Good Accounting Helps Make Sense of Growth

Starting a business is one thing.  Typically, you're going to be spending more than you're making— at first.  Then you see it grow.  People like what you’ve done, hooray!  You see sales are up and you start thinking growth.  But how? Which way?  How much?  It can all seem so unclear when you’re thinking about expanding while trying to keep up progress at the same time.  There’s one thing that can help make everything clear and it’s not magic— it’s good accounting.

I’ve written about ways to track growth and how good accounting can lead to smarter investments of your company’s money.  This article by Kangelon Dexter overviews those basic points by asking a few questions:

Can You Answer These Questions About Your Business?

When you’re growing your business, it’s a lot like being a race horse with blinders on. You’re focusing on the goal ahead, and not paying a lot of attention to what’s going on around you. It’s great to be hyper-focused in the short term, but eventually you’re going to need to take off your blinders and look around. Are you headed where you need to be? Do you know?

While you can’t predict the future, there are a lot of questions you can answer about your business with the right reporting. With built in reports, and business insights, Sage One can help you answer important questions and tell you exactly where you stand. Can you answer these important questions about your business?

How much are you *really* making?

Reviewing cash flow statements and assuring that you’re making money is important. But cash flow is only a piece of the picture. Profit and Loss statements are based on accruals, and will give you an overall picture of how your business is thriving – or not. Without it, you’re operating in the dark. Reviewing your profit and loss statement on a monthly basis will help you make important decisions about your business finances.

How much money will I be making – most likely?

This might be the closest thing you have to a crystal ball for your business – a cash flow forecast. This report estimates how much you will most likely bring in and how much you will most likely spend in the next set period of time. Using projected income and expenses, a cash flow report will help you predict any upcoming surpluses or shortages and plan accordingly.

Which clients are overdue on their invoices?

As a small business owner, you’re busy. You don’t have time to constantly follow up with clients who have overdue invoices. You need a clear way to see who owes you – and who is the most past due. An accounts receivable aging report breaks down unpaid invoices into 30 day chunks (typically) so you can see who is a month late and who has owed you for an entire season. It’s a simple way to get an at a glance view of who you need to follow up with.

For the full article featured on Sage, by Kangelon Dexter, click here.

Small Business Checklist: 15 Accounting Tasks

     As the end of the year arrives, business owners should be thinking about their strategies for the upcoming year.  As your business grows from year to year it is important to track your finances to keep its growth successful and healthy!  Making a routine of tracking your finances can help you make more business savvy decisions when you have to make them, like where to cut costs or when to finally invest in that big money item.  Here's how to start making your accounting tasks part of your business routine.

Daily

1. Check cash position— Cash is the lifeblood of your company, keep it pumping so your business thrives.  Begin the day with an overlook of how much you have.  How much you expect in payments and how much you expect to spend is useful to keep in mind for the future as well.

Weekly

2. Record Transactions— Every one of them.

3. Document and file receipts— Best if scanned to a computer that sorts them automatically. Keep your statements, invoices and vendor files organized.

4. Review unpaid bills— Keep an “unpaid” folder to track of what you still owe.  If there are discounts to take advantage of for early payment and you have the cash on hand, do it.

5. Pay vendors— This is where technology becomes helpful.  Get reminders for upcoming payments due to avoid late fees, make automatic payments and keep copies of invoices.

6. Send invoices— Include payment terms (generally give a 30-day grace period).  If you don’t specify your due date, other businesses won’t prioritize paying you.

7. Review projected cash flow— So critical.  A realistic forecast of how much cash you need in the upcoming months will help you plan and maker better business decision on how to spend.

Monthly

8. Balance your checkbook.—  Reconcile your business' checking account.  It helps you discover inaccuracies and oversights by either you or the bank, so you can correct them quickly.

9. Review past due receivables— Separate “open” invoices with “overdue” ones.  Send outstanding reminders at the beginning of the month and to anyone else who owes money.  Keeping this column will help you determine what to send to collections or what to write off at the end of the year.

10. Review current monthly balance sheet vs. previous month— Determine whether or not there is significant up or down activity in managing your assets and liabilities.  Then set out to understand why.  Are you up because of increased sales or down because of unpaid invoices?  Determining the cause will light the way to resolving any problems.

Quarterly

11. Review payroll reports and make payments— You’ve been withholding income tax, social security, Medicare and disability taxes from your employee’s paychecks (usually semi-monthly).  The IRS and most states require quarterly estimated filing and payments.

12. Calculate estimated income tax and make payments— Review your year-to-date P&L statement to determine if your business is required to make estimated quarterly tax payments.  Your tax accountant can help you determine your status.

Annually

13. Review your inventory— Calculate the value of items not sold if your business has an inventory.  Write-down of inventory translates to tax deductions at year’s end.  Don’t pay additional taxes on unsellable inventory by overstating your inventory balance.

14. File taxes— Report the earnings of your full-time employees by filling out W-2 Forms.  Use 1099s for independent contractors you paid more than $600.  Mail out forms to your employees by the January 31 deadline.

15. Review and approve annual financial reports and tax returns— When it comes to filing taxes, accuracy is your responsibility.  Review annual reports carefully, if you've been keeping up all year, this won't prove too difficult.  

While this is by no means a comprehensive list of everything that pertains to your business, it is a guideline to hold your bookkeeping at bay throughout the year rather than the insurmountable chore playing "catch-up" can be.