A Tale of Two Financial Firms

A Tale of Two Financial Firms

It’s storytime on the blog this week! Do either of these tales sound familiar to you?

Flash Drives and Checkbooks

The advisors at Neighborhood Financial were losing their minds and perhaps more alarmingly, their valuable time.

It was the last Friday of the business month and, as was becoming far too common, financial advisors/business partners Jake and Lisa were scrambling to make sure their individual income accounts and their joint business account were correctly balanced.

As with most financial firms, bookkeeping needs at Neighborhood Financial were complicated. Along with individual income streams and expenses, the business partners’ joint venture account had to be regularly contributed to by both team members. They had hired an independent accountant to handle their books long ago – so why were they still not 100% sure of where their accounts stood and who owed how much to their joint account every month?

With the chime of the office doorbell, the answer to that question walked in the door with a flash drive in one hand and a stack of unsigned checks in the other.

Fred the accountant had years of experience and a winsome personality that built loyalty and trust with his customers. Unfortunately, he was falling farther and farther behind on the latest banking and bookkeeping systems and tools that make modern bookkeeping organized and efficient.

Fred the accountant still kept Jake’s and Lisa’s individual books on a flash drive that Jake and Lisa only had up-to-date access to whenever Fred was able to stop by. Fred still handled expenses and payments with paper checks, reports and receipts. It was simply the way he had always done things. 

It took up quite a lot of their valuable time for Fred to help Jake and Lisa figure out how much each of them needed to contribute to their joint account each month, and the sums varied so wildly month to month that neither of them were ever sure if they were over or under contributing. 

“There’s got to be a simpler, more dependable way to do this,” sighed Jake, rubbing his forehead after Fred left with the stack of freshly signed checks. 

“This is becoming too stressful for us individually, and for our partnership,” agreed Lisa. “I think we need to make a change.”


How much of a difference can expert help and up-to-date tools make for financial businesses?

It may surprise you that the answer is more than you might think.

Staying two steps ahead of the latest tools, systems and technologies for financial business bookkeeping is becoming a necessity for those who want to stay ahead in today’s quickly evolving world. More than ever, today’s financial businesses need expert help with a deep understanding of the most accurate and efficient bookkeeping tools on the market so that they can focus on what they value most: serving their customers.

Something we have noticed among our clients is that some businesses are leery of switching from old, manual ways of accounting because they are afraid they will lose the personal touch that comes with the long standing relationships that develop over years working with a single accountant. The learning curve of newer systems and technology seem overwhelming and businesses worry it will take too much of their time.

We believe you shouldn’t have to choose between personal attention to detail and the most efficient, up to date technology. You deserve both.

At System Six we work hard to stay ahead of the curve when it comes to the best, up to date systems and tools available for bookkeeping so you don’t have to. We are also just as committed to building long lasting relationships with our clients – relationships built on great communication and personal attention to the details that matter for your business.


21st Century Solutions to 21st Century Challenges

Jake and Lisa made the decision to change how they were handling their business’ bookkeeping. 

By outsourcing their bookkeeping needs to a company that was up to date with today’s best technology, Jake and Lisa began to see immediate improvements in the areas that previously caused so much frustration and stress.

The new bookkeeping team used tools to analyze past years’ spending to project more accurately how much Jake and Lisa needed to be contributing to their joint account each month. Their payments became more consistent so there were no longer last minute surprises at the end of every month.

While trying to understand and manage the various streams of revenue and expenses at their firm had been a nightmare before, now Jake and Lisa received monthly, detailed reports broken down in a clear, concise way. Jake and Lisa finally had vital account information at their fingertips, up to date within ten days of the end of the month. No more waiting for and fussing with flash drives!

Moving their banking and bill pay systems online alleviated the need for paper checks and reports, which made Neighborhood Financial more organized and efficient than ever before.

All this led to surprisingly big benefits for Jake, Lisa and Neighborhood Financial: more peace of mind, better control of their account information, and best of all, more time to devote to their clients. 


