Bad Risks Cause Wasted Costs

An Area Collision Shop Owners Almost Never Think About 

Of course, it will never happen to you ... right ? But those that it has, know how much costs in money, time, and frustrations it caused ... and they were not prepared when it happened.

What am I referring to ? I am talking about when your computer system crashes, you accidentally deleted an important file, you get the "Ransomware Virus", or someone sabotages your data. These things happen regularly, and when they do, it can be devastating and sometimes not recoverable.

This small area of your business, can essentially bring it down or minimally causing you losses you simply should never be exposed to. However, most collision shop owners never think about the consequences until it happens.

There are hundreds of solutions for this possible catastrophe, but where to start ?

The Old Way Never Worked
In the past we intended to use Tape Backup Systems, thumb drive transfers, and other hardware options that often were not kept up diligently. At the time of need ... no current backup was available.

This system relied on one to perform as scheduled, and most importantly take the backup media off site after every backup, so just in case of a fire or theft of your system, your data was safe.

Let's face it ... who is diligent enough to do this as scheduled every day ? No one!

Cheap is Not the Best Option
If you Google, Backup Options, there are hundreds of options and companies that provide a wide range of products and services.

There are systems that use "appliances" that act like the tape backup units backing up the data almost at real time, and then transferring it to online storage area. These systems are usually very expensive and are designed for much larger data processing companies rather than the typical collision repair shops worldwide.

In recent years companies like Google and even Microsoft have created Online storage space programs such as Google Drive and One Drive.

Unfortunately these systems are "real time transfer programs" that are known to slow your whole system down due to the bandwidth they require along with the processing load.

Then there are the low cost providers of online storage space that take very long to sync every evening. Many of these can act like the "real time" models with the same issues with slowing down your systems. They also can be configured to operate at night as well. However, you are on your own when there is a loss and you need recovery assistance.

What we have found to be the best approach is to provide a solution that not only backups up very efficiently every evening, but also includes the service to restore your data when you need it.

Critical Backup Solutions
Several years ago, we found that our clients were taking risks for loss of their critical data that just should not be happening. We also found that when they did have a loss, they often did not have any idea how to restore their backup data, or where to begin.

Our solution incorporates not only a software solution, but a monitoring process as well as a restoration team even if it just an accidentally deleted file.

We:

  • Centralize your critical data to be backed up every evening
  • Monitor the backups every day and send you messages of their completion
  • If needed we assist in the restoration of a single file (7 versions saved) to a complete system loss restoration.
  • Automated and very quick backups in evening.

Don't Make the Mistake that Costs

The risk of important documents, images, accounting data, program settings, and a host of other key files being lost, corrupted, or accidentally deleted is not worth it.

Check out the options by clicking below:

In Review:

  • There are hundreds of products out there ... but not services that monitor and assist in recovery
  • Real time systems slow your system excessively
  • Centralize data to allow backups to be efficient
  • The risk of loss is far greater than the cost

S-Corp Officer Medical Insurance

One of the Most Common QuickBooks Payroll Mistakes

Many Collision Repair Companies are structured as a S-Corp (Sub S Corporation) for at least tax purposes. 

Even if your company is a LLC (Limited Liability Company) you still need to determine how you will be filing taxes. This would be either as a Sole Proprietorship, Partnership, or either a Regular Corporation, or Sub-S Corporation. 

There are major advantages to S-Corps, but this is not the focus of this post. This post is designed for those that are S-Corps and the company pays for or at least contributes to the costs for medical/dental/vision insurance and/or life insurance for officers that own at least 2% of the stock.

This scenario requires some special setup of the payroll so that these benefits are properly reported on the Officer's W-2 at the end of the year.

QuickBooks Payroll can handle this automatically in the background if it is set up properly. What is unfortunate is that many CPAs and Accountants are not only able to set this up, but many are not even aware of this requirement.

 

Setting Up QuickBooks Payroll

If you use QuickBooks Enhanced Payroll setting this up properly is pretty straight forward once you are shown how.

Step 1: Payroll Items Are Key to the Success 

  • Setup Payroll Item - S-Corp 2% Medical Contribution
    - Add New > Company Contribution
    - Do not use E-Z Method

Step 2: Vendor and GL Account Setup

  • Enter the Vendor you pay the premium to as well as your account number for the vendor
  • Select the Current Liability Account and Expense Account from the Drop Down Menu
    - Payroll Liability Account can be the same account as for any other medical insurance contribution made by the company 
      for any employees.
    - Expense Account would be Officers Benefits - Medical Insurance

Step 3: Select the Proper Tax Tracking Type

This is a critical step often not completed correctly...

  • The Tax Tracking Default will be "None". This must be changed to "SCorp Pd Med Premium"
    - This will begin to track this cost properly, otherwise it will not.

Step 4: Taxes Affected

  • QuickBooks will automatically select what is normally affected.
    - If you are sure that the amount of Federal and State Taxes will be sufficient for the year without extra deductions, you can
      deselect the Federal and state taxes checked.
    - You should either contact us to discuss this deselection.

