QB Winery Solutions

Cash Flow Forecast Quickie

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Do you know what your cash flow forecast looks like for the next 12 months? This is always important information in the wine industry, but it is even more critical now. If you are going to apply for a loan, you need to know how much to borrow, and the Cash Flow Forecast will show you your greatest need and when that will happen. Since it is spring time, many wineries ran a club run, so you have those funds available for the immediate future. But what about your upcoming bottle runs? And what about the lack of revenue from the tasting room? And how much do your distributors owe you? Will they continue to pay those invoices on time?

If you have a budget, you can convert that to a cash flow forecast. Go to this lesson in the Using QuickBooks in the Wine Industry course GO HERE but if you do not have a budget, here is a lesson on how to convert your historical data to a forecast in 3 steps. You just need basic excel skills for this and some common sense. Would be nice to also have a crystal ball, but those all seem to be in short supply right now.

These steps also assume that you have set up your file using our 5 Fundamentals. If not, then use this a guideline to find the numbers that you need to fill in the worksheet.

  1. Layout the revenue by class
  2. Layout the expenses by month
  3. Layout the cash flow forecast

Even in the best of times this number is ugly. Look for the next post on things you can do to make this number not so bad.

Is your QuickBooks file healthy?

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It’s spring and you should have finished closing your QuickBooks file for last year. Therefore, now is a great time to do some Spring Cleaning! This means it is time to check out the health of the file.

Open QuickBooks and hit the “F2” key to see the Product Information window.

 

 

 

 

File Size: When the file gets too large, it will run slowly. Reports will take a long time to load and new transactions will take a long time to save. This is super frustrating because we all have a hundred things to do at any given time; however, a file with data damage can be very expensive to repair. If you push-in the sales receipts from the POS program, you will reach the maximum file size limit much faster than a winery that does the summary method. If you hit that maximum file size limit, or if you notice that the program becomes sluggish, then it is time to condense the file. Intuit suggests these maximum limits:

Pro/Premier – 400 MB (that’s 400,000 K)

Enterprise – 1.0 to 1.5 G (that’s 1,000 to 1,500 MB)

If the file in the example above was Pro/Premier, then with 300,000K, they are still looking good. In this situation, you should check again in approximately six months to review how the file grew during the six-month timeframe.

DB File Fragments: By design, Microsoft writes bits and pieces of the files throughout the hard drive. This is why you should “de-frag” your hard drive on a regular basis so that you can put the pieces of the files back together. The “DB File Fragments” tell you how many pieces your QuickBooks file is broken up into. This number should be no higher than 10. Too many fragments can create data damage. You want to avoid that scenario at all costs because repairing data damage is both painful and expensive.

File Verification: You should be running the QuickBooks backup with Full Verification on a regular basis. Do not rely on the cloud backup that you also have in place, therefore this step is not part of the Spring Cleaning routine. The file verification will tell you if you have any errors. Let’s assume you are doing this at least weekly – are you getting a regular message to Rebuild the file? If so, double-check the DB File Fragments and File Size. If that doesn’t fix the problem, then give your friendly ProAdvisor a call.

READ THIS FIRST: Before you condense, you must clear up all of the errors. The condense will not fix errors and it can make some errors worse. Therefore, first fix the file fragments, then do the condense. As a side note, before you upgrade the file to the newest version, complete these steps and fix all of your errors first. The upgrade will not fix errors either.

To fix the file fragments, you do what we call the Portable File Round-Trip:
Make a Portable file (File -> Create Copy -> Portable Company File).
Restore that file and give it a new name. I typically change the “tail” of the file name instead of changing the whole filename.
Do this 2 more times.
You will do 3 round-trips; this should reduce your file fragments to one, as in the example above.

If you need to condense, read on….

If you have QB 2019 or newer, Intuit added a new condense feature that deletes the Audit Trail. This can reduce the file as much as 30%. Murph (one of us ProAdvisors’ favorite go-to tech guy for all things QuickBooks), typically doesn’t like the QB condense feature, but he really likes this new option.

Step 1 – Make a backup with full verification.

