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Why Maintaining Your Job Schedule Is Good Business

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Jason J. Loven - CPA Firm Minneapolis
By Jason J. Loven

A job schedule—also known as work-in-progress or WIP schedule—is a subsidiary ledger that tracks actual costs and billings per project. Ideally, your job schedule should be updated and reconciled with the general ledger at least once a month. But in the fast-paced contracting world, it can be tempting to fall behind on these tasks.

Unfortunately, not maintaining your job schedule can have consequences that stretch beyond a single project. Here are three reasons why maintaining your job schedule on a monthly basis is simply good business.

1. Errors and instances of over/under billing on your job schedule can affect your gross profit.

Reconciling your job schedules with your general ledger each month is a smart way to identify errors on your job schedule or general ledger. Common mistakes include posting direct job costs to an indirect or overhead account, posting costs to the wrong job, or forgetting to include costs associated with small miscellaneous jobs, such as callback, carryover, and warranty work in the cost of sales. It also allows you to review over/under billings and their causes. For instance, is an under billing an indication the job isn’t going well, or is it that your billings aren’t being sent out in a timely manner? Regularly maintaining your job schedule can help you get to the bottom of it and make billing adjustments if needed. Without the proper adjustments, your gross profit and bottom line are likely to be inaccurate.

2. Project managers rely on job schedules to deliver on-time, on-budget work.

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Your job schedule is a critical project management tool. An updated, accurate job schedule allows a project manager to consistently monitor and track a job’s profitability—key to a successful delivery. Job schedules also provide a way to continually compare a job’s actual costs to estimated costs, which is, of course, valuable information to have when bidding out future jobs.

3. Outside users expect to see accurate job schedules.

Job schedules are typically laid out in an Excel spreadsheet and should include columns for year-to-date (YTD) billings and costs and prior-year (PY) billings and costs. If you’re not updating your job schedule and reconciling it with your revenue and costs of sales in your general ledger, it’s nearly impossible to verify that you’ve accounted for everything. This could lead to inaccurate billings adjustments and misleading information. Whether your outside users are internal executives or external stakeholders or sureties, handing over an inaccurate job schedule won’t put you in the best light.

Job schedule maintenance: A good business practice to start today. 

Updating your job schedule and reconciling it with your general ledger each month can help you get an accurate picture of your gross profits and better manage your cash flow. And that’s good business! We understand, however, that worrying about your job schedule can be overwhelming, especially if you’ve already fallen behind. If you’re unsure of how to best maintain your job schedule or would like recommendations for going forward, please know the Twin Cities CPA firm of JAK is here to help.

7 Ways to Avoid Worker Classification Mistakes

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By Jason J. Loven, CPA, CCIFP®

While distinctly different definitions exist for “employee” and “independent contractor,” the line between the two is often blurred. This often happens as part of an organization’s efforts to minimize obligations related to payroll taxes, workers compensation, and benefits. Not surprisingly, this rarely goes over well with the Internal Revenue Service and other agencies like the Department of Labor.

Failing to properly classify your workers can lead to steep fines and penalties—it’s simply not worth the risk. Here are seven things you can do to help prevent an independent contractor from being re-classified as an employee.

  1. Document your company’s policy for defining “employee” and “independent contractor.”

Having a policy and documenting it is wise because it gives everyone in your organization guidelines to follow. At the very least, your policy should detail the qualifying factors you use to determine an employee relationship, which, in the eyes of the IRS, boils down to behavioral and financial control. If you reserve the right to control how a worker does or is paid for the work, this worker is likely an employee. Your policy should define what this looks like in your organization. We recommend following the guidelines outlined on the IRS website to set your policy.

  1. Don’t give your independent contractors business cards.

While this may seem harmless, it can pose a potential worker classification issue. Your independent contractors should not represent themselves as a part of your company. Independent contractors should have their own business cards—not ones that feature your company’s logo or information.

  1. Work with independent contractors who are entities and not just sole proprietors.

Many “solopreneurs” have structured their businesses as entities, while some operate as sole proprietors. Maintaining a staff of sole proprietors, however, could expose you to a potential worker classification issue. When an independent contractor is structured as an entity such as an LLC, it adds support to your position.

