How to leverage a loan

A woman walks into a bank in New York City and asks for the loan officer. She tells the loan officer that she is going to China on business for two weeks and needs to borrow $5,000.

The bank officer tells her that the bank will need some form of security for the loan, so the woman hands over the keys to a new Lamborghini-spyder parked on the street in front of the bank. She produces the title and everything checks out.

The Loan officer agrees to accept the car as collateral for the loan. The bank's president and its officers all enjoy a good laugh at the woman for using a $250,000 Lamborghini as collateral against a $5,000 loan. An employee of the bank then drives the car into the bank's underground garage and parks it there.

Two weeks later, the woman returns, repays the $5,000 and the interest, which comes to $15.41.

The loan officer says, 'Madame, we are very happy to have had your business, but we are a little puzzled. You are a multi-millionaire. Why you would bother to borrow $5,000?

The woman replies: 'Where else in New York City can I park my car for two weeks for only $15.41 and expect it to be there safely when I return?

This was submitted by Lawrence Gu, a hardware tech.

Personal & Business Expenses

Sandra asks: I've read your book, and am trying to move from Quicken for my personal finances to QuickBooks. I read understand using Other Income and Other Expenses for personal accounts but I am confused about where to put my personal checking and credit card, home mortgage, car loan. I tried using a business class and a personal class, but could not assign “personal” to the bank account types.

Sounds like you've done a great job of separating out your personal finances from business finances (which the IRS loves), so the ideal solution is to have two databases, one for business and one for personal. That way you won't have to concern yourself with a). Other Income and Other Expenses, which is just a strategy for people who are commingling funds, or b). Classes, which is never the way to separate business from personal finances. You'll have to flip back and forth between databases, but that's simple in QuickBooks.

You may want to re-read the chapter on Business Structures to clarify if this is he right solution for you.

Filing Systems -- Find Any Piece of Paper in Minutes

I love organizing data, and offices (and all of my friends closets). Real work is messy; so it's nice to start and end with a clear palette. In this way, one creates a balanced office.

In my own filing system, I can find any piece of paper, from any year, within minutes. In the book, I explain how to create a filing system, even if you're starting with an office disaster. From that core system, you'll modify your filing system according to how you do business, so that you too can find any piece of paper in minutes. This is absolutely doable; I've done it for many clients. Here's one tip: it's rarely necessary to file a singe piece of paper. Put it in a "To Be Filed" folder. When you find yourself with a spare 10 minutes do all the filing.

How rich are you?

Rich, after all, is relative -- as the folks at Poke, a creative agency in London, want to remind us. Click on this link: Global Rich List and put in how much you make in a year, rough estimate. Based on World Bank data, this little calculator tells you how rich you are compared to the rest of the world.

Bookstore Presentation

Last night I presented Radical Accounting ideas at New Renaissance Bookstore presentation center. Many people, including Roma and Ko, supported this event in practical ways which made me happy. I felt happy preparing the room with refreshments, as well as a table with free stuff including Intuit demo software, and vendors office supply samples. Someday Intuit will provide a demo MAC QuickBooks on CD. You have to download the demo for now.

I've been doing QuickBooks consulting for a decade and I still love it. But teaching is new and fresh. How cool is what we're doing, anyway? A group of twenty entrepreneurs, bookkeepers, CPA's, non-profit managers, and aspiring all-of-the-above, learned, shared our frustrations, networked, ate, drank, and took notes. As a result, everyone gained more control over their financial situation. Accounting classes and books are terribly boring. Talking about money isn't boring, so why should accounting be that way? I bring the joy back into accounting...how radical is thatl!
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New Renaissance Bookstore carries the book, so you can get a copy NOW in Portland.

Customizing Your Chart of Accounts

When do you classify an expense as a cost of goods (COGS), and when do you classify it as an expense?"

 

Mike: Suppose I advertise a product in a magazine or on TV and I hire a company to process the incoming calls from customers wishing to place orders for the product. Should the answering service's fees be considered Cost of Goods sold or general expense? Also, is the cost of advertising COGS or general expense?

Madeline: Cost of goods would be the costs of your product, but not advertising or customer support.

 

Mike: Okay thanks, but every time the "order-taking company" takes an order over the phone, it costs me $2 or $3. Is COGS always and exclusively the cost of materials needed to produce the product?

Madeline: Actually, I see your point. There's no law that says you can't have it as COGS. It's a marketing expense, but it's a direct cost. I'd call the account, "Sales process fee". That sounds like a direct cost, and a banker would understand it too, don't you think?

Conclusion: Every business owner has different challenges, which is why the book, Radically Simple Accounting, guides you through customizing your chart of accounts for your business.

Disclaimer

Here's an ironclad, legally-binding, no-holds barred disclaimer. Ms. Bailey will do her best to give you useful and accurate information, but it’s your responsibility to verify all information before relying on it. Laws, procedures and regulations change frequently. Tax code is subject to different interpretations. Every state has its own laws as well. Please obtain up-to-date advice from the appropriate government agency, financial, or legal advisor before taking action. You agree to take full responsibility for any decisions or actions you take directly, or indirectly, as a result of Ms. Bailey’s answers. Ms. Bailey makes no representations or warranties with respect to the contents hereof and specifically disclaims any implied warranties of guaranteed success. Under no circumstances will she be held responsible for economic or non-economic damages resulting from the use or misuse of any furnished documentation or source. Thanks for your support!