Archive:
December, 2010
The United Kingdom VAT tax rate is going from 17.5% to 20% on January 4, 2011. With any tax change, there are a few things you need to know and change in your FreshBooks account.
First, to update your VAT tax rate in your FreshBooks account, go to your “Settings” in the top right corner of your account, and then to the page “Taxes”. Simply change your VAT to 20% so you can use it when creating invoices. However, there are somethings to consider when changing it to 20%, especially as you may still charge 17.5%, which your clients will prefer for cash-flow reasons.
- If the work was completed before Jan. 4, 2011, you can charge 17.5% on the invoice, even if you invoice after Jan. 4, 2011.
- If you invoice before Jan. 4, 2011, you can use 17.5% – however, if the majority of the work is completed after Jan 4., 2011, you may need to invoice at 20%. Be careful here.
- If work is completed before and after Jan. 4. 2011, you can break it up to two line items or two invoices. Then use each tax rate for when the work was completed.
It essentially is based on when the work is completed, not when you invoice, like accrual accounting. If you have any questions, we recommend you contact your accountant.
The last thing to do is make it clear on any invoice around this time why you’re charging a certain tax rate. The notes on the invoice would a good place so it’s clear – clear client communication is the best way to get paid! Always try to use simple language with your clients so everyone understands. If you are selling to businesses, they recoup sales taxes anyway, so it should not be a big deal unless they’re very tight on cash.
Note: Hey guys, Kasey here – another good tip that might be helpful. When you’re updating your tax rate, as listed above, there’s a link to update your recurring profiles with your new tax rate(s), right on the Tax page. Click that, and you’re done! Definitely a great time-saver.
Just wanted to say “Happy Holidays, and a Merry New Years” to all!
On a more serious note, the FreshBooks office hours for the holidays are as follow:
- Friday, December 24th, 2010 – Closed
- Monday, December 27th, 2010 – Closed
- Tuesday, December 28th, 2010 to Friday, December 31st – Open (9:00am – 6:00pm EST.)
- Monday, January 3rd, 2011 – Closed
See you all in the new year!
Is the missing piece worth it?
There are a lot of options when picking an online payment gateway to accept credit cards from your clients. And there are few factors to consider: features, support, or what it integrates with. However, the biggest factor is usually price. When pricing payment gateways, there is some guesswork, but you can easily estimate your monthly cost to see how the gateway is priced. Especially if you see it’s at a premium, which can be worth it.
First, you need to understand the following: transactions fees, discount rates, and a monthly fee. Transaction fees are what the payment gateway and/or merchant accounts charge you every time you process a payment. A discount rate is how much, in percent, the payment gateway and/or merchant account charges you from each transaction. And the monthly fee is a flat fee each month – usually for more premium offerings.
These terms and pricing will also depend on your combination and choice of a merchant account and payment gateway. For example, PayPal does not require a merchant account but it has discount rate like one, while Authorize.net’s payment gateway does have a discount rate, but the merchant account required to use it does. You may want to read “Online Payments: How do online payment gateways work.”
If you have time to compare gateways, then you just need to understand a fees and need to do the math. This is roughly what the monthly cost will look like:
Monthly fee + Transaction fee x number of transactions + Total amount of transactions x discount rate = monthly cost
If you’re already running a business, you’ll have an idea of your total amount of cash and number of transactions so you’re able to calculate it. If not, start small with your estimate or just use an online payment gateway that has no setup cost such as PayPal until you get a better grasp of your numbers. Be aware that a lot of setup fees are non-refundable.
To help you understand the math, here are two examples using Authorize.net and PayPal Standard.
