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Quickbooks Customer Master File

By Benecia Beyer

In beginning a new process for one of our clients with Quickbooks -- I thought we had hit a brick wall. We were transitioning to sending all invoices and statements to the client via email and also allow the customer to go online and pay the invoice directly.

I was forced to look at the size of the customer master data file as we would be synching Quickbooks on a daily basis using Billing Solutions. Wow - was I surprised to learn there were over 6300 customers in the customer master data file. (Do you know how many are in your file? With Quickbooks open, hit F2 - on the right hand side of the screen you will see List Information).

In researching how to reduce the size of this file I quickly realized two things:
1. Quickbooks never, ever - ever allows you to delete a customer record as long as there is a transaction attached to it.
2. Quickbooks Pro (the version my client is using) has a limit of 14,500 customer names. That's it. And when you reach that limit -- you're stuck (or you could upgrade to Enterprise- but do you have an extra $3,000 or more just hanging around?)

I spent considerable time researching and exploring the paths that others before me had tried to resolve this problem. There seemed to be two valid options and they were both from third party vendors. I tried both and was so overwhelming impressed with the "fix" that Mark Robinson from The Energy Grid came up with -- that I just had to share it with everyone.

Mark has this other great website for Handicapped Pets - the true reason why his Quickbooks Customer file was growing by leaps and bounds as his company could post as much as 20 orders a day. You do the math: 20 orders a day x 365 days x 2 years = 14600.

So Mark has spent considerable time and effort into resolving this particular problem within Quickbooks and has created a website just for this problem: Quickbooks Pro 14500 Club.  The concept behind the program is simple: to mark customers as inactive (the ones that no longer do business with you) and then merge those into one particular customer file. You will still retain all the invoices, payments and transactions that were attached to the customer (so your P&L's and Balance Sheets are correct) but now they are merged into one customer record instead of thousands.

I must admit, I was skeptical at first, but contacted Mark and asked for the program. I got an immediate repsonse and the program and the next day, I had the time to dig in and play with the program.

As my client still used Quickbooks Pro 2005, I knew it might not work as Mark had specifically written the program for 2006. But -- my client needed an upgrade anyhow, so when I interfaced the program with Quickbooks Pro 2007, it worked just fine -- except it seemed to "hang" on a particular screen and required my input. I didn't think this was how the program worked -- and emailed Mark with my question. Within minutes he responded that he would be more than happy to work with me and we set a time for a phone call.

I shared with him our company's delight in LogMeIn, (see previous post by Chloe) and he signed up immediately so that I could give him access to my computer screen so he could see first hand, how the program worked. As he watched the program run, he agreed that it was getting "stuck" at a certain point and wondered what the 2007 version was doing different than the 2006 version. He had me explore a couple of options and after fixing a setting in "preferences" the program flew on it's own wings -- and was merging customer files without any intervention from me. It was a miracle !

I can't begin to tell you how refreshing it was to experience such incredible support and a genuine desire to help from another person in business who had experienced some of the same difficulties and frustrations that I did. I don't think Mark is going to become a millionare with this program he wrote -- but all the same, he went the extra length with me in making sure it worked. I do appreciate that.

Mark, it was a real pleasure doing business with you ! Thank you.

Business Tips on Holiday Gift Giving

By Benecia Beyer

Generally, business gifts to clients and customers can be deducted against taxable income. But the IRS sets a limit, $25 per client/customer. There is no limit on the number of gifts you can give, only the value. And that $25 limit is per year. It does not include incidental costs such as packaging, insurance, mailing, etc - the IRS says the cost is incidental as long as it doesn't add substantial value to the gift.

When it comes to employees, the IRS looks closely at any and every form of compensation. Some companies reward workers with year-end or holiday bonuses. While employees might view this as a gift, the extra income is taxable compensation. The employer must withhold payroll taxes and the company is entitled to a deduction for the employee pay.

If, to promote employee goodwill, you distribute turkeys, hams or other merchandise of nominal value to your workforce at the holidays, you can deduct the cost of these items as a non-wage business expense. And your workers do not have to report the value of the gift as income.

The key is that the gift meets the IRS' de minimus standard. This means that its value is so low, taking into account how frequently you provide similar benefits to other workers, that accounting for the gift would be unreasonable or administratively impractical.

Cash, however, regardless of how little, is never considered a de minimus benefit.

You can also treat your workers to a holiday buffet and receive a tax gift for your company. The IRS Says that meals you furnish your employees as part of a "recreational or social activity" such as a company picnic or holiday party, are fully deductible.

And unlike usual business situations that involve food and beverages, neither you nor your workers are required to talk about business before, during or after the event.

H A P P Y   H O L I D A Y S   T O   Y O U !

