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Expense Reduction Tips

Deductibility of PPP-Related Expenses

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One of the biggest tax issues of 2020 has been clarified with the signing of the Consolidated Appropriations Act, 2021, (CAA 2021), and that was whether expenses that are normally deductible and that were paid with the proceeds of a Paycheck Protection Program (PPP) loan that is forgiven are truly deductible.

The CARES Act, which became law on March 27, 2020, was drafted so quickly that the question of deductibility was left out, but several members of Congress made it clear that deductibility was the intent all along. The IRS went the other way, publishing a notice (2020-32), a revenue ruling (2020-27), and a revenue procedure (2020-51), that took the opposite stance: PPP-related expenses that were forgiven were not deductible, therefore potentially causing business’s taxes to become much higher.

Congress has now reversed the IRS’s position with CAA 2021 in Section 276 (PPP) and 278 (EIDL). Gross income does not include forgiveness of PPP loans and emergency EIDL grants. Deductions are allowed for normally deductible expenses paid with PPP loan proceeds that were forgiven. It also provides deductibility for Second Draw PPP loans. This is all good news for taxpayers with PPP loans.

However, there could be timing issues that could reduce the deductibility of the full amount of the PPP expenses. There could also be amounts “at risk,” which is a tax term that limits your deductions in certain cases.

All of these issues need to be carefully considered on a case-by-case basis. Your tax professional is your best source to help you review all of these factors so that both your PPP loan forgiveness and allowable deductions are timed to reduce your tax bill.

Five Expenses to Cut During Tough Times

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If revenue hasn’t come back as fast as you expected it to, it may be time to review your budget and determine if some planned expenses can be cut. Here are five places to look to do just that.

1. Travel

Since most events have been moved online or cancelled altogether, you can likely redirect any money you’ve budgeted for travel this year to other more urgent expenses. And if you have prepaid these items, you may be able to get a refund. Hotels have flexible refunds up to the date of the stay unless you took a prepaid deal.  And airlines have begrudgingly provided refunds, although in some cases, it did take time to get them.

Now that so many employees are familiar with Zoom and other videoconferencing tools, you may want to rethink any future travel requirements that could easily be accomplished virtually with a much lower budget.

2. Training

While it’s never a good idea to cut training, there may be ways to deliver it more affordably. You may be able to purchase subscriptions to online courses that include an “all-you-can-eat” component to them.  A good example is Lynda.com, now owned by LinkedIn.

Any unnecessary training that can be delayed is another way to free up funds.

3. Dues and Subscriptions

If money is tight, evaluating your memberships is one area where you may be able to free up money. Especially since many in-person events have been cancelled, this might be a good time cancel any renewals you are not able to fully utilize.

Subscriptions are also something you can review.  Can any of these be cancelled to free up cash?  You can always re-subscribe when things get better.

4. Employee Perks

If you provide your employees with benefits and times are extremely lean, cutting them is an option to keep from laying off workers.  Some of the options might be:

  • Eliminating perks like movie day, free car washes, or onsite chair massages
  • Stopping coverage of paid volunteer hours
  • Cutting education expenses if you are paying college tuition for some employees
  • Cancelling employees’ memberships and subscriptions as described above
  • Slashing training budgets as described above
  • Converting event attendance and sales meetings to online versions
  • Disallowing overtime work
  • Holding off on employee bonuses
  • Reducing vacation or holiday pay
  • Cutting down on health care options such as vision and dental plans
  • Reducing 401(k) matches on a temporary basis (watch out for plan requirements, though)
  • Cutting regular hours

All of these are steps you can take to avoid having to reduce your workforce.

5. Layoffs

One painful place to look for more cash is your workforce. If work has slowed due to demand, you can raise cash by furloughing or laying off workers.  Unfortunately, many businesses have already had to do this.

By looking deeply at all of your business expenses, you can find places to cut spending so that you will be in a better position for the future.

How to Reduce Stress Around Money

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Many families and small business owners have seen decreases in income over the last several months. Money struggles can cause us to experience stress and worry, and none of us need that right now. Instead we need to boost our immune systems and decrease stress.

Here are some tips on how we can take back control of our finances and reduce our stress around money.

