Automatic Bank Feeds in QuickBooks Online

There’s a trend among some users of QBO to consider automatic bank feeds as a way to eliminate reconciling of the accounts. This is wrong, so wrong, and I’d like to tell you why.

1. You can’t trust them. They work well, when they’re working, but too often I see bank activity downloaded into QBO that leaves out transactions.

2. The automatic features in QBO make for simple use, but if you just accept all transactions as they download, there’s the potential for misclassification. For example, QBO will remember what the previous expense was for a vendor, and will fill it in. However, that may not be the correct expense at all.

3. Income downloading is especially tricky if you’re unfamiliar with it. If you issue invoices, you should be receiving payments from the Transactions menu. If you don’t, and QBO downloads those deposits, it won’t have anything to match to. Many times I’ve found that these transactions have ended up as Income, when there’s already an invoice for it. This will quickly double your income, in ways that we don’t want it to double. (We want to double it by increased sales, not by tricking the books.)

4. If you have multiple deposit items on a deposit, such as several checks, QBO will need you to manually match those deposits to the received payments. For example, if you receive large numbers of merchant deposits, QBO will enter those as income if you don’t match them. I will often just exclude the credit card deposits because if everything else is done properly, they’re already accounted for. If they match, even better.

5. If you have many transfers between bank accounts, there’s a high likelihood QBO will be so confused that these will not end up in the right place without intervention. Often these transactions will show up as an Other Asset, or an Uncategorized Expense, and if you have multiple accounts with transfers between them, you must verify the transactions before accepting it into your books.

6. And last of all, you can’t trust them. I know I said this before, but it’s such an important detail. Even with all the technology working in our favor, we need to verify. We need to reconcile. We need to look at what’s showing up, and we need to make sure it’s properly classified. Otherwise, we might as well be entering random numbers.



There’s a reason us accountants do the things we do, and it’s not because we like to fill our time with busywork. It’s because verifying and reconciling are the best methods we have to ensure that every transaction in our books is proper, classified correctly, and is placed where it belongs. It may seem time consuming, but it takes twice as long to fix past errors than it does to get them right the first time. More time = more money, and there’s much to be said for having accurate financials when you need them.

Clearing and Suspense Accounts

What are these? There can be a lot of confusion about how to use a clearing account, or why. A clearing account may be referred to as a suspense account, or an Ask Accountant account, or an Ask Client account. On your own books, you can call these accounts whatever you wish. There are really two different ideas around these terms:

A SUSPENSE account is often used as a temporary holding account for transactions, such as when we have a question about what a transaction is for, and therefore which account it should go in, or we need to talk to the client about it. (Or your bookkeeper, if you’re on the other side.) QB will often call these Uncategorized Income or Uncategorized Expense, or Ask My Accountant, depending on the QB version. At year end, this account should be at zero. Even better is to have this account zeroed out at every month-end close.

If I’m entering transactions for a client and have only check numbers and amounts from a bank statement, I’ll put these transactions into a suspense account until I can get the information on who the checks were written to. I’d rather have the amounts entered and be able to reconcile and fill in the blanks later. It’s faster, for me, than waiting for all the information.

A CLEARING account is used when we’re cleaning up accounts but due to the type of transactions, we need an account to run transactions through. For example, if you have barter transactions we would use the clearing account to post the income and expense transactions. A clearing account is also very useful to clear AR and AP transactions. Since QB does not allow multiple AR or AP accounts in one journal entry, using a clearing account to post to can be a lifesaver. It’s a valid work-around for some of the limitations we run into when using software.

The difference in the Suspense and Clearing accounts is that the suspense account transactions will be changed to their proper account, leaving no transactions in this account. In a clearing account, however, the transactions will remain in the account but the account balance will be zero at the end of the reporting period. QB uses Opening Balance Equity as a clearing account when setting up a new file.

Most of us who do this every day have our own methods for where we want to put these accounts in the chart of accounts, and what we call them. Some of us like to keep them as an expense or income account, and as long as the account is zero at the end of the reporting period, that’s fine. Others like to put them on the balance sheet, so they’re very obvious. These accounts should not be on the financial statements because they don’t tell us any useful information, except that there issues that need to be resolved.

What is the Cloud?

Follow my blog here

And what does it mean when your business is in the cloud?

We keep hearing about the cloud, as if it’s some sort of amorphous thing that’s hanging out there. I’ve heard people use the term who aren’t exactly sure what it means, but it sounds like something they should know about. Cloud computing encompasses a wide range of services, but I’ve enough to do with focusing on accounting programs, so I’ll stick to that.

If you do your accounting “in the cloud,” your data is somewhere off-site. Where off-site depends on what sort of cloud based solutions you’re using. There are two main categories for accounting:

Hosted solutions: With a hosted solution, you use the same accounting program you use now, except a hosting company keeps the file on its servers, and you access the program through the host. This means you can access your QB file from any computer, and you can share the data file with other users. One of the drawbacks to this method is that you must pay for the hosting, and for a QuickBooks license for each user. Hosting per user per month starts around $50 and up. However, it’s the same program you’re used to using, whether it’s QuickBooks or Peachtree or another software. It works just like your desktop version because it IS the desktop version.

What other drawbacks are there? A plus is that should your servers go down, or your computer system, your data is still safe with the host. But if the Internet goes down, you can’t access it.

Hosting is a good solution if you want the same functionality as you have with your desktop software, and if you have multiple users at multiple locations, or if you just want your data somewhere else.

If you have QuickBooks, you need to use a QuickBooks Authorized Host. There are several that are highly rated, and make sure you do your homework first.