Improving Your Cash Flow

By Benecia Beyer

Cash shortages can prevent you from meeting your financial obligations, and they can make it difficult to plan for the future and expand your company. That's why you should try to improve your cash flow by making some minor adjustments in your business practices. These seven ideas can provide relief and ultimately change your cash flow:

• Tighten Inventory. Keeping too much product on hand can tie up a great deal of cash. Make sure your inventory turns over at a regular pace.
• Bill early and often. Bill a project when it's complete, and invoice products soon as they ship. Keep a detailed receivables report and act immediately on overdue accounts.
• Don't expand until you have the cash to support growth. Figure out what your projected expansion will cost and make sure you have the cash to cover it.
• Have a cushion to cover a cash flow crunch. Chances are, a cash crunch will come sooner or later - perhaps due to a temporary slump in the economy or your industry. If you're prepared for rough times, you can ride them out.
• Stretch out payables. Don't pay every bill as soon as it arrives - wait 30 or 60 days and keep the cash on hand. If suppliers want their money more quickly, ask about discounts for early payments.
• Consider raising your prices. Check out what the competition's doing and make sure your prices or rate's aren't too low.
• Comparison shop. The Internet makes it much easier to compare prices for everything from airplane tickets to office supplies to computers. Start using the web to get the best deals.

It's Newsletter Time Again!

By Chloe DiVita

As some of you know, our company puts out a free quarterly newsletter about things related to small businesses and small business owners. Our next distribution is set for Friday, November 17, 2006. Since the end of the year is approaching quickly, it will be the focus of this newsletter. If you are interested in receiving it please send a request with your mailing address to info@divitainc.com.

Here is a sneak peek at what is included:

• The IRS is giving telephone excise credits on 2006 tax returns for individuals - find out the details!
• Tips for being prepared for year end reporting to your State and the IRS.
• Why it might be imperative to upgrade your QuickBooks software.
• Why it is important to have a companywide procedure for if/when disaster strikes.
• And much, much more!

Being a small business, we know how hard it is to keep up on everything in the small business world. We hope our newsletter offers some advice, guidance, and knowledge to small business owners who may never know these things because there is simply not enough time in the day.

Rules Regarding Independent Contractors

By Benecia Beyer

In today's free market world, more and more companies are hiring people as independent contractors rather than as employees. The big reasons? To save payroll taxes and benefit costs, which together can add an extra 20% to the cost of having an employee. If you're considering using this strategy, keep in mind that the IRS has criteria for determining independent contractors vs. employees and that penalties can result if you don't follow the rules. Following are the three criteria that the IRS generally considers to be the most important:

1. Behavior Control. Who decides when, where and how the work is performed? Who decides what tools/equipment to use? If additional staff is needed to help with the job, who hires them? If the worker has control over these decisions, then he/she may be considered an independent contractor. (Example: a case involving carpet installers found that they were independent contractors because they, not the flooring services company, determined the manner and sequence in which jobs were completed. They also used their own tools and hired their own "helper" work force.)

2. Financial Control. Who pays the operating expenses for the work to be performed? (i.e. supplies, computer, travel expenses)? Is the worker free to perform services for other companies? If the worker controls these decisions, then he/she may be considered an independent contractor. (Example: the carpet installers mentioned above were considered independent contractors because they purchased their own supplies, held the risk of profit or loss on their jobs, and were free to work without penalty for other companies.)

3. Relationship Factor. Who determines the working relationship of the parties? Is the worker provided with employee-type benefits such as insurance, vacation pay or sick pay? Obviously, these types of benefits are only paid to employees, not contractors.

As you can see, the rules are complex and leave some room for interpretation. If you want to increase your chances of convincing the IRS that a worker is in fact an independent contractor, you can take the following steps:

1) Create a simple contract documenting the independent contractor relationship. You may wish to specify in the contract that the worker is responsible for his/her own insurance (including workmens compensation).
2) Pay for work by the job instead of by the hour, the week or the month.
3) Have all workers submit invoices for work before paying them.
4) Don't forget to complete IRS Form W-9 (Request for Taxpayer Identification Number) when you first start working with a contractor. You'll need this info at year end for tax filings.

Is your QuickBooks set up efficiently?

Is your QuickBooks set up efficiently?

By Chloe DiVita

Millions of small business owners use QuickBooks software. After all, it is advertised as “easy to learn and use” and as we are told by a pop up window, “that you can get set up and running in as little as half an hour.” This may in fact be true. I have indeed spent less than half an hour getting a company set up and ready to start. But, I believe there is more to the set up, then just being able to start using the software.

About a year and a half ago I spoke at a NAPA conference in Colorado about QuickBooks. I was asked to give a short training session on it. I started by walking everyone through the Preferences, which I recommend every person review. It’s part of the Edit drop down menu. There are many setup options within the preferences that can smooth out your operations. At first the audience seemed surprised to be learning about “Preferences,” but once I dug in and introduced them to the abilities the Preferences give you, everyone became eager to learn more!

