Bookkeeping Basic & Quickbooks for Contractors

Bookkeeping Basic& Quickbooks for Contractors

Presented by: Focus-Grow Bookkeeping Terry Chong & Wayne Lee

Sponsored by: Merriwether & Williams Insurance Services

at SFPUC, Contractor Assistance Center on 3/20/14.

(c) Focus-Grow Bookkeeping

Why Bookkeeping?


-- because money matters.


Who is Focus-Grow Bookkeeping?Terry Chong

Degreed in Accounting from Golden Gate University

Worked with a local CPA firm for 7 yearsA Certified Quickbooks Proadvisor for 7

years at Gold levelBeen in business for 9 years


Wayne Lee:

Degreed in Accounting & Finance from San Francisco State University

10 – 15 years hands-on work experience

A Certified Quickbooks Proadvisor


2 minutes pause for group discussion:

Who are you?What do you do?Why are you here?


A business owner has 3 areas to cover:

Marketing Financial

Operations


Operations: is the work you do that generates income. You spend most of the time here.

Marketing: work you do that bring in new businesses, and building client relationship.

Financial: is every thing that has to do with money; keeping track of money in and out. Generating reports showing how your business is doing.


Who uses financial reports?3 parties who are particularly interested:

Business Owner Bankers Government


Why should a business owner care about bookkeeping?4 basic reasons:Profit:

Am I making or losing money? How much did I make or lose?

Cash flow: Do I have enough money to cover all the bills? Where does money come from and go?

Strategic Planning:Time to expand? Time to borrow? Time to hire? Time to invest in equipment / facilities?

Taxes: Do I have enough information to file my taxes?


Banker / Financial institutions – to assess your credit risk. They want to know if you are a good risk; that your company will stay and prosper, that their loans will be paid back.

Government -- for compliance issues. Governments want to know if you report all income and pay all taxes; i.e. payroll, sales, local and Federal & State income taxes at the right amounts and by due dates.


How does cash work?Cash flow is different than ProfitUpfront Job Costs: - Say, wages are $5000/week - Week 1 $5000

- Week 2 $5000 - Week 3 $5000- Week 4 $5000. Total cash paid out $20,000.

- When first month ended, we invoiced client.- Client has 30 days to pay.


Month 2:Again you pay: - Week 1 $5000 - Week 2 $5000 - Week 3 $5000- Week 4 $5000. Total cash paid out $20,000 in month 2.You have now paid out $40,000, just on wages.

At the end of month 2, you client paid the bill. Finally you recouped some of the costs, plus some profit.


It takes $40,000 and 2 months to front one job.

If you get a 2nd job of the same size, you have to front another $40,000 for 2 months. That makes $80,000.

If you get a 3rd job of the same size, you have to front another $40,000. Now you are 3 x $40,000 out, that is $120,000.

That is a lot of cash to put upfront to carry each job.


Each expansion is supported by additional creditYou want to go to the banks and ask for

credit when you plan to expand, before you really need it.

When you ask for credit when you need it badly, very likely you are too late.


How to raise fund?2 types of financing:

DEBT financing: loans, lines-of-credit, credit cards; i.e. money borrowed that need to be paid back.

EQUITY financing: by finding partners or shareholders, i.e. by selling equity, giving out ownership.


How to get good credit / FICO score?FICO score is the most important score

in your life. It’s much more important than your GPA.

To get a good FICO score, you need to do only 2 things, by demonstrating that:◦ You have the willingness to pay: i.e. you pay

on time.◦ You have the capacity to pay: i.e. you pay at

least the minimum.◦ You satisfy both criterions by paying your

credit cards minimums by the due dates.


The last resort for funds:is called 3 F’s:stands for:

◦Friends◦Families

and◦… Fools


Reporting Basis – 2 main ones:Cash – Money received is income.

Expenses paid are expenses, i.e. it is all about cash.

Accrual – Once service is performed or product delivered, it is income, i.e. when income is earned. Expenses are expenses when incurred, regardless of when they are paid.


Additional methods for Contractors:Percentage-of-completion method – on long-

term projects that last more than a year

Completed project method – when a project has high uncertainty if it will happen or it will complete.

What is the preferred method?GAAP (General Accepted Accounting Principles) recommend that you pick whatever basis that best represents your financial situation.


Numbers tell a story…

They tell 2 things:QuantityQuality


Quantity = Size

Company A has $100,000 in sales. Company B has $1 million dollar in sales.

Company B is much bigger than Company A.

Company A Company B Sales 100,00

0Sales 1,000,000

Cost of Goods Sold

60,000 Cost of Goods Sold

800,000

Gross Profit 40,000 Total Asset 200,000


Quality = HealthQ: Which company is better?

Company A Company B

Cash 40,000 Cash 10,000A/Receivable 60,000 A/Receivable 20,000Inventory Inventory Fixed Asset Fixed Asset 70,000Total Asset 100,000 Total Asset 100,000 A/Payable 30,000 A/Payable 60,000S/T Loan Payable

10,000 S/T Loan Payable

80,000

Total Liability

40,000 Total Liability

140,000

Owner Capital

10,000 Owner Capital 10,000

Owner Draw (50,000) Owner Draw (150,000)Retained Earning

80,000 Retained Earning

80,000

Net Income 20,000 Net Income 20,000Total Owner Equity

60,000 Total Owner Equity

(40,000)

Total Equity & Liability

100,000 Total Equity & Liability

100,000


Both Company A & B has $100,000 in total assets, which one is better; i.e. stronger?


Company A is much stronger:

A has much more cash and A/R which can convert into cash quickly than B.

