New QBO Feature – Progress Invoicing!

I’m excited to announce that QuickBooks Online has added a new feature to QBO Plus for Progress Invoicing! This is something I’ve been waiting on for my contractor clients who use Estimating in QBO and want to bill out a portion of the job, such as a 50% deposit to start work.

The options are quite flexible! You can now choose a percent to bill out, a custom amount for each line, or the remaining total of all lines from an Estimate when you convert it to an invoice.

Check out this 4 minute HOW TO video:

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How to Read Your QuickBooks Online Profit & Loss Report

Are you a business owner using QuickBooks Online for your bookkeeping and are unsure how to interpret the Profit & Loss Report beyond the “bottom line”?

Yes, of course, you want to know if your business is making a PROFIT (+ number at the bottom) or LOSS (- number at the bottom), but what else should you be looking for? Even if you are using the services of a professional Bookkeeper or Accountant, it can be difficult to get some meaning from numbers on a page.

I’m going to show you a few tricks from an Accountant’s perspective for how to read your QuickBooks Online Profit & Loss Report!

*Check out the SUMMER PROMO offer at the end of this article*

How To Find the Profit & Loss Report in QBO

First, you must run the report! Sign in to QuickBooks Online (QBO) and navigate to Reports on the left-hand menu. The new reports format should have Profit and Loss as a default in the Favourites section at the top, but if you don’t see it there you can type it in the search bar.

Screenshot 2018-06-12 20.34.00

How to Filter the Profit and Loss Report in QBO

There are MANY ways to filter this report and different filters can be useful to inspect different types of information. First, select the time period that you want to review in the Report Period drop down box. Click Run report.

Screenshot 2018-06-12 20.38.31

One of my favourite filters is This Year-to-Date with a filter to Display columns by Months (drop down menu below the report period menu). Click Run report. We’ll talk about how to analyze this in a second. Let’s continue with other filters for now.

Screenshot 2018-06-12 20.40.49

Another favourite filter of mine is to compare to a previous year or previous period. This is great if you are a few years in to running your business and have all the data in QBO! For this one, leave the Display Columns By filter on Total Only and change the Compare Another Period filter to select either the Previous Period or Previous Year. If I am looking at April 30 – June 30 of 2018 and I select Previous Period, I will be comparing this time period to the previous quarter Jan 1 – Mar 31 of 2018. If I select Previous Year, I will be comparing it to April 30 – June 30 of 2017.

Screenshot 2018-06-12 20.50.56

How to Analyze the Profit and Loss Report Over Time

Now that you have filtered to the period of time you want to analyze, ask yourself the following questions:

  1. Is there a trend of Sales going up or down over time? If there is a point in time where it looks like there was steady movement up or down, what changed at that time?
  2. Is there a certain time of year when Sales were higher? What was happening during that time? Perhaps your business has seasonal trends such as Christmas shopping or a busy summer season. Capitalize on those busy seasons by running a promotion or event during those times.
  3. What are the bestselling items? Hopefully you have set up the Products & Services List to track sales in different Income categories. You can use this information to target advertising for your bestselling items!
  4. What items have consistently low sales? Consider if it is worth scrapping those items or adjusting the pricing.
  5. Are the overall Expenses increasing, decreasing, or stable? If your expenses are increasing faster than your Sales you have a problem with either incorrect pricing on Sales or overspending on Expenses. Many business owners focus their energy on increasing profit by increasing sales, but remember that another way to increase profit is to decrease expenses! Try to set budgets and monitor your spending on non-essentials.

How to Analyze the Profit and Loss by Variable and Fixed Costs

Next up is a bit of Cost Accounting! Don’t worry, I’ll be here to walk you through it.

Variable Costs increase when Sales increase and decrease when Sales decrease. Examples of Variable Costs are Job Materials (also called Purchases), Cost of Goods Sold (Inventory Cost), and Subcontractor or Employee Wages (only to the extent that your business would need to hire more people as Sales increase).

Fixed Costs are relatively the same every month or year and are not affected by Sales trends. Examples of Fixed Costs are Insurance, Accounting & Legal, Rent, and Utilities.

