Bookkeeping Presentation at SFPUC Contractor Assistance Center

On 3/20/14, thanks to the sponsorship of Merriwether and Williams Insurance Service, Wayne Lee and I have the opportunity do do a presentation at SFPUC, Contractor Assistance Center on Bookkeeping and Quickbooks. Ben Poole and Price Hallowell of the center have been most helpful in providing technical assistance with the equipment set up. Jennifer Elmore of Merriwether was most kind in chauffeuring us around and provided sandwiches to nourish the mind and bodies of the attendees.

It was a great venue; great conference room with lots of space, light, nice furniture and huge mixing area. We have about 15 attendees. We thought of it a success. The attendees were enthusiastic about the subject matters. We tried hard to share some fundamental principles about money, cash flow vs profit, and financial reports. We hope that these principles will come in handy in the future.

At the first half, we discussed all money related issues; such as why care about financial matters? For it is one of the 3 major areas besides operations and marketing that all business owners need to cover. Why cash flow is different than profit; for you likely have to front all job costs -- labor, material, equipment for 2 months before you get paid. Hence each new job or expansion demands more credits, and you must establish as much credits as you could before you need them. We talked about the 2 ways of financing; i.e. debt vs equity. And how to get a good FICO score; i.e. by demonstrating your willingness to pay and your ability to pay. We covered the 3 major financial reports; Balance Sheet, Profit and Loss and Cash Flow Statement. We dissect components that made up those reports. We tried to explain them in the simplest language.

In the second half, we covered tips and tricks on Quickbooks. Among the attendees, only 1 uses American Contractor which costs $10,000 and 5 uses Quickbooks which costs $250. No wonder majority stays with Quickbooks for the price difference is so big.

Since Quickbooks is form-driven, if you use A/Receivable invoice and A/Payable bill features, Quickbooks will give you many more reports; especially job related ones. We covered items set up. various jobs reports such as Job Profitability Summary, and detailed report on each job, such as Job Profitability Report. Since labor and burden make up a big part of job costs, we emphasized that to effectively allocate labor and burden to jobs, payroll must be integrated within Quickbooks; i.e. by using Intuit Payroll Services. With all payroll burden set up on payroll items list, the allocation will be auto pilot thereafter.

We explained how we work with our clients; mostly on-site as their in-house accountants on a once-a-week or twice-a-month basis. We also support their in-house staff if they already have their accounting personnel.

The Price of Cheap Bookkeeping

I recently worked with a new client who is an interior designer. Of course, the book was not good as expected.

I found that in 2010, there was  $20,000 sitting in a bank account named "uncancellable." Obviously, there is no such bank, hence no such deposit. Her cash balance was inflated by that amount. By tracing the entries, I realized that the deposit was posted and incorrectly applied to various invoices issued in May and September 2010. This was not true --  her client always paid right then and there. Her invoices were due-on-receipt. The deposit entry has been reconciled to the bank statement. The former bookkeeper realized the mistake, and posted another payment to apply to the correct invoice issued in August. And she moved this payment into this "uncancellable" bank account with memo "already reconciled. can not delete."

The result; the income was counted twice, which cost my client $6000+ for Federal and California taxes.

Curious, after quick glance at 2010 tax return, I pulled out 2011 tax returns. And the sales and net income were $50,000 more than book. Minutes later, I realized the tax returns were filed based on accrual instead of cash basis for there was $50,000 sitting in Accounts Receivable. Worse yet, these A/R invoices would never be collected, for there was procedural error. Her clients were presented with invoices showing 100% of material and service costs, and were asked to pay 50% upfront while placing order for the materials. The remaining 50% was billed again on later invoices, and were paid promptly when presented. So the first invoices with remaining balance would never be paid.

We were in time to amend 2010 and 2011 tax returns and reduced her Federal and California taxes by $6000 in year 2010 and $20,000 in year 2011.

That was the price of $25/hour bookkeeping.

To find a good bookkeeper, business owners should definitely ask for a professional with an accounting degree. The knowledge of accounting principles is much more important than Quickbooks, for one can learn software much faster.

Business owners do not have to stand behind their accountants/bookkeepers to micro-manage. But, when each month ended, it is sensible to ask for monthly reports such as Balance Sheet and Profit and Loss. And if the business owners do not know what those numbers mean, have the bookkeeper to review with. Since the business owner runs the business and have "reality check", if the numbers are way off, they should be able to tell.