How to Setup Payroll for Job Costing
Many of my clients believe that setting up payroll in QuickBooks for job costing is frustrating and difficult. There are several steps that need to be taken in order for payroll to flow properly to the job costing reports, especially if you want to include payroll taxes and benefits. The step-by-step instructions below will help guide you through the setup. Then you won’t have any problems.
These instructions assume you have a subscription to QuickBooks payroll. If you are trying to use job costing with a non-QuickBooks payroll provider, you will not only make your bookkeeping more time-consuming, but also introduce opportunities for errors to be made.
Please try L & R Tax Preparations on line payroll service if you do not have one at this time. We’re using Intuit web hosted Payroll service for our online payroll clients.
Here are the steps:
Set up Preferences:
1. Go to Edit > Preferences > Company Preferences and select Payroll & Employees
2. Select “Full Payroll” or “Complete Payroll Customers”
3. Check “Job Costing, Class and Item tracking for paycheck expenses”
4. Go to Time & Expenses
5. Select Yes under “Do you track time?”
6. You may also want to check “Create invoices from a list of time & expenses”
Set up Payroll Items:
1. Go to Lists > Payroll Items
2. Edit every Addition and Company Contribution item to ensure that “Track expenses by job” is checked
3. Payroll items can only map to one expense account, so you may want to setup separate ones for COGS and overhead payroll expense
4. You can’t assign or have two payroll items for payroll taxes
Set up Employee Records:
1. Go to the Employee Center and double-click on employee name
2. Change Tab to Payroll & Compensation Info
3. Check “Use time data to create paychecks”
If you want to Set up Default for New Employees:
1. Go to the Employee Center and select Manage Employee Information > Change Employee Default Settings
2. Check “Use time data to create paychecks
Set up Workers Comp:
1. Setup workers comp at Employees > Workers Compensation > Setup Workers Comp
2. Setup your workers comp codes at Employees > Workers Compensation > Workers Comp List
3. Go to Lists > Payroll Items to double-check that the Workers Comp payroll item has “Track expenses by job” checked
Using Timesheets
1. Go to Employees > Enter Time > Use Weekly Timesheet
2. Complete all information including both a payroll item & a service item (these are different) – mark as billable if you do time & material billing
3. You may want to add a customer job for overhead
4. Consider using Time Tracker or WorkTrack Time Card so employees can enter their own time.
L & R Tax Preparation also offers TimeTrackingSalesSheet for its payroll clients.
If you have more questions concerning payroll or setting up payroll please feel free to contact us at L & R Tax Preparation.
For more readable information:
Should You Invest in Life Insurance?
The purpose of life insurance is to provide a source of income, in case of your death, for your children, dependents, or other beneficiaries.
Whether you need to buy life insurance depends on whether anyone is depending on your income. If you have a spouse, child, parent, or some other individual who depends on your income, you probably need life insurance.
Life insurance protects your family in the event of death. Most people do not have the right amount of insurance. It is important to determine the amount that suits your needs.
There are two basic types: term and permanent. Term insurance is simply insurance that covers a specified period. If you die within this time frame, your beneficiary receives the insurance benefit. Term policy premiums usually increase with age.
Permanent insurance, such as universal life, variable life, and whole life, contains a cash value account or an investment element to the insurance.
Rules of Thumb
The younger your children, the more insurance you need. If both spouses earn income, then both spouses should be insured, with insurance amounts proportionate to salary amounts.
Tip: If the family cannot afford to insure both wage earners, the primary wage earner should be insured first, and the secondary wage earner should be insured later on. A less expensive term policy might be used to fill an insurance gap.
If one spouse does not work outside the home, insurance should be purchased to cover the absence of the services being provided by that spouse (child care, housekeeping, bookkeeping, etc.). However, if funds are limited, insurance on the non-wage earner should be secondary to insurance for the wage earner.
If your spouse could live comfortably without your income, then you will still need life insurance, but you will need less than someone who has dependents.
Tip: At a minimum, you will want to provide for burial expenses and paying off your debts.
If your spouse would undergo financial hardship without your income, or if you do not have adequate savings, you may need to purchase more insurance. The amount will depend on your salary level and that of your spouse, on the amount of savings you have, and on the amount of debt you both have.
Buying life insurance doesn’t make sense for everyone. If you have no dependents and enough assets to cover your debts and the cost of dying (funeral, estate lawyer’s fees, etc.), then insurance is an unnecessary cost for you. If you do have dependents and you have enough assets to provide for them after your death (investments, trusts, etc.), then you do not really need life insurance.
However, if you have dependents (especially if you are the primary provider as mentioned above) or significant debts that outweigh your assets, then you likely will need insurance to ensure that your dependents are looked after if something happens to you.
