How to choose the right accounting software for you

Accounting softwareThere are plenty of accounting software options available with benefits for businesses of all sizes. If you’re trying to decide which software is best for your business, take these questions into consideration.

How much accounting software can you afford?

You can find inexpensive (even free) accounting software that will take care of the basics, such as creating invoices, printing checks, and handling payroll. For many freelancers, solopreneurs, and small businesses, a program like QuickBooks or FreshBooks may be all that you need.

Once you dive into more complex accounting software, you may find that the prices are too high for your liking.

Is there an accounting software specific to your industry?

If your budget can support a more expensive solution, you may want to find out if there is a program designed specifically for your industry. For example, if you run a manufacturing business, you can find manufacturing-specific accounting software.

What functionality do you need?

There are many functionalities you can find in accounting software, and they may or may not be important for your business. Here are just a few to consider:

  • Ability to automate billing, recurring payments and other processes
  • Integration with other software you are using, such as a CRM
  • Multi-user access
  • Mobile access so that you can work while on your smartphone or tablet
  • Tax preparation abilities

The right functionality depends on your business needs. It’s a good idea to work with your accountant to decide what features are necessary for your company.

How is data backed up and secured?

Cloud accounting software stores your data in servers offsite and may back up regularly. Offline software may require you to schedule backups. It is important to be able to recover your books in the event of an outage, virus problems, or other issues that might disrupt an accounting program.

If you have questions about choosing the right accounting software, or want to talk with a professional about your company’s needs, let’s have a conversation.

How to avoid a common bill paying mistake


When it comes to tracking your expenses in QuickBooks, you can use either the “Enter Bills/Pay Bills” feature, or the “Write Checks” function to record payment. There is an important difference in these, and one will keep you from making mistakes when paying bills.

Let’s see what features each of these has, and then the advantages of each.

“Enter Bills” is where you record all the information from the bill you’ve received:

  • vendor name
  • invoice date (the date from which your vendor ages the invoice)
  • invoice number (the importance of this is explained shortly)
  • total amount of the bill
  • date when that bill is due
  • account(s) to which the expense(s) will be charged

All that information goes into reports called Accounts Payable (A/P) Aging Reports, which can be run in summary or detail. Via these reports, you can manage which bills need to be paid now, and which can wait a while.

“Pay Bills” is where you pick which bills, and what amounts, to pay. The default listing shows the bills in order of when they are due. Handy, huh? You can also filter by a particular vendor, which is also handy if you need to pay several bills to just one vendor. Once you’ve selected which bills and amounts to pay, enter the date of your checks, the correct checking account on which the checks are written, and whether you’ll be printing checks or assigning check numbers. Then click on the “Pay Selected Bills” button. You can then pay more bills, or print checks.

“Write Checks” is the function where you might record a loan payment, or, as the business owner, make a draw from the company. In cases such as these, there usually isn’t a bill to be entered, so just writing a check makes sense.

Contrasting these two methods, you might think that the Enter Bills/Pay Bills is unnecessary work. I disagree; QuickBooks is a robust piece of accounting software, and gives lots of info with which to run your business. Since cash is king, as they say, utilizing the bill paying feature gives you a heads up on the cash you need, and when you need it. Otherwise, I often see clients just paying bills when the frustrated, unpaid vendor gets them on the phone. So plan ahead, don’t be reactionary.

Your other big advantage is knowing exactly which invoices you have paid. You entered the invoice number (see above), so if you receive a duplicate invoice and try to enter it, you’ll receive a warning. Who wants to pay an invoice twice? Simply writing a check does not keep you from this potential overpayment.

Oh, and if you Enter a Bill, for goodness’ sake do not Write a Check for its payment! You’ll have recorded the expense twice, and still show an unpaid bill!

If you use QuickBooks the way it’s designed, you are using best bookkeeping practices, have useful reports for managing your business, and are not making mistakes in not paying bills, or in overpaying them.

If you have further questions about QuickBooks, or would like to work with a professional to resolve confusion with your books, let’s have a conversation.

