Archive for December, 2006

Financial Think has a new format. You can now access all the online “how to” financial resources from Small Business Logic Inc. in one place. These resources used to be spread between our website and the blog itself. Please let us know if this change causes you any technical difficulties so that we can try to fix them ASAP.

We apologize if readers were re-sent one or more blog posts during our transition.  We are currently resolving the issue that caused this. 

Thank you to all our readers for your support and suggestions.  

The IT context of using QuickBooks® has grown increasingly complex and expensive over the last few years. For example, Intuit® recently warned users that if you upgrade to Windows® Vista® you must use QuickBooks 2007; Vista is not compatible with QuickBooks 2006 and earlier versions. QuickBooks users are therefore advised to exercise “prudence” before upgrading to Vista.

Intuit said to “stay tuned” for information about third party solutions that are supposed to let you run QuickBooks 2006 and prior on Vista in a simulated Windows environment. But our take on this? Upgrade to QuickBooks 2007. Don’t introduce another layer of software complexity to your accounting environment.

The QuickBooks/Vista issue above is independent of the QuickBooks/IE7 issue we wrote about before, and which Intuit has since resolved with recent releases to make its flagship software compatible with IE7. So be sure to download the latest releases for your QuickBooks software.

For a final example of QuickBooks’ increasing IT complexity, note that since version 2006 the multi-user version of QuickBooks should be run on a true client/file server network, not a peer-to-peer network. So we’ve had to tell clients that while QuickBooks Pro multi-user costs $500, they might need a $5K to $10K network upgrade.

When you fully load multi-user QuickBooks with its IT costs, the ever-improving QuickBooks Online edition with its modestly priced monthly subscription looks more and more attractive. Several of our clients are very happy with it. And moving up the food chain, the price points of on-demand SaaS applications like Intacct, and NetSuite start to look more affordable. We’re monitoring some of the buzz about Web 2.0 accounting systems for small businesses, but for now, we haven’t seen a “killer app” that’s causing a mass exodus away from QuickBooks.

The new retirement plan limits for 2007 continue to give you, the business owner, an easy way to shelter income from taxes and provide a meaningful benefit for your employees. The increases vs. last year are once again incremental, so no big shakes there, but the real news might be the expanding array of retirement plans at your disposal.

To quickly narrow your options, start by setting a wealth building target: how much of your company’s profits do you want to earmark for your own personal retirement plan? Once you know that you can then turn to the mechanics. At the low end you’ve got a Health Savings Account (HSA) for $2,000, and at the high end you’ve got a 401K with discretionary profit sharing plan for $45,000.  Here’s a summary of limits for this wider range of plans. 

Some plans are mutually exclusive, so be wary of defaulting to your old plan by taking employee deductions on the first paycheck in 2007. If you’re not sure which 2007 retirement plan is right for your business, pause on all your plans until you’ve figured it out. Note that changing plans is subject to certain nuanced regulations, as are all steps you take with respect to setting up and funding qualified retirement plans.

How many people do you employ? The financial efficiency of a retirement plan decreases as your head count increases, because all business retirement plans (SEP, SIMPLE, 401K, profit sharing) have a mandatory employer contribution clause. Understand this mechanism and crunch the numbers before you commit.  Understand, too, each plan’s compliance burden. IRAs are easier to comply with. 401Ks are more costly and complex, but offer a bounty of extra features, like higher contribution limits, the ability for employees to borrow money from their 401K, and multi-year vesting schedules to reward long-time employees.

More information is available from the IRS, too.

For CFOs

Once you’ve finalized your 2007 budget, the real work begins — sticking to it. The best way to master the art of this essential business tool is to hold yourself accountable. If you go over budget on one expense, try to come in under on another. If sales are higher than expected, don’t overspend just because you feel richer. And though you might be tempted to boost short-term profits by under-spending on your budgeted R&D or other strategic investments, remember that doing so might limit your company’s long-term success.

While managing to your budget like this is important, you also want to use actual results and new information to guide your company as the year progresses. Keep your original budget intact but use the new information to create an updated forecast. The two start out the same but then diverge each month as you replace the forecasted numbers with actual results and change your projections based on new information — perhaps you hired three people instead of one, or you got a better deal on that piece of equipment, etc.

For QuickBooks techies

Enter the budget data into QuickBooks, line by line, month by month. Use the spreadsheet view of the QuickBooks budget feature. For fixed expenses like rent, use the auto-fill right feature. This data entry should take no more than an hour or two, and the result is well worth it. After you close each month’s books, in one minute you’ll be able to print from QuickBooks an actual vs. budget report — both for the month and year-to-date, collapsed or expanded version.

QuickBooks says you can create only one budget, but in truth, the forecast feature works almost exactly the same way in terms of entering data, reporting, etc. The QuickBooks desktop help index has technical details on both features: your original ‘budget’ and the monthly updated ‘forecast’.

Six CFO guidelines to help you focus on end-of-year deadlines while negotiating the Thanksgiving-to-New Year’s holiday run and its delightful distractions.

1. Close the books by the 15th of the month
2. Execute your year-end tax strategy
3. Finish your 2007 budget
4. Send your fourth and final corporate estimated income tax payment
5. Take year-end physical inventory of items for resale, finished goods, work in progress and raw materials
6. Tune up your paycheck.

For more on most of these themes please see Take Control of Year-End.