What to Ask When Interviewing an Outsourced Firm (and How New Economy Answers)

As your business grows, so will your financial needs. You’ll start to require: 

  • More time for financial management, 
  • A stronger understanding of your financial information,
  • Better tools and resources to ensure timely and accurate numbers.

 

At this point, many businesses choose to outsource their accounting, which solves and helps avoid the problems listed above. 

However, like hiring a new employee, outsourcing your accounting requires an interview process. You have to make sure you select the right firms – one that will grow with you and wants to see you succeed. 

The rest of the article provides several questions you should ask while interviewing an outsourced firm and how we, New Economy, answer them. 

How Do You Manage Capacity? 

Capacity management should be of utmost importance when choosing where to outsource your accounting. You want to be confident that your finances are a priority and that none of the work you are outsourcing is slipping through the cracks.

At New Economy, we take three extra steps to manage our capacity: 

  1. We have a second team member trained and take a team approach in case of turnover. This ensures that no matter what happens on our end, we are still able to prioritize your finances. 
  2. We leverage a schedule for time-blocking. Time-blocking allows us to dedicate time to your project so we accomplish what needs to be done. 
  3. We have an operations team in place. Our operations team keeps everything running smoothly, helps to eliminate bottlenecks, and is always looking for ways to improve workflow. 

How Do You Train and Develop Your Team? 

In the same way you care about building a strong team for your business, you should also care about the team you outsource your accounting to. 

They should be well trained, experienced in their field, and always working towards growing as professionals. 

Training and developing our team is key to best serving our clients. New Economy team members each get 40 hours of training upon hire. From there, we create quarterly development rocks to help each employee work towards their goals. 

Do You Have Any Industry Focus? 

Selecting an accounting firm that is experienced in your industry is a key factor in making your final decision. 

An industry-focused accountant will be able to help you track the right metrics, make strategic decisions, and plan for long-term growth. They’ll know what works in your industry and what doesn’t so you can avoid the what-ifs and start improving financially as a business. 

At New Economy, we work with investor-backed startups and growing small businesses. Most of those are technology and service-based companies that range from pre-revenue to $50 million in revenue. 

If your business falls into any of those categories, New Economy may be a good choice as your outsourced accounting firm, simply because we have a strong understanding of your industry.

How Do You Set Up Pricing and Fee Structure? 

Pricing is rightfully a major concern for businesses looking to outsource their accounting. Typically, accounting firms operate on one of two styles of pricing: 

  • Hourly 
  •  Fixed Fee

Hourly billing works as it sounds – you are charged by the hour for services.

Fixed fee sets a monthly retainer. The focus is more on the value of the service being provided, within the agreed time

You should select a firm whose pricing and fee structure best suit your needs.

New Economy has fixed fees as we are focused on the value delivered as opposed to the billable hour. Additionally, we revisit fees quarterly to make sure everyone is still benefiting economically. 

What is Your Proven Process for Service Delivery? 

Be sure to ask the firm you are interviewing what their process is like for delivering services. You deserve a clear understanding of how things work from start to finish. 

This will give you insight into their priorities and workflow management, as well as set clear expectations for the relationship. 

At New Economy, our process for service delivery is broken into three primary areas. 

The first is taking the time to learn about your business and its needs through several sales Zoom calls leading up to a signed contract. 

The second is an onboarding Zoom call to set timelines and expectations for our work. 

Finally, we will set weekly and monthly calendar check-ins to measure against expectations. 

Our goal is to help you get the most out of your business, and by following this process, we will be able to fully understand you and your business, create a customized plan to help you reach your goals, and provide deliverables with progress updates and more. 

Interested in Outsourcing to New Economy?

If after reading you feel New Economy might be a good fit, schedule a time to meet with Jeff, our founder today! 

We help entrepreneurs gain control of their finances and make smart decisions and would love to learn more about you, your company’s story, and how we can add value to your situation! 

Top Ways to Prepare for a Recession

Talks of a recession are growing as the economy continues to feel the negative effects of the Corona Virus and the war in Ukraine. 

Both have led to lingering supply chain issues, inflation reaching record highs, capital markets tightening up, and talent shortages across nearly every industry. 

For small business owners, a looming recession can be frightening. The last recession, which began in 2007 and lasted through 2010, forced nearly 1.8 million small businesses to go under. 

Now, business owners are intimidated and again struggling to keep up and adapt to a market that is trending downwards. 

However, there’s no need to fear, there is still time to prepare and strengthen your business for a potential recession. Here are some of the top ways to do it:

Review Your Expenses in Detail

As you prepare to fight the storm of a recession, the first place to look is your expenses. You’ve likely already sifted through your expenses and cut back in places where you were overspending or spending unnecessarily, but now it is time to go back to the drawing board. 

Instead of starting with all of the expenses you can cut, start by defining your necessary expenses. 

  • Rent
  • Utilities
  • Inventory 
  • Insurance
  • Employee salaries
  • Etc. 

From there, crosscheck these necessities with your current spending habits. What expenses don’t fit into these categories? 

This will give you an idea of what expenses you can do without when the time comes to save money. 

Manage Your Cash Flow Weekly 

We’ve said it before, and we promise to say it again, cash flow is the lifeblood of your business. It’s a strong indicator of financial health and without a positive cash flow your business won’t survive a recession. 

You can build your cash flow by: 

  • Tracking related metrics and utilizing forecasts to produce better outcomes.
  • Keeping a close watch on your accounts receivable by collecting payments on time and knowing what you are owed.
  • Updating vendor and partner contracts to ensure you are not overpaying. 
  • Running a pricing analysis to ensure you are still charging the right prices. 

As you start implementing these strategies, remember to wrap your arms around your cash flow and manage it weekly. 

New Economy’s FREE Cash Flow Projection Tool can help you do just that. It was built to help you predict your cash flow and make smart decisions about spending and saving. With our tool, you’ll be able to see all of the inflows and outflows that affect your bottom line over time so that you can plan ahead with confidence. 