Step 5: Calculated Based on Quantity

  • Select "Neither"
    - This is not applicable for this Payroll Item

Step 6: Default Rate and Limit

This is the second most critical input for allowing this Payroll Item to work properly.

  • In this example the monthly premium paid by the company for this officer's insurance is $865.00
    - This company payroll is "weekly"
  • Divide the monthly premium by 4 ... equals $216.25
    - If the amount does not divide evenly adjust the amount by +$.01 ...
  • Enter in the Total Premium for the month in the next box.
    - This allocates $216.25 each of the first four weeks monthly, and nothing the fifth week becasue it has reached the limit.
    - This is why you round the weekly payment up by .01 so the fourth week will correctly adjust to the limit.
  • Make sure to select "Monthly - Restart Monthly"
    - This will then allow a monthly limit to begin again.
  • Select "Finish"

Final Step: Set up Officer's Payroll Information in each record

  • Go to each Officer (Must Own at least 2% Stock)
    - On Payroll Info Tab - Make sure item is listed in the right section, and the amount and limit are listed properly.

That is it !

In Review:

  • The Key Points to This Process Are:
  • Set up the Payroll Item Properly
  • Add the Item to All Officers that own at least 2% stock and the company is paying at least partially their medical/dental/vision insurance.

I hope this explained a more streamlined process to follow tracking this for S-Corps.

Handling Short Pays & Sales Tax Credits

Another Important Process to Follow That Most Do Incorrectly

In the Collision Industry there seems to always be times where the amount expected to be paid is shorted by scores of reasons. For this reason shops with management systems have often "held" Repair Orders open waiting for the final confirmation of what the actual payment will be. This is simply not the correct practice or procedure to handle these situations.

There are basic rules that are necessary to allow for timely and accurate information during the month close. If these rules are not followed, it delays the ability to achieve the goal of the final financial statements being made available by the 5th of the following month. It is important to understand that the later in the following month the final financial statements are produced, the less valuable they are to the business. Accounting statements are always "history", they need not be ancient history.

Rule 1:

Repair Orders should be closed when the customer leaves the parking lot with their vehicle. - The repair order should be closed with the amount you expect to be paid

Rule 2:

If the amount you are paid differs from what it was closed for, do not change it in either the management system or your accounting system.

Rule 3:

The management system sales report and the accounting system sales report should match at the end of each month.

Both the management system and your accounting system require some setup to be able to follow these procedures. However, this process will require much less time than changing the repair orders to match what has been "Short Paid. In addition, if the repair order is just left open or changed after it has been exported, you will never be able to actually track and determine how often or how much this may be costing your business.

Management System Setup

Additional Payment Types must be added to the management system to indicate the type of Short Pay the transaction represents. The typical additional Payment Types are: Short Pay, Customer Goodwill, Warranty, Coupon, Gift Certificates, Collections, Discount, Contra/Barter, Refunds/Rebates. However, this can vary based on your needs.

Depending on the management system, how the payment type is identified, not as a payment but an adjustment can streamline this process even further. For this document, we are assuming that the new payment type will be a payment and not an adjustment entry. If the management system allows for adjustment entries several of the following steps will be eliminated.

Step 1: Receive the deficit balance in the management system with the appropriate payment type.

  • In this document we are using "Short Pay".
  • Other types will have different distribution accounts used in the accounting system.
  • Send this into the accounting system.

We will be using QuickBooks in this document for this process, but the process is basically the same regardless of the accounting system. They also require some setup for this process.

In this example, we will using a simple single job, Repair Order 59140, with a total of $318.00. When payment was received it was Short Paid by $43.00 and we do not expect additional payment.

The process that follows will properly address the Accounts Receivables Balance, track the Short Pay, and allow for a Sales Tax Adjustment.

Step 2: Deposit the Short Pay in Adjustment Bank Account *

  • Note: Item clearly identified "Short Pay"

This Step is not needed if management system can create an adjustment rather than a standard payment type.

This process is used regardless for Short Pay, Customer Goodwill, Coupon, etc.

*The Adjustment Bank Account is part of the necessary QuickBooks setup process.

Step 3: Open Adjustment Bank Account Register

  • Add an entry on the same date as the Deposit redistributing the same
    amount to the proper General Ledger (GL) Account.

The account being used is a COGS Account 5575.00 - Adjustments and Shortages
- It is can be setup as a Contra Income Account on the financial statements and it will
be a negative Income Account. I just prefer the number listed as a positive in COGS.

At this time the Account Balance for the Customer is zero, the Adjustment Account is zero, and the amount of the Short Pay is being tracked in the 5575.00 Account.

This account should be reviewed monthly to determine the extent and costs Short Pays are having in your business.

In addition, the sales report from the management system will match accounting; the Accounts Receivables report of both systems will also match.

Sales Tax Adjustments

Over the years, some shops have indicated that this method will require them to pay Sales Tax on sales they do not collect and has been their justification for leaving Repair Orders open and not closed.

How big of a problem is it really?

