Dennis L.Thompson,CPA ,CFE Accounting & Fraud Blog

Information About Traditional IRAs from The National Association of Tax Professionals

2011-02-24T19:38:00.000-08:00

What is an IRA?

An individual retirement account (IRA) is a trust
created in the United States for the exclusive
benefit of you or your beneficiary. Pending certain
guidelines, it allows you to defer up to $5,000 of
income from current taxation (a married couple
can defer a total of $10,000). If you are age 50 or
over, you may contribute an additional $1,000.

Who Can Contribute to an IRA?

You can contribute to an IRA if you have earned
income and have not reached age 70½ by the end
of the tax year. Earned income includes wages,
salaries, bonuses, tips, commissions, alimony, and
other amounts received for performing personal
services, including those performed by a selfemployed
individual.

How Much Can Be Contributed
to an IRA?

You can contribute the lesser of your earned
income or $5,000 for the year. Contributions to a
Roth IRA are combined with IRA contributions
when determining these limits.

Married taxpayers filing a joint return can
contribute up to $5,000 each to an IRA if:

• Either spouse has earned income; and
• Together they have at least $10,000 of earned
income.

If you are age 50 or over, an additional
contribution of up to $1,000 is allowed.

Maximum deductible contributions are based on
modified adjusted gross income (MAGI). For
most taxpayers, MAGI is the same as adjusted
gross income. Contributions that exceed the
maximum amount allowed are subject to
an excess contribution penalty of 6%.

Excess contributions withdrawn from the IRA
before the tax filing due date (plus extensions)
are not subject to the 6% tax, provided that no
deduction is taken for the amount withdrawn.

Income earned on the amount withdrawn,
however, is taxable and the 10% penalty for early
withdrawal may apply to this amount.

What Contributions Are Deductible?

Contributions to an IRA are fully deductible,
regardless of income level, if neither you nor your
spouse is an active participant in an employer
retirement plan. Generally, if Box 13, “Retirement
Plan” is checked on your W-2, you are an active
participant.

If you are not married and are an active participant
in an employer plan, no amount of your IRA
contribution is deductible if your 2010 MAGI
exceeds $66,000. Partial deductions are allowed,
if your MAGI exceeds $56,000 but is less than
$66,000. These limits are scheduled to increase
with inflation in future years.

If you are married and not covered by an employer
plan, but your spouse is, you can take a full IRA
deduction if your joint MAGI is less than $167,000.
Joint MAGI between $167,000 and $177,000
qualifies for a partial deduction.

If you are married and both you and your spouse
are covered by an employer plan, no amount
of your contribution is deductible if your joint
MAGI exceeds $109,000 ($10,000 if married filing
separate). You are allowed a partial deduction if
the joint MAGI is more than $89,000 but less
than $109,000.

Nondeductible IRA contributions are reported
on IRS Form 8606. While contributions are made
with after-tax dollars, earnings accumulate taxfree
until distributed. If Form 8606 is not filed,
the contributions are considered deductible
contributions and will be included in income
when they are distributed.

Time Deadline for Establishing an IRA
and Contributing

IRAs must be established and funded by the tax
return filing deadline (not including extensions) for
the year in which the plan is to become effective.
Generally, this deadline is April 15.

When Can IRA Distributions Be
Taken?

You can take IRA distributions at any time, but
there is a 10% penalty on the amount distributed,
in addition to regular tax, if the distribution is made
before you reach age 59½. However, exceptions
may apply.

The exceptions to paying the 10% early-withdrawl
penalty are:

• The distribution is a series of substantially equal
payments based on your life expectancy (or
your life and the life of your beneficiary). These
payments must continue for at least five years
or until you reach age 59½, whichever is later.

• The IRA account owner dies or becomes
disabled.

• The distribution is a return of nondeductible
contributions.

• You roll the distribution into another IRA
within 60 days.

• You use the distribution for medical expenses
in excess of 7.5% of your MAGI, regardless of
whether you itemize.

• You are a first-time homebuyer or pay higher
education expenses.

• You use the distribution to pay health
insurance premiums when you are unemployed
for twelve weeks or more.

• Distributions due to an IRS levy.

• Distributions made to reservists or National
Guard members during active duty if called
to active duty for a period exceeding 179 days
after September 11, 2001.

When Must IRA Distributions Be
Taken?

