Startup Tax Prep – How to Find the Right Tax Provider In 2021

Many startup founders who take the DIY approach find themselves at a crossroads as tax season rolls in. The amount of time that goes into keeping track of ongoing records of their income, expenses, sale or purchase of assets, and the deductions that they plan to claim starts taking a toll. This further worsens when there are constant changes in business and tax legislation and processes.

There is no denying that it all becomes even more stressful when the startup tax filing deadline is just around the corner.

If you are one of those startup owners tiptoeing around, it is high time you considered hiring a professional tax preparer for your startup tax filing and relieve yourself from the intricacies involved in the tax prep process. 

Having said that, you also need to ensure that your outsourced tax consultant doesn’t mislead you in the tax prep process causing another significant financial blow. With quite a few certified public accountants, enrolled agents, and tax consultants around, the most crucial question to ask is “how to find the right one?”

Here are some tips you should keep in mind when choosing a startup tax preparer:

Check out the Preparer Tax Identification Number

While choosing a startup tax preparer, the first and the foremost thing to do is to check for their IRS Preparer Tax Identification Number or PTIN. This is an identification number that the paid tax return preparers must use on U.S. federal tax returns or claims for tax refunds submitted to the IRS. A valid 2015 PTIN gives the tax preparer the authority to prepare federal tax returns. Your tax return must have the PTIN and the preparer’s signature on it.

Confirm Professional Credentials

Although your startup tax preparer doesn’t need to have a professional credential, it’s always safe to look for certified public accountants, attorneys, or enrolled agents, preferably a part of a professional organization. However, don’t be fooled by credentials. He may have passed certain tests or undergone specific tax training. So do sort out the credentials before hiring the tax preparer and make sure he is knowledgeable and competent.

Moreover, due to the evolving tax laws and frequently occurring tax reforms, your startup tax preparer must be well abreast of the changes in federal, state, and local tax laws. He should be taking continuing education credits to stay informed and have up-to-date knowledge.

Ask For Relevant Experience and Expertise

Your startup tax preparer should have at least 12 years of experience working as a CPA or attorney for a small business in the same industry as you. They should also have worked with startups that are similar to yours in terms of company structure, business entity type, size, growth stage, and location. All these elements have an important bearing on the tax return and startup tax filing requirements.

Know the State-Specific Filing Requirements

As mentioned above, there can be some complicated state-specific and locality-specific filing requirements. For instance, if your startup is based in Alaska and has offices in multiple states, you may have to fulfill additional state-filing requirements according to the states your startup has a presence in. 

It can get even more intricate if you own a business in a state outside of the one where your home is. Make sure that your tax preparer knows all those startup tax filing requirements and walks you through the process.

Seek a Tax Expert Well-Versed with Tax Deductions and Tax Credits

You may be entitled to small business and self-employed tax deductions, which many small business owners may be leery of due to lack of enough knowledge, or they are simply apprehensive of the complexities involved in the claim process. Home office deductions, car expenses, travel expenses, advertising costs, professional fees are some of the tax deductions that can result in a significant refund of your withholding.

Similarly, companies such as biotech and medtech startups engaged in research and development can slow their burn rate with a payroll tax credit based on qualified R&D expenses. Your startup tax preparer should already be familiar with such tax deductions and credits and help you identify those and provide the right guidance and advice to increase your savings.

Clear and Transparent Fee Structure

You should set clear pricing terms with your tax preparer early in the process. It would help if you understood that prices might vary based on how complex your return is and the extra services you may need in terms of different schedules, forms, etc. Be careful! The preparers should give you a clear and transparent fee structure.

Sound Guidance

Your startup tax preparer should be able to guide you well step by step. Any communication gap can thwart the whole process of the startup tax preparation. He should explain what information you need to provide, suggest ways for you to save on taxes, inform you if there are any new changes in tax laws that could affect your startup tax filing. Be wary if he is keeping you in the dark and not doing due diligence.

Year-Round Availability

Taxing authorities may ask for additional information even after the tax season is over. Make sure that your startup tax preparer is available after your return has been filed for additional guidance and support.


Tax filing for startups can be extremely daunting, especially if you are doing it for the first time. However, there are tax experts and experienced professionals readily available that can help. Remember, a competent tax preparer does more than just filling out forms. They need to understand your business and the industry dynamics well and be available for year-round guidance and consultation. 

See Also: Startup Tax Filing – Things You Need to Know In 2021

With Monily around, you can rest assured that you will receive end-to-end tax preparation services. Monily’s tax experts have worked as partners with thousands of businesses and startups over the years and are positioned to set you up for a smooth startup tax preparation.

Startup Tax Filing – Things You Need to Know In 2021

With the tax season just around the corner, many startups and small business owners are concerned about not being able to timely track all the receipts and invoices, making an error in filing or simply not keeping up with the deadline. Some businesses, especially startups and entrepreneurs, are stressing over their startup tax filing primarily because of the unprecedented challenges and business implications of COVID-19 in the past year.

However, there is always a silver lining.

The current tax code suggests that companies can use their past losses to offset future taxes under certain circumstances. This means that businesses will have the opportunity to make up for their 2020 losses in future profitable years.

Unsure about where to begin? Below are some critical steps that you need to follow to prepare your business for the tax season 2021.

Complete Your Paperwork

Every documentary evidence matters when it comes to filing taxes. It will help if you keep a record of all the paperwork. This includes all the receipts, invoices, bank statements, payroll records, and any other documented proof that supports an item of income, expense, or credit that will be used to complete entries in your Company Tax Return.  This will not only keep your business affairs up to date and on the right track but will also help you stay fully prepared for your startup tax filing during the tax season. ‍

There are certain documents that you require to get your startup’s taxes done. These include:

  • . IRS Employer Identification Number letter
  • . Basic Business Information
  • . Prior Year Tax Returns (Federal and State/s)
  • . Local Tax Returns (if any)
  • . Full-year Financial Statements

You might be required to submit other records as well for your startup tax filing, but this should give you a solid start for a much smoother and stress-free tax season.

Get Your Hands On The Right Tax Forms

Heard of Form 1040 or Form W-4P? What is Schedule C for? What’s the difference between Form 1120 and Form 1120S?

