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Trends in Small Business Accounting This Year

 

It’s an exciting new year for small businesses, and we’re already speeding headlong into tax season. Because of changing technologies and new economic conditions, 2018 may be a big year of change for small business accounting, so you should prepare now for the changes ahead. Here are a few new shifts to watch out for:

 

Let’s Get Automated

 

Artificial Intelligence and other automated technologies are picking up more steam every year. The technology is out there now, so it’s up to you to find ways to take advantage of it and automate some of the data and financial accounting for your business. This will keep things neater and more efficient by eliminating human error and will cut costs over time.

 

There are newer and easier ways every day to help you input new data into your system so you won’t have to worry about manually typing in receipts into spreadsheets anymore (if you’re even still using paper receipts). Your computer will do the sorting, the adding and all of the rest of the computations.

 

Getting by on Your Own

 

Partly as a result of rapidly evolving new technologies, it’s getting easier for small businesses to get their accounting done on their own without the help of an accountant. A lot of an accountant’s work used to be fixing errors and closing gaps that arose out of human error, but now, with the right technologies, that’s not something you have to worry about anymore.

 

There’s all sorts of software out there for helping you put your tax package together and keep track of finances. Data visualization programs can also help you analyze and interpret your financial data more than ever before so you can make careful, informed decisions concerning the financial health of your business.

 

Thinking About Security

 

The dark side about these new technologies, however, is that the need is greater than ever before for well-informed cyber security strategies. Hacks have been big news in the last year, but for every hack that gets publicized, there are countless more that didn’t get media attention. That goes especially for small businesses that don’t get nearly as much publicity, anyway.

 

Act now to acquire new cyber security programs and secure your business online as well as you have safeguarded your physical business. You want to beat the rush to secure your data and get ahead of the game, as things are likely to get slower and pricier once more big hacks start to hit.

 

To learn more about Zccounting, visit our website and keep in touch on social media!

 

 

 

New Year’s Budgeting Resolutions for Startups

 

Nothing quite matches the feeling of optimism many of us experience when beginning a new year. We often feel refreshed, renewed and ready to take on new challenges in our lives. This renewed focused and attention often translates well to startups as owners prepare resolutions for the New Year to expand opportunities and reach more clients.  

 

For startups, the New Year is also an ideal time to examine current budgeting tactics and build strategies to reach the next level. The following resolutions can help kick start your year and get your startup moving in the right direction.

 

Allocate Resources to Expand Your Online Presence

 

In today’s digital age, the most expedient and efficient method of reaching a wide customer base is through social media platforms and smartphone applications. Startups, in particular, should pay particular attention to their online presence and invest resources into making it as attractive as possible to potential customers.

 

To reach the next generation of consumers, it is key to hone in on marketing messages which translate well to social media platforms such as Facebook, Instagram and even Pinterest. How is your startup utilizing social media to reach untapped potential?

 

Budget to Recruit Innovation — Bring in Fresh Perspectives

 

Nothing can kill a startup as quickly as stagnation. Lack of diversity of thought often leads to an environment of uniformity that lacks innovation and imagination. Innovation is the fuel that propels startups to the next level. Recent high school and college graduates can often be nearly limitless wells of untapped potential. Invest in and recruit individuals with diverse backgrounds and unique perspectives to infuse your startup with new life in the New Year.

 

Flexibility and Planning--Key to Budgeting Success

 

The tendency with any resolution is to quickly establish it, follow it rigidly for about a month, then abandon it completely in frustration. This tends to be the process when we haphazardly set unrealistic goals for ourselves and our startups. However, when we use a process to plan our budgeting strategies, we often discover that we can more easily tie goals to realistic, attainable milestones.

 

A word to the wise: Maintain enough flexibility in your planning process to allow you to adapt your budget to ever-changing market conditions. Through these tactics, your startup may be able to rise to the next level. Happy New Year!

 

To learn more about Zccounting, visit our website and keep in touch on social media!

 

 

 

Deducting Your Charitable Donations for Tax Benefits

 

In this season of giving, many of us take the opportunity to reach out to our favorite charities and provide donations including both money and property. Not only are these donations a fantastic way to give back to communities and invest in organizations that seek to improve our world, but they have the added benefit of providing much needed tax relief in the form of qualified deductions. Before you start writing checks and emptying your attic of those dusty heirlooms, it is important to understand the benefits of itemizing charitable contributions on your income taxes as well as the various rules and regulations which govern these deductions.

