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Small Businesses Facing Labor Shortages

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Two Businesswomen Meeting In OfficeSmall business owners cite the unavailability of workers as one of their biggest challenges1. The labor shortage means that employers cannot, in some circumstances, operate at full capacity and must forgo some revenue opportunities. Businesses may have to delay planned expansions or the addition of new products or services because of the scarcity of workers.

Employers understand that having a skilled, trained, and committed workforce is key to growth and profitability. In the competition for a decreasing pool of skilled employees, employers have to assess their current hiring practices, identify any deficiencies, and develop and implement policies that help ensure that they can hire the employees they need when they need them.

Here are some issues employers need to consider when developing a strategy to attract and retain key employees.

Sharpen Your Hiring Process

Use every available tool. If you are not using social media to reach out and contact potential hires, you are not taking advantage of a very helpful medium. Social networks like LinkedIn and Facebook can be productive resources. They can be particularly effective if you ask family members, friends, and current employees to reach out and talk up job opportunities with your company on the sites they frequent.

Posting available positions prominently on your company website can also be effective in reaching out to a pool of potential hires. Traditional avenues, such as headhunters and employment agencies as well as radio and television ads, remain helpful.

Revisit Your Compensation

Some industries, such as information technology, pay more in wages and benefits than other traditionally low-paying industries, such as food services and retail. Still, if the job opening you want to fill is critical to the future growth of your business, you may want to consider paying above market salary if you can afford to do so. You may even have to get into a bidding war with other employers.

The reality is that employees with in-demand skills typically command a premium salary. Before you make a prospective employee an offer, find out how much other employers in your area pay for similar jobs. One place you can find useful employment and wage statistics is the Bureau of Labor Statistics website (bls.gov). The BLS information covers most geographical areas in the United States and is broken into type of occupation as well as various levels within that occupation.

Rethink Benefits

Most employees look for health care coverage, paid vacation days, and an employer-provided retirement plan. If you can’t be competitive with these benefits, you may have to step it up with others. Think of offering employees the chance to work remotely for a few days a week if it is feasible with your business’s operations. Consider summer hours, employer-provided snacks and drinks, and casual dress days.

Coping With a Labor Shortage

Not every incentive has to have a price tag attached. Non-monetary awards — from recognizing an “employee of the month” to a heartfelt face-to-face expression of gratitude for a job well done — can be remarkably constructive and can leave a lasting impact on employees. Inexpensive incentives can include gift certificates, cash spot awards, and even extra paid vacation days.

Offer Training

While costly, offering courses and educational opportunities that can help employees advance in their area of expertise is a potent way to attract ambitious, committed employees. Courses that develop well-rounded team players who can take on other roles within your business are especially cost-effective in the long run.

Consider Incentive Plans

Incentive plans reward employees for their achievements and create a sense of accomplishment. Plans can be used on a one-time basis or as an ongoing program. Some incentive plans include:

  • Annual incentive plan: Rewards for this type of plan are tied to expected results that are identified at the beginning of the performance cycle.
  • Discretionary bonus plan: The owners/managers determine the size of the bonus pool and the amounts that will be given to individuals after a performance period. Typically, payouts from this type of plan are not guaranteed, nor is there a predetermined formula.
  • Profit sharing plan: A profit sharing plan allows employees to share in their employer’s profits. Such plans typically include a predetermined formula for allocating profit shares among participating employees and for distributing funds accumulated under the plan. Some plans are tied in with the employer-provided retirement plan and some plans are discretionary.

Work With Your Financial Professional

Structuring an effective compensation and incentive package can be a complex and time-consuming task. The help of an experienced financial professional can be invaluable during every stage of this undertaking.

1″The America Works Report: Quantifying the Nation’s Workforce Crisis,” U.S. Chamber of Commerce, June 1, 2021.

Should You Pay Estimated Taxes?

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Once you’ve filed your income tax return, you may be ready to put some distance between you and the IRS and turn your attention to other things. If you’re employed, you probably can take a breather, since your employer will handle ongoing income tax payments for you through the wage withholding process. But it’s a different story if you receive other forms of taxable income — from self-employment, rental property, or investments, for example. When that’s the case, you’ll typically be required to make estimated tax payments during the year.

Generally, you must pay estimated tax for 2021 if you expect to owe at least $1,000 in tax for 2021, after subtracting withholding and refundable tax credits.