Does this story sound familiar to you? Have you been wondering how updating the way your business handles partnership accounting would improve your work? If so, we’d love to connect with you!

Essential Tools for Paperless Household Accounting

Essential Tools for Paperless Household Accounting

At System Six, we believe in the power of trustworthy, high-tech tools to build financial security, transparency, and control. We have been in the cloud since the beginning. Over the years, we have transitioned hundreds of businesses, families, non-profits, and firms to cloud-based tools and seen the impact of reliability and simplicity. Paper and pen systems are notoriously clunky, unreliable, and insecure. 

We understand it can be overwhelming to sift through the myriad of available software and applications to help streamline your processes – even more so if you’re doing it for your personal finances. Accounts payable at your company probably do not pay the internet bill at your rental property or handle the landscaping company’s monthly fee. As your personal wealth, properties, and real estate grows, how do you handle the influx of papers and filing? 

Our advice? Set yourself up with reliable, trustworthy cloud-based tools. Our team has helped countless families transition away from paper tools. If you’re looking to make the jump, here are four tools we recommend adding to your personal toolbox: 

1. An accurate time tracker 

If you have employees who work on behalf of your family or are working in your home, they must have the ability to track their time accurately. It’s easy for timecards to be lost or misreported when using paper and pencil. To increase accuracy, we recommend using online software to track your employees’ time. Companies like Gusto, Quickbooks Time, and Toggl have created systems that benefit households by eliminating errors with timecards. In addition, these systems will save you time by syncing to your household’s central accounting software. Several of these tools have mobile apps for quick and easy access and can differentiate between projects, so you know where your staff invests most of their time.

2. Bill pay software 

Writing checks, creating invoices, and processing payments can be very time-consuming. A bill pay software helps streamline these practices through technology. Bill.com is the platform our Systems Six bookkeepers recommend. Not only will this software help make your accounts receivable and accounts payable more efficient, but it will also connect to Quickbooks, our suggested central office for your paperless accounting system. Bill pay software keeps your bank credentials safe by operating as a separate platform, increasing convenience and security. This way, your bills and cards can sync directly with your bank account without giving away your login credentials. 

3. A shared space for files

When making the transition to paperless accounting, it can be challenging to resist the urge to keep all your paper bills, invoices, and receipts. We recommend using a shared space to upload pictures of your files to keep them digitally. Google Drive, Dropbox, and Sharefile are all platforms that provide the necessary storage you need to go paperless. These files can be shared and accessed from any device with a login, making it easy for your bookkeeper or accountant to find pertinent files without needing to dig through a filing cabinet. 

4. A receipt management system

If you have employees working on behalf of your family who have the authority to use credit cards linked to your bank account, you must set clear boundaries. We recommend establishing spending limits for each employee and linking your bank account to Ally. This software organizes your receipts from multiple members of your staff without sacrificing your time and energy. These receipts can easily align with other management software like Quickbooks to provide checks and balances for those with authority to spend on your behalf.

5 Reasons Your Small Business Needs a Bookkeeper

5 Reasons Your Small Business Needs a Bookkeeper

We believe you started your business out of a place of passion and to meet a need in your community. As a small business owner, you likely wear many hats, juggling your time between owner, human resources director, marketing manager, and accountant, to name a few. Your time is valuable, but in light of all of your job titles, time never seems to be in abundance. Due dates loom, tasks pile up, details are overlooked, and stress begins to consume you. The solution? Delegate. Here are five signs it’s time to look for an outsourced bookkeeper so you can get back to dreaming and growing your business.

1. Receipts and bills are stacking up 

Is your desk becoming overgrown with bills and receipts? Does the paperwork feel like it never ends? Organizing your books can be discouraging when you are drowning in financial data. It becomes even more difficult if your business did not set up a proper system for bookkeeping from the beginning. Without a standardized approach, maintaining your books can be burdensome. Your employees rely on you for accurate and timely payroll and budgeting.

Organized books are critical for profit-loss statements, financial planning, and budgeting. Cloud-based tools like Quickbooks will make it easy to keep tabs on your finances without the mountain of papers on your desk. Don’t let those receipts get the best of you; hiring a professional bookkeeper can help. 

