Intro to Accounting with QuickBooks for Startups, Software Development Companies, and Small Businesses
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The document provides an introductory overview of accounting principles relevant for startups and small businesses, discussing key topics such as legal decisions, tax consequences, basic accounting reports, and the differences between cash and accrual accounting. It emphasizes the importance of keeping accurate financial records and understanding financial statements like balance sheets and profit/loss statements for informed decision-making. The author shares personal experiences and offers practical advice on using accounting tools like QuickBooks for efficient bookkeeping.
Intro to Accounting with QuickBooks for Startups, Software Development Companies, and Small Businesses
- 1. Intro to Accounting For startups and small business Yair Flicker, Betamore, 3/19/13 http://smartlogicsolutions.com
- 2. What We’ll Cover • Legal decisions to make—and related tax consequences • Accrual vs. Cash • Fundamental Accounting Reports • Principles of Accounting • Setting up a QuickBooks file
- 3. My Experience • SmartLogic Solutions—2005 to present • Maryland Nonstock LLC / s-corp • Bikemore—2012 to present • Maryland Nonstock Nonprofit Corp • TeamPassword—2013 to present • Maryland Stock Corp / s-corp
- 4. My Experience • Took Intro to Accounting 10 years ago • Mostly self-taught or gleaned from my accountants • NOT a tax professional
- 5. My Credentials • Me with a yarmulke at the Western Wall
- 6. About the Accounting Industry • Not the most progressive • Doesn’t change a whole lot • QuickBooks is the canonical tool for small operations • But accountants do know accounting really well
- 7. Who’s in the Room? • Your Name • Company Name(s) • Stock / Nonstock? • S/C-Corp, Partnership, Sole Proprietor • Payroll?
- 8. Legal Decisions and Tax Consequences
- 9. Why Incorporate? • Make money for shareholders • Do warm and fuzzy stuff • Make money for shareholders • Limit liability
- 10. Type of Maryland Corporations • www.dat.state.md.us/sdatweb/ sdatforms.html • Limited Liability Corporation (LLC) • Stock Corporation • Nonstock Corporation • Some others, but who cares
- 11. S Corp vs. C Corp? • Taxed once • Taxed at corporate level • Pass-through income • Dividends get taxed again (K1) • Can’t easily convert to S • Can convert to C Corp Corp relatively easily • No practical restrictions • < 100 shareholders on shareholders • One class of • Multiple classes of shareholders shareholders are okay
- 12. Form 2553 • States don’t care if you’re S corp or C corp • The IRS does! File Form 2553 ASAP if you’re going S corp!
- 13. Section 83(b) • Applicable to stock corporations • Send to IRS • Protects you from recognizing income on stock that is vesting and increasing in value • Send it w/in 30 days of incorporation or you are screwed
- 14. Why Keep the Books in Order?
- 15. Make Tax Filing Easy • But please don’t prepare your own corporate returns
- 16. Make Informed Decisions • How many more development sprints do I have? • How will hiring this person affect my monthly burn? I.e. can I hire this person. • Based off my runway, how urgently do I need to do the horse and pony show?
- 17. Make Informed Decisions • How will increasing marketing spend to $XXX affect my runway? • How urgently and aggressively do I need to collect on debts? • How much do I owe to creditors?
- 18. How to Keep the Books in Order? • Simple, repeatable, deterministic processes • Or pay someone
- 19. Accrual vs. Cash Basis
- 20. Two Styles of Accounting • Cash basis: revenue is realized when you get a check or cash • Accrual basis: income/expenses are realized when you issue/receive an invoice • Go cash basis.
- 21. SAAS Companies • Invoicing? Who does that any more? • You’ll probably collect money right away • Net effect: cash = accrual basis
- 22. Services Companies • Send out large invoices • Some clients pay when they want to • You still owe your creditors (credit card)
- 23. My Preference: Cash • I want to know how much cash I have • Allows for safest decision making • I still look at reports seeing how many invoices are outstanding (we’ll look at these shortly)
- 24. Assets, Liabilities, Equities
- 25. Remember this Equation Assets = Liabilities + Equity
- 26. Assets Something that can be turned into cash
- 27. Current Assets • Something that can quickly be turned into cash • Generally: • Bank Accounts • Undeposited Funds • Stocks
- 28. Fixed Assets • Not as quickly turned into cash • Generally: • Inventory • Furniture • Computers & Equipment • Note: fixed assets get depreciated
- 29. Accounts Receivable • Money owed to your company • Only shows on the balance sheet if using accrual basis
- 30. Liabilities • Obligation of an entity stemming from past transactions or events • Usually results in transfer of assets or services
- 31. Remember this Equation Liabilities = Assets - Equity
- 32. Sample Liabilities • Credit card • Bank loan • Line of credit • Expenses
- 33. Accounts Payable • Money you owe vendors • Only shows on the balance sheet if recording on an accrual basis
- 34. Equity Alternatively called Owners’ Equity, Stockholders’ Equity, etc.
