Accounting 101- Issue 40

Which accounting professional does my business need?

There is much confusion over what type of services are offered by which type of accounting professional. The more common types of professionals that are used interchangeably are bookkeeper, accountant and tax accountant. While the services they each offer do build upon each other, they each offer their own type of services. Below is a list of services that each type of professional may offer. This will assist in deciding which type of professional you need based upon the needs of your business.  

Bookkeeper- A bookkeeper will record financial transactions for the business books. This person normally keeps the day to day and makes sure the transactions are kept in order. They may summarize data on financial reports. They lay the groundwork for accountants.

Accountant- An accountant will review, analyze and interpret the financial reports of the company. They can make sure the reports are following financial standards and requirements. They can act as advisors to business owners to assist in making informed business decisions. They can provide management, budgeting and forecasting services. They can provide both bookkeeping and accountant services. They work in conjunction with tax accountants.

Tax Accountants/CPA- A tax accountant/CPA (certified public accountant) will provide services to review financial reports and prepare taxes for the business. They can make sure that the business is compliant in regards to tax policies and requirements. A firm will be the business liaison for tax related matters with the tax government authorities such as the Internal Revenue Service.  They will work with the business bookkeeper and/or accountant.

Keep in mind that an accounting firm may provide all three professional services above. A business may also choose to have a bookkeeper in house and outsource their accountant and only have a tax accountant once a year, at tax time. It is important that a business have an accountant and a tax accountant, as a business owner you want to know how your business is doing not just at tax time but throughout the year.

Accounting 101- Issue 39

Automation In Accounting

When you open a business, as an entrepreneur, we wear many hats in the beginning. As you start to piece your business together, you will find that there are two processes that will help immensely in your business. Those processes are automation and delegation. Automation is when you set up processes in your business to run by themselves. Delegation is handing off tasks to others in the business. 

Delegation is harder to achieve especially at the beginning of the business when it’s only you in your business. However, automation is important to achieve so that you can concentrate on the more important tasks of your business. There are ways that an entrepreneur can use automation in accounting for their business. Below are ways that automation can be used when it comes to running the accounting for your business. These processes can be used within a business that has a financial system in place such as Quickbooks. 

1. Sending an invoice automatically via email to your clients. Once a sale is made, an email address should be collected for all your clients so that you are able to automatically email the invoice to your client. This creates automation, saves time and assures the collection process begins quickly and smoothly. 

2. Transactions that are processed in your books should be taking care of quickly and efficiently on a frequency that does not allow the transactions to build-up with out being tended to. This allows for the bank reconciliation to be automated with little work each month since all the leg work has already been completed throughout the month. 

3. Vendors can be set-up to automatically be expensed to the same account each time a bill is processed so that there is little time spent on entering these invoices. This creates automation in processing these invoices. 

4. Statements should be automated to email to your clients each month when there are past due balances so that collection efforts will be consistent. 

5. Reports should be set up to automatically run and sent via email to you every month. This will automatically enable you to take a look at the company books on a frequent basis and keep you aware of any issues as they arise. 

Accounting 101- Issue 38

Increase My Business Profit

You have a business which fulfills the dream of being your own boss. You have a passion that fuels the creativity behind your product(s) or service(s) that you provide. You love what you do, a fact that alludes many. However, there is one huge problem. You aren’t making a profit in your business. You won’t be in business long if it does not start to provide a profit. 

There are two ways to increase profit in your business. You can either increase profits or decrease costs. Increasing profits requires either selling more of the product(s) or service(s) you provide currently. You also can develop new streams of income such as creating a new product or offering a new type of service. Of course, this needs to align with your brand and your passion. 

The easier and more immediate change option is a reduction in costs. This requires you to understand what costs there are in your business. Listed below are some questions to help you understand what your costs are and how to reduce them:

1. Are you tracking the costs in your business? Do you understand your business costs? Reports from your financial system describing costs such as a profit and loss report, should be looked at in detail. Working with an accountant is essential in understanding the costs in your business. These steps are vital in being able to make quick and smart decisions to avoid greater issues later in your business.

2. What does it cost to create your product or service? Figure out exactly what costs are involved when you create your offering in your business. Could it be made for less without compromising quality? 

3. Can you negotiate with vendors for a discount or decrease in pricing even for the short-term? Vendors value their customers and some are willing to work with you for a return in the future. 

