The year-end payroll gauntlet is fast approaching. With the holiday season in full-swing, taxes around the corner, and fourth quarter payroll requirements looming, there is a lot of pressure on business owners to complete these tasks smoothly and accurately (especially since even simple mistakes may accrue fines and fees). If you’re looking for a simple guide to walk you through your year-end payroll responsibilities, we’ve got you covered.
We’ve broken down the year-end payroll process into 10 easy steps. This way you can close out your payroll and ensure that you file all of the proper tax forms on-time. To make things even easier for you, we’ve also created a printable Year-End Payroll Checklist so you can mark your progress.
Small Business Year-End Payroll Checklist (PDF)
You can print the Year-End Checklist now and use it to follow along, or you can jump right in.
How To Complete Year-End Payroll
Year-end payroll is all about balancing your books, ensuring you’ve paid people the right amount of money, and double-checking that you’ve sent the right amount of taxes to the government. By the end of January, employees should have access to a W-2 or 1099, which is a record of payment received and taxes paid. You will also need to submit wage and tax information to the Social Security Administration (SSA) and the Internal Revenue Service (IRS).
Payroll is a year-long process: keeping your records updated as you go throughout the year will help with any end of the year accounting and paperwork management. Even if you outsource payroll, there is information you should verify and deadlines you shouldn’t miss. (Also, now is the perfect time to review your company’s payroll choices. Anything you/employees want to change before the new year?)
As always, the exact process for your payroll processing is dependent on your state and industry, so use these steps as a guide and verify with an accounting or bookkeeping professional.
Step 1: Verify All Employee & Company Information
As the year winds down, you will need to ensure that all of the information for your company and employees are correct. First, verify that your company name, tax IDs, and company tax information is updated and accurate. Next, make sure that your employee information is up-to-date. For employees, check the following:
Employee’s name is spelled correctly
Correct Social Security Number
Updated/accurate employee addresses
If you find any discrepancies between recorded information and accurate information, update your files and/or let your payroll service provider know of any changes.
Step 2: Verify Wages, Taxes, & Benefits
After you’ve checked and made sure all your employee and company information is accurate, the next step is to run through and verify that your wage, tax, and benefit numbers match up with your payroll numbers. Here’s what you’ll need to verify:
Yearly PTO accrual
Worker status (active, terminated, on leave)
Filing status (exempt or non-exempt)
Number of exemptions
Year-to-date wages and taxes
Most of the information above is on an employee’s W-4 form. Employees can change their tax information with the government at any time, so this is where you may find and remedy discrepancies. Bonus: Many payroll software programs have reporting features that will do this work for you.
Step 3: Order Your W-2s
If you run payroll yourself or if you do not have a payroll provider that manages your W-2s, you will need to order paper forms from the Internal Revenue Service. A W-2 is a tax and wage statement for your employees. Contractors will receive a 1099 form. You can also file these forms online on the IRS website. Paper forms take 10 business days to mail, so plan ahead and order these in December.
Step 4: Manage Paid Time-Off
What is your company’s paid-time-off (PTO) policy? Do you offer PTO as a lump sum at the start of the year or does your PTO accrue as the year progresses? Will your employee’s PTO reset in January? What happens to the unused time?
Some states have mandates on whether or not a company can clear PTO, so check with your accountant or bookkeeper about the laws in your state. If you pay-out accrued PTO, you will need to manage that payment with the last paycheck of the year and keep a record of that payment for tax purposes.
Step 5: Decide On Bonuses
If you are awarding bonuses, those payments must go out with the last paycheck of the year. You will need to keep a record of bonuses given for tax purposes.
Step 6: Update Your Compliance Posters
In November or December, it’s important to order your new labor law posters for the upcoming year. These posters are federally mandated and expected to be displayed in a conspicuous place where all employees can read them. Failure to post updated labor law posters could result in fines, fees, or even labor lawsuits.
Step 7: Update Payroll Information
Before you run your first payroll of the new year, you will need to update your payroll information. That includes checking for new tax rates, making adjustments to employee information, balancing PTO, and tweaking yearly deductions.
Step 8: Deliver W-2s/1099s To Employees
Your employees need their W-2/1099 forms documenting their pay and taxes for their own tax filings. You have a legal responsibility to deliver pay and tax information to employees by January 31st.
Step 9: File Your W-2s/1099s
File all W-2s and 1099s with the Social Security Administration by January 31st. (You may also need to file W-2s with your state or county, depending on location and local tax laws.) In addition to each W-2, you will send a W-3 form; this form is needed for each employee and is a summary of the information on the W-2.
Step 10: File Tax Forms 941, Form 940, and Form 944
Forms, glorious forms! You will need to pay your federal unemployment tax (FUTA) from the fourth quarter with Form 940. You must also file federal income taxes and FICA (social security and medicare taxes) through Form 941. The last form (Form 944) is an annual return of all paid payroll taxes. All are due by January 31st.
Payroll Year End FAQS
Still have questions about closing the books? Here are the most popular year-end payroll questions. Don’t see your question? Leave a comment below.
What does year-end payroll mean?
Year-end payroll is about checking that the numbers to ensure your payroll reports add up to the money you’ve given and withheld during the calendar year. This is the last opportunity before you file your taxes and year-end forms to reconcile any discrepancies, change or update information, or adjust payroll choices for the new year.
What year-end payroll forms do businesses need to file?
So many forms. The good news is that many of the payroll software options available offer tax and year-end payroll support, and many of these forms can be filed online. (Always check with your accountant or bookkeeper about your specific state and industry requirements.) Here are the most important year-end payroll forms you will need to file:
W-2 Form: This form reports wages and withholdings to the IRS
W-3 Form: This is a summary of the information in the W-2s. This goes with employee W-2s to the Social Security Administration.
1099 MISC: This is a statement of income for contractors.
Form 1096: If you’ve paid any contractors and given them a 1099 MISC, you will need to summarize that payment information and submit it to the IRS with this form.
Form 940:Â This is the form needed to pay your Federal Unemployment Tax (FUTA) liability to the government.
Form 941:Â This form is due quarterly and reports employee payroll taxes collected for each quarter. Payroll taxes include federal income taxes, social security and Medicare taxes.
Form 944:Â If your payroll taxes are less than $1000 annually, you may qualify to pay these taxes yearly instead of quarterly. Small businesses that qualify will fill out a Form 944 instead.
Form 1095-B: If you offer health insurance, you will need to send this form to the IRS and to your employee to document that health coverage.
When does year-end payroll have to be submitted?
All the forms related to year-end payroll reports are due by January 31st to their respective locations.
What year-end tax forms do employers have to provide their employees and contractors?
Employers need to send their employees a copy of their W-2 and contractors a copy of their 1099-MISC. This accounts for wages paid and taxes withheld.
When do employers need to complete their employee W-2s?
All W-2s need to be filed with the social security administration with copies sent to employees by January 31st.
When do employers need to complete their contactor 1099-MISCs?
All 1099-MISC forms must be sent to the IRS with copies sent to those who received nonemployee compensation by January 31st.
Get Started With Our Year-End Payroll Checklist
Small Business Year-End Payroll Checklist (PDF)
It’s understandable if all the steps above feel overwhelming. It’s best to think about year-end payroll like this: This is when you account for the wages and taxes you’ve paid and withheld throughout the year.
As you look to settle books and wrap up your fourth quarter taxes, you might find that you’re interested in outsourcing the task next year, if you don’t already. Some payroll software companies like Gusto and Intuit offer tax services as part of their payroll programs. Whether you’re running payroll yourself or outsourcing, use our Merchant Maverick Year-End Payroll Checklist to get started, and check out our other great payroll and tax resources for more help running your small business.
What Can I Write Off As A Small Business Tax Deduction?
Everything You Need To Know About Small Business Payroll
What Are Payroll Taxes? And How Do You Calculate Them?
Small Business Accounting: How To Close The Books At The End Of The Year
The post Small Business Payroll: Your Complete Year-End Payroll Guide appeared first on Merchant Maverick.
It’s that time of year again — time for holiday parties, sparking lights and decorations, and gifts under the tree. As a small business owner, the holidays can add even more to your already full plate (and no, we’re not talking about your big family dinner). One of the most wonderful times of the year can quickly become one of the most dreaded for small business owners and entrepreneurs because of one little phrase: year-end accounting.
Despite being a hassle, though, year-end accounting serves several important functions. The year-end accounting process helps you prepare for tax time. You’ll also run critical financial reports that give you a clear picture of the financial health of your business. This helps you determine any action you need to take in the future to stay on track, boost your profits, or hit other company-wide goals.
Every business owner needs to do their year-end accounting. The good news, however, is that there are steps you can take to simplify the process. Some of these steps can be done at the end of your company’s calendar or fiscal year, while other steps are performed on an ongoing basis. Integrate these tips into your accounting workflow to save time, avoid overlooking errors, and be prepared for your year-end accounting process.
Use Accounting Software
If your business isn’t already using accounting software, what are you waiting for? Today’s accounting software allows you to keep your transactions organized and automates processes such as reconciling bank accounts or sending payment reminders. Depending on the software you choose, you’ll have access to a variety of accounting features that can help you throughout the year … and at the end of the year. This includes invoicing, estimates, expense tracking, inventory management, and time tracking. Your accounting software also allows you to run important financial reports needed for year-end accounting. If you’re new to accounting, don’t worry — most software is easy enough for anyone to use, even if you didn’t major in accounting! (If you don’t believe us, check out our top easy accounting programs.)
The software you choose should fit the needs of your business. For example, if you operate a small business with a handful of clients and only need basic features like invoicing and reporting, free accounting software may work for you. If you have a larger business with more extensive accounting needs, there are plenty of paid options available that offer additional features at an affordable price.
As the end of the year approaches, selecting and learning how to use your new accounting software can be a burden to a busy business owner. If your end-of-year to-do list is too long to add a new task, take some time to at least explore your options so you can have a fresh start for the new year.
Regularly Invoice Customers
Regularly invoicing your customers is necessary for a number of reasons. Not only does this help improve the cash flow of your business, but it also saves time with year-end accounting. In other words, don’t wait until the last minute to invoice your customers — make life (and year-end accounting) easier by invoicing your customers throughout the year.
The same holds true for invoice reminders. Your customers and clients get busy, too, and can easily overlook an invoice. Sending out payment reminders helps you get paid faster, improving your cash flow and reducing the number of unpaid invoices you have to deal with at the end of the year.
Your invoicing software or accounting software makes it easy to send invoices and payment reminders, as well as receive payments from your customers. Of course, features vary based on the software your business uses, but many programs offer recurring invoices and automated payment reminders that help you get paid faster with less work on your end.
Keep Track Of Your Income & Expenses Throughout The Year
For a business owner, there are few things more stressful than shuffling through receipts, invoices, and bank statements to get your finances in order. Not only does waiting until the last minute create more work for you (or your bookkeeper), but rushing through makes it easier to miss errors that can affect everything from your financial statements to filing your taxes. Don’t wait to track your income and expenses. Simplify your year-end accounting by tracking income and expenses throughout the year.
You can track your income and expenses through your accounting software. At a minimum, you should include the date of the payment, the amount of the payment, and the payor or payee. For further organization, you may even break down your income streams and expenses into categories if this is an option in your accounting software.
Like many of the other steps in this article, the benefit of tracking your income and expenses is two-fold: it simplifies your year-end accounting and also allows you (or your accountant) to more easily find tax-deductible expenses.
Reconcile Your Bank Accounts Every Month
Accounting is all about balance, and reconciling your bank accounts can help ensure you maintain that balance. To put it simply, reconciling your accounts means that you compare documentation (such as invoices or bills) to ensure they match the transactions in your bank accounts. Sound difficult? Not to worry — your accounting software can come to your rescue again.
Sure, you could sit down and manually compare your bank statements with your bills, receipts, and invoices … or you could let the software do the work for you. Many programs offer a reconciliation feature that lets you securely connect to your business bank accounts. The information is compared to transactions that have been input into your software. If the numbers don’t match up, you know that there’s an error somewhere in your accounting — maybe you forgot to enter an expense, for example. Bank reconciliation goes beyond just user error; it is also a way to detect bank errors or even fraudulent activity.
Reconciling your bank accounts should be a regular bookkeeping task that your business performs at least once per month. Balancing the books and detecting errors on a regular basis is far easier and less time-consuming than waiting until it’s time to do your year-end accounting. Plus, if you notice an error at the end of the yar, it may be too late to set it right.
Separate All Personal & Business Expenses
In a perfect world, all small business owners would have their personal and business expenses separated by using different bank accounts. Unfortunately, this isn’t the case for all businesses. If you use one bank account for personal and business expenses, those will need to be separated as part of your year-end accounting process.
Why separate your expenses? Two words: IRS audits. If the IRS has reason to believe that you’re writing off personal expenses as part of your business, you could be audited. And if you don’t have your finances in order, you’ll find it more difficult to get through this audit, potentially paying more money due to poor record-keeping.
Fortunately, some accounting software provides easy, hassle-free options for separating your expenses. If you don’t have separate bank accounts, look for a program that offers this feature, such as Wave. You should also consider opening a business bank account for improved organization heading into the new year.
Count Your Inventory At The Beginning Of The Year
While your accounting software may have an inventory tracking feature, you should never skip over manually counting your inventory. By counting your inventory, you can verify that the data in your software is correct. Your inventory at the beginning of the year should match the closing inventory from the previous year.Â Counting your inventory is also a way to calculate the cost of goods sold, and is required for several tax forms.
There may be discrepancies in your accounting software and your manual count. This isn’t uncommon and could be due to a number of reasons, such as broken products or items that were stolen. Identifying these discrepancies keeps your books accurate and prevents interruptions to your business, such as unexpectedly running out of stock.
You may also find that you need to clear out some stock as you head into a new year. Products that are obsolete or aren’t selling, for example, can be sold at a reduced price or even donated, which may qualify as an additional tax deduction. Need more year-end sales advice? Check out our top holiday sales tips.
One thing to note is that your inventory should be counted on a day that your business is closed. Products should not be shipped or sold until the inventory is counted and reconciled in your accounting software to ensure accurate counts.
Run Year-End Reports
Running financial reports is a critical step in year-end accounting. These reports give you a clear picture of how your business is doing financially. These reports are also used when filing your tax return. In addition to showing how your business performed through the year, you can also use these reports to set budgets and goals for the year ahead.
There are a few reports that you should always run at the end of each year. These include:
Profit & Loss Statement: A summary of costs, expenses, and revenues that show whether the business operated at a profit or a loss.
