Allen Bookkeeping Solutions LLC

How a chart of accounts may be different for a B2B business than a B2C

When setting up your business for effective bookkeeping, you’ll want a chart of accounts that allows you to categorize everything well. You don’t want duplicate account names that make it difficult to know how to categorize a transaction, and you definitely don’t want a long list of accounts that have nothing to do with your business.

Business-to-business (B2B) has different needs than Business-to-consumer (B2C) enterprises. The marketing process is different, the payment process is different. The transaction volumes are different. Let’s go into how you could structure a chart of accounts for a B2B enterprise.

While sales and income in B2C tend to be smaller ticket items, impulse based, and typically require a larger number of transactions, B2B is different. They may have fewer clients, but the transaction sizes are much larger, there are often multiple steps to securing a financial commitment.

B2C might have in-store sales, online sales, gift card redemptions and returns & refunds.
Meanwhile, B2B will have things like Contract Revenue, Retainer Revenue, Consulting fees, and Reimbursed Client Expenses.

Cost of goods sold B2C expenses might include product purchases, packaging supplies, shipping costs to customer, and credit card processing fees. B2B enterprises might have some of those, but also subcontractor labor, client onboarding costs, and project materials.

Regular expenses for B2B will have more involved relationship-building marketing costs. These include CRM software, Travel - Client Meetings, Trade Shows & Conferences, and Legal/Contract Review Fees. B2C, on the other hand, may have simpler expenses like facebook ads, point of sale system, customer service outsourcing, and store staff wages.

Assets for B2B enterprises include things like Accounts Receivable and Prepaid Client Expenses. B2C will have fewer accounts receivable, but will have Inventory in the form of finished goods.

Liabilities for B2B will have Deferred Revenue - Contracts or Client Deposits. Again, these are things that suggest longer-term relationships with the customer. B2Cs will have more sales tax payable and Gift Card Liability.

Equity is more or less the same. It all depends on the entity you choose for the business.

[I’ve included a list of these B2B accounts so you can add them to your quickbooks online if starting a B2B enterprise for the first time. ]

To have me as your bookkeeper, schedule a call with me to talk about your bookkeeping and business goals. I work well with B2B and B2C, and can save you 80+ hours a year compared to doing it all yourself. In all likelihood I’ll be more affordable than hiring someone in-house as well. Reach out today.

Here you’ll learn how to track principal and interest payments on Notes Payable in Google Sheets.

I am using Google Sheets for a specific reason. One: If you use Excel instead of sheets, what works in Sheets will also work in Excel. So if you value privacy, you can follow along in Excel also. Two, more people have been using Google sheets recently for their spreadsheets. Third, you can share a file with your bookkeeper or vice versa, and it is updated in real time. That way, you don’t need to send a new version every time you make a change. If you want to use Google Sheets but value privacy, you can just use the loan number from your lending institution as the file name, or something that people can’t automatically connect to you. You don’t even need your name on it.
These concerns aside, let’s get into how to track principal and interest payments.

You’ll need four rows, or types of information: The Loan Amount, the Loan Interest Rate, the Term of the loan (in yrs), and the number of Installments per year (usually monthly, or 12). Let’s assume you’re the farmer from my last blog post, borrowing $40,000 over 2 years at 5.125% interest to fence a 20 acre piece of land. The loan amount is $40,000, the interest rate is 5.125% or 0.05125, and the installments are 12 (monthly).

Let’s do a quick formula called pmt, which means payment. In a new cell below our rows, we’ll write ‘installment’ then in the next column, we’ll type an equal sign followed by ‘pmt(
Then click on
Rate (cell B2), type ‘/’ for dividing, then click Installments (cell B4), then a ‘,’ comma, followed by term (cell B3), then a ‘*’ for multiplying, followed by Installments again (cell B4), then another ‘,’ comma, and the ‘-’ minus sign followed by our loan amount (cell B1), then a ‘,’ comma and 0 for the future value of money, then finally a ‘,’ comma, and a value of 0 if you didn’t have to pay any down payment, or 1 if you did. Then a ‘)’ closed parenthesis. If at any time you want help, inside the cell where you’re typing, just to the left side there is a question mark. Click the question mark to know what kind of data you are entering at each step.

