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Help for Pandemic Credit Woes

Your Economic Impact Payment was spent a long time ago, your work hours were cut, and your bills are getting harder to pay. Well, you are not alone. Widespread unemployment and economic hardships from COVID-19 are anticipated by financial experts to create a financial and credit crisis. My regular readers have already been alerted to the many scams out there to take advantage of vulnerable people. Those scams include “help” with credit and debt issues. 

Good news! Reputable (and often free) help is out there to help with your pandemic credit woes. Here are three options for credit and debt counseling that really help:

  • Nonprofit Credit Counseling

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free financial education. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. They discuss your entire financial situation with you, and help you develop a personalized plan to deal with your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. The Federal Trade Commission offers tips on finding an agency and questions you should ask before you start. https://www.consumer.ftc.gov/articles/0153-choosing-credit-counselor

  • Credit Union Membership

Credit unions are nonprofit financial institutions, while banks are for-profit, meaning they are either privately owned or publicly traded. Credit unions have lower fees and are all about community. They often provide free financial wellness and other services to help their members make good financial decisions, stay on top of bills and payments, and manage a budget. Check out Bank Rate to find a credit union near you and how to become a member. https://www.bankrate.com/banking/best-credit-unions/.  

  • Community Development Financial Institutions

Community Development Financial Institutions (CDFIs) are banks and credit unions that focus on serving people in low-income communities that have historically been locked out of the financial system. Unlike other financial institutions, CDFIs rely less on credit scores when providing loans and other products. In addition, they emphasize developing long-term relationships with members of the community to help them gain financial literacy, establish savings goals, build credit, and access affordable loans. Check out the official CDFI website to locate a certified financial institution near you. https://www.cdfifund.gov/programs-training/certification/cdfi/Pages/default.aspx 

Millions of people are suffering financial woes due to the coronavirus pandemic. If you or someone you know is impacted and needs help, nonprofit credit counseling, credit union financial wellness services, and CDFIs are some of the reputable resources that are out there for you. It might be difficult to take the first step, but that debt burden will feel lighter after you do. 

Tax “To Do” List for Closing a Business

Data from Yelp Inc., the online reviewer, shows that more than 80,000 businesses permanently closed from March 1st to July 25th of this year. About 800 small businesses filed for Chapter 11 bankruptcy from mid-February to July 31st, according to the American Bankruptcy Institute. They estimate that total bankruptcies in 2020 could be up 36% from last year.

Closing a business is a tough decision. It’s painful. It also creates a long “To Do” List, including final tax responsibilities. Figuring out everything that needs to be done can be confusing. Fortunately, the IRS recently launched a redesigned webpage to help business owners and self-employed individuals navigate federal tax steps when closing a business.

The IRS’ “Closing a Business” webpage has explanations, instructions, links, and forms for:

  • Filing a Final Return and Related Forms

You must file a final return for the year you close your business. The type of return you file and related forms you need will depend on the type of business you have (e.g., sole proprietor or partnership). 

  • Take Care of Your Employees

If you have employees, you must pay them any final wages owed, make final federal tax deposits, and report employment taxes. You must also provide an IRS Form W-2, Wage and Tax Statement, to each employee. 

  1. Pay the Tax You Owe

Whether it’s by check or online, all taxes must be paid in full. 

  • Report Payments to Contract Workers

If you have paid any unincorporated contractors at least $600 during the calendar year in which you close your business, you must report those payments.

  • Cancel Your EIN and Close Your IRS Business Account

The employer identification number (EIN) assigned to your business is the permanent federal taxpayer identification number for that business. The IRS will not close your business account until you have filed all necessary returns and paid all taxes.

  • Keep Your Records

How long you need to keep your business records, such as employment tax records, depends on the document. Generally, tax records should be kept for four years and copies of tax returns should be kept permanently.

The IRS’ “Closing a Business” webpage outlines the steps needed to close a business and help take care of any employees. No matter the business type, information on this page https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business helps business owners and self-employed individuals understand what to do after making the tough decision to shut down.

