Five Accounting Myths

1. Not reimbursing oneself for out of pocket expenses.
MYTH: It isn’t big money so why bother.
REALITY: Treat the business like a real business not just an extension of your personal expenses. Keep receipts for all of your out-of-pocket expenses, then fill out an expense report EVERY MONTH. You will be amazed at how quickly it adds up. Enter it into QuickBooks as a bill payable to you. Yes you are a vendor! This money is TAX FREE to you. Yes, that is right. Because you have already paid tax on it once (as profit from your business) then reimbursing yourself is money BACK in your pocket. When trying to decide between taking a draw (if you are a sole proprietor) or paying yourself back for expenses, always reimburse yourself for expenses first. This will increase expenses to your company, therefore lowering your profit and the taxes you must pay on the profit. Try it for six months and see those LITTLE expenses really add up.

2. Not charging full value for services rendered.
MYTH: I don’t want to lose the account/customer/sale.
REALITY: There is a difference between being busy and making money. Don’t ever confuse the two. You may make lots of bids on jobs and have lots of work, but if your bottom line doesn’t show a profit and your cash flow is always tight and you are always just making ends meet -then you are just BUSY. What good is being busy, if you aren’t making a profit? By increasing your rates or estimates, you may loose a few accounts but you will make up for it with real profits. To quote Million Dollar Consulting by Alan Weiss, “It doesn’t matter at all, not at all, what your billings are or how much you make. The only thing that matters is how much you keep.” You may loose the bottom 15% of your market but this will free up your time to do work that makes REAL profits. It is scary at first to turn down work. But when you value your work, as it should be valued, then real profits begin to show up.

3. Don’t use your money to fund costs for a client.
MYTH: My Customers won’t give me costs up front.
REALITY: Larger businesses do not use their own money to cover outside costs -and neither should you. You won’t know what billing terms are acceptable until you ASK. Prepayment of expenses is not unheard of and should be a standard practice for you if you have large up-front costs. Small businesses are notorious for a tight cash flow. This practice will be one of the best steps you can take to ensure a better cash flow.

4. Not taking the time to run reports (see QuickNotes Fall 99 edition) to manage your business better.
MYTH: I know what my business is doing and I don’t have time to run the reports.
REALITY: If you don’t have the time to run the reports then the business is running you. QuickBooks offers the tools for you to manage the business using CURRENT easy to read information. An informed decision from facts not gut feeling is always the better way to go. Take the time to read and analyze the first six months and if you can, run a report comparing last year for six months. Are you doing things the same? Are your gross sales up but the net income down? Take the time to really read the reports.

5. Taking time to set specific goals both personally and for your company.
MYTH: If I keep doing what I have been doing I will be fine.
REALITY: Today everything changes in an instant. To stay the same means you are falling behind. Every year on YOUR anniversary date (we all know when we took the plunge to be entrepreneurs) sit down and write SPECIFIC goals you want to achieve in the next year. It could be to hire a new employee, to set up controls and procedures, or to expand the services you offer. These goals should be written down. You can put them in the “to do notes” in QuickBooks and have them appear every month to remind you of your goals. It is amazing when you become specific about goals how achievable they become. Every year I write the gross sales figure I want to achieve in my DayTimer (a daily reminder). I have reached or EXCEEDED these goals every year for the last four years. The key is to BE SPECIFIC.

These are just some of the common misconceptions I find when visiting with clients. If you dispel one of these myths each month then by year-end you will be in a much more control – and much more profitable.