Series part 1

Accounting/ QuickBooks® and all that boring (but useful) stuff!

by: Grant MacQuilkan

This is the first of a series of articles regarding the use of QuickBooks in your business. However, even if you do not use QuickBooks, it will hopefully help you, or the folks who handle your books, to better provide the information you need to manage your business. In the next issue we will deal specifically with A/R and A/P, the third with reconciling accounts and creating financial reports that help you, and finally, we will deal with other time saving and management tools offered inside QuickBooks.

In case you’re wondering why we chose QuickBooks, it is because this is the most widely used accounting software for small business. Years before I drank the Intuit® Kool-Aid®, the firm I worked for created a financial package for the very first line of PC’s (we’re talking dual floppy IBM screamers with no hard drive!). Many clients used it to write checks and accumulate data regarding their spending so they could budget and manage appropriately. I will never forget one day when a client walked in astonished with a printout of what he and his family had spent that year on pizza delivery! “I spent over $4,000 on pizza! That’s ridiculous!” What he never realized was how much things add up. It’s the same thing in business. You don’t realize what you are 100 | TOWPARTNERS ADVISOR | SUMMER ISSUE 2008

QuickBooks has beaten many competitors out of the market because it is the best. It is so good that Microsoft, when it could not beat them, tried to buy them and was stopped by the Justice Department. really spending on your business until you get reliable data in a form that shows you, not a CPA, what you need to see so that you can manage your business. This is what QuickBooks does and it is reliable because it’s based on the something you can trust – your check register. And its reporting capability is phenomenally informative and very powerful. I don’t use products just because they are the most commonly used. That’s like saying, “Dung, it tastes great, 100 billion flies can’t be wrong!” QuickBooks has beaten many competitors out of this space because it is the best. It is so good that Microsoft, when it could not beat them, tried to buy them and was stopped by the Justice Department. Intuit, the maker of QuickBooks, Quicken® and a variety of leading software products such as Quicken Lawyer®, Lacerte® (the tax software your CPA most likely uses to prepare your tax return) and many others, is a winner. I have used every version that has come out since the DOS days and have taught many people how to use the product, from those with no accounting or computer background to veteran CPA’s and they all believe in its ability to help people run their businesses. There are many other reasons to use it. It is very simple to understand because it is based on your check register, one that looks just like the one you have carried with you since you

got your driver’s license, but maybe the best reason is it is very easy to find employees who have used the product because it is so popular. WHICH QUICKBOOKS VERSION IS RIGHT FOR YOU. Choosing which product is fairly simple. The Pro version is worth the upgrade because of the various time saving components I will talk about later. The regular version has ample power for the pure towing business. If you have a repair shop or parts store you may want to consider two products customized for that type of business. The inventory or POS (point of sale – meaning like a cash register) versions are a customization to Pro that may be useful to you. Most towing companies function very

HELP! The Intuit websites are very helpful. Two that have various support and information tools are www. quickbooks. com and www. quickbooksgroup. com. If you have specific questions please email them to advisor@ towpartners.com and we will try to make sure your questions are answered in a timely manner. If we feel the information may be useful to everyone, we may publish it in a later issue.

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well using the regular or Pro versions. These are available at Office Depot, who happens to be a towPartners Supplier Partner. QUICKBOOKS SETUP The initial set up of any software is always like the ‘wall’ a runner has to go through to start his stride down the finishing stretch.

damages or breaking your insurance down to the various types of insurance. This helps you see what you are spending on these different areas. Some break telephone down to mobile, regular and long-distance. 4. Consider using the “class” feature to track trucks or even separate divisions of your company. By adding a class for each truck you can immediately see what you are spending on each truck. If you have different divisions or locations, you can see which ones are more profitable by using this feature. 5. Take the time to set up vendors with addresses so that you can use window envelopes to mail their checks to them. This saves time because you do not have to print envelopes. PAYROLL FEATURE

