Small business owners might be tempted to rush through setting up customer profiles in QuickBooks® just to get invoices out quickly. But the extra data fields aren’t just busy work. Complete, accurate customer records help you generate more insightful reports, communicate with customers more effectively and save time on bookkeeping tasks later. Here are answers to some common questions to help ensure your files are set up properly in your accounting software.

How do you create customer profiles?

If you already have customer information stored in a spreadsheet, you can import it directly into QuickBooks Online. Make sure the first row contains clear column headers; then use the import tool to match each column from the spreadsheet with the corresponding field in QuickBooks. Reviewing QuickBooks’ sample import file first is a smart way to catch formatting issues before you upload.

If you don’t have an existing database of customer information or don’t want to deal with the import process, you can enter each customer manually. QuickBooks provides a customer record template for manual entries.

You technically need only a customer name to get started, but you’ll want to fill in other details, such as tax status, opening balance, payment terms, and preferred delivery and payment methods. When you enter more than just a name, QuickBooks automatically applies the appropriate settings whenever you create a sales form. That means fewer manual edits and fewer mistakes. It also means you can see balances and history at a glance, making it easier to follow up on overdue invoices or spot your best customers.

Customer profiles are easy to edit as you get more information. So you can start small and gradually build them out. Also, get in the habit of updating profiles when things change — such as a new contact person or billing address — to keep your records accurate.

How can you use customer records?

Once a profile is saved, it appears in your customer list. This serves as a dashboard for all customer-related actions. From there, you can create invoices, send reminders for overdue balances and drill down into customers’ profile pages.

Each profile page (or “homepage”) shows the customer’s contact information, transaction history, open estimates and account balance — all in one place. This makes it easy to answer questions on the spot. For instance, if a customer asks about their outstanding balance, you can open the profile, click “transaction list” and immediately see unpaid invoices. You can even email a statement directly from that screen without switching tabs or running a separate report. For businesses with recurring work, this page also serves as a quick reference for which jobs or projects are in progress and what’s already been billed.

When should you create sub-customers?

Depending on the nature of your business, you might want to set up sub-customer records. This functionality allows you to “nest” a customer or job under a “parent” customer.

For instance, an advertising firm might set up each campaign as a sub-customer to track project-level profitability. Or a home builder might set up different properties, projects or phases as sub-customers. This setup keeps everything tied to the main customer while allowing detailed job-cost tracking. You can choose whether invoices go to the parent or the sub-customer.

For more information

Spending a little extra time setting up and maintaining customer profiles in QuickBooks pays off in the long run with improved accuracy, time savings and better insights. You’ll have faster answers when customers call and more accurate reports for marketing and decision-making purposes. Contact us with additional questions about managing customer records in QuickBooks or any other elements of this essential bookkeeping tool.

You shouldn’t rely on gut instinct when making major business decisions, such as launching a new product line, investing in new equipment or changing your pricing structure. Projecting the financial implications of your decision (or among competing alternatives) can help you determine the right course of action — and potentially persuade investors or lenders to finance your plans. One intuitive tool to consider for these applications is breakeven analysis.

What’s the breakeven point?

The breakeven point is simply the sales volume at which revenue equals total costs. Any additional sales above the breakeven point will result in a profit. To calculate your company’s breakeven point, first categorize all costs as either fixed (such as rent and administrative payroll) or variable (such as materials and direct labor).

Next, calculate the contribution margin per unit by subtracting variable costs per unit from the price per unit. Companies that sell multiple products or offer services typically estimate variable costs as a percentage of sales. For example, if a company’s variable costs run about 40% of annual revenue, its average contribution margin would be 60%.

Finally, add up fixed costs and divide by the unit (or percentage) contribution margin. In the previous example, if fixed costs were $600,000, the breakeven sales volume would be $1 million ($600,000 ÷ 60%). For each $1 in sales over $1 million, the hypothetical company would earn 60 cents.

When computing the breakeven point from an accounting standpoint, depreciation is normally included as a fixed expense, but taxes and interest usually are excluded. Fixed costs should also include all normal operating expenses (such as payroll and maintenance). The more items included in fixed costs, the more realistic the estimate will be.

How might you apply this metric?

To illustrate how breakeven analysis works: Suppose Joe owns a successful standalone coffee shop. He’s considering opening a second location in a nearby town. He’s familiar with the local market and the ins and outs of running a successful small retail business. But Joe likes to do his homework, so he collects the following cost data for opening a second location:

• $10,000 of monthly fixed costs (including rent, utilities, insurance, advertising and the manager’s salary), and
• $1.50 of variable costs per cup (including ingredients, paper products and barista wages).

If the new store plans to sell coffee for $4 per cup, what’s the monthly breakeven point? The estimated contribution margin would be $2.50 per cup ($4 − $1.50). So, the store’s monthly breakeven point would be 4,000 cups ($10,000 ÷ $2.50). Assuming an average of 30 days per month, the store would need to sell approximately 134 cups each day just to cover its operating costs. If Joe’s original store sells an average of 200 cups per day, this gives him a useful benchmark, though market dynamics may differ between locations. If Joe forecasts daily sales for the new store of 180 cups, it leaves a daily safety margin of 46 cups, which equates to roughly $115 in daily profits (46 × $2.50).

