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Mix Up Your Revenues for More Profits

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Many small business owners focus on generating more revenue every year, and that’s a wonderful goal.  But not all revenue is created equally since some items are more profitable than others.  If you sell more than one product or service in your business, then you may benefit from looking at your revenue mix.

While it’s fun to watch revenues grow, your business profit is what really matters.  If your expenses grow faster than your profits, then you have a lot of activity going on, but you don’t get to keep as much of what you make.

An insightful exercise to try is to take a look at your revenue mix.  Then you can ask “what if?” to optimize your profits.

Your Revenue Mix

Let’s say you offer three different services: Services J, K, and L. Your revenue pie looks like this:

J:  $700K or 70% of the total
K:  $150K or 15% of the total
L:  $150K or 15% of the total
Total:  $1.0 million

In this example, Service J is clearly the service making you the most revenue in your business.  But is it making you the most profits?

The profit you receive from each of these service lines is as follows:

J:  $80K
K: $10K loss
L:  $30K
Total:  $100K

While Service J is generating the most profit volume for your business, it’s actually Service L that’s the most profitable.  Earning $80K on $700K yields 11.4% return on Service J, but earning $30K on $150K yields nearly double the return at 20%.  Service L generates the most return.   And if possible, Service K may need to be discontinued or turned around.

Optimizing Profits

Your strategy for a more optimum revenue mix might be to sell as much of Service L as possible, while eliminating or fixing the problem around Service K.

It’s fun to experiment with different revenue mixes.  And of course, there are many more variables besides profit, such as:

  • What services/products do you prefer to work on/sell?
  • Are you able to sell more of the most profitable service or are there marketing limitations?
  • Is one service a loss leader for the others?
  • Are you able to adjust price on the lower margin services to increase your profits?

There are many more questions to ask and strategies to consider to make you more money, which is why we love being accountants.

A New Mix

We hope you’ll spend some time analyzing your revenue mix and having fun asking yourself “what if?”   If we can help you expedite the process or add our perspective, please reach out anytime.

30 Reasons Why It’s Better to Have Professional Help with Your QuickBooks® Software

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If you own a small business, you probably chose QuickBooks® as your company’s accounting software. After all, it’s the market leader in small business accounting software. While it’s intuitive in some places, there is a learning curve that everyone must go through in order to use the software properly.  There are also places where you need to know some accounting in order for transactions to be booked correctly. 

The good news is there are plenty of accounting professionals that know QuickBooks that can help you through the learning curve and answer questions that come up in the normal course of business. As a small business owner in these chaotic times, you must choose which learning curves to tackle and which ones to delegate or hire for. You can’t learn everything you need to know as an entrepreneur all by yourself; there’s just not enough time. It makes sense to focus on the core of your business with the limited time you have. 

The worst thing you can do is to try to learn QuickBooks by yourself. If it’s used incorrectly, the mistakes multiply, and suddenly you have a year’s worth of inaccurate transactions that need to be fixed, one by one. This gets expensive.  Here are 30 places where untrained QuickBooks users can get themselves in trouble.   

1. Broken bank feeds

The integrated automation between your bank and QuickBooks software is called a bank feed.  When these feeds break or become disconnected, they need to be restarted. If they are restarted incorrectly, transactions could double up or be missing completely.  This causes the bank balance to be wrong as well as other parts of your accounts, such as expenses or sales. 

2. Loan payments

Almost every loan payment consists of principal and interest. It’s common for loan payments to be coded to an expense account or the loan balance without being broken out accurately. This misstates the loan balance as well as expenses. 

3. Undeposited funds

Often, untrained QuickBooks users leave a balance in the clearing account called Undeposited Funds. This understates the bank account balance.

4. Owner’s draws and distributions

When owners take money out of the business, it’s called a draw or distribution. This transaction needs to be properly reflected in the Equity accounts. It’s not an expense. It’s common for your QuickBooks beginning balances and your Equity accounts to be wrong if they were not set up correctly from the beginning.  This requires knowledge of accounting, your type of entity, and the software.

5. Bank reconciliation

Because of the automated bank feeds, you might think that you don’t need to do a bank reconciliation any more.  But that’s simply not true. Transactions can be duplicated, go missing, or be coded wrong, which all can cause an incorrect balance. 

6. Write-offs

Most businesses need to write off a customer’s receivable that is no longer collectible or inventory that has lost value. This transaction requires special accounting knowledge to get it booked right in QuickBooks. 

7. Chart of Accounts setup

If the Chart of Accounts in QuickBooks was not originally customized to your business, you probably don’t have the accounts you need. You may also be using some accounts wrong. And if there are a lot of accounts you don’t use, then they need to be removed to save you time from scrolling through them all the time. 