Depending on the extent of Short Pays that occur in each month typically this is a very small amount. You should determine if these few dollars is worth the time to calculate the credit for Short Pays on your Sales Tax returns.

There are some additional considerations such as whether all income accounts are taxable or not to consider as well. In some States only certain items are taxable such as Parts and Paint/Materials, while other States have additional taxable items, and some tax all income items.

For instance if the total amount of Short Pays for the month total to $500.00 and your State taxes everything, is the time required to do this worth $22.50 - $45.00 (Depending your tax rate) ? If you do not tax all income items this would be even a smaller amount.

For this above reason, we have seen shops use Credit Memos in QuickBooks to handle Short Pays. Keep in mind, using a Credit Memo will affect the Total Sales Amount, and then cause the management system sales report to not match the accounting report. This then requires adjusting the management system Accounts Receivables as well.

The only exception to this is if the Credit Memo is dated in the following month instead of the same month. This is simply not worth the time required, and is not the best method to use.

How to Adjust the Sales Tax

There is a fairly easy and straight forward method of taking the credit for the "Short Pays" when paying the Sales Tax through QuickBooks.

Sales Tax should always be paid through the Sales Tax process built into QuickBooks.

Go to: Vendors Menu > Sales Tax > Manage Sales Tax

Here access the Sales Tax Liability Report, Pay Sales Tax, and Adjust Sales Tax.

In this simple example there was a total of $1100.00 in total sales.
The tax rate is at 4.5%
The total tax the system thinks you have collected is: $66.00.

Step 1: Run a Monthly Report on 5575.00

Adjustments and Shortages Account to determine the amount of sales tax credit.

This will reflect the total dollars for the month that you were Short Paid.

If you also utilize other accounts to track Customer Goodwill, Coupons, Discounts, Warranty, etc., you must total all these accounts. This can easily be done by creating a memorized report that includes all the accounts that you utilize.

In this example the $43.00 represents the total dollar shortage and the State taxes all income accounts. Keep in mind, this report amount includes sales tax.

To determine the amount of sales tax it includes, divide the total amount by 1."your tax rate" (1.045 in this example).

Tax Rate is 4.5%, so divide $43.00 by 1.045 which equals $41.15 ... then the difference is sales tax ... ($43.00 - $41.15) ... $1.85.

Step 2: Select Adjust Sales Tax Due (Manage Sales Tax) and complete the Adjustment

This Example:

  • Entry No. Tax Adj
  • Vendor Your Sales Tax Vendor
  • Account 5575.00 Shortage Account
  • Reduction $1.85
  • Memo Uncollected Sales Adjustment

This will create a Journal Entry in the 2200.00 Sales Tax Payable Account as well as the 5575.00 Adjustments and Shortages Account indicating the amount of Sales Tax Credit being taken.

Step 3: Pay Sales Tax

The Pay Sales Window will include the original tax amount on the first line and the credit being taken on the second line.

Be sure to check both lines

In this example you should also notice that "EFT" is in the check number field.

This is because most States I am aware of now require Sales Taxes Paid Online. This online form often allows for a credit for paying on time as well.

(See below Online Form Example - item 5. Collection Allowance)

If your State does offer a credit, you will need to enter the information from our now updated Payroll Liabilities Report to determine your credit, then just add another Sales Tax Adjustment.

This type of adjustment is typically distributed to an Other Income Account such as Rebates and Refunds, or Accounting Discounts.

QuickBooks does not automatically add these credits to the non-taxed column in the Sales Tax Liability Report. You must include the $1.85 (This example) in the Non-Taxable Sales Total but use a positive number.

Once you have paid the Sales Tax Online, review your Pay Sales Tax Screen, make sure all credits are checked and save.

State Online Payment Screens

Some clients have asked where the Uncollected Sales Adjustment Credits go on the State's Sales Tax Forms. Most States have similar forms, but they are not exactly the same.

The Amount of the Credit should be added to any other Exempt/Deductions/Non-Taxable Sales.

Other Considerations:

In this example, we took the Short Pay in the same month as the invoice closed. Most likely in the majority of cases, you will be taking the Short Pay in a later month. In these cases, the credit will be taken in the current month and the Payment Dates should be the current month you are taking the credit.

If the management system is capable of sending adjustments into QuickBooks, the process of Depositing the Short Pay into the Adjustment Account and then distributing the amount to the proper account is not necessary, it is done automatically.

State Taxes Do Not Tax All Income Accounts

If your State does not tax all items determining how much of the total Short Pay includes Sales Tax is very subjective. Was it all parts, then it is all taxable. If it was labor, it may not be taxable in your State.

As a general rule Part + Materials usually represent close to 50% of the sales invoice, so if you State only actually does tax Parts and Materials, you may decide to use this as a basis to calculate the Sales Tax credit.

Sales Tax - Accrual or Cash Basis

In QuickBooks, in the Sales Tax setup, the default setting is to pay sales tax on an accrual basis. In other words you take the sales tax liability as soon as you invoice the job. Many States require this.

