Balance Sheets – keeping track of the big picture

I’ve been thinking a lot about balance sheets lately. They have so much valuable information about your company’s financial health and I am often surprised by how many business owners don’t use them.

A balance sheet is often described as “a snapshot of a company’s financial condition” And how cool is that – having all that information in one place.

If you have set up your books correctly, you should always have a balance sheet. Almost every business has a checking account. credit card, or line of credit. All of those items show up as liabilities on the balance sheet. If your company owns vehicles, buildings, large equipment; those items show up as assets. It is the document that can give you a long=term view of your company and a possible buyer or investor its value. It’s where you track your cash contributions (owner investments) to make sure that you are reimbursed when you sell your company.

Setting it up shouldn’t be a slap-dash casual thing. You should have a conversation with your tax accountant about those items that will be depreciated or whether there are long-term liabilities and how you will record your owner’s draws and investments. These all have tax implications.

If you use sales receipts and write checks, there is a temptation to ignore your balance sheet and use your Profit and Loss (P&L) to track your business but I want you to think about at least entering your vendor bill then processing the payments. The advantage of doing this is that it allows you to keep track of – and an eye on – your payables. It is a lot easier to know who you owe when it is available in your bookkeeping software. And the bonus is that you can set up restrictions that won’t allow someone access to the sensitive areas of your bookkeeping software – like payroll – and still have them enter the bills and credit card charges, allowing you to have a running total of your expenses. So an admin can take over this data entry for you.

If you invoice your clients, there is often a delay between the client receiving it and you receiving your payment. This is when invoices come in handy. They show up on the balance sheet as receivables – a predictor of income to be received later. How cool could it be see in one place what is owed to you and what is due to your vendors.

You can set up your books to run accrual (tracking receivables and payables not yet received or paid) even when run your company on a cash-basis. Your tax accountant will know what to do so that you don’t pay taxes on income that has not yet made it into your bank account.

A P&L reflects the “now”. A Balance Sheet reflects the “future”.

Just a thought.

Notice the forest

Sometimes all we can see are the trees. We get so involved in the details we fail to notice the forest.

Spending all of your time running around taking care of the details –  although they’re necessary –  can oftentimes make you forget why you decided to start your business in the first place.

And your business may suffer because there is no one to see the big picture – the forest – and notice the slow-moving blight that could be causing so much harm.

When you have a good bookkeeper, you have someone else keeping an eye on for your business. They may be able to see patterns before you: price increases from vendors, unusual expense reporting, clients who regularly take forever to pay. Working with someone who keeps on top of your income and expenses and provides you the data you need to support your organization is one less thing on your plate.

This position is a big deal and trust is essential so don’t go lightly into the process of hiring a bookkeeper. Make sure they know your expectations and can follow through and make sure you are available to provide the support needed for them to do their job well.

Take a look at how much time and effort you are spending on your company’s bookkeeping. Now imagine that time being spent with your family & friends or increasing your sales or creating a new product or networking.

Just a little something to think about.



Can bookkeeping software make your life easier? – Yes, it can.

I recently began working with a company that has been in business for several years. They reached the point where they could no longer “do it all” and found me through my CraigsList ad. Their accountant recommended they begin using QuickBooks to make things simpler – and it will, just not without a little help.

Before you move to QuickBooks or any accounting software, you should think about the process before you proceed.

Start by having a discussion or making a list of your company’s goals. And not just the short-term goal of getting your books in order; include the longer-term goal for your company – where you want to be in 3, 5, 10 years and how do you plan to get there.

Here are a few questions (in no particular order) to get you started:

– Do you want to increase your company’s income or are you happy where you are and just want to keep it steady?
– Can your position be replaced? If the answer is yes, are you getting regularly paid for the value of that position?
– Are you working with the client base that makes your happy?
– Does your existing client invoicing system work?
– Will you be adding to your labor force?
– Are you in a location that works or will be expanding/moving?
– Will you need to add/replace existing company vehicles or technology (computers, phones, etc.)
– Does your existing reporting structure work – timesheet reporting, receipt tracking, vendor bill reporting?
– Are you regularly lending the company funds? If you are not taking a regular paycheck, the answer is “yes”.
– Do you know how much a project earns?
– Should you hire administrative support?
– Should you change your marketing strategy?
– Do you want to keep doing what you are doing?

With a view of your goals, you can structure your books to make sure you get accurate snapshots of the health of your company. In many cases, using the Income/Cost of Goods & Services/Expense structure will let you stay on top of the profit of your services (Gross Profit) giving you a clear separation between the cost to provide the service you sell (labor, materials, subcontractor expenses), from what it cost to run your business (accounting, marketing, rent, office supplies, utilities).

With that structure in mind, you can create a budget to anticipate your needs. Knowing the Gross Profit of your company (above the line) will quickly show you if you have what you need in place to support the other expenses (below the line).

Using the budget as a template for your expected reporting needs it’s time to take a look at the software.

A good double-entry bookkeeping software does what it says it will. It can help organize your business and give you a great view of where things stand. If you subscribe to QuickBooks Online or use the current QuickBooks desktop versions you can download your bank and credit card information directly into the software instead of typing it in. And it works well – As long as you know what to do with the data.

