The Many Hats of Self Employment

Being self employed comes with many benefits.  You can sleep in, work in your pyjamas and go shopping in the middle of the day.  You no longer have to report to a boss who doesn't really understand what you do or deal with mindless workplace politics.  It all sounds wonderful, but unfortunately there are also many challenges.  Small business owners have to deal with uncertainty and risk.  They need to be disciplined and deal with the many demands that being self employed can impose upon us.  In the early stages of self employment, most of us have to take on the responsiblity of fulfilling the administrative functions that you find in a more established business. Some of the skills that you need to develop are:

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Top 6 Signs Your Small Business Might Need a New Accountant

I met with a small business owner recently who had just purchased a retail business and was looking for a new accountant.  It seems that the current accountant was reviewing her books on a quarterly basis, preparing financial statements and doing the year-end tax returns – all typical accountant stuff.  The problem was that the accountant, while charging this small business a fairly significant amount of money, was not really adding any value to their business.   The bookkeeping, which was done by the previous business owner, was still being entered manually in ledgers (!). The quarterly accounting review consisted of checking the ledgers for mathematical accuracy and ensuring no major deductions had been missed without any discussion regarding the performance of the business.  Worst of all, the accountant was not responding to the client’s requests for a meeting.

There are many great accountants out there, however it is important to ensure that you are hiring someone who will compliment your business and add value.  Below are some of the qualities that should be considered either with respect to your accountant:

 

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Guidance on Deducting Home Office Expenses

One of the benefits of having a home based business (for freelancers, self employed contractors and small business owners) is that you can deduct the expenses relating to the space that you use to work.  This can result in a significant reduction in your tax bill for costs that you would incur regardless, giving you one more reason to love being your own boss.  

Criteria for Deductibility:

For home office expenses to be deductible, they have to meet the following criteria: 

  • It has to be your principal place of business i.e. you cannot deduct home office expenses if you have another office that relates to your business, elsewhere, even if you work 22 hours a day or you check your blackberry in bed.
  • The space designated as your home office is used to earn business income and/or you meet clients or customers on a regular basis.  You can deduct expenses relating to the workspace in your garage which is used for home improvement projects.
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To Inc. or Not To Inc.

The decision to incorporate is one that most small businesses face at some point in their lifetime.  Incorporation, literally, represents the creation of a new person.  Whereas a sole proprietorship is an extension of one's self, a corporation takes on a life of it's own; it can give birth to subsidiary, marry via a merger and die with a dissolution.  It has to file it's own tax return, can be sued and has a set of rules that govern it's existence.  Below are some of the points to consider when deciding whether to incorporate:

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19 Features to Consider When Selecting Small Business Accounting Software

When selecting accounting software for your small business it helps to have an understanding of what you want your accounting system to do for you.  This involves analysing the key aspects of your business, determining what you must have and what you would like to have.  Then, like any good cost benefit analysis, narrow it down to what works within your price point.  Below is a checklist of questions you should ask yourself about your business financial needs before selecting a software:

Cost:

Assessing how much the software is going to cost you is perhaps the most important consideration.  Some accounting software are free, some charge a one time fee and some are based on monthly or annual (recurring) billing.

Platform /Apps:

Determining whether you need your accounting software to work on a Windows or Mac platform or whether you would like to access it from the cloud can be an important consideration.  For example Quickbooks Canada does not currently offer their software for Macs or online. 

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How to Prepare a Business Budget

One of the primary challenges facing a small business owner is uncertainty about the future. (It is also what makes entrepreneurship exciting).  We may have an amazing product or service, but we can’t be sure whether this will actually translate into a profitable business model.  A budget is an excellent tool to manage uncertainty and, contrary to popular belief, can actually be fairly straightforward to prepare, particularly for small businesses that do not have to worry about different departments, product lines and geographic areas .

A budget, very simply, is a tool that helps you predict your sales, expenses and profitability as well as your cash flow needs.  It is based on estimates, which in turn are based on a combination of experience, history and industry knowledge. In terms of presentation, a budget should essentially mirror your financial statements and will include the following main categories:

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American Apparel's Financial and Legal Woes Continue

As evidenced by their most recent quarterly filing, American Apparel's continues to grapple with financial issues.  Despite its strong brand recognition (among a host of accolades, they were named "label of the year" by The Guardian in 2008), it's reputation as a trendsetter, and it's provocative advertising, they are struggling to survive. The company lost $9.5 million in the 3rd quarter of 2010 (alone)  compared with a profit of $4.2 million for the same period in 2009.  Exacerbating the problem is the resignation of their auditors, Deloitte and Touche, in August, 2010 who claimed that there were "potential material errors in the consolidated financial statements for 2009".  This has become the subject of an official FBI criminal investigation. 
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Accountant Shenanigans: Laurence M. Brown and Ronald Mangini

Although, there are not many complimentary things to be said about Bernie Madoff , perhaps his most positive contribution to the investment community has been to increase awareness about ponzi schemes and other investment scams.  Consequently, there has been increased scrutiny of investment companies by the SEC and other financial regulatory bodies, and ensuing prosecution of fraudulent activities. One such fraud relates to two Certified Public Accountants (CPAs), who were charged, on July 22, 2010 with running a ponzi scheme.