Complicated, I know, so I’ll show a picture of the equation.

I get $1,757.10. I know this is right based on the calculator I used in the previous blog post.

Now we’ll create the schedule.

In cell A9, type in ‘0’. This is day 1 of your loan.
In cell A10, type ‘=sequence(B3*B4)’ then hit enter. This multiplies the years of your loan by the number of months, and gives you the numbers 1-24. If the last equation gave you PTSD, you can just write in 1 through 24. You can also write 1, then grab the circle on the lower right side of the cell with your mouse and drag down until you have 24 cells selected, and let go. It should automatically list that far numerically.

Let’s name the rows of our schedule. Installment, Balance, Installment, Principal, and Interest.

Under balance (Cell B9), type = then click B1. That puts our balance at the beginning of the schedule into the table.

Two rows under ‘Installment’ (Cell C10), type ‘=’ then click cell B7, then hit the F4 key. This turns it into an absolute cell reference. With absolute cell references, you can click and drag anywhere on different equations referencing that cell, and that part of the equation will always stay the same. That will be useful later. If you don’t have an F4 Key, you can make an absolute cell reference manually by putting dollar signs in front of each row and column designation ‘$B$7’ into cell C10.

Here we’ll enter another payment formula, but this time it’s called ipmt. This isolates only the part of our payment that is interest. Go to cell E10 (under ‘interest’ and to the right of ‘Installment’. Enter this equation: =ipmt($B$2/$B$4, A10, $B$3*$B$4, -$B$1, 0, 0)
Notice the dollar signs are for absolute cell references. You can do this by hitting F4 after clicking each cell or typing in the dollar signs. Hit enter after the equation is typed in.

You’ll get the first interest payment of $170.83. Again, the previous blog post used a debt amortization calculator that comes up with the same result.

To find out what the principal is for that first period is super easy. Click cell D10, type ‘=C10-E10’ and hit enter. You’re just subtracting your monthly payment by the interest to find the principal.

You do a similar action to find how much your balance drops after that first payment. Click cell B10, type ‘=B9-D10’ then hit enter. It subtracts your principal payment from your starting balance.

Now highlight B10-E10, click and hold the circle on the lower right side of the highlighted region and drag it down to row 33, where the number 24 is entered in column A. Then release the mouse button. And Bob’s your uncle! Your amortization table is complete. You know you’ve finished paying off the loan when B33 shows a value of 0.

Great thanks to Brent Coleman at his youtube channel for tutorials like this.

To have me as your bookkeeper, and have me keep track of loan payments using accounting software and spreadsheets like this, schedule a call with me. The call is free, and you’ll learn how I can save you time and money tracking things that are crucial to your business, and giving you actionable information. Typically, I can save business owners like you 80+ hours a year compared to doing the bookkeeping yourself.

Tracking principle and interest payments on liabilities on quickbooks

Here you’ll see step by step how to deal with paying off a loan using Quickbooks Online. To be clear, Quickbooks Online is just recording the payments you make. If your bank transactions are linked, it will show what actually happened. If you pay using cash or check, you will have to manually enter expenses when paying the debt for the accounting software to record that information.

For example, I’m going to make the assumption that our example company has Quickbooks Online linked to their business bank account, and that payments are made either via card or ACH.

Let’s say you’re a farmer that just bought 20 acres of land next to your own farm to grow more potatoes. You borrowed $40,000 to fence the property. That $40,000 is a liability. Click on ‘transactions’, then click on where you see $40,000 in cash from the lender deposited into your account. It likely will be categorized as uncategorized income at first. Change the category to account type: Long-term Liabilities, name: Lender Loan. If it doesn’t exist in your chart of accounts, create it. Then click save (the green button).

When it comes time to track how much of your payment went to principal and how much went to interest, check the monthly statement from your lender showing how much went to each. From there, we are going to find the payment you made in your Quickbooks transactions.