Balance Sheet:Â Summarizes the company’s assets, liabilities, and equity.
Expense Report:Â A report that tracks expenses necessary for business operations, including reimbursable travel expenses of employees.
Mileage Log:Â A report that reflects the beginning and ending mileage on a vehicle used for business purposes.
Payroll Summary:Â Summarizes data for paid employees, including wages, taxes, and deductions.
Sales Tax Summary:Â A summary of the sales tax you have collected, as well as sales tax you have paid toward your expenses.
You may opt to run additional reports to have a more comprehensive view of the financial state of your business, such as a Statement of Cash Flows or Sales By Item. You should also consult with your accountant to find out about other reports that may be required for filing your tax return.
Most accounting software allows you to easily run at least basic reports, such as P&L Statements and Balance Sheets. For more advanced reporting, a software upgrade may be required. Always make sure to check each report for accuracy. Once you’ve confirmed that your reports are accurate, it’s time to analyze your business performance. Did you meet your financial goals? Are there areas for improvement? Use this data to set a budget and financial goals for your business for the year ahead.
Take Care Of Year-End Payroll
As the end of the year approaches, you can tackle year-end payroll tasks. While some tasks are better reserved for the month of December, you can actually get a jump on completing these tasks by starting in October or November.
To get started, first verify that your company information, such as tax ID numbers and mailing address, are accurate. Next, verify the information of your employees and contractors. This includes taxes, wages, Social Security number or Tax ID, filing status, and mailing address. If information is incorrect, an employee or contractor should review and submit an updated W-9 or W-4.
Also make sure that you prepare in advance for payroll periods that fall during the holidays so there isn’t a delay in payments. In December, you can also run payroll for employee bonuses and make any necessary adjustments.
The Payroll Summary that was mentioned in the previous section should be used to verify that all information is correct. Once you’ve confirmed that all employee information and payroll summary data is correct, you can gather the documents you need to send out 1099-MISC forms and/or W-2s in January. If your payroll processor or accountant will be sending out these tax forms, make sure that everything is in order and you have all required documentation in order to have the forms prepared and mailed out prior to the deadline.
Lock Your Closing Periods
Once you’ve completed your year-end accounting, it’s time to lock your closing periods — or close the books. Once you’ve locked your closing periods, you will be unable to add or make changes, so make sure that you’ve completed all of the necessary steps of year-end accounting before closing your books. Many accounting programs allow you to lock closing periods quite easily just by selecting a date.
If you did find that you made an error, all hope isn’t completely lost. Some software, such as QuickBooks Pro, allows you to set a password that can be used to add, remove, or update transactions.
Start Fresh In The New Year
This all may seem a bit overwhelming, but it’s worth it to have a fresh start for the new year. You’ll be ready for tax time, have new goals in mind for your business, and have a better understanding of your company’s current financial situation.
While some of these steps may be time-consuming (I’m looking at you, inventory counting), knowing what needs to be done and tackling tasks throughout the year will save time and help ease the stress that comes with year-end accounting. Good luck!
The post Simplify Your Small Businessâs Year-End Accounting With These 9 Easy Tips appeared first on Merchant Maverick.
Most people don’t like the idea of taxes in general, not to mention the excruciating minutia of what goes into calculating how much to pay the government and when. And if you do like those things, then you are probably an accountant or a payroll tax expert already. God bless you, you don’t need this article. However, if you are a small business owner who is entering the world of payroll, understanding payroll taxes can feel daunting. It’s true: there’s plenty to learn and making a mistake can result in costly fees. Using payroll software might take the guess-work out of the process and do the calculations for you, but it’s still important to have a rudimentary understanding of payroll taxes, especially if employees have questions about their paychecks.
In this post, we’ll cover what payroll taxes are, who’s responsibility it is to pay them and when, how to calculate them, and more.
What Are Payroll Taxes?
Payroll taxes are the money an employer withholds from an employee’s earnings to pay taxes to the state and federal governments. How much an employer takes out and sends to the government is based on the employee’s salary and wages, and it is the employer’s responsibility to manage these taxes. There’s only one exception: 1099 contractors are in charge of their own taxes! Contractors, freelancers, and small business owners pay a self-employment tax which is the equivalent of employee/employer payroll taxes.
Payroll taxes make up a substantial part of government revenue and are the second-leading money generator for the United States. (And we can often look to payroll in America as indicators of how our economy is growing or receding, too, as payments reflect growing trends in hiring and stagnation.) When an employer runs payroll, the process involves calculating the employee’s net pay. Net pay is the take-home paycheck employee’s receive on payday, and how you calculate that net has to do with how much state and federal taxes you, as the manager of the payroll, take out, collect, and pay to the appropriate agencies. It’s a detail-oriented process that has multiple opportunities for missteps and steep penalties for mistakes.
Bear in mind that when someone says “payroll tax,” they are lumping together all of the various taxes paid out of a person’s paycheck for services, but in the next section I’m going to breakdown where those payroll taxes go.
Types Of Payroll Taxes
When an employer removes taxes from an employee’s paycheck, that money is earmarked for state and federal services. Here’s how payroll taxes breakdown individually:
Federal Income Tax Withholding:Â Federal income tax is based on income level and the rates are progressive, meaning that as you make more income, your rates move, and your income tax increases as you travel up the tax brackets. There are currently seven tax brackets that tax income at: 10%, 12%, 22%, 24%, 32%, 35% and 37% as income increases.
Social Security Tax:Â This tax is also called the Old Age, Survivors, and Disability insurance, and it’s a flat-rate tax of 12.4% of taxable income. Both the employee and the employer are responsible for paying half (6.2%) of the social security tax.
Federal and State Unemployment Taxes: The Federal Unemployment Tax is a mandatory tax paid quarterly versus monthly. State requirements differ widely.
Medicare Tax:Â This tax is also a flat rate of 2.9% with the employer and the employee splitting the cost at 1.45% each.
State Income Tax Withholding:Â There are currently seven states that do not have a state income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming) but for everyone else, income taxes work similarly to federal income tax withholdings. The tax rates are very specific to each state, so check the withholding tables on the state government website where your business is located.
Local Taxes:Â Local taxes are very specific to city and state. Most states have a state unemployment tax that is accounted for in this local taxes section. These taxes are based on local tax laws and the tax rates vary, so small business owners need to check/verify those taxes through the state’s tax department.
Payroll Tax VS Income Tax
Payroll taxes include FICA taxes (social security and medicare) and local taxes withheld, and the additional percentages provided by the employer.
Income tax specifically refers to the federal, state, and local income tax rates
So, running taxes for your payroll involves collecting both payroll taxes and federal/state income taxes. When people say “payroll taxes” they are providing an umbrella term for all collected tax, but the term “payroll tax” refers to FICA taxes (social security and medicare) and local taxes withheld from an employee’s paycheck, plus the additional percentages provided by the employer. Income tax specifically refers to the federal, state, and local income tax rates. Even though the two are joined together in one lump, payroll taxes are specifically earmarked for certain programs. Income tax, on the other hand, is delivered to its respective federal or state governments and is used to manage the budget.
Who Pays Payroll Tax?
The burden of managing payroll and sending payroll tax payments is on the company, and the burden for paying those taxes falls on both the employee and the employer. Each state has different regulations and requirements for how state income tax is paid to the government, and the federal government collects payroll taxes quarterly.
Employer Tax Responsibilities
Okay. You are a small business owner and it’s time for payroll. What tax responsibilities do you have?
Social Security: You will pay your half of the 6.2% and you will withhold 6.2% from wages for your employee’s portion.
Medicare:Â You will pay your half of the 1.45% and you will withhold 1.45% from wages for your employee’s portion.
Federal Unemployment Tax:Â This tax is employer-paid and the current rate is 6% on the first $7,000 earned by an employee.
If you are self-employed or working under contract, you are the employer and the employee and it’s your responsibility to pay for both sides of the payroll taxes. That means that contractors need to withhold the full 12.4% for social security and 2.9% for Medicare, and withhold their own state and federal income taxes (saving 15-20% of each check to cover these taxes is the recommended practice). Some states also charge additional taxes for small businesses that become the responsibility of a contractor, as well. When contractors file their taxes, they will pay their portion of these taxes then.
When Are Payroll Taxes Due?
Once you have collected the payroll taxes for your small business, they are due on either a monthly or semi-weekly deposit. Semi-weekly deposits are primarily required just for large businesses with a large payroll tax revenue, so it is most probable that you will deposit your withholdings monthly. Payroll taxes are due on the 15th of every month (unless that falls on a weekend, then the next available Monday).
If you are self-employed, you most likely will file estimated quarterly taxes (although some states accept yearly payments if you make under a certain amount). Check your state’s specific rules and tax brackets for the most accurate information.
How To Calculate Payroll Taxes
Calculation of payroll taxes uses all the great basic math skills: multiplication, addition, percentages. Be aware that if you make a mistake or are late processing a payment, the government likes to slap fees around. (I mean, no doubt, fees are a source of revenue for the government, too.) While you can do payroll calculations by hand (and many do, including an adorable 80-year-old woman on Facebook who chastised me for suggesting someone run payroll using anything other than their head, a pencil, some paper, and the numbers), there are many great payroll software options that can do this part for you: Gusto, Square, Paychex, and ADP are all reputable companies that you can use to outsource payroll.
However, maybe you really want to tighten the budget and only have a few employees and you’re not gonna let me convince you to give the computers their chance at this one. Okay. Pencil. Paper. Calculator. Spreadsheet with equations, maybe?
You’ll need to know how many times you are paying/withholding taxes from your employees before you can run payroll, so determine whether you are running payroll, weekly, biweekly, or monthly. Then you will need to decide if you’d like to pull taxes using the wage bracket system (recommended by most tax experts for small businesses) or the percentage method (not recommended for small businesses attempting payroll on their own).
When you onboard employees, you will have them fill out a W-4. You will use that W-4 to note the employee’s withholdings and whether they are filing single/jointly/head of household. This is the data you need to calculate federal income taxes. The following image is from the IRS Publication 15 for the 2019 tax season and gives the step by step numbers for calculating the federal income tax withholdings through either method.
After you withhold the money for federal income taxes and any additional pre-tax deductions (retirement, worker’s compensation, healthcare), then you calculate the FICA (social security and Medicare) taxes. To calculate the social security tax, you will take your employee’s gross pay (the amount your employee receives before payroll taxes are removed for that pay period) and multiply it by .062 — the product is the amount of money to be withheld from the paycheck and matched by the employer.
You would do the same thing for the employee’s portion of Medicare by taking the gross pay for the pay period and multiplying it by .0145%. The product is the amount you’ll withhold and match for Medicare.
All state and local taxes are calculated on a state-by-state basis.
How To Report & Pay Payroll Taxes
When you run payroll, calculating the taxes and discovering your employee’s net pay (aka their take-home pay or the amount they make after payroll taxes are removed) is only the first part of the process. After you’ve run your payroll numbers, you face the important task of getting those taxes into the right hands and accounting for your payroll to the government. As a small business owner, it is your responsibility to:
Withhold all payroll taxes and submit them on time (the 15th of every month, or next available business day) to state and federal agencies.
Report income, withholdings, matching of payroll taxes to the government quarterly.
Keep records of yearly payroll for state and federal reporting agencies.
Send W-2s and 10-99s to employees and contractors listed with the correct amounts of their gross/net pay and tax withholdings.
When you have the monthly deposit to submit, you must submit the funds electronically (barring special circumstances allotted to small businesses only) using one of the following methods: via a third-party (through a software/payroll service like ADP, Gusto, or Paychex); through your bank’s Automated Clearing House (ACH) network; or by the Treasury Department’s free Electronic Federal Tax Payment System online/over the phone.
Some small businesses, especially those with low liability, can opt-in to a yearly payroll payment. This requires filling out a Form 944. Check the government’s website to check for current eligibility requirements.
Your Federal Unemployment Taxes are due to the government quarterly. Form 941 is your guide to reporting income, withholdings, and payroll taxes to the government, and the tax forms are due on the last day of the month after the end of the quarter. For example, quarter one ends March 31 and the report is due by April 30. And at the end of the tax year, you have until January 31 to deliver the necessary tax forms to your employees, former employees, and contractors, so they can file their taxes correctly.
If you are self-employed, you’ll need to gather your 1099-MISCs and file a Schedule C when you file your taxes (due April 15).
For both small business owners and the self-employed, it is imperative to maintain impeccable records of your state and federal payroll taxes, whether by hand in a notebook, in an old spreadsheet document, or by using online software.
Payroll Tax Penalties
Alright, here’s the big scary number: 100%. If you fail to withhold the proper amount from your employees, you the employer are 100% liable and will need to furnish the missing monies from your own pocket in addition to any legal penalties and fees you face. Look, people get real serious when you don’t give them the correct money owed. Also, these funds go toward employee services, so sometimes your employees can’t access these services if the account is behind. Employer error is costly because tax laws say that the onus for accuracy is on you, the business owner. And if you can’t pay those fees? That trickles down into every aspect of your business in a cycle: higher consumer costs, decreased employee wages, a hiring freeze. Not to mention that it erodes the trust between an employer and an employee.
If you don’t pay your payroll taxes on time, every month, you incur a 2% penalty for 1-5 days late; 5% penalty for 6-15 days late; 10% for 16+ days late or within 10 days of first hearing from the IRS. The maximum is 15%.
Also, the government doesn’t care if you outsource these jobs — if a third-party isn’t paying on-time (your payroll service or your bookkeeper), you still hired them and will receive the penalty all the same.
There are other ways you can be penalized, too, like if you miscategorize employees or you make an error on your reporting. There are too many potential errors to explain them all, so it’s important small business owners meet with tax attorneys or other tax experts for a full understanding of the myriad ways things can go off the rails.
Payroll Tax Deductions
But hey…those Statutory Payroll Tax Deductions (all the things we just talked about above: federal and state income tax, social security, Medicare, unemployment taxes) are not the only payroll tax deductions you’ll need to make as you process payroll. In addition to the mandatory deductions, you also have Voluntary Payroll Tax Deductions. These are things like health care, retirement benefits, worker’s compensation, or any other pre-tax deductions. As a small business owner, you might offer some of these programs and benefits but some of the cost can (and does) trickle down to employees.
Nothing concludes this post better than this: payroll taxes are complicated. But, they don’t have to be.