Run Scenarios in Your Financial Projections

Your financial projections can determine how well your business copes with the effects of a recession. They’ll use previous data to help you indicate where you may see problems down the road. 

As you prepare for a recession, you should create financial projections for what would happen if you cut expenses, saw changes in revenue, increase or decrease your prices, and so forth. This will give you better visibility as you navigate the downturn and help you make the right decisions to keep your business afloat. 

Revisit Financing Options Now

Before it’s too late, explore your financing options. Now is a great time to speak with lenders or investors, apply for grants, or even start a crowdfunding campaign. 

However, be clear with how much additional cash you need to raise before you dive in. You can use the free cash flow tool here, as well, to gain greater visibility and determine how much you may need to survive a recession. 

Get Accurate and Updated Financials

Knowing where your business stands at all times is key to preparing for and withstanding a recession. 

There are multiple tools you can use to get accurate and updated financials. The top four tools include: 

  • Cash Flow Tool
    • As we mentioned, this helps measure the inflows and outflows that affect your bottom line.
  • Weekly Scorecard
    • This includes the KPIs you need to reach your business goals.
  •  Financial Projections
    • These are predictive analyses you can use to help you make informed decisions. 
  • Month-End Close
    • This is a monthly recap of your financial statements. By following the steps needed to complete your month-end close, you’ll also be staying on top of your finances month-to-month, which is essential for preparing for a recession. 

New Economy Can Help You Prepare

For business owners, the thought of a recession can be intimidating. However, with preparation, you can ensure your business comes out on the other side. 

We’ve covered the importance of reviewing your expenses in detail, managing your cash flow weekly, running scenarios in your financial projections, revisiting financing options, and getting accurate and updated financials, but if you’re still struggling to prepare for a recession, turn to New Economy for guidance!

We help entrepreneurs gain control of their finances to make smart decisions to build and grow their business – and that includes before, during, and after a recession. Contact us today to learn more about how we can help!

Top 4 Financial Tools for Success

Financial tools are the drivers behind successful businesses. They bring simplicity to tasks that can otherwise be complicated and time-consuming. 

Thankfully, financial tools can be used in nearly every corner of your financial system. At New Economy, we suggest using four primary tools to help entrepreneurs, like you, gain control of their finances to make smart decisions to build and grow their businesses. 

Here is an overview of each of these helpful financial tools: 

Tool #1: Cash Flow Tool

Cash flow is the lifeblood of your business. You need cash on hand to handle basic tasks, like: 

  • Paying employees and suppliers
  • Buying inventory
  • And leveraging business growth

However, measuring how much cash is flowing in and out of your business can be difficult, especially if you don’t have a solid tracking system. Making smart decisions about saving and spending gets complicated and you often lose the ability to properly grow your business. 

This is where the free cash flow tool we created at New Economy will come in handy. With it, you can see all of the inflows and outflows that affect your bottom line over time so that you can plan ahead with confidence. 

Visit https://neweconomycpa.com/free-offer/ to access our free Cash Flow Tool.

Tool #2: Weekly Scorecard

Scorecards include a combination of the KPIs you need to reach your business goals. 

They are built specifically for your business and give you a look into your performance over a set amount of time, in this case, a week. 

As you craft your weekly scorecard, try not to overthink it. Focus on including only four or five of the most important metrics.  

To select your metrics ask your team how they would measure a good week. This could be anything from making “X” number of sales to having “X” amount of money in the bank. In general, you should include metrics that provide information related to revenue, client acquisitions, efficiency, and profitability.

In addition to your weekly financial scorecards, you should create weekly scorecards for other departments as well. This gives you a good idea of what is going on in your business across the board.

Tool #3: Financial Projections 

Financial projections are essential tools for every business. They are predictors of where your business is headed based on previous data and indicate when you may have problems with cash flow, pricing, or overspending. 

With your projections and current data, you can also evaluate the state of your business, structure big-picture ideas, assess risk, and take action for business growth.

For example, let’s say you believe increasing prices will help you generate more profit but are worried you’ll lose too many customers. Financial projections will predict where your business will stand financially after raising the price. With that information, you can create the best course of action moving forward.

Tool #4: Month-End Close

By now you have probably figured out the importance of leveraging your financial information to make business decisions. You can find everything you need to run a successful business with your numbers, however, if you don’t have a good process for doing so, you’ll miss out on plenty of opportunities. 

The best way to ensure you are mining value from your numbers is to build a month-end close process. Essentially, this will be a combination of complete and timely financial statements you can use to help you make business decisions. 

While you should build a month-end closing process that works best for your business, here are the key things to keep in mind: 

  • Record
    • Make sure all revenue and expenses have been recorded
    • Record accrued liabilities, including payroll, employee vacation, notes payable interest expenses, and taxes
    • Review fixed assets and perform an inventory count
    • Post journal entries for depreciation and amortization
  • Close
    • Reconcile cash, checking, and savings accounts, petty cash fund, and credit card accounts 
    • Reconcile prepaid accounts 
    • Reconcile intercompany accounts to ensure payables and receivables match between both businesses
  • Analyze
    • Generate an adjusted trial balance and draft income statement, balance sheet, and A/R and A/P Aging Reports
    • Review analysis with stakeholders
  • Report
    • Prepare management, FP&A, and external/SEC reporting
    • Assemble required documentation for internal and external auditors

As you go through your month-end close process, take your time and rely on automation as much as possible. Remember, this is an essential piece to a successful business. 

Want Help Incorporating These Tools into Your Financial System?

Each of these tools adds a tremendous amount of value to your financial system. They monitor cash flow and overall business performance, as well as give you an idea of where your business is headed and help you nail down the numbers you need to make better business decisions. 

Properly leveraging these tools leads to a successful business, so if you need assistance in this area, consider New Economy!

We help entrepreneurs gain control of their finances to make smart decisions to build and grow their business. Contact us today to learn more!

5 Ways to Manage Cash Burn and Runway

Every business, especially new startups or quickly growing businesses, should be keeping a close eye on their cash burn and runway. 

