Using Accounting Software Does Not Require an Accounting Background

A number of growing companies are hesitant to purchase and implement new accounting software because they are afraid that they will need to learn a whole new set of skills to effectively use the software.  They often feel that their understanding of accounting principles will not be enough to allow them to use the software properly. 

Thankfully, this assumption is not entirely correct.  It is certainly helpful to understand accounting principles when using the software, but it is not necessary.  Any business, small or large, can benefit from implementing a dedication accounting software system, regardless of the users' understanding of accounting principles.

Granted, an accountant will have a much more thorough understanding of what the software is doing and the reports that it creates, but the actual use and input of data requires no specialized accounting background.

Most accounting software will do the "nitty gritty" work that you would need special accounting training in anyway, so it is safe to say that accounting knowledge is not necessary to begin using accounting software.  That is not to say that a company should blindly begin using a new financial software package - of course they should make an effort to understand the principles to allow themselves to get the most from their software.

For example, if you operate a retail company, the average user of your accounting software will need to know the following:

How to input an invoice

How to make changes to an invoice once it is paid

How to print and/or email receipts, invoices, etc. 

None of these tasks require a background in accounting.  Any person with a general idea of how to use software can probably figure these things out and can most certainly be trained.  While people with accounting backgrounds will be able to see these changes reflected on the general ledger and know what they mean, the bottom line is that for the end user in this case that information is neither necessary nor relevant for their job. 

Anyone who has experience using or has even seen the interface of a typical accounting software package will quickly realize that minimal accounting knowledge is required to use the system.  In fact, that is the beauty of these programs - their user-friendliness.  Just like you do not necessarily need to understand how an engine works to drive a car, so too do you not necessarily need to know how accounting software works to make it useful.

Accounting software reviews often focus more on the usability and efficiency of a software package than the specific accounting tasks that the software performs.  This is because most users do not understand the advanced accounting tasks that the software does automatically and the truth is that they do not need to, so long as they put the data in properly. 

The bottom line is that most accounting software is designed exactly for people who have minimal accounting knowledge as they are the ones that benefit the most from it.

In fact, software that was designed only for accounting professionals would have a hard time staying on the market.  As a result, more and more software is brought to market with a target market of the "average user" that is simple, yet effective. 

However, do not get caught thinking that since you have good software that is easy to use that you should avoid learning about accounting.  The more you know, the better use you will be able to make of your software.  The key is to balance your time and effort between learning about accounting and thus being able to use the software more effectively while remaining focused on the activities that you have more time to work on as a result of the improved efficiency that the software gives you.

You don't need to be a professional race car driver to be on the highway, but it would certainly make you a more efficient driver.  In the same manner, you don't need special accounting knowledge to use accounting software, it simply makes your job easier. 

David Kraft is a freelance author with many areas of specialization. He offers advice for selecting new accounting software for businesses of all sizes at his accounting software review site.

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Using Your Health Savings Account to Build Retirement Savings

Health Savings Accounts are an excellent way to build a second retirement account. These tax-favored accounts, which have only been available since January of 2004, can be opened by anyone with a qualifying high-deductible health insurance plan. Once you open an HSA account, you can place tax-deductible contributions into it, which grow tax-deferred like an IRA. You may withdraw money tax-free to pay for medical expenses at any time.

The biggest reason more people don't retire before age 65 is lack of health insurance, and many Americans reach age 65 woefully unprepared for the medical expenses they'll face once they do retire. One of the most important long-term reasons for establishing an HSA is to build up some money for medical expenses incurred during retirement.

Fidelity Investments reports that the average couple retiring in 2006 will need $190,000 to cover medical expenses during retirement. This assumes life expectancies of 15 years for the husband and 20 years for the wife.

HSAs are, without exception, the best way to build up money to pay for medical expenses during retirement. You should not contribute any money to your traditional IRA, 401 (k), or any other savings account until you have maximized your contribution to your HSA. This is because only health savings accounts allow you to make withdrawals tax-free to pay for medical expenses. You can take these distributions anytime before or after age 65.

