QCDocs Blog

For all you accounts payable clerks, here’s a look at the document flow in QCDocs.

On Feb 12th, Rick Manifold from the BC Investment Capital Branch sent out word to all the EBC’s that until March 1, 2009 investors can get 2008 refundable tax credits for their investments in eligible BC businesses!   Eligible business owners are strambling to drum up some investments given this significant investor incentive but is it too late….

This should really be a no brainer investment if you can find the right eligilbe company to invest in… therein lies the problem.  

Here’s how the program works:

1. Find an eligible  BC tech startup- (there should be a published list somewhere?) (or a fund like WUTIF or Bootup Labs VCC) and determine whether you can invest- friends & family exemption, accredited investor, Offering Memorandum, etc.
2. Determine merits of the investment- how, when and how much money will you get back… this can be risky in which case you may want to look at Wutif or Bootuplabs which will diversify this risk and keep a sophisticated investor team evaluating the merits of the investments.  Both have very low management fee structures (will work on a comparison table for a future blog entry).
3.  Pay for your investment ex. $10,000 (but consider doing it through your self-directed RRSP) for a kicker return.  If you had a good 2008 and were at the top tax bracket (example over 123k salary) this RRSP investment will yield a $4,370 tax refund.
4.  Get your EBC/VCC tax credit which is a 30% refundable tax credit or a further $3,000 refund on a 10k investment.

So your net investment is $2,630 for a $10k investment… wow!

But it doesn’t stop there!  Eligible Tech startups are generally eligible because they are developing technologies that would qualify for the SR&ED corporate tax incentive program.   So let’s look at how that works in this example.

1. The Company takes your $10k investment and pays programmers/engineers etc. to help develop the technology.  
2.  The Company files a tax return and a claims for the Federal and BC SR&ED tax credit which can generate up to $6,847.50 (assuming Proxy space is available) of additional refundable tax credits to the Company.

Let’s recap- you spend a net out of pocket $2630 which provides your investee company $16,847.50 of cash to build technology that can be then marketed and sold generating a return on your investment!  

You will have to hold this investment for a minimum of 5 years but that is the typical length of time that would be needed to bring such technology to market anyway.    

Compare this to your $10k mutual fund RRSP investment in the last few years… LOL’s.

1. $10k immediately followed by your broker’s trailer fee (1.5% per year) plus the Mutual Fund Management fee of 2.5-5% per year…. good start!
2. They invest the money for you in public Companies that hire professional executive teams to run them.  They take off the top their salaries and incentive programs which have received much notariety over the last 12 months.
3. At least you have the investment in a liquid market… but wait you’re holding this investment in an RRSP so no real benefit there…?

Morale of the story is more effort needs to go into helping communicate and generate investor awareness for these investment programs.   The public VCC’s which are good at this communication because they can leverage the investment brokerage community but this makes them more expensive to operate and they are investing in later stage businesses, often public companies which cannot capitalize fully on the SR&ED program for example.  

Programs like Bootup Labs and Wutif are helping solving this problem but the securities exemption limitations are precluding average investors from taking advantage of these programs which is very unfortunate.    Accredited investors please setup up.  

Two additional recommendations to open these incentives up to average investors, to help EBC’s get financing and to spread the risk include:

1. Change the accredited investor rules such that normal investors can invest up to $10k per year without exemption requirements.
2. Increase the number of shareholders to 100 before a company is deemed to be a “reporting issuer”

