Episode 43: Bookkeeping 101 with Meka West

April is Financial Literacy Month so it's the perfect time to talk about money with Meka West of Penny Smart Girl! Meka is a certified accountant and she is the founder of online bookkeeping and money coaching firm called Penny Smart Girl. 

April is also the month for tax-deadlines so we are picking Meka's brain today on all things bookkeeping and tax-related! She has generously shared her experience and advice in this Podcast and in this blog post. She is seriously a wealth of information and generosity!

Let’s get to know our bookkeeper friend, Meka West:

1. Tell us about yourself. Who is Meka West?

I’m a Midwest original that moved to Seattle in my twenties. I bought a house at age 21, raised my son as a single mom until he was 12, and have been lucky to work in some great roles along the way.

I believe in living life with a cherry on top. This means creating a life balanced with work but also time to enjoy the things that bring us joy and make us feel. So even you aren’t a fan of cherries, whatever your cherry on the top moment is… the moment that makes you pause and cherish that moment, that’s what I mean. I enjoy cherry on top moments with my husband, my son, our two very spoiled rescue cats, Nin-Nin the secret ninja, and Jackson the mischievous tabby. I also love traveling the world and enjoying yummy food adventures.

2. Tell us about Penny Smart Girl.

Penny Smart Girl is a virtual bookkeeping and money coaching firm.  Penny Smart Girl (nicknamed PSG) was born from my love for empowering people to be more in control of their money story. It doesn’t matter if you like numbers or not, it’s more about getting in touch with the life you want to live. What goals do you have? What kind of work fulfills you? That’s what the numbers can reveal. And that’s what having a handle on your money can unlock.

I consider myself a business owner first, an accountant second. As a business owner first, it positions me to be a small biz advocate and money mentor. 

3. Why might a business owner need a bookkeeper and/or accountant? Why might someone need money coaching?

There’s a common statistic I always hear that states “half of new businesses fail during the first year,” which is alarming to think about the success rate is only 50%. However, the Small Business Administration (SBA) says that’s not necessarily true. They say the more accurate breakdown is:

• 30% of new businesses fail during the first two years of being open

• 50% during the first five years

• 66% during the first 10 years

And at a business conference I attended a few years back, a survey said 89% of small businesses said they were more successful when working with an accounting professional.

I feel that often business owners try to do everything in their business because they are new or can’t afford to hire a bookkeeper or accountant to manage their “books”. But I strongly believe that if you have an accounting professional set up your systems and train you how to maintain it, you really set yourself up for success in the long run.

I’m sure I could maybe figure out how to make home repairs on my own, but it would involve me literally “winging” it. And I certainly wouldn’t feel confident that I did everything right. Because I didn’t go to school for that and home repair is not one of my gifts. So, hiring someone that has been trained in that skill, is going to be my best option.

Money coaching is often more focused on mindset, strategy, and goals. It is something that can be done as a standalone service or in conjunction with bookkeeping/accounting services. Often money coaching focuses on cash flow, budgeting, rolling out new service offerings, and keeping an eye on any income goals you have. 

Working with professionals can really help you to start out on a solid foundation. Start small with a training session and reassess as your business grows and gets too much for you to handle all the moving parts.

4. What bookkeeping/accounting programs/apps should a business owner have/use?

QuickBooks is the standard that the majority of Banks, CPAs, auditors, the IRS are equipped to work with that. I would say Xero is a close second to being a standard/common program.

However – Wave and Freshbooks are nice entry-level software that seems to be user-friendly for non-accountants. I can’t speak in depth on them because they aren’t designed for an accountant like me, but the key is to find a system that works for you that you will use frequently. The results to consider is how easily can it compile the data needed to get your reports to your CPA or yourself at tax time.

5. What important tax deadlines should small business owners in the USA and the State of Washington be aware of?

It’s important to know that taxes do not just mean the IRS (which is federal taxes). There are also city and state business taxes. The deadlines for city and state taxes will vary based on the size and type of business you have.

Federal annual income taxes are due:

• March 15th for Corporations, Partnerships, and LLCs that file as an S Corp.
• April 15th for Sole Proprietors, and single-member LLCs.