If you have a handful of employees, and you want to calculate payroll taxes yourself, then yes you can! You now know the basics of which payroll taxes you are responsible for, how to calculate them, and how and when to pay them. People have been processing payroll manually for longer than they haven’t been.
Or, you can opt for payroll software to help handle the calculation for you. Even if you do have a software program or an online program helping you, it’s great to know what those numbers mean and where that money is going. There are also free online calculators to use in lieu of a software program, or a regular calculator, or an abacus. All in all, these payroll taxes — while they may be an added stressor to the laundry list of small business owner responsibilities — are what pay into great social programs and protections. The most important thing to remember is that rates and guidelines can change yearly depending on inflation and tax laws, so keep up with current literature on the tax brackets from the IRS Forms. Know your state’s laws, file accurately and promptly, pay on time, and report on time. And if you want someone else to do it for you, check out our reviews of some of the leading payroll service vendors out there: Gusto, Square, ADP, Paychex.
The post What Are Payroll Taxes? And How Do You Calculate Them? appeared first on Merchant Maverick.
Directly after the Back to School rush, businesses start to shift their focus to the holiday season, and before Halloween is even over, the madcap spending season starts en force. We can complain about the holiday creep, but it exists because consumers are in the headspace to spend over these next few months, and preparation equals profitability. Thanksgiving is right around the corner, and with it arrives our extended dedication to shopping: Black Fiveday (the new Black Friday which includes Small Business Saturday and Cyber Monday). Whether you have a brick and mortar location or are an online retailer, here are Merchant Maverick’s top 10 tips to prepare for the holiday season.
Get Organized Before The Holiday Rush
Don’t wait until the last minute to make a detailed game plan for the holidays. I don’t know about you, but during stressful seasons of life, the longer my to-do list grows, so grows my anxiety. Whatever you are putting off or saving for later, take care that your to-do list does not become an albatross around your neck during the busiest shopping time of the year.
Getting organized could include updating your website, changing vendors, or stocking up on inventory. Do you have a plan for employee scheduling? Are the invoices are piling up?
Don’t wait to figure this stuff out. Get everything current and unload those worries from your brain because the time to make any needed organizational changes is now: delays could cost you in more ways than one.
If you run an eCommerce business, we have special tips just for you on how to get your online store ready for the holidays.
Analyze Your Current & Past Cash Flow
Small businesses need to crunch numbers and analyze cash flow in order to make smart financial holiday decisions.
First, look at last year’s sales and numbers: when were your busiest shopping days? How much did you earn during the holiday season? What kind of holiday expenses should you prepare for? Once you have an understanding of your cash flow history, you can plan and set important holiday sales goals.
Analyzing cash flow means asking yourself the following questions:
How much do I expect to earn?
What inventory needs stocking?
How much more can I add to my marketing campaigns?
Do I have enough to offer employee bonuses or gifts?
And finally, look at your January sales. There might be a slump coming, so prepare for it now by knowing how much you’ll need to earn to get through any potential slowdown. Read our post about The Top 10 Strategies To Improve Cash Flow for expert tips and advice.
If you’re not sure how to calculate your cash flow, check out How To Calculate and Analyze Business Cash Flow.
Stock Up On Inventory
The favorite items in your shop will fly off the shelves (that’s the hope, right?), so when those customers and clients arrive at the last minute looking for that favorite item, have it available.
If you are advertising a specific item, stock up. Suppliers and vendors are in the same boat as you as things get busy. Go and write down shipping deadlines for your vendors and suppliers, and prepare for being busier than you imagined. Do you need some financial help to get you up and running? Check out our article on how to finance your holiday expenses.
Optimize Your Online Store
eCommerce is a crucial component of holiday shopping in general, and every year the amount of money spent shopping online grows. For example, according to statistics from Shopify, online shopping accounted for nearly $124 billion holiday shopping dollars in 2018. (That’s up from only $80 billion in 2015.) An updated, clean, and friendly website with clear shipping information should be a priority.
This is a great time, too, to check and make sure the process is streamlined and quick for your customers. Run trials, tests, and work out any technical problems before the holidays get too busy. Check out our post on How To Prepare Your Online Store For The Holidays for more website tips.
Create A Holiday Marketing Strategy
It is never too early to start thinking about a holiday marketing strategy. Consumers are bombarded with advertising these next two months because most major businesses know this is the time to make some major revenue, but the influx doesn’t mean marketing isn’t effective. Your buyers are out there. Your marketing strategy needs to find them.
Your business can use a holiday marketing strategy for branding, and the message should be personal and unique: what is something about your business that is different than all the others?
Be sure to design your marketing materials to include information about shipping deadlines or sales. Consumers are frantic to know where they can get items they need, fast, and without expensive shipping. Don’t make them hunt for the info! Make those details part of your marketing strategy.
Show Your Employees Some Holiday Cheer
There is a very famous Victorian story about someone who seriously lacks holiday cheer and has to go on a journey through time to learn an important lesson about how that’s not very nice. (And if your favorite movie version of the classic doesn’t star the Muppets, then meet me in the comments section. Second-favorites must have Bill Murray.)
Mr. Dickens’s timeless classic teaches us an important lesson: There is one name synonymous with holiday grumpiness and no one wants to be a Scrooge. Scrooge, of course, learns in the end that a Christmas ham goes a long way.
Any type of recognition to your employees that 1) the season is stressful and 2) you are thankful for them, shouldn’t be an afterthought. Also, don’t assume you know what kind of holiday cheer your employees need! Be inclusive to all holiday celebrators (or non-celebrators) and talk to your employees about their plans and wishes.
Don’t Forget To Give Thanks To Your Customers
You work hard. You do. We see it. But your customers also make your business thrive, so why not take this time to thank them for their contribution! Little thank-yous can go a long way, but there are also ways to incorporate those thank-yous into your marketing strategy. For example, offering coupons or discounts to returning customers establishes two-way gratitude. You are thankful they shop with you; they are thankful for the discount or freebies and will come back.
If you run a brick and mortar store, a “Thank You!” event where you serve drinks or snacks is a great way to show your gratitude and pull customers into your shop. At the very least, include a small thank you postcard/email with information about your business with every purchase.
Embrace The Spirit Of Giving
There are several ways you can embrace the spirit of giving this holiday season. One option is to dedicate a certain percentage of sales (or sales on a certain day/during specific times) to a charitable organization of your choice.
Another option is to match employee charitable giving contributions. Small businesses are the backbone of the community, and reaching out into that community to help only strengths you and the people you serve. It’s an added bonus that Millennials make shopping choices based on a company’s record of charitable giving (70% say charitable giving factors into purchases). It’s a second bonus that your giving is tax-deductible.
Buy New Business Software
If you need to change your business software to upgrade your holiday shopping experience, now is the time. Maybe purchasing a new payroll system, bookkeeping, or inventory software is a little holiday gift to yourself, and you’ll find many software businesses offer major discounts during the Black Fiveday Shopping Event.
At Merchant Maverick, we keep an ongoing list of the best Black Friday, Cyber Monday, and other holiday deals for small businesses. Whether you need a new payment processing, POS, accounting, eCommerce, website builders, time tracking, we’ve got you covered.
Make Time To Enjoy The Holidays
Last, but not least, enjoy the season!
Whether you are looking forward to Christmas, Hannukkah, Turkey or Boxing Day, don’t forget to take some time for you and make space to slow down. Spending time with the people we love, eating great food, laughing and embracing old and new traditions: the season is special because of all the amazing things we celebrate. Cherish the moments that bring you joy amidst the craziness of this year’s holiday shopping madness.
No matter what you need to do to get ready for the rush, take some moments to breathe. Then take notes on your successes and struggles this year to help you plan for next year.
The post Prepare Your Small Business For The Holiday Season With These Top 10 Tips appeared first on Merchant Maverick.
You’ve probably already heard of the terms “debit” and “credit.” After all, most of us no longer carry cash and use our debit or credit card to make purchases. When related to accounting, though, these terms take on completely different meanings.
Confused already? You’re definitely not alone. The concept of debits and credits can be difficult to grasp if you don’t have prior accounting experience. In this post, we’ll break down these accounting terms in their simplest forms, helping you understand debits and credits and why they’re so important to accounting. So, sit back, push aside everything you thought you knew about debits and credits, and get ready to learn more about this basic bookkeeping concept.
First, The Accounting Basics
Before we dive headfirst into debits and credits, it’s critical to understand a few other accounting terms. Don’t get overwhelmed with all of this terminology — we’ll tie it all together as you move further into this post.
Double-entry accounting is an accounting system where each transaction is posted in a minimum of two accounts. Though more time-consuming, double-entry accounting offers many benefits to small business owners; notably, it ensures more accurate reporting and makes it easier to spot errors.
Let’s step away from the numbers for a second and look at double-entry accounting on a more scientific level. Sir Isaac Newton’s Third Law states that “For every action, there is an equal and opposite reaction.” Though this typically applies to motion, we can also use this idea to understand double-entry accounting.
Let’s take a look at a basic example. Your business purchases supplies that are needed for operations. You spend $5,000 from your business checking account. You now own $5,000 in supplies, which you’ll record in your books. However, double-entry accounting requires each transaction to be posted to at least two accounts. So, while you now have supplies, the cash in your account decreased by $5,000 — equal but opposite.
How do debits and credits tie into all of this? We’ll get to that in a minute. For now, though, you should have at least a basic understanding of double-entry accounting. If you want to learn more, be sure to check out our post What Is Double Entry Accounting (And Do You Need It)? which dives into this concept in greater detail.
Double-entry accounting means that transactions are posted to two or more accounts. But what exactly is an account? A simple way to explain it is by thinking of accounts as categories that are used to organize your transactions. Sorting your transactions by account helps you easily track how money is coming into your business, as well as where it’s being spent.
There are five main types of accounts, although these can be further divided into sub-accounts. For now, though, we’ll focus on five core accounts that every business owner should know: assets, liabilities, equity, revenue, and expenses.
Assets:Â Assets are everything that is owned by your business. This includes but is not limited to your equipment, commercial vehicles, commercial real estate, computers, and cash. These are known as tangible assets — in other words, physical property. There are also non-physical assets — or intangible assets — that belong to your company. Examples of intangible assets include your logo and trademarks.
Liabilities:Â Liabilities are your debts, or money that you owe to other people. Some examples of liabilities include a business loan from a bank or other lender, money that you owe to your suppliers, or payroll taxes. Accounts payable (or money that is owed but is not paid upfront) is considered a liability.
Equity:Â Equity reflects the owner’s interest in the business. In addition to retained earnings, equity also includes stock.
Revenue:Â Revenue, or income, is money that is earned by your business. This is typically through the sales of products or services, but the business may also receive other types of revenue, such as earned interest.
Expenses:Â Expenses are costs that are needed to keep your business in operation. Expenses may include office supplies, insurance, and rent. While liabilities are paid in the future, expenses are paid immediately.
When posting transactions to your accounts, debits and credits are used to balance your books. In the next section, we’ll take a look at debits and credits, what they are, and how they’re used in accounting.
What Are Debits & Credits?
A debit is an accounting entry made in your books that reflects an increase in assets, revenue, or expenses. A debit is also used to record a decrease in liabilities or equity. Debits are recorded in the left column of a journal or general ledger.
A credit the exact opposite. It is an accounting entry that is recorded to show an increase in liabilities or equity. A credit also reflects a decrease in assets, revenue, or expenses. Credits are recorded in the right column of a journal or general ledger.
How Do Debits & Credits Work?
Now, let’s start tying debits and credits back into double-entry accounting. Remember, when using double-entry accounting, transactions are posted to a minimum of two accounts. When recording these transactions, at least one debit should be recorded in the left column, while at least one credit should be recorded in the right column. The left column and the right column — your debits and credits — should be equal.
If, for example, you obtain a loan to purchase a piece of equipment, you now have the equipment as an asset. Since your assets increased, a debit is recorded in the left column. Now, we need to balance this out with a debit. Because you obtained a loan from your bank, you now have a liability. Since your liabilities have increased, a credit is recorded in the right column. Your transactions should always balance out. If not, an error has been made somewhere in the process and will need to be corrected.
An Example Of Debits & Credits In Action
Now, let’s circle back to the example that was used when explaining double-entry accounting to see how debits and credits work. You purchased $5,000 worth of supplies using funds from your checking account. Remember that money is an asset, and an asset that decreases is recorded as a credit in the right column.
Because double-entry accounting requires you to post each transaction under two accounts, we need to balance this out. Since supplies are an expense, your expenses have now increased. Therefore, the $5,000 is posted as a debit in the left column.
Now, both columns are balanced.
Subcategories such as “Cash” and “Supplies” may be used to further sort your transactions. However, even when using subcategories, the credit and debit in this example remain the same.
Let’s change the example a bit. In this instance, you have purchased $5,000 in supplies. However, you don’t pay your supplier upfront and will receive an invoice at a later time. The supplies also still an asset, but the credit would be recorded under the “Accounts Payable” subcategory instead of “Business Checking.” Because “Accounts Payable” is still an asset account, your supplies are still entered as a debit.
Now, what if you paid some money down to receive your supplies? For example, let’s assume that you paid $1,000 from your checking account now, and $4,000 will be due to the supplier at a later time. The supplies are still an asset and would be recorded as a debit. The full $5,000 would be entered under your Supplies subcategory on the left side. However, the right column (your credits) would now have two entries. The $1,000 paid from your own account would be recorded under the subcategory “Business Checking,” while the $4,000 that will be invoiced would be entered under the subcategory “Accounts Payable.” Both debits and credits remain balanced.
The Importance Of Debits & Credits
We’ve established what debits and credits are, but why are they so important? One of the reasons that debits and credits are so important is because using them helps maintain balance. Let’s take it back to the basics by looking at the accounting equation. This equation states:
Assets = Liabilities + Equity
By using the system of debits and credits, we can maintain this balance.
What if the accounting equation — or our books — aren’t equally balanced? Then there is an error somewhere that will need to be corrected. With the double-entry accounting system, recording your credits and debits allows you to quickly spot errors and easily correct them. While using debits and credits doesn’t eliminate errors completely, it does reduce them and make errors easier to identify.
Using debits and credits also gives you a more accurate picture of your finances. By tracking your revenue and expenses in an organized way, you’ll have a clearer view of the profits and losses of your business.
