Three Statements that Complete Your Financial Puzzle
As a small business owner you are receiving money and spending money (credit and cash). It is not easy sometimes to put all the pieces together so you understand how your business is doing. Understanding the information that completes that financial puzzle is vital to the success and growth of your company. Three financial statments that you need to understand, review and analyze are the:
- Balance Sheet
- Income Satement
- Cash Flow Satement
Balance Sheet (Assets = Liabilities + Owners Equity)
The balance sheet shows us What We Have and Who Owns It. What We Have are the Assets of the company, such as Cash, Inventory, Fixed Assets. Who Owns It is the Liabilities and Owners Equity of the company. Liabilities show what we owe someone for something we purchased or a service that was provided, such as Accounts Payable and Loans Payable. The liabilities show what we owe within a year and what we owe for multiple years. Owners Equity is what belongs to us once the liabilities are paid and includes the Net Earnings, and Cash Contributed by you.
The information shown on the balance sheet is the cumulative effect of what has happened for a period. So, what you see on your balance sheet is what is true for today. It does not show you the detailed transactions of how you got to those numbers. It does show you the end results of all the transactions that occured.
Income Statement (Gross Sales – Cost of Good Sold (or Services Provided) = Gross Profit *** Gross Profit – Expenses = Net Profit or Net Loss)
The income statement shows us the details of being in business. It shows the scenery of the trip not just the resulting destination. It shows all the sales we made during the month, but that’s not the entire picture.
We spent money during the period too. Some of the money was direct result of the product or service sold…known as Cost of Goods Sold (or Cost of Service). If we sell lemonade, it is the value of lemons and sugar used to make the lemonade that was sold; and if we made the lemonade, it is the payroll amount of the hourly employees who used the lemons and sugar to make the lemonade.
The Expense portion of the income statement are the result of keeping the business open but do not directly impact what we sell. Some examples are office supplies, salaries, tax payments, insurance, rent, etc.
So, to get the true profit we have to deduct what we spend from the total sales. Breaking it into sections related to making the product and running the business helps us assess how we are doing. (I will write about analysis in my next blog.)
Cash Flow Statement (It is all about the cash…not the credit)
The cash flow statement shows us what we spent and received in cash. The income statement shows us expenditures and receipts for both cash and credit transactions. This statement helps us analyze the actual green stuff spent and received in our business. This does not include what customers owe us or what we owe vendors, or any transactions that show an increase or decrease in our asset value that does not include cash. It only shows us the actual cash transactions.
We spend cash for various reasons, and this statement breaks it down for us. It shows cash spent for daily operations and investements. It also shows us cash we have received from sales and investments. It does not include any non-cash transactions, like credit transactions and depreciation…which are detailed on the income statement.
The cash flow statement is important for those businesses that use the accrual method of accounting. Most businesses use this method unless you carry inventory.
I know this is a lot of information to cover in one blog. I am here to answer any questions on how to help you understand your business, and how to help you get to the next level. Contact me if you want to talk. I’d be happy to help you out. http://dlhaccounting.org/contact_us.html
Tips for Collecting Customer Payments
When you bill customers for your services, it is sometimes difficult to collect payments in a timely manner. So, you must have methods for how to make it more appealing for the customer to pay you early or on time. In case those methods do not work, you then need a plan for how to collect when checks bounce or payments are late. As a small business owner positive, steady cash flow is something you need to stay on top of.
Following are some tips that may help in improving on time or early payments from your customers:
Offer Early Payment Discounts
Customers may be lured by the idea of receiving a discount. For example offer two (2) percent off if the invoice is paid in full within 10 days. You could also offer a discount for payment in advance.
Charge Fees for Late Payments
Note on your invoices that fees will be assessed for payments not paid within the terms you have agreed to with your customer. If the terms are to pay in full after 30 days. Charge between 2 and 5 percent per month after the 1st 30 days. In my experience, some customers will not pay the late fee when finally paying the invoice in full. At that time, you will need to determine if you want to take further action.
Offer a Choice of Payment Methods
Accept cash, check, and credit card payments for your services. Also, take advantage of the online payment options such as PayPal for payments. My accounting software allows me to accept credit card and cash payments securely online. I can also use the same system to email the invoice rather than mail it. If the customer likes paper and regular mail or you are not equipped to handle online payments, send a stamped, pre-addressed envelope with the invoice.
Even with making paying you easier, some customers just continue to refuse to pay. In those cases, you have some options for collecting what is due.
Call or Send Reminder
If the customer usually pays on time, but is now over 30 days late, call them with a friendly reminder. You may be able to receive information as to why the payments have not been made. It could be as easy as the invoice was lost. If you feel uncomfortable calling them, just send a friendly letter reminding them of the invoice that is past due.