2. Tax-prep is stressful and overwhelming 

Does tax season stimulate anxiety? You took the right step in hiring a Certified Public Accountant to file your taxes, but tax preparation is still required. Someone needs to run reports, apply updated tax codes, and categorize paperwork. Doing this on your own can be intimidating. While financially savvy and experienced, your CPA is not involved in the ins and outs of daily business and doesn’t know what papers you filed where or how your business runs cash-flow through the weeks and years.

CPAs don’t typically do tax preparation, and it will require much more time, money, and communication to find all of the documents and data they need. Outsourcing all your business’s tax prep to a bookkeeper can alleviate the oppressiveness of tax season by streamlining communication with your CPA and increasing your confidence that your taxes will be filed correctly.

3. Financing is necessary for growth

Is your company looking to grow? Do you need additional financing options? For more financing, you must have organized and accurate financial data. Banks will evaluate your business on the organization of its financial records, debt repayment history, and reputation. By hiring a bookkeeper to execute financial tasks, your business will have a greater opportunity for increased lending. In doing so, you can know your profit and loss statements will be timely and accurate when submitting paperwork to a bank. If you need additional documentation, your bookkeeper is a call away. Don’t let approvals get in the way of your organization’s growth.

4. Every penny counts 

If you’re a small business owner, you know that every penny matters. Unanticipated fees and additional expenses are simply not an option. Avoiding unwanted costs is a must, and cash flow management is essential to running a successful business. By hiring a bookkeeper, your company avoids the risk of audits and late fees. In addition, bookkeepers can facilitate a more efficient business on your behalf by appropriately entering all information for your taxes, which saves money in the long run. Get back to looking at the big financial picture, let the bookkeepers handle the pennies. 

5. Dreaming for your business has become stagnant  

You didn’t go into business for the endless bills, crinkled receipts, and math homework. You became a business owner because you had a dream: a desire to change and serve your community and to build time and financial freedom. We believe you deserve to have the time and energy to focus on your goals and see them come to fruition. A professional bookkeeper grants you the mental space to be inspired again by maintaining the areas of your business that drag you down. Get back to dreaming, hire a bookkeeper.

You are one of your business’s most valuable assets.

By delegating the bookkeeping to a professional team like System Six, you regain time, energy, money, and most importantly, the space to grow your business. Are you interested in taking the next step to finding a trustworthy and dependable bookkeeper? Let’s chat. At System Six, we help business owners get back to what’s important, one line item at a time.

How to Build a Successful Budget

How to Build a Successful Budget

As Benjamin Franklin once said, “By failing to prepare, you are preparing to fail.”  So, let’s prepare now for your future success with a strong budget.

For business owners, having a budget for the New Year is an important part of financial preparation.  But for some business owners, just the thought of having to prepare a budget makes them anxious.  The idea of adding another item to your to-do list might actually push you over the edge, especially this year.  Or maybe you just don’t know where to start.  Either way, a budget is a critical step to your success, so reach out!  System Six, your current bookkeeper or your CFO can help!

The budgeting process allows business owners to think about how much they will earn and how much they will spend in the following year.  It can be as detailed or as summarized as you like.  The goal is that a budget will ultimately help the business owner throughout the year determine if the business is on track financially through the use of budget versus actual reporting.  So you’ll know month by month when and where to make expense changes or where you may be exceeding your revenue expectations.

Where Do I Start with a Budget?

Preparing a budget may sound like an impossible task. Keep in mind that this process can be as simple as you want it to be the first year and then revised and improved upon in subsequent years.

The most effective way to build your budget is to align your data with the accounts in your financial system (i.e., QBO, Xero, Sage, etc.) and ultimately to input the budget into your system for easy reporting next year.  At System Six, we are here to work with our clients and other business owners to help them through this process.

Whether you have prepared a budget before or not, one of the best places to start is by reviewing financial statements for the current and prior two years, making notes on some key pieces of information.