- 35. Equity • What people (you, family,VC’s) put in to fund your company • Generally: • Capital Stock • Dividends • Retained Earnings
- 36. Remember this Equation Equity = Assets - Liabilities
- 37. The Fundamental Reports
- 38. The Balance Sheet • The 50,000’ view • Shows the “book value” for a specific moment in time • Doesn’t tell you much about the company’s operations
- 39. The Balance Sheet • Shows Assets, Liabilities, Equity • Nothing about salaries, wages, marketing expenses, conferences, events, travel, meals, etc.
- 40. Check out a Balance Sheet
- 41. The P&L Statement • AKA Income Statement, Earnings Statement, etc. • Shows income vs. expense over a period of time • Grouped by income and expense account
- 42. Operating Income Income/expense as a result of your normal business operations
- 43. Other Income/Expense Not a result of normal business operations (e.g. dividends from stocks, taxes to foreign governments paid on those dividends, etc.)
- 44. Common Income Account Names • Service Revenue • Product Revenue • Write Offs • Cost of Good Sold
- 45. Example Expense Accounts • Advertising • Insurance • Marketing • Office Equipment • Payroll Expenses • Professional Fees
- 46. Related P&L Statements • P&L Detail Statement • P&L Comparison Statement
- 47. Check out a P/L Statement
- 48. A/R Statement • Money owed to you by your clients • If recording on accrual basis A/R is an asset
- 49. A/R Questions • How much is my company owed? • How much credit have I extended to my clients? • How good am I at collecting debts owed to me? • How much money can I expect to come in soon?
- 50. A/R Questions • Is this client dissatisfied? They’re late on an invoice, which is not a good sign. • Did they lose my invoice? • Are they incompetent? • Do they jerk around their vendors?
- 51. A/R Questions • Who do I need to sue (or at least threaten legal action against)? • Is this client a deadbeat? • Is this client running out of cash?Is my client financially distressed? Do I need to stop doing business with this client?
- 52. A/R Statement for Services Companies • Grouped by client • Further grouped by job
- 53. A/R Statements for Product Companies • Not sure they make much sense if you’re not issuing many invoices • 37signals isn’t looking at A/R statements • Create your own reports
- 54. Related A/R Statements • A/R Aging Summary • Collections Report
- 55. Check out an A/R Statement
- 56. A/P Statement • Debts owed by you to vendors in exchange for goods or services rendered by the vendor to your business • You record a debt to A/P when you get an invoice • If recording on an accrual basis A/P is a Liability on the balance sheet
- 57. A/P Questions • How much do I owe vendors? • When do I need to pay the vendors? • Can I cut some of these expenses? • Can I negotiate different payment terms?
- 58. Check out an A/P Statement? Nah, pretty much the same as A/R
- 60. Double-Entry System • All transactions are recorded in TWO accounts • You increase one account • You decrease another account • (Money doesn’t materialize out of thin air)
- 61. Double-Entry System • The system that has been used for years • Allows you to...account for everything!
- 62. T-Accounts • Account name at the top • Debits (Dr) are on the left • Credits (Cr) are on the right
- 63. DEBIT DOES NOT MEAN DECREASE AND CREDIT DOES NOT MEAN INCREASE
- 64. Recall Assets = Liabilities + Equity
- 65. T-Accounts / Assets • Debits INCREASE asset accounts • Credits DECREASE assets accounts • When cash hits your bank (an asset), add a Debit entry to an asset account • When you write a check from your bank, add a Credit entry to an asset account
- 66. T-Accounts / Liabilities or Equities • Debits DECREASE the value of liabilities and equities accounts • Credits INCREASE the value of liabilities and equities accounts
- 67. T-Accounts / Liabilities or Equities • When you run up your credit card (i.e. use your credit card to buy something), you are adding a Credit entry to a liability account • When you pay down your line of credit you are adding a Debit entry to a liability account
- 68. T-Accounts / Liabilities or Equities • When you put in personal money, e.g. when you formed your company, you are adding a Credit entry to an equity account • When you issue a dividend to stockholders you are adding a Debit entry to an equity account
- 69. Nifty Things Happen • Sum of all credits = Sum of all debits • Credits - Debits = 0 • Sum up everything and it equals 0!!! • Corollary: if you sum up all your accounts and it’s not 0, you messed something up
- 70. Let’s do Some Examples • Invest $10k into your company • Invoice a client for $2,400 • Collect $2,000 of that in cash • Buy a fancy iPad for $500 • Lawyers invoice you $300 • You pay that invoice by check
- 71. Let’s do those again in Quickbooks
- 72. Tips • IRS is your friend • Don’t run payroll • Don’t file your own corporate returns