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Doing QuickBooks The Smart Way

May 30, 2011

Many years ago I worked in a Fortune 500 company.  I had a tricky problem with accounts receivables and I needed a customized system to help track and collect them.  The "IT Department" gave me a quote of $100,000 and a wait of 2 to 4 years.  Instead, I bought a $99 copy of QuickBooks and had built a new system within two days.  Despite this initiative, I had to go through the Dilbert-like experience of a three hour meeting with all kinds of interested parties to cost justify my decision. 

Today something like 80% of small companies use some form of QuickBooks to keep their company accounts - despite the valiant efforts of Microsoft to make inroads.  This is both a blessing and a curse for consulting Chief Financial Officers.  It is a blessing because the accumulated knowledge of working with QuickBooks allows me to quickly tune systems and extract meaningful information.  It is a curse because the proud old profession of "professional book-keeper" has been largely replaced by legions of amateur Quick Book "experts".  I herewith offer some collected wisdom on how to make the most of your QuickBooks installation:

  1. Right Sizing: QB comes in many flavors and you should make sure you have the right product for your business.  I have seen one man companies using the $4,000 Enterprise edition and $20 million firms using QB Online.  QB PRO works for most companies up to about $1 million.  After that you can specialize with an industry version of QB Premier.  If you have lots of locations, companies and users it may be time to consider QB Enterprise.
  2. QB Online:  Intuit recommends this for start up businesses.  I recommend you switch after one week.  The software works well for out of the office, on the road professionals, but it is awkward to use.
  3. Chart of Accounts: A dead giveaway that you don't pay too much attention to your financial statements is one of those P&Ls with all the expenses in alphabetical order.  You really need to build a Chart of Accounts with meaningful Sections and sub sections. Such as Payroll:  By Dept, Payroll Taxes, Commissions; Facilities: Rents, Maintenance, Property Taxes; Financial: Insurances, Income Taxes and Interest Expense.
  4. Class: This is a powerful tool that is widely misused and misunderstood by many new users. Class is the QB way of segmenting information, so you can report on departments, geography or products.  Unfortunately, you can only report on one breakdown, and combining departments and geography in your Class list is a recipe for confusion.
  5. Items List:  Also frequently misused.  Items are used to break down Sales and Cost of Goods by product groupings.  Item Lists are used to manage inventory and can be used with price lists.  The Item List generally gets built on a random, haphazard basis so that items are duplicated.  Again, taking the time to produce a meaningful list with a structured numbering code will pay dividends in extracting useful information.
  6. Bills: This feature is often abused by small business, usually by omission.  Entering bills gives you control over cash flow.  If you just enter checks as you write them you have no ability to project and manage your payments. 
  7. Expense versus Item on Enter a Bill: This is another area that many new users find confusing. If you have an effective Item List, then every bill for Cost of Goods Sold i.e. parts, contractors, freight etc will be coded using the Item tab.  Most Overhead Expenses: utilities, rent, supplies will be coded using the expense tab.
  8. Balance Sheets: I often have to blow the dust off of the Balance Sheet when I first print them out because many business owners don't look at them.   Old paid off balances, and negative assets or liabilities are rampant.  Remember, your banker will form an instant impression of your business from this, and you must have a credible Balance Sheet if you are serious about growing your business. Print one out today and circle every suspect amount. Ask your accountant/ bookkeeper/ Controller to explain it to you.
  9. Reports: QB has an extensive reporting capability, but most companies begin and end with a single period P&L.  Explore the use of filters and the ability to customize columns and rows.  It's surprising what you can produce - especially if you’re Chart of Accounts, Item and Class Lists have been set up correctly and firing on all cylinders.
  10. Credit Card Management: I have seen double counting of charges, when individual items are downloaded and then a bill is created categorizing the credit card payment. This is too big of a topic for here; but it is a classic area for mismanagement.
  11. Know when to quit: To a QuickBooks "expert" every solution is QuickBooks.  But don't limit yourself.  If you have grown fast, maybe it's time to leap beyond QuickBooks.  Sophisticated inventory might need a Great Plains or Navision.  Maybe an industry specific software package is more appropriate for your business.
  12. Control your CPA: If you can't get financial statements in less than 30 days after month end, because your CPA is still making "adjustments", you need to ask some questions.  If QB is used correctly, you should be able to produce decent reports within 5 to 10 days - essential if you are serious about your business.

I could go on - but I won't.  If you think your QuickBooks needs a tune up or a review, then maybe it's time for B2B CFO.

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