 

Tax Benefit of Giving

In addition to contributing to worthwhile organizations, donating a gift, cash or property to a qualified charitable organization can result in a charitable contribution deduction on your federal income tax. To receive this benefit, it is necessary to itemize your tax deductions on your IRS Form 1040 instead of taking the standard deduction for your particular tax category for the year. These deductions, if documented correctly, can translate into large savings on your end-of-year tax bill since individuals can legally contribute up to 20 percent of their adjusted gross income to charity per year and, thus, lower the amount of their claimed income. Maintaining accurate records of these donations in the form of account statements, as well as receipts for property donations, is a key component to legally claiming these deductions.

 

Tips for Deducting Your Charitable Donations

For all donations of either property or cash totaling $250 or more, individuals are required to supply a record of the transaction or a note from the charitable organization acknowledging the amount of cash as well as a written description of any real property donated. Also, all contributions to charitable organizations require the individual to file a Form 1040 and itemize their deductions on Schedule A of the form. Those receipts you tucked away will help ensure you accurately claim all of your charitable contributions for the year.

 

In today’s politically charged environment, it is important to realize that contributions made to individuals or political parties and their candidates do not qualify as charitable donations and are, therefore, not deductible on federal income taxes. Ultimately, the best source of information of what is or is not permissible can be obtained directly from the IRS’s Publication 526, Charitable Contributions, which covers all of the various rules and regulations governing charitable contributions. With these rules in hand, you can both give and receive during this joyous holiday season.

 

To learn more about Zccounting, visit our website and keep in touch on social media!

 

 

 

Closing Out 2017 Books: Your Year-End To-Do List

 

As 2017 rapidly draws to close, it is prime time for your business to take a step back and not only assess this year’s performance data, but plan an effective end-of-year to-do list to help ensure you are successfully postured to start 2018. This to-do list can quickly become overwhelming, especially for small businesses who find themselves short staffed as employees depart to enjoy some well-deserved holiday vacation time.

 

Therefore, it is best to plan ahead and start this process as early as possible. When drafting this list, basic financial closeouts concepts such as confirming the accuracy of your accounting for the year and recording inventory are essential. This process may sound overwhelming at first, but with a little pre-planning, you and your resource advising team can close out 2017 and prepare for 2018 with ease.

 

Closeout Concepts

 

At a minimum, all businesses should execute several basic closeout steps. First and foremost, all accounts must be checked and cross referenced for accuracy. This includes pouring through monthly income statements as well as expenditure receipts line-by-line to ensure that every dollar can be accounted for. Invest some extra time in this step and not only will your business be better prepared for a possible IRS audit, but you will have a basic outline of your business’ financial performance for 2017. In addition to comparing statements against account records, now is the time to inventory your business’ assets to obtain a holistic view of your bottom line.

 

Tax Season Is Fast-Approaching!

 

Remember that tax season is not only a huge concern for business owners, but is equally important to employees. For that reason, it is best to prepare payroll forms, such as W-2s, as early as practical to ensure employees are not left waiting until the last minute to address their own tax issues. For businesses that utilize independent contractors, it is also essential to prepare form 1099s to address funds paid out for contracted services.

 

Pre-Game Your 2018 Plan

 

As you, or your accountant, pour through statements for 2017, various cash flow patterns may emerge. Do your business expenditures require a steady monthly consumption rate or does your budget execution plan call for aggressive spending and investment in the first quarter of the year? This data is key to lining up your spend plan with your income to ensure your business model is feasible for the coming year. The end of 2017 is a perfect time to step through your 2018 plan and make adjustments, as necessary, to set your business on the right track for success.

 

To learn more about Zccounting, visit our website and keep in touch on social media!

 

 

 

How To Be The Biggest Fool In Startup Investing As An Entrepreneur

 

When it comes to finding investors for your startup, there are many ways to succeed, and many more to fail. In startups (and business of any kind) it's important to spend your money wisely and create a sustainable business model for the long term. If you’re looking to spend wisely in startups, here are a few things NOT to do (and what to do instead) if you’re hoping to succeed financially.

 

Don’t: Think that the funding round is the final success. Although it feels awesome that you were able to convince investors that you will build a valuable company, you need to realize that the only reason you have the money is to execute on the plan and continue to kick ass for your customers.

 

Instead: Use that money to execute your plan and drive return on investment. Instead of celebrating before the finish line, make sure you have a solid plan of action for those dollars to build a successful and profitable company.

 

Don’t: Fail to articulate what success looks like with your investors. There are two happy points in your company lifecycle for investors: when they write their first check and when you sell the company. If you don’t create a clear picture of what success will look like with them, however, it may lead to unclear expectations, disappointment, and poor business relationships down the road.