When Are Estimated Taxes Due?

Estimated taxes generally should be paid in four equal quarterly installments. The due dates for the four 2021 estimated tax payments are April 15, June 15, September 15, and January 15, 2021. If you receive income unevenly during the year, your required estimated tax payments may not be the same for each period under the IRS’s “annualized income installment method.”

How Much Is Enough?

The IRS can charge an underpayment penalty if you don’t pay enough estimated tax for the year or if you don’t make your payments on time or in the required amount. The IRS generally requires payments of 2021 estimated tax to total at least (1) 90% of your 2021 tax liability or (2) 100% of your 2020 tax liability, whichever amount is smaller. However, if your 2020 adjusted gross income was more than $150,000 ($75,000 if your filing status was married filing separately), your 2021 payments should be at least (1) 90% of your 2021 tax liability or (2) 110% of your 2020 tax liability, whichever amount is smaller.

If you or your spouse is employed, it may be possible to avoid the need to make estimated tax payments by having more tax withheld from your wages. To adjust your withholding, file a new Form W-4 with your employer. Taxpayers who had no tax liability for the 2020 tax year (the full 12-month period) and were U.S. citizens or residents for the whole year don’t have to make 2021 estimated payments.

How to Create and Use Vendor Records in QuickBooks Online

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Keeping your supplies coming in may be difficult right now. Be sure you know your vendors and track their records carefully.

Your company counts on its supply chains to keep operations running smoothly. When it falters, you can have trouble creating and shipping products. Problems may even crop up that have a negative effect on your internal business needs.

We don’t have to tell you that COVID-19 has interrupted supply chains. The pandemic has been catastrophic for many small businesses because of this, and because income has been suddenly and sharply reduced. Some financial help is available, and we hope you’re able to take advantage of it during these extraordinarily difficult times.

It’s perhaps more important than ever to carefully track your income and expenses, and we hope you’re using QuickBooks to do so. Among the software’s financial management tools is the ability to maintain thorough records of those vendors that make up your supply chain. Let’s take a look at how this works.

Creating Vendor Records

We’ll go through the steps for creating vendor records, though you may have at least started on these already. Hover your mouse over Expenses in the toolbar and select Vendors. If you’ve already added some, you’ll see them in a list. To create a new one, click New Vendor in the upper right. Most of the form is easy to complete; it’s primarily contact information.

There are a few fields, though, that need special attention. These are:

  • Cost rate/hr and Billing rate/hr. These help you track time costs for your projects. Don’t enter anything here if you pay vendors via bills or expenses.
  • Terms. Due on receipt? 15 days? 30 days?
  • Account no. and Business ID No. You should have these on file.
  • Track payments for 1099. Put a check in this box for any 1099 contractors.

When you’re done, click Save. This vendor will now appear in your list.

Taking Action

You can do a lot of your work directly from QuickBooks’ Vendors page. This screen displays a list of all of your vendors, along with columns for their Phone, Email, and Open Balance. At the end of each row is an Action column. The link there reads either Create bill or Make payment, depending on whether there is an outstanding balance.

Click on the down arrow in that column to open a list of additional options. If there is a zero balance, you can Create expense, Write check, Create purchase order, or Make inactive. If money is due, your options are to Create bill or Create expense. Icons in the upper right allow you to print the list, export it to Excel, or change the column settings.

Collecting Your Billables

Before we look at vendor records in QuickBooks, we’d like you to check a couple of settings to make sure you’re billing your customers for every expense they incur with you. Click the gear icon in the upper right corner and select Your Company | Account and Settings, then click on Expense. Among others, you’ll see these options:

 

To add a Customer column to expense and purchase forms, click in the first box pictured in the image above. To Make expenses and items billable, click in the second box and add a default markup rate if you want. Do you want to Track billable expenses and items as income? If you’re not sure, ask us. And if you’ve set up sales tax in QuickBooks and want to add that to billable items, check that box, too. When you’ve finished with these and the other questions under Bills and expenses, click Save.

Now is the time to focus on the importance of cash flow and vendor relationships by maintaining good vendor payable records. You want to keep your relationships with your suppliers in good status. If you’re having trouble tracking cash flow or dealing with any other element of your accounting (or QuickBooks itself), please do contact us. We want to support you through this difficult period as much as we can.

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COVID-19 is affecting the supply chains. Do whatever you can to ensure that your vendor relationships maintain a good standing. QuickBooks can help. Find out how here.

