As much as I love the numbers of business and their ability to help me make solid decisions, I detest getting all my accounting ready for taxes.  AND – I hate paying taxes.  But, such is life.  There is nothing more certain than death and taxes.

I’m going to help you get you ‘tax-ready’.  Keep in mind, I am not a tax expert.  (You need to hire one of those.)  But, these tips should give you a good basis for preparation.  Make sure to jump ahead to the section that applies to you…

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1 – Get Organized

 Have you been separating your receipts each month?  Are they organized?  If so, skip to #2.  If you have an ugly box of denial, read here…

As I’ve said before, accounting is 80% organization and 20% perspiration.  If you haven’t been good about being organized, you’ll need to do some catch up.  I have been in the ugly position of having a year’s worth of receipts in a big bin that I had to sort thru for good ol’ Uncle Sam.  UGLY!  (New motherhood took its toll on me in 2007.)

So here’s what you do:

• Go thru the box o’ denial piece by piece and sort each expense receipt, each client invoice, each bank statement etc.
• Sort each receipt by month and separate them into 12 files (one file for each month).
• Make sure you have a bank statement for your business bank account for each month.  If you are missing a few months of statements, download them from your online banking information.   (If you don’t have a separate bank account for your business, go back and read Accounting 101, get a separate bank account NOW, and start highlighting your business expenses from 2011 on your 12 months of personal bank statements.)

If you ended up 2011 with a huge box of denial, you certainly don’t want to be in that position next year.  There’s nothing like the present to get yourself ready for 2012 taxes next year, so go back and read Accounting 101 for total organization and start moving in a positive direction for this year.

2 – Create your accounting records

Have you been updating your accounting records monthly?  If so, skip to #3.  If you have a ton of data entry catch up to do, read here…

If you have not been inputting your accounting records on a monthly basis, you’re going to  have to do all of your inputting now.  This can take a few days depending on the number of transactions. So grab a few bottles of wine and sit back. (But not tooooo many bottles of wine.  We want accuracy here.)

The easiest way to create your accounting and catch up is to go through your 12 months of bank statements, line by line:

• Use your bank statements (starting in January) and start to identify all of the transactions: cash going in, cash going out.
• If you use Quickbooks (or other accounting software) start inputting them.  (The Accounting 101 tutorial gives great basics on this.)  If you do not use any accounting software, I don’t know if I’d recommend starting at this juncture.  Because of the learning curve, software is better for when you can move forward – not for when you are playing catch-up.
• If you don’t use software, start inputting the transactions into an excel spreadsheet:
• Date
• Payee
• Amount
• Description
• Category aka Account (what type of transaction was this? marketing expense? phone expense? advertising expense?)
• You’ll want to make sure to have a separate Excel sheet for each type of transaction. (One for expense receipts – cash going out.  One for client invoices/contracts – cash coming in.)
• As you go thru each month, look thru your receipt files (that you compiled in section 1).  Check to see that you have a receipt to back up the transaction on the bank statement.  (This is uber-necessary in the chances that you are audited.)  If you do not have a receipt, see if you can go back and get one.  (If it was an online charge, you should be. If it was a retail purchase, you won’t be.)  Just make a note of any receipts you do not have and make a sign of the cross (or sacrifice a chicken – whatever your religion prescribes.)
• Make sure to do the same for any business credit cards you have.

3 – Create Accounting Reports

This is where having accounting software can save you some minutes in the proverbial nuthouse.  The reason I am obnoxiously adamant that people use accounting software for their businesses is the ability to generate accounting reports.  People spend years in college (I did!) learning how to put these reports together.  But, with Quickbooks you can do it with a touch of button.  Unless you have some accounting in your bones, you will not be able to make these reports.  (I’m sorry.)

These are the reports your accountant may ask you for, depending on the structure of your business (corporation, partnership, LLC, LLP, sole proprietorship):

• Balance Sheet for 12/31/2011
• Profit & Loss for 1/1/2011 to 12/31/2011

Nowwwwww… I don’t want to scare you too much.  If you don’t have the Quickbooks, your accountant MAY be able to work around this if you give him or her a listing of all your expenses (cash out) and all of your client invoices (cash in).  Accountants can be cool like that.  But, spare yourselves some misery in 2012 and get yourself some accounting software ASAP.

