Tips Guides

Firstly, what do I mean by a financial goal? For most of us, that would generally be a goal to either increase income or reduce consumer debt. Of course there may be times in our lives where we want to increase consumer debt to acquire goods and services sooner or to reduce our income as a trade off to have more time but in this article, let’s set those situations aside. In particular, let’s look at the scenario of reducing consumer debt by 50% in six months.

My standard formula for goal setting is to select a coach, have the required resources in place and to have a plan-A and a plan-B in place so let’s see how a financial goal fits in with this.

Selecting a financial coach these days is difficult indeed. Most financial advisors will only try to sell you products, thereby limiting their own risk in a highly litigious environment. If your goal is to reduce your personal debt by 50% in 6 months the financial advisor might be dismissive if there is no chance of selling a product into your situation.

Similarly, a debt financer will try and sell you a product that appears to reduce your debt but in fact does very little. Finally there are educators, who provide information but are prohibited by law to give financial advice. While they can give illustrations or tell you what they did, they cannot specifically advise you what to do and therefore cannot really be your coach.

I am aware, however, of some wealth creation companies that provide ‘integrated’ solutions providing all of the required professionals in a single meeting. By nature, however, the cost of this service is out of reach of many. One solution might be to use self-help websites and software to help resolve this situation, in conjunction with education and perhaps a visit to a financial advisor if necessary.

What resources do you need to reduce personal debt? Well first of all, you must be able to measure and control what you are spending. Yes, I am talking about the dreaded budget. With internet banking and plastic cards, it is relatively easy to download transactions from all of your banks and put them into a spreadsheet. I believe that the most important tool, however, is the banking system itself. With high interest-earning no-fee accounts available it is possible to use the banking system and the utilities to do a lot of the budget accounting for you.

The Plan-A is what you will do if you are on track to achieve your goal. Is there some kind of reward for achieving your goal? Clearly to reduce personal debt, you must have a system to control what you spend, so at a minimum a separate card account and bills account but more likely around 9 high interest no fee accounts and one card account per partner, preferably a debit card (or secured credit card).

The Plan-B is to identify the biggest risk and what to do if it happens. If, for example, you think that your car might need $1,000 of repairs but you can’t set aside that much money over the next 6 months, what will you do? Will you change the deadline, or cut costs in other areas? Can you do without a car?

Finally, tracking a financial goal and measuring the level of success is straight-forward when you have the right tools in place, such as internet banking.

Glen Smith aka Glen The Goals Guy has been running both goal-setting and budgeting workshops.
Visit http://QuickStartGoals.com or http://BillBanisher.com

A number of questions are asked by clients either before purchasing or after downloading the accounting software. Many of these questions and the answers are the same the most typical of which are produced here.

Why is the monthly profit and loss account not updating from the sales and purchases entered.

Updating the profit and loss account in the financial accounts file is automated. If the financial accounts file is not updating automatically the links from the sales accounting spreadsheet and or the purchase accounting spreadsheet are not working. This may be because the file names have been changed which breaks the links between the files.

The most common reason is the way the files were originally saved when initially downloaded from the website by opening the files first before saving them. When a file is opened first before saving the computer stores that file in a temporary internet folder and changes the links to temporary links within that temporary folder.

When that file is then saved it is those temporary links which are being saved and not the original links. Those temporary links would not be recognised by the other files which form the link structure. The solution is to delete the files and save the files again direct to your accounts folder without opening them first thereby preserving the original links.

Accounting entries on sales and purchases appear on the profit and loss account but do not appear on the list of expenses on the self employed tax return.

The self employed tax return required to be completed in the UK is dependent upon the sales turnover. Small business with total sales income exceeding 64,000 pounds for the financial year ending 5 April 2008 are required to complete the full self employed tax return while businesses with a turnover under 64,000 pounds may complete the short version of the self employed tax return.. Coincidentally the threshold is the same as the vat threshold.

