Four Keys to Clarity in Accounting Systems

Contrary to popular belief, accounting systems are not static. Nor are they the same for all businesses or even all businesses in the same industry. Those ideas imply that there is something about accounting that is required, but not useful - stiff, stifling, and boring. Like high school English.

Accounting is optional. You do have a choice about whether or not to do it.

I have met and worked with plenty of people who don't pay attention to their finances and find checks bouncing off the walls. It's a great place to start.

From Dictionary.com: Accounting is...

1. the theory and system of setting up, maintaining, and auditing the books of a firm; art of analyzing the financial position and operating results of a business house from a study of its sales, purchases, overhead, etc.
2. a detailed report of the financial state or transactions of a person or entity: an accounting of the estate.
3. the rendering or submission of such a report.

Accounting is how you get detailed information about your financial position. You can only do that if it's set up and used to get the information you need.

There are four keys to getting the most out your accounting system so that gives you what you need for decision-making:

• Accuracy
  
• Consistency
  
• Reporting and
  
• the Chart of Accounts

Accuracy is the first most important thing to ensure in your system. In fact QuickBooks and other pre-packed software systems have a function called reconciling that helps you find discrepancies. If you don't have the right numbers, you can't get accurate information.

The second is consistency. It's more important that most pieces of accounting: if you don't update consistently, you don't have accurate information and you can't do other important things like reporting. Consistency is also important for another reason, like brushing your teeth. It's improves your current and if you do it regularly it improves your long-term health. It is an investment in the future of your business.

Reporting is the function that aggregates (or puts together) all the information that you've been entering and gives it to you in one neat little package for easy reading. If you are entering the information consistently and accurately, these reports can give you up to the minute information about your money that even the banks don't know - that's exciting! Reports are what moves you beyond bookkeeping as a chore to using accounting for management decisions, budgeting, hiring, expanding, and so on. Reporting rocks!

The last piece we'll touch on today is your chart of accounts. That's the place where you find the categories of transactions that you use (which is another basis for reporting). Some of them like "postage" or "printing and reproduction" are about expenses and seem straight forward and the easiest for people to understand.

I find that people get into trouble in two main places in their accounting: categorizing/understanding income and balance sheet accounts. Assets, liabilities and equity seem to confound people regularly to the point where they give up and stop doing accounting all together. Understanding those pieces will make your accounting a lot easier. If you don't understand them either do your homework or hire someone to help you set these accounts up and teach you how to use them. This, in my experience is a critical piece of a business and deserves the time and dollars you put into it. In fact I find that as a bookkeeper and accounting consultant, having this piece in order makes the other pieces both possible and likely to get done. Having clarity here creates a place for people to take action from.

I think accounting can be a lot of fun. It can also be a function of your business that really supports and informs your decision making and growth. It's up to you to keep it healthy and vibrant.

Enjoy!

Financial security: Insurance

Recently I was driving on a gravel road and hit a pothole. When I got home I found that I was leaking oil badly, so I took the car to the shop where there was more than two thousand dollars worth of damage, none of it covered by the warranty. They did, however, suggest that I call my insurance and low and behold it was covered!

One thing I rarely think about these days is my insurance. I bought coverage years ago as suggested by the academic honors group from college without thinking a lot about it (I was young and uninitiated). I also bought renter's insurance for my apartment.

When I got the new car last year I decided to go all out and get the policy with full coverage, uninsured motorist, collision, the works - to take really good care of myself financially. It was a better choice than I realized.

What I found is that small bit of planning has saved me a lot of money. A few years ago the building had a break in and the insurance covered our loss at $1500. And this time I paid $100 for the $2200 in repairs. Useful!

This is the case of an ounce of prevention is worth more than a pound of cure. The $1400 a year that I pay for insurance more than makes up for what I've had to claim in the past few years.

Insurance is a form of self-care. What kind and how much are something to discuss with a professional.

I watch people under-insure themselves all the time. And then I watch them struggle when something happens. It's just painful. And unnecessary. The difference in premiums is often minimal and the sense of peace it often brings can be profound. So really consider the ramifications of that decision.

If you've done your budgeting work, you'll know whether the price of the insurance is within your budget and what things you could move around if you needed to.

Making the right choice doesn't have to be a mystery. There's a local agent that I love, Ruth Stroup, who does amazing things. I recently watched her increase a client’s coverage on a home while simultaneous decreasing their payments because she did some consolidation. She's done great work for my clients.

There's also SafeCo which is who I use because they've done such a great job over the years.

Insurance is about increasing your financial security. If you think you don't have what you need or you have more than you need, contact a professional and ask questions. The good ones will answer them without pressuring you and only invite you into their practice if they can help you.

Beginning with a new Bookkeeper: Documents and Information

Happy New Year!

People often decide that they want to start with a new bookkeeper in the new year. After deciding on who, and where and for how much,  the next big question is:  what do I need to give my shiny new bookkeeper in order for us to work together?

I've put together a list of documents that you'll need in starting with a new bookkeeper. Keep in mind that you'll need these document as of the date of either the opening of the business or the date of beginning the new records (whether you're choosing QuickBooks, Quicken, Excel, or doing the books by hand you'll have to choose a starting date).

