Accounting

How does my company’s accounting method impact its bottom line?

Do you know if the accounting method you’re using is the right one for your business?

The difference between cash and accrual accounting lies in the timing of when sales and purchases are recorded. Cash accounting recognizes revenue and expenses only when money changes hands, but accrual accounting recognizes revenue when it’s earned, and expenses when they’re billed (not paid).

The cash basis is easy to determine when a transaction has occurred (the money is in the bank or out of the bank) without the need to track receivables or payables. Since transactions aren’t recorded, per se, until the cash is received or paid, the business’ income isn’t taxed until it’s in the bank.

In the accrual accounting method, revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid. The upside is a more realistic idea of income and expenses during a period of time, providing a long-term picture that cash accounting doesn’t provide. The downside is it doesn’t provide any awareness of cash flow. Accrual basis accounting without careful monitoring of cash flow can have potentially devastating consequences.

Tax Impact

Let’s say you own a business that sells machinery. If you sell $5,000 worth of machinery in December, under the cash method, that amount is not recorded in the books until the customer hands you the money or you receive the check.

Under the accrual method, the \$5,000 is recorded as revenue immediately when the sale is made, even if you receive the money in January and thus pay taxes on it.

The same principle applies to expenses. If you receive an electric bill for $1,700, under the cash method, the amount is not added to the books until you pay the bill.

However, under the accrual method, the $1,700 is recorded as an expense the day you receive the bill.

Should I use cash or accrual?

If your business is a corporation (other than an S Corp) that averages more than $25 million in gross receipts over the past three years, the IRS requires you to use the accrual method. If your business doesn’t hit those criteria, you can use the cash method.

Keep in mind that the IRS requires companies to use and maintain the same accounting method to report taxable income for a year — so no changing halfway through a tax year.

Some businesses can choose the hybrid method of accounting, wherein they use accrual accounting for inventory and the cash method for their income and expenses.

If you’re unsure of which accounting method is best for your business, speak with us.

More Tax Tips

Would you like more year-end tax tips? Download our new, Year-End Tax Planning Guide.

Best Small Business Accounting: Insogna Partner Gusto Adds New HR Integrations

At Insogna, we strive to offer efficient, modern services that will set us apart as the best small business accounting in Texas. Our partner, Gusto, recently released two new HR integrations that will allow Insogna to better assist you in hiring and taking care of payroll responsibilities. In addition to their seamless payroll management, Gusto is adding the optional services from JazzHR and Greenhouse to help users improve the hiring process, from effective recruiting to simple onboarding.

JazzHR works with clients to streamline the recruitment process on a user-friendly platform. They offer solutions that include finding qualified candidates, assisting with interviews and assessments, and reporting HR metrics like compliance and recruiting. With Gusto and JazzHR’s new partnership, hired candidates are imported and employee records are created directly in Gusto.

Greenhouse is a recruiting software that assists in the hiring process. Greenhouse works hard to improve both yours and the candidate’s hiring experience. They offer apps to help both parties stay on top of the process, scalable options depending on your business needs, and regular statistical reports to help you refine your hiring process. Gusto integrates with Greenhouse to import candidates, send offers, and add new team members as employees or contractors.

These solutions are helpful to small businesses whose time and money is extremely valuable—automation is proven to be more efficient than manually carrying out repetitive processes like these. Coupled with Gusto’s offerings and Insogna’s expertise, outsourcing these responsibilities will check some major items off of your to-do list.

Insogna has partnered with the other industry experts to ensure that you remain compliant and avoid penalties that often come as a result of payroll mistakes. Teaming up with the best small business accounting for startups will help your company revolutionize the following services and more:

Easy onboarding
Automatic payroll tax automation and filing
Affordable, scalable benefit plans
Year-end W2s and 1099s

Contact Insogna CPA to get set up with the best small business accounting and full-service payroll option out there. We are well qualified in our field and can advise a strategy that meets your startup’s unique needs.

Did Your Bookkeeper Make These Accounting Mistakes Last Year?