And… there’s more!

Come back tomorrow.  I’m going to share with you some tax-saving tips and how to find an accountant that rocks.

Over the next 3 weeks we will be helping you put together a plan for 2012.  This week, we’ll be examining our past.  In week 2, we’ll be focused on the present.  And, in week 3, we’ll be building for the future.  We’ll be examining our marketing, operations, and finances.

Make sure to revisit our post from Tuesday where we reviewed your marketing strategy in this past year and yesterday when we reviewed your operational structure.

Let’s continue!

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Do an inventory of your financial results…

Financial results are the most important to me.  I could have amazing vision and an innovative service or product.  I could have done an outstanding job marketing my business.  I could have run my business operationally superior to most.  But, if I’m not profitable, those things don’t mean anything.

Finances are also a good benchmark for performance. It’s difficult to measure your marketing results.  But if your sales $ improved from 2011 to 2010 then you’re doing something right.  So, let’s examine how your business is running financially.

Take a look at your Profit & Loss Report (otherwise called the P&L.)  If you use accounting software you can print this from the report options.  If you don’t, go back and read my Accounting 101 series.

Here are some good questions to ask yourself:

• How is your profit margin?  Are you priced high enough for your business model?  Are your costs of goods sold (services rendered) reasonable?  OR – do you spend too much money on raw materials, labor, etc?
• Was your business profitable overall this year?  Did you earn the income you wanted from your business?
• Did you make your sales targets/goals?
• Did you stay within your expense budget?  Were there any unplanned expenses?  Do you feel that your expense decisions were good ones?
• Did your business take on debt?  Did it pay off business debt?
• Did you purchase new equipment?  Was it a worthy investment?

Now, make 3 columns on a sheet of paper and label them each: “Financial Factors, Strengths, and Weaknesses”.  Spend a few minutes listing strengths and weaknesses for the following financial factors:

• Profit Margins (This is your price vs. your cost to service your customer or produce goods)
• Setting sales goals
• Achieving sales goals
• Sales results for 2011
• Making expense budgets
• Keeping to an expense budget
• Expense results for 2011
• Debt acquisition (how you take on business debt)
• Asset acquisition (how you purchase big ticket items: equipment, computers, etc.)

Come back next week!  We’ll be taking a look at the present before planning for the future… what’s going on these days?

A holiday deal for you…

Throughout these 3 weeks, we’ll be offering $100 off The Simple Plan Exclusive which is our one-to-one partnership with small business owners to help build a business plan.  Simply visit The Simple Plan website to learn more about The Exclusive and enter the discount code “2012” when you enroll.  This offer is only good through December 30^th and space is limited to first-come-first-served.

Safeguarding Yourself Upfront

The first step in getting paid is getting the terms of payment into the contract you have with your client.  You want to make sure your contract does everything to HELP YOU get paid. Katy Carrier of Carrier and Associates shared her contract knowledge with us a few months ago.  I’m going to brush up on some of the points she made in relations to getting paid.

Deposits vs. Retainers

Do you ask for a ‘deposit’ from your clients?  Time to rethink this.  Katy shares, “In the eyes of the law, the term “deposit” is generally used to describe a first payment toward the performance of services.  So, if you fail to perform the service (like because the wedding is called off a few months before the big day), the deposit would need to be refunded.  It doesn’t matter whether you call it “non-refundable” – if a court finds that you didn’t actually earn the deposit payment, that money must be refunded to the clients.  The better alternative is to use the phrase “non-refundable retainer.”  Unlike deposits, retainer fees are used both to book services for a specific date, as well as toward expenses incurred after being retained by the clients.  Those expenses can include any work done before the actual wedding day, like consultations, meetings, planning and paperwork.”