You must start taking distributions by April 1 of
the year following the year you reach age 70½,
or there is a 50% penalty on the amount not
distributed as required.

How Are IRA Proceeds Taxed?

Deductible amounts contributed to an IRA will be
fully taxable upon distribution. For contributions
of nondeductible amounts, only the earnings
allocated to the distribution will be taxed. There are
special rules for determining the taxable amount
when both deductible and nondeductible amounts
have been contributed to an IRA.

What About the Self-Employed?

Self-employed individuals can contribute to an IRA.
Earned income for the self-employed is the net
amount obtained from the business. This amount
does not include income deferred into retirement
plans or one-half of the self-employment tax.

For business income to count as earned income,
personal services must have been provided to
the business. If a business has a loss, but there
are wages from employment, the loss from
the business does not reduce the wages for IRA
contribution purposes.

This brochure contains general tax information for taxpayers.
As each tax situation may be different, do not rely upon this
information as your sole source of authority. Please seek
professional advice for all tax situations.

#842 – © Copyright May 2010

National Association of Tax Professionals
PO Box 8002
Appleton, WI 54912-8002

www.natptax.com

A Very Important QB Report That Is Neglected

2011-02-24T16:16:00.000-08:00

The Statement of Cash Flows, which is pictured above, is a very important report that many business owners don't know about. Why is this report so important? Simply put, it tells you where your cash is coming from and where it is going.There are three major components - Operating Activities, Investing Activities and Financing Activities. Operating Activities starts with Net Income and then is adjusted for changes in various G.L. Accounts. In this example, Accounts Receivable is a negative $8,086.50. The reason it is negative is because the A/R balance increased. Since A/R is going up, it means that cash is not being collected. Accounts Payable contributes a positive $502.00. This is because A/P increased, which means that cash is not leaving the company.

Investing Activities show how much is being spent on Investments and Fixed Assets. The reason that Computer & Office Equipment is negative is because cash is being spent on Fixed Assets.

Financing Activities shows where the money that is being invested is coming from. In this case, it is a negative $123,000. That is because the owner is withdrawing cash from the company.

Probably the most important thing to look for is whether or not Net Cash provided by Operating Activities is positive. If it is negative and stays negative over more than one period, it means that your company is in trouble and could be running out of cash. Unless you have access to an unlimited supply of cash, you simply cannot stay in business if you a running negative on cash flow from Operations on an ongoing basis.

Troubleshooting Clients’ Cash Basis Accounts Receivable at Year-End

2011-02-20T21:08:00.000-08:00

Hear me and fellow QuickBooks Expert, Shelly Robbins, discuss Cash Basis Accounts Receivable.

http://bit.ly/i3mK04

QuickBooks Newsletter February 2011

2011-02-20T21:05:00.000-08:00

See how you can save time with Memorized Transactions at my latest QuickBooks Newsletter.

QBC_Newsletter_February_2011.pdf

What is the Current Ratio?

2011-01-22T15:03:00.000-08:00

The Current Ratio = Current Assets/Current Liabilities

Current is defined as assets and liabilities that will be received or paid within the next 12 months or operating cycle.

The ratio is used to give an idea of the company’s ability to pay back its short term
Liabilities(debt and payables) with its short-term assets ( cash, inventory,and receivables).
The standard that most outside users of the financials look for is a ratio of 2 to 1.

The major limitation of the ratio is that you include both receivables and inventory in the calculation of Current Assets. It would seem to me that you would want to back out receivables more than 90 days old and inventory that is obsolete, slow moving, not selling, etc, in order to get a more realistic Current Ratio.

How Can Ratio Analysis Help My Company?

2011-01-01T15:08:00.000-08:00

Ratio Analysis is the use of your accounting information to help you become aware of potential problems and also to see how you compare to your industry ratios. In this economy, successful companies are the ones who can use their accounting information to see who their best customers are, which products are most profitable and if there are any danger signs ahead, such as lack of cash.

The ratios are grouped into four categories, Profitability, Activity, Leverage and Liquidity. Profitability tells you how well you are doing. As with all Ratio Analysis, it is critical that you have some industry statistics, so that you can see how your company's performance compares with your peers.

Activity Ratios tell you the quality of your Accounts Receivable and your Accounts Payable.