Let’s say the interest rate was 5.125%, which is a common farm operating loan rate. Using a loan calculator like on https://www.bankrate.com/loans/loan-calculator/ , I will approximate what you may see on the lender’s monthly statement to you. The payment for the first month on a 2-year 40,000 loan at the above mentioned interest rate is $1,757.10. Of that amount, $1,586.26 is principal and $170.83 is interest. Pay attention to those last two numbers.

We’ll click on the payment you made in ‘Transactions’. After confirming the date of the payment, the payee, and the account (Lender Loan), we will check the category details. There should be 1 line showing a payment of $1,757.10. Accurate, but we want the information to be more accurate, so we’re going to turn this into two lines, one for principal, and one for interest.

For interest, we will choose interest paid as our account. If it doesn’t exist in your COA, you will ‘add new’, create an Account Type: Expense, Detail type: Interest Paid, and Name: Interest Paid. Save and close. On the second line on Category details, we’ll put Interest Paid as the category, and for the description: loan interest for [month you paid]. We’ll enter as our amount $170.83 (our interest paid). This may be tax deductible (see how a bookkeeper can help you?). This will show up as an expense in your profit and loss statement but should not reduce the loan amount in your balance sheet.

For principal, we will choose in category details (for line 1) category: Loan Payables or ‘Lender Loan’ (whatever account you linked to the loan when you first categorized it as incoming cash). Enter in the description, principal loan payment for [month you paid]. Then record the principal amount of $1586.26. Then you’ll hit save and close. This will reduce the note payable from $40,000 to $38,413.74.

To have me track these things as your bookkeeper, schedule a call with me to talk about your bookkeeping needs and business goals. Saving you 80+ hours per year compared to doing it all yourself should be simple work. Just forward your loan statements to me and I’ll do this for you each month. I will have paid for myself by almost half - in deductions alone - with just one note like this, to say nothing of the time you’ll save.

Payroll is complicated. Some businesses choose to stay small until they see a serious market demand until finally hiring more people. To cover our bases, it is a good instinct to hold onto anything regarding employment and payroll tax documents. You never know if the IRS comes knocking, and you want to be on the up and up. That can easily lead, however, to files that take up a lot of space. Unless your business model is library, a lousy business model in most cases, you don’t want a lot of floor space dedicated to files instead of things that are useful for your business. So how long should you hold onto payroll tax documents.

The short answer is… 4 years. The longer answer is 4 years, after filing the 4th quarter for review. The IRS may want to see these documents:

Your employer identification number.

Amounts and dates of all wage, annuity, and pension payments.

Amounts of tips reported to you by your employees.
Record of all allocated tips.

The fair market value of in-kind wages paid.

Names, addresses, social security numbers, and occupations of employees and recipients.

Any employee copies of Form W-2 and W-2c returned to you as undeliverable.

Dates of employment for each employee.

Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them.

Copies of employees' and recipients' income tax withholding certificates (Forms W-4, W-4P, W-4S, and W-4V).

Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS.

Copies of returns filed and confirmation numbers.

Records of fringe benefits and expenses reimbursements provided to your employees, including substantiation.

Documentation to substantiate any credits claimed. Records related to qualified sick leave wages and qualified family leave wages for leave taken after March 31, 2021, and records related to qualified wages for the employee retention credit paid after June 30, 2021, should be kept for at least 6 years. For more information on substantiation requirements, go to the Tax Credits for Paid Leave Under the Families First Coronavirus Response Act for Leave Prior to April 1, 2021 and FAQs: Employee Retention Credit under the CARES Act pages.

Documentation to substantiate the amount of any employer or employee share of social security tax that you deferred and paid for 2020.
..
Was there anything surprising to you? What did you not expect to see on this list? Let me know in the comments. Anyway, after year five, you shouldn’t have to hold onto these documents anymore.

As your bookkeeper, I can help you process payroll and account for it using online bookkeeping software like Quickbooks Online. If you use another payroll processor, I can make journal entries in QuickBooks Online to update your accounting software as you make payroll each month. Altogether, business owners save 80+ hours per year hiring a bookkeeper rather than doing it all themselves. Schedule a free bookkeeping strategy call with me to talk about your business goals reduce your hours staring at accounting software by working with me as your bookkeeper.