These metrics provide essential insight into the sustainability of your spending habits and the financial health of your business. If cash burn and runway are struggling, your business will also struggle. 

Below is an overview of what exactly cash burn and runway mean for your business and how you can manage them. 

What is Cash Burn?

Cash burn is a measure of how quickly your business uses your cash balance. In other words, cash burn is the measure of how much cash is flowing out of your business. 

Typically, cash burn is measured on a monthly basis. However, in some cases, when the need to use cash increases, it can be measured on a weekly or even daily basis. 

Why is Cash Burn Important?

Cash burn rate is a great indicator of the overall health of your business. It shows you:

  • How long you have until you run out of cash
  • If you have a healthy cash flow
  • How fast you are spending the money you have on hand

It’s important to find a healthy cash burn rate. In fact, a recent study shows that nearly 82% of businesses fail because of cash flow problems. 

If you are spending your cash too quickly, it can lead to a failed business. If you aren’t spending your cash fast enough, it can indicate a lack of growth and investment in your business.

For young businesses and startups, cash burn is especially relevant. Typically, profits are low during this time, which means managing your spending is even more important. 

How to Calculate Cash Burn

Cash burn for any given period of time is fairly easy to calculate. First, you have to identify your start and ending cash balance (found on your statement of cash flows) and then find the difference between those numbers. Next, you divide the difference by the number of months in the given period. The total is your monthly cash burn rate. 

Here is an example:

$300,000(starting balance as of Jan 1) – $120,000(ending balance as of March 31) = $180,000(difference)

$180,000(difference) / 3 (number of months in the period) = $60,000 monthly cash burn rate

Now that you know how quickly you are going through your cash, you need to determine how long you can withstand that spending rate. This is referred to as your runway. 

What is Runway and How is it Calculated? 

Runway is the amount of time your business can continue to operate with your current cash burn rate. Like burn rate, a healthy balance of runway is essential for any business. 

If you have a short runway, your business is quickly running out of time to survive. However, while a long runway sounds appealing, it could also mean you are not properly allocating your cash reserves. 

To calculate your runway, simply divide your total cash reserve by your burn rate. 

For example: 

$120,000(total cash reserve) / $60,000(burn rate) = 2 months left before your business runs out of cash. 

Tips for Managing Cash Burn and Runway

Ideally, your business will have a negative cash burn rate. This would indicate that you are bringing in more money than you are spending and would, therefore, lengthen your runway. 

Here are several proven ways to manage your cash burn and runway:

1. Reduce or Defer Non-Essential Expenses 

You’ll want to take a close look at your budget to determine if your expenses are bringing value to your business. 

Find where you can cut, reduce, or defer certain expenses. However, make sure your changes are sustainable. Making too many changes too quickly can stunt growth.  

2. Pay Bills Slower

If you aren’t reaping a benefit from paying your bills before they are due, hold off on your payments. 

This allows you to hold on to your cash for longer periods of time. 

3. Bill Sooner and Collect Faster

If you’re struggling with your cash burn and runway, one of the best adjustments is collecting your money sooner rather than later. 

Send your invoices right away and include terms for payment. If you’re struggling with collecting payments in general, try implementing a late fee or improving your collection methods. 

4. Raise Additional Funds 

Many new start-ups and small businesses have to go through multiple rounds of funding before they start seeing substantial profits. 

After calculations, if your cash burn and runway are not where you want them to be, consider raising additional funds. 

5. Increase Prices 

Inaccurate or low prices can negatively impact your profits. If you’re looking for more cash inflows, consider running a pricing analysis. Chances are, you’re charging too little for your products and/or services. 

Our Free Cash Flow Tool Can Help

Having clear predictions of your cash burn and runway can mean the difference between success and failure for your business. 

That’s why we put together a free cash flow tool that lets you plan your budget in advance and see how much money is coming in and out of your business over time. 

With the help of New Economy, you’ll gain control over your finances and position your business for success! Contact us today to learn more ways we can help you!

Why Companies Choose New Economy as an Outsourced Accounting, Finance and Tax Partner

New Economy was designed to help entrepreneurs gain control of their finances and make smart decisions to build and grow their business

As an outsourced accounting, finance and tax partner, we do this by making you the hero (think Luke Skywalker), identifying your problems and challenges (think saving the galaxy), and we come in and play the role of guiding you to financial success (think Yoda).

We believe you deserve financial confidence to grow your business and want to be the reason you fall back in love with being an entrepreneur. 

Here’s how we will get you there: 

You are the Hero 

This is all about you. Your dreams. Your business. Your finances. Your success. 

Being entrepreneurs ourselves, we understand the ups and downs that you are going through to build your business. We understand how hard it is but we also know you’re up to it as you have plenty of passion, guts, and vision.

And we know, there are plenty of challenges awaiting our Hero. And every great hero needs a guide helping them solve problems and pointing them in the right direction behind the scenes. 

Every Hero has a Problem

As an entrepreneur, your issues and problems are abundant and financial issues can be overwhelming at times, especially since you didn’t start your business to manage the books, taxes, or accounting systems and processes. 

Some of the problems you may run into are: 

  • You lack the financial visibility to make decisions that drive your business forward. 
  • You are not getting your financials in a timely manner, meaning you lack real-time data and the ability to make quick changes to get your business back on track.
  • You have inaccurate financials, giving you a misrepresentation of your business. You are struggling to get the right person in the accounting and finance seat to move at your speed and provide timely and accurate financial information to build and grow your business. 
  • You are using processes and technology that aren’t adapting as your business is growing, which is causing inefficiencies and costing you money.
  • You are lacking strategic business or tax support.

Each of these issues puts your business in a tough position. They inhibit growth and add more work to your plate.

The Vision for Success

Having a great understanding of the problems and challenges facing entrepreneurs puts us in a  position to add value and help you achieve your goals.