In addition if the sales income is less than 30,000 pounds then it is not necessary to complete all the individual expense classifications. The excel formulae within the financial accounts file automatically fill in the short or full tax return and only fill in the detailed expense classifications if required to do so.

Does the package produce my quarterly vat returns when a vat flat rate scheme is being operated.

The user guide contains notes on how to enter the value added tax flat rate percentage on the sales bookkeeping spreadsheet. The bookkeeping single entry of the flat rate vat percentage on the sales sheet updates throughout the package including the subsequent months on the sales sheet and also each month on the purchases bookkeeping spreadsheet automatically calculating value added tax at the flat rate percentage and expenses value added tax paid on purchases at the zero vat rate producing a quarterly vat return.

Does the self employed accounting software package produce a balance sheet.

Producing a balance sheet is optional for self employed small business and not an essential requirement of completing the self employed tax return. The self employed package is based upon single entry bookkeeping and does not produce a balance sheet which requires double entry bookkeeping while the limited company package does produce a balance sheet as it is a legal requirement for a limited liability company.

As the self employed accounting software includes sales and purchase spreadsheets and also cash and bank spreadsheets it is possible to manually produce a balance sheet if required but the accounting software does not produce it automatically.

Do I purchase a new software package each financial year or can the accounting software be updated for more than one year accounts.

As the accounting software and payroll packages include the current financial year tax rules that enable the financial packages to automate the production of that years tax returns then each year has new tax rules embedded and being on excel rather than an accounting database then it is necessary to purchase a new accounting or payroll package each year.

Terry Cartwright, CEO DIY Accounting, a qualified accountant in the UK, designs Accounting Software on excel spreadsheets and Payroll Software for small to medium sized business providing a complete accounting solution and also supplies Company Formation packages for new limited liability companies

The best choice is often dependent upon the size of the business and the employment of full time accountants, accounting staff, bookkeepers or management of the accounting records by the proprietor. Every business needs to choose the most appropriate accounts package according to both the requirements of the business and the capabilities of the person or people who will operate the accounting solution.

Many small businesses do not benefit from sophisticated accounting software if the technical requirements of that software exceed the abilities of the users to produce efficient financial records and use the full capabilities of the accounting software to maintain a high level of financial control.

Alternatively a simple bookkeeping package may not offer the degree of financial control over such financial matters as debtors and credit control, creditors and cash flow liquidity that may be required. Financial control and cash flow is of supreme significance and importance when credit is tight.

Every business needs to maintain a set of books and accounts to satisfy the legal obligations to calculate the net taxable profit which has to be both declared to the taxation authority and provide sufficient financial records to support that calculation.

Up until the mid twentieth century it was common practise to produce accounts handwritten on paper, Typing being reserved for the final set of accounts for publication as required. Handwritten accounting records are largely obsolete for medium and larger businesses although still used by many small business organisations.

With the advent of computers accounting software has become the norm and there are many simple bookkeeping packages that can be easy to understand and offer sufficient levels of financial control for even the smallest business.

In essence each small business has a choice between preparing a handwritten set of accounts, using a simple bookkeeping package which could be based upon spreadsheets or a more sophisticated accounting software package that almost invariably use a data entry system into a database which can then be queried to produce the required financial control.

Choosing handwritten accounts would only be applicable to the smallest business where the proprietor had no employees, limited numbers of transactions and had full financial control without the need for written information. Such handwritten accounts would not be suitable for any business that required control over debtors and creditors or that needed to produce a balance sheet.

For those businesses that could suffice with handwritten accounts there are better options available such as using computer spreadsheets. Minimal knowledge would be required and the benefits substantial compared with being handwritten.

An accounting package based upon computer spreadsheets is suitable for most small business as it can be no more difficult than maintaining handwritten accounts but in an organised format. The sophistication of the format would be according to the ability of the designer of the accounting solution or the bookkeeping knowledge of the person preparing the accounts.