B tied up most assets in fixed assets, which cannot be converted to cash quickly.

A’s cash and A/R is more than sufficient to pay off A/Payable and S/Term loan. B has only $30,000 cash and A/R, which is way shorter than the A/P and S/Term Loan totaled $140,000.

Both owner contributed equal amount of capital, and made the same amount of income. A has positive equity, whereas B has negative equity, for owner-B withdrew more than what he put in and what the company has made in profit.


Accounting is quite simple: It has only 5 major elements (or types of

accounts); 3 on Balance Sheet, and 2 on Profit and Loss.

The 3 on Balance Sheets are: Assets, Liabilities and Equity

The 2 on Profit & Loss are: Income and Expenses


It has three major reports:Balance Sheet: shows assets (things you own),

liabilities (obligations you owe) and owner equityProfit and Loss: shows income, cost of goods sold

(all the direct cost), expenses, and net profit / loss.Cash flow: reconciling your net income / (loss) to

cash-on-hand from the beginning to the end of the period. It reflects how money was spent; such as investing in equipment / fixed asset, or how money was acquired; such as borrowing from banks or raising capital by selling stocks.


Sample of Balance SheetCompany ABalance Sheet 12/31/13

12/31/13

12/31/12

Changes

Assets Bank 100,000 200,000 (100,000) Accounts Receivables (A/R) 500,000 300,000 200,000 Inventory Total Current Assets 600,000 500,000 100,000 Equipment 200,000 100,000 100,000 Furniture & Fixture 50,000 50,000 0 Leasehold Improvement 400,000 400,000 0 Less: Accumulated Depreciation

(60,000) (50,000) (10,000)

Total Fixed Assets 590,000 500,000 90,000 TOTAL ASSETS 1,190,000 1,000,000 190,000 Liabilities & Equity Liabilities Accounts Payable (A/P) 300,000 200,000 100,000 Credit Card 60,000 60,000 0 Short-term Loan 100,000 100,000 0 Total Current Liabilities 460,000 360,000 100,000 Long-Term Loan 350,000 420,000 (70,000) Total Long-Term Liabilities 350,000 420,000 (70,000) Total Liabilities 810,000 780,000 30,000 Equity Capital Contribution 100,000 100,000 0 Additional Paid in Capital 200,000 200,000 0 Retained Earning (80,000) 50,000 (130,000) Net Income 160,000 (130,000) 290,000 Total Equity 380,000 220,000 160,000Total Liabilities & Equity 1,190,000 1,000,000 190,000

Sample of Profit and Loss: Company AProfit and Loss 1/1/13 - 12/31/13

Income 1,066,000 100% Cost-of-Good-Sold

Labor 400,000 37.5% Material 200,000 18.8% Job Overhead 40,000 3.7% Total COGS 640,000 60.0% Gross Profit 426,000 40% General &Administrative Expenses:

Auto 20,000 Insurance 25,000 Marketing & Promo

5,000

Office Supplies 3,000 Professional Fees 40,000 Rent 60,000 Repair & Maintenance

7,000

Telephone 15,000 Travel 5,000 Utility 6,000 Total Expenses 186,000 Income before Depreciation & Taxes

240,000

Depreciation 10,000 Taxes 70,000 Net Income after depreciation & taxes

160,000 15%


Sample of Statement of Cash FlowCompany AStatement of Cash Flow 1/1/13 - 12/31/13

Net Income 160,000 Non-Cash Activities: Depreciation 10,000 Adjustments caused by Operations:

Accounts Receivables (200,000) Accounts Payables 100,000 Net cash provided by Operating Activities

70,000 Sum of the above

Investment Activities Equipment (100,000) Net cash provided by Investing Activities

(100,000)

Financing Activities Long Term Loan (70,000) Additional Paid-in-Capital

0

Net cash provided by Financing Activities

(70,000)

Net Cash Increase/(Decreased) for the period

(100,000)

Cash at the Beginning of the year

200,000

Cash at the End of the Year

100,000


15 Minute Break


On Data-Processing -- Get Organized first! Mails go to in-box

Then they are sorted into piles of similar tasks: ◦ A/Receivables - checks◦ A/Payables - bills◦ Something else

3 piles: To be Processed, to be Filed, Or pending further processes.

You need a filing system, and a way to organize / work the paper.

Get organized! Else, paper multiplies!


Tasks -- Hierarchy of Importance:Invoice

Client

Collect Money

Everything Else


Quickbooks:Get Quickbooks desktop version $250

(desktop is ROBUST)Do not get Online version (online is mediocre)

To learn Quickbooks:- Book: Quickbooks: The Official Guide. - Quickbooks Help menu: watch tutorial

(video clips)- Quickbooks come with Sample

Company Files.


Quickbooks is forms-driven. You get more information or reports by using forms; i.e. A/R invoices, A/P bills.

For job costing, if you have employees hence labor burden, your payroll function must be integrated with Quickbooks, so that it allocates wages, union benefits, payroll taxes and worker comp to various jobs; i.e. you must use Intuit Payroll Services.

3 major bookkeeping tasks only: enter data, reconcile to bank / credit card statements, and review financial reports.


Quickbook Demo:














How do we work with clients?Onsite – on your site

We act as your in-house accountants. We take care of most if not all bookkeeping tasks; i.e. A/R, A/P, payroll, bank recon, financial reports.

Offsite – from our officeClient sends in data on monthly / quarterly basis. We compile into financial report. Good for small businesses who handle all A/R, A/P themselves and just need a little help with compiling financial reports.


Q & A


Thank You!

Focus-Grow Bookkeeping

Terry Chong & Wayne [email protected]

mailto:[email protected]