Take a deep breath!

You don’t need to get bogged down with a long list of these tax forms out there. You only need to know the forms specific to your business structure that you can use for your startup tax filing. You may end up submitting the wrong IRS Form if you don’t have the right know-how. Avoid such costly mistakes and align yourself with the correct forms to save your time.

Take a look at the different types of tax forms below and find which one is the right form for your startup tax:

  • . Schedule C – for sole proprietors.
  • . 1099-MISC – sole proprietors may also be able to use this form.
  • . Form 1120 – for C-Corporations.
  • . Form 1120S -for S-Corporations.
  • . Form 1065 – for standard partnerships and multi-member LLCs.
  • . Form 990 or Form 990-PF – for non-profit entities such as public charities or private foundations, respectively.
  • . Form 8832 – This is a tax election form used to elect or change how certain businesses are classified for federal tax purposes as a corporation, a partnership, or an entity disregarded as separate from its owner.

Mark the Right Deadlines on Your Calendar

Deadlines approach before you know it, and for your startup tax filing, you cannot afford to miss any. Better mark the dates on your calendar to avoid being the last-day filer or save yourself from penalties for late returns.

The 2021 tax deadlines for different types of businesses can be found on IRS website. Don’t let the dates slip for your startup tax to alleviate concerns around potential fines and interests.

Hurrah! You Have Some Tax Breaks

For startup tax, you are eligible for deductions of up to $5,000 each of your startup costs and your organizational costs in the year you kick off your business. Treated as capital costs and considered as long-term assets by IRS, these allowable business expenses include those incurred on market research, marketing, advertising, employee training, travel, legal fees, and other professional fees you paid for establishing your business.

If you are a tech company, you may even be eligible for the Research & Development (R&D) Tax Credit, most commonly known as the R&D Tax Credit. However, your business must meet the following ‍ two critical criteria to qualify for R&D Credits for your startup tax:

  1. Gross receipts should be less than $5 million in the taxable credit year
  2. Have no gross receipts or interest income of more than five previous taxable years ‍

There indeed is a lot of legwork involved in tax preparation. Though it doesn’t have to be stressful if you have a tax preparation and filing expert by your side that can manage your annual startup tax efficiently. Having an expert bookkeeper and tax preparation specialist is one of the best business investments you can make. Nevertheless, it needs to be done sooner, rather than later.

Tax experts at Monily have partnered with thousands of startups and small businesses. They are well-positioned to understand the dynamics and help you maintain accurate and up-to-date records for your business year-round, and timely manage your annual startup tax filing. The trained and experienced finance team at Monily makes every aspect of your startup’s finances including your startup tax prep as easy as never before.

See Also: Top 4 Benefits of Hiring A Tax Professional for Your Business

Interested in learning more? You may sign up for a free trial and see  how Monily’s tax experts enable you to ace your startup tax season.

How to Set and Achieve Financial Management Goals?

The year 2020 has been quite challenging across industries and businesses globally. Stock markets saw a bearish trend for several months. Rise in unemployment rates, increase in product costs, and a decline in profits are only some of the many crises triggered by COVID-19. The pandemic forced lockdowns and brought the world to a standstill. Nevertheless, we all learned to navigate a brand new normal.

Throughout everything, the most valuable lesson the pandemic taught us is the value of strategic planning. Strategic planning is crucial to challenge uncertainties, bear unavoidable losses and manage unforeseen hurdles with a brave face and a stern attitude. In businesses, strategic planning dictates the need for proper goals of financial management to be set up in advance to upkeep the financial health of the organization. Having financial management goals ensures that next time a pandemic tries to shake up your business, you have a proper plan in place that is able to mitigate its avalanche.

What are the Goals of Financial Management? 

Every business needs to manage its finances adequately. Without proper goals of financial management, it is improbable for a business to ripe good profits and survive in the long term. These goals, in a nutshell, are milestones that an organization sets for itself to indoctrinate direction and clarity in its strategy. They guide the expenditure of the organization as well as hold an immense impact on the revenue. The main goal of financial management is to increase the shareholder wealth (increase shareholder’s value) and maximize profits. Most of the companies in the world set SMART goals to ensure timely realization and precise execution of these core financial management goals.

Why Is Setting Up Financial Management Goals So Important? 

Goals of financial management are utilized stringently for the longevity and survival of any business and there are many benefits of them: 

  • Aids in funds allocation and acquisition 
  • Helps in making critical financial decisions 
  • Leads financial planning 
  • Helps in noting the future potential of the company 
  • Provides a realistic and clear view of the financial objectives of the organization 

Components of Financial Management 

As the main goal of financial management is to increase the shareholder wealth, there are some key components that help to properly establish it.

These include: 

1. Financial Plan 

For any business, it is highly imperative to prepare a financial plan. Such a plan includes financial objectives, timed targets, and strategies to achieve these targets. It analyses the values of assets available and assigns monetary resources to match the goals. It is important to note down each financial goal with their proper deadlines, such as a 5-year financial goal, and they should also include a contingency plan in case things do not progress as smoothly as planned.

2. Contingency Financial Plan 

Contingency financial plan is inclusive of emergency funds and savings. It is necessary to have contingency plans, as its importance was one of the major observations business owners made during the rising situation of the pandemic. A contingency plan can be a part of your financial management goals as it includes reserves and monetary funds. The amount for contingency funds depends on the risks the business is willing to take, the general probability of uncertainty, and potential losses of the organization.

3. Business Budget 

A business budget is a rough budget for the costs and revenue of running the business, and it can either be on a cash-basis or accrual-basis. Business budgets are usually prepared monthly, quarterly or annually. These budgets help in the execution of business processes as well as help to manage their operating finances.

Documents to Consider While Setting Up Financial Management Goals: 

  • P&L Statements: measure the running profit and loss of the company after analyzing the tax, interest, depreciation, amortization. 
  • Balance Sheet: assesses the financial wealth of the organization. It is also an indication of the financial potential of the business. 
  • Cash Flow Statements: focuses on the in-flow and out-flow of cash.  

See Also: How to read a P&L statement, and how it stacks up against balance sheet, and cash flow statements.