Taxes and the Growing Gig Economy

Smartphones and apps have made it easier for people to find work, or “gigs”, through new online marketplaces. But gig workers may not understand all the tax obligations of their work situation. For example, companies will probably classify them as independent contractors instead of employees, making them responsible for taxes, insurance, and other financial obligations that employers usually take care of. 

The gig economy was growing before COVID-19. Now that work is booming because of even more gigs that are lined up via apps or websites, also called digital platforms. Examples are:

  • Driving a car for booked rides or deliveries, such as Uber and Uber Eats;
  • Renting out property or part of it, such as on Airbnb;
  • Running errands or complete tasks, such as TaskRabbit; or
  • Selling goods online, like on eBay. 

Digital platforms are businesses that match workers’ services or goods with customers. Instead of the customer directly paying the worker, the customer pays the platform, and the platform pays the worker. Platforms are supposed to issue a year-end income report to workers (i.e., on IRS Form 1099-K or 1099-NEC/MISC). Workers that earn income via a digital platform are required to maintain financial records and report all income on her or his income tax return, just like any other freelance worker. 

Knowing about the tax obligations for gig workers is vital because many don’t receive a year-end tax report, like a 1099, for all their work. Income from gig work is generally taxable, regardless of whether workers receive information returns or not. Gig workers also need to know about the business expenses they can deduct to reduce their taxable business income. 

Keeping up with the tax rules is a growing issue as the gig economy grows. The IRS recently launched its Gig Economy Tax Center to help gig workers navigate through what they need to know. Check it out here –  https://www.irs.gov/businesses/gig-economy-tax-center

The Gig Economy Tax Center is designed to make it easier for taxpayers to find information about a variety of topics including filing requirements, quarterly estimated income tax payments, and deductible business expenses. They even produced a video to break it down for you –  https://www.irsvideos.gov/Individual/PayingTaxes/UnderstandingTheGigEconomy.

The gig economy is growing. Gig workers who educate themselves on all the tax rules for reporting income and allowable business expenses can get it all done correctly and quickly, leaving more time for earning income with more gigs.

Cyber Risk and Working from Home

With so many people working from home, cyber risk is higher than ever before. When you work from the office on your employer’s systems, security features are often in place that reduce the risk that “bad actors” will gain access to your data. But those security features don’t usually extend from the office to workers’ homes. 

Increased cyber risk results when basic IT controls aren’t addressed, leaving systems vulnerable to hacks and malware. Employers whose workers are accessing their business systems from home must train and provide remote support in these four IT control areas to reduce cyber risk:

  • Firewalls and Anti-Virus Software

Home-workers should be required to install a firewall and anti-virus software. Firewalls protect against outside attacks and can be configured to block data from suspicious locations while allowing relevant and necessary data through. However, firewalls do not prevent attacks; they only protect against malicious traffic. Anti-virus software scans computer files and memory for patterns that may indicate the presence of malicious software based on known malware from cybercriminals.

  • Program and System Updates

Home-workers should download and install all program and system updates. Skipping updates and patches creates vulnerabilities that can be exploited by hackers and scammers. Outdated updates were the reason for some recent – and awfully expensive – cyber fraud events at Equifax and Home Depot, among others. Workers should set up updates to be pushed automatically to their home computers and other devices to ensure they stay up-to-date.

  • Passwords and Two-Factor Authentication

Home workers must use passwords for all business systems access and should be encouraged to use two-factor authentication protections to add an extra layer of protection. Two-factor authentication means the user must enter username and password plus another step, such as entering a security code sent via text to a mobile phone. Passwords used at home should follow the same length and strength protocols as when they are used at the office.

  • Phishing Emails

Home workers should be trained never to open an email from a suspicious source, click on a link in a suspicious email or open an attachment without scanning it first. Otherwise, your worker could be a victim of a phishing attack and your data could be compromised. Workers should never click on links in pop-up windows, download “free” software from a pop-up, or follow email links that offer anti-spyware software.

More working from home equals increased cyber risk because basic IT controls at the office don’t automatically extend to home. This scenario can leave systems vulnerable to hacks and malware. Employers must train and support their home workers about firewalls and anti-virus software, system and program updates, passwords, and phishing scams to reduce cyber fraud and protect their business systems and data.