  1. Watch your payment method.

The IRS and DOL will also look at how you pay your workers. For this reason, avoid paying independent contractors on a fixed or regular basis, as this is indicative of employee status. Depending on the type of work an independent contractor performs, paying them on a project-by-project basis is often best for avoiding a worker classification hang-up. It’s also important that your independent contractors invoice you for their services.

  1. Make sure your independent contractors work for other people.

An independent contractor who works for only one client could present a red flag for IRS or DOL auditors. The more your independent contractors do business with other organizations, the more obvious it is that they are not employees.

  1. Verify that your independent contractors are paying workers compensation for staff.

If your independent contractor has a payroll, make sure they’re paying workers compensation (and unemployment) as appropriate. (The business owner can opt out.) If they fail to do this, you could be on the hook.

  1. Don’t assume you won’t get caught.

Independent contractors who feel like they’re treated as employees and entitled to certain benefits could report you. And IRS auditors may look at your wages versus independent contractors during an audit. The may even tip off the DOL and others. At the end of the day, you could face penalties for unpaid payroll taxes and late fees, unpaid workers compensation insurance, and more.

Thankfully, steering clear of these mistakes is fairly easy. At JAK, we can offer guidance on your circumstances and situation. If you are unsure about your independent contractor roster, don’t hesitate to give me a call.

5 Steps to Creating a Killer Business Budget

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By Jason Loven, CPA

Managing cash flow can be one of the toughest aspects of owning a small business. Having a business budget can help—not because it’s about cutting spending, but because it gives you a way to track revenue and expenditures. Even if your finances are in good order, a budget can help you uncover hidden cash flow issues and improve your bottom line. Truthfully, no business should be without one.

Here are five steps to creating a killer budget for your business:

  1. Commit to budgeting.

Budgeting is one of those things that’s easy to talk about, but hard to do…unless you commit to making it happen. Get buy-in from other members of your leadership team, and set aside a time to get the budget on paper. Remember, it’s not about cutting spending; it’s about tracking spending, which isn’t nearly as painful, right? Once you see where your money is coming from and going, you can make decisions—if needed—about how you allocate your funds.

  1. Begin by looking back.

Now that you’re ready to create a budget, where do you begin? Start by looking at the past 2-3 years of your business’s historical financial information, particularly its revenue. These numbers will give you a starting point for your budget. From there, you can determine how much revenue you can expect in the coming year. For instance, do you expect sales to increase, or are you a mature company with firmly established revenue figures?

Once you’ve set an approximate revenue amount, review the prior year’s expenses. If you spent X dollars for marketing last year, what will you spend this year? Or, if you increase your entertainment spending, where will you spend less? Where could you shift spending to get a better return? These are the types of questions you should ask.

  1. Be realistic.

Your goal should be to create a realistic budget that is as accurate as possible. That’s because the more realistic your budget is, the more relevant—and beneficial—it will be for your business. For instance, it won’t be helpful to increase your spending 20 percent if your sales are going to be flat. Of course, your budget should mirror the strategies and goals found in your business and/or financial plan.

  1. Know there are templates and tools that can help.

As for the actual creating and formatting of your budget, there are lots of templates and tools available, from streamlined apps to simple Excel spreadsheets. Your accountant can help you with this piece, as well as the entire budgeting process, so don’t feel like you’re alone in the process.

  1. Stick with it!

Creating a budget is one thing, but following it is something else entirely. It’s wise to have a positive attitude, stay motivated, and keep realistic expectations. Accountability helps, too. But if things don’t go to plan, remember: Budgets are not set in stone; they can be updated and adjusted accordingly. The most important thing is that your budget works for you—meaning it is a valuable tool for running your business.

Could You Benefit From a W-2 Checkup?

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By Jason J. Loven, CPA, CCIFP®

With tax season behind us, it’s safe to say our minds are on summery pleasures like vacations, Twins games, and lakes. But now is also a good time to think back to your 2016 tax return: WerBusiness Tax Consultant St. Paul - Accounting Audit Firm St. Paule you surprised at the size of your refund, or by how much you owed? If so, it’s time for a W-2 checkup.