So imagine the following:

  • Having a partner that is providing accurate financials on time that you can trust
  • Having a partner that will help you leverage financial information to make decisions
  • Having a partner that will help to ensure your financial systems and processes are working efficiently and evolving to meet the needs of the business
  • Having a strategic partner to help support the growth of the business
  • Having a strategic partner to ensure you are keeping up with the evolving tax changes  

Imagine a world where you don’t have to worry about anything financial, accounting or tax-related and where you can spend your time focused on growing your business.

That’s where New Economy comes in as the guide.

We are the Guide to Success

At New Economy, our passion is to Unleash the full potential of the Entrepreneur.

We have come alongside many Entrepreneurs helping to put their pain points and problems at the center of our focus. This is why we’ve created a team and culture that is thirsting to make an impact and add value. 

Our goal is simple: to guide you to get the most out of your business finances so you can do what you love. 

In fact, our tagline is: Helping entrepreneurs gain control of their finances and make smart decisions. 

We truly believe with our support, your business can achieve the success you’ve envisioned from the beginning.

Here is what a few of our Heros have to say:

Linda Bohmbach – Owner/President of Sales at Home Healthsmith

We have felt uncertainty and concern about how the business was performing financially. But then we found New Economy! They helped us understand our financials better by providing cash flow projections, a budget, and a projection. These tools have removed some of the fear and uncertainty and helped us with decision-making. But the best is they are entrepreneurs just like us.”

Erica Wennerstrom CFO/ COO at Framework Homeownership

“I first found New Economy in 2016, when I joined a technology startup whose accounting processes and technology stack were lagging and not operating effectively. With their partnership, I was able to modernize our financial operations and count on timely and accurate financials. 

I have since worked with New Economy at two other companies, and each time relied on the New Economy team to help me tackle key financial operational challenges, including revamping the Chart of Accounts and financial statements, implementing new systems, and dealing with sales tax liabilities

Even in the midst of large operational projects, New Economy ensures that I always have a handle on the numbers to make smart decisions and a team I can count on. THANK YOU!”

Su Sanni – CEO at Dollaride

“Dollaride is a growing venture-backed startup. We’ve been focused on growing our business, but needed a partner that could step right in to provide us with financial visibility and own the process. The team at New Economy has helped us to get organized. 

Every month, they also provide key financial information that enables us to make smart decisions that build and grow our Company. We enjoy working with New Economy and highly recommend them!”

Want to Learn More About Working with New Economy as an Outsourced Accounting, Finance and Tax Partner? 

If you want to gain control of your finances and make smart business decisions, New Economy is the outsourced accounting partner for you. 

With our help, you’ll get the most out of your business and fall back in love with being an entrepreneur. 

Schedule an appointment with us so we can get an understanding of who you are, where your challenges lie, and how we can help.

Does My Company Need a CFO?

As you know, a CFO can add value to your company. They have the strategic mind to financially engineer plans to raise capital, provide leadership, create and implement systems and processes that will support your business growth.

However, before making the decision to hire a CFO, you’ll likely have plenty of questions: 

  • What exactly do they bring to the table? 
  • Is my business in the right position to make the hire? 
  • How deep do my pockets have to stretch to bring a CFO on board?

To bring some clarification to the decision-making process, we’ve answered some of the top questions for determining if your company needs a CFO.  

What Does a CFO Do?

A chief financial officer wears many hats and each comes with valuable benefits for a business.

Oversees All Things Financial

It goes without saying that a strong financial position is a necessity if you hope to have a successful business. Including a CFO in your team makes this possible. 

Their primary goal is to understand the ins and outs of your finances. Meaning when it comes to managing cash flow, creating budgets, leaning into financial forecasts, ensuring accurate reporting, and everything in between, a CFO will have it covered. 

Strategic Advising 

Not only will a CFO have a strong understanding of your finances, but they will also be able to offer experienced and data-backed advice to help your business make the right decisions. 

They’ll serve as a planner and map out strategies with your goals in mind. From there, a CFO will implement and track the progress of those strategies to ensure your business sees success. 

Apart from the more obvious financial strategies like improving profitability and building cash flow, CFOs offer strategic advising for:

  • Organizational changes like mergers, acquisitions, and IPOs.
  • Negotiating vendor contracts to ensure you are getting the best out of your money.
  • Building relationships outside of our organization but within the financial community like lenders and potential investors.

Building Infrastructure

Everything within your business requires a process. Whether it’s from a production, operational, or financial standpoint, you have (or should have) a system. 

One of the roles of a CFO is to create systems and processes that help your finances stay organized and on track. This could include anything from:

  • Implementing a new payroll software
  • Creating a new way to track your cash flow
  • Integrating a new bookkeeping system

The idea behind this work is that your business will be able to run much more smoothly and efficiently with the proper infrastructure in place. 

Building and Developing the Team

CFOs serve as the right-hand to upper-level management. They analyze everything from a financial perspective, which can be incredibly useful when building and developing a team. 

A CFOs insight can be helpful for determining:

  • If it is the right time to hire. 
  • Feasible salaries and benefits for employees.
  • Productivity and efficiency among current employees.

When Does My Business Need a CFO? 

Typically, rapid growth plays the largest role in determining if your business is CFO-ready. As you grow, the need for financial assistance and expertise increases.

For example, a growing business often runs into the need for capital. A CFO understands the process of valuing your business, meeting with investors, pitching the deal, and then creating a plan for properly utilizing the money. They provide all of the support you would need to secure funding for growth.

As mentioned, the faster your business grows, the more financial support you will need. Your:

  • Budgets will have to be more detailed.
  • Reporting will have to be more accurate and advanced.
  • Forecasts will have to predict a multitude of different situations.

Every area of your business’ finances will require more attention and expert-level analysis, something only a CFO can offer. 

Once new strategies are in place and your finances begin trending in the right direction, your entire team will need to be on board. For your success, it’s essential your team sticks to their budgets, understands their role from a financial standpoint, and reaches their assigned goals. A CFO serves as a financial leader, providing your team with the information they need to understand why they play an intricate role in your business’ success. 

What Does a CFO Cost?

When a business owner is weighing the pros and cons of hiring a CFO, cost typically sits front and center. However, there are two routes you can take when it comes to reaping the benefits of a CFO. 

