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How to build a cash reserve in your MSP business

September 14, 2023

Cash reserves refers to an amount of money on hand specifically intended to deal with emergencies.

These are typically short-term emergencies, but as the last few years have taught us, a few weeks doesn't always pan out how we think. Another use for reserves is to forge the future of your business, including;

  • Expanding to new markets...
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Selection of blog posts

a woman with dollars in her hands counting money

January 31, 2024

My profit and loss say I'm making money, but where is it?

First off, this is a question we hear a lot. You’re making sales, customers are happy and your profit and loss statement (P&L) shows you’re making money. The thing is, your bank account tells a different story. You just want a good idea of how your business is doing financially, but it’s hard to get a clear picture. There are multiple places your cash could be, so let’s explore where it actually goes. ## You’ve made a purchase that isn’t reflected on your P&L If you’ve made any major business purchases lately, there’s a good chance they haven’t been counted as an expenses. Certain items are categorized as assets which go onto your balance sheet instead of your P&L. These include: - Property - Upgrades to buildings - Vehicles - Equipment - Machinery - Fixtures Let’s say your P&L tells you you’ve made $250,000. This doesn’t reflect the $100,000 you spent on a new equipment, because this is an asset. This cost won’t show up on your P&L, but you will find it sitting on your balance sheet. ## Liability is showing as profit on your P&L If your P&L says you’ve made $500,000 but you don’t know where that money is, it could be that you’ve spent cash paying down your liability. If you pay down $50,000 on your line of credit for the equipment you purchased, you’re reducing your liability. This still shows up as profit on your P&L because you’ve already taken the expense in a prior period. ## You’ve taken money out of your business for non deductible expenses When drawing money out of your company, it’s essential to know what is and isn’t tax-deductible. If you take out $15,000 to pay for a family vacation to Hawaii, that’s totally unrelated to business purposes and isn’t tax-deductible. The $15,000 won’t show up on the P&L and will instead appear as a profit distribution on your balance sheet, hidden from view. In other words, it’ll make it seem like you should have more cash than you do, but this isn’t the case. ## If you only look at your P&L, you won’t get a true reflection of profitability Never rely on your P&L when creating budgets or forecasting. It’s not a good indication of the amount of money you have and could inaccurately influence decisions. For example, your P&L might say you have plenty of cash to hire a new team member, but this doesn’t take into account the money you recently spent on assets. The same goes for the figure in your bank account; it’s not a true picture of what you actually have, so don’t rely on it to inform decisions. ## Great bookkeeping shows you exactly where your cash is Clean, clear books are one of the most powerful tools a business owner can have in their arsenal. They give you a goldmine of financial insights. **Running a business without these insights is like driving a car blindfolded.** You know where you want to go, but you don’t have direction and pretty much have to hope for the best. Approach bookkeeping as an investment in the future of your business. It lays the foundation for success and helps you forecast better, create accurate budgets and make informed decisions. ## Find a CPA who tailors your bookkeeping to you Bookkeeping isn’t just for compliance and tax purposes. If the data is organized so a financial expert can understand it but the business owner can’t, it’s useless. First and foremost, your bookkeeping is to help you understand how your business is doing financially. When we build out our clients’ books, our priority is that the numbers speak to them. This could look like: - If your business has two partners, setting up an account for Partner 1 and Partner 2 so you can see when someone takes expenses out of the business. - Reflecting asset purchases like equipment and vehicles on your P&L for clarity. - Using a variety of accounting tools to give you valuable reports with greater detail than you can get in QuickBooks. Laying out your accounting in this way gives you access to the most relevant insights. You’ll be able to see on one sheet of paper where every penny is going, so you’re not lost trying to figure out your profitability. We go back in and move things around for tax purposes, but that comes secondarily. Our priority is that you have good, clear numbers you can make sense of. ## It’s time to prep your business to thrive Numbers are our thing at Sundack – but we’ll never treat you like one. We get to know you, your business and your goals to give you the very best support to achieve them. Whether that’s by helping you make sense of your numbers or providing expert counsel for the big decisions, we’ve got your back. Start by [filling out our contact form](/contact) . From there, we’ll arrange a time to jump on a call and see if we’re a good fit. We can’t wait to get things going.