Step 2 – Pull a current trial balance. You will use this to compare the file after the condense.

Step 3 – Condense by deleting the Audit Trail. (File -> Utilities -> Condense File) Make a backup before you start, and store this is a safe place because you never know if you will need this information.

Step 4 – If you want to make the file even smaller, use the second step of the condense to remove selected transactions. The usual choice is “transactions before …” then pick a date. In the next window, you have 3 choices about how to handle the transactions that will be removed.

  1. One summary journal entry: This is a good choice for you folks in the wine industry. However, the journal entry does not show the class or the item detail, therefore there is no useful information. However, this option will make the adjustment to true up the file to match the original Trial Balance minimal.
  2. Summary journal entry for each month: This information is virtually useless for the wine industry, so don’t bother. It also takes a long time to run.
  3. Don’t create a summary: This is also a good choice because the information in the single journal entry is essentially useless. You will need to create a journal entry to adjust the beginning account balances.

For a detailed list of all the steps, refer to this article by Intuit, or call your favorite ProAdvisor.

Condense Data File

If you find that the Trial Balance has a huge discrepancy from the original Trial Balance, or if you are getting some goofy results, then it is time to call a specialist. I recommend Matt Clark, who is essentially a QuickBooks file doctor.

Good luck and always remember to make a backup before you start so that you can restore the file if the results are not what you expected!

Questions for your Tax Preparer

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If you ask your tax preparer to explain the difference between your True Income and your Taxable Income they should be able to easily answer this question. However, what if you asked your tax preparer to explain the difference between True Cost and Taxable Cost? If this question made you (or them) say “huh?”, then read on!

It’s tax season, therefore the term Adjusted Gross Income (AGI) should have crept back into your brain. AGI is the amount of money that you use to calculate the income tax which you owe. In plain English, AGI is also called Taxable Income. How is it calculated?

Take your True Income, which is the amount of money that you earned before deductions and taxes. You will find this in box 1 on your W-2 form. You may also have interest and dividend income. The loose change found in your sofa doesn’t count.

Subtract as many deductions as possible – this should be easy for everyone. If you have a good tax preparer, they will find as many legal deductions (aka, loopholes) as legally allowable (some unscrupulous preparers will find a few more). You know the concept…the more deductions the better.

Next, let’s talk about your Taxable Income – the amount used to base the income tax that you will owe. The lower the number the better.

Your Taxable Income will vary depending on the tax rules in place each year. For instance, let’s say you made the same True Income, before and after any of the “tax reform” bills of the last 30 years. In most circumstances, your Taxable Income will be different. Sometimes “tax reform” changes the tax table. However, most of the time Congress fiddles with the deductions. If you were on Congress’s good side, your Taxable Income went down. If Congress thought you were not important (or not paying attention), your Taxable Income went up.

Your True Income is always bigger than your Taxable Income. And your True Income doesn’t change depending on which party is running Congress, or whether a “tax reform” bill was recently passed. You base your most important decisions, such as “Can I afford to buy this house?”, on your True Income. In fact, lenders look at your True Income, not your Taxable Income to decide if you are able to pay the mortgage on that new house.

The cost of your wine also has a True Cost and a Taxable Cost. There are other similarities:

  • True Cost is higher than Taxable Cost (except for very large wineries who are not using QuickBooks and are not reading this article)
  • The lower the Taxable Cost the better
  • True Cost does not change when Congress passes new tax legislation
  • You need to make your most important decisions based on True Cost

I work with a winery that initially made less than $1 million dollars in revenue. Within a few years, thanks to their awesome wine (and an excellent CFO…Yours Truly!), their sales grew to over $1 million dollars. At that point, their taxable cost more than doubled because they passed the $1M threshold, which was where the tax rules changed. Then, in 2018, Congress changed the threshold to $25M. This means that this winery (and all the others making between $1M and $25M) saw their taxable cost go down significantly.