Full-Time CFO

A full-time, in-house, CFO spends all of its time building strong finances for your business. As an employee of your company, you’ll be required to pay them a salary with equity and offer additional benefits. 

If you choose the full-time CFO route, you’ll be paying anywhere between $300K-$400k a year to receive all of the benefits above. 

Part-time/Outsourced CFO 

The second option is to hire a part-time/outsourced CFO. They will take time to understand your business and your goals. Even though they are not full-time, they still offer the same services and you will receive the same benefits.

When you work with a part-time/outsourced CFO, your monthly bill will range between $6K-$12K per month. Oftentimes, with this option, you can pick what level of service you’d like, which is why the prices vary. 

If you are interested in working with a part-time/outsourced CFO, consider New Economy. We offer lite CFO services which include strategic planning, capital raising, and financial modeling for forecasting and future visibility. Our goal is to help entrepreneurs gain financial clarity and make smart decisions. 

Schedule a consultation with us today to learn how we can help you get the most out of your business!

Top 5 Tax Questions for Entrepreneurs

As tax season gets underway and entrepreneurs begin their prep, plenty of questions come to the surface. 

When do I need to file? How can I save the most money? Will hiring an accountant be worth the investment? 

In this article, we will answer these questions and more so you can be confident you are filing accurately this tax season.

1. What are the due dates for my company’s returns?

As an entrepreneur, due dates for your company’s returns will vary depending on how your business has been organized. 

Tax Returns

If your business is structured as a c-corporation you will file using Form 1120. If your business has elected s-corporation status you will file using Form 1120S. LLCs may be classified as a disregarded entity, a partnership, or a corporation in the eyes of the IRS. 

Generally, C-corps are required to file by the 15th of the fourth month following the corporation’s tax year. S-corps and partnerships are required to file by the 15th of the third month following the corporation’s tax year. Disregarded entities follow the filing of the owner of the entity.  

1099’s & W-2

As an employer, you are required to report employee wages on Form W-2. This filing is required to be prepared and sent to your employees by January 31st. 

Other payments to non-employees may be required to be reported on Forms 1099. Payments to independent contractors, payments to attorneys, payments of interest, or rent are just a handful of scenarios in which Form 1099 may be required. Filing due dates for Forms 1099 are dependent upon different factors so it is best to consult with a professional.   

2. Are there any big changes in the tax code I should be aware of?

Due to the COVID-19 pandemic, the last couple of years have brought about many changes to the way businesses file their taxes. Changes to the tax code have likely affected your business.

One major change is related to the employee retention credit (ERC). Unfortunately, the employee retention credit program ended effective September 30, 2021, for the majority of businesses. However, a business may be able to retroactively claim the ERC. The IRS has provided a notice outlining conditions to avoid a failure to deposit penalty due to the abrupt end of this program as some businesses may have underestimated their tax obligations.  

Another mentionable change is related to the utilization of net operating losses. Generally, losses generated in years after 2017 are limited to 80% of taxable income and can only be carried forward.  The CARES act temporarily allows for losses generated in 2018-2020 to be carried back five years. Carryback of these losses may result in a refund of taxes paid previously – be sure to check with a professional on your unique tax situation.  

Typically, 50% of business meal expenses are deductible for tax purposes.  IRS Notice 2021-25 has provided for a temporary 100% deduction for business meals purchased from restaurants in 2021 and 2022. This increased deduction can save your business tax dollars.   

3. How can I save money and reduce taxes?

Figuring out how to save money on taxes is every business owner’s top priority during tax season. Here are the two best ways to do it.

Stay organized with a platform like QBO or Xero

A common flaw for many entrepreneurs during tax time is a lack of accurate records. Expenses fall through the cracks and trying to clean up your books at the end of the year becomes a nightmare. 

However, using a platform like Quickbooks Online or Xero can help you avoid this and save you money even though they come with a fee. These virtual bookkeeping platforms allow you to track all of your expenses, so when it comes time to make deductions, you’ll have everything in one place.

Logging your transactions throughout the year also makes year-end closing simpler, because hopefully, you will have caught any discrepancies ahead of time.

Capture credits

There are plenty of credits available for businesses. Tax credits are claimed by submitting the required form and will lower your tax bill dollar-for-dollar. The two credits you should be aware of are the R&D credit and ERC.

The Research and Development Tax Credit is meant to encourage businesses to invest in the creation or improvement of products and processes within your business. Please don’t hesitate to reach out to us if you think you may be eligible for this credit.

As mentioned earlier, there was a change made to the ERC inhibiting its use for the final quarter of 2021. However, it can still be claimed for the first three quarters of the year. Your business may qualify based on how many employees you have. 

4. Is my product or service subject to sales tax?

Whether or not your product or service is subject to sales tax boils down to where you are conducting business. It varies by state and while most states do have a statewide sales tax, some do not. The world of sales tax is frequently changing and is nuanced based on a variety of factors relating to business line, services, location of employees, etc.  

We can help you navigate sales tax laws and link you with a team of professionals so you can shift your attention to your business.  As you can imagine, making sure you are placing the correct sales tax on your products or services correctly is crucial to limit your tax penalty exposure. 

5. How much will it cost to have a professional handle my taxes?

Handing your taxes over to a professional is ideal. They will work with you to ensure you meet important deadlines and are claiming credits and deductions your business qualifies for. Accountants are well-versed in tax code, meaning they are on top of any changes or important information you need to know before filing. Your ROI for working with a tax professional will not go unnoticed.

If you’re interested in passing off your taxes to a professional, consider working with New Economy. We help small businesses and investor-backed startups gain control of their finances and make smart decisions. 

Schedule a discovery call to discuss the cost associated with our services and to learn how we can help your business grow! 

 

Sources of Capital and How to Evaluate Them

Capital is used to fund the day-to-day operations as well as the long-term growth of your company. You must obtain it and use it wisely to create a strong, healthy business. 

In most companies, the capital structure is a combination of various sources of capital. It’s important you understand each source and how it will affect your business goals and long-term success. With this information, you will be making smarter decisions for your business.

