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Archive for the Accounting Category

Is it worth it to track inventory quantities, not just dollars?

 

How much money do you stand ready to make & keep from this data?
Uses of quantity-specific inventory information include:
* prevention & detection of theft and loss
* guard against being overcharged by the supplier
* highest ROI on giving of samples
* shaping of messaging & promotion strategy to focus on highest-margin products, not just highest or lowest sale price
* cash flow management from clarity on reorder points so disbursements aren’t accelerated, or on the other end of the spectrum, she isn’t left without product when a customer needs it
* prevention of losses when she has too much of a non-selling or slow-moving product and has to let it go at a fire sale
* once her business is large enough such that she has to file on the accrual basis, you can help her to make sure she’s not paying too much in income taxes (or too little and then pay extra for it later with money and time)
* assist in setting sales targets & plans for achieving those targets
Track.
Profit.
Repeat.

How can a startup nonprofit create a budget needed to apply for its first grant?

 

A budget isn’t a guarantee. It’s a plan, a target.
Just because your nonprofit is a startup doesn’t mean you can’t have a budget.
Even for long-running nonprofits, no one can say what the future is. You don’t have to have guaranteed revenues in order to have a budget.
As you learn more about what revenue streams are available to you and what is available for your mission as a result, consider designing a target revenue portfolio.
Consider how some revenue sources come with rules about how to use the money (i.e. grants) and some don’t (individual contributions). Consider that come with easily definable costs (i.e. product sales) and some have costs that are less easily definable (i.e. sponsorships).
Use that information to shape up the expense side of your budget that corresponds to your revenue portfolio.
Then you’ll have your budget.

Which Accounting Program Should I Choose for my New Business?

 