Expectations for Your Bookkeeper

A business owner’s time is too valuable for keeping accounting records and running financial reports. Also, most business owners don’t have enough accounting expertise to keep the books accurately and completely. Between a lack of time and expertise, business owners can wind up with inaccurate accounting records that lead to expensive mistakes.

Outsourcing your bookkeeping to a qualified professional is one of the best decisions you can make as a business owner. A bookkeeper provides accurate and up-to-date financial information. Engaging a bookkeeper also frees up your time to develop new sales and plan for growth.

So, after you engage a bookkeeper, how do you ensure that she or he provides that accurate financial information so you can make good business decisions? Sounds simple, but setting these four expectations is the best way to get the bookkeeping services that you need:

  • Standard Tasks

Clarify the tasks and deliverables that will meet your needs, such as keeping accounting records up-to-date, ensuring information is categorized correctly, and reconciling financial activity. Establish a schedule for monthly financial statements and other reporting needed to manage your business.

  • Critical Thinking

You need someone who can focus on the details and on the big picture, and who also understands how they work together. She or he must be a problem solver, assessing information and developing solutions. Projects and tasks must be logically prioritized and followed through to completion.

  • Two-Way Communication

If your instructions or processes are not understood, your bookkeeper must be willing to ask for clarification or help. Communication is critical; it is better for your bookkeeper to ask questions rather than guessing or keeping quiet. Good bookkeepers handle day-to-day issues and know when to escalate an issue to you.

  • Technical Proficiency

A 21st-century bookkeeper can conduct most, if not all, of your financial business electronically. That includes accessing the bank statement, paying bills, and sending financial reports. Your bookkeeper should be proactive about securely using technology. It will save both of you time and reduce human error.

You depend on your bookkeeper to provide complete and accurate financial information so you can make good business decisions. Setting expectations for what your bookkeeper will deliver, when, and how is the best way to get things done the way you need them. Once you and your bookkeeper have that important conversation about expectations, your time and attention can be focused on building your business.

Mid-Year Financial Checkup

Mid-year is here! Due to COVID-19, you may feel like 2020 is only two months old – or two years old – instead of being half over. Also due to COVID-19, you may have already taken a hard look at your business finances. Even so, mid-year is a good time for a financial checkup. 

Think about it. You get a physical checkup to detect any serious problems that can result in a medical crisis that stops you in your tracks. A financial checkup will help you to detect problems with income, expenses or other financial concerns that can stop your business cold. 

At a minimum, your Mid-Year Financial Checkup should cover these three areas:

  • Actual vs. Budget

Compare actual financial performance to planned, or budgeted, financial activity. Focus on variances in income and expense categories that most significantly impact achieving your organization’s goals. If the budget was not met, figure out why. Did conditions change?  Were projections unrealistic? Focus on “why” and use that information to refine your current and future budgets.

  • Cash Flow

Project your cash flow for at least three months, preferably for six months or more. Start with expected income and expenses, like contract income, payroll, and leases, then add other income and expense items based on history and your assumptions. You may need to revisit your assumptions often during volatile times, like now. Be realistic about payment timing and what it really costs to sustain your business.

  • Expense Control

Control planned expenses to ensure they remain within established plans. Carefully consider unplanned expenses, such as additional safety equipment and supplies related to COVID-19, and how necessary those expenses are to business operations, strategy, and branding. Keep in mind that you may also need to spend on growth and technology to remain relevant and competitive. 

Yes, it’s time for your 2020 Mid-Year Financial Check-up to detect any serious problems that could impact your business finances and stop your business cold. Like your body, your business needs to undergo a periodic financial checkup to alert you to existing or impending problems. During volatile times like now, it’s even more important than ever to perform a Mid-Year Financial Checkup on actual vs. budgeted financial performance, cash flow and expense control. 

Who’s Keeping your Workplace Safe during COVID-19?

Businesses that are re-opening or expanding from limited operations want to be safe. Wanting to be safe is important, but not enough, especially these days. Keeping a safe workplace for workers and customers until we get COVID-19 under control requires even more planning than usual, because there are more health-related risks than usual. No business wants to be part of a coronavirus case spike.