However, there is a setting to pay sales tax on a "cash basis".

Preferences > Sales Tax > Company Preferences Tab

With this setting, you take the sales tax liability as you receive payments. The system in fact on an individual Repair Order basis determines the ratio of taxable verses non-taxable dollars for the job, and uses this ratio to determine your sales tax liability as you receive payments.

If your State taxes all income accounts the ratio would be 100% taxable. This setup when your State doesn't tax everything can be very confusing to an auditor, but you can create a few memorized reports that clearly shows that the proper taxes have been paid.

Even with this setup, the same Short Pay Process should be used and the credits taken the same. It however is not going to be easy to calculate the exact ratio as QuickBooks does automatically if your State does not tax everything. In these cases, I would suggest resorting back to the split as explained earlier.

In Review:

  • The Key Points to This Process Are:
  • Close RO's When the Vehicle Leaves and Send to Accounting
  • Do Not Readjust RO's or QuickBooks
  • Invoices for Deficits
  • Track Deficits in Categories in QuickBooks
  • Use the QuickBooks Process to Pay Sales Tax
  • Take Credits Based on the Reports in QuickBooks

I hope this explained a more streamlined process to follow when it is regards to Short Pays and other deficient payments.

Loans, Leases, and Depreciation/Amortization Mistakes

Another Important Month End Adjustment Most Are Unaware of the Consequences

In this month's QuickBooks & Tricks we will discuss a very common set of mistakes made by many clients that also skew their financial statements as well.

When a financial statement such as a Profit and Loss Report (Income Statement) is produced it is important that transactions that are listed in the report are actually valid and accurate. Otherwise the report information is not of any benefit to analyze your business. The same is true with the Balance Sheet. If transactions are missing or not valid, the report is of no value as well.

To begin, there a few fundemental concepts to review first ... what transactions are valid and what are commonly missing.

What is Income/Revenue ?

In every business, you have primary products and/or services that you sell to customers. These are earned when you finish the services or complete the sale of the products. These would be considered as regular income/revenue. Other monies you may deposit into your bank, not related to your sales of products and services, are either "Other Income" or not income/revenue at all and not valid.

In QuickBooks, you should only use the "Receive Payments" process when receiving monies for your actual Sales by way of a Customer Invoice. DO NOT USE this function for receiving other monies including loans or "Other Income".

If the monies you are receiving are "Other Income", such as Interest you receive for any of your bank accounts, rebates, accounting discounts, or other financial charges you have billed, they should be added to the Deposit Form directly in QuickBooks. They should be added how they will appear on your bank statements so you can reconcile them easily, and they can be added to a regular income deposit as well (Undeposited Funds).

If they were electronically deposited (EFT or ACH) into your account, create a deposit to match the transaction as it entered your bank account. This again makes it much easier to reconcile your bank account at the end of each month.

Figure 1 - Typical Deposit Form adding "Other Income" (Checks Received)

In the above example, two checks were received that are not regular income/revenue. The first line is a financial charge to a customer for a NSF check, while the second was a rebate check from purchases. These are distributed to the appropriate "Other Income" accounts.

Monies deposited into the bank from loans are also not Income/Revenue or Other Income. They should be deposited directly into the bank account and distributed to the Liability Account for the loan.

Figure 2 - Typical Deposit Form for Loan Deposit (EFT From Bank)

In this example, a loan was taken out and the monies were electronically deposited into the bank account. When taking out a loan, it should be set up as a Liability. Typically it will be a Long Term Liability unless the repayment period is twelve months or less. In that case it should be set up as a Current Liability.

Figure 3 - Typical Long Term Liability Account Setup

We suggest that the last four digits of the loan number be used to identify the account. This makes it easier to ensure payments are posted to the correct account especially when there are multiple loans involved.

Keep in mind that this account should only include the principle balance and the principle payments. This account balance should reconcile each month to your actual owed balance for the loan.

What are Expenses ?

On the flip side of Income/Revenue, there are expenses to your business. Expenses are considered costs to produce or sell your products and/or services. Direct expenses such as Cost of Goods Sold (COGS) and/or building, utilities, office staff, insurance, etc are all costs to your business., and are regular expenses.

Loan payments ARE NOT a business expense. Since the loan monies were not "Earned", neither is the repayment of the loan a business expense. The interest and other loan fees are a business expense, but not the principle portion of the loan payment.

This is a very common mistake made by many clients, and requires one to obtain a loan amortization schedule from the lender. Sometimes their billing provides this information, and sometimes it is available online when you log into your account. In any event, you MUST obtain this information to properly distribute the loan payments. The payment amount may stay the same each month, but the amount for principle will generally increase each month while the interest will decrease each month.

Typically in QuickBooks, the check distribution is split with a line for the principle portion, and the interest porttion. It may also include other loan fees as well.

Figure 4 - Typical QuickBooks Check Entry - Loan Repayment

In this example, $1123.54 is the principle payment for the loan 6789, $156.26 is the interest paid on the loan, and $35.00 was a late fee applied to the loan payment. At the end of each month the loan balance should be reconciled with the bank loan balance which is also normally provided on the loan amortization schedule.