Congratulations on your new and exciting business!
The right accounting program for you depends on what you need now and what you want later.
The three most popular ones for startups are:
QuickBooks Desktop
QuickBooks Online
Xero
In summary, if you are going to start small and grow into something quite large, go with Xero.
If you want to keep costs down in the long term and are accepting paper checks from customers, use QuickBooks Desktop as long as you can run Windows.
If you are accepting paper checks, aren’t going to grow to a 7-figure company, really need a mobile app, and don’t mind the risk of not being able to access your file when you want to, take a risk with QuickBooks Online.
~~~PROS AND CONS~~~
QuickBooks Desktop:
PRO: You only have to buy it once
PRO: Can give you detailed business intelligence on customer trends, service trends for the types of flights – this information can help you price for maximum profitability
PRO: Is the fastest of the 3 programs
PRO: If you will be accepting checks, this has a clear way of handling that
CON: If you need more than one user in the file at the same time, it can get pricey, depending on the situation
CON: Only accessible on a computer, not mobile
QuickBooks Online:
PRO: Syncs with more 3rd party apps (project management, CRM, time tracking, invoicing & payment for example)
PRO: If you will be accepting checks, this has a clear way of handling that
PRO: There’s an app which I hear is “okay.”
CON: Frequent outages
CON: The GUI slows down the whole process because somebody came up with the bright idea that all of the data entry screens should slide up and down. I hate having my time wasted.
CON: Intuit, the company that makes QuickBooks, is pushing everybody toward QuickBooks Online, but for years it has been a problematic product, and now they’re running around fixing bugs and trying to make it better.
Xero:
PRO: Syncs with the most 3rd party apps (project management, CRM, time tracking, invoicing & payment, analysis, forecasting for example)
PRO: In an all-digital environment, it saves you the most amount of time in regular bookkeeping. It pretty much handles everything automatically.
PRO: Has 2 tracking categories in comparison to 1 in QuickBooks, so if you’re going to build a large business with different locations and lines of service, it’s all clear and trackable so you can see things clearly and manage things well.
PRO: There is an **amazing** app
PRO: Once the business grows and you have people helping you, you can approve bills in the system in order to keep track of your money
PRO: They are the up-and-coming cloud-based accounting app taking the world by storm. No bugs. No outages. And getting better all the time.
CON: Doesn’t handle batches of customer paper checks very well.

What Should I Expect From My QuickBooks Trainer?

Start by sharing your business strategy and business model so your trainer can activate features that you’ll need for external and internal reporting, such as:
* bank accounts, including PayPal
* receivables
* jobs vs. customers
* customer types
* inventory features
* item specifications
* item groups
* price levels
* credit card accounts
* payables
* sales tax
* class tracking
* 1099 setup
Then learn how to pull meaningful information from your QuickBooks file and how to interpret that information and make money with that information. If your company is new, have the trainer use a sample file from your own industry to teach you. Examples are: Financial statements, aging reports, job profitability reports, Profit & Loss by business segment or location.
Next: Back-fill into the data entry that’s required to produce those reports. Sales cycle, purchasing cycle, how to do an inventory count & inventory adjustment if you have inventory. Your training should include bank feeds, information about the best 3rd party apps (if any) for you, and the massive time-saving merits of attaching files to transactions and list items.
Next learn how to check your own data with error trapping techniques. For example, if you’re using class tracking, then the Profit & Loss Unclassified report should always be empty. Undeposited Funds should never be stale; the bank reconciliation detail will show transactions that have been outstanding for too long. Stay on top of this and you’ll avoid an irate vendor who hasn’t gotten paid because the check that you wrote is sitting on someone’s desk. You’ll also avoid making a decision based on incorrect financial statements.
To put a bow on the pre-structured piece, learn best practices in backing up the file, data security.
Don’t sign on to a training without a final phase that includes trainer availability for questions that will arise as you actually use the file. You can discuss with your trainer if you want anytime availability for questions as they arise vs. weekly sessions to get the answers, and you’ll document your questions in a list as they come up.

Figuring Out the Real Value of a Compliance Project

How do you measure the value of a compliance service that you received…or provided?
A story recently came my way in which a business owner received professional services required to help his business be in compliance with federal and state laws.
Specialty knowledge was required to accurately complete the right forms.
He engaged the services of an expert who got the job done…but didn’t want to pay the invoice in full because it just didn’t seem worth the price tag.
As a buyer, have you ever felt like that?
As a service provider, has that ever happened to you?
Let’s hone in on why the business owner did not perceive value for the service. In this case, it was because there just weren’t that many documents produced.
I can’t blame the business owner for using what he knows – and a quantitative metric, at that – in order to assess value.
However, this needs to be a lesson for all of us, those who engage the services of others and those who provide services.
Notice what metric you’re using to assess value. And use the right metric.
“Number of pages produced” is an inaccurate and unhelpful metric.
Ask yourself:
* What isn’t possible without said documents
* Comparable pricing with other service providers for the same level of speed, accuracy, and other factors in the relationship
* Opportunity cost of his time if he were to do this himself
* Length of time that it takes anyone to be able to build the expertise to handle this
* Making sure the RIGHT documents get prepared
* The fallout from the documents being prepared incorrectly or late
The Emancipation Proclamation is only 5 pages long.
The Declaration of Independence is only 1 page long.
But “number of pages” is what he knows to use as a measurement of value in the face of nothing better.
