Hi Everyone: Happy Halloween

We have just survived another holiday, it amazes me how Halloween now ranks up there with Christmas, New Years, 4th of July, and Easter.

Well we participated this year in the annual Fright Hike at Lapham's Peak State Park, followed by hot chocolate for Chris and the girls and hot cider for me. The local high school kids transform the lit ski trails into a terrifying journey for children to adults.

People were dressed up in costumes running around in the woods with chainsaws, ( I'm not kidding).

If the fright hike wasn't enough excitement for one weekend, then bring on the trick or treat extravaganza. My daughters insisted on going through the neiborhood. Alexandria was a very nice witch, and Caroline was a witch that lost her hat and became a semi- tropical bum. I believe the proper amount of candy was received and we can now rush on to Thanksgiving and Christmas.

Well enough of that fun. This week I wanted to talk about liability in your business.
Many of you have organized your day cares as sole proprietorships.

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Looking how to start a daycare? Comprehensive Business Start-up Manual Teaches You How To Start Your Own Small Business.

Download our free newsletter at :
http://www.instantdaycareprofits.com

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This is by far the easiest form of organization but could be the most costly in the end.
As a sole proprietor you have full liability for everything that happens in your business. Your only form of protection in this case is to have a liability insurance policy and pray that nothing goes wrong. Unfortunately, we live in a society where you can get sued at the slightest infraction.
Let's face it, kids will be kids and accidents are constantly happening. When two and three year olds are exploring their new world and everything is fascinating, they will get into trouble. When accidents happen and communication between you and the parents break down, the liability insurance policy is your first line a defense against financial peril.

In addition to this I would suggest that you consider reorganizing as a Limited Liability Company (L.L.C.). As a single member LLC you will be taxed as a sole proprietor and all the rules that you have been following remain the same (i.e. time space percentage, food logs and vehicle logs) The only thing that changes is your need to change your name to "Daycare Center LLC" and start receiving payments in the name of the LLC and paying expenses in the name of the LLC.

Everything else stays the same as long as you have been following good separation practices between your personal and business life as a sole proprietor.
You can review these good practices at
www.instantdaycareaccounting.blogspot.com in the record keeping articles.

If you have further interest in your specific situation I invite you to email me your questions to Bob@GrothCPA.com.

Saving you money
Robert Groth, E.A



CG Groth Inc., 217 S. Cross Street, Oconomowoc, WI 53066, USA

Importance of Record Keeping In Daycare Centers – Part Six

In part five we discussed the importance of the balance sheet and how it will guarantee accuracy of your financial information.

Most business owners have a good feel for how much gross income they make and if they have anything left over in the end, this is defined as profit. By using the components of your financial system discussed before, accounts payable, accounts receivable, reconciliation of cash and sound balance sheet accounting, you will be able to be assured of the accuracy of the results of the income statement.

What are the components of the income statement? There are four basic components of the income statement for small business. There are others which I won’t go into for publicly traded corporations and large privately held corporation.

One: Revenue
Two: Operation Expenses
Three: Non Operating Revenue
Four: Non Operating Expense

Revenue is defined as any compensation received for products or services rendered. This compensation may be monetary or non-monetary. All revenue will be tracked through the accounts receivable system discussed in section three.

If you are receiving compensation that is of a non-monetary nature it should also be recorded in the accounts receivable system.

Operating expenses are defined as monies that are used to pursue the generation of revenue in the normal course of business. A list of commonly used direct operating expenses would include; advertising, employee wages, business interest, bank service charges, association dues and publications, rent, vehicle expense, liability insurance, legal and professional services, office expenses, education & training, supplies, telephone and other miscellaneous expense.

Non-Operating revenue would include items that are not associated with the normal operation of your business. Examples would include the sale of business equipment or a company vehicle. The monies received are not in the normal course of business and are separated from operating income to show their unique or unusual nature.

Non- Operating Expenses are defined as expenses not derived under the course of normal business. We normally include depreciation and interest expense under this category.
Once we have assembled all this information it is used for two purposes. One is to help run and understand you business and the other is to produce information to provide to the government on an annual basis.

When producing your annual tax return there are three things that the government needs to know. What your income was; what your expenses were and what your net taxable income was. Of course they want you to break it down further into more detail, but it still comes down to those three categories. To run your business you must have much clearer categories. There are specific relationships between certain number on the income statement and the well informed business owner knows them.

