Tracking Profit and Loss with Quickbooks
Let's take a look at the profit and loss for larry and when we set up blue steel we'll take a look at that too but this has lots of entries in and I want to show you what it looks like so we go down to company and financial and let's just look at profit in law standard now what is profit and loss standard this form is what we can use to make all of our cash all of our tax entries from this is where we figure out how much we're going out we're going oh on taxes because what do we pay taxes on? We pay taxes on our income minus our tax deductions now not all of our company expenses air going to qualify his tax deductions a lot of them will some of them won't um but this is going to tell us whether we are doing a good job managing our business let's see how larry's doing what's our let's look at him let's look at him last year let's go to last fiscal year so here ago last fiscal year last fiscal year for larry ran october through september now remember larry's in a cruel basis taxpayer and...
I said we want to be tax based her cash based so we just go to customize report cash okay and the numbers change a little bit so larry in his first year how much did he lose you know I make this go away eighty five eighty six thousand five hundred and three dollars and forty nine cents now that might not be terribly unusual for the first year of a big real deal start up you're gonna lose money in your first year that's the way it works so you better have a great big fat investment so that you can pay yourself so that you can meet your seventy five thousand dollars and personal expenses during the first year because you gotta pay yourself right so it's not hara horribly alarming that larry is losing a little bit of money so let's look at that's larry last year now let's change the date of the report and let's look at this fiscal year today let's see how larry's doing oh that's his balance sheet I apologize uh reports company and financial profit and loss standard let's look at this fiscal year to date let's go ahead and customize the report to be a cash basis tax payers so it makes sense and now we know larry this year how much you can't see it I want to stay away from the magnifier he's lost twelve thousand two hundred and sixteen dollars and four cents and kind of see it down here at the bottom so he's doing better in here too isn't but what happens when larry's net operating losses exceed the amount he's invested in his business? Can that happen you have to start eating your assets in order to do that so all of his cash is going to be gone all of his assets are going to be gone because the balance sheet has to balance right once there's no no accounts to subject money from you've got a problem you can start to finance it with debt by adding more loans in but that's probably not the best way to run our business so the profit and loss is kind of what we pay taxes off so if this were our year in profit and loss report if we were going teo pay our taxes at the end of the year guess what on our ten forty schedule c there is a deduction box for utilities if I wanted to know how much I got to deduct from my income for utilities what's quickbooks going to tell me I should put in that box five hundred eighteen dollars and five cents right if he wanted if he uh there's also a box on quickbooks for repairs if I needed to know what my repair deduction wass for this particular tax year I'd print out my profit and loss I know what the repairs are I know that there were some computer repairs and if I ever got audited I could come into quickbooks and click on the computer repairs and look it tells me there were two computer repairs that I paid one was uh they were both to this computer services company and you know what? I can click on it again and I can drill and even more to the actual bill for the labor and I know that it was bartered and I know it was paid and I who it went to and all this is and I'm going to show you when we start blue steel how easy it is to enter all this stuff but quickbooks is just keeping track of it it's given me a system for organizing all of this it takes no time to do this. So when the bill comes in you know all that stuff in you write a check to pay and you're done that's way life works you get a bill, you pay it you're just telling quickbooks I got a bill I've paid a bill in quickbooks keeps track of it and listen, remember what I told you about receipts and remember what I told you about quickbooks guess what if I would have scanned the bill from computer services by d j to my scan folder and I would've drug it and dropped it on tio uh that particular transaction guess what's going to live there a copy of the receipt now that is pretty cool. I mean, this is really getting organized and remember startup failure rule number six was what lack of organization getting organized I mean, this computer program does it for you and it's like photoshopped I just want everybody to get behind this idea that when you buy photo shop did you know how to use every single thing on it? No no. When you bought adobe creative sweet did you know how to use everything on it and what all the shortcuts were? No, you bought it because you recognize that it was the industry standard for a powerful tool that used by professionals that was a sign that I'm somebody