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Time tracking is an area that most creatives vehemently oppose.  “It’s a creative process, we don’t know how much time it will take.”  or “It depends on the person and the project.  Sometimes it’s quick and sometimes it’s not.”  These are valid arguments.  These arguments can be applied to other service based businesses as well.  I can assure you, I don’t like time tracking either and when I hire bookkeepers, some are faster than others.

Even though the argument is valid, you still have to find a way to price projects appropriately, track work in process, and measure profitability.  Like it or not, time is the best measure.  That’s not to say there aren’t other ways of estimating.  You have to figure out the easiest, best way to reasonably approximate how much effort each project takes.

In my own business, I quote similar projects a lot.  No two projects are exactly the same, so I never know exactly how long things will take or, when I use a contractor, how quick they will be.  The other big variable is the nature of my clients.  I work with creatives… I never know how much crazy is coming down the tracks.

There are many different variations in how creative firms are managed.  Some owners are pretty organized and/or have systems in place, some want to track down to the littlest detail (often out of fear of not seeing something…that’s a different article), and some have absolutely no processes or systems and are resistant to putting them in place.  So even if the project looks exactly the same, there could be an entirely different amount of cargo on that Crazy Train.

By tracking time and costs to each project and using my experience to scope out projects and understand the business in question, I can get a better handle on pricing the next similar project.  If you don’t collect information on each project, you’ll never be as good at pricing and understanding what’s coming down the tracks as you could be.  Of course, that can lead to lost profits.  How do you estimate how much cargo is on the next Crazy Train?

Like many others, I am in pursuit of the paperless office. There are many solutions out there, but finding the right solution is difficult. For my purposes, mac compatibility and an online solution were a must. In addition, I needed a solution that would accept emailed receipts, since75% of my receipts are in email format. I explored three solutions: Dropbox, Shoeboxed, and OfficeDrop. Keep reading to find out the pros and cons to each….

Initially, I really wanted Dropbox to work for me. I already have an account that I use to share files with clients. Dropbox is unique in that you can sync your files online as well as with other computers. You can adjust your sharing permissions on a folder by folder basis. In addition, you can place files in the “public” folder and share them with a link. Add to that an iphone app to get your docs on the go, and it’s a pretty slick tool. The downside with Dropbox is you can’t email docs to it without another application (Habilis and Send to Dropbox solve that issue).

The major downside of Dropbox for me was file structure. I want to be able to send files directly to the specific folder they belong in. In my case, I’ve already dealt with the accounting side of the receipts and I’m simply just looking to archive. The other issue is that I don’t really want the hard copy of the receipts taking up space on my hard drive. I like that it can sync to multiple computers and all, but I really want to limit things that are stored locally. Receipt archives don’t fit into the “must have” on my system.

Shoeboxed allows you to scan, email, or mail receipts and business cards into their system. It’s online only, so there are no hard drive concerns. It also has an app for the iphone that allows you to take a picture of your receipt and submit it. You can upload your restaurant receipts while still at the restaurant…no chance of losing them. The big deal with Shoeboxed is it pulls information out of your receipt (the amount, vendor, card used…) and it integrates with QuickBooks. You can select a “category” for the receipt to keep it organized…and it can even automatically categorize some items from specific vendors. The mail in service is great if you don’t want to spend your time doing the scanning. Another nice feature is the email address. Just use your Shoeboxed email address when you’re shopping online and your receipts will automatically go to your Shoeboxed account. Anything that doesn’t look like a receipt goes to your “shopping inbox” for you to deal with later. There’s a new “documents” section for all those non-receipt papers too.

I really like Shoeboxed, especially the iphone app. I don’t like that the QuickBooks export puts everything in one debit and one credit account. It seems as though some manipulation within QuickBooks will be needed or you’ll have to do an export for each category and just use one payment method. If this is a feature you plan to use, make sure it works for your needs. Scanning and email attachments are a little awkward…you still have to enter some data and preview the pdf. It’s a little more cumbersome than the other options, but it does give you good information.

Like Shoeboxed, OfficeDrop allows you to scan, email, or mail receipts for upload. I really like the file structure options in OfficeDrop. You can setup a traditional file structure and you can set up your email subject lines to automatically send files to the right folders. I almost chose OfficeDrop just because of this option. It also translates your documents via OCR into searchable pdfs.

OfficeDrop is missing the slick QuickBooks integration and iphone app, however. Those aren’t deal breakers for me, but I certainly prefer to the iphone app Shoeboxed offers. OfficeDrop seemed great at the beginning and I planned to use it, but it didn’t work as well in practice as I had hoped. I began sending emails to my account and 3 of the first 6 were not able to be processed. Since so many of my receipts are in email format, this was unacceptable.