Leases

This also is one of the most common mistakes made by clients all the time...just because the paperwork states it is a "Lease Agreement", it doesn't mean it actually is a "Lease" according to the IRS, and how you must treat it in QuickBooks.

In most cases, "Leases" for equipment have a very low end of lease "buyout"; often $100.00 or less. These are not considered leases. The advantage of a true operating lease is that the business can simply deduct the full payment each month, instead of capitalizing the purchased item and depreciating it.

"Operating Leases" makes it easy for accounting, however unless you are never going to pay off the "Lease" and own the item purchased, the IRS considers it a "Capital Lease", and you must treat it just like a loan and depreciate it. Common items that need to be treated as "Capital Lease" are normally both vehicles and most equipment.

There are times when some equipment may be considered an "Operating Lease" when you, as the business, are never to have an option to own it. We have seen office copier leases, furniture rental (lease), storage units, closed end vehicle leases, etc. In these cases it is basically "rental" without ownership.

So why are equipment leases so much more common ? They are simply easier to get from the seller, and the seller makes it as easy as possible to sell the equipment and offer these financial options, rather than the business going to the bank for financing .

They often have many options based on the financial strength of the business and owner. However they are also almost always a "Capital Lease" , and you should set it up as a Liability as a Loan explanation earlier.

Figure 5 - Typical QuickBooks Capital Lease Liability Account

Generally we recommend a separate section of "Capital Leases" as the above example. The same is true how the actual payment is distributed as well. The Liability Account only includes the principle balance, and the interest and other fees are distributed as with a loan. It is often more difficult however is deciphering the lease amortization schedule. Some we have seen are very difficult to determine the correct distribution.

In addition, when you purchase a piece of equipment you pay the sales tax when purchasing. This sales tax is included in the total value of the Fixed Asset. With leases, they often have you pay sales tax each month.

The sales tax paid each month is still part of the "Total Fixed Asset Value" and will normally be distributed to the same Fixed Asset Account as the item purchased. It is sometimes an option to pay the sales tax at the beginning of the lease or monthly. If you do elect to pay it at the time of purchase (lease), it will be easier in accounting, but this also then requires a larger initial payment. Paying sales tax (use tax) allows the seller to get you into the deal at a lower cost.

Net Ordinary Income

In QuickBooks there is a Total for "Net Ordinary Income" right before "Other Income" and "Other Expenses" are listed. This is your net operating profit, but typically does not include a number of business related other income or expenses that are also important.

Figure 6 - Typical QuickBooks Other Income and Other Expense Accounts

This example shows a listing of possible "Other Income" and "Other Expenses" Accounts. This can be subjective to many since some of the "Other Expenses" could be listed as a regular expense. We just often place many of these here to group them with like financial expenses, and to make them stand out from the regular expenses for easier review.

Net Profit Does Not Equal Cash in Bank

One very fatal misconception by many small business owners is that their "Net Profit" is the same as "Cash in Bank", or will be reflected in their "Cash in Bank". That is a very huge error in understanding the Profit and Loss Report, and often can bankrupt or create financial hardship to the business.

The Profit and Loss as explained earlier does not include loan or capital lease payments. However, it doesn't include owner disbursements/draws, internal loans, or employee advances, which all can affect the businesses cash position greatly. The Net Profit listed is without considering these payments but still are deducted from the bank account. Many small businesses have positive Net Profit, but run out of operating capital to keep their doors open. This can be dramatic during a strong business growth stage.

Yes, the business could be making a profit, but if the demand on its cash is too much, or it has over leveraged their credit and have huge debts to repay... it can be forced to close. Unfortunately, this is when monies that are not the businesses such as collected Sales Tax, Employee and Employer Tax monies are often used to meet the cash demand. This almost always creates a spiraling business that gets into financial troubles, and often can't recover.

It is important to see the whole picture of your business's financial position and not just a portion. There are other transactions that will impact your "Cash Position". This is viewed within QuickBooks using the "Statement of Cash Flows" Report. With this report along with the Balance Sheet and Profit & Loss Reports you will be able to see a true picture of your business, and then able to make good decisions utilizing good information.

Depreciation/Amortization

It is common for small businesses to only review "Net Profit" without "Depreciation" and/or "Amortization" included each month. Most clients are dependent upon their accountant or CPA to provide these entries at year end only, but it should not be.

As explained earlier, the full payments made for loans and/or capital leases are not a deductible expense, and should not appear on a Profit and Loss Statement, but if these were for tangible and/or non-tangible assets, they can be "written off" with depreciation/amortization each month as a financial expense.

Unfortunately most small business owners do not understand that Accountants and CPAs are generally only focusing on your tax liability, and have almost zero knowledge of your business, or the importance of having operating reports that help you manage your business. The financial reports most Accountants and/or CPAs produce are for tax purposes, not for analyzing your business.

