expenses Archives - Number Nerd Bookkeeping Solutions

February 27, 2018

How to Lower the Overhead in Your Business

You want to reinvest in your business but you can’t because there never seems to be anything left over at the end of the month. Been there?

Growth is often heavy on the mind of entrepreneurs. That’s why many of us went into business for ourselves–because the sky’s the limit when you’re the boss. You get to make the decisions about investment and growth strategy. But that’s hard to do when there’s no cash left to play with.

Increasing sales seems to be the go-to when it comes to increasing cash. But there’s something even easier you can do. Lower your overhead.

Before you claim there’s no way to reduce your expenses, take a step back and look at your business from an outsider’s perspective. Then be really honest with yourself about what you’re spending.

It’s time to get real--and honest--about your expenses if you want to grow your biz. Click To Tweet

Take a Big-Picture Look

It’s hard to cut costs if you have a thriving business with team members. But look at who you have on your team and what they’re doing for you. Do you really need the function they perform? What’s that function doing to help your business? I’m not suggesting that you let anyone go, but maybe the team members’ talents would be better spent on other areas of your business. Or maybe it’s time to cut back on hours.

Another big-picture item is where you do business. If you don’t see clients in person, do you really need physical office space? Can you save that money for growth opportunities?

Take a Closer Look

There’s a lot of wasted money in business, even in small businesses with tight budgets. Once you have a good look at the big picture in your business, it’s time to take a closer look at where your money may be leaking out. Think of this like looking at your Starbucks habit. Sometimes you just don’t notice those $5 purchases until they happen five times a week!

Do an audit of any subscriptions or systems you’re paying for on a recurring basis. When you do this, be sure to involve your team. What are they actually using? Why choose that tool over something else? Is there something they could use that accomplishes the same task but doesn’t cost quite as much?

Do an audit of your subscriptions and recurring payments to save cash in your biz. Click To Tweet

Just like you would with your home budget, look at things like insurance coverage, legal fees and overhead costs like internet and phone service and try to negotiate new rates with your carriers. If you’ve been a loyal customer for some time, many providers are willing to lower rates for you without discounting your service.

If you already run a tight ship, you may not find any leaks you can plug. In cases like these, it’s important to have people on your side who can help you navigate through your finances to make the best decisions possible.

Have you determined that you can cut some expenses? I challenge you to cut 5 percent this quarter, then see if you can cut out another 5 percent later this year.

February 22, 2018

When Your Expense Categories Aren’t Crystal-Clear

It’s your bookkeeper’s job to help you categorize your expenses so your books are organized and clear come tax time. When you keep up with this (often an undesirable task), you’ll save yourself and your accountant some big headaches and possibly even have a smaller tax bill to boot.

But there are a lot of grey areas in expense categorization that can make everyone’s job just a little more challenging. You see, some business expenses are fine–up to a certain point, or when used a certain way. But that same expense might not be categorized as “business” in other circumstances. It can get confusing and it might feel like you’re splitting hairs.

In general, it’s important to keep an open line of communication between you and your bookkeeper and your bookkeeper and your accountant. But let’s review some general rules of thumb.

QuickBooks Online will help you categorize your transactions by providing a template at set-up based on what industry you’re in. Use that template.
You can categorize meals at 100 percent if you take your team out for a teambuilding lunch, but you can only claim 50 percent as a write-off for regular business meals. Make two different categories to track this.
You can claim travel expenses to and from a business trip as a business expense, but you cannot claim expenses for extra time you stay to sightsee.

Don’t let the grey areas in your expenses get the best of you come tax time. Click To Tweet

Other Ambiguous Expense Categories

Subscriptions – Subscription means different things for different people and businesses. For some, it’s an old-fashioned subscription to a magazine or newspaper. For online businesses, it’s a subscription to web hosting, stock photos and social media scheduling software. Or do you categorize these as software?

Office expenses – Office expenses look a lot different depending on what type of business you’re in. Some industries may put office software in this category, in addition to traditional office supplies. It also may be appropriate to include Facebook ads here, or in a marketing category.

Insurance – Insurance is something that every business owner should have, but we’re talking here about malpractice insurance and liability insurance, not health insurance–which you may or may not be able pay for with business funds.

