Small Business Owners: Accounting Is for Profit Planning, Not Just Tax Preparation

One might be led to believe that profit is the main objective in a business but in reality it is the cash flowing in and out of a business which keeps the doors open. The concept of profit is somewhat narrow and only looks at expenses and income at a certain point in time. Cash flow, on the other hand, is more dynamic in the sense that it is concerned with the movement of money in and out of a business. It is concerned with the time at which the movement of the money takes place. Profits do not necessarily coincide with their associated cash inflows and outflows. The net result is that cash receipts often lag cash payments and while profits may be reported, the business may experience a short-term cash shortage. For this reason, it is essential to forecast cash flows as well as project likely profits. In these terms, it is important to know how to convert your accrual profit to your cash flow profit. You need to be able to maintain enough cash on hand to run the business, but not so much as to forfeit possible earnings from other uses.

Why accounting is needed

Help you to operate better as a business owner

  1. Make timely decisions
    • Know when to hire a team of employees
    • Know how to price your products
    • Know how to label your expense items
    • Helps you to determine whether to expand or not
    • Helps with operations projected costs
  2. Stop Fraud and Theft
    • Control the biggest problem is internal theft
    • Reconcile your books and inventory control of equipment
  3. Raising Capital (help you to explain financials to stakeholders)
    • Loans
    • Investors

What are the Best Practices in Accounting for Small Businesses to address your common ‘pain points’?

  1. Hire or consult with CPA or accountant
    1. What is the best way and how often to contact
    2. What experience do you have in my industry?
    3. Identify what is my break-even point?
    4. Can the accountant assess the overall value of my business
    5. Can you help me grow my business with profit planning techniques
    6. How can you help me to prepare for tax season
    7. What are some special considerations for my particular industry?

To succeed, your company must be profitable. All your business objectives boil down to this one simple fact. But turning a profit is easier said than done. In order to boost your bottom line, you need to know what’s going on financially at all times. You also need to be committed to tracking and understanding your KPIs.

What are the common Profitability Metrics to Track in Business — key performance indicators (KPI)

Whether you decide to hire an expert or do it yourself, there are some metrics that you should absolutely need to keep tabs on at all times:

  • Outstanding Accounts Payable: Outstanding accounts payable (A/P) shows the balance of cash you currently owe to your suppliers.
  • Average Cash Burn: Average cash burn is the rate at which your business’ cash balance is going down on average each month over a specified time period. A negative burn is a good sign because it indicates your business is generating cash and growing its cash reserves.
  • Cash Runaway: If your business is operating at a loss, cash runway helps you estimate how many months you can continue before your business exhausts its cash reserves. Similar to your cash burn, a negative runway is a good sign that your business is growing its cash reserves.
  • Gross Margin: Gross margin is a percentage that demonstrates the total revenue of your business after subtracting the costs associated with creating and selling your business’ products. It is a helpful metric to identify how your revenue compares to your costs, allowing you to make changes accordingly.
  • Customer Acquisition Cost: By knowing how much you spend on average to acquire a new customer, you can tell exactly how many customers you need to generate a profit.
  • Customer Lifetime Value: You need to know your LTV so that you can predict your future revenues and estimate the total number of customers you need to grow your profits.
  • Break-Even Point:How much do I need to generate in sales for my company to make a profit?Knowing this number will show you what you need to do to turn a profit (e.g., acquire more customers, increase prices, or lower operating expenses).
  • Net Profit: This is the single most important number you need to know for your business to be a financial success. If you aren’t making a profit, your company isn’t going to survive for long.
  • Total revenues comparison with last year/last month. By tracking and comparing your total revenues over time, you’ll be able to make sound business decisions and set better financial goals.
  • Average revenue per employee. It’s important to know this number so that you can set realistic productivity goals and recognize ways to streamline your business operations.

The following checklist lays out a recommended timeline to take care of the accounting functions that will keep you attuned to the operations of your business and streamline your tax preparation. The accuracy and timeliness of the numbers entered will affect the key performance indicators that drive business decisions that need to be made, on a daily, monthly and annual basis towards profits.

Daily Accounting Tasks

  1. Review your daily Cash flow position so you don’t ‘grow broke’.

Since cash is the fuel for your business, you never want to be running near empty. Start your day by checking how much cash you have on hand.