Sources of Capital

Let’s take a closer look at several types of capital and how they work.

Debt Capital

Debt capital refers to any type of money that is borrowed and must be repaid. 

There are a variety of ways you can secure debt capital including: 

  • Credit cards
    • Business credit cards function similarly to personal credit cards. You’re given a credit line and are expected to repay the credit within a given time period, if you do not repay in time, you will begin collecting interest. 
    • Credit cards will best serve your business if you need a smaller amount of financing or don’t qualify for loans.
  • Bank loans
    • Borrowing money through a bank lender isn’t always easy for new businesses. Banks can be leery of lending to businesses lacking proof of financial stability. However, this is one of the more common ways to secure debt capital. Usually, interest rates are low and the money can be used on anything. 
    • Bank loans are good for short or long-term debt, depending on the size of the loan and how quickly you plan to pay it back.
  • Government loans
    • The Small Business Association (and some other programs) offers loans and is the most popular way for entrepreneurs to acquire debt capital. However, you have to explain why you need the capital and show you are able to repay the loan. 
    • Again, depending on the size of the loan and how quickly you plan to pay it back, government loans may be a good option. 

Like most forms of debt, debt capital requires an agreement to pay interest. This can be a drawback to using debt capital because if you aren’t careful, you could create a much bigger financial burden for your business. Additionally, in the unfortunate event your business fails, you are still responsible for paying what is owed. 

On the other hand, leveraging debt capital comes with its advantage. Since your debt is finite you, or your lender, can calculate exactly how much is needed for repayment each month. As long as you don’t miss a payment, and once the debt and interest are fully paid, the burden is no longer on your plate. 

Another advantage to using this type of capital is that it does not dilute the owner’s interest in the company like other forms, such as equity capital which will be discussed in the next section. The debt is yours, meaning you pay for it with your revenue. You don’t have to worry about paying out your revenue to equity owners. Your money stays within your business. 

Equity Capital

Equity capital is money from invested shareholders. As mentioned in the previous section, using equity as a form of capital dilutes the owner’s interest in the business because each shareholder is considered part-owner, even if it is just a small fraction of the company. 

Here are the two most common forms: 

  • Common stock
    • Common stock is typically sold to shareholders to raise capital. Shareholders with common get some say in certain business decisions and could potentially receive random dividends.
  • Preferred stock
    • Preferred stock owners have no voting rights but businesses usually pay a fixed dividend to preferred shareholders before they pay common shareholders. However, businesses are not required to pay anything.

Unlike debt capital, equity capital does not need to be repaid, however, businesses will usually provide some return on the investment made by shareholders based on market performance. Equity is most useful when your company’s eyes are set on high levels of growth and you are looking to scale the company quickly. 

Like any source of capital, leveraging equity comes with its advantages. 

  • You and your business are not required to repay investors. Resulting in less risk because there isn’t a required payment due, even if your business fails.
  • Investors could end up being a significant benefit to your business, depending on the role they want to play. 
    • Types of investors: 
      • Angel investors – Angel investors usually are closely connected to the business, offer less than $500,000 as an investment, and typically stay out of management decisions. 
      • Venture capitalists – Venture capitalists are picky investors who generally want a say in business decisions. 
      • Accelerators – Accelerators offer mentorships, investors, and other support to new businesses. They will play a heavy role in the management of your business. 

While you may find benefits from equity capital, you may be put off by some of its disadvantages.

  • Leveraging equity requires a lot of your time.
    • You’ll need to provide your shareholders with a detailed look into your business plan and continually update them on your progress. 
  • There’s a chance you’ll lose control of your business. 
    • The more involved your shareholders are, the more say they will want in business decisions. 

Crowdfunding

Crowdfunding is a newer, growing type of capital that is accessible to companies. It is the use of small amounts of funding from a large number of people to reach the desired goal. Instead of turning to one lender, the funds come from many individuals.

Social media has aided in the uprising of crowdfunding because large amounts of people are easily accessible. Investors can come from anywhere to support your business.

Crowdfunding comes with its benefits: 

  • You won’t have to give up equity in your company. 
    • Multiple investors are giving your business money simply because they support the idea. They expect nothing in return. 
  • You can test the market. 
    • Investors are quite literally buying into your business. A high level of support in crowdfunding can often mean a high level of support within your market. 

However, a disadvantage to crowdfunding is that it can carry a negative reputation when it comes to public opinion because it is sometimes seen as a last resort to funding.

If your company does not have access to alternative forms of capital, crowdfunding may be an option.

Capital Grants

Capital grants are an award of money given to the company to achieve a specific goal or to incentivize performance. These are funds that do not have to be repaid but may come with some conditions.

A range of grant options are available and each is a bit different in terms of applying for and obtaining them. Most often, there is an application process for those that meet basic requirements. Companies must meet the specific eligibility conditions to apply. Usually, this means you are a part of a specific industry and your business has shown its ability to grow. 

If you have a specific need, this type of funding may be your best option, considering you often have to prove how you are using the money to meet that need.

Grants create a strong influx of funding and are beneficial because there are – usually – no costs associated with them. However, it can be difficult to track the success of grants and there is always the potential to lose a grant, which could put your business at risk financially.

Need Help Determining Which Source of Capital is Right for You?

Selecting which source of capital is right for your business can be difficult. As we’ve discussed, there are plenty of factors at play, and turning to the wrong source could result in financial distress. 

This is why we recommend working with a trusted accounting partner, like New Economy. We will learn the ins and outs of your finances and work with you to determine the best source of capital for your business, taking the work off your plate, and ensuring financial success. 

New Economy is ready to answer your questions and help you implement best practices for using capital to help you reach your business goals. 

Let us be the partner you need! Contact New Economy, to learn more! It 

Top 5 Reasons to Engage a Part Time Controller or Accountant

If we had to make an educated guess, we’d say you likely have a lot of tasks on your plate, and your accounting probably sits low on your “love list”. How did we do?