Extra Points to Remember While Setting Up Financial Management Goals: 

  • Solvency State of The Business: There are debts in every business. It is crucial to understand the long-term and short-term debt position of your business, and accordingly establish its solvency state. This will help greatly to set long-term goals. 
  • Deferred Payments: There are many deferred payments as well in a business – payments that are rolled out after a certain date. It is important to take deferred payments (and income) into account as well. 

Role of Bookkeeping in Setting Up Financial Management Goals: 

Financial Management is no piece of cake. It requires you having to collect, edit, analyze, and compare a lot of files and documents on a daily basis and update them in your books. If there are any entries missing within the books, then your financial analysis will be at risk to falter.

Even a mistake of a single number can amount to huge losses and erroneous goals of financial management. It is only through the vast amounts of transactional information available in the books that a company is able to understand its financial status clearly. Thus, bookkeeping contributes an excellent value towards financial management.

However, most of the time it gets quite hectic for a company to manage bookkeeping alongside all the other functional areas of the company. Therefore, many companies prefer to outsource bookkeeping to online services to ensure proper and hassle-free financial management.

Some prominent benefits of outsourcing include: 

  • Reduced burden on the company 
  • Extra set of hands-on work 
  • Double-checking of the information on the books 
  • Customized features and personalized financial advice (provided by some bookkeeping services) 
  • A smooth system for the flow of financial statements 

It is a lot easier to achieve and manage your financial management goals with a reliable bookkeeping services. Services such as Monily are self-regulating and enhance the productivity flow by providing you customized services that you choose specifically based on the needs of your business. 

So, to ardently pursue your financial management goals, it greatly helps if you outsource to a reliable bookkeeping service. This will not merely equip you with timely and accurate financial planning, budgeting and analysis, but it will also enable you to make informed strategic decisions for business growth.

CFO vs. Controller: What’s the Difference?

The controller versus CFO debate is a relatively new yet puzzling one. Some companies choose to have both a CFO and a controller in their workplace, while some prefer only having one. Although both roles are responsible for overseeing a company’s financial aspects, the difference in their day-to-day obligations isn’t very clear. 

If you are a business owner and have been pondering over this question of CFO vs controller for quite some time, it either means that your venture has become relatively established or you’re in a crunch and need to know a more convenient option to get proper financial management done for your business. So, let’s dissect both the roles in detail and see what characteristics set them apart. 

Who is a CFO? 

A CFO, or a Chief Financial Officer, is a senior executive who is responsible for the management of the accounting and financial operations in a company. They review all the work done by the finance and accounts departments and prepare projections to plan strategically for the company’s future.  

Being part of the executive management team, the CFO must constantly keep in touch with numerous different company members, both at higher and lower levels. Usually, a CFO’s position is the third highest in an organization; therefore, they play an essential role in the strategic endeavors that dictate the growth and development of a company. 

See: What Benefits Do You Get From Outsourced CFO Services?

Roles and Responsibilities: 

To dive deeper into the debate of CFO vs controller, let’s have a look at the responsibilities of a CFO: 

• Monitors the financial performance of the company based on reports given by the controller. 

• Prepares the budget for the company or reviews the budget prepared by the controller. 

• Makes strategic future plans by generating projections. 

• Presents financial-related information and analyses to the top management of the company and to the board. 

• Makes decisions that will lead to improvement in the management of finances. 

• Identifies problem areas related to financial operations and suggests solutions / takes responsibility for reviewing the implementation of the solutions. 

• Helps in the process of raising funds by interacting with investors and lenders.  

• Manages the entire finance and accounts team and ensure that the work is being done effectively. 

• Helps the CEO with preparing strategies related to finances. 

Who is a Controller? 

A Controller, on the other hand, is a key member of the finance department who reports to the CFO. Also referred to as the financial controller, they are responsible for managing the accounting and finance processes, ensuring it is done as per norms.  

The controller is usually the primary person responsible for preparing the budget for the company, and they also prepare reports that inform important financial decisions. In many organizations, controllers are given a seat at the directorial table for deciding on which technologies and practices the company should introduce within the finance department. 

Roles and Responsibilities: 

Let’s have a look at the responsibilities of a Controller to further study the difference between a controller and a CFO: 

• Works as a subordinate to the CFO and provides reports necessary to make decisions. 

• Assists in preparing the budget. 

• Ensures day-to-day accounting work is being carried out correctly. 

• Ensures all the financial statements are prepared on time. 

• Reviews the collective work of accounts and finance teams. 

• Ensures that tax filing is done as per schedule. 

• Ensures internal controls are in place.  

• Approves all day-to-day transactions related to accounts and finances. 

• Coordinates with external auditors and ensures internal audit is being conducted by the audit function. 

• Ensures that your ledgers are accurately reflecting the money moving in and out of your business. 

Controller versus CFO: The Key Differences 

These differences between a controller and a CFO might seem like an overlap between the responsibilities of these two positions. That is primarily the reason why many small businesses are unable to distinguish between the two and choose to employ either a CFO or a controller, not both. Let’s take a deeper dive and understand the differences between these two authorities: 

• The CFO reports directly to the CEO or the MD of the company, while the controller reports to the CFO. 

• The CFO is responsible for overall planning and strategy, while the controller handles day-to-day operations. 

• The CFO makes decisions related to strategies. Based on these strategies, the controller devises tactics and ensures they are implemented at operational level. 

• The CFO carries out analyses of finances while the controller provides reports and information needed for the said analyses. 

What Does Your Company Need? 

You will need a CFO as opposed to a controller for your company under the following circumstances: 

• If your company needs guidance to frame strategies for financial success. 

• If you want to establish key metrics to keep track of your finances. 

• In case you need to raise funds for your venture. If this is the case, then the CFO can help you create a pitch to convince your investors regarding your financial plans. 

• When you are planning an IPO, you will need the CFO’s help to ensure you are ready to go ahead and be listed in the financial market. 

• If you want forecasts and projections for the future, a CFO can do it the most effectively. 

• In case your business is going through a major transition like a merger, acquisition, or takeover, you will need the expert guidance of a CFO. 

On the other hand, you will need a controller as opposed to a CFO for your company under these circumstances: 

• When your financial operations are not properly developed, and you need internal controls in place. This is when you need the help of a controller the most. 

