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QuickBooks: 8 Financial Tips for Business Owners

Business owners should play an active role in the financial side of the business to forestall any attempts at embezzlement or forgery. Review your QuickBooks financial statements, keep a close eye on where the money goes, and know who is handling the finances. Keep your business safe and in good order by following these eight financial tips.

Sign all your own checks

This isn't a slam against bookkeepers. In a small business, however, people (especially full-charge bookkeepers) have the opportunity to bamboozle you easily. By signing all the checks yourself, you keep your fingers on the pulse of your cash outflow. Yes, this practice can be a hassle — you have to wade through paperwork every time you sign a stack of checks — but remember the alternative.

By the way, if you're in a partnership, you should have at least a couple of the partners co-sign the checks — or at least the big checks.

Don't sign a check the wrong way

If you sign many checks, you may be tempted to use a fast and furious (inevitably unreadable) signature. Although scrawling your name illegibly makes great sense when you're autographing baseballs, don't do it when you're signing checks. A clear signature, especially one with a sense of personal style, is distinctive. A wavy line with a cross and a couple of dots is easy to forge.

Review canceled checks before your bookkeeper does

Be sure that you review your canceled checks (the check image that appears on your bank statement) before anybody else sees the monthly bank statement.

This information certainly isn't about browbeating bookkeepers. Still, a business owner can determine if someone is forging signatures on checks only by being the first to open the bank statement and by reviewing each of the signatures on the canceled checks.

If you don't examine the checks, unscrupulous employees — especially bookkeepers who can update the bank account records — can forge your signature with impunity. And they won't get caught if they never overdraw the account.

Don't feel inclined to follow these procedures? Then you — not the bank — will probably eat the losses.

Choose a bookkeeper who knows computers and payroll procedures

Don't worry, you don't need to request an FBI background check when hiring a bookkeeper. In fact, if you use QuickBooks, you don't need to hire people who are familiar with small business accounting systems. Just find people who know how to keep a checkbook and work with a computer. They shouldn't have a problem understanding QuickBooks.

Of course, you don't want someone who just fell off the turnip truck. But even if you do hire someone who rode into town on one, you're not going to have much trouble getting that person up-to-speed with QuickBooks.

A bookkeeper who knows double-entry bookkeeping is super-helpful. But to be fair, such knowledge probably isn't essential. But remember: When you're hiring, find someone who knows how to do payroll — and not just the federal payroll tax stuff, but also the state payroll tax monkey business.

Regularly review your financial statements

Regularly produce and look over the profit and loss statement that QuickBooks effortlessly generates. Get habitual about looking over your balance sheet with its lists of assets and liabilities. Explore and find another report or two that gives you useful insights into the rhythms and rhymes of your business. (Any errors you make will probably show up as goofy numbers on your balance sheet, by the way.)

Probably, you can keep a pretty firm handle on the operation by looking at two or three easy-to-understand reports. And by regularly peeking at these financial statements — say once or twice a week — you turn your accounting system into a tool useful both for spotting tempting opportunities and for avoiding dangerous traps.

Here's a way to run your businesses by looking at three QuickBooks reports:

  • A profit and loss statement that compares the current year's and previous year's year-to-date numbers (so you can see how you're doing in the current year as compared to the previous year)

  • The accounts receivable summary aging (so you can see which clients and customers are past due)

  • The balance sheet (so you can monitor your cash and working capital and spot any funny stuff).

Choose an appropriate accounting system

When you use QuickBooks, you use either cash-basis accounting or accrual-basis accounting. Cash-basis accounting is fine when a business's cash inflow mirrors its sales and its cash outflow mirrors its expenses. This situation isn't the case, however, in many businesses. A contract builder of single-family homes, for example, may have cash coming in (by borrowing from banks) but may not make any money. Alternatively, a pawnshop owner who lends money at 22 percent interest might make scads of money, even if cash pours out of the business daily.

As a general rule, when you're buying and selling inventory, accrual-basis accounting works better than cash-basis accounting. However, cash-basis accounting typically defers income taxes.

If QuickBooks doesn't work for your business . . .

QuickBooks is a great small business accounting program. But if QuickBooks doesn't seem to fit your needs — if, for example, you need a program that works better for a manufacturer or that includes some special industry-specific feature — you may want one of the more complicated (but also more powerful) small business accounting packages.

Before you jump from QuickBooks Simple Start or QuickBooks Pro, be sure to check out the Enterprise Solutions version of QuickBooks, which costs more but also works for bigger businesses. The Enterprise version of QuickBooks looks and works almost identically to the "regular" versions. If you know QuickBooks Pro, accordingly, you already know (or mostly know) QuickBooks Enterprise.

If the Enterprise version of QuickBooks doesn't work, you may want to talk to your accountant about industry-specific packages. (For example, if you're a commercial printer, some vendor may have developed a special accounting package just for commercial printers.)

Keep things simple

When managing small business financial affairs, keep things as simple as possible. In fact, keep your business affairs simple enough that you can easily tell whether you're making money and whether the business is healthy.

This advice about simplicity may sound strange, but sometimes very bright people can build monstrously complex financial structures for their businesses, including complicated leasing arrangements, labyrinthine partnership and corporate structures, and sophisticated profit-sharing and cost-sharing arrangements with other businesses. These super-sophisticated financial arrangements don't produce a profit when you consider all the costs. What's more, such complex arrangements almost always turn into management and record-keeping headaches.

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