Tax filing time is an ideal time to review your financial affairs. You have to gather information to prepare your tax return at this time. Why not take one more step and do something positive for your financial well-being?
The following suggestions will get you started on your financial review:
Hold a discussion with your family. Spouses and children need to share and prioritize their financial aspirations.

• Write down your financial goals. How much money will you need to meet each goal? When will you need the money, and how will you get it?
• Construct a net worth statement (a list of your assets and debts), and compare it to last year's statement. Are you gaining or losing ground?
• With your goals (and the effects of inflation) in mind, review the performance of your investments.

Take steps to protect what you already have. Goals may become instantly unobtainable if you lose your present assets or your income potential.

• Do you have adequate disability insurance coverage to replace take-home pay if you become incapacitated?
• Do you have enough life insurance if you or your spouse should die?
• Do you have replacement value property insurance on your home?
• Do you have adequate insurance for calamities such as automobile accidents or lawsuits? Note: Make sure that you need all of the insurance that you have. Do not duplicate employer-provided coverage. Review your coverage annually; do not just automatically renew policies.

Review your will and your estate plan. Did your situation change during the year (marriage, divorce, births, deaths, move to another state, for example)? If so, make appropriate changes to your will and estate plan.
Review your credit use. Keep your credit card bills current. If you're finding that hard to do, it's probably time to cut up some of those credit cards and get your debt under control.
Organize your records. If you had trouble assembling data for your financial review, you need a better system. Set one up.

Internal accounting controls are vital to every business.
The boutique owner needs to be sure that all products are rung up and that all cash is deposited in the bank. The salon and spa owner needs controls to make sure that all services and products sold are captured.
Proper internal controls should be part of everyday procedures in a business. They should work in a way that helps prevent fraud and theft or detects them early.
Having an audit or review of your financial statements once a year will not necessarily detect fraud.
Every business should be sure it has set up an adequate system to safeguard all its assets- cash, inventory, equipment, etc.- with periodic reviews to be sure the controls are working.
Use the following checklist to review your internal control procedures. The list is not all-inclusive and is no substitute for a thorough internal control analysis.
Cash

• Are cash handling and cash recordkeeping duties segregated?
• Are all expenditures authorized and documented?
• Do you conduct unannounced checks of petty cash and other cash accounts?
• Do you prohibit any single employee from handling a transaction from start to finish?
• Do you deposit all receipts intact to the bank daily?
• Do you prepare bank reconciliations?

Sales

• Do you have proper segregation of duties to preclude an employee from pocketing cash from a sale but never reporting the sale?
• If you have too few employees for adequate segregation of responsibilities, do you play an active role in monitoring sales activities?

Accounts Receivable

• Do you have different employees responsible for the various duties associated with accounts receivable? (For example: taking the order, shipping the product, customer payment verification, collecting invoiced receivables, depositing collections in the bank.)
• Do you account for and physically control returned merchandise?
• Wholesalers: Do you bill customers promptly (if you are a wholesaler)?
• Wholesalers: Is an accounts receivable aging schedule prepared regularly? And, do customers receive monthly statements?

Inventory

• Are inventories physically counted at least annually?
• Is central control over inventories maintained?
• Are perpetual inventory records maintained?
• Is inventory adequately insured?
• Do you maintain safeguards against theft and pilferage?

Fixed Assets

• Are fixed assets acquired only with proper authorization?
• Do you take regular inventory of fixed assets?
• Are discrepancies between physical counts and accounting records resolved?
• Are fixed assets adequately insured?
• Are small tools and supplies properly safeguarded?

Debts

• Is there proper authorization for the creation of any debt?
• Are liabilities promptly recorded?
• Are accounts payable checked for accuracy?
• Are bills paid only when the merchandise has actually been received?
• Do you take advantage of vendor discounts?

Stock

• Are designated officers the only ones allowed to sign stock certificates?
• Are stock certificates prenumbered and carefully accounted for?

