Bookkeeping Basic & Quickbooks for Contractors

Bookkeeping Basic
& Quickbooks for Contractors
Presented by: Focus-Grow Bookkeeping
Terry Chong & Wayne Lee
Sponsored by: Merriwether & Williams Insurance Services
at SFPUC, Contractor Assistance Center on 3/20/14.

Why Bookkeeping?
(c) Focus-Grow Bookkeeping

-- because money matters.

Who is Focus-Grow Bookkeeping?
Terry Chong
 Degreed in Accounting from Golden Gate
University
 Worked with a local CPA firm for 7 years
 A Certified Quickbooks Proadvisor for 7 years at
Gold level
 Been in business for 9 years

Wayne Lee:
 Degreed in Accounting & Finance from San
Francisco State University
 10 – 15 years hands-on work experience
 A Certified Quickbooks Proadvisor

2 minutes pause for group discussion:
 Who are you?
 What do you do?
 Why are you here?

A business owner has 3 areas to
cover:
Marketing FinancialOperations

 Operations: is the work you do that generates
income. You spend most of the time here.
 Marketing: work you do that bring in new
businesses, and building client relationship.
 Financial: is every thing that has to do with
money; keeping track of money in and out.
Generating reports showing how your business is
doing.

Who uses financial reports?
3 parties who are particularly interested:
Business Owner Bankers Government

Why should a business owner care
about bookkeeping?
4 basic reasons:
 Profit:
Am I making or losing money? How much did I make or
lose?
 Cash flow:
Do I have enough money to cover all the bills? Where does
money come from and go?
 Strategic Planning:
Time to expand? Time to borrow? Time to hire? Time to
invest in equipment / facilities?
 Taxes:
Do I have enough information to file my taxes?

 Banker / Financial institutions – to assess your
credit risk. They want to know if you are a good
risk; that your company will stay and prosper,
that their loans will be paid back.
 Government -- for compliance issues.
Governments want to know if you report all
income and pay all taxes; i.e. payroll, sales,
local and Federal & State income taxes at the
right amounts and by due dates.

How does cash work?
 Cash flow is different than Profit
 Upfront Job Costs:
- Say, wages are $5000/week
- Week 1 $5000
- Week 2 $5000
- Week 3 $5000
- Week 4 $5000.
Total cash paid out $20,000.
- When first month ended, we invoiced client.
- Client has 30 days to pay.

Month 2:
 Again you pay:
- Week 1 $5000
- Week 2 $5000
- Week 3 $5000
- Week 4 $5000.
Total cash paid out $20,000 in month 2.
You have now paid out $40,000, just on wages.
 At the end of month 2, you client paid the bill.
Finally you recouped some of the costs, plus
some profit.

 It takes $40,000 and 2 months to front one job.
 If you get a 2nd job of the same size, you have to
front another $40,000 for 2 months. That makes
$80,000.
 If you get a 3rd job of the same size, you have to
front another $40,000. Now you are 3 x $40,000
out, that is $120,000.
 That is a lot of cash to put upfront to carry each
job.

Each expansion is supported by
additional credit
 You want to go to the banks and ask for credit
when you plan to expand, before you really need
it.
 When you ask for credit when you need it badly,
very likely you are too late.

How to raise fund?
2 types of financing:
 DEBT financing: loans, lines-of-credit, credit
cards; i.e. money borrowed that need to be paid
back.
 EQUITY financing: by finding partners or
shareholders, i.e. by selling equity, giving out
ownership.

How to get good credit / FICO
score?
 FICO score is the most important score in
your life. It’s much more important than your
GPA.
 To get a good FICO score, you need to do
only 2 things, by demonstrating that:
◦ You have the willingness to pay: i.e. you pay on
time.
◦ You have the capacity to pay: i.e. you pay at
least the minimum.
◦ You satisfy both criterions by paying your credit
cards minimums by the due dates.