Your HSA contributions won't affect your IRA limits -- $3,000 per year or $3,600 for those over 55. It's just another tax-deferred way to save for retirement, with the added advantage being that you can withdraw funds tax-free if they are used to pay for medical expenses.

For early retirees who are healthy, a health savings account can also be a smart option to help lower their health insurance costs while they wait for their Medicare coverage. The older someone is, the more they can save with an HSA plan. For many people in their 50's and 60's who are not yet eligible for Medicare, HSAs are by far the most affordable option.

Any money you deposit in your health savings account is 100% tax-deductible, and the money in the account grows tax-deferred like an IRA. For 2006, the maximum contribution for a single person is the lesser amount of your deductible or $2,700. In other words, if your deductible is $3,000, you can contribute a maximum of $2,700; if your deductible is $2,000, then that is the maximum. For families, maximum is the lesser of $5,450 or the deductible.

If you're 55 and older, you can put in an extra $700 catch-up contribution in 2006, $800 in 2007, $900 in 2008, and an additional $1,000 from 2009 onward. The contribution limit is indexed to the Consumer Price Index (CPI), so it will increase at the rate of inflation each year.

How much you accumulate in your HSA will depend on how much you contribute each year, the number of years you contribute, the investment return you get, and how long you go before withdrawing money from the account. If you regularly fund your HSA, and are fortunate enough to be healthy and not use a lot of medical care, a substantial amount of wealth can build up in your account.

Health savings accounts are self-directed, meaning that you have almost total control over where you invest your funds. There are numerous banks that can act as your HSA administrator. Some offer only savings accounts, while others offer mutual funds or access to a full-service brokerage where you may place your money in stocks, bonds, mutual funds, or any number of investment vehicles.

One of the biggest advantages of retirement accounts like HSAs are that the funds are allowed to grow without being taxed each year. This can dramatically increase your return. For example, if you are in the 33% tax bracket, you would need a 15% return on a taxable investment to match a tax-deferred yield of only 10%.

As another example, if you are in a 33% tax bracket and were to invest $5,450 each year in a taxable investment that yielded a 15% return, you would have $312,149 after 20 years. If you put that same money in a tax-deferred investment vehicle like an HSA, you would have $558,317 - over $240,000 more.

Because catch-up contributions are allowed only for people age 55 and older, if one or both of you are under age 55 you should establish your HSA in the older spouse's name. This will allow you to capitalize on the expanded HSA contribution limits for people in this age range and maximize your HSA contributions. Once that person turns 65 and is no longer eligible to contribute to their HSA, you can open another health savings account in the younger spouse's name.

Strategies to Maximize your HSA Account Growth

If your objective is to maximize the growth of your HSA in order to build up additional funds for your retirement, there are three important strategies you should implement.

Strategy #1: place your money in mutual funds or other investments that have growth potential. Though this is riskier than placing your money in an FDIC-insured savings account, it is the only way to really take advantage of the tax-deferred growth opportunity that an HSA provides.

Strategy #2: delay withdrawals from your account as long as possible. Though you may withdraw money from your HSA tax-free at any time to pay for qualified medical expenses, you do have the option of leaving the money in the HSA so that it continues to grow tax-free. As long as you save your receipts, you can make medical withdrawals from your account tax-free at any future date to reimburse yourself for medical expenses incurred today.

As an example, let's say a 45 year old couple places $5,450 per year in their HSA over a period of 20 years, they have $2,000 per year in qualified medical expenses, and they get a 12% return on their investments. If they withdraw the $2,000 from their HSA each year, they'll have a net contribution of $3,450 per year into their account, and they'll have $248,581 in their account when they begin their retirement years.

If on the other hand they delay withdrawing that money, they will have $392,686 in their account at age 65. If they choose they can withdraw the $40,000 to reimburse themselves tax-free for the medical expenses incurred during that 20 year period, and still have $352,686 in their account - over $100,000 more than if they had withdrawn the money each year.