These numbers are called ratios by accountants but are simply percentages of expenses to the revenue that was generated. By knowing how your expenses like payroll expense relates to your revenue you can make better decision about hiring and controlling that particular expense. By understand the relationship of these very important numbers for your business you can make informed decisions and help your business grow and thrive.

The timelier the information is the better you the owner is served by it.

Having this information once a year does not help you to manage your business with any accuracy. The information is needed on an on going basis for it to help you make decisions. Many times a client comes into my office in November and questions whether there is anything that I need to do for year end. My honest answer is that I have no idea. Without the client providing the information to me there is no analysis that can be done. With the financial data and the same questions the answer will become very clear as to the proper course of action to be taken by the end of the year.

There are many different methods to gather the information for your tax return. The method that you use should also allow you to produce information for running your business. My recommendation for this purpose is Quickbooks, Online for its ability to help you run your business, and communicate that information easily to your tax preparer and business planner.

Next time we will cover some of the essential information that needs to be gathered and maintained to defend the deduction that you take on your tax return.

Saving You Money,


Robert Groth E.A.
bob@grothcpa.com

************************************************
How much is one good accountant in your business? Robert Groth
E.A. has created an accounting practice centering on daycare
business owners. Find out what other daycare owners have to say
about Robert Groth.

"Robert Groth is informative, helpful and resourceful. He offers
strategies that increase and improve your business. In a
nurturing, caring profession, Mr. Groth has encouraged me to
nurture and care for my business".

Debra Noel
Noel's Early Childhood Center
Milwaukee, WI

********************************************************************

Would you like to tell your friends about this information? Send
the email address to mailto:bob@grothcpa.com

********************************************************************

(c)2007 CG Groth Inc.

Importance of Record Keeping For Day Care Centers– Part Five

As you remember we were last talking about the importance of record keeping, today is a continuation of that subject.

Today we are going to concentrate on the subject, balance sheets.

Most business owners can understand a profit and loss statement but are very confused when it comes to balance sheets.

Let’s start with a couple of definitions.

Assets are the things you own and are divided into current assets and fixed assets. A current asset is something you own that will be used in the next twelve months. Examples include; cash, accounts receivable, notes receivable, inventory.

Fixed assets are those things that will last longer than twelve months. Examples include; vehicles, house, room additions, and equipment. Assets are used in the production of income.

Liabilities are the obligations of the business and are divided into two groups, current and long-term. Current assets are those obligations that will come due in less than twelve months and long-term are those that are longer than twelve months. Examples include: accounts payable, payroll tax liabilities, and lines of credit.

Long term liabilities include bank loans and loans from owners. These are obligations that the business must pay for the operation of the business or the funding of the infrastructure to run the business.

Equity is the worth of the business. The current earnings and all earnings since the start of operations less any monies that the owners have distributed make up the equity.
These are the basics of accounting and my time is spent constantly reminding myself and others the golden rule. If every number on the balance sheet is correct all other numbers will be correct, both on the income statement and the tax return. You may be asking yourself why this would be so. The reason is that every entry that is made, is made up of two sides.

Don’t get lost now.

I know I am hitting you with lots of information. Here are the examples of how this all comes together.

Accounts Receivable which we discussed in part two directly affects sales of your business, so if accounts receivable is correct sales is correct. Accounts payable which we discussed in section three directly affects all of your expenses, so if accounts payable is correct all of your expenses are correct. Finally if your cash is correct we know that you have included all of the payments for liabilities and the accumulation of other assets.
The whole point of this discussion is to explain the importance of understanding the basic building blocks of your business’s financial foundation.

We as accountants spend a great majority of our time producing these documents and very few business owners take the time to understand their meaning. Once you start to look at these things you will have a much clearer understanding of the health of your business.

There are many tools that help in the automation of generating these reports. Once these reports are generated it is so very important for you the business owner to understand them. It is your job to continue to learn more and question more about the operation of your business and the balance sheet is the perfect starting point to understand the health of your business.

Robert Groth, E.A.
bob@grothcpa.com

Want to share this with a friend? Send me an email at bob@grothcpa.com

Starting Up a Daycare in Your Home- Your Tax Advantages

By Robert Groth, Accountant and EA

You are in the childcare business. Now what? You must decide a number of pressing questions. How to organize my business? What forms do I need to keep track of? What logs of information do I need to keep? Why does this all seem so confusing? What planet do accountants and IRS agents come from anyways?

