While we all have to keep our monthly books up to date for tax and other compliance reporting purposes, we should never stop there. Your books hold a wealth of information that you can use to run your business better. Here are five reports you should never be without.
Budget-to-Actual Profit and Loss Statement
Hopefully, you’ve already seen how powerful the Profit and Loss Statement is. Let’s take it a deeper level and add budget comparison to it. With this addition, you can plan your way toward the sales and profit figures you want. You’ll know every month whether you’re on track, ahead of the game (give yourself five stars!), or need to hustle to make it up next month.
Most accounting systems allow you to enter monthly budget numbers for your sales and expense accounts. You can enter them at the beginning of each year and adjust them throughout the year. It’s kind of like having Google Maps on a cross-country journey. You will be able to see where there is construction and traffic, so you can take another route. You can also see where there are cool places to stop, so you can take advantage of the fun. Your numbers tell a story.
Actual-to-Prior-Year Profit and Loss Statement
This is an easy report to generate, assuming you have at least two years’ worth of information in your accounting system. This report allows you to compare your business’s results for this year with how you did last year. Are you ahead? Behind? Have new products and services? New employees? New expenses?
With this comparison, you can take action based on how you would like your business to perform this year versus last year. While this report is readily available, few businesses study it to glean the insights available, so be sure to spend some time analyzing the data in this report.
Sales by Item, Customer, or Division (or All Three)
Inside every business’s sales information is a treasure trove of possibility. Where are you seeing growth, and how can you capitalize on it? Where do you see a slowdown, and can you run a promotion to juice things up?
Choose the breakout – customer, item, division, or another – that is meaningful to your business type. If possible, arrange for a searchable database so you can drill down into the detail even more. What trends do you see? What opportunities do you see?
To find out more about your profitability and to get into the details of how your expenses are matching up with your sales, you need to review your operational accounting reports. The exact report will depend on the type of your business. If you are in services, you’ll need payroll reports and time sheets. If you are in retail, you’ll need inventory reports. If you are in construction, you’ll need job cost reports. And if you are in manufacturing, you’ll need cost of goods sold and other reports to evaluate assembly and production efficiency.
The last report that is essential for good business management is all about cash. There is more than one option here, and these reports can include Accounts Receivable Aging, Accounts Payable Aging, cash flow forecasting, and various cash flow reports.
If you grant customers credit, you’ll want to actively make sure that money is collected on time from clients. If customer balances get too old, action must be taken. Even if you don’t grant credit, transactions such as returns, expired credit cards, and bounced checks need special attention.
The same is true for amounts you owe to vendors, with the Accounts Payable Aging report.
If you run tight with your cash balance, you may want to have a cash flow forecasting report on hand. This report gives you good warning as to when your bank balance may dip below your needs. You can then delay vendor payments or find an infusion of cash to cover the shortfall.
With these five categories of reports, you will have dozens of opportunities to be proactive about running your business and improving your results. And if we can help you find or generate them, please reach out anytime.
The Chart of Accounts is the backbone of your accounting records. It is a list of all of the accounts – bank, loan, asset, revenue, and expense – in your General Ledger, which holds all of your accounting transactions.
Think of your Chart of Accounts as a collection of buckets that hold dollars of items related to your business. Each bucket should be meaningful and have a purpose. For example, if you have three checking accounts, you need three buckets on your Chart of Accounts to hold the transactions for each bank account. It would not make any sense to have more or less than exactly one bucket for each checking account.
While it’s standard to have certain buckets or accounts for assets, liabilities, and equity, the number of buckets that you create for revenue and expenses can vary greatly from company to company. It makes sense to create and design your accounts for what you need for tax, accounting, and decision-making purposes in your business.
Let’s say you are a hair stylist. Do you want your revenue to be in one big bucket? That’s all that Uncle Sam requires. But for decision-making purposes, you may want to break out men’s and women’s services, or cuts versus color and other treatments, or both. In that case, you would have four revenue accounts: men’s cuts, men’s color, women’s cuts, and women’s color. This type of detail would help you see where your revenue is highest so that you can better manage your supplies as well as target your marketing to that group.
Having certain expense accounts matched to the tax requirements can reduce extra work at tax time. For example, separating travel costs – hotel and airfare – from meals and entertainment is a common one, as is keeping meals and entertainment separate.
The goal is to get your Chart of Accounts working for you. If, when you first set up your accounting system, you accepted the default Chart of Accounts, it may be time to redesign and restructure the list so it serves your needs better. Here are some additional considerations.
- What revenue or expenses do you want to watch more carefully? Should they be broken out in more detail? You can also use subaccounts to group transactions.
- Is there cleanup work to do due to misspelling or other duplication?
- Have you interviewed all the financial information users in your company to see how they need the data organized?
- What spreadsheets could be eliminated if the Chart of Accounts was better organized?
- Does your Chart of Accounts support your budgeting process? If two people are responsible for controlling spending from one account, would it be useful to break it out?
- Do you have too many accounts? Or too few? (Most people have too many due to poor data entry hygiene.)
- Are you properly using other categorizing features in the accounting system, such as classes, divisions, and custom fields?
- What reports could produce better information for taking profit-focused actions in your business if the Chart of Accounts stored the transactions differently?
- How could key performance indicators be better linked to the Chart of Accounts?
These questions can help you begin thinking about how your Chart of Accounts can better serve you. After all, it’s your business, your accounting system, and your Chart of Accounts.
And if we can help you through the redesign process, please let us know.
