money management Archives - Number Nerd Bookkeeping Solutions

May 22, 2018

Why you need a virtual CFO for your biz

You started your business because you had a skill (product or service) to share with others. You wanted to take something you learned in your 9-to-5 job and grow it into something bigger than you could if you stayed in corporate.

And you were able to do just that. You spent time creating products, developing services and serving the people who needed what you had to offer.

At some point, however, you realized that you didn’t necessarily have the business acumen needed to grow bigger. Maybe you find reading those financial statements a challenge or you don’t feel you have the time or resources to plan strategically for growth.

Wherever you’re feeling the squeeze, adding a virtual chief financial officer (CFO) as a consultant might be the right next best step for your business.

Why virtual?

As a start-up or growing business, you know what it’s like to grow your team. A virtual CFO shouldn’t be your first hire. They’re your hire once you’ve seen growth and need to know what’s coming next, down the road.

Hiring staff members is difficult–and expensive. It’s hard to know you’re making the right choice in hiring, and hiring employees (versus contractors) means a more permanent relationship. But having that consultant role, along with CFO expertise, is a pivotal part of a larger business.

A CFO has a unique skillset, making it a more expensive hire than your assistant or other team member. But hiring a virtual CFO allows you to bring someone on part time, saving you money while still having the best possible fit as part of your go-to team. Besides, while you may need a CFO’s expertise, you likely aren’t quite ready to bring on a full-timer in that role. Having a consultant on retainer who has CFO experience is important.

What can a CFO do for my small business?

First off, it’s important to note that the CFO is not the one that does the bookkeeping. However, they should work with and interact with your bookkeeper, as needed.

Think of the CFO as the financial translator and mentor for your business. She can help you and your stakeholders read your financial statements and help you make educated decisions about investments, cash control, budgeting and more. And she does this from an independent perspective–so while she’s invested in giving you sound advice, she doesn’t actually have skin in the game.

Your virtual CFO should also work with your bookkeeper, accountant and tax preparer to make tax time a lot smoother–and help you make decisions about changes for the next tax year. As an added bonus, you may even be able to outsource management of your in-house (or virtual) accounting to a virtual CFO if you have multiple financial roles in your organization. One less piece of your business you need to manage on a daily basis, so you can spend more time on the growth and development of new products and services–the things that are bringing in the money for your business.

Am I ready?

Not every business needs a virtual CFO, and bringing one on before you’re ready will cost you. I recommend waiting until you are at a pivotal point that you need a professional’s financial expertise to help you budget and plan and make decisions for your future. It’s a very high-level position for businesses that are looking to grow in big ways, and the position looks very different for product- vs. service-based businesses.

Not only does Number Nerd offer CFO services, we also work with a number of virtual CFOs. As consultants, we can help you determine whether you’re ready for this role in your business. And if you are, be sure you’re on my email list–this week I’m telling you exactly what you need to look for when hiring someone.

April 17, 2018

How To Set Up Your Internal Accounting Processes

When you’re hiring an accountant or bookkeeper, it’s important to have a good handle on your numbers already. You’ll need to provide a list of recurring expenses and access to bank accounts, along with some other information. The bookkeeper you hire should guide you through this process like we do at Number Nerd.

But even if you’re not ready to hire an accountant now, there’s a lot you can and should do to prepare for when you are. Because the more you grow, the more complicated your bookkeeping will be–and eventually you will want to have a pro on your side to help.

These are my non-negotiables for every business owner. If you’re doing these things, and doing them well, from Day One, the transition from DIYing your bookkeeping to working with a pro will be seamless.

When you take care of your books NOW, transitioning to an accountant or bookkeeper is seamless. Click To Tweet

List of monthly expenses

If you have a budget with a clear list of your monthly expenses, you’re doing pretty well. But when you have that same list outlined and categorized, you’re doing even better. Knowing how much you’re spending each month in different categories (like bank charges, dues + subscriptions, insurance, continuing education, marketing, merchant processing fees, software, utilities, etc.) is key to finding leaks in your accounts. You’ll then want to review your numbers monthly and compare to the prior month (and ideally your budget) and ensure that you aren’t spending more than you anticipated and on track. It all depends on what kind of business you have, of course, but it’s something to audit quarterly.

Folder for receipts

You’re saving receipts, right? In the event you get audited, you need to have receipts to back up any business expenses and write-offs. But throwing all your year’s receipts in a folder or shoebox isn’t the best way to go, especially if you have a lot of expenses.

Saving your receipts in a shoebox isn’t going to help you keep your books organized. Stop. Now. Click To Tweet

I recommend using Evernote, Google Drive or that manilla folder to organize your receipts on a monthly basis. Each month should have its own space, and if you’re using hard copies of documents, clip them together by month. You can also group receipts by category or vendor if you have recurring expenses from similar vendors. When storing them electronically, be sure to have a standardized file naming convention. You also want to write on the expenses what they were for before you scan and save them. For example:

VendorName_TypeOfExpense_Date.pdf

XyzCoffeeShop_Meeting w/123 re xxx_Date.pdf

Have sales process documented

Every business has a step-by-step process they go through when acquiring a new client or repeat sale. Even if it’s not explicitly documented. The key is to get that process documented. How do you bring clients on? When do they pay your deposit? The rest of your fees? How will you deliver the product or service? Or do they pay at time of purchase?

Having your process documented allows you to better track costs and revenue on every sale so you can start to tighten up the process and your profits.

The more organized and efficient you are, the better. You’ll save time getting the accountant or bookkeeper up-to-speed. And even if you’re not ready to hire someone to help you keep your numbers in check, you’ll have a much better picture of your books if you keep tabs on everything now. Not only that, but you’ll be much less stressed come tax time.

Need to get your books organized? Download my 2018 Biz & Books Planning checklist to get started. And feel free to scour the blog archives as well for other helpful posts that will help you get a great handle on your bookkeeping.

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.