I had a great session with a client this week. Her sales so far this year are 8.5 times what they were for the whole of 2011 and she is well on her way to building her mini empire!

She is in my SetUP to StartUP program. This is the one for entrepreneurs in the first year or two of their business who are ready to switch from Excel spreadsheets to QuickBooks. Clients gain confidence around their numbers and develop healthy financial habits. At the end of our three months together, they have a solid foundation on which to grow their mini empire.

Besides helping her set up her tracking system using QuickBooks Online, I created three easy-to-use worksheets for her to:

1. calculate her home office expense deduction,
2. keep a mileage log, and
3. estimate what, if any, her 2012 estimated federal tax payments should be as a sole proprietor.

This last one is especially important for those of you who have made some money this year and are wondering whether or not they need to be making estimated payments to the Internal Revenue Service of the United States.

Click here to download these FREE worksheets.

So, as a refresher, the IRS requires sole proprietors, limited liability company members, partners, and s-corporation shareholders to pay estimated taxes throughout the year if they think their tax liability is going to be more than $1,000 AND they meet a convoluted rule that the IRS has helpfully graphed out on page 26 of its Publication 505: Estimated Taxes.

Please let me know if you have any questions or comments and I’ll be happy, as always, to answer them.

When it really comes down to it, there are basically two types of business challenges: those that come from the outside and those that come from the inside of us.

The outside challenges look like your competitors and clients, technology and time.  The inside ones are the limited beliefs and false assumptions that you have about yourself and your abilities.

The outside challenges are easier to deal with because they’re easier to see.  You identify them, make a plan, work the plan, then move on to the next thing.

The inside ones are sneaky because they disguise themselves as the truth.  They can stop you in your tracks if you don’t recognize them for what they are.

Here’s an example of what I mean.

The outside challenge: merchant fees, aka what you pay to accept bank payments and credit card fees

Say you invoice your clients via PayPal.  For online, pay-as-you-go plans (no monthly, setup, or cancellation fees)  PayPal will deduct 2.9% plus $0.30 per transaction whether your client pays by credit card or directly from their bank account.  When you invoice directly from QuickBooks, their service, Intuit Payment Network, charges 3.25% for credit card payments and $0.50 for bank payments.  For pay-as-you-go plans using your smart phone to swipe credit cards,  Square One comes in at 2.75% and Intuit GoPayment is the lowest at 2.7%

So the challenge is the cost of accepting credit card payments from customers.

The plan: research the different vendors and compare fees

Work the plan: choose the lowest rate that reflects how you invoice your clients.

Done!

The inside challenge: resenting those merchant fees

First off, let me say that I understand.  This is a typical reaction when you’re in start up.  I felt it the first time I saw the 3.25% deducted from my first client’s payment.  Been there, done that!

You know that you’re resenting the fees when you try to find ways of avoiding them.  This is NOT  a good use of your time.  If you think that you are losing a lot to fees, that the fees hurt, you’re caught in a limiting belief. You’re not losing and they don’t hurt.  In fact, offering your clients the option of using a credit card actually increases your profit.

 

Let me put it into perspective for you:

I’ve paid a high of 3.25% and a low of $0.50 per transaction and it’s evened out to an average rate of 2.09% because some of my clients pay by credit card and some pay by bank transfers.  About ¾’s of my clients use credit cards, so I’m thinking that offering and accepting credit cards is a really good idea.

Some of your clients might be in boot strap/start up mode and have a credit card that isn’t charging them interest for a year.  Your credit card policy allows them to invest in your services even if their current cashflow is a bit tight.  Or they want to use their cards to rack up airline miles or rewards points.  And then there’s the convenience of clicking to pay instead of writing a check, addressing an envelope, putting a stamp on it, and getting it in the mail.

And here’s the last bit of why taking credit cards is a good idea.  What with the new IRS regulations, business owners are no longer required to prepare and submit 1099’s for eligible vendors that they pay via credit card or PayPal.  The IRS is getting all that info direct from those third-party vendors.

Congratulations on reading this far down in the minutiae of cost analysis!  If you have any follow up questions, please post them in the comments sections and I’ll be more than happy to answer them.

A properly designed and managed accounting structure pays for itself.  Hard to believe?  Always thought that the accounting department was a “cost center?”  Let me show you how looking at your accounting from a CFO’s perspective will not only pay for itself, but be a revenue stream as well, thereby creating equity for your business.