Strategy #3: make the maximum allowable deposit to your HSA at the beginning of each year. Even though you are allowed until April 15 of the following year to make deposits to your HSA, you should take advantage of the tax-free growth in your account by funding it as soon as possible. The extra interest you can earn by contributing to your account on January 1 of each year rather than the next April 15 can amount to over $40,000 in a 20 year period, and over $100,000 in 30 years.

Using Your HSA to Pay for Medical Expenses during Retirement

When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or "Medigap" policy.

Though Medicare will pay for the majority of health expenses during retirement, there many be expenses that Medicare will not cover. Nursing home expenses, un-conventional treatments for terminal illnesses, and proactive health screenings are all examples of medical expenses that will not be paid for by Medicare, but that you can pay for from your HSA.

Long-term care is assistance with the activities of daily living, such as dressing, bathing, or feeding yourself. It can be provided in your home, a retirement community, or a nursing home. Long-term care expenses can be paid for using funds from your HSA, and long-term care insurance can even be paid for from the HSA up to the following maximum annual amounts:

- Age 40 or under: $260

- Age 41 to 50: $490

- Age 51 to 60: $980

- Age 61 to 70: $2,600

- Age 71 or over: $3,250

To establish a health savings account, you must first own an HSA-qualified high deductible health insurance plan. Compare HSA plans side by side to determine the best value to meet your needs. Once you have your high deductible health insurance plan in place, you can open your Health Savings Account with the financial institution of your choice.

By Wiley P Long - President, HSA for America. At HSA for America, we makes it easy to learn about and set up health savings accounts. Please link to this site when using this article: http://www.health--savings--accounts.com

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Stimulate Company Growth Using Accounts Receivable Factoring

Accounts receivable factoring is the sale of part or all of a debt that someone owes to your company. When companies purchase a debt through accounts receivable factoring, they pay for your invoice at a discount. They then collect the debt directly from the company who owes you money.

Accounts receivable factoring is distinct from using your accounts receivable as loan collateral because you are outright selling some or all of your receivable to a factor, such as a bank or insurance company, at a discount. You don't collect the debt owed to you from that account anymore, but you also don't have to worry about loan repayments. Accounts receivable factoring makes up about a third of all financing secured by American companies using accounts receivable and inventory as collateral; it's not an uncommon practice. And accounts receivable factoring can help you get large orders that you otherwise wouldn't be able to manage.

Consider the following scenario: you have ten thousand dollars in cash on hand, most of which is currently earmarked for payroll or debt payment. As a relatively new company, you don't have credit enough to use your accounts receivable as collateral for a loan. A large new account becomes available, and you bid on it and win. The problem is, you only have a workforce of fifteen people, and the new contract requires you to staff it with twenty people, purchase several new computers, and find space for the new staff to work out of. And you must do this immediately.

Your ten thousand dollars isn't enough to do this, and you can't get a loan. But you can engage in accounts receivable factoring, sell your current receivables at a small discount, and have the cash immediately on hand to hire the staff, rent the space, and purchase your necessary equipment.

Another possibility - you have a large amount owed to you as in accounts receivable, but one company is paying much too slowly, despite the penalties for late payment. You can sell your not-past-due accounts receivable to an accounts receivable factoring agent in order to maintain your cash flow, and with penalties for late payment applied to the other company, you will probably break even.

Using Accounts Receivable Factoring Wisely

When you sell part of or all of an account to an accounts receivable factoring company, try to get a personal recommendation for the company from a trusted associate: another company's officer, a trusted friend, a bank, etc. If you can't, at the very least ensure your accounts receivable factoring agreement states exact conditions, charges, and procedures for the purchase of your accounts receivable.

And don't use accounts receivable factoring just as a way to get ready cash. Accounts receivable factoring can help you determine whether your payment terms are overly generous, whether the companies to whom you're extending credit are credit worthy, and whether your collections arrangements are adequate for your business. When you speak to the agent arranging your accounts receivable factoring, be it a broker or the actual funder, ask about these things. Accounts receivable factoring companies are interested in long-term ongoing relationships with companies, and will be happy to help you ensure your procedures and information concerning accounts receivable are adequate for your needs.

