Light a fire under you finances. (business software) (evaluation)
by Daniel Janal
How'm I doin'? That's what former New York City mayor Ed Koch liked to ask people to find out his ratings. People who work from their homes need to ask the same question. After all, our counterparts in the office can judge their accomplishments by title, salary, and office accouterments.
How can we judge ourselves? All the home officers I know are presidents, make as much money as they want, take their vacations without prior approval from supervisors, and usually have their offices furnished with stereos, couches, and microwaves. They have their own private executive parking spots, too. So how can we tell if we're really making it?
When I first started out, the "burn ratio" was useful to determine how long you could afford to stay in business. It went something like this: You have fixed expenses of $1,500 a month and $6,000 in the bank. Divide the money by the expenses, and you come up with 4. that equals four months of living expenses. If no money comes in during four months, you've burned your capital.
You can do that kind of math in your head. But when you become successful and start spending money on discretionary items like travel, entertainment, and 20 other categories, and you earn your income from several different clients, you need a computer to do it for you.
I began using a spreadsheet program called Quattro from Borland to do my math quickly and accurately. I created a table with all my expenses listed in the left-hand column of the screen, and month and totals listed horizontally across the top. Every month, I faithfully retrieved my expense receipts and entered the figures into the computer, where Quattro instantly added them up.
I turned into a spreadsheet junkie. I soom added an extra column that figured out what percentage each expense accounted for. Devising the mathematical formula that calculated that figure and displayed it as a whole number ranks as one of my greatest lifetime achievements.
Quattro also kept track of my accounts receivable. This table had five columns: Clients, Professional Fees, Client Expenses, Total, and Date Payment Received. I faithfully typed in the information as I sent out each bill and logged in my income withing seconds of ripping open the envelope. Totals at the bottom of each column told how much money was earned, how much was outstanding, and how much tax was due.
If you put your receipts in a shoebox and dump them on your accoutant's desk on April 14, not only should you be ashamed of your sloth, but you're also denying yourself one of life's great pleasures--seeing your money add up every month. Talk about instant gratification and positive reinforcement! Get a spreadsheet.
Nearly all the calculations can be done with simple formulas that add the contents of the cells. You don't have to be a rocket scientist or buy Bozo's Big Book of Macros to figure it out. Most people can use spreadsheets effectively with just a few commands.
I used this system for four years, and it worked well enough for me to know my burn rate instantly. The spreadsheet system also helped me wrap up income taxes in one painless visit to the accountant. But then everyone began talking about Quicken, a check-writing program. I soon discovered this was more than an electronic replacement for my mother who wrote checks for me once a month.
Quicken is a combination spreadsheet and database that creates every report you need to figure out how well you're doing. It can create net worth statements, cash flow analyses, year-by-year budgets, and reports of investments and income by client.
You can get all these reports simply by telling the computer three pieces of information when you write a check or make a deposit: the name of the payee or client, the category, and the amount. After selecting a report format, which Quicken lets you adjust by date, amount, payee, or just about any other variable, you press the Display key to see your results either onscreen or on paper. The process is so fast that you can check your financial progress every day in just seconds! Now that's really instant gratification.
My favorite feature is the budget analysis, which lets me compare this year's budget to last year's to see how things are going. Quicken also saves me a lot of time by finding "missing" checks. Because the program tracks payments by payee, you can quickly print a list of all checks paid to the phone company, for example. So if someone claims I haven't paid my July invoice, Quicken quickly finds the entry for the disputed check.
Quicken makes it so easy to keep finances on track that you'll probably toss away your shoebox. While I could still use my spreadsheet to tabulate the information, Quicken does it faster, and it already includes report templates--something spreadsheet programs usually don't have.
So how'm I doin'? Just fine, thanks.