Discussion:Business startup accounting information
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| 3 February 2007 | |
| What is the best way to get a variety of questions answered without being a pain the *%$#?
My wife has started her own business, actually started in June of 2005. A Kentucky LLC operating as an S-Corp. She relied on an accountant/friend (who I hope doesn't read this and get offended) to setup her QuickBooks and file her 2005 return. The 2005 income was very small, 2006 was a better year and with the move to a new location 2007 looks to be the turning point. As we prepare to file 2006 returns I think we should make some changes. I don't think accounting wise she is ready for the expected growth. I believe the biggest part of the problem is my wife's lack of understanding of accounting principals. Combined with the non-aggressive and very conservative attitude of the accountant, things just don't looke or feel right. I am trying to get things a little more in line with how I think things should be setup. Except that I am not an accountant either. So what would be my best approach to answering or clarifying questions I am sure to have? Should I look for another accountant? Post a series of questions on this site? Purchase some business accounting books? Or all of the above? Here is a sample of the questions I already have: All of the startup money came from my wife's full-time (quickly becoming part time) job and has been entered in QuickBooks as Member's Capital. One large equipment purchase was entered as a Long Term Liability - Payable to Member. Over the past year my wife has continued to pay business expenses out of her pocket and this money has been added to Member's Capital (most of it anyway, I am sure that some slipped through the cracks). My questions here is. Should the money paid in be setup as a loan to the company and interest charged (or interest free)? Then as the business becomes profitable should she start paying back that loan before taking a salary? Or should it be retained as Member's Capital? Other questions on this line: We recently purchased a building and the business is occupying the ground floor with two rental apartments above. We eventually expect to convert the upstairs into living space for our family. A whole slew of questions swimming around about this setup. The question right now involves the business space. Where is the line when it comes to improving the business space? I think the new floor and painting of walls, etc are expenses for us as landlord/buiding owners. But that construction of shelves, workbenches and other business specific (as opposed to building) costs should be expenses to the business. But they're not cost of goods, so how should they be categorized? Okay, reading back over this I think that I probably just need to ask if anyone can recommend an accountant...LOL. We are located in Northern Kentucky, although I don't think location is as important in today's technological world. We are Macintosh users, so they have to be Mac users as well...it's a Mac thing. So feel free to tell me to hire an accountant. Or point me at the right resources to answer my own questions. I participate in a lot of Mac and tech related forums, so nothing you can say here will offend me. ;-) I've been flamed by the best. | |
Bottom Line (talk|edits) said: | 3 February 2007 |
| You need to decide if you and/or your wife is able to do the bookkeeping work. Consider both time issues and learning curve issues. If you don't think you have time to do the work going forward and/or will have a difficult time understanding bookkeeping, you probably need to hire someone. You have some fairly complex issues here, LLC, mixed use of real estate so you need someone with more understanding than simply entering checks. Another challenge is going to be MAC. Very few accounting programs are written for a MAC and very few accounting professionals use one. This goes back to the original question of who's going to do the work. If you decide that outsourcing the work is the best option, the type of computer doesn't matter. The information you've provided is a good starting place for interviewing accountants. Ask your friends and business associates for recommendations. | |
| 3 February 2007 | |
| And some of the items the prior accountant labeled are not precise nor correct...imho that is. You don't really have a member's account; you are an S corporation so you are a S/H; not a member. This distinction is important for reasons of salary, etc.
Just one hint...if you are refurbishing the office, then those items that are NOT capitalized are repairs/maintenance on facilities. Be careful however of the S corp owning property and renting out that property to individuals....best to keep the property if you can in a separate entity or owned personally and the rental of the office from the S/H as a business expense. In this case, leasehold improvements will come into play, but as BL said, you need to look for an accountant to either review your work (if you can do the bookkeeping alone mind you) or to do the work for you. Since you use Qbks...you have the program already and it can be used with a MAC...remote accessing may be a tool for you when speaking to a prospective accountant/professional. Good luck to you!! | |
| 3 February 2007 | |
| I think Quickbooks does the cross platform thing okay and/or I am willing to provide the accountant with a Mac (with Quickbooks) if they have room in their office. For expense and because I want to know, I would like to handle as much of the bookkeeping as possible myself. So as we prepare to grow I would like to get things setup right, rather than try to fix things down the road. I realize it may already be too late for some decisions. Was organizing the business as an LLC then electing to file as an S-Corp the right choice? The business is a sign making company, my wife is the only current employee. But not taking a salary. She uses a couple of freelance artists/workers and is considering hiring one as an employee or partner. Projected sales for 2007 are $100,000.
The new building is owned personally by my wife and I. The business pays us rent. Although as stated above my wife tends to pay rent and some expenses out of pocket. If the business doesn't really have a member's account, how should this money be entered? Should this money be considered a loan to the company and set to be paid back to my wife before she starts taking a salary? Or should she take a salary and leave the money in the company? Going to start the hunt for an accountant. I think my biggest problem with her current accountant/friend is their lack of email as a way to ask and answer questions. You guys have answered more questions already. ;-) Thanks. | |
AKaccountess (talk|edits) said: | 4 February 2007 |
| If you are an LLC then you are member and have member capital account. There are no shares in an LLC. They are not a corporation and aren't even required to have corporate minutes like an SCorp is suppose to. You are saying there is only one member. As long as Kentucky recognizes one member LLC's then along with the IRS a single member LLC is a disregarded entity and SHOULD be reported on your schedule C.