You should never use accounts receivable factoring for debts you suspect won't ever be paid. Again, you want to develop long-term relationships with accounts receivable factoring companies; they can help your company grow for a long time into the future. But if you sell them accounts they can't collect on, you can be certain they won't work with you again, and they may share that information with other accounts receivable factoring companies as well.

Henry Byers, Accounts Receivable Factoring advisor - focusing on Business Factoring [http://www.invoice-factoring-discounting.info] and Factoring Receivables

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Withdraw From Your IRA After Using Up Your Taxable Accounts to Keep Your Wealth Longer

As a retiree you've probably accumulated savings in both government-regulated retirement accounts - such as a 401(k) or an IRA - and regular taxable accounts. You'll withdraw from them for your annual living expense.

But different tax treatments that apply to the investment earnings and withdrawals for each type of account make it confusing about which type you should withdraw from first. Below I'll show that withdrawing first from your taxable accounts allows you to preserve your wealth longer.

Investment earnings of government-regulated retirement accounts grow tax-deferred, so these accounts compound at their annual return rates. But you pay income tax on what you withdraw from them since your contributions were tax-deductible. The character of the investment within such plans doesn't usually influence this tax treatment.

By taxable accounts, I mean those that you contributed to with after-tax money. There's no particular tax advantage associated with the account. The character of the investments in these accounts and their return determine their tax treatment. So, interest and dividends in such accounts are typically taxed annually as income. Only long term capital gains get a lower tax treatment, usually. Withdrawing any more than the earnings from such investments brings no additional tax since it represents a return of your basis - i.e. your previously taxed contributions.

With that said, it's better to withdraw from your regular taxable accounts before your IRA-type accounts to pay for annual living expenses during retirement since this ordering of withdrawals preserves your wealth longer. To show this, I'll assume comparable investments in each account type; and, for simplicity, I'll assume whatever earnings those investments produce would be taxable each year in a taxable account.

This implies the investments produce dividends and interest as earnings. In fact, a highly reliable dividend and interest paying investment mixture is ideal for IRA-type accounts since it produces a solid return that'll compound annually under a tax-deferred account.

First Observation:

If you don't withdraw from either type of account for living expenses, the IRA-type account will grow faster - for equal yearly returns in investments.

That's because the IRA-type account return is the yearly compounding rate. The taxable account's earnings are taxed so some of the return is lost. If you're in the 25% tax bracket, you must withdraw 25% of the earnings to pay that tax. That leaves only 75% of the return to compound. You lose part of the return; and that undermines the magic of compounding.

Second Observation:

Withdrawing for your annual living expense from your taxable account will deplete that account slower than withdrawing from your IRA-type account if investment returns can't offset the withdrawals.

That's because you must pay the annual taxes on your taxable account. Pulling more out for living expenses comes out tax free as a return of basis.

When withdrawing from your IRA-type account, you must always withdraw more than your living expenses since you have to pay income tax on whatever you withdraw too. So that depletes your IRA account faster than it would your taxable account.

If returns are high enough so both investments grow each year in spite of expense withdrawals, your taxable account will grow slower than the IRA account. That's because the same percent of the taxable account's earning are necessarily lost. On the other hand, the excess withdrawal to pay those 'withdrawal' income tax for the IRA-type account remains constant - but shrinking percentage-wise.

But, additionally, it's also best not to touch the IRA-type account at all - so it can compound as fast as possible as we found under the first observation.

If you must make minimum required distributions from your IRA-type accounts, just take the minimum while taking the balance you need for living expenses from your taxable account.

Investments whose character is heavily tax-advantaged - such as capital gain-based investments and real estate rental investments- are usually best handled outside of government-regulated retirement accounts.

Shane Flait writes and consults on financial, legal, and tax issues. He tells you what the issues are all about and gives you workable strategies to accomplish your goals. Find out more and get a free report on Managing Your Retirement http://www.easyretirementknowhow.com

You can contact him at contact@easyretirementknowhow.com

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