The Winner

**Note I am an affiliate of these programs and may receive a commission, if you click the links in this post.

At this time of year, a lot of my conversations revolve around tax saving strategies. I’ve spoken with several CPAs recently and the advice for cash basis tax payers is consistent. If you are showing a net profit for the year, here are the top 3 strategies for reducing your 2010 tax bill:

1. Defer income – If you can, push income into 2011. Delay the invoicing, ask your clients to hold payment until January, and/or be less aggressive with your collection efforts.
2. Accelerate Expenses - Buy needed items before the end of the year and pay down your accounts payable. Cash basis tax payers don’t get deductions until the money is spent, so pay as many of your outstanding bills as possible. Some accountants caution that prepaid expenses (like rent) are not deductible until the period they are used. Check with your tax accountant before pre-paying regular bills.
3. Buy Needed Equipment – If you are going to need equipment next year, buy it before year end to take advantage of the Section 179 deduction.

Of course, talking with your tax accountant and reviewing your specific tax situation is advised.

Want more tips? Check out these articles:

http://kiplingercpas.wordpress.com/2010/11/26/2010-year-end-tax-planning-opportunities-for-businesses/

http://sbinformation.about.com/b/2010/12/15/year-end-tax-tips-small-business.htm

http://www.i-padgett.com/year-end-tax-planning-for-2010

http://www.kiplinger.com/businessresource/forecast/archive/end-of-year-business-tax-planning-tips-for-2010.html

http://biztaxlaw.about.com/od/businesstaxdeduction1/tp/10-For-10-Save-On-Business-Taxes-In-2010.htm

A relatively simple Microsoft Excel spreadsheet is usually the best tool for predicting cash flow.  This spreadsheet will track when you expect your revenue to hit the bank account and when your bills and payroll will leave the bank account.  The first column (each column represents a time period, usually a week) in your spreadsheet will begin with your bank account balance, then add incoming cash, subtract outgoing cash, and finally total to what you expect to have left in the bank.  That ending bank balance will be the beginning bank balance in the next column (time period)…wash, rinse, repeat.

Most business owners have too much on their plate, so much in fact, they end up throwing cash and profit away. It’s not that they are so profitable and have so much cash they don’t know what to do, it’s that they “save time” by skipping the financial review. Here are 3 common places to quickly reclaim lost cash and profit (it’s like looking between the couch cushions for your business!):

1. Forgotten Subscriptions – Free trials and automated renewals are often forgotten. Almost every business I have ever worked with has some automatic charges happening on their credit or debit card for subscriptions they don’t even use.

Solution: Review all bank and credit card statements. Have your bookkeeper research any charges that are questionable. Also ensure that the subscriptions you want to keep are for the right amount. If you’ve changed the number of users, for example, you might not be on the right rate plan.

2. Late Fees and Penalties – Busy entrepreneurs often incur late fees because they are too busy to facilitate the payment process.

Solution: Simplify the process. Utilize a service like Bill.com, so you can quickly approve new bills and payments without digging through a stack of emails or piles of paper on your desk. You’ll still have to ask for details on things that seem out of place, but the process for normal bills will be much easier. You’ll also be able to keep up with the process while you’re on the road.

3. Unmanaged PayPal Accounts – PayPal is an easy way to accept credit cards, but it’s also an easy way to lose money. Many subscriptions are hidden in your PayPal account. They auto-renew and take money out of your PayPal balance. If that account isn’t managed and reconciled like a bank account, there’s a good chance money is being spent and it may not show up in your financial statements.

Solution: Treat the PayPal account like a bank account (instructions here: http://www.crackerjackaccounting.com/2010/08/paypal/). If you accept credit cards frequently, have your bookkeeper shop around for a merchant account with lower fees to save even more cash.

The solutions above are the best first steps to discovering your hidden profits. To avoid further problems, proper financial accounting controls and reviews are necessary.

1. Forecast Revenue - Based on your year so far, historical numbers, and marketing plan, what revenue goals are achievable for the rest of the year? If you haven’t been doing well this year and you really need to bring your A game to 4th quarter, what are you going to do differently? In your review process, you should have pondered why your year hasn’t gone according to plan.  Use that information to inform your plans for the 4th quarter.  If you have been meeting your targets so far this year, review what is working for you and what you need to do to maintain the momentum.
2. Adjust Spending – With your year to date information and your revenue plan for the 4th quarter, what changes need to be made to your spending plan?  Will you need increase labor spending to meet your 4th quarter goals?  Do you need to reduce labor costs to get your financial ratios where they need to be? Have you been spending your marketing dollars on things that aren’t working? Do you need to spend more on sales and marketing efforts that are working?
3. Collect Aggressively – If your business is like most businesses in the b2b service arena, the first quarter is known for clients paying slowly.  To keep your company running smoothly in the first quarter, you must collect aggressively in the 4th quarter. Be vigilant about getting deposits on your fourth quarter work and get December invoices out as early as possible.  Ensure your accounts receivable team is staying on top of collections and do your best to get everything possible collected before everyone heads out for the holidays.
4. Keep An Eye On Cash Flow – The first quarter collections slow down means you’ll have to be extra careful with your cash flow. Make sure you’re maintaining an adequate cash reserve to handle your critical bills and payroll during the first couple months of the new year.  If your historical trends show first quarter to be normal or strong for cash collections, you may want to pay forward some of your debt in 2010 to get the tax deduction this year (assuming you’re a cash basis payer). Also make sure you adjust your cash flow forecast to coincide with any revenue or spending adjustments.