Service providers: Teach your clients how to measure value, and you’ll empower them for life. And thereby get them present to the amazing value they have access to by working with you.
Business leaders: Beware of illusion of value that comes when you measure something that is NOT correlated with actual value. Get clear with yourself and with your service provider about the real indicators of value before your engagement begins, and you’ll both be delighted and better off after your project is complete.

The Perfect Chart of Accounts for Your Business

Your “Chart of Accounts” is the list of accounts in your accounting software.  The accounts are listed in your reports, and the totals allow you to determine how much you’ve spent, made, own, or owe depending on the type of account.

It’s essential to create a list of accounts that you need in order to make better business decisions.  Your chart of accounts needs to be designed intentionally.  If it hasn’t been, it’s never too late.

Two Types of Accounts

There are two major types of accounts:

  1. Balance sheet accounts that tell what you own and owe.  These are determined by your checking accounts, inventory, and credit cards.
  2. Income statement accounts that tell you about current period operating results.  These, in turn, have two major categories, income and expenses.  For companies with inventory, expenses are further broken out into cost of goods sold and other expenses.

Three Purposes

A chart of accounts should meet three needs:

  • Make it really fast for you to do your taxes
  • Give you all sorts of “Aha’s”
  • Allow you to spend far more time on revenue analysis than expense analysis because that’s where success lies for small businesses

Taxes

Your accounts should be the same as (or be able to be grouped into) the lines on your tax return.  You can find a copy of the tax form you fill out. For example, a sole proprietor will use a Schedule C of the 1040, and a corporation will complete an 1120.

There are a few special needs, such as meals and entertainment which are only partially deductible, that you need to pay special attention to. We can help you with that.

Aha

As small business owners, we work with a gut feel, but when you see what you’ve made or spent in black and white, it takes on a whole new level of meaning.  Your income statement and other reports should do that for you.  If they don’t you may not have your accounts set up right.

Revenue

Think about how you want to see your revenue:

  • By product line
  • By major supplier
  • By category of solution to the customer
  • By customer type
  • By service type
  • By location (you can also use Class for this)
  • By job
  • By distribution method

We can help you brainstorm based on your industry and type of business.

Actionable Intelligence

If you’ve been putting all your revenue into one revenue account, it will be exciting the first time you see your new Profit and Loss statement.

If you’ve been breaking out your revenue but it hasn’t led to any actionable change in your business, then there may be a better way to break it out.

If you’re happy with the way your revenue is broken out, then think about how you can take it to the next level.

Once you see your new chart of accounts, you will likely have even more questions.  The chart of accounts can be an evolving entity, designed to serve your business needs.

When Should I Outsource My Bookkeeping?

You say that you’re not ready to outsource bookkeeping. I’m going to challenge you to get there. Here’s how:
[1] Become a leader in your own company
Make sure you get trained in how to delegate your bookkeeping, not abdicate it. That’s how microbusinesses go out of business. No oversight, and their money is gone, no legal fund either to pursue it. Just gone. And even if there’s no theft, what’s the point of bookkeeping if you’re not doing anything with the information? Delegate, and interpret the reports to make a decision (see #3 below for more on that).
[2] Get an ROI
If the money isn’t there yet to pay for it, that’s because you don’t have an engine to turn your time into dollars. You will be ready to get your bookkeeping outsourced when you are aware of how much more time will become available to you and how much profit you can reliably generate with that extra time.
[3] Learn how to turn your data into cash
Get trained on how to turn your accounting information into cash. Why bother with bookkeeping at all? There’s no point at all…unless you’re prepared to learn how to make money or save money (or both) with the information that you get from your bookkeeping records.
Until all 3 of the above are in place, don’t bother with your bookkeeping and don’t fret about outsourcing. Take it off your plate. Then make your time more financially valuable. Then get trained in how to monetize your accounting information. Then get trained. in how to delegate. Then find an expert.

Five Numbers You Should Know About Your 2016 Performance

Before we get too far into 2017, let’s take a look back at 2016 results and five meaningful numbers you may want to discover about your business’s performance.  To start, grab your 2016 income statement, or better yet, give us a call to help you compute and interpret your results.

Revenue per Employee

This number measures a company’s productivity with regard to its employees and is relevant and meaningful for all industries.  If you have part-time employees, compute a full time equivalent total and use that as your denominator.

Compare this number to prior years to see if your company is getting more or less productive.  Also compare this number to businesses in your same industry to see how your company compares to peer companies.

You may also want to compute other revenue calculations, such as revenue by geography, revenue by product line, or average sale: revenue by customer, if you feel these may be meaningful to your business.

Customer Acquisition Cost (CAC)

How much does it cost your business to acquire a new customer?  That is the customer acquisition cost and is made up of marketing and selling costs, including marketing and selling labor.  You’ll need the number of new customers acquired during 2016 in order to calculate this number.

Compare this number to prior years as well as industry peers.  You can potentially do a lot to lower this number by boosting your marketing skills and implementing lower cost marketing channels.

Overhead Costs

Overhead costs are costs that are not directly attributable to producing or selling your products and services.  They include items such as rent, telephone, insurance, legal expenses, and executive salaries.  Although it’s not standard practice to break out overhead expenses from other expenses on an income statement, it’s valuable to know the numbers for performance purposes.