• If you are not confident that areas like revenue recognition or COGS categorization are appropriately managed, a controller’s expertise can add value to it. 

• If you need to maintain records as per GAAP or need audit assistance, you will need a controller. 

• If you are worried about fraud or the accuracy of your records, then you may need a controller to put things in place. 

While knowing the differences between a controller a CFO is helpful, it’s also necessary to know whether your business is in a position to afford one. In case you have a small business, hiring a CFO or an in-house controller can be a very tricky gamble, as the salaries of these employees go up to six figures and even higher.  

See: Monily’s Controller Services For Informed Decision-Making

If you are not able to afford them as full-time employees, then going to the route of outsourcing to a fractional service such as Monily is a much better method of getting both the work of a CFO and controller done efficiently. Through this option, you will benefit from the expertise as of a full-time hire but you will only be paying for the services that your business needs instead of signing up for the whole package. This allows you to indirectly keep your budget under control. 

How Much Do Bookkeepers Charge?

A bookkeeper helps a company maintain its financial documents and records. They uphold a stern responsibility of ensuring that every single aspect of your books and accounts is in order. Every company, small or big, needs bookkeeping.  If you run a business, you have three options to hire a bookkeeper and their subsequent bookkeeping services fees. 

The first is to hire a bookkeeper to work for you full-time. The second is to use a traditional bookkeeping firm’s services, and the third to work with an online bookkeeping service provider. Details of all three options, including their bookkeeping services fees, are given below to help you decide which is best for you. 

Bookkeeping Services Fees of An Individual Bookkeeper 

If you want to handle your bookkeeping work in-house, then you can hire a full-time bookkeeper to take care of that for you. If you are a small business, you may not find it viable to hire a bookkeeper to work full-time. However, if your operations are sizeable, then you may find it smarter to have someone work full-time. When you hire a bookkeeper, you would have to go through the process of actively looking for someone who is actually qualified and bears considerable experience in doing bookkeeping. 

For starters, you should go for someone who has a certified bookkeeper qualification from AIPB (American Institute of Professional Bookkeepers) or from the NACPB (National Association of Certified Public Bookkeepers). Look for a candidate who has experience in your line of work, as this will ensure that all your work is being done effectively.  

Hiring a bookkeeper full-time entails paying a large salary. Bookkeepers are skilled and you need to be prepared to pay them according to their expertise. To help you understand, the following is data about the average pay of bookkeepers: 

The lowest pay is offered in the state of South Dakota, where the average pay is $16 per hour, which makes the monthly salary to be around $33,970. The highest paid bookkeepers work in Alaska, where the hourly pay is $23.39, and the monthly bookkeeping services fees go up to $48,640. 

The monthly pay in California is $47,750, in Florida, $40,220 and in New York, $45,590. Having an idea of how much bookkeepers from different states charge would help before employing the services of one full-time. On an average, you would need to pay $3,000 to $4,500 bookkeeping services fees per month with other perks and benefits. 

You can also consider hiring a bookkeeper on a part-time basis, and if your workload is not so heavy, you can consider hiring one to work for a few hours each day. You may need to pay around $20 per hour or monthly bookkeeping services fees of $400 to $800 with perks and benefits for the part-time work. 

Working with A Traditional Bookkeeping Firm 

Contacting the services of a bookkeeping firm is another popular method of getting bookkeeping done for you. Here, the bookkeeping services rates are counted by the hour. The firm would understand your nature of work and give you a price quote indicating how many hours of work is needed and the pay per hour. 

To make sure you don’t end up paying extra bookkeeping services fees to a firm, you can first get quotes from both the bookkeeping firm and the individual bookkeeper. Then compare the prices they offer with the costs needed to have someone work for you full-time. After comparing, you can decide whether it’s beneficial to outsource or not.  

There are no standard bookkeeping services fees because the prices charged depend entirely on the complexity of your business. You must also note that once they start working, it is possible they might find your work to be more complex than they thought. In such a case, the bill may be higher. On average, their bookkeeper rates vary from $500 to $2,500 per month, but it can be even higher depending on your work and the state you operate in. 

Outsourcing to Online Service Providers 

Thanks to the rapid growth of the internet, there are many bookkeepers who provide online services. People who manage bookkeeping firms usually consist of professionals bearing both experience and expertise. These firms have worked with many clients and offer a multitude of services. You need not worry about mistakes or delays since you can always expect quality work from them. 

The advantage of working with them is that you don’t have to wait for them to come to your office. They would have well-defined processes for you to send your data and documents to them. They then would complete their work online on your company’s behalf and send the results or reports back to you. This is convenient since there is no geographical limitation. So much so that you can get a New York firm to work for you while operating in Tennessee, and the bookkeeping services rates charged would be precisely the same. 

Another benefit of employing online services is that it works out to be more cost-effective since their employees don’t need to travel. You can thus get very competitive prices from them. If you are a small business, it is advisable to outsource your work to them to avoid high costs, and you will only need to pay bookkeeping services fees according to your needs. You may not even require their services for the entire month; that’s why for such a situation, it is better to use the services of a bookkeeping firm, as you get proper scalability and choice of preference on how you want your bookkeeping to be done. 

So, What Type of Bookkeeping Does Your Business Needs? 

There are some really exemplary differences between the three above-mentioned bookkeeping solutions and how uniquely they can help your business. Ultimately, it all boils down to your preferences.  

If you believe you need to always have a bookkeeper present in your company who’s actively looking after your books and needs to be paid huge bookkeeping services fees, then option 1 is what you should go for. If you’re interested in having an outside firm of professionals taking care of your books while costing pretty much the same, then you should go for option 2. But, if you believe your bookkeeping is not something that you have to pay so much attention to, and want it to be done in the most convenient, affordable and professional method, then outsourcing to an online service such as Monily can be just what you need. 

Whatever option you end up going with, it is recommended that you verify the credentials of the service, firm or individual you go for before you sign up with them, as you need to understand how competent and experienced they are. Also, make sure to have a look at their clients’ list to get a better idea of whom they have worked with. You can even ask for references and check out reviews of the firm.  