8. Vendor setup

When you first pay a new vendor, it’s important to take the time to add them to the software completely, including asking for a W-9, sales tax exemption certificate, certificates of insurance, and other relevant documents. You may also want to track information that is not included in the standard QuickBooks setup. Setting up custom fields for vendors will help you track additional information.

9. Cash versus accrual adjustments

Your books can be reported in two different bases: cash and accrual. For tax purposes, you might need cash basis. For reporting purposes, you might prefer accrual basis. A professional can help you make adjusting entries when required, generate reports using the correct basis, and help you understand when you need each one. 

10. Sales tax

If you collect and pay sales tax and rely upon your accounting system to provide you with accurate sales numbers, your invoice transactions must be booked correctly. Your sales tax rates must also be set up accurately, and you must keep up with which items are taxable and which are not.

Once you remit sales tax, it must be booked to the correct liability account, and any discrepancy must be adjusted. 

11. Bill payment and check writing

Users new to QuickBooks can easily confuse the bill payment function with the check writing function.  If you enter a bill, you must pay it instead of writing a check.  Or you can simply write a check without entering a bill.  When used incorrectly, it can double up expenses and leave a balance in Accounts Payable that should have been cleared. 

12. Adjusting journal entries

It can be necessary at times to make journal entries to adjust account balances in QuickBooks. However, most of the time, a transaction function should be used instead, as when adjusting Accounts Receivable, Accounts Payable, Payroll, and many other accounts and functions.  Making the right adjustment requires a good knowledge of accounting as well as the software. 

13. Short cuts

Accounting professionals knowledgeable in QuickBooks can save you hours on your accounting by teaching you shortcuts, tips, and tricks that you can use when working with the software.

14. Classes

QuickBooks includes the capability of categorization, and you can customize this feature based on the needs of your business. An accounting professional can help you strategically think about how best to customize this feature based on their experience working with other businesses. 

15. Custom reports

Do you spend a lot of time exporting data from QuickBooks into spreadsheets and then manipulating the data to a format you need?  If so, you might be able to save time by getting help from a pro who can customize a report for you right in QuickBooks. 

16. Job costing

Job costing is not easy to set up, but once it is set up correctly, you’ll love the information you can get from the reports. You’ll be able to see your profitability, get larger draws sooner, and manage your business better. 

17. Items

In QuickBooks, items are things you sell. They can be goods, services, parts, or many other things. When items are incorrectly set up or used, it can mangle your account balances as well as cost a small fortune to fix. Items differ substantially from business to business. Some businesses are trickier than others to set up: restaurants, construction, attorneys, to name a few. Do NOT get advice from another business owner when setting up your items. It’s critical to get an accounting professional with expertise in QuickBooks to help you with this part of the software. 

18. Payroll

Payroll has gotten so much more complex over the years. Especially if you are switching systems mid-year, get an accountant to help you set up payroll when you first get started. 

19. Additional features you might not know about

QuickBooks software has been around since the 1990s. That makes it a very mature, robust application. There are many features you might not know about that could save you a great deal of time on your accounting chores. Learning from a professional can be very cost-effective and a good investment for your business.

20. Deleting anything

It’s a good idea to clean up unused accounts, items, vendors, customers, and other entities in your QuickBooks file, but doing so could cause huge problems.  It’s best to get help if you need to delete a transaction or a master file item. 

21. Coding errors

Sometimes, mistakes in coding are made. Correcting them can be harder than it looks. If you have a large number of transactions to correct, there are shortcuts you can learn to save yourself a lot of time.

22. Credit card reconciliations

Hopefully, any business credit card transactions that you have are automatically input into QuickBooks by using bank feeds. Just like the bank account, they need to be reconciled every month. 

23. User permissions

It’s good practice to tighten up any user permissions so that workers see only what they need to do their job.  A professional can help you customize user permissions to strengthen your internal control and reduce risk of fraud.

24. Known bugs

An expert in QuickBooks will know where some of the bugs are because they work with it all day long, every day, on multiple client accounts.  They can help you save time by knowing where things might cause you trouble and alert you ahead of time to the problem and any potential fixes. 

25. Unknown bugs

While an accounting professional might not know where every software bug is, they will know when you experience a bug that needs to be reported to the QuickBooks support team. They can help reduce the amount of time spent on such things and perhaps even suggest a workaround. 

26. Inventory reconciliation

If you sell physical goods in your business, you probably have an inventory. Periodically, the physical inventory needs to be reconciled with the inventory in QuickBooks. Professional help is advised when making adjustments to reconcile the books. 

27. Prior period transactions

Once a tax accountant has received your account balances for year-end reporting, nothing should be changed that is dated in a prior year. There is a way to lock these transactions so ending balances will still match beginning balances for next year’s reporting. 

