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28 Feb 2012

Moving YNAB to YNAB

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by Jesse Mecham

Laugh if you will, but I fell for the line that once I formed YNAB into a “real company” (meaning I actually filed papers and all of that), I would need appropriate accounting software to run the show.

The obvious bookkeeping choice for a small business is Intuit’s Quickbooks, and I went with the obvious choice for five years and one month.

As of today, YNAB has moved to YNAB. We’re now running our small business books on YNAB 3.6.4. I’m going to cover the following:

Is Your Business YNAB-able?

YNAB is not your ideal bookkeeping situation if you:

YNAB is ideal for your bookkeeping if you:
  • Do the books on a cash-basis (vs. an accrual basis)
  • Have a “simple” business process (you provide a service, people pay you)
I wrote a post about YNAB for small business a while back, and you may want to refer to that as well.

Why I Made the Switch

Three reasons have been beating an incessant drum in my mind for quite some time now, but yesterday was the final straw.

Yesterday Casey (my super tax preparer, who authored Tax Insight) sent me an email with “initial questions” regarding his pouring over the books as part of preparing the business return. These initial questions were long. So I ended up having to pore through all of QB to find the answers. It took forever.

As I sat there pouring through the interface and being frustrated with how everything worked (it’s feature bloat, to be honest, the software basically tries to do too much) I realized that it was my fault. I wasn’t using YNAB for YNAB, and I knew I could.

Of course, that was all frustration mounted on top of what is normal Tax Time Frustration. No office furniture was harmed during the process.

Before the inciting incident, there were three significant reasons as to why I’d been wanting to switch for quite some time:

1) Eating my own dog food. In software development, you eat your own dog food by using the software you’re building. It gives you huge insights, and can’t be overstated. I use YNAB personally, but I’ve been wanting to understand how YNAB can work for small businesses for quite some time now, and taking the plunge with my own business will certainly give me solid information.

2) Accountability. It felt wrong to spend business money and not record it on my phone. This thanks to the fact that, for our personal budget, my iPhone has become a very trusty companion. It feels very negligent to give someone money and not record what just happened. I’ve written about how small business owners can throw frugality out the window, and I recognize I’m the first victim of that. Using YNAB for YNAB will make me überaccountable.

3) Work flow. I’m faster in YNAB. I’m extremely familiar with it, I don’t have to use my old Sony laptop to run it (I do with my version of Quickbooks), and YNAB is built for speed of entry. Quickbooks, not so much.

How I Made the Transition

1) Pick a start date. I picked January 1, 2012. I recommend you pick a quarter cutoff, if you’re too far into the year. For me, that meant re-doing January’s books in YNAB. Not a big deal to do one month’s work again.

2) Set up your accounts. In YNAB, we have four:

All of those accounts are On Budget. I pulled up my balances from Quickbooks and recorded starting balances for each of the four accounts as of December 31, 2011. I categorized them all as Income Available Next Month so they’d flow into January.

3) Set up categories. This honestly took a little bit of time. I was starting to get Category Bloat from Quickbooks, where I’d have some random expense and make up a new category for it and then, six months later, realize I already had a category where that could have belonged.

Also, Casey forbade the idea of categorizing a million things as “General & Administrative”. He says it creates a tax nightmare. It also doesn’t give me any actionable insights, so I guess that’s one time where the tax process forced me to do something that might actually have some value. And yes, I’m going to keep taking shots at all the inefficiencies of taxation we experience because I’m right in the thick of it.

I ended up with 47 categories spread across 12 master categories. 47 is about 40 more than I’d want 🙂

But some of these are forced necessities. A category for 401k contributions should probably stand on its own. And you definitely need to have a Shareholder Distributions category if you want to track money that flows to owners (you, the small business owner) that doesn’t come through payroll.

I also did a bit of a workaround since YNAB doesn’t (still/yet) offer customizable income categories. I made some Revenue master categories, with products underneath as the categories. For instance:

Revenue will not be categorized as “Income : Available…” I’ll basically being dropping in negative budget numbers into revenue categories, so it will pull the revenue out and push that revenue back up to the Available number. I’ll then be able to budget the Available where it’s needed.

