Seattle Small Business Blog

I just paid a bunch of vendor bills using credit memos that we have on file with that Vendor. There was a little left over on the final invoice, which was paid by check. However, the check stub only lists one invoice and one credit memo, but I know that’s not right.  How do I get a list of all the other invoices that were paid using the credit memos?

There’s no built-in/easy way to do it. It will require that you create and customize your own report to give you exactly the data you’re looking for and nothing else.  Here’s how:

• Do a “Find”  (Ctrl-F)  and go to the Advanced tab
• then click on “Date” in the Filter list and select “This week,” “This month,” etc., or choose the specific date you recorded the transactions
• then click on “Name” in the Filter list and select the name of the Vendor you’re working with
• then click on “Transaction Type” in the Filter list and select “Multiple”
• then in the “Multiple” screen select Bill, Bill Payment, and Bill Credit
• then go back to the main Find window and select “Paid Status” in the Filter list
• then check the button next to “Paid”

That should show you all the bills that were paid to that Vendor, and their corresponding payment method, whether by Credit Memo or Check.

Click the “Report” button to the right of the screen, and it will give you a printable report. You can also “Memorize” it (button at the top), in case you might need to perform a similar search in the future, for this or any other Vendor. You can further customize the report by clicking on the “Modify Report” button, also at the top of the screen.

-Veronica

Q: I noticed that Owner’s Draw is not showing up in the expense column of the P&L statement, is there a reason why?

Treatment of an owner’s compensation is determined by what type of entity/taxation structure your business is operating under.

When you are operating as a single-member LLC (taxed as a Sole Proprietor), Owner’s Draws are not considered Expense transactions. They are Equity transactions, which show up on the Balance Sheet, not the Profit & Loss.

In a single-member LLC (as well as a partnership LLC), all the profits/losses of the business flow through to your personal tax return and are considered to be the “Owner’s Equity” in the company. If you decide to take money out of the company, it is not considered an Expense — just as if you decide to put money into the company, it is not considered Income.

If your business entity were a Corporation or an LLC taxed as Corporation, then you would be taking a Salary instead of Draws. In that case your Salary, as well as all your company-paid Payroll Taxes, would show up as Expenses on the Profit & Loss.

If you really want to include your compensation on the P&L, we can create an Expense account for “Management Fees,” which will reflect all the Draws you take throughout the year. At the end of the year, we would need to make an adjustment to move that “Expense” back over to the Equity section of the Balance Sheet, since it is not allowed to be included as an Expense on your Federal Income Tax return.

I know this can be a difficult concept to grasp right offhand — but then again, so is most Tax Law. Let me know if you need any further explanation…

-Veronica

Q: I’m still learning QB, so can you walk me through merging the vendors?

Merging vendors is pretty easy:

• Go into Single User mode
• Then go to the Vendor Center and decide which vendor name you want to keep. I usually go with the one that’s either 1) oldest, or 2) has the most transactions posted to it.
• Double-click on that Vendor’s name in the list, copy the name as it appears in the top-most field of the Edit Vendor window, then close that window.
• Now double-click on the name of the Vendor you don’t want to keep, and paste the copied name into the top-most field. Click OK or Save (whatever the button is called) and QB will ask you to confirm that you want to merge the two Vendors.
• Say yes and you’re done.

The other option is to just make one of them inactive (right click the Vendor’s name in the list and choose “Make Inactive”), but that makes the Vendor’s name disappear from the list in the Vendor Center. If we ever want to see our complete history with that Vendor, we have to remember that there’s a second one that’s inactive, and search for it separately. Most of the time, if you’re looking for historical transactions and you find a Vendor that’s active, you’ll stop there and won’t bother continuing to look for duplicate/inactive Vendors that may provide additional history.

If you merge the two, then you will have all the transactions available to view under just one name, which will stay active and easily viewable without having to take any additional steps. 

-Veronica

Question:  I added three payments I received this week through “Receive Payments” and showed that I received all 3 through my PayPal account.  These payments are now associated to the A/R account, but I can’t seem to edit the account they are associated to (it should be Products/Services income, right?)

Perhaps you can explain how to do this?

A/R is the correct account to which payments should be posted. The Income account is affected when you create the initial Invoice and specify which Products/Services you sold to that person.