QuickBooks has a very good wizard that can walk you through it very easily. We have loaded a sample chart of accounts for a towing company which you may want to consider as well as a sample towing company file which has some memorized reports and invoice items you may find useful if you are just starting out with QuickBooks available on our website free of charge – www.towpartners.com/sampleco. qbf. You will need to change company names etc; but it’s ready to use! The natural starting point is to get your bank account set up. You can input your beginning balance from your other register or you can start with ending balances from your last financial statement. Have your accountant help you with this if you are unsure. From there on you start cutting and coding checks into the various expense categories. CODING CHECKS INTO VARIOUS CATEGORIES (ACCOUNTS): 1. Use a chart of accounts that makes sense to you. Names like “payouts, damages, driver supplies, sub-let wrecker” don’t mean a thing to accountants, but these are your books! 2. Be consistent. Don’t pick a different account to code the same type of thing to. This reduces the usefulness of the reports. Under preferences, you can set QuickBooks to recall the last check you did to that vendor and that way it automatically codes future checks to that same account unless you change it. 3. Consider further breaking accounts down into sub-accounts, such as heavyduty and light-duty sub-accounts under WWW.TOWPARTNERS.COM

By far the most common reason people start using computers for their books is payroll. With all the tax law changes and the many compliance requirements they generate, very few people get out their IRS Circular E and look up tables to calculate their own payroll manually. QuickBooks payroll is very simple, but does require a subscription to their tax tables to keep up with the changes. Many towing specific or higher end payroll programs tout automating the calculation of payroll, but I have seldom seen any with the ability to deal with the complex payroll calculations such as “you get paid $300 plus 10% of every call from 7 to 7 Monday through Friday and then 30% of calls after hours and on weekends. You also get $10 an hour for dispatching and I will add $50 if you take the phones this Sunday because I want to have a day without the phone on my ear all day!” But, after you have calculated the payroll gross, QuickBooks handles it from there. For additional fees, you can have QuickBooks completely outsource your payroll online and the great thing about that is that it automatically goes into your books without any additional effort. QuickBooks

has various levels of service. If you do not know anything about payroll, have them do it all. You will save money in the long run because if you make a mistake or forget a payroll tax deposit you pay dearly for it. If they handle it, all of that is done, including the quarterly and annual filings. Unless you have experienced staff handling it, it’s a great option. Whether you use them or do it yourself, direct deposit saves you time, enhances the productivity of your employees because they are not going to the bank on Friday when you have PD waiting - and it endears you to your banker because your employees will open up accounts where you bank. They can then draw money anytime using their ATM card and not incur the fees to cash their check…and it’s in their account Friday morning. TOWING SOFTWARE INTEGRATION Towing revenue is a very important part of our business. How many calls did we do? What type of calls? Police or motor club? Heavy duty or light duty? Did we make our money on flat fees or mileage? What difference would a fuel surcharge make? What was the average price? What trucks ran the calls and which driver did what type of calls? These are complex pieces of data frankly better managed in a growing company using towing specific software like TOPS® from towXchange, Inc. Most of these packages dump their data into QuickBooks® to integrate the revenue data with your other financial books. However, nothing in QuickBooks® or any other accounting program will compare with the revenue information you can glean from a towing revenue specific package. No towing specific package that offers “accounting” can compare to the wide capability of QuickBooks® so many use both and integrate the two. Stay tuned on how to integrate and when not to. We will deal with that specifically when we deal with A/R next issue. If you are not using QuickBooks® now and plan on or are considering changing over, many people use a fiscal year end or calendar year end to make that change. Don’t wait till after the end of the year. Load it up and walk through the sample company that comes on QuickBooks® or download the sample towing company file from www.towpartners.com/ sampleco.qbw.

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Series part 2 Perhaps the best part of it is the reporting function. First you get what is called an “aging.” I use the aging every week. Although I try to open all the mail that comes to the office and still sign most checks (see previous Advisor Speaks article), I do sometimes forget what all has come in. An aging from my Accounts Payable clerk tells me on one page what is owed: how much, to whom (but useful) and when it is due. I by: Grant MacQuilkan look at it, take a look at my bank account Part II: Payables (A/P) and decide how much Accounts Payable Screen of the bills can be “By entering bills in the accounting software, you This is the second paid that week. Then eliminate the need to write checks, recalculate all that I sometimes have to of a series of articles is owed and you can prioritize payments to vendors by tell her what bills not regarding the use of to pay. That process pushing a button.” QuickBooks® in your takes all of about 15 business. However, minutes. She can even mark which and help you gain a lot of support you can pay bills online. This is for your business growth from sup- different from using your bank and ones to pay and it tells me as we even if you do not use go along what it will do to my pliers eager to do business with downloading data. It is more like QuickBooks®, it will bank account! By “thinking aloud” you. Handled poorly, it produces a “direct deposit” payroll function hopefully help you, or with her it teaches her how I dea lot of headaches, increased nonwhere you “print” a check and it termine the priority of the bills to the folks who handle revenue phone volume and makes goes to your vendor without you pay and eventually she can make growth very difficult. using a check, envelope or stamp. your books, to better

Accounting/ QuickBooks® and all that boring stuff!

provide you with the information you need to manage your business.