How far back can the IRS audit you?

Wouldn’t it be great to know that for certain years, the IRS cannot audit you? That it’s too far back in the past? It certainly would, even if you did nothing wrong. That being said, it’s best to operate on the principle that those in power have what it takes to take what you’ve got.

But how long ago can the IRS audit you? According to them, usually three years. Either within three years after your return was due, including extensions, or - if filed late - within 3 years after they receive your return. That’s called the Assessment Statute Expiration Date (ASED).

There are exceptions though. If you file a fraudulent return with intent to avoid tax, there is no statute of limitations. That’s right. They can go 30 years back if they believe you deliberately tried to cheat on your taxes.
If you reported 25% or less of your income on your tax return, they can go 3-6 years back.
If you agree with the IRS to extend the time limit. If you don’t sign it, they’ll give you a bill based on unfavorable assumptions.
Finally, if you didn’t voluntarily file a required tax return, they can go beyond three years. To be more specific, the three year timer starts when you do file for a previously unfiled year.
I’ve found this Forbes article to be a little more helpful about the time limit thing.

While I’m not a tax advisor or CPA, I can help your business get its books ready for meeting one. As your bookkeeper, I can keep an eye out for deductions, unnecessary expenses, and give you information you need to make good business decisions. A pro bookkeeper can save you 80+ hours a year compared to doing the bookkeeping by yourself. Schedule a call with me to talk about your bookkeeping strategy and business goals.

Sales Tax Nexus
Say you’re a ski clothing retailer with an online presence. You are based in Reno Nevada, and 40% of your sales are delivered to paying customers in Colorado. At what point does the Colorado Department of Revenue look at your business and say, “Wait a minute?!”

Enter Sales Tax Nexus.

In the past, there used to be a physical presence test to determine if a state had the right to tax an out-of-state headquartered company on sales made in-state. Back to our example, if your Reno-based ski clothing company had a location in Aspen or Vale, then the state of Colorado could tax you.

Then South Dakota vs. Wayfair happened. South Dakota vs. Wayfair was a court case in which South Dakota wanted to collect sales tax from Wayfair, a Massachusetts based online furniture company. Wayfair understandably said ‘no’, because they had no employees, offices, or stores in South Dakota. The case went to the Supreme Court and the Supreme Court ruled in favor of South Dakota.

Now every state sets its own rules about what the threshold of sales has to be (and/or number of transactions) in a state for an out of state company to have ‘substantial nexus’ between a taxed activity and the taxing state.

Sales tax nexus means that a connection between a business and a taxing state or local government is established after transactions or sales reach a certain threshold, after which the business must collect and pay sales tax.

Now, state governments can collect on the billions of sales tax revenue they were missing out on since eCommerce started booming. At the same time, online companies must now collect, track, and pay taxes in dozens of different states, all with their own rules. Buyers now see sales taxes where previously there were none.

Here are the state tax heroes: states that have no rules like this:

Delaware, New Hampshire, Montana, Oregon, and Alaska (some municipalities still have it, so watch out). Mostly good job, Alaska!

So far that I have seen, no states have tax thresholds below $100,000 and/or 200 transactions. Some of them, like Texas and California, have thresholds of $500,000. I don’t say this often, but good on you, California.

What does this mean for you?
If you’re earning less than $80,000 a year, all across different states. You don’t need to panic. But you’ll want to track your expenses. Quickbooks Commerce plugs into Amazon, Shopify, Ebay, and all these other systems and is a good way to make sure nothing falls through the cracks (their words). People also use TaxJar or Avalara.

This is really just state governments’ laws catching up to the faster changing world of business. Perhaps they did so 25 years later than they should have, but it was inevitable.

Don’t be months or years behind on your bookkeeping, though. As your bookkeeper, I can help you track expenses, make sure you’re organized for tax season, and help you maximize your deductions. I can also help you get reports with information you can use to make better business decisions. Schedule a call with me to discuss your business and bookkeeping. Clients often save 80+ hours a year compared to doing it all themselves.