Example 1: $20,000 a month in 200 transactions
Authorize.net:
Payment Gateway
Monthly Gateway = $17.95
Per Transaction = $0.10
Batch Fee = $0.25 (charged each day you run a transaction)
Payment Gateway: = $17.95 + $0.10 x 200 + $0.25 x 20 = $42.95
Merchant Account
Monthly Service/Statement Fee = $9.95
Transaction Fee = $0.25
VISA/MasterCard Qualified Discount Rate = 2.19%
Merchant Account = $9.95 + $0.25 x 200 + 0.0219 x $20,000 = $497.95
Total = $540.90
PayPal Standard
Discount Rate at $10,000/month = 2.19%
Per Transaction = $0.30
Payment Gateway = $0.30 x 200 + $0.0219 x $20000 = $498.00
As you can see, PayPal is cheaper by about $40 in this scenario.
Example 2: $3000 a month in 3 transactions
Authorize.net
Gateway = $17.95 + $0.10 x 3 + $0.25 x 3 = $19.00
Merchant Account = $9.95 + $0.25 x 3 + 0.0219 x $3000 = $76.40
Total = $95.40
PayPal Standard
Discount rate = 2.9% for $3000 and less.
PayPal Standard = $0.30 x 3 + 0.029 x $3000 = $87.90
In this example PayPal is barely cheaper. However, with these low numbers, PayPal makes sense as it is free to setup and get up and running.
If you were to try this over hundreds of scenarios, you’ll find that Authorize.net is always a little more expensive (tens of dollars) than a product like PayPal Standard. However, Authorize.net offers a number of great features such as auto-billing, automatic deposit into your merchant account, storing your client’s credit card, and is a simple paying experience for your client – just like some of the other online payments offerings that work with FreshBooks. A lot of businesses that do a lot of billing think it’s worth the investment.
Remember, retiring is still fun
When you’re working for yourself, you’re always worried about cash. Cash to pay staff and contractors, your families’ needs, and when taxes are due. But what’s going to happen when you’re sixty-five? Are you going to have to keep working to cover the bills? It’s best to start saving right now so you can enjoy those later years.
Also, when looking for investment advice from magazines, books and newspapers, you’re likely not going to find much help. Most savings and investments reports/publications are written for salaried employees – their paychecks are normal, yours isn’t.
We’re really hoping you’re saving for your retirement. Here are a few tips to help you get going.
- When putting away money, use a percentage of each paid invoice. Don’t use a flat fee as your payments can greatly vary.
- Start small. Save a little off each payment you collect. Take 2% or 5% and put it into a separate bank account.
- Generally increase your amount to 15-20% or so. It seems like a lot, but you do want to retire, right?
- Use a separate bank account that is harder to access such as ING. This can delay you accessing your precious savings for a few days.
- With your savings, create an investment strategy. You’ll likely want some professional help. Also check out the book “The Money Book for Freelancers” which has great tips.
- Get a financial adviser. This is different than a accountant who manages your books and business. Get someone with your personal retirement and investment strategy in mind.
Starting saving this New Year so you can put your feet up one day! Imagine the day you’re not working on Sunday nights. You’re working hard as a freelancer and contributing to the economy, but one day, you’ll want to rest, but you’ll need to plan for it.
Try not to make them too hairy
One of my personal favorite times of year is just around the corner. Not only for the turkey and elaborate decorations, but that the end of the year gives me a chance to reflect on the year, and set new goals for the next year.
With that being said, here are my top 5 tips for planning your goals for 2011:
- Where do you want to be at this time next year? This is the most important question to ask yourself. Figure out where you want to be – everything from revenue numbers for your business, city you’re living in, number of pushups you can do – they all have a spot in goal planning. My goals? Double my personal contribution to FreshBooks, run 10k in under 2.5 hours (that’s my current speed), and double my retirement contributions from what I’ve done in 2010.
- Next, organize. Personal goals and business goals, just like your business and personal bank accounts, should be separate. They’re both important, and it’s worth spending time in each area. For this post though, let’s first focus on business goals and prioritize. I know it can be tough, but it’s important to set yourself up with a list of must-dos and nice-to-dos.
- We’re almost there! Tip 3 is where things get specific (or interesting, depending on your point of view). Take the first most important goal that you’ve set for yourself for 2011. What are the things you need to do to get there? Write them down, and they’ll be easier to check off when you’re done (and who doesn’t love the feeling of checking things off a list?).