Choosing to be treated as a corporation whether C or S doesn't change the fact you are an LLC, only that you are choosing to be treated like a corporation for TAX purposes. If you have filed only one year I may consider amending that year and behave like the disregarded entity that it is. She still will have the limited liability afforded the LLC even though reporting the activity on a schedule C the LLC issue is a leagal issue not just simply a tax issue. As far as accountant's go you need to choose one based on your comfort level with that person and the ability to communicate. Offering to supply the MAC is a great option. QBP Version 5 converts MAC to Windows version 6 does not and I'm not sure about version 7. Any way, a MAC is a superior computer and software is software is software as long as it geats the job done the way you need it done. If you move to hire a bookkeeper GET OFF QUICKBOOKS!! AND STAY INVOLVED in the accounting. Otherwise.... You do need a professional advisor and they will take you far and will have lots to offer including sleep at night. AKaccountess 18:31, 3 February 2007 (CST) | |
Bottom Line (talk|edits) said: | 4 February 2007 |
| I disagree with AKaccountess regarding QuickBooks. It is a good program and 10's of thousands of professionals use it (including CPA's). Since your existing accountant/friend doesn't have e-mail, I would question lots of other things that this person is doing. Email has become as basic to business as the telephone. I do agree with AKccountess that you (and your new professional) should review the previous tax return for the possibility of amending it. (Another question - was the previous return handwritten? Another area that would raise a concern.) | |
| 4 February 2007 | |
| Well I too like Quickbooks and didn't quite understand that comment, since no alternative was suggested. Not a lot of choices on Mac anyway. The return was computer generated and they are not toatlly devoid of email. They have one account for the entire firm, but only have dialup in the office, so it is checked when someone remembers to dialup. ;-( As far as I know she has no access at home. So if I needed to ask a question we traded phone calls for a couple of days or I just put it off until I had more questions and scheduled an appointment. But of course half the simple questions I had fell through the cracks.
That's why I say you guys have answered more questions here in the past few days than she ever did. I'm still searching and reading past discussions and articles. Thanks to all who contribute. | |
Bottom Line (talk|edits) said: | 4 February 2007 |
| You said you live in Northern Kentucky and I see from your profile that you work for the Cincinnati schools (thanks for filling out your profile - that really helps). I don't know how much of the business is in one state vs the other but Ohio taxes can be a challenge - city tax, county tax, school district tax, etc. If you plan on doing business in both states, make sure your professional is versed on taxes in both states. There is a thing called Nexus that applies. We heard about it beginning with professional athletes but it's spreading. If the Bucs play the Bengals, the Bucs players have to pay income tax to Ohio, etc for that one day since they earned income in Ohio. | |
| 4 February 2007 | |
| Thanks for the heads up. So far we have kept most of the business on our side of the river, Northern Kentucky and Ohio are seperated by the Ohio River. I think we are avoiding the Ohio tax conundrum by requiring all Ohio customers to come to our location to pickup their signage. If we get any Ohio customers that need installation we farm that work out to an Ohio contractor. Our accountant friend has tried to convince me that me need to apply for licenses and fill out tax forms for every small town we sell signage in in the area. So far it hasn't been a problem, we have sold several signs to a neighboring city administrative office without filling out any paperwork in their city. Their employee picks up the signs and banners and they hang or install them with city maintenance employees.
I do find it odd that I have to pay taxes to Forrest Park, Ohio, even though I only visit our company office once or twice a year. We finally got them to deduct Kentucky taxes. Rather than me having to file an Ohio tax return for a refund and then file a Kentucky tax return to pay Kentucky taxes. | |
Bottom Line (talk|edits) said: | 4 February 2007 |
| Sounds like you've got a handle on the state issue. My husband's people are from Cincinnati and we go up for a visit every year. We stay in New Port, KY (he questioned my decision the first time I made the hotel reservation because of New Port's old reputation) and really enjoy the area. There's SO much to do! | |
AKaccountess (talk|edits) said: | 5 February 2007 |
| Quickbooks is very user friendly and lots of CPA's use it because of its ease and we have no contact with deposits, receipts - cash or checks we don't handle the clients monies. 10K's use quickbooks when they are their own bookkeepers. If you hire and bring in a bookkeeper to work in the office its called separation of duties and audit trails. No there aren't a lot of options in accounting software for MAC's and when and if you get large enough to need to hire employees it may be time to switch accounting software and the cpu you use. Lots and lots of embezzlement in the world today. It doesn't take loosing hundreds of thousands of dollars to shut down a new business. Been there, seen it happen and the sad part is the small $$ amounts never make the news and the "bookkeepers" are back on the street without a record and working for someone else..maybe you. QBP audit trail can dissapear into thin air and I can show you only what you want to see. For small to midsize business there are lots of programs, BusinessWorks and Peach Tree to name two and there are others. And I'll say it again STAY INVOLVED. If you haul your accounting to someone else to do and they never touch the money, deposits, receipts, or sign checks then you can rely on QBP but as soon as you grow to the point where outsourcing won't work anymore, switch. | |