Taking a look at your W-2 can help you understand why this has happened and prevent surprises in 2017. Here are two reasons why this checkup is so important:

 You may need to adjust your federal and/or state withholdings.

If you’re getting a huge refund, it’s possible your withholdings are too high. On the other hand, if you’re stuck with a large tax bill, they could be too low. Adjusting your withholdings involves changing the number of exemptions claimed on your W-4. You should be able to modify your W-4 at any time, but check with your employer’s HR department to make sure there are no company restrictions on timing or frequency.

You could be putting more into your deferred compensation retirement plan.

Contributing pre-tax earnings to your compensation retirement plans, such as a 401K, can help you lower your taxable income. So if you’re getting big refunds, you may want to consider reducing your W-4 exemptions so less is withheld from your paycheck. Then, put the difference into your 401K or other pre-tax benefits your employer may offer through a flexible benefits plan.

Make the most of your W-2.

There are so many things that might affect the number of exemptions you claim, including the number of kids you have and your spouse’s employment. Your W-2 should accurately reflect your current situation—not as it was when you first filled out your W-4. And while paying in too much can be an effective savings account, do you really want the government to have an interest-free loan? Your CPA can help you review your 2016 W-2 and offer recommendations for making the most of your situation. With a thorough W-2 checkup, your 2017 tax season is sure to be more pleasant.

5 Critical Questions To Ask Before Selling Your Business

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By Jason J. Loven, CPA, CCIFP®

 If you’re planning to hand over the reins to your business, there’s a lot to think about. And it can be hard to know where to start. A good first step is to visualize how you would like it all to happen. Then, ask yourself the following five questions to gauge the feasibility of your vision. 

  1. How much is your company really worth?

This can be a tough question, especially if you’ve put a lot of sweat equity into your business. But having a realistic idea of your company’s value is critical to sorting out other aspects of the sale. This could require a simple cash flow analysis or a full-blown valuation, depending on the size and complexity of your operations.

  1. Will this amount work for me?

Once you have an accurate idea of what your sale price could be, you have to determine if this amount will meet your needs. If not, will you delay the sale or reconfigure your retirement plans? Remember, you’ll need to think about net cash after taxes—the sale price isn’t necessarily what will end up in your account.

  1. Have you identified potential buyers?

Having a sale price in mind also lets you narrow down the field of potential buyers. Some business owners have a child, relative or key employee who is ready to take over. Others look outside of the business to find a buyer. If you identify with the former, will this potential buyer be able to purchase your business for the amount you need to get? If not, are you OK with selling to an external buyer?

  1. Will you accept seller financing?

A seller-financing package can make it easier for a buyer to purchase your business. If you’re open to this, you must think about the level of risk you’re willing to accept. How large of a down payment do you need? How quickly do you need to be paid off, and at what interest rate? In many cases, business owners will do seller financing for an heir or employee, but not for an external buyer. There are tax consequences to consider, too. For instance, a gain over time could be more tax advantageous than getting the full amount up front.

  1. What’s your timing?

In a perfect world, you would be answering these questions two to three years before you plan to sell. Determining your company’s worth, figuring out your retirement needs, identifying potential buyers and structuring a deal requires serious thought. What’s more, planning ahead can give you more control over the sale price, as there are things you can do to up the pre-sale value of your business. It’s also important to think about the timing of your exit. Will you completely walk away after the sale, or will you stick around for a while? Will health insurance or other benefits be a factor?

Taking time to plan and evaluate your options should be non-negotiable. Regardless of when you begin the process of selling your business, there are advisers and consultants available to walk you through it. Your CPA can help you understand the options and tax implications associated with the transition. With the right sale strategy, you could have a better chance of walking away with your goals met.

If you’re ready to start discussing these issues contact JAK today to schedule a consultation!

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John A. Knutson & Co., PLLP

John A. Knutson & Co., PLLP, (JAK) is a Twin Cities-based accounting firm serving clients throughout Minnesota and beyond. A Team Committed to Quality Beyond Expectations