Breaking down your balance sheet


Small businesses generally pay attention only to their profit and loss statement (P&L). That statement certainly contains important information, and indicates where money is coming from, and how money is being spent. However, that’s only part of the picture.

I like to compare the two statements to personal health: the P&L tells you how the workout went; the balance sheet reflects the overall health. One line on the balance sheet talks about the workout, and the rest of it reflects the assets and liabilities of the company.

The assets and liabilities show how solvent the business is. Before banks will loan money for something like operating capital, they’ll want to review these elements of your company.

Ideally, the balance sheet will show long-term liabilities balanced with long-term assets. That shows that the business is positioned with assets that can offset any money it owes in the future, making it a safer loan for the bank.

There are three main aspects of a balance sheet that every business owner should be aware of.


On a balance sheet, assets are divided into current assets, other current assets, and long-term assets.

Current assets include liquid assets, such as cash, checking, and savings accounts, as well as other current assets, such as accounts receivables. The cash accounts are already, well, cash, and the idea is that other current assets can quickly be converted to cash. If needed, accounts receivables can be collected in short order, or sold if necessary.

Long-term assets are assets that last over one year, and are not as easily converted to cash. Examples would be furniture, buildings, or land that you own.


Liabilities are the opposite of assets: it takes cash to pay them. They are also grouped into current and long term categories.

Current liabilities include payroll and sales tax payable, trade accounts payable, and credit cards. A 90-day note or the current year’s portion of a long term loan would be captured in other current liabilities.

Like long-term assets, long-term liabilities are those that last over a year. Examples of this would be a Promissory Note, or a loan for the purchase of a building.


Equity is what is left over when you deduct your liabilities from your assets, and hopefully that’s a positive number! Any contributions to or withdrawals from the company’s funds are recorded in the equity section. Sole proprietors almost invariably have both contributions and draws.

Understanding how to read and interpret a balance sheet as well as a profit and loss statement will help you measure the health of your company more accurately.

These are the key indicators of your business health. Following them will help you make sound future financial decisions for your organization.

The advantage of reconciling accounts – Part two

business-decisionDon’t worry, you probably didn’t miss part one of this blog duo-when I finished the last blog post on reconciliation, I realized there was still much left to say!

Reconciling your accounts isn’t really enough, on its own. You also have to take the time to read the reports and draw reasonable conclusions about what you’re seeing. But unless your accounts are accurately reconciled by you, a staff member, or an outside bookkeeper, you won’t be able to read the reports and draw any conclusions from the patterns there.

It’s important to look at both your profit and loss statements (P&L), which are sometimes called income statements, as well as your balance sheets. Think of your business health like your personal health: your P&L is like a record of how much you exercise each day, and your balance sheet is like a big-picture look at your overall health.

You wouldn’t focus only on running every day, ignoring any injuries and illnesses that come up, and consider yourself healthy. That’s a great way to get a long-term injury. In the same way, you wouldn’t want to only check your P&L from month-to-month, because you could miss big-picture trends in your business. And what you don’t see, you can’t adjust for.

Making smart use of your reports after reconciling your accounts is just good business sense.

For example, one of my clients has a bar and grill. His business relies on people having disposable income. When he looked at his numbers recently, he saw his income was less than he’d typically expect.

My client realized that he’d been hit hard by oil industry layoffs. A lot of people currently have less disposable income than they used to. Analyzing his reports also told him that there wasn’t much he could do about it. He wasn’t necessarily doing anything wrong-there have just been fewer people walking through the door.

If he hadn’t been reconciling and reading his reports, however, it would have been a challenge to identify that decline and the reason for it.

Having your accounts reconciled is very important, but what you do as a business owner once you read the reports on your accounts is every bit as important. I encourage my clients to regularly read their reports so they can understand their business’ health and make adjustments quickly.

The advantage of reconciling everything

Reconciling assets

Reconciling accounts is every bit as fun as it sounds - right up there with dental visits. But, just like trips to the dentist, they are a good idea, and are beneficial for the overall health of the individual, which in this case is your business.

