Posted Monday, December 2, 2024
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Small Business Accounting
The best reason to use a small business accountant is to allow you to focus on what you do best with your time. Let us handle what we do best with ours. Sure, you can go online and purchase the latest version of QuickBooks. However, the potential drawbacks of that decision can be subtle but significant.
First, QuickBooks makes everyone feel like an accountant. Accounting is a profession, not a hobby, and it extends way beyond reconciling a checkbook. Far too often, we hear: “what do you mean my books aren’t in good order? I don’t understand. All my accounts are reconciled!”
We’ve learned business owners are great at making widgets and aren’t too bad at reconciling a checkbook, but they’re typically lousy at accounting. Phantom income from invoices, negative balance sheet accounts from incorrect payroll entries, missed tax deductions from improper coding — we could go on and on like a Journey song.
Second, WCG is a CPA firm who provides accounting, payroll, tax preparation and small business consultation. Our approach to accounting, which we define as bookkeeping + analysis, is:
- Helps you understand how your business is performing
- Compares your business to your competitors
- Provides accurate tax planning, and
- Minimizes your tax burden
Keep in mind that banks, lenders, and IRS agents prefer a set of accounting records and financials that have been prepared by a small business accountant with the involvement of a Certified Public Accountant. Remember, these professionals review financial records every day, and they can quickly spot accidental inconsistencies and errors.
Most importantly, would you rather be closing your next sale, BBQing on a Sunday with buddies, or getting sucked into the world of accounting at the hands of your latest QuickBooks purchase? Focus on growing your business, and your small business CPA will focus on analyzing the data for operational considerations and reporting it to the IRS while minimizing the tax consequence.
Rental Property Bookkeeping
WCG specializes in real estate investors and as such we provide accounting services for rental properties. Rental properties are a business like any other, and the proper tracking of revenue and more importantly the associated expenses are essential. The bookends to the varying service levels are your common single-family rental (SFR) home and that large commercial property with several tenants. That’s the X axis. The Y axis becomes tax return complexity based on number of owners, number of activities (rentals) or both.
Handful of SFRs
Most of our real estate property owners with 1-5 rentals usually opt for annual compliance bookkeeping as described above. While you could record and present routine rental property transactions using QuickBooks Online and generate pretty financial statements… and while us nerdy accountants love formalized accounting platforms… this might be akin to killing a housefly with a sledgehammer. Yes, the fly is dead, but did you need such a massive swatter?
Gaggle of SFRs
Once you start hitting 6 or more rentals, you add complexity based on volume alone. In these situations, we strongly suggest quad-monthly accounting or begrudgingly annual accounting. However, compliance bookkeeping is not available. Most of our real estate investors with more then 20 rentals leverage bi-monthly accounting services simply because of the volume of transactions.
Commercial Properties
Commercial real estate is like a snowflake- no two are alike. You could have a single-user property hosting a Starbucks. You could have a 12-unit apartment complex. You could have a strip-mall with all kinds of moving parts.
Next, commercial rentals could either be gross rental leases or NNN. Gross rent arrangements are straightforward and are similar to any single-family rental property. While triple net or NNN leases are no different in terms of memorializing the transactions, your tenants are also supplied versions of the financial statements since they directly share in the expenses. Specifically, expenses such as property taxes, insurance and maintenance are passed along and reimbursed by the tenant.
Classed Transactions
When you have multiple rental properties, transactions are “classed” within QuickBooks Online which allows for reporting separation between the activities (properties) yet maintain one data file for simplicity and ease. Financial statements are presented with each rental property across the top (columns) and each category (revenue and expenses) listed vertically (rows).
Common expenses among all rental activities such as umbrella insurance policies or maintenance personnel salaries are allocated to each property. This allocation can be based on revenue (the more revenue, the more risk or maintenance) or based on a straight percentage (3 rentals… umbrella insurance is allocated 1/3 1/3 1/3). As you can see, more discussion is required in these situations.
Multiple Checkbooks or Credit Cards
Selfishly, using a separate checkbook for each rental property makes bookkeeping life a bit easier. When rental properties share a checkbook, then that Home Depot expense or that tree service expense becomes a “whodunit” mystery. Another option is using a business credit card where you can have a series of cards, each with different ending account numbers, that can be tied to a specific property. This is similar to employee credit cards where all the expenditures are reported on a combined statement but is also grouped by each employee.
One QuickBooks, One Tax Return
We strongly and obnoxiously encourage one tax return per QuickBooks data file. For example, you own a rental with your brother-in-law and report that activity on a partnership tax return (Form 1065). You also own other properties 100% by yourself or with your spouse which might be reported on Schedule E of your Form 1040 tax return. In this example, two QuickBooks data files might be required.
Alternatively with our example above, you could mix and match- the rental property owned within a partnership could be memorialized within QBO while the rentals you own personally could be tracked with compliance bookkeeping (Excel pivot tables).
Short-Term Rentals
At times short-term rentals present like mini-commercial rental properties with several transactions (volume) especially the first year with startup costs and expenses. Generally, STRs are no different than any other rental property and can fall into the annual bookkeeping category.
