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The COVID-19 pandemic created a variety of challenges for small businesses. Despite this, however, countless startups have successfully made their debut across the country during this time. If you launched a venture after February 15, 2020, you might qualify as a recovery startup business and be eligible for the Employee Retention Credit (ERC). Let’s take a closer look at what the ERC is and how you may benefit from it.

What Is the Employee Retention Credit?

The ERC is a refundable tax credit claimed on quarterly payroll tax filings. It was originally part of the CARES Act of 2020 and designed to help business owners who have struggled financially as a result of the pandemic. 

The American Rescue Plan of 2021 made changes to the ERC by extending it to “recovery startup businesses”. Depending on your situation, you may be able to claim the credit retroactively for both 2020 and 2021.

What Is A Recovery Startup Business?

Per the American Rescue Plan Act, a business that opened its doors during the pandemic can receive the credit. Your startup may be eligible if you meet the following criteria. 

• You started your business on or after February 15, 2020.
• Your average annual gross receipts don't exceed $1 Million for 2018, 2019 & 2020.
• You have one or more W2 employees, not including owner-operators or family members.

For example, if you launched a food delivery business on April 1, 2020 with three employees and earned $500,000 for the 2020 and 2021 tax years, then you’re considered a recovery startup business and a perfect candidate for the ERC. 

Unfortunately, if you started your venture in the second quarter of 2021, you won’t be able to claim any credit for 2020 or for the first two quarters of 2021. But, if you meet certain revenue reduction or government restriction criteria, you might be able to claim the credit for earlier quarters.

In addition, if you purchased an existing business that was in operation on or before February 15, 2020, you may or may not be considered a recovery startup business. It all depends on your unique circumstances. Since the rules around this particular eligibility requirement are complex, working with ERC tax experts can help you determine if you qualify.

What Can My Business Claim?

If you’re considered a recovery startup business, you can receive a credit in the amount of $7,000 per worker, per quarter. The max is $50,000 for the final two quarters of the year. To maximize your credit, pay close attention to your gross receipts and make sure you didn’t go over the $1 million annual revenue run rate limit for the 2020 and 2021 tax years. 

Let’s say you have four employees. If you multiply four employees by $7,000 per employee in quarter 3, you get $28,000. When you perform the same calculation for quarter 4, you also come to $28,000. As a startup with four employees, you’d receive a $56,000 check from the IRS. That’s a significant amount of money! 

You can put these funds toward inventory, equipment, a new office space, marketing, or any other expenses that can help grow your business. Another option is to simply distribute the cash to the owners. There is a lot of flexibility with how you may use the ERC.

What Are Qualified Wages?

Under the CARES Act, the definition of qualified wages depends on the size of your business. 

If you’re a smaller venture with an average of 100 or fewer full-time or full-time equivalent employees in 2020 or fewer than 500 full-time employees in 2021, qualified wages include all wages you paid to your employees, whether they were working or not. This includes qualified health plan expenses during an eligible quarter. A full time employee (FTE) is defined as anyone that worked more than 30 hours on average per week.

In the event you had more than the 100 (FTE’s)  in 2020 or 500 (FTE’s) across all affiliated businesses in 2021, qualifying wages have a slightly different meaning. These are wages that were paid to an employee for time that they weren’t working due to either suspended operations or a substantial decline in gross receipts.

How To Claim The ERC

While you’ve likely already filed your taxes for 2020 and 2021, you can still claim the credit retroactively. To do so, fill out Form 941-X. Be prepared to calculate your total qualified wages and health insurance costs for each quarter. You’ll subtract that amount from your deposit on Form 941. ERC Calculations and rules can be complex so often it makes sense to consult ERC tax experts for help.

If you meet the criteria for a recovery startup business, you owe it to yourself to take advantage of the ERC. While it’s widely available to many startups who launched during the pandemic, it’s often untapped. The ERC can give you the extra cash you need to meet a variety of business goals.

A hard inquiry takes place when you apply for financing—like a loan or a credit card—and a lender reviews your credit report during the application process. Hard inquiries have the potential to damage your credit score. But that doesn’t mean you have to worry about a credit score drop every time you seek new credit. And you shouldn’t be afraid to apply for financing when you want or need it either.

The subject of credit inquiries—especially hard credit inquiries—causes many misunderstandings. Here’s what you need to know about how hard inquiries really work and how to protect your credit score from damage.

What are inquiries on your credit report?

Consumer credit reporting agencies like Equifax, TransUnion, and Experian can only share your credit file details with those who have a permissible purpose to view that information. The Fair Credit Reporting Act (FCRA) outlines who is allowed to access your credit information and when. The same federal law also requires a credit reporting agency to let you know anytime it grants anyone else access to your sensitive personal credit information. 

A credit bureau informs you that someone has reviewed your credit information by placing a record of the access on your credit report. That record is called a credit inquiry.

What is a hard credit pull?

A hard credit inquiry—also known as a hard credit pull—is a type of credit inquiry that has the potential to impact your credit score in a negative way. However, if a hard inquiry does affect your credit score, any damage is typically minimal. 

Below are some common examples of hard credit inquiries. 

• Loan applications 
• Credit card applications 
• Applications for lines of credit
• Applications for credit limit increases

“When you apply for a credit card or any other type of loan (a mortgage, auto loan), you give the issuer or lender permission to check your credit report to assess your ‘creditworthiness’,” says CNBC contributor Elizabeth Gravier. “In essence, your potential lender is looking to see how likely you are to pay back the money you borrowed. The healthier credit history you have, the less risk you demonstrate, and the greater the likelihood you’ll qualify for that new credit card or loan.”

