Just in time for the weekend, the IRS issued Friday-evening guidance about the overly-hyped (at first) payroll tax “holiday”.
There was initial hope that this might be a great shot-in-the-arm for Hampton Roads businesses and employees, but given how the thing is structured, and the limitations of executive action (i.e. it takes a Congressional order for taxes to actually be “forgiven”), my advice is that you carefully consider whether this makes sense for your business.
It’s your choice as an Hampton Roads employer/business owner whether you take this deferral, or pass, and there are plenty of issues if you *do*.
The taxes WILL need to be paid, and the guidance indicates that what this means is that withholding would increase from January 1, 2021 until April 30 to catch up on the difference.
And as an employer, you’re faced with the even-thornier issue of what would happen if you have to let an employee go, or whether you can project cashflow properly to account for these variations. And what if you have seasonal workers?
All of this suggests that actually taking advantage of this program is something only to be seen as an act of short-term desperation, and a bandaid. Because the bill will come due.
We’re here for you if you need to talk this through: 757-857-1880
Something we’ll most certainly ask you about is how are you making these kinds of financial decisions? Do you set aside time to review your actual financial reports, or are you committing “bank balance bookkeeping”?
You know what I mean: checking your business bank account daily as a measurement of your business health.
If that’s you, we should really talk.
And before we talk, read this.
Use These Financial Reports For Business Decisions By Steve Kallam
A lie has speed, but truth has endurance. – Edgar J. Mohn
Some business owners never like to “look under the hood” of their finances, and their accountants or financial partners can sometimes encourage that behavior by keeping them in the dark.
Well, I hope that won’t be you.
In fact, with our Norfolk clients, we go overboard to provide the kind of insight into financials that they really need to make strong decisions.
One way I’d like to help YOU (regardless of whether you’re an existing client of ours) is by pointing out different reports and metrics that you can find in most accounting softwares, that business owners or their bookkeepers often neglect. Knowing these numbers will help you avoid an embarrassing flub in YOUR business.
Even if you are using some of these reports, I’m sure you’ll find a few more to add to your repertoire. Of course this is just a very basic introduction, but hopefully it’ll spark some ideas.
1) Profit & Loss Summary Prev Year Comparison: Most business owners rely on the Profit & Loss Summary report, but comparing your results to last year can provide quick insight into whether your revenue is growing or contracting–as well as how fast expenses are rising.
2) Balance Sheet Prev Year Comparison: As with your income statement, it’s important to compare where certain balances stand now versus last year (such as Cash, Accounts Receivable and Payable, etc.).
3) Statement of Cash Flows: Profit & Loss reports enable you to see what you earned, while Balance Sheet reports help you determine what you have–as well as what you owe. (However, neither report necessarily provides a clear picture of where cash is coming from, or going to.) In short, this report shows you exactly what caused your bank balance to increase or decrease during a given report period.
4) Collections Report: Tricky economic times mean it is more important than ever to keep track of your collections. Fortunately, QuickBooks and other platforms make it easy to contact customers with overdue invoices.
5) A/P Aging Summary: Although it’s key to make sure that your customers are paying in a timely fashion, it’s just as important to pay your vendors, too. Unpaid bills can result in phone calls, e-mails, and other unnecessary interruptions.
6) Voided/Deleted Transactions Summary: It’s no surprise that small businesses are much more prone to fraud than large businesses. Small business employees usually wear multiple hats, so it’s often impossible to separate financial duties (bigger businesses can do this with ease). Fortunately accounting platforms make it hard for perpetrators to cover their tracks — you’ll be able to quickly identify any transactions that have been deleted from your books. Granted, this isn’t an end-all solution by any means, but it is a helpful management tool. Plus, if a transaction ends up “vanishing” from your books, you can use this report to see who deleted it.
7) Transaction History: QuickBooks or other accounting softwares will usually display a report that shows the entire history for a given transaction. Think of this as a “report within a report”, as you can only run it in certain circumstances.
And don’t forget — we’re right here for you, if you need us: 757-857-1880
Let’s make smart calls together.
Virginia Accounting Services
Feel free to forward this article to a business associate or client you know who could benefit from our assistance. While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for families and business owners.