Send a Statement
One month after the due date, send a statement detailing the invoice(s) due along with the late payment fees.
Hire a Collector
If you are uncomfortable with the idea of collection, then hire a professional collector to handle this for you. Do this only after the above attempts have failed and you can justify the cost of hiring someone.
Small Claims Court
This is an option if all else fails. Again, if you are uncomfortable, you could hire a lawyer or professional collector to handle this for you.
Stop the Work or Hold On to the Finished Product
It is difficult sometimes to think someone would let you do the agreed upon work then not pay you for it. Unfortunately it does happen. If payment is an issue discontinue the work until the customer is able to pay you. If the work is complete, then keep the finished product in your hands until payment is received.
Just having a plan on how to handle customer payments helps reduce the stress of what to do when it a late payment or non-payment does happen. Sometimes customers have temporary setbacks and you can work with them. However, sometimes they are just not going to be able to ante up and pay what they owe you. Hopefully this gives you some tips on how to handle these situations.
If you have any questions concerning this and other accounting processess, please contact me: www.dlhaccounting.org/contact_us.html
Advantages of Cloud Accounting
You’ve probably been told at least one time in your life to get your head out of the clouds. You have heard the weatherman broadcast that it is going to be a cloudy day. You look in the sky and may see white fluffy clouds or threatening storm clouds. So, what do clouds have to do with accounting, and how does cloud accounting impact the small business owner?
Cloud is a fairly new techie term for “Online”. So anything you use your computer for online is considered cloud computing. You do it now and probably do not even realize it. You send emails, internet shop, pay bills online. These are all forms of cloud computing. There are many more options available online now, such as getting your accounting services online.
Accounting service options are evolving. Now a small business owner has the option of cloud accounting. Who would have ever thought accountants could provide their services without ever stepping foot into the clients office.
Many small business owners wonder if online accounting is really a viable option. There are all those security concerns. Think about the online services you already use. Millions of people also use those services every day. They are password protected, encrypted and who knows what else to ensure their security. The point being is that they are very secure. So, cloud accounting follows the proper security protocols that should put your mind at ease. Not only is it secure cloud accounting provides other advantages.
Cost Advantages
You do buy the online system. So the initial costs are of a small business accounting system are around $300.
You do not have to buy multi-user licenses ($300 per user).
You do not have to purchase a dedicated server for the software. (cost varies based on size need)
You do not have to hire anyone for maintenance issues and server crashes (maybe $1,000 per year).
You do not have to buy a maintenance contract. Maintenance downloads are included in the initial price and done automatically.
You do not have to use your car to go to the accountants.
You can benefit from lower accounting service rates.
Access Advantages
You can access your system no matter where you are as long as you have a computer and internet access.
Your accountant can also access the system from where they are.
There are even some transactions that can be done from your smart phone.
You can hold live meetings online.
You can receive live training for your bookkeeping staff online
Time Advantages
If something comes up you do not have to schlep over to your accountant’s office.
You do not have to clear your calendar for the day the accountant shows up.
You and your accountant can access it when it is convenient.
You do not have to take the time to backup your data…it is done automatically for you.
Security Advantages
You do not have to bother with storing backup offsite. Backups are done for you and stored securely offsite. They backup every day.
You don’t have to worry about floods, thefts, server crashes, and data loss
Green Advantage
You can scan your documents into an online storage system which are easily accessed when needed (such as at tax time)
Not all accountants offer cloud accounting, but it is definitely something to think about when looking for an accountant or searching for accounting system options.
Maybe having your head in the clouds is not such a bad thing afterall.
Contact us if you have any questions or interest… http://www.dlhaccounting.org/contact_us
Accounting Tip for Small Business – Payment of Bills
Do you feel like you have a good handle on the payment of bills? Do you have a consistent process that you use so it is not a last minute afterthought? If not, you need to consider creating a process that works for you and your business. I have suggestions, but in the end it has to be something that works for you. Some suggestions you may want to consider are:
Know your cash balance
- I know too many business owners that have checks bouncing all the time (That’s $30ish charged by the bank per bounced check)
- Better planning of expenditures can be made with this knowledge
Know your fixed expense amounts and when they are due
- This includes everything you pay each month no matter how good business is (rent, utilities, telephone, office supplies, loan payments, etc.)
- Again, better business planning can happen
If you are a rather small business, then maybe one day a week or every two weeks can be established as ” bill day”.
- When bills are received have a designated place to put them until you can address them on “bill day”
- If you have accounting software, enter all your bills and due dates
- Check your accounting system for what bills are due and pay them
- If you do not have accounting software, then you may want to use a tickler file system with dated tabs. Pull out the bills due on “bill day’ and pay the
- RECORD all payments with the invoice number noted. Make sure your account numbers for the particular vendor are written on the check to ensure payment is applied properly.
