Well, take a breath – and get an extension.

Your tax software service can probably do it online. If not – use Form 4868.

If you have a partnership or LLC filing as a partnership, or an estate (Form 1041) or trust (Form 1041), use IRS Form 7004.

The extensions are automatically accepted – no approval needed. Good for 6 months.

BUT, if you owe money, you need to pay. Drop by TaxWatch article at MarketWatch.com (it’s written by me) for tips on how to pay – especially if you don’t have money right now. In fact, read it BEFORE you finalize your tax return. You’re going to find one last way to cut last year’s taxes. But only if you put your tax return on extension.

Oh, let me dispell a rumor I just heard about extensions and the Stimulus Rebates. Some fool is spreading the rumor that you won’t get your rebate if you put your return on extension. That’s utter nonsense. You’ll get it. Perhaps a bit later. But it will come.

Happy Tax Day!

First things first: you need to understand the market’s dynamics and market momentum.

Bear markets, recessions, bad times — they are (usually) preceded by good times, and it’s the good times where things begin to go bad.

Recessionary Psychology

When things are “good” (meaning business is booming), businesses don’t fixate on risk — they become desensitized to it. Human nature tricks people into believing that things will tend to stay as they are today. So when times are good, people tend to believe things will stay that way. Worse yet, people want to believe it — so denial can become a factor. As a result people tend to become overconfident and brazen; survival instincts become dulled.

The trouble is, change is constant — things are always shifting beneath the surface, and markets always cycle given enough time. Therefore when you think things are great, it’s precisely the time to start planning for the bad times.

Recessionary Dynamics

In service-oriented industries — especially in creative industries like film, marketing, etc. — growth leads to hiring because the business model scales with headcount. The growth and hiring is caused by positive things (new customers, increased demand, etc.) and the drive to add staff, in an effort to adequately service and onboard customers and projects, becomes the modus operandi.

Trouble is, growth leads to greater operating inefficiency in people powered organizations. Businesses need more support staff to help enable the contributors who drive the business — and it’s a vicious cycle.

The long and short of it is after a long period of growth starts to draw to a close, and the new work begins to dry up, growth slows, revenue flatlines and organizations are far less efficient than before the growth began.

Obviously there are exceptions to every rule, and this is a generalization, but it’s the experience of most businesses. There is no rocket science here, it’s all a cycle. It’s happened before and it will happen again.

The writing is on the wall

During each of my last two trips to NYC I hung out with creative professionals (creative directors, film people, developers, designers) at barcampNYC and at Media Bistro events and some other conferences. People at each of these events were talking about layoffs in their offices. In the bar at the Hilton I could not help but overhear an improtu interview going on. These are the unmistakable signs and it’s late in the game frankly. In my opinion, professional employment in NYC is a leading indicator. People in NYC are wise to the downturn. They’re making plans and you can too.

How to take advantage of a downturn

Now that the table is set and you understand the market dynamics at a high level, we’re good to go with what it means as a creative professional and how you can take advantage of the changing market.

Parting note: never forget change is opportunity.

Unlike lesser traditions like Talk Like a Pirate Day or Festivus, Report Card Day comes four times a year! We just recently sent out third quarter report cards for 2007, and as we’ve done in the past, we interviewed several top performers to find out the secrets to their success.

This quarter, our focus is on those who collected on their invoices the fastest. How are they getting their clients to pay them so quickly? We asked, and they were only too happy to share.

Establish a strong relationship

For our interviewees, success starts long before the first invoice is sent. “A really good personal relationship with our customers always helps us get paid faster,” says John Lasiter of Qfolio.

Artur Bobinski of XHTML iT agrees. “Great and friendly service always helps with getting paid faster,” he says.

Here at FreshBooks we’ve long noticed the same thing; establishing a good, respectful relationship with our users means we receive that same respect right back. We help them bring home the bacon, and in return they always make sure we’re taken care of. Care for your customers and they’ll care right back.