The next issue will deal specifically with A/R (accounts receivable, later with reconciling accounts and creating financial reports that help you, and finally, we will deal with other time saving and management tools offered inside QuickBooks®. For a copy of the first article and sample towing company QuickBooks® files, see www.towpartners.com Accounts payable (“A/P”) is a very important bookkeeping and management tool. Handled correctly, it can help you manage cash flow, be the most available and cheapest form of financing

QuickBooks® has a very powerful A/P and vendor function. Many people do not enter bills and only use their software to cut checks. A/P is an expandable file full of bills to be paid and for you to get a handle on what is owed. This is very time consuming because you have to calculate the amount of all your bills, look at all of them to determine priority and it is very easy to pay bills twice, especially if you have any turnover in the office. By entering bills in the accounting software, you eliminate the need to write checks, recalculate all that is owed and you can prioritize payments to vendors by pushing a button. QuickBooks® also allows you to seamlessly integrate with your bank so that

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Check Print Screen

If you have something that is due every month such as rent or insurance, you can “memorize” the bill in such a way that it shows on your bills to pay automatically so you don’t forget to pay it. When you do, have the bill entered automatically several days before it is due so you are warned in enough time.

good decisions if I just cannot be there that day. Once I tell her what to pay, all she does is push a button and out come the checks, indicating which invoices we are paying, which credits we are taking and applying to what and it fits nicely in a window envelope. She then attaches what needs to be returned with the remittance and

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the credit card vendor) and the bill will be entered once the card is reconciled. This is how it should be done, not just looking at the repairs expenses and seeing American Express – that doesn’t tell you anything. Entering a bill’s description in the memo line helps when looking at the financial statements.

my signature. That way I can check it once more. I want absolute control, but I want to spend the least amount of time on it. This is accomplished through the terrific reporting and research capability in QuickBooks®. “Have you paid this bill?” “I paid this bill and you say I still owe it to you!” “I bought this part from these guys, when was that, and what did I pay for it?” Ever asked those questions? How about, “I think we bought that transmission less than a year ago; find out when and who we bought it from.” You bet! And by pushing a button or two you have all of that at your fingertips.

Credit Card Approval Screen

You can enter bills and credits from the same screen. When you pay a bill, you can apply the credits. This helps you keep your

vendor’s records reconciled with your records. Credit card charges should be entered (so that vendors are shown in expenses, not merely

Managing your vendors and customers is made simple by using software such as QuickBooks®. Making better business decisions is made easy if you manage your vendors and customers well. Success comes from making better business decisions.

SECURITY Another useful feature in QuickBooks worth mentioning here is the security feature. Many times you don’t want to give someone else the checkbook, but you really need someone else’s help in processing bills. By setting up a user with the

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appropriate password access they can enter and even pay bills without ever seeing the checkbook. They can also field all of the calls from vendors asking if some invoice has been paid because they can have research capabilities as well.

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Give tighter terms to industries that have walked on you in the past. Net 30 means that they can wait 30 days after the call to pay you.

Accounting/ QuickBooks®

and all that boring (but useful) stuff! by: Grant MacQuilkan Part III: Accounts Receivable (A/R) This is the third in a series of articles regarding the use of QuickBooks® in your business. However, even if you do not use QuickBooks®, it will hopefully help you, or the folks who handle your books, to better provide you with the information you need to manage your business. Few things can help your cash flow more than spending time on Accounts Receivable (or “A/R”). The first important step in managing your customer accounts is gathering information. QuickBooks® has a good customer detail screen with an area for notes to document your interaction with that customer. This includes contact info, terms agreed to, etc. The first step in giving someone the ability to “charge” should be based on a credit application. This should give you additional contact information. Unless you pay DUNS way too much money, it is impossible to determine who deserves your credit outside of what may be obvious to you up front.

