QuickBooks used to correctly recognize a sale

When working with small business clients that use QuickBooks software, I often see a short cut used that really needs to stop. That is, the habit of bypassing the method of creating an invoice, receiving a payment, then depositing the payment(s). Too often I find bookkeepers or accountants copying the deposits from the bank statement, directly into QuickBooks, thereby calling it income.

There are two big problems with this. First, one of the benefits of doing your own accounting and bookkeeping on your computer (as opposed to having an accountant do it for you), is that you can create and monitor several different types of income accounts. For instance, a home builder should separate income based on new construction, remodeling, and commercial construction. A nightclub should separate income based on food, drinks, cover charge, etc.

You begin with an invoice. If you don’t have a customer that you would normally invoice in the traditional sense, common in retail businesses, then you should replicate the “Z” reading on the point of sale system each day. A simple template can be created to recognize each line item. The various payments types received should zero out the invoice total, by receiving these payments against the outstanding balance. The key here is the invoice items. They are what direct the income amounts to the appropriate income accounts, when creating the invoice.

The deposit should represent exactly what was taken to the bank. If credit cards are automatically deposited, they should represent their own deposit. Everything needs to match the bank statement exactly. Bookkeeping is about details, and these are the details that make your accounting accurate.

Which leads me to my next point; bookkeepers have often been accused of embezzling money. Similarly, banks and credit card companies can and do make mistakes. If you only create deposits in QuickBooks to match the bank statement, you’re make a big leap of faith that all income earned is what actually got deposited. Big mistake!

I don’t care if you use QuickBooks Online, QuickBooks Pro or Premier, or the Macintosh version of QuickBooks; you need to appreciate the importance of entering sales correctly. The goal to setting up a bookkeeping system in QuickBooks, to recognize your sales, is to use memorized transactions, templates, and other tactics which are part of this accounting software.

5 Levers that will increase profit

When you think about it, there are five key financial levers that will increase profits in an organization.

1. Lead generation – How many different sources are you tapping into?
2. Conversion Rate – Most small business owners grossly over estimate how many qualified lead they turn into an actual sale. Start keeping track of this and the whole system will get more honest.
3. Number of Transactions – How many times are you selling to the same customer? What is your share of their wallet?
4. Average dollar sale – in retail is called average basket size or average transaction. This may be the easiest metric to improve on. Is easy to sell more to an existing customer if they trust you.
5. Margins – Raising prices is the easiest way to make money, though I admit, not always possible. But if you think about it, when you raise your price, and if all costs and overhead expense remain the same, that additional money will fall to your bottom line.

Improving more than one (ideally all five), has an incredible multiplier effect. It starts with an accurate set of accounting records. You should also track this in Excel, or even on paper, just don’t trust your gut. If you want to use my Excel template, send me an email and I’ll forward you a copy.

Do what you do best (to survive)

The latest unemployment figures which indicate unemployment edging higher, is further evidence of my belief that we are headed for a double-dip recession. Heck if anything, we are not continuing down a path to recovery.

I’ve advised clients for years that they should farm out all employee payroll that is not directly tied to their core competency. For example, if you own a child care business, then your bookkeeping, meal preparation, facility cleaning and website design should be farmed out. My reason goes beyond the common belief that you should do what you do best, and leave the rest to the experts in that field.

Because the economy is so uncertain, small business owners need to be as flexible as possible. As Jim Collins put it, you get the right people on the bus (core competency) to start with. If you can do that, and if you’re not tied down with administrative overhead, you can drive and operate just about anywhere, doing anything.

I have many examples of small business accounting tasks we’ve taken over that used to be part of an employee’s job. In every case, we improved the bookkeeping process, produced more accurate results sooner, and saved the business owner lots of money. In one case, we took a 40 hour per week bookkeeping job in Raleigh and trimmed it back to 17 hours per week!

More to the point, I’ve seen too many instances where a big client dries up and the small business can’t react fast enough. While they’re pondering their options to replace the lost work, the overhead expense engine keeps running. It’s much easier to cut back work you’ve handed over to a subcontracted service, than it is to cut hours on an employee who’s depending on a steady paycheck.

Consider turning your employees into a variable cost, tied to the work at hand, rather than an overhead expense line item. If you’ve gone down this road, has it worked for you? Please let me know in the comments section.

Accounting tactic used to reach your savings goal

A small business owner in Raleigh, North Carolina told me that one of his business goals was to have $20,000 in savings before the end of 2011. Based on our accounting records and the cash flow of his business, this is reasonable.

What’s been difficult is having the discipline to actually put money aside. The bills in his company’s accounts payable, the loan payments, and the payroll every other week seem to always eat up available cash flow.

I resolved this with a very simple tactic that I’ve used for many other small business bookkeeping clients. For every deposit that goes to the bank, we siphon off a small percentage (1-5%) and put it into savings. The percentage we choose is a function of how much they can reasonably save, without it being a detriment to the business, divided by the cash-basis sales for the year. The other key is to turn off the option that allows the business savings account to act as overdraft protection for the checking account. Preventing overdrafts requires another kind of discipline.