If you are uncertain, please reach out to us.  We cover fraud protection in our trainings and consulting.

​Search Topic:  Fraud and Internal Controls

What records should your business keep, and how long should you keep them? There are several categories of records that are important to a business, some for internal purposes and some for tax returns and other government requirements. Let's take a look at these by category.

• Tax records. First, consider the records you need to substantiate your annual income tax return. The IRS says that you must maintain adequate records, so support the items of income and expense that you claim. That means you must be able to produce receipts, invoices, cancelled checks, or banking records supporting expense items. Similarly, you should keep sales slips, invoices, or bank records to support income items.
• Accounting records. Most businesses have adequate accounting systems to capture routine transactions, but not for nonroutine transactions such as the purchase of depreciable assets. When you buy a car, computer, or piece of office equipment, be sure to file all purchase documents, assign an inventory number, and immediately set up a depreciation schedule.
• Travel and entertainment expenses. Good recordkeeping for travel and entertainment expenses is essential. Although the rules can be complex, in general you should capture where, when, who, how much, and the business purpose for each expense. A well-designed standard expense report form can help insure that your records contain all the required information. Also, if you have employees who drive on company business, make sure they keep an auto log showing the miles driven for each trip.
• IRS audits. Generally, the IRS can audit a tax return for three years after the date it was due or the date the tax was paid, whichever is later. However, if there is a major understatement of income, they can audit for six years after the due date (or seven years after the tax year). For that reason, you should keep most income tax records for seven years. The IRS requires records relating to employment taxes to be kept for at least four years after the date of the return or the date the tax was paid, although here again a seven-year rule is safer.
• Sales and Use Tax. State taxing authorities are focusing their audit activities by targeting small businesses sales and use tax. Keep invoices and reports showing your sales tax amounts and tie them to your sales and use tax filings. More importantly, keep records showing all your purchases and sales/use tax reporting. Include details behind any corporate credit card payments to defend the payment of sales and use taxes.  Be sure to report the products you take from your inventory for use tax.
• Corporate records. Every incorporated business needs good corporate records, including documents associated with forming the company, bylaws, business licenses, and minutes of all board meetings. Shareholder records should include stock registers and records of all share issuances and redemptions. Also keep copies of all contracts and leases. Finally, don't forget current and terminated employee files, and records of employee pension or profit sharing plans. Most corporate and employee pension plan records should be kept indefinitely.
• Computer recordkeeping. The IRS has established a series of rules and recommendations concerning how electronic records must be maintained. Generally, such records should contain the same information as paper records and should be kept for the same length of time.

If your questioning your recordkeeping, feel free to check out our QuickBooks Online & Cash Flow Management Training.  
Search Topic: Recordkeeping for Business

If you're like some taxpayers, you have a pastime that brings in cash but produces a loss after you deduct your expenses.
Example: an amateur boutique owner or stylist,  who spends money for inventory and supplies and only occasionally sells a product or service.  
If you could deduct "hobby" losses on your tax return, you could reduce taxes owed on your salary or other income.
Actually, you can deduct your losses, but only if you establish that you are carrying on your pastime with the motive of making a profit.
If you can't prove you have a profit motive, the IRS views your activity as a hobby, not as a business. Expenses of a hobby can be deducted only up to the amount of income from the hobby. You can't deduct hobby losses from your salary or other income.
You can help establish your profit motive in one of two ways. If you show a profit in three out of five years (two out of seven years for horse activities), the IRS will presume you've got a business and not a hobby. However, you can't simply manipulate deductions and income to create profit years.
The other way to demonstrate that you're operating with a profit motive is to conduct your activity in a business-like manner. Get advice from an accountant to assist with keeping accurate books and records. Maintain a separate checking account, advertise your services or products, and get a business phone listing. If you have losses, try to turn your business around by taking classes, consulting with experts, and changing your methods of operation. Be sure you spend enough time at your activity to demonstrate that you're serious about profits. Remember, you don't have to earn a profit, but you must try to do so. If you don't have profits in three out of five years, the burden of proof will be on you to show the IRS that this activity is a business and not a hobby.
If you want to turn your hobby into a business, contact us! We can assist you with the IRS requirements.