Keen, clear and under control

It’s also very important to be up-front with your terms and straight with your customers. From the initial contract right through to the final invoice, communication is key; make sure there are no surprises for your customer.

“My clients know when their bills will be sent, their terms of payment, and the consequences of late payments,” explains Heather Villa of IAC Professionals. She provides high-quality work with a rapid turnaround, “and they return the favour with their payments,” she says.

There’s widespread agreement on this point. “If your invoices are unclear, it leads to unnecessary communication,” says Artur. According to him, presenting all of the necessary information clearly on your invoices “is one of the best methods to get paid faster.”

You can take this approach even further, like Hannah Barnard of Web Depiction. “I speak with the client and lead them through the estimate, step by step,” she says. She suggests sending the invoice only once the client feels all their questions have been answered. As she explains, “clients are always anxious to get started once they know they’ll be taken care of.”

Work on your timing

According to Tim Hamilton of Astonish Designs, Hannah’s last point is a great one; timing can be used to your advantage throughout the life of a project. “We break most projects into three invoices,” he says. The first invoice comes at the beginning of the project, the second following the acceptance of website mock-ups, and the third and final invoice is sent just prior to launch. “These are the times clients are most excited about their project, and are therefore motivated to pay quickly and move things forward,” he says.

John says speed is important, too. Once the project is completed, “the invoice is included at the end of the project in one smooth motion.” If you wait even one day, John says, “it will often take longer to receive payment.” So get those invoices out fast!

Use FreshBooks to your unique advantage

With a web application like FreshBooks, you have a whole host of special abilities to speed up collections, abilities you wouldn’t have otherwise.

For instance, Marc Lee Pack of SOHO Consultants likes to generate invoices on-site for his clients when a job is complete. As he tells it, “sometimes they even pay me on the way out.”

The online nature of the application is helpful, too: “my clients love the value-added ability to receive e-mail invoices and view their account statements online,” he raves.

Auto-billing: get paid instantly, over and over again

Automatic recurring billing is one of those killer features that gets the money in the door, too. What better way to ensure rapid payment than automatically charging your customers? According to one FreshBooks user, “automatic billing makes sure we get paid quickly, so we can sit back and relax.”

We heard plenty of similar stories. Don Steinberger of Blue Diamond Webs has been in the business for 15 years, and he’s glad services like FreshBooks have “opened up avenues” to automate the billing cycle. As he puts it, “it keeps me out of the collection business.”

Tim is similarly grateful. In tandem with his one-time projects, he focuses on “building relationships with clients that include monthly services,” and charges their credit cards on a recurring basis. “This brings our ‘time to pay’ closer to zero,” and that’s a good thing.

Move to value-based billing

The final piece of advice we heard is arguably the most valuable. It’s also a subject dear to our hearts; Mike, our CEO, even gave a seminar on this topic for the Design Guild of Toronto last week.

Forget about billable hours. Start billing what you’re worth.

Don explains he had the idea by looking at web hosting companies; he wondered if his web design clients would pay their maintenance fees in a similar fashion. “So I came up with a contract formula that works equitably for myself and my clients,” he says. Rather than billing clients a different amount each month, clients sign a maintenance agreement with a set monthly fee.

“The goal was to get out of the billing and collection cycle,” Don explains. “It has worked wonders for my business.” He says his production time has doubled—”because I’m not sitting and calculating monthly statements, sending them out, and collecting by old-fashioned methods.”

The relationship is so predictable, customers think of it “more like their cable TV bill.” They keep the money set aside, and it’s automatically charged each month. “It has truly eliminated the monthly collection effort,” says Don. “It’s my attempt to change the way people look at website maintenance.”

Don’s experience might change the way you look at your industry, too.

Thank you to our contributors

Many thanks to Daniel for conducting these interviews. On behalf of the community, we’d like to thank Artur, Don, Hannah, Heather, John, Marc, Tim and others for taking the time to share your experiences. We really appreciate it, and keep up the great work!