When the invoice is created, it posts “Income” to the Products/Services accounts, and an offsetting amount is posted to “Accounts Receivable,” since you have not yet received the actual payment. When you receive the payment, the appropriate amount is then moved out of Accounts Receivable and into your PayPal or your bank checking account (whichever account the payment originally posted to). This decreases your A/R account and increases your bank account.

The only time this workflow would be different is if you did not invoice the customer, but you did receive payment — i.e. the customer paid at the time of purchase, so you never issued an Invoice. In this case, there are two ways you can handle this:
1) Create a Sales Receipt (best/most “correct” way), by going to Customers > Create Sales Receipts
2) Enter the deposit directly into the PayPal or bank checking account, by going to Banking > Make Deposits

A Sales Receipt is just like an Invoice, but instead of issuing an Invoice and collecting payment later, a Sales Receipt combines the two and shows that the payment was received at the time of the sale. It’s filled out the same way as an invoice — you select the products/services the customer purchased, QuickBooks calculates sales tax, etc. You just don’t have to go back in afterward and do the Customer > Receive Payments step, as you would with an Invoice.

If you enter the deposit directly into the bank account, you are not able to select which items the customer purchased. You are only able to designate the name of the customer and which “type” of income you received — Sales of Products or Sales of Services. You also cannot auto-calculate Sales Tax using this method.

The proper way to do it would be to always enter an Invoice if they customer will be paying later; or to always enter a Sales Receipt if you collect payment in advance or if the customer pays in full at the time that the order is placed.

Until you’re routinely invoicing all customers through QuickBooks, there may be some discrepancies, but part of my weekly review process includes checking Accounts Receivable and Accounts Payable to make sure they are reflecting the appropriate amounts. If I do see a customer who has a balance due or a credit balance (meaning that you received payment against the A/R account but there was no invoice to match it to), then I will either fix it myself, or ask you for more details if it’s unclear.

Let me know if you need any more info on this process. It can be a little abstract to try to wrap your head around it, until you see it in action.

Let’s begin by defining what a small business expense is.  You spend money on your small business simply to carry on your business.  In other words, in order to trade whatever it is you trade, it costs you money.  If your business is designed to make a profit, the cost of operating your business is often deductible in the preparation of your tax return.

According to the IRS, a business expense is deductible if it is “ordinary and necessary.”  If your trade normally has a certain expense, for instance, a quilt maker’s fabric, then the cost of fabric is considered an ordinary expense.  If your business needs to spend money on something that is helpful to your trade, for instance, it helps if you advertise your quilts, then those advertising costs would be considered appropriate and helpful to your business, and necessary.

If you produce goods to be sold, you have expenses involved to produce those products.  Again, if you produce quilts, you have fabric, batting, and thread.  However, along with these raw materials, you may have the freight it costs you to receive your materials, costs to store your materials, factory costs, and possibly even labor costs.

There are complicated rules for determining what costs can be deducted as direct expenses.  Depending on your business, you may have indirect costs to consider such as rents, interests on loans, handling costs, and even administrative services.  Your tax accountant will sit down with you and make these determinations by reviewing the current laws and regulations of the IRS.

Some costs to your business are not considered “expenses” – at least when it comes to a simple deduction on your income taxes.  Capital expenditures fall under three classifications:

• Start up costs
• Assets
• Improvements

These three classifications make sense when you take a look at the items you have to create and maintain your business.  Getting back to the quilting business, you have sewing machines and tables, for instance.  You can see that those items are not going to go out the door to make you money. These items will not be deducted as expenses, but rather as a capital expenditure on an amortization schedule.

Business Expenses v. Personal Expenses

Small business owners often operate a portion of their business in their own home, using their own income, their own time, and their own car.  You cannot deduct your personal or family expenses, but you are allowed deductions for those costs that are exclusive to your business, even if those expenses occurred in your home. Two common examples follow:

• Business Use of Your Home – There is a strict division between personal and business expenses, and you must prove your square footage, utility bills, maintenance, and rent or mortgage, used for business purposes.

• Business Use of Your Car – Many small business owners use their own family car for business. If this is the case, the actual mileage must be tracked in order for the business mileage costs to be deductible.

There are many deductible expenses that fit within these direct expenses categories.  You’ll need to sit down with your tax accountant to work through the differences between business expenses to be deducted directly and those expenditures that should be capitalized.  Follow your accountant’s advice, keep good records, and tax time should go smoothly.

