Chapter 1
QuickBooks: The Heart of Your Business
In This Chapter
Why you need a tool like QuickBooks
What QuickBooks actually does
Why QuickBooks is a good choice
What you need to do (in general) to get started
How to succeed in setting up and using QuickBooks
We’ll start this conversation by quickly covering some basic questions concerning QuickBooks, such as “Why even use QuickBooks?”, “Where and how do I start?” and, most importantly, “What should I not do?”
This little orientation shouldn’t take more than a few minutes. Really. And the orientation lets you understand the really big picture concerning QuickBooks.
Why QuickBooks?
Okay, we know you know that you need an accounting system. Somebody, maybe your accountant, friend, or spouse, has convinced you of this. And you, the team player that you are, have just accepted this conventional viewpoint as the truth.
But just between us, why do you really need QuickBooks? What does QuickBooks do that you really, truly need done? And just to be truly sceptical, also ask the question “Why QuickBooks?” Why not, for example, use some other accounting software?
Why you need an accounting system
Let’s start with the most basic question: why do you even need an accounting system? It’s a fair question, so let us supply you with the two-part answer.
The first reason is that it is a legal requirement that you keep accounting records for tax purposes. Maintaining an accounting system – be it a paper-based ledger system, a spreadsheet or fully fledged accounting software – will help you meet your legal obligations. If you decide just to blow off this requirement – after all, you got into business so that you could throw off the shackles of bureaucracy – you might get away with your omission. But if HM Revenue & Customs (HMRC) examines your return and you cannot prove the numbers, HMRC gets to do your accounting the way it wants. And you can bet the HMRC way means that you pay more in taxes.
Here’s the second reason for maintaining an accounting system. Our strong belief – backed by more than 35 years of business experience and close-hand observations of several hundred business clients – is that you can’t successfully manage your business without a decent accounting system. Success requires accurately measuring profits or losses and reasonably estimating your financial position.
This second reason makes sense, right? If your friend Kenneth doesn’t know when he’s making money, which products or services are profitable, and which customers are worth keeping (and which aren’t), does he really have a chance?
We don’t think he does.
To summarise, your business must have a decent accounting system, no matter how you feel about accounting and regardless of how time-consuming and expensive such a system is or becomes. Successful business management depends on such an accounting system.
What QuickBooks does
Okay, let’s go on to the next question that we need to discuss: what does QuickBooks do to help you maintain an accounting system that measures profits and losses and other stuff like that?
QuickBooks truly makes business accounting easy by providing windows that you use to record common business transactions. For example, QuickBooks has a window (you know, a Windows window that appears on your monitor’s screen) that looks like a cheque. To record a cheque, you fill in the blanks of the window with bits of information, such as the date, the amount, and the person or business you’re paying.
QuickBooks also has a handful of other windows that you use in a similar fashion. For example, QuickBooks supplies an invoice window that looks like an invoice you might use to bill a customer or client. You fill in the invoice window’s blanks by recording invoice information, such as the name of the client or customer, the invoice amount and the date by which you want to be paid.
And here’s the great thing about these cheque and invoice windows: when you record business transactions by filling in the blanks shown onscreen, you collect the information that QuickBooks needs to prepare the reports that summarise your profits or losses and your financial position.
For example, if you record two invoices (for £10,000 each) to show amounts that you billed your customers and then you record three cheques (for £4,000 each) for your spending on advertising, rent, and supplies, QuickBooks can (with two or three mouse clicks from you) prepare a report that shows your profit, as shown in Table 1-1.
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The brackets, by the way, indicate negative amounts. It’s an accounting convention, but back to the real point of this little narrative.
Your accounting with QuickBooks can be just as simple as we described in the previous paragraphs. In other words, if you record just a handful of business transactions using the correct QuickBooks windows, you can begin to prepare reports like the one shown in Table 1-1. Such reports can be used to calculate profits or (ugh) losses for last week, last month, or last year. Such reports can also be used to calculate profits and losses for particular customers and products.
