Budget Amounts & Quickbooks Review
Let's talk about cost of your product. So again, most of you in the audience or doing project type work. And Jackie mentions that there is a price of the client is budget and is willing to pay. Okay, so and this relates to budgeting. So there's a There's a concept called Target costing, so you can start at the top and work your way down, so to speak. So you have a client that's budgeted $50,000 for a product project. That's the budget. That's what the clients willing to pay. So that becomes your sale price you have. You obviously have costs that you're going to incur, and the difference between the cost of the sale price is your profit. So what you're trying to do as a creative person is to manage her the costs, and specifically, what I mean by that is you need to minimize the costs here without without, while maintaining the quality of your output right off what you produce, okay, because you can't You can't do anything about the top, right? You can't bump up the ceiling. They're not ...
willing to pay anymore, so the only thing you can control to get a decent profit is is control the cost, right? That's the only thing you control. But with creative folks in the audience, you have the additional concern. Thank you. Is $40,000 in my example going to produce a quality product that you're satisfied with? Now? You know, all of us in business, I think are willing to spend more time than we plan to get something right, Right. We all do it. So one way to get out this quality product and still keep your prices down is to, you know, doom or the work on your own that you might hire somebody else to do, which goes to the make versus buy decision. Maybe you think about that. You know, in order to keep the cost of $40,000 I could go out and hire that assistant production person, but I'm going to do it myself. Or I could do the I was gonna hand off the editing to somebody else. But since the costs have to remain here, I'll use the equipment, do it myself to stay within the budget because there could be a payoff. I mean, there's some good news here and The good news here is is that the client comes back and ask you to do business again. And then you make more profit when you come back, all right? And I've done that before. I've done consulting and training where I give somebody the first half hour for free because they email me and tell me I need 10 hours of help and I say, Well, before you make that big investment, I'm willing to give you the half our first half hour for free and you could make a judgment on whether this is effective or not. It's 1/2 hour of my time. It's no big deal. Okay, so there are times when you have a ceiling above which you can't charge. That becomes your sale price. You want a cost that creates the quality product that you want and have a reasonable profit. Now, of course, the other part of the equation is if you really think it costs 45,000 you can cut your profit if you you know, if you want to do it that way, that's certainly possible to that's called target costing inventory formula. We've talked about inventory, but what I didn't do yet was to talk about the formula for inventory. Now let's think about a t account again. Uh huh. Inventory is an asset. Okay, But now I'm gonna put a finer point on it because you have beginning inventory. Let's say it's you add in your purchases. 500. You sell some stuff, we take it out of inventory. It goes into cost of sales 300. So it's 1500 less three. Hundreds of my ending inventory is $ beginning inventory of 1000 plus my purchases less my sales. I need to write that down is my ending inventory. So when you are budgeting number one, I did the cash flow roll forward where I have beginning cash. I had receivables from sales. I had dollars you send out for making your product, and I had an ending balance. This is the same kind of thing, because if this is January ending inventory, it's February. Beginning event or okay. Which brings us to a point about how much inventory do you have at the beginning of the month? Uh, I mean, abbreviate began a month. You want to have enough inventory on hand so that you can meet sales of the beginning of the month, Right? You don't want people walking in your store or going to you online when you're out of product and risk losing a sale. So you need to budget for some beginning inventory every month. And, yes, that's gonna cost some money. And, yes, that's gonna hurt your cash flow, cause you gotta have some inventory, but you gotta have some of the beginning of the month or else you might risk losing a sale. Let's go on and talk about relevance. Relevance means that something is important enough for you to pay attention to relevance in My point here is is not not all this accounting information. Not everything in QuickBooks is relevant. Okay, we did that example where we said, with the make versus bought with a seller process further, if I spend more money in criminal cost, do I make more money? Incremental revenue? Well, if the difference is only one cent, you probably wouldn't do it. It's not that's too small an amount to be relevant. So this gets to how much information you need out of QuickBooks, your accounting system or a conversation with your C p A. The cost of the information has to be less than the benefit it produces. The cost of the information has to be less than the benefit of producers. So we're all asked to create his accountants. Lots of stuff that nobody uses. In your case, don't waste your time pulling data out of QuickBooks You don't use because remember that QuickBooks is a black hole of information. You wanna print reports, even spend all day putting reports and quickly don't print stuff that you don't need. So what do you need? Well, I think you certainly leading your income, your profit and loss. I'm gonna go back to QuickBooks one more time. I'm not gonna do it now, but later, you need your profit and loss for sure. I think you need to look at your cash. You know, look at your cash balance to make sure that's reconcile. So I spend time on that cash section, and finally, you gotta look at your balance sheet. So income statement. Cash reconciliation balance sheet. All right. Those three. You certainly certainly should look at now. We've talked about throughout this course that you may want can reports or special reports in addition to that. And that's fine. But be clear. And this is where you need to talk to an account and think about your business on exactly what you need to do what you need to do and set the rest of it aside. Let's not waste time on it, all right? Okay. Let me do product life cycle. I'm gonna go to another page that's too low. Those of you in creative fields, you use heavy technology, many of you, and you find out that that technology gets out of date quickly and that technology generally as a business, can get out of date quickly. Right? So there's this thing called a product life cycle, and this may relate to your business. I know many of people out there are photographers, and we have the conversation that some people have still have dark rooms to develop film. But that's, you know, that's a technology that's going away. So just consider this for your business. So you start a business or think about a product. Generally, a product starts. It has a growth phase and then