Wednesday, December 19, 2007

End of Year Finances - Pt 1

As the year winds down, it's a great time to look at how you keep track of your business. I mean financial track.

Ugh! I hear it echoing across the hills and valleys. "I don't like finances. I don't do finances. I just want to be a consultant."

Fine. Are your over that yet? Well, you need to be. And the reason is very simple.

Go buy any Brian Tracy book or CD and you'll be exposed to this little bit of advice: What gets measured gets done.

Let me add my own mantra: You're going to get better at whatever you put your attention to.

The world doesn't care whether you like finances or avoid finances. If you don't keep track of it, you don't know whether your busines is moving in the right direction. Are you making more money than last year, or less? How does your year look month to month to month?

If you know and use QuickBooks, I hope you'll find an idea or two here. If you don't know QB, start today. A few tips:

First, work with an accountant or enrolled agent. Pay them to help you set up the right accounts and items that make sense for your business.

Second, Plan to go over this every month. If possible, meet with your accountant or enrolled agent every few months to make sure you're on the right track.

This is a tool: use it and it will help you!!!

More comments to follow. For now, look through the elements you'll find on most consultants' spreadsheets:


Create an Excel Spreadsheet. Here's your first column. It should be followed by columns for each month of the year.



     Goods Subtotal

    Labor Tech Sup
    Managed Services
    Hosted services
    Other / Misc
      Total Revenue


    COG Hardware (COG = Cost of Goods Sold)
    COG Materials
    COG Software
      COGs Subtotal

    COG Remote SW e.g., Kaseya or Zenith
    COG Service to Sell e.g., OWN
    HaaS Depreciation

    Payroll - Total

    Item January February

    Bank Charges
    Computer Services
    Dues and subs
    Employee Expenses e.g., Mileage
    Employee Medical
    Insurance E&O / Liability
    - Insurance Property
    - Insurance W.C.
    Office Supplies
    Professional fees
    - Accounting
    - PSA system e.g., Autotask
    - Legal
    Taxes misc
    Write Off

Total Expenses



That means you enter the information from QuickBooks into Excel. That way you can create charts, graphs, etc.

At the far right, add up the totals for the year for each row.

If you have an item that is just microscopic, drop it. For example, I have an entry in QB called Tools. But tools (screwdrivers, pocket knives) is such a tiny percentage of the total that I don't put it on the excel spreadsheet. It goes in the "other" category. Similarly, if something grows to the point where it does represent a significant percent of the total, you should add it to the spreadsheet.

I've added some subtotal categories for Cost of Goods and the related sales of goods. This allows me to break down the big categories into:

- Revenue from goods sold
- Revenue from services sold

- Cost of goods sold
- Cost of Labor

- Cost of everything else (Assuming hardware, software, and labor are all sold at a price higher than you pay, this is your real cost of operations -- the nut that has to be cracked every month).

This seems simplistic, but most consultants don't think about it until forced to:

You can make money on every single thing you sell and still lose money overall.

How? Let's say you make a profit of $1,000 on hardware, software, and materials. And you make a profit of $2,000 on labor. Rent is 1,500. and all other expenses are $2,000. You just lost $500. Do that for twelve months and you've lost $6,000.

You can't just look at each job and make each job profitable.

Someone who does this for a living, like Susan, might argue with some specifics here and there. But the important message is very straight forward: pay attention to finances and the bottom line and you'll be more profitable in 2008!

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