Talk to your bookkeeper or CPA if you’re not sure how to categorize expenses. Better to be safe than have to backtrack. Click To Tweet

Benefits of Categorizing Consistently

Keeping tabs on your income and expenses is the best way to ensure you’re spending smart. When everything is in its correct category, you’ll be able to see trends in your spending and how that impacts your income. For example, if you increase your spending in advertising to a specific industry but don’t see a return on that investment, you can make changes to improve the return or redirect your money elsewhere. This is something your bookkeeper can and should be reviewing with you on a regular basis.

Are you getting the feeling that keeping track of your books isn’t quite as straightforward as you thought? It’s true. Your books are a living, breathing part of your business–just like your website and just like you.

Did you catch our post earlier this week? We discussed how to setup QuickBooks Online expense accounts.

February 20, 2018

Bookkeeping Tip: How to Setup QuickBooks Online Expense Accounts

Whether you are setting up a new business in QuickBooks or evaluating profitability for an established organization, setting up Expense Accounts in QuickBooks Online (QBO) with the right Category and Detail Type will provide you with the information needed to make sound business decisions. In this article, we’ll discuss how Categories and Detail Type are helpful, how to properly set them up, and how to automate them with Bank Rules.

Categories are the different types of accounts you can set up in QBO. Examples include bank, income, expenses, asset, equity, other expense, long-term liabilities, other income, credit card, cost of goods sold, etc.

Detail Types are specific to the Category chosen. Examples include bank (checking, savings, cash on hand), income (service, sales, discounts), and expenses (advertising, auto, legal & professional fees). There are several Detail Types to choose from in each main category and for expenses, there are over 25 detail types to choose from.

Why are Categories and Detail Types necessary?

QuickBooks Categories and Detail Types will provide:

Detailed information that you and your CPA will use for reports and forecasting.
Detailed information about where you are spending money.
Comparison information about revenue streams and year-to-year performance.
Detailed information on your overhead expenses.
The ability to set up a realistic budget.

How do you set up QuickBooks Expense Detail Types?

First, identify all of your necessary business accounts: bank, income or revenue, expenses, assets, loan accounts, etc. Set up Categories for each type of account. Tip: Download the free worksheet below will help you with this process!

After you have identified your Categories, you will need to identify subcategories, or Detail Types, for each Category. Detail Types determine where the expense will appear on your financial reports. For example, if you have “Expense” as a Category, your subcategories, could be “Car Payments”, “Insurance”, “Gas”, etc. Detail Types should be customized and specific to your business and the terminology that you use. Avoid using general categories like “Other Income” or “Miscellaneous Expense” as much as possible.

Now that you have identified Categories and Detail Types, you are ready to set them up in QuickBooks:

Click the Gear Icon.
Click Chart of Accounts.
Click New in the top right corner and fill out the screen.

DOES EACH BANK ITEM HAVE TO MATCH A QUICKBOOKS CATEGORY?

Yes, each transaction should be matched to a category. But, good news! You can automate the matching process by setting up Bank Rules in QBO. Bank Rules scan your bank items and automatically assign them to the predetermined Category you have set up.

To Create a Rule:

On the left menu, select Banking.
Select Bank Rules.
Select New Rule.
Fill in all the fields on the screen.
Select Save.

STILL NOT SURE YOUR QUICKBOOKS DATA IS SET UP PROPERLY?

If you think your books might need help, they probably do! Don’t hesitate to reach out and connect with me. As a QuickBooks ProAdvisor, I’d be happy to help train your team, review your data and/or work with you to customize a package for the type of help you need after a Number Nerd Review.

January 16, 2018

Why You Should Always Have Your Eye on the Numbers

If someone asked what your gross income was for last year, you could probably spout it off within a few hundred dollars. After all, it’s part of your business’s bottom line–and an easy number to use to measure growth from year to year.

But if someone asked what your profits were last month or what your total overhead is in third quarter, you might have to stop and think a bit. And while you can’t expect to know all your business numbers off the top of your head, you should have them at your fingertips at all times

Those numbers are very telling in your business, and they can tell you more about your business than you might realize. Know your profit margin and overhead, and know what you can learn about your business by keeping your eye on the numbers in your business.

Know your profit margin and overhead. They’re just as important as your revenue. Click To Tweet

What’s coming in and going out?

