Small Business Finance Questions

This is our third installment of frequently asked questions, (check out our first and second installments) and we hope to give helpful answers to small business finance questions that many owners have. If you have a question you would like addressed, please feel free to send it to us.

I’ve been approached about selling the building we own, what do I do with the proceeds once the building is sold knowing that I need to go into another building? —Jason Alexander

A 1031 exchange allows you to defer paying capital gains on the investment until another like-kind property is purchase. You have 45 days to identify a replacement property and 180 days to complete the sale. This strategy can be incredibly complicated and has the effect of “kicking the can down the road.” This means the gain you would have on the first sale will be there when you sell the second building. Depending on your political leanings, you may think tax rates are going to rise. In that case, it could be best to take the profit and pay the capital gains tax. We suggest you talk to your tax professional for help on this.

Why do we need to do bank reconciliations if we have bank feeds? —Debbi Silva

Besides just being good accounting practice, there are definite reasons for reconciling the books to the bank statement each month. The purpose of a bank reconciliation is to make sure that what is on the books matches what has gone through the bank. With bank feeds it is possible to directly match transactions at the download stage and to add in missing transactions, but most businesses also write checks, so a bank reconciliation for your checking account will tell you if all your checks have cleared and identify which ones have not. Bank feeds are susceptible to same technical issues from which all online services suffer. They rely on an internet connection and online connectivity. The bank or your connection to it could drop for a space in time and sometimes it is so short that you would not even know that it has happened. Once the connection is restored, transactions might be skipped or duplicated in the first download. The bank reconciliation will give you the opportunity to find these duplicated or missing transactions. Bank reconciliations are also a good way to identify fraudulent transactions that might have slipped through on the bank feed when adding/matching multiple entries.

What is the difference between an invoice and a bill? —Adrienne Hirschauer

Invoice – this is a document your business SENDS out to a customer outlining the goods and/or services you have provided for them. This is a request for payment. Invoices are tracked in the Accounts Receivable account.

Bill – this is a document your business RECEIVES from a vendor/service provider outlining the goods and/or services provided to your business. This is entered into your accounting software as a bill to be paid. Bills are tracked in the Accounts Payable account.