Let’s look at an example. ABC Company has been operating for a couple years and has a decent, but still relatively low, profit. The owner of ABC Company can analyze the Profit and Loss Report by identifying which expenses are Variable or Fixed, and projecting what would happen if the company experienced a 25% growth in Sales. To do this, the owner would multiply Sales and all Variable Expenses by 1.25 and leave the Fixed Expenses alone. This projection shows that a 25% increase in Sales will result in a 109% increase to the Net Profit!

ABC Company is set up for success because the variable costs are representing an appropriate % of Sales. This is calculated as Variable Expenses $2,200 / Total Income $4,700 = 47% of Sales. There are variations in different industries, but ideally your Variable Expenses % of Sales is 50% or lower. ABC Company will be able to make a decent profit if they can increase Sales.

The owner should concentrate their energy on advertising and bringing in new business.

ABC Company

Now, let’s look at an example of XYZ Company, which has the same Sales and Fixed Expenses as ABC company, but is experiencing a loss. The business owner is likely frustrated, perhaps not knowing what the problem is, and thinking that if they can increase Sales, they will be able to finally start making a profit.

By running the same calculation, we get Variable Expenses $4,000 / Total Income $4,700 = 85% of Sales. It will be very difficult for this business to ever make a profit because it has thin margins. This is a term used to describe when the Variable Expenses are high in relation to Sales, and so there is only a thin margin left of profit before the Fixed Expenses are paid. When we run the same projection of 25% Growth, the result is only a 14% increase to Net Profit. If there are no drastic changes, the only way that XYZ Company will ever make a profit is to have a very high volume of sales.

The owner should use this information to make important business decisions such as  Re-Pricing Products & Services at a higher level and/or finding cheaper suppliers or materials for the Variable Expenses. It would be beneficial to focus energy on this before pushing to increase Sales.

XYZ Company

I hope this information has been helpful! Let me know your favourite ways to filter and analyze your QuickBooks Online Profit & Loss Report in the comments!

*SUMMER PROMO* Coastal Tax is offering a 5% discount on T2 Corporate Tax Preparation for NEW clients already using QuickBooks Online for their bookkeeping. Mention this offer when you Contact Alicia to set up a free consultation.

About the Author:

alicia1

Alicia Loewen is a certified QuickBooks Online ProAdvisor and the owner of Coastal Tax and Accounting Services on Vancouver Island, BC. Coastal Tax is a modern accounting firm and offers all services remotely using online and paperless software to make bookkeeping and tax preparation as painless as possible.

 

NOTE: The financial information represented above is from a SAMPLE company. Coastal Tax and Accounting Services takes the confidentiality of our clients’ personal information very seriously and would never share sensitive information with anyone.

10 Steps To Start Your Small Business Bookkeeping Off Right

Starting a small business is an exciting endeavor! You’ve come up with a great idea and now you’re ready to get organized. Follow these 10 steps to success to get your small business bookkeeping started on the right track:

small business bookkeeping

  1. Register for a business name and numberOne Stop Business Registry

    • You will want to make sure that your business name is not already in use so that yours will be unique in the market.
    • You don’t need to see a lawyer to start a sole proprietorship business but you should if you plan to start an incorporated business. When you register your name online for a business account number, you can also register a GST or Payroll account at the same time, if necessary. (See Steps 4 & 10)
  2. Get a business bank account

    • Separate all your business banking from your personal banking. Do not use the business account to pay for your personal expenses and vice versa.
    • Try to avoid withdrawing cash from this account – if you need some money for personal use, write yourself a cheque from the business and call it a “shareholder draw” in the memo. If you need to add more funds to the business account, do an online transfer or write a cheque from your personal account and write “shareholder loan” in the memo.
    • Try to avoid using cash to pay for business expenses as this is harder to track.
  3. Determine if you need a business credit card or business loan

    • Speak with your banker about financing options with a low interest rate.
    • As above, only use your business credit card for business expenses.
  4. Find out if you should be charging GST

  5. Find out if you should be charging PST

  6. Create sales invoices

    • A sales invoice just needs to have the following info (as a minimum): Your business name, the customer’s name, date, invoice number (must be unique and should be sequential, ie. Inv#1001, Inv#1002), a short description of the product or service with pricing, and total.
    • If you are charging GST or PST on your invoice be sure to separate out these charges on the bottom before the final total.
    • A simple carbon copy invoice book from any office supply store will do fine in a pinch. For a more professional look, use computerized versions with your logo and invoices prepared from software and emailed directly to your clients.
  7. Use a bank deposit book

