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Welcome to Our Blog!

Check back for current news on our company and the financial industry.

7 Basic Financial Controls Every Business Owner Needs to Have in Place

We get it, as a small business owner, you just want to do what you love and what you are passionate about.  The business side of things, the back end, isn’t the fun stuff (well, it is for us).  There are certain things you need to have in place and keep track of to reduce your tax liability and to keep your company safe from embezzlement

Here are 7 of them:

  • Receipts:

You are required to have a receipt for every expense over $75. It must be readable. It can be the original or a copy of the original. A copy of a credit card statement with the expense listed is NOT acceptable.

  • Auto Use:

The IRS allows you to take the higher of two deductions when it comes to your auto. You can deduct the business miles driven at the IRS rate for that year OR you can deduct actual costs, like gas, repairs, insurance, and the amount allowed for depreciation. What most business owners miss is the percentage of business use. Usually the percentage is less than 100%. Each owner needs to determine the business percentage for the year.

You are required to keep a mileage log. This includes the date, starting odometer reading, ending odometer reading and business purpose. You are allowed to recreate the log using your calendar and receipts.  There are a lot of apps that can help with this.

  •  Handling of Petty Cash:

Every company has a need to have petty cash on hand. This is where a lot of theft occurs within companies – small amounts over long periods can really add up.  Make sure you are reconciling the petty cash, at least on a monthly basis.

  •  Meals and Entertainment:

These two categories are highly scrutinized. You need to track who you had the meal with/entertainment with and the business purpose. You are required to have a quiet business conversation before, during, or after the event.

On the receipt mark the 5 Ws: “Who, What, Where, When and Why”

  • 1099’s:

You are required to send out 1099-MISC forms to any contractor you paid more than $600 in a calendar year for services. If you do not, you can be penalized for each 1099 not completed.

The IRS has 20 factors to determine if a worker is an independent contractor or an employee. You need to know these factors and make sure if you are paying someone a straight check that, if audited, the IRS will not deem them as an employee. If they feel the person hired is an employee, there are high penalties and interest.

When you receive your 1099s, you need to make sure to reconcile them to your records, and if they are wrong have a new one issued immediately.

  •  Checking and Bank Controls:

Every check that leaves the office should have back-up documentation for what it is for and be signed by one of the owners.

When bank statements come in they should be opened by one of the owners and the checks should be reviewed for the payees and the endorsements.

Make sure you reconcile the entire year for every bank and credit card account you have for business. Then, once you reconcile, make sure there are not any un-cleared transactions. If you do have these un-cleared transactions, you will be either overstating your income (and paying higher taxes) or overstating your expenses (and underpaying taxes).

Double and triple check this!

Credit Cards: Make sure you enter ALL expenses thru the end of the year. Most credit card statements cut off in the middle of the month and many people forget to enter expenses the last few weeks of December.

Have in place a policy for use – Personal use? Client use?

  • Loans to Owners:

If you loan money to your business, you are required to have a promissory note, schedule of repaying and if the loan is over $10,000, the business must pay interest on the loan.

 

If you need any help implementing these safe guards, please contact us, we can help!