I was recently asked to compile a list of information needed prior to terminating a bookkeeper.  I’ve compiled a list of things that you may need to retrieve from your bookkeeper, controller, or office manager below.

Even if you have no plans to terminate, pretend like you are firing your bookkeeper or controller and start getting access to anything you currently don’t have access to or cannot easily obtain without the help of the person you are terminating.  It’s important to have control over this information.  What happens if the office manager gets hit by a bus tomorrow?  Your business needs to keep humming along regardless of who is sitting in the bookkeeper/office manager/controller chair.

Termination Retrieval Checklist

Password/Login Retrievals

• Email Account and Aliases
• Computer Password
• Voicemail Password
• QuickBooks/Accounting System Administrator Password
• Bank Account Access
• Payroll Administration Access
• Credit Card Account Login/Access
• Worker’s Comp, Health, Life, and other insurance Logins
• 401k/Retirment Plan Administrator Access
• Merchant and/or PayPal Account Access(es)
• Customer Portal Access(es) (client invoicing systems)

Physical Access/Retrievals

• Keys to office
• Keys to file cabinets
• Keys to mail box
• Laptop
• Cell phone
• Credit Card(s)

Documentation

• Location of unpaid bills
• Location of check stock and deposit slips
• Status of invoicing
• Current copy of cash flow forecast
• Location of sow’s, purchase orders
• Depreciation Schedule
• Working papers/monthly reconciliation files
• Current payroll information
  • Changes to employee records
  • Vacation requests
  • Expense reports
• Location of employee files
• Location and status of tax filings, especially local taxes
• Location of new hire paperwork (insurance, 401k forms, employee handbook, etc)
• Status of 401k/Retirment Plan Contributions

Contact information

• Bank
• Worker’s Compensation Agent
• Health Insurance Agent
• General Insurance Agent(s)
• Third party administrator for Section 125/132 benefit plans
• 401k/retirment plan
• Merchant account

It’s common for small business owners to measure their financial health based on their income statement or bank account balance and deem their business “fit” if the bottom line looks good.  To reveal why this approach can be deceptive, let’s apply a dieting metaphor.

Only looking at the bottom line is the equivalent of “sucking it in” when you look in the mirror.  Sure, it looks like you’ve lost some weight, but what happens when you exhale? You might appear skinny for a moment, but that version of the situation isn’t accurate.

In terms of your business’ health, the balance sheet is the “real” you.  Think of the income statement (also called the profit and loss statement) as your diet log.  It tells you how well you did in a specific time period—last week, last month, or last quarter.  We all know that there are good weeks and bad weeks on a diet.  If you only look at one week or month, are you getting a true picture of your overall health?  Of course not.

The balance sheet, on the other hand, is based on everything you’ve ever done.  In our diet metaphor, it accounts for how much you’ve exercised and what you’ve eaten over your entire lifetime.  The sum of all that information is what you see when you stop sucking it in.

To understand this metaphor, you need to understand what the balance sheet is and how it relates to the income statement. Your income statement contains information about what has occurred in the current period.  Revenue, cost of goods sold and expenses are some of the account types found on the income statement.

To get an accurate picture of what’s happening in your business, you must adhere to the matching principle.  That means you record expenses and cost of goods sold when you have earned the revenue that they are related to (if an expense is not related to revenue, you record it during the period it is used). The balance sheet accounts hold these revenue and expense items until the period in which they are earned or used.  We use accounts such as prepaid insurance, customer deposits, and accrued payroll to classify these things on the balance sheet.

Income statement accounts only reflect transactions in the current accounting period.  At the end of the period, the net profit or loss is moved to the equity section of your balance sheet (to retained earnings).  This means that the balance sheet reflects all prior period revenue, cost of goods sold, and expenses in the form of retained earnings.  The equity section also shows how much you’ve invested in and drawn out of your business.  The equity section, therefore, shows what the company is worth to you.

So, how do you know if your business is “over weight”?  Take a look at your debt to equity ratio (total liabilities divided by total equity).  Compare that to your industry average and you’ll have a pretty good indicator of your business’ weight.  Too much debt and not enough equity means your business is, in fact, overweight—even if your current period income statement looks healthy and you have money in the bank. Because everything shows up on the balance sheet, you can rely on it to depict the financial health of your business.

~Kelly