Are you familiar with Clubhouse? This social media platform is still pretty new, but currently picking up steam. Perhaps one of the easiest ways to describe Clubhouse is like this: When you were a kid, did you ever hold a glass to a wall with your ear glued to it in order to hear the conversation in the next room? Clubhouse is kind of like that, only scaled and organized.
Clubhouse is an audio-only platform where you can start a room based on a topic and others can join the room and conversation. You can bring people up to the “stage” who have raised their hand. The platform supports multiple languages, and at any one time, you can see rooms in Russian, Spanish, Mandarin, German, Japanese, English, and many more.
Think of Clubhouse this way: It’s like an interactive live podcast. The platform hosts both personal and business conversations, so there is a lot of noise to wade through, but that’s true of every social app. Many people love the lack of video that is so pervasive on other platforms.
The main newsfeed in Clubhouse shows active rooms that you might like. To join a room, just click anywhere on the room description. Once in a room, you should hear the speakers talking, or you might hear music if it’s a concert. You are muted until you are invited on stage.
In a room, everyone can see everyone else’s avatar. Clicking on other people’s avatars is encouraged and brings up a bio and direct links to the person’s Twitter and Instagram accounts. You have lots of space on Clubhouse to build an extensive bio, and this is primarily how other people in the room can get to know you, along with hearing what you have to say if you participate.
Clubhouse is an entirely new and fresh way to market your business and let people know about your products and services.
When it comes to running a successful business, how important is it to be organized? In a word: very. Now, how would you rank your organization skills? Honestly, the answer really doesn’t matter. We can always get help from technology, and this is where Airtable comes in.
Airtable goes beyond spreadsheet solutions when it comes to tracking teams, projects, tasks, dates, and other information in your business. Cloud-based, Airtable allows you to organize information in a database – they call them bases – of tables. While databases can be complicated, Airtable makes it easy because it looks just like a spreadsheet.
Airtable allows users to create a flexible database that fits their particular needs. Some of the use cases include project tracking, product development, event management, team collaboration, lists, planning, pipeline management, calendars, and so much more. Templates are available to jump-start your project.
Because Airtable is like a spreadsheet, it has been compared to Microsoft Excel®. However, it is important to remember that Airtable is like a spreadsheet and like a database. Further, Excel can function only as a traditional spreadsheet, while Airtable gives its users more options, especially when it comes to customization.
Getting into the details of Airtable, fields can even be added for attachments, long text notes, checkboxes, links, and barcodes. It provides options for filtering, sorting, and grouping data.
Airtable also provides for integrations with other applications in case you need to move information from one place to another or add functionality.
Airtable has both free and paid plans. You can find out more here: https://airtable.com/
All small businesses need cash to operate, and there are many ways to generate the required cash. The most common way that many businesses get started is when the owner makes an investment from their savings or other personal cash. But what if it’s not enough? In this article, we’ll take a look at some of the more common ways to finance a business.
Most community banks are big proponents of small businesses, so this is a great place to start. Establish a relationship first by opening business checking and savings accounts. Then apply for a line of credit, which is a pre-approved loan that you can tap when you need it.
If you plan to purchase a building or equipment, you should be able to get a loan by using the asset as collateral. Business expansion loans are possible too; you may be able to borrow against your accounts receivables or other contracts with guaranteed income.
Beyond community banks, there are also many online lending agencies, banks, credit unions, and community development financial institutions (CDFIs) to apply to for a loan.
When applying for a loan, you will likely need a good personal credit rating and either a strong business plan or audited financial statements to show the financial condition of your business.
Partners and investors
Investors such as angel investors or venture capitalists can provide cash in exchange for either a debt or an equity position in your business. Obtaining financing this way is a big decision since you are no longer the sole owner of the company if you give away some of your equity.
Another option is to bring a partner into your business. Typically, the partner will provide cash as well as management or other skills that complement yours and be active in running the business with you.
There are many government programs to help with small business financing this year due to the pandemic. The Small Business Administration has loans and programs available to small businesses on a consistent basis. This year, they are also managing the forgivable Paycheck Protection Program (PPP) loans, economic disaster funding, shuttered venue operator loans, and restaurant relief grants, to name a few.
You might also want to see what’s available from your county, city, and community governments. Last, organizations like the Small Business Development Council (SBDC) can provide space, funds, and training to small businesses in their area.
Nonprofits and educational institutions
Your business may also be able to benefit from nonprofits and educational institutions that provide grants, scholarships, and other funding opportunities to businesses and business owners in certain categories. For example, your local chamber of commerce may have programs and funding options available for local businesses.
Factoring is an option for businesses with accounts receivable balances. A cash advance can be made with the accounts receivable balances as collateral. This type of loan is common in the retail fashion industry where items are ordered months in advance of when they are sold, causing a cash flow gap.
Crowdfunding has been made popular by platforms such as Kickstarter. A business can apply on these platforms for funding, and individuals can make contributions. Sometimes the business will promise goods or services in exchange for funding.
Credit card advances
It’s common for owners to put startup expenses on and use cash advances from their personal credit cards. This is one of the most expensive ways to fund a business and should be used as a last resort.
The fine print
All financing options come with fine print. Terms and interest rates vary significantly. Sometimes, there is a cliff, where you have to pay everything back all at once. Be sure to carefully read any agreements you sign and run them by a lawyer if you don’t understand them. Your personal financial situation could suffer greatly if you aren’t careful.
For example, businesses that got a PPP loan and later received a buyout offer may not be able to sell because the loan agreement prohibits them from doing so. If they didn’t read the fine print and sold the company anyway, they are now personally liable to pay back the PPP loan proceeds.
If you have questions or want to discuss financing options, please feel free to contact us anytime.