Leverage Ratios tell you how well you are managing debt and Liquidity Ratios warn you if it looks like you will have trouble paying your current bills in the future.

In later posts, I will talk about Ratio Analysis in greater detail. However, needless to say, in order to take advantage of Ratio Analysis, it is critical that your accounting information be accurate.

QuickBooks Newsletter December 2010

2010-11-21T13:45:00.000-08:00

To learn about some new features in QuickBooks 2011, check out my December 2010 Newsletter.

QBC_Newsletter_December_2010.pdf

QuickBooks Newletter November 2010

2010-11-14T13:14:00.001-08:00

It is not too early to start planning for your 2010 business tax returns.

Find out how in my November 2010 QuickBooks Newsletter.

QBC_Newsletter_November_2011.pdf

QuickBooks Newsletter October 2010

2010-11-14T13:10:00.000-08:00

Need to change Inventory Prices? Find out how in my October 2010 QuickBooks Newsletter.

QBC Newsletter October 2010.pdf

QuickBooks Newletter September 2010

2010-11-14T12:50:00.000-08:00

Here is a link to my September 2010 Newsletter that discusses options on how to learn QuickBooks.

QBC_Newsletter_September_2010.pdf

With Fraud, an Ounce of Prevention is worth a Ton of Cure.

2010-09-04T21:58:00.000-07:00

Many small business owners think that Fraud could never happen to them. After all their employees are just like family, and a family member would never do anything to hurt the family. Right?

Unfortunately, that is not necessarily true. Almost by definition, an employee has to be highly trusted in order to get into a position of being able to steal from the company. After being victimized by Fraud where you have had your trust violated and proably have lost a lot of money, you will soon find out that there are additional costs to try to recover your losses from the Fraudster. If you want to take legal action, you need to build a case. If you hire a CFE (Certified Fraud Examiner), you are looking at a retainer upfront, plus fees of $125 or more an hour in order to build your case. Then you need to get the authorities to agree to prosecute.
To make matters worse, the Fraudster often has blown the money on drugs or has a gambling addiction.

That is why is it much cheaper to try to prevent the Fraud in the first place. I am a CFE and I have software that tests for Errors and Fraud. If you want more information, please click here.

Buying Or Selling a Home? Learn About the Tax Consequences First

2010-06-13T23:45:00.000-07:00

Are you thinking about Buying or Selling a Home? The following article will
give you the facts so you can make a wise decision.

Buying a Home

If you’re like most people, your home is the largest
investment you’ll make in a lifetime. It’s a longterm
investment that plunges most homeowners
into instant debt, but it also provides ongoing tax
deductions, such as mortgage interest and property
taxes. To take full advantage of these deductions,
it’s important to keep accurate records of your
expenses. In addition to the purchase price, you
should keep the following on file:

• Closing costs, such as abstract fees, title and
search fees, recording fees, survey fees, and
transfer taxes.

• Points paid, loan origination fees, maximum
loan charges, loan discount or discount points.

Generally points paid at closing are deductible in
the year of purchase, regardless of who pays them,
unless you elect to amortize them over the term of
the loan.

Tax Deductions

Many new homeowners expect a new home to
lower their taxes. Some are disappointed to find
out that they can’t itemize deductions in the first
year because they only incur mortgage interest and
property taxes for part of the year.

• The lending institution will issue Form 1098
showing interest paid for the calendar year.

• For mortgage balance(s) of less than
$1,000,000 ($500,000 if filing separately) you
can deduct the mortgage interest for your main
home and a second residence. In order for the
mortgage interest to be deductible, the loan
must be secured by the home.

• If the home is not the security for your loan
(i.e., if you borrowed money from a relative),
you cannot deduct the interest.

• Generally, points paid for the purchase of the
main home are currently deductible. Points
paid on a second residence must be amortized
over the term of the loan.

• You can arrange for a home equity loan of up
to $100,000 and still deduct the interest.

Note: Exceeding these limitations will result in a
limited interest deduction.

• You can deduct assessed property taxes in the
year you pay them, even if you saved monthly
in an escrow account.

• In the year of transfer, each party is liable for
part of the property taxes.

• Back taxes you pay on the property become
part of your acquisition cost rather than a
current deduction.

Home Improvements

Homes require upkeep. Some of the work is
ordinary maintenance, and some is expended to
make improvements. It’s important to keep track
of the amounts spent on improvements by keeping
the receipts. These expenses increase the total cost
invested in your home. If the upkeep increases
the value, rather than maintains the value, it is
considered an improvement.