  • Do you notice any revenue trends?  Are there certain months where you earn most of your revenue each year?  Do you see a rather steady revenue increase each month?
  • Are there any atypical income sources in those years that may not recur next year?
  • Are your Cost of Goods typically a certain percentage of your revenue each month?  Are there ever variations in certain months that need to be planned for?
  • Are there any atypical expenses in those years that may not recur next year?
  • Are there amounts you want categorized differently on your statements next year?

 

What’s the Point of a Budget?

Building your budget will vary some depending on your revenue model.  However, in most cases, when determining your revenue budget, you will want to include realistic stretch goals.  A budget needs to be achievable.  There are other business growth documents you can use to evaluate and incentivize a sales team, for example, but a budget should be a realistic expectation of next year’s financial statements taking into account known external factors and changes.  The expectation is that you will be able to run budget versus actual reports next year and be able to determine if your business is on track to your anticipated (budgeted) bottom line.  If you are, great job!  If not, you’ll be able to see where the business has gone astray and make real-time (monthly) adjustments to get back on course towards your initial plan.

How Detailed Should My Budget Be?

If this is your first time preparing a budget, our recommendation is to keep it simple!  We don’t want you to feel like your budget is more trouble than it’s worth.  If you are a Budgeting Pro, you can make your budget as detailed as you like.  Either way, you will want to match your budget data to the Chart of Accounts inside your Financial System (i.e., QBO, Xero, etc).

You can enter your revenue to the top level called Revenue/Income or you can split it between your various sub-Revenue accounts.  The same is true for all layers within your Chart of Accounts, including Cost of Goods and Expenses, being as detailed as you like or simply entering to the parent/summary/header accounts that you prefer.   You can even choose to simply enter annual amounts for all accounts which will auto-split evenly across all 12 months of the year.  Just a quick note that if you enter budget entries to the Summary accounts, and then next year actual expenses are entered to Sub-Accounts (more detailed), you will want to run Summarized Budget versus Actual reports in order to see the variances at the Summary level.  But don’t worry, this is just fine; your budgeting efforts are still well worth the time!  You may find this is all you need for several years.

At this step in the process, having reviewed both current year and prior year financial statements, it is up to you to determine next year’s annual budgeted revenue. An estimate is fine at this point based on what you know about your business.  It is helpful to forecast where you think your revenue will be at the end of the current year in order to have a solid starting point for next year’s budget.

How Do I Determine Budgeted Revenue?

You may be wondering how you calculate more detailed budgeted revenue.  This will differ depending on the type of business you operate.

Different Types of Businesses

  • Subscription or Donor/Membership-Based organizations typically track their subscribers or donors/members by level or group and price.  They know how many members they anticipate for next year and what revenue that equates to.
  • Service or Project-Based organizations typically track their services by price.  They anticipate a certain number of services for next year and what revenue that equates to.
  • Inventory/Product sales organizations typically track their product sales by product.  They anticipate a certain number of product sales for next year and what revenue that equates to.

These calculations are made with information pulled from a Point of Sale system or Membership database, which may or may not be directly integrated with the financial system.

More Complex Business Structures

What if your financial system is set up with even more detail, such as departments, locations or class structure?  All of these layers can absolutely be taken into account when creating your budget.  Essentially the process is the same; you will simply repeat the process for each of these layers.  In the end, when the budget is entered into your financial system for each of those layers, the summarized version of your budget will “roll up” to your master budget.  It is important to note that completing a budget process to this level of detail can be quite time consuming, especially if this is new to you or if you are taking on this challenge alone without any supporting departmental staff.

Special Revenue Considerations

As revenue is estimated for next year, it is important to include potential key business changes, such as new product lines/products or expanding business areas.  Conversely, it’s also important to consider the discontinuation of any business lines/products or the closure of any business areas.  Other key changes might include the impact of price increases, including not only the anticipated increase, but also any customer impact as a result of those increases (i.e., cancellations, etc.).

What’s Next?

