Payroll processing is undoubtedly a major task that small business owners have to accomplish to keep their businesses running. While most people may not know the work and depth of payroll processing, people who are charged with the task of issuing paychecks are clear on all the difficulties involved. If you have any trouble making payroll, try these five tips.
In personal finance, we talk about having an emergency fund. Business finance is no different. Your net profit can and should go three different places: (1) into the hands of the owners in the form of a dividend, (2) back into the business to finance the growth of the business, which will show up as expenses in the following period, and (3) retained in your cash account in the event of cashflow problems. Regularly set aside a percentage of profit to add to this fund so that poorly-timed cash shortfalls don’t break the bank.
Identify Company Needs Accurately
Before inviting a payroll service provider, create a list of what you want to get out of your business system. Account for the ability of your business to track payroll metrics, salary calculations for individual workers, and direct deposit needs. Ultimately, you may consider choosing a provider that offers a comprehensive service suited for the unique needs of your business.
As a small business owner, it is vital for you or your payroll processing company be able to classify your workers appropriately. There are significant differences between employees and independent contractors. Your employees are workers over whom your business has authority regarding how they work and what they do. Contractors are not under your jurisdiction regarding how their work is accomplished. Knowing the distinction will help you know how you should withhold income taxes and social security taxes and pay unemployment taxes.
Watch Out for Taxes
Late deposits of taxes or any other mistakes can turn into a fiasco that brings your business down. You can ask if your payroll processing service can make the deposits on your behalf at the right time. Even if taking this step costs a little extra, it will help you avoid a major mistake. You can rely on your emergency savings to do this.
Keep Up-to-Date Records
Create an organized system to help you track all important documents. Your business has a legal obligation to keep certain categories of records for designated periods. For your payroll preparation purpose, it is very critical to keep your W-4 and W-2 forms, dates of tax deposits, and copies of tax returns securely.
Stay Out of Debt
The two largest causes of cashflow shortfalls are debt and growth. Operating a business with little or no debt requires an unusual level of intentionality, but doing so will not only reduce the risk of business failure but also free up cash to be used for business operations, rather than maintenance on your loans.
A payroll service provider who knows all the ins and outs of payroll processing can be an invaluable asset to your business. These services can enhance the operational efficiency of your small business, help keep the right employee records, and provide improved security
The Bottom Line
When it comes to making payroll, don’t try to go it alone, unless you are an experienced accounting professional. Minor errors in your database can make you pay a lot of fines. As a general rule, find the best way to make payroll as painless as possible yet without entertaining any compromise.