1. Assess your situation.

Take an inventory of your bank accounts, credit cards, and other financial accounts.  This helps you to see the entire picture. You can be financially healthy in different ways. For example, you might be low on income coming in but if you have healthy savings or plenty of assets, you might be just fine.

2. Track your spending.

When you can see where the money is going, you can make good decisions about what changes you need to make. Use tracking software like Quicken® or simply a spreadsheet so you can see how much you really need for things like the rent or mortgage, food, utilities, and other necessities.

3. Make any changes that you need to.

If you have more expenses than income, here are several ways to get back in balance:

  • Cut any unnecessary spending. For example, trade the expensive $100+ cable bill for a $15 Netflix subscription, at least for a while.
  • File your taxes early, especially if you have a refund coming.
  • Avoid temptation spending if you don’t have enough for the basics. Remember what’s important and find the will to curb impulses.
  • Sell some of the items you own that you no longer need to raise money.
  • Get a second job.
  • Get support from local nonprofits that can help you if you qualify.
  • If you must, dip into your savings or 401(k).
  • Ask family members to help.

4. Build a budget and stick with it.

Making a plan helps some people reduce their stress a great deal. They feel good that they now have goals and can develop new habits that will work for their lifestyle.

In your software or spreadsheet, commit to monthly spending limits for each major category: housing and utilities, food, transportation, clothing, entertainment, savings, paying off debt, and other.

Each month, track how you did by comparing your actual spending with your planned spending.  Give yourself a grade on how you did, and either reward yourself or make the changes you need to.

5. Pay off debt.

If you have debt, make a plan to pay it off systematically.  Here are some ways you can speed that up:

  • Pay down the debt that has the highest interest rates. You might even be able to consolidate and refinance your debt to a lower rate.
  • Make a payment every single month, even if it’s small.
  • See a credit counselor for more ideas on how to get out of debt faster.

6. Build a cushion for the future.

If your spending and income is balanced, but you don’t have a savings cushion, that can also be stressful. You need a safety net to fall back on for times just like these.

Decide on an amount that you can put away for a “rainy day” fund, and stick to it.  It’s also never too early to start saving for your retirement years.  The younger you start, the more your money will grow into a significant nest egg, providing comfort and flexibility in your final years.

7. Identify any other stressors related to money.

Perhaps a relative constantly asks you for money, and this causes you stress. In this case, you may have to make a “tough love” decision to reduce your stress while maintaining family relationships. These are very personal, individual decisions that include factors far beyond finance.  But if they are causing stress, some kind of action should be taken.

8. Make your accounts work for you.

If possible, select credit cards that give cash back, miles, or other perks. Keep you bank balance high enough so that you don’t get charged a monthly fee, and try to get an account that pays interest.  You won’t get rich from these things, but they are fun perks that help you save.

9. Invest wisely so you can sleep at night no matter what happens.

Understand your risk tolerance level when it comes to investments, and avoid investments that are too risky.  You’ll sleep better at night knowing your money is safe.

Hopefully, these tips will help you decrease your money stress and improve your control over your finances.

34 Ways to Get Money Fast in Your Small Business

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For many small businesses, it’s time to get scrappy and entrepreneurial when it comes to cash flow.  Here are dozens of ideas to make it through the next few weeks or months.

Rearrange your 2020 budget.

There are lots of things you won’t need to spend money on this year.  They can be re-appropriated to cover payroll while the revenue slows down.  Here are a few obvious ones:

  1. Apply travel expenses to payroll.
  2. Apply transportation expense to payroll.
  3. Apply conference fees to payroll.
  4. Apply your reduced office utilities to payroll if you are working from home
  5. Apply reduced office supplies like coffee that you won’t need to spend on if workers are working from home to payroll.

Trim the fat, then go a little leaner if you have to.

Some of these may not be too palatable, but they may save your business. 

  1. Cut executives’ pay as much as possible during this temporary time.
  2. Freeze hiring.
  3. Offer early retirement.
  4. Ask workers if they want to voluntarily reduce their hours.
  5. Offer extra days of unpaid leave (and require a minimum if you need it to avoid layoffs)
  6. Cut training expenses.
  7. Cancel dues and subscriptions.
  8. Slash marketing costs.
  9. Cut contractors.
  10. Cut employee benefits.
  11. Put a hold on 401K matches.
  12. Cut all other unnecessary expenses.

