It Pays Off: 7 reasons business owners should pay themselves a salary

It Pays Off: 7 reasons business owners should pay themselves a salary

Think back to the days before you started your business, when you were working for a boss. Chances are you were rewarded for your hard work with a regular salary. It may not have always been the same amount, but it came through like clockwork. And for the next week, month or however often you got paid, you’d do your best to make it last.

But now you are the boss, and so you don’t need to be restricted to a set salary, do you? You can simply draw money out of the business whenever you need it, right?

Wrong.

7 good reasons to pay yourself a regular salary

As a business owner, here are seven reasons why you should pay yourself a regular salary instead of treating your business like an automated teller machine.

1. It’s what you’re used to.

When you first started working for someone else, you couldn’t ask the boss for more money whenever you ran out. All you could do was hold out until the next time you got paid. And having a regular income also made it easier to budget for your income and expenses, manage your money, and save up for a mortgage or investment.

So why change now?

2. Much of the money in the business’ bank account is already spoken for

It’s easy to think all the money sitting in your business’ bank account is yours. After all, it’s your business, isn’t it?

But that money actually belongs to the business—not you personally—and is needed to cover things such as:

  • Salaries and wages
  • Paying contractors and suppliers
  • Stock purchases
  • Equipment
  • Rent and utilities
  • Future tax payments

It doesn’t matter how profitable your business is. If the money isn’t there to pay the bills when they’re due, your business is as risk of becoming insolvent (i.e. you have more commitments and bills to pay than cash or available funding to pay them with).

Having sufficient cash flow is vital for any business. And it’s far easier to manage cash flow when you have predictable expenses you can plan around—including your salary.

3. You need money to grow your business

A growing business is a cash-hungry business. As it grows you may need to move it to a larger premises or invest in new staff or technology to grow your capacity. Even if you can keep a lid on your fixed expenses, your business may require an increase in variable inputs such as materials.

And all this ties up cash.

So whatever your growth plans, you’ll need enough money in reserve to fund them. And that’s on top of the money you need to keep the business running at its current level.

As you can see, knowing exactly what cash is flowing in and out of your business, and saving as much of your profits as you can to build up your cash reserves, is important for a growing business.

But if you keep ‘raiding the till’ whenever you’re short of cash, you’ll never know how much cash you have in reserve, or when you have enough funds to initiate the next stage in your growth plans.

4. You won’t be risking ‘lifestyle creep’

The lifestyle we lead is largely dictated by the amount of money we have readily available. So if your business does particularly well one week and the bank balance is up, you might be tempted to draw a little extra money and spend it on dinner at a fancy restaurant, a weekend away, a new ‘toy’ or some other indulgence.

It’s okay to spend money in these ways if it’s a bonus for achieving a certain result or milestone in your business. But these bonuses should still be within the planned and documented salary and remuneration package the business pays you.

If you’re not disciplined in this area, it doesn’t take long for these indulgences to become part of what you consider a ‘normal’ part of your lifestyle, and so you start drawing extra cash on a regular basis.

And that’s not good for the health of your business.

By living off a regular salary (and nothing more) instead, you’ll learn to live happily within your means, which is a key to building wealth.

5. You’re more likely to fly under the taxman’s radar

Governments’ tax departments are used to people being paid a regular salary. It’s generally how things work. And by giving yourself a regular salary, you’ll be seen as just another salary earner and be more likely to fly under the radar.

If, on the other hand, you start drawing large amounts from your business at irregular intervals, you may raise a few eyebrows with the governments’ tax auditors. And that’s never a good thing.

6. You could be creating a tax liability for your business

When wage and salary earners are paid, the employer must withhold and set aside a portion of their pay as tax, which is periodically paid to the government on the employees’ behalf.

When you withdraw money from your business, it’s not ‘free money’ (i.e. tax-free). These amounts, depending on your business structure, need to be properly accounted for as:

  • wages/salaries
  • drawings or a loan from the business
  • dividends (a portion of your profit).

Your actions here could be building up a potential debt that will need to be paid at some point. And that debt could lead to severe cash flow problems down the track, especially when it comes time to sell the business.

You’re much better off accounting for, setting aside and paying taxes as they fall due. It will not only help your business, but also the quality of your sleep.

7. You’ll more easily qualify for mortgages and other loans from the banks

When it comes to assessing a person’s ability to service a potential loan, banks much prefer consistently earning wage and salary earners to sporadically earning self-employed business owners.

The bank wants to know you can comfortably service the loan each month, and by paying yourself a regular salary you’ll have the paystubs and bank statements to show a steady cash flow history.