Generally small businesses rely on their Accountant and/or CPA to track their assets on a "Depreciation Schedule" and often get a closing entry from them for the Depreciation/Amortization Expenses at year end only. This really is not what you need to analyze your business and manage its growth. You first must accept that your QuickBooks will not mirror your tax return, and will be set up and used to analyze your business operations. QuickBooks can easily be a good management tool if setup properly.

For tax purposes there are a host of options available to reduce your tax liability with different types of depreciation schedules. Special depreciation options include what is referred to as Section 179, which allows you for tax purposes to depreciation up to $500,000 in one year.

This tax break is designed to encourage small businesses to invest in new capitalized equipment. However, taking a huge depreciation expense in QuickBooks doesn't accurately reflect your true operating profit and loss, or your balance sheet. For this reason we suggest your assets in QuickBooks are depreciated and/or amortized in what is called "Straight-Line".

Figure 7 - General Chart for Useful Life to Determine Depreciation Length

Depending on the type of asset, there are rules for how long they normally are depreciated/amortized. This is based on its useful life expectancy. This determines the number of years/months it will be depreciated. This typically can be from 5 years to 27.5 years.

To determine the amount of depreciation after determining the normal depreciation/amortization length, you must estimate the salvage value at the end of the depreciation/amortization time. Then you take the beginning asset value and subtract the estimated salvage value to create the "Basis" for the depreciation amount. This is then divided by the length in which you will depreciate/amortize the asset.

As an example, $40,000.00 asset that has a salvage value of $5500.00 would have a "Basis" of $34,500.00. If the item has a useful life of 5 years, then the yearly depreciation is $6900.00. But you should create an automatic memorized transaction monthly for $575.00 to be taken on your Profit and Loss each month.

Figure 8 - Typical Memorized Journal Entry - Depreciation and Amortization

As to when to depreciate verse amortize ... Basically "Depreciation" is taken on tangible items such as equipment, buildings, furniture, computers, and vehicles. "Amortization" is taken on non-tangible assets, things that have value such as Goodwill (when purchasing business), software, trademarks, patents, licensing rights, etc. They basically are processed the same way, the IRS requires them to be separated on the financial reports.

There is actually nothing to say that you cannot match the depreciation time length to the same number of months you are paying your loan/lease as well.

If your QuickBooks is setup for operating your business, and not a tax setup, your books will be different than your tax returns any way. Accountants and CPAs can handle this in their tax software. We find it much more beneficial to the business to have QuickBooks setup this way to allow you to analyze and manage your business, rather than for your tax return.

Next month, Cleaning up your books for year end !

If you have missed our earlier issues of QuickBooks Tips & Tricks, you can catch up on past issues by Clicking Here .

Thank You and I look forward in sharing QuickBooks Tips and Tricks with you next month ...

Handling Complex Bills (Part 1)

Another Common QuickBooks Mistake

There are many times the Bills you receive are complex and should be distributed into many accounts. Worker's Compensation Insurance payments, and most other insurance coverages, but even basic billings can require them to be distributed to multiple accounts.

All these add up to causing your financial reports to be inaccurate and benchmarking will not have significant value unless the expenses are properly distributed each month.

This is a very Common QuickBooks Mistake that may be considered an Advanced QuickBooks Process. To properly distribute your Bills & Expenses a review of what the items included are for (and not just what they are) is important to begin the process...

Step1: Determine how the Costs will be distributed

  • Business Insurance as well as Medical and Disability Insurance are often too complex to properly distribute without assistance.

It may be the easiest to create an Excel Spreadsheet to obtain the proper distribution.

Spreadsheet Created to Properly Distribute Business Insurance Premiums

There many scenarios where a spreadsheet is your best option especially if the amounts can change regularly such as will medical insurance and even Business Insurance Packages. In Medical, Disability, Dental/Vision Insurance Billings, employees can change coverage, new employees added, and others may drop. In addition if the company is contributing a portion of the costs as a benefit, it will be very helpful to have a spreadsheet created for these. With Business Insurance Packages, they may include liability, building coverage, employee tools, company vehicles, loaner/rental vehicles, and even Worker's Compensation Insurance. All these simply should not be distribute to just, "Insurance". In cases where vehicles change often such as with loaners/rentals and company vehicles, a spreadsheet to calculate the distribution is definitely best. If the payment each month is actually not just that month premium then the steps for Accruals should be followed.

Step 2: Create a Bill/Check/Charge for the Bill Received

  • Distribute the Bill to Accounts as needed.

Bill Created to Properly Distribute Business Insurance Premiums

The above is an example of a Business Insurance Policy that includes several different types of insurance: Company Autos, Loaner/Rental Vehicles. Trailers/Other Motorized Units, Building & Fire, General and Garage Keepers, Inland Marine, Umbrella, and Worker's Compensation.

Each should be distributed to the correct account and not just be lumped into one insurance cost. If you are using a Bill for this, make sure to put the correct due date and terms before the next step.

If the amount can vary in one area during the policy period such as Loaner/Rental Cars, you can still memorize the Bill and just change the last line depending on each monthly Bill received.