 

Instead: Set reasonable expectations. If shortly after finding investors, you have a conversation with your investors about their expectations, you can make this relationship straightforward, productive, and successful.

 

Don’t: Forget you have investors. That might sound obvious (and it is) but you would not believe the amount of investors that tell me that they don't remember the last time they got reporting from their entrepreneurs.

 

Instead: Report regularly to your investors: Regular reporting to investors not only holds you accountable, but helps them help you. I would suggest monthly reporting but I would expect if you are doing well some investors would only pay attention quarterly. I worked with a startup once that's investor list included multiple investors who owned huge companies, these companies could have benefited from our services and saved millions. However no one at our company ever reached out to the investors to ask them to be customers and the company recently went bankrupt after raising $30-40mm.

 

Don’t: Spend like you’re a millionaire. With the funding round you may, for the first time have your head above water and be able to pay your bills. But, this is not the time to boost up your salary and join the country club. You budget was likely based on your current burn or a forecasted burn that was totally wrong. In our experience, we have seen almost every entrepreneur under budget for the expenses, and things always come up.

 

Instead: Make a budget and stick to it. If you need help creating a viable budget for your startup,our team at Zccounting is happy to help.

 

Don’t: Disregard revenue. Every founder who is "growing the user base" at the expense of revenue tells me "Instagram had Zero revenue when Facebook paid $1 Billion for it". Well, your company is not Instagram, Instagram was an anomaly. No one buys a company for the "User Base" they buy a company because it will make them more money. Take for example Starbucks' purchase of Evolution Fresh for $30 million. Was a little juice factory and 3 stores really worth $30 million? Well if you look at their CPG sales they grew from $1 Billion to $2.1 Billion and I don't think they doubled the amount of coffee beans they were selling at grocery. On the day of reckoning some banker will put a multiple on your Net Income as a basis for your offer, so focus on revenue and focus on profitability, yes today!

 

Instead: Have a tenacity for revenue. Your revenue keeps your business going, so it should be one of your first priorities.

 

To learn more about Zccounting, visit our website and keep in touch on social media!

 

 

 

5 Things Startups Should Know About Managing Their Finances

 

Managing a startup is hard work. From finding investors to putting together a high performing team of employees, it's no small task for founders to turn their passion projects into a fully functioning businesses. For any founder looking for some insight to their financial process or members of a startup looking for better ways to balance the books, here are a few pro-tips for startup accounting.

 

Create an account for a rainy day

 

All business comes with financial ups and downs. It’s important that you have some cash stashed away for when those times hit. Don’t wait until you’re seeing the financial downslide to make a backup financial plan. At any given point you should have at least three months of operating costs saved, if not six or more.

 

Don’t do it alone

Just managing your finances by occasional checks to your bank account is not a good system of management. Make sure you have someone specifically in charge of finances that is not you, ideally an accounting firm, a bookkeeper, or an investor that is willing to roll up their sleeves. They will be unbiased with your finances, and will know more tips and tricks to save your money.

 

Capitalize on customer loyalty

There are a few payment incentives that you can use to boost your finances as well as help retain customers. Set up an automatic withdrawal, and give discounts for those who pay early or have a subscription. They’ll be more likely to keep with your startup long term if they feel like they’re getting a better deal.

 

Make a budget

This goes for just about everything in life, but make a budget and stick to it. It’s easy to map out your finances, but it’s harder to keep with that as a variety of opportunities pop up. Decide ahead of time where your money is going so that you don’t overspend and suffer for it later.  Also create your “Oh SHIT Budget”, for the times when something comes up that was not considered or a customer is late on payment or whatever, it may not be enough to rely on the emergency fund, you may need to cut salaries, discuss early who, when, and how that will play out.  

 

Borrow money, but borrow smart

Many startups try to avoid borrowing from banks at all costs, so they skimp on important things like employee salaries or even their own. Others try to raise too much money too fast and end up burning out. Neither of these things will help your startup in the long run. Focus on creating things customers want and are willing to pay for that create positive net income and cashflow.

 

Starting your own company is an unpredictable endeavour, but managing your finances well gives your company the chance to grow and thrive. To learn more about Zccounting and our accounting services for startups, visit our website!

 

 

How to Find Suitable Investors for Your Company

 

Not all investors are made equal. While some people may think investors have dollars at their disposal and can't afford to lose money, that isn’t always the case. Knowing and maintaining investor suitability standards enables investors to prove their credibility and give you peace of mind. If you’re looking for suitable investors for your company, here are a few tips to finding reliable financial backers to have on your side.