While you don’t need to totally avoid hard inquiries, you should be aware that they appear in your credit history.

How do hard inquiries affect your credit score?

Hard credit inquiries can often impact your credit score in a negative way. When they do, however, the impact is typically slight. 

Consider FICO® scores as an example. The “new credit” category of your credit report is worth 10% of your FICO score. And the number of hard inquiries that have appeared on your credit report in the last 12 months is one of the factors that influences this credit score category.

It’s also important to note that inquiries only factor into your FICO score for 12 months. FICO also ignores all inquiries that took place in the last 30 days when calculating your score. 

Consumer credit scoring models like FICO and VantageScore also don’t penalize consumers for rate shopping for certain types of loans. With FICO scores, you can apply for multiple mortgage, auto, or student loans within a 45-day period and the scoring models will treat applications for the same type of loan as a single inquiry. (Note: Some older FICO scores only allow for a 14-day rate-shopping period.)

How many points will a hard inquiry lower your credit score?

A new hard inquiry on your credit report won't cause you to lose a specific number of points from your credit score. And some hard inquiries might not result in a credit score point loss at all. According to FICO, one additional hard credit inquiry takes away less than five points from most people's FICO score. Of course, a large number of hard credit inquiries in a short period of time could lead to potential credit problems. Excessive applications for new accounts is considered to be risky behavior by credit scoring models. And too many hard credit inquiries could signal to potential lenders that you might be in financial trouble. 

Therefore, it’s wise to limit your credit applications. You should aim to apply for loans and credit cards for which you’re likely to qualify. It’s also smart to avoid seeking too much new credit at once.

How long do hard inquiries last on credit reports?

As mentioned, the Fair Credit Reporting Act (FCRA) requires consumer credit reporting agencies to disclose when they allow others to access your credit information. Depending on the type of credit inquiry, the FCRA may require it to remain on your credit report for anywhere from 12 to 24 months. As a matter of policy, some credit bureaus opt to leave all hard inquiries on consumer credit reports for up to two years.

What is a soft inquiry?

It’s important not to confuse hard inquiries with soft inquiries. A soft credit inquiry can also appear on your credit report as a record that someone has accessed your credit. Yet the key difference that sets the two types of inquiries apart from one another is the fact that soft inquiries will never damage your credit score. 

Below are some common examples of soft credit inquiries.  

• Checking your own credit report
• Employment-related credit checks
• Account maintenance credit checks (from current creditors)

Additionally, only you can see the soft inquiries that appear in your credit file. If a lender pulls a copy of your credit report, it will see only hard inquiries. Soft inquiries are not visible to potential lenders.

The bottom line.

As a small business owner, having good personal credit can be an asset when you apply for business financing. So, it’s wise to pay attention to the factors that influence your personal credit scores, including hard credit inquiries. 

You shouldn’t be afraid to apply for new credit when you want to borrow money for yourself or your business. Yet it does make sense to be strategic. Before you seek new credit, take the time to research financing options to discover the best solutions for your situation. 

You may also want to review your credit to learn where you stand prior to applying for new credit. It’s also helpful to discover which lenders have qualification criteria you are likely to satisfy. (For example, if a lender requires excellent personal credit and your personal credit score is fair, the loan probably isn’t a good fit.) 

Putting in extra effort to review your credit and research financing options up front might help you avoid additional (and unnecessary) hard credit inquiries. And you might also discover some great financing solutions for yourself or your small business at the same time.

When you're a small business owner, keeping your finances organized is crucial to your success—and it all starts with a good system for tracking your business expenses. Expense tracking is the gateway to cutting costs, improving cash flow, and optimizing your deductions during tax time.

Long gone are the days of balancing a checkbook and keeping an Excel spreadsheet. Now, there are dozens of tools out there that help business owners automate expense tracking and harness financial data that can level up your business. Here are some of the best tips and tools for tracking your small business expenses.

How to Track Business Expenses

1. Open a Business Bank Account
2. Get a Business Credit Card
3. Get an Accounting App
4. Evolve Your Tracking Methods
5. Keep Your Business Receipts
6. Record and Categorize All of Your Expenses
7. Consider Consulting an Accountant for Tax Planning

1. Open a Business Bank Account

Many businesses start as solo operations, and owners in these situations often focus on gaining traction and ignore everything else. It’s easy to create an accounting nightmare for yourself when that causes you to neglect the accounting function early on.

Business owners often run into this problem after a year or so of operations when they have to file their taxes for the first time.

For example, they might look back at the year and find they have no idea how large a tax deduction they can take for their travel expenses because each trip included some unknown amount of personal expense transactions. Come tax season, you won't have to dig through your statements and transactions to determine which expense was for your groceries and which was for your new office desk.

To avoid that issue, open a business bank account before you do anything else. Split your business and personal expenses as soon as possible by opening up separate accounts for your company. That usually includes a checking account and a credit card.

That said, they don’t have to be official business accounts, which may have different requirements or costs than personal ones. You can still use a card in your name as a sole proprietor. Just keep your funds separate to create a distinct paper trail.

You'll also get perks like checks with your business name on them, which makes your transactions appear more professional. Opening a business account and keeping it in good standing will help you build a business banking relationship as well, which may help you out when it comes to apply for a business loan.

2. Get a Business Credit Card

Contrary to popular belief, it’s not usually necessary to keep the receipts for all your business expenses. Feel free to ditch that messy shoebox crammed full of paper copies.

While business owners used to need those receipts for tax expense reporting purposes, they’re not as beneficial anymore. You generally only need to have documentation that proves the following:

• What you purchased
• When you purchased it
• How much it cost you

Fortunately, as long as you make your business purchases with dedicated business accounts, you’ll usually find all of that information in your bank statements and credit card bills.