28. Software licenses

Intuit, the company that makes QuickBooks, requires that each QuickBooks user hold a software license that is paid for. A professional experienced with QuickBooks licensing can help you stay compliant based on the number of users you need to access the account. 

29. Passwords

Good password management is essential to keep hackers away from your private data. Use strong passwords that are long, contain no dictionary words, include special characters, numbers, and upper- and lower-case letters. And if you lose a password, a professional can help you recover it. 

30. Settings

QuickBooks allows for customization, and much of this can be accomplished in the settings or preferences.  These includes features such as whether you want to number your accounts, turn off classes, and activate a number of other features. These decisions should be made proactively and strategically, and are best made with the advice of an accounting professional.

QuickBooks ProAdvisor Certifications

There are two certifications that an accounting professional can achieve for QuickBooks Online:

  • Certified QuickBooks Online ProAdvisor
  • Advanced Certified QuickBooks Online ProAdvisor

These certifications are offered by Intuit and require the accounting professional to complete training and an exam. The Advanced exam is quite difficult.

For QuickBooks Desktop and other products, these certifications are available:

  • Certified QuickBooks Desktop ProAdvisor
  • Advanced Certified QuickBooks Desktop ProAdvisor
  • Certified QuickBooks Point-of-Sale ProAdvisor
  • Certified QuickBooks Enterprise Solutions ProAdvisor

Getting Professional Help with Your QuickBooks® Software

If you’re ready to get professional help with your QuickBooks software, please contact us. We will evaluate the health of your books, make a plan to stay on track, and provide a quote for consulting or training in QuickBooks based on your specific needs. 

Ten Places to Look to Find More Profits

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A great way to start 2021 is to take a fresh look at your business finances. Many things changed in 2020, and if you are in the habit of spending on the same items year after year, it’s the perfect time to decide what is essential and what can go.

There are only a few ways to increase profits when you think about it in black and white terms. You can either raise revenues or cut costs. Let’s take a look at where we can potentially cut costs.

Publications

These expenses tend to be monthly or yearly, and we tend to just let them automatically renew time after time. But do we really need them? Take a look in your Dues and Subscriptions account to evaluate what you really need to stay informed, and cancel the rest.

Memberships

If you are a member of an organization or two, what benefits are you getting from your investment? Does it raise revenue for you? Do you use everything the membership offers? If not, it might need to go on the chopping block.

Memberships are especially tricky if the organization provides a local meeting component as a benefit and your state or county has been shut down. There’s a tradeoff right now between supporting the organization so that it’s still there when we can freely meet again and being responsible about your own business costs.

Office/Store Rent

With many employees working from home, the question has come up in many businesses about how much space they really need. As leases expire, consider how much space you really need. Some employees may love to work from home permanently, which frees up space.

Retail stores that have moved their business online may be able to cut back on customer-facing space but might need more inventory storage space. A restaurant that has successfully transitioned to pickup and delivery orders might be able to get by with a smaller seating area.

Software Apps

Are you paying for any technology applications that you are simply not using?  This is a good place to look for cuts.

Some applications charge by number of contacts.  Keeping your lists clean inside these apps will avoid increases and cut costs in some cases.

Office Supplies

Do you really still need things like staplers and scissors on everyone’s desk? If your business is going paperless, you can save a lot on office supplies.

Printing

Do you need to spend money on printing, or can the printed item be delivered electronically?

Shipping/Postage

While information can be delivered electronically, physical goods still need to be shipped.  Make sure you have the best deal with your shipping vendors based on your volume.  You may also need to consider building your shipping costs into the price of the product or add a shipping fee to the bill if you don’t already.

Marketing

A great way to increase profits is to become more intentional about your marketing costs. Are you able to measure what’s working and what isn’t? Or are you doing the same thing year after year?

Marketing has changed so much, even in the last few years. It might be time to implement digital marketing methods, which can be more cost-effective than older, outdated methods.

Labor

Make sure employees manage their time effectively by providing the right training and supervision. This should help to reduce labor expenses.

Telephone/Internet

Has your business changed?  Do you need all those extra features you are paying for?  Could you do without those extra lines?  Would another phone plan save you money on long distance or international calls? Many telecommunication companies will often bargain with you or offer you a new deal just for checking in with them.

This gives you ten places to look to cut costs and correspondingly increase profits for 2021. If you need help reviewing your income statement, please reach out.

Should Your Business Become Cash-Free?

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A cashless business is one that processes all cash transactions electronically. There is no paper or coin money taken or handled. While no one society has become 100 percent cashless yet, most organizations are moving in that direction.

A business can become cash-free by providing multiple electronic alternatives to payment.  Credit cards are the most common electronic payment implementation. This option most likely includes MasterCard, Visa, Discover, and American Express.  Some businesses also have a PayPal account and offer that method for payments. Venmo, owned by PayPal, is an efficient mobile alternative, but it is mostly used for consumer-to-consumer transactions. And there is also cryptocurrency.