Imagine having this nightmare:  The IRS suddenly audits you for a mistake you made on your tax return ten years ago. It seems you transposed two numbers and now you owe the federal government because you filled in a box with the number 730 instead of 370.

If this happened to you, what would you need to bring to an audit?  Would you still have your documentation?  How long should you actually keep your tax documents? Good question.

Let’s take a look at a few situations and the suggested length of time to hold onto your documents.

If you have been withholding taxes from your paycheck but find that you still owe additional taxes when you file, the rule of thumb is to keep these records for three years. There is one exception to this rule and that is if you do not report income that should have been reported at the time you filed your tax return. If the additional funds are more than 25% of the gross income you reported when you filed, those records should be kept for six years.

There are times when tax information should be kept indefinitely. This procedure needs to be followed if you file an inaccurate return, fraudulent return, or if there is no tax return filed at all. The reason these files should be kept indefinitely is because you will need to show proof of income when the IRS requests it, which could be at any point in time.

Special consideration is required if you have a small business.  Employment tax records are important documents and require special handling. These records should be saved for at least four years from the date the tax is due, if paid on time. If the payment is late, the records need to be kept for four years after that date in order to verify employee incomes if requested.

Filing tax credits after filing your return can also add additional time to your record retention time. In order to determine how long you should keep the files, choose the latest date between when you filed your original return and when you actually paid the tax and keep the records for three years from whichever date is later.

When you file a claim for a loss from worthless securities or take a deduction for bad debt, you will need to keep the records for seven years. This allows the IRS ample time to investigate your claim. When filing a bad debt deduction, it’s imperative to hold onto the files and have adequate records to prove your bad debt claim.

The general rule of thumb is to keep your tax documents until the period ends when you are able to file a tax credit or refund, or, until the IRS closes your case file. In most cases, retaining records for about 4 years is adequate. There are some cases, however, that require tax documents be kept anywhere from three years to ‘indefinitely’ so check with your tax accountant before you discard any tax files.

The IRS is all about accuracy and proof, so make sure you keep impeccable records and retain all your records for the appropriate time frame. These steps will keep your finances safe and  make tax time go a little more smoothly year after year.

Anyone who’s worked in an office at some point or another has had to “go to accounting.” They’re the people who manage the company’s income and pay the company’s bills that keep the business running. They do a lot more than that, though. Sometimes referred to as “bean counters,” they also keep their eye on profits, costs and losses. Unless you’re running your own business and acting as your own accountant, you’d have no way of knowing just how profitable – or not – your business is without some form of accounting.

No matter what business you’re in, even if all you do is balance a checkbook, that’s still accounting. It’s part of even a kid’s life. Saving an allowance, spending it all at once – these are accounting principles.

It would be hard to find any business where accounting is not a critical centerpiece. For example, even farmers need to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it’s a good year, a profitable one, then they can pay off their loan; if not, they might have to carry the loan over, and accrue more interest charges.

Every business and every individual needs to have some kind of accounting system in their lives. Otherwise, the finances can get away from them; they don’t know what they’ve spent, or whether they can expect to make or lose money in their business. Staying on top of accounting, whether it’s for a multi-billion dollar corporation or for your own personal checking account, is a necessary activity on a daily basis. Not doing so can mean anything from a bounced check to posting a loss to a company’s shareholders. Both scenarios can be devastating in their own right.

Accounting is basically the keeping of financial information. In a business, this information is published periodically as a profit and loss statement (P&L) and a balance sheet.

Imagine yourself enjoying the warm autumn sunlight while listening to Paul Simon’s song, “50 Ways to Leave your Lover”.

Now, stretch your imagination just a bit and think about how many “Ways” you can come up with for saving and/or making more money in business…

“The problem is all inside your head
She said to me
The answer is easy
If you take it logically”

So, let’s look at the problem logically for a minute. Here are four basic ways you can increase your profits:

1. You can charge more for your products or services.
2. You can sell more of your products or services to your existing clients.
3. You can find additional clients.
4. You can find ways to cut back on your business expenses.

