Outsource vs hiring your next bookkeeper

As a business owner you have a lot of big decision to make. One of which is how you are going to manage your bookkeeping.

As a business owner, it can’t be avoided, if you don’t do it someone else needs to. It is a requirement for tax purposes at a minimum. But we don’t want to talk about the minimum. We want to talk about the best case. Best case is the information gathered from your transactions is converted into quality information that can be used by the you to make decisions to help grow your business.

You have three options when it comes to bookkeeping.

  1. Do it yourself.
  2. Hire staff.
  3. Outsource.

If you are doing it yourself, you have the benefit of being in the details and having a very thorough understanding of where your financial situation. But that comes at the cost of your valuable time. That is time not spent growing your business.

The benefit of hiring for yourself is you have a dedicated staff member. They are right there whenever you need them, and their sole focus is your company, and your business needs. The downside is that you have increased your expenses, if you are still growing you may only be able to hire part time, or at a lower rate than the skill level you need. Not to mention the added complexity of hiring staff as a business owner.

Outsourcing, can be tricky. You won’t have control over their schedule, and they may be a little pricier by the hour. But what an outsourced bookkeeping professional can bring to the table far outweighs the lower availability. An outsourced bookkeeper doesn’t just draw from their experience with your company, but with every company they work with. If they are doing their job right, they share the knowledge they gain with you. Not trade secrets, but the wealth of experience that comes from overseeing the books of many businesses and how different businesses solve various problems. Some of which you may be acing, and some that you have yet to face.

Every option has its pros and cons, when weighing the decision on whether or not to outsource it is important to consider your own unique situation and what your needs are.

Best of luck.

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate legal professional, financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.

The Accountant’s Way

Here at Wilson Lake one of our core values is Creativity. As a result we aren’t always thinking about the basics of accounting, Often times we are thinking about how it fits into the bigger picture, which may extend beyond business, into our own lives.

As a result we find that the methods in which we solve problems an answer questions within the business and professional space, are applicable to other spaces. Our primary goal with these blogs is to be fun, but we also hope they show that accountants can solve more than basic financial problems. We can also help business leaders answer other questions and solve other problems they may have.

Best of luck.

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate legal professional, financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.

How to clear an uncleared check on Quickbooks Desktop

Bank reconciliations are hard enough, and unless things are going smoothly, can be postponed until this important task becomes a mountain to climb.

First lets answer why.

Why is it important to reconcile accounts?

Account reconciliations ensure that the General Ledger (GL), is in line with what really happened. Simple really, but for anyone that has done them, we know they aren’t.

One of the biggest issues that can come up are uncleared checks. Which can reduce the GL’s checking account balance inappropriately, understating the balance sheet.

Aside from presenting bad information on the balance sheet, there is a real risk of having not paid a vendor or employee. If a check was printed, processed through the GL, but never mailed, it will sit as an uncleared check but the invoice will show as paid. When in actuality the vendor was never paid.

Another real risk is escheatment (Click here for a very detailed explanation of this.) The simplified version is that if this check were real, and was simply not cashed after a certain period of time it needs to be surrendered to the state as unclaimed property, state law dependent.

So, each uncleared check needs to be thoroughly investigated, and documented.

For those checks that are uncleared because of an erroneous entry, perhaps they were generated in the system, but not printed. Then later when the vendor hadn’t been paid a check was hand written, not recorded properly in the GL. So, there has been a double payment in the books.

We had a client whose previous bookkeeper had done this accidentally for several years. As a result we had to unclear checks from current and prior periods. These are two separate processes.

For checks recorded twice within the current period the extra/uncleared one can be voided. **Don’t forget to ensure you properly investigate to make sure this is really the case.**

For uncleared checks from prior period, things get more complicated. We spent a lot of time trying to come up with the best approach, making the below considerations. But also wanting to make sure that there was a trail that could be followed later.

Considerations:

Overstatement of expenses from prior periods. Quickbooks automatically books a debit to expense and a credit to the bank when a check is written. Because that check had not cleared the expense remained while the check waited to be cashed, and is now in Retained Earnings.

Quickbooks processes require that the check be cleared, which will generate the entry, but a simple JE will not clear the check appropriately.

Steps:

  1. Create a Ghost customer “Deposit” and jobs for each year to categorize each item.
  2. Create a bill for each transaction from each vendor, for the amount of the check. And bill that invoice to the corresponding Job #. A 2012 transaction goes to job R02012, customer deposit.
  3. After each entry was made generate an invoice for each job #, including all the uncleared checks.
  4. Record a receipt of payment from ghost Customer Deposit.
  5. Use the payment for each year to pay off each job.
  6. In the reconciliation tool, reconcile the deposit against the uncleared checks.
  7. As the creation of the original invoice for each vendor will leave a payable on the GL, a credit will need to be created to match each transaction.
  8. In the Pay bills tool, pay each invoice using the applied credits. This will eliminate the payable created in step 2.

The important thing is that this process addresses both the accounting considerations as well as Quickbooks unique needs. The other thing, is that since we are recording revenues as they relate to the credits from vendors it will correct the inappropriate expenses from prior period, but will result in revenues on the income statement.