As your small business probably knows, anyone can perform bookkeeping tasks. It isn’t hard to categorize synced transactions from the bank! It’s not a matter of finding someone who can perform this responsibility well, but finding an experienced bookkeeper who will do it correctly, on time, and cohesively with a CPA who can in turn provide a proper and thorough report to tax authorities. If your bookkeeper made these accounting mistakes last year, it might be time to rethink your business’s accounting.

Didn’t Work in Conjunction with Your CPA

Having a bookkeeper and a separate tax person can prove to be an issue, as they are not incentivized to communicate with one another. Consider hiring a licensed Certified Public Accounting Firm that specializes in helping small businesses bridge the gap between transactional work and providing ongoing tax strategy planning.

You will miss opportunities to legally save money on your taxes if your financial efforts are not ongoing and cohesive. If your bookkeeper doesn’t do their job correctly on a daily basis, your CPA will have to clean up messes later on in order to correctly prepare your business’s taxes. Bringing in an integrated CPA team will ensure a seamless financial experience throughout the year as the same group of licensed CPAs sees your business through from the beginning of the fiscal year through to the end.

Missed Opportunities to Legally Save on Taxes

Your business could take a significant hit thanks to a financial disconnect between your CPA and bookkeeper. Is your bookkeeper only equipped to take care of your straightforward and transactional daily financial tasks? Don’t skimp in this area; what you might save by hiring an inexperienced bookkeeper that makes accounting mistakes you will likely spend when paying taxes and then some.

Enlisting the expertise of an integrated CPA team guarantees that you are getting high-quality service from a group of CPAs that work together to benefit your organization.

Didn’t Provide Year-Round Advisory and Planning

To truly thrive, your company needs year-round, customized financial expertise from an industry professional that has been trained to help business owners like you. Trusting an unqualified bookkeeper that works in total separation from your CPA will not do the trick.

A strategy that was established at the beginning of the year might need to be altered if your bookkeeper reports that day-to-day conditions have changed since the strategy was put into place. A communicative, collaborative relationship between these two is crucial for your organization’s success.

Mis-Reported and Risked An Audit

You will be a likely auditing target if your bookkeeper continually makes mistakes—even small ones. Rounding to the nearest whole number, simple math errors, incorrectly categorizing expenses, neglecting to track reimbursable expenses, and more can catch the attention of the IRS and put your business in a vulnerable position.

If errors of this nature don’t trigger an audit for your company, your CPA will either have to allocate extra time and effort to rectify these mistakes later on or your business will simply miss out on opportunities to save money.

Didn’t Get to Know Your Business

Your bookkeeper should have an in-depth familiarity with your business, its problem areas, its long-term goals, etc. in order to help you save money. Ask yourself the following questions:

Can my bookkeeper help identify problem areas?
Opportunities to increase profits?
Do they understand my goals to grow my business? Do they help me figure out ways to cut costs?

If the answer is no, and your bookkeeper makes accounting mistakes, consider how upgrading to an integrated CPA team might improve the financial aspects of your business.

What Can Be Done?

As mentioned previously, there are simple solutions to these costly mistakes. Insogna CPA serves small businesses to bridge the gap between transactional work and providing ongoing tax strategy planning so your business doesn’t suffer from poor financial management:

Small business bookkeeping helps your company save on its taxes as much as legally possible.
Identifying problem areas in your business, opportunities to maximize profits, and advising on how to cut costs. Put simply, not only calculating your books but reading them, too.
Preventing unnecessary audits by maintaining good reporting habits and avoiding audit-triggering mistakes.

Is your small business’s bookkeeping costing you too much and not saving you enough? Contact Insogna CPA today to find out how an integrated CPA team can help you come out ahead.

Why Your Business Needs More Than Automated Bookkeeping??

The rise of automation has been a benefit to many businesses, especially SMBs. It has enabled them to reduce costs and streamline processes. At the same time, however, businesses should be aware that there is a risk in relying wholly on automation. Some jobs require human skill and judgment; accounting is one aspect of your business that will absolutely benefit from a licensed CPA’s skills. Have you ever thought about why your business needs more than automated bookkeeping?

Although accounting technology has increased automation in the industry by up to 75% in the recent past, artificial intelligence is not yet advanced enough to operate with the same level of accuracy that a human CPA does. Human interaction is invaluable to your business’s accounting.

Why Hire A CPA?