4. What costs are involved in running the business? Are there indirect costs that can be reduced. Indirect costs are costs that are not directly related to the product/service provided in the business. Expenses such as meals, travel, utilities are all expenses that can be looked at and possibly reduced. 

5. Are there any systems that need to be paid for but are not being used or can be replaced? A system that cost less or the system isn’t needed at all would reduce costs. 

 

Accounting 101 - Issue 37

Accounting Reports: Have you looked at yours?

Small business owners should make themselves very familiar with certain reports for their business. This allows owners to not only see how the business is doing but also allow them to make changes and improvements along the way. 

Balance Sheet- This report is a rolling picture of the business’s financial position at a moment in time, normally at month end or year end. It shows the business’s assets, liabilities and owner’s equity.

Profit & Loss- This report is the most important to a business owner. It reveals if the business is achieving its profitability goal and generating an acceptable income.  The profit & loss summarizes the revenues earned and expenses incurred over a specific period of time.

Statement of Cash Flows-Cash flows reveal the inflows and outflows of cash in a business. This report would reveal the cash produced by the business as well as any investing and financing activities that have taken place during an accounting period.

Accounts Receivable Aging- This report is a detailed presentation of all the accounts receivable that is open and outstanding, owed to the business. It is beneficial for controlling and limiting receivables from becoming aged longer than the accepted terms of payment. 

Accounts Payable Aging-This report is a detailed presentation of all the accounts payable that is open and owed to outside vendors. It is beneficial for keeping track of what payables are owed and when they are due. 

Accounting 101 - Issue 36

Business Books: Up to date?

Fall is quickly approaching with the last quarter of the year around the corner. Fall is my favorite time of the year for many different reasons that range from the weather to the smell of apple pies baking. It is also a time to make sure that your business books are in order.

Many times I have spoken with small business owners in regards to their books and the one problem they always bring up is keeping up with the transactions on their books. As we all know time goes by rather quickly and before you know it, tax season will be here.

In an effort to best prepare yourself not only for the tax season, but to also position yourself in such a way that you’ll be able to move forward in growing your business in 2018. Here are tips for bringing your books current and staying on top of it for the rest of 2017.

1.     Have a system in place to record these transactions, even if it is an excel spreadsheet. If you are just starting out or feel that you are too small to have a system such as Quickbooks or Xero, then use a spreadsheet. The important thing is you need to keep track of the income and expenses of your business.

2.     Take the time to enter the transactions that take place. One day a week dedicate some time to input the transactions that have taken place the prior week. This is also a good time to go over any collections outstanding and payments that need to be made.

3.     Have a separate account for all of your business transactions. This not only helps immensely with staying on top of your business financials. It also makes it easier come tax time for your tax account to be able to do your business taxes.

4.     Understand that when an excel spreadsheet is not enough, you need to start looking into a financial system to better serve the needs of your business. 

5.     If you are at the point where you just can’t keep up, outsource the accounting work to a professional that will make sure your business finances are in the best shape for a smooth tax time.

Accounting 101 - Issue 35

Revenue vs Profit

What if I told you that my business made $1M dollars in sales yet made $200K in profits. Are you wondering how that can be? Why isn't one the same as the other? Many business owners find themselves confused and tend to think that revenue equals profit. That's never the case. It is key to understand each of these terms, the implications of each on the business and most importantly understand the difference between the two.

The revenue is what you sell, your product or service or both. It is anything your business provides to your consumer and received payment in return in the form of currency. Profit is what the business actually makes after all costs and expenses are paid for excluding taxes. Usually a business owner would then decide to draw on these funds for themselves. Both of these are important to the business because together they reveal the financial health of the business. Revenue will tell you as an owner how well sales are and if there is a need to improve. Profit will determine whether the business can continue to exist for the foreseeable future. If a business is not making a profit over an extended period of time then the business will not survive for long. 

The difference between the two, the $800K difference in the example I presented in the beginning, is vital. It is vital to you as a business owner because this is what will tell you how you are investing the sales the business makes. Some of it is to create your product or provide your service. Some of it is to pay for the expenses to run the business. Without understanding this difference, as a business owner you don't know where you need to cut back or why. Simply understanding why revenue will never equal profit is the first step in truly understanding your business finances. 