A different solution to hosting a desktop program is moving to an online solution. QuickBooks has QuickBooks Online, which is not at all like working with QuickBooks desktop. The interface is different, and the apps that work with it are different. The marketplace is growing for online accounting solutions, and all providers are improving their software on an ongoing basis. The cost for several users can be less than one hosting license, depending on which program you select. QuickBooks Online has several versions, with the lowest cost one not much more than a check register. Other online accounting programs include Xero, Wave, Monchilla, Less Accounting, and Kashoo (which I’ve heard has been bought by Paychex). I haven’t yet found one that can do as much as QuickBooks Online, but I’m always looking.

An advantage to an online program is that you don’t have to worry about upgrades and keeping your software healthy – it’s all included in the monthly cost. You and multiple users have access from multiple locations, making collaboration easier.

A drawback is that, again, if the Internet goes down, you’re out of luck. There are times when people have not been able to login to QuickBooks Online, so it does happen. My experience has been that it happens infrequently. If you need to process payroll and you’ve waited until the last minute, you may have a problem.

Something else which may be either a drawback or a plus is that the online solutions will automatically download your bank and credit card transactions daily. This is a drawback if you’d rather enter them yourself, and a plus if you’d rather just classify the transactions that come in. Accounts still need to be reconciled monthly however, which I’ve found to be a common misperception. Don’t trust that just because it’s downloading that everything is correct – transactions are missed, things happen, and in accounting we like to reconcile everything to ensure nothing is missing.

Online accounting, whether hosted or an online solution, has benefits and disadvantages, like anything else. It works for me and many of my clients because we can work on the same file at the same time, which reduces my time and therefore their costs.



While QuickBooks desktop still has the most features, and I use it daily, the online solutions are making strides in improving their products. If it’s not right for you now, it may be later, or you may want to keep using your desktop solution. You have the freedom to choose what works best for you.

A Cloud Journey

First in a series about Cloud Accounting

CBS Website


I started my business in a haze of excitement and enthusiasm, unprepared but having no choice but to make it work. There was no cloud then, other than the type in the sky. Living in the Pacific Northwest, we had more than a few of those, and personally, I had a few dark clouds as well.

To take care of my clients, I traveled. I drove from one client to the next, often bringing back boxes of statements and receipts to my office, where I would attempt to put them in some kind of order and enter them into my QB Desktop software. Sometimes clients wanted me to work at their office, such as the weird guy out in the country who I eventually fired for inappropriate behavior. Sometimes clients wanted to stand over me and watch what I was doing instead of tending to their own business. After a series of increasingly responsible corporate jobs I found this both insulting and time consuming – I can work so much faster when I’m not being surveilled.

Sometimes clients wanted me in their office, in a separate room, where I would use generous amounts of Red Bull and chocolate to keep myself awake while I tried to figure out why the CPA changed my ending bank balances. (Has anyone else experienced this? CPA’s who change the bank amounts to coincide with their year-end ideas? And then never reversed their entries?)

Not only was this method of working annoying, it was time consuming. Clients weren’t always right around the corner from me, and since I was starting out and needed the money, I took every job that came along, whether it was a good fit or not. So I drove, a lot. I drove into downtown Seattle, where at least the client paid for my parking, and I drove down the 405 to Bellevue at rush hour, and I drove to Gold Bar, which is rather like driving from Earth to Mars.

Sometimes I would pull over to the side of the road and take a nap.

And then I started hearing about online applications that would do everything we could do with the desktop. A NetSuite rep met with me, and wanted me to promote their software. But I didn’t understand how it worked, and I didn’t have time to learn anything new, so I let it pass by.

I kept working like I had been.

Then I became accounting manager for a web-based accounting firm, and I found I never had to go anywhere. Eight hours a day, every day, I sat at my desk and directed activities, opened and closed numerous QB and Peachtree files we hosted, even a few programs I’d never heard of, and hoped never to again. My staff was spread out across the U.S., and so were our clients. We could be anywhere we were needed. Our clients were given scanners so they could easily upload documents, and I was sold.

It wasn’t perfect, partly because I was a manager and glued to my desk for the work day, but it was definitely an improvement. There was no traffic, no wasted time, no watching the cost of gas creep up until I wondered if it was worth it. There was just the work, available at all times.

And there’s one of the problems with working in the cloud: the work is always there, and, if you’re anything like me, sometimes you can’t resist logging in and doing it, even when I should be doing other things, things that would indicate I’m a well-rounded person, and not a workaholic.

I’m not a particularly well-rounded person, but neither am I a workaholic.



NEXT: What is the Cloud?

QB Tips - Don't Delete Users

There is a theory that if you CAN do something, there's no reason why you shouldn't. This is a bad theory, and sometimes can be harmful, especially when you're dealing with QuickBooks.

QuickBooks allows you to delete users. You have a user, you decide to fire said user, you go in to your QB file and it has an option to delete said user. So you select it.

Why wouldn't you?

You wouldn't because it's a bad idea. 

You can't delete accounts that have transactions in them, nor can you delete vendors or customers or employees with transactions. 

So why should you be able to delete a user? If the user has transactions, and you delete the user, those transactions will have missing links. When we have missing links, we're in an excellent position to end up with data corruption.

The best solution? Just don't do it. Change their password, and leave them there, with all the transaction history linked to that user. 

Intuit QuickBooks Mobile Changes

This just in: This will no longer be available on the web/browser, and will be an Android/iPhone app only.

More info here

Don't know why they do these things . . .

Why I don’t want to see Miscellaneous on your P&L

It’s not that I have anything against Miscellaneous. My life so far has been a collection of Miscellany. However, it’s not a tax deductible expense.