Accounting software written on computer spreadsheets have advantages in that they can save time in data entry, improve accuracy, can be changed to correct errors, highly visible and provide all the basic bookkeeping needs of a small business. Accounting solutions written on spreadsheets are normally limited in relation to financial control and medium sized businesses that require additional control over debtors and creditors may be more suited to a database accounting software system.

Generally if a business is large enough to employ a full time bookkeeper or accountant then that business potentially has the accounting knowledge and skills within the accounting function to use a database accounting system and achieve the additional financial control elements which become available.

Accounting software that uses a database has the facility to produce regular financial and tax reports, debtors reports and statements, creditors reports and statements, cash flow statements and a set of monthly and final accounting reports such as profit and loss accounts and balance sheets.

The disadvantage of such accounting solutions is that to get the most and best out of the system you also need to understand how the package works and how technically to obtain from it the benefits of increased financial control that are available.

The main priority in choosing any accounting package is to first determine the final requirements you need from that administrative system. If detailed financial control, particularly over individual supplier or client accounts is essential and the business is large enough to employ office based staff including an accountant or full time bookkeeper then a database system may be the appropriate choice.

If the business is smaller and requires detailed accounting records to support the year end financial statements while financial control is already sufficient to be in the hands of the business owner then accounting software based upon spreadsheets would probably be adequate. The degree of adequacy being dependent upon the level of expertise contained and automated within the accounts program.

Handwritten books would be the lowest choice. Adequate for some small businesses but only suitable if a computer based option was impossible.

Terry Cartwright, CEO DIY Accounting, a qualified accountant in the UK, designs Accounting Software on excel spreadsheets and Payroll Software for small to medium sized business providing a complete accounting solution and also supplies Company Formation packages for new limited liability companies

The text book definition of “sunk costs” reads something like this:

Sunk Costs: Costs that were incurred in the past that cannot be recovered and thus are irrelevant for decision making.

Well most costs are incurred in the past so that part of the definition is not all that helpful. More central is the idea of recoverability. But the key underlying idea, which is not spelled out in the definition, is that sunk costs are assets. Huh? How can costs be assets? Well keep in mind that costs involve the expenditure of resources (usually money). But expenditures come in two flavors: those that have only short term benefit and those that have long term benefit. Costs (expenditures) that have only short term benefits are called period expenses or just expenses. Examples include expenditures for monthly utilities and rent. Costs that are expected to create benefit into future periods are called assets. Examples are machinery, furniture and equipment.

Now assets are sometimes referred to as unexpired costs to emphasize the fact that the expenditure will create benefits for future accounting periods. But these assets (unexpired costs) also come in two flavors: recoverable assets versus non recoverable assets. Most assets are recoverable at least to a degree. You buy a piece of equipment or furniture and you use it for a few years and it still functions so you can sell it in the used furniture or equipment market. Maybe you will not recover much of your original outlay but you will recover something.

But non recoverable assets are exactly sunk costs. You lay the money out and you cannot recover much of anything in the secondary market. Why not? Well these kinds of assets or sunk costs are usually custom made for very specific purposes. A piece of equipment specially designed to perform one unique function in a unique manufacturing process. A custom made software that only suits the specialized needs of one business.

So what is the big deal about these non recoverable assets that we call sunk costs? The big deal is that once we make an investment in these kinds of assets we are very reluctant to think clearly about whether or not we made the right decision. We are very reluctant to admit that we made a mistake.

Example. You invest $2,000,000 in special equipment to manufacture a certain model of desk lamp. Excluding the original investment of $2,000,000 the unit cost of producing one lamp is $3.50. This unit cost includes labor and materials directly associated with producing the lamp. Now some time after you make the investment in the special equipment you find out that a factory in China will manufacture the identical lamp for $3.00 per unit delivered. What is the prudent course of action?