So the sooner you set this up in your business, the better.

A successful business is a great way to create creation and accumulate wealth. But don’t disadvantage yourself by presenting a poor case to the banks when applying for a mortgage or other type of loan.

How much should you pay yourself?

As you can see, there are many good reasons to pay yourself a regular salary instead of continually raiding the till. The question is, how much should you pay yourself?

That’s a question we can help you answer.

Obviously you need to pay yourself enough money to cover your basic living and lifestyle requirements. The last thing you want is to be stressing about your personal finances, especially when you’re trying to make business decisions.

But it’s not a good idea to pay yourself too much in salary—even if the business can easily afford the cash flow. Depending on your business structure, there are probably more tax-effective ways to receive income from your business, such as dividends.

Every business and person’s situation is different in this regard, so it’s important to get one-on-one advice in this area. Don’t view this article as personal advice to you—it’s not. We’re simply opening your eyes to the many benefits of paying yourself a consistent salary as a business owner.

To work out the right amount to pay yourself regularly, you’ll need to consider things such as:

  • What your business’ cash flow can comfortably pay you on a regular basis
  • What you feel you’re worth (e.g. if you were employed by someone else)
  • What will let you achieve your personal and family wealth creation goals, such as paying off your mortgage and building your investment portfolio
  • Tax considerations so you pay yourself the optimum amount to meet your needs without needlessly paying too much personal income tax
  • The business’ projected profitability for the financial year. (Your shareholding percentage and dividend policy on withdrawing profits or retaining and reinvesting profits in the business will determine your projected profit dividend.)

As you can see, it makes sense to get professional advice on calculating your salary as a business owner. We’ll help you work it out by taking into account your current business and personal situation. We’ll also set up payroll systems to automatically create and distribute the necessary tax-related paperwork each pay period.

You enjoy being your own boss.

Now it’s time to also enjoy being your own employee.

Getting Ready for Payroll in QuickBooks Online

Getting Ready for Payroll in QuickBooks Online

Payroll is probably the most complex element of small business accounting. Not only are you directly responsible to your employees, but you also have to make sure you’re handling everything related to benefits and payroll taxes correctly.

Whether you’re switching from a manual system to QuickBooks Online, or you’ve just hired your first employee, you’ll soon discover that the site can make your payroll-related tasks much more organized and accurate – speeding up the process tremendously.

But before you start getting ready for your first payroll run, you have a lot of setup work to be done. Be sure to leave yourself time before those first paychecks are expected.

Our Purpose Here
We’ll provide some step-by-step instruction, but initially, we just want you to see what information you’ll need to have available and how QuickBooks Online handles it. This is not meant to be a payroll setup tutorial.

Building a Backbone
There’s no particular order set in stone for your payroll preparation tasks, although you will need to provide some background information about your company and its policies before you can start creating employee records.

QuickBooks Online doesn’t walk you through the steps required. It does though display a page with links to all of the data you’ll have to enter. Click the gear icon in the upper right, and then click Payroll Settings. You’ll see this screen:

QuickBooks Online’s Payroll Settings screen displays links to the pages where you’ll manage your setup tasks.

You would have entered information about your Contact Information and Work Locations (under the Business Information heading) when you first signed on to QuickBooks Online. At the same time, you would have been exposed to the Chart of Accounts, which already has accounts designated for payroll. You can see them by clicking Preferences | Accounting, but please do not customize these. If modifications are needed, we’ll do them for you.

Payroll Policies
How often will you pay your employees? Go up to the Payroll heading in the upper left and click on Pay Schedules. Click Create and open the drop-down list next to Pay Period to select the frequency desired. Then enter the date for the first payroll you’ll run in QuickBooks Online and the end date for the period that it covers. Click the box below if you want this to be the default setting for all employees. Then click OK to return to the previous page.

Open the Vacation and Sick Leave Policies window. If you don’t yet have accrual rules for these paid days off, let us help you here. It’s complicated. When you’re done, click the back arrow to return to the Pay Policies window and select Deductions/Contributions. Are you offering benefits like health insurance? You’ll need to have your paperwork and information handy before you start completing this section.

Before you can pay employees, you’ll need to have entered information about the benefits you offer so you can withhold dollars for them.

Click the plus sign (+) in front of Add a New Deduction/Contribution and complete the fields here, then click OK. You’ll assign these deductions to employees on their individual records in QuickBooks Online. If there are any Employee Garnishments needed (like child support), click the down arrow next to Add Garnishment for and select the worker from the list. You’ll provide details for these in the window that opens. This information was most likely provided to you by the agency requesting it. When you’re done, click OK.