Once you have this detailed annual budgeted revenue, the next step is to determine how to spread it out monthly for next year’s budget. If you have chosen not to calculate annual revenue in such detail, simply use the annual budgeted revenue for the business as a whole you determined above.

Monthly Revenue Modeling

Once you know what you are expecting for next year’s annual revenue, it’s important to know how to spread out that revenue each month.  Depending on the type of business you operate, there are several options to choose from.  Please note that if your revenue is consistent month to month, you can choose to enter your annual revenue, skipping this step altogether, allowing the system to allocate revenue evenly by month (simply dividing by 12).

Cyclical Revenue Modeling

Does your business generate most of its revenue during a specific month or quarter of the year?  For example, is your business dependent on New Year’s resolutions (i.e., gym memberships, etc)?  Or, is your business dependent on holiday sales (busiest from Oct-Dec)?  If so, then your business would be considered cyclical, with more revenue being entered to specific months during the year.  For a cyclical business, it is important to budget revenue next year by looking at the historical trends for those key months, being realistic about growth, and then allocating revenue in the other months similarly.

Incremental (or Percentage Growth) Revenue Modeling

Does your business typically grow a certain percentage each year or each month?  If so, calculate the growth percentage and see if that applies consistently throughout the year or in certain quarters.  Based on what you find, this percentage growth should be applied similarly to revenue amounts for next year.

Breakeven Revenue Modeling

Would you like to budget revenue based on the minimum amount needed to cover anticipated expenses for next year?  This is called Breakeven Budgeting.  You can apply revenue Cyclically or Incrementally, but by lower amounts or even reducing revenue from the current year.  In this model, first budget expenses, budgeting revenue last, with the goal being a $0 Net Profit/Bottom Line.  The purpose of this model allows business owners to know that if they do not exceed budgeted expenses and at least meet budgeted revenue, they will not lose money at year end.

Expense Modeling

The expense side of the budget model typically uses percentage growth for key accounts.  Most often, business owners will review current and prior year financial statements to gauge expense levels and increases year over year to estimate next year’s budget.  Key areas to consider include:

  • Cost of Goods Sold:  Since these are industry or even business specific, you’ll want to review these in depth to determine what to expect for next year by month.
  • Payroll:  You’ll want to consider both cost of living increases as well as any anticipated performance increases.  Keep in mind that payroll accounts can be in various places within the Chart of Accounts, depending on your layout, including Costs of Goods Sold and Admin/G&A, and may also split out owner wages separately.
  • Employee Benefits:  Benefits can unexpectedly increase, sometimes quite a bit year over year, so it can be helpful to reach out to your broker to get an idea of your increase for next year.  Be sure to include any new benefits you may be implementing next.  And similar to Payroll, these costs may also be found in several places on the P&L, including Cost of Goods Sold and Admin/G&A, with owner benefits oftentimes split out separately.
  • Utility Increases:  Although often considered a “fixed expense”, utility companies do increase their rates and utility expenses can be a large expense on the books. So taking a look at prior year increases can help determine next year’s budgeted expense.
  • Revenue-based taxes:  Depending on your state, revenue-based taxes are typically percentage based. So for budget purposes, setting them as the same percentage (of next year’s estimated revenue) as current year is generally a safe bet, unless you expect major changes to your business model.
  • Other expenses:  As the business owner it is important to look at the other expenses on your books, determine what percentage increases are appropriate for next year or if there is another methodology that makes more sense for estimating next year’s budgeted amount.  You know your business best and are in the best position to make those estimates.

 

So Where Do YOU Want to Start?

Having reviewed more about what you already knew or learned something new, where do you want to start with this important step towards your 2022 success?  

How Can We Help?

If you are interested in some help with this project, please click on this link and connect with us at System Six.  It will take you to a short list of questionnaires to help us determine how we can best serve you in this process.