Best of luck.

One tip to improve your businesses cyber security you can do right now, for free

Running a business is hard. Every day we hear about companies being hacked and their data being held hostage or stolen. We at Wilson Lake have implemented this one simple trick to help with your cyber security.

It is a little known secret, but if you are a Google Chrome user, you can assign a profile to your browser. Wherever you are, when you log into that profile it brings with it bookmarks and passwords. Pretty great, but how does that help?

At Wilson Lake, we have created a separate Chrome profile that is used exclusively for business purposes. That means, only bookmarks for business, and only business passwords. What is great is that right now, I have my personal browser open, and where I do my normal browsing. While also working within my work browser.

How does this help for cyber security? The answer is compartmentalization. If I am going to get hacked through a browser, it is more likely to be through my personal one. This will reduce risk by separating those websites which may conceal browser based attacks. It will not protect you from attacks such as malware, or other infections which sit on the device itself. This strategy is like anything else, it reduces risk. You can never eliminate it.

Don’t have a google email for your business.

Create one, I have a client where we created one, something simple like accounts.wilsonlake@gmail.com (not a real email), or manager.wilsonlake@gmail.com. Use that to create a profile through the chrome browser.

Here is a video where they show you how to do this.

A few other benefits, are the ability to have a centralized calendar for the team, or use of Google Drive.

Best of luck.

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate legal professional, financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.

Financial Statements – Simplified

It often feels like a person needs to be a CPA to understand financial statements and what they represent. For more complex institutions that isn’t a completely untrue statement. But most small business owners don’t have all that complexity, nor do they need it. Additionally, if they can’t understand their financials, then what value do they have for them?

We are going to take a simplistic look at financial statements, what they represent, and what they mean to the business owner.

There are three main financial statements for small business owners:

  1. Balance Sheet
  2. Profit and Loss (P&L or Income Statement)
  3. Cash Flow statement

Balance Sheet

What is the balance sheet in one sentence?

The balance sheet is what you have.

The balance sheet format is based upon the foundational accounting formula of:

A = L + SE

Assets = Liabilities + Stockholders’ Equity

This is why it is called a “Balance” sheet, because they have to balance.

Assets are things.

Liabilities are what is owed.

 Stockholder’s Equity is what you own. Remember that what you own is also seen as the difference between Assets – Liability = Stockholders’ Equity.

Profit and Loss

What is the P&L in one sentence?

The P&L is what you have done. 

The format for the P&L is:

Revenue – Expenses = Net profit or loss.

Expenses gets further broken down into Cost of Goods Sold (COGS) and Operational Expenses.

COGS is the expenses directly related to the creation of whatever gets sold. If you are manufacturing widgets, that means the material used, and the labor of the manufacturing staff on the floor. But that won’t mean the accountant’s labor or their printer paper. A simple rule of thumb is that if isn’t a direct input to the product it is classified as Overhead. That is another topic so we will focus on the high level stuff. A service based company will have a lot lower COGS compared with a manufacturer.

Operational Expenses are those expenses that exist, but aren’t direct inputs to the creation of the widget. Sales expenses and admin expenses fall into this category.

So, revenue is the money that you get paid.

When it is presented on the financials there is Gross Profit, then Net Ordinary income, and finally Net Income.

Gross Profit = Revenue – COGS

Net Ordinary Income = Gross Profit – Operational Expenses

Net Income = Net Ordinary Income -/+ Other income (Sale of an asset or non ordinary business income)

Cash Flow Statement

What is the Cash Flow Statement in one sentence?

The truth.

I said it and I meant it. Everything up to this point has been a collection of different ways to look at information and try to turn it into something of value. But nothing means more than cash in and cash out.

When we were helping a client get an idea for the value of their business it wasn’t the balance sheet or income statement that we used. It was the cash flow. Because if a $1 million dollar asset doesn’t make a dollar for the owner, it is worthless. Same with income, if there is $1 million worth of net income and not a single dollar of cash flow then it is also worthless.

The Cash Flow statement is also the hardest one to prepare. Either have your software do it, or ask your accountant to help you with it.

Knowing that I’m going to oversimplify this, the Cash flow reconciles the Net income, to the changes in the balance sheet. Effectively cutting out all the accounting fluff.

The Cash Flow statement breaks down activity into 3 oversimplified parts:

  1. Operational activity – Business activity (Normal business operations)
  2. Financing activity – Borrowing or lending, or purchase/sale of assets (Think bank loans)
  3. Investing activity – Business investment (Cash from or to investors)

All of this is done by noting the changes in the balance sheet, not the actual balance. Because if your inventory went from $500,000 to $500,000, there may or may not have been any cash spent on it. But if it went from $500,000 to $600,000, there was a change of $100,000 which would not have affected net income, and needs to be considered as a decrease in cash flows.

Wrap up

Lets recap, your balance sheet tells you what you have, your P&L tells you what you did, and your cash flow statement tells you the truth. We will talk further at a later date about how you can use each date to make business decisions, but for now we hope that helps.

Best of luck.

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate legal professional, financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.