This accounting stuff is cool! (For the record, that’s the only exclamation point in this chapter.) Good accounting gives you a way of managing your business profitability. And obviously, all sorts of good and wonderful things stem from operating your business profitably: a materially comfortable life for you and your employees; financial cushioning to get you through the tough patches; and profits that can be reinvested in your business, in other businesses, and in community charities.
Let us also mention a couple other handy things that QuickBooks does for you, the overworked business owner or bookkeeper:
E-mail invoices and payslips: QuickBooks can e-mail invoices to your customers and payslips to your employees in a secure way. This can save you time and money.
Online Filing: QuickBooks can file your VAT returns online and submit your payroll forms electronically – another timesaver.
Print cheques: QuickBooks can print your supplier cheques or employee paycheques with a few mouse clicks. If you’ve had to write 20+ cheques by hand on a regular basis, you know what a timesaver this is.
No Really, Why QuickBooks?
No question about it – you need a good accounting system if you’re in business. But you know what? That fact doesn’t explain why you should use QuickBooks. (We ignore for one moment that you’ve probably already purchased QuickBooks.) Therefore, let us suggest to you two reasons why QuickBooks is an excellent choice to use as the foundation of your accounting system:
Ease of use: QuickBooks historically has been the easiest or one of the easiest accounting software programs to use. Why? The whole just-enter-transaction-information-into-windows-that-resemble-forms thing (which we talked about earlier) makes data entry a breeze. Most business people already know how to fill in the blanks on these forms. That means that most people – that probably includes you, too – know almost everything they need to know to collect the information that they need to do their books with QuickBooks. Over time, other software programs have tended to become more QuickBooks-like in their ease of use. The team at Intuit have truly figured out how to make and keep accounting easy.
We should tell you, however, that there is a downside to the ease-of-use quality of QuickBooks. Part of the reason why QuickBooks is easy to use is because it doesn’t possess all the built-in internal control mechanisms that some more traditional accounting systems have. Those internal control mechanisms, of course, make your financial data more secure, but they also make the accounting software more complicated to use.
Expense: QuickBooks, especially compared with the hardcore accounting packages that accountants love, is pretty inexpensive. Different versions have different prices, but for a ballpark figure, you can get an excellent accounting software solution for a few hundred quid. Not to go all grandfatherly on you or anything, but not so very long ago inexpensive accounting software packages often cost several thousand quid.
So What’s Next?
At this point, presumably, you know why you need accounting software and why QuickBooks is probably a reasonable and maybe even an excellent choice. In other words, you swallowed the line about QuickBooks hook, line, and sinker. That decision on your part leaves the question of what you should do next. In a nutshell, before you can begin working with QuickBooks, you need to do the following:
1. Install the QuickBooks software, as we describe in Appendix A.
2. Run through the QuickBooks Setup we describe in Chapter 2.
3. Load the master files, as we describe in Chapter 3.
If you’re thinking, “Hang on, that seems like a bit more work than what’s involved in installing spreadsheet software or a new word processor”, you’re right. You might as well hear the ugly truth about accounting software: Accounting software – all of it – requires quite a bit of setup work to get things running smoothly. For example, you need to build a list of expense categories, or accounts, to use for tracking expenses. You also need to set up a list of the customers that you invoice.
Rest assured, however, that none of the setup work is overly complex; it’s just time-consuming. Also, know from the very start that QuickBooks provides a tremendous amount of hand-holding to help you step through the setup process. And remember, too, that you have your new friends – the authors of this book – to help you whenever the setup process gets a little gnarly.
How to Succeed with QuickBooks
Before wrapping up the little why, what, and how discussion of this chapter, we ought to provide a handful of ideas about how to make your experience with QuickBooks a successful one.
Budget wisely, Grasshopper
Here’s the first suggestion: Please plan on spending at least a few hours to get the QuickBooks software installed, set up, and running. We know you don’t really want to do that. You have a business to run, a family to take care of, a dog to walk, and so on.
But here’s the reality sandwich you probably need to take a big bite of: it takes half an hour just to get the software installed on your computer. (This installation isn’t complicated, of course. You’ll mostly just sit there, sipping tea or whatever.)