Taxes and More
If you’re new to payroll and have never dealt with payroll taxes before, you’re going to need our help getting this complicated element set up correctly. Even if you have, we’d recommend that you let us work with you. QuickBooks Online does a good job of providing guidance here, but failure to submit payroll taxes (or pay them incorrectly) can lead to penalties and fines – or worse.

There are other setup tasks you’ll need to complete, like:

  • Connecting your payroll bank account to QuickBooks Online.
  • Creating employee records.
  • Setting payroll production preferences.

Setup is by far the most challenging part of processing payroll in QuickBooks Online. Once that’s done, you’ll just be entering hours and making modifications. Please do connect with us if you’re planning to take this on, and we’ll make sure you get a good start.

Hire a QuickBooks ProAdvisor

To schedule an initial consultation with us, please click the button below.

Is Your Business Compensation Plan Setup Correctly?

Is Your Business Compensation Plan Setup Correctly?

A gross margin analysis is one of the most reliable and effective ways to determine just how profitable your business really is, regardless of what industry you are in. However, before you can calculate this, you must know exactly what you are paying for labor. Unlike many other industries, there are several options when it comes to compensation in salons or spas.

The following information is designed to help you decide if your business compensation is set up correctly.

Types of Compensations in Spas and Salons

The most common compensation plans include:

  • Independent contractors: In this situation, you contract out a task for the contractor to complete. He or she is responsible for purchasing all products they use, as well as furnishing their own They are typically not offered benefits and do not have any income taxes taken out of their check. At the end of the year, they receive a Form 1099.
  • Booth Rental: While you collect a rental fee from the person each month, they are considered self-employed and are treated as so.
  • Commission: Salon commission rates range from 35 to 60 percent on services rendered [1]. The person is only paid for what they do. You may also pay commission on products sold. Commission rates should be calibrated very carefully to ensure that it is low enough that your business turns a profit, yet high enough to keep an employee from going elsewhere and taking his or her clients with them.
  • Commission plus salary: In addition to receiving a certain amount per hour, the employee will receive a certain percentage (usually between 10 and 25%) of what they do and sell.

Other forms of compensation include paying for ongoing training and education, offering an employee discount program, and providing certain benefits, such as health insurance and paid vacations. Obviously, the type of compensation you would offer will depend on the employee’s status.

Factoring in Incentives and Bonuses

Incentives and bonuses both qualify as forms of compensation, though they do not necessarily come in cash form. Typically, incentives and bonuses focus on improving customer retention rates, meeting profitability, or reaching media recognition targets. For example, you may give out gift cards or pay for the lunch of a salon/ spa employee for bringing 10 new clients into the salon. Another option could be paying for an employee’s gym membership after they have had 20 clients return to the salon/ spa for at least a second treatment. Finally, you could bring in lunch for everyone once the salon/ spa has reached so many likes on Facebook or follows on Instagram. Be creative with what you offer to motivate your staff, while also increasing their loyalty and overall job satisfaction.

Coming up with the Right Setup

Your business compensation plan should be carefully crafted to create a balance between making a healthy profit, keeping your team loyal and motivated, and ensuring you stay competitive in your niche market. Once you have found the right setup, be sure to carefully communicate the incentive and commission-based elements to your staff. You want to be certain they have a complete understanding of how the compensation program works.  Need help getting the right setup?  Contact STAC Bizness Solutions to help you get started.

Looking for a QuickBooks Expert?

Working with a QuickBooks ProAdvisor is the best way to learn how to use QuickBooks to help your business grow and flourish. You won’t find a better way to get the support you need anywhere else.

As a small business owner, we realize that you may not have the budget to hire a QuickBooks expert. If you’re looking for a more economical way to get set up on QuickBooks, we provide cloud bookkeeping programs to match any business requirement. Here are our Quickbooks ServicesQuickBooks SetupQuickBooks Training, and QuickTune-up.

You can feel confident in knowing that our STAC Bizness Solutions team are Certified QuickBooks ProAdvisors. Meet Our Team.

If you would like to learn about all the benefits that STAC offers, just give us a call and we’ll provide you all the details. Call us at (844) 424-9637.

Hire a QuickBooks ProAdvisor

To schedule an initial consultation with us, please click the button below.

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Planning Your Gross Margin for Your Construction Business

Planning Your Gross Margin for Your Construction Business

In the construction industry, a gross margin analysis is a reliable and efficient way to determine what your fees should be, while also making certain you maintain a consistent profit level. As a result, gross margin should be calculated for each construction project you consider taking on.

What is Gross Margin?