Business & Occupation (B&O) Sales/Excise Tax deadline (City/State)

• Typically, it’s due annually. But can be monthly or quarterly depending on your state, and size and type of business. For example, in Washington state, if you provide services only, not retail sales – your deadline is annually and is due January 31st.

Self-Employment Estimated Tax (Federal, due to the IRS)

This tax is due quarterly. Please note that the quarters are divided so that you actually only pay it three of them during each year, rather than the traditional four quarters per year:

Quarter 1 (covers Jan 1 – Mar 31st)

Due July 15th, 2020 (normally due April 15th but extended because of Covid-19)

Quarter 2 (covers Apr 1 – May 31st)

Due July 15th, 2020 (normally due June 15th but extended because of Covid-19)

Quarter 3 (covers Jun 1 – Aug 31st)

Due Sep 15th, 2020

Quarter 4 (covers Sep 1 – Dec 31st)

Due Jan 15th of the following year.

Link to these dates on the IRS site:

https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2

6. What documentation does a small business owner need to file their taxes?

To file your taxes, you need a listing of all your business sales, and all business expenses for the year you are filing.

Keep in mind that typically states require you to report your gross income, but the IRS considers your income and expenses. So, having the total income earned and total expenses is the best documentation to have.

Remember receipts are just your backup. Tax time is not the time to start organizing your box or folder of receipts. It should be something you do on a monthly, quarterly basis.

Good recordkeeping (or bookkeeping) is the methodology of compiling those receipts, invoices, etc. into a usable report that summarizes your data for you.

If you are using an accounting system, the common reports to use are the Profit and Loss report and a Balance Sheet report. If you are tracking in Excel or a notebook, try to organize it by expense category and by month. I recommend having a summary page that will show a recap of your full year.

7. What are common business expenses that small business owners can deduct from their taxable income?

The common business expenses that they can deduct are:

• Car expenses and mileage

• Office expenses, including rent, utilities, etc.

• Office supplies, including computers, software, etc.

• Health insurance premiums

• Business phone bills

• Continuing education courses

• Parking for business-related trips

• Business-related travel expenses, including flights, rental cars, hotels, etc.

• Postage

8. During this time of economic downturn, what are your top 3 budgeting tips for small business owners?

Especially considering our current events, I would say looking at your budget and doing a bit of spring cleaning is highly recommended right now to keep your business sustainable:

Take care of yourself. Try to stay calm, safe & healthy. It’s okay if business slows down right now. You can use the quieter time to strategize for new opportunities. Or to build more connections within your network for when things pick up again. 

Figure Out what’s the “Cost to Run Your Business” Numbers.

• Know your numbers. Calculate the amount of income that comes in each month (if it varies, look at the last 3 or 6 months as an estimate)

• Create a list of all expenses each month

• Subtracting your expenses from your income is your “bottom-line” aka your profit. That’s the base amount you need to sustain your business.

Minimize Expenses/Maximize Income/Savings

To minimize:

• In these uncertain times try to keep expenses to a minimum if you can.

• Speak with vendors on putting services on hold or reducing the rates temporarily if possible

• Hold off on big investments

To maximize:

• If you can reduce spending, put the savings aside to build up a savings reserve.

• If there is a new service offering you can create an offer, do it! And if you’re able to keep your expenses low so you can consider this new income source a “bonus” for your business.

9. What else should our listeners, many of whom operate small craft businesses, be aware of with respect to their obligation to file their taxes?

Check with your city and state to make sure what the income threshold is for when you are required to have a permit or business license. Often new and or small businesses think they aren’t a “real” business if they are some large corporation.

Checking this, in the beginning, can save you from penalties or fines down the line.

Here are some links to the Apps that Meka mentioned in this episode:

Avalara (Cloud-based tax software) - avalara.com

Taxjar (Tax solutions for e-Commerce sites) - taxjar.com

Quickbooks (Accounting software, online available) - quickbooks.com

Wave (Cloud-based accounting software) - wave.com

Freshbooks (Cloud-based accounting software) - freshbooks.com

Learn more about Meka and Penny Smart Girl by following her on social media:

WEBSITE | https://pennysmartgirl.com/ 

INSTAGRAM | @pennysmartgirl

TWITTER | @pennysmartgirl