4) Budget the funds already earmarked. In my case, I knew the Savings balance was specifically for quarterlies so I immediately budgeted the balance into the quarterlies category. The only time that category will have an outflow is when I cut the checks for estimated tax payments. It’ll only have an inflow when I budget to it (I’ll also be doing a transfer, but on-budget to on-budget transfers aren’t categorized).

5) Import transactions from your start date forward. In my case, I imported from 1/1/2012 through 1/31/2012. (I’ll do February’s on Thursday).

6) Payee Settings are your friend. Though the Payee Settings is our least favorite screen in the whole app, use it. We’ll make it much better eventually. (I don’t mean eventually like, “eventually I’ll run a marathon” either. I really do mean it.)

On our Chase CC, I knew we’re going to have Google charges for pay-per-click. See this here:

You see how the payee came in with that *403… appended to it? I right-clicked on the payee and selected “Payee settings…”

Now the next time we do an import, if a payee comes in looking like “GOOGLE*4039…” it’ll be cleaned up to be the “Google” we all know and love. It will also automatically be categorized to Advertising & Promotion : PPC.

To be clear, if I have a payee that changes itself all the time. Maybe I’m a contractor and I purchase form four different Home Depots fairly regularly, I can do a “contains” rule. So if we normally get:

We could set up a rule: “Contains HOME DEP” and it would capture all four of them:

Being diligent on your Payee Settings with your first import will improve your efficiency tremendously. Of course I still recommend looking everything over and making sure you’re aware of your outflows. This will just get you to a quicker spot where you can jump over to the Budget and start doing the meat of financial management: proactive planning.

[Bonus Hint: If you’re using Paypal, use the Reports -> Monthly Financial Summary option and record transactions at that level. For instance, I do not, nor would I ever think to, record every single sale of YNAB. That would be insane. I record one transaction that I get from the Monthly Financial Summary. I believe it’s Gross Receipts or some other line-item. Anyway, that one report gives you all the information you need to record high-level transactions from Paypal into YNAB. If you’re spending longer than 15 minutes with your Paypal account each month…you’ve got to try my way.]

What Took Me So Long

Well, I’ll tell you what didn’t take me long: actually switching. I ended up spending about 2 1/2 hours from a blank slate to getting January up to date. My normal monthly process takes me four hours.

But why did I drag my feet? There were two main reasons:

1) Integrated billpay. I liked that I could pay domestic vendors right from within the software. I liked it until I realized that once I sent a payment with that method, if the check wasn’t cashed, it would be six months before the funds would be returned to me (verses the normal three months for the straight checking billpay when I log in to the bank). And the only place I could see those pending payments was within the software. It felt like a black hole of money.

I’m over it now. I’ll use my checking account’s built-in billpay to cut checks. Either way I’m still clickity-hopping through one interface or another. My workflow will be to enter the transactions in YNAB (1-2 minutes), then enter them on the bank’s site (20 minutes).

2) History. For all the talk we throw around about how you should look forward with your money and not back, I sure had a hard time letting go of the history in Quickbooks. And then I realized I wasn’t letting go of it at all. I’m certainly not going to delete the data. If I ever need to consult prior years of data, I can fire up Quickbooks and take a gander. Hint: I won’t have to do that nearly as much as I think I will.

So I’m starting fresh, and it feels good. Eyes forward, and brain now in planning mode (vs. post-mortem mode).

As I re-read this, I don’t know what took me so long. I feel great.

What I’m Looking Forward To

I’m looking forward to looking forward. I want to be more aware of our resources and how we’re using them. I want to be able to point to expenses and attribute benefit to those expenses (or stop incurring them if there’s no attributable benefit). I want to be able to manage the business cash flow with the same ease and comfort I enjoy managing my personal cash flow.

I’m looking forward to my accounting process going from 4 to 2 hours per month. I’m looking forward to not relying on direct connect to sometimes pull in the data for me. I’m looking forward to not paying Intuit to have to upgrade–something they would have forced me to do next year.

If you’re a small business owner and you’re thinking about using YNAB for your small business, I hope you found this walkthrough helpful. I’ll try and post more as I discover how YNAB (the software) is helping YNAB (the business) and its owner. If you have any questions, please ask them in the comments and I’ll see what I can do!

Your Next Step

Remember, budgeting is not restrictive. You won’t be spending less, you’ll be spending right. You can do this! Today. Right now. What do you have to lose? Except all that debt and stress. (Ok, so kind of a lot.)

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