Accounting for Mental Health Professionals

Accounting for Mental Health Professionals

Making the Jump from Solo-Practitioner to Forming a Group Practice

How do you know when it’s time to make the jump to forming a group practice? Many practitioners are impeded by not knowing where to start or wondering if the administrative time and the payroll cost might outweigh the profit. We’ve seen many MHPs (mental health professionals) make that switch successfully by identifying and utilizing apps that are designed to get you there. Before we explain the combination of knowledge and technology required to make this plunge, let’s take a look at some of the factors that you might be weighing as you consider expanding from solo counseling to a group practice. 

Why would you do it?  

  1. You’re overbooked! Clients love you and even though you may not have actually fully branded yourself, whatever you are doing is working. Instead of feeling overworked and stressed, spend some time figuring out what that secret sauce is that clients love about the way you do therapy. Hire like-minded professionals you can work with who can provide the bandwidth to add more clients to your practice without you bearing the brunt of those added hours.
  2. You acquire the opportunity to spread out your overhead costs. There are many therapists who would love to support an existing client base and be relieved of their own need to market, brand, and the accounting and admin that comes with a solo-practice. Make sure you hire the right people because you, as the business owner, are telling your clients that you’ve personally vetted this new therapist.
  3. You offer or specialize in one kind of counseling. Perhaps you only treat individuals but you keep getting asked by your clients if you can do couples counseling or counseling for kids. Rather than turning them away because you know it’s not your niche, you can add a therapist with those strengths and specialties to your practice without having to refer potential patients out. 

To start a group practice the first order of business is to make sure you’ve identified WHY. Is it because you have a good brand that people like and you’re overbooked? Or do you intentionally want to expand? Do you want to diversify your offerings? Do you thrive in a collaborative environment? Knowing your motivation is important and will point you in the right direction for expansion, branding, communications, and networking. 

Form the Correct Type of Entity

If you have a solo-practice, hopefully you’ve already taken advantage of the tax benefit of forming an LLC (in some states a PLLC), obtaining an EIN, placing yourself on payroll, and have considered filing as an S-Corp with the IRS. A stellar small-business focused CPA can walk you through the steps and explain to you the tax benefits of filing as an S-Corp. 

If you’ve found another therapist who you are going into business with, form a new multi-member LLC (again, this is a great time to consult with a knowledgeable CPA so both owners can make sure they’re minimizing personal taxes) with a new EIN. Don’t let these details overwhelm you! There are plenty of CPA’s who can help you take these steps (we as accountants know quite a few).

Tracking Everything – The Apps

As a business owner, be sure to track everything! There are many practical tools that you can use to keep your finger on the details of your practice. Do your research and choose one piece of software that will handle almost everything an MHP will need to do with clients (scheduling, insurance billing, remote sessions, electronic paperwork, accepting payments, etc). A few that we’ve worked with are ChARM (https://www.charmhealth.com/) and Simple Practice (www.simplepractice.com). 

Many of these can connect with an accounting software (Quickbooks Online is our go-to) for income recording. Most also have excel reports that can be exported to do a deep dive into reviewing margins and average billing numbers. Whatever it is you pick, you do need to ensure it can provide that all-important income reporting so that an accountant can take that info and integrate it into the accounting software where all expenses live. 

A great accountant can help you build out basic margins tracking based upon billable sessions and pay rates for employees. Whatever you build should be scalable so that what works for 3 people can work for 10. No need to go fancy on margins reporting, Google Sheets is usually sufficient and it can be connected to QBO as well for automatic updating of your numbers. We often rely upon our own internal data specialist to build automatic reports like this for our clients; and though it requires expertise outside of the realm of normal spreadsheeting to build, once it is built, it can be easily run and refreshed as needed. The same holds true for calculating what you can afford for overhead and owner pay once you understand your margins and standard expenses.

Hiring Employees – It’s the Group part of “Group Practice”!

The Taxes

Even if you already have an EIN and have been paying yourself via payroll, odds are you didn’t open up a state unemployment insurance account as business owners are exempt from these taxes (you can’t really fire yourself and legitimately claim unemployment). Most states have online applications that can be completed in 15 minutes and an unemployment account number obtained same-day or within 2 weeks. Make sure you’re also covered with workers compensation insurance (some states have state-sponsored programs, other states you will be required to purchase via private agencies). Once applied for and received, whatever your current payroll system is should be well prepared for you to add new hires into.

