It’s become commonplace. A household word, if you will. It used to be when one referred to their business bookkeeping system, they used “general ledger,” “accounting system,” or simply “the books.” Now the reference is just “Quickbooks.” No further description or explanation necessary. Say “Quickbooks” and almost everyone knows to what you refer. It is by far the predominant accounting software available to the small to medium size business.
Same for the online selling platforms which enable an artisan or crafts person to set up a retail outlet in a matter of minutes. Etsy, Shopify, EBay, Amazon and Handmade at Amazon to name a few. Create an account, enter some profile and product information, press <enter> and you’re in business. You don’t have to say you sell online. Just name the platform and others get it and know where to search for your store.
Marry the two and you too can be in business. In a matter of minutes. No prior experience in business necessary. Technology will take care of it for you. Or, will it?
Technology has made it so very convenient for anyone to go into business, without needing to understand business.
That is not a dig at the non-financial self-employed or small business owner. It just means it is extremely easy now to start selling things and, hopefully at least, having the foresight to employ a bookkeeping system. Quickbooks has predetermined Charts of Accounts for various business profiles, and a visual navigation Home Page that lays out the most used workflows. That answers a lot of the “how do I…” questions in short order. Easy to install, easy to use. Efficiency for all.
The online selling platforms are also easy to navigate and provide workflows that facilitate setting up inventory, new customers, and making sales. And many of them integrate with different accounting software packages, such as Quickbooks. You can very easily sell online the things you make, or have made and keep in stock.
So why is all of that ease and convenience an issue? Isn’t the whole point to be able to open and run a business without having to engage a website developer, bookkeeper or an accountant?
Yes. But,
As I work more and more on the various online selling platforms, for my own endeavors and those of my clients, I venture over to the discussion forums to see what other shopkeepers are doing and saying. And not surprisingly, my eye and interest tends to gravitate to accounting, tax or operational discussions. There usually is a good mix of savvy business owners answering questions of newbies, or even other seasoned shop owners. And there are some very astute suggestions that I have to stop and consider how to incorporate in my situations. But there are also a lot of questions and discussions in the vein of “I dunno, but this is how I do it…”
More recently, the discussion has been around how to handle sales tax on out-of-state sales that is being collected by Amazon, Etsy, and others. Shopkeeps are asking how to expense the sales tax that has been collected and added to their income on the sale since they are not receiving the cash. As a CPA, that almost causes me to have a seizure to avoid jumping into the middle of those threads. Almost. I recently did jump in to one to explain that sales tax collected on a sale is NOT income, it is a liability. And the fact that the Shopkeep did not receive the cash in the proceeds distribution does NOT make it an expense. It is a reduction of the sales tax liability. (I know the burning question many of you are asking is why was sales tax collected on an out-of-state sale to begin with. That is a discussion for later…)
While that seems obvious to me, with decades of experience as an accounting professional, I do get how it is a head-spinner for the non-financial business person. They usually are a cash-basis taxpayer, so it stands to reason all of the cash from the sale should be income. And when they, as a cash-basis taxpayer pay for something, or it is withheld from their proceeds, it is an expense. Money in, less money out, is profit. Right?
Enter the ease of technology, and how it complicates everything.
First, I think Quickbooks is great. I use it in my practice, and highly recommend it to my clients. It is a great tool with lots of features for the business owner and the accounting professional. It is very easy for the non-financial person to use. But like most everything else that is supposed to make our lives easier, it has to be setup correctly. And used correctly. And the correct version needs to be selected to make sure you are getting all of the features you need.
So, using the illustration of sales tax collected by the online seller platform, the user of Quickbooks, or any other accounting software package, has to have set up for, and know how to correctly record, this type of transaction. If not, then what should have been a time saver becomes time wasted to go back and fix. And depending on how long ago it happened, and how many transactions have been recorded incorrectly, the water gets murkier and murkier. Correct setup – Good. Incorrect setup – Bad.
Another example of easiest is not always best is Quickbooks now has a Self-Employed version which works very well for the person that does not have inventory or employees. The Self-Employed = Sole Proprietor, Chief Cook and Bottle Washer business. But what it does not do is, ……… handle inventory. It does not keep track of materials bought to turn into finished goods. And it does not keep track of those finished goods on the shelf. It does not compute Cost of Goods Sold (COS, or COGS). If you make and sell things, you have inventory. And you need the next step up in Quickbooks that does handle inventory. (And the federal tax treatment for a business with inventory is another discussion also….)
So, why are you picking on Quickbooks Self-Employed and Inventory?
Because one of the online selling platforms is promoting Quickbooks Self-Employed as an integration. While there are a lot of self-employed persons on this and other platforms, they sell Things. Thus, they have inventory. And the Self-Employed version will not meet their needs. While the selling platform is easy to use, and Quickbooks Self-Employed is easy to use, the integration of the two will not make life easier come tax time. Or if the Shopkeep is truly trying to measure results from operations. Or manage stock.
That may be great for mine and other practitioner’s tax and accounting practice to upsell to the next Quickbooks level and clean up the mess, but it really is a disservice for the business owner on this particular platform. They subscribe to the Self-Employed version, only to, hopefully, realize that it does not do what they really need it to do to help them manage their business. This direct integration is not available to a version of Quickbooks that does handle inventory. What was suppose to be easy is now confusing and frustrating.
As business advisors, we promote the efficiency of only touching a transaction once. The integration of Quickbooks Self-Employed with an online selling platform, in theory, means only touching the sale transaction once as it should flow from the online selling platform to “the books.” Not having to record the sale transaction on the online selling platform, then swinging around in the chair to record the same transaction in Quickbooks, or whatever accounting system is used. But, sometimes the efficiency to be gained is in not having to go back and fix something, and touching the transaction twice really is the easiest. For all.
Ok, time to wrap this up
The underlying theme here is that while technology has made so many things easier, it has also made things more complicated. We make the assumption that the technology will always do for us what we want it to. Without much more effort on our part than to plug it in, turn it on, install it. Flip a few switches, answer a few questions, feed it a credit card number and off we go. We’re in business! Woohoo!! And we did it ourselves to boot! Who needs the web developer, or the bookkeeper, or the accountant?
In my previous Journal Entry “On Your Own Is Not Alone,” I made reference to a business owner maybe not knowing what it is they don’t know. That is especially germane here. Whether you are just starting your online business, a traditional brick-and-mortar store, a combination of the two, or have been in business for a while, you need to understand business, at least the fundamentals. Do not solely rely on technology to do it for you. You need to recognize when there is something you don’t know. That is why it is a very good idea to have an accounting professional in your Rolodex and have them give your new or existing business a lookover. Have an accounting professional on your team to explain how transactions should be handled, make sure your “books” are set up correctly and with the capabilities to handle your business, and to look ahead for you to avoid potential tax or accounting pitfalls. Being in business is tough enough. Being self-employed is even tougher. Technology is a fantastic resource to have when it is the right resource and used correctly. Just because it is easy, it may not be the best solution for you and your business. Ask an accounting professional to help you find that best solution. It will be much less expensive to you in the long run, and ultimately, easier.
If this Journal Entry resonates with you or someone you know, please email me at [email protected], or call (469)629-6731, to discuss how we may be of assistance.
June 6, 2018