- File paid bills by vendor name so they are easy to find if your need them at a later date. Either write date paid on the invoice or use a date stamp (doing this will help prevent double payment)
All in all, it just takes having a system and sticking to it. Hopefully it will make this job less frustrating for you.
Hope this helps. Get in touch if you have any questions. J
Social Networking as a Marketing Tool
My quest is continuing. I want to understand and master marketing my business using social networking as an important marketing tool. I have done a lot over the past week to move this quest forward in this networking arena.
- Taken live and online courses
- Inuit Webinar with Clara Shih – Author of The Facebook Era
- Rain Ohio sponsored training with Elizabeth Cobb – Social Network Marketing
- Read several articles on social networking
- Following Blog and Social Networking Experts on Twitter and Facebook. I recommend the following highly:
- Blog Squad – Denise Wakeman
- Social Media Examiner – Well respected in the social network groups
- Clara Shih – Author of The Facebook Era; CEO of Heresay Labs, Inc
There is a lot of information and it is really overwhelming. However, I think I found some reliable experts. I have started using some of their suggestions. So here’s what I’ve done so far:
- Prior to this I was a member of Twitter, Linked-In, Facebook (personal page), and RainOhio. I tweeted a little, but never put comments on Linked-In and Facebook about my business or any business type recommendations.
- Now when I have something to say I can write a short comment giving tips, suggesting links, etc by using Ping.fm. I sign in to Ping and write my (140 character) comment and it gets published to all the sites simultaneously. You can also limit which sites get your comments if you want.
- Started a Blog – all experts said this step was the most important
- Set up company Facebook page
- Make sure you set it up without being logged in to your personal page
- You need only 25 “fans” to obtain a personal URL for your company page. Prior to that the URL is way too long to use. Currently I have 11 fans so the URL is http://www.facebook.com/pages/DLH-Accounting/117086038331430 . Once I get 25 fans my URL will be shortened to something more useable (colleagues can just search your company (i.e. DLH Accounting) in Facebook and click the “Like” button at the top of the page to become a fan
- There are many great apps available for the business pages to help you personalize it. I’ve just started so I have a way to go to personalize it for my company. It’s a start though.
- If you sell products, you can use the page to show and describe your products as well as add buttons for ordering (Pretty cool) – Check out the Domino Pizza Page
- For services, I assume you can also set up buttons to contact you for services. I want to think about this and try to come up with a clever way to do it.
- Facebook ads are available and are very inexpensive. When setting them up it allows you to hyper-target your market. There are over 100 million Facebook users. I targeted my market and still have a potential customer base of 3 milion users that will see my ad. Pretty powerful stuff.
- Linked Blog to Facebook, Twitter, and Linked-In using:
- Twitter Feed (www.twitterfeed.com) links blog to Facebook and Twitter within an hour after I publish it
- WordPress application in Linked-In links blog to Linked-In right when I publish it (Linked-in also has other Blog post apps)
- Other things I will do this week:
- Save my blogs as .pdf documents containing my name as the author and a short bio about me and my business
- Upload it as an ezine article (Denise Wakeman and Social Media Examiner recommend www.YuDu.com as a good place to start)
- Record it in audio form and upload it to iTunes as a Podcast (free)
- Record it in video form and upload it to iTunes and YouTube (I have to get up more nerve to do this one)
Not much in the ways of results yet, but so far I have 15 fans on my Facebook page, and I have increased my Twitter followers from 10 to 35. Minor, I know, but I’ve only been blogging and tweeting for 3 days and my Facebook page is only 4 days old (2 business days). I’m encouraged and eager to see what happens.
Getting all this going took several hours, but now I just have to focus on my Blog and writing a few comments using Ping and the rest is internet magic.
Is Your Time Wasted On Small Business Accounting?
I have observed in my interaction with small business owners that there is a passion for what they have created. They love the product or service they provide. They love the customer interaction. I understand that…I, too, am a small business owner. My main reason for being in business is to provide other small business owners some tools for making their business successful long term. I love what do!
What I do is provide accounting and bookkeeping services to small businesses. I do it because I see the value of such services for small businesses. Accounting is not just about the numbers. It not just about tracking receipts, paying the bills and reconciling bank statements. Yes, it is important to do these things. Doing these things and keeping these records up to date can provide you with invaluable information for analyzing trends. Trends that might help you make decisions on how to make the decisions on the path your business takes.
Having said that, many small business owners do not love is the accounting side of the business. I get it, they want to work on the core part of your business, and this never ending paperwork is not on the top of your favorite activities list. Even though there are countless studies showing small businesses failing, some tend to bury their head in the sand and ignore that statistic.