Take a deep breath and we will try to create some simple rules to add some sanity to the confusion. I’m going to start with a couple of advantages to running a child care center from your personal home and will address some of the tricks to record keeping in its own special chapter.

Why is child care a business like no other? You are allowed to follow your own special rules not allowed by any other business run out of your home.

See the IRS is not all bad. Oh my, I did just say that?

You are allowed to count all the areas in your home used regularly for your business – not just those used exclusively for childcare when determining the space in the home that you can deduct. You are the only business that is allowed this treatment.

Here comes the real meat and potatoes, the forms and code sections. (Ugh.)

The most important calculation that you need to understand is a formula called the “Time-Space Calculation.” This is the calculation that allows you to make your personal expenses that no one else can deduct, as business expenses. In order to do this the IRS demands that you report these expenses separately on form 8829.

First we need to determine the space component of the calculation. Step one is to draw a floor plan of your home. Notice I said floor plan not blueprint. We are trying to determine the square-footage of your rooms a percentage of your home – we’re not trying to rebuild the home! Each room is labeled one of three titles: 100% Personal, 100% business, shared. The IRS has ruled that for a room to be counted as shared it must only be used regularly for business, not exclusively. Each year you will need to verify the space component with a new floor plan of the home.

The second component of the calculation is the time component. This seems pretty straight forward. At first you may just count the hours when children are present but you would be missing out on all the other time spent in you home working on your business. These hours include time spent preparing for the day, record keeping, and appointments with parents, and cleaning up from the day. Once you have determined the space percentage and the time spent percentage you simply multiply the two percentages together and you are set to go.

Okay. Now what?

Direct vs. Indirect Expenses

The easiest way to define direct business expenses is to call them expenses that you simply wouldn’t have if you hadn’t decided to start a daycare. Advertising, Liability Insurance, Toys, Art Supplies, etc. all fall into this category.

Indirect expenses are defined as those shared by you as an individual and your business. Rent, Mortgage Interest, Real Estate Taxes, Utilities, Household supplies, Home Owners Insurance, Repairs and Maintenance, etc. fall into this category. The indirect expenses are put through the “time-space calculation” and the direct expenses are put directly to the business tax return.

The last wrinkle that you need to deal with is to determine what a capital asset is verses an expense. Assets are things that you own that will last longer than one year. For example, your house, car, furniture, stove, refrigerator, microwave, are all assets. These items must be depreciated, expensed over a period of time, not expensed in the current year.

You then need to determine if the item is shared or directly used by the business. Your house is used jointly. A daycare van used specifically for child transportation is a day care specific capital expense. The jointly used assets must be depreciated and applied to the time space calculation. This manual does not allow enough time for an in-depth discussion of depreciation rules. Hopefully, however, you have a general idea that there are different expenses and assets for your business which need to be accounted for.

Startup Costs

Startup costs are the expenses associated with starting a business, both direct and capital, made prior to the actual start of operations. These costs are treated differently than normal expenses. The IRS does not want to see two years of startup expenses and no income on your income tax return. Therefore you are allowed to expense the first $5,000 of expenses in your first year of operation and any expenses over that amount are capitalized and amortized (divided equally) over sixty months. Examples of startup costs are Legal and professional fees, supplies, toys, day care furniture, license fees, education classes, etc. Capital costs might be room additions to bring the house in compliance, fence in the back play area and the like.

Choice of Business Entity

The type of entity that you choose to operate your business can have significant ramifications in the future. Record keeping stays an important component regardless of which entity you choose. We will address that in its own special chapter. A word about insurance would be appropriate at this time. You should always maintain insurance on your business no matter which entity you choose. I will make the assumption that you are starting your business for the long term. With that assumption your business will need to be protected and as such will need liability insurance, just like your home needs home owners insurance. You are attempting to protect the source of your future income from loss.

Now back to the subject at hand.

The moment you as an individual start to engage in providing a service or providing a product to others you are engaging in a business. This business can be regulated or unregulated; the IRS does not care for tax purposes. Your state licensing board obviously does care and you should follow all appropriate rules in your state.