ü      Do you want auto recall a transaction by the Customer or Vendor name?

ü      Do you like your decimal point to automatically be placed?

ü      Do you want account numbers?

ü      Do you want your books password protected by a specific date?

ü      Would you like your reports to refresh automatically?

ü      When you receive payments do you want to have them automatically applied?

ü      Maybe your payroll bank account is different than your operating expense account, and you want QuickBooks to remember which one to use based on what you are doing.

You will most likely be surprised by the capabilities you have to set up *how* operations run using the Preferences.

Additionally, have you taken advantage of the template customizations? You can import your logo, decide what company information you want printed, decide which columns and fields you would like to see on the screen, and what ones you would like to print. If you like, you can add your own memos and notes to keep your clients informed. You can even set up many different templates allowing you to create them for specific circumstances. And, if you are confused, you can hire us to help you!

Finally, if you want your QuickBooks file operating most efficiently utilize its ability to memorize transactions and reports. By setting up recurring transactions, and frequently used reports, you can save some of your invaluable time.

Cash in the bank means...

By Chloe DiVita 

…much less than many people think.

If you are a small business owner who struggles with understanding the difference between a profit or loss, and the cash that sits correspondingly in the bank, you’re not alone. The most common financial statement my clients ask for is a Profit & Loss statement. But, when they see that there is a bottom line profit of $10,000 with very little cash in the bank they ask, “How can that be?”

While there are many circumstantial answers to that question, it often comes down to accrual accounting and understanding your Balance Sheet. If you look at your Balance Sheet and see your current accounts receivable balance at $12,000, you’ve found your missing cash. It hasn’t been received yet. Or maybe you purchased a large piece of equipment that is being capitalized. In other words, you forked over a large amount of cash for this piece of equipment, but don’t get to take the full expense right away. Either way your cash is low. It’s either been spent without being expensed, or it’s not been received yet.

The opposite can be true as well. A bottom line loss, does not always equate to no cash in the bank. Maybe you just invested some money into your company, or took out a loan to cover some expenses, or had a customer give you a large deposit for work not completed yet. There are many ways to see a loss on your Profit & Loss statement while still having plenty of cash in the bank. Talk with your accountant if you would like to know more about your specific company’s situation.

The conclusion is that cash in the bank means nothing. Well, strike that. It means a lot, but it doesn’t reflect the state of your company to any degree. Only understanding your financial statements can help you to know how your company is truly doing.

Stayed tuned for some advice on making better sense of financial statements. Especially the Balance Sheet, which seems to be less understood than the Profit & Loss.

Budget for a Business

By Benecia Beyer

A pilot would never fly a plane from Los Angeles to New York without a flight plan that explains how to get there. Yet all too often, small business-people open their doors without clear plans to help them get where they want to go. One of the easiest ways to get there -- wherever that is -- is by creating a budget and sales forecast.

A budget doesn't have to be a restrictive plan that forces you to deprive yourself of what you want. In fact, a budget should be a guide, not a constraint. A reasonable budget allows you to do what you want. It lets you put your resources where they're most needed, so your business will head in the right direction. Creating a financial plan lets you control your business's cash flow instead of letting it control you.

Creating a budget doesn't have to be a complicated or time-consuming task. Actually, in the beginning it's best to keep things simple. The key is to determine how much you'll spend and earn in any given year and then use that figure to project how you want to grow in subsequent years.

If you already own a business, it's simply a matter of digging through some records to see where the money went and deciding where you actually want it to go. If you're a new entrepreneur, you'll need to do some homework and make realistic assumptions about your business. Either way, a budget is simply a tool that allows you to put your money where it can best be used.

To get started, answer the following questions:

• How much can you realistically sell next year?
• How much will you charge for your goods or services?
• How much will it cost to produce your product?
• How much are your operating expenses?
• Do you need to hire employees? If so, how many and how much will you pay them?
• How much will you pay yourself?
• How much payroll tax and unemployment tax will you pay?
• How much money do you need to borrow, and much will your monthly loan payments be?

The answers to these questions will form the basis of your budget and forecast. If you've already written a business plan, you should know the answers to many of these questions. If not, then this is a lot of information to forecast. Answering these questions will help you determine two essential things: your projected income and your expenses.

In the income category, conservatively estimate how much sales revenue you'll have next year. Look at what you made last year and extrapolate from that. Remember to be realistic. If you paint too rosy a picture, you can easily get in over your head and spend money that never materializes.

As far as expenses go, consider: advertising, auto, insurance, rent, taxes, phone, utilities, equipment, payroll -- in other words, any and all business expense, whether you pay them now or incur them in the future.

