Business is about numbers. That’s the bottom line (pun intended). If you are using QuickBooks in your business, here are four simple strategies to optimize your software for maximum benefits and profitability.
1. Learn the basics about how QB operates
It’s important to understand the basic functions of QuickBooks including your chart of accounts, items and services, income tracking, sales tax reporting, expenses and cost of goods purchases, and inventory. Many times the problems in a company’s bookkeeping stems from not understanding the proper method of recording transactions in QuickBooks. If you are the one entering the data into QuickBooks, it’s critical to understand the proper way of recording each transaction.
Did you know, for example, that purchases you make on a debit card are entered in the Write Check window, but purchases you make with a credit card need to be entered in the Enter Credit Card Charges window – unless you use the Enter Bills/Pay Bills system or the Purchase Order/Items Receipt/Pay Bills method.
One of the biggest problems I run across with small businesses that sell taxable items, is not setting up Sales Tax Groups (if needed) properly and not using the Sales Tax manager under the Vendor window to pay their sales tax.
Learn each of the basic functions in QuickBooks.
2. Enter transactions daily
I constantly remind clients that if they are doing business on a daily basis, they should be entering transactions on a daily basis. It is far easier to set aside a small amount of time daily than to dread the future prospect of getting caught up at month end or year end. I suggest trying an online bookkeeping service or hiring a part-time person to enter transactions – just make sure they are familiar with and understand QuickBooks.
3. Reconcile all financial accounts monthly
Reconciling all your financial accounts (checking, savings, payroll, PayPal, merchant accounts) on a monthly basis will give you a better understanding of where you are, catch errors while they are still current and make year end tax preparation go much smoother.
4. Learn to read financial statements
You will make wiser business decisions by understanding what your Profit & Loss statement and Balance Sheet is telling you each month.
A Profit & Loss statement (P&L), also called an income statement, tells you if you are making money from the products or services you are selling. Here is a very basic explanation of a typical P&L statement. You can change the numbers on your P&L by: increasing sales (more raw leads, more conversions, etc); decreasing the cost of making your product (negotiating raw material or production costs, adjusting labor rates…); or cutting back on what your company spends (helps to have a budget for each expense category).
A Balance Sheet, on the other hand, is a snapshot, as of the time you review it, of what your company “owns” (assets), what your company “owes” (liabilities) and the owner’s equity stake in the company (could be single owner, partner, or shareholder). If you add up all the assets and subtract all the liabilities, it equals the owner’s equity. The equity section of a balance sheet show what the owner or owners invested in the company and any remaining profits the company owes the owners (this is an extremely simplified explanation).
The balance sheet can indicate the health of the company. An “upside down” company is one that owes more than it owns. So, if your liabilities are more than your assets, you definitely want to formulate a plan for paying down bills and loans, collecting money from your customers quicker, or building up cash.
There are other reports that should be run every month such as A/R (Accounts Receivable) Aging, A/P (Accounts Payable) Aging, and Statement of Cash Flow, but if you can learn to use the main two financial statements – the P&L and Balance Sheet – you’ll be on your way to optimizing QuickBooks and maximizing your profits.