Independent contractors are responsible for reporting all income to the IRS, whether or not you received the right forms from your clients. 1099 forms are used to report income to the IRS. This article will help prod your clients to file their 1099 forms.

Who has to report/file form 1099?

Companies/Employers who made payments of $600 or more to independent contractors who provide trade or business services.

When to report?

If the following four conditions are met, you must generally report a payment as nonemployee compensation.

• You made the payment to someone who is not your employee;
• You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
• You made the payment to an individual, partnership, estate, or, in some cases, a corporation;
• You made payments to the payee of at least $600 during year.

Which 1099 form should you use?

Typically, you will receive or file the 1099-Misc form to report income from independent contracting / freelancing. If you have hired contractors you will need to file 1099s and if you are contractor you may receive 1099s from the companies with which you did business.

For other sources of income, though, you will need to use other 1099 forms. There are many other types of form 1099s to report income such as cancellation of debt, dividends, or income from interest.

State laws on form 1099

State laws differ on when a business is required to file a 1099. For example, some states have a limit on the amount of income an individual can be paid as 1099 income from a single business to prevent businesses from avoiding paying taxes and benefits to “employees” by paying them as independent contractors. Be sure to check with your accountant for your state’s policies.

Where to get form 1099

If you are filing your 1099s and 1096 by paper, you must file red scannable copies of the forms with the IRS. These red forms can be obtained for free from the IRS by mail (the forms may be ordered online or by calling 1-800-829-3676) or at your local IRS office. You can also buy red forms at your local office supply store.

Also note, do not use a felt tip marker, as the machine scanner cannot read that type of ink.

Important dates to remember

• January 31, 2008 — deadline to give Copy B of Form 1099 to the recipient.
• February 28, 2008 — deadline to file with the IRS Copy A of Form 1099 as well as Form 1096.
• March 31, 2008 — deadline to file forms electronically.

This is presented as general information only and should not be construed as tax advice. If you need help with filing your forms or other accounting help, please contact Heather Villa.

Believe it or not we are nearing the close of another year. If you are a small business owner you can ring in the New Year with peace of mind by taking a few simple steps now. If you use accounting software like QuickBooks, you can use the year end checklist found in the Help menu of the software to assist you in your planning

Step 1. Reconcile your accounts.

Account for all of your transactions – bank, cash, and credit cards. Make sure that you have all of your month end statements and documentation. Get your Bank Reconciliation Statements. It is good practice to prepare this monthly. You will need to look for any differences in your bank statements against the entries in your register. You are looking for

• Checks issued but not cashed.
• Deposits that have not been credited.
• Direct deposits and debits and any other transactions that may have created a discrepancy.

Step 2. Track expenses.

Most of you are using the cash-basis accounting method (essentially, what matters most is cash coming in and going out of your bank account). If so, you need to keep track of prepaid expenses and income. These prepaid items need to be separated from standard expenses and income as they are going to be an asset or a liability and need to be recorded as such on your balance sheet.

If you have received bills for certain expenses which will be paid later, and would like to record them as current year expenses, you can only do that if you are using an accrual accounting method (essentially, what matters most is what is owed to you or by you, not the actual cash payments). However, if you make sure to pay the bills before the end of the year than they would qualify as valid expenses under the cash-basis accounting method.

Step 3. Track depreciation.

You will also need to account for non-cash expenses like depreciation. If you have identified certain debts as non-recoverable, show them as bad debts. Keep track of your fixed assets. If you have added assets or disposed of them you will need to verify that these entries have been made. If you are planning to buy any new assets in the near future, it is better to buy it in the current financial year. You will be able to reduce your current year tax liability and benefit from depreciation. Of course these transactions are based on the current requirements and current financial status of business.

Step 4. Track staff salary.

Certain expenses, such as staff salary must be paid by year end. You do not want to carry this into the next year as an outstanding expense. You can reduce your current year income by delaying some of you fourth quarter sales orders to the next year. Once again your tax savings is dependent on the financial status of your business.

Step 5. Outstanding accounts receivable.