Compare your overhead costs to prior years and industry averages.  You can actively manage your overhead cost by re-negotiating with vendors on a regular basis and trimming where it makes sense.

Profit Margins

Your profit margin can help you determine which division of your business is most profitable.  If you sell more than one product or service, you can compute a gross or net margin by product or service.  You can also compute margins by geography, sales rep, employee, customer, or any other meaningful segment of your business.

Your accounting system may be able to generate an income statement by division if everything has been coded correctly and overhead has been allocated appropriately.  Reach out if you’d like us to help you with this.

Seeing which service or product is most profitable can help you decide if you want to try to refocus marketing efforts, change prices, discontinue items, fire employees, attract a different type of customer, or any number of other important decisions for your business.

Breakeven Point

Do you know how many units you need to sell in order to start generating a profit?  If not, the breakeven calculation can help you learn this information.  The formula is Fixed Costs / (Sales Price per Unit – Variable Costs per Unit) which results in the number of units you need to sell in order to “break even” or cover your overhead costs.

The breakeven point helps you plan the amount of volume you need in order to ensure that you have healthy profits and plenty of cash flow in your business.

These five numbers can help you interpret your business performance on a deeper level so you can make better decisions that will lead to increased success in your business.  If we can help with any of them, please give us a call any time.

Understanding Payment Terms

If there is a period of time between when your customers receive your goods or services and when they pay for them, then several things are true:

  • You have a balance in Accounts Receivable on your balance sheet that represents how much customers owe you
  • You have an invoice process that you follow
  • You have granted credit to customers
  • You may have some that don’t pay as quickly as you’d like them to

Each invoice you send should have payment terms listed.  A payment term is the period of time you expect the invoice to be paid by the customer.  Your payment terms should be set by you, not your customers!

Payment terms are always measured from the invoice date and define when the payment should be received.  Here are some common payment terms in accounting terminology, and then in English.

Net 30
Payment is due 30 days from the invoice date.

2/10 Net 30
Payment is due 30 days from the invoice date.  If you pay the invoice in 10 days, you can take a 2% discount off the total amount of the invoice as an early pay discount incentive.

Due Upon Receipt
Payment is due immediately

If you use Net 30 or Due Upon Receipt, then you may want to change your terms to get paid faster.  When people see Due Upon Receipt, sometimes they translate it into “I can take my time.”  A more specific term spelled out such as Net 7 or Net 10 will actually get you your money faster than Due Upon Receipt.

Do you have issues with people paying you late?  If so, you might want to set consequences.  Consider adding a line on your invoice that provides interest charges if the payment is late.  Utility companies do it, and so do many businesses.  A common percentage to charge is 1% – 2%, however, some states have laws that limit you to 10% or another percentage.

The wording would be something like this:

“Accounts not paid within __ days of the date of the invoice are subject to a __% monthly finance charge.”

You will also need to make sure your accounting system can automatically compute these fees.

If you have questions about payment terms, your invoicing process, or your accounts receivable, please reach out.

Signs You Might Be Outgrowing Your Accounting System

If you’re struggling with your accounting system, it might be a sign that you’re ready for something new.  Perhaps your company has grown so much that it’s outgrown its older accounting solution.  Here are several indications to look for that justify moving to an accounting system with more features and scalability.

User Permissions

Some companies have a need to limit certain functions to certain users.  Most systems come with basic functional limitations, such as restricting Accounts Payable and Accounts Receivable functions.  But what if you need more granular user permissions such as access to only purchase orders or a certain bank account?  Mid-market systems like QuickBooks Enterprise provide those features.

Multiple Companies and Consolidated Financial Statements

Do you have multiple companies that are the “children” of a parent company?  You might need consolidated financial statements and the ability to open multiple companies at the same time.

Number of Customers and Vendors    

If your business is growing and the number of customers and vendors you do business with exceeds 14,500, you will have reached a list limit in QuickBooks Premier.  Each system has their own list limits, and these limits can get complex quickly, so check with us if you feel you are getting close.

File Size and Performance 

There may also be file size limits that you need to watch, especially if you have a high volume of transactions or multiple years of history in one file.

You could also have performance issues.  If you have a new PC and your accounting system is still running slowly, we can help you improve your performance by condensing your file or setting preferences differently before you have to switch.

Inventory Features

A mid-market system like QuickBooks Enterprise provides advanced features, such as tracking inventory in multiple locations, using the FIFO method, and managing lots or serial numbers.  If you need these features, it may be worth it to switch.

Enhanced Customization   

Most mid-market accounting systems provide better customization such as additional custom fields, better reporting, and improved form design.

Number of Simultaneous Users

The final reason to switch to a larger accounting system is if you need more simultaneous users.  QuickBooks Pro allows for up to three simultaneous users, QuickBooks Premier handles up to five, and QuickBooks Enterprise makes room for up to 30 simultaneous users.  QuickBooks Online allows up to 25 simultaneous users.   Check with us if you are curious about your system’s license limits.

Did any of these reasons resonate with you?  If so, let us know so we can discuss your needs.

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