See Also: 5 Ways a Bookkeeper Can Save You Money

Once you are convinced about their credentials and believe their services are just what your business needs to progress and develop more efficiently, you can request quotes from them or visit the pricing section on their website to know more about their bookkeeping services fees. 

How to Read A P&L Statement and What Is It Used For?

The P&L (Profit and Loss) statement is a financial statement/tool that displays the revenue earned and expenses incurred by a business in a specific period. It is often referred to as an Income Statement, as it also shows the profits generated by the business. Understanding how to read a P&L statement thoroughly allows companies to plan and devise profitable strategies for the future. 

A P&L statement is also one of the major three financial reports that a public company has to openly publish and show to the shareholders – the other two reports being the Balance Sheet, and the Cash Flow Statement. These records dictate the current financial position as well as predicted future growth for any business. Before learning how to read a P&L (profit and loss) statement, let’s first compare it with its counterparts to know the difference between them clearly. 

P&L Statement vs A Balance Sheet 

The P&L statement and balance sheet are amongst the two primary financial records of every organization. Both of these statements contain crucial information regarding the financial health of a business and how it’s performing in the industry. The balance sheet includes assets and liabilities that show the worth of the organization, and the P&L statement includes revenues and expenses that show the net income of the organization. Whereas the balance sheet is more focused on the ownership of the business and its long-term prospects, the P&L statement is focused entirely on one primal point: the profitability of the business.  

See Also: How to Read and Understand the Balance Sheet

P&L Statement vs A Cash Flow Statement 

As per its name, the cash flow statement highlights the in-and-out flow of cash of a business. Many transactions are noted in the cash flow statement but not in the P&L statement, including the purchases of new assets and investment securities. A P&L Statement focuses more on the realized profits or losses for a business, whereas the cash flow statement displays the exact current cash holdings. Nevertheless, it is vital that you know how to read your P&L statement and your cash flow statement before making any future payments or purchases for your business. 

How to read a P&L (Profit and Loss) Statement 

A P&L statement includes all the components that help to run the business effectively on a daily basis and surprisingly, it is not very complicated to understand. If you analyze it section-wise, you can quickly identify the importance of every individual component. So, let’s dive deep and learn how to read a P&L statement. 

The P&L statement is divided into the following six major sections: 

  • Income/Revenue 
  • COGS 
  • Gross Profit
  • Expenses 
  • Net Operating Income 
  • Net Profit 


The first step of understanding a P&L statement is through the income and revenue section, which dictates the money earned by a business through sales of products/services. It includes both the income earned, the direct cost of services, as well as the gross profit. Different sources of revenue are listed separately for clarification, such as tangibles, non-tangibles, etc. 


The direct cost, also known as Cost of Goods Sold (COGS), is the cost undertaken to manufacture the products and manage the services. These costs are paid by the organization and are important to be noted. COGS also include direct material and labor expenses that are required for the manufacturing of each product or service that is sold. 

Gross Profit 

The Gross Profit is simply the Total Revenue minus Direct Costs (Revenue – COGS). It shows the gross income earned by the organization for the products and services for a particular period. 


Understanding expenses is one of the most significant aspects of reading a P&L statement. Every organization has operating expenses; money required on a day-to-day basis. These expenses are divided into several categories and sub-categories, depending upon the nature of your organization. Such expenses can sometimes mean cash directly out of the pocket; therefore, it is crucial that you note them. Some examples of these expenses include: 

• Administrative costs 

• IT costs 

• Maintenance costs 

• Employee payroll and benefits 

• Sales and marketing expenses 

• Facilities/storage cost 

• Research and development cost 

Other Expenses 

There are also other miscellaneous expenses that are not included in the expenses section. These include:  

Taxes: includes all the money you have paid or are expected to pay to a government body. 

Depreciation: the decline in the value of a tangible asset over time. This decrease in value is noted in monetary terms. 

Amortizationsimilar to depreciation but for intangible assets. 

Interestpayments made on any outstanding loans taken by your company. 

Net Operating Income 

Net Operating Income is a very significant step in reading the P&L Statement. It is calculated by subtracting operating expenses from the gross profit (Gross Profit – Operating Expenses). It is also known as EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization). The net operating income indicates whether the business is heading towards profit or loss. If the calculated amount is positive, then the business is handling the revenues well and is running on profits. If the calculated amount is negative, then there is a need for substantial shake-ups as the business is heading towards a loss.  

Net Profit 

Understanding Net Profit is the final step of reading a P&L statement. Net profit is the prime figure that dictates the profitability of your business after all the other expenses are incurred. It is calculated by subtracting the other expenses from the Net Operating Income (Net Operating – Interest, Taxes, Depreciation, Amortization). The amount that remains after calculating all the expenses is the true profitability of a business. It can either be shown as a positive number (profit) or a negative number (losses). 

Helpful Tip 

Although it is quite simple, if you are having any sort of problems in understanding how to read a P&L statement, then you should focus generally on the Net Profit, as it is ultimately the main number to be noted. It dictates the profit-position as well as helps you to understand the financial potential of your business. 

See: 9 Reasons Business Owners Should Consider Outsourcing Accounting

The Four Basic Financial Statements And Their Purposes

If you are a business owner, you will probably be aware that there are four financial statements you need to prepare for your company. These four financial statements provide you complete information regarding your business activities and can aid you, your investors, or other stakeholders in understanding the financial health of your business.

What Are The Four Basic Financial Statements?

The four basic financial statements that you need to prepare for your business are:

  • Income Statement: It is considered by many as the most important out of the four financial statements. It shows the revenues earned, expenses incurred, and profits or losses for the reporting period (the duration for which the statement is prepared).
  • Balance Sheet: It is a statement that shows all your assets and liabilities, along with details of the owner’s and shareholder’s equity.
  • Cash Flow Statement: This statement shows the inflow and outflow of cash in the business. It helps provides basic information on whether the business is earning more or spending more.
  • Statement of Retained Earnings: Also referred to as the statement of owner’s equity, it helps to track changes in equity during the period. It tells you about the retained earnings or profits that you can use.

1. The Income Statement

The first of the four basic financial statements is the income statement. It is also referred to as a profit and loss (P&L) statement. The statement details the revenue earned during a specific period and the expenses. It also shows whether there is a profit earned or loss incurred. It is an important tool that you can use for your financial planning. The income statement would show sales, operating expenses, and non-operating expenses.