Weekly Accounting Tasks

2. Record Transactions

Record each transaction (billing customers, receiving cash from customers, paying vendors, etc.) in the proper account daily or weekly, depending on volume. Although recording transactions manually or in Excel sheets is acceptable, it is probably easier to use accounting software like QuickBooks. The benefits and control far outweigh the cost.

3. Document and File Receipts

Keep copies of all invoices sent, all cash receipts (cash, check and credit card deposits) and all cash payments (cash, check, credit card statements, etc.).

Start a vendors file, sorted alphabetically, (Sears under “S”, CVS under “C,”etc.) for easy access. Create a payroll file sorted by payroll date and a bank statement file sorted by month. A common habit is to toss all paper receipts into a box and try to decipher them at tax time, but unless you have a small volume of transactions, it’s better to have separate files for assorted receipts kept organized as they come in. Many accounting software systems let you scan paper receipts and avoid physical files altogether

4. Review Unpaid Bills from Vendors

Every business should have an “unpaid vendors” folder. Keep a record of each of your vendors that includes billing dates, amounts due and payment due date. If vendors offer discounts for early payment, you may want to take advantage of that if you have the cash available.

5. Pay Vendors, Sign Checks

Track your accounts payable and have funds earmarked to pay your suppliers on time to avoid any late fees and maintain favorable relationships with them. If you are able to extend payment dates to net 60 or net 90, the better. Whether you make payments online or drop a check in the mail, keep copies of invoices sent and received using accounting software.

6. Prepare and Send Invoices

Be sure to include payment terms. Most invoices are due within 30 days, noted as “Net 30″ at the bottom of your invoice. Without a due date, you will have more trouble forecasting revenue for the month. To make sure you get paid on time, always use an invoice form that contains the right details such as payment terms, itemized charges, and your payment address.

7. Review Projected Cash Flow

Managing your cash flow is critical, especially in the first year of your business. Forecasting how much cash you will need in the coming weeks/months will help you reserve enough money to pay bills, including your employees and suppliers. Plus, you can make more informed business decisions about how to spend it.

All you need is a simple statement showing your current cash position, expected cash receipts during the next week/month and expected cash payments during the next week/month.

8. Executive Dashboard (weekly review)

This dashboard gives you a ‘snapshot’ of your operations on a weekly basis.

It consist of Cash on Hand, Cash burn rate, Account Receivables, Accounts Payable, Items sold, Inventory on Hand, inventory turns, outstanding issues in the business, and gross profit margin, new sales wins, customer losses, customer service performance, on time delivery rate and product quality performance.

Monthly Accounting Tasks

9. Balance Your Business Checkbook

Just as you reconcile your personal checking account, you need to know that your cash business transaction entries are accurate each month and that you are working with the correct cash position. Reconciling your cash makes it easier to discover and correct any errors or omissions-by you or by the bank-in time to correct them.

10. Review Past-Due (“Aged”) Receivables

Be sure to include an “aging” column to separate “open invoices” with the number of days a bill is past due. This gives you a quick view of outstanding customer payments. The beginning of the month is a good time to send out overdue reminder statements to customers, clients and anyone else who owes you money.

At the end of your fiscal year, you will be looking at this account again to determine what receivables you will need to send to collections or write off for a deduction

11. Analyze Inventory Status

If you have inventory, set aside time to reorder products that sell quickly and identify others that are moving slowly and may have to be marked down or, ultimately, written off. By checking regularly (and comparing to prior months’ numbers), it’s easier to make adjustments so you are neither short nor overloaded.

12. Process or Review Payroll and Approve Tax Payments

While you have an established schedule to pay your employees (usually semi-monthly), you need to meet payroll tax requirements based on federal, state and local laws at different times, so be sure to withhold, report and deposit the applicable income tax, social security, Medicare and disability taxes to the appropriate agencies on the required dates.

Review the payroll summary before payments are disbursed to avoid having to make corrections during the next payroll period. A payroll service provider can do all this to save you time and ensure accuracy at a reasonable cost.

