John Woods, Author at J&L Bookkeeping Services

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Level Up Your Service Business: A Guide to Inventory Management in QuickBooks Online

Nov 23, 2024

QuickBooks Online (QBO) is a powerful tool for managing your service business’s finances. But did you know it can also be a valuable asset for managing your inventory? Whether you’re selling physical products, tracking supplies, or managing equipment, QBO can streamline your inventory processes.

Why Inventory Management Matters for Service Businesses

While service businesses primarily provide intangible services, many still require physical products or supplies. Here’s why inventory management is crucial:

Efficient Service Delivery: Ensure that your technicians have the necessary parts and supplies to complete jobs efficiently.

Cost Control: Track inventory costs and identify opportunities for savings.

Improved Decision Making: Make informed decisions about purchasing, stocking, and pricing.

Setting Up Your Inventory System in QBO

Create Inventory Items:

• Go to the Items tab and select New.
• Choose Inventory as the item type.
• Fill in the details:
• Name: A clear and descriptive name for the item.
• Description: A detailed description if needed.
• Sales Price: The price you charge for the item.
• Purchase Cost: The cost of acquiring the item.
• Quantity on Hand: The initial quantity you have in stock.
• Location: Assign the item to a specific zone (e.g., warehouse, vehicle).

Track Inventory Movements:

• Purchase Orders: Record orders and expected deliveries.
• Bills: Record the actual cost and update the quantity on hand upon receiving inventory.
• Sales Receipts: Record sales and reduce the quantity on hand.
• Inventory Adjustments: Record any physical counts, damages, or losses.

Manage Inventory Levels:

• Use QBO’s reports to monitor inventory levels and identify items that need to be reordered.
• Set up inventory alerts to notify you when stock levels reach a certain point.

Leveraging Zones for Enhanced Inventory Tracking

Zones are virtual locations within your business where you store inventory.

By creating zones for your warehouse, service vehicles, or other locations, you can:

Track Inventory by Location: See how much of each item is available in each zone.

Improve Service Delivery: Ensure technicians have the right parts on hand.

Control Costs: Track inventory costs associated with each zone.

Additional Tips

Categorize Inventory Items: Organize your inventory into categories for better management.

Use Barcode Scanning: Streamline your inventory processes with barcode scanning.

Integrate with Third•Party Apps: Enhance your inventory management capabilities with third•party apps.

Regularly Update Zone Information: Keep your zone information accurate and up•to•date.

Implement a System for Zone Management: Create a system for your team to follow when moving inventory between zones.

By following these tips and leveraging QBO’s inventory features, you can optimize your inventory management and boost your service business’s efficiency and profitability.

Inventory Management Hurdles for Service Contractors

Nov 13, 2024

Managing inventory accurately within your service business presents several challenges. Many technicians and installers view inventory as an unnecessary task and fail to grasp its importance. It’s essential to train employees and hold them accountable for the materials and products on their service vans and trucks. Conducting inventory checks weekly, or at the very least monthly, can alleviate the stress of accounting for everything when done annually.

The issue isn’t confined to the workers; managers and owners are equally culpable. Everyone is busy trying to service their customers and often feels they don’t have time to maintain accurate inventory. I’ve personally witnessed installers and technicians going to local hardware stores to pick up supplies. This practice presents two problems: it takes time away from the project and materials cost more at these stores compared to commercial suppliers. When you consider the lost production time and higher costs, the importance of inventory becomes clearer.

I have seen firsthand how not maintaining strict inventory control can cost a company money. For instance, a top manager once grabbed equipment from inventory, threw it into their truck, and never recorded it for invoicing. By the end of the year, there were two unaccounted items of the same product. This situation could have been avoided by following established procedures, but the manager was too busy to create a sales order.

I recommend that companies with multiple service or installation vehicles create inventory zones. This approach allows for tracking what is on each vehicle and in the warehouse, making each technician responsible for their product and simplifying product location. There may be an item on one vehicle that is needed elsewhere. Additionally, recording the serial numbers of each piece of equipment is crucial for future reference and warranty purposes.

Obsolete stock also consumes valuable warehouse space. Periodically reviewing stock levels and selling off obsolete items at discounted rates can free up space and recover some costs.

Improved inventory management brings numerous benefits. By not tying up money in excess inventory, you can free up cash for other business needs. Efficient inventory management reduces the time wasted searching for items, thus improving overall productivity. Accurate inventory ensures the timely delivery of products and services, which enhances customer satisfaction. Avoiding overstock and stockouts helps save on storage and emergency procurement costs. Finally, accurate inventory data enables better forecasting and planning, leading to more informed business decisions.

The Great Accounting Debate: Cash vs. Accrual

Nov 2, 2024

When managing finances, choosing the right accounting method is crucial. Two of the most common methods are cash and accrual accounting, each with its distinct advantages, differences, and specific circumstances where their use is mandated.

Differences

Timing of Revenue and Expense Recognition: Cash accounting records revenue and expenses when cash is actually received or paid. Accrual accounting records revenue and expenses when they are earned or incurred, regardless of when cash changes hands.

Financial Picture: Cash accounting provides a snapshot of cash flow, while accrual accounting offers a more comprehensive view of a company’s financial health.

Benefits

Cash Accounting:

Simplicity: Easier to maintain and understand.

Cash Flow Tracking: Helps in monitoring cash flow effectively.

Accrual Accounting:

Accuracy: Provides a more accurate picture of a company’s financial position.

Compliance: Often required by regulatory bodies and GAAP (Generally Accepted Accounting Principles).

Similarities

Goal: Both methods aim to track income and expenses to provide insights into a business’s financial status.

Financial Statements: Both methods can be used to create financial statements, though the content and timing may differ.