Evaluating Your Insurance Needs
A large part of choosing a life insurance policy is determining how much money your dependents will need. Choosing the face value (the amount your policy pays if you die) depends on:
- How much debt you have: All of your debts must be paid off in full, including car loans, mortgages, credit cards, loans, etc. If you have a $200,000 mortgage and a $4,000 car loan, you need at least $204,000 in your policy to cover you debts (and possibly a little more to take care of the interest as well).
- Income Replacement: One of the biggest factors for life insurance is for income replacement, which will be a major determinant of the size of your policy. If you are the only provider for your dependents and you bring in $40,000 a year, you will need a policy payout that is large enough to replace your income plus a little extra to guard against inflation. To err on the safe side, assume that the lump sum payout of your policy is invested at 9%. Just to replace your income, you will need a $500,000 policy. This is not a set rule, but adding your yearly income back into the policy (500,000 + 40,000 = 540,000 in this case) is a fairly good guard against inflation. Remember, you have to add this $540,000 to whatever your total debts add up to.
- Future Obligations: If you want to pay for your child’s college tuition or have your spouse move to Hawaii when you are gone, you will have to estimate the costs of those obligations and add them to the amount of coverage you want. So, if a person has a yearly income of $40,000, a mortgage of $200,000, and wants to send his or her child to university (let’s say this will cost $80,000), this person would probably want an $820,000 policy ($540,000 to replace yearly income + $200,000 for the mortgage expense + $80,000 university expense). Once you determine the required face value of your insurance company, you can start shopping around for the right policy (and a good deal). (To find your estimate of insurance needs, Go to my Calculators page, click Personal Finance, and then click Life Insurance Needs Estimator. It’s about the fourth one down I think)
- Insuring Others: Obviously there are other people in your life who are important to you and you may wonder if you should insure them. As a rule, you should only insure people whose death would mean a financial loss to you. The death of a child, while emotionally devastating, does not constitute a financial loss because children cost money to raise. The death of an income-earning spouse, however, does create a situation with both emotional and financial losses. In that case, follow the income replacement trick we went through earlier (your spouse’s income/9% + inflation = how much you’ll need to insure your spouse for). This also goes for any business partners with which you have a financial relationship (for example, shared responsibility for mortgage payments on a co-owned property).
Summary
If you need life insurance, it is important to know how much and what kind you need. Although generally renewable term insurance is sufficient for most people, you have to look at your own situation. If you choose to buy insurance through an agent, decide on what you’ll need beforehand to avoid getting stuck with inadequate coverage or expensive coverage that you don’t need. As with investing, educating yourself is essential to making the right choice.
Paying Off Debt the Smart Way
Being in debt isn’t necessarily a terrible thing. Between mortgages, car loans, credit cards, and student loans – most people are in debt. Being debt-free is a great goal, but you should focus on the management of debt, not just getting rid of it. It’s likely to be there for most of your life – and, handled wisely, it won’t be an albatross around your neck.
You don’t need to shell out your hard-earned money for exorbitant interest rates, or always feel like you’re on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay it off faster.
Know Where You Are
First, assess the depth of your debt. Write it down, using pencil and paper, a spreadsheet like Microsoft Excel, or a bookkeeping program like Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.
Record the day the debt began and when it will end (if possible), the interest rate you’re paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged! Remember, you’re going to break this down into manageable chunks while finding extra money to help pay it down.
Identify High-Cost Debt
Yes, some debts are more expensive than others. Unless you’re getting payday loans (which you shouldn’t be), the worst offenders are probably your credit cards. Here’s how to deal with them.
- Don’t use them. Don’t cut them up, but put them in a drawer and only access them in an emergency.
- Identify the card with the highest interest and pay off as much as you can every month. Pay minimums on the others. When that one’s paid off, work on the card with the next highest rate.
- Don’t close existing cards or open any new ones. It won’t help your credit rating.
- Pay on time, absolutely every time. One late payment these days can lower your FICO score.
- Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club you’ve never used? Look for line items you don’t need.
- Call your credit card companies and ask them nicely if they would lower your interest rates. It does work sometimes!
Save, Save, Save
Do whatever you can to retire debt. Consider taking a second job and using that income only for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.
Do Away with Unnecessary Items to Reduce Debt Load
Do you really need the 800-channel cable option or that dish on your roof? You’ll be surprised at what you don’t miss. How about magazine subscriptions? They’re not terribly expensive, but every penny counts. It’s nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control.
Never, Ever Miss a Payment
Not only are you retiring debt, but you’re also building a stellar credit rating. If you ever move or buy another car, you’ll want to get the lowest rate possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.
Do Not Increase Debt Load
If you don’t have the cash for it, you probably don’t need it. You’ll feel better about what you do have if you know it’s owned free and clear.