 

Accounting 101- Issue 34

Lean Beginnings: Starting Your Business Small

In our quest to start our small business, we may think that we need to spend on everything to begin. But the reality is as small business owners just starting out, lean is the best way to go. Don’t over-complicate or do so much that you begin and are already behind financially. You do not have to sign up for everything nor have the latest and greatest systems in place. 

As a small business owner just beginning, be sure that what you do spend funds on is an investment that will bring back a return. Choose wisely where you intend to spend those funds even before you actually start the business itself. There are some expenses that are unavoidable such as a website or business cards. But understand that those are things that can be improved upon over time and keeping expenses in your business lean is the best way to ensure you don’t end up out of business before you even start. The internet is boundless with free information, be sure to do your research before you decide to spend money for paid information.

Finally, be sure to invest in a financial system that works for your business and that will grow with your business. An excel spreadsheet may be free but will not support your business growth. However, a top of the line system is not necessary for your small business either. Invest wisely and keep it lean in your start-up years. 

Accounting 101- Issue 33

Small Fees...Big Hits

It is inevitable that in business, there will be some things that slide especially in the beginning of your business. You are wearing many hats and it’s not possible to do every area greatly. There are some hats that you must pay attention to. One of those hats is the accounting hat. In the beginning, we tend to wear the accounting hat ourselves and as business grows we outsource it. In this newsletter, we are going to talk about various fees that we pay in our business that should be avoided. 

These fees are small and in the moment seem inconsequential. But when it comes to looking at the overall picture, these fees eat up your revenue and take away from areas that you do need to spend on in your business. Some of these fees can be overdraft fees, late fees, interest fees. If you look at this in perspective, most banks charge a fee anywhere between $30-$35 for each overdraft item. If you were to overdraw three transactions, that’s now $105 you have to pay immediately. As a small business, those funds can be used for business cards, a website or even a logo. 

As always, if you can’t keep track of your business finances due to your business growing or it is overwhelming you, seek the help of professional services. The fee for the services will be better invested than in the fees for which there is no investment return. Bottom line, don’t pay for fees that at first glance are small but in the long run your business will suffer big hits to its revenue. 

Accounting 101- Issue 32

Managing Cash Flows for Small Business Owners

Every business owner needs to manage their cash flows for their business. Cash flow is the total amount of money that flows in and out of your business. Cash is coming into the business when collection of accounts receivable takes place. Cash is going out of the company when payments to vendors are made or expenses are paid.

A cash flow statement is an essential report a business owner should review frequently to assure that the company has positive cash flows. Positive cash flows are when more cash is coming into the business then going out. Negative cash flows are when the opposite happens, more cash is going out of the company than coming in. A company will not survive very long when it has negative cash flows. These are some ways to manage cash flows and keep the company in a positive cash flow position.

1.     Collect open receivables as quickly as possible. Resolve any issues quickly after a customer has been invoiced and ask for payment as soon as services have been provided with customers that have past payment issues.

2.     Offer discounts to customers who pay early or require down payments for service work.

3.     Try to set up the longest payment terms with your supplies such as net 60 days or 90 days. Do however pay on time once terms are agreed upon, since late fees can be applicable.

4.     Consider discounts offered by vendors for paying early.

5.     Decrease expense whenever possible during cash slow months, forgo spending on business wants and focus just on business needs.

6.     Research ways that can assist the company during times of cash flow issues such as a line of credit. 

Accounting 101- Issue 31

Mid-Year: Is your business accounting in order?

It’s already July, that means half the year is over. All those goals that you had set up for your business in 2017, should be theoretically half completed. Hopefully you will take the time now to look at those business goals and perform an honest evaluation. 

You may be well on your way to completing some business goals or some goals may need to be adjusted or completely taken off the table for this year. Whatever your business goals were, it is important to have business financial goals. In order to meet financial goals, you need to know where the business is, where it needs to be, and how to get it there. It’s not too late to create business financial goals for 2017. 

Some good financial goals for a small business are:

-Increase cash flow by a certain amount 

-Decrease debt by a certain amount

-Increase working capital

-Reduce collection time or increase vendor payment cycle

-Install a system such as a financial system to improve efficiency

As with any goal, these goals should be specific and measurable. It is best you work with your accountant or bookkeeper who knows your books and can assist in this area. If you don’t have either, one of your goals should be to consult with one and see how they can help you achieve your business financial goals this year. 