If you don’t already have payroll up and running, we would recommend Gusto as a great small-business friendly system that allows 100% online hiring and onboarding of employees. Gusto also has some great articles that can help to give direction on the various state payroll tax accounts you’ll need to apply for depending upon what state you are located in.

The People

To hire good people you need to have a good employment proposition. A large portion of that is going to depend upon how you communicate what you’ll be offering in terms of compensation. There are two fairly common approaches but both are based around fees per session and how much gross profit you need to be left with to pay overhead and to pay yourself (and potentially any other owner).

  • Pay a percentage of each session – In this scenario, you hire therapists and tell them their pay will be x amount of the fees they bring in during the month (say a 60/40 split or a 70/30 split). This is a guaranteed way to make sure you can always cover that employee’s salary as they’re only being paid for what they bring in. However, you want to be sure that the balance covers your own overhead such as rent, utilities and other professional fees (like accounting!).
  • Pay a base wage and then create a variable compensation structure for fees brought in over that base wage – Guaranteeing you’ll cover everyone’s base salary with this method is a little more risky, but it is a more attractive employment proposition as employees see a direct correlation between more client sessions brings exponentially more pay. In this scenario and as an example you’d offer a base salary at the state minimum for professional positions at $24k. If a billable session is $100, you know they’ll need to have at minimum 20 sessions a month to cover just their salary. Any sessions in excess of those needed to cover payroll go toward paying overhead expenses. Since 20 sessions is considered to be a very low caseload, you can make the minimum 35 or 40 sessions a month and pay a portion of those revenue earnings out as additional compensation (i.e. you get 80% of the session fee for any session booked in excess of your established minimum, or even up to 90% if you book over 60 a month).

While it might seem small, additional perks are a great way to make an employment offer more desirable. Healthcare is always an option to add for full-time employees. As a small group employer you can usually pick a percentage of the monthly premium to cover and then have the rest deducted pre-tax from employee paychecks. An annual continuing education stipend is also attractive ($300 a year) along with additional pay for any time spent team-building or aligning everyone with your brand. Free supervision for those working towards full licensure is also a great addition that doesn’t take up much of your time as an owner, and also gives you an opportunity to train that person on the brand you’re building to pull more clients into the practice.

In Conclusion

At the end of the day your practice won’t grow steadily unless you hire the right people who will support your goals and work well with your clients. Take time to interview thoroughly and have a great employment proposition that provides for increased pay and growth opportunities in the future. Above all, make sure you’re hiring people who concur with your mission, vision and values. And finally, when you research, locate, and utilize the tools that will help you minimize time spent on administrative and accounting tasks, you and your team can focus on that which is the most important element of your successful practice; your patients. 

Basics of Outsourced Church Bookkeeping: Part 2

Basics of Outsourced Church Bookkeeping: Part 2

Welcome to part two of our three part series on bookkeeping and finance specific to churches.  This second part of the series covers program spending, restricted funds, and taxes.  If you haven’t read part one it covers SAAS tools and services, I recommend reading that first since this part of the series builds on what was covered in part one, and you can look forward to the final part about budgeting.

Here in part two we will cover the aspects of church bookkeeping that often get overlooked as churches grow and operations and activities become more complex.

Program Spending

As a church grows, various ministries and programs start to take shape that require expenses, and sometimes income, to be tracked separately.  Good examples of this are kids ministry, worship, building/operations — things that would often be considered “departments,” or “business segments” in the for-profit world.  One option is to simply create new accounts for them, which works most of the time.  However, what happens when the church wants to see supplies used by the kids ministry and the worship band separately?  What if there are other accounts (food supplies, small equipment, etc.) that need to be tracked separately as well?