Partnership Tax Returns
If you own a rental with others, usually formalized accounting using QBO is required for tax return preparation on Form 8825 and Form 1065. Balance sheet items, capital accounts, and tracking inside and outside basis become critical. Additionally, proper bank reconciliation and cash tracing is required. In any business deal including rental properties, valuation and exit strategies rely on accurate accounting.
As you might be aware, WCG CPAs & Advisors recommend owning rental properties in multi-member limited liability companies (MMLLCs) because of the lower audit rate and the ability to mechanically show your ability to deduct rental losses (your at-risk money and basis in the venture). In other words, a K-1 issued by the partnership and reported on your individual tax return flies way below the radar. However, if you own a rental with your spouse in a MMLLC taxed as a partnership, formalized accounting might not be necessary.
Ok, Now What?
An accounting assessment. Should you want to nail down exactly what the scope, service level and fee will be, an accounting assessment is the next step. You can use the button above to submit some basic data for us to kick this off.
Data Analysis
Reach Reporting integrates seamlessly with QuickBooks to provide real-time financial reporting and tools for financial performance data in a secure and easy way. With the built-in dashboards and report builder, WCG CPAs & Advisors connects your financial data to create powerful dashboards and enhanced visuals. Backed by their SOC 2 Type I and Type II certifications, the Reach Reporting app only retrieves data from QuickBooks and never modifies or replaces any information stored there.
Reach Reporting makes reporting, forecasting and budgeting easy with powerful dashboards and enhanced visuals. You, the business owner, will gain valuable insights into your business trajectory with their 3-Way Forecasting feature. By connecting your profit & loss, balance sheet, and cash flow statement, we create a comprehensive view of your financials with automated cash flow forecasting.
What’s In The Box?
We only support QuickBooks Online. The huge benefit of QBO is that you can see your data in real time from your computer or mobile device. However, you will only be allowed read-only access since we need to maintain 100% custody of the financial data if we have an Accounting Services engagement; in other words, you cannot directly help. What does all this get you?
WCG will provide the following basic small business accounting services (see Accounting Add-Ons below)-
- Monthly bank reconciliation.
- Recording payroll journal entries and other recurring entries (such as depreciation or loan interest for accurate tax planning).
- Detailed list of outstanding reconciliation items for your review and clarification.
- Financial statement presentation delivered by the 25th of the following month for management / internal use only.
- One on one analysis of financial statements with you (accounting = bookkeeping + analysis).
- Reach Reporting analysis included as part of the deliverable.
What if your square peg doesn’t fit our $500 or $300 round hole above? No worries! We can customize a fee that makes sense to you. Over 80% of our small business owners pay less than $550 per month for accounting services. An account here and a few more transactions there doesn’t dramatically compound your accounting services fee.
QBO Fees
It’s a crummy deal, but our accounting service fees do not include the QBO subscription fee. Historically, Intuit offered massive discounts to accounting and CPA firms, so there was a real advantage for WCG to pay the QBO subscription fee and then pass those savings onto you. However, Intuit changed the pricing grid in November 2021, and the discounts don’t represent enough of a savings for the hassles of WCG paying the subscription fee directly.
So what next? If you are engaging with us for accounting services, and you need to establish a QBO subscription, we collect payment information on your behalf, and set up billing and payment directly with Intuit. Piece of cake!
Custom!
We can bundle all sort of things together. Our Business Advisory Service plans typically include corporate tax preparation, individual tax preparation, shareholder payroll processing, routine consultation and tax planning. We can easily add accounting services and employee payroll to our plans. Just ask!
Fine Print
Our accounting services are limited. We do not provide invoicing, accounts receivable monitoring and collection, paying invoices or accounts payable accruals. Bookkeeping is typically done on a cash-basis (if accrual-basis bookkeeping is required, then more discussion is necessary).
Our accounting services cannot be relied on to disclose errors, irregularities, or illegal acts, including fraud or embezzlement, that might exist. However, we will inform the appropriate level of management specifically designated by you, of any material errors that come to our attention and any irregularities or illegal acts that come to our attention, unless they are clearly inconsequential.
In addition, we are not providing what our industry considers compilations, reviews, or audits. These are terms of art and they have very specific meaning. As such, we must be clear that our Accounting Services engagement is not providing assurance services, and that we are not engaged to prepare compiled, reviewed or audited Financial Statements. No auditor’s or accountant’s reported will be prepared or submitted to you.
QuickStart
Not ready for someone else to do your bookkeeping, but you need some help to get going? We’ve introduced our QuickStart program to get you on the right track right away. This has been super popular with our new business owners.
Our QuickStart fee is $750 and includes-
- Set-up QBO
- Chart of Accounts
- Linking bank accounts
- Company legal info in QuickBooks (Address, EIN, etc.)
- Training to show the basics of how to use QBO (typically 90 minutes)
- How to create invoice
- How to apply a payment
- How to code bank feed transactions
- How to match transactions
- How to reconcile bank and credit card accounts
- How to create adjusting journal entries for external payroll data, tax return data, etc.
- How to change system configuration
- Answer any questions during the session
- Three scheduled “training” sessions of general support and answering “how to” questions regarding QBO (super fun!)
QuickStart does not include payroll setup within QuickBooks.
Adding Your Spouse to Payroll
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