Look, I’ve seen a lot of tax returns. And nowhere on a tax return is there a line item for Miscellaneous. Or Uncategorized Expenses, the default QB account. It doesn’t exist because it doesn’t mean anything. As a friend of mine just said, “I’ve never gone into a store and bought miscellaneous.” (Thanks, Lori.)

Is the purchase supplies? Materials, office supplies, franchise fees, burritos for the overnight crew, cleaning supplies, fixtures, or what you have? Everything fits somewhere. If it doesn’t, is it really a business expense? And no, those tickets you bought to see Moby don’t count either, don’t think you can slip them under Miscellaneous and no one will notice.

This isn’t to say you can’t create new accounts for your expenses that don’t seem to fit anywhere. Of course you can – assuming they’re legit business expenses that you can support during an audit. But we want to be clear about what the expense is, and we want them to fit in a category that can help you see on your P&L how you’re doing at any given time, and sticking things in Miscellaneous doesn’t tell you a thing, does it? Except that your business incurred expenses for .  .  . well, who knows what for?  

You can’t run a business effectively with that sort of non-specific thing going on. At year end, I want to look at my P&L and see how much I spent on each category, and if I’m looking at Miscellaneous I’m still wondering, “What did I spend THAT on?” Then I’d have to go back and look. Rather defeats the purpose of doing the bookkeeping in the first place, doesn’t it?

In addition to having clean financials that mean something to you and whoever else has to look at them, there is no place for Miscellaneous on a tax return. This is even more important to you, since we really want to keep the IRS happy.

I recently met with an IRS auditor. You know, the official guys. We had a good time, telling tax jokes and sharing taxpayer stories. Of course, the tax return I handed him didn’t have Miscellaneous on it, or Uncategorized Expense, or anything that wasn’t specific. Since it was pretty clear, we went over franchise fees, just a quick calculation to see if the total could be easily arrived at from sales. And guess what! It was!

But I digress. If there had been a line item for Miscellaneous on there, I’m certain he would have asked for all the receipts. And this is because: Miscellaneous doesn’t mean anything. You might as well say, “yada, yada, yada,” for all the good it’ll do you.

Your bookkeeper’s job is to give you clean books from which clean tax returns can be prepared. If you don’t have a bookkeeper, that doesn’t mean the IRS doesn’t expect clean books just as they would from me.  Keep your books clean, your receipts in order, and your head above water. It takes just a little extra time, and is well worth the effort.

(About those pesky receipts, the kind you can’t see because they fade: Scan them, somehow. You can tape them to a sheet of paper and scan a full sheet. You can get a receipt scanner. You can use something like Concur Breeze, which allows you to scan your receipts when you get them, and it then uploads so you have easy access to categorize them and get them into QB. You can make a copy of them, if you’re into that sort of thing. But don’t count on a pile of faded receipts to keep you out of trouble if someone should come looking.)

Preparing for Year End: Things to Do

Now that it’s mid-December, have you reviewed your books to see what you need to do to be ready for 2012? There’s no better time to prepare, assuming you haven’t done so already. If you have, that would have been a good time to prepare. The sooner you get everything together, the happier you’ll be once January gets here.

                And it will get here, make no mistake.

                Have you reconciled all your accounts? I prefer to reconcile accounts monthly – it’s much easier to do each month as it passes by, but if you haven’t reconciled at all yet this year, it’s time to get started.

What accounts should you reconcile?

1.       Checking accounts

2.       Savings accounts

3.       Line of Credit Accounts

4.       Credit card accounts

These are the obvious ones, but also take a look at other balance sheet accounts. Do you have loans you’re paying on? Does your year end balance reconcile to the lender’s year end balance? If you have liabilities, including the dreaded payroll liabilities, are they accurate? Is your sales tax liability account accurate?

                Why do we reconcile? For one thing, if you don’t reconcile your checking accounts, you run the risk of missing income or expenses. If you’ve been recording all your vehicle payments against the loan account without accounting for interest, you’re missing out on the interest expense. Your payroll liabilities may have been paid but not recorded, missing another expense.

                Downloading your transactions from your bank doesn’t mean you’ve reconciled either. How do you know there aren’t any mistakes? If you don’t reconcile, how will you find duplicated transactions? Better to be assured your books are correct than to assume they are. Should you be selected for a random audit, the time to have cleaned everything up would have been when it happened, not when you’re panicked about what the IRS is going to find when they ask for your QuickBooks file, which they now do.

                Check your major purchases too. Did you buy anything during the year that should be listed as a Fixed Asset? Make sure it’s classified properly. Your tax preparer will need to know about any purchases during the year, including the date purchased and amount you paid.

                I’m not big on New Year’s resolutions, but resolving to reconcile your books monthly is a good resolution, any time you make it. It takes so much less time than trying to do it at year end, and that’s a good thing, right?

                 

Preparing for Year End: The 1099 Situation

I don’t know about you, but the end of the year always gets here before I’m ready for it. And whether we’re ready or not, it will be here anyway, so I try to prepare in December, if not sooner, so I at least have a chance at starting 2012 at an advantage.

1099’s are often overlooked until year end, but the sooner we prepare for them the easier they are to get done once January gets here.  The 2011 Schedule C (Profit or Loss from Business for sole proprietors) now has a line item asking: “Did you make any payments in 2011 that would require you to file Form 1099?” While it has always been a requirement to file 1099’s, now the question is being asked on your tax return, and if you answer Yes, the next question is: “Did you or will you file all required Forms 1099?”

If you answered yes to the first part the only answer that works here is Yes. Of course, that means you have to actually have done it, or will do it, or have me do it, or whatever works for you. Otherwise you’re just asking for trouble. There’s a penalty for each 1099 not filed, and last time I checked it was $50 per occurrence.  