Well the prudent course of action is to outsource the production and utterly disregard the $2,000,000 investment made in the special equipment. But the prudent course of action runs utterly contrary to human nature because abandoning the asset entails admitting to yourself that you made a $2,000,000 mistake.

How willing you are to abandon a bad asset investment is related to at least two things: the size of the investment and when you get the bad news that you made a mistake. If the sunk cost is large you are more likely to resist rational action than if the outlay is small.

If data on your mistake becomes immediately obvious after making a large investment you will do everything in your power to ignore or refute the data. On the other hand if you have gotten some benefit from the investment over some period of time you will be more willing to act prudently and write the investment off.

Michael Sack Elmaleh is a Certified Public Accountant and Certified Valuation Analyst. His book, “Financial Accounting: A Mercifully Brief Introduction”, has received wide critical acclaim. He has nearly 30 years of accounting and 10 years of teaching experience.His web site is understand-accounting.net

Company owners are often confused by the tangled web of business and financial regulations. To simplify the complicated financial part of the business, many of them choose to protect themselves by contracting for outsourced accounting services. On the other hand, some companies are still trying to handle their own bookkeeping or hiring non professionals to tackle the job in an attempt to save time or money. However, not using a professional is one that can cost a business owners more time and money than they realized they were gambling.

There are several reasons why choosing professionals to handle online bookkeeping services is one of the most cost-effective investments that a company can make.

Navigating the Regulatory Maze
The legal landscape changes quickly and businesses struggle to keep abreast of the latest developments. In our increasingly litigious society, ignorance of the law is no protection from significant financial liability.

This is one of the many reasons companies chose to employ outsourced accounting services. Unless a business is primarily involved in financial services, it is difficult to keep track of the changes. By hiring an experienced professional, not only does a company get its books in order, but it also gets financials done in compliance with the law.

Recent Changes Turn the Financial World Upside Down
The past few years have seen some of the most sweeping business reforms since the Great Depression. High-profile financial disasters like Enron and Worldcom have fueled public outcry for legal protection that has put a burden on all companies, public and private. It is harder for companies to use the casual internal bookkeeping services that have served them in the past. They need dedicated, full-time specialists that are familiar with today’s proper accounting practices, not the practices of ten years ago.

Using online bookkeeping services that use highly specialized accountants relieves the company of much of the burden of following frequent regulatory changes. These firms do nothing but financial work, so they can focus on using the correct practices and that protects their client companies.

You’re in Control When Using Online Bookkeeping Services
Although hiring an outside firm to do financial work can provide protection against liability, it doesn’t absolve the company of responsibility. For that reason, some companies are hesitant about using outsourced accounting services. They fear losing one of two things: control or security. If you choose the right service provider, neither of these will be a problem.

Online bookkeeping services give you full, real-time access to all of your financial data. Nothing is done without your permission or behind your back. You get regular financial reports that allow you to keep an eye on the company’s financial health. The service is there merely to process the data; all financial decisions are still yours.

That unlimited access doesn’t mean there is no security. In fact, your data is probably more secure if handled by online bookkeeping services. Professional companies have dedicated systems have hacker defenses, virus protection, and backup capabilities that small or even mid-sized companies can’t match.

Few companies need or can afford to hire a full-time, dedicated accounting staff and yet all companies need those capabilities. Outsourced bookkeeping services give you the benefit of expert financial services at far less cost.

Author is a freelance copywriter. For more information on Online Bookkeeping
Services, visit http://www.osibusinessservices.com

You are new to the tax preparation field. You have your degree in accounting, maybe even a masters degree. You have been prepped on the most current tax laws, may even have passed a state-required certification process to prepare taxes, and are ready to open your own practice. Now the real question: What software should I use for my tax preparation?

In a competitive world, a hand-prepared return is not only passive, it is downright non-productive. Tax software increases the speed and ability to process returns while increasing accuracy at the same time.