Sole Proprietor

The default type of organization is the sole proprietor. This is the easiest to form, (no cost) but could be the costliest in the long run. The sole proprietor is fully liable for the debts and obligations of the business. The argument that I hear from clients is “I truly don’t have own anything right now, why should I be concerned?” If you are taken to court and a judgment is rendered against your business, it will be applied against all your current personal and business assets now and in the future.

Secondly, the net income of your business is treated as a wage. You are both the employee and the employer. Most employees are unaware that the employer matches an equal amount of their social security tax. This amounts to 7.65% from the employee and 7.65% from the employer totaling 15.3% on the first $90,000 of wage (adjusted annually upwards). This tax is assessed over and above any federal and state taxes.

Single Member Limited Liability Company.

As the name suggests, this is a form of an entity that will limit you from the full liability of the sole proprietorship. The costs are nominal $130.00 in the state of Wisconsin plus the attorney fees if you require assistance. The taxes are exactly the same as the sole proprietor, so the only difference is the peace of mind of the limited liability.

Partnership

Partnerships are two or more people organized to operate a business. There is no limited liability and all partners are held responsible for the action of each partner. If you do decide to organize a partnership you can also use the multi member limited liability company and your liability will limited to the extent of business assets and your investment in the company.

Corporation

A corporation is considered an individual entity, and as such, needs to file its own income tax returns. You, as the owner, will receive a wage for working in the corporation and rent for the use of your property. Additionally, you will need to follow the rules of your state and should consult an attorney. Make sure you are receiving the benefits of liability protection and numerous other tax strategies that are available. Consult your accountant or attorney to verify that you are following rules and guidelines in your specific state.


Subchapter S Corporation

The major difference between a regular corporation and an S-corporation is the way in which it is taxed.

The S-corporation’s profits are distributed to the owners, one or more, and are taxed to each shareholder as ordinary income.

As you can see, there are many choices when deciding to operate your business. Not every business is the same and therefore each business must be examined to see which form of business entity is right for you. If you are unsure, seek professional guidance and explore which option is right for you.

Hope this helps you out.

Saving you money,

Robert Groth
bob@grothcpa.com


Would you like to share this with a friend? Send me an email, or forward this article.

Starting Up a Daycare in Your Home- Your Tax Advantages

(c) CG Groth Inc.

Importance of Record Keeping

– Part Six

In part five we discussed the importance of the balance sheet and how it will guarantee accuracy of your financial information.

Most business owners have a good feel for how much gross income they make and if they have anything left over in the end, this is defined as profit. By using the components of your financial system discussed before, accounts payable, accounts receivable, reconciliation of cash and sound balance sheet accounting, you will be able to be assured of the accuracy of the results of the income statement.

What are the components of the income statement? There are four basic components of the income statement for small business. There are others which I won’t go into for publicly traded corporations and large privately held corporation.

One: Revenue
Two: Operation Expenses
Three: Non Operating Revenue
Four: Non Operating Expense

Revenue is defined as any compensation received for products or services rendered. This compensation may be monetary or non-monetary. All revenue will be tracked through the accounts receivable system discussed in section three.

If you are receiving compensation that is of a non-monetary nature it should also be recorded in the accounts receivable system.

Operating expenses are defined as monies that are used to pursue the generation of revenue in the normal course of business. A list of commonly used direct operating expenses would include; advertising, employee wages, business interest, bank service charges, association dues and publications, rent, vehicle expense, liability insurance, legal and professional services, office expenses, education & training, supplies, telephone and other miscellaneous expense.

Non-Operating revenue would include items that are not associated with the normal operation of your business. Examples would include the sale of business equipment or a company vehicle. The monies received are not in the normal course of business and are separated from operating income to show their unique or unusual nature.

Non- Operating Expenses are defined as expenses not derived under the course of normal business. We normally include depreciation and interest expense under this category.
Once we have assembled all this information it is used for two purposes. One is to help run and understand you business and the other is to produce information to provide to the government on an annual basis.

When producing your annual tax return there are three things that the government needs to know. What your income was; what your expenses were and what your net taxable income was. Of course they want you to break it down further into more detail, but it still comes down to those three categories. To run your business you must have much clearer categories. There are specific relationships between certain number on the income statement and the well informed business owner knows them.