Nowadays, you’d likely only need to keep an expense receipt if you want more insight into a transaction than a line item on a statement could give you.

For example, if you paid $1,500 to Amazon you might not be able to tell what it was for from your business credit card bill. You may need a receipt to document that $1,000 was for your new computer while $500 was for supplies.

However, you still don’t need to keep any receipts in paper form. It makes them far too easy to lose or damage beyond legibility. Take pictures of them instead and save the images in a folder for your records or auto-upload it to your bookkeeping software.

3. Categorize Your Expenses

Whether you complete your business purchases with a credit card, debit card, or cash, you need to have a system for categorizing them. It’s not enough to know that your business spent $500 last week. You need to keep track of which deduction to take.

In general, there are three ways to do this. The old-fashioned way is to keep a document or spreadsheet and manually log every transaction there. If your business pays for things in cash, you'll have to use that method.

However, there’s little reason to pay for anything in cash anymore. If you want to make tracking business expenses easy, always use a credit or debit card and create an electronic record for your transactions.

That opens up two other options for categorizing business expenses, both of which are superior to tracking things by hand. Namely, you can let either your bank or accounting software assign each expense category, manually updating them only when necessary.

Which option makes more sense for you depends on your needs. If you have a relatively low volume of expenses and little complexity, you can probably use your bank account or credit card statements to stay organized.

However, the more sophisticated your business transactions become, the more likely you’ll need bookkeeping software to stay organized. This makes it much easier to adjust your digital records directly.

4. Schedule Regular Check-Ins

Many business owners are uninterested in managing the financial side of things. They start their companies because of ambition or passion, and bookkeeping is significantly less exciting. As a result, it’s easy to procrastinate on the issue.

Unfortunately, tracking business expenses isn’t something you can neglect for long. Do you remember your days back in school when you received year-long projects? If you started at the last minute, you’d never be able to catch up in time.

Business expense management is a lot like that. You have the whole year to get your financial records in order, and you can’t afford not to use that time. Procrastination causes all sorts of problems, such as:

• Forgetting the purpose or details of expenses
• Compounding any early accounting mistakes
• Creating a massive headache for yourself during tax season

Conversely, if you stay on top of your bookkeeping from day one, everything goes much smoother. Expenses are fresh in your mind when you categorize them, fixing mistakes earlier prevents you from making them again, and you don’t need to rush at tax time.

Ideally, you should check in with your business expenses every month. If you don’t have enough activity to make it worthwhile, you can use a quarterly schedule instead.

You should generally check your expenses at least quarterly because that’s how often you need to make estimated tax payments. If you don’t know how much taxable income you had in the last quarter, you might not know how much you need to pay.

5. Finalize Your Financial Statements

Ultimately, business owners track their transactions to translate them into a balance sheet and income statement. These documents detail your business finances, including assets, liabilities, revenues, and expenses.

At the end of every year, you’ll need to update your financial statement to reflect the activity from the previous twelve months. Readers can use them to determine how much you earned or lost and your subsequent financial position.

Your financial statements essentially define your business, and you’ll need them to inform many different processes, including: 

• Calculating your annual tax liability
• Assessing the success or failure of your operation
• Determining whether you qualify for a business loan

Bookkeeping software is especially helpful at this stage. Creating your balance sheet or income statement in a spreadsheet is laborious and makes you susceptible to human error. You have to build the formulas yourself, and one mistake can throw everything off.

Meanwhile, bookkeeping software like Lendio's software can automatically categorize your transactions, generate your financial statements, and then update them in real-time in connection with invoicing software. Give it a try today!

6. Analyze Your Business Expenses

Once you have an accurate idea of your business’s spending trends, you have everything you need to pinpoint potential problems. More specifically, you can look for areas where you’re spending more than you’d like and make adjustments as needed.

Overspending doesn’t necessarily mean you were irresponsible with your budget like it would in your personal life. It could also mean you ran into surprise operating expenses or that costs ended up being higher than you expected.

As a result, tracking expenses can help you develop more accurate expectations, learn lessons from variances, and find areas where you can save money. For example, you could plan future estimated tax payments using your current revenues and expenses.

Bookkeeping software is also great for this kind of analysis. You can use it to facilitate many beneficial activities, like generating an expense report, comparing multiple data ranges, or drilling down into a financial statement.

7. Consider Consulting an Accountant for Tax Planning

With accurate financial records in hand, you can start to refine your tax strategy. If your business is sufficiently sophisticated, with reasonably high revenues and expenses, it’s often worth visiting an accountant for advice.

That doesn’t mean you have to hire one as an employee. Many small businesses don’t have the cash flow or the need to do that. Just reach out to a Certified Public Accountant (CPA) office and contract them out to help you with your tax strategy.

With an organized business expense tracking system and clean financial statements, any CPA would be happy to work with you. It makes their job much smoother, saving them time and you, money.

They can help you lower your tax liability each year by reorganizing your business’s legal structure, finding all potentially deductible expenses, and leveraging contributions to tax-advantaged accounts.

Reap the Rewards of Meticulous Tracking

Tracking all your business expenses is a lot of hard work—but it’s well worth the cost. With accurate expense data, you’ll be able to create dependable budgets, cash flow forecasts, and financial reports. You’ll know where you’re overspending and what expenses you need to cut or adjust to turn a profit.

With historical data to look at, you’ll know when the seasonal sales are coming and when the expenses tend to accumulate. Knowing this, you can prepare your business with a cash cushion or with the right small business loan.