If you are paying truck debt off at 9% then a $50 call is really costing you 38 cents in interest, 39 cents in postage and about $2 in labor to eventually get paid. So, it makes no sense to give cheaper rates for accounts unless they give you volume. In the towing industry, we make a huge mistake in generalizing by saying we charge our accounts $50 but private calls we charge $75. You make more money on the private call and the account is not making up the costs of giving him credit in volume! Once you have established credit, the customer can charge a call. They may pay on statement or on invoice. Some towing software packages will help you set credit limits for your customers. QuickBooks® has this feature. This may not make you turn a customer into

cash only but it will warn you when a customer is going over what you previously determined you were going to risk. By using a software package like QuickBooks® you can see exactly who is charging what. You can go back and see how many calls are generated by that customer (Sales by Customer Summary/Detail). Be careful because many body shops will claim they send you business, but they are mostly PD calls you took to them. Software such as TOPS can track who the original customer is that called you so you can show your customers exactly how many calls they originated and how many you took to them.

By using an “aging” report (A/R Aging Summary) you can see who is taking how long to pay you. Newer versions of QuickBooks® have a Customer Navigator screen which has the most common reports such as a Quick Report or Open Balance on the right side of the Navigator. Your clerk should print an aging report off for you

after posting receipts at a regular time every week. You should use this to see who has not paid on time, who’s still outstanding for the month and what you can anticipate receiving the next two weeks. Once an invoice gets over 60 days, you will have difficulty collecting it. That is why your staff needs to be diligent in contacting those customers who are over 30 and even more so, over 45 days. If you are manually doing this then you are wasting lots of time and there is no way you can maintain an accurate record of who owes you what. A semi-monthly meeting with the operations folks who deal with the customers to go over who’s not paying will help tremendously. Your A/R person can, and should, make calls but the chances of that person reaching a decision-maker are not great. By having your operations people understand the cost of an aging receivable as well as having control over the pricing of each call, including these guys in you’re A/R meeting will help balance the collection process.

QuickBooks® has a lot to help you in your collections process.

Aging Report: This report summarizes the status of unpaid invoices and statement charges in accounts receivable. For each customer who owes money, the report shows: • What the customer owes for the current billing period • What the customer hasn’t paid from previous billing periods • Subtotal balances for each job (if the customer has multiple jobs with your company)

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A template (sample) letter can be generated and sent to any customer with overdue receivables. The latest versions of QuickBooks® can generate a letter with detail of all the old invoices already inputted just by clicking the “Word” button on top of the Customer Navigator. This is a non-threatening “hey, don’t know if you forgot this” kind of letter. It is detailed and draws information directly out of your aging data. There are templates for the entire collection process that you can customize however you desire, all the way up to being nasty. These form letters are very impersonal so customizing them is probably a good idea, but they are very good, non-personal reminders to your customer. They are also professionally written.

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The only way to get a true picture of how your company is doing is to use accrual basis reports. The cash vs. accrual conversion in QuickBooks® is not perfect, but it is extremely useful to be able to switch back and forth.

A jewel in QuickBooks® is the ability to change a report from “cash basis” to “accrual basis” at the flick of a switch [this is done with “modify report”].

By far the greatest use of QuickBooks® A/R is the reporting and research capability. By pushing a button or two you have just about any information at your fingertips. A jewel in QuickBooks® is the ability to change a report from “cash basis” to “accrual basis” at the flick of a switch [this is done with “modify report”].

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If A/P is being handled correctly, then the date of the bill (expense) is when you incurred the expense. If A/R is being handled properly then A/R (revenue) is being booked when you earned it. If you did not have this “accrual based” capability, the only thing you would be able to see is cash in and cash out. That

means your low revenue months will look better to you than your high revenue months because the expenses you pay are generally lower in low revenue months: you are paying labor, fuel and repairs on less revenue volume while much of your receipts are from higher revenue months prior to that month. Cash basis reports are still very important as it pertains to collecting and paying (cash flow). However, it is not a true picture of how you are doing. Most towing companies elect to be “cash basis” taxpayers because they do not want to pay taxes on invoices they have not received. They know that most of their expenses are paid long before receiving the revenue associated with those expenses. The only way to get a true picture of how your company is doing is to use accrual basis reports. The cash vs. accrual conversion in QuickBooks® is not perfect, but it is extremely useful to be able to switch back and forth. Most of the popular tow revenue software packages will dump data into QuickBooks®. Many people use this option because of the unique nature of towing revenue and the functionality available in A/R in QuickBooks®.