If I have gotten your attention and you are still reading, there is more than one choice in addressing the accounting requirements in your business. Here are a few examples to get you started:
- Develop good habits and processes. For example:
- Pick one day a week to pay your bills and deposit your receipts
- Record the checks you write and the deposits you make (in your check register or in your accounting system)
- If anyone is late paying you for your service, deal with those issues one day a week also
- Hire an accountant or bookkeeper if you have a lot of transactions or complicated transactions
- Outsource to find the accountant experience you need when you cannot afford to hire an accountant (check out my blog entry from May 14, 2010)
- Analyze your trends of expenses and receipts monthly and compare to prior months
If your business is small enough, you may be able to keep your records manually. If you need a little more sophistication, buy a small accounting software system. There are many out there, so ask around to find out what other small business owners are using. These systems are inexpensive and very powerful, providing information and forecasting capabilities that you may never have thought of before.
So, if you want your business to have the chance to succeed and grow, add small business accounting tools to your businees toobox. Is your time wasted on small business accounting? Absolutely not!!!
Growing Your Business With Networking
I have been on a quest. The quest of finding the most effective ways of marketing my small accounting services business. What I have found is that Networking is the key. Networking comes in two forms, and both are important.
Face to face networking is what most of us are familiar with. You go to events that are hosted by networking organizations. You mingle, introduce yourselves, pass out business cards, receive business cards, etc.
I love networking face to face, learning about other businesses. What I don’t like about many of these events is the hard sell from some of the business representatives. That’s a real turn-off for me. My favorite networking events are sponsored by RainOhio. They suggest making relationships, not selling. That approach makes so much sense to me. By building relationships, my business stands a better chance of getting a referral. On the other hand, I will refer someone’s business if I have built that relationship. Consequently, just going to the event is the first step, the next step is meeting one on one with those you meet at the event to start building those relationships. This form of networking is personal and powerful. Once the referrals start coming, your business can really take off.
Social Networkingis another form of promoting your firm. I am very new at this, and have been attending live and webcast training trying to learn as much as possible about this form of networking. This is where the true marketing power resides it appears. Through this type of networking you can not only develop relationships, you have the power to reach millions of people to whom you are targeting your business. Here is some of what I have recently learned about this power potential:
- Facebook has 400 million users who are online with it 22 billion minutes per day!
- Facebook’s growth has been from people ages 35 – 49
- Twitter and Linked-In have 50 million users each!
- 73.5 percent of companies consider social media top priority in 2010
Sources: Clara Shih of Hearsay Inc., author of The Facebook Era and Forrester’s Interactive Advertising Models, 4/09 and 10/08 (US only)
With Facebook there are multiple ways of getting your brand out there such as: Profiles, Pages, Ads, and Apps. They provide applications that allow you to hyper target your market. I just looked at how many users that are within my target market would see an ad I post in Facebook. More than 3 million targeted users would have the opportunity to see it!!!
I have been actively networking face to face for several months now and have definitely seen the benefits of the method of marketing. I am brand new to social networking. It may take a month or two to really take hold, so I have to learn patience. I’ll keep you posted as to what works and what doesn’t after I see some results.
Outsourcing Your Accounting
You hate the accounting part of running your business I bet. Yet, you still try to do it all. You can’t really afford to hire someone full time, and you work out of your home so logistics are a problem. Outsourcing may be for you.
So, what exactly is outsourcing?
It is the act of hiring an independent contractor who is an expert at a specialized service, such as:
- Accounting
- Bookkeeping
- Payroll
- Taxes
It’s often difficult to decide if you need to outsource or continue to try to do the work in-house. To help you, do you:
- need to spend more time on your business?
- not really know how to proceed with your bookkeeping?
- have months of bank statements that not reconciled?
- have recurring overdrafts?
- cronically file and pay business taxes late?
- not know if your company is profitable?
- love getting paid but hate processing payroll?
- need more time at home?
If you answered “Yes” to any of the above questions, then outsourcing may be for you. Some of the benefits of outsourcing are:
- Greater control over business and accounting functions
- Expertise in multiple fields and industries
- Freedom to focus on your business
- Up-to-date accounting that you can review any time
- Accurate, useful, timely financial and operational reporting
- Elimination of the stress involved recruiting, hiring, and managing a clerical staff
- Peace of mind that your books are properly maintained
If you think oursourcing is for you, do not wait until your are desparate before reaching out for help. Allow time for evaluation. Through the evaluation you will have a better picture of what you are looking for, such as:
- Services required
- Industry expertise
- How the work will be coordinated and performed
- Where the work will be performed
- How much time will be required to perform the work
- Accessibility requirements
- Personality fit
In addition, it is important that you understand the contractor’s rates and how you will be billed.
As you are deciding what is best for your business, remember that the outsourcing relationship is a business partnership, and you want to create a partnership that is valuable and comfortable.