Gross margin refers to the difference between the selling price and your direct costs. In simple terms, gross margin is your gross profit as a percentage of your sales price. Gross profit refers to the money you have left over after you have paid out all your direct costs, such as the costs of equipment and materials.

From Gross Profit to Net Profit

Later, your gross profit will be used to your pay your indirect costs, including employee salaries, general insurance premiums, office overhead expenses, and vehicle operating expenses. After you have paid all of your direct and indirect costs, you will be left with your net profit. In other words, net profit is the money you make after paying all costs and expenses.

What is the Average Gross Margin in the Construction Industry?

According to the National House Builders Association (NAHB), for the fiscal year 2014, the average gross margin was 18.9% [1]. When asked most established contractors reported that their overall goal was to achieve a gross margin of 16% or higher. Some were even able to regularly achieve a gross margin of 20% or more.

How to Plan Your Gross Margin?

The best way to plan your gross margin is by starting at the very bottom. This means that you will need to decide what your profit goal is before you do anything else. Remember, this is what you want to end up putting in your pocket when the project is complete. It is vital to be realistic and reasonable when deciding on this number. Yes, you want to make money, but if your estimate is too high, prospective clients will keep looking until they find a construction company who offers them a better price.

Then, work your way backward by determining what gross margin you will need to achieve. Be aware that there may be some instances when lowering or increasing your gross margin is appropriate. For example, you may want to reduce your gross margin when the client is carrying the cost of the construction loan, which reduces your responsibility or depending on the price and size of the property you will be building. On the other hand, if the project has difficult details to deal with or the land is especially hard to work with, you may want to increase your gross margin.

Once you have established your gross margin, you will be able to finalize the estimate you will present to your prospective client.

Ongoing Education

If you are in the construction industry, it is recommended that you attend seminars designed to help you understand profitability vs. cash flow management, as well as how to spot potential problems in your estimates and how to fix them. After all, understanding profitability is crucial if your goal is to have a successful construction company that makes money.  Contact STAC Bizness Solutions to see how we can help you understand your Gross Margin.

 

Looking for a QuickBooks Expert?

Working with a QuickBooks ProAdvisor is the best way to learn how to use QuickBooks to help your business grow and flourish. You won’t find a better way to get the support you need anywhere else.

As a small business owner, we realize that you may not have the budget to hire a QuickBooks expert. If you’re looking for a more economical way to get set up on QuickBooks, we provide cloud bookkeeping programs to match any business requirement. Here are our Quickbooks ServicesQuickBooks SetupQuickBooks Training, and QuickTune-up.

You can feel confident in knowing that our STAC Bizness Solutions team are Certified QuickBooks ProAdvisors. Meet Our Team.

If you would like to learn about all the benefits that STAC offers, just give us a call and we’ll provide you all the details. Call us at (844) 424-9637.

Hire a QuickBooks ProAdvisor

To schedule an initial consultation with us, please click the button below.

Gift Cards

How To Generate More Sales

The National Gift Card annual 2017 Gift Card Data states plastic gift card redemption doesn’t appear to be going away anytime soon.

How does Financial Planning help with your Strategy for Your Company?

How does Financial Planning help with your Strategy for Your Company?

How does Financial Planning help with your Strategy for Your Company?

When it comes to accomplishing the goals, one of the most integral parts is financial planning.  It is planning that determines the future of a company – the better planning is, the more are the opportunities to succeed.

Companies deploy two types of planning; Strategic and financial planning. The principle of strategic planning is to assign a direction for the development/goal of your company.  To have a successful organization, you must be proficient in the way that you can terminate the major areas of inefficiency. With the help of financial planning, you can secure the future of your company and make its revenue to swell up. Financial planning not only enables you to meet your company’s needs but also assists you in devising a strategy for your business.

What is Financial Planning and how does it help?

Financial planning is the process of dealing/managing your accounts in a proper way that you can achieve your business goals without facing any/minimal loss. Financial planning assists in comparing various scenarios and enables a comprehensive understanding of the process of how revenues are generated and how cash is expended in the business. Eventually, it becomes an essential factor in determining the areas in which the company needs to improve.

Financial planning consists of 4 main points

  1. Prioritizing Expenditures
  2. Investment plan
  3. Taking debt or loan
  4. Savings

How is Financial Planning done?

There are 6 steps that play a pivotal role in financial planning.