that knows what they're doing so if you want to on your the financial side of your business be recognized it is somebody that kind of knows what they're doing that takes their business seriously this type of software system is really what you need to consider using so anyway, now all we have to do is close these windows and we're gonna go right back to our profit and loss sheets let's see what else we can oh he's got some legal bills let's see what larry is doing so remember to zoom in all you have to do is mouse over the bill double click on it and we know that on december fifteenth apparently he's using small senen associates france molson is his attorney uh and he paid three hundred and seventy five dollars in legal fees to her for something and see this memo thing watch this I would have liked to have seen him right in here deal with copy right issue in the memo section, and then we can click save and you have to record your changes. It might not let me do that. Oh did so now, if it's the end of the year, he didn't remember what he paid france malsom for doing, he can click on that, and now it reminds him that he dealt with this copyright issue pretty cool. I like it. Um, so let's, uh, and then do you want to look it let's? Look at his check that he wrote there's his jack he actually see where it says to print he actually printed this from quickbooks, so if you're paying bills monthly, you have two choices. When you write a cheque, you can either put a check number, and it matches the one that you're riding out of your account on paper or you can leave it saying to print and then at the end of the day when you're ready to print checks, you've gone to staples or you've ordered online some online checks, you let him in your inkjet printer and you run the batch to print and it prints out all your checks and you sign him so you don't even have to write checks with quickbooks. And if you're not writing checks, you know, but once a week and you're going to go spend a couple hours dealing with your accounting because remember, from the beginning, do photographers just take pictures all the time? Do we party like rock stars all the time? This is part of our pie chart that we've got to deal with. I mean, we've got to do our accounting, and so we're going to spend a couple hours once a week or once every two weeks, right in our checks quickbooks allows you to not even just to put your checkbook away. It's your checkbook register? Uh, it takes care of keeping track of your deposits, it takes care of keeping track of the checks that you're right, it'll even print him for you. The only thing I won't do is sign them, and it probably has a plug in for that. So it's, pretty cool and look, we're just we're just looking around his books. Look how easy this is, and his accountant can log in through the microsoft terminal services or whatever apples version of that is and look at all of his entries and fix his mistakes. So if you're looking to save money, if you make all of these accounting entries and you're only paying your accountant or bookkeeper toe go in and fix your mistakes that's a heck of a lot cheaper than starting from scratch remember how I said by my legal forms and take him to your attorney in your state and have them review it and make it your own that's a heck of a lot cheaper than saying go draft a form from scratch so this gives your accountant head start at the end of the year lorenzo you look like you're bursting to say something yes there's also take into account that you know you may be a quote unquote a home based business and like if you have utilities that deal with um you know me because you're actually having to use some things you know, the lights for instance I mean you have to use part of that for your you know, photography business but does it take into account that a fraction of it would be are you planning on sticking around for the end of the course? Yes then when I get to the home based office deduction section you just take good notes we'll do I will be here for you and I will answer that question jam did you have anything there? Uh nick benson photo asks craig, can you please clarify how you determine how much you actually pay yourself is a paycheck and have that documented for tax time especially if you are the only employee of a small business that's a loaded question if I'm a sole proprietor I don't have to I can take out whatever I want I don't have to pay myself a paycheck because I'm gonna be uh I'm gonna be in the same position tax wise no matter what it's all going to go on my uh my ten forty I'm gonna pay self employment tax on everything if I am a sub s like bob I'm going to pay myself a salary based on whatever I can afford or if I'm making a ton of money it has to at least be a reasonable salary I'm gonna pay my taxes based on that just as if I were hiring somebody off the street that's simple if I'm an llc I ca n't take owner's draws if I want teo and pay tax on that uh the end of the year okay I don't have to worry about paying myself a salary I can take draws whenever I want or I can actually set myself up as an employee cap my salary at a certain level then I only have to pay that self employment tax up to um that that cap of whatever my salary is and then everything else just gets taxed att the regular level of my business with all of my other