Why Rags to Riches to Rags in 3 generations part 5: Inability to trust the next generation with the business - for whatever reason

This is part five on a series of why family wealth rarely lasts beyond three generations, and what to do about it. Look at earlier posts for the other reasons. Today, we’ll discuss the fifth reason: The inability to trust the next generation with wealth, or the business - for whatever reason.

This reason is quite messy. There can be many reasons for this.

One reason is that the older generation has such pride in the high quality of what they deliver in their business. They would rather die with their legacy of their business delivering at a high level, than to risk anyone else potentially ruining that legacy after the founder’s death. This can stem from a fear of making mistakes or someone else making mistakes that affect them. In my own family, my father was like this: make a private mistake and it’s no problem; make a public mistake and there’s hell to pay.

It could be that the younger generation doesn’t know how to handle the stress of managing something large, or that they are struggling with issues like addiction that make them untrustworthy.

A final reason may be an internal sense of one’s own importance. “Only I can run this business. That’s what makes me special. Without me, the whole thing falls apart.” If we tell ourselves this kind of story, we will keep things complicated enough that only we can truly get the job done.

If I missed any reasons, please comment below.

Anyway, I’ve identified several causes: desire to preserve legacy, perceived incompetence / lack of bandwidth in children, addiction or criminality that compromises children’s integrity, and our own narrative of being an irreplaceable provider.

Let’s solve personal reasons first. When it comes to the desire to preserve your own legacy, most people are not important enough to be remembered by anyone after two generations. At that point, you are lucky if your own grandchildren mention you occasionally. Harsh, I know. But unless your job in life was family historian, prove me wrong. Do you know the names of all 8 of your great grandparents? Do you remember what hotels they stayed at for family vacations, or where they bought their shoes? I rest my case.

This next paragraph covers the personal and drifts into the topic of children. If you believe yourself to be an irreplaceable provider, why do you feel this story is important? Were you taught at a young age that if you weren’t you would be unloved or replaced? Or did you treat your family members in such a way that, if you did not hold control of the money, they would not voluntarily interact with you? That’s a hard thing to confront. The best way to confront the first is therapy. The best way to confront the second is therapy plus intentionally cultivating unconditional love for your family, even if not everyone stays around for the transformation.

If you stop seeing yourself as irreplaceable, you ask yourself, how can ‘I be replaceable?’ How do I codify my genius so that people who don’t have my brand of genius can understand why and how I do the things I do? As you systematize the business, like a new owner trying to understand how everything works so teach it to employees, you learn how to make it possible for others to provide using this business. You bring on or compensate skilled operators to work alongside and train the children who wish to participate in your business. You give them the ability to solve problems at their own discretion at the size of a certain dollar amount, increasing as their knowledge goes up. Now, you’ve somewhat solved the perceived incompetence issue.

As for children’s character, even the perfect parent can have wicked children. Even Satan stood next to God, so to speak. If criminality is a problem, the adult children need boundaries and oversight, both within the company if they work a position, and in their lives from a trustee that will act according to your best interests. And they must never be promoted into a position where they did not earn the ability to be trusted. At the same time, if there is addiction that would make it hard for them to do their job without hurting people or committing fraud, there must always be resources and community support to help the person overcome their addiction. There must also be grace to rebuild trust from a position that is relatively harmless.

At a younger age, children need conversations about core values, discipline when they violate integrity, and the unconditional love of parents. They also need the ability to scrape their knees, fall down, make mistakes, and build resilience. Most of all, they need to see their parents take a stand for the right principles, even if they have to take a financial loss or get passed over for promotion as a result.

This is the answer so far, as I see it. If I missed anything, comment below. To have me as your bookkeeper, and save you 80+ hours per year versus doing it all yourself, schedule your free consulting call with me.

Why rags to riches to rags in 3 generations part 4: no mission/ a bad mission for the family. A good mission will include the “enhancement of the pursuit of happiness of each individual member” and the method should include the development of human, intellectual, and financial capital.

This is the fourth post in a series about how families with wealth often go bust by the third generation.

A major reason this happens is that there is either no mission for the family or a bad mission.