Accounting 101- Issue 30

Roller Coasters and Small Business

Summer is officially in full swing. The cookouts, beaches, and amusement parks are all being taken advantage of throughout this beautiful weather. Small businesses can be very much like a roller coaster. There are many ups and downs when owning a small business. This ride can be very easy to maneuver when you make sure to have all the pieces in place in your small business. 

Accounting is one key component that without it can make for a very bumpy roller coaster ride. There are the essentials that are needed to make sure that your business finances are in order. Be sure to utilize a financial system. Stay on top of your collections to make sure cash flows doesn’t become an issue. Pay your vendors on time as much as possible or over communicate any issues in order to maintain that trust. Keep your personal and business expenses separate. All of these tips will help keep that roller coaster ride to a minimum in your small business. 

Independence Day!

Happy Independence Day! 

July 4th is a U.S. holiday used to commemorate the adoption of the Declaration of Independence and the beginning of the United States of America. While celebrating with cookouts and fireworks, also celebrate that this was the beginning of our great nation. A nation that allows us to dream and to make those dreams a reality. It allows us to have our small business and to be independent in our quest to call something our own. 

May you celebrate this holiday with those near and dear to your heart. Take the time to make your family and yourself a priority on this holiday to celebrate this great nation and all its beauty. We will return to all things accounting and business next week. 

Accounting 101- Issue 29

Accounting and Baseball

It's the summer and the sport of baseball is very much in full swing, success measured by wins and losses. With every team racing to get into the playoffs and ultimately win the World Series Championship. In order to attain success in baseball, the team needs to have all the pieces in place. If one piece struggles, for example the pitcher, then the entire team struggles and the wins are harder to come by. Having a business is much like a baseball team. Each function such as accounting, much like the pitcher, is an important piece to the team.

In a small business, it's crucial to have your finances in order right from the beginning. Accounting is not to be an after thought but rather an integral part of everyday business to ensure the wins needed to be successful. Accounting includes everything from setting up business bank accounts to having a financial system to review accurate reports and make sound decisions. Without this crucial team player, much like in baseball, the chances of having great success are slim. 

Accounting 101- Issue 28

Increase My Business Profit

You have a business which fulfills the dream of being your own boss. You have a passion that fuels the creativity behind your product(s) or service(s) that you provide. You love what you do, a fact that alludes many. However, there is one huge problem. You aren’t making a profit in your business. You won’t be in business long if it does not start to provide a profit. 

There are two ways to increase profit in your business. You can either increase profits or decrease costs. Increasing profits requires either selling more of the product(s) or service(s) you provide currently. You also can develop new streams of income such as creating a new product or offering a new type of service. Of course, this needs to align with your brand and your passion. 

The easier and more immediate change option is a reduction in costs. This requires you to understand what costs there are in your business. Listed below are some questions to help you understand what your costs are and how to reduce them:

1. Are you tracking the costs in your business? Do you understand your business costs? Reports from your financial system describing costs such as a profit and loss report, should be looked at in detail. Working with an accountant is essential in understanding the costs in your business. These steps are vital in being able to make quick and smart decisions to avoid greater issues later in your business.

2. What does it cost to create your product or service? Figure out exactly what costs are involved when you create your offering in your business. Could it be made for less without compromising quality? 

3. Can you negotiate with vendors for a discount or decrease in pricing even for the short-term? Vendors value their customers and some are willing to work with you for a return in the future. 

4. What costs are involved in running the business? Are there indirect costs that can be reduced. Indirect costs are costs that are not directly related to the product/service provided in the business. Expenses such as meals, travel, utilities are all expenses that can be looked at and possibly reduced. 

5. Are there any systems that need to be paid for but are not being used or can be replaced? A system that cost less or the system isn’t needed at all would reduce costs. 

 

Accounting 101- Issue 27

Automation In Accounting

When you open a business, as an entrepreneur, we wear many hats in the beginning. As you start to piece your business together, you will find that there are two processes that will help immensely in your business. Those processes are automation and delegation. Automation is when you set up processes in your business to run by themselves. Delegation is handing off tasks to others in the business. 