- Next, set timelines, and PUT THEM IN YOUR CALENDAR! Google, iCal, Outlook, paper, iPhone, whatever you use, put those deadlines in writing! This makes it MUCH easier to keep on track and succeed!
- DO IT NOW!!! Either open up your favourite writing program (mine is notepad for stuff like this – no distractions) and get going! Now, I know entrepreneurs are busy folks, so I’ll give you a second option – open up your calendar and book some time now. Trust me, this hour of planning is the first step in the start of a great year.
I’ll end this post with one of my cheesy but true life mottos – if you fail to plan, you plan to fail. (Who knew that 6th grade agenda book was right?) Here’s to a happy and successful 2011!
And let us know what your plan is for 2011 in the comments!
An addition to the original series on FreshBooks and an accounting package.
If you’re using FreshBooks to manage your staff’s time sheets and your billing, but use an accounting package (QuickBooks) to run your more complicated back-end bookkeeping, and if you use the cash basis to record your transactions, here are some helpful hints to make the process easier.
The cash basis is a simple way to do your accounting, especially for serviced-based businesses that have little or no inventory or large assets. However, check with your accountant to see if it’s a fit for your business and if you have any questions. You might be using the accrual method of accounting, which requires this workflow. You also may not need an accounting package in addition to FreshBooks. This post will help when deciding: Do I really need an Accounting Package.
This workflow is a monthly journal entry reconciliation to your QuickBooks account (file) based on the cash coming into your business. So you only base your journal entry on the total payments collected. You use FreshBooks to provide any invoice details or analytics, and QuickBooks for your other bookkeeping needs. Please read the overview and rules of the workflows before starting.
Reports you need from FreshBooks – Payments Collected and Sales Tax Payable
Workflow Details of Suggested Workflow 3 (Total Journal Entry Based):
QuickBooks 2008 will be used as an example of an Accounting package throughout the workflow.
- In QuickBooks, set up a FreshBooks Income “Client” – where all your FreshBooks related income is to be attributed to.
- In FreshBooks, pull your payments collected report.
- Select the date range of your time period your reconciling for
- Select ALL CLIENTS
- Click View Report
- Scroll to the bottom of the report and record the number from “Total Payment Received:”
- In QuickBooks, select make Journal Entry (usually under “Company”)
- Select Cash under Account – Enter in Total Payments Received for the time period under Debit = attribute to “FreshBooks Income Client”
- Select Income under Account – Enter in Total Payments Received for the time period under Credit – attribute to “FreshBooks Income Client”
Your income is now recorded. However, you need account for Sales Taxes (yes, the government is involved) for a future date.
Sales Taxes:
This workflow essentially removes the sales taxes from your top line which needs to be reconciled with your accounting program.
- In FreshBooks, pull your “Tax Summary” report based on the time period you are entering it for and as “Collected (Cash based)”
- Select make Journal Entry
- Debit your revenue by the total for the time period
- Credit your “sales tax payable” and attribute the appropriate vendor to it (the Government)
- And you’re done!
Just repeat these two steps every month, and all your FreshBooks income will properly recorded in your accounting package.
Summarized entries:
Invoice/Total Income (Payments Collected) = Revenue/Income (credit, right) – Cash (debit, left)
Sales Taxes collected = Sales tax payable (credit, right) – Income (debit, left)
This is the simplest of the workflows and should likely take you ten minutes a month depending how fast you can navigate QuickBooks. Remember to consult with an accountant if you’re unsure.
You may have noticed that this morning’s release took a little longer than usual. In fact, from 9:14-9:46 we blocked access to accounts as we rolled out a new release. Unfortunately, we were not happy with the performance of the release and we decided to roll back to the previous version of FreshBooks.
For those who don’t know, FreshBooks releases new versions of its service every two weeks. Sometimes we take three weeks, but usually it’s every two weeks. Most of the time the releases go smoothly and there is no interruption of service. Other times it takes twenty minutes for us to be satisfied that everything is up to standard, before we grant access to FreshBooks accounts again.
