5 Steps to Increase Your Profitability by Leveraging QuickBooks

One aim, if not the overriding aim, of all tree care businesses is to be profitable. Yet many struggle to do so. This article will discuss five steps that can lead your business to greater profitability using accounting software, in this case QuickBooks.

The five steps are:

  • Setup
  • Skills
  • Streamline
  • Scrutinize
  • Strategize

These all seem simple enough, right? Amazingly, all or some are most often ignored or forgotten.

Setup

Take time to make sure you have thought out your plan and where you think you will be in three years. So many entrepreneurs jump into a business just doing what they know how to do, and then find themselves in trouble because they didn’t take the time to plan things out. Then they realize they’ve outgrown what they had in place.

Your books are usually the last thing you think about as you are dealing with the chaos of your business. They should be one of the first! Without good financial records, you have no idea where your business is headed and can easily get caught in the cycle of chasing the next job so you can pay the bills from the last job.

In deciding what accounting system to start with, give some thought to the things you want to measure in your business. If you don’t know what those are, then start there first. You need to have some type of metrics to measure how your jobs are going. If you don’t think about that first, you may find yourself with an accounting system that can’t capture and report the data you’ll want later on.

Make sure to find a tax accountant before you need one. That way they can provide guidance in how the accounting system is set up, as they usually have a preference for how they want it set up for completing the tax return. Just know you don’t have to do all of it exactly the way they say. Ask questions and explain what you want the Chart of Accounts to show on reports.

Make sure to give the Chart of Accounts some thought so it will produce a Profit and Loss (P&L) statement that is meaningful to you. There is no need to set up a separate account for expenses you have. The QuickBooks Chart of Accounts allows for a “parent-child hierarchy” that will create subtotals on the P&L. Note: This is a great way to get details – but roll the totals up for a cleaner report.

Setting up a Cost of Goods Sold, or COGS, account takes into account all the things that are true costs for every dollar you earn. Administrative and other overhead expenses will be an expense account that will show under that. If the gross profit isn’t high enough, you’ll quickly know you won’t cover your overhead costs.

The nice thing about QuickBooks is that you can create “two-sided” Items that will allow you to track many details without clogging up your P&L statement with a whole lot of accounts. For the things you buy and sell, you get a profitability for that Item, i.e., subcontractors. For things that are expense only, it gives you a way to capture details without having to create many accounts. For example, you can track vehicle expenses by vehicle to see which one is becoming a lemon by creating Items for maintenance, fuel, license, etc. You can create a whole set of reports using the Items and structuring it how you want to see the information.

QuickBooks allows you to create Customers and Jobs. The Customer is who pays you; the Job is where you do the work. This is important if you have repeat customers or annual contracts. QuickBooks has reporting for Jobs that is very helpful.

To get good information from the Job Costing report, you need to use Items and book your expenses by the job, so the information populates the report.

The best way to start a Job lifecycle in QuickBooks is to create an Estimate. This allows you to capture what you think your costs are going to be when you scoped the job. Then you can go back at the end of the job and compare your estimate to the actual costs and see how you did on estimating those costs, and can highlight where you may not be charging enough.

Do you have different divisions you want to track income and expenses for? Use the Class feature in QuickBooks to get a P&L statement that has columns for each Class/Division and a Grand Total for the whole business.

Do you have different types of customers you would like to see the profitability for? Add a Customer Type to each Customer or a Type at the Job level. Then you can filter your Profit and Loss by the different types.

Don’t set up QuickBooks by yourself unless you are very techie and know accounting really well. All too often, a QuickBooks file is set up incorrectly, and the owner has to start over to get results just for tax purposes, let alone any kind of useful reporting. A few hours spent discussing what you want and getting expert advice can go a very long way toward having a powerful accounting system.

Skills

Pick the right person for the job! When hiring for a field position, you make sure the person you are hiring has the correct skills for the job, right? Do the same with your bookkeeping and accounting. Did you know they aren’t the same thing?

Bookkeeping is about capturing and maintaining the business’ financial transactions. It is all about getting the data into the system correctly. There is not an extensive accounting knowledge required for this position.

Accounting is the verifying, analyzing and reporting of the data captured in the bookkeeping process. More knowledge and skills are required here.

Do not do your books yourself! You already spend enough time working, and your energies should be spent on making sure the business is operating correctly and profitably. My example of this is that, if you are behind the car pushing instead of up in the seat driving, you will likely end up pushing it over a cliff, because you can’t see where you are going.

Bookkeeping is historical information and keeps you looking back instead of forward. Use your time for looking forward and using your accounting information to see trends and patterns in making those forward-moving decisions.

Streamline

Make sure you have processes everyone knows and agrees on for how your business works. You can’t measure someone’s performance if you haven’t created the measuring stick.

How is paperwork handled? Do you follow the terms for bills or have someone approve/oversee what is paid each week? Who manages invoicing customers? Who follows up on past-due accounts? So many questions need to have a formally stated process so everyone is on the same page.

Is QuickBooks not meeting your needs? There is a large marketplace of apps that sync with it.

Scrutinize

Review your accounting reports regularly. Determine what reports you like the best and have a standard packet made. Good reports to look at might include:

  • Profit and Loss
  • Budget to Actual
  • Open Accounts Receivable
  • Open Accounts Payable
  • Cash Forecasting
  • Company Snapshot
  • Job-Costing Summary

There are many more reports in QuickBooks to choose from, and you can customize them to produce what you want. Take some time to browse the selections.

Strategize

Running a business is hard and can be painful, but it also can be very rewarding. Planning makes the process run smoother.

Use the Budget function in QuickBooks to create a budget and measure your actual results against it with one click to produce that report.

There is a Cash Forecasting report that looks at bank balance, Open Accounts Receivable (money coming in) and Open Accounts Payable (money going out) to predict a cash flow based on the due dates of the invoices and bills.

Utilize the Job-costing functionality to understand how well you are performing on your jobs.

QuickBooks is a powerful and simple tool that, once set up and used correctly, can be a big asset in running your business. As pointed out earlier, an owner who is at the back of the car pushing can’t see what’s coming ahead. Using the reports from QuickBooks, you can see down the road and identify ways to grow your business – and avoid problems!

Vicki Borror is a consultant for QuickBooks setups, use and processes based in Collinsville, Illinois. This article was based on her presentation on the same topic at TCI EXPO ’21 in Indianapolis, Indiana. To listen to an audio recording of that presentation, go to tcimag.tcia.org and, under the Resources tab, click audios. Or, under the Current Issues tab, click View Digimag, then go to this page and click here.

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