Accounting and taxes are surely the last thing that you, as an artist, want to think about. Alas, they’re a required part of any business and the sooner you get them figured out, the sooner you can get back to the fun side of running your business.
I’d like to outline two common ways of working with Táve and your accounting. The first is the more formal approach as well as the most difficult, the second is the approach I personally use for Karen’s photography business. These approaches both assume you’re using Quickbooks for your accounting and are from the perspective of an American, so your mileage may vary if those two assumptions aren’t true for your business.
Before I begin, let me be clear; I am not an accountant. I’m not even a CPA. I’m just an entrepreneur like you. One thing I do have though, is the benefit of talking to many different studios about their approaches, including the feedback they get from their own accountants and bookkeepers and hearing about the issues they run into. So if you have an accountant or bookkeeper, and even if you don’t, I’d suggest using my thoughts in this article simply as the start of the conversation about how to manage your accounting.
Using Quickbooks the Intuit Way
Intuit clearly wants all the information about your business to live inside their products (and based on the lack of exports, for it to stay there forever). Their application can in fact be used as a full fledged, albiet clunky, customer relationship manager (CRM) and like Táve, keep track of your clients, their orders, invoices, and payments.
Their import tools all try to populate all that information. Their currently preferred import format, QBXML, is unfortunately only supported on the Windows platform so it’s currently out of the picture for us, as a good two thirds of our users are on the Mac platform. That neglect of the Mac import options is extremely frustrating, because it means we’re left with the IIF format which was, I believe, introduced in the late 80s.
So right off, using Táve as a simple front-end and simply cloning the data in Quickbooks is made rather more difficult. You’ll need to do things such as reconnect payments to orders after using the IIF import. We do plan to switch to a third-party Quickbooks API at some point (development time for it has yet to be scheduled), which will make it easier for us Mac-heads to support the QBXML format while also making our IIF export more reliable and future-proof.
The tricky part now becomes accounting for your merchant account and merchant fees. See, in this full-blown scenario, your income account used in the IIF export should be of the Accounts Receivable variety (instead of an actual Income account). Speaking generally, an A/R account lists money due to you but which is not yet yours. When does it become income? When it’s in your bank account!
So, if a particular payment was a check. The Táve recorded payment would be applied to an A/R account. Then, a day or two later when it posts to your bank account, that deposit would pull from the A/R account and become real income, while also lowering the A/R balance.
If the transaction went through a merchant account, it starts to get complicated! When the payment is captured or processed by the merchant account, it would then be a split deposit from your A/R balance into the merchant account, with a portion of the deposit going to the merchant/gateway provider as a merchant fee and the remainder depositing into an income account. Later, a deposit would be made to your bank account from this merchant account. This starts to get tricky real fast, as each gateway / merchant account system is different. For instance, PayPal’s QuickBooks export will automatically split these fees for you while others try their best to hide the fees, and others (like American Express) may handle merchant fees as separate debits from your account rather than taking it out of the deposit itself.
The Easier Way – Separating CRM from Accounting
Many of our members skip the IIF stage entirely and only use Quickbooks for their income tax preparation.
These studios use our Sales Tax Liability report when filing monthly, quarterly, or annual sales tax returns.
Quickbooks becomes relegated to the tasks it does best; managing bank/credit accounts and classifying transactions. It turns out, to generate the Profit and Loss (P&L) report needed to file income returns or use applications such as TurboTax, the CRM information provides no real added value. In fact, many versions of Intuit’s own TurboTax software suggest it’s better to use a P&L report than to import directly from Intuit’s Quickbooks.
In this method, you’d be starting with your merchant/gateway quickbooks exports instead of with the Táve IIF. This approach produces the same exact P&L information for companies using the cash accounting method (as opposed to the accrual method used by large enterprises, where generally tax would be due the moment you were due or guaranteed the money instead of when you have the cash in hand).
This approach leaves Quickbooks to focus more on the what than the why. For the “why”, if there’s a question about a particular payment etc, it can easily be pulled up inside Táve, which already includes far more information than you could possibly bring into Quickbooks, such as your contracts, uploaded files, and all the details of your work with the client.
This also has the added benefit of being far easier, as it removes several steps. First, you no longer need to use the IIF export. Secondly, you can handle whatever Quickbooks integration your merchant/gateway provides you as it doesn’t matter if they list each client individually or simply us a generic income account while leaving out the client details. Third, you don’t even need those merchant imports, as you could simply classify deposits made to your bank account as your income (rather than transfers from the merchant or A/R account).
Another way to proceed with this method, the way that I imagine is preferred by most artists, is to simply provide your accountant or a bookkeeper with a copy of your Sales Tax Liability and General Ledger reports (as well as your bank statements and the like).
How do you do it?
As I said before, I’m not an accountant and your mileage may vary. In general, avoiding the Quickbooks CRM features appears to be the most time efficient way to manage your accounting.
Do you go about it a different way? Please feel free to share your methods!