13. Review Actual Profit and Loss vs. Budget and vs. Prior Years

Each month, take the time to review your budgeted expenses and compare them to what you have actually spent. Are you spending above or below budget? Discuss the variances and take action as needed

Your profit and loss statement (also known as an income statement), both for the current month and year to date, tells you how much you earned and how much you spent. Measure it against your budget every month (or quarter). Comparing your actual numbers to your planned numbers highlights where you may be spending too much or not enough, so that you can make changes.

If you have not prepared a budget, compare your current year-to-date P&L with the same prior-period year-to-date P&L to identify variances and make adjustments.

14. Review Month-End Balance Sheet vs. Prior Period

By comparing your balance sheet at one date-June 30, 2015, for example-to a balance sheet from an earlier date (December 31, 2014), you get a picture of how you are managing assets and liabilities. The key is to look for what is significantly up and/or down and understand why. For example, if your accounts receivable are up, is it due to increased recent sales or because of slower payments from customers?

Quarterly Accounting Tasks

15. Prepare/Review Revised Annual P&L Estimate

It’s time to evaluate how much money you are actually making, whether your net assets are going up or down, the difference between revenues and expenses, what caused those changes, how you are spending profits, as well as identifying trouble spots, and making adjustments to improve sales and margins.

16. Review Quarterly Payroll Reports and Make Payments

You have been reviewing your semi-monthly payroll reports. However, the IRS and most states require quarterly payroll reports and any remaining quarterly payments. Again, it’s best if your payroll service provider completes these reports and files them. Your job is to review to make sure they appear reasonable.

17. Review Sales Tax and Make Quarterly Payments

If your company operates in a state that requires sales tax, make sure you comply to avoid serious penalties. The U.S. Small Business Administration (SBA) can help you determine your state tax obligations.

18. Compute Estimated Income Tax and Make Payment

The IRS and states that have income taxes require you to pay estimated income taxes. Review your year-to-date P&L to see if you owe any estimated taxes for that quarter. Your tax accountant can assist if necessary.

Annual Accounting Tasks

19. Review Past-Due Receivables

Now it’s time to check significant past due receivables and decide whether you think customers will eventually pay, whether to send past due bills to a collection agency or whether to write them off for a deduction.

20. Review Your Inventory

Review your current inventory to determine the value of items not sold. Any write-down of inventory translates to a deduction on your year-end taxes. If you do not write down unsellable inventory, you are overstating your inventory balance and paying additional taxes that you don’t owe.

21. Fill out IRS Forms W-2 and 1099-MISC

The IRS has a January 31 deadline that requires you to report the annual earnings of your full-time employees (W-2s) and most independent contractors (1099s). This deadline includes mailing copies of the tax forms to the people who worked for you. Note: A 1099 form is not required for any contractors who earned less than $600. Consider saving time and avoiding errors with an e-filing service.

22. Review full-year financial reports for tax reporting

  • Get organized
    • Collect and store important documents (use apps and calendars for help)
      • Create email folders to store bank statement and receipts
      • Store contracts and agreements
      • Track miles and vehicle expenses
      • Store all required documents for your business type.
    • Tax Preparation

      • Tax preparation is a historical view and not a profit planning event
      • Capture all relevant events
      • Identify all deduction categories
      • Capture all meals
        • Meetings —-whatever was discussed/calendar
          • Try not to go over industry average industry cost for meals.

At tax time, carefully review your company’s full-year financial reports before giving them to your accountant. Before you sign your return, be sure to review it for accuracy based on your full-year financial reports. Remember if IRS audits due to underpayment, they will deal with you not your accountant for any additional taxes, penalty and interest.

If you don’t have the bandwidth to do all this yourself, a great strategy is to partner with a monthly accounting service. Outsourcing your accounting to an expert will simplify your life and give you more time to focus on running your business operations.

A monthly accountant will provide you with a profit and loss sheet, balance statement, and accurate account reconciliation every month, ensuring that you have the financial information you need to make the best choices for your company.

Jewellery Party – How To Write And Present Perfect Invitations To Your Party

Are you currently planning to organize a jewellery party because you would like to launch or build your jewellery business? Then make sure that the invitations are written and presented perfectly. Bear in mind that the number of guests that will come to party will mainly depend on the way you write the invitations.

If you don’t have any idea on how to draft the perfect jewellery party invitations, check out this article.