These numbers are called ratios by accountants but are simply percentages of expenses to the revenue that was generated. By knowing how your expenses like payroll expense relates to your revenue you can make better decision about hiring and controlling that particular expense. By understand the relationship of these very important numbers for your business you can make informed decisions and help your business grow and thrive.

The timelier the information is the better you the owner is served by it.

Having this information once a year does not help you to manage your business with any accuracy. The information is needed on an on going basis for it to help you make decisions. Many times a client comes into my office in November and questions whether there is anything that I need to do for year end. My honest answer is that I have no idea. Without the client providing the information to me there is no analysis that can be done. With the financial data and the same questions the answer will become very clear as to the proper course of action to be taken by the end of the year.

There are many different methods to gather the information for your tax return. The method that you use should also allow you to produce information for running your business. My recommendation for this purpose is Quickbooks, Online for its ability to help you run your business, and communicate that information easily to your tax preparer and business planner.

Next time we will cover some of the essential information that needs to be gathered and maintained to defend the deduction that you take on your tax return.

Saving You Money,


Robert Groth E.A.
************************************************
How much is one good accountant in your business? Robert Groth
E.A. has created an accounting practice centering on daycare
business owners. Find out what other daycare owners have to say
about Robert Groth.

"Robert Groth is informative, helpful and resourceful. He offers
strategies that increase and improve your business. In a
nurturing, caring profession, Mr. Groth has encouraged me to
nurture and care for my business".

Debra Noel
Noel's Early Childhood Center
Milwaukee, WI

********************************************************************

Would you like to tell your friends about this information? Send
the email address to mailto:bob@grothcpa.com

********************************************************************

(c)2007 CG Groth Inc.

Importance of Record Keeping – Part Five


As you remember we were last talking about the importance of record keeping, today is a continuation of that subject.

Today we are going to concentrate on the subject of balance sheet.

Most business owners can understand a profit and loss statement but are very confused when it comes to balance sheets.

Let’s start with a couple of definitions.

Assets are the things you own and are divided into current assets and fixed assets. A current asset is something you own that will be used in the next twelve months. Examples include; cash, accounts receivable, notes receivable, inventory.

Fixed assets are those things that will last longer than twelve months. Examples include; vehicle, house, room additions, and equipment. Assets are used in the production of income.

Liabilities are the obligations of the business and are divided into two groups, current and long-term. Current assets are those obligations that will come due in less than twelve months and long-term are those that are longer than twelve months. Examples include: accounts payable, payroll tax liabilities, and lines of credit.

Long term liabilities include bank loans and loans from owners. These are obligations that the business must pay for the operation of the business or the funding of the infrastructure to run the business.

Equity is the worth of the business. The current earnings and all earnings since the start of operations less any monies that the owners have distributed make up the equity.
These are the basics of accounting and my time is spent constantly reminding myself and others the golden rule. If every number on the balance sheet is correct all other numbers will be correct, both on the income statement and the tax return. You may be asking yourself why this would be so. The reason is that every entry that is made is made up of two sides.

Don’t get lost now.

I know I am hitting you with lots of information. Here are the examples of how this all comes together.

Accounts Receivable which we discussed in part two directly affects sales of your business, so if accounts receivable is correct sales is correct. Accounts payable which we discussed in section three directly affects all of your expenses, so if accounts payable is correct all of your expenses are correct. Finally if your cash is correct we know that you have included all of the payments for liabilities and the accumulation of other assets.
The whole point of this discussion is to explain the importance of understanding the basic building blocks of your business’s financial foundation.

We as accountants spend a great majority of our time producing these documents and very few business owners take the time to understand their meaning. Once you start to look at these things you will have a much clearer understanding of the health of your business.

There are many tools that help in the automation of generating these reports. Once these reports are generated it is so very important for you the business owner to understand them. It is your job to continue to learn more and question more about the operation of your business and the balance sheet is the perfect starting point to understand the health of your business.

Robert Groth, E.A

Please feel free to share this with others provided all links and names remain intact.

You can contact Robert Groth E.A. at ======> mailto:bob@grothcpa.com

Record Keeping

Part Four

Hello again it’s almost the end of summer, and for a lot of us it’s a real bummer. But for my wife well, she going around the house singing a song about how school is starting la, la,la,la.. You get the idea, needless to say I agree with her. Our nine your old’s need to go back to school. That’s of course so my wife can get back to real work. She does all the proof reading for my writing, and I sure have a lot of proof reading for her to do.