When you pay this Entered Bill, you can either pay by Check, Credit Card, or EFT. If you have the payment automatically withdrawn from your account or use a credit card on file, it is unnecessary to use a Bill entry. In these cases, it is better to use a check or charge.

Check Created to Properly Distribute Business Insurance Premiums

In Review:
The Key Points to This Process Are:

  • Using a spreadsheet to properly calculate the distribution is a good idea
  • Do Not just lump everything into on Account just because it is "Insurance"
  • If the payment is not just for a single month, setup an Accrual (Prior Issue)
  • Bill date must be the month the expenses is to be taken
  • Memorize transaction to improve processing. (Next Month)

I hope this explained a more accurate method to distribute complex and/or varying expenses so you can analyze your business performance better.

If you have missed our earlier issues of QuickBooks Tips & Tricks, you can catch up on past issues by Clicking Here.

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Ideas to Improve Your Business and/or Lower Costs

There are several options here that we have found are very beneficial to the business and at the same time lower your costs. Whether to use QuickBooks Payroll or a 3rd Party Service is a key decision to make.

Payroll Options:

If you are using QuickBooks, the most obvious selection is to use Intuit Payroll.

There are three basic Intuit payroll options ... Basic, Enhanced, and Full Service.
The Enhanced is the most common option used by small businesses since it included the tax filing forms for State and Federal, where the Basic option does not. However, this means you are responsible to do the payroll using Intuit's tax tables, pay your taxes on time, file all the returns, pay at least $400.00 - $500.00 each year for tax table usage and per employee fees each pay period, and a required QuickBooks upgrade every third year. *

The system has the ability to connect electronically to pay and file Federal Taxes, and if your State allows it, do the same for your State taxes. When setup properly the system will notify you well when all this is due, but I often see that this has not been done and late filing penalties then happen. It is your responsibility to pay and file on time.

It is also important that the Payroll Items are setup correctly, so your payroll is distributed properly. We have often found this not to be the case, because the client had their CPA or Accountant set it up. This is almost always a mistake because they are not concerned about providing you with operating information to run your business, just your taxes. We often see that all payroll is distributed to one account, wages ... which for benefits of the business owner is completely incorrect.

A Full Service Payroll option transfers the responsibility and liability of maintaining accurate payroll records and paying on time to the service provider and not on you. Intuit does have a Full Service Payroll Option like other 3rd party offerings, however Intuit's option does not support all State forms and they are priced on the high side. For this reason, if you are looking for a full payroll solution there are other better offerings available.

* Intuit has a per employee fee that ranges from $2.00 - $4.00 depending on how the employee is being paid (Check or Direct Deposit). They also cease providing tax table updates in the third year for the older QuickBooks versions. So if payroll is to be used, you will be required to upgrade QuickBooks to the current version to continue to use payroll.

A Better 3rd Party Full Payroll Solution

We have reviewed and worked with dozens of third party payroll services only to find that they have flaws that do not fit well with the industry, or they do not properly integrate into QuickBooks. This forces manual distribution through a Payroll Clearing Account and journal entries to properly allocate the payroll to proper accounts.
ADPrun is the best and most reliable solution we have found for all businesses under 50 employees.

Why Choose ADPrun ?

  • Simple to Use
  • Imports into QuickBooks better than any other on the market
  • No more Required QuickBooks Upgrades*
  • Very Cost Effective and Simple Pricing
  • Print your own checks or have delivered
  • Employee Portals, so their documents are always available
  • No Hidden Fees
  • Additional HR Tools can be added

ADPRun Information

We highly suggest you check out your options ... they are providing discounts that make this payroll service a great value, and very competitively priced.

If you have missed our earlier issues of QuickBooks Tips & Tricks, you can catch up on past issues by Clicking Here. Thank You and I look forward in sharing QuickBooks Tips and Tricks with you next month ...

Credit Card Processing

How much do you spend for your total cost of taking credit cards ?
Do any of these describe your situation?

  • Customers charge whole bill to get "their points" or "Cash Back"?
  • Hidden fees add up to make your "real costs" higher than before?
  • You pay equipment rental/lease payment to process credit cards?
  • You pay a monthly fee to use the Merchant Account?
  • Quoted rates are not the rate for your customer charges?
  • Tired of every company saying they can "beat" the rates?
  • Thousands of dollars each year off your bottom line?

We have found two simple solutions:

  1. A Standard processing program guaranteed to reduce your processing costs, or they will give you $500.00 for trying.
  2. A customizable program which can totally eliminate all your processing, equipment, PCI, and monthly fees to ZERO !

The Edge program is an innovative new offering made possible by the recent Supreme Court ruling that allows you to share or transfer the costs of processing back to the customer. This wasn't possible a few years ago since it was against your merchant services agreement.

Edge now offers a customizable programs that will allow you to encourage payment by check or cash, and stop these unnecessary costs to your business.