Finally, you will need to account for income accrued for the year but not received. This depends on your method. As previously mentioned for the accrual basis it will be recorded as Income (period!) for a cash basis it will not be recorded as anything – it is not an income until payment is received. Now what it means when I say “account for” is to determine whether these should remain as open accounts receivable or whether they should be written off as a bad debt. Typically if it is over 90 days it should be taken off the books and written off as a bad debt (providing a deduction to cancel out the income).

Finally, hit print and relax with an egg nog.

Once you have accounted for and entered all of your transactions into your accounting system you can generate your year end financial statements. These statements include your Profit and Loss Statements and Balance Sheet. Review the statements to ensure there are no inaccuracies or abnormalities.

These few planning steps will not only prepare you for tax time but will enable you to plan for next year. Then you can relax and enjoy a peaceful year end.

Shortly after the release I wrote about “What’s Next for the FreshBooks Report Cards Service”. Part of our dream is we want to connect best performers in various report card metrics with other FreshBooks users so that they can help other business owners learn and improve themselves. Below is some helpful insight and advice from top performers in the Gross Revenue and Short Collections Report Card metrics. Their insights can be boiled down to hiring right, implementing simple intelligent processes and extraordinary dedication and communication with customers:

Revenue Gross — Top Performers

“We put our customer’s best interests above our own interests… Daniel, all I ask is the you put the line “may peace prevail” with my quote.”
—Skye Southwick, Sky IT Support

“Right now I would just have to put it down to the close relationships we maintain with our customers or perhaps our emphasis on quick support.“
—Chris Puram, Springboard Net Solutions

“If I had to pick one reason why we’ve been successful it would be that we don’t compromise when we hire. We would rather turn down business because we don’t have the capacity than hire the wrong person just because we had to.”
—Doug Heestand, Vital Networks, Inc.

“One reason we have continued to be a top performer is our single-minded focus on the things that make money, or the more more-important business building activities. With this focus we can let go of all the other ‘little’ things that take up time and don’t make money. One of the many tools that help us focus on the big issues is of FreshBooks. It substantially decreases the amount of time required to invoice and collect money. For that we thank you.“
—Nicholas Beames, Aspire Human Capital Management

Short Collection Periods — Top Performers

“I think I receive quick payments from my customers because I do require payment upfront for any item under $1200. My business is service only and I must enforce this rule to make sure I’m compensated for time spent on projects.”
—Becky Perry, Designs by CM

“Many of our clients like to prepay by debit card although others pay online using PayPal etc.”
—MWC International S.A

“I have the audacity to ask for a 50% down payment with 50% of the down only refundable within 14 days if the project is cancelled for any reason. I acquired the audacity after a few bad experiences.

Also I like to surprise customers with discounts which are not talked about before hand, when the project is completed, I send an email announcing that I will be sending their final invoice, in the email I specify a generous discount for paying Net 7, Net 14 etc, I let it simmer a little.

Most people don’t use the online payment systems, since they find PayPal to be to confusing and cumbersome and distrust other avenues, depending on the client. Some people jump at the opportunity to save 10%, and usually call or mail the check right away.”
—Anonymous

“FreshBooks being so easy for clients to pay with credit cards- What helps our quick payment time is making sure the client is 100% satisfied before requesting funds. This is both for invoices to commence projects and invoices due at the end of projects. Before mentioning payment terms or asking for a down payment we always make sure we’ve answered all the clients’ questions and clearly explained all the upcoming steps for completing the project. This builds the clients trust and shows that we’re more focused on the task at hand, rather than just getting paid. When it comes to finishing a project it always seem that when we exceed the clients’ expectations they cannot wait to make the final payment to receive their product.”
—Justin Rockwell, Twilight Pictures

The whole exercise gives a hint of where FreshBooks is going, creating and enabling a community so that users can reduce their dependence on costly professionals and consultants and get the advice they need to build their business. We’ll be continuously rolling out improvements to the Report Card service every quarter. As always we welcome your feedback and thoughts on what you’d like to see.