1. Open all the mail!  This is often a quickly relinquished responsibility and it really shouldn’t be!  Awareness of key documents include tax notices, tax assessments, payables, bank statements, cleared cheques, customer payments and legal notices… all need the attention of the owner even for 5 seconds!   Tax notices highlight late payments which might be an indicator of untimely bookkeeping, cleared cheques should be checked to ensure they are all valid, bills need to be inspected for fraud or errors, and customer payments or lack thereof need to be monitored for deposit prioritization or follow up.  You don’t need to spend a lot of time- just open, check and hand off to bookkeeper… or scan/fax using QCDocs of course.  Also consider using QCMail services whereby you receive your mail by email… kills several birds with one stone.
2. Sign all the cheques!   This is rarely not in effect as it is pretty obvious.  I would point out that you should make a habit of requiring the back up documents to support cheques which is often skipped (ideally the voucher – PO, Packingslip, Invoice).  Also note that dual signatures is always the best unless you are the sole owner/shareholder!  What if you’re out of the office a lot… then get QCDocs Systems so you can do all this online!  
3. Monitor online bank accounts and general business activities.   Monitoring controls are very important as they ensure that you are aware of unusual transactions and unusual behaviors.  Trust in your accounting/bookkeeping staff is tremendously important and you should hire accordingly but it isn’t a control!  Fraud occurs when owners are just so trusting that opportunities arrise and we hear about those stories every so often in the press.  Monitoring controls… ie. just taking an interest, requesting reports, reviewing documents, inspecting files on occassion is key to shutting those opportunities down!
4. Segregation and access controls-  Control of cheque stock is critically important. Do not place reliance on your signature and the bank review.  You need preventable measures to watch for fraud and identity theft these days so control your cheque stock.  Also monitor online bank accounts and make sure you can identify transactions- EFT’s (“Electronic Funds Transfers/online payments, etc) are being coming more and more common but they don’t provide enough information to understand nature of payments sometimes.  Also control access to payroll systems (ADP control pretty much gives person ability to write a cheque to themselves by creating and paying a fictitious employee) so monitor this closely.  Those big lump sum autowithdrawals need to be monitored for unusual fluctuations and tied out to payroll reports. 
5. Timely, involved review of monthly financial statements and bank reconciliations.  This one is rarely done and poorly understood.   On the 15th of every month you should have received a 3 month trended balance sheet, 3 month trended  P&L, a budget to actual, a G/L for the the month, bank recs, AP, AR and fixed assets listing .  Get them if they are “ready” or not! and get some perspective on where you’re numbers are at.  If you don’t understand them go through them with your accountant and get them to give you some perspectives on them and what you should be looking for specifically- or I’ll save that for another blog.

The paperless back office has long been dreamed of but just hasn’t happened!  The cost-benefit just hasn’t been there in terms of ease of use and practicality.  Here are my thoughts on why the world is now poised to finally see the paradigm shift happen!

1. First let me point why I think it has taken so long to come about!  PDF just doesn’t work!   Everyone was waiting to see what electronic document format would be the defacto standard and everyone thought Adobe’s PDF format would be it.  Problem- slow to open (time a 1 page PDF versus 1 page jpg or gif), or the dilemma of opening whole file or just first pages (practicality of Accounts Payable), scanning challenges (what if pg 51 and 52 went together you have to scan the whole pdf again), try to name a pdf document while it is open…good luck!,  what if page 51 is upside down (pdf doesn’t have page by page rotation), open source… sure there are many pdf creator apps now… but they are not all fully compatible.  
2. Solution- Image Documents- Fast to open (small file sizes without sacrificing quality), resulting ease of use, view and name editing capability, everyone has digital cameras and are extremely familiar with working with images,   The biggest problem with this is 1 file is one image (multipage-tiff being the exeption) so file management just doesn’t work or so you might think.  Surprise, surprise, software can solve this problem…welcome to QCDocs!
3. Fraudulent Documents- Early concerns over the editability of electronic documents created a perceived “auditor” pre-occupation with fraud problems.     Again Adobe appeared to be the defacto standard to address this problem.  Practically everyone has come to realize that creating a manually fraudulent document is equally if not easier then with electronic documents and again there is a division between legal documents and electronic copies versus originals that is of course preserved in the paperless world. 
4. Stability of Windows- So all your documents are saved on your computer.  Well the days of Windows crashing posed a considerable dilemma… this has been for the most part resolved.
5. Big harddrives and system backups.   Storage of documents is no longer a concern… especially with 200-300 dpi image documents and ease of storage and search!
6. Dual monitor videocards and LCD’s-  Ahhh yes plenty of room for two monitors- one for viewing documents and one for working in your legacy system!
7. Scanners- Fujitsu well done!  Scansnaps should be in every small business office everywhere! Although they are still married to pdf… they slipped in JPG- well done!   HP, Brother, Epson, etc. multi-functionalprinter/scanners with multi-doc feeds and Twain scanner functionality… of course it is everywhere although get your default settings to accomodate office documents not only high res pictures of the family!!
8. Online connectivity!  In my mind the piece that clearly shatters the cost/benefit divide is the connectivity of the paperless office to the internet!  Coupled with online banking security protocols this innovation enables the distributed workforce, telecommuting, outsourcing, mobile salesforce, mobile operations, distributed offices, global commerce to truly evolve.   It also enables the re-invention of the “ERP” by reversing the workflow… a concept I leave for next time!

Okay here it is- end to end CRM to bank deposit slip!  Understanding how to optimize your sales starts with understanding the paperflow and process best practices- so here it is as I see it!  I so look forward to hearing from the sales guys out there to correct the accountant!!