Whether you’re a sole proprietor, a corporation, an LLC, or a partnership, you’re required to file 1099’s.

Amounts to Report

$600 or more, unless it’s for royalties, which is $10 or more.

Who gets a 1099?

The following are the biggest categories to be aware of:

• Nonemployee compensation (subcontractors), unless they’re incorporated
• Rental income (yes, you must send your landlord a 1099)
• Mileage, nonemployee
• Auto reimbursements, nonemployee
• Attorney fees and gross proceeds (any amount)
• Car expenses, nonemployee

There are more but those are the major ones that might apply to you.

When to Report

1099’s are due to the IRS by February 28^th, and to the recipients by January 31^st.

If you’ve paid someone more than $600 this year, you’ll want to make sure they’ve provided a W-9 to you, or have provided their EIN. If you’ve paid more than $600 and don’t have a W-9 yet, get it before the end of the year so you’re ready.

If they refuse to provide a W-9, give them no more payments. And in the future, don’t pay anyone without getting a W-9 first, just in case, even if you don’t anticipate paying them more than $600 in a year.

If you’ve made payments and are unable to get the EIN info from the payee, give me a call. I’ll tell you the best way to handle it.

Here’s a link to the W-9 form:  http://www.irs.gov/pub/irs-pdf/fw9.pdf

Meals and Entertainment

Isn’t it cool that we can take meals and entertainment as a business expense? I mean, it’s like getting paid to eat! Running your own business has so many tax advantages!

Alas, this isn’t really one of them. People often think it is, but that would be wishful thinking. There are times when meals are a deductible business expense. Perhaps you’re having lunch with a customer or a vendor or a partner, and you’re talking about business. Then you have a legitimate business expense. Save your receipts, and write the name of your dining companions on the receipt, and the purpose of the meeting. Enter the info into QuickBooks (assuming you’re like most of us and using QuickBooks). It helps to put the additional info into the memo section. Keep these receipts in a safe place where you can easily access them should someone suggest an audit.

That would be the IRS of course. No one else cares who you eat with.

And of course, the deduction on your taxes is 50% of the total, because the IRS assumes you’d be eating anyway. (And yes, tips are included in the total.)

What is not a legitimate business expense? On your way to a job site, for your convenience, being out of the office, not having access to your kitchen. The IRS doesn’t care if your business keeps you away from home, forcing you to eat elsewhere. The way they see it, you’ll eat anyway, whether you’re on the job or just cruising around looking for trouble. Why should that be a business expense?

They actually have a pretty valid point there. I’m not likely to jump on the IRS bandwagon for no good reason, but you can’t use your business to reduce your food costs. You have to eat anyway, don’t you? How does that make it a business expense? You say you wouldn’t have to dish out for food if you didn’t have to be away from home? The IRS says, “pack a lunch then.” You wouldn’t pay your grocery bills out of your business account would you? (Please say no, or we need to have a talk.) Same diff.

Keep your receipts for true business meals. Annotate them carefully. Keep them safe, just in case. If you want to be reimbursed for eating, look into mystery shopping.

And entertainment? What do you think?

Making JE's Accrual Instead of Cash

Are JE’s Cash or Accrual in QB?

(QuickBooks Tip of the Day)

They’re cash of course. But let’s say you’re creating journal entries to accrue payroll, but the client also likes to see a cash report as well as accrual. Your journal entry is going to show up on the cash report, which isn’t what we want to see, is it? It’s an accrual, after all, and we want it to show only for accrual reports. But there’s a workaround for this pesky little situation.

Let it be known -- I can’t take credit for this one. A friend of mine discovered this, and it’s such an amazing solution I had to steal it and share it. It took her several days of working with QB support for them to figure it out as well. I did warn her I would be doing so, which makes my theft okay. Besides, it’s for the public good.

Here’s the key: “Whether a JE appears on a cash report is driven by the AP/AR accounts.”

So . . . if there is no AP or AR in your JE, do this: enter the first line with AP or AR with a zero amount.

And that’s it. The account doesn’t have to be for anything at all, just listed as the first account on the JE, and that will solve the problem for the reports.

It’s a simple solution to a common problem that I, for one, never would have thought of. Like most QB issues, there is a solution, if only we can find out what it is.

Do You Specialize?

Do you specialize, or do you try to do everything?

I recently stopped at an In and Out, a burger place that’s been going strong for quite a few years. Since they first started, their business model hasn’t changed: hamburgers, fries, shakes and soft drinks. While other burger places are coming out with a new sandwich of the week, places like In and Out, Five Guys Burgers and Fries, and Dick’s in Seattle stay true to the original plan: the basics. They’re all successful, and growing, without making changes to the menu. They’re expanding, and they have legions of devoted fans.

What do you do in your business? Do you try to do anything and everything that comes your way, or do you stick with what you do best, and market that aspect of your business?

Look at burger places again. Does In and Out and Five Guys do print advertising, television, radio? They don’t need to. They have their reviews to speak for them, and since they don’t have a new product of the week to promote, they don’t have to. Instead, they make the best of what they have, and they stick to that formula.

Are you building a name for yourself with what you do, and working on bringing that brand to the market?

The more things you try to do, the less time you have to get known for any one thing, and the more you find yourself working in directions that won’t benefit you in the long term. It’s difficult to specialize in one thing and get really good at it while trying to do everything else at the same time. The things you’re not as good at will siphon your energy, and your marketing message will get cluttered.

Unless you’re an organization big enough to encompass many different areas, you’ll have a harder time convincing people of your mastery in any one area. But if you devote your time and marketing to one aspect only, not only will you improve at that one thing, but you’ll become known for specializing in that one thing.