To start, you need to prepare the materials and equipment, such as using a high quality printer, high-grade paper and suitable postage. In drafting the invitations, make sure that they are short and direct to the point. But of course, don’t forget about the design. Once completed, set the printer on the printing selection for the type of paper you’re using. Make sure that the font style and text are clear and distinct in order for the invitation to deliver a clear and concise message.

As well as posting invitations, extra ones can be handed out in person to your friends at clubs, work, church and any other places you meet up with friends. If you are a member of a certain organization, you should also invite the other members.

You should include specifics such as the time, venue and date of the party. To make this information so it is easily seen, highlight it.

If you have a jewellery website, don’t forget to provide its link. By doing this, the potential guest will be given a chance to check out the jewellery you offer for quality, style and design prior to accepting your invitation.

You should also request an RSVP and provide the hostess’ number. If you do not receive an RSVP, follow up with a personal invitation and a phone call. Put an emphasis on how fun it is to get together with other ladies and shop for great jewellery.

In the invitation, you need to mention the jewellery prizes that will be given out at the jewellery party. To entice the potential guests and attendees, you can provide pictures of some of the prizes, if that’s possible. There must also be other incentives with the invitation such as the chance to pick a desired piece of jewellery from the gift bag for anyone who was able to bring a guest. This will surely provide the motivation for each guest to bring a friend along. Incentives should also be included for becoming a hostess. Clearly emphasize the importance of earning money in the comfort of their home through something that really interests them – wearing jewellery.

In addition, don’t forget to include any payment options. Be very clear and specific about the use of debit and credit cards. For example, you should list those that are accepted.

Another excellent tip, is to have a reminder on the invitation about marking the party’s date on their calendar.

On the day of the party, make a reminder call to follow up on the invitation. This is also the perfect time to encourage the invitee to bring a friend.

Marketing From the Outside In: How the Presentation of Your Book Is As Important As Your Message

Writing a book can be one of the most difficult things in the world to do. While each author’s experience is very different, the process is almost always the same.

Winston Churchill, the author of many books in addition to being one of the most significant world leaders in history, once summed it up by saying: “Writing a book is an adventure. To begin with, it is a toy and an amusement; then it becomes a mistress, and then it becomes a master, and then a tyrant. The last phase is that just as you are about to be reconciled to your servitude, you kill the monster, and fling him out to the public.”

That last part is the rub, though. You don’t just fling a book out to the public. It has to be presented in a way that is both representative of your message and that resonates with the public. In my 21-plus years in this business, I’ve encountered a wide variety of issues that have been problematic for authors and which could have been avoided if the author realized how it would hinder his or her marketing campaign.

So, whether you’re writing a non-fiction book that builds your credibility as an expert in your field, or a fiction author writing novel after novel, here are some things to keep in mind:

The Book Cover- I have read some amazing books in my time that have been dragged down by covers that weren’t up to the task. The problem that led to those cover disasters was the lack of professional guidance, which caused some of the most basic rules to be violated. For instance, a general rule in cover design dictates that the key graphic, title, photograph or illustration that represents your message has to be 2/3 the size of other elements, otherwise it creates tension in the design.
Just as most authors are considered experts on their topics, good book designers and graphic artists are experts in theirs. They are trained in the art of distilling your message and expertise through the filter of what is attractive to consumers in order to produce a cover image that is striking enough to get attention.

But, the sticky part are those authors who become emotionally attached to an image they envision would be the perfect cover for their books, while the image lacks the professionalism needed to carry their message. That emotional attachment can become the biggest obstacle in marketing a book without the author even realizing it’s the reason why bookstores aren’t carrying it on their shelf, or producers aren’t booking them as a guest, or journalists aren’t following through on doing an interview.

My advice for authors who feel strongly about their creative choices, but are in conflict with the designer, is to survey people you trust. Show the cover to your family, friends and business associates whose opinions you respect and who you know are people who won’t just tell you what you want to hear.

And, if you’re still unsure, take a trip to your local bookstore and look at the covers of books on the shelf – notice the trends in color, design, images and layout. See how your cover matches up against the professionalism of those books that have made it to the bookshelf.