You won’t hire a CPA to do basic math; low-level tasks can be tackled by reliable accounting software. You will employ a CPA to provide meaningful insight into your company’s financials and to provide you confidential, proactive services that simply cannot be done by technology. This could include advice on ways to reduce costs and, in particular, to legally minimize your business’s taxes. It might also include suggestions on future financial strategy.

Qualified CPAs are well aware of their responsibility to keep your data safe as well as of their duty of confidentiality. This means that you can be reassured that any sensitive information will remain entirely private.

How to Get The Most from Your CPA

You will want to use a state board licensed CPA for most, if not all, of your accounting responsibilities. These include:

Reconciliation

Reconciliation involves comparing internal financial records with ones from external sources, like banks, credit card companies, etc. If all of the numbers have been recorded and managed correctly, the internal and external records should all add up. If they don’t, a CPA will look into the cause.

In some cases, discrepancies might be down to simple clerical errors, but reconciliation is a good way of detecting fraud and any other unusual financial behavior. A good reconciliation process also allows businesses to avoid overdraft fees and keep on top of improper spending before these issues get out of control and damage the company’s finances.

Although automation may be helpful in some areas, reconciliation really needs to be carried out by a board-certified CPA. There are some transactions, such as money in a petty cash box, which never enter the accounting system and errors in these areas can only be picked up and investigated by human intervention, not automation.

Financial Analysis

Financial analysis is the practice of assessing the current financial health of a business, looking at past performance, and considering future opportunities in order to make recommendations to improve a business’s financial situation. Without financial analysis, it is likely that you will keep making the same mistakes with your money that you have in the past.

Automation tools cannot be trusted to carry out financial analysis because it involves more than just crunching numbers. The best financial analysts are critical thinkers that come up with creative solutions to problems and develop complex strategies to overcome financial difficulty. That isn’t a skill that can be matched by a piece of software.

Wealth Building

Growing your business is always a risk, especially if you invest a significant amount of capital in your expansion. A certified CPA can help you to plan your business growth by making recommendations to ensure that you protect the financial health of the business. This includes advising on how best to use your financial resources, creating growth forecasts, updating procedures, and tracking real growth against projections.

Although a good understanding of numbers is important, it is innovation and creative thinking that help to push a business forward. The right CPA will have the experience and in-depth understanding of business issues necessary to drive growth. While automation tools can help with some of the more basic tasks where tracking growth and creating projections are concerned, they cannot create an overall strategy for business expansion that really works.

Minimizing Tax Liability

Minimizing tax liability is a priority for all businesses. There are often ways to find ways to save through deductions, tax credits, and organizing your finances in a way that legally reduces the amount you owe in taxes. Automation software is not capable of the clever planning and strategizing that is necessary to achieve this. If you leave your tax affairs in the hands of automation software, you will certainly end up paying more in tax than if you outsourced the responsibility to a licensed CPA.

Overseeing Automated Bookkeeping

It’s true that automation software can help with crunching the numbers and keeping things organized, but they cannot make ethical and logical decisions in the same way that a human can.

Automation is a tool that helps free CPAs from simple accounting tasks and allows them to reach their full potential in helping your company thrive. You will rely on a CPA to handle all of the big picture responsibilities and monitor automation tools to ensure that they are doing their job correctly, but you need more than automated bookkeeping.

Want to find out how automated bookkeeping and our team of certified CPAs can work together to support your business? Contact Insogna CPA today to learn more.

Is Your CPA Meeting Your Needs? Here’s What to Look For

The right Certified Public Accountant (CPA) can add immeasurable value to your business, helping you take back your time and grow your wealth. However, not all CPAs are equipped to contribute in such prominent ways. Is your CPA meeting your needs?

In addition to the most basic accounting tasks, your CPA should take initiative to implement custom accounting solutions to improve the efficiency and effectiveness of your back office based on your organization’s unique needs. If this isn’t sounding familiar, you might need to start looking for a new CPA.

Continue reading to find out whether or not your CPA is meeting your needs and what you should look for in your next CPA.

Background in Your Industry

Find someone that has experience working with businesses in your field of work, especially if your accounting responsibilities will include industry-specific nuances. The right CPA will have previous knowledge regarding tax strategy, tax credits, deductions, etc. unique to your field that will save your organization money. Someone who is already familiar with the ins and outs of business like yours can jump immediately into their role.