In the previous two sections we discussed at length the tracking of accounts payable and accounts receivable.

When both of these systems are operating smoothly you will have great control over how much money you owe to others and how much is owed to you. These systems will also help you to determine the health of your business at any time.

The one thing that connects these two systems is the cash account. The cash account is actually the bank you run your checking account from. The bank is responsible for clearing all of the checks and the deposited funds as well.

In this process the bank verifies whether you have money to cover the checks written and also verifies whether your customers have the funds available to pay you. It is important to realize that the bank employees are people that provide this function to you. Anytime that a task is completed by someone there is a chance for error. No matter how many checks and balances that a bank provides there will always be a chance of error.

It is up to you the business owner to be the final check on the accuracy of your account.

When you verify the cash that goes through your bank account you are ensuring completeness in your records. This also prevents needless charges errors to your account.

Next time we are going to tie all these systems together to give you a complete picture of how your business is doing. The balance sheet and income statement is two fundamental documents that allow you to make decisions about your business.

Saving You Money,


Robert Groth E.A.

Record Keeping

Part Three



Hello:

Who didn’t think that accountant’s make good daycare providers? Well I do of course.

During the summer I often take off Friday’s with the agreement at the office that I work 4 ten hour day’s. But often what happens is I help out at my wives daycare, and today was the day. I would say that I had a good time, I’m a firm believer of reading books so that’s exactly what I did, and they all really loved it.

Let’s get back to business, we need to talk some bean counting lingo, so here you go.

In part two we discussed how to keep track of the flow of money leaving your business.

Controlling the flow of money out is essential.

Equally important is making sure that you are receiving all of the revenue that you work so hard for. You do daycare for the love of the children but you have chosen to provide a very valuable service in today’s society and should be compensated for your efforts.

I am once again going to take us back to large corporate America and show you what they are doing and bring it back down to the level of small business. By understanding the process that large companies engage in you can get a better understanding of how to proceed in your business.

One of the largest concerns of any business is to make sure that you are getting paid for the product or service that you provide. How do you make sure that you are getting paid for all the services you provide? Corporate America breaks it down into several steps. Different people or departments because of concern of fraud or simple employee error provide these steps. In your business you are the one responsible for ensuring that all the steps are followed.

Step One: Order Taking
Step Two: Invoicing
Step Three Receiving Payment and Recording Payment
Step Four: Reconciling payment to deposits in bank
Step Five: Collecting outstanding Bills not paid

In step one an order is taken for products or services. This can be in person or over the phone. When that order is taken it must be recorded to start the process of fulfilling the order. In the world of daycare, you meet with a prospective parent and agree on a specific price that the parent is willing to pay for your services. That child will be full-time or part-time, and according to your policy will pay a certain price. Once that has happened you will need to record the specifics of that order. This can be agreed upon once in the beginning of the relationship but more realistically will happen weekly when planning out your next week.

In step two the company has fulfilled the order and needs to let the customer know that their obligation has been meet. The company tells the customer by sending an invoice. Many times in daycare this invoice is handled verbally. The system you have in place will record how much money you are expecting this will help you to plan your cash flow much better. You should also have a system in place to verify the types of sales you are making.

Each provider has a couple of types of income that need to be tracked: Parent Fees, Food Program reimbursements, and State payments. By recording each of these types of income on invoices you be able to make sure that you are receiving all the money you have worked so hard for.
In step three you are receiving the payments from your clients. These payments must be matched to the invoices that were generated in step two. Once the payments are recorded a deposit must be made at the bank. This same thing is done in corporate America, the deposits are slightly larger, but the concept is the same.

In step four the corporation’s accountant will reconcile the deposits recorded in step three to the information provided by the bank. This process was formally handled once a month but in today’s world it is handled many times more frequently. It is very important to verify, at least monthly, that the money you have collected and sent to the bank has actually been recorded at the bank. The bank is not perfect and too many people are trusting that the bank has not made errors. This is a dangerous assumption and can be corrected by simply checking your records against what the bank has in their records.

In step five the big bad side of corporations comes alive. Many times a corporation will get a bad name from their attempt to collect the money that is due to them. There are many ways to collect overdue bills but the end result is the money is needed to fulfill the obligation of the business. You will have these same issues to grapple with in your business. In order for you to pay your bills, you will need money to do it.