  • Establishing the goal
  • Collecting data
  • Comprehensive data analysis
  • Developing a plan
  • Executing the plan
  • Complete monitoring of the plan

All these points, if followed correctly, lead to an impeccable financial plan for a company, and they all play an essential part in organizing a business. Without financial planning, a business cannot run profitably. It is because financial planning helps in comprehending the economics of a business by analyzing financial reports and collecting data periodically. This also means that financial planning assists in managing accounts and future investments if needed to be done. The statistics that are recorded enable a company to compute economic ratios such as having the status of some profit margin and yielding arranged investment. Statistic provides helpful information about a company’s liquidity, profitability, debt, operating performance, cash flow and investment evaluation.

The bottom line is that strategic and financial planning is always entangled in a business and they work together in a recurring way. Any change to your budget requires a reassessment of the existing strategy in place. Sometimes budget changes are significant enough that you have to change what you are doing administratively. If you want to change your strategy, you must first confirm that you have the means to do so or how you will get it. The company with strong financial hold performs efficiently in the long run and delivers as per the vision and the mission. A company with stable financial records enjoys stability in every department. Employees, investors, and clients are more likely to stay with the company which has a strong financial setup. Therefore, it can be said without a single doubt that financial planning helps a lot with your strategy for your business.

Looking for a QuickBooks Expert?

Working with a QuickBooks ProAdvisor is the best way to learn how to use QuickBooks to help your business grow and flourish. You won’t find a better way to get the support you need anywhere else.

As a small business owner, we realize that you may not have the budget to hire a QuickBooks expert. If you’re looking for a more economical way to get set up on QuickBooks, we provide cloud bookkeeping programs to match any business requirement. Here are our Quickbooks ServicesQuickBooks SetupQuickBooks Training, and QuickTune-up.

You can feel confident in knowing that our STAC Bizness Solutions team are Certified QuickBooks ProAdvisors. Meet Our Team.

If you would like to learn about all the benefits that STAC offers, just give us a call and we’ll provide you all the details. Call us at (844) 424-9637.

Hire a QuickBooks ProAdvisor

To schedule an initial consultation with us, please click the button below.

Gift Cards

How To Generate More Sales

The National Gift Card annual 2017 Gift Card Data states plastic gift card redemption doesn’t appear to be going away anytime soon.

Exempt vs. Non-Exempt Employee Classification

Exempt vs. Non-Exempt Employee Classification

Exempt vs. Non-Exempt Employee Classification

Most business owners find it difficult to distinguish between the exempt and non-exempt employees, and it also causes a great deal of confusion between employers and employees. Whether you are entitled to the overtime payment or not (usually means the extra time you work after the standard 40 hours for every week), depending on your exemption position according to the FLSA (Fair Labor Standards Act), remains the primary ambiguity in this regard. However, various other jobs don’t fall under these standards, like agricultural jobs, truck driving, and others, which are usually governed by other law organizations.

Majority of citizens in U.S come under the FLSA and you can either classify them as exempt or non-exempt, depending on the overtime pay regulations. As an amateur, you may not have a clear idea of what category of workers these are, but don’t ponder over it because that’s what we are here for today! We’ll give you a quick breakdown of what rules apply to which workers. So let’s dive right in.

Non-Exempt Employees

If you work as a non-exempt employee for more than the standard time per week, that’s 40 hours, then according to the FLSA policies, you are entitled to extra pay for the time and one-half of the standard hours of overtime work you spend. Concisely, if you are working on the hourly basis and get paid for the hours you work, apart from the standard hourly paid rate, then you are classified as a non-exempt employee. If you are a non-exempt employee, then you will not qualify for the numerous white collar job exemptions. Such employees usually include maintenance, technicians, construction, semi-skilled, blue collar, laborers, and clericals.

Exempt Employees

Such employees don’t get any protection and cover from the FLSA, and this means that they are not entitled to any overtime payments. According to the FLSA, airline and sales employees are exempt, and if you meet with three points, then you are in this category. These are the rules that apply:

  • If you are getting a payment of $23,600 for the year
  • If you get paid on the wage basis (doesn’t apply to people who work on “hourly basis,” like school teachers, and physicians)
  • If you perform duties on the job that are classified as exempt

To qualify for the exempt status, the nature of your job is also taken into account. Typically, the duties of exempt employees are high, and the FLSA splits them into three further categories:

Executive

Employees are exempt from the FLSA policies and rules if they perform duties such as:

  • Supervise more than one employee
  • Work as a manager
  • Having the power to hire, assign tasks, fire and so on.

In most cases, such people are usually considered in charge or the boss of the business or company.

Administrator

For people who have duties that support the business, like public relations, accounting, human resources and payroll staffs, then they fall under this category. Duties must also include:

  • Office work
  • Tasks related to the management or customers of the business
  • Independent discretion and judgment of significant business matters

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