income I'm not sure if I I can't answer that question in three separate ways because it really depends on how he's doing in business ran basically what you said is there is no golden rule there's no golden equation like it's twenty percent of your profits secure your salary so then you and listen, that can be awfully confusing and, you know, going back to my slide about getting professional help I think we may have had that one already you've got to have a relationship with an accountant and that's a question that you really need to go in and sit down over a cup of coffee and say, hey, I'm considering paying myself a salary what are the pluses and minuses of that you could do that by email it's not a difficult question to answer but it's so individually based that you know there truly is no one size fits all uh answer for it great. All right, we're going to continue with q and a and then goto lunches that sounds great. All right? Diane lundgren photography s a cz cash basis when I book a wedding for two thousand fourteen and take two thousand out as a deposit now in two thousand thirteen and the other two payments of two thousand and two thousand fourteen how do I handle that for invoicing as well as income and taxing our taxes? Well it's so amount for two thousand here that is an excellent question who has who has been diane asked that that is so relevant about that listen if I am a cash basis, tax payer, how much was the wedding? What was the total cost of diane's wedding six two this year and for next year sorry, two thousand serious for next year. All right, if you're a cash basis tax payer when she receives that deposit and it hits her bank account the income to day, how much does she pay sales tax on today? Our sale? How much? How much sales tax a cruise to two grand isn't a cash basis tax payer, I mean that sales takes on two grand, right? If you're in a cruel basis, taxpayer and somebody owes her six grand and that that owing starts today, how much does she pay sales tax on six? How much has she gotten in to so now? She's having to dip into other money to satisfy the sales tax obligations on money that she'll get next year. Now, when she gets it next year, she doesn't have to pay sales tax on it next year, she doesn't have to pay income tax on it next year. Here's the scary part for us, where cash is king we need cash to run our business if we're in a cruel basis taxpayer and let's say that she books this year you have a great year you have a great wedding show and you go book sixty thousand dollars worth of weddings and you get deposit get five hundred dollar deposits on sixty on sixty grand where the weddings what's my income tax liability is an accrual basis taxpayer sixty do I have sixty? I don't even have enough money to pay the taxes on it. You get it? This is a big deal. So from a cash basis tax payer and I've taken in two thousand dollars in deposits on sixty grand worth of weddings what what's my income for this year two thousand bucks that's the main difference between cash and a cruel and so all of the large corporations there's some advantages for them too being accrual basis taxpayers it allows them to differ and do some things but cash is really where we need to because you can get in you make the wrong election when you file your first tax return is an accrual basis taxpayer you got a problem so cash is like cash so it terrel photography is because people were asking about this about why you say you know you don't recommend it for not just photography businesses but for really for small businesses a cruel any business where cash is important where you have tio, which that's every business, honestly, but for small businesses there, there is not usually a good reason to be in a cruel basis taxpayer, I'll defer that to their cps and attorneys, but unless you're prepared to pay all of the tax liability that comes with the accrued income, you've accrued the income in two thousand thirteen. But you don't have to perform the work until then. The way the companies get around it is they'll book it is, you know, prepaid, they take it in book it as prepaid weddings and it's an asset it's not income yet, and then you have to make another accounting entry to move it out of prepaid wedding photography into the income account. It involves a lot more accounting entries to try and avoid paying the taxes on it. A tolerate disproportionate when the actual money's coming in this would be an example with insurance, and maybe this will drive the point home if I pay my, um, in a cruel taxpayer and I have car insurance who has car insurance, we'll have car insurance, and they say my car insurance is twelve hundred a year, and I write a check in january first for the whole year. I can't expense all of that in january. I have to carry it on my books is prepaid insurance is an asset don't feel I can ask that I just wrote a check for twelve hundred dollars. It feels like an expense, but isn't accrual basis taxpayer it's, not an expense it's an asset, and then every month I have to expense out the insurance, and I'm sitting there, making all these accounting entries, moving it from an asset account to an expense account. Double entries to entries. Quikbook does it all at the same time, but you get the point. This this accrual basis stuff is just complicated. Cash is simple, like cash.