Search Topic: Hobby or Business

Take time to investigate the business thoroughly.
Don't be too eager. Many people feel they should get into the business and then worry about the problems as they develop. An investigation of all the problem areas may indicate that you shouldn't buy that particular business in the first place.
Make sure that the price is not too high. Many small businesses are not profitable enough to give an acceptable return on both the buyer's time and money. If the buyer wants $90,000 per year for working 60 to 70 hours per week and wants a 12 percent return on his $100,000 investment, the business must net $102,000. Analyze the past performance of the business you're thinking of buying to be sure it can satisfy your requirements.
If you are willing to take a reduced return on your time and money for the sake of self-employment, do so with your eyes open - know the facts.
Ask questions. Most buyers don't ask enough questions or require enough financial history to make an informed decision. Any business worth buying should have kept adequate records. The inability or the unwillingness to provide the proper financial information is an indication that the business may be overpriced.
The need for professional assistance when buying a business cannot be overemphasized.
Search Topic: Buying A Business

Planning to start a business partnership with a friend? Prudence demands looking at the pitfalls - as well as the potential strengths - of such relationships. Here are a few questions to consider.

• What will my friend contribute to the business? Does he or she have strengths that will clearly enhance the business - abilities, knowledge, or resources that you don't possess or aren't willing to acquire by other means? Say, for example, you're a crackerjack salesman, but not too good with numbers. If your friend loves details and is clever with records, the partnership may make sense. If, on the other hand, your pal really can't offer something that would round out the business or make it more profitable, you might want to consider partnering with someone else.
• Are you willing to lose the friendship? This is a tough question, but one that's critical to consider. After all, you and your friend will be working together, day in and day out, to make the business succeed. Such relationships can bring out the best - and worst - in people. If maintaining your friendship is one of your highest priorities, partnering with someone else may be a better choice.
• What's expected from each partner? Developing a profitable business is hard and often unrewarding work. You and any potential business partner should honestly discuss expected work hours, contributions, and responsibilities. Resentment can creep into any business relationship when partners feel that workloads and rewards aren't fairly distributed.
• Can you communicate effectively? Like a good marriage, a long-term business partnership takes honest communication to succeed. Ask yourself, for example, whether you can handle constructive criticism from your friend/business partner. Even the closest business partners don't always see eye to eye, so it's important to take an honest look at how you both handle disagreements. Will you work through difficulties for the firm's sake, or bury your head in the sand and hope for the best? Answering this question is crucial to the success of your partnership.

Friends can be great business partners, but it's wise to proceed with caution.
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Search Topic: Partnership Decisions

Here's what the banker needs ... 
When you apply for a business loan, your request must meet certain basic requirements.
Your banker needs to have:

• A written request for a specific amount of money.
• A detailed explanation of the use of the funds.
• A projection of how and when you will repay the loan.
• A list of the collateral you are offering as security for the loan.

In addition to these essentials, the banker will want to know what will happen in the event of your disability or death; that is, do you carry disability, life, and general liability insurance?
The banker also wants to know:

• The financial history of your company in the form of company balance sheets and profit and loss statements for at least the past three years.
• A realistic projection of profits and a twelve-month (month-by-month) cash flow projection. This spreadsheet should show the specific month that cash will be received from various sources and the month that specific disbursements need to be made.
• A narrative relating your personal business experience.
• The company "game plan" telling where the company will be several years hence in terms of size, types of products or services, number of employees, locations, etc., to give the banker some insight into your long-range planning.
• Personal tax returns for each major owner of the business for the past three years.

Put yourself in the banker's shoes and see what questions you would want answered if someone asked you to risk your capital. If you have not previously assembled a loan request in this manner, engage professional assistance.