Shop Wisely, and Use the Savings to Pay Down Your Debt
If your family is large enough to warrant it, invest $30 or $40 and join a store like Sam’s or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride. Use coupons religiously. Calculate the money you’re saving and slap it on your debt.
Each of these steps, taken alone, probably doesn’t seem like much. But if you adopt as many as you can, you’ll watch your debt decrease every month.
Related articles
- Are you sure you want to do a debt consolidation (cascadesatstluciewestblog.wordpress.com)
- Credit cards and your business – what you need to know (simplybusiness.co.uk)
- What’s More Important: Saving or Paying Down Debts? (dailyfinance.com)
The Pulse of Your Business
Unfortunately, many small business owners do not fully understand their cash flow statement. This is shocking, given that all businesses essentially run on cash, and cash flow is the lifeblood of your business.
Some business experts even say that a healthy cash flow is more important than your business’s ability to deliver its goods and services! That’s hard to swallow, but consider this: if you fail to satisfy a customer and lose that customer’s business, you can always work harder to please the next customer. But if you fail to have enough cash to pay your suppliers, creditors, or employees, you’re out of business!
What Is Cash Flow?
Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers. The inflow only occurs when you make a cash sale or collect on receivables, however. Remember, it is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.
Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.
Note: An accountant is the best person to help you learn how your cash flow statement works.
Cash Flow Versus Profit
Profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS.
Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more important, it is concerned with the times at which the movement of the money takes place.
Theoretically, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.
Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times, you may go bankrupt.
Analyzing Your Cash Flow
The sooner you learn how to manage your cash flow, the better your chances for survival. Furthermore, you will be able to protect your company’s short-term reputation as well as position it for long-term success.
The first step toward taking control of your company’s cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management.
Some of the more important components to examine are:
- Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.
- Credit terms. Credit terms are the time limits you set for your customers’ promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
- Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy – neither too strict nor too generous – is crucial for a healthy cash flow.
- Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
- Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable some time in the near future – “near” meaning 30 to 90 days. Without payables and trade credit, you’d have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.
Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts, or spend extra cash to expand its line of business.
For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us.
Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.
The Company Balance Sheet
There are three major financial statements – the profit & loss, the balance sheet, and the statement of cash flow. The balance sheet is what drives the cash flow of the business.
The balance sheet is an important financial-analysis and reporting tool that outlines the assets, liabilities and equity of the company at the end of the accounting period. If the balance sheet is not correct, then the cash flow forecast is most likely inaccurate and worthless.
Unfortunately the balance sheet is what is usually the most neglected and least understood.
In an effort to help get the balance sheet forecasting correct, here are some common mistakes that entrepreneurs, CEOs, business owners, and even business financial consultants regularly make:
The most common mistake made is not having a balance sheet. The balance sheet represents the most complex transactions of the company and may be left out because the company lacks the expertise of a CFO (Chief Financial Officer) or a firm with CFO services to assemble this critical part of the three major financial statements needed.
The major operating assets include accounts receivable, inventory, pre-paid items, and much more. The major operating liabilities include accounts payable, taxes payable, and other accrued expenses. When sales go up, accounts receivables go up, and cash goes down. However, does your information show that? If sales go up, can we expect our inventory level to stay the same? Most likely it will need to increase. The increments of these changes are dependent upon the relationship between the days sales outstanding and your inventory turnover.
As sales increase, your accounts payable usually increase as well. The timing of your payments against your accounts payable is a major outflow in the cash flow puzzle that is called working capital. We need to define the relationship that payables have with your operating activities and implement this relationship in your balance sheet.
There are several other operating assets and liabilities that dramatically influence cash flow. I’ll avoid all of the details of each, but it is fair to say that without properly forecasting them, your cash flow forecast will never be accurate.
Are we bringing in any more equity investments during the period? What is your dividend policy for shareholders? Is some or all of the active shareholders compensation coming through equity? All of these items can have a significant impact on cash flow, although none of them show up on the P&L.
In addition to equity transactions, the structure of all of the company’s debts and obligations need to be correctly reflected. This is done on the balance sheet. An interest only line of credit will keep the same balance until more is withdrawn or some is paid back based on the cash flow of your business. Term loans need to show the correct amount of principal being reduced every month.
Obviously these items can seriously change your cash flow, and they need to be included in the financial model so you can correctly forecast your cash flow.
Above are a few common mistakes, certainly not all-inclusive (you’ll notice I did not address capital expenditures at all), but should help create a positive foundation to build the balance sheet.
L & R Tax Preparation offers CFO services. We have helped our clients get a handle on their companies, make the best strategic decisions possible, raise necessary capital, and perhaps most importantly, track their progress so they can correct problem areas and make more valid assumptions in the future.
Prepare your taxes on-line With L & R Tax Preparation
L & R Tax Preparation
Tax Preparation, Payroll, and Accounting,
Including online services.
E=MC2 or use QuickBooks