Experience with A Range of Clients

A CPA might be a good fit if they have experience working with various-sized clients—small companies, large businesses, and individuals. More experience means they will have more to offer you.

You can avoid long training periods and beginner mistakes by employing a CPA that has experience preparing tax returns and other financial documents for organizations of a similar size and revenue to yours. If a CPA has experience with a variety of companies at different stages of growth, they’ll still be qualified to help your business as it grows.

Modern Methods That Offer Success

A CPA that recommends and helps you get set up with accounting technology of modern standards is a good sign. If a CPA is still selling you on QuickBooks Desktop, this should be a red flag. Your business deserves better!

For startups, it is easy to manage your finances on a platform like QuickBooks Online. Your CPA should have sufficient knowledge regarding modern, efficient accounting software to streamline your business as opposed to mobile apps or basic desktop programs. Although this is a fantastic tool for routine accounting tasks, it is not an excellent option for in-depth responsibilities that require a human touch.

To make the most of your finances, you will want to use modern technology in conjunction with expert advice offered by your CPA.

Valuable to Your Business

The right CPA won’t be a financial burden on your business. On the contrary, they will add exceptional value. Allowing a highly trained CPA to use their specialized knowledge to monitor and maximize your finances means you can focus on the aspects of your business that you love.

Frequent reporting, in-depth analysis, and tax strategies from your CPA will help your organization increase profits and maximize savings. Proactivity is an essential characteristic—you should hear from your CPA continually throughout the year, not just in April when it’s time to file taxes.

Financial Plans for Greater Success

Financial strategy ensures there is a future for your small business. Not every new business owner understands how to maximize profits or make strategic business decisions, which is why seeking help from a licensed CPA is essential for your business’s long term success.

If you spend time worrying about your budget forecast, tax payments, or financial reports, then you might need a new CPA. Instead of worrying about how your business is going to financially survive another year, enlist a CPA to do the heavy lifting for you.

A CPA firm can assist you with a variety of services to guarantee your business sees profits, hits its yearly targets, and saves on taxes:

Customized monthly accounting solutions
Advising on strategic business decisions
Accounting technologies to streamline your business
Customized financial dashboard
Controller advisory

Thus, a CPA can help your business handle its day-to-day financial obligations in addition to maintaining long-term perspective. Using a financial expert that can take the stress out of caring for your small business’s finances.
Is your current CPA meeting your needs? It’s time to reevaluate! Contact Insogna CPA to start working with an integrated team of experts dedicated to adding value to your business.

How to Organize Spending Priorities for Your Startup

According to a recent study conducted by U.S. Bank, over 80% of all newly formed businesses that ultimately fail do so due to cash flow problems. If you needed a reason to believe that getting your spending in order and dedicating the time to drafting a proper budget for your new startup is important, look no further than that one. Newer Growth Startup According to a recent study conducted by U.S. Bank, over 80% of all newly formed businesses that ultimately fail do so due to cash flow problems. If you needed a reason to believe that getting your spending in order and dedicating the time to drafting a proper budget for your new startup is important, look no further than that one. If you take the time to properly budget now, you’re mitigating a significant portion of the risk you’re likely to face in the not-too-distant future. If you don’t, or worse—if you assume that you can just “make it up on the fly”—all you’re doing is setting yourself up for disaster. Therefore, if you truly want to make sure that you have the budget you need to continue to build the business you’ve always wanted, there are a few key things to keep in mind.

It Begins by Looking Inward, Not Outward

Maybe the most critically important thing for you to understand is that there is no “one size fits all” approach to creating a budget for your startup. Just as it’s fair to say that nobody does what you do quite like how you do it, that same unique quality must extend into the world of budgeting for your SMB.

Every business is different ‒ so while you can certainly look to some similar organizations for guidance and inspiration, be aware that their path is not one for you to rigidly follow. You need to start the process by taking a look at your long-term business goals ‒ where are you today, and where do you want to be in a year or five years from now? What are the steps you need to take to help you accomplish that? What are the mile markers you’ll need to hit along the way? Once you have the specific answers to these questions, then you can begin the process of figuring out what budget is most appropriate for your small business.