By following the above steps you will be able to see how much is due you for services provided and how much you will need to collect. I you don’t record the invoices systematically; the payments systematically and match them to the bank you will never be able to get a handle on whether you have been paid for all you have done.

This brings up a point as to what the proper system is to use for accomplishing this vital task. There are numerous different solutions out there. One of the most popular and one I personally use and recommend is QuickBooks. This is an online software solution that allows you to know where you are in your business up to the minute, while also allowing me as your accountant to help you to make sense of the numbers.

QuickBooks allows me to be an advisor to you in your business not simply a historian who puts numbers on the tax return. The second option is Calendar Keeper software or the manual book. Redleaf press has come up with a way to truly organize your business life and helps you to keep track of your business on a month to month basis. No one solution is the best for everyone. The key is to start your system today so you can start the process of taking control of your business now.

Are you looking to pass this information along to a fellow daycare provider? Just send me an email at mailto:bob@grothcpa.com



Saving You Money,


Robert Groth E.A.
bob@grothcpa.com





© 2006 CG Groth Inc.

Record Keeping- Day Two

Today we are going to continue where we left off. Just as a little refresher, we were talking about the importance of record keeping.

Also, just to let you know you can archive old newsletter articles in my blog. Everything that is posted here will be in my blog plus a Importance of Record Keeping – Part Two
whole lot more information.
*********************************************************************************

You can find my blog at ==== www.instantdaycareaccounting.blogspot.com

**************************************************************************************

In part one we discussed some of the reasons why record keeping is so important. Remember the story about running around loosing your clothes, car, keys, I’m sure you get the idea.

Today we will discuss some of the mechanics of how to put record keeping to use in your business.

In the world of accounting, bean counters (that’s me) have developed something called checks and balances.

The same systems of checks and balances can and should be used in your business. Some of the detail is unnecessary but the basics should be understood and you can adjust the system to your business.

The ultimate goal of a system is verify that all valid bills are recorded and paid in a timely manner. In a large corporate setting we add a separation of duties to try and ensure that all bills are valid and to ensure that they are paid.

The system has seven basic steps with some organizations adding more detail when necessary

Step One: Purchase Order
Step Two: Receipt Journal
Step Three: Invoice
Step Four: Voucher for Payment
Step Five: Check Payment
Step Six: Reconciliation

In step one a purchase order is drawn up and the item is ordered from the vender. For the small business owner, you should make a list of what you need to buy from the store. You will go to the store and buy the item or order it from your catalogue. You will receive a receipt with the item and you will bring it back to your place of business.

In step two the items are received into the store or business and checked against the purchase order to verify that the order was correct. Again in your business you will verify that you brought everything on your shopping list.

In step three the invoice is received for the purchase order. This invoice is matched up with the purchase order and receipt journal to verify that the merchandise was received and the invoice is valid. You will have all of the receipts for the month put into a pending folder waiting for the bill from the vender. These receipts will then be attached to the invoices before going on to pay your monthly bills.

In step four a request for payment is made up of all invoices that have been verified in step three. In your business a list of bills to be paid must be drawn up so that you can see how much you owe to the different vendors.

In step five the valid vouchers from step four are then processed for payment with a check. This is the same for you. You will obviously need to verify if there is enough cash in your bank account to ensure valid payment is made. That means you need to know what the balance in your checking account is. For some of you this is an area to definitely improve on.

In step six the Bank Statement arrives and the checks that were issued are reconciled to the checks that bank has processed. This is the same process for you.

Why do large corporations go through all these steps just to pay a bill and how does this relate to you. The whole purpose of this process is to verify that the company gets what they ordered and pays for what they get. It also assures that all the expenses are accounted for and that all the checks written accounted for.

This brings up a point as to what the proper system is to use for accomplishing this vital task. There are numerous different solutions out there.

One of the most popular and the one I personally use and recommend is Quickbooks.

Quickbooks is an online software solution that allows you to know where you are in your business up to the minute, while also allowing me your accountant to help you to make sense of the numbers. QuickBooks is also wonderful during tax time. It makes my life as an accountant much easier and saves you the client time and expense. Having everything organized efficiently allows less time and fuss when completing and returning tax returns.