Once you see your projected income and expenses on paper, you'll know exactly how much you need to make every month to keep things afloat and how much you'll have left over for extra expenses. It will be far less tempting to spend money on business expenses that aren't part of your plan. And that's really what a budget is for: to ensure that your expenses aren't more than your income, so you can keep your company afloat.

Understanding the Bottom Line

By Benecia Beyer

What's there to understand? The bottom line is the last line on the Profit & Loss (P&L) statement and it is either a profit or a loss. That's all you need to know, isn't it? Yes, it is important to know whether you are making a profit or losing money, but understanding how financial statements work is knowing the nature of each account and how it fits into the scheme of things. In other words, did you know that the entire P&L statement is just an extension of one number in the Equity section of your Balance Sheet?

If you have a set of business financial statements, take a quick look at them. First look at the Net Profit or Loss line on your P&L statement. Let's say it reads $48,567.32. Now look at your Balance Sheet and find the Equity section. You should see the same number $48,567.32 on a line called Net Profit or Loss or something similar.

Why is this? Net Profit means an increase (credit) in Equity and Net Loss means a decrease (debit) in Equity. Remember, Equity is what is yours. Therefore, if you have an increase in Equity (credit) then it makes sense to think that you have an increase in Assets (debit), probably in the form of cash, receivables, inventory or property. Or, you might have a decrease in Liabilities (debit) indicating an increase in Equity since you now no longer owe as much to creditors.

Similarly, it stands to reason that if you have a loss, indicating a decrease in Equity, that you will be showing a decrease (credit) in your Assets. In other words, you now own less.

It may help to think of the Balance Sheet as working the same way as a reservoir of water. At any point in time you can measure how much water a reservoir contains. In addition, there is always a river that flows into and fills the reservoir and an outlet, such as a dam, where the reservoir is drained. The reservoir level always reflects whatever water came in or out.

The Balance Sheet, like the reservoir, is a reflection of the financial activity of your business at a given point in time. This is usually measured at the end of an accounting period, i.e., month, quarter, and year-end. The P&L Statement can be thought of as the river that flows into and out of the reservoir. The P&L Statement is a measure of the revenue and expense activity that occurred during an accounting period, such as at the beginning of a month to the end of the month, etc. The point to remember is that a Balance Sheet always reflects the activity of revenue and expense that has occurred in the past and current accounting periods.

Now that we've established that concept, here is a tip: When your business is a sole proprietorship, the way you pay yourself is through an account called "Owner's Draw". This account is located in the Equity section of the Balance Sheet and represents a decrease in Equity when you take a personal draw. However, sometimes owners get mixed up as to whether they are taxed on the draw amount or net profit - so let's clear up the confusion.

When a draw is taken, cash is being decreased, but where did the cash come from in the first place? Here are a couple of possibilities:

• Maybe you borrowed some money and put it in the business, but then decided to use some of the money for personal purposes. You don't have to pay tax on borrowed money.
• Or maybe a while ago, you contributed some personal money that had been previously taxed and are now paying back. You certainly wouldn't have to pay taxes on the same money twice.

Because the money withdrawn from the business may include previously taxed money, the rule is that you pay tax on Net Profit because Net Profit relates to newly earned income not previously taxed. If you keep books on an accrual basis, then Net Profit may be quite different than your cash draws. This is because your revenue may include sales that haven't yet been paid (Accounts Receivable) and expenses you haven't yet paid (Accounts Payable).

Even if your books are recorded on a cash basis, your Net Profit may not relate directly to cash. For instance, usually a business has some depreciation that is a non-cash deduction. Or, you may have expenses charged on credit cards that have not yet been paid.

Perhaps you can now see that there are several reasons why the Owner's Draw is something different than Net Profit even though there is a loose relationship between the amount of money available to owner and Net Profit.

Owner's Draw is closed out at the end of the year. You record a debit to Owner's Equity and a credit to Owner's Draw for the total amount in Owner's Draw account.

Let's Talk About Debits & Credits

By Benecia Beyer

Learning how debits and credits work is the most critical part of accounting knowledge to grasp if you truly want to know the function of accounting.  Why then, do so many people shy away from taking the fifteen minutes it takes to memorize the formula?  Perhaps it “seems” complicated at first glance.  Or, perhaps the value of being able to conceptualize the formula in the mind is not apparent.

Does your work require knowledge of accounting?  If so, have you memorized the Accounting Model?  If not, why? 

Having worked in the field of accounting for over twenty-years, I have found that many people tend to shy away from memorizing the “Accounting Model”.  The Accounting Model is the formula for how debits and credits work.  You can click on this link to review the model and print it out if you like:

http://www.reallifeaccounting.com/accounting_model.asp