1. Leads – They’re everywhere (Yellow pages to Cards gathered at a tradeshow to LinkedIn) you just need to prioritize and record them somewhere so you can go after them! Word, Excel, Maximizer, ACT!, Salesforce.com
2. Accounts- Now that you have your huge list of leads you start the process of going after them and you move them into Accounts- you start recording more information about them and strategize about how you’re going to sell to them.  Accounts are at the Corporate level.
3. Contacts- Are all the people within the “account” that you can talk to, email, etc. that can influence or influence purchasing decisions within your Account/client.
4. Opportunities- Opportunities arise from communicating with your Contacts and they consist of the “please send us a quote, or you should be aware of this RFP (request for proposal) that we’ve got, or we want to add what your selling to next years budget, etc.”
5. Quotes/Proposals- This is where documents start to take over- These consist of all the materials and communications that help you convince your potential customer to buy!  
6. Signed Quotes/Engagements/Purchase Orders- I highlight this one, which is really an extension of 5 as it is the first key document that must interface with accounting!  ie. This is when QCDocs connects with the CRM to takeover to ensure Sales connects to Accounting and Engineering/Production!   Signed quotes and Purchase Orders form your Backlog!  
7. Credit application form- Okay now you’ve landed the sale, and for most you may have figured this out in the CRM but you should get signed credit application on file so collections can monitor and maintain customer records properly.
8. Work Orders/Pick lists/engagement plans/Time sheets etc.  - This is where production personnel document the inventory items or work items that need to be assembled for delivery.  Sometimes this can involve several layers of subassemblies which are different forms of inventory processing (See Inventory flows).  This step can also consist of time sheets used to record time spent on delivering services.  Unbilled Work Orders are called WIP and are an asset recorded at cost.
9. Shipping Documents/Packing Slips/Service slips- This is where the products are boxed up and shipped and accounting spits out a packing slip (best practice) is to correspond to a customer invoice (see 9).  The packing slip has no financial information but references the customer PO # above and details the items being delivered.  Sometimes short shipments are made (see Inventory flows) which details on the packing slip what was order and what was actually shipped.   Service delivery slips can be used for one-off field services.
10. Customer Invoice.  As mentioned, customer invoice should be prepared at the same time as the packing slip.  Accounting applications generally record revenue at this stage so important revenue recognition considerations at this point to consider worthy of stand alone blog.
11. Customer Statements- Okay, customer is past their 30 day credit terms so you send  them out a customer statement.  Practices differ significantly here- some do this only with problem accounts others with good collections practices do this as a matter of course.  Interest charges on late payments are an interest discussion which I’ll preserve for another blog.
12. Customer Cheque/Check-This is a critical document for obvious reasons in accounting because you really only get a chance to record this right once and they can get screwed up easily if you have multiple cheques on one deposit or short payments, etc.   Best practice- scan your customer cheques into QCDocs before depositing and/or keep a really orderly deposit book- see 13!
13. Deposit Slip-  Deposit slips serve to document who paid you and are especially important if you deposit more then one cheque in a day.  Trick for ATM deposits- deposit one at a time but waste of envelopes…makes accounting for deposits really easy though!!  Key rules- no outstanding deposits at month end (lazy accountant!) and messy month end close!  Credit card deposits 2-3 day lag unavoidable.

Canadian payroll is so simple!  You just need to know a few key rules and your set!  Five options as I see it-

1. Do it yourself- definitely the cheapest!  https://apps.cra-arc.gc.ca/ebci/rhpd/startLanguage.do?lang=English

Go to this site, fill out the online form, print out the paystub, grab your chequebook, fill out the cheque and the stub of course with the gross amount, the net pay, the CPP, the EI and to help your bookkeeper put a quick note and calculate the business expense portion which is the CPP + 1.4* the EI amount! example 2,500 pay.  If you are doing it yourself I recommend that you pay out the statutory 4% vacation.  Hit your EI and CPP maximum’s (http://www.payworks.ca/Info/Resources/Guide/CPPEI.asp) and you stop withholding them and stop paying the Company portion!  Pretty simple eh!  

Other hints- avoid group MSP- Medical Services plan as it complicates everything and doesn’t really end up helping employee out that much- just pay them more hourly/salary and let them pay their own!  Reiburse for cellphone use for work!  Definite early pre-tax expense!

You withhold the taxes and company CPP and EI each paycheque (this all goes into Payroll liabilities account) and then you pay it out by the 15th of the following month.  You should make sure that the payroll liabilities account is clearing out regularly.  Payroll remittance payments can be done using online banking (easiest!) but you need to process generally one day in advance of the due date- ie. process on the 14th.  If you miss this cut a cheque and drop at your bank or CRA office along with a copy of the PD7A.  