“Out of the box” there are some great templates in place and that can get you started. But do you understand how the Chart of Accounts, Profit & Loss and Balance Sheet can help you run your company? Do you have to use the items that they specify? What if you need to add another item? How do you make sure your downloaded transactions go to the right account? What is the right account?

It can be frustrating but don’t let that stop you. If you don’t understand how it works, it’s not you. You just need to sit down with bookkeeper or accountant who can walk you through it.

But don’t settle. This is your business and oftentimes, the way you support yourself and your family and invest in your future. This is a big deal. Make sure the person you hire to help you understands what you need to be comfortable with the process and can work with you to meet your goals.

Be prepared to have someone seeing your “messy house” then let the cleanup begin.

It is so very worth it.


Rental properties

I inherited a 2-family rental property when my grandparents passed away. A lovely financial opportunity complicated by the fact it is in another state with a 14-hour drive.

I have been fortunate to have someone I trust keeping an eye on it so I just have to handle the financial side of things. On paper, when the rent is paid and there are no major repairs, the obvious answer is to keep it. But sometimes there are complications.

I am currently transitioning between tenants and these circumstances are affording me the opportunity to take a good hard look at whether or not it makes sense to keep it or sell it. For now, the repairs are “small” so I am taking the risk for another year.

Keeping track of those expenses has been an interesting task. Fortunately, none meet the IRS requirements as a capital improvement and making sure that the vendor invoices, incidentals and material costs for the repairs & cosmetic updates are clearly identified, allows me to accurately track the costs for each unit.

This is where a bookkeeper might be able to be of assistance. If you own rental properties, being able to know the return on investment for each unit can go a long way in helping you decide where additional investment in those properties makes sense. I’m not talking about whether to replace a roof or keeping the properties up to code, I am thinking about whether replacing an old carpet with laminate flooring, updating the bath or kitchen cabinets or replacing appliances might allow you to increase the rent and still stay within the going rental rates for your area. Being able to run a Profit and Loss or Income Statement per unit allows you a quick overview of each rental unit.

You don’t need to invest in QuickBooks or Quicken to do this although I feel it might make things easier when handing off the information to your accountant. (I am a bookkeeper.) A quick internet search for “Excel rental property” will come up with many predesigned worksheets and templates.

The important thing is to keep track of your income and expenses to avoid surprises at tax time. – ‘cuz there are some surprises that just aren’t fun.


Payroll & Job Costing… I know!

I’ve been thinking a lot about QuickBooks & payroll this week. I love doing payroll. Even with the curse of badly hand-written timesheets it’s just something that makes sense to me and using the Enhanced version of QB payroll so that I have access to the tax forms still allows me to make any corrections to entries via the timesheet & paycheck instead of having to use journal entries or a customized transaction. This makes it so very simple to correct any mis-assigned customers or projects and produces a complete P&L by job. But I am not trying to sell you on using QuickBooks payroll services.

If you are a small business that depends on job costing to keep track of your projects, using QuickBooks payroll is the easiest way to capture your data. Of course, it’s only easy if the process is simple and efficient for your company which is why most of you use an outside payroll service. But if you use time tracking software, like T-Sheets, you can sync your employee’s time directly into your QuickBooks file, even when you don’t use QB payroll services.

But there are other ways to allocate labor expenses.

I provide payroll services to a company I work with. This means that it is separate from their QB file. I record their payroll information in their company’s file the same way I handle it for another company that uses an outside payroll service. I have created items that are assigned to the correct COGS, expense and liability accounts and record the debits from the bank account via a check or bill payment. Specific items are allocated to customers/projects including any payroll expenses that are passed on to their customers.

For this company, the office manager handles the day-to-day bill paying but does not write separate checks so I created memorized bill that assigns one item for the entire gross salary and separate items for the tax deductions or reimbursement additions. They open the memorized transaction then simply enter in the amounts shown on their paystub. This has been set up so there is no delay in the staff getting paid needing only to use the Pay Bills function to print the paychecks.

When I make my office visit, I edit the bill to allocate the job expenses.

I will admit supporting job costing needs with an external payroll service can be a lot of work when there is no established system in place for recording time. For the company where I am their payroll service, I have created an electronic timesheet using Excel that allows the staff to enter start and end times for their daily tasks and record codes that are used to automatically calculate the time and gross costs as well as the FICA and Medicare for the job-costed project. Standardizing this process allows me to quickly update the “paycheck” bill and allocate the time and taxes per project. I simply enter in the hours worked per project or for company’s administrative payroll expenses.

Total hours less job-costed project hours equals company admin hours.

And I check my numbers. If everything has been entered correctly – and the check won’t match the payroll report if it wasn’t – the payroll liabilities account will zero out when the taxes are paid.

But this process doesn’t require extensive QB experience and the job allocation could be handled by the office staff with a clear set of written instructions.

And did you know that you can use QuickBooks time tracking even if you don’t use QuickBooks payroll? If you use an outside service like TSheets, your employees or vendors can track their time and you can sync the information directly into QuickBooks.

So, to conclude: Setting up time job costing can be fun.

You got that. Right?