See Also: Why Is Proactive Financial Management So Important for Businesses?

If an investor wants to know more about your revenue earning and profitability, this is the statement they will refer to. While it shows whether you are making profits or losses, ultimately the revenues matter more, as there are many businesses that continually make losses but are still valued high. The income statement also helps you in forecasting risks and making informed financial decisions since you have all the required data on hand.

2. Balance Sheet

The balance sheet is highly important amongst the four financial statements. Many business owners give so much importance to the income statement that they tend to ignore this statement. The balance sheet is used by external entities like investors and creditors to understand the financial health of your business. If you want a bank loan, then this is a mandatory statement that you must produce. It lists out the assets of your business, like cash, property, inventory, etc. In the list, the liabilities of your accounts payable, taxes payable, mortgages, etc. are listed as short-term and long-term liabilities simultaneously.

The key aspect of the balance sheet is the equation: equity + liabilities = assets. The report is structured in such a way that the total assets equal all the liabilities and the equity. The balance sheet gives you a snapshot of your financial position, hence it is highly instrumental in budgeting as well. Apart from your present financial health, the balance sheet can also give you an idea of your future financial health. It can help you in understanding if the pricing strategy you are currently implementing is effective and also helps you find out if there are any spikes in the spending of your business.

3. Cash Flow Statement

As proper cash flow is the lifeline for any business, a cash flow statement aids you in keeping track of where your cash is going. This statement is very important in helping businesses understand how the inflows and outflows of their cash are happening. The inflows and outflows can be organized in the report in categories like operating activities, investing activities, financing activities, and other information. While the income statement tells you the profit or loss, it does not explain the flow of cash.

You may have money shown as revenue in your income statement, but it may not be reflected in your cash flow. These are discrepancies that can be problems for a business if they are not taken care of.  It is required by investors or lenders as it helps them to understand if your company is financially viable to be conducting any business with.

4. Statement of Retained Earnings

This statement explains changes in equity during the period for which the statement is made. Information in this statement includes the sale of shares, repurchase of shares, payment of dividends, etc. Ultimately, it helps you understand changes in the owner’s equity. It shows your retained earnings, which is the profit that you can use to clear your liabilities to invest. The retained earnings are the net income left after you have paid out dividends. A business may choose to reinvest the earnings, thereby increasing the value of the business.

See Also: 9 Reasons Business Owners Should Consider Outsourcing Accounting

However, anyone who lends to you may want to examine this statement to understand more about your profitability. This is because an investor would like to know how you are making use of profits. They would need to know this to understand whether the money they invest will fetch them reasonable returns. A creditor will view with concern if your statement shows very low retained earnings. In such situations, they may either refuse to offer credit or charge a much higher interest rate.

The Importance of the Four Financial Statements

Whether it is the board of directors of a company, investors, shareholders, or lenders, financial statements offer valuable information to all of them. All the four financial statements can give a clear indicator of the financial health of a business. Therefore, you need to ensure that these statements are prepared accurately.

5 Ways a Bookkeeper Can Save You Money

Money, the world revolves around this small five-syllable word. We might not like to accept it or be proud of it but everything you have done today and will do until you are in bed is about M-O-N-E-Y. In light of this discussion, that money is what matters the most to, of all people are businesspeople and entrepreneurs. Saving up is what drives a business out of the startup phase into a full fledge working business model that elevates returns and escalates growth. 

Does money appear from thin air? Alternatively, the famous parental saying, “money does not grow on trees” is very well understood by all of us by the time we become teenagers. However, in business, there is a way to save money, and that is by having a bookkeeper on board.

Every penny that you do not spend is a penny earned.

This article helps you understand the idea behind creating money from thin air by having an advanced bookkeeping service and answers THAT question: do bookkeeping services save you money?

Manage Your Profits Smoothly

When you run the show, there are a lot of things that you need to look into. Should bookkeeping be one of them? Short answer to that is, no. The longer answer is, would you rather spend a couple of hundred bucks and have someone else take care of your bookkeeping and financial management needs or would you rather, spend countless hours recording your daily transactions and tracking dollars rather than focusing your attention in making more of them.

Every startup works on a very tight profit margin, and even a single dime can make a lot of difference at times, which is why businesses choose to save money on bookkeeping. When you have a professional CPA working for you, keeping track of where you are spending and how much of it is going. In turn by saving off from errors and by spending your time where it matters you can make more money from your business.

Divert Your Attention

Tax time! That freaked you out didn’t it? Yeah, happens, research has shown that the only thing business owners and entrepreneurs loath is taxation. Filling out all that paperwork, cross checking with your accounts and financials, what to write off as deductible and what not, is hectic. However, not when you have a professional who lives and breathes taxation laws and bookkeeping helping you through such tough waters.

The stress you go through when preparing for taxes can take a toll on your business’s other functions as well, hence keeping you from saving money on bookkeeping, accounting and tax filing.

Focus on What You Are Good At, While Saving Money on Bookkeeping

Why complicate your life even more, let a pro handle it. Unless you are a bookkeeper yourself, you should really consider staying out of the mess numbers can create. There are many moving parts in every business, no matter its size and so there are a lot of other areas that you can focus and include your expertise in. One of the more pressing reasons why a bookkeeper would save you money is if you don’t have to go through analyzing all the minute details that money management brings with it. Accountants specialize in taxations and bookkeeping, let them handle the troubles. Spend the time on more productive activities such as bringing in more clients or improving on your products and services. Do not lose sight of the reason you started this business in the first place amidst all the numbers and calculations.

Timely Payments

The first of the month, or whenever you close your payroll is probably the happiest day at work for all of you employees, but getting, managing the accounts and closing them on time is no child play. Your daily activities are only possible because your bills are all cleared. When you forget to pay a bill or forgot to divide the funds to get them paid things can take a turn for the worst.  

Guess what happens when you have an accountant. You do not miss a deadline, ever, nor do you ever lack the funds to clear the bills piling up. Couple that with you saving money on bookkeeping. Your accountant makes sure your bills are paid on time and so are your employees by managing your payroll and accounts as well as keeping your books in pristine condition. 