Terms of Payment

Your contract needs to be clear about the terms of payment.  If you require a 30% retainer, a 40% second payment, and a 30% balance payment, you need to listen these percentages and the corresponding amounts in the contract.  It also helps to have the actual due dates on the contract.  You’ll want to describe what forms of payment you accept (check, credit card, Paypal, etc.)  You’ll also want to describe any penalties for non-payment or for ‘non-sufficient funds’ on a check.

Recourse

The contract should specify what will happen if the client fails to pay.  Will you seek arbitration or mediation with the client?  Katy shares, “Arbitration is a type of dispute resolution that is different from a lawsuit filed in a court.  Arbitration is much less formal and more private, and can be handled either with or without an attorney, and is generally much less expensive and time-consuming than courtroom litigation in front of a judge.  A single arbitrator or a panel of arbitrators is assigned to your dispute to listen to both sides and make a binding decision.”

Tomorrow, we’ll talk about invoicing, payment reminders, and other ways to GET PAID.

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We are devoting this week to the hiring of professionals.  I want to share my tips on what to look for when you hire an accountant, lawyer, and designer (graphic and/or web) for your business.  I’ve heard too many horror stories of people hiring bad bookkeepers and paying good money to only have their accounting records upside-down.  I’ll share my resources on where to find good people, what to look for, questions to ask when you interview them, and what you should expect from their services.

Different Accountants for Different Needs

There are different kinds of accountants, depending on your needs.  I’ve listed them here in order of importance. (The first being the most important.)

1. Tax Accountant – a tax accountant is a MUST!  He or she will do your taxes annually and will advise you on how much you need to be paying quarterly as a self-employed individual and/or business owner.

2. Bookkeeper – a bookkeeper manages your accounting transactions.  This is a data entry position for the most part.  But, a good bookkeeper will know how to properly record your transactions.

3. Financial Strategist – a strategist will help you determine what your money is doing and where your strengths and weaknesses lie.  This consultant will examine your numbers and help you make changes to your business for the better.

Where to Look for Good Accountants

For tax accounting, you will want to hire a CPA, Certified Public Accountant.  These individuals have studied long and hard for this certification.  They are also required to take courses annually to keep their title.  You can find CPAs on the AICPA.org website.

For bookkeeping, you will want to ask other small business owners for their recommendations.  (Your tax accountant may also have a recommendation for you.)  Bookkeepers do not need to be CPAs and a CPA bookkeeper will generally be more expensive. HOWEVER, because they don’t have this certification you do risk working with people who are not always as professional or ‘up to par’.  This is why I can’t emphasize enough the importance of asking people for references and referrals.

For strategists and consultants, I recommend that you also ask small business owners or your CPA for recommendations.  Some CPAs do offer this as a service.  For example, when you are having your taxes done by your CPA, ask him or her for some financial advice.  They may give you quick feedback, and you may be able to hire them for more in-depth services.  We also offer financial analysis and planning thru Sage Wedding Pros.  I have a history in financial analysis given my accounting background and have been able to help a range of small business owners.  I understand numbers and can get a pretty good feel for a business by looking at financial information.

What to Ask When You Interview Them

I want to get a feel for the kind of work the professional will do when I’m interviewing them.  I ask about their processes.  I ask how they will communicate with me when they don’t understand something.  I also look to see what they have prepared for me.  In my experience with hiring accounting professionals in the past, the best ones have always made an impressive presentation to me.  They’ve provided me with information about their work and their expertise.  They’ve provided me with timelines and deadlines.  The more organized the professional appears in that first meeting goes a lot to show me what their work output is like.

AND – always always always ask for references.  Make sure the references are solid business owners themselves.

What You Should Expect

You should expect accounting professionals to provide the following:

• an agreement or contract – the agreement should specify the terms by which both of you agree to work
• a schedule with milestones or deadlines – this keeps you both accountable to work with one another
• a list of deliverables – what reports or forms will they be giving you and when?

Another huge expectation that I have for my accounting professionals is that they communicate with me.  This is especially important for bookkeepers.  Bookkeeping sometimes requires the accountant to understand every nuance of your business money.  But there is no way they can know everything that you are doing with your transactions.  They HAVE to ask questions of you when they don’t understand a transaction. (A receipt for Starbucks could be a gift expense or a meal expense.  How would they know?)  If they aren’t communicating with you, this could be a red flag that they aren’t doing what you’ve hired them to do.