Sound Complicated? Let Accounting Software Handle Debits & Credits For You
If you’re still feeling overwhelmed, you’re definitely not alone. Accounting concepts can be difficult to grasp, especially when trying to learn them while also running your own business. Fortunately, it’s rare that you’ll have to manually handle debits and credits if you have the right accounting software. Today’s accounting software does most of the heavy lifting for you, meaning the double-entry accounting and the balancing of debits and credits happens behind the scenes. All you have to worry about is setting up your chart of accounts, and entering your income and expenses into the appropriate account categories.
Ease of Use
Small – Large
$20 – $150/mo
$9 – $29/mo
Medium – Large
$9 – $60/mo
$15 – $50/mo
Sage Business Cloud
Small – Medium
$10 – $25/mo
It is, however, important to have a grasp of these accounting concepts. This allows you to be able to spot potential errors, understand the numbers on your financial statements, and be able to select the software that’s best suited for your business. Not sure of what software to check out first? Take a look at our accounting software reviews to see which options are out there. And if you want to get into the nitty-gritty of accounting and expand your knowledge, download our free Beginner’s Guide to Accounting.
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When it comes to paying your employees, setting up a payroll system is an important component of your business plan. But before you set up a payroll system, you’ll need to make a few choices, and one of the first is to decide on the pay schedule that works best for your business. Should you pay employees monthly? Bi-weekly? What do all those terms mean and what are the pros and cons of each? How do you know you’re making the best choice for your business?
Read on while we delve into the debatable topic of pay schedules.
Types of Pay Schedules
Pay schedule is defined by your pay period and your pay date. When and how often will you pay your employees? There are four major prevailing pay schedule types businesses may choose when setting up payroll:
Each type has its own pros and cons, and assessing the right fit will boil down to what works best for your business and your employees. However, it’s important to note if your state has a minimum payroll frequency requirement or other payday requirements based on industry.
What it means for your business and employees
Employees are paid more often for a total of 52 paydays per year.
Employees are paid every other week for a total of 26 paydays per year.
Employees are paid twice a month for a total of 24 paydays per year.
Employees are paid once a month for a total of 12 paydays per year.
The Weekly Pay Schedule
The weekly schedule means employees are paid every week for 40 hours of work, usually on a Friday, with 52 paychecks a year.
Paying weekly is a standard in some of the trades like construction, warehouse, plumbing, or back-of-house jobs. In general, employees like being paid more often, and a weekly pay schedule works best for employees living paycheck to paycheck. It is also the easiest for calculating overtime for employees who work irregular schedules.
The more pay periods, the more money your company might lose in fees, especially if your payroll system charges per payroll run. Fewer payroll runs, fewer costs. Not only does a weekly payroll cost the most for your company but it also takes up the most time for or your accountant.
The Bi-Weekly Pay Schedule
The bi-weekly schedule means employees are paid for 40 hours of work every two weeks, usually on a Friday, for 26 (or 27) total payments a year. With the bi-weekly method, two months out of the year, employees will be paid three times a month, and the way weeks fall year-to-year will impact whether you issue 26 or 27 paychecks annually (Leap Year, you sly little troublemaker).
This is less expensive than running a weekly payroll and less time-consuming. This method is often the most ideal for hourly workers and preferred among employees for its consistency (every other Thursday; every other Friday, etc.) and can be useful for financial planning and paying bills.
Bi-weekly pay can be the most cumbersome for an accountant or payroll supervisor in terms of time and difficulty. With the inconsistency of 26 or 27 paychecks, this method is the most headache-inducing to calculate benefit deductions and taxes.
The Semi-Monthly Pay Schedule
The semi-monthly schedule pays employees for 40 hours of work twice a month usually on the 1st and 15th (or 15th and 30th) of the month, for 24 payments a year. How is this different than bi-weekly? Under the semi-monthly plan, paychecks are consistent and there are only two paydays per month. Employees receive fewer and slightly bigger paychecks on the semi-monthly schedule.
Accountants like the consistency of running payroll. Payroll dates are set, and there is no confusion about paydays. Filing and taxes line up nicely at the end of the month with reporting cycles.
Bank holidays can put a wrinkle in a payment schedule, and the semi-monthly pay schedule doesn’t always line up with the work week.
The Monthly Pay Schedule
Employees are paid for their 40 hours of work once a month, toward the end of the month, for 12 payments a year.
This is the easiest for the employer with only 12 payroll runs per year; also, your payroll money has longer to sit and accrue during the month. It’s the easiest to run for salaried employees, and is the most cost-effective method. Accountants like it, too!
This is the least preferred method among employees.
How To Choose The Right Pay Schedule
In trades, where irregular scheduling makes week-to-week different, paying your employees consistently is an important factor. If it is industry standard to pay your employees weekly, it’s best to remain competitive and (if you can swing it) offer weekly pay.
However, choosing a pay schedule has more to do with the time you can commit to payroll and any state requirements you need to follow. If you pay employees a salary, calculating hourly wages may be less of a concern. So, as you try to marry your needs and wants, ask yourself these questions:
Do I have the hours/ability to commit to a weekly payroll?
Do I have a professional/service calculating payroll taxes/deductions?
How much is my time worth?
What method of payment would my employees prefer?
Does my payroll service charge per payroll run?
Do I want every Leap Year to make me irrationally angry at the universe?
Does my state have a minimum paycheck requirement?
What does my monthly cash flow look like?
Does my industry offer overtime? Which pay schedule is best for calculating overtime?
Payroll is important, necessary, and a foundational aspect of your business. The pay schedule you choose will impact your business, dictate your cash flow, and matter a lot to your employees. No pressure, right? If you have an accountant or bookkeeper, weighing their time and abilities is important: you do not want to create a burden on employees. However, once you’ve decided on a method, stick to it and, if you’re ready, outsource as much of payroll as you are able.
There are many cloud-based payroll software options for small businesses and some of those even allow for different pay schedules depending on employee type. We recommend Gusto as a place to start for full-tax services with competitive pricing. However, each payroll system is unique — like your business — and you might find one of the other systems a better fit. Check out our reviews of Square, QuickBooks, Paychex, and ADP to see if there is a program that works for you.
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When it comes to cloud accounting, it’s almost impossible to ignore FreshBooks. The software serves as the accounting home to over 10 million customers, a number that speaks to FreshBooks’s reliability and popularity. However, there are a few other kids on the block worth considering.
If you’re a FreshBooks user who has tired of the service or miss FreshBooks Classic — or perhaps you’re just in the market for new accounting software and want to know all your options — we’ve compiled a list of various other accounting programs for small businesses. Below, you’ll find seven of the best FreshBooks alternatives that match up well in terms of business size, features, accounting ability, and more. Read on through to find out if FreshBooks is right for you — or if you should try something else.
Overview of FreshBooks
Founded in 2003 and based in Toronto, Canada, FreshBooks offers an array of accounting features, including invoicing, estimates and proposals, contact management, and expense tracking. However, it also lacks other features like traditional accounts payable and budgeting.
The company is especially praised for its top-tier customer support and easy-to-use software. Unfortunately, these boons come at a cost. FreshBooks is among the more expensive bookkeeping solutions, with plans ranging from $15 to 50 per month. On top of monthly rates, extra users will put you out even more; all plans start by allowing a single user, and additional users run $10 per month each. Plus, only the two most expensive plans actually have double-entry accounting, meaning the smallest plan isÂ not an accounting solution for small businesses — it’s just glorified invoicing software.
With user limitations in mind, freelancers, micro-businesses, and small businesses in need of simple accounting features probably fit FreshBooks best. Larger businesses with multiple users, or companies that require advanced accounting tools, should look elsewhere.
Excellent customer support
Good mobile apps
Plenty of integrations
Expensive monthly rates
Limited feature set
Best for small businesses looking for strong accounting, advanced features, and overall robust small business accounting software.
With over 2 million users and over 15-plus years of company history, it’s hard to overlook QuickBooks Online. This cloud-based, double-entry accounting program brings plenty of nifty features like invoicing, contact management, tax support, and lending. Plus, many like it for its ease-of-use, 500+ integrations, and invoicing automations.
QuickBooks Online does receive poor marks across the web for customer support and a sometimes unintuitive interface. However, there are still plenty of positives with QuickBooks’s online service.
QuickBooks Online is great for small to medium-sized businesses wanting strong accounting, integrations, and features. Plus, the QuickBooks Online Advanced plan is suitable for larger businesses (although those needing more than 25 users will want to steer towards larger waters).
QuickBooks Online Features
QuickBooks has bundled this program with numerous features, including many standard accounting tools. Here’s a quick rundown of a few notable features in QuickBooks Online:
Chart of accounts
Up to 80 reports
QuickBooks Online Pricing
You can snag a QuickBooks Online subscription $20 – $60 a month. The more expensive the plan, the greater the number of features. Additional features can be accessed via QuickBooks Online Advanced, which goes for $150 a month, and payroll costs an additional $35 â $80 a month plus $4 a month per user.
How QuickBooks Online Compares To FreshBooks
While QuickBooks Online runs $5 – $10 more than FreshBooks, it packs in plenty of punch for your dollar. With its complete array of features, QuickBooks Online is simply the stronger and more well-rounded program.
On the flip side, FreshBooks clocks in with better customer support and a more intuitive interface. If you’re a small business that just wants a simple and basic bookkeeping program, FreshBooks could still be the way to go.
Take a deeper dive by reading QuickBooks Online vs. FreshBooks.
With a healthy array of features, QuickBooks Online makes for a great alternative to FreshBooks. While the monthly fees aren’t cheap, this program includes all the bells and whistles needed for a small business to have a complete accounting experience. If you can spring for the extra cost, and will utilize the more advanced features, QuickBooks Online is worth the look.
Best for freelancers and small businesses needing free, full-featured accounting software.
The free-to-use Wave, which splashed onto the scene in 2010, makes a great fit for those who can’t spare extra cash for accounting software. Wave doesn’t skimp out on features despite its $0 price tag. By adding Wave to your arsenal, you’ll have access to a strong accounting service with decent invoicing and lending, and an overall robust feature set that’s easy to learn.
Some users have remarked online that Wave does lack when it comes to providing good customer service. However, reviews are generally positive for the product as a whole.
The free angle makes Wave ideal for freelancers and microbusinesses that just need a straightforward accounting program and can’t shell out $100+ per year. There’s also a nifty Etsy integration that could be especially attractive to sellers on that online marketplace.
Even though Wave is a free product, it includes a stunning array of features that won’t constrain most users. Here’s a glance of some worthwhile features included with Wave:
Separate personal and business expenses
As mentioned above, Wave’s basic accounting program is completely free to use. However, if you’re willing to dish out some extra dough, there are paid online payment and payroll services available.
How Wave Compares To FreshBooks
While FreshBooks offers more integrations and better mobile apps, Wave actually includes some features FreshBooks does not, like vendor management and accounts payable. On top of this, Wave provides double-entry accounting upfront — with FreshBooks, you’ll need to shell out for one of the more expensive tiers to get access to that feature.
Wave also has one big advantage over FreshBooks: it’s free. This means that Wave may not be quite as beefy as QuickBooks Online, but it’s still a solid service sold at a hard-to-beat price.
You can get a more in-depth breakdown with our FreshBooks vs. Wave comparison.
By providing a nice set of features at a $0 price point, Wave makes for a reasonable alternative to FreshBooks. Wave is especially great for freelancers or small businesses with only a couple of people. All told, budget-focused shoppers will want to give Wave a second look before moving on.
Best for small businesses wanting affordable accounting software that works well for international invoicing.
Rolled out in 2009, Zoho Books is an option with advanced features, strong accounting, and amazing invoicing, all for a reasonable price. I’ll also mention that Zoho Books has been adding features since launch without raising its price once. On top of its core tools, Zoho Books delivers stellar customer service, international invoicing, and a solid suite of mobile apps.
When scouring the web for user reviews, we’ve found that customers can be frustrated by the service’s lack of integrations and no payroll feature. However, praises are heaped for Zoho Books’ ease-of-use, affordability, and good customer support.
Zoho Books Features
As Zoho Books is a paid accounting service, it unsurprisingly offers a strong set of features. In fact, its current form is on par with the other heavy hitters in the accounting software world. Here’s what we at Merchant Maverick like about Zoho Books:
Chart of accounts
Fixed asset management
Invoice in multiple languages
Zoho Books Pricing
Three pricing plans ranging from $9 to $29 a month line the shop shelves for Zoho Books. You’ll be able to access more features, contacts, and users when spending on the more expensive plans. All plans include unlimited invoicing and estimates. Things cap out at nine users, although you can buy more spots for additional fees.
How Zoho Books Compares To FreshBooks
By far the biggest difference between Zoho Books and FreshBooks is price. You’ll need to open your pockets a bit more if you go with FreshBooks — Zoho Books can be between $5 and $20 cheaper. This, coupled with the fact that Zoho Books has the whole gamut of accounting tools, means that small businesses may prefer to pass on FreshBooks.
Of course, FreshBooks is still a great service. Its payment history tools are better rounded and its software preforms more smoothly. Like Zoho Books, FreshBooks also lacks native payroll tools (however, FreshBooks makes up by integrating with Gusto).
Otherwise, both services provide powerful accounting tools, solid mobile apps, easy-to-use software, and excellent customer service. FreshBooks and Zoho Books are also great options for international invoicing. As one last note, they are both better suited for smaller businesses that don’t require numerous users.
Zoho Books makes a great case for small businesses wanting an affordable accounting solution with international invoicing and good customer support. Those that need bundled payroll capabilities should pass. Overall, Zoho Books is worth considering if you operate on a tight accounting software budget.
Best for small businesses that lack accounting experience and are in need of affordably priced accounting software.
Having launched in 2015, ZipBooks is a relative babe in the wide world that is accounting software. However, this youngster still delivers plenty of features while mastering the art of simplicity — making it a worthy competitor to any potential combatant.
With ZipBooks’ powerful automation tools, you can expect to be able to hop in with its free plan and take full advantage — even if you lack much accounting know-how. This makes it attractive to small businesses that prefer a guiding hand over a service with intricate functionality.
On the downside, ZipBooks lacks invoice customization and generates limited reports. Some users also complain about having problems with its mobile apps.
Despite its free and low-priced plans, ZipBooks still comes with a solid number of features. Plus, its simple and intuitive design makes it a great fit for business owners that don’t have much accounting experience. Here’s a look at some key tools ZipBooks includes:
ZipBooks doles out three plans pricing $0 – $35 a month. There’s also a fourth plan that provides a personal bookkeeper; it starts at $125 a month. Every plan incorporates unlimited invoicing and every paid plan bundles in unlimited users, an especially impressive feat. By leveling up to a more expensive plan, you’ll gain access to more features.