I see this same mistake with many beginning business owners. I’m guilty of it myself. At the beginning we do whatever it is we need to do to get business, and if it’s in an area we’d rather not do we push those feelings aside and we take on the work anyway. We tell ourselves it’s just short term, just while we get started, and that we can change later. But then what happens? We get more people calling for the thing we don’t specialize in because our name is out there, and much of our work is referred from earlier clients. So we’re expected to keep doing that one thing, and we don’t know how to turn down work.

If you’re anything like me, you don’t turn away work. You keep taking it on because we love the ideas of 1) getting work, 2) people paying us for work, 3) paying the rent.

What do we do then? How do we return to specializing in the one or two areas we’re really good at, and move on from there so we can focus on that? How do we get known for the few things on our menu instead of being expected to have a little bit of everything?

I’m not entirely sure yet, since I’m still finding my own way, but one way is to do your professional education in that area, get any certifications you can, and let your clients know that you specialize in whatever it is, and ask them for referrals. Chase down the possibilities in your area of interest, and don’t chase every stray opportunity that flies by. Talk up your area of expertise. Blog about your area of expertise. Join LinkedIn groups in your narrowed focus of expertise. If there isn’t one, start one.

Most importantly, tell everyone, people you know and people you don’t, what you specialize in, and that you’re looking to add clients to that area of your practice.

Instead of being a jack-of-all-trades and master of none, try being an expert in the areas you choose, and build your brand in that area. Save your energy for what matters to you, and build the work life you want, not the one you fell into. It may take time, but what else have you got to do?

Starting Your Own Business?

Want to know how to eliminate the possibility of making mistakes? Want a foolproof method for ensuring you start off making lots of money with no obstacles in the way?

Good luck with that. One thing you can be sure of, when starting your own business, is that mistakes will be made. Opportunities missed. You’ll find yourself working longer hours than you’d planned, you’ll find that your business model needs to be revamped, you’ll find that what works for someone else doesn’t work for you, and you’ll find that if it were that easy, everyone would do it.

Worried about charging too much/not enough? Don’t worry. You will. You’ll find yourself eating some costs or spending too much time on a fixed rate job, and, if you’re lucky, you’ll find a job you quoted easier than you thought, and you’ll come out ahead. Admittedly, that’s a bit more unlikely, but it could happen.

There are guidelines you can follow, and you can solicit advice from a multitude of people, some of whom may have no idea what you’re doing, or trying to do, and others who do, and some of it will work, and some of it won’t, and you may not know the difference until you try it out and see for yourself.

The only one who can tell you what will definitively work and what will not work for your business is you. For example, some people swear by cold calling. Many don’t. How should this affect you? Should you try it and see? Or do you know you don’t want to go with that method of marketing? There’s no wrong decision because it’s your decision alone.

“But how do I know what will work and what won’t before I’ve even started!” you wail, and I tell you this because it’s the truth: You don’t. You don’t know until you do it, and then you find out, and then you know what to do next time, or what not to do.

There are some things that are a given. Don’t run an expensive yellow pages ad if you’re running a web-based business. Do as much free marketing as possible. Meet as many people as possible. But givens are another topic, aren’t they?

The method I used to start my business was this: Plan out what I can, start by throwing myself into it, and then see what happens. The fun of having your own business is being able to change directions, to back up, slow down, or speed up, and there’s no one to tell you not to. (There will be people who will be happy to tell you, but it isn’t their business, it’s your decision alone.) You get to decide. You get to make your own hours, and who hasn’t heard that making your own hours means you get to work as many weekends as you like? It’s true. You’ll probably work more hours than you’d planned.

Small businesses can react quickly to market forces. We don’t have to submit ideas to someone else and have them forgotten. We get to do it ourselves. Of course, that means there’s a level of responsibility that we wouldn’t have with a job. It’s up to us to get it done, and that may be an inconvenience, and it’s up to us to make the decisions, and they could be bad decisions, and then there’s no one to blame but ourselves.

But that’s how it works. Greater rewards, greater risk. If you don’t want risk, you should get a job, though these days that’s also a risk, isn’t it? But it’s stable. And if you want a raise, you better be prepared to ask someone for one.

It’s up to you. Your decisions. Your profit, or your loss, but it’s more than money. It’s how you want to live your life, and there is no right or wrong way, there’s only what you decide to do with it, and how you react to what you find out as you go.

Which is sort of like life, isn’t it?

Are You Self-Employable?

There are those of us who have discovered, through much trial and error, that we are not employable. I do not deal with authority well, even after military training. I like to set my own hours. I’m independent to the point of annoyance when I have been employed. (Annoying to those I work for, not myself.) I like having the final say, and being responsible for what happens. All of this added together has meant that despite several efforts to be employed, I have never been as happy as when I’ve been self-employed, and that includes periods of starting out when the possibility of making ends meet has been unknown.

Stable employment, just like self-employment, comes with a price, and it’s a price I’m not comfortable with. And in today’s economic climate, what can we count on anyway? So self-employment works well for me, and I couldn’t imagine going back to an employed status ever.

But what does it take to be self-employable? It’s not the same as being employed, and one of the things that it requires is an independent spirit. I’ve watched many people undertake the rigors of opening their own business, and mostly they succeed. Sometimes they don’t, but that doesn’t mean they give up and go back to looking for a job – instead, they find something else they can do. As a lifestyle, self-employment is hard to beat. You can make all the money you want, without having to ask for raises. You can manage your own schedule, which often means working far more overtime than you could possibly afford to pay yourself. It means knowing how to do a wide variety of things, and how to find out how to do things that you don’t know how to do. It calls for knowing yourself, and what you’re capable of, and interested in, and where you want to go.