When You Must Use the Accrual Method

According to IRS Publication 538, you are required to use the accrual method if:

Your business has inventory: If you sell products, you generally need to use the accrual method

Your average annual gross receipts exceed a certain threshold: For tax years beginning after 2017, this threshold is $25 million.

You are a tax shelter: Certain tax shelters are required to use the accrual method. A tax shelter is typically an investment strategy or financial arrangement designed to reduce taxable income and lower tax liabilities. Examples include certain types of partnerships, trusts, and other entities that are used primarily for tax benefits

Switching Between Accounting Methods

You can always start out with the cash accounting method and switch to accrual, but you cannot switch from accrual to cash accounting.

Why QuickBooks Online is Perfect for Growing Businesses

Oct 20, 2024

In today’s fast-paced business environment, small business owners need tools that can grow along with them. Enter QuickBooks Online, an accounting software that provides flexible solutions tailored to the needs of businesses at all stages of growth. QuickBooks Online offers a range of versions. They include the budget-friendly ‘Money’ option and the robust ‘Advance’ package. This provides a scalable accounting solution that can adapt to the evolving requirements of any business.

Every journey begins with a single step, and for many small businesses, that step can be taken with the ‘Money’ version. This option has no upfront monthly fee and allows you to pay only for the services you need. This is perfect for entrepreneurs or freelancers who are just starting out and may not require extensive features. This version allows users to keep track of basic income and expenses, making it an ideal choice for those looking to manage their finances without overwhelming complexity.

As your business begins to grow, you may find that the features of the ‘Money’ version are no longer sufficient. This is where QuickBooks Online shines, offering a variety of tiers that enable seamless upgrades as your needs expand.

Once you’re ready to scale, you can transition to the ‘Solopreneur’ version. This level offers essential features that enable solo business owners to manage invoicing, expenses, and reports, streamlining their accounting process while keeping costs low. It’s a smart way to invest in your business without breaking the bank.

As your operations become more complex, you may find value in upgrading to ‘Simple Start’. This version includes more robust reporting tools and a user-friendly interface that makes financial analysis straightforward. Small business owners can benefit from a clearer insight into their financial health, allowing them to make informed decisions.

In the growth stage, where managing multiple clients or employees becomes crucial, the ‘Essentials’ plan provides the capability to handle bills, payments, and even payroll for up to three users. This is an ideal package for small teams that need collaboration features without sacrificing efficiency or depth of insight.

As your business continues to scale, the ‘Plus’ version comes into play. This option is designed for established small to medium-sized businesses that manage inventory and require tracking for multiple income streams. It allows up to five users and offers advanced features such as project tracking and enhanced reporting capabilities, ensuring you have everything needed to keep your business thriving.

Finally, for larger companies or those with complex needs, QuickBooks Online’s ‘Advance’ version is available. This comprehensive solution equips you with additional onboarding support, in-depth reporting, and the capability to manage an unlimited number of users. It’s tailored for businesses that need maximum flexibility and insights to scale effectively.

Choosing the right accounting software is a critical decision for small business owners. QuickBooks Online stands out not just because of its range of services, but also due to its inherent flexibility. As your business evolves, so do your accounting requirements, and QuickBooks has positioned itself as the ideal partner for this journey.

From the initial small steps taken with the ‘Money’ version to the comprehensive capabilities of the ‘Advance’ package, QuickBooks Online is designed to accompany you at every stage of your growth. With its scalable architecture and user-friendly interface, small business owners can focus on what they do best: running their businesses.

For any entrepreneur looking to succeed, QuickBooks Online is more than just an accounting tool; it’s a roadmap to business growth and financial clarity.

Needing some help deciding on what you need, contact us for a free consultation.

Choose the Right Business Structure for Your Needs

Oct 12, 2024

Your business structure affects everything from daily operations to taxes and personal liability. It’s important to pick one that offers the right balance of legal protections and benefits. We will explore the five main business structures.

Sole Proprietorship
Easy to Form: You have complete control.
Personal Liability: Your personal and business assets are not separate.
Funding Challenges: Harder to raise money since you can’t sell stock.

Partnership
Simple for Multiple Owners: Ideal for two or more people.
Types: Limited Partnerships (LP) and Limited Liability Partnerships (LLP).
LP: One general partner with unlimited liability; others have limited liability.

LLP: All partners have limited liability and are protected from each other’s actions.

Limited Liability Company (LLC)
Best of Both Worlds: Combines benefits of Corporations and partnerships.
Personal Asset Protection: Your personal assets are generally safe from business liabilities.
Tax Flexibility: Profits and losses can pass through to your personal income without facing corporate taxes.
Limited Life: In some states, an LLC may need to be dissolved and re-formed if a member joins or leaves, unless there’s an agreement in place for ownership changes.
Good for Medium- or Higher-Risk Businesses: Ideal for those with significant personal assets to protect and those seeking lower tax rates than Corporations.

Corporation (C-Corp)
Separate Legal Entity: Can make a profit, be taxed, and held legally liable.
Strongest Personal Liability Protection: Owners are protected, but forming a corporation is costlier and requires more paperwork.
Double Taxation: Profits are taxed at the corporate level and again as dividends on personal tax returns.
Independent Life: Continues to operate even if shareholders change.
Raising Capital: Can sell stock to raise funds and attract employees.
Good for Medium- or Higher-Risk Businesses: Suitable for those needing to raise money or planning to go public.

S-Corporation (S-Corp)
Avoids Double Taxation: Profits and losses pass through to owners’ personal income without corporate tax rates.
State Variations: Not all states tax S-Corps the same way.
IRS Filing Required: Must file for S-Corp status with the IRS.
Independent Life: Continues to operate even if shareholders change.