American workers and businesses usually depend on the Occupational Safety and Health Administration, known as OSHA, for workplace safety guidance and oversight. Now, when businesses and workers need OSHA’s help to implement safety guidance, little assistance is being provided, according to a report from NPR’s Weekend Edition on July 4th. You can listen to the whole story about OSHA inaction on the thousands of COVID-related complaints OSHA has received here – https://www.npr.org/2020/07/04/887239204/many-say-osha-not-protecting-workers-during-covid-19-pandemic.

This news is unbelievably bad for American workers and businesses who are essentially left on their own to figure out how to protect their people and keep their doors open. Knowing where to start is daunting, so here are three tips for getting started to keep your workplace safe during COVID-19:

  • Review Available Resources

Even though direct federal safety oversight is not available, written guidance is online from OSHA and the Center for Disease Control (CDC). You will have to review it yourself, determine what parts apply to you, and how to make any necessary adjustments. A good place to start is OHSA’s Guidance on Preparing Workplaces for COVID-19 at https://www.osha.gov/Publications/OSHA3990.pdf. Check out these sites for more information –  https://www.osha.gov/SLTC/covid-19/controlprevention.html and https://www.cdc.gov/coronavirus/2019-ncov/community/office-buildings.html.

  • Engage Your Team

Gather your team to share the safety planning workload and to get different perspectives on what will be effective for your operations under the new COVID-19 scenario. People who do the work provide the best insight about the impact of operational changes. Talk through different situations you and your team will encounter to help you identify where changes need to be made.

  • Assess Your Operations

Use the OSHA and CDC guidance and your team’s insights to perform a coronavirus safety review specific to your business. The goal of the review is to identify gaps that need some adjustment under COVID-19. Walk through your workspace with your team to see how work areas and public spaces should be adjusted for physical distancing, high-touch surfaces that need frequent cleaning, protective equipment requirements, etc., etc. 

Businesses that are re-opening or expanding from limited operations need help being safe for workers and customers. Use these three tips to get started on the daunting task of keeping your workplace safe under the new COVID-19 scenario.

Projecting Cash Flow

Many organizations get two monthly reports to monitor their financial progress – the Profit and Loss Statement (P&L) and the Balance Sheet. But there’s another report that every business and nonprofit needs for making informed financial decisions and foreseeing impending challenges – the Cash Flow Projection. Projecting cash flow provides decision-makers with a snapshot of the money expected to come in and go out for each month. However, just dividing the annual budget by twelve gives the false impression that cash flows along at a steady pace. In reality, cash flow varies from month to month.

So how do you project monthly cash flow to get a realistic view of your organization’s ability to pay its obligations without dipping into reserves or a line of credit? 

Here are four tips for projecting cash flow:

  • Start with What You Know

Revenue and expenses connected to a contract, lease, or other document are a good place to start because those payment amounts and frequencies are defined. Examples are compensation and rent. Be sure that you consider the timing of each item. For example, if you pay wages every two weeks, some months will have three pay periods instead of two.

  • Look at Your History

Last year’s financial transaction details are a gold mine for projecting cash flow where revenue and expenses vary from month to month. Look at when items were historically received or paid out. Calculate how many days it takes, on average, for customers to pay your invoices and build that time into your projections. 

  • Document Assumptions

After including all the known revenue and expenses, you will undoubtedly have more “blanks” in your projections that need to be addressed. For income and expenses where you have no history or documents for guidance, you will have to estimate based on some assumptions. Be sure to document your assumptions. Chances are that you will need to revisit and update your assumptions as you learn more and circumstances change.

  • Start Small and Build

Projecting an entire year of cash flow may be too daunting to start with. You could start by projecting your cash flow for three months. Once you get comfortable with three month projections, expand to six months, eventually working up to a year. Once you get accustomed to projecting your cash flow, the process will get easier.

Organizations that project cash flow as a planning and assessment tool make more informed decisions. They can also foresee financial challenges and act before they become expensive issues. Projecting cash flow every month provides a realistic view of your organization’s ability to pay its obligations and avoid dipping into reserves or a line of credit and allows decision-makers to see opportunities to fund future growth.