It requires the ability to leap into the unknown without knowing if there’s a net to catch you if you fall. Perhaps, if you’re lucky, you have a parachute to slow your descent, but the safety of the parachute might keep you from taking the risks that you need to take.

One of the sticking points for those wanting to be self-employed is knowing how to find your own answers to the burning questions that pop up on a daily basis, and this is because there is no one-size-fits-all approach. There are books that tell you how to get started, and blogs that tell you how to market and sell, and lists of potential clients, and courses with knowledge to gain, but how you combine the resources available is up to you. No one else can tell you how to fit together the pieces to work for you, and no one else can tell you what you need to do.

The ability to make your own decisions is essential, and part of making your own decisions is deciding what you need. Your new job description is no longer being written by someone who doesn’t know you. You need to write your job description, even if only metaphorically, and you get to decide what to put in, and what to take out.

If you’re looking to freelance because a “real” job is hard to come by, you’ll need to shift your outlook in order to be successful, or keep sending out that resume. Until you believe that this course of action is a real job (and believe me, it’s real enough), you won’t put all of yourself into it, and until you do that, you’ll be treading water.

Enough with the metaphors. Set your own goals. Do your own homework. Mix and match the available resources. Find your own answers. Search within yourself for what it is you want, and set out for it.

Then write your own ending.

This is all about you.

Where Are You Getting Your Answers?

Where do you get your information? Is it from an anonymous source on the Internet? Is it from someone you know? Is it from your great aunt in Poughkeepsie who once worked for a company similar to yours and is not hesitant about telling you the correct way to do things? 

I can't do much about your great aunt.  You can listen to her if you want, and you might, especially if you’re in the will, but be careful about the information you receive online. Just because it's online doesn't make it so and just because someone somewhere took the time to answer your question doesn't mean they even answered the right question. 

Today, while answering questions on the (Vendor's Name Withheld) boards, I corrected several incorrect responses to questions. How do I know they were incorrect? Well, they just were. But did the people asking the questions know this? Probably not, or they wouldn't have been asking the question in the first place. 

(Vendor Name Withheld) likes people to think they can just pick up the software and get to work on it and not bother consulting anyone who's proficient with not only the software, but also with accounting. Then, the people who have purchased the software with this understanding try using it and they get stuck. Since they're still under the illusion that this software sets itself up and then does everything for you and there's no need to consult a professional, they go to the (Vendor Name Withheld) forum and post questions. Sometimes the questions are too complex to be answered quickly or the questions themselves don't make sense, and the answers - even if they're right - make even less sense to the questioners. It's chaos, with some people getting the correct and proper responses and other people getting the wrong responses or none at all. Or multiple varying responses, some of which don't even address the question asked. 

“But’” they cry out in exasperation, "I paid a lot of money for this! It should just work!"

Yes, and while I'm sure it was a lot of money for you, it's not really all that much, it's an out-of-the-box solution that doesn't do everything one might wish (I'm still trying to get mine to structure my days a little better) and besides, there's a reason some of us went to school and worked in this field for years. It's not just numbers. Don't I wish. 

And yes, life is not fair, but we'll cover that another time. 

Here's the thing.  Sometimes, when you're running a business, you're going to have to do things you don't want to do.  Pay a ProAdvisor to get it right.  Hire an attorney to keep you out of hot water.  Find a marketing consultant to figure out what you could be doing to increase your visibility.  Get an accountant to do your taxes.  All of these things can be painful because they're expenses, and none of us likes expenses. (If some of the questions are an indication, not all of us even understand what an expense is.)

But how much time are you spending trying to figure out software when you don't know a debit from a credit?  How valuable is your time?  And, if you're getting free answers online, are they correct?  Or is it a shot in the dark?

How much of that time should you be spending growing your business instead of trying to figure out how to make something “work”?  I won't say it's a pet peeve of mine because I picture a peeve as some sort of small animal and I don't need another pet, but your business needs you to make the best use of your time.  It's okay not to know how to do everything yourself.  It's okay to make sure the answers you get are good answers. 

The software does, in fact, work quite well. But it’s a tool and, like all tools, works better in the hands of someone who knows what to do with it. I can go out and buy a hammer, but that doesn’t make me a carpenter. It just makes me more likely to need a doctor when I try using said hammer without help. Hiring a carpenter would be cheaper in the long run.

Setting Your Hourly Rate

This is a subject that’s sure to come up when you started your business, and it’s not one-size-fits-all. Nothing really is, after all, is it? For a service business, setting the right rate is vital, even if it isn’t always easy.

There’s a trick to pricing your services, and that is, it needs to be a price you’re a) happy with, b) that you can earn a living with, and c) one that your customers will pay. If you’re not happy with it, you’ll begrudge your customers the time you give them. If you can’t earn a living with it, what use is it? You might as well give away your services. And if your clients won’t pay it, you’re right back to not being able to earn a living.

Rates will vary based on geographical region, services, ego, experience, qualifications, your clients/customers, and a host of other factors. You may have been told to find out what others charge for the same service. This may work, and it may not. Many of us don’t give out our rates when someone we don’t know calls – you may have also been told not to do that yourself, to talk to the client about what they need before you start discussing rates so you don’t scare them off right away.

A bit of a Catch-22 there.

Also, you really can’t base your rates on what someone else charges. Some time ago, after I’d moved to a new area, I met someone who was doing the same work I was. We had lunch and talked about our rates. Hers were twenty an hour less than mine, and she told me I’d have to reduce my rates in order to get any work in this area. I thanked her for the advice and left my rates right where they were. I wouldn’t have been happy with a lower rate, and I know the value of my work.