• Normal painting and wallpapering are repairs
unless done as part of a renovation project that
increases the home’s value as a whole.

• Fixing the roof may be a repair, but replacing it
is an improvement.

• Some examples of other improvements include
landscaping, a new driveway, new windows,
fencing, or adding a storage shed.

Selling a Home

• When establishing a selling price, factor in the
cost invested in your home.

• To calculate your gain or loss on the sale,
you’ll need the cost invested.

• If the sale results in a loss, it is a nondeductible
personal loss.

• If the sale results in a gain, you may be able to
exclude the gain up to $250,000.

• You must own and use the property as a
principal residence for at least two of the last
five years to take advantage of the exclusion.

You couldn’t have used the exclusion for
any house sold in the previous 24 months. A
reduced exclusion is available if you had to
sell the home because of a job change, health
reasons, or unforeseen circumstance.

• The excludable gain increases to $500,000 if
you are married and lived with your spouse in
the house for two of the previous five years.

• If you used any portion of your house for
business or rental at any time since May 7,
1997, some of the gain will be taxable.

• For sales after December 31, 2008, the
exclusion does not apply to any gain allocated
to periods of nonqualified use.

• You are not required to exclude the gain on
your residence; you may make the election not

to exclude by paying tax in the year of sale. You
might consider this if you plan to sell another
residence that would qualify for the exclusion
within two years and the gain would be larger.

• Planning is important. If you have high income
and large taxable gain on the sale, you may
want to receive payments under the installment
sale method. By doing so, only the gain from
payments received in the current year would be
taxable. (If you need the proceeds right away,
this option is less desirable.)

• You may want to consider receiving the entire
proceeds, paying the tax, and investing the money.

• Your tax professional or investment consultant
can help you weigh your options.

Divorce

• Often the ownership of a home changes with
divorce. The home may be sold to a third party
or become the sole property of one spouse.

• If one spouse receives the house, no sale
occurs for tax purposes. The cost of the house
stays the same despite paying money to the
other spouse.

• If the home is sold, each owner must
report the sale. If the title is shared, both
will report their portion of the sale on their
individual returns. If one spouse took over
ownership, that spouse has the sole reporting
responsibility despite a decree that may assign
a portion of the proceeds to the ex-spouse.

• If joint ownership is retained after the divorce,
both spouses may be able to take advantage
of the $250,000 exclusion. Ownership and
occupancy by one taxpayer will also qualify the
ex-spouse.

Physical or Mental Incompetency

• The exclusion may still apply if you become
physically or mentally incapable of self-care and
have occupied the home for at least 12 months
out of the past 60 months. Time spent in a
nursing home is counted as occupancy of the
residence in order to exclude the gain on sale.

You must maintain ownership during this period.

Summary

• Coupled with potential tax deductions, home
ownership is now more rewarding than ever
before.

• Consulting your tax advisor can be to your
advantage when making home ownership
decisions.

This brochure contains general tax information for taxpayers.
As each tax situation may be different, do not rely upon this
information as your sole source of authority. Please seek
professional advice for all tax situations.

#808 – © Copyright May 2010

National Association of Tax Professionals

QuickBooks Newsletter April 2010

2010-06-13T23:19:00.000-07:00

Here is a link to my April 2010 QuickBooks Newsletter that will give you some ideas as to how to make sure that your Accounts Receivable do not become delinquent:

QuickBooks April 2010 Tips.pdf

Preventing Fraud with QuickBooks Software Controls

2010-01-10T12:46:00.000-08:00

Earlier I talked about how to use QuickBooks and Segregation of Duties to prevent Fraud. Now I will discuss how to use the software controls within QuickBooks to deter Fraudulent activity.

One of the most important features within QuickBooks in the Audit Trail. The Audit Trail tracks who is making entries into QuickBooks. You especially want to see who is deleting transactions, such as checks. Since QB 2006, the Audit Trail cannot be turned off.

The next thing you want to do is to set up Roles and Passwords to limit each employee's access to QuickBooks. They should not have any more access than what they need to do their jobs. You especially don't want employees to be able view payroll information. Also, since each employee has his/her own sign on to QuickBooks, it is much easier to track them on the Audit Trail.