Accounting is time-consuming, tedious, and can be complicated. It’s not on many people’s list of favorite things. It’s certainly not where most entrepreneurs prefer to dedicate their time when priorities like customer relationships, operations, and logistics demand attention.

Still, whether to outsource accounting is a decision not to be taken lightly, so let’s look at the 5 top reasons small business owners like you are choosing to outsource accounting.

Top 5 Reasons to Engage a Part Time Controller or Accountant

1. Your Business is Growing

You can handle your finances now. You’re small scale and just need a few spreadsheets. It’s fairly easy to keep track of expenses because they’re predictable, and you don’t have that many. But something’s changing as you grow. It’s getting more challenging to keep everything straight or find the time to sit down with receipts and a calculator.

As you grow, you make more money, but you also face higher demands. Your payroll is growing too, and an increasing number of employees, vendors, and customers are counting on you to make smart business decisions and keep this ship moving in the right direction.

All of this means you have more to manage, but you can’t afford to let your accounting fall behind because you need those up-to-date figures to make informed decisions.

Outsourced accountants keep track of your numbers and offer sound advice, so you understand the next steps in growth.

2. You Need a Stronger Business Strategy

66% of small businesses say they have trouble with finances. They say their number one issue is maximizing cash flow.

86% of small businesses would struggle to maintain current operations if they lost just two months of revenue.

This house of cards business model leads to many small business failures, but when you strengthen your business strategy, you can improve cash flow and weather shifting markets, economics, and natural disasters. You can take calculated risks to grow your company.

Business strategies are key to a successful business. When you don’t have them, you make decisions on a whim or limited information at great risk. As you grow, so should your business strategy. If a business isn’t growing and looking toward the future, it will fall behind its competitors.

Financial statements may look like a bunch of numbers to the untrained eye. But to an accountant, they tell a story of where your business has been, how it’s doing, where it’s going, and what you do to influence that trajectory.

When you understand the numbers, you can set more meaningful goals so you have a foundation to refer back to and can push your company to its full potential.

3. Your Systems and Processes Will Improve

With a strong business strategy will come better systems and processes. A closer look at your numbers can help you spot overspending, waste, poor productivity, quality issues, and even careless errors (or fraud) that are costing you money.

Accountants will work with you to create systems that work best for your business, such as:

  • Customized reporting
  • Tracking
  • Payroll
  • Industry and financial compliance
  • Timely reconciliations
  • Accounts payable
  • Avoiding tax or other penalties
  • Accounting automation
  • Pricing analysis and strategies
  • Aligning business goals with financials to streamline and grow
  • Budgets vs. Actual

Better systems lead to a more financially healthy business.

4. You’ll Save Time and Money

Accounting will be their job, not yours. That’s not to say you won’t look at or engage with your financials. But accounting professionals can analyze, summarize, and deliver information to you in the most useful form.

Spend more time doing what you do best, running your business. And the best part is you don’t have to pay for an in-house accountant. Outsourcing is typically cheaper. You do not have to pay for someone full-time or manage benefits. You only pay for what you need.

How does outsourcing accounting save you time? It allows you to:

  • Focus on other areas of business so they perform better with fewer errors and fires to put out
  • Work with someone who knows their industry intimately and gains the same in-depth knowledge of your business to advise you, for swift, agile, and confident decision-making
  • Reduce risks as you experience fewer “wrong turns” that end up wasting your time and money
  • Speed up revenue generation with the right people, technology, business, goals, and strategies

5. You’ll Have a Trusted Financial Partner

Their only job is to manage your finances. They’re not being pulled in a million directions, putting out fires, or trying to juggle several priorities. This leads to accuracy and efficiency. You can trust there will be no costly mistakes. Accounting professionals have safeguards in place on top of learning to check, double-check, reconcile, and re-check everything.

If you have questions, they are there with answers, and their in-depth knowledge of your financials makes them the ideal person with whom to discuss important business decisions and how to adapt in competitive industries. Gain control of your business and its direction by working with a trusted accounting partner.

Would you like to learn more about the value that outsourcing accounting delivers to growing businesses? Turn to New Economy. We will manage your finances to run your business. Learn more about turn-key accounting services for entrepreneurs.

How to Manage and Proactively Build Cash Flow in Your Business

A strong cash flow is a deciding factor between a successful business and an unsuccessful one. It indicates the health of your business. This is why it’s so important to manage cash flow properly and take the necessary steps to build it up. 

Entrepreneurs who want to develop a cash flow system for best practices should follow these steps. From improving accounts receivable to better managing vendor contracts and product pricing, there are so many ways you should and could be building cash flow. 

Benefit from gains in revenue into the new year now with these tips for managing cash flow.

Track Everything and Utilize Forecasts

Keeping adequate records of revenue and expenses is one of the most important steps in managing cash flow. If tracking is off, your overall cash flow will be off. Good tracking also ties into creating a forecast. Cash flow forecasts show you where you expected your finances to be and can play a huge role in goal setting. 

Goals are a necessary means of making sure your business is striving and achieving in areas that will grow your company by leaps and bounds.

Use forecasts as a benchmark for reaching your cash flow goals. They will ensure you are on the right track and implementing the correct tasks and processes. Include forecast data and results after the fact in your financial reports. This will help your business keep on pace with any necessary changes that need to be made.

Keep a Close Watch on Your Accounts Receivable

Accounts receivable have a huge impact on your cash flow numbers. Keep accounts receivable prevalent so your cash flow is primed for smart financial growth. Do this by following and aiming to improve three simple processes you are doing anyway for your business:

  • Collect payments on time
  • Track exactly how much you are owed
  • Know what is past due

Improving these areas can be much easier if you automate the process. You can also implement the assistance of an online accounting firm or CFO services from a third-party associate to give your accounts receivable processes an edge.

Update Vendor and Partner Contracts

Vendor and partner contracts can sneakily decrease your cash flow. They may go up in price over time, or you could be overpaying. Either way, it’s important to know what is happening between vendors and their services. Keep track of when contracts end or prices change. That way you can find a cheaper route that improves cash flow.