    • Resist the urge to make ATM deposits as this makes it difficult for you or your bookkeeper to match up deposits to sales invoices.
    • In your business deposit book, write the last name of the customer and cheque number beside the cheque amount.
    • An electronic option for this is to use a banking app to deposit individual cheques. Since there is only one cheque in the deposit total, it will be easier to match up to the correct customer invoice.
  8. Keep all business receipts

    • Keep all your business receipts in the same spot! A folder or a box would do fine. If you are doing your own bookkeeping, you may want to separate them into envelopes by expense category (e.g. gas, supplies, meals).
    • Yes, all of your expenses should be displayed on your bank or credit card statement, but this is not enough backup should your business face a CRA audit. Also, technically, you are not allowed to claim back the GST on expenses if you don’t have the physical receipts.
    • Alternatively, there are softwares that will replace the need to keep paper copies of receipts! Contact Coastal Tax for more info about electronic document storage as part of your bookkeeping.
  9. Track expenses

    • Hire a bookkeeper or learn to do it yourself. I recommend cloud-based accounting software such as QuickBooks Online. Contact Alicia for a quote on a monthly bookkeeping service package.
    • Another option is to track the expenses in an excel spreadsheet. You will need to include the date of purchase, vendor name, description of the item, and the amount.
    • If you are registered for GST, you will need to separate the GST amount from the expense total (i.e. your final total for “Supplies” should be the cost of supplies before GST). However, you do include any PST paid in the expense total. This is easier to do using bookkeeping software.
  10. Determine if you will be hiring employees

    • Understand that you are legally required to follow Employment Standards rules for payroll. You can learn to do the payroll yourself, but with complicated rules, it is much easier to have an experienced Payroll Administrator do this for you.
    • Learn about your responsibility for payroll source deductions. See my related post The Basics of Source Deductions.
    • You are also required to register for and pay WCB premiums.

Here is another great resource – a checklist to follow from Small Business BC which covers some non-financial steps as well! Small Business BC Starting Your Business Checklist

Until next time!

 

About the Author:

alicia1

Alicia Loewen is a certified Platinum QuickBooks Online ProAdvisor and the owner of Coastal Tax and Accounting Services on Vancouver Island, BC. Coastal Tax is a modern accounting firm and offers all services remotely using online and paperless software to make bookkeeping and tax preparation as painless as possible. Contact Alicia to set up a free consultation.

 

We’re Hiring: Bookkeeper!

Coastal Tax and Accounting Services is a young but quickly growing boutique accounting services company. We offer cloud-based bookkeeping that is entirely paperless and online as well as payroll, tax preparation, and other accounting services. We are looking for a fantastic person to join the team as a Bookkeeper 3-4 days per week, with the expectation of becoming full-time within less than 1 year.

The ideal candidate will possess:

  • An Accounting Diploma or Bookkeeping Certificate
  • 2-3 years of QuickBooks Online or full-cycle bookkeeping experience, including payroll
  • Excellent communication skills in emails and on the phone
  • Moderate technology skills – comfortable with apps, online software, and video conferencing

 

We are not a traditional accounting firm! This is a fun environment where you will be working one-on-one with the owner of the company who is passionate about helping business owners bring their accounting into the amazing new world of business apps. We absolutely love accounting and find joy and a sense of satisfaction from simplifying and de-mystifying accounting processes and information.

The clients we help are passionate small business owners who are wonderful to work with. We believe that making money should not come at the expense of mental health and have stood by this policy by turning down work from potential clients with a negative attitude. The person selected for the Bookkeeper position will add to the positive energy of the office by exuding a positive attitude and determination in their work.

Responsibilities of the position:

  • Post vendor bills and expense receipts from electronic records
  • Review banking feed and match documents to transactions
  • Prepare bank and credit card reconciliations
  • File GST/PST/WCB Remittances
  • Prepare Payroll, ROEs, and CRA Source Deductions Remittances
  • Communicate with clients about missing info and provide reports

 

*For Bonus Points* Someone with the following qualities will really knock our socks off!