Nevertheless, the differences are strong and numerous in the type of software that can be purchased over the counter at your local store, and the type sold at society and industry trade shows and in their respective trade journals. In addition, unbelievably, some ‘professional’ preparers start their practice with these low-end, over-the-counter software products.

Some long-standing, brand name programs are available at many supermarkets and office supply stores with a price range from $30 to $50. BE AWARE: these products are designed for simple returns, have limited, or no flexibility, and are designed for the average person who does not need hand holding. In short, they are not made for professionals who work with complex situations.

Professional packages may run the gamut of a limited use product to unlimited 1040 system use, to business and state programs, and will run from $400 to $10,000 per year. Is the high price worth it?

I recall talking to a CPA a few years ago who said her neighbor brought over the family’s tax return that they’d prepared on a store boxed product, then wondered if she might simply check it for errors before they submitted it to the IRS. The CPA ran the return scenario through her own, more professional program and proudly noted she had calculated an extra $3,000 for refund this family was planning to receive.

Why the big difference? Over-the-counter programs are progressively getting better at finding and alerting the user to available credits and benefits. However, these programs do not have the empirical wisdom of human expertise and evaluation, nor do they have the depth of utilities available in professional software. YOU, the professional, have the advantage.

You are in an industry that intimidates the average soul. In addition, this may be one area where the old adage: You get what you pay for, hits the bull’s eye. Professional programs can easily spot non-claimed credits, errors, or obstacles that simply are not programmed into the low-end, store boxed products.

Moreover, a professional program is packed with utilities to do just that ‘ assist the tax practitioner with increasingly complex computations. Most professional packages include:

* An integrated Asset Manager. Some even perform like-kind exchanges, partial dispositions, and have management tools to track basis, depreciation, and a host of related information.

* More sophisticated Audits. This more intensive audit programming can suggest alternatives to even the most confusing issues.

* Tax Practice Management. This critical program can categorize and analyze the various types of returns processed, amounts of income invoiced, help create client organizers, and track client trends and pertinent return information.

* A Scheduler program; which helps the practitioner maintain the tight schedule necessary during the short 1040 individual filing season.

* Comprehensive Libraries; which may include Zip Code directories, and customized employer directories which auto-fill to specific forms and schedules.

* The ability to key in Overrides. A viable part of the professional package; making overrides in program entry fields may be needed when alternative calculations become necessary.

* Toll-free support. Usually these free services come with the purchase of the professional program.

* Detail statements. These statements usually comprise more detailed information regarding a line item entry. Such statements may break out the total into multiple items, or can provide information that might otherwise raise an eyebrow or two at the IRS without such an explanation.

Of late, another member has been muscling into the domain of professional practitioners; online tax prep. Though these too are gaining in popularity, the issue of return access, re-access, or amending is something to consider. As with the over-the-counter programs, these online products may also be limited in the scope and complexity of returns they can handle.

One question that often comes from those not familiar with professional software however is “Why do I need an EFIN (electronic filer identification number) from the IRS to file returns electronically?” My store bought package did not require one.

Since the over-the-counter programs limit the user, input and do not allow overrides, the vendors (software manufacturers) takes responsibility and liability for the accuracy of the return. The IRS allows purchasers of store bought products to file up to five returns with this software without having an IRS assigned EFIN.

Because of the flexibility of professional software in overrides, detail statements, and overall user knowledge of the tax law allowed to manipulate the program, the IRS requires the user to apply for their own EFIN (submission of IRS form 8633).

Simply put, if you ARE a paid professional tax practitioner using an over-the-counter program, you are not only harming the accuracy of your client’s return, you may be harming your own reputation. The costs are certainly higher, but putting out the extra bucks will pay for itself in the number of clients you obtain and retain.

Molly Winters-Hughes is a marketing consultant for TaxWorks. TaxWorks offers professional tax software and solutions for accountants. For more information about TaxWorks, see http://www.taxworks.com