Ask for an updated price list on a monthly basis or whenever pricing updates are made by each of your vendors. You should also take advantage of any sales or price reductions on similar products and services when they arise. By looking over updated pricing sheets your vendors provide, you will have the information you need for smart purchasing decisions.

Vendors may also have a customer rewards program you can sign up for to save even more money. Watch out for any subscriptions or reoccurring product purchases, though. These may loop you into fuel price surcharges or other unexpected market-related expenses. You want to avoid making the mistake of signing lengthy contracts for items that you may not need in the near future as well. Be cautious of those vendor deals that look too good to be true, and you’ll stay on course with spending in this area.

Run a Pricing Analysis

If your cash flow is suffering, it may be because you aren’t charging the right price. Maybe you’re charging too much and customers aren’t making the purchase. Maybe you aren’t charging enough and your expenses are outweighing your revenues. A pricing analysis will help you set the right price for your business and, in turn, boost cash flow.

Tools and software are essential to this part of the process. You are able to increase cash flow through the smart implementation of free tools that will greatly benefit your business. Figure out where these tools can best serve your company with pricing analyses before you make any purchases. This will also make you savvier within the retail market for products that your company needs to use.

Work With an Experienced Accounting Partner

Cash flow problems are not something to let slip through the cracks. You need to manage cash flow issues properly by constantly working to find ways to correct them for your business. When you work with an experienced accounting partner, like New Economy, you can be sure everything is being done to move your cash flow in the right direction.

Right now, you can also take advantage of our free cash flow projection tool. Determine what else you can do on your own, for free, with our five pro tips for cash flow stimulation and confidence-boosting. 

We also want to hear from you directly. Schedule an appointment with us today to learn how we can help you grow your business.

Evaluating Your Growing Company’s Budget as Year-End Approaches

Budgets are essential for success in your growing company. They work as a guide to determine the resources needed to execute your vision, help with decision-making, and can serve as the backbone of a financially healthy business. 

However, plenty of growing companies create a budget and then push it to the side. If growth and a strong financial system are important to you, you’re going to want to keep your budget close, and consistently refer back to it each month to ensure you are on the right track.

Not only does properly evaluating your budget serve you in the current year, but it better equips you for the year ahead. 

Here are several ways you can evaluate your budget as year-end approaches. 

Compare to Actuals and Make Adjustments

Running a budget variance report is one of the most effective ways to evaluate your budget. Budget variance looks at your budget and compares it to your actuals. This will show you all of the areas where improvements could be made. 

From there you can make adjustments, based on data, that will redirect or improve your spending for the remainder of the year, making sure you finish strong and have a solid foundation for the year ahead. We refer to this as forecasting and you still want to hold yourself accountable to the original budget.

Making changes now will put you in a good place as you dive into creating your budget for the upcoming year. Spending that is recurring or on your budget in the previous year will be accounted for, meaning you can lean into those numbers and be confident in your spending plan

Plan for Changes

As you wrap up the current year and head into the new, you probably have a good idea of any new changes and resources that will be needed to drive your future vision.

Maybe you’re hoping to boost sales and believe launching a new marketing campaign will do just that. Be sure you account for this increase when preparing your budget for the year ahead. You also should consider other expenses like:

  • Changing to higher-priced vendors
  • Outsourcing work
  • Hiring new team members

These are all expenses you may not have had in the previous year but can foresee for the year ahead. 

Inversely, you may be cutting back your expenses by:

  • Changing to lower-priced vendors
  • Improving your sales channels
  • Lowering your costs of goods sold 

Also, consider the ways in which you will fund your budget based on your plans:

  • Maybe you need to raise capital through equity financing to support growth
  • Or perhaps there is debt capital available for cash shortfalls
  • Or maybe your plan is supported through self-generating cashflows

Be sure to plan for changes either way and incorporate them into your budget. This will help strengthen your budget and hopefully lower the number of changes you’ll need to make throughout the year.  

Tie Your Budget Back Into Your Goals

Your budget was likely created with your goals in mind, so have you checked to make sure you’re still on track to reach those goals? And what have you learned in this process that can be applied moving forward?

Being within your budget is great, and is a goal within itself, but if you aren’t reaching your other previously set goals, you still may need to make adjustments. 

For example, let’s say you want to lower your debt by year-end and you’ve been evaluating your budget to see if there are any areas where money isn’t fully being used. You notice you’ve been within your expected spending for marketing, in fact, you have allocated more money to marketing expenses than needed, and you have extra funds in this area. This may be the perfect opportunity to shift some of that remaining cash towards paying down your debt. 

One of the most important takeaways from the budgeting process is learning. And then becoming better predictors based on that learning as we apply it to the future.

Involve Your Team

There’s a good chance you relied on your team to help you create a budget, so it’d be beneficial for you to turn to your team to help you evaluate it as well. They may be more familiar with spending and the pulse of day-to-day operations. 

Involving your team can bring about new insight for: 

  • Lowering spending in certain areas
  • Being aware of areas the budget could be adjusted
  • Knowing where there may be changes coming

An added benefit to involving your team is that it creates an extra layer of accountability to their spending. When they are active in creating and evaluating the budget, they have a better idea of what is going on financially and how and where money should be spent. 

Turn to a Trusted Financial Partner

Evaluating your budget prior to year-end is incredibly important. Not only will it help you make adjustments to get you where you want to be this year, but it will also assist in creating a strong budget for the year ahead. 

To make sure your evaluation process is giving you all of the information you need to be successful, consider working with a trusted accounting partner, like New Economy. We’ll make sure your budget is accurate and focused on reaching your goals and take time to create a budget strategy with you that makes sense for your business. Through our partnership, you can confidently be prepared for the year ahead. 

Want to learn more about how we help growth-minded entrepreneurs? Schedule an appointment and we’d love to learn more about your business.

Download Our Free Cash Flow Tool

Want to dig deeper into your cash flow insights? We’ve created a free tool that will help you truly understand cash flow projection.

Download our cash flow tool here