Delegation is harder to achieve especially at the beginning of the business when it’s only you in your business. However, automation is important to achieve so that you can concentrate on the more important tasks of your business. There are ways that an entrepreneur can use automation in accounting for their business. Below are ways that automation can be used when it comes to running the accounting for your business. These processes can be used within a business that has a financial system in place such as Quickbooks. 

1. Sending an invoice automatically via email to your clients. Once a sale is made, an email address should be collected for all your clients so that you are able to automatically email the invoice to your client. This creates automation, saves time and assures the collection process begins quickly and smoothly. 

2. Transactions that are processed in your books should be taking care of quickly and efficiently on a frequency that does not allow the transactions to build-up with out being tended to. This allows for the bank reconciliation to be automated with little work each month since all the leg work has already been completed throughout the month. 

3. Vendors can be set-up to automatically be expensed to the same account each time a bill is processed so that there is little time spent on entering these invoices. This creates automation in processing these invoices. 

4. Statements should be automated to email to your clients each month when there are past due balances so that collection efforts will be consistent. 

5. Reports should be set up to automatically run and sent via email to you every month. This will automatically enable you to take a look at the company books on a frequent basis and keep you aware of any issues as they arise. 

Accounting 101- Issue 26

Payroll: Tips to Remember

Many small business owners begin as solopreneurs. It’s one person that wears the many hats of running the business. That may work for the beginning of your business and the idea is that you will grow the business to a point that you need more than just yourself to continue that growth. Once you decide as a business owner that you need outside help and you can no longer do everything with one person, there are several avenues you can take. 

You can either outsource some of the work. Outsourcing the accounting of your business is a popular avenue many business owners choose. You can hire independent contractors. This works well with outsourcing social media management or content writing. Finally, you can choose to hire employees for your business. While hiring your first employee is a momentous occasion for your business, it is important to remember to follow all rules and regulations when it comes to payroll. Below are some tips to help you in hiring your first employee:

1. Make sure that all forms for a new hire that are required by both the federal and state government are completed. Some of these forms include but are not limited to the W2 and the state tax withholding form. 

2. Creating a payroll manual with important information such as job description, hours of position and expectations will help alleviate confusion. 

3. Having a financial platform such as Quickbooks will have a payroll feature that will assist greatly in making sure all taxes are deducted and paid for in a timely fashion. 

4. If you don’t utilize a financial platform be sure to register where need be for both federal and state governments and make the proper withholdings and payment submissions. 

5. Be sure to do the proper research when it comes to having an employee in your own state. 

6. Having an accountant who is experienced in payroll matters will help significantly in hiring your first employee. 

 

 

Accounting 101- Issue 25

Managing Cash Flows for Small Business Owners

Every business owner needs to manage their cash flows for their business. Cash flow is the total amount of money that flows in and out of your business. Cash is coming into the business when collection of accounts receivable takes place. Cash is going out of the company when payments to vendors are made or expenses are paid.

A cash flow statement is an essential report a business owner should review frequently to assure that the company has positive cash flows. Positive cash flows are when more cash is coming into the business then going out. Negative cash flows are when the opposite happens, more cash is going out of the company than coming in. A company will not survive very long when it has negative cash flows. These are some ways to manage cash flows and keep the company in a positive cash flow position.

1.     Collect open receivables as quickly as possible. Resolve any issues quickly after a customer has been invoiced and ask for payment as soon as services have been provided with customers that have past payment issues.

2.     Offer discounts to customers who pay early or require down payments for service work.

3.     Try to set up the longest payment terms with your supplies such as net 60 days or 90 days. Do however pay on time once terms are agreed upon, since late fees can be applicable.

4.     Consider discounts offered by vendors for paying early.

5.     Decrease expense whenever possible during cash slow months, forgo spending on business wants and focus just on business needs.

6.     Research ways that can assist the company during times of cash flow issues such as a line of credit. 

Accounting 101- Issue 24

Tax Season Done, Now What?

You have endured the tax season as a business owner and survived, congratulations! But now what? What is your next move as a business owner? Tax season should not be stressful nor surprising for a business owner. There are several ways to make tax season less stressful and minimize surprises. Tax season should be a time period in the business that does not disrupt operations. Find ways to apply these tips and the next tax season should be no more than a speed bump in the road of your small business. 

• Have a solid set of books that are clear, accurate and reconciled. Utilized the help of a bookkeeper or accountant depending on the size of your business to assist in keeping a solid set of books. 