Come tax season, you’ll be relaxed (or more relaxed) knowing the hard work is already behind you. If you choose to hire an accountant to handle your taxes, you’ll pay a smaller bill since they’ll have far less to do. Plus, you’ll take advantage of more tax deductions and credits, lowering your tax burden and saving your business extra cash.

Often, becoming a profitable business doesn’t require you to double your sales—it requires you to cut your costs. With expense-tracking data to guide your decisions, you’ll be able to confidently remove unnecessary expenses and prioritize the costs that move the needle. No, expense tracking isn’t always the flashiest administrative task, but it’s a necessary one.

The word depreciation strikes fear into the hearts of many. If you’ve taken an intro to accounting class, then a cold sweat may trickle down your spine as you recall calculating dreadfully confusing amortization schedules.

For small business owners, however, depreciation (done right) is a powerful tool not to be feared. Depreciation gives investors and lenders a more accurate look at your company’s financials, and it’s also a way to score sweet tax savings, too.

Take a hot shower, shake off the cold sweats, and get ready for a straight-line walk down depreciation lane. First, let’s start with the basics: what exactly is depreciation?

What Is Depreciation?

Depreciation is a way to allocate the cost of an asset over its useful life. Basically, when you buy something, it loses value over time due to use, wear and tear, and simply because it becomes outdated. While there might be nothing wrong with your iPhone 11, depreciation is the reason you can barely get $100 for it even though you bought it for $700 a few years ago.

Buildings, equipment, and computers aren’t the only things that depreciate. Your intangible assets like patents, copyrights, and software can all depreciate, too.

Depreciation can save your net income when it comes to the assets your business needs. For example, if you’re in the trucking business and need a big ol’ $150,000 truck to operate, you know you’re not going to recoup that cost for years to come—and depreciation understands that, too. 

That’s why depreciation empowers you to expense the value of your asset over the life of its usefulness. Thanks to this method, you’re not going to suffer an annual loss every time you make a major investment in your business—which is a huge perk when you’re trying to get a bank or alternative lender to loan you some cash.

What Assets Depreciate?

According to the IRS’s Publication 946, vehicles, machinery, heavy equipment, computers and office equipment, and real estate (excluding land) are all depreciable assets. In addition, assets must meet the following requirements:

1. You must own the asset.
2. You must use the asset for business- or income-producing activities. 
3. Your asset must have a determinable useful life.
4. Your asset must be expected to last at least 1 year.

In certain scenarios, even intangible assets like patents, copyrights, and software can be listed as depreciable.

How Depreciation Can Help Your Business

As a business owner, you’ll inevitably take out a loan or front the costs to acquire specific items for your business. Whether that’s a fleet vehicle, a new piece of specialized equipment, or some other asset doesn’t matter. Whatever you purchase will likely lose its value over time. Instead of deducting the total amount of the purchase up front as an expense, depreciation allows you to recover the cost of the property over the course of its life. That means you can make some of the money you spent on it back each time you file your taxes—or at least reduce the amount of your taxable income, which boosts your tax savings.

Here are a few fantastic advantages that will make depreciation your business’s best friend:

Tax Savings

Several business expenses are tax-deductible, and depreciation is no exception. By claiming depreciation expenses on your assets, you lower your taxable income, increasing your tax savings. When business is slow and the revenue is trickling, some small business owners decide to depreciate using the accelerated method: this method allows you to claim larger deductions early on, helping to offset the price of the asset (more on this later).

Expense Reporting

Depreciation expensing paints a clear picture of how you’re using your capital. When you estimate the cost of an asset’s use over a period of time, you’re then able to compare how much revenue it generated (over that same period of time). When you can compare the expense and the resulting income side-by-side, you’ll have a good idea of your efficiencies or inefficiencies and be able to adjust accordingly.

Accurate Asset Valuations

It’d be misleading to you (and potential investors and lenders) if you only recorded the initial value of every asset you purchased. Because the truth is, that van you bought for the company a few years ago may be worth less than half its purchase value now. By depreciating your assets, you’ll know at any given time how much potential liquidated capital you actually have.   

Cost Recovery

If you bought a $5,000 freezer and it depreciates over the 5 years of its useful life, then each year you’d depreciate the asset by $1,000. You’d also know that you should save $1,000 each year so that in 5 years, you’ll have enough money to replace the freezer. Without the depreciation expense, you may not have saved enough money by the time the asset needed replacing, or you could have saved too much—needlessly tying up a portion of your capital.

Types of Depreciation

There are 4 standard depreciation methods businesses use. One isn’t better than the other, per se—you’ll just need to run the numbers for each scenario and see which is most appropriate for your operations. While the straight-line method is the most common, take your time before you choose. The hassle of calculating a more complicated method may be worth the immediate thousands in tax savings.

1. Straight-Line Depreciation Method

The straight-line depreciation method expenses an asset at an equal amount each year over its useful life. Most small business owners love this method because the formula is so downright simple: you just subtract the asset’s salvage value from its initial cost, and you divide that number by its useful life. Voilà—that’s the amount you depreciate each year. Here’s the equation:

(Asset Cost – Salvage Value) / Years of Useful Life

Let’s look at a practical example. Let’s say you want to depreciate a copy machine for your business. You’d open the IRS’s Publication 946 and find that a copy machine is classified as a 5-year asset. You bought the copy machine for $2,000, and you estimate you’ll be able to salvage the copy machine for $200:

($2,000 – $200) / 5 = $360

There you have it—each year, you’d depreciate the copy machine by $360.

2. Units of Production Depreciation Method

The units of production depreciation method is more appropriately applied to assets used to produce goods or services. If the age of an asset matters less than how much it can produce before it dies, then consider using this method. For example, you might want to use units of product depreciation on a mold used in your assembly line or on a piece of equipment used to make a t-shirt.