HELPFUL QUCKBOOK FEATURES: 1. FIND – you have a customer

on the phone who wants to know if an invoice has been paid, how much it was for and maybe what was the pay-out or bail-out included in the invoice. Boom, its right in front of you with all the detail, and if it was paid, by what check and when that check was received.

2. REPORTS – Sales by cus-

tomer, average call amount, etc. Of course, towing packages will give you more comprehensive reports, but what about who owed you what and how long do they take to pay you? When was the last time you got a check from those guys? What was the date of the last six checks from them?

3.COMMUNICATIONS – I

remember “The Book” one lady who worked for us had. It had every contact at every customer with their rates and whatever particulars. When she retired, “The Book” died. There was nothing I could do about all the data she had accumulated in over 20 years of dispatching and

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back-office work. The Customer record in QuickBooks® not only stores that data, but the Notes portion allows you to document conversations. How easy does a conversation go if you start it by saying, “Hey, how was your daughter’s wedding last month?” You have a staff person gone for a month to have a baby and you get on the phone and say, “Hi, this is Jane at A-1 Wrecker, Sue told me your daughter got married last month – congratulations!” You don’t think there will be a little more continuity and favor on the other end? Make your staff document their conversations.

customer(s) and whatever time you want. There really is no such thing as a “month-end” statement anymore. You can also leave more than a month’s detail on the statement if you want.

6.CUSTOMIZE – QuickBooks®

can print on your printed statements, but you can add your logo to the pre-formatted version and save the money you currently spend on printing. You can customize the layout within QuickBooks® to include PO numbers, change the heading of columns to read what you call various items, add your e-mail address to the

“Receiving payments” and then “making a deposit” sounds like the long way to do things, but it really follows the business process very well. You have to imagine a retail store where people come in and buy from you. You receive payments all day and put them in the drawer, at the end of the day, you “Z-out” and take the money to the bank. Some of it may go to petty cash and some to the bank. This is the way QuickBooks® handles it so you can make the deposit at any time of the day or even days later and the customer still gets credit for having made the payment when they made it, rather than when you took it to the bank. QuickBooks® has an account called “Undeposited Funds” which handles this money that is yet to make it into the bank. This way you can make an accounting entry for a deposit that includes both customer receipts and other receipts.

You can e-mail forms directly from QuickBooks®. When you e-mail a form, your customer receives it as a PDF file e-mail attachment along with a cover note.

4. E-MAIL – as postage costs go

up, consider sending statements by e-mail. Most shops now pay on invoice, so mailing a statement really only serves for collection or reconciliation purposes. Send it via e-mail. This is very simple in QuickBooks®. Be careful, though, because a lot of times your e-mail could be deemed spam by the intended recipient and your statement will not get to them. You can pick and choose who to e-mail and who to print.

5. INTERIM STATEMENTS – many compa-

nies don’t print statements until everything is just perfect for all customers. With QuickBooks® you can print a statement for whatever

RECEIVING PAYMENTS - When you receive payment for a statement you’ve sent to a customer, you use the Receive Payments window to record the payment. This window lists the outstanding invoices or statement charges for the customer you select.

bottom to enable better communications, add custom messages at the bottom and much, much more. Again, Intuit erred on the side of flexibility to allow their users to customize the software more than to turn you into a CPA overnight. This is the way it should be. Your relationship with your vendors and customers are what make you money, not an understanding of GAAP (Generally Accepted Accounting Principles)!

7. REP FIELD- If you hire a

manager and want to pay him a percentage of the revenue of the customers he originates then this is very easy. In the Customer – Additional Information screen there is a “Rep” field. By adding his name

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in there you can easily get a report on all receipts from “his” customers at the end of the month. You can even print off an aging report on “his” customers and tell him to go collect them! You can get his “sales” report in cash basis (what was collected) or accrual basis (what was run).