“Slip Out the Back, Jack” (Simple ways to save money):

So, if you’re on a shoestring budget (and who isn’t these days?), then obviously you need to do everything you can to save as much money as possible, and make as much money as possible, as quickly and easily as possible. Here are 10 simple ideas you can use:

1. Know your target market. Who are your “ideal” customers?
Where do they shop? What do they read? What solutions are they looking for that your business provides? The more you know about your customers, the better you’ll be able to target your promotions towards them, which will increase your bottom line two ways – it will save you spending money on advertising that doesn’t work, and it will increase your sales, because you’re offering your customers what they really want.

2. Get double duty out of any contact with your customers. If you sell products, put your contact information on everything –products, bags, invoices sales receipts. Make it easy for everyone to find you. Give away something free. If you have a Website (and if you don’t, then get one), give your customers something for giving you their contact information. Free Ebooks, reports, or software are all good choices (just make sure it’s relevant to your customers). Anytime you send your customers anything – a product, a newsletter, an invoice –include a coupon or information about your latest products or services. To save money on postage, if you have a brick and mortar store, put a copy of your latest newsletter or an informational flyer in your customer’s bag after each sale.

3. Reward your customers. Set up a reward program. Offer them a reward for anyone they refer who becomes a customer. Or give your customers a free gift when they spend $50 (or whatever amount makes sense in your business). When they’re eligible for the free gift, offer them an upgrade to something bigger or better for a few dollars more. Start a customer loyalty program. Provide “customer only” sales, or promotions. Let your customers earn points, or “magic money” that they can use to redeem your products or services.

4. Get ready for your close-up. When you’re brainstorming about creating a promotion or advertising campaign, don’t forget about your local cable TV channel. You may be pleasantly surprised by how low their rates actually are. Create your own television commercial or infomercial. Although you may not be ready for prime time, you can still target your ad to reach your customers.

5. Get involved in your community. Find a nonprofit organization that is doing work you believe in, and either publicly support their program, or be one of their sponsors for an upcoming event or fundraiser. Use the advertising spot to let people know about the fundraiser (and, incidentally, your business). You could put together an inexpensive ad campaign that will help those in need, increase your visibility and let your potential customers know that you’re supportive and aware of the needs of the community.

“Make a new plan, Stan” (Business Planning Basics):

6. Beef up your business plan. If you don’t have a business plan, make writing one a priority. Your business plan is more than just a way to interest investors. It’s a road map that will help you get from where you are now to where you want to be. That old saying, “If you fail to plan then you’re planning to fail” really is true when it comes to business.

“No need to be coy, Roy” (Ask your customers):

7. Get testimonials from your satisfied clients. But don’t stop there. What about creating your own television commercial that you can run in your store? (With a video camera and a little ingenuity, you could even create your own infomercial that shows customers how to use or get the most out of your products or services. If you’ve got a Website, put an audio testimonial on there. (And don’t forget to include pictures).

8. Speak up. Again, keeping in mind who your ultimate ideal customers are and what their most pressing problems are, write an article, offer a free seminar, or offer to be a speaker at local chamber of commerce or other organization or community meetings. Being perceived as an “expert” is a relatively easy and inexpensive way to get the word out about your business, and bring in more customers.

“Just hop on the bus, Gus” (Expand your business potential)

9. Create joint ventures. Even if your primary business is a brick and mortar one, you can still create a joint venture that will help you save money by sharing the costs for advertising. What about creating a special “sidewalk sale” with other business owners on your street or in your neighborhood? Or finding businesses with complementary products or services to yours, and creating a “package deal”? If your business is only online, look for ways you can partner with other businesses – maybe you could create solo ads and promote each other’s products or services in your mailing lists. There are a lot of ways you can save money and increase your client base if you’re willing to get creative.

“Just drop off the key, Lee” (Provide the key solutions)

10. Let your customers know you know what their problems are. It’s sad but true that your customers don’t care how good your products or services are. They only want to know two things: do you understand what their problems are; and can you solve them. Give your customers the “key” to their problems, and you’ll have evangelistic customers who come back again and again.

Most business owners subscribe to the thought that you “must spend money to make money”. This can be true, but you also must know exactly where that money is going and the results it brings.

Some ways that your business might waste money includes the following:

1. Manage your credit cards – If you have several cards, develop a computer program that will show you the exact balances, due dates, and the interest rate you are paying. Always be aware of other solicitations that save you money and possibly change your balances over to a new company. If you have any employee cards, see if you can set a limit on them. If not with the credit card company, make sure that the employees know their limits. Manage your credit cards wisely and never, ever miss a due date.