The last resort for funds:
 is called 3 F’s:
 stands for:
◦ Friends
◦ Families
and
◦ … Fools

Reporting Basis – 2 main ones:
 Cash – Money received is income. Expenses
paid are expenses, i.e. it is all about cash.
 Accrual – Once service is performed or product
delivered, it is income, i.e. when income is
earned. Expenses are expenses when incurred,
regardless of when they are paid.

Additional methods for Contractors:
 Percentage-of-completion method – on long-term
projects that last more than a year
 Completed project method – when a project has
high uncertainty if it will happen or it will
complete.
What is the preferred method?
GAAP (General Accepted Accounting Principles)
recommend that you pick whatever basis that best
represents your financial situation.

Numbers tell a story…
They tell 2 things:
 Quantity
 Quality

Quantity = Size
Company A has $100,000 in sales.
Company B has $1 million dollar in sales.
Company B is much bigger than Company A.
Company A Company B
Sales 100,000 Sales 1,000,000
Cost of Goods
Sold
60,000 Cost of Goods
Sold
800,000
Gross Profit 40,000 Total Asset 200,000

Quality = Health
Q: Which company is better?
Company A Company B
Cash 40,000 Cash 10,000
A/Receivable 60,000 A/Receivable 20,000
Inventory Inventory
Fixed Asset Fixed Asset 70,000
Total Asset 100,000 Total Asset 100,000
A/Payable 30,000 A/Payable 60,000
S/T Loan
Payable
10,000 S/T Loan
Payable
80,000
Total Liability 40,000 Total Liability 140,000
Owner Capital 10,000 Owner Capital 10,000
Owner Draw (50,000) Owner Draw (150,000)
Retained
Earning
80,000 Retained
Earning
80,000
Net Income 20,000 Net Income 20,000
Total Owner
Equity
60,000 Total Owner
Equity
(40,000)
Total Equity
& Liability
100,000 Total Equity &
Liability
100,000

 Both Company A & B has $100,000 in
total assets, which one is better; i.e.
stronger?

Company A is much stronger:
 A has much more cash and A/R which can convert into
cash quickly than B.
 B tied up most assets in fixed assets, which cannot be
converted to cash quickly.
 A’s cash and A/R is more than sufficient to pay off
A/Payable and S/Term loan. B has only $30,000 cash
and A/R, which is way shorter than the A/P and S/Term
Loan totaled $140,000.
 Both owner contributed equal amount of capital, and
made the same amount of income. A has positive
equity, whereas B has negative equity, for owner-B
withdrew more than what he put in and what the
company has made in profit.

Accounting is quite simple:
 It has only 5 major elements (or types of
accounts);
3 on Balance Sheet, and 2 on Profit and Loss.
 The 3 on Balance Sheets are:
Assets, Liabilities and Equity
 The 2 on Profit & Loss are:
Income and Expenses

It has three major reports:
 Balance Sheet: shows assets (things you own), liabilities
(obligations you owe) and owner equity
 Profit and Loss: shows income, cost of goods sold (all the
direct cost), expenses, and net profit / loss.
 Cash flow: reconciling your net income / (loss) to cash-on-
hand from the beginning to the end of the period. It reflects
how money was spent; such as investing in equipment / fixed
asset, or how money was acquired; such as borrowing from
banks or raising capital by selling stocks.

Sample of Balance Sheet
Company A
Balance Sheet
12/31/13
12/31/13 12/31/12 Changes
Assets
Bank 100,000 200,000 (100,000)
Accounts Receivables (A/R) 500,000 300,000 200,000
Inventory
Total Current Assets 600,000 500,000 100,000
Equipment 200,000 100,000 100,000
Furniture & Fixture 50,000 50,000 0
Leasehold Improvement 400,000 400,000 0
Less: Accumulated Depreciation (60,000) (50,000) (10,000)
Total Fixed Assets 590,000 500,000 90,000
TOTAL ASSETS 1,190,000 1,000,000 190,000
Liabilities & Equity
Liabilities
Accounts Payable (A/P) 300,000 200,000 100,000
Credit Card 60,000 60,000 0
Short-term Loan 100,000 100,000 0
Total Current Liabilities 460,000 360,000 100,000
Long-Term Loan 350,000 420,000 (70,000)
Total Long-Term Liabilities 350,000 420,000 (70,000)
Total Liabilities 810,000 780,000 30,000
Equity
Capital Contribution 100,000 100,000 0
Additional Paid in Capital 200,000 200,000 0
Retained Earning (80,000) 50,000 (130,000)
Net Income 160,000 (130,000) 290,000
Total Equity 380,000 220,000 160,000
Total Liabilities & Equity 1,190,000 1,000,000 190,000