What commonly comes to mind when hearing 'reconcile' is comparing the monthly bank statement to your checking account, and that's a great place to start. Knowing that you've recorded all banking transactions assures that cash income and expenditures are accounted for.

What about loan balances, or credit card charges? Have you reviewed those? Accounts used to record payments and charges can, and should, also be reconciled. Any account for which you receive a periodic statement can - and I reiterate - should be reconciled. Otherwise, your balance sheet could be wrong, saying that you owe less to a credit card company, or on a loan, that is actually due. That's not the kind of surprise you want.

Any single account that you reconcile is a good thing. However, the world of accounting is a double entry system. That means that even though one side of the transaction is correct, say the check you wrote to the electric company, it doesn't necessarily follow that the other side was recorded as a utility expense. To illustrate how to verify these 'other sides', let's use an example of making an amortized loan payment.

When you reconcile the bank statement, you see that the check did clear the bank. Your books' banking account balance reflects the reduction, and your bank balance was reduced as well. So far, so good. In this case, part of the loan payment goes toward the principle, which shows up on the balance sheet, and part is interest, which shows on the income statement. What about those other sides, the principle and the interest?

First, the part that affects the balance sheet: The best way to know you recorded the appropriate amount as principle is then to reconcile the loan account with the periodic loan statement you receive. If you don't receive a statement routinely, request one, and stay on top of it! Loan companies are staffed by humans, and therefore can make mistakes. That takes care of the principle, and the balance sheet side.

Second, the part that affects the income statement: It's pretty much math - Total Check Amount minus Principle Repayment equals Interest Expense. Having said that, however, I suggest taking a look at your company's Income Statement, aka P&L. It will have an expense line named Interest Expense. Does that line show the amount you expect it to show? There may not be actual 'statements' against which to reconcile, but you probably have a budget, or a darn good feel for what it should be.

Most small businesses pay attention to their income statements, as they should. But ignoring the balance sheet and its accounts is very unwise. Reconciling all possible balance sheet accounts, and looking for reasonability and trends on the income statement, will give you a good picture of the health of your company.

What you can do to avoid embezzlement

Corporate stealing

Business owners aren’t generally interested in the details of their bookkeeping. Sure, they want to make sure that it gets done, but beyond that, their energy is best spent on other aspects of the business they have worked so hard to create. That’s understandable, but the hands-off approach can come with a cost.

I recently spoke with a pair of owners who thought they understood the financial condition of their small business. The bookkeeper produced monthly statements, which the owners reviewed with interest. When questions were asked, however, the bookkeeper gave answers that superficially addressed the owners’ concerns, but really obfuscated the numbers’ true meaning. Common answers were along the lines of, “You have to understand how complicated it is.”

In retrospect, these answers were obviously vague and unsatisfactory, but, as with many business owners who don’t trust their own abilities and do trust their bookkeepers, they assumed the numbers were okay. In this case, that assumption was wrong; “Bobbie” was manipulating money and financial reports. A credit card that the owners thought was closed was, in fact, being used by Bobbie for personal reasons, and the resulting monthly statement was paid with company funds.

There’s no 100% secure way to avoid the threat of embezzlement, but there are some signs to watch for, and actions to take, so that business owners can protect themselves.

Warning signs

Be aware of changes taking place in your bookkeeper’s life. You don’t have to be best buds by any stretch, but keep your ears open for talk of divorce, layoffs, children off to college, major car trouble, and so on. Few bookkeepers would dream of stealing, but those few may see no other way out.

Close relationships your bookkeeper may have with vendors or customers could potentially lead to collusion between the two. Again, most people are honest, but you don’t want your company to be the victim of an exception.

Accounting-speak that makes no sense to you should set off alarms. Yes, some concepts are difficult to translate into everyday English, but find someone that can do that. Bring in a trusted colleague, or take your financial reports to the local SCORE office, your banker, or similar professional for an opinion. A fresh set of eyes is invaluable.