Cashless businesses are more efficient, help to reduce crime, and have a better audit trail of transactions. Going cash-free also saves money and time spent counting the money, storing the money, safeguarding the money, protecting employees at risk of becoming theft victims, and physically going to the bank.

On the negative side, credit card companies charge fees to merchants, although these can now be passed to the customer in most states. Electronic transactions also require a higher level of technology, and privacy is reduced. And while security is an issue, all merchants that take credit cards must comply with PCI (Payment Card Industry) security standards and sign a document each year stating so.

If your clientele does not keep their money in a bank or if they are not able (or have chosen not) to have a credit card, you may need to rethink going cashless. About 20 percent of U.S. households are challenged when it comes to having access to checking and savings accounts. This has led to several state and local laws being passed in the U.S. prohibiting a business from going cashless. Nothing has been passed at the national level as of this writing, however the Payment Choice Act was introduced in both chambers in mid-2020.

The pandemic has accelerated the move to cashless with the desire for contactless transactions. Several countries are leading the way to becoming cash-free as an entire country, including Sweden, Finland, Norway, China, and South Korea. Sweden’s government has been the most aggressive, claiming they will become a 100 percent cashless society by 2023.

Is going cashless right for you? Meeting your clients’ needs is a prime consideration. At the very least, you can move to increase the percentage of electronic transactions and decrease the percentage of cash transactions when feasible.  This measure will save time and money in and of itself.

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act

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The Consolidated Appropriations Act, 2021 (CAA 2021) became law on December 27, 2020, and among many other things, provided for a second round of potentially forgivable Paycheck Protection Program loans to small businesses that were financially impacted by the effects of the pandemic.

The Act not only provides funds and guidelines for a round two of PPP money; it also expands PPP round one in a number of ways.  Here are a few of the highlights. 

Changes to PPP Round 1 Loans

Existing borrowers with PPP loans can reapply for a loan or request a loan increase as long as they have not received forgiveness. This includes borrowers that returned all or part of their PPP loan or whose loan maximum has increased due to regulations implemented after receipt of their loan.

Businesses that have not been granted forgiveness can spend PPP money and apply for forgiveness on an expanded list of expenses, including: 

  • Software, cloud computing, HR, and accounting
  • Property damage
  • Supplier costs
  • Essential contracts in force prior to loan
  • Worker protections, e.g. PPE
  • Payroll costs can include group insurance including group life, disability, vision, dental

They can now choose their covered period at any time between 8 and 24 weeks (previously it was 8 OR 24 weeks only).

There will be a simplified forgiveness application for loans under $150,000.  However, do note that this is not the rumored rubber stamp: the backup paperwork and calculations are still required.

The SBA has until January 21, 2021 to establish the guidelines for the application process.

PPP Second Draw Loans

Additional PPP monies will be available to qualifying businesses, up to loan amounts of $2 million. The business must:

  • Employ 300 or fewer employees
  • Have used or plan to use the full amount of PPP1
  • Can prove a 25 percent drop in revenue in any quarter of 2020 compared to 2019

Businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives are eligible.

In round two, borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs in the one year prior to the loan or the calendar year. Businesses with NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5X average monthly payroll costs. The rules for forgiveness are the same as in round one.

Organizations not eligible for PPP2 include:

  • Businesses not in operation on Feb 15, 2020
  • Businesses that received a Shuttered Venue Operator Grant
  • Entities normally ineligible for SBA loans in general, except for nonprofits and religious organizations
  • Political organizations and lobbyists
  • Entities affiliated with entities in the People’s Republic of China
  • Registrants under the Foreign Agents Registration Act
  • Publicly traded companies

The entire program is extended to March 31, 2021.

There are also special provisions for these types of businesses:

  • Venues
  • Farmers and Ranchers
  • Housing Cooperatives
  • News Organizations
  • 501(c)(6) and Destination Marketing Organizations
  • Businesses in bankruptcy proceedings

The disclosures have also gotten stronger, with specific provisions for collection of demographic information and required disclosures for leaders in government to publicize their receipt of PPP forgiveness as well as prohibition of them receiving PPP loans in the future.

The law gives SBA a deadline to act, which varies from 10-24 days depending on the section. The next course of action for businesses that want to apply for these funds is:

  • Continue gathering your documents,
  • Make your calculations,
  • Check with your accountant if you need help,
  • Select your SBA-approved bank, and
  • Wait for both
    • The SBA guidance and
    • Your bank to open the application portal

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act starts on page 2042 of the 5593-page bill in case you want to see for yourself. And if not, know we’re here as your tax law interpreter, so feel free to reach out anytime. 

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