  • Experience in Personal and/or Corporate Tax Preparation (wage negotiable)
  • Leadership Skills
  • Sales Ability

Please send a copy of your resume to info@coastaltax.ca with an email or cover letter describing why you would be a good fit for this position. We thank all applicants for their interest, however, only those selected for an interview will be contacted.

coastaltax

Tax Tips for Late Filers

We are currently still accepting new clients with slip-only returns for the April 30th deadline and small business owners for the June 15th deadline!

Have you been avoiding filing your taxes? You are not alone. It’s quite common to feel anxiety around filing taxes and attempt to avoid the issue all together. At Coastal Tax, we make having your taxes professionally filed as easy as possible! You don’t even have to leave the house!

Q: Are there penalties for filing late?

A: Yes, the CRA will charge you interest on any tax you owe as well as a late taxlatefilingfiling penalty if you have missed the deadline of April 30, 2018 or June 15, 2018 if you or your spouse is self-employed. Unfortunately, you cannot avoid this forever and eventually it will catch up with you. Waiting longer is only hurting your own wallet because the interest on tax owing is compounded daily.

If you have a balance owing for 2017, the CRA will charge compound daily interest starting May 1, 2018, on any unpaid amounts owing for 2017. In addition, the CRA will charge you interest on the late filing penalties starting the day after your return is due. The rate of interest is updated every three months and the current interest rate is 5%.

The late-filing penalty is 5% of your 2017 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months. If this is your second offence, the rate increases to 10%.

My advice is: Even if you cannot pay your balance owing by April 30, you can at least avoid the late-filing penalty by filing your return on time.

Q: I have not been able to deal with my taxes because of a death in the family/serious illness/extreme financial hardship. Will I really have to pay all the penalties and interest if I owe?

A: Under certain circumstances, interest on unpaid taxes may be waived or cancelled. See Taxpayer relief provisions for more info. You will need to apply using form RC4288 Request for Taxpayer Relief. Coastal Tax can help you fill in this form correctly.

Q: Yikes, well that all sounds depressing! Is there any situation where I DON’T have to file taxes?

If you have no taxable income, i.e. you did not work or earn income of any kind during the year, then you are not required to file a tax return. If you have been working but you have never received a letter from the CRA demanding that you file a T1 return, you may be thinking… Lucky me! I am totally slipping under the radar here.avoid tax

What is probably happening is that you would actually be owed tax refunds and the CRA hasn’t come after you because they owe you money. If you are getting a refund, there will be no penalties or interest because the percentage is only charged on tax owing. If you are behind on a few years, Coastal Tax can help you get caught up and make sure you are getting everything back that you are owed!

Q: My spouse was working, but I didn’t have any income this year so do I have to file? 

There are actually some good benefits in reporting your nil income! If you are receiving Canada Child Tax Benefits (CCTB) then BOTH spouses must file tax returns on time every year in order to keep receiving these payments. Also, did you know that the Child Tax Benefit is non-taxable income? You will not receive a slip for this like you did in 2016.

Another benefit is the GST credit. You do not have to apply for this credit, you are automatically registered for it based on your 2017 family income when you file your taxes. This represents up to $544 that you could be receiving!

Knowledge is power, friends!

About the Author:

alicia1

Alicia Loewen is a certified Platinum QuickBooks Online ProAdvisor and the owner of Coastal Tax and Accounting Services on Vancouver Island, BC. Coastal Tax is a modern accounting firm and offers all services remotely using online and paperless software to make bookkeeping and tax preparation as painless as possible. Contact Alicia to set up a free consultation.

19 Days Left to April 30th!

Happy Wednesday! We have limited capacity to take on new clients for the 2017 tax season so if you are needing help, send Alicia a message today at info@coastaltax.ca.

A reminder that if you or your spouse operates a sole proprietorship business, your deadline to file is June 15th, 2018.

P.S. Check out what our happy customers are saying in the 5-star reviews!

coastaltax

 

 

Tax Tips for Sole Proprietor Businesses

It’s now the 2017 personal tax season, the time of year when individuals and sole proprietor business owners gather together their tax slips and business income and expenses. Remember that the personal income tax deadline is April 30th, 2018 and the sole proprietor business income tax deadline is June 15th, 2018. The sole proprietor business income tax deadline is applicable to you if you have self-employed business or farming income (or your spouse does, even if you do not, and you are filing together). It is important to note, however, that all income tax payable is due by April 30th, 2018, so in practice, many business owners prefer to file their taxes before April 30 so they can find out how much they owe. Another option is to prepay an amount to income tax to avoid interest on the balance owing and then you can wait until after April 30th to file and still get it in on time before June 15th.