As this complexity grows we recommend creating “Classes” (a Quickbooks term) for each of the ministries.  Terms for this vary across the accounting world but it’s essentially a way to show each ministry or program as a distinct column on the income statement.  That way, it’s easier to see the goldfish crackers consumed (and sometimes inhaled) by the kids ministry separately from the muffins and croissants bought for the worship band’s Sunday breakfast.

The word of caution here is to only create “classes” for ministries where this type of separation is needed.  It’s okay for other programs to exist as only an account since it’s easier to read an income statement containing three columns versus ten columns.  As outsourced bookkeepers and solutions providers, this is a great opportunity for us to advise on what works best for each church’s specific needs and goals.

Restricted Funds

Most bookkeepers cringe when they hear the term “restricted funds,” and for good reason.  In accounting this prompts potentially bitter memories of releasing expenses, changes to net assets, and tracking restricted income.  This is usually a fair reaction because it can quite literally cause a headache with the multitude of accounting rules that dictate these funds.

Fortunately, all these requirements are only needed if the church is regularly audited according to U.S. GAAP standards.  Since most churches do not fall under these standards, the process can be simplified more than you might realize!

What are “restricted funds” exactly?  As with every non-profit in the country, each donation is given with an intent on how that donation will be used and organizations are bound by that donor intent.  However, if churches are clear on how donations will be spent, and create a “general fund” with clear language that it will be used for general church operations and ministries it can safely be assumed that donors understand and are providing donations for that purpose.  For this reason it is important that these expectations are clearly displayed or stated.  

Problems arise when a donor states they would like their donation to be spent on a more specific purpose (i.e. choir robes, kids ministry, sprinkler repair, etc.).  If the donation is accepted, then the donation is legally restricted to be used for that purpose.  In most cases a quick conversation with the donor can convince them to change their designation to the general fund, but if not, that donation is now restricted and has to be tracked that way in the books.

It’s also perfectly normal for churches to intentionally set up a restricted fund especially if they need to raise funds for a special purpose.  The most common example is a building fund set up to pay for a new roof or replace a furnace.  This is most often associated with a special giving drive.

Whatever the case, the church needs to easily demonstrate two things in the books:
  • How much money was collected for this purpose?
  • How much money has been spent for this purpose?

Going back to the first section in this article the most effective way to answer these two questions is to set up a Class for the fund, especially if the expenses need to go to multiple accounts on the income statement.  For almost all churches, using Classes will ensure that the expenses and income for the specific purpose are not mixed in with other general church giving and expenses and those two questions can be easily answered.

Taxes

I often hear the phrase “churches don’t pay taxes,” and while this is generally true there are some exceptions.  These exceptions appear when churches start to engage in activities more commonly associated with for-profit companies.  Here is a quick list of the more common exceptions:

  • Selling books or merchandise
  • Hosting a concert with paid public admission
  • Collecting royalties for published content
  • Receiving rent for parking lot spaces
  • Fee income for a church-operated daycare

The term for these activities is “unrelated business income,” meaning they are unrelated to the normal operations of a church.  All churches are required to fill out a 990 form to the IRS every year, but if they collect business-type income they are required to fill out a 990T form.

It’s important to note that just like with for-profit business some expenses related to these activities can be deducted against the income received, so it may be worth tracking the associated income and expenses using Classes, as mentioned above.  Also, these types of income may be taxable to state government agencies.  As outsourced bookkeepers it is important to be aware of all the income our church clients are receiving, and be able to advise them on if they are liable to pay taxes on some of their activities even if we are not the ones actually preparing the tax filings.

Final Thoughts

Currently, churches are coming under more and more scrutiny as we diversify our traditional institutions and as they change the scope and variety of ministries and services they offer. Because of this, it is important that churches stay under compliance with all tax and business laws.  Keeping a clean set of books where it is easy to demonstrate how money is spent is crucial to building a healthy church.

It may seem complex to answer the many questions about how money is spent, but this process can be simplified immensely by working within the structure of a well thought out and organized budget. With clear, well formatted intentions, categories, and processes for delegating funds the process for reporting them only gets easier! Stop by next week for the final part of the series on church bookkeeping — budgeting!

Call us now!