Example PD7A

G/L best practices- don’t get insane with all the G/L line items -ie. EI expense, CPP Expense, EI withholdings, CPP witholdings, Tax withholdings is as bad is can get.  2 does the job!  Payroll tax expense (CPP & EI) and Payroll liabilities!  Just make sure the payroll liabilities are clearing out each month.  You can setup a Payroll tax expense for each Department.

2.  Use Quickbooks or Simply!  These are pretty easy to use applications and great if you’re doing the bookkeeping at the same time!  Ideally you have your bookkeeper crank out the payroll for you – plug for Tandem Accounting of course!  There are few tricks to help you get your payroll to flow into chart of accounts nicely by department and by employee for so really nice reporting capabilities.  You need to pay the annual fee for payroll tables.  These track payroll withholdings, CPP, EI nicely as well as vacation, taxable benefits, etc.  They print nice paycheques or paystubs!  I recommend www.hyperwallet.com for direct deposit even though they don’t advertise it and don’t count on much support.  It is dead simple and only 0.75/paycheque and clears in like 2 days if you process in morning.  If you use Telpay (the QB’s default) get ready for a serious learning curve and a GUI from hell!

3. Payworks

Slick and very cost effective.  Quickly has become our payroll provider of choice in Canada.   When you grow beyond super cash management you want to hook this up to simplify payroll process and year end T4’s.  You’ll still need QCDocs to help with hourly employees or vacation/sick day tracking.  Big issue with payroll providers is you’ve got to fund 100% of your payroll each payday… they make some money presumably on the remittance timing to the following mid month date!?

4. Ceridian- close second to Payworks.  Works well but a few extra hoops to jump through and marginally more expensive then Payworks.

5. ADP- Oh why, why can’t you be more like your big brother software from the USA!?  I was shocked to move back to Canada and immediately started using ADP assuming it would be the same as the US software- big mistake.  I’m not sure they’ve upgraded this application in 15 years?  I still don’t get it… see point 1!?

Where does QCDocs fit in- whatever payroll system you use you will distribute paystubs and archive payroll reports- QCDocs does just this.  Also hourly employees or billable hours need to be recorded by employees- QCDocs streamlines this right into accounting applications or aggregates it for entry into payroll system.  It also trackes vacation and sick days as well!

Deja vu finally took full effect for me this week!  So much so that I pulled out my Certified Public Accountant (“CPA”) reciprocity course notes from 2000 to see if I could track down the name of my instructor who called it!  

In 2000, I took the US CPA reciprocity exam for Canadian Chartered Accountants who at the time were flooding down to the US to bolster the tech accounting ranks during the boom. The CPA US tax instructor was actually a Canadian tax specialist who also knew US taxes and therefore a very fitting instructor for the course.  The material was focused on the differences between the two tax systems and as such he couldn’t help but evaluate the pros and cons of each. 

There was one adament issue that he emphasized that I remembered crystal clear- the deductibility of US mortgage interest against other forms of income (ie. salaries) will one day come back to haunt the US economy!

Fast forward eight years and the American economy is facing one of the most serious economic challenges of the last 70 years as a result of … a mortgage meltdown! 

Here’s the problem and I saw it first hand as the controller of a Bay Area biotech company with employees coming to me regularly with mortgage renewal paperwork and W4 withholding calculations, etc.   This tax rule that allows people to deduct mortage interest “home equity indebtedness” against other forms of income such as salary coupled with the capital gains exemption for personal residences (not different in Canada) is a bona fide tax planning exercise!  To capitalize on it fully, you have to maximize your debt (buy as much house as the bank will let you) and pay it down as slowly as possibly!  

As a result, the Mortgage companies in the US have come up with some pretty aggressive mortgage strategies over the years… it seems like a collective effort to minimize paying the IRS! 

Anyone see the obvious problem with this…?  I just googled this and I see a splattering of this issue out there but you won’t hear too many American’s talk about it.  Who would dare challenge a tax law that so clearly benefits so many homeowners in the US… until it’s too late that is!?

Accounting buddies out there who took the CPA course… who was the instructor I’m talking about as I can’t seem to figure out who it was as he deserves a pat on the back!