We generally understand that CEOs and leaders in industry have missions and visions for their business. So much so that phenomenally successful entrepreneurs are called ‘visionary’. Yet for all the success and effectiveness of working with a mission in their work lives, this proficiency is siloed off into industry. When the family itself has no mission, or the members of a family that owns a business have no collective mission, they are likely to fall apart.

The CEO is the boss in a company, with the exception of the board of directors, of course. While it is easy to tell people what to do in a business you can control, this command and control dynamic doesn’t work with family members who must voluntarily associate over decades. Millions have tried, but it requires hanging on to power constantly and never being vulnerable - a paranoid way to live that leaves no room for grace towards others or yourself.

What makes a good mission for the family?

I’m still trying to figure that out for myself. Perhaps that question is best answered by a husband, wife, and children (if they are able to participate) talking about it together. James Hughes, author of Family Wealth: Keeping it in the Family, did a good job describing the characteristics of a successful family mission.

To paraphrase: A good mission includes the “Enhancement of the pursuit of happiness of each individual member” and the methods should include the development of human, intellectual, and financial capital.

We associate into families, tribes, and civilizations because we can do more together than we can apart. The tradeoff is that sometimes we might not be able to openly express our individuality 100% with no consideration for others. The family should leave more than enough room for each individual member to pursue their own happiness with the support of the family. At the same time, this support comes with the understanding that that individual member has the responsibility to support the other members.

The written family mission should be such that every member can look at it and see that there is a place for them. It should be practical rather than ideological, and emotionally inspiring.

If everyone is agreeing to the same core values, the family can start holding itself together, supporting one another, and endure adversity with the same spirit.

That may extend the cycle of rags to riches to rags from three generations to five or more!

A Support for Your Business or Family Business Enterprise

If you have a family business, I’d like to be your bookkeeper. An independent bookkeeper is more affordable than hiring one in house, and can still save you 80+ hours a year compared to doing it yourself. If you or a family member needs to understand a financial statement in your business, I can be a resource to consult for their training and education. Schedule a call with me to talk about your business goals and your bookkeeping strategy.

Proverbs 28:20

Proverbs 20:20: 20 A faithful person will be richly blessed,
but one eager to get rich will not go unpunished.

To quote Matthew Henry’s commentary on the text: “Sed quae reverentia legum, quis metus, aut pudor, est unquam properantis avari?”

What reverence for law, what fear, what shame, was ever indicated by an avaricious man hasting to be rich?

In a project I’m working on, I talk about how the ability to delay (or endure the delay) of gratification is one of the number one indicators of future success. It is the root of discipline, and requires faith and hope in a better future.

However, trying to get rich quickly often demonstrates the opposite impulse - the desire to cut corners, take shortcuts, and take advantage of others.

In a world where a startup can have a billion dollar valuation in 6 months, the definition of quick can be relative. The impulse to become rich quickly becomes even stronger when the necessities of life (housing, healthcare, education, and food) get more and more expensive. There is a lot outside our control, but one thing we can control is the commitment to be righteous.

Those who can be trusted, and who do right by others, are more likely to receive opportunities when they arise. They will also accept the right opportunities because they don’t disguise themselves as the chance to avoid delay of gratification.

Meanwhile, those who are spoken ill of and thought poorly of because they have violated trust, the law, and the public understanding of fairness and decency, have a long road to climb to change their reputation. The first step is to acknowledge fault and apologize to the people they have done wrong by. This step, however, is often so contrary to what they tell themselves about who they are, that it is difficult.

Difficult, but worth it.

Personally, I don’t know if I’ll ever be rich by the world’s standards. God has taken care of most of my needs, however, and I’m willing to get as far as he wants me to go – at the speed he wants.

You might not know it yet, but by getting rich slowly, you are avoiding an emotional rollercoaster existence filled with a lot of unnecessary pain. Take your time, be diligent, and be honorable.

In the process of getting there, I can help if you have a business but no bookkeeper. Bookkeeping can be very time consuming if you do it alone, and you don’t always know if you’re doing it right. By having me be your bookkeeper, I can give you greater confidence in the data by which you make those important business decisions, and save you 80+ hours a year compared to doing it yourself. Schedule a call with me and we’ll talk about your business goals and how I can help you with your bookkeeping.