How ZipBooks Compares To FreshBooks
Both ZipBooks and FreshBooks promise simple and easy-to-use accounting experiences. One major difference between both services is price. ZipBooks clocks in $15 – $25 cheaper than FreshBooks, so budget-minded small businesses may prefer the lower price point.
FreshBooks does at least include more functionality for its higher cost, though. From a great number of integrations to more customizable invoices, you’ll be able to do more with FreshBooks.
However, you may not be losing out if you go with ZipBooks. The service prides itself on delivering an excellent experience for those without in-depth accounting knowledge. If you or others in your business lack bookkeeping skills, you may not need FreshBooks’s functionality and will instead benefit from the simplicity ZipBooks delivers.
ZipBooks is a nifty program that will get accounting newbies in the game for cheap. It features a free option that manages to be a worthwhile offering for small business owners. Plus, giving the free plan a spin won’t hurt your bank account if you decide you don’t like ZipBooks.
Best for medium- to large-sized businesses looking for strong accounting, robust features, and unlimited users.
If you’re looking to step up the functionality of your accounting software, Xero could be your answer. This bit of software, which was introduced in 2006, offers unlimited users, an impressive slate of accounting features, and 700+ integrations.
Customers seem to agree that Xero is a solid service with a plethora of functionality, even if its customer service has been lacking as of late.
Xero is best suited for medium- to large-sized companies, and not freelancers or microbusinesses. Because of Xero’s hefty feature set, those with minimal accounting experience may want to shy away.
Xero is known for having a wide array of features that require a learning curve at first (but you may get plenty out this program once getting the hang of things). Here’s some of our favorite Xero features:
You can sign up for Xero with one of three plans — they range in price from $9 to $60 a month. The more expensive the plan, the greater number of features and invoices you can access.
How Xero Compares To FreshBooks
Straight up, Xero and FreshBooks have similar monthly rates. However, Xero offers unlimited users on all their plans while FreshBooks charges a monthly $10 per user beyond one. As such, the wallets of larger businesses will like that Xero isn’t constantly pulling cash out.
Besides keeping your wallet at a healthy weight, Xero comes bundled with inventory tools and accounts payable (two things FreshBooks lacks). You’ll also like Xero if you need integrations; the service includes over 700, which makes FreshBooks’ 200-plus paltry by comparison.
However, Xero’s expansive functionality comes at a cost that isn’t measured with dollar bills: You’ll need to take time learning how to use all its features. With this in mind, those that don’t want to deal with understanding the ins and outs of their accounting software — like freelancers or small businesses without dedicated bookkeepers — may prefer the simplicity of FreshBooks.
Xero is one of the more robust accounting solutions on the block. With a wide array of features, unlimited users, and reasonable pricing, Xero should provide a solid accounting experience to many medium and large businesses. However, smaller businesses that can’t waste time figuring out their accounting software might prefer something else.
Best for freelancers needing management software with some basic bookkeeping baked in.
AND CO, launched in 2015 and now owned by Fiverr, isn’t exactly a full-on accounting suite. While it includes some features like invoicing, expense tracking, and reports, this piece of software is more of a management program for freelancers. As such, it makes the most sense in the hands of those that don’t need the complete accounting experience and would rather have tools to help simplify their freelancing career.
With that lead-in, AND CO is unsurprisingly best suited for freelancers. Microbusinesses or independent contractors may also benefit from some of AND CO’s unique features like proposals and signed contracts.
Throughout the web, AND CO receives generally positive reviews from users, with many praising its ease-of-use and strong mobile apps. It also offers solid customer support and numerous tools outside of its core software to help freelancers.
AND CO Features
Because AND CO is geared towards freelance management, you’ll find that it lacks compared to more dedicated accounting services. This isn’t necessarily a bad thing; if you’re a freelancer who just needs basic bookkeeping tools, AND CO could be right for you. Here’s a quick rundown of AND CO’s core features:
Unlimited clients with the paid plan
Proposals and fully editable contracts
AND CO Pricing
AND CO keeps pricing simple: a free plan and a premium one that goes for $24 a month. The base plan is pretty limited while the premium option tacks on an array of unique freelance-specific features.
How AND CO Compares To FreshBooks
To really take advantage of AND CO, you’ll want to opt into the paid plan, which could make the decision between it and FreshBooks harder. However, AND CO ultimately incorporates tools targeted towards freelancers that aren’t in FreshBooks (such as contracts and subscriptions), meaning that if those features matter to you, price may be moot.
FreshBooks, on the other hand, is a more complete program that will give you a better rounded accounting experience. The program combines other tools in its accounting Swiss Army knife that simply don’t exist in AND CO’s, like invoice customization, estimates, bank reconciliation, and a chart of accounts.
If you’re looking for something that isn’t a dedicated accounting platform and instead acts as a robust freelance management suite with some bookkeeping features corralled together, then AND CO could be your answer. You also may want to shop elsewhere if you aren’t a freelancer of are looking for a full-on accounting experience.
Best for small to mid-sized businesses not needing a full accounting suite, but want an easy way to manage invoices.Â
The second Zoho product on our list, this offering focuses solely on invoices. You’ll get a few bookkeeping tools with Zoho Invoice, like expense tracking and mileage deductions, but it generally focuses on doing one thing well: invoicing.
Zoho Invoice was created in 2008 and boasts an array of features, from 16 invoice templates, invoice auto-scheduling, and 14 different languages to send invoices in. Small to mid-sized businesses will benefit most from Zoho Invoice.
Across the nodes of the internet, users report that Zoho Invoice has friendly customer service and great mobile apps, but can be hard to navigate sometimes.
Zoho Invoice Features
Because Zoho Invoice isn’t a full accounting experience, you won’t get the same set of features that a complete accounting suite might. Here’s a quick slate of Zoho Invoice’s features:
Unlimited invoices and estimates
Multiple invoice languages
Zoho Invoice Pricing
You have four plans to choose from with Zoho Invoice. Prices range from free to $29 a month. The more expensive plans include more features, the ability to make invoices for more customers, and slots for additional users.
How Zoho Invoice Compares to FreshBooks
Zoho Invoice focuses on the invoice part of business, which means that if you need the gamut of accounting tools, FreshBooks will look better on your business’s software shelf. However, if you’re just in the market for invoicing software with a sprinkle of bookkeeping features, then Zoho Invoice might be for you.
When it comes to pricing, Zoho Invoice is indeed cheaper than FreshBooks, which makes up for its smaller feature set. Of course, if you don’t want to partner with FreshBooks — but like what Zoho brings to the table — there’s always Zoho Books to placate your business’s accounting needs.
Zoho Invoice probably won’t solve all your accounting problems, but it’s a great invoicing alternative for FreshBooks users on the smallest plan or for those who miss the simplicity of FreshBooks Classic. Of course, if you’re in the market for a full-on accounting solution, your answer may be in another castle.
Finding the Right FreshBooks Alternative
It should be pretty clear by now that while FreshBooks is a popular cloud accounting choice, it isn’t the only player in the ballgame. Letâs run down a quick summary of the best FreshBooks alternatives:
QuickBooks Online: A complete accounting suite that offers a more well-rounded experience than FreshBooks.
Wave: With Wave, you’ll be able to take advantage of solid accounting software for free.
Zoho Books:Â This option will give you a total accounting experience without breaking the bank.
ZipBooks: Designed for new users, ZipBooks is great if you lack much accounting experience.
Xero: This software is very functional and works great with larger businesses, but has a steep learning curve.
AND CO: A freelance management program, AND CO offers some basic bookkeeping features.
Zoho Invoice: While not a full accounting suite, Zoho Invoice provides well-designed invoicing tools.
So how should you pick your software?
If you currently use FreshBooks, ask yourself: what isnât working with my accounting software? Once you figure out what’s wrong, you’ll be able to decide a replacement easily.
If you are still exploring options and haven’t picked one specific program, consider these questions:
Which features are most important to my business?
What’s my budget for accounting software?
How much experience do I have with accounting software?
By answering these questions, you’ll be able to delve into which software fits best with your business. And don’t fret — FreshBooks is a solid choice, as is any of the seven alternatives we’ve outlined above. This means you should be in safe hands no matter which service you choose.
Be sure to visit our full accounting reviews to get an in-depth look at every option out there or read our nifty guide to picking online accounting software for extra help on your journey.
The post Best FreshBooks Alternatives appeared first on Merchant Maverick.
There is popular little nugget of business wisdom these days that says: If you can outsource a non-essential task, you must outsource that non-essential task. But while it’s nice to assume that every small business owner has the option to outsource, it might not be a practical choice for all businesses.
Running payroll is an integral part of business management because both your employees and the IRS need to be paid on-time and accurately. But the process of payroll can feel burdensome and overwhelming to small business owners who find themselves wearing lots of business hats. For small businesses that want to ensure payroll simplicity, outsourcing the job to a third-party reduces stress and helps you stay compliant. However, outsourcing isn’t free, and depending on how you outsource, it doesn’t guarantee simplicity, either.
Don’t know if outsourcing is right for your business? Keep on reading to find out.
What Is Payroll Outsourcing?
Payroll outsourcing is the process of paying a third-party to manage and run your payroll for you. This can be done via the use of payroll software, hiring a bookkeeper, or employing a Professional Employer Organization (PEO). It used to be true that outsourcing payroll was only something only the big companies could afford, but that is no longer the case. In recent years, the options for payroll outsourcing for small businesses have increased and it is easy to find an affordable option that fits your business needs.
How do you outsource? Well, your small business could start by exploring one of the many payroll available software options, including Gusto, Square, Intuit Quickbooks. If your payroll needs are a bit more nuanced, hiring a bookkeeper with payroll knowledge is a great asset. Another option is a PEO, which not only assists with payroll but also helps address HR compliance and all other aspects of employee management.
All reputable payroll software or services should offer help in the following areas:
Paying your employees or contractors through direct deposit/check
Filing your Federal and State taxes (some will also file your local taxes for no additional charge)
Filing your quarterly payroll taxes and paperwork
Paying vendors on your behalf
Garnishing wages and processing other deductions
Assisting with pre-tax and post-tax deductions and benefits
Time tracking/PTO tracking
Assisting with W-2 preparation and distribution
Many payroll companies are combining their services with HR, too, and can offer training modules, employee handbooks, and access to the legally required labor law posters. These programs are designed to create easy onboarding, provide clients with tax support, and help employees access their own wage information.
With payroll software, while most of the work is outsourced, someone from your business is still responsible for managing funds and hitting that “Pay” button. Plus, you’ll still be responsible for making sure your employees track their hours correctly. Full outsourcing could include hiring a national payroll service, a bookkeeper, or a PEO.
The Pros & Cons Of Outsourcing Payroll
Less chance of errors
Can be expensive
Loss of control
Outsourcing has benefits and challenges. When making the decision to outsource, small business owners must think about the most cost-effective and easiest way to manage their businesses.
The Pros of Outsourcing Payroll
Tax Assistance & Reporting: Employers must send payroll taxes to the government regularly and file quarterly tax paperwork on their payroll data. With lots of room for error, some small business owners might not want the headache of manually running payroll and carrying the burden of responsibility to pay the right taxes to their respective locations.
Reduces Risk Of Error: Whether you are hiring an expert or using a sophisticated cloud-based program that guarantees accurate payroll reporting, this is a handy aspect of outsourcing. IRS penalties and fees are very real and can hurt your business if you miss filing your reports or make a payroll mistake. Also, making a mistake on an employee’s payroll can be a headache to fix. Give those worries to someone else.
Saves You Time: Manual payroll runs may be time-consuming. Anything you outsource saves you time to spend differently for your business.
Enhanced Security Of Sensitive Information: Many outsourced payroll options come with enhanced and increased security for sensitive employee information. If you don’t want the responsibility for protecting social security numbers, maintaining HIPPA laws, etc., then it’s best to outsource the protection of that data.
Offer Employees Direct Deposit:Â Direct deposit is the most preferred method of payment among employees, and current stats say that up to 82% of employees are paid via direct deposit. However, not all small businesses may be eligible to offer this on their own based on federal and state laws. Outsourcing provides the opportunity to transcend the restrictions and offer direct deposit (although, you should always ask the payroll representative about relevant bank or industry restrictions). This is a state by state, company by company decision, so it’s best to contact a payroll or tax expert.
Easy To Combine HR Compliance: As an employer, you have responsibilities to your employees required by law. It is becoming more common for top payroll outsources to include HR compliance in their list of services. Since this addition is a competitive feature on most payroll programs, it’s a great additional time-saver.
The Cons of Outsourcing Payroll
It’s Not Free:Â Outsourcing payroll can be expensive. Depending on your company’s needs and number of employees, a good payroll system or PEO isn’t a cheap investment. (However, if you currently use an accountant or bookkeeper for payroll, perhaps outsourcing to an online company would save you the cost of an entire employee. So, price is neutral depending on your needs.)
Loss Of Control: By relinquishing payroll, you are giving up control of a major aspect of your business and entrusting it to someone else. That might mean doing it their way instead of doing it your way, and that can always be a challenge. Another thing: Business owners are ultimately still on the hook for payroll errors even if you outsource the job.
Business Unreliability: And there is the sad, but possible situation, that you could invest in a business that doesn’t do the job for you in myriad ways. Whether the business turns out to file taxes incorrectly or fails to offer you stellar customer service when you need it, relying on someone else is always a risk.
The Pros & Cons Of DIY Payroll
Higher risk of error
Takes a lot of time
Many small businesses make the decision to run payroll in-house. The DIY route is a solid option for small businesses with uncomplicated payrolls and a thrilling spirit of accomplishment. Some people hate the minutia of payroll, but some people really love it! It’s definitely a great job for a detail-oriented human with a penchant for numbers and reports. DIY payroll can also be a great route depending on your specific business. For example, do you just pay contractors? There are no employer required taxes for contractors, so you may not need a sophisticated program for tax and benefit deductions.
The Pros of DIY Payroll
It’s Free: Money matters, cost matters, and if every dollar in your company is crucial and you need ways to save, you can run payroll yourself. For some small businesses, outsourcing just isn’t in the budget. There are several free online calculators available that assist with tax requirements. Simple accounting software helps with numbers and there are also free payroll templates online.
You Are In Control: Running payroll and reports on payroll is a huge part of the business and helps create a story about the business as a whole. There might not be a program or person out there that does it exactly the way you desire; or maybe it’s important to spend time managing the financial aspects of your business.