Units of production depreciation makes sense to use when the use of your asset fluctuates. If your use is consistent, then it’s more simple to use the straight-line method. However, if varying seasonal demand puts an inconsistent strain on your asset, units of production depreciation might give more accurate insights about the life of your equipment.

Here’s the equation you’d use to calculate units of production depreciation:

(Asset Cost – Salvage Value) / Estimated Total Units of Production

Let’s look at an example. Let’s say you bought a stone oven that you estimated could produce 10,000 pizzas before you needed to replace it. The oven cost $10,000, and you believe it’ll salvage for about $1,000:

($10,000 – $1,000) / 10,000 = $0.9

So each pizza you produce would incur a $0.9 depreciation expense for your oven. If you cooked up 1,500 pizzas over a year, your oven would have depreciated $1,350.

Since you’re likely not counting how many pizzas come out of your oven, units of production depreciation may not be the best method for every business. Manufacturers will benefit the most from this depreciation schedule since they keep a closer eye on the inputs and outputs of all their operations.

3. Double-Declining Balance Depreciation Method

The double-declining balance method may sound like a hip new dance the youngsters are doing, but it’s much cooler than that. With this method, you depreciate more of an asset’s value upfront and less and less over time. It’s similar to how you might approach your dinner plate when you’re dangerously hungry—you attack and eat your first helping lightning quick, and then you peter off and eat at a more mellow pace for the rest of the meal.

This depreciation method leads to bigger tax write-offs in the years right after you’ve purchased your asset and smaller write-offs towards the end of its useful life. Here is the formula for calculating double-declining balance depreciation:

2 x Basic Depreciation Rate x Book Value

Let’s break the formula down. First, let’s find the basic yearly write-off. The basic yearly write-off is the cost of your asset divided by its years of useful life:

Basic Yearly Write-Off = Cost of Asset / Years of Useful Life

To find the basic depreciation rate, divide your basic yearly write-off by the cost of the asset:

Basic Depreciation Rate = Basic Yearly Write-Off / Cost of Asset

Confused yet? Don’t worry. Let’s look at a practical example, and then you’ll have a good understanding.

Let’s say you bought a taxi for $10,000. According to the IRS, a taxi would depreciate on a 5-year schedule. So the taxi’s basic yearly write-off would be $10,000 divided by 5:

Taxi Basic Yearly Write-Off: $10,000 / 5 = $2,000

Now, let’s find the taxi’s basic depreciation rate. You’d divide the basic yearly write-off ($2,000) by the cost of the taxi ($10,000):

Taxi Basic Depreciation Rate: $2,000 / $10,000 = 0.2%

Now, plug that number into our double-declining balance depreciation formula:

Taxi Double-Declining Balance Depreciation: 2 x 0.2% x $10,000 = $4,000

So, after the first year, you’d have a $4,000 depreciation expense for the taxi. But next year, when you calculate the depreciation, the taxi’s book value will only be $6,000 ($10,000 – $4,000). At that rate, the second year’s depreciation expense will be $2,400. Then, the third year’s depreciation expense would be $1,440.

Hopefully, with this example, you can see how the asset starts at a super high depreciation expense, and that number starts to dwindle over time. So, why would anyone want to use the double-declining balance depreciation method when the straight-line method is obviously more straightforward?

4. Sum-of-the-Years-Digits Depreciation Method

The sum-of-the-years-digits depreciation method (SYD method), like the double-declining balance method, is another form of accelerated depreciation. It’s not quite as fast as double-declinching, but it’s still quicker than straight-line depreciation.

To calculate depreciation using the SYD method, assume you bought a pickup truck for $30,000 with a salvage price of $10,000 after 5 years. Here’s the formula you’d follow:

(Remaining life / Sum of the Years Digits) x (Cost of Asset – Salvage value)

Remaining life would be how many more years of useful life the asset has left. So, the first year you depreciate, it’d have 5 years of useful life. The second year you depreciate, it’d have 4 years of useful life remaining.

Find the sum of years digits by adding how many remaining years of usefulness are left after each year. So, for a 5-year asset, the sum of years digits would be 5 + 4+ 3 + 2 + 1 = 15.

Plug those numbers into the equation for the first year, and you’d get…

SYD Depreciation Expense Year 1: (5 / 15) x ($30,000 – $10,000) = $6,666

Do it again for the second year, and you’d get…

SYD Depreciation Expense Year 2: (4 / 15) x ($30,000 – $10,000) = $5,333

Choosing the Right Depreciation Method

There’s no one right way to depreciate your assets. Your business is free to adopt whichever method is most appropriate (and beneficial) to your operations. Depending on your current financial situation or even your predicted tax bracket in the coming years, you may opt for one method over another.

The straight-line method is the most commonly used because it’s easy to calculate, causes fewer reporting errors, and is simple to report on tax returns. However, you may use an asset heavily at the beginning of its useful life and less as times goes on (maybe because you expect to buy more of that asset as you expand). If that’s the case, the double-declining depreciation method may more accurately describe the asset’s expense.

“The “best method” is the one appropriate for your business and situation, says Morris Armstrong, an agent at Armstrong Financial Strategies. “Sometimes, people want to write something off as quickly as possible, even if they do not have the annual income to warrant it. So they accelerate the deduction schedule, only to realize later on that they would have been better off taking the depreciation at a slower, more consistent pace. You should run the various depreciation-calculation scenarios through the tax program with an eye not only on the current return but on returns down the road and the condition of your company in future years as well.”

In the end, it’s up to you to decide how you’re going to depreciate an asset. You don’t have to depreciate all your assets the same way, but you need to make sure you’re consistent with each asset.