The next thing to do is to lock prior periods with a Closing Date. You definitely don't want employees to be able to go into QuickBooks and change information from prior periods.
For maximum security, assign a password to the Closing Date.

Finally, make use of QuickBooks reports. The Voided/Deleted Transactions Report and the Closing Date Exception Report are two that you would want to review on a weekly basis.

By following these suggestions, you can improve your chances of detecting suspicious activity in QuickBooks.

Fraud and QuickBooks

2010-01-10T12:14:00.000-08:00

QuickBooks is a great Accounting program that provides tremendous value to Small Business owners for a very reasonable cost. In fact, it has 85% - 90% of the Small Business market. However, it can be very effective in allowing someone to steal your money, unless you take steps to prevent it.

So how do you prevent this?

The first thing you need to do is to understand the concept of Internal Control. Basically, you want to segregate duties so that no one person controls the whole process. You NEVER, NEVER want to allow someone (in many cases, the bookkeeper)to have physical custody of the asset and total control of the record keeping of the asset.

In other words, where there has been embezzlement of funds, the bookkeeper has been able to write and sign checks, make deposits, make the entries into QuickBooks and reconcile the bank account. A CPA friend of mine had a client, whose bookkeeper had those abilities and she stole $740,000 over the period of about 3 or 4 years.

Probably one of the most effective things that you can do is to have someone other than the bookkeeper (preferably the Business Owner) reconcile the bank account on a monthly basis. That way you can stay on top of your bank account. In future posts, I will discuss other ways you can use QuickBooks to prevent Fraud.

The Triangle of Fraud

2010-01-10T11:17:00.000-08:00

The Triangle of Fraud.

In an earlier article I talked about the three major characteristics of a Fraudster. In this post, I will go into further detail. The first element is Opportunity. Employees that would fall into this category would be employees that are very trusted, sometimes very long term employees. Perhaps they are in a position of authority that would discourage other employees from questioning their actions. In any event, they have access to the assets and are considered unlikely to steal.

The second characteristic is Pressure. This is defined as having a Nonsharable Problem. This could be having a drug problem, gambling addiction, family medical problems, etc. In any event, the employee does not feel that he/she can share the problem with the company, usually because it would cause personal humiliation or a loss of face.

The final element is Rationalization. Did you know that many Fraudsters do not consider themselves bad people? They tend to think of themselves as victims of unfair circumstances. Sometimes they think that they are just borrowing the money and that they will pay it back. Other employees think that they are grossly underpaid and taken advantage of, thus they are just equalizing the scales. In any event, the ability to rationalize their actions allows them to begin and continue the Fraud.

When you think about your employees, do any of them share these characteristics? If so, it would be prudent to stay aware.

The Threat of Fraud to Small Business

2010-01-10T11:08:00.000-08:00

Fraud and Small Business

Did you know that in 2008, the average organization lost an estimated 7% of gross revenues due to Fraud. Also, the median loss for organizations with less than 100 people was $200,000. These statistics come from the "2008 Report to the Nation on Occupational Fraud and Abuse" by the Association of Certified Fraud Examiners. In this down economy, the potential for losses caused by Fraud is especially likely.

The question for you as a business owner is , how can I recognize who might be a potential Fraudster? In this brief article, I will share with you one of the major theories as to who would be likely to steal from you.

In the 1940's, a Criminologist named Donald R. Cressey studied over 200 embezzlers and developed a theory as to what they all had in common. The theory that he developed is known as the Fraud Triangle, and it states that there are three major characteristics of the employees who commit Fraud.

The three elements are: Opportunity, Pressure and Rationalization. Opportunity - usually it is a person in a trusted position, someone who you would probably never suspect. Pressure - usually the employee has a problem that he/she feels that they cannot share. Rationalization - the employee thinks that he/she is really not stealing, just temporarily borrowing, etc. In a future article, I will discuss each of the three characteristics in greater detail.

Accounting 101

2009-06-08T15:20:00.000-07:00

One thing that I find very striking when I look at my Client's financial statements is that many of them do not understand Accounting very well. This can be very dangerous to your businesses' health.

Most Accounting problems do not happen overnight - there is usually a warning period so if you have a basic understanding of Accounting, you can be alerted to a deteriorating situation and take corrective action. Also, the better that you understand Accounting, the more likely it will be that your financials will be free from major errors.