The second option is Calendar Keeper software or the manual book. Redleaf press has come up with a way to truly organize your business life and helps you to keep track of your business on a month to month basis. No one solution is the best for everyone. The key is to start your system today so you can start the process of taking control of your business now.

What ever your choice may be I can help you with setting up both options.

For assistance with QuickBooks and Calendar Keeper contact me at 262-798-3520 extension 103 or email me at bob@grothcpa.com

We currently offering Redleaf Products at a 10% discount. What this means is when you stop by the office you can pick up your books from Redleaf and save your self shipping and 20% off the catalogue price.

Of course, I can ship you these books as well, and you will still save 20%. Every penny counts!
So, let me know if there is a book you want, I can save you money. That’s the whole idea.


Saving you money,

Bob Groth


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How much is one good accountant in your business? Robert Groth E.A. has created an accounting practice centering on daycare business owners. Find out what other daycare owners have to say about Robert Groth.

“Robert Groth is informative, helpful and resourceful. He offers strategies that increase and improve your business. In a nurturing, caring profession, Mr. Groth has encouraged me to nurture and care for my business”.

Debra Noel
Noel’s Early Childhood Center
Milwaukee, WI

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Record Keeping

Imagine a world where you wake up in the morning, and immediately you search frantically for your clothes which have mysteriously been moved from where you left them the night before. You finally find the missing pants and shirt and run out of the house and find that your car has disappeared. After searching for five-blocks you locate your car. You’re exhausted only to find out that you have over fifty keys on your key ring.

Which one could be the key to your car? After searching your key ring for 2 hours you finally find the magic key to start your car. After all this commotion you discover on the way to work you forgot your wallet and have no money to go out and eat breakfast.

You haven’t even made your way to work and you are hungry, frustrated, rushed, and un-organized.

What good could you be to your business or employer?

As terrible as the above story is, unfortunately all too many business owners take equally terrible care of their business records. This is a striking fact when you consider that a business’s records show the owner everything about that business.

There are some very important things that you the business owner must know in order to be effective in managing and operating your business. Too many owners look at their checkbook and judge the business health by whether the balance is positive or negative. This method will tell you on a particular day whether you have a positive cash balance but will give you no insight into why or in how you could improve the situation.

In the next couple of messages I will be laying out the steps necessary to have a solid set of records that will allow you the business owner to make vital decision.

Once you gain true control of your business the peace of mind you will have will allow you to concentrate on running and excelling at your business.

The next messages will contain:
1. Accounts Payable – I will show you how a proper system of gathering receipts, entering bills in a system, and finally paying the bills in a way that will streamline your bill paying function. The key is handling the paper one time.

2. Accounts Receivable – I will show you how a proper system of billing and collecting money to ensure that you have been paid for all your hard work.

3. Proof of cash – How to tie the accounts payable and accounts receivable systems together to effectively give you control of your cash once and for all.

4. Balance Sheet – What is this piece of paper and what does it tell me. Why accountants use this one document to judge the health of your business.

5. Income statement – What this document tells you about your business

6. Logs – The importance of your essential logs. Time-Space Percentage, Meals Served, and Auto.
7. Assets – What is depreciation and how does it affect your business.

8. Finally how do we use all of the above information to run our business and report it to the government on the annual tax return?

I hope that these messages will guide you to a basic understanding about the importance of knowing the health of your business. This knowledge will allow your business to thrive into the future. No matter where you are in the process, learning this vital information will allow your business to continue into the future.

Saving you money,


Bob Groth E.A.

P.S. Would you like to share this information with your friends? Please send us an email with their address and we will put them on our list.

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How much is one good accountant in your business? Robert Groth E.A. has created an accounting practice centering on daycare business owners. Find out what other daycare owners have to say about Robert Groth.

"It all started when I met Bob Groth at a Mecca Conference in 2004. I was sitting in on one of the sessions about tax preparation and business tips. After hearing his presentation I then realized that I needed him to be my Tax Preparer…someone that knows all there is about Family Child Care. I had just started up my in-home business in January of 2004 so he was a blessing. We have gotten a lot of great advice from him and really nice tax returns the last two year and will continue to seek advice from him and his accounting services for many years to come.

Thank you Bob!!

Elizabeth Weyker
Rainbow Club Family Daycare
Port Washington, WI



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Email me bob@grothcpa.com



record keeping