The Bottom Line

For those of us non-accountants out there, we don’t have to pretend that depreciation is fun. Because it’s not. But, hopefully, you can now see how incredibly useful it can be for your small business. Get your depreciation strategy right, and you could save a boatload of cash when you need it. Get it wrong, and you could find yourself in an unnecessary tax crunch at an inopportune time.

While you may have an accountant or defer all your tax obligations to one, it’s still good to understand the fundamentals so you can help make important business decisions. With this basic understanding, you now have the knowledge you need to leverage depreciation to its maximum potential. Congratulations, entrepreneur!

While it’s easy to dislike depreciation (what’s to like about a whole bunch of math?), keep in mind all the good it can do for you and your business. Remember: don’t hate, depreciate.

Fearless Fund

Fearless Fund makes small business grants for Black women and women of color who are seeking pre-seed, seed level, or Series A funding—the program is run by women of color as well. There are a few different grant programs available.

Fearless Strivers Grant Initiative: The fund awards 11 grantees $10,000 grants as well as digital tools. Businesses can be located in Atlanta, Birmingham, Dayton, Los Angeles, New Orleans, New York City, or St. Louis.

WOC Grant Program: The Fearless Fund partners with the Tory Burch Foundation and The Cru to award grants between $10,000–20,000. Eligibility requirements include revenue generation (recommended minimum of $100,000), 1–5 years in business, and a woman of color as owner.

Cartier Women’s Initiative

The Cartier Women’s Initiative provides funding for women-led and women-owned businesses around the world. Any sector is eligible, so long as the company aims to have a social and/or environmental impact. There are 3 tiers of financial award grants available: $30,000, $60,000, or $100,000. The Initiative also provides human capital and social capital support. 

Eligibility requirements include:

• For-profit companies
• Early-stage (1–6 years)
• Less than $2 million in fundraising
• Positive impact, based on at least United Nations Sustainable Development Goals
• Applicant must be a woman who holds a primary leadership position at the company
• Majority ownership must be maintained by founders
• English proficiency
• Applicant must be 18 years or older

Comcast RISE

The Comcast RISE program stands for Representation, Investment, Strength, and Empowerment and provides multi-year grants to businesses that are majority owned by women or people of color. To date, the program has provided more than $60 million in grant dollars as well as marketing and technology services. 

In addition to the majority ownership requirement, business applicants must also meet the following: 

• Independently owned and operated (no franchises)
• Registered in the US
• Operating for at least 1 year
• Located within the Comcast Business or Effectv service area footprint

The annual deadline to apply is typically the middle of October, but it’s smart to check on any changes each year.

Grants.gov

Still wondering “How do I get a grant for a small business?” Good news: it’s possible to search for government opportunities via the federal website Grants.gov. You can search by a variety of filters including keywords or eligibility based on location, nonprofit or Native American tribal status, small businesses, and more. 

Grants could be made by the federal government or distributed to state and local government and agencies. While not every opportunity is directed specifically to women, there could be multiple grants available for all small business owners—including female owners. Plus, available grants are always changing, so you can always check back for new opportunities. 

Small Business Innovation Research and Small Business Technology Transfer Programs

The Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (SBTT) programs help businesses support federal research and development needs. While not designed specifically to support women entrepreneurs, both programs do encourage women and socially or economically disadvantaged individuals with innovation and research and development capabilities to apply.

There are more than 5,000 grants awarded each year, and basic eligibility criteria include:

• For-profit, US-owned and operated company
• Under 500 employees
• Funds must be used for research and development

Once awarded, funds from these programs may be used for the first 2 phases of development: first is the concept development phase, which lasts between 6 months and a year with amounts ranging from $50,000–250,000. Phase 2 is the prototype development stage, which lasts for 24 months. Funding amounts range from $500,000 to $1 million. (The third phase is commercialization—but funding cannot be used for this stage.)

What Can You Use Small Business Grants For?

Uses for small business grant funds depend on the requirements of the individual grant program. Oftentimes, the funds may be used for however you see fit as a business owner. However, federal research and development grant programs have strict requirements on how the funds may be used. 

No matter what grant program you apply for, here are some stipulations you may need to meet once you receive the grant funds.

Updates to the Grantor: Some grantmaking organizations may require you to provide updates based on your business progress, particularly if the funds are meant to be used in a specific way. 

Contingencies: You may also find grants that require contingencies to raise additional or matching funds on your own in order to receive the original grant funds. This is most common with state or local grants, although some private programs use grants as a kickoff to additional fundraising efforts. 

Federal and state restrictions: The strictest grant requirements come in the form of federal and state grants because they’re not designed to grow businesses. Instead, they are designed to achieve specific program goals.

Alternatives to Business Grants

There are a number of alternatives to business grants to help launch or grow a woman-owned business, particularly in the form of small business loans for women. Unlike grants, business loans must be repaid in full, including interest. Some may involve additional fees as well.  

The below options aren’t limited just to women, but you may find them particularly useful as a woman business owner:

Online business loans: An online business loan is ideal to apply for when you need cash quickly for your business. There typically aren’t restrictions on how you can use the funds. Loan terms range from 1–5 years and, depending on your business, can go as high as $2 million. Lenders review your credit score, time in business, collateral, and financial statements. 

SBA loans: SBA loans are backed by the federal government, although you still apply directly through a private lender. There are many different types of SBA loans depending on your needs. Two of the most popular options include:

• SBA 7(a) loans: These have a broad use, such as purchasing land, paying for construction, buying or expanding a business, refinancing debt, or operating expenses. 
• SBA 504 loans: These are used for buying property, like real estate, machinery, or land, or for renovating an existing property. 