Error Free Filing

Miss representation can lead to dire circumstances, such as having to pay an absurd late fee just because you missed a few digits on what you owe to the IRS. Having a bookkeeping service through virtual bookkeepers such as Monily, that give you an entire team of fully equipped professional accountants. Save money by filling correctly when you get a bookkeeper.

See Also: How to Find the Right Bookkeeper for Your Business


It is understood that you need to be in everything that is related to your business; after all, it is your baby. You conceived it and earn through it to sustain yourself, it is also something that has all of your hopes and desires mumbled in together. Is it necessary to get into things that can create more of a mess than sort things out for you? Let a professional handle your books, while you save money on bookkeeping and focus your energy in making more of that green stuff appear.

Accounting 101 for Small Business Owners

If you’ve just launched or are about to launch your online store, congratulations! It takes uncommon passion and perseverance to get to where you are today.

However, as you know, business ownership is a constant flood of satisfying milestones coupled with expanding to-do lists. With your launch, you’ll need to get on top of the accounting tasks that come along with owning a store.

This list of small business accounting steps will give you the confidence to know you’ve covered your bases and are ready to move on to the next item on your business to-do list.

1. Open a bank account

After you’ve legally registered your business, you’ll need somewhere to stash your business income. Having a separate bank account keeps records distinct and will make life easier come tax time. It also protects your personal assets in the unfortunate case of bankruptcy, lawsuits, or audits. And if you want funding down the line, from creditors and investors alike, strong business financial records can increase the likelihood of approvals.

Note that LLCs, partnerships, and corporations are legally required to have a separate bank account for business. Sole proprietors don’t legally need a separate account, but it’s recommended.

Start by opening a business checking account, followed by any savings accounts that will help you organize funds and plan for taxes. For instance, set up a savings account and squirrel away a percentage of each payment as your self-employed tax withholding. A good rule of thumb is to put 25% of your income aside, though more conservative estimates for high earners might be closer to one third.

Next, you’ll want to consider a business credit card to start building credit. Credit is important for securing funding in the future. Corporations and LLCs are required to use a separate credit card to avoid commingling personal and business assets.

Before you talk to a bank about opening an account, do your homework. Shop around for business accounts and compare fee structures. Most business checking accounts have higher fees than personal banking, so pay close attention to what you’ll owe.

2. Track your expenses

The foundation of solid business bookkeeping is effective and accurate expense tracking. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and legitimize your filings.

From the start, establish a system for organizing receipts and other important records. This process can be simple and old school. For American store owners, the IRS doesn’t require you to keep receipts for expenses under $75, but it’s a good habit, nonetheless.

To open a business bank account, you’ll need a business name, and you might have to be registered with your state or province. Check with the individual bank for which documents to bring to the appointment.

Starting your business at home is a great way to keep overhead low, plus you’ll qualify for some unique tax breaks. You can deduct the portion of your home that’s used for business, as well as your home internet, cell phone, and transportation to and from work sites and for business errands.

Any expense that’s used partly for personal use and partly for business must reflect that mixed use. For instance, if you have one cell phone, you can deduct the percentage you use the device for business. Gas mileage costs are 100% deductible, just be sure to hold on to all records and keep a log of your business miles (where you’re going and the purpose of the trip).

3. Develop a bookkeeping system

Before we jump into establishing a bookkeeping system, it’s helpful to understand exactly what bookkeeping is and how it differs from accounting. Bookkeeping is the day-to-day process of recording transactions, categorizing them, and reconciling bank statements.

Accounting is a high-level process that looks at business progress and makes sense of the data compiled by the bookkeeper by building financial statements. As a new business owner, you’ll need to determine how you want to manage your books:

You can choose to go the DIY route and use software like Quickbooks. Alternatively, you could use a simple Excel spreadsheet.

You have the option of using an outsourced or part-time bookkeeper that’s either local or cloud based.

When your business is big enough you can hire an in-house bookkeeper and/or accountant.

With so many options out there, you’re sure to find a bookkeeping solution that will suit your needs.

4. Set up a payroll system

Many online stores start out as a one-person show. When you’ve reached the point where it makes sense to hire outside help, you need to establish whether that individual is an employee or an independent contractor.

For employees, you’ll have to set up a payroll schedule and ensure you’re withholding the correct taxes. There are lots of services that can help with this, and many accounting software options offer payroll as a feature.

For independent contractors, be sure to track how much you’re paying each person. American business owners may be required to file 1099s for each contractor at year end (you’ll also need to keep their name and address on file for this).

5. Investigate import tax

Depending on your business model, you may be planning to purchase and import goods from other countries to sell in your store. When importing products, you’ll likely be subject to taxes and duties, which is worth noting if you run a drop shipping business. These are the fees your country imposes on incoming goods. Learn about importing goods into the US and Canada, and the associated taxes, so you know the rules from the get-go.

Also, if you’re importing goods, a duty calculator can help you estimate the fees in your own business and plan for costs.

6. Determine how you’ll get paid

When sales start rolling in, you’ll need a way to accept payments. If you’re a North American store owner on Shopify, you can use Shopify Payments to accept credit card payments. This saves you the hassle of setting up a merchant account or third-party payment gateway.

If you want to accept credit card payments without using Shopify Payments, you’ll either need a merchant account or you can use a third-party payment processor like PayPal, Stripe, or Square. A merchant account is a type of bank account that allows your business to accept credit card payments from customers.

If you use a third-party payment processor, fees vary. Some processors charge an interchange plus rate, typically around 2.9% + $0.30 per transaction. Others charge flat fees for each transaction, while some have a monthly membership model for unlimited transactions.

7. Establish sales tax procedures

The world of ecommerce has made it easier than ever to sell to customers outside of your state and even country. While this is a great opportunity for brands with growth goals, it introduces confusing sales tax regulations.

When a customer walks into a brick and mortar retail store, they pay the sales tax of whatever state or province they make the purchase in, no matter if they live in that city or they’re visiting from somewhere around the world. However, when you sell online, customers may be in different cities, states, provinces, and even countries.