I get asked about bookkeeping applications a lot!  I’d say I’ve pretty much mastered three- Quickbooks, Simply Accounting and Peachtree (or at least Peachtree 2004 – haven’t used it since then).  Peachtree and Simply are very similer products and I guess this is why Sage (owner of both Simply and Peachtree) has decided to discontinuing developing Simply Accounting in the US…

Simply Accounting is very popular in Canada, I suspect because Sage has gotten Simply Accounting into all the educational programs… clever, clever!  See a QCDocs virtual Company stocked with demo documents coming to a school near you in the future!

Once you use Quickbooks; however, there’s no going back!  Which brings me to my top 10 list.

1. The most common complaint I’ve heard about Quickbooks is that it lacks an “audit trail” ie. you can change anything and people will screw it up!  This isn’t actually true as you can turn on an audit trail that runs behind the scenes.  What it doesn’t do is clutter your General Ledger with all your mistakes- hurray!   Despite SOX, bookkeeping is still an art!  Getting it just right takes time and you need a system that allows you to aggressively pursue financial reports that really work well for your business.  Having to reverse corrective entries and repost is a disaster!  It makes the General Ledger look an absolute mess and sure you can retrace your steps but you’ve created a maze that no one can follow!  The Key- Good financial Close processes and lock down your month and QB’s does just that and QCDocs helps guide the process!
2. Speed, speed, speed… everywhere from opening the program to navigating the program to report creation, Quickbooks does it in about half the time as Simply!  
3. Period close processes.   I may need to retract my Simply expertise hat here as I still don’t fully get why they make this so complex… enough said!?
4. Chart of Account Management and Merge- Quickbooks this is slick!  You can whip together a great set of financials with subtotalling managed entirely by indenting of accounts (watch out for posting to headers…a wee pet peeve of mine that produces ” ….- Other” accounts!  Merging redundant accounts accidentally thrown in there…see point 10!  S..t happens in accounting…give me tools to fix it fast!
5. Stability… In 8 years of using Quickbooks almost every day I’ve only seen one legitimate crash.  Still recovered just fine so just by pure volume I have to give the nod to QB’s here!
6. Multicurrency- Nice job here Intuit although it takes some getting use to as this is my number one area of Quickbooks training- Home Currency Adjustments!  I think Intuit Canada is still suffering from the bombardment of QB’s 2008 without a multicurrency version… well at least for a couple of weeks until “2008-Multicurrency showed up- ie. QuickBooks 2007 with 2008 payroll tables! LOL’s but thanks anyway as 90% of our Canadian clients do business in the States.
7. Subledger integration- This a common accounting application problem that haunts auditors everywhere- why doesn’t the subledger tie into the General Ledger?  Accountants call it a reconciliation- I call it an “f-up”. Quickbooks is the first accounting application that I’ve seen that makes it almost impossible to have this problem occur… a few multi-currency issues in there that still cause it grief but superior to others by a long shot.
8. Customer invoicing- Time and reimburseable expense flow through.  Combine what QB’s does with this and what QCDocs does with tying the time reporting and reimburseable bills and receipts together and you have customer billing heavan!
9. Reporting- Quickbooks produces some amazing reports- my favorite are trended P&L and Bal Sh (would like to see improvements in cash flow reports but this is tricky for GAAP).  I like collapse to show a crisp R&D, S&M, G&A and Facilities for my tech companies to match public companies peers (facilities to be allocated accordingly).  Fast clean A/P, A/R and detailed P&L.  
10.  Integration with third party software… was there any doubt- batch upload from QCDocs of bills and expense reports into Quickbooks is a thing of pure beauty and joy to every bookkeeper… Simply Accounting not so much…!?  It still works but there must be an easier way to do it… Quickbooks did it!? iif!  Time batch entry as well- slick!   I actually like how QCDocs syncs with Simply a bit better but I have to give the nod to Quickbooks!

Big forewarning- I’ve seen bookkeepers butcher QuickBooks too!  Good processes are key to any accounting application and this is where QCDocs comes in.  QCDocs forces good bookkeeping practices by driving Bill association with Bill entries (ie. robust subledgering and proper accrual accounting!) and same goes with customer invoicing!  Accounting applications should use AP and AR subledgers and minimize the use of General Journal entries and cash entries… and all will be well!

 
Note: All numbers & GST calcs are approximations and tax issues should be discussed with a qualified professional tax advisor!

Note: if you raise more money and do other stuff like marketing, business planning, etc. you will get the full benefit of the Proxy method for SR&ED and get even more money back!  Investors will be impressed that you can get extra mileage out of their investments and recommend you to their richer friends and you get more money.

Eventually you build some skookum tech and you get aquired by Google for obseen cash and you and your investors each walk away with at least the minimum $750,000 tax free capital gain for having developed such a successful qualifying small business corporation.