Startup business loans: Startup business loans are used to help launch a business in its early stages. You may need some revenue under your belt in order to qualify–but it’s still possible for early companies to qualify. 

Both grants and small business loans can help you  fund your company’s next steps successfully—and Lendio can help pair you with the best business loan available for your company.

One of the hardest things for new business owners to understand is that their earnings and cash flow aren’t the same thing. Your business earns money every time it makes a new sale, but that doesn’t mean it has a positive cash flow.

Cash flow refers to the money coming in and out of your business, and it’s a good indicator of your company’s financial health. That's why a daily cash report, which tracks your cash flow, is ideal for helping you make better financial decisions for your business.

What Is a Daily Cash Report?

A daily cash report is a detailed report that outlines how much cash your business currently has on hand. It tracks how much money is coming in and out of your business, and the report is updated on a daily or weekly basis.

This report shows you how much cash you have on hand, not just today but over the next week or month. This makes it an excellent tool to help businesses with short-term financial planning, especially those with tight margins. 

A daily cash report tracks all aspects of the cash cycle, including your accounts receivables and payables. This information helps you make better financial decisions regarding your business.

How to Create a Daily Cash Report

Many people find it helpful to use a daily cash report template to get started. Once you’ve done that, here are five steps you can take to create your report. 

1. Choose your date range

The first step is to figure out how far you want to plan for and choose a date range. Do you need to know how much cash you have for the month, or are you just looking at the next week?

You can plan out as far in advance as you would like, but keep in mind your projections will be less accurate the further ahead you plan. And new businesses may need more data to create a cash report for the entire month. 

2. List your income

Next, you’ll list the income you have coming in over the coming days and weeks. This includes sales and non-sales revenue. For instance, you could include any tax refunds, grants, or investments.

Create a new column for each source of income and add them to the correct week or month. If you aren’t sure what your sales volume will be, you can use last year’s sales to make your projections.

3. List your cash outflows

Once you know how much income you can expect, you need to list any outgoing payments. Your cash outflows can include things like:

• Payroll
• Rent
• Tax bills
• Loan payments
• Materials

Once you have a list of everything going out of your account, you can add up your total. From there, you can subtract your outgoing cash from your incoming cash to see whether your cash flow is positive or negative. 

4. Adjust your plans accordingly

Hopefully, your daily cash report will show that you have a positive net cash flow and that this trend is improving over time. But what if you don’t have enough cash on hand to pay your bills?

Some people avoid looking at their finances because they’re afraid of this exact scenario occurring. But if you’re short on cash flow one week, it’s even more important to look at the numbers because this allows you to adjust your plans accordingly.

For instance, if you don’t have sufficient cash flow to make payroll, you may need to take out a loan to cover it. If this becomes an ongoing pattern, you may need to cut down on your expenses or the number of employees you have on staff.

5. Use the right tools

When you consistently create a daily cash report, you’ll start to notice trends in your business over time. You can do this with a spreadsheet, but it’s easier if you have the right tools to help you.
For instance, Lendio lets you track your expenses and view your real-time cash flow. You’ll receive alerts every time your business is approaching negative cash flow. And our in-depth reporting features will help you identify key trends in your business.

The Bottom Line

If your company consistently generates positive cash flow, this indicates that it’s in a good financial position. That’s why many investors and lenders require businesses to create a daily cash report. 

But most importantly, understanding your daily cash flow allows you to make more informed decisions about your business. If you need help creating a daily cash report, using a tool like Lendio can make this easier.

If you were in business when COVID-19 began, you may be eligible for the Employee Retention Credit (ERC). Introduced in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the ERC offers a payroll tax credit for wages and health insurance that were paid to employees during that time. 

Despite the fact that the Infrastructure Investment and Jobs Act of 2021 ended this program, qualifying businesses can still claim the ERC for up to five years retroactively. One of the most common questions about the ERC is whether it’s considered taxable income. Keep reading to find out.

What is the ERC?

First and foremost, let’s dive deeper into what the ERC actually is. Put simply, the ERC is a refundable payroll tax credit. It was designed to incentivize employers to keep their employees on payroll during the pandemic. As long as you’re an eligible business, you can receive as much as 50% up to $10,000 in qualified wages per employee or up to $5,000 per employee for 2020 and 70% of up to $10,000 in qualified wages per employee for each qualifying quarter (Q1-Q3) or up to $21,000 per employee total for 2021.

Is the ERC Taxable Income?

Now it’s time to discuss one of the most common ERC questions: Is the tax credit taxable income? The answer is yes and no. 

As a business who acts as an employer, the credit you receive from the government through the ERC is not included as gross income in your federal income taxes.

It does, however, reduce the amount of wages or salaries expenses you can claim as a deduction in your income tax return by the amount you qualified for through the ERC. This increases your taxable income by the amount of the credit for the time period you qualified for the ERC. Any changes made to your income tax return will be done retroactively. 

For example, if an employer paid $100,000 in wages in 2020 and received an ERC of $40,000, the employer would report an expense of $60,000 in wages on their business tax return rather than the full $100,000.

Difference Between a Tax and Refund

It’s important to understand that the ERC is not considered a tax. Instead, it’s a refundable tax credit for qualifying employee wages. For 2020, your business can lock in up to $5,000 per employee. The maximum credit per employee in 2021 is $21,000.

Since the ERC is a payroll tax credit not an income tax credit, you can still receive an ERC credit even if you paid no income tax in the year you qualified. Additionally, because the credit is refundable, you can receive a refund above and beyond what you originally paid in payroll taxes for the time periods you qualify for.

For example, if you qualify for a $30,000 ERC credit, but only paid $10,000 in payroll taxes, you would still receive the full amount of $30,000.