Routine steps

Checks and balances! In many small businesses, this is difficult, but when staffing levels permit, separation of duties goes a long ways to avoiding mishandling of funds.

Review your original bank statements, be they paper or electronic. In the list of company-printed checks, look for missing check numbers; in the electronic debits, look for odd or duplicated names. Two payments in a month for what you thought was one credit card account should be red flag.

Sign all outgoing checks. Again, you can look for missing check numbers. If a check had to be voided, insist on it being included in the proper sequence of the stack you are signing. A verbal, “Oh, that got caught in the printer.” explanation may be valid, but assure yourself. It’s your money, after all!

If you’d like another pair of eyes on your financial records or have other questions about this topic, feel free to give me a call.

How trip reports can save you money

Business travelA trip report is a simple way to keep track of how much money you’re spending on travel, and it can save you quite a bit of money. Putting together a trip report will only take you a few minutes, and can provide several benefits for your business.

To keep a trip report, keep your receipts from hotel, restaurant and transportation costs. At the end of your trip, write a short, two-to-three sentence description about where you went and what you did there.

Here are three of the ways trip reports could help your business (and save you money!)

Document travel spending in case of an audit

While getting audited isn’t extremely likely, it’s best to have all your business spending accounted for. One oversight can encourage an IRS auditor to dig further, so it’s important to make sure you aren’t improperly classifying travel expenditures.

Using a trip report for each trip will also help you stay organized. Instead of sorting through receipts and trying to identify the trip that applies to each, you can collect the trip information once and enclose all of the related receipts in the same folder.

Learn how much you’re really spending on travel

After you’ve started using trip reports, you’ll probably notice that it’s easier to see how much money you’re spending on travel. While you might already have a vague idea of how much a trip usually costs you, this will allow you to see a clear trend.

Once you’re keeping track, you might be surprised by how all those travel expenses add up.

Adjust your business practices to save money

Armed with the information from your trip reports, you can adjust the way you do business in order to save money. You may find that some of the work you’re traveling for can be done in the office. Perhaps you could start putting a focus on finding more local customers so you won’t have to travel as much.

For some small businesses, cutting travel altogether isn’t possible. However, you might see that spending a bit differently saves you money as well. Perhaps you can choose a different type of hotel, or search for better airline deals, and save money that way.

By tracking, learning from, and acting on your trip reports, you can be ready for the IRS if you ever need to be, and save more cash for your company’s other needs.

Uncomfortable truths

Overwhelmed with financialsAs with many aspects of the entrepreneur's life, the road to understanding your business' finances can be fraught with "potholes."

There's usually a point in the life of the business when the entrepreneur realizes that trying to do the books, on top of everything else, just doesn't make sense. As a business owner myself, I know that it pays to hire experts for some aspects rather than try to learn what to do, and then do it well. If you arrive at the point where hiring a bookkeeper makes sense, you may think potholes will be a thing of the past.

Hopefully so. But there may still be one or two to navigate.

One new pothole may be that you are forced to take a hard look at what financial reports are telling you. Do they reflect what you expected to see? If not, why not? Another potential pothole is realizing you need to change bad habits. It's simply an uncomfortable situation.

When I begin working with a new client, I have many questions about the state of the company's books. Some I can answer by looking at existing financial reports, while others are best answered by the business owner. The questions are designed to uncover processes that work well, and the ones that do not. Those processes, or lack thereof, usually tell me what the potholes were, and what caused them.

These initial conversations sometimes come across as a litany of what the owner was doing wrong, but the past is the past. The goal is to put things right, and then put good processes in place so the road ahead is, indeed, smoother.

I find that many potholes are fixed simply by instituting new habits, and the trick is to do it right when it happens. Business owners have too much to think about to remember what happened last week, let alone last month. Here are a few habits to consider:

  • Keep receipts
  • Have a special location for incoming paperwork (like receipts!)
  • Document online transactions by saving a PDF file, or printing to paper, and then put them in that special location, or get them to your bookkeeper
  • Note special circumstances on relevant paperwork

Make no mistake. Your business is yours to run, and a bookkeeper isn’t going to tell you where you should or shouldn’t spend money. Having said that, if an expenditure is intended to be a business deduction, and I know it's not allowable, I will certainly bring that fact to the client's attention. After all, why raise eyebrows during an audit from the IRS? It just isn't worth it.