Thus, in the course of five years, this winery’s Taxable Cost changed three times, and each change was significant. I cannot share their actual numbers. However, let’s revisit the ‘Three Muskateers’ from our How to Calculate The True Cost of Your Wine course or Discover QuickBooks for Wineries. Remember the True Cost for each of the wineries is the same. The first phase is similar to ‘Athos’ where the taxable cost was $36/case. The second phase was similar to ‘Aramis’ at $114/case because they had passed the $1M threshold. And in the third phase, it was back to ‘Athos’ at $36/case. (For purchased grapes the change is $90 to $197 and back to $90). If we had been managing the business using taxable cost, it would have been chaotic; possibly disastrous. Of course, we were using True Cost to manage the business, so the business continued to grow, and they could enjoy the tax windfall that first year.

The point is this: just as you have a True Income and a Taxable Income, your wine has a True Cost and a Taxable Cost. At your next appointment with your tax preparer, your accountant or CPA, ask them to explain the difference.

If your tax preparer’s response is “huh?”, then you have a big problem!

Cash Basis vs Accrual

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In honor of tax season, I am unlocking a lesson in the How To Calculate the True Cost of Your Wine so that everyone can hear this information.

This lesson explains the difference between Book Cost and Tax Cost and how the recent tax changes have affected this issue.

The critical points are:

  • You must use True cost/Accrual in your QuickBooks file so that you have accurate numbers to manage the business.
  • The tax preparer can convert from True cost/Accrual to Tax cost/Cash basis in their work-papers (but you cannot convert in the other direction)

For the non-accountants, in this context these terms mean the same thing:

Book cost = True cost = Accrual

Tax cost = Cash basis

We have an on-demand lesson for the tax preparers on how to convert from Accrual cost to Cash basis costing GO HERE .

We also offer live seminars with CPE on this very topic, led by Tyler Willis, CPA . For the schedule GO HERE.

AskABookkeeper.com – Interview with Jeanette Tan

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When I was at the Scaling New Heights conference last June (keeping up with my fellow ProAdvisors), I met Ingrid Edstrom and “Penny” from www.AskABookkeeper.com. Ingrid is a ProAdvisor and has been recognized as one of the accounting professions Top 40 Under 40. She has an active Facebook group and a YouTube Channel where she answers questions about bookkeeping.

I was Ingrid’s guest during her First Friday Facebook Live event. While she primarily serves travel agencies, we both agreed that monitoring the Gross Margin of each sales channel is a critical financial metric that can provide a wealth of useful information.

To find out who “Penny” is you will have to watch the video.

Click here for the YouTube video Take Me to YouTube

Join her FaceBook Group Take me to Facebook

 

An Easy Way to File CA Sales Tax (without Ship Compliant)

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If you have more than $500,000 in revenue in California (excluding distribution and wholesale sales), you are subject to the sales tax filing rules that were effective April 1, 2019. Many small wineries now meet this requirement and filing the California Sales Tax return is much more complicated than in the past. You can thank South Dakota vs Wayfair for this new complication. In the past, the district tax only applied to companies that had a “physical presence” in that district, but it now applies to any winery (or business) that exceeds $500,000 in retail sales in California.

This is not as simple as looking up the zip code because it might cross different districts. For example, the zip code for Healdsburg, 95448, includes addresses in the City of Healdsburg which are taxed at 8.75% whereas an address in Dry Creek Valley which is outside the city has the rate of 8.25%

The State of California has a nice webpage where you can plug in an address and it will lookup the sales tax rate. Click Here. But it is not realistic to lookup up every address.

You could signup for a service like ShipCompliant or Compli, which are programs designed for the wine industry, but these are expensive, and you may not justify the fee just to file your California Sales Tax Return.

Here is the outline for a process that will cost about $210 per year. I will record a complete video to show the steps, but in the meantime, these are the basic steps

  1. Sign up for a Basic plan at Taxjar.com. This is a sales tax program that will look up the sales tax rate. It is not an alcohol compliance program, so you will have to keep an eye out for those details with whatever procedure you are currently using.
  2. Find a report from your POS program that includes the shipping address and the taxable sales.
  3. Edit that report to fit the format required by Taxjar.
  4. Upload the report to Taxjar.
  5. Print the California report and use those details to enter the sales in the various districts.