Am I Eligible for the ERC?

If your business faced partial or full shutdowns as a result of government orders during COVID-19, you may qualify for the ERC. 

To calculate the ERC, you’ll need to use the qualifying wages you pay your employees during their eligible employer status. Keep in mind that since ERC is a refundable tax credit you may receive a refund in excess of your original tax liability.

What Happens If I Never Applied for ERC?

You might be wondering what your options are if you never applied for the ERC. Since the ERC filing period has passed, you must file an amended return using Form 941-X to claim any credits you may be eligible for.

 Expiration dates for filing amended payroll tax forms for ERC are as follows: April 2024 for 2020 941 payroll tax filings and April 2025 for 2021 941 payroll tax filings. Rest assured, if you didn’t apply for the ERC, you can still do so. Simply amend the return for every quarter in 2020 and 2021 where you meet the criteria for ERC. It’s in your best interest to reach out to a tax professional to help you out. They can help you avoid a denial or delay.

Bottom Line

The ERC is a valuable tax credit you may claim for keeping your employees on your payroll during the COVID-19 pandemic. While it’s not included in gross income for employees, it is subject to expense disallowance rules. Therefore, your wage deduction as an employer will be reduced by your ERC amount which could result in taxable income. If the business wasn't profitable even after the change it would not cause an increased tax burden.

As a business owner, it’s important to use financial forecasting tools to develop a plan for your company. These tools can help you determine whether your business is headed in the right direction and see how your results vary from your expectations.

Two financial strategies you can use are budgeting and budget forecasting. While there are some similarities between the two, they aren’t the same thing. Let’s look at how budget forecasting works and how you can set one up for your business.

What is Budget Forecasting?

Budget forecasting is a confusing term for many people because it combines multiple financial tools. It is essentially a combination of a budget and a financial forecast—it uses a budget to create a plan for the upcoming fiscal year using historical business data. 

What is a Budget?

A budget is a spending plan for your business based on your projected income, expenses, and cash flow for the upcoming year. A budget helps you understand how much money you have and how much you’ve spent. 

A budget can help you make important financial decisions in your business, like whether you need to cut your expenses or have the funds to buy new equipment. And a detailed budget can make it easier to obtain a loan from a bank or financial institution. 

Your business budget should include the following components:

• Estimated revenue: The estimated revenue is the amount of money you expect to bring in from the sale of your products or services. The easiest way to figure out your estimated revenue is by multiplying the expected number of sales by the average sales price. 
• Expenses: Your budget should also account for any expenses in your business. Spend some time thinking about the fixed and variable costs your business typically incurs throughout the year. It’s also important to account for the occasional one-time expenses, like replacing equipment.
• Cash flow: The cash flow is the amount of money being transferred in and out of your business. You want to track your cash inflow and cash outflow, as this will affect liquidity.
• Profit: Your profit is the amount of money your business gets to keep after all its expenses are paid. If the profit is increasing year over year, that means your business is growing. 

What is a Forecast?

A financial forecast is a high-level projection of expected business outcomes based on existing data. A comprehensive forecast looks beyond the factors directly impacting your business and considers other factors as well, like social and economic influences.

A budget is typically a short-term projection, but a financial forecast can be used for short-term and long-term projections. It typically includes the following information:

• The current and expected revenue
• Information about fixed, variable, and one-off expenses
• A financial projection of the company’s expected growth

Budget vs. Budget Forecasting: What’s the Difference?

There are similarities between a budget and budget forecasting, but they aren’t the same. A budget outlines the direction a company would like to go, while a budget forecast shows whether the business is actually headed in that direction. 

And while a budget is typically done once a year, a budget forecast is updated monthly or quarterly. And unlike a budget, budget forecasting doesn’t account for any variance between the budget and actual performance. 

The most significant difference between these two strategies is that a budget is typically created to help a business meet a goal. It’s a static financial document that outlines a company’s projections for the upcoming year.

In comparison, a budget forecast aims to predict the outcome of a budget. It’s adjustable and can change over time as your business’ needs and expectations change.

How to Make a Budget Forecast

A budget forecast predicts the expected outcome of a budget for the upcoming fiscal year. It uses past sales data to create a short-term estimate of the company’s financial goals. Let’s look at the steps you can take to create a budget forecast for your business. 

Gather Your Company’s Data

The first step is to gather your company’s past and current financial data. List out any information about the sales revenue and expense history. Once this information is listed out in a formal document, you’ll have a better idea of what your future earnings and expenses will be. 

Decide on the Time Frame

Next, you need to determine the time frame you’re looking to measure. For instance, do you want to review the budget forecast monthly, quarterly, or annually? 

Set Your Expected Revenue

Once you have a good understanding of your company’s financial data, you can project your expected revenue for the coming year. It’s a good idea to underestimate your revenue expectations and set this as your baseline goal. Don’t forget to include any additional streams of income, like investments or stock shares.

Project Your Expenses

Now you’re going to project your fixed, variable, and one-off expenses for the coming fiscal year. This can include things like operating expenses, cost of goods sold, and loan payments. It’s a good idea to overestimate your expenses—look at your average spending over the past few years and set your budget forecast based on the higher end of those averages.

Conclusion

A budget forecast is a valuable tool that businesses can use to set financial expectations for the coming year. But creating a budget forecast can be challenging, and it requires that you have a solid understanding of your company’s data.

If your historical data is inaccurate, your budget forecast will be wrong as well. That’s why it’s a good idea to use forecasting software to develop your budget forecast. 

The right forecasting software will make it easier to track your cash flow, understand where your money is going, and identify trends in your business. That way, you’ll always understand how your business is performing and what you should focus on.