1.  Pay all of your vendors using the “2%-net10” option.  Vendors who give you 30 days to pay your invoice will usually also offer you a 2% discount if they receive the payment early, within 10 days of the date of the invoice. So, for every $10,000 in “payables” (accounting jargon for “what you owe your vendors”) you save $200. If they don’t offer this option, talk to them about it.
2. Offer those same terms to your customers/clients. If you are bootstrapping your business on credit cards, or have taken an equity line of credit out on your house or are otherwise financing your business, then consider offering those same “2%-net 10” terms to your customers.  You may book a ton in sales, but cash is king.  Get the cash. Every $10,000 in uncollected “receivables” (accounting jargon for “what your customers/clients owe you”) can cost you around $200 a month in interest and bank fees.
3. Single-source your vendors.  Instead of switching from one vendor to another for the same need, stay with one vendor.  For example, when I worked in corporate as Director of Finance for a trade book publishing company, printers were always calling me up trying to get my business with “introductory” pricing.  I could have printed our books using five different printers and saved some dollars.  However, I didn’t do that because staying with one vendor, single-sourcing, builds up an institutional memory that yields so much more value and saves money in the long term.  You build a relationship with your vendor.  And it is in their best interest to treat you like a partner, not a sale.
4. Don’t go with the cheapest price.  Paying bottom dollar does not guarantee that you will be saving money.  True, you’ll be paying fewer dollars, but ask yourself, “Why is the price so cheap?”  It could be that it is a loss leader and that the low price won’t be around for long.  Maybe the vendor is experiencing hard times just now, but when s/he gets back on their feet, prices will go up.  Could be that the vendor will get so many customers because of the cheap price that they won’t be able to deliver as promised.
5. Take advantage of vendors’ discounts for prepaying. Some vendors give you two ways to pay for a service.  My old web hosting company, for example, offered a prepayment of $120 for the year or $19.99 a month.  Now any cash strapped business might be tempted to go the $19.99 a month, but at the end of the year the cost for that service would be $240, twice what the “pay in full” price was.  Even if you had to borrow the $120 and pay 25% interest, you would still come out $90 ahead.  Start thinking in terms of what a service or product costs you over the period of one year, instead of what the monthly charge is.  Think bigger!

One thing that all of these features have in common, besides the money savings, is the time savings.  And you’ve heard that “time is money.”  Why is that, exactly?  I think it’s because we can always make more and more money, but we can’t make more and more time.  We all have the same 24 hours in a day, the same 7 days in a week.  So if you can spend ½ a day in business development, reaching out to potential customers with the possible potential of $25,000 in new sales instead of spending that same amount of time on the phone chasing down past due receivables, wouldn’t you want to do that?  Not only would you increase your bottom line, you would have a lot more fun.

I believe that no business owner should have to move off of their genius work to learn how to actually setup their QuickBooks themselves.  Notice I said “set it up themselves.”  This is important.

What I do believe is that every business owner should know how to think about their money.  And if you, like so many purpose-based entrepreneurs, struggle with organizing the financial side of your business, then listen up!

The first thing we do when we setup your books, whether in QuickBooks or any other accounting system, is to design what is called a “Chart of Accounts,”  which is a list (chart) of all the possible unique categories (accounts) that each and every business transaction takes.  The term “accounts” here does not refer to bank accounts, but to General Ledger accounts.  And it’s OK if you don’t know what “General Ledger” means.  It’s not important here.

Creating a chart of accounts is not a low-level bookkeeping function.   It requires a high level of strategic thinking.  Creating your chart of accounts is very much like building a house:  you have a much better chance of ending up with the home you want if you plan it out in advance.  Otherwise you end up living in a rabbit warren!

So here’s what happens when you set up your chart of accounts: you think strategically.  You understand the difference between types of expenses and why it’s important to group like expenses together in sections. Categorizing and segmenting your income and expenses is what gives you the reports that will tell you with pin-point accuracy how much you are making and spending.  It gives you the ability to analyze where you’ve been so that you can plan where you want to go.

Say for example, that you’re putting together your budget for next year and you have a year’s worth of data to look back on.  By segmenting your marketing expenses together, for example, you can create a report that shows how much you spent in marketing compared with all of your expenses put together.  Say you know that successful companies in your industry have marketing expenses that fall in the 20-25% range and that yours were at 45% last year.  You can make a strategic decision to reduce your budget for next year so that your marketing expenses get down to 25%.  This is how analysis of historical data informs and shapes budgets.  You look back so you can look forward.

Once you understand how to think about what to call your transactions, you can code them and a bookkeeper can do the data entry into QuickBooks.  You can’t leave the coding and classification up to the bookkeeper.  You are responsible for thinking about your business and translating that thinking into data; she’s responsible for entering that information into QuickBooks.   A bookkeeper is never responsible for thinking about your business; she’s responsible for accurately inputting data into QuickBooks.  That data then is organized by a well-designed chart of accounts to produce reports which provide you, the business owner, with information, so that you can think about your business and make strategic decisions.

You do the thinking, translate that thinking into data, your bookkeeper inputs that data, QuickBooks organizes the data into information, and you (always back to you) use that information to tweek and re-think.  It’s feedback analysis, really.  Voilà!, you’re now thinking strategically.

 

A Note From Monique

I met up with so many friends and clients back in January at Christine Kane’s Gold Mastermind Retreat.  Here I am with my client, Wendy Schneider of www.artsontherocks.com.  She is an artist and mentor to artists and she leads fabulous artist retreats on Saba, a small jewel of an island in the Caribbean.

Monique

Featured Article: Habits & Practices

A common question I get asked by people starting out in their business is, “What are the basic things a small business owner needs to know about record keeping?” A related question is, “What habits and practices should I be putting into place as I grow my business?”