Sample of Profit and Loss:Company A
Profit and Loss
1/1/13 - 12/31/13
Income 1,066,000 100%
Cost-of-Good-Sold
Labor 400,000 37.5%
Material 200,000 18.8%
Job Overhead 40,000 3.7%
Total COGS 640,000 60.0%
Gross Profit 426,000 40%
General
&Administrative
Expenses:
Auto 20,000
Insurance 25,000
Marketing & Promo 5,000
Office Supplies 3,000
Professional Fees 40,000
Rent 60,000
Repair & Maintenance 7,000
Telephone 15,000
Travel 5,000
Utility 6,000
Total Expenses 186,000
Income before
Depreciation &
Taxes
240,000
Depreciation 10,000
Taxes 70,000
Net Income after
depreciation & taxes
160,000 15%

Sample of Statement of Cash Flow
Company A
Statement of Cash Flow
1/1/13 - 12/31/13
Net Income 160,000
Non-Cash Activities:
Depreciation 10,000
Adjustments caused by
Operations:
Accounts Receivables (200,000)
Accounts Payables 100,000
Net cash provided by
Operating Activities
70,000 Sum of the above
Investment Activities
Equipment (100,000)
Investing Activities
(100,000)
Financing Activities
Long Term Loan (70,000)
Additional Paid-in-Capital 0
Financing Activities
(70,000)
Net Cash
Increase/(Decreased) for
the period
(100,000)
Cash at the Beginning of
the year
200,000
Cash at the End of the Year 100,000 (c) Focus-Grow Bookkeeping

15 Minute Break

On Data-Processing -- Get Organized
first!
 Mails go to in-box
 Then they are sorted into piles of similar tasks:
◦ A/Receivables - checks
◦ A/Payables - bills
◦ Something else
 3 piles: To be Processed, to be Filed, Or pending further
processes.
 You need a filing system, and a way to organize / work the
paper.
 Get organized! Else, paper multiplies!(c) Focus-Grow Bookkeeping

Tasks -- Hierarchy of Importance:
Invoice
Client
Collect
Money
Everything Else

Quickbooks:
 Get Quickbooks desktop version $250 (desktop is
ROBUST)
 Do not get Online version (online is mediocre)
 To learn Quickbooks:
- Book: Quickbooks: The Official Guide.
- Quickbooks Help menu: watch tutorial (video
clips)
- Quickbooks come with Sample Company Files.

 Quickbooks is forms-driven. You get more information
or reports by using forms; i.e. A/R invoices, A/P bills.
 For job costing, if you have employees hence labor
burden, your payroll function must be integrated with
Quickbooks, so that it allocates wages, union
benefits, payroll taxes and worker comp to various
jobs; i.e. you must use Intuit Payroll Services.
 3 major bookkeeping tasks only: enter data, reconcile
to bank / credit card statements, and review financial
reports.

Quickbook Demo:

How do we work with clients?
 Onsite – on your site
We act as your in-house accountants. We take care of most if
not all bookkeeping tasks; i.e. A/R, A/P, payroll, bank recon,
financial reports.
 Offsite – from our office
Client sends in data on monthly / quarterly basis. We compile
into financial report. Good for small businesses who handle all
A/R, A/P themselves and just need a little help with compiling
financial reports.

Q & A

Thank You!
Focus-Grow Bookkeeping
Terry Chong & Wayne Lee
info@focus-grow.com

Bookkeeping Basic & Quickbooks for Contractors

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