You should be using QuickBooks to track your accounts payable status these days. Communicating with vendors about any potential payment problems is essential to maintaining your relationship. Here is how QuickBooks can help manage it.

Is the pandemic affecting your company’s cash flow? We can help you use QuickBooks to better manage it.

The Vendors page in QuickBooks can show you quickly where you have open balances. Be sure you’re tracking those carefully these days. Find out how here.

The Top 3 Reasons to Outsource Your Accounting

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While you may think it’s better to take care of your small business accounting tasks in-house, you may be surprised to know that your business can benefit from having a professional accountant or CPA handle the job for you. Here are the top three reasons to outsource your accounting.

1. Peace of Mind

The number one reason for outsourcing your accounting is the peace of mind you will get regarding managing your accounting records. A qualified accountant or CPA on your team allows you to gain access to their professional knowledge and experience. Further, you can even choose an accountant that specializes in your unique business needs. A professional can help you keep your business records accurate and up-to-date. For example, payroll and tax documents will be maintained appropriately and submitted promptly. Timely and accurate accounting reduces your risk of penalties resulting from inaccurate record-keeping or lack of knowledge regarding aspects of accounting like tax laws and deadlines.

2. Focus on Business Development

When you enlist the services of a qualified accountant or CPA to manage your small business accounting needs, you minimize the time that you or your senior staff must spend performing or micromanaging those tasks. Freeing up your time in those areas enhances your ability to maintain a keen focus on the day-to-day tasks your business faces and any additional business needs that arise. Being able to focus your time on managing and growing your business, you improve operational efficiency. As you develop strategic goals, you can convey those to your outsourced accountant to garner their professional guidance and support when executing and realizing those goals.

3. Save Money

Many small business owners feel that handling accounting tasks in-house is more cost-effective because they can utilize existing staff. However, consider the total cost involved in hiring or training a staff member to manage your business’s accounting needs. There is also the associated time expenditure related to supervising an employee who manages the accounting. For a dedicated in-house staff member to handle the task, you must consider the additional costs of payroll, payroll taxes, and employee benefits. There is also employee turnover to consider, which, if high, could lead to additional training and expenses. By not electing to have a full-time dedicated employee handle accounting in-house, you also save on space and technology required to accommodate that individual.

For these reasons – and more such as getting timely financial advice, understanding cash flow, and maximizing your tax savings opportunities – it’s time to outsource your business’s accounting needs. What you gain far outweighs the cost.

Contact our firm to find out how we can create a package of accounting services for your small business.

Are You Tracking Absolutely All of Your Tax-Related Business Expenses?

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If you’re self-employed, understanding what’s deductible and recording all of your business expenses should be priorities.

When you work for yourself, accurate accounting is critical. The IRS pays special attention to tax returns prepared by sole proprietors. Not only does the agency try to determine whether all taxable income has been recorded, but they also scrutinize business expenses that are claimed, since some taxpayers blur the lines between personal and business purchases.

We’re not suggesting you hold anything back when you’re tracking your tax-deductible business expenses. We want you to claim every penny that the IRS says is permissible. This is especially important if your company makes a lot of money. You’ll need to document everything you can to offset your income and minimize your tax obligation.

How do you ensure that all of the money you’re spending to make money ends up somewhere on your IRS Schedule C? Let’s look at steps you can take.

Review the Schedule C

tax tips

The actual IRS Schedule C form contains broad expense categories. You may need to dig into deeper explanations of them.

If you’ve never completed a Schedule C before, it’s especially important that you familiarize yourself with it. You can view a copy of the 2020 version here. Pay special attention to Part II Expenses. The form breaks down business expenses into specific categories. But what’s the difference between Office expenses and Supplies? What does Other business property mean? Not only do you have to know which expenses are deductible, but you must be sure to include them in the right category.

The IRS has a special publication devoted to discussion of deductible business expenses. You’ll find links to it here. It’s a lengthy document, but there’s an interactive table of contents that lets you jump right to the section you want. You don’t have to read the whole thing, but you might bookmark it so you can consult it when you have a question. There are many questions on the Schedule C that may require additional explanation.

You might want to visit the IRS instructions online. This page displays a detailed outline of the form, section by section and line by line, so you can find what you’re looking for easily and click a link to get there.