This process is super fast. The most complicated part is formatting the report to match Taxjar’s required format, but once you do it the first time, it will be easier the next time.

Note: TaxJar could file the California return for you, but there is additional information that must be included, so you still have to file the return yourself using the CDTFA portal. But, having TaxJar summarize the sales for each district is a huge time saver.

If you already have ShipCompliant: You need to turn on the reporting module, and then turn on the California state form. Make sure your settings have been revised for the new rules.  As with TaxJar, you will use ShipCompliant to calculate the sales by district, but you will still need to manually enter the details into the CDTFA sales tax portal.

If you are interested in the full mini-course on how to file the California sales tax return, fill out the form below and we will notify you as soon as it is ready.

QuickBooks Online (QBO) – Pros and Cons

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I am not a huge fan of QuickBooks Online, however for some situations, it is a good choice. Here is my list of the Pros and Cons to QBO for a winery:

Pros

  • Great bank feed integration
  • Good integration with Square (there is still an extra step, but it’s easy)
  • Up to 5 people can use it simultaneously
  • PC and Mac users can both access
  • VineSpring has a new integration, but I have not tested it

Cons

  • No Custom Summary report (only in the Accountant version)
  • Cannot do the 2-step bottling method
  • No Inventory value adjustment, only quantity (workaround is to do a JE check)
  • Hard to have multiple windows open
  • Bank reconciliation is clunky
  • The bank reconciliation report does not update after you make changes (for example, if you delete a duplicate transaction, it will still show up on the report)
  • No sales by rep report
  • Chart of Accounts and Item list will only show up alphabetically (workaround is to use numbers and a dash)
  • Payroll is funky and it cannot do job costing, so my usual procedure which is super simple in Desktop does not work. This is not a problem for a super small winery, but once you have staff it becomes a big problem.

I find that the best use for QBO is the small, startup winery where the owner is doing the bookkeeping, because you want to take advantage of as many automatic integrations as possible. You will need some method of processing credit card charges, and Square integrates nicely. However, Square is a short term solution, and as soon as you can justify a true winery program that will handle a Wine Club, you want to get that going so that you can start to capture details about your customers.

Reset Inventory Accounts in the New Year

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There is no hard close to the QuickBooks file at the end of the year because that is how QuickBooks works. However, resetting the inventory accounts is a step that needs to be done at the beginning of the year.  This step does not affect any of the accounting, but it makes the sub-accounts of the bulk wine and case goods zero which makes it much easier to match the costing book to the balance sheet.

Remember that finishing the costing book and confirming that it matches the balance sheet is a necessary process, even though it is often frustrating. If you reset the inventory accounts it is much easier to match the cost pools and the transfers between the bulk wine and the case goods.

I find that it is fun to do this journal entry. I don’t know why maybe it’s because it means that a new year has started, or maybe it’s just a nerd accounting thing.

Cheers!

In this video (must be a Silver Club member to view) I will walk you through the steps. If you would like assistance, come to Office Hours or use this link to set up a coaching session.

Journal Entry to Transfer Winemaking Cost to Balance Sheet

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On my recommended Chart of Accounts, the wine making costs are in the “Other Expense” section of the chart of accounts. These costs are really inventory costs, not expenses, but I put them there for two key reasons:

  1. You can monitor the costs of the winemaking department with the Budget reports much easier than if they were recorded directly to the balance sheet.
  2. Other reports are much easier to run with “expenses” rather than “balance sheet” costs.

Before the end of the year, you will need to create a journal entry to transfer these amounts to the balance sheet. Some people will do this at the end of the month or at the end of the quarter, but the end of the year is fine because you can still use the Profit & Loss report.

I discuss this procedure in the Using QuickBooks in the Wine Industry course, but I don’t actually show how to do it.  So here is the step-by-step video of how to enter that journal entry.

Cheers!

In this video (must be a Silver Club member to view) I will walk you through the steps. If you would like assistance, come to Office Hours or use this link to set up a coaching session.

The Crush

Your first step to running a profitable winery and crushing your business goals.