The Cons of DIY Payroll
Payroll Dependent On Human Being: In this scenario, you or an employee are entrusted to learn how to manage payroll. Now imagine that person on a long vacation, going on leave, or getting ill. If you only have a single human running payroll (which may be complicated depending on your business), you could run into some stress if you need someone to quickly take their place.
It Takes Time: It’s the business dilemma. Time and money are both limited, so you’ll spend whichever you have more of. If you have more money than time? Outsourcing is a solid option. If you have more time than money? DIY might be a better fit.
Increased Stress/Risks: Payroll takes time; it requires attention to detail; it requires punctuality and precision and patience. If that’s you, awesome. If it’s not? Don’t try to be the person who wants to do-all-the-things and ends up hating life. There is increased stress with running payroll on your own, and due to the tax requirements, there is a lot of room for error.
Payroll Outsourcing Options
If outsourcing seems like something your business might pursue, there are several roads to explore. You can hire a bookkeeper either full or part-time, find payroll software to use, or even hand payroll over fully to an accredited program. Each option comes with its own benefits and risks.
Payroll Outsourcing Options
Full-Service Payroll Software
Businesses looking for payroll software that handles most tasks for you including automatic filing.
Self-Service Payroll Software
Businesses looking for basic payroll software that calculates their payroll, but doesn’t file taxes for you.
$10 – $35/mo
Accountant or CPA
Businesses with complicated payrolls and tax situations.
$100 – $400/hr
Businesses looking to outsource bookkeeping and payroll tasks.
$20 – $45/hr
Professional Employee Organization
Business looking to outsource all payroll and HR management.
$150 – $2,000/mo
Full-Service Payroll Software
Best for businesses looking for payroll software that handles most tasks for you including automatic filing.
A full-service payroll provider will run payroll for you — start to finish. You help onboard employees and give the company information about pay and pay schedules, and then all you have to do is click “pay.” (It’s not entirely hands-off, but as close as you can get.) Some of these programs are similar to their self-service online counterparts. Here is where most of them differ: Some will take over the onboarding of employees, many file your quarterly and year-end payroll taxes for you, and many come with a tax guarantee. You are paying for the guarantee that their company, not your business, is on the hook for penalties related to tax mistakes.
What Does Full-Service Payroll Do?
A full-service payroll provider pays your employees, removes taxes and deductions and garnishments and sends them all to their respective places. They file your taxes for you and assist with distributing W-2s. It’s full-service, darlin’, so order up any reports you want and benefit from same-day direct deposit. And: most full-service payroll providers combine integrations to offer benefits, retirement plans, and HR platforms. Sounds nice, huh?
Don’t get too excited: you still need to keep employee records accurate, be able to answer employee questions about payroll and the laws in your state, and follow local tax laws. (If a mistake turns out to be yours, well, the fine print in the guarantee says that renders the no penalty guarantee null and void.)
What Does Full-Service Payroll Cost?
Each service provider is different, but the range of costs for full-service payroll run between $40 – $300 a month plus $3 – 6 a month per employee depending on the service. There are sometimes additional fees, too, for integrations, implementation, and benefits administration.
Which Businesses Should Use Full-Service Payroll?Â
Times are changing. Even a few years ago, it was not cost-effective to outsource full-service payroll for a business with fewer than 50 employees. However, with more and more services entering the market, the competition among providers is heating up. A small business with a few employees might find a few hundred dollars a month a reasonable price to pay for payroll. Depending on the business, the benefits outweigh the DIY route. Any company of any size can find a full-service payroll system that works. For the most affordable option for small businesses, check out Square Payroll. Merchant Maverick uses Gusto and we highly recommend the program for its features, integrations, and attentiveness to customer service for small businesses. For businesses already using QuickBooks, check out Intuit’s full-service payroll program.
Self-Service Payroll Software
Best for businesses looking for basic payroll software that calculates payroll but doesn’t file taxes for you.
There is crossover in payroll services between the full-service payroll options and other more bare-bones payroll services. If full-service isn’t economical, practical, or on your radar yet, there are other payroll service options in addition to those who do-it-all. Intuit QuickBooks has a desktop program that runs numbers for you and can assist with printing checks and paystubs, but you will still need to file your own payroll taxes with your quarterly payroll updates to the government.
What Does Self- Service Payroll Do?
Payroll services vary. Most of them will take on calculating payroll, managing deductions, and printing checks. Without a full-service option you are often sacrificing tax filing and support, or other HR features like managing benefits or tracking time and paid time off. Many major competitors like ADP and QuickBooks offer simplified payroll services at a more economical rate.
What Does Self-Service Payroll Cost?
Pricing will always depend on the size of your business and how many payrolls you run. For example, ADP charges per payroll, so you will pay more if you are on a weekly pay schedule. In general, some basic payroll services, like Patriot, have a base fee as little as $10 a month + $3-5 dollars per employee. Some are subscription-based, like QuickBooks, and start at $35/mo+. The more services you need, the higher your monthly cost will be.
Which Businesses Should Use Self-Service Payroll Software?
Small businesses that want to pick and choose the features they pay for and receive some basic guidance will benefit from picking a payroll service that suits their needs. Whether that is a local payroll service company or services from the same providers who offer full-service options.
Best for businesses looking to outsource their bookkeeping and payroll or for businesses with complicated payrolls and tax situations.
It is true that in our fast-changing automated world, the roles of bookkeeping and accounting are slowly shifting toward computers. If you miss real-person contact and you don’t want to ship payroll off to the cloud, you may also find hiring an accountant or bookkeeper is still a solid option in 2019.
What Does An Accountant/Bookkeeper Do?
An accountant manages and analyzes a company’s money, taxes, and compliance. A bookkeeper is the business record keeper of all financial transactions. There are many online bookkeeping and accounting services available that will include running payroll as part of their services. These companies and real humans do more than payroll, however, as they will help manage all credits, debits, and loans, as well. In this capacity, you are not adding HR services or other options. You are hiring someone to run and analyze the numbers for you.
What Does An Accountant/Bookkeeper Cost?
To hire accountants and bookkeepers, they will let you know their hourly rate, or you may offer a competitive salary. Accountants, who are schooled and trained in regulation and money, will cost more per hour ($100-400 per hour on average) than their bookkeeping counterparts ($20-45 per hour on average).
Which Businesses Should Use An Accountant/Bookkeeper?
If you have complicated payrolls and a complicated tax situation, an accountant is a worthwhile addition to your company. Having an accountant in-house is nice, but it’s also a luxury. You can hire accountants per hour to help you with specific tax issues or money needs. Bookkeepers manage the day-to-day money in your company. If you have a lot of money coming in and out, someone specifically focused on keeping your accounts current and paying your employees is a great asset.
Best for business looking to outsource all payroll and HR management.
A Professional Employee Organization is an entity that provides small businesses with help for human resources, payroll tax filing, worker’s compensation insurance, safety and training, and so much more. If a bookkeeper focuses solely on running payroll, a PEO focuses on running anything employee-related in your business.
What Does A PEO Do?
First, your business and the PEO enter into a co-employment. This is so the PEO controls and manages, on your behalf, everything tax-related, and you are freed from administrative duties such as deductions, benefits, retirement plans, etc. A PEO also takes over the burden of human resource management as well. In many of those areas, there are strict regulations and a lot of risk of getting it wrong. It might be prudent and more cost-effective in the long run to outsource the more delicate aspects of employee management. (Also, a PEO might be the only way a small business may offer competitive health benefits which makes your business a more attractive place to work!)
What Does A PEO Cost?
PEOs are either paid a flat rate per employee or take a percentage of payroll. Depending on the PEO, the small business, and the number of employees, those numbers fluctuate between $150-$2000 a month per employee or they take a 3-8% cut of payroll on average.
Which Businesses Should Use A PEO?
If your business is growing and you really do want/need to outsource everything that isn’t strictly related to your business, a PEO will fill that void. Also, if you are a small business owner and you don’t know how best to offer your employees competitive health/dental/retirement benefits, a PEO can pave the way to make those options available for any business, no matter the size. Use a PEO if you want to seamlessly integrate payroll, taxes, HR, employee management, and so much more.
How Much Does Payroll Outsourcing Cost?
The breakdowns listed in the section above show the range in payroll costs among each option. However, there are a few more things to consider.
A simple DIY route could cost nothing at first, but if you misfile taxes and incur penalties, the fines and fees will negate any savings. Or maybe you are a small business paying for services you don’t need or use. Payroll can range from $40-100 for small businesses with few employees up to thousands a month for full-service payroll. Hiring a bookkeeper or accountant part-time or full-time is a solid tens-of-thousands of dollars. Only you know what payroll option works best for your situation.
Which Payroll Option Is Best For Your Business
My magic ball says the right option for you is…
That was a trick: There is no magic option. You will need to assess your business needs with what you can afford and your own level of pioneering spirit. Here are some questions to ask yourself as you make your payroll decisions:
Do I have a complicated payroll?
Do I want help filing taxes and quarterly reports?
Do I have the time to commit to monthly payroll?
Am I afraid of making payroll mistakes?
Do I want to offer HR services to my employees?
Do I want to offer benefits to my employees?
Do I enjoy puzzles and numbers?
Am I inundated with employee paystub related requests?
Can I afford a payroll service?
Do I have the time to pick options or do I need something fast?
Am I dazzled by endless reports and features or am I just fine with barebones systems?
Whatever payroll system you chose, make sure your research includes quotes. Some payroll services charge extra for benefits and HR per employee and by the time it’s added up, you’re looking at a more expensive option than a PEO. Know how much you want to tackle, how much you want others to tackle, and what you can spend and go from there.
If you’re still not sure, here are some benefits to both. See which is the better fit.
The Benefits to Payroll Outsourcing
If you do not have someone employed by you who knows how to run payroll, outsourcing is a great option. Since some companies combine payroll and HR, since there are so many available options to also outsource both, it can save your company time and money. Also, when you are running a business and wearing lots of hats, sometimes it’s nice to take one off and not have to worry about where you set it down. (I really just wanted to see that example through.) Outsourcing isn’t stress-free but it is stress-reducing, and that’s important.
The Benefits of DIY Payroll
If your business doesn’t have a complicated payroll (maybe you hire mostly contractors) or there is something calming in running payroll yourself, there are a great number of benefits to keeping payroll in-house. Not only do you have control, but you also don’t have to be dependent on someone else to fix mistakes or make changes. Also, you won’t have to pay any outsourcing fees. With the free tools and resources on the internet, you can find a DIY system that works.
How To Choose The Right Method
Follow your heart! (So cliche, so hardly ever used about payroll, and also so true!) Only you know what’s best for your business and your past experiences with payroll. No matter what method you choose, there will be some required time involved in the payroll process — how much time is up to you. In order to make the decision, you need to know how much money you want to spend, how much time you want to spend, and if you want to offer benefits to employees. If you just need to pay people, DIY. If you want to offer benefits, training, and other employee integrations, outsource.
No matter what you choose regarding payroll, outsource vs. DIY, there are numerous options available for businesses of all sizes. We’re lucky to live in such a technological age where services that used to be only for a few are now available to many. Large, full-service companies like ADP and Paylocity have rebranded themselves with options for small businesses, and those heavy-hitters bring a lot to the table. Certainly if you are looking for ways to streamline your business, between the payroll and accounting services and software available, competition among plans and services is fierce. Merchant Maverick recommends Gusto as a full-service provider with solid features and integrations. Some other payroll service providers worth checking out are Square, Intuit Online, and Paychex.
The post Should You Outsource Payroll Or Do It Yourself? appeared first on Merchant Maverick.
There are lots of tasks you have to perform to keep your business operating. Ordering supplies and inventory, marketing to your customers, and — perhaps most importantly — getting paid. Getting paid for your services or products is critical to keeping your business on track. And to get paid, you have to invoice your clients — a task that’s made simple using invoicing software.
Invoicing software allows you to create and send invoices directly to your customers. But today’s software options take things a little further, providing you with a variety of tools that simplify getting paid and running your business. These options include creating estimates and proposals, tracking time and expenses, and integrating with payment gateways, so you’re no longer waiting on a paper check in the mail.
If you’ve explored invoicing software in the past, the many options out there can be overwhelming. That’s why we’ve created this guide. We’ve narrowed down the choices to seven of the best options on the market today. We’ll dissect each option, giving you the most important information, such as pricing and features. We’ll also look at the factors you should consider when making your choice. Invoicing software simplifies invoicing your clients, and this guide is designed to simplify choosing the best software for your business. Let’s get started!
What To Look For In Good Invoicing Software
The good news is that there are lots of invoicing software options on the market. The bad news? Choosing which one is best for your business can be a challenge. While forever-free options and free trials make it easy to shop around, know what to look for before you sign up by considering these factors.
Price: Nothing in life is free…or is it? Fortunately, there are plenty of invoicing software options available at no cost. What’s the catch? It depends on the software. Some software is ad-supported, while others place limitations on the number of clients you invoice or lacks features found in paid options. While free software may work in the beginning stages of your business, you may need a more robust program as your business grows. In this case, an upgrade may be an order. Be aware, however, that if your subscription costs more than $30 per month, there are more affordable options out there. Or you can use those funds to invest in full accounting software instead.
Strong Features:Â Any software you select should have a strong feature set. Specific features that you need vary based on your preferences and the needs of your business. At a minimum, though, every business should look for software that offers powerful security features, good mobile apps, a user-friendly interface, and a well-organized client portal.
Automations:Â Some invoices will need to be sent manually. Others can be sent automatically with software that offers invoice automation, allowing you to set up recurring invoices, send out reminders, and schedule other tasks. The more automations, the more smoothly your business runs, so you can get back to doing what you love most.
Integrations: The software you choose should integrate with third-party apps and software. For example, if you already use bookkeeping or accounting software, look for an invoicing solution that syncs with this software. It’s also important that your chosen software integrates with multiple payment gateways, allowing your customers to pay their invoices online easily.
Good Customer Support:Â There may come a time when you have a question about your software, need troubleshooting advice, or simply want to upgrade your subscription. All of this is made much easier with strong customer support and good customer service. Look for software that offers multiple ways to get in touch, has fast response times, and provides resources to help you get the most out of your software.
Best overall invoicing software for small businesses. Ideal for businesses needing strong features, great invoicing automations, and international invoicing.
Zoho Invoice, introduced in 2008, has grown to become one of the most popular invoice software options on the market today. This cloud-based software offers some great features ideal for small- to medium-sized businesses and offers multiple pricing options, including a free version for business owners on a budget.
