sheet shows assets and liabilities, and a cash flow statement shows how much money goes in and out of your business in a given time, as well as how much cash remains. These types of financial statements are also imperative when asking banks and investors to secure financing or funding.

With these eight tips, you can keep your small business on track, establish valuable patterns of business behavior, and make sound financial decisions for your business’s future.

If you would like help with some of these accounting tasks, contact us now.

Your accountant or CPA is a business asset that you should put to good use year-round, not just at tax time. There are several topics beyond taxes that business owners should discuss with their trusted financial professionals. In this article, we cover five of them for you. While the new year is traditionally when business owners think of making financial, strategic, and other business-related plans, any time is the right time to speak to your accountant to discuss the following aspects of your business. You can’t begin the conversation too early, but it could be too late in some cases, so don’t put aside these five essential talking points.

1. Financial Planning

Budget is front of mind for business owners, but other financial issues impact your business, too. Consider a full portfolio review with your accountant to plan your financial future. Some critical topics to cover include strategies to improve cash flow, existing business loans, capital investment, charitable contributions, employee-related expenses like bonuses and health care, retirement planning, and asset management.

2. Company Growth

The goal of all businesses is growth. With growth comes change. As your business objectives shift, your valuation and tax liability often shift, too. Any changes you experience in your business should be conveyed to your accountant or CPA so that they can apprise you of liabilities or status changes. For example, suppose you plan to expand, add additional locations, make significant staffing changes, merge companies, acquire new businesses, or plan to sell your business. In that case, you should set up an appointment with your accountant to develop a logical strategy to address the change.

3. Inventory

If your business sells or resells tangible goods, inventory is vital. Sales tax laws and regulations can be challenging. Many states have rules about nexus (i.e., how much presence a business has in a city or state) related to where businesses warehouse inventory and fulfill orders. Your accountant can assess your order process to verify your restocking and ordering processes to maximize cash flow, ensure unsold inventory is accounted for, and ensure that sales tax is collected everywhere your company has nexus.

4. Risk Management

Do you have a plan in place to protect your business from disruption? Many do not. If that applies to your business, contact your accountant to discuss continuity planning to protect your business. They can provide professional insight regarding how to mitigate risks should a disruption occur. Some topics to address are whether your insurance policies are up to date, if all compliance, security, and privacy standards are met, whether your business has fraud protection in place, and if the existing internal controls protect your business. Given the time and capital small business owners invest in their passion, they must take time to manage any potential risk that could destroy what they worked so hard to create and build.

5. Tax Compliance

Lastly, as a business owner, you always want to be tax compliant. And this doesn’t apply only to federal taxes. It is just as essential to make sure state-imposed taxes are addressed on time. Regulations and tax laws change frequently, so it is vital to have a firm grasp on these. The best way to ensure you do this is to have your accountant guide you. They can inform you of any changes that affect your business and advise you on addressing them. Discuss collecting and filing W2s and 1099s for any contract employees; ensure exemption and resale certifications are collected and stored correctly; comply with online sales and nexus rules; and have an internal review to find any issues that might trigger a sale tax audit.

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It helps to think of your business accountant as an extension of your team, an impartial adviser who will assess the risks and rewards associated with your business. They will answer your questions and illuminate unclear topics for you. They may bring up important points you’ve yet to consider, so make that call today and get a meeting on the calendar to discuss these critical points with your accountant. And remember, you can do your part by making sure you keep business and personal finances separate and maintaining complete, organized records.

Eligible small employers who provide health care coverage to their employees can receive a Small Business Health Care Tax Credit from the Federal government. Here’s what you need to know about who qualifies and how to take advantage of the credit.

What is the Small Business Health Care Tax Credit?

Small business owners make numerous decisions about employee benefits. For example, the type of benefits offered can entice the most desirable candidates to apply for their company’s positions. The right type of benefits can also boost employee retention. An excellent employee benefit to consider is health insurance. If that’s a perk being offered, the small business health care tax credit is a feature of the Affordable Care Act (ACA) that may be of interest. The tax credit is limited to employers with less than 25 employees, and it operates as a sliding-scale credit based on the size of the employer. The larger the employer, the smaller the tax credit. The maximum credit is 50 percent of premiums paid (35 percent for tax-exempt employers).

Qualifying small employers can take advantage of the small business health care tax credit for two consecutive tax years providing the business owes no taxes during those years. The credit can also be carried forward or back to other tax years. Any excess amount paid for health insurance premiums over the allowable credit can be claimed as a business expense.

Who qualifies for the Small Business Health Care Tax Credit?

As mentioned above, the small business health care tax credit is for small employers with fewer than 25 full-time equivalent employees (FTE). Note that the FTE concept is based on hours worked rather than the actual number of employees.

Other qualifications include that:

The employer pays less than $50,000 a year per FTE in average wages. Determining FTEs and average annual wages should be done by your qualified tax preparer, CPA, or via guidance from the Internal Revenue Service (IRS).

The employer offers a qualified health plan to employees through a Small Business Health Options Program Marketplace (SHOP).

The employer pays at least 50 percent of the employee’s premium cost. (Not family or dependent premium cost.)

