Separating Processing Fees from Income

It's actually super important to make sure that you're separating any deposits from a payment processing program into fees and income. I see many business owners that just put any deposits straight into "tuition income" but there's some dangers with this:

1.     Your income, and your expenses can be extremely understated if you do this. What's actually happening is you’re being charged to process the credit/debit card/ACH, and sometimes this happens right away, before the payment is deposited into your bank account, and sometimes, this charge is withdrawn once per month. Different software and different payment processors have different methods in doing this. If you only record the net deposit as your total income, you're showing that you made less than you actually did (which can be considered tax fraud, depending on the situation), and you're not recording any fees for payment processing.

2. Since you're not recording any fees associated with processing payments, you don't actually know how much you’re paying for this. Some merchants take 1%, some take 3%, some take 5%. If you're not recording this, you can't make an informed decision on which software/merchant is best for your business. If you're just looking at the perks, and not the cost, this can lead you into a situation where you're doing something that's not best for your business. 

In order to make sure these deposits are recorded correctly, check out the breakdown of the deposit through your management software. In my experience, Studio Pro encourages the use of using their own Merchant Services (you get charged an extra fee if you use Stripe instead), and if you do, these fees are deducted from each deposit. Jackrabbit SaveSafe and Studio Director both have these fees withdrawn once per month. Of course, each of these management softwares have different companies they work with for credit card processing, so you could have Studio Director, and still have a portion of your deposit automatically deducted for processing fees- each situation is so individualized. Let me know if you need help figuring out where to find this information. 

Once you find the breakdown, go into your QBO (or whatever bookkeeping software you use), click "split" and record the gross income as "tuition income" (or whatever income you're working with at the moment), and then the fees as "Payment Processing Fees" (this number should be negative, since they're taking money from your income). 

and if you need any more help with this, or any other dance studio specific financial question, let me know! I'd love to help out!