In addition to boasting such features as customizable templates and support for multiple languages, Zoho Invoice goes beyond merely invoicing. Through this program, you can create estimates, track time and expenses, manage contacts, and create and manage projects. Zoho Invoice also has a very user-friendly interface and excellent customer support. It should come as no surprise that Zoho Invoice has gotten overall favorable reviews from its users.
There are, however, a few drawbacks, although these are minimal. If you need an extensive inventory tracking system, look elsewhere, as Zoho Invoice only has a basic item list available. This software also falls a little short in terms of integrations, although that number is on the rise. At this time, Zoho Invoice has ten payment gateways and 14 integrations. For most businesses, though, this shouldn’t pose a problem, and the many positive aspects of this software overshadow the few negatives.
What makes Zoho Invoice’s offerings stand out from other invoicing software solutions? There are quite a few benefits to selecting this software, including:
Unlimited invoices and estimates
16 customizable invoice templates
Easy to use
Invoicing in 14 languages
Excellent customer support
Well-designed client portal with real-time notifications
Expense and time tracking
Exceptional customer support and resources
Multiple mobile apps
Zoho Invoice offers four pricing plans. The Free Plan allows one user to invoice up to five customers at absolutely no cost. For $9 per month, the Basic Plan gives one user the ability to invoice up to 50 customers. Upgrading to the Standard Plan at $19 per month gives access to three users and allows you to invoice up to 500 customers. The Professional Plan costs $29 per month, can be used by up to ten users, and has no limitations on the number of customers that are invoiced.
Best for small businesses that want to save money with free software.
Small business owners — especially new ones — often look for ways to cut expenses. One way is to take advantage of free software, such as the invoicing software offered by Invoice Ninja. Since 2014, over 90,000 small business owners have signed up with Invoice Ninja for its great features at no cost — and no, there isn’t a catch.
This forever-free software boasts features you would find with paid software, including invoices and estimates, time and expense tracking, item lists, contact management, and project management. An especially unique feature is Invoice Ninja’s voice commands, which allows you to send invoices and perform other tasks using your voice. If you need assistance, Invoice Ninja offers multiple ways to get in touch and exceptional customer support. The software has overall received excellent reviews from past and present users.
The free version of Invoice Ninja is best for small businesses and freelancers that serve 100 or fewer customers. If you have more than 100 customers, you will have to upgrade to one of the paid (but still affordable) software options. If you also have more than one user, you will need to upgrade your subscription, as the free version only allows access to a single user.
Invoice Ninja is one of the top options for forever-free invoicing software. If you need additional features, you can upgrade to one of the paid subscriptions. However, many small businesses will find everything they need with the no-cost plan. All plans include the following benefits:
Unlimited invoices and estimates
Over 40 payment gateways
Excellent customer support
Cloud-based and self-hosted options
Strong mobile apps
Available in 30 languages
Up to 10 invoice templates
Recurring invoices and payment reminders
The Forever Free Plan is truly free and gives you access to all of the previous benefits. This plan allows one user to send invoices to up to 100 customers. If you have more than 100 customers, you can sign up for the Ninja Pro Plan. At $8 per month, you’ll be able to send invoices to unlimited customers. You’ll also have access to additional features, including 13 reports, proposals, and invoices that don’t feature Invoice Ninja branding. This plan is limited to one user only. Pay for ten months, and you’ll receive two months free. You can also take this plan on a test drive with a free 14-day trial.
If you have multiple users, you can sign up for the Enterprise Plan, which starts at $12 per month. Like Ninja Pro, you can pay for ten months and receive two months free. You’ll also receive a 30-day guarantee. This plan supports up to 20 users and offers additional benefits, such as support for third-party attachments and branded client portal links.
Best for small businesses seeking an all-in-one invoicing and bookkeeping solution.
Freelancers and small business owners that want an invoicing software with bookkeeping options should look no further than FreshBooks. FreshBooks launched in 2003, but the company kept its software fresh with a revamp in 2017. The new version of FreshBooks offers lots of great accounting features, including double-entry accounting, journal entries, and bank reconciliation.Â If that’s more than you need, don’t worry — the old version is still available. FreshBooks Classic is true invoicing software with a few bookkeeping features. This software is a great choice for businesses that need basic bookkeeping and accounting functions but is not suitable for businesses that have more complex accounting needs.
With FreshBooks, you can send unlimited invoices and estimates to your customers. You’ll also be able to complete other tasks critical to your business, including time management, expense management, and project management tools. Depending on the plan you select, you may also be able to use features, such as bank reconciliation, reports, journal entries, and proposals. Both versions of the software are very easy to use, customer service is excellent, and FreshBooks has received mostly positive reviews from its users.
It’s obvious why over 10 million customers have chosen FreshBooks as an invoicing solution, but what’s the catch? Businesses with multiple users won’t find what they need here, as each plan only supports one user. If you have multiple businesses, another software will be a better fit, as FreshBooks doesn’t offer support for more than one business. While there are numerous integrations, FreshBooks only has two payment gateways.
FreshBooks stands out from its competitors because of its accounting features that you won’t find with other invoicing software. Other benefits of this all-in-one software include:
Unlimited invoices and estimates
Support for 14 languages
Excellent customer support
Strong mobile apps
Two customizable templates
Up to 11 reports
Over 80 integrations
Recurring invoices and payment reminders
Unlike many of the other software we’ve recommended, FreshBooks does not offer a free plan. However, there are three pricing tiers available to fit your needs best. The Lite Plan is best for freelancers or microbusinesses with five or fewer customers who don’t need double-entry accounting. This plan’s price is $15 per month. The Plus Plan costs $25 per month and allows you to bill up to 50 customers. As a Plus customer, you’ll get even more features, including unlimited proposals, automated payment reminders, and double-entry accounting reports. The Premium Plan will set you back $50 per month but allows you to bill up to 500 customers. Additional team members can be added as users for $10 per person, and payment processing is also available for an additional fee.
If you need a more customized solution, you can inquire about the Select Plan. This plan is for businesses that need to bill more than 500 customers. This plan — which is custom priced based on the needs of your business — also gives you access to a personal account manager, custom training, and other features.
Best for businesses that want a simple, no-fuss solution for managing bills and invoices.
Software that does it all and comes packed with features is great for some businesses. But what if you’d prefer a hassle-free way to simplify bills and invoices? If this sounds familiar, Bill.com may be the right solution for your business. Since 2006, Bill.com has streamlined the process of paying your bills and invoicing your customers. With this software, you can take control of your accounts payable using tools, such as reviewing and approving bills from any device, sending domestic and international payments to vendors and suppliers, and storing invoices, checks, and receipts.
But that’s not all that Bill.com offers. You can also manage your accounts receivables through this software. With Bill.com, getting paid is faster and easier with features, including automated invoices, automated reminders, contact management, and direct payments with ACH, credit card, or PayPal. Bill.com syncs with your accounting software, simplifying the process of reconciling your bank accounts and keeping your books balanced. There are also some features you won’t find with most other invoicing software, such as a customizable chart of accounts.
This software is best for medium- to large-sized businesses that want a more streamlined way to send invoices and pay bills. Small businesses may also benefit if they have a large number of payments and/or invoices. While this software can be a bit pricey, it’s a fraction of the cost of hiring an employee to handle these tasks. However, keep in mind that if you only want invoicing software and have your accounts payable under control, there are more affordable invoicing software options out there.
If billing and invoicing are slowing down your business, take advantage of all that Bill.com has to offer, including:
Unlimited document storage
Unlimited users (for an additional cost)
Strong security features
Up to 30 reports
Recurring invoices and payment reminders
There are four pricing plans available through Bill.com. The Essentials plan is the cheapest at $39 per user per month. With this plan, you can choose to manage payables orÂ receivables but not both. The Team plan costs $49 per user per month. This option also only includes payablesÂ orÂ receivables. The difference is that this plan allows you to sync the software with Xero, QuickBooks Pro, QuickBooks Premier, and QuickBooks Online. The third plan allows you to manage both receivablesÂ andÂ payables at the cost of $69 per user per month. This plan includes additional features, such as invoice and payment automation. Finally, you can get a custom quote for the Enterprise plan. It comes with all the features included in the other plans with the addition of advanced features, such as more integrations and API access.
Best for product-based small businesses that want an easy way to send invoices on the go.
Square has become known for its payment processing services, but in 2014, the company added Square Invoices to the Square Dashboard. When you sign up for a Square account, you automatically have access to Square Invoices as well as other tools for your small business. One of the best things about Square Invoices is that it’s completely free to send invoices to your customers.
Square Invoices is very easy to use and has a well-organized interface. There is just one template for invoices, but it can be customized by changing the colors and adding your logo. Square Invoices is the perfect software for busy entrepreneurs, making it easy to send invoices right from your smartphone or another connected device. In addition to mobile invoicing, Square Invoices has other tools to help you operate and grow your business, such as estimates, contact management, employee management, advanced inventory features, and sales tracking. You can even create contracts and easily attach them to your invoices.
Square Invoices is best for small- and medium-sized product-based businesses. Because of a lack of project management features and advanced invoicing capabilities, it’s not a good fit for service-based or project-based businesses.
Square is more than just a payment processor. Its invoicing feature and other tools are also beneficial to many businesses. Why should you choose Square? Consider the following benefits:
Unlimited invoices and estimates
Excellent mobile apps
An easy three-step process to send custom invoices
Recurring invoices and payment reminders
14 reports plus custom reports
Good customer support
Over 100 integrations
To use Square Invoices, you must sign up for a Square account. The good news is that your Square account is free. Sending invoices to your customers is also free. However, if you want to take advantage of some of Square’s other features — such as payment processing, payroll, or advanced employee management — there are additional fees.
Best for small businesses that want to manage time, projects, and invoices in one place.
Harvest launched in 2006 with a focus on time tracking. Since it’s launch, the software has evolved to provide additional tools for small businesses. Though its invoicing features are limited when compared to its competitors, Harvest’s time tracking features, basic invoicing, and project management tools are ideal for service-based and project-based businesses.
You won’t find advanced invoicing features with Harvest, but there’s enough to get the job done. In addition to being able to create and send invoices, you can also create and send estimates, track time, set up recurring invoices, create reminders, and manage your employees. Harvest also offers basic expense tracking as well as project management options that allow you to assign projects, set budgets, and track time and expenses.
There are a few drawbacks to be aware of before you sign up. Harvest isn’t a good fit for product-based businesses or any business that needs advanced invoicing features. If you need more advanced accounting features or don’t have much use for the project management tools offered through Harvest, consider shopping around for another software option.
Why is Harvest on this list? In addition to being a great choice for project-based and service-based businesses, here are more reasons why you should consider using this software:
Unlimited estimates (paid plan only)
Over 90 integrations
Good customer support
Strong security features
Harvest offers two plans. The first is the Free Plan, which doesn’t cost a dime. This plan allows one user to manage up to two projects and gives access to all of the other great features. If you need to add more users or projects, you can sign up for Harvest Pro, which costs $12 per user per month. With this plan, you can manage unlimited projects as well as take advantage of Harvest’s other features. Harvest offers several discounts for Pro members, including 10% off when you pay annually and 15% off for nonprofits. You can also give Pro a try with a 30-day free trial.
Best for creating and sending invoices through mobile devices.
Most business owners aren’t just sitting behind a desktop computer anymore. Today’s busy entrepreneurs are relying more and more on mobile devices to keep in contact with vendors and clients, collaborate with team members, and even send invoices. If you’re one of the people that prefers using your smartphone to conduct business, Invoice2go can help simplify sending invoices and getting paid by your customers.
Invoice2go features strong Android and iPhone apps that make it easier than ever to create customized professional invoices on the go. Setting up and using the software is simple, allowing you to send your first invoice in just minutes. Invoice2go offers additional features as well, such as expense tracking, invoice templates, estimates, time tracking, and purchase order management. You can send invoices in a variety of ways, including SMS and mobile apps. Cloud-based desktop software is also available if you prefer to go that route.
On the downside, though, Invoice2go — as the name implies — focuses primarily on invoicing. If you need more advanced bookkeeping and accounting features, another option will better suit your needs. If you don’t primarily use your mobile device for business purposes, Invoice2go likely won’t be a good fit for your business. Another downside is the limitations placed on the less-expensive subscription plans, which we’ll discuss in detail in just a moment.
Considering Invoice2go as your invoicing software? There are many reasons why you should choose this option, including:
Strong mobile apps
Good customer service
Easy to use
Good customer service
There are several plans to choose from if you select Invoice2go as your invoicing solution. The Standard Plan allows you to send up to 200 invoices and 200 estimates per month. One user can use the software, and up to 25 clients can be added. The Standard Plan costs $9.99 per month. For $19.99 per month, you can sign up for the Advanced Plan, which allows you to send up to 400 invoices and 400 estimates per month. Two users are included in this plan, and you can add up to 100 clients. This plan also gives you access to appointments. The Unlimited Plan, at the cost of $33.99 per month, lives up to its name by allowing you to send unlimited invoices and estimates and store an unlimited number of clients. This plan gives access to five users and includes recurring invoices and payment receipts. All plans are billed annually. A 14-day free trial is available, and Invoice2go offers a 30-day money-back guarantee.
Choosing The Best Invoicing Software For Your Business
Choosing the right invoicing software can be a hassle, but there are a few things to keep in mind to help narrow down your choices. Start with the options in this post and compare pricing, features, and other factors to find software that works for your business. Don’t be afraid to shop around and even test out a few options before making your final decision. When testing out software, look for options that offer free plans or free trials, so you can fully explore the software before making an investment. If the software you test lags, is difficult to use, or it doesn’t offer the features you need, move on to another option until you find your perfect match. Your ideal match should have the features you need and make sending your invoices a breeze.
The post These Top 7 Invoicing Tools Are Your Answer To Sending Small Business Invoices appeared first on Merchant Maverick.
People like to say that, but if you get a literal lunch for listening to a sales pitch on something you’ve already decided to buy, then that lunch is free. The mobile processing industry, though, typically doesn’t offer free lunches. Instead, they offer free credit card readers. These readers are usually simple swipe card readers or maybe EMV readers if you’re lucky.
Card readers used in mobile processing are typically inexpensive to make, so they are perfect candidates for free giveaways to entice new merchants to sign up. For a small business just getting started, anything free is usually good, especially after looking at the retail price of some of the high-end readers in the market (or even a conventional credit card machine). However, mobile processing isn’t just about the reader. It’s about the suite of services and credit card processing.