• Checkbook stubs or checkbook register with vendor names, dates, and amount information.
• Business bank statements (checking, savings, etc.) 
• Business loan information (lines of credit, personal loans/equity, asset purchases, etc.)
• Copies of deposits including descriptions of income
• Business credit card statements
• Business expenditures made with personal funds (check, cash, credit card)
• Subcontractor/vendor information (name, address, taxpayer’s identification # either EIN or SSN)
• Customer/client information (name, address and how much they owe you) 
• Business taxpayer’s identification numbers (federal & state)
• State & Federal applications for filing online payroll taxes
• Employee information for payroll tax returns
• Federal and state tax returns for previous year's filing, if applicable
• CPA, tax attorney or tax professional's contact information, if you have one

A note about QuickBooks and downloading transactions. Many people want to be able to download transactions into QuickBooks or Quicken or some program.  To do that you'll have to talk to your bank and make sure that your bank has that functionality with the type of account that you have and that you're set up to do that. Many banks won't allow you to download QuickBooks formatted transactions from personal accounts and these days there are often fees for the privilege - I've seen them up to $16/month. 

Usually you need a separate pin for the software to access the bank's website and sometimes a specific log in to access the transaction. Sometimes you'll need to import them as you can't download them directly and sometimes you can just click one or two things and make it happen. There are time limits to how long the transactions remain on the bank's website as well (usually three months, but American Express seems to have an entire year's transactions for download and have been the easiest to work with). 

In any case, there are many answers to this question. So be prepared. If you want this feature, either let your bookkeeper know in advance or be prepared for it to take some weeks to have this set up as the pin in generally mailed to you.

Additionally downloading transactions doesn't always save time. The professional will have to review each and every transaction that goes in regardless of whether they are downloaded or entered manually. And if you're downloading transactions, you're trusting the bank's word on your transaction.  

Financial Pressure? What to do Right Now

One of the lessons that I'm learning is that time and space create a lot more results than pressure.

Have you ever been in a pinch and tried to come up with new ideas about a project? It doesn't matter if it's for work or at home. If you're really worried about it, what happens? 

Often the ideas struggle out of my brain. I'm worried and have a hard time focussing. I feel urgency and want results now.  I find that if I'm under enough pressure, I look back after making the decision and realize there are about 14 things I hadn't thought of that didn't make it into a project idea or into that proposal or off to that client.

On the other hand when I take time and open up space and spend some time relaxing,  ideas just come to me - out of the blue. Brilliant ideas for projects, services and products - so many that I can't follow up on all of them.

Financial pressure is a lot like that.  There are plenty of places that talk about money as a river or stream or flowing water and that use the metaphor of a faucet. My experience is that worry is akin to turning the faucet down or even off.

But why?  I've heard it talked about in terms of energy and there is something there. But in terms of psychology, what we see is that people get and do what they focus on - they find proof for their stories.  That's why advertising works. You see an ad for toothpaste over and over and pretty soon you're standing in your bathroom wondering how this this toothpaste you've never tried before got into your house.

Things that we imagine often come to pass - positive, negative or otherwise: because our brains are looking for them. Our brains are trained to find patterns and so the patterns you put into them is what you eventually find. It's why we seem to have similar relationships over and over - and that's part of why affirmations work. We tell our brains to look for certain ideas and hooks and it does. So I talked about affirmations and and how to write them, now is great time to review them if you haven't in a while.

In an ideal world you would have a Financial Map of  Intentions - a review of what you've been spending and clear projections about what you intend to spend moving forward, month by month. That way you can review your monthly spending and make clear decisions in advance of financial crunches. 

But that's not always possible and things change - so no sense in making yourself feel worse than you already do. In fact now is a great time to be grateful for your financial prowess - you see what's going on, you've come to look for support and now you're going to change it! Way to go!

So what to do about financial pressure right now?

If you're feeling pressured about money, the first thing to do is to take a deep breath. (And notice when the last time was that you did that.) Just take a moment to relax and come back into your body. Sometimes it takes a few breaths or more to come back - a walk outside in the fresh air, a hug, looking at something beautiful, a nice long, hot bath. But take that time - it's well worth it and really supports making sound decisions.

Second do a real assessment: are you in danger? What are the real dangers in this situation?  Often we worry about financial pressures that might happen - in days, weeks and months from now. If those things aren't here, take another breath and notice that more than likely you really are safe right now.

Then create a plan. Not just for the crisis or thing that has come up that you're worried about, but look at the bigger picture. Decide what really wants to be done here - is this an obligation that you want to continue with? Is this mortgage something you can handle? What is coming up over the next few weeks that can effect this piece of your financial reality? And how can you effect positive change from right here. 

Remember in creating change you want it to be in alignment with your values. So if you value ease, think about what you can do to bring more ease into this situation.  How do you want to feel about this obligation and what can you do to bring more of that emotion into this situation?

Keep breathing and move gently focusing on staying home in your body and making positive changes that support the overall effort of your life. It might take time, but putting into place a plan for you financial success is well worth the effort.