Since then, many others have said my rates are just fine, among them CPA’s and clients.

One thing to keep in mind is that there will always be someone cheaper than you. But is this your competition? Only you can decide that. There will also be people charging more. What matters is what you need to earn for your business to be successful.

You may look at salary guides, but that doesn’t tell you what rate to charge. What it does tell you is what the going rate is for that position, if you were an employee. You’re not. You can’t build a business on employee wages. You have to pay your own taxes, provide your own equipment and office space, and you have to provide your own benefits. Of course, there are advantages to businesses to go with an independent contractor instead, which you may need to point out to them. The clients don’t always come to us pre-educated.

A good way to get a starting point for your rate is to think about what you need your annual income to be, net of taxes and expenses. Then add taxes and expenses. This is the part a lot of new business owners neglect to do. That’s the minimum you need to make, right?

Look at how many billable hours you can expect in a week. If you want to work a 40 hour week, you won’t have 40 billable hours. This is a business now, and someone has to do all the work that goes into running a business too.

So how much do you need to make an hour?

Look at your qualifications and experience. Do you think you’re worth that hourly rate? If not, you need to work on your ego (or, to be politically correct, self-esteem), or find out how to be worth it. If you’re think you should make more, charge more. Don’t worry about losing clients over it – the price shoppers will always be less concerned about service and more concerned about financial cost. They’ll spend so much time searching for the cheapest option that their businesses will flounder. And do you want to spend time on a business like that? (There is also truth to the rumor that you get what you pay for.)

Setting your hourly rate is a lot less about what other people are charging than it is about you getting what you need and want to be successful. If you’re good and can give clients the service they crave, you’ll do fine, no matter what your rate is.

1099 Season

It’s that time of year again, when questions about 1099’s fly through the air like sparks before an electrical storm. Who sends them? Who receives them? Why? When? How? Here’s a few basics, just to get started with, dealing ONLY with the 1099-MISC:

1099’s are issued by your business to anyone who provides services to you for $600 or more during a calendar year. Unless the provider of services is incorporated. Then you can skip the 1099.

How do you know if they’re incorporated? Prior to paying anyone for services, you should hand them a W-9, or mail it, or email it. The provider of services completes the W-9, and on it they can indicate if they’re a corporation and therefore not subject to receiving a 1099. The W-9 also gives you the all-important tax ID number, without which you cannot file a 1099. This is why we ask for a completed W-9 prior to payment, and, hopefully, prior to receiving services, to avoid the sort of skirmishes wherein one party asks for the information in order to comply with the IRS regulations and the second party refuses to provide it, and they’ve already received their payment. (See below for what to do in that case.)

There are exceptions, of course, this being a federal tax law sort of thing. Lawyers are to receive a 1099 if you pay them anything at all. You can often find their tax ID on their letterhead, in which case, no need for a W-9.

What if materials are included in what you paid to the service provider? You can break those out, by completing the 1099 for only what the service was. However, you’re not required to – if you have all costs posted to the same account in your accounting software and aren’t sure which are materials and which are services, send a 1099 for the entire amount. It’s the provider’s responsibility to deal with that on their own tax return, and it’s rather easily done.

Cash or accrual? CASH. You 1099 someone for the amount you physically paid them during the year. If they billed you another 100 grand but at year end it’s still on your books as a payable, it doesn’t count. That’ll be for next year.

Rents? If you’re paying rents, you’re also required to include rents paid on a 1099. There’s a separate block for rent paid.

When: 1099’s are due out by January 31^st, so the sooner the better. The filing for the feds comes later, but you must have the 1099’s out to the recipients by January 31^st.

How: There are so many options for how that I’m not sure we can cover them all at once. You can print them from your accounting software. You can order free forms from the IRS, and print them on those, though if you haven’t ordered your free forms by now, you won’t have time. You can buy forms at the office supply store. You can file online with various providers who will mail the forms for you and efile with the feds. This is my favorite, especially if a company only has 1 or 2 1099’s. I use filetaxes.com, but there are other options.

Red forms or not? IRS regs require that the 1099 and the 1096, which is the summary that goes to the IRS with their copies, be printed on their red forms. This is why the forms purchased at the office supply store come with red copies. However, I know people who’ve been printing them on plain paper with black ink straight out of their software for years, with no problems and no complaints from the IRS. Yet another reason why online filing is so great – there’s no need to worry about it.

Why? It’s the IRS. You want I should have an answer for what they do? But the short version is, the IRS wants to be able to check to see if someone’s reported all their income, and one way they do that is by checking 1099’s against the person’s tax return. So in completing 1099’s, you’re helping the government collect on taxes! That should give you a warm fuzzy feeling about doing it. There IS a penalty for not doing them by the way, should they happen to find out you didn’t do it.

Another warning on 1099’s: This year I’ve seen an increase in the number of business owners who refer to service providers as “1099 employees.” There is no such thing. You either have employees, or you have subcontractors. Do not confuse the two. Just saying someone’s a subcontractor so you don’t have to pay payroll taxes doesn’t work either. There are guidelines to follow, and if the IRS finds out you’ve misclassified an employee as a subcontractor, the penalties will be steep – not to mention the back payroll taxes. Not to mention your state – if they catch wind of it, back payroll taxes and penalties will mount up quickly. All it takes is one dissatisfied “1099 employee” to bring up the issue, so please don’t do it.

There’s so much more to 1099’s than I can cover here, so if you have questions about 1099’s, ask one of us who knows. We’re awash in 1099’s and W-2’s right now, and we’re not unfamiliar with the process!

New Mileage Rates, and More!