So if you are looking for a mobile credit card processing app, don’t make your decision based just on a free reader. Take a look at the app and the extra services provided as well as any upgraded card readers offered by the processor. Compare pricing and features to see if everything truly fits your needs. Even if you do not need any additional services right now, you might need them in the future, so make a plan if you can. Only after you’ve looked at the software and extra features should you take the free card reader into account and make your final decision.
Below, we give an introduction to how these mobile readers work and then talk about some commonly offered free readers. Hopefully, the information will help you make an informed decision for your business.
What Does A Swipe Card Reader Do?
Most people have used magnetic stripe, or magstripe, card readers before. They’re the readers with a slot that you move a card quickly through. This movement allows the device to read the data from the magnetic stripe on the back of the card.
With mobile processing, quite a few of the free readers are magstripe only readers. You may already have seen some around — little white squares attached to phones, popularized by the third-party processor Square, who gives them out for free. To read payment card information, the reader gets inserted into a headphone jack or a Lightning port of a phone or tablet.
There are some disadvantages to using only a magstripe reader. To understand why lets first look at the technology of magstripe readers.
How Swipe Card Readers Work
Not everyone is hungry to learn the science behind every technology. For instance, you the merchant probably don’t care that the magnetic stripe on a payment card has millions of tiny magnets in it. Or that each magnet is affixed in a north or south pole direction so that they can correspond to a zero or a one to make up a binary code to store data. You probably have no desire to learn that there are three strips of information stored in every magstripe. But so you know, the first and second strips store cardholder data, such as the primary card number, country code, cardholder’s name, and expiration date. The third strip stores an encrypted PIN, the country code, currency unit, and the amount authorized.
What you care about is whether the card reader is connected to your mobile device correctly so that the card information gets sent to your card processor. It doesn’t matter to you that a magstripe reader reads information off a credit card much like an old cassette player reads information from a cassette tape. (That’s about how long we’ve been swiping credit cards if it’s any indication.)
You might care, though, that this means that the credit card information on the magstripe can be easily stolen. Under some circumstances, you might get stuck with the loss on purchases made with that stolen card.
Credit Card Swipers Don’t Protect You From Fraud
Back in 2015, to get merchants to adopt the more secure EMV (Europay, Mastercard, and Visa) technology (i.e., chip on the card), the credit card companies decided to shift some fraud liability onto those merchants who hadn’t adopted the technology.
As of October 1, 2015, if a merchant only has a magstripe reader and a customer presents a stolen or fraudulent card with both a magstripe and a chip, the merchant would be responsible for the loss on the purchase. To shift the liability back to the credit card companies, the merchant need only have an EMV card reader.
Admittedly, if you’re just starting your business and do not expect to take a high volume in credit card sales or if you only sell smaller ticket items, assuming liability for taking a fraudulent card might be a risk you’re willing to take. That’s fine, but we at Merchant Maverick do encourage you to upgrade to an EMV reader sometime in the future for your protection. There’s little reason to delay upgrading because some free card readers in this article are combination EMV and magstripe readers, so you can eliminate the risk at no cost to you.
How Do You Get A Free Credit Card Reader?
A free credit card reader is not very difficult to find. Both merchant account providers and third-party processors will sometimes offer a free card reader to entice you to sign up for their mobile processing service.
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A lot of third-party processors are also mobile processors. Their primary offering is usually the mobile app and card reader. Sometimes, they make money not only on processing cards but also on other value-added services related to running a business in general, services such as invoicing and payroll processing. (Yeah, we’re looking at you, Square.) Once a merchant signs up, the processor will try to upsell and cross-sell these services to the merchant. It makes sense for some merchants — the centralized management of their business is an advantage.
Since an expensive reader can discourage signup, third-party processors often offer readers for free. They make it very obvious on their website that you can get a free reader. However, keep in mind that these services are designed for small businesses — they don’t expect you to need a lot of equipment. Your first reader might be free, but you will typically have to pay for any additional readers.
As to merchant account providers, they typically work with more established businesses that can afford (sometimes expensive) countertop registers and credit card terminals. It’s pretty rare to see credit card terminals given away for free. When they are, it’s usually only a “rental,” and you’ll have to return the equipment when you leave the processor. However, as mobile processing becomes more and more popular, many merchant account providers are starting to offer mobile processing services as a convenience to their existing customers. With these mobile processing services, the merchant account providers do tend to give away free mobile credit card readers. Sometimes the information is clearly advertised but not always. You might need to contact your payment processor and ask if you’re interested in adding on a mobile POS and card reader.
Let’s be clear: Just because you’ll get something for free doesn’t mean that you should immediately sign up with a particular processor. There are some negative issues you might wish to consider.
Why You Should Be Wary Of Free Credit Card Reader Offers
As already alluded to earlier, free card readers are generally provided as loss leaders — something provided for free or at a drastically reduced cost to bring in a new long-term customer. Often, this means that the reader will be a lower-cost magstripe reader, with no EMV capability. If that is the case, then you might not be able to recover losses from purchases made with cards using stolen credit card numbers. At this late date, there is very little reason to settle for a reader that doesn’t support chip cards, and doing so can make your business look a bit antiquated.
If you are getting a free mobile card reader (or a “free” device of any kind) from a merchant account provider, be aware that there could be a tradeoff. Of course, a top-rated merchant account provider such as Payment Depot will deal with their customers honestly and fairly and will give a free reader under their usual no-contract deal. Other merchant account providers, however, might require you to sign a contract to tie yourself to them for a more extended period. Read your contract carefully, so you understand which services you’ve signed up for and for how long. You should also understand how to get out of the contract if you’re not happy with the provider.
Despite the negatives and our caveats, all of these free readers will be serviceable. If you need one of these devices to get your business off the ground or for occasional off-premises use (e.g., trade shows), then these free readers should fit the bill.
How To Find The Best Free Credit Card Reader
Below, we will highlight four free readers currently available in the market. But, before we delve into the specifics of each, we want to point out a few benchmarks you should think about when considering any free reader.
Reader Type: Typically, these readers will read magstripe and potentially EMV cards. It’s unusual to get a contactless (i.e., NFC) reader for free. Keep in mind that a magstripe reader could create a liability issue for you under some circumstances, so it is better to have a reader that can take both magstripe and EMV.
Connection: There are two types of connections — physical connection or Bluetooth. The physical connectors can break off if you’re not careful, and a reader that uses a Bluetooth connection still needs to be periodically charged. We typically recommend a Bluetooth connection over a physical one since smartphones and tablets seem to be phasing out the headphone jack. For example, all the recent iPhones and the Samsung Galaxy Note 10 do not have headphone jacks.
Software: A card reader is just a piece of hardware. Without its supporting software, the reader is useless. Each business is different, however, so its software needs are different. Some businesses will prefer a no-nonsense basic mobile processing app. Others might want additional functionalities, such as inventory tracking. Be sure to think through your software needs before you decide on a free reader.
Battery Life: Battery life applies to Bluetooth and/or EMV readers. Ideally, you want something that can last you at least one day, so you can process credit card charges without interruption.
Peripherals: A basic, pocketable magstripe reader that plugs into a headphone jack or Lightning connector won’t have any peripherals, but Bluetooth and/or EMV readers need cables to charge them up. Other nice-to-have items include carrying cases, docks, clips, and even lanyards that allow the user to carry the reader without losing or damaging it.
Now, let’s look at four simple readers that are available for free. For ease of reference, we’ve put the card reader comparison information into a table:
Payment Depot Swift B200
Square Magstripe Reader
Shopify Chip & Swipe Reader
PayPal Chip & Swipe Reader
Headphone jack (for Android) or Lighting connector (for Apple devices)
Square Point of Sale
Shopify Lite or Shopify POS
400 chip or 700 swipe transactions
Micro USB charging cable; mounting sticker
Stand, micro USB charging cable, mounting sticker, travel case
Device clip, micro USB charging cable
There are plusses and minuses to any free card reader. Ultimately, the “best reader” is the one that fits with the specific needs of your business.
Swift B200 From SwipeSimple
The Swift B200 from SwipeSimple is a Bluetooth magstripe and EMV reader. The parent company, CardFlight, makes two models of readers: the B200 and the B250 (which we review here). The B200 is the less expensive of the two readers, and it lacks the NFC card reader function in the B250.
The B200 can pair with both iOS and Android devices. It uses a rechargeable battery that lasts about 420 transactions. There’s a battery indicator LED light on the device, and the box includes a USB cable. You also get a lanyard and a carrying case.
SwipeSimple’s mobile processing app is available through several providers, but we recommend Payment Depot. Payment Depot is one of our top-rated providers because of its great customer service and fair, transparent pricing. The company also offers a mobile processing plan exclusive to Merchant Maverick readers, which includes the B200 reader for free (you can upgrade to the B250 for $25). You’ll pay $10/month plus 2.6% + $0.10 per transaction with no monthly minimums or additional fees.
We like the SwipeSimple app, and you can find more details about the app in our review. The app takes care of all your credit card processing needs without the clutter of too many extra features. If you’re a no-nonsense kind of person, this might be the app for you.
SwipeSimple Swift B200 Fast Facts
Reader Cost: Free (when you sign up through Payment Depot)
Payment Types Supported: magstripe, EMV
Companion Software: SwipeSimple
Square Magstripe Reader
The Square Magstripe Reader is, as its name says, just a magstripe reader. This reader has been Square’s trusty free reader for many years, and it hasn’t evolved much. Of course, when Apple stopped providing headphone jacks on its phones, Square had to adapt to come up with the Lightning connector for its reader. (Soon, it will have to adapt again for Android phones, as Samsung seems to be phasing out headphone jacks too.)
Read our Review
The Square Magstripe Reader does not need charging, and it’s small enough to fit in your pocket to be carried around. There’s a certain elegance in that sort of simplicity, even though it’s only a magstripe reader that can open the merchant up to liability from fraudulent cards.
Square does offer a tradeoff for that liability, and, for some, the risk might be worth it. The Square magstripe reader works with the very robust (and free) Point of Sale app as well as opening up the rest of Square’s highly-rated (and value-added) services to you. In addition to processing cards at 2.75% per transactions, the Point of Sale app can also track inventory, manage employee hours, keep track of appointments, and do much more. So before you rule Square out based solely on its magstripe reader, we encourage you to think about your company’s future needs and see if Square might be a fit for you after all. Here are our full Square review and our Point of Sale app review to help you make a better-informed decision.
If you decide you want to upgrade to one of Square’s other devices later, Square offers financing for all hardware purchases starting at $49 — conveniently, the price of its Contactless + Chip card reader.
Square Magstripe Reader Fast Facts
Reader Cost: Free (additional readers $10)
Payment Types Supported: magstripe
Companion Software: Square Point of Sale
Connection: headphone jack or Lightning connector
Shopify Chip & Swipe Reader
Shopify is better known as an online shopping cart and eCommerce platform. With its free POS software and credit card reader, though, it appears to be branching into stores with physical locations. The Shopify reader is of a proprietary design. It’s a magstripe and EMV reader that comes with a charging cradle. Packaged in a neat little carrying case, you’ll also find a micro USB charging cable, mounting hardware, and everything else you need.
Read our Review
Shopify’s Chip & Swipe Reader connects to a mobile device through Bluetooth. The reader can process 400 chip transactions or 700 swipe transactions on one charge. It works with Shopify POS, which runs on both iOS and Android devices. If you subscribe to any of Shopify’s eCommerce plans, the POS app and hardware are included as part of your service. However, if you’re just interested in the mobile app and some tangential eCommerce features, you can opt for the Shopify Lite plan, which goes for $9/month and 2.7% per transaction. It doesn’t include access to all of the advanced features, but as a mobile offering, it’s quite serviceable.
Be sure to check out our detailed review of the Shopify Chip & Swipe Reader. We have reviewed Shopify’s eCommerce plansÂ as well as its Shopify Lite plan and Shopify POS software. Take a quick look at the reviews and see if Shopify is a good fit for you.
Shopify Chip & Swipe Reader Fast Facts
Reader Cost: Free
Payment Types Supported: magstripe, EMV
Companion Software: Shopify POS (with eCommerce plan or Shopify Lite)
PayPal Chip & Swipe Reader
PayPal first made its name as an online payments processor. These days it’s more of an all-in-one solution for businesses, including its free mobile software, PayPal Here, and the free card reader that comes with it. Like most other free readers in this article, the PayPal Chip & Swipe Reader is a magstripe and EMV reader that connects to a mobile device via Bluetooth. The reader comes with a micro USB charger and a clip for attaching the reader to the mobile device.
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According to PayPal, the reader has enough battery to last all day. However, a little digging in the comments section of reviews and tech support messages suggests that some people have issues with the battery life. So you might want to proceed with caution if long battery life is important to you.
PayPal, like its closest competitor, Square, used to offer a free basic card reader. However, it discontinued that offer and implemented account restrictions on merchants who use the basic magstripe reader (see our PayPal Here review for more information on that). The free Chip & Swipe reader is a nice alternative to this policy. The mobile app is free to use, with transactions processing at 2.7%.
Signing up with PayPal gives you access to all its payment-related services. Make sure you understand the full scope of PayPal’s business as you consider whether or not to get the PayPal Chip & Swipe Reader. And if you do want a mobile card reader with contactless support, check out the PayPal Chip & Tap reader.
PayPal Chip & Swipe Reader Fast Facts
Reader Cost: Free
Payment Types Supported: magstripe, EMV
Companion Software: PayPal Here
As you look through the reviews, don’t forget to look at the upgraded readers available from each provider. You might wish to take these readers into account, so you’ll know how much more it might cost you in the future to upgrade.
Don’t Be Fooled By The Promise Of A Free Card Reader
Mobile card readers are usually loss leaders used to entice merchants to sign up with a particular card processor. The free readers tend to be a simple piece of hardware without a lot of extras, and they tend not to be able to read NFC signals, so customers won’t be able to tap to pay. For the card processors, free readers are merely a way to introduce you to their other services.
Before you sign up, it’s important to research the processing company to make sure the mobile software and other features are worthwhile and that the pricing works for you. Otherwise, while you might get your free card reader, you will suffer the administrative headaches or reduced profits that come with choosing the wrong credit card processing company.
Lastly, don’t forget to read our article, The Best Credit Card Readers For Your Small Business,Â for a truly comprehensive discussion on the best card readers in the marketplace today.
Have you used any of these free readers? If so, what’s your experience with them?
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