While I was at the BlogHer conference in San Francisco, I got a chance to talk to Camille Wright, bookkeeping consultant to small businesses. Her firm, Wright Solution, teaches small business owners how to keep track of their finances and get a better picture of how their companies are doing.
Three key points in this interview with Camille Wright, small business consultant and QuickBooks expert:
- Most small businesses (especially sole proprietors) have no idea how their business is doing financially because they don't have well maintained books.
- Many users of financial software, like Quickbooks, are not fully utilizing the power of modern day accounting software.
- Intuit has a ton of different versions of their Quickbooks (business accounting) and Quicken (personal finance) software. There's probably a version specifically catering to your business.
After the conference, Camille graciously answered more questions in the following interview:
1. What are some of the most overlooked tax deductions for probloggers and online entrepreneurs? Which deductions are the most misunderstood?
I think the most overlooked deduction by far is mileage. Since most bloggers work out of their homes, all miles driven from that site to anywhere that is business related will qualify as a business deduction. With the federal mileage rate currently at $.585 per mile, this could be a sizable deduction.
I would say that the most misunderstood deduction is the ‘Office In Home’ deduction. IRS has very specific guidelines relating to work space in the home and if business owners choose to claim this deduction they need to be sure that the space falls into the parameters set by IRS.
This isn’t really a deduction, but I find that the most overlooked item for a small business that files as sole proprietors is the self-employment tax that they are liable for and required to pay in installments four times a year. Self-employment tax (social security and medicare) is approximately 15.3% of your net business income. That can be a huge amount due at the end of the year if you have not been making the proper estimated payments throughout the year as required. And of course, you will need to add on interest due on the underpayment as well.
2. Many online entrepreneurs think that since they don't make a lot money they don't need to worry about accounting. Do you agree with that? If you don't, how do you talk them into changing their thinking?
This is an easy question for me. If you don’t keep accurate records how do you know if you are making money or not?
Although, it’s not only knowing if you are making money, but also how are you using the money that you do make.
Many small business owners are what we consider ‘shoe box’ clients which means that they show up once a year at their accountant’s office with the envelope full of receipts or they present pages and pages of Excel spreadsheets. Either way, they have no idea how they are doing (other than they have money in their bank account) until their accountant tells them after he has deciphered all those pieces of paper. It can be a real shock to find out that you owe money on your taxes when you thought you hadn’t made enough to owe anything.
In addition, I find bookkeeping invaluable as a budgeting tool. If you keep current with recording your income and expenses you will be able to see monthly at a glance when you’re busy times are and when you might need to boost your marketing to draw in more business.
It can also show you exactly when and how much you are spending on various expenses for your business. By looking at your expenses on a monthly basis you can determine when and how much money you might typically need to cover those expenses. On the other hand, it can show you which items you might be spending too much on so you can figure a way to cut them down in the future or spread them out in a different way.
3. Do you have any suggestions on how to pick a good accountant?
I’d like to say that all accountants know what they’re doing, but I haven’t always found that to be the case. The best thing I can say is to shop around. Not only do you need to find someone that has the necessary knowledge, but also someone who is willing to work with you, be there when you have a question or a problem. During a short conversation with a potential accountant, you should be able to tell if you click.
One last thing about accountants, just because they have a CPA designation doesn’t mean they will be the best fit for you. You do want someone that knows the rules, but you should also look for someone that can work and grow with you.
4. You've been consulting small business owners for almost two decades. Do you think online entrepreneurs (probloggers, ebay sellers, web 2.0 people) have different accounting needs compared to people who start brick and mortar businesses? Do they face different challenges?
Really, business is business. We all work with numbers to tell our story. Although, I think one problem facing online entrepreneurs would be the integration of their financial records with standard software. We all know that programming is here today and obsolete tomorrow so it is up to the accounting software industry to keep pace with the needs of the online community.
There are many third party software companies that have and are continuing to develop programs that will work as add-ons to standard accounting software. These come in basic or industry specific programs so it is all a matter of finding the best fit for your business.