What has your experience been like hiring your accountant?  Share with us in the comments below.

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This week I’m demystifying what a 6-figure income looks like in our industry.  Over the last couple days I’ve done the math to dig deep when someone says that they can “show” me how to make a 6-figure income.  (You’ll want to revisit our posts from Tuesday and Wednesday if you are just catching up.)

And, what did we learn?  We learned that it is REAL HARD WORK.  There is no quick way around this.  But there is fine line between working hard and working yourself into the grave.  And, depending on how your own business numbers work out in the equations I presented this week, you’re either looking at some achievable sales targets or not.

Today, I’m going to share some ways that you can still achieve a healthy income without killing yourself. Also, I realize that many of you aren’t trying to achieve 6-figures.  I want to keep with this example, because this is what I keep being promised by lots of coaches and gurus out there.  You find what income level feels good for you.

SOLUTION #1: INCREASE YOUR PROFIT MARGIN

To increase your profit margin you will raise your prices and cut your costs of services rendered (cost of labor, cost of materials).

This was the example we were playing with yesterday:
Income from 1 wedding: $4000
Cost of Services from 1 wedding: $300
Profit Margin from 1 wedding: $3700.

If we raised prices by 20% and cut out one assistant the profit margin would look like this:

Income from 1 wedding: $4800
Cost of Services from 1 wedding: $150
Profit Margin from 1 wedding: $4650

In yesterday’s example, we were aiming to achieve $130,000 annual profit.

$130,000 / $4650 = 27.95 weddings! (let’s round up to 28)
OR
28 weddings x $4800 price = $134,400 in sales

Which results in:

Income                                          $134,400
Costs of Services Rendered        – $4200  (cost of labor: 1 assistants at $150/each for 28 events)
Profit Margin                                    $130,200  (see note)
Expenses                                       -  $30,000
Net Income                                 $100,200 (BOTTOM LINE)

This is why pricing is CRITICAL to the financial viability of your business!   By increasing your price by 20% you go from doing 36 events to 28 events!  Even if your goal isn’t a 6-figure income, you can save yourself from insanity.  I’ll spare you the math, but if your goal is $50k take-home income, raising your prices by 20% in this example shifts you from doing 22 weddings to 17 weddings.  It’s still hard work, but it’s closer to *normal*.

PRICING is sooooo important to building a sustainable business!  (There are a million other reasons why pricing matters, but this is the biggest one.)

SOLUTION #2: CUT YOUR EXPENSES

Naturally, if you cut your expenses, your income will increase.  You know this.  Some of the biggest offenders that I see are the following:

• paying for ads that aren’t bringing any return on the investment
• doing wedding shows that don’t result in any sales
• dinners and lunches and coffees

Keep in mind, these are REALLY important.  Just make sure they aren’t eating into your bottom line too much and that they’re bring you the results you expect.

ALSO – interestingly enough – cutting expenses doesn’t have as significant of an impact on your bottom line as our first solution, increasing your profit margin.  Your ability to boost your profit margin (increase your pricing) is going to have a much larger impact on how much you earn than solely cutting your expenses.  Do the math and you’ll see that I’m right.

SOLUTION #3: ADD OTHER REVENUE STREAMS

And… I’m going to break right here…

This is a series of blog posts all unto itself.  I want to give you a chance to let the numbers settle in.  Please come back August 30th where I’ll talk about adding revenue streams to your business.

For this series, I’d LOVE for you to share with me!  If you have some fun ideas you’ve seen out there for ways to expand your income, please email me at michelle-at-sageweddingpros-dot-com and I’ll share your tip in our series and credit you and your business.

Please come back tomorrow where we’ll be learning from and Industry Insider.  Next week we have a fun series where the masters in our field share with us how they work to perfect their craft.

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I see a lot of talk about “how to make a 6-figure income”.  This is not only in our industry but also outside.  A lot of people are playing up to fantasies of becoming rich quickly.  I used to be an auditor and thus have an insatiable urge to validate this with calculations… honest-to-god facts and figures.