Joe can take this analysis further. For example, he knows there’s already another boutique coffee shop near the prospective location, so he’s considering lowering the price per cup to $3.75. Doing so would reduce his contribution margin to $2.25, causing his breakeven point to jump to 4,445 cups per month (about 148 cups per day). Assuming forecasted sales of 180 cups per day, the reduced price would lower the daily safety margin to 32 cups, which equates to about $72 in daily profits (32 × $2.25).

Joe might also consider other strategies to reduce his breakeven point and increase profits. For instance, he could negotiate with the landlord to reduce his monthly rent or find a supplier with less expensive cups and napkins. Joe could plug these changes into his breakeven model to see how sensitive profits are to cost changes.

If Joe opens the new store, he can monitor actual sales against his forecast to see if the store is on track. If not, he might need to consider changes, such as increasing the advertising budget or revising his prices. Then he can enter the revised inputs into his breakeven model. He could also revise his breakeven model based on actual costs incurred after the store opens.

We can help

Breakeven analysis is often more complex than this hypothetical example shows. However, it can be a valuable addition to your financial toolkit. Besides assisting with expansion planning, breakeven analysis can help you evaluate spending habits, set realistic sales goals and prices, and judge whether projected sales will sustain your business during an economic downturn. Contact us to learn how to analyze breakeven for your organization and leverage the data to make informed decisions about your business’s long-term financial stability.

The going concern assumption underlies financial reporting under U.S. Generally Accepted Accounting Principles (GAAP) unless management has plans to liquidate. If a going concern issue is identified but not adequately disclosed, the omission might be considered “pervasive” because it can affect users’ understanding of the financial statements as a whole. So it’s critical to get it right. Here are answers to common questions about this assumption to help evaluate your company’s ability to continue operating in the future.

Who’s responsible for the going concern assessment?

Management is responsible for making the going concern assessment and providing related footnote disclosures. Essentially, your management team must determine whether there are conditions or events — either from within the company or external factors — that raise substantial doubt about your company’s ability to continue as a going concern within 12 months after the date that the financial statements:

• Will be issued, or
• Will be available to be issued (to prevent auditors from holding financial statements for several months after year end to see if the company survives).

Then you must provide appropriate documentation to prove to external auditors that management’s assessment is reasonable and complete.

What are the signs of “substantial” doubt?

Substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it’s probable that the company won’t be able to meet its current obligations as they become due. Examples of adverse conditions or events that might cause management to doubt the going concern assumption include:

• Recurring operating losses,
• Working capital deficiencies,
• Loan defaults,
• Asset disposals, and
• Loss of a key person, franchise, customer or supplier.

If management identifies a going concern issue, they should consider whether any mitigating plans will alleviate the substantial doubt. Examples include plans to raise equity, borrow money, restructure debt, cut costs, or dispose of an asset or business line.

What role does your auditor play?

The Auditing Standards Board’s Statement on Auditing Standards (SAS) No. 132, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, is intended to promote consistency between the auditing standards and accounting guidance under U.S. GAAP. The current auditing standard requires auditors to obtain sufficient audit evidence regarding management’s use of the going concern basis of accounting in the preparation of the financial statements. The standard also calls for auditors to conclude, based on their professional judgment, on the appropriateness of management’s assessment.

Audit procedure must evaluate whether management’s assessment:

• Covers a period of at least 12 months after the financial statements are issued or available to be issued,
• Is consistent with other information obtained during audit procedures, and
• Considers relevant subsequent events that happen after the end of the accounting period.

During fieldwork, auditors assess management’s forecasts, assumptions and mitigation plans and arrive at an independent going concern assessment.

The evaluation of whether there’s substantial doubt about a company’s ability to continue as a going concern can be performed only on a complete set of financial statements at an enterprise level. So, the going concern auditing standard doesn’t apply to audits of single financial statements, such as balance sheets and specific elements, accounts or items of a financial statement.

How are going concern issues reported in audited financial statements?

The audit team also reviews the reasonableness of management’s disclosures. When a going concern issue exists and the disclosure is adequate, the auditor can issue an unmodified opinion. However, it will typically include an emphasis-of-matter paragraph that explains the nature of the going concern issue.

Conversely, if management fails to provide a going concern disclosure or the disclosure is inadequate or incomplete, the financial statements won’t conform with GAAP. As a result, the auditor will either issue 1) a qualified opinion if the issue is material but not pervasive, or 2) an adverse opinion if it’s both material and pervasive.

Sometimes, the scope of an audit may be limited if management won’t provide sufficient support for its going concern conclusion or the auditor can’t gather enough evidence independently. This situation, if pervasive, can lead to a disclaimer of opinion — a major red flag to lenders and investors.

Auditors as gatekeepers

By independently evaluating management’s assessment, testing assumptions and insisting on clear disclosures, auditors safeguard stakeholders from being misled when substantial doubt exists. As you prepare for your next audit, be sure to carefully document your going concern assessment, anticipate auditor scrutiny, and be ready to communicate candidly about risks and mitigation strategies. Contact us for guidance on navigating these complex requirements in today’s uncertain economic environment. Our team of experienced CPAs is here to help.