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January 8, 2024

Should I wait for growth to add employees?

Demand is creeping upwards, your customer base is expanding and you’re thinking about bringing on new employees. The question is, when’s the best time to do so? Should you anticipate demand and recruit staff now with an eye to the future, or is it better to wait until you’ve seen steady results before expanding your team? If you staff too early, you’ll make less money personally, but if you staff too late, you could get bombarded and burn your people out. Truth is, there’s no one-size-fits-all answer. We’ll always look at your business - and life - from all angles to determine the best time to start staffing. ## Plan for the long game. You’re building an enterprise, building for the future. Quick, short-lived wins don’t lay the foundations for success. True longevity comes from putting systems in place that turn a ripple into a tidal wave. If you recruit labor today, it’s not an expense; it’s an investment. Sure, it’ll cause an initial dip in your cash flow, but you’ll reap the rewards down the line. You’ll make less money this year, but you’ll be armed to meet increased demand and more ambitious goals next year. In short, if you want to build a sustained enterprise, put your labor in today. Get your labor up so you’re strong going forward. ## Look at how much cash your business has access to. Cash is king. It’s an inescapable fact. No matter how much of a long-term investment it is, you can’t bring on staff if you don’t have the cash for their salaries. Implement effective forecasting to determine how long your cash reserves can sustain you. Chat with your accountant and look for areas where you could be saving on tax or cutting expenses, and consider credit options as a boost to cash flow. Remember; recruiting isn’t straightforward, so forecast for all eventualities. If you bring on five salespeople, prepare for two of them not working out. If you start the hiring process today, be aware it’ll take 4-5 months to bring new staff into your business. ## Keep a handle on how fast you’re growing. If you don’t have the money to bring in staff right now, pump the brakes on any rapid growth until you’ve got enough cash to fund the next stage. We’ve seen businesses delay adding staff while their company continued to grow. The problem? The existing team - including the owner - couldn’t keep up, were constantly playing catch-up, and quickly burned out. If you do have the cash, more often than not it makes sense to add employees ahead of the demand. When it does come, you’ll be all set to hit the ground running. ## Look at where you’re at. We’re not <u>just</u> talking about your business here. Yes, we’ll look at your company’s growth and whether you’re a new vs. mature business, but we also ask where <u>**you’re**</u> at in life. Let’s take one of our clients as an example. He’s just had his first kid, but he’s been burning himself out and is already gearing up for a busy 2024. Right now, he’s headed towards exhaustion. Bringing on extra team members will spread the load he’s been carrying alone, giving him time to spend with his family. ## Prepare for tomorrow, today. The right time to bring on staff depends on your priorities in business and in life in general. Whatever those priorities look like, you deserve a rock-solid CPA in your corner to keep you on track. [Fill out our form](https://sundackcpa.com/contact) and let’s look at how we can help with the strategic decisions to build your enterprise.

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January 4, 2024

Don't leave your taxes to chance. Here’s why a year-round tax service is the way to go.