Interior Design- This is also important and worthy to speak about. The interior layout and design should be aesthetically pleasing and the type and font size should be easy to read. Some important references you can use for deciding the look you want comes from a study done many years ago by the Poynter Institute for Media Studies. They determined that most people like classic serif type styles like Bodoni, Bookman, Century, Garamond and even Times Roman for type in the 8 to 12 point ranges. When you get above 12 points, most people like Sans Serif typefaces such as Arial, Helvetica and Verdana. If you have graphics or illustrations in your book, ensure they are produced with high contrast if they are in black and white. Halftone reproduction in books can be spotty if the original image doesn’t have clear contrast and sharpness.
The guts of your book can and should be created in a way to enhance the readers’ experience. If done poorly it can cost you book buyers. If done right it can earn you customers and supporters.

Pseudonyms- Over the years, I’ve encountered many authors who choose, for whatever reason, to use a pen name for their books. In a few cases, it’s absolutely necessary, while in others, it’s not. For instance, we recently represented a gentleman who went by the pseudonym of Reza Kahlili. He wrote a book about the true story of how he served as a double agent for the CIA, posing as a member of Iran’s elite Revolutionary Guard. The book exposed dozens of human rights abuses and peeled away the public face of the government of Iran. Clearly, this is someone whose true identity needed to be protected.
But, in too many other cases, some authors have used a pseudonym because they just didn’t like their real names or they thought it was hard to spell or pronounce. One of the funniest pseudonym examples was told to me by my Senior Campaign Strategist who worked for a legend in the comic book industry, Marvel Comics founder and co-creator of Spider-Man, The X-Men, The Hulk and more – Stan Lee. He said, “When Lee was a teenager just starting out in the comics business in the 1940s, it wasn’t big business. Comics were disposable cheap entertainment for kids, and Stan – whose real name was Stanley Martin Lieber – didn’t want to waste using his real name in comics. He was saving it for when he wrote the great American novel, which never happened. So, by his own admission, he came up with the dumbest pen name in history, Stan Lee and the name stuck. To this day, he still contends it was the worst decision of his career.”

So, the moral of the story is – don’t use a pen name if you don’t really have to. It can reduce your credibility with the media and it may also come back to bite you someday.

And I hate to sound like Dear Abby, whose advice typically ends with “seek professional help,” but in this context, it’s really true. Your book is representative of you and particularly if it’s a marketing vehicle for your business, it’s even more critical that it looks as powerful as you and your message, and as professional as the products or services you’re selling.

I started with a quote from Churchill, so I’ll finish with a quote from Abraham Lincoln: “He who represents himself has a fool for a client.”

Training and Development: Obstacles to Presenting Meaningful Business Results

If you are in the field of training or learning and development then you realize that the growth of employees is essential to the competitiveness of an organization.

Unfortunately we cannot assume that everyone is just going to see the value that training interventions will bring to an organization, business development departments must make a case for this value.

Since training is often viewed as a cost sucking department, it is important for training professionals to take important steps in the training process to make sure we have the best odds of presenting value!

This means before we even go about designing training that we actually conduct a needs assessment.

By finding out what problems we seek to solve we can determine if training is even a logical solution. Sometimes there are systems in place that can be altered to fix this. We also can find out what exactly the learning gaps are that we need to address.

Without finding out all the factors that impact our training results first, our training design is not likely to be effective. It is also crucial to include the perceptions and input of those who will actually participate in the training!

Once the training needs and obstacles are determined it makes the training design and evaluation process much easier.

Then the training can be designed to actually target performance indicators that we know we have a good chance of actually effecting by our training!

Once we design the training we must not stop there, we must then actually find ways to demonstrate that value through the training evaluation

The training evaluation process is actually the most difficult part if you haven’t done a needs assessment! And most companies just assume training works! This assumption can come back to haunt us once it comes time to cut costs and we cannot demonstrate our value to executives who will surely expect quantitative results to justify our existence!

In general, it is always better to under promise and over deliver. And if you forget anything, make sure you clarify what executives and business leaders expect your training results to look like. This can help you either manage their expectations or design a more targeted approach to the learning.

Even if the executives who are asking for the development of the training program do not ask us specifically to evaluate the training, we must take the initiative to do it anyway! The only way we can help executives see the value of our role in organizations is by aligning our outcomes with important goal’s of the organization!

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