To help you get a better understanding of Accounting, I have recorded the following short video
on Basic Accounting and debits and credits. While there is a limit as to what can be taught in less
than 5 minutes, hopefully, it will give you a better understanding of your financials.

To watch the video, please click on the following link:

http://www.screencast.com/users/dennislt/folders/Jing/media/d8682c28-4b31-427e-999a-be87b1cc5086

Could You Be A Victim Of Small Business Fraud?

2008-11-02T21:17:00.000-08:00

Did you know that Small Businesses are especially vulnerable to fraud?

In fact, some companies have gone out of business because of employee theft.

A CPA friend of mine was telling me about one of his clients who had lost almost
a half a million dollars because his Bookkeeper was forging checks. The Bookkeeper's
explanation for her newfound wealth was that she was very lucky at the casinos.

In later posts to this blog, I will discuss how employees steal in much more detail.
However, for right now, I will give you a few quick tips as to how you can reduce your
chances of being a victim.

The first and probably most important piece of advice is to segregate duties. Never, ever,ever
let your Bookkeeper control both the custody of the bank account and the record keeping.

In other words, do not let your Bookkeeper write and sign the checks, make the entries in the Accounting software and reconcile the bank accounts. If you do this, you are just asking for trouble.

At a minimum, you should be signing the checks - not the Bookkeeper. In addtion, you should have another employee or your Accountant reconcile the bank account. Even better, would be for you to reconcile the bank account.

Other actions that I would recommend are:

1. Perform background checks on new hires.
2. Have the bank statement sent to your home address so you can review it before anyone else.
3. Review your open Accounts Receivables and Accounts Payable to make sure that nothing
looks suspicious. You should be doing this anyway for Cash Flow purposes ( I will discuss that
in another post).
4. Be curious about improvements in your employee's lifestyle (especially if you have not given
them a raise!)
5. Be suspicious of an employee who never wants to take a vacation or who always comes in
early and leaves late.

You work hard for your money. A small amount of caution on your part will help you keep it.

Small Business Owners Should Always Be Aware of Their TME

2008-10-25T15:19:00.000-07:00

Small Business Owners should always be aware of their TME? What the heck does that mean?

In my parlance, TME stands for Time, Money and Energy.

From my vantage point, these are the three scarce resources that we bring to our business in order to be successful.

TME can also be a prism through which we use for making decisions. Decisions such as whether or not to do our own Accounting, or decisions about how to market our business and so on.

Once you have an awareness of your own TME, you can consider such questions as does it make sense to spend a lot of Time and Energy in order to save a little Money?

From my own perspective, I tend to regard my Time as being most precious, because that is the one thing I cannot get back.

Beware of Bargains in Parachutes, Brain Surgery and Accounting Services

2008-10-25T14:32:00.000-07:00

Aren't you tired of paying high prices for CPA and other Accounting services?

Isn't it tempting to just buy QuickBooks and let some low cost Bookkeeper or Accountant enter your data in for you? After all, what could go wrong? I mean the software practically does all the Accounting by itself, right?

Well, not exactly. Properly setup and monitored, QuickBooks does allow people with lower level Accounting skills, keep a set of books without too many errors.

Improperly setup and not monitored, you can create a set of Accounting records that are for all intents and purposes, totally unuseable.

Based on my experience, what I have observed is that the most expensive Bookkeepers and Accountants are those that charge the lowest rate per hour. What you save on the front end, you more than lose on the back end with messed up payroll taxes, sales & B&O taxes and financial statements. Also, don't forget the cost of having to pay someone else to come in and fix the problems.

So how do you avoid this situation?

If you are using QuickBooks, make sure that they are a Certified ProAdvisor. That will demonstate that they have been tested on the basic knowledge of the program.

Also, ask them to explain to you how Items are used in QuickBooks.( I will cover Items in a later post). If they don't understand Items, then they don't understand QuickBooks, no matter what else they may tell you.

Back Up - The Company You Save May Be Your Own

2008-10-25T14:06:00.000-07:00

Are you regularly backing up your company data?

If you are, are you also backing up your data to an offsite secure location?

I have a CPA friend named Virgil. One day, one of his clients called him and said:

"Virgil, we had a break-in last night and the thieves stole our computer."

Virgil said, "Well you have backups for your data, right?"