This week, I’m going to share what it *REALLY* takes to make 6-figures.  Here’s a hint: REAL hard WORK!  No more, no less.  But, read on for the nitty-gritty details.

The MATH behind 6 figures

Let’s go through some easy-peasy math first.  I want you to really understand what 6 figures looks like from a small-business accounting angle.  First, let’s have some assumptions for the example I’m going to give.  The example business is a wedding planning firm that:

• Has been in business for about 3-4 years
• Is in a mid-sized metropolitan area
• The business has 3 packages that are priced at $2000, $4000, and $6000 ($4000 being the package that is sold most often)
• Does not have permanent staff members but has 2 event assistants as contractors (These event assistants are paid $150/event and are generally both hired for each partial or full planning client’s event)
• The business has $2500 in monthly expenses (which comes out to about $30,000 annually)
• The business is an LLP which means that the owner draws their own personal income from earnings (in layman’s terms: the owner takes a “draw” not a “salary” and typically this is taken after expenses are paid, from an accounting standpoint)

Example #1:
Now when most people talk about “6 figure income” they are referring to the sales made.  (A sale being exactly what you charge your client.)  This means that sales total at least $100,000.

Let’s move into the math. Using the average package of $4000, this business needs to do 25 events to achieve $100,000 ($4000 per event x 25 events = $100,000)  VOILA!  You now have your 6 figure income!  NOT SO FAST!  Let’s see what this looks like with your BOTTOM LINE:

Income                                        $100,000
Costs of Services Rendered        - $7,500  (cost of labor: 2 assistants at $150/each for 25 events)
Profit Margin                                  $92,500
Expenses                                       – $30,000

Net Income                               $62,500 (BOTTOM LINE)

This Net Income is what you are left with as the owner of the business.  THIS is what you actually draw as the owner of an LLP (or a sole proprietor.) THIS is your personal income: $62,500 – not the 6 figures of $100,000.  Hell, it’s a really nice income, I think.  But it’s NOT a 6-figure income.

All that matters in terms of your own income is the bottom line.  What happens if this business’s expenses were $7500/month – or $90,000 for the year?  (I know this is a LOT, but play along with me.)  The bottom line would be $2500.  That sure doesn’t look like 6-figures to me.

You see… making 6-figures in your sales doesn’t really matter.  You have to examine your business as a whole.  You have to look at your bottom line.

What do you think about this?

Come back tomorrow… I’m going to do some more math and show what it takes to get $100,000 as your BOTTOM LINE!  HINT:  a LOT of HARD WORK.

In my experience…

Accounting = 70% Organization + 20% Data-Entry + 10% Analysis

I discuss this at length in the Accounting 101 series… but here is a quick little list of things you MUST have in place before you can even dream about using accounting software:

• Have a separate bank account for your business and personal.  (I cannot stress the importance of this very basic and critical step.)
• A filing system for receipts, invoices, and bills.
• A systematic routine of doing data entry into your accounting software.  (I recommend doing this once each month.)

That’s it!  It sounds pretty simple.  But, I know so many of you want to get the results (the accounting reports that tell you if you are making or losing money) without these first critical steps.

I’ll be talking about this some more at Eventology in Indianapolis next month.  Hope you can join me!

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Accounting 101 E-book

We spent the last 2 weeks discussing ACCOUNTING.  I’ve provided a very thorough set of lessons for any wedding professional.  You can review all of the posts individually here.  Or, you can download the 15 page e-book here.  The e-book provides a great easy reference in one place for only $2.  Click here for the Accounting 101 for Wedding Professionals E-book.

PDA Application

Quickbooks also makes a PDA app that you can access on your iPhone or Blackberry.  You can check it out here: Quickbooks PDA Advantage.

Quickbooks Tutorials

As an additional resource, Kelly and I are offering 30 minute Quickbooks Tutorials.  For more information, and to apply, visit:

Quickbooks Tutorial for Wedding Pros

HAPPY ACCOUNTING!