The answer lies in that second question: develop habits and practices.

This’ll be a short post today, just a few tips to get you started thinking about this. I’ll be posting again about this important subject.

Tip #1: Identify and embrace your personal style.

Go with your natural tendencies, not against them. If you prefer to file your paperwork once a week, then keep a folder labeled “To File” to gather stuff throughout the week, and pick a day once a week where you file them away. If you’d rather file them away as you go along then, by all means, do so.

Tip #2: Do not be going to the bank to make deposits.

Argh!! This is such a waste of time. Instead, bill your clients directly from your QuickBooks and receive payments electronically into your checking account. If you are still taking paper checks, there are ways to scan them into your checking account. You don’t ever need to physically go to your bank again.

Tip #3: Balance your checkbook once a month.

I am stunned at the number of folks who don’t do this. I couldn’t sleep at night if I didn’t, but that’s me, I know.

A Note From Monique

So, I love sharing cool new things, and I wanted to let you know that one of my fabulous clients (that’s us in the photo at our January 2012 Gold Mastermind retreat) has created an amazing six-week gluten-free mastery program. Her name is Janelle Holden, and she is the president and founder of The Gluten Free Life Coach, a company dedicated to helping people with food sensitivities love life and discover their new favorite foods. It starts March 7th, and she confided in me that she’s only taking 7 people, so sign up soon if you’re interested. You can find out more about it at: http://janelleholden.com/ get-answer/ or contact Janelle directly at janelle@janelleholden.com.

Monique

Featured Article: Have you done your 1099’s yet?

If you started your business in 2011, then you are required to comply with the Internal Revenue Service’s regulations around 1099’s.

What are 1099’s?  They are forms that you, the business owner, fills out and send to your vendors who meet BOTH of  the following criteria:
1/ you paid them by check or cash, not PayPal, credit card or debit card
AND
2/ you paid them $600 or more in 2011.

So, that means that if you paid them $5,000 by credit card, you don’t have to file a 1099.  That’s because the credit card companies and banks and PayPal send that information to the IRS.  But if you paid your graphic designer $760 by check, then you do fill out a 1099.  Also, if your vendors are incorporated (have an “Inc.” after their name) then you don’t have to send them a 1099.

So, how do you know if your vendor is incorporated or not?  You have to send them a W-9, which is a form they fill out and let you know what their tax filing status is.  If you haven’t sent out your W-9’s, now’s the time to do it.   You want to give them some time to get the forms back to you.

There are two components to this:
1/ send 1099’s to each of your vendors that meet the criteria.  1099’s were due to your vendors on 1/31/12.  Don’t panic if you haven’t done it yet.
2/ send the transmittal form 1096 to the IRS by 2/29/12.  Now this is a critical date.  You don’t want to be missing this one.

The good news is that you can still meet your obligations to “render unto Caesar what is Caesar’s.”  Need help with this or want more information?  Just post a comment below.  I’d love to hear from you.

A Note from Monique

Hanging out with my fabulous new client, natural-light portrait photographer Lani Harmon of LaniHarmon.com at our Gold Mastermind in Asheville, NC last week. It doesn’t get any better than this!

Monique

Featured Article: How to Choose Between Quicken and QuickBooks

After I recently launched my services package for budding entrepreneurs in December, a friend of mine sent me this query,  “You mention Quicken – if I use it for my personal finances, do you recommend a separate “installation” for business?  Or can one version handle both?”

Here’s the short answer:  No.  Quicken is for personal, and only personal, finances.  QuickBooks is for business.  Trying to do business bookkeeping on Quicken is like going into a Chinese restaurant looking for Mexican food.  Apples and oranges.  OK, enough with the food metaphors.

Quicken is great for recording checks your write, deposits you make, and for tracking your investments;  in other words, it’s for your household expenses and investments.  It’s great for that.  However, when you’re in business, you need QuickBooks.  Quicken works only on a “cash” basis, QuickBooks gives you a choice between “cash” and “accrual.”

What’s the difference?  Cash basis accounting records transactions as they occur when cash or checks or credit cards change hands.  For example, when a client pays you on January 15 for work that you did for them during the previous December, the date you record the transaction is the date you receive the money: January 15^th.

Accrual basis accounting, on the other hand, records income and expenses in the month that they were incurred, not the month they were paid.  So, using the aforementioned example, accrual accounting would make an entry into the December books to record the income.

How to choose between doing business on a cash basis or an accrual basis?  The IRS requires certain types of business, manufacturing for example, to keep track using accrual basis.   Those companies that have a choice have the following to consider.  If they want to keep their bookkeeping as simple as possible, cash basis is the way to go.  This way works best when they perform a service or sell a product and get paid for it right away.  If they offer payment terms to the customers, or get payment terms from their vendors, they need a way to keep track of who owes them how much and how much they owe.  This is where accrual basis steps in.

The good news in answer to my friend’s question is that one version can handle both:  any QuickBooks software also works to record personal finances.