What about Tax-exempt Organizations?

Tax-exempt organizations are also eligible for the small business health care tax credit. In this case, the credit is refundable to the extent that it does not exceed income tax withholdings or Medicare tax liability. Refunds to tax-exempt organizations are reduced by the current fiscal year sequestration rate. For an explanation of sequestration and how it impacts the small business health care tax credit, consult your tax advisor or accountant.

How do small businesses take advantage of the Small Business Health Care Tax Credit?

To claim the small business health care tax credit, the IRS requires Form 8941 (Credit for Small Employer Health Insurance Premiums) to be filled out and submitted. For small businesses, the amount should be included as part of the general business credit on the company’s federal tax return. The amount should be included on Form 990-T (Exempt Organization Business Income Tax Return) for tax-exempt organizations. Note: this form must be filed for a tax-exempt organization to claim the small business health care tax credit, even if the business does not typically file that form.

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Small business owners may find that offering perks like health insurance aren’t beyond their economic reach with incentives like this. As always, a trusted tax professional is the place to turn regarding this and other tax credits for small businesses.

While another stimulus plan waits in the wings, we’re still learning about the impact of the previous one on small businesses.

It was a long time coming, but it’s finally here. On December 27, 2020, then-President Trump signed a $900 billion stimulus bill into law, the Consolidated Appropriations Act. Along with many new provisions, the CAA expanded some elements of the earlier CARES Act.

President Biden has unveiled a $1.9 trillion package that would provide, among other things, more support for small businesses, the unemployed, and poverty-stricken individuals. It would also include funds for state and local governments and COVID-19 vaccinations and testing, in addition to $1,400 stimulus checks to qualified Americans.

When and if the American Rescue Plan gets passed and signed, there will be a lot more relief coming your way. For now, we’re still unpacking the details of the late 2020 $900 billion package, as we’re told its funds have not all yet been allocated. Here’s a look at some of what your small business needs to know.

The Paycheck Protection Program

The Paycheck Protection Program (PPP) was very popular when it was rolled out last year as a part of the CARES Act. So popular, in fact, that we heard numerous stories about small, struggling businesses being shut out because larger companies with existing banking relationships and more financial resources beat them to it. $285 billion in loans has been reserved for the PPP this time around. And the rules have gotten stricter and more targeted, allowing those missed the first time to secure much-needed funds. These loans are now capped at $2 million. They’re earmarked for companies that experienced a minimum 25 percent reduction in sales for at least one quarter during 2020, and which employ fewer than 300 individuals.

Further, $12 billion in loans has been reserved for minority-owned businesses. And publicly-traded companies will not be allowed to apply. Businesses can now deduct expenses incurred in administering their forgiven PPP loans that would previously have been considered ordinary and necessary business expenses. This change is retroactive to the CARES Act.

Relief for Restauranteurs

The restaurant industry, which was hit particularly hard by COVID-19 closures and reductions in business, will benefit from the tax break for corporate meal expenses. Rather than the 50 percent deduction that’s been allowed since the Tax Cuts and Jobs Act was signed into law, companies will be able to deduct 100 percent of business meals at restaurants for the 2021 and 2022 tax years.

Extension for Deferred Payroll Taxes

You may recall that President Trump allowed businesses to defer payment of the employee-side payroll tax between September 1, 2020 and December 31, 2020 in certain cases. The repayment deadline has been moved from April 30, 2021 to December 31, 2021. The original deferral deadline of December 31, 2020 still stands.

Extension of Paid Sick and Family Leave Tax Credits

In response to work absences due to COVID-19, eligible employers could receive refundable payroll tax credits for compensation paid to employees who had to take time off between April 1, 2020 and December 31, 2020. Employers are not required to offer this leave between January 1. 2021 and March 31, 2021, but they will be eligible for the tax credits if they do.

Additional Funding for the Economic Injury Disaster Loan Program (EIDL)

Small businesses and nonprofit organizations who have suffered temporary revenue losses because of COVID-19 were eligible for loans to cover financial obligations and operating expenses that they were unable to meet due to the pandemic. Funds for this program ran out in mid-2020, but the CAA added $20 billion for new EIDL grants. The deadline is December 31, 2021, but you should apply as soon as possible in case the money is depleted quickly again.

Employee Retention Credit (ERC) Extended

This provision in the CARES Act was designed to encourage eligible employers whose businesses were affected by COVID-19 to keep employees on their payrolls. It was a fully-refundable tax credit that was equal to 50 percent of qualified wages (with limitations). It originally expired on January 1, 2021, but the CAA extended this to June 30, 2021 and modified the original regulations in ways advantageous to both employers and employees.

Many Critical Limitations

As with all tax laws, the individual provisions of the CAA come with many restrictions. Your business may or may not be eligible for all of the individual elements mentioned here. Rules for the second round of PPP loans are especially complex.

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If your operations and finances have been affected by COVID-19, contact an accounting professional to see if you can get some relief from your losses.

Our Albuquerque, NM CPA firm provides accounting services  for all types of small businesses. Call us at 505-200-0094 now and tell us about your business or request a complimentary consultation online.