In keeping with the IRS mission to confuse as many taxpayers as possible at any given time (sure, they don't tell you this is what it is, but we know the truth), here's a few changes for 2010 you may want to know about:

* Mileage rates. Effective January 1, 2010, the standard mileage rate for business driving is 50 cents a mile, down from the 2009 rate of 55 cents a mile. Taxpayers who drive for medical services or in a job-related move may use a mileage rate of 16.5 cents a mile. That's down from the 2009 rate of 24 cents a mile. The mileage rate for charitable driving is not adjusted annually and remains at 14 cents a mile.

* Health savings accounts. The 2010 limit for deductible contributions to a health savings account (HSA) is set at $3,050 for individuals and $6,150 for family coverage. Individuals who are 55 or older may contribute an additional $1,000.

* The interest rates on tax overpayments and underpayments for the first quarter of 2010 remain the same as they were for the fourth quarter of 2009. The rates are 4% for overpayments and underpayments by individuals. Corporations will pay 4% on underpayments and receive 3% on overpayments. On large corporate underpayments, the interest rate is 6%; the rate paid on large corporate overpayments is 1.5%.

More updates will follow. It's an always changing world out there.

Happy 2010!

What Happens When You’re Gone?

Succession planning has typically been the bastion of the big guys, the corporations who ensure that key positions are filled in so the company can keep moving forward, no matter what happens.

That’s all good and well for them, but for those of us who don’t have the wherewithal to have legions of replacements standing at the ready, what do we do? Obviously we intend to have nothing happen to us, but get this: things happen. Unplanned, unprovoked, unwarranted, and unwanted things. You could be run over by a truck, just when you thought life was going along swimmingly well. You could be kidnapped and held for ransom by robber barons who care little what happens to your company in your absence. You could step into a shower one day, slip and hit your head, and be dead within the week. (This happened to someone I knew. Not something one can plan for, is it?)

I don’t mean to be morbid, but here’s the thing: things can happen that we never expected. It’s what makes life so interesting, the possibility that every day wondrous things can happen, but so can horrible things, things that we never anticipated. These things can remove us permanently from our business, or they can remove us only temporarily, or they can fall into the great unknown category: will we return to work? Only time will tell.

And what happens to your business then? Perhaps you don’t care. After all, you won’t be around, so what does it matter? How do your customers and clients feel about that? One of the reasons people go to big companies is to ensure they’re taken care of, even if something should happen to the person handling their account. How can you give your customers the same level of comfort?

If you work with others in your business, either partners or employees, is there enough information so the loss of one of you doesn’t mean the customers will be neglected? Are procedures in writing and does everyone know where they are? If it’s just you running your business, what will happen if you disappear one day?

It’s one thing to plan what will happen to your business if something happens to you. If you’re a sole prop, you are your business, so the business will come to an end. But what about your customers and clients? How will they feel about it? Oh sure, they’ll be sad, of course, but what about THEM? They’re going to wonder what’s going to happen to them, which is a natural response. And what will happen to them? These are the things you should be thinking about now, and the beginning of a new year is a good time to do it.

Some of my colleagues who have their own businesses have reciprocal arrangements. If something happens to me, my husband knows who to contact to take over my client work. I have information on all my clients in a file, or will, as soon as I finish updating it. Here’s the thing: this is not a one-time all-done-never-have-to-think-about-it-again sort of thing. It’s an ongoing process, keeping in mind how you’d like your vendors to take care of you, should anything happen to THEM. Do no less for your own customers, and you’ll rest a lot easier in that hospital bed, which will mean you’ll be able to return to work faster and get back to living your life. If you’ve planned to take care of your customers when you can’t do it yourself, they’ll still be there, waiting for you.

QuickBooks 2010 has been released!

QuickBooks 2010 is on its way, and previews promise some exciting new changes. I'm looking forward to receiving my copy any day now, and the anticipation is overwhelming! (Some of us are more easily amused than others.)

New Features in 2010
One that I'm looking forward to is the Client Data Review, which will allow me to easily identify errors and make mass corrections. This is only in the Accountant's version, but it will also allow me to fix and send back files from QB Pro and Premier 2009 to clients easily. This is huge, since I'll be able to fix things from 2009 and send it back to you using the Accountant's Copy. No upgrading necessary from 2009!

A totally new feature in 2010 for Pro, Premier, and Enterprise is the Document Management system which will store documents in the Internet cloud. Know how you collect all those pesky receipts and documents that have to be filed? With 2010, we can scan the documents directly into QB, and attach them to transactions, accounts, vendors, employees, and customers. This keeps your documents as well as your QB file backed up, and will simplify collecting and matching documents to specific transactions.

A TWAIN compliant scanner is required for this, so if you're thinking of getting a new scanner, you'll want to make sure it's TWAIN.

Also in Pro, Premier, and Enterprise will be the ability to copy and paste lists from Excel directly into QB lists. And instead of editing each list entry individually, we'll be able to copy the changes to many.

Do You Need to Upgrade?

I'm often asked if upgrading is necessary, and the answer is certainly not. Depending on the features you use, upgrading is entirely optional. QuickBooks does support only the previous three versions, so this year 2006 was sunsetted, which means payroll subscriptions no longer work, as well as online banking. If, however, you're not using those and want to continue with an older version, go right ahead. I would advise that you make regular backups after every use and keep them in a secure location because if there is a problem, there's nothing Intuit support can do to help you. Next year 2007 will be sunsetted, so if you have a payroll subscription or use online banking, you'll want to upgrade.

However, there are always good deals to be found on the current software, especially if you don't have to run out and buy it on a moment's notice. If you'd like to be notified of these sales, let me know and I'll add you to my email list that I send out when I become aware of them. Sometimes they only last a day.