Once you contextualize everything through that lens, many of your priorities will easily reveal themselves. At that point, your job becomes making sure you’re spending money in a way that supports those goals first, and everything else second.

As your budget starts to come together, you can even use it as an opportunity to learn more about the business and the way it operates. Once you can better identify how much money you have on hand and where it’s going, you start to better understand things like:

The actual money you’re spending on labor and other materials necessary for your products and services.
Your overall costs of operations.
The level of revenue you’ll need to generate to support your business moving forward. A realistic idea of how much money you can expect to make in terms of profit, and when.

So, as you work to come up with a budget that is more specific to your growth startup, you also begin to better understand how that startup works. At that point, you’re not just in a position to make accurate, informed decisions about things like hiring or materials spending ‒ you can also go back and reconfigure your budget to account for any trends or patterns that you’ve discovered. This cyclical process is also a great way to make sure that you always have the cash necessary to take advantage of opportunities as quickly as possible, even ones that you didn’t necessarily expect.

The “Day One” Budget

For the sake of an example, let’s say that you’re planning a budget for a business that hasn’t technically gotten off the ground yet. At that point, your priorities are a bit different as you’re essentially trying to make “Day One” possible. Again, every business is going to be different from the next. But having said that, there are a few key things you will want to focus on to make sure that your opening goes as smoothly as possible:

Facilities costs – Where, specifically, are you going to be doing business? Do you need to rent a storefront? Are you working out of a commercial office space? Will you need a warehouse or other logistical assets? Regardless of which one best describes your situation, you’ll need to think about things like security deposits, any cosmetic or structural changes you need to make to the building, and even things like signage.

Fixed assets – Also commonly referred to as “capital expenditures,” these are the things that your people are going to need to do the jobs you’ve asked of them. This includes thinking about purchases like work vehicles (if applicable). You also have to buy furniture and other equipment like computers (after all, your people need a place to work).

Materials and supplies – Costs in this category would refer to not only immediate needs like office supplies, but also those related to marketing and other promotional activities you might be engaged in. You’re going to need a steady stream of all of these items to hit the ground running.

Miscellaneous – These are all the other costs of physically opening a business that don’t fall into the other three categories. You’ll need to work with an attorney and likely a financial professional to make sure the back end of your business is in order. Depending on your industry, you may need things like licenses and permits—those cost money, too.

Remember: these aren’t necessarily the costs associated with running your business in the long-term. These are just the things you’ll need to take care of to make sure you’re prepared to open your doors in the first place.

Get Your Priorities in Order

From a longer-term point of view, another key thing you’ll need to do to organize your spending for your newer, growth-focused startup involves getting your priorities in order. Yes, expenses like those outlined here are going to remain important. But those are all about meeting short-term needs. To meet your long-term needs, you need to be judicious about where you spend your money and, more importantly, why.

For the best results, try to prioritize expenditures that actually generate revenue or some type of sizable return on investment in the future. If your startup depends on a particular piece of equipment in order to successfully churn out the product the company was founded on, it stands to reason that: A) buying that equipment and B) paying to maintain it and keep it in proper working order would be top priorities as you literally cannot function without it. The more products you can produce, the more you can sell—and thus the more revenue you can generate.

Go through all of your expenses and try to arrange things in order of importance. For the most part, the things that are absolutely necessary to avoid interrupting your business in any way are going to be at the top of your list.

As you move the order of certain budget items around, also be thoughtful of both the short- and long-term implications of that move. If you prioritize Factor A over Factor B, what chain of events could that cause? If you choose not to focus on computer maintenance and instead move funds elsewhere, what issues would that potentially cause? Are you in a business where slower or more outdated equipment would hurt productivity and your ability to serve your customers? Because if you are, that’s a move you might want to re-think.

Yes, creating the right budget and organizing your spending priorities for your newer startup can feel complicated and time-consuming, but this is absolutely one of those situations where “getting it done” is less important than “getting it right.”

If you feel as if you’re having a hard time completing something this essential on your own, we can help. Not only can we help create a budget that supports your startup as it exists today, but we can also guarantee that you’ll be ready for the business it becomes tomorrow, too.