 

Large companies and entities. This can include any bank, insurance company, registered investment company, business development company, or small business investment company. This types of establishments typically have the means and the reliability to act as suitable investors.

 

An employee benefit plan. For companies with employee benefit plans, they may be invested in startups if they meet the following requirements: within the meaning of the Employment Retirement Income Security Act, banks, insurance companies, or registered investment advisers can makes the investment decisions, or if the plan has total assets in excess of $5 million.

 

Organizations with assets in excess of $5 million. This can include charitable organizations, corporations, and partnerships with this sizable about of assets in their name.

 

Any director or executive officer of the Company. If members of the startup would like to invest their own capital in the startup, they are considered suitable investors.

 

Large trusts. Any trust, with assets in excess of $5 million, not formed for the purpose of acquiring the securities offered, the purchase by which is directed by a sophisticated person should offer the financial stability your company needs.

 

Individuals with high net worth. This includes any natural person whose individual net worth or joint net worth with that person’s spouse, at the time of purchase exceeds $1 million at the time of the purchase. This excludes the value of that person’s residence.

 

Individuals with current high income. Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income in the current year.

 

Accredited Investors. Any entity in which all of the equity owners are Accredited Investors.

 

Finding the right investors for your company can be an arduous process. When financing your company, it's crucial to find investors you trust who will benefit your business for years to come.

 

At Zccounting, we’re experts when it comes to finances and accounting for startups. To learn more about finding quality investors for your company or for expert advice on the financial side of running your own business, contact us today!

 

Image courtesy of Pixabay.com. 

 

 

Zccountings Guide to Convertible Notes

 

If you’re part of a startup hoping to make your next move towards funding your company, you’ve come to the right place. A convertible note is a type of short-term debt that becomes equity, often tied to future financing. Essentially, an investor would provide a startup company with a loan, and instead of receiving a dollar value with interest in return, that investor would gain equity in the company. This type of financial arrangement is advantageous for early companies that are difficult to value.  It gives the entrepreneur the ability to essentially borrow from their future funding round.

 

Where to Start: If you think a convertible note may be the right choice for your company, here’s a breakdown of where to start, how to approach this transaction, and a few cautionary areas to be aware of.

 

Example text: This memorandum (this “Term Sheet”) summarizes the principal terms with respect to the proposed sale and purchase of Convertible Promissory Notes (the “Notes”) by [your company name], a [Delaware Corporation] company (the “Company”).  Such summary of terms is intended solely as a basis for further discussions and is not intended to be, and does not constitute, a legally binding obligation.  A legally binding obligation will only be made pursuant to definitive agreements to be negotiated and executed by the parties.

 

Private Placement Terms: The Company is offering (the “Offering”) Notes to accredited Investors on the following terms.

 

Issuer: The Company

 

Amount of Investment: Minimum investment of $50,000 for An aggregate of up to $3,000,000

 

Why? A high ‘minimum investment amount’ reassures large investors that you will not have many small scale investors that could interfere with their deal down the line. Realistically, you should try to keep investors at a $250k minimum but really strategic people you could take smaller amounts, down to about $50k. If you have multiple people who want to invest small amounts, we can also host a syndicate, whereas we invest in a vehicle with the purpose of investing at your minimum.

 

Term: The entire amount of principal and accrued interest under the Notes may be paid or convert as set forth below on May 1, 2019 (the “Maturity Date”), if not converted upon an earlier date.

 

You are required to raise more money the range is usually 12-24 months, you can usually get this one on the upper limit.

 

Interest Rate: The Notes shall accrue interest at a rate of four percent (4%) per annum

 

Why? Four percent  is a low interest rate, however I like to start out, and plead ignorance since this is what mortgage rates are at, and you believe that your company is as sure as a shot as your mortgage. Anything under eight percent is a decent rate in my opinion.

 

Investor Eligibility: This Offering is limited to persons who qualify as “accredited investors” within the meaning of Rule 501(a) under the Act.  See the accompanying Investor Suitability Standards.

 

Why? When you use rule 501 of Reg D you are only able to take money from known accredited investors.  Who is accredited?  Individuals that make over $200k couples that make over $300k or any other investor with more than $1,000,000 in investable assets.  Let me emphasis known, because if you publicly disclose to strangers you are raising money, you must verify their income or assets, which no investor will let you do.  

 

No Escrow of Proceeds: The proceeds from the Offering would be immediately released and available to the Company as received in the course of the Offering.  There is no minimum amount that must be sold in the Offering and no escrow of proceeds prior to receipt of a threshold amount.  The Company cannot assure you that the proceeds from the sale of the Notes will be sufficient to allow us to conduct our business.