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You wouldn’t conduct surgery on yourself, would you?  Then why try to do something you aren’t qualified or educated to do?  As the final part of our Accounting 101 series, I’m going to recommend that you hire a professional, or a group of professionals to help with your accounting and taxes.

Knowing your Numbers Step #11: Hire Professionals

I’m a firm believer in hiring professionals to do things that you aren’t skilled at doing.  It’s understandable that when you are starting out, or when finances are tight, that you may not be able to hire everyone all of these accounting professionals.  But, you should pick some pros to help you out, particularly where legal issues are involved.

In order of importance, you should hire the following accounting professionals:

Tax Accountant CPA

You MUST hire a tax accountant unless you have tax education.  (Software such as Turbo Tax can be helpful as an alternative to doing your taxes but the software will not be able to give you guidance on organization structure.)  Here’s why you should hire a tax professional:  Tax forms can be complicated.  And tax rulings constantly change.  Once you have a business, a home, children, etc. this can become very convoluted (if not confusing).  I recommend that you seek a tax accountant that is a CPA.  This is a professional, certified by their state, that has the education, experience, and credentials to do your taxes.  I recommend asking colleagues in your area for recommendations.  Tax accountants will do the following:

• Counsel you on the best form of organizational structure: sole proprietorship, LLC, S-Corp, Corporation.
• Prepare your income taxes
• Advise you on how you can pay less taxes / Educate you on tax write-offs

Bookkeeper

A bookkeeper is an accountant that typically inputs your transactions.  This person will ask for your invoices and receipts and will input them into a program such as Quickbooks.  A bookkeeper is sometimes a CPA, but does not have to be.  You will want to ensure they have solid experience. And, you will want to get a strong referral from others.  Because you are entrusting your financial records with this person, you need to make sure this is a solid individual.

Financial Consultant and/or Strategist

A financial consultant can be hired to review your financial statements and identify ways to improve your business model.  A strategist can look at your financial statements and areas of improvement: how to increase your revenue, how to decrease costs and expenses, how to increase your profit margin.  A consultant or strategist will identify weak areas that are preventing you from increased profitability.

Hiring Pros…

We expect our clients to hire professionals, yet we don’t always do the same.  We insist that engaged couples hire photographers instead of their Uncle Jack, yet we do our own taxes.  We don’t understand how someone would not hire a wedding planner, yet we do all of our accounting.  Sometimes some things are better left to the pros… the accounting pros.  Know when it’s best to hire someone.

Knowing your Numbers Step #8: Make a Budget

Budgeting is all about setting goals for your money.  Once you know how much you spent in 2009, you can plan for what you want to do in 2010.  Here are some questions to ask yourself when reviewing your 2009 expenses:

• Which expenses were too high?  How can you adjust these for next year?
• Which areas would you like to spend more money on?
• How can you cut costs?  Are there things you don’t need?  Items that were wasteful?
• Did you have expenses that caught you by surprise?  Can you plan for these in 2010?
• What do you want to do with your money?

After looking at your 2009 expenses, flesh out a plan for 2010.  Here is an Excel template to help you build your budget for the new year:

SageWeddingPros-MonthlyBudget

Knowing your Numbers Step #9: Make a Sales Forecast

If you need a refresher on: break-even sales, targeted sales,  average sale, and cost vs. expense… see this post where we explain more in depth sales planning.  If you’d like a template where you can simply plug in numbers to determine your sales plan and have the opportunity to play with your numbers, we created an easy-peasy download you can use.  Sales formulas are already set-up in Excel and will auto-calculate for you. Or, you can of course create your own spreadsheet and play with the numbers that way.  Here is our Sales Plan template download available for $10…

Knowing your Numbers Step #10: Plan for Asset Purchases & Debt Repayment

After determining how many sales you are going to make, you’ll be able to determine your net income planned for 2010.  What will you do with that money?  Will you reinvest it in your business?  Will you purchase new equipment?  Will you pay off debt? Will you reward yourself and withdraw it for your personal needs?  It’s up to you… but incorporate this into your plan.  Read more about planning for reinvestment and asset purchases here.

Soooo…

Do you see how powerful this is for making business decisions?  What are your thoughts?