Get the cash flowing.

Get your creative entrepreneurial juices going and find a way to boost revenue.

  1. Move your service to delivery if it works for your industry.
  2. Move your products to those that are in need. Designer masks, anyone?
  3. Move your service to a virtual version.
  4. Offer a new service.
  5. Acquire and sell an item in need.
  6. Got extra space? Find a renter.

Get a tax refund.

The new laws provide for a couple of ways you can get a tax refund.

  1. File your 2019 return ASAP if you’re due a refund and use that money in your business.
  2. If you have losses from 2018 and 2019, check with your tax professional to see if you will benefit from amending those returns.

Speed up your cash flow. 

There are literally hundreds of things you can do to permanently improve your cash flow. Here are a few:

  1. Make deals with your vendors to extend credit or slow down your payment to them.
  2. Work on collections and get your accounts receivable balance lower.
  3. Invoice faster and tighten the pay terms.

Borrow money.

There are many options right now to borrow money.  PPP might be the best game in town, but it’s not the only one.

  1. Take money out of your 401K to use in your business.
  2. Use your stimulus check in your business.
  3. Use your bank line of credit if it is still available.
  4. Take advantage of the EIDL, PPP loan, employee retention credit, or the deferred taxes option from SBA and the Treasury.
  5. Borrow money from a relative or friend.
  6. Check locally in your bank, credit union, city, county, or state for small business programs.

Every penny counts for some small businesses, so use any and all of the ideas above so you can ride this situation out. 

And if we can assist you with your cash flow projections or creating or modifying your budget, just reach out. 

Money and Marriage

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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

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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?

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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

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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

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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.

 

Five Places to Find More Profits

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It’s always a good idea to be on the lookout for ways to increase your profits, and luckily, there are many ways to do that.  One way is to focus on cost-cutting, and here are five places that are good to periodically review for cost-cutting possibilities.

Telephone

Re-negotiating with the phone company every one to two years is a really good idea.  Many telecommunications companies will often bargain with you or offer you a new deal just for checking in with them.

Has your business changed?  Do you need all those extra features you are paying for?  Could you do without those extra lines?  Would another phone plan save you money on long distance or international calls?

The risk is low:  one quick call will let you know if you can save money in this area.  It’s worth it to give it a shot, and while you’re at it, you can call your smartphone provider too.

Travel

Travel is always a great area to look into for possible ways to save.  Are all trips necessary and profitable?  Are there any meetings that can be done virtually instead of face-to-face?  Virtual tools such as GoToMeeting can make travel unnecessary.

What trips can be cut this year?  Can the number of people sent per trip be cut?  Can travel arrangements be made early to save money?  Are booking dates flexible so you can compare and find the lowest rates?  Is a taxi or rent car cheaper?

Dues and Subscriptions

Paying our annual dues for the club or association we’ve belonged to forever may be a habit, but is it beneficial for your business?  We might enjoying seeing everyone once or twice a year at the meeting, but we may not necessarily have to have a membership to do that.  Sometimes paying the guest rate is more affordable than the member rate if we are attending infrequently enough.

Review a list of organizations and publications you and your employees are part of, and choose which ones you are truly benefiting from.   If being an officer in one of your organizations is not getting you any new business, then you may eliminate a time drain by bowing out and letting someone else volunteer.

Labor

As your business grows, it can be a challenge to decide who to hire next.  The first place to look before you decide should be your existing employees.  What tasks are they doing that you are paying them too much for?  For example, do you have a manager doing clerical work?  If so, you may be able to piece together an administrative job that frees your current staff from all the clerical work they are doing.

It’s worth a look to see where your current employees are being overpaid and find someone to do those parts of the job.  You’ll save labor costs and come out ahead in the long run.

Fixed Assets and Equipment

Another place to save money that can be significant is purchases of large items such as furniture, automobiles, and production equipment.  It’s a good idea to get three bids from reputable vendors so you have a choice.  Going with the lowest bid is not always a good move; going for the highest quality is.

Look in these five places, and let us know how much you find to increase your profits.  As always, if we can help, let us know.

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