Laurence M. Brown and Ronald Mangini, both CPAs from Westchester County N.Y. who run their own accounting firm, Marshall Granger & Co, were charged with selling investments in  what they claimed to be a profitable gas pipeline company in Tennessee, but was atually an inoperative company and had been so for more than a decade.  Some of the more interesting details of the case are as follows:

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NeatDesk Scanner: Effective Bookkeeping Tool?

As an accountant, I occasionally (literally) get shoeboxes of documents from my small business clients.  Receipts are stuffed in and scrunched up and comprise everything from gas (good) to toilet paper (bad).  As I contemplate the mind numbing exercise where I will have to sift through everything, identify missing information and worst of all, enter it all into an accounting software (usually Quickbooks), I often feel a sense of dread.  I've often fantasized about a tool that could do it all for me (of course I could outsource, but since I only have a handful of these types of clients, it is not worth it, yet...). So, when I saw an ad for the Neatdesk scanner (shown ad nauseum on CNBC), I felt a little bit of glee as I perceived a potential solution to (at least part of ) the problem. 

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Accountant Shenanigans: Paul Beckwith (Hospira, Inc.)

The SEC has filed a complaint against Paul Beckwith, CPA alleging unauthorized transfers and embezzlement of funds from Theradoc, a Utah based medical management systems company, where Beckwith was employed as assistant controller .  The company had been acquired by Hospira, Inc., a company listed on the NYSE, in December, 2009.  Some of the more interesting details from the SEC complaint are as follows:
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Accounting for Non Accountants : Debit, Credits and Financial Statements

When people hear the term accounting, there is an involuntary reaction whereby the comprehension centres (the medical term) of their brains tend to shut down, and sleep mode is activated.  This is unfortunate, as accounting, especially to a small business owner, can actually be quite interesting.  It is one of the primary tools by which business owners and other interested parties can gage the success of their business, as well as identify areas that require attention andneed improvement.  To understand accounting, business owners need to have a basic understanding of how it works (debits and credits) and it's results (financial statements), explained below:

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Breakeven Analysis for Small Business

When planning to start a new business, one of the first questions you ask yourself (and hopefully your accountant) is at what point are you going to start making money.  One  simple way to determine this is to calculate the breakeven point, which is the point at which your sales (revenues) equal your expenses.

How is it calculated?

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3 Online Accounting Software Options for Small Business

As cloud computing gains in popularity, the availability of online accounting software continues to grow.  Many small business owners want a software that has an intuitive and easy-to-use interface  that allows them to bill customers, enter expenses and check their bank balances,.  We also want to be able to access from anywhere (you never know when the desire to do your accounting, strikes!)  I have looked at 3 cost effective, multi functional alternatives below:

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Accountant Shenanigans: Derma Wand

For one simple payment of $119.80 plus $14.95 S&H you can purchase the Derma Wand, a pen like device that promises to take years off your face and provide instant rejuvenation.  If one were reading their financial statements it would seem that a large number of people had bought into the hype and purchased their product.  Unfortunately, however, for Derma Wand, it was discovered recently that this was not the case.  In early August, the SEC charged Karl Redekopp, CGA and former CFO of ICTV, with fraudulently inflating sales thereby turning profits into losses. Some of the key details are as follows:
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American Apparel in Trouble

American Apparelmade headlines recently when it's auditors, Deloitte and Touche, resigned recently due to the increased likelihood of "potential material errors to the [December 31, 2009] consolidated financial statements."  Recently, AA announced a preliminary second quarter loss and cast doubt on it's ability to continue as a going concern.  Other interesting details:

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Accountant Shenanigans: David G. Friehling (Madoff Accountant)

Bernie Madoff accountant, David G. Friehling, was finally stripped of his license after being accused of falsely representing that the financial statement for Bernie Madoff Investment Securities, LLC (BMIS) were audited in accordance with Generally Accepted Auditing Standards (GAAS) and conformed to GAAP. 

Some of the more egregious GAAP and GAAS irregularities included:

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Accountant Shenanigans: Kenneth Starr

Kenneth Starr, accountant (not of Bill Clinton special prosecutor fame) and financial advisor to the stars, was indicted on June 10th for 20 counts of wire fraud and 1 count each of securities fraud, money laundering and fraud by an investment advisor.  He has been accused of stealing $59 million (and counting) from his clients. 

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