 

Automatic Conversion on Preferred Financing: Upon the next preferred equity financing of the Company providing gross consideration to the Company of at least $5,000,000 (excluding the amount of the Notes) (the “Preferred Financing”), then the entire principal amount and accrued and unpaid interest outstanding under the Notes will be automatically converted into units of equity securities of the Company (the “Equity Securities”) at a conversion price equal to the lesser of (i) eighty percent (80%) of the price per unit paid by investors in the Preferred Financing for the Equity Securities or (ii) a price per unit equal to the amount that would be paid for the Equity Securities if, without giving effect to and excluding the amount of money invested in the Company in the Preferred Financing, the pre-money valuation of the Company was $21,000,000 (the “Valuation Cap”).

 

I advise against letting lawyers accept checks and hold them in escrow. Oftentimes lawyers will take a long time to remit funds. Instead, have some term that allows a rolling close so that when you get a commitment you can take the check. Time kills all deals. Escrow can also be expensive, so I recommend taking the money directly.

 

Conversion on Change of Control: If the Company consummates a change of control prior to a Qualified Financing, then, upon the election of the holder, either (i) the holder shall receive a payment equal to 150% of the Investment Amount, or (ii) the entire Investment Amount shall convert into shares of the Company’s Common Stock at the Valuation Cap.

 

A ‘Change of Control’ as used in this Term Sheet is (i) a consolidation or merger of the Company following which holders of the Company’s outstanding equity securities immediately prior to such event own less than a majority of the voting equity securities of the surviving entity or its parent, (ii) the closing of the transfer, in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an underwriter of this corporation’s securities), of the Company’s equity securities if, after such closing, such person or group of affiliated persons would hold 50% or more of the outstanding voting equity securities of the Company (or the surviving or acquiring entity) or (iii) a sale of all or substantially all of the Company’s assets or equity securities, other than in connection with an equity financing for cash.

 

Convertible notes, must convert to equity. They convert to equity when you raise your next equity round. This number I put at $5mm because I want you to be able to easily convert if you want to be able to convert. (Note: the faster you convert, the less interest will accrue, thus less dilution) This number is low compared to your raise, you might want this to be a bigger number as it gives the investors an idea of the expected size of your next round. You might want to make this $10mm to show that you will be raising more than $10mm

 

The other benefit of a low number is that the lower the number the lower the financing risk to your investors, meaning that they can be more sure they will be able to easily convert to equity.

 

Note Purchase Agreement: An investment in the Notes will be made pursuant to a Convertible Note Purchase Agreement.

 

If you sell the company the investor only gets 1.5x their money back. I have seen this for 1x-3x. Most commonly is around  2x. The investor usually gets to pick if they take 1.5x or if they convert at the valuation cap. They usually ask for some provision where they get an analysis before the acquisition where they can evaluate the conversation or not.

 

Investor Representation: Each Investor shall be asked to represent that he/she/it is a Qualified/Accredited Investor as defined in Rule 501(a) under the Securities Act of 1933, and has performed sufficient due diligence prior to making their investment decision.

 

This doc is not the final doc they sign, it's only for discussion, the final doc is 40 pages or more and drawn up by lawyer.

 

Additional Information: This Term Sheet does not purport to be all-inclusive or to contain all of the information that a prospective investor may desire in investigating the Company.  Each prospective investor must conduct and rely on his, her or its own evaluation of the Company, its business and the terms of the Offering in making an investment decision with respect to the Notes.  Any prospective Investor having questions regarding this Offering or desiring any additional information or documents to verify or supplement the information contained in this Term Sheet should contact the Company as follows:

 

    Your name and address

 

Expenses: The Company and each Investor shall each bear their own legal and other expenses with respect to the transactions contemplated by this Term Sheet.

 

I would try and stay away from paying for your investors legal expenses, this burns a lot of cash because their counsel will always take the max amount they can.

 

Finders Fees: The Company and each of the Investors shall each indemnify the other for any finder’s fees for which either is responsible.

 

Finders fees are looked down on by VCs.  When they invest the money, they want it to go to operations and increasing the value of their investment.  In terms of finders fee, especially at seed stage, if you have to offer anything, offer some small nominal stock options.  

 

Non-Binding: The parties agree that this Term Sheet does not create any binding obligation on the part of the Company or any other party, including any obligation to negotiate in good faith, and is subject in all respects to the negotiation and execution of definitive agreements.

 

Image courtesy of Pexels.com

 

 

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