People often ask me, “What can I write off from my business income?” Here is a quick and easy guide to the basic deductions allowed for a sole proprietor business.

Closeup of young bearded  manager working with laptop and drink

Business Expenses to Earn Business Income

The basic rule is that expenses you can write off for your business should have been expenses necessary to earn business income, meaning that the expense is related to your business operations. This can mean something different for every business. For example, a private hockey coach could write off ice skates, whereas a wedding planner could not. The general sole proprietor business expense categories are as follows:

  • Purchases – Cost of Goods Sold
  • Advertising
  • Meals & Entertainment – Deductible at 50% of total for business meetings
  • Insurance – Business or Liability
  • Interest & Bank Charges
  • Business Fees, Licences, Dues
  • Office Expenses
  • Supplies
  • Legal & Accounting Fees
  • Management & Admin Fees
  • Rent – For office or workshop space
  • Maintenance & Repairs – To equipment or to rented space
  • Salaries & Wages – Includes Employer portion of CPP/EI paid and company-paid benefits premiums
  • Subcontractors
  • Travel – Ferries, Flights, Hotel, Meals while travelling for a business purpose e.g. conference
  • Telephone & Utilities
  • Equipment Diesel, Fuel, Oil
  • Delivery & Freight

You need to provide your accountant with annual totals at tax time. If you are not using a computerized accounting software, such as QuickBooks Online, I have an easy to use template spreadsheet for small business expenses! I can provide this free of charge to Coastal Tax clients.

Business Use of a Personal Vehicle

You can write off expenses for your vehicle if you are using it for business travel. Some examples of business travel would be to pick up supplies, go to a meeting or conference, or deliver items to your customers. You are meant to track your business mileage in a mileage logbook. If you hate recording trips in a paper notebook you can use a mileage tracking app like MileIQ (free for less than 40 trips per month). If you are using a paper notebook, you must also record your odometer total at December 31 every year to get a total of Km driven in the year, including personal mileage. Some of the auto expenses will be prorated by business use percentage based on the mileage calculation.

The Auto expense categories are as follows:

  • Fuel
  • Insurance
  • Maintenance
  • Parking Fees
  • Lease Payments or Auto Loan Interest
howitworks-01

Image Source: https://www.mileiq.com/howitworks

Business Use of Home

You can write off a portion of your home expenses if you are using a home office or workshop/studio. You are meant to be using this space to be meeting with your customers for it to be deductible. The business use percentage is calculated by taking your home office square footage divided by the total square footage of your home.

The expense categories for Business Use of Home expenses are as follows:

  • Heat
  • Electricity – If your heat is electric put it in this category
  • Home Insurance
  • Maintenance – Including property maintenance
  • Mortgage Interest – Do not include the principal portion of your mortgage
  • Property Taxes
  • Rent – If you rent instead of own your home
  • Phone & Internet
  • Other Utilities – Water bills, garbage pickup
Capital Assets

Finally, any large equipment that you purchase for your business can be depreciated over time. On sole proprietor business tax returns we call this Capital Cost Allowance (CCA). Depreciation means the original cost of that item is expensed over time, instead of all in one year. Depreciable property can be items such as furniture, equipment, or vehicles to use in your business. Generally, any tools over $500 should be put on the CCA Schedule of your small business tax return. It is expected that these items will last for many years and so their total cost is spread out over time. Your accountant will need the purchase date, purchase price, and a description of the Capital Asset.

 

If you are interested in having your sole proprietor business taxes prepared by Coastal Tax, please send us a message through our Contact page. Check out the steps involved in our professional online and paperless tax preparation service! We make having your small business taxes filed as easy as possible without an in-person appointment required.

Now get out there and keep hustling!

About the Author:

alicia1

Alicia Loewen is a certified Platinum QuickBooks Online ProAdvisor and the owner of Coastal Tax and Accounting Services on Vancouver Island, BC. Coastal Tax is a modern accounting firm and offers all services remotely using online and paperless software to make bookkeeping and tax preparation as painless as possible. Contact Alicia to set up a free consultation.