In general, it bothers people to know that they’ve been doing something incorrectly. This can be particularly embarrassing when it comes to managing money. However, if you think of your bookkeeper as a trusted advisor, not unlike a doctor, then think of the conversation as therapeutic. By laying out all the facts, the two of you can see where the problems are, and formulate a plan of treatment.

The only secret for small business taxes

Telling a secretYou’ve probably seen the articles: “4 secrets for small business taxes,” or “17 things you should be deducting for your business,” and so on.

The secret? Rarely will everything in these articles apply to your business, and sometimes nothing at all. It’s like when you see drug commercials; you can’t assume that the drug cures an ailment you have, even if the symptoms are similar. Self-diagnosing is not only problematic in the medical world, but with bookkeeping for your business as well.

I’ll be the first to point out that I’m an accountant and bookkeeper, not a professional tax consultant. Having said that, bookkeeping still requires recording transactions with tax implications in mind.

Most transactions are straightforward; they are for a sale, or a purchase of inventory, or to pay the rent. But some could be a question of expensing versus capitalizing a piece of equipment. For my clients, I keep a running list of questions that should be asked of their CPA at tax preparation time, because tax codes change, or the CPA may suggest handing transactions in alternate ways for a tax advantage. Keeping such a list, and forwarding it with the financials, will aid the CPA in understanding the financials they are given, and notify the CPA of potentially necessary adjustments.

One tip that always crops up in those articles that I do agree with is the importance of keeping receipts. Especially if you are planning on starting a business soon, you’ll need to know the date and price of business-related expenses.

Does this mean you need to keep every receipt forever? Not necessarily, but if you purchase a new home computer and start a business from home two years later, wouldn’t you want your CPA to have the ability to consider that computer as an expense?

For the most part, though, you should take these articles with a grain of salt. And read the fine print! Just because an article says something “can” qualify you, that doesn’t mean it will, or that “qualifying” will mean what you think it might. Client gifts, for example-it’s true that they are deductible, but only up to $25.00 per client.

There’s a lot of potentially misleading information out there about small business taxes. By all means, use those articles as a way to generate questions for your bookkeeper and your CPA. But make sure that the people you trust with your financial information know what will apply, or not, specifically to your business. That’s the real secret.

Bookkeeping logistics


If you’ve given thought to hiring a bookkeeper-maybe even decided that it’s a good decision for your business-you may still have several questions about how that would actually work.

Do you take your documents to their office, or will they come to you to pick them up? How often should that happen? If you don’t have your own office, where would your bookkeeper work?

The different ways I interact with clients are based on the volume of paperwork they have, how comfortable they are with the process, and how involved they want to be. I can be fairly flexible as long as we’re meeting all the deadlines we need to, because I know that each client has different needs. Other bookkeepers may do things differently, but here is an idea of how things work with my various clients.

  • Visit client site once per week or month
  • Receive scanned or PDF documents emailed from client
  • Pick up paperwork from client’s office to be worked on at my office
  • Client drops off paperwork at my office

Through conversations with each client, we mutually determine what would work best for them. And since life happens, we also understand that flexibility is sometimes required.

Typically, people think of bookkeeping as everything that happens on a routine basis, meaning every week or every month. While that is true for the most part, there often are other tasks handled by the bookkeeper. Depending on the scope of work your bookkeeper is doing for you, there may be required quarterly or annual reports, such as federal payroll filings, business personal property tax returns, and year end 1099 forms to be prepared.

When you decide to hire a bookkeeper, it’s important to make sure that they are able to explain to you what they’re doing in a way that makes sense to you. That includes keeping you in the loop with their expectations and timeline, so you can be confident that your business’ finances are in good hands.