Bookkeeping Tips for Small Businesses: How to Allocate Labor Properly
So, you own your own business, huh? Impressive! Not everyone can say that. Especially that they own a small business that is both effective and successful. Sadly, about 20 percent of US-based small businesses fail in their first year. This figure is fairly consistent year-to-year, meaning economic factors do not greatly affect how many businesses fail. That means that we cannot blame the pandemic for everything.
In fact, whether mask-wearing is business as usual from this point on or not, there’s one thing all businesses know is even more crucial to their success: their books! That’s right, accurate bookkeeping is integral no matter the political, socioeconomic or geographical issues. Here, we share our important bookkeeping tips for small businesses with emphasis on how to allocate labor properly in your record keeping.
Ditch the pen and paper and go digital!
First and foremost, everything we are about to share is easily implemented with the use of online software that is both affordable and reliable! We, at Two Sense consulting, swear by QuickBooks because it does exactly that – allows for quick bookkeeping, saving you time and potentially money (since accurate books mean fewer costly errors).
QuickBooks Online beats the cumbersome and time-consuming issue of manual data entry any day. As a business owner, who has time for all that pen-to-paper action anyway? Not only does Quickbooks allow you to enter info easily but it also offers seamless integration with QuickBooks Payroll, which transfers payroll data to an accounting system. With this software, you can access your books, automate the pay of your employees, automate paying your taxes, and create a payroll journal entry.
QuickBooks often run free trials!
QuickBooks often run free trials as well (you simply must check out what we are talking about) and you can get a behind-the-scenes understanding of just how we are able to serve our clientele so well with accurate and timely reporting using the platform. It’s totally worth it because QuickBooks customers save an average of over $2100 per year (that alone is reason enough to outsource bookkeeping to professionals like ourselves knowing we use their dashboard!).
Report Wages appropriately so that there isn’t money under the table or left on the table.
When it comes to hiring and paying employees, you certainly want to ensure your books are clean. This keeps you out of trouble and also keeps your business’ bottom line out of the red zone too.
Set up a Chart of Accounts to Allocate Labor Properly in Payroll.
Recording payroll on your books is defined as ultimately a business paying its employees. Payroll includes distributing money in the form of checks and direct deposits. It also includes keeping records of those payments and paying taxes on behalf of those employees. Payroll is used at the end of the fiscal year to assess annual employee wages. But before you can record payroll, you will need to set up payroll accounts on your chart of accounts list.
What is a Chart of Accounts? Simply put, it is a list of accounts that categorizes the financial transactions that your business generates. There are obviously many different categories of income and “out-go” so a Chart of Accounts helps you itemize each for ease of monitoring and reporting.
Below is a list of the accounts you will generally need to set up on your chart of accounts to track and allocate labor properly:
Wages – Include the amount that you pay to an employee every pay period before any deductions are made. This would be a gross wage amount.
Taxes – We will break this up into 3 parts.
Federal Tax Withholding: This account should reflect the total amount of income taxes you have withheld from all employee paychecks. The funds will be remitted to the IRS according to the deadlines set by them. You should withhold from employee paychecks each pay period, and leave the money in this account until you remit it to the IRS.
State Tax Withholding: Just as stated for federal tax withholding, except these funds are for state taxes instead. If your employees are to pay local taxes, you should create a separate account for such as well.
FICA Tax Payable: Deductions from employee paychecks for Social Security and Medicare taxes will accumulate in this account. You will remit these funds to the IRS based on the applicable deadlines.
What about insurance, tips and more when allocating labor?
Health insurance – Include the total amount of health insurance that you pay to your insurance provider (e.g., UnitedHealthcare, Anthem, Humana, etc.). This can include medical, vision, and dental. Have more than one? Consider sub-categories. Getting a bit too overwhelming thinking about it? Easy day. Leave it to us at Two Sense Consulting to make sense of your many categories – and report to you in easy-to-understand reports!
Tips – this can be extremely labor-intensive if not using online software or utilizing the services a Virtual Bookkeeper can provide. There isn’t one right way to manage tips, but you can make the process easier by creating a straightforward and transparent policy for your entire staff to follow. There are myriad gratuity tracking features within online bookkeeping software. Clearly outline your restaurant’s process for handling tips and how employees are to report the gratuities they collect.
Garnishments. When a court or government agency determines that a debt is owed, it may order an employer to withhold funds from an employee’s paycheck until the debt is settled. This means, it is up to you, as an employer to deduct a certain amount of your employee’s paycheck each pay period until their debt is satisfied. These debts can vary and may show up as the following:
- Spousal support
- Unpaid student loans
- State and federal tax obligations
- Civil or criminal liabilities
- Bankruptcy orders
- Wage assignments associated with debts to creditors
We recommend spotless tracking to ensure you can report to the IRS with ease.
The amount to withhold typically ranges from 15% to 50% of an employee’s net pay, depending on the type of obligation. You’ll want to carefully read what garnishment details are appropriate to your employee’s circumstances and have an accountant double-check and maintain accurate records of such.
We know you want to run a successful business. You got into it to serve others and also to offer job opportunities to many more. It isn’t just impressive, it can also be ambitious! That said, we are here to help keep your books – and nose – clean when it comes to reporting. Have questions remaining on how to allocate labor properly? Give us a call!