You have to have a handle on your cash flow and be able to forecast what’s coming up in your business. If your forecast says that you’ll fall short of cash in a few weeks, it’s time to buckle down and find some new streams of revenue–or hold off on a new investment. And if you’re not keeping a watchful eye on your numbers, how will you know if all your clients have paid up this month? You need to stay on top of your accounts receivable so your accounts stay in the black and you know when the next check will hit your account.

Are you paying for something you’re not using?

When was the last time you did an audit of your monthly or yearly expenses? Chances are, you’re probably paying for some services that you’re no longer using, seeping cash out of your business on a regular basis. Or maybe you forgot to cancel the project management program you recently moved away from. Whatever it is, you’ll want to do an audit on your accounts so you can cancel any services that you no longer use–saving cash in the process.

Are you charging enough?

Numbers go beyond the money; they include your time as well. Be sure to keep track of how much time you’re spending on a particular project or with a specific client so you can calculate whether you’re charging enough for the work you do. This also helps you avoid scope creep: when you’re actually doing more work than originally agreed to in the contract. When you start to “do this real quick” for a client, your profit margins stall and you’re no longer making the profit you want. Harvest is a good tool for this, and it’s what I use, and Toggl is another good option.

What’s coming in and going out in your business? What other numbers do you need to pay attention to? Click To Tweet

As the business owner, it’s your responsibility to stay on top of the numbers. The health and longevity of your business depends on it. That doesn’t mean you should obsess about it, day in and day out. But do know the financial health of your business so you can make educated decisions about what you’re investing in and how you charge your clients.

If you need help setting up a simple system to keep tabs on everything, let me know! I’m releasing a mini course soon to help you get on track. Sign up for my list at the side of this page to be among the first to know about it!

January 2, 2018

How to Get Your Budget Ready for 2018

If your budget isn’t ready for the new year, now’s the time to do it. You should be budgeting in December so you can be ready to roll once January 1 is here. But if you haven’t, it’s not too late. And this is not something you should overlook.

Every business needs a solid budget in place to ensure they are (and remain) profitable. But candidly, there are few business who actually go through this process. Either they aren’t sure what to do or they feel like they’re not making enough money to have a budget in place, this is probably the most-skipped (but also most necessary) step in business ownership.

Your accountant should spend time with you, helping you to understand your numbers and how to lower your tax burden in 2018. Whether that’s investing and donating, changing your business status or lowering your own pay grade, there are a lot of things you can do to help lower your tax bill.

It’s time to sit down and take a good look at your 2017 numbers so you can plan for 2018. Click To Tweet

But you also need to take a good look at your numbers from last year so you can plan financially for this year. I recommend blocking out a few hours over the course of a few days to walk through this process.

Note that this is a simplified process for budgeting and that not all businesses are created equal. You may need to look at different metrics to help you determine the right budget for your business. But this is a place for you to get started. And of course, it is helpful if you have all of your expenses categorized correctly as well.

First, know what your revenue was for 2017. We’re talking your overall billing–the gross amount you brought in. Then, divide that total amount by 12. This is the average that you made each month last year.

Next, take a look at your profit and loss statements for each month to determine what you spent each month and what you had coming in. If you had a big launch last year or took an extended vacation, you’ll see some variations in your income. While there’s nothing wrong with that, you’ll want to take note of this.

Now it’s time to project your numbers for the new year. Do you have anything new coming up this year that may impact your income? A launch? A speaking gig? New services you’re adding? Even though you may not have it all figured out yet, my guess is that you have some idea of what’s coming up in your business. Determine what month(s) these changes will come about.

Use last year’s numbers to help you project what this year is going to look like financially. Click To Tweet

If you haven’t already estimated this year’s expenses, you’ll want to do that now. Looking at your monthly profit and loss statements, you’ll be able to see what you spent in your business over the last year. I recommend also going through your bank statements to see what subscriptions you have that you’re forgetting about–and cancelling them if you’re no longer using them or they’re no longer serving their purpose.

Take each of your expenses and break them down by month, so you know exactly what is leaving your business account each month, quarter and year. Now that you know what you need to bring in to break even, make sure that number is more than your monthly expenses. And take into account your slower months, so you’re not slipping into the negative during the year. To make it simple, you can simply take the total number for the year (for each category) and divide by 12 for 2018.

Creating a budget can be stressful and uncomfortable, but you need one–no matter what size your business. As you grow, your budget can grow and develop but you’ll still have a guideline for what’s coming in and going out of your business on an ongoing basis.