But after the QuickBooks software is installed, unfortunately, you still have to run through the QuickBooks Setup process. Again, this work isn’t difficult, but it does take time. For example, a very simple service business probably takes at least an hour. If your business keeps stock, or if you’re a contractor with some serious job-costing requirements, the process can take several hours.
Therefore, do yourself a favour: Give yourself adequate time for the job at hand.
Don’t focus on features
Now here’s another little tidbit about getting going with QuickBooks. At the point that you install the QuickBooks software and start the program, you’ll be in shock about the number of commands, whistles, bells, and buttons that the QuickBooks window provides. But you know what? You can’t focus on the QuickBooks features.
Your job is simply to figure out how to record a handful – probably a small handful – of transactions with QuickBooks. Therefore, what you want to do is focus on the transactions that need to be recorded for you to keep your books.
Say you’re a one-person consulting business. In that case, you might need to figure out how to record only the following three types of transaction:
Invoices
Payments from customers (because you invoiced them)
Payments to suppliers (because they sent you bills)
So all you need to do is discover how to record invoices (see Chapter 4), customer payments (see Chapter 5), and write cheques (see Chapter 6). You don’t need to worry about much else except maybe how to print reports, but that’s easy (see Chapter 15 for the click-by-click instructions).
“Oh,” you’re saying, “you just intentionally picked an easy business. I’m a retailer with a much more complicated situation.”
Okay, well, you’re right that we picked an easy business for the first example, but we stand by the same advice for retailers. If you’re a retailer, you probably need to figure out how to record only four transactions. Here they are:
Sales receipts
Bills from your suppliers
Payments to your suppliers
Employee payroll cheques
In this example, then, all you need to do is find out how to record sales receipts – probably a separate sales receipt for each day – (see Chapter 5), how to record bills from suppliers and cheques to pay your bills (see Chapter 6), and how to handle employee payroll (see Chapter 12).
Not to be cranky or careless here, but one truly good trick for getting up to speed with QuickBooks is to focus on the transactions that you need to record. If you identify those transactions and then figure out how to record them, you’ve done the hardest part. Really. You can focus on the other stuff (you know, the things that you do periodically like VAT returns and bank reconciliations) once you are up and running.
Get professional help
A quick point: you can probably get an accountant or QuickBooks Professional Advisor (for whom you can search on the Intuit website) to sit down with you for an hour or so and show you how to enter a handful of transactions in QuickBooks. In other words, for a cost that’s probably somewhere between £100 and £200, you can have somebody hold your hand for the first three invoices you create, the first two bills you record, the first four cheques you write, and so on.
You should try to do this if you can. You’ll save yourself untold hours of headache by having someone who knows what she or he is doing provide an itty-bit of personalised training.
Use both the profit and loss statement and the balance sheet
And now, the final point: You really want to use your profit and loss statement (which measures your profits) and your balance sheet (which lists your assets, liabilities, and owner’s equity) as part of managing your business. In other words, get used to producing a QuickBooks profit and loss statement each week, month or whatever. Then use that statement to determine your profitability. In a similar fashion, regularly produce a balance sheet to check your cash balances, the amounts customers or clients owe, and so on.
Maybe this advice seems obvious, but there’s a semi-hidden reason for this suggestion: if you or you and the bookkeeper do the accounting correctly, both the QuickBooks profit and loss statement and the balance sheet will show numbers that make sense. In other words, the cash balance number on the balance sheet (remember that a balance sheet lists your assets, including cash) will resemble what the bank says you hold in cash. If the QuickBooks balance sheet says instead that you’re holding £34 million in cash, well, you’ll know something is rotten in the state of Denmark.
We don’t think this from-start-to-finish approach is bad because we tell you loads of stuff (tips and tricks, for example) along the way. We tried to write the book in such a way that the experience isn’t as rough as you might think, and we really do think you get will get good value from your reading.
Sometimes, we use made-up examples (along with examples from our own experience) to help you understand how some topic or area of QuickBooks helps you and your business. We mark these examples with the Case Study icon. This is just our way of continuing the giving. But sure, you can skip them.