2. Develop an annual plan so you know where you will spend money. This helps you in several ways. The business person will be aware of what portion of the profits are going to advertising, towards incentives, towards accounting and other internal expenses, etc.

3. Do not over-purchase any products or services for a business. If you buy in bulk, the money is tied up and a place must be provided to keep the extras. That might be an unnecessary expense.

4. Developing an advertising budget and knowing just what resources to use is key to keeping money under control in a small business. You must advertise, but you also must get value for your money or you will soon be out of business. Keep a record of how much is spent, can you get payment terms, when is the most efficient time to advertise your particular product or service to get the most value for the dollar. Every dollar must be accounted for in advertising because the lifeline of your business depends on new and paying customers. Advertising is the way to get the word out to the community or the Internet.

5. A small business owner will sometimes be under self-induced stress to manage all aspects of the business. Sometimes, leaving the control and decisions to others that are qualified is the best way to manage the business. Releasing control may be hard to do sometimes, but in a lot of businesses, money can be wasted because the owner cannot possibly be as efficient as the person who has studied or is knowledgeable about a particular field. For instance, if a business owner does not know accounting, many mistakes in reporting income and taxes can be made. A qualified accountant can possibly save more than the cost of their services in reduced taxes.

Take a hard look around your business and do not let anything be set in stone if saving money is the goal. Challenge everything that will cost money and see what can be done to change the situation. Any money that is saved is money that can be put back into the business either in profits or in growth.

A business owner wants their business to be successful and will work hard to sustain growth. A business owner wants a way to continue making and growing money from a product or service that is interesting to them. After growing a business and being smart with cash flow, many business owners will sell their businesses only to start another business.

The reason is that business owners are independent types and challenges are rewarding when met and faced. Saving money through every day operations will help the business owner to meet their financial and emotional goals.

Any business will cringe at the thought of what the banks put them through to use credit cards. If you do not know what I mean, then this article is for you!

The fact is that everyone online wants to use a credit card or debit card to process their order. It is very true in our society that the credit card is a way of life, and if you do not offer that ability to accommodate them, customers will move on to another website that does allow them to use their cards. This society has become driven by instant gratification and expects to receive their products immediately, either by a download or a short shipping duration. Taking credit cards as a form of payment on the internet or offline should be thoroughly understood. Read on to see what I mean and how to protect yourself.

The fact is that any merchant taking in payments is immediately at risk for whatever amount is charged and MORE. The banks will take the charge disputed along with a “charge back” fee right from your merchant account, and you better have enough in there that has cleared to pay your own bills or you will be charged more for “overdraft charges”. Some banks are waking up to the fact that it is not always the merchant at fault and most merchants are more than honest in their dealings. There is so much credit card fraud out there and since the merchants are ALWAYS liable, you need to realize this and take action to prevent as much disaster for your business as possible.

First, if you have your own merchant account, then you have a lot of work to do when you receive a credit card order. You must verify as best you can that the card, the name on the card, the address, the cvv number verification, and the quantities are all in order. You need to verify the IP address of every order and see if it is within the location of the card holder. A person living in Toronto, Canada, probably would not be in Las Cruces, New Mexico, charging products. This is a red flag but not a deal breaker, some people DO travel. Caution needs to be taken to protect your cash flow. As a merchant you must get money safely into your account for any goods or service you provide, so that you can become a larger or more substantial independent business.

Do not just take in cards and believe that everything is going to be just fine now that you have the money in your account, because it can come out just as fast, or faster, than it went in. There is a real need for you to understand a lot more than can be mentioned in this article.

The best way to receive all the tools and services you need to protect yourself and to make your voice heard is to check this website: http://www.merchant911.org This is a group of dedicated individuals who have been working for years to try to change banking and processing company rules and regulations as relative to merchants, both large and small. If you need any more proof of their dedication, just read some of the press releases and look at the tools they have assembled for merchants to use.

Right now is the time to start to protect yourself from credit card fraud. If you have read any of the newspapers or listened to any of the news reports, then you already know you are at risk. There are reports of over 40 million cards in the hands of criminals and thieves and they will sell these cards or will use them in various illegal methods. It’s not hard to imagine that some day soon you will be approached and asked to spend your time and money to ship a product or provide a service with these fraudulent cards.