Then his client said: "Yes, but unfortunately, they stole that too."

It is critical that you back up your data and it is even more critical that you store at least one copy offsite. You can always reinstall your programs, but your company data is the life blood of your business.

If you only store your company backups in your office, you are at risk for loss by flood, fire, earthquake and theft. Trying to then recreate your data can be a real challenge to say the least.

So how do you back up offsite? I would recommend the following links:

http://www.carbonite.com/

http://mozy.com/

http://books.smartvault.com/

If you use QuickBooks, you can subscribe to an Online Backup within the software.

Finally, I am very conservative when it comes to data. I would have more than one backup.
For example, I would backup to an online site, backup to an external hard drive and also to a
jump drive that I would password protect. I would keep that jump drive on my key chain.

The chance of those redundant backups all failing at the same time is fairly remote. You also want to periodically test those backups just to make sure that the data is being backed up.

The hassle of backing up is nothing compared to the hassle of having to manually re-enter in your data.

Warning - Acccounting Software Can Be Hazardous To Your Company's Health

2008-10-23T14:54:00.000-07:00

Wouldn't it be great if you could buy a $200-$300 piece of Accounting software and all you had to do was make entries and your Accounting would magically be correct?

Yeah, that would be great!

Unfortunately, the dirty little secret is that Accounting software in and of itself will not necessarily do the Accounting thinking for you. The reality is that Accounting software can
help you make more creative and more complicated mistakes more efficiently.

All Accounting software does is automate certain manual bookeeping processes. For example,
with QuickBooks, you can use items to make journal entries. However, you have to map the items to the correct GL Accounts, otherwise, you will have a first class mess on your hands.

As I mentioned in a earlier post, it is in your best interest to have a basic understanding of Accounting. The benefits of this knowledge are :

1. You can spot when your Financial Statements don't make sense.

2. You will have a much better understanding of how your business is doing.

3. You will have a much more productive relationship with your Accountant, because now you can focus on who are your best customers and what are your most profitable products and services.

Remember that no one is going to care about the success of your business more than you. The more you understand about Accounting and how it applies to your business, the greater your chances of financial success.

Accounting (Oh No!!)

2008-10-23T11:47:00.000-07:00

How many of you find Accounting to be the most fascinating thing you have ever studied?

How many of you would rather have a root canal without Novocain instead of studying Accounting?

The unpleasant fact is that if you want to give your business the best chance of being successful,
you need to have a basic understanding of Accounting.

I can take a look at a client's Balance Sheet and in about 2 seconds tell if there are major problems. In order to do this, you have to understand what a normal Balance Sheet looks like. This means, like it or not, you have to have a basic understanding of Accounting.

For example, I had one client that was writing off invoices, in other words, reducing income.
However, instead of writing the amount off to an expense account, he was writing it off to a bank account on QuickBooks. The result was that he had created a fictious bank balance of over $10,000 on his Balance Sheet.

I had another client who had mapped half of his expenses to Accounts Payable, thus he probably over paid his income taxes, because he understated his expenses.

Remember, no one is going to care more about your business than you. Make sure that you protect yourself by having a basic understanding of Accounting.

As a resource, although the title is very unflattering, I recommend the book "The Complete Idiot's Guide to Accounting", second edition by Lita Epstein, MBA and Shellie L. Moore, CPA

Why Do You Want to Have Your Own Business?

2008-10-23T11:36:00.000-07:00

Why do you want to be your own boss? Have you been reading those magazines at the newstand that make it seem like anyone can make tons of money by working at home?

Have you recently been "dehired" from your corporate position and the thought of looking for another job makes you very anxious?

When looking for a job, are you tired of being told "come back when you are younger"?

Whatever the reason, it is important to know, because you will need to keep this motivation first and foremost in your mind and in your gut, because no matter what anyone tells you, it is very difficult to have your own business. You really have to want to be self employed- especially during tough times. You are the one who has to provide the motivation to keep you going.

In other words, you really have to have a burning desire to be your own boss, otherwise, you are better off looking for a job.

Introduction

2008-10-23T11:31:00.000-07:00

My name is Dennis Thompson and this is the first time I have ever tried blogging. My goal with this blog is to share with you what I have learned about Accounting software and other issues that directly affect Small Business Owners.

I encourage feedback from everyone. I hope that we can all learn from each other.