4 Critical Mistakes to Avoid with QuickBooks
I wanted to share some field-tested advice when it comes to avoiding headaches using QuickBooks for your accounting and business finances.
Here is a list of four critical mistakes I see businesses making on a regular basis (this is just the first set!)…
MISTAKE #1 – DOING YOUR OWN PAYROLL
My advice is quite simple…
Don’t. Do. Your. Own. Payroll. (unless you happen to be a payroll expert)
Outsource it to the pros.
Think about it for a moment – the expectation with payroll is 100% perfection each and every time.
Mess up a tax filing? You’re going to hear about it (and it may cost you).
Miss a tax deposit? You’re going to hear about it (and this too may cost you).
This is truly one of those situations where it’s essential to let the experts handle it for you. That way, you can focus on the many other value-added tasks that need your attention.
When you outsource payroll, all you need to do is have the hours in on time and the proper funds in the bank on payday.
They take care of the rest (and are on the hook for mistakes as well!)
PRO TIP: Many payroll providers also offer HR services. That may also be another area for small businesses to consider a hand-off so they can focus on what they do best.
MISTAKE #2 – LACK OF PROPER TRAINING WITH QUICKBOOKS INVENTORY MODULE
Making the decision to keep score and track your inventory in QuickBooks is a big one.
Before you do it, make sure you understand the time involved to support it and the training that is needed to understand how it all works (to do it right, it’s likely more than you think).
The more steps your inventory takes from purchase to sale, the more complex and time-consuming it will be for your team to manage it.
Sadly, here’s the typical way I see inventory play out…
- Dive in and set up inventory
- Use it during the year, not realizing the implications of the inventory module on the financial statements of the business
- At year-end, take a hit to the profits of the business for thousands or even tens of thousands of dollars because QuickBooks was not set up and/or used properly
- Repeat the next year
It’s absolutely true that no inventory system is ever going to be perfect and some adjustments will need to be made.
However, with proper training you can avoid the “dumpster fire” that is called QuickBooks inventory control in too many businesses.
PRO TIP: Already knee-deep in a messy inventory situation? In some cases, it’s actually better to start a new QuickBooks data file than try to clean up the mess. Lots of things to consider with all of that.
MISTAKE #3 – NO PAYMENT TERMS LISTED ON CUSTOMER INVOICES
Are you extending payment terms to your customers (vs. having them pay on the spot with cash/credit card)?
If so, it’s essential that they see these terms front and center on the invoices you send out.
Sadly, I can’t tell you how many invoices I’ve seen that don’t include this critical information.
Implications of not having terms listed on your invoices?
- Savvy accounts payable departments put them to the bottom of the stack and pay when they feel like it (granted, they may do this even if terms appear, but your expectations are crystal clear by including them)
- Slow payments from customers weakens your cash flow and forces you to come up with cash elsewhere to fund your business operations
- Drawing on cash from other sources may result in interest expenses (if you borrow it) or other critical business activities not getting funded.
PRO TIP: It’s very easy to update your invoice templates to include the terms field on printed or e-mailed copies of the forms.
PRO TIP #2: If you create new terms in QuickBooks, be certain you define them properly! For example, if you set up Net 7 Days as a term, make sure the “net due in…” field shows 7 days as well, not 0. If you don’t, QuickBooks messes up the calculations on your aging report.
MISTAKE #4 – NOT RUNNING A MONTHLY PROFIT AND LOSS/INCOME STATEMENT REPORT
Businesses spend days and weeks entering transactional data into QuickBooks.
They literally spend seconds (or in many cases no time at all) understanding the results and implications of all those transactions.
And this is exactly where the profit and loss report (or P&L or income statement as some refer to it) shines!
Think of this report like a GPS for your finances. It gives you guidance as to what happened over the last month to your revenues, expenses and profits – the good, bad, and ugly of it.
The profit and loss report isn’t the only report you will need, but it sure is a big one!
Benefits of a P+L report?
- Insights into how you did for the month – profitable? not profitable? (don’t confuse profits with cash flow)
- Easy to spot trends (up or down) when you stack months next to each other – for potential corrective action where needed
- Makes the year-end process WAY simpler for your tax accountant!
PRO TIP: Get in the habit of cranking out a profit and loss report in QuickBooks every month. It’s super easy to do and the insights you gain will be invaluable.
NEED HELP SORTING ALL THIS OUT?
I’ve been helping small businesses with their finances and QuickBooks for a very long time now. Let’s talk about helping you make sure QuickBooks is providing the best possible experience and information for your business.