Tax season can be a stressful and overwhelming time for many people. From gathering paperwork to navigating complex tax laws, the first couple of months of the year leaves a lot of individuals feeling nervous, uncertain and drained. The thing is, leaving your taxes to the last minute puts you at risk in **more ways than one.** It’s why we’ll always recommend year-round tax preparation be completed by someone who gets you and your financial situation. ## Everything you do impacts your taxes From the money you earn to the investments you make, everything impacts your taxes. A change in your income, a new property purchase, or even a life event like getting married or having a kid; all these factors have a significant impact on your tax liability. That's why having a tax preparer who’s completely up-to-date with every decision you’ve made is invaluable. They’ll help you navigate the complexities of the tax system, identify potential deductions, and ensure you’re taking advantage of **every available tax benefit.** They’re your guide throughout the year and they’ll help you make informed decisions with your circumstances at the heart of it all. It’s the gold standard, **at little extra cost**. Year-round tax planning means a smaller monthly subscription, rather than an annual lump sum. This means you can stay on top of your finances, keep everything that’s rightfully yours and make informed decisions that **benefit you _way_ into the future.** ## Procrastination in tax season often results in sleep loss, anxiety and penalties Ever had to move apartments and decide to do it all yourself? We all have. From ordering the packaging, to late nights wrapping dishware, to loading things into the van: your move-out day is looming. It’s overwhelming project management and it asks a lot of you in a short space of time. Now, if you’ve ever hired the experts to do it for you (or luxury level, the packing too) you **notice the difference**. You have brain space to focus, time to think about the bigger things and the opportunity to let someone do it **faster and better.** It’s exactly the same when it comes to your tax return. (And at least with a house move you’re not doing it annually throughout the course of your life.) When you put it off, cramming everything into a couple of weeks, you’ll make rushed decisions, overlook benefits, and increase stress levels. You're setting yourself up for worry and potential costly mistakes. Instead, **free up mental space** and use a monthly service. Your taxes will be scrupulously handled and they’ll be dead-on accurate. Even better, you’ll gain something more valuable than compliance and maximized tax deductions. **Total peace of mind.** ## The internet isn’t your tax advisor It's important to remember the internet isn’t a qualified CPA. While there is a wealth of information available online, every individual's tax situation is totally unique. When people opt for a DIY return they often turn to Google and, with content creators peddling skewed advice, it's riskier than ever. The IRS is on the lookout. You can make mistakes and it’s up to them to work out if it was intentional or not. Ultimately, implementing hearsay tax advice is a quick way to get noticed. Whereas rules may change with the IRS, their attitude _hasn’t_. **They just don’t do loopholes.** If something seems too good to be true, it probably is. When it comes to DIY returns or quickly hiring someone, the best case scenario is you’re compliant. The worst case is you’re handing over a lot of cash in missed tax benefits and subsequent penalties. Getting the right people to handle it for you means you fundamentally know your return is legal and tax efficient. ## The thinking is, “well it’s done, at least”. We’d argue it isn’t When you leave it to the last minute, it’s tempting to DIY or hire someone without much reconnaissance. If you don’t hire a skilled tax preparer, you simply won’t be taking advantage of all the tax benefits available to you. Actually, if you hire anyone last minute - skilled or not - they simply won’t have everything they need to do a good job. They need to know you, your circumstances and have the time to do it properly. A good tax preparer will turn away work if it means they have to rush it. ## A good tax preparer is an investment in you and your future Whether you're starting a new business or looking to expand, a CPA can offer valuable insights and strategies to help you achieve your goals. They can also help you develop a budget, create financial goals, and track your progress. You can feel confident knowing you have an expert in your corner, helping you navigate the complex world of finances. They’ll apply all of the ins and outs of your situation and provide personalized advice. A CPA is more than just a tax expert, they’re your coach. They get where you're starting from, where you’ve been and what you want for the future. And, like with any healthy habit, you’ll get used to having them around and implementing their skills wherever possible. ## How to choose the right CPA Remember, if these guys are ultimately in charge of your financial health, you want to take some time and get this right. There are a few key factors to consider. 1. **Hire someone who is accessible and responsive.** It needs to be easy to reach out with questions, seek guidance and air concerns 2. **Ask for references or read online reviews.** Get a sense of their reputation and the experiences of other clients and don’t be afraid to ask probing questions 3. **Make sure you feel comfortable with them.** They hold a lot of responsibility, so choose someone you can trust and have a good conversation with, beyond numbers and formalities. There are a lot of exceptional accountants out there who are human too 4. If you’re a business owner, look for a firm who **specializes in your industry**. Their expertise will ensure they understand the specific challenges and opportunities you face Choosing the right CPA is an important decision, so take your time and make sure you find someone who aligns with your needs and goals. Now we wouldn’t be singing the praises of a monthly tax service if we didn’t offer one at Sundack. Even better, you’ll notice our [Concierge subscription service](https://sundackcpa.com/tax-return/) only costs a touch more than our one-time annual tax return service. We want to make sure everyone can maximize what’s available to them and it starts by ensuring excellent tax services are **affordable**. We pride ourselves on always being ahead of the tax season curve. [Get in touch](https://sundackcpa.com/contact/) if you’re ready to get ahead too.

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