8. FINANCE CHARGES – this is a very complex

issue from a decision point of view and you need to consult an attorney about it before you charge your customers a finance charge. Some people opt for a “statement” charge – a flat fee for sending a statement. Either way, QuickBooks® handles this very easily and automatically by adding this to the Customer screen. Managing your vendors and customers is made simple by using software such as QuickBooks®. Making better business decisions is made easy if you manage your vendors and customers well. Success comes from making better business decisions.

towPartners is sponsoring the following seminars at the Western States Tow Show in Reno: “QuickBooks for Towing Companies” This management-focused seminar will deal with how to better use QuickBooks® in your business. From back office accounting practices to payroll made easy we will touch on the best practices to implement as a manager and owner to ensure QuickBooks® is adding value to your operation.

“Business Owners: Tax, Payroll and Entity Strategy Session” This seminar for towing business owners will address compliance and other liabilities as well as offer an opportunity to get general accounting practice questions answered by a CPA turned towing company investor who truly knows the ropes of taxes and the towing business.

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Accounting/ QuickBooks®

and all that boring (but useful) stuff! by: Grant MacQuilkan Part IV: FINANCIAL REPORTS This is the fourth of a series of articles regarding the use of QuickBooks® in your business. However, even if you do not use QuickBooks®, it will hopefully help you, or the folks who handle your books, to better provide you with the information you need to manage your business. The next issue will deal specifically with other time saving and management tools offered inside QuickBooks®. To see copies of the articles in this series visit www. towpartners.com. Many of us make the huge mistake in managing our companies directly and exclusively from the bank account. Over the past couple of issues we have made a strong case for using accounts payable and receivable aging reports. Financial statements are very seldom prepared and typically are only as a requirement of banks and tax return preparation. QuickBooks® provides a very handy set of reports

QuickBooks provides many preset reports that focus on all aspects of your business finances. and the ability to customize them to obtain additional information that can help you manage your business on a daily basis.

whole numbers and make negative numbers with parenthesis around them rather than just the minus sign which is very difficult to read.

REPORTS: Under the “Reports” menu There are various categories of reports. Financial Reports include the basic Balance Sheet, which probably will not help you that much unless you have an accounting Locating the Profit and Loss report from the background, main menu and “P&L” options. You can PROFIT AND LOSS: pull up these reports and customBy far the most common report ize them using the “Modify Reused by owners and managers is port” button on the top left of the the “P&L” or “Profit and Loss.” If report. If your file is large, easy your chart of accounts is set up corfor towing companies that keep rectly, this report, with some easy tow invoices in QuickBooks®, then modifications, can help you spot set your “Preferences” under the trends, issues and opportunities “Company” menu to pull up the very easily: “Modify Report” screen prior to building any report to save time. Percentages – Due to the fixation By choosing the “Numbers” tab many towers have about percenton the “Modify Report” screen ages, setting up your chart of you can make your report only

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accounts in such a way that, for example, total payroll costs are grouped, allows you to immediately see what percentage of revenue goes to payroll. You have to be very careful though because you may have a lot of auction revenue comparing your percentages with other people is less valuable than watching your own trends. To add percentages to your P&L, “Modify Report” and check the “% of Income” box. You can check the “Previous Year” and “Change” to see how the current period compares with the same period of the previous year. By far my favorite management report is the P&L “Modified” by changing the “Total By” tab at the top to “By Month” and pulling the entire year.

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You can see every month, for every account with the total at the far right. You can fit this report on one page landscape and spot trends amazingly well. It is also easy to see if your office staff is coding things correctly and makes forecasting the following months very easy. Any number on any report can be accessed for detail. By double clicking any number, the detail comes up. That detail gives you, for example, every transaction for the period. This detail can be “Sort by” (top right side of the report) vendor name or “class” or even “amount.” This is very useful to see how much you spent with a particular person over a period of time, but also, if you set up your trucks as “classes”, you can determine how much you spend on each truck. The “Collapse” or “Expand” button (top of report) allows you to see sub-accounts detail or not. This is very useful if your chart of accounts is very detailed. If you just want to look at a bunch of reports to determine which ones will help you manage your business, go to the “Reports Navigator” and pull up various ones to get an idea of what will help you manage your business. The more time you spend on reports the better informed your decision-making will be. Any report in QuickBooks® can be done on a cash or an accrual basis, so you can determine cash flow as well as earnings. That and drilling down to the detail and being able to massage the detail to glean even more information are huge reasons to consider this software. But like anything else, the capabilities are worthless to you unless you use them.

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