Try this idea, it really works! In fact, if you have other ideas for how to save money, please put them in the comments section.

What’s keeping you from small business success?

You’re paranoid (competitors, employees, partner will steal your ideas) – a commercial banker told me he sees this more often than you’d think.

You’re waiting; for the economy to improve, the idea to develop fully, the approval of others.

You can’t trust your feedback loop; accounting or other KPI’s are giving you mixed signals.

You’re afraid; of failure, of embarrassing yourself, of commitment.

Groupthink; your employees, spouse, partner, or banker all think every idea you have is great.

Accounting trigger points in your business

Hind sight is always twenty-twenty and if we could have seen these tough economic times coming, we all would have done things differently. I’ll pick on building contractors for a moment.

In May of 2006 I remember a contractor complaining that they couldn’t find any painters or landscapers to finish up a spec house they were building for a Parade of Homes tour. Within the same conversation they also complained that they had to sell their current home and move into the spec house because there were no buyers. Should this have triggered them to stop building at that point?

In the fall of 2007 we were called into examine the accounting records for a builder in Madison Wisconsin. For the first time in years, they were struggling to make payroll. Should this have been the trigger point for them to stop building?

In the summer of 2008 I was troubleshooting a QuickBooks file for a Raleigh builder of high-end homes. At the time, he was practically begging for any kind of home repairs, lawn mowing, anything. Was it time to get out yet?

When you’re caught up in the middle of it all, it can be extremely difficult to see the writing on the wall. What you should be doing, is setting up trigger points, ideally leading indicators, to alert you to significant shifts within your industry. These will of course be different for every business. Maybe it’s a significant increase in outstanding receivables. Similarly it could be a squeezing of your working capital requirements. Often, it’s external like in the case of home builders with their pool of buyers drying up. Interestingly enough it’s sometimes as subtle as finding that everyone is buying into an industry because of the easy money everyone seems to be making (think: briefcase contractors). If people are running in, you should probably be running out.

What kind of trigger points do you use in your business? Have they worked well or have they misled you?

Improve cashflow with these three ideas.

This certainly isn’t an exhaustive list, nor are these ideas going to get your fledgling company in the black, but they will save you money without costing you anything, except a little time. The motive here is improving your business cash flow and these three ideas are based on services that are extremely negotiable, however I rarely see my small business clients question their rates after they signed the contract. This is found money my friends, you just need to ask the six magical words, “Is this the best you can do?”

First, get your business liability insurance re-quoted by at least three insurance brokers. This is a very soft market for business insurance and prices for coverage are shifting every six months. If you can’t get your premiums any lower, than ask for a lower deductable.

Second, if you accept credit cards for payment, get that re-quoted. For whatever reason, merchant service providers have been jacking up their rates, despite a slow economy. I suppose it has something to do with banks in general raising their fees. If you’re paying more that 2% in fees, you’re paying too much. My fees went from 1.9% in February to 4.2% this last month! Also, never sign a contract that locks you in for any amount of time with that merchant services vendor.

Third, if you’re using uniform and floor mat service providers such as Cintas or Aramark, request that you’re monthly charges be lowered. Although you probably signed a contract that requires 60-90 days notice before you cancel, you are not bound to the entire contract price, only a minimum. This is typically $20 per month. Your service rep will never admit that however. If they won’t lower your rates, then drop your contract to the minimum and shop around for another provider.

Again, in all the bookkeeping records I examine and small business accounting I do, I rarely find my clients shopping these service providers. If you have other ideas, please post them in the comments section. Thanks!

More than accounting to radically change your business

When I think about what all of my small business clients have in common, there is one thing that really sticks out; it’s their ability and willingness to innovate. They all had ordinary businesses that struggled during this recession. As soon as they turned their business model on its side and expanded into a service that complimented their current business, and didn’t detract, they all struck gold. Listen to this quick video. It’s not about accounting, but rather about what you can and should do, to improve the financial results of your small business.

Small business freedom

Pretty much every small business owner got into business for themselves because they craved freedom. Sure, some people will say it’s because the felt they could do a better job than their boss, others get tired of job insecurity, some do it because they’re certain they will make more money on their own, lots more.

The common denominator to each one of these reasons is still freedom. Trouble is, most newly born entrepreneurs don’t get very good advice on big financial and strategic decisions. Before you know it, the accounting records for the small business reveals loans and other debt, bloated payroll, along with the associated payroll taxes and benefits, otherwise known as labor burden. Next the cash flow is squeezed and before you know it, the small business owner has no freedom. It’s at about this time that frustration, or worse, indifference sets in.

Do yourself a favor, if you own a small business or are contemplating a fresh start in this direction, grow slowly, keep it simple and cheap, and get a great business accountant or advisor.