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IMPROVING YOUR ACCOUNTING & CASH FLOW

Agenda n Profitability n Cash Flow n Accounting n Taxes & Personal Finance

Presenter Background n 30+ YEARS OF BUSINESS EXPERIENCE  LaSalle Bank (Bank of America)  Grant Thornton (CPA Firm)  McDonald’s International  Pepsi-Cola International  Western Union International  Martin-Brower (McDonald’s Distributor)  AH Financial (Accounting Firm) n EDUCATION  Loyola University of Chicago (BBA)  Northwestern University (MBA)  CPA

n Sole Proprietor n Corporation  “C”  “S”  “LLC” n Partnerships First Step – Legal Structure

Tax Analysis – Legal/Tax Structure n Double Taxation n “C” Corporations n Flow-through n Sole Proprietor n “S” Corporations n Partnerships Corporate Level Individual Level

n Common Terms & Definitions Gross Profit Net Income Direct Costs Indirect Costs Profitability

n Accounting for Profitability Monthly Bookkeeping (recordkeeping) Cost & Expense Deductibility Tax Planning Profitability

n Monthly Bookkeeping – Recordkeeping Separate bank accounts (business vs. personal) Proper paper/electronic evidence Tax deductibility of expenses (direct vs. indirect) Profitability

n Represents money in your pocket  Tax Impact Payroll Taxes (Self-employment Taxes) Income Taxes  Non-Cash Items & Non-deductible expenses Depreciation Penalties  Capital Expenditures Cash Flow

n Tax Deductibility of Capital Expenditures  Section 179 Expense  Expensing vs. Capitalizing  Depreciation Cash Flow

n Cash Flow is what you keep in your pocket n Net Income is how much money you made n Taxable income is how much of your money is subject to income taxes Cash Flow, Net Income & Taxable Income

n Business Income Tax Returns do not make sense  Income / Sales Reporting  Deductible Business Expenses n Employee vs. Subcontractor  SSA, IRS, Dept. of Labor  Self-Employment Taxes (who pays them) n Individual Tax Returns do not make sense  EIC  Home office Expense  Unreimbursed Employee Expenses Income Taxes – General Issues

n Accounting (Bookkeeping) o Monthly recording of all Income and Expenses o Trends/Inconsistencies/Opportunities n Tax Planning & Reporting o Monthly, Quarterly and Annual Planning o ES Payments (Quarterly) o Succession/Estate Planning Internal Reporting

n Real-Time vs. After-the-fact  Duplicate data entry  Timeliness & Usefulness of information n Accounting Software  QuickBooks  Peachtree  Quicken  Excel  Others Accounting / Bookkeeping

PROFESSIONAL HELP n Selecting an Accountant  CPA vs. Preparer vs. Notary Public  Estimates vs. Actual numbers  Timely and accurate reporting n Other Professionals  Attorney  Insurance Agent  Financial Planner

QUESTIONS / COMMENTS

Sole ProprietorshipPartnershipsCorporationsLimited Liability Company GeneralLimitedC CorpS Corp DefinitionA business owned and operated by one person for profit Two or more people who jointly own or operate a business for profit One or more partners have limited liability and no rights of mangement An organization formed under state or federal law. An artificial entity separate from its owners An organization structured like a corporation but taxed like a partnership A business entity created by statute. The owners are called members. It is taxed like a partnership or an S Corp. It has limited liability like corporations. Ease of FormationEasiest form of business to set up. If necessary, acquire licenses and permits, register fictitious name, and obtain taxpayer ID Easy to setup and operate. A written partnership agrmt is highly recommended. Must acquire an Employer ID#. If necessary register fictitious name File a Certificate of Limited Partnership with the Secretary of State. Name must show that the business is a limited partnership. Must have written agrmt, and must keep certain records File articles of incorporation and other required reports with the Secretary of State. Prepare Bylaws and follow corporate formalities Must meet all criteria to file as an S corp. Must file timely election with the IRS (within 2 ½ months of first taxable year). File articles of organization with the Secretary of State. Adopt operating agrmt, and file necessary reports with Secretary of State. The name must show it is limited liability company. Period of ExistenceTerminates at will or on death of the owner Terminates by agreement, or by death or withdrawal of partner, unless there is a partnership agreement to the contrary Continues until formal dissolution. Most stable form of business. Not affected by death or disaffiliation of shareholder May terminate by agreement, or withdrawal of a member, depending upon operating agrmt TaxesProfits are taxed once. Profit and loss are reported on the owner’s individual state and federal tax returns Profits are taxed once. Each partner reports his or her share of the profit and loss on his or her individual state and federal income tax returns. Partnership files an information return Profits are subject to double taxation, once at the corporate level and again a t the shareholder level Profits are taxed once. Each shareholder reports his or her share of profit or loss on individual tax returns. S.Corp does not pay tax, with some exceptions If the LLC is structured properly, each member reports his or her share of profit and loss on his her individual income tax. It is taxed like a partnership or an S Corp. If the LLC is not structured properly, it is taxed like a C Corp LiabilityThe owner’s personal assets are at risk Each Partner’s personal assets are at risk General partners’ personal assets are at risk. A limited partner is liable only to the extent of his or her investment Limited to corporate assets, except; 1.Personally guaranteed business debts; 2.Personal negligence of fault, or 3.Corporate form is found to be a sham Similar to rules for corporations DissolutionEasiest form of business to dissolve. Pay debts, taxes and claims against business Pay debts, taxes, and claims against business. Settle partnership accounts Pay debts, taxes, and claims against business. Settle partnership accounts. File cancellation of certificate with the Secretary of State Obtain shareholder approval to dissolve. File statement of intent to dissolve with the Secretary of State. Pay debts, taxes, and claims against the business. Distribute corporate assets to shareholders Pay debts, taxes and claims against business. Distribute remaining assets to members. File articles of dissolution with the Secretary of State. Gain on distribution of assets in subject to double taxation Gain on distribution of assets is taxed once, with some exceptions