Keep Detailed Records

This will be challenging if you’re doing your bookkeeping manually. You’ll need to set up a system of folders or envelopes or whatever works for you and separate receipts by either month or Schedule C category. If you know your way around Excel, you could set up a spreadsheet divided by category and enter receipt information as it comes in. This will make calculations easier, too.

Do make notes on your receipts so you’ll know why you thought the purchases would be deductible. You might also indicate whether the receipt was already entered in your master list, so you don’t have duplicate entries. Don’t forget about credit card charges and checks you’ve written for tax-deductible purchases that didn’t generate a receipt. Enter them in your master list as you go. If you’re ever audited, you’ll need copies of them for documentation. If you get electronic receipts in email, save them in a folder on your computer and record them.

tax tips

You can categorize your tax-related business expenses using personal finance or accounting applications.

There are numerous personal finance and small business accounting applications that allow you to import your online banking transactions and categorize them. These include QuickBooks (online and desktop), Mint, Quicken, and Simplifi by Quicken. Their category lists can often be modified, so you can make sure your tax-related expenses are organized accurately.

Don’t Dismiss the Unusual

There are some legitimate tax deductions that the IRS doesn’t necessarily include in the Schedule C instructions, but which it will accept. For example, H&R Block reported on a case where the cost of cat food was considered a business deduction (a scrapyard was trying to attract wild cats to keep snakes away). A professional bodybuilder was able to claim his purchase of ProTan Muscle Juice Professional Posing Oil as an acceptable business expense.

We’re not recommending that you spend a great deal of time looking for obscure tax deductions. But think about your purchases as you make them to see if they’re tax-worthy.

All of these suggestions may sound time-consuming. They can be, until you get into the habit of tracking all of your tax-related business expenses, but it does require constant diligence. We can help ensure that you’re only claiming legitimate deductions and advise you on those you might question. We can also prepare and file your return for you and/or help with year-round tax planning. Contact us for a consultation.

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If 2021 is your first year as a sole proprietor, you’re likely to find income tax preparation challenging. Contact us for help with this.

Filing an IRS Schedule C requires careful, year-round bookkeeping. We can help you set up a system for tracking business expenses.

Before you can file an IRS Schedule C, you need to understand this complex form. Let us help you learn what’s needed.

There are numerous financial applications that let you import bank transactions and categorize them for tax purposes. Ask us.

Are you an individual or business owner who’s interested in lowering your tax burden? Call us at 631-474-2500 and ask to speak to a tax accountant now or request a consultation online and we’ll contact you.

Why Business Structure Matters

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two businessmen shaking handsWhen you start a business, there are endless decisions to make. Among the most important is how to structure your business. Why is it so significant? Because the structure you choose will affect how your business is taxed and the degree to which you (and other owners) can be held personally liable. Here’s an overview of the various structures.

Sole Proprietorship

This is a popular structure for single-owner businesses. No separate business entity is formed, although the business may have a name (often referred to as a DBA, short for “doing business as”). A sole proprietorship does not limit liability, but insurance may be purchased.

You report your business income and expenses on Schedule C, an attachment to your personal income tax return (Form 1040). Net earnings the business generates are subject to both self-employment taxes and income taxes. Sole proprietors may have employees but don’t take paychecks themselves.

Limited Liability Company

If you want protection for your personal assets in the event your business is sued, you might prefer a limited liability company (LLC). An LLC is a separate legal entity that can have one or more owners (called “members”). Usually, income is taxed to the owners individually, and earnings are subject to self-employment taxes.

Note: It’s not unusual for lenders to require a small LLC’s owners to personally guarantee any business loans.

Corporation

A corporation is a separate legal entity that can transact business in its own name and files corporate income tax returns. Like an LLC, a corporation can have one or more owners (shareholders). Shareholders generally are protected from personal liability but can be held responsible for repaying any business debts they’ve personally guaranteed.

If you make a “Subchapter S” election, shareholders will be taxed individually on their share of corporate income. This structure generally avoids federal income taxes at the corporate level.

Partnership

In certain respects, a partnership is similar to an LLC or an S corporation. However, partnerships must have at least one general partner who is personally liable for the partnership’s debts and obligations. Profits and losses are divided among the partners and taxed to them individually.

Call Newton Sankey & Co. today at 631-474-2500. We’ll set up a free consultation to discuss your new venture and how we can assist with our new business advisor and incorporation experience.