8. Determine your tax obligations

Tax obligations vary depending on the legal structure of the business. If you’re self-employed (sole proprietorship, LLC, partnership), you’ll claim business income on your personal tax return. Corporations, on the other hand, are separate tax entities and are taxed independently from owners. Your income from the corporation is taxed as an employee.

Self-employed people need to withhold taxes from their income and remit them to the government in lieu of the withholding that an employer would normally conduct. For American store owners, you’ll need to pay estimated quarterly taxes if you’ll owe more than $1,000 in taxes this year. Canadians have it a little easier; if your net tax owing is more than $3,000, you’ll be required to pay your income tax in installments.

9. Calculate gross margin

Improving your store’s gross margin is the first step toward earning more income overall. In order to calculate gross margin, you need to know the costs incurred to produce your product. To understand this better, let’s quickly define both cost of goods sold (COGS) and gross margin.

COGS. These are the direct costs incurred in producing products sold by a company. This includes both materials and direct labor costs.

Gross margin. This number represents the total sales revenue that’s kept after the business incurs all direct costs to produce the product or service.

10. Periodically re-evaluate your methods

When you first start out you may opt to use a simple spreadsheet to manage your books, but as you grow, you’ll want to consider more advanced methods. As you keep growing, continually reassess the amount of time you’re spending on your books and how much that time is costing your business.

The right bookkeeping solution means you can invest more time in the business with bookkeeping no longer on your plate and potentially save the business money. Win-win!

See Also: Top 4 Benefits to Hire a Tax Pro To Prepare Your Income Taxes

Starting a business can be an overwhelming process, but if you follow this list, you’ll have your new store’s finances in order from the beginning. From opening the right type of bank account to determining how much you’ll bring in per product, these tasks will all contribute to your business’s success, now and as it grows.

Top 4 Benefits of Hiring A Tax Professional for Your Business

Taxation at its core is a stressful word. Let alone having to manage payrolls and maintain books with all transactional records that follow it, is an entire world of complications. Unless you love managing, numbers and playing around with them, which can still make your confrontation with filing your income taxes an uneasy ordeal.

With changing policies and the government introducing new tax laws and reforms, it might not be the best decision to manage your small business’s taxations and income taxes on your own.

Even if you are working from home and think you have got your taxes under control, unforeseen errors and problems always pop in which are even harder to trace and fix on your own. Due to all of the problems that a person can face, there is an entire educational field dedicated to train and equip people with the skills needed to manage accounts and finances, otherwise known as CPAs or Professional Tax Consultants. The field always presents a comparison between filing taxes yourself v professionally. It is not always smart to micromanage especially in areas that control a great portion of your business’s well-being.

See: Local CPA VS Cloud Bookkeeping

This article helps you understand the benefits of hiring a tax professional, and what better way of getting it then virtually with businesses such as Monily that, live and breathe taxes and bookkeeping.

Save On time

Here is a riddle for you, what can fly without wings? That is right; the answer to that riddle is what almost every business owner and entrepreneur lacks. There are not enough hours on the dial for you to be done with all of the tasks of the day. Add-on having to manage your business’s books on a daily bases. Include your transactions, expenses and take care of the receipts to latter feed them in to the system. Why handle all the practical details that go in your business? When you can hire a professional tax consultant through taxation services in Houston such as Monily. 

When you hire the services of tax consultants, especially virtual ones you save up greatly on time, by spending it focusing on the growth of your business, and managing its day-to-day activities rather than spending that precious time bending over your accounts trying to figure some sense out of the numbers. These are just of the benefits you get when you hire a tax professional.  

Services like Monily, work on everything from getting you tax ready to maintain your books on a day-to-day basis and bring the benefits of hiring a tax professional to the table. Leaving you ample amount of time to get on to what really matters, bringing in business and growing it. Just like every business owner your accounts are an important aspect of your trade, instead of getting into it yourself, you could simply look at the graphs demonstrating your expenditures and receivables on a user friendly and easy to understand display, in-turn saving on, yes, you guessed it, Time.

Nothing goes missing

Do you wonder what does a tax preparer do? You know those pennies you miss out to write in your books that go completely unseen. Well they can make a huge difference when you are filling your income tax. Another benefit of hiring a tax professional is that they go through your books and keep them updated can save you a whole world of trouble.

What you add as deductibles and what is not in your best interest given the new tax reform can be tricky, there are now certain things that cannot be added, and instead they might cause greater problems if you do include them. However, having a professional manage them and guide you through them can save you the hassle and you do not skip on anything.

Highly skilled and competent, yet another benefit of a tax professional being hired

There is a reason why you are as good as you are in your business. It is because you have the necessary skills, experience and are competent at what you do. Sure, you can be multi-talented, but the touch of someone that really knows what he or she is doing makes a lot of difference.

Wanting to manage or control all aspects of your business is good, but only when you let people with the right skills to handle the tasks and get it done, with you just overseeing them. A business is only as good as its people, that is very true and has been the cause of success and failure for many businesses. When you work with CPAs, you know you have the best of people that are well qualified to manage and handle your taxes for you. Businesses that offer virtual accountancy services give you a team of highly skilled and very professional people to manage what might be a pain-staking task for you.

Virtual CPA’s Less Expensive

As all professionals on a consulting capacity are heavy on the pocket, accountants can cost fortunes to hire and keep, especially for small businesses; it is an added expense that you do not need at this point, or ever. On the other hand, virtual Certified Public Accountants, that are generally managed by externally cost pennies on the dollar compared to their counterparts. Your business’s financials are also solely dependent upon the expertise of a single accountant. Yet when you hire a tax professional, you get an entire firm taking care of your business’s expenses and maintaining its books up to date. At the end it is a win-win situation you get to spend less on a service that your business needs, and in turn get a better job done, than you otherwise do when trying to do it on your own.

Ending Thoughts

Having an auditor or a CPA on your panel, helping you manage your money and business towards stardom, is a business essential. You might try to manage it on your own, but the only way to actually make a success of your start up is, if you have enough time to devote to it.

The smarter way to go about a problem is to fix it before it becomes a problem. You might be great at accounts, taxations and bookkeeping but at what expense though. Now that you know how taxes can take up so much of your time and the benefits of hiring a tax professional, be smart make the right choice: let the professionalsprepare your income taxes while you worry about the more important aspects of running and managing your business.