This program also allows for zero equipment fees, transaction fees, and all the hidden costs, or share the costs based on charge levels. You could decide to take all credit cards for deductibles up to $500.00 at no sharing costs, but for charges above this amount you can even set a sliding scale. As an example; $501.00 - $1000.00 the customer shares half the costs, and over $1000.00 they pay the whole costs. Believe it or not, customers will still use their rewards card even if a non-cash fee is added, just to get their points, but it can not cost you anything!

You can also individually decide when processing to override the fee as well for your "best" customers.

This new program is a game changer ... how much money can this save you on your bottom line ?

If you have missed our earlier issues of QuickBooks Tips & Tricks, you can catch up on past issues by Clicking Here.

Thank You and I look forward in sharing QuickBooks Tips and Tricks with you next month ...

The Credit Card Processing Challenge

If after reviewing the Edge Program to eliminate 95% or more of your credit card fees, we have partnered with a provider, PayProTec, that will guarantee they will save you money of give you $500.00 for trying !

Click the Certificate below, print it out, fill out your information and send us your last two credit card statements ... we will do the rest, and save your money !

Your IT Infrastructure

When computers first entered our industry, most of the industry still was in the 1970's in understanding what the future was to bring. We have seen so many poorly designed and maintained systems in our industry. Some of our clients are being almost held hostage by an IT company maintaining their system, and all at a very high cost of operation.

We also see clients that have to wait minutes for their system and programs to boot up or run. We also see hardware setups that are simply begging for issues to happen. None of this has to continue.

One of the most important considerations is your Internet connection. Since most of the systems today and in the future will be more dependent on this, it is very important to continue to keep yours upgraded.

There are still areas in our Country that you have few options for this, but you need not just give up, continue to check each quarter what may become available that can be of great value.

If you do have competition in your area, you will find it can not only upgrade your service significantly, but also lower your costs as well. Today 1000mb (1 gig) speed is becoming readily available by many providers. What is a disappointment is that your current provider may have it available, but unless you contact them, they will continue to provide you what you have at the rate you are currently paying.

One client of ours, when I checked with their provider was setup almost 10 years ago. They were only receiving 5mb download and 1.5mb upload speeds for over $200.00 per month! We switched companies and got 300mb download with 25mb upload for $80.00!!!

Check out the competition every year (at least) and use their offers to get it with your current provider and get better speeds at a lower cost, or if necessary switch.

DO NOT SIGN MORE THAN A ONE YEAR CONTRACT

Many providers today don't even require a contract. Any provider that is trying to "lock you in" is one to be concerned with their product offering.

We also have worked with clients to set up their network system and workstations that simply requires little or no maintenance. It all starts with the hardware we have specifically chosen for our industry.

We have found a very affordable solution to your entire computer setup and network. We simply have very few support calls, you don't have unexpected costs, and productivity loss with systems that are so slow you could have a coffee break between tasks.

We also have very competitive leasing options to fit your budget.

If you have missed our earlier issues of QuickBooks Tips & Tricks, you can catch up on past issues by Clicking Here.

Thank You and I look forward in sharing QuickBooks Tips and Tricks with you next month ...

Stop Spending $$Hundreds on Pre-Printed Checks!

If you print your checks out of QuickBooks, you probably are spending hundreds of dollars more than you should. If you have multiple accounts maybe even thousands!

We have worked with many companies over the years that offered software that allowed printing checks on blank stock, but all of them in the past either charged an upgrade fee when you updated your QuickBooks, or required special blank stock ordered at a higher price than what we have now.

PrintBoss is the best software we have found that integrates perfectly into QuickBooks, and lowers your costs at the same time ...

Typically we find clients paying $300.00 or more for pre-printed checks for each account they have. That is ridiculous.

This program will also print deposit forms as well and the checks are 75% to 90% less than pre-printed checks, and much more secure, because if stolen, the checks are completely blank paper!

If you have missed our earlier issues of QuickBooks Tips & Tricks, you can catch up on past issues by Clicking Here.

Thank You and I look forward in sharing QuickBooks Tips and Tricks with you next month ...

If you are a Collision Shop, we would like to give you our latest eBook titled, Financial Insights & Improving Your Business... For The Collision Industry Owner.

This valuable resource is specifically designed for the Collision Industry Owner.

The Second Quarter eBook will be released soon. It will build upon the basics covered in this eBook ... so if you haven't already read this one, you should before the next becomes available.

Just click the cover below.

Please take the time to review this new resource, as well as the other free eBooks we have created to help you. This latest eBook includes additional tools we are sure your will find valuable.

Our company AEII, QuickBooks R Us, is always here to assist any small business with a full range of services, and provide the training and support needed to achieve excellent results. We have assisted businesses worldwide ... And we specialize in the collision repair and service industry

Since it is still early in the year the best time to upgrade your chart of accounts to reflect better details for your financials is now.

Schedule a free session to discuss any QuickBooks needs you may have below:

If you have missed our earlier issues of QuickBooks Tips & Tricks, you can catch up on past issues by Clicking Here.

Thank You and I look forward in sharing QuickBooks Tips and Tricks with you next month ...