Today’s release was a big release – our third largest all time in terms of tickets verified by QA. We’ve never rolled back a release before, so needless to say, they normally go more smoothly. Today, we know 23 accounts will be missing some details of invoice and estimate creation or updating during a 4 minute window (9:14-9:18). We are contacting those accounts that performed specific activities now. Nobody else has been affected, besides perhaps not being allowed into their account as outlined above.
We are truly sorry for any impact this may have had on you, and welcome those of you who were impacted to contact us so that we can try to make things right.
More six packs this year
It’s the New Year and you know what that means! Resolutions for better bookkeeping! Fun right? Unlike the gym, you always need to do a good job on your taxes to save yourself time and save your accountant’s time, which saves you money (more six packs!) But what are you going to do this year that will be different? We’ll assume you’er using FreshBooks to track your invoices and payments, but can you do it better?
Maybe this year you’ll:
- Invoice right after or even before the project is complete. It’ll get you paid faster and keep your records up to date.
- Record the payment of an invoice right away. Try MiniBooks or other mobile apps this year so you enter in payments from anywhere.
- Put away money from each payment collected to pay taxes (talk to an accountant about your tax bracket to estimate – avoid the scrambling). Maybe even use a separate bank account so you cannot access these saved funds easily.
- Record all your expenses right when you incur them, or enter them en masse using FreshBooks bank import or scan them using Shoeboxed.
Running a business is tough, but if you put a little discipline in this year, you’ll be flying. You’ll be less worried about finances, avoid the cash scramble for tax time, and be happier! But keep at it throughout the year – no need to drop these new habits after January (like working on a six pack at the gym).
What are you doing this year to take a better handle of your taxes?
Jason Fried gave an interesting talk at Tedx Midwest, discussing how real work gets done at home. How so? It’s all about distractions. At home, people only have distractions that they choose to give into: TV, checking email, cooking elaborate lunches etc. At work, employees get distracted by M&Ms – managers and meetings. For example, managers can come by and completely disrupt a thought process. To really get something done, workers need a few hours of uninterrupted thought (about three). If not, employees are limited to a bunch of working moments until their next scheduled and unscheduled interruption.
But is home the perfect solution? According to The New York Times, in the article “Laptopistan”:
“At home, the slightest change in light is enough of an excuse to get up, walk around, clip my nails or head into the kitchen. Though home offices seem like the perfect work environment, their unrestricted silence, uninterrupted solitude and creature comforts breed distraction.”
What do you think? Where’s the best place to get work done?
At FreshBooks, employees need to be present in office so we can collaborate and create the best work we can as a team. We’re expected to be in the office almost all days as it’s key to FreshBooks’ culture and success. However, if we need to get something done, people may work at home to avoid the distractions of the office.
Bonus: If you’re looking for strategies on how to be more productive at home, watch Workday Nirvana by FreshBooks CEO Mike McDerment, who used to be a freelancer working from home. For Mike, it comes down to routine, discipline, and self-respect. The video was originally shown at International Freelancers Day.
**** UPDATE **** The move is now complete!
At 23:59 Eastern time tonight, December 10 (4:59 AM UTC Dec 11), FreshBooks will be unavailable for approximately 30 minutes while we move the application to its new home in a new Rackspace datacentre. The new home and infrastructure will help us make FreshBooks faster, more reliable, and more secure.
Please note that the IP addresses that FreshBooks uses will be changing. If you have whitelisted FreshBooks for incoming mail, please consider using SPF instead. If you have whitelisted FreshBooks at your payment gateway, please whitelist the following addresses:
184.106.22.8 (web.ord.freshbooks.com)
184.106.22.12 (app.ord.freshbooks.com)
We will be posting updates to our Twitter account as well as at status.freshbooks.com throughout the scheduled period. We apologize for any inconvenience this may cause you, and thank you for your understanding.
sends more invoices than there are 