• Utilize a financial system that meets the needs of your business. Do not rely on just Excel to be able to provide the system you need for your business books. Quickbooks is an example of a great financial system for small businesses. 

• Establish communication between your tax accountant and your business accountant early in the year. This will allow the opportunity to make any financial corrections needed early in the year. This will also allow to make sure quarterly tax payments are made on behalf of the business. 

• Be sure to complete and update information needed for tax season as necessary. For example, independent contractors need to fill out a W-9 and make sure that information is maintained in a solid financial system. 

• Do not wait until year end to start thinking of the next tax season. Applying improvements to your particular business books takes time and the earlier the better. 

Accounting 101-Issue 23

Accounting Reports Every Small Business Owner Should Have

Small business owners should make themselves very familiar with certain reports for their business. This allows owners to not only see how the business is doing but also allow them to make changes and improvements along the way. 

Balance Sheet- This report is a rolling picture of the business’s financial position at a moment in time, normally at month end or year end. It shows the business’s assets, liabilities and owner’s equity.

Profit & Loss- This report is the most important to a business owner. It reveals if the business is achieving its profitability goal and generating an acceptable income.  The profit & loss summarizes the revenues earned and expenses incurred over a specific period of time.

Statement of Cash Flows-Cash flows reveal the inflows and outflows of cash in a business. This report would reveal the cash produced by the business as well as any investing and financing activities that have taken place during an accounting period.

Accounts Receivable Aging- This report is a detailed presentation of all the accounts receivable that is open and outstanding, owed to the business. It is beneficial for controlling and limiting receivables from becoming aged longer than the accepted terms of payment. 

Accounts Payable Aging-This report is a detailed presentation of all the accounts payable that is open and owed to outside vendors. It is beneficial for keeping track of what payables are owed and when they are due. 

Accounting 101-Issue 22

Small Business Accounting

Top Tips for Your Business

One of the areas that most business owners seem to dread and put off until they can no longer ignore it, is accounting. Most times this area is only touched upon once a year, at tax time. There are many instances when business owners just do not understand the accounting of their business. With the tax season quickly coming to an end, I have put together a list of top tips when it comes to small business accounting. Regardless of how the accounting was done for your business last year, with these tips you can right the ship for your business this year. 

Tip #1

Do I need to keep my business financials separate from my personal financials?

It is imperative to keep the two separate for a few reasons:

• Keeping them separate allows you to be able to keep accurate accounting books for your business.

• You are able to tell relatively easily if your business is making a profit.

• Your taxes are that much easier to complete with accurate business books.

Tip #2

Do I need accounting software to keep my business books?

It depends on what your plans are for your business. When you first start, you may be able to get away with a simple Excel sheet as a tracking mechanism. However, most business owners want to grow their business. In order to do so with relative ease and accurate record-keeping, it is best to use accounting software.

Tip #3

Do I need to keep my receipts for my business expenses?

Yes but you do not need to keep paper copies. With technology, you can scan or take a picture of your receipt and store it on your phone or laptop. Utilizing Dropbox or Evernote, both free, is an easy way to store your receipts and also categorize/date the files.

Tip #4

Should I invoice my customer even if I don’t have accounting software?

Yes, invoices can easily be created using other software such as Word. An invoice is proof of a transaction, enables collection efforts and keeps your business books accurate.

Tip #5

Should I be tracking the accounting of my business more than just at tax time?

Yes, you should never leave the accounting in your business to once a year.  If you don’t know what your accounting books are made of then you don’t know if you are losing money, where you should cut expenses or how to grow your business.

Tip #6

How do I keep track of my inventory?

The best way to keep track on your inventory is to have an accounting software that will do the legwork for you. If you choose to use Excel, then make sure to record all transactions pertaining to your inventory that includes dates, amounts and item description. Not only would you be recording when you receive inventory but also when you sell it and what you sold it for.

Tip #7

Do I need a professional accountant other than at tax time?

Yes, a professional accountant can help you with the following:

• Help you set up your business books

• Help you decide if a software will be used and which one

• Help you understand how you can make your business grow

• Prepare your books so that you are spending less time and money with a tax accountant

• Help in many areas such as:

Collections

Expenses

Cash Flow

Payroll

Statements