economics. When things kind of a level out Facebook's a good example where Facebook uses kind of leveling out, it's called a mature business, and then eventually, ah, business may go into decline. Now, why do I bring all this up? A couple reasons you need to consider the business that you're doing or trying to do and where you fall on this line. Okay, if you were doing of photography business where he specifically used a dark room to develop, you may think that's great and unique. But if the market doesn't see that it's valuable, that's a business that may decline. So I want. What I'm suggesting is that you think about where you are on this line now. Some businesses really don't change much. Okay? People need rules on their houses, and neither plumbing fixed well. That's an industry that really doesn't fit this trend. I'm talking about most other industries where things start. There's a growth online education, the great example. We've had explosive growth in online education, but lots of businesses flatten out. Were it matures and the demand flattens out. Facebook may be a good example. Another one is viewership off Major sports, baseball, football, basketball and attendance. The attendance is flattened out. And the reason that attendance is flattened out is with these all these huge TVs and great technology. More, more people would rather just watch at home. So attendance and major sporting events is flattening out, so they need to change. Right? So I'd like you just to consider where you are on this product, lifecycle. Okay, What I'm going to do just to make sure I don't forget, I want to go back. And I want to just buzz through some of the things we've done on QuickBooks. And then I'm gonna finish up the course with a little bit of new material in some review, What I'm trying to do is to tie this all together. Let's just buzz through this and just try to solidify in your mind. You know where things are is really what I'm getting at. Okay, so remember, if you go to the wheel, you can set up your company here and company settings. We reconciled our bank account over here. We found out that if you want budgeting, you can add that on. That's an ad on. So those are the main things that we covered. That's that is under what I call the wheel the wheel right there. This one shows your recent transactions, which I think is a great tool because it kind of helps you remember? Well, did I do that transaction? So, for example, that check we wrote for that service banks service charges here that got posted as a check. And it was a service charge that we were charged by the bank when we did our reconciliation. And we see that the server charges on the bank statement. We did a service charge. So you've got recent transactions. There's two places while your problem where you will probably spend most of your time either on the vertical page here or on the plus here. And you've got some choices. As we found out, you could go to customers here. Or you can go to customers over here. Vendors here, vendors here, employees on the side, and you see how how this flows. So you're probably going to spend most of your time on the X, which is the create. Remember that when you open it for the first time, it's going to show this and you can expand it. We created invoices. We created an estimate. We wrote checks, we had expenses and we created some payables. And again this was the screen, the create screen where I did journal interests. Also note, because I didn't do one. This is where you could make a bank deposit. And again, where you could make a bank deposit is the create over here under other. So I think you're gonna spend a lot of time here. Now, don't forget in the middle, because I don't want to neglect it. You've got some great stuff here in the middle of the page. They do. This is, I think this is the best improvement that QuickBooks online is done. You got income here, open invoices, meeting those people that you build them paid yet overdue people that owe you that you consider late. If you click on that, you see that nobody's overdue and you see how this red box goes up a little bit. That would occur when on the invoice, when it says it's doing 30 days. If it's the 31st day, that invoice amount open is gonna move to overdo. Nobody's overdue right now and finally paid in the last 30 days expenses super cool you can see how it gives you different shades of blue. I know. For you creative people, this is the most creative. This is not, you know, the Mona Lisa, but it's kind of cool how they give you different colors and they tell you the categories of where those came from that's gonna cool. It also says how much you've spent, how much you've expensed in the last 30 days, finally, at the bottom profit loss. And let me remind everybody that the income, statement and accounting world is what profit of lost profit and loss is in quickbooks world. So don't forget that there's some valuable information here just in the center. Now, this activities down the right here. You may or may not think that's useful. It gives some information historical information. I personally haven't decided whether I like this or not. It does show all these transactions if that helps you. Great. I have a jury's out with me on whether that's all okay, left hand side transactions. Here's our banking. This would be if you were if you were going to bring in download transactions, which I would highly recommend from your bank. You do that here sales. We created invoices from here. We also created an estimate from here you'll see at the bottom that we had invoices estimates in the same place, and it also told us when an estimate became an invoice, we closed the estimate and the invoice was created. Open invoices or those were people owe us money that yellow box open invoices relates. Excuse me to these down here. Paid invoices in red. Agreed to this area up here. I just think this is eye catching. It's not yet. It's not Michelangelo, but it's just eye catching for me. Expenses, Expense transactions listed here. What I'm hoping is that if you're out there watching that again, if you've got this course in front of you and you can watch the video and then minimize my video and go click around and then go back to the video that this is going to start to sink in, that's what I'm trying to get across reports again. Let's not use reports that aren't meaningful. I think the balance sheet you definitely need. Remember that the groupings that we have assets, liabilities and equity here they're always in that order. Remember that you can click on any of these numbers and get the detail, so there's all the cash detail. Not surprisingly, we had more cash transactions than any other account. That's the way it is for most businesses, maybe half the 40% of the transactions. You'll post effect cash in around so again reports balance sheet. You can click on any of the numbers and get the detail. And also remember that when you click on a number, you get all the transactions. For that number. Let's click on accounts receivable. You get all the numbers for accounts receivable. Okay, if it's two or 200 you're gonna get all the numbers. So that's balance sheet. Go to profit loss, income expenses. There's your net income. That's what your accountant's gonna need. If you ran this report for the whole year,