Friday, June 5, 2015

4 Simple accounting tips to keep your business on track

Being it that we are in the Calgary bookkeeping service industry, we've seen many businesses get off track because of procrastination or just plain being too busy. It seems like every week or two we get a new client that has at least 2 or 3 years of unfinished bookkeeping and unfiled taxes. We know how stressed out and uncomfortable this can make a small business owner feel, because finances are the main reason we are all in business.

Of course, we realize that organizing receipts and entering debits and credits is not everyone's forte. we know not everyone is going to keep their accounts up to date diligently each month. that's why we're in business. Our goal is to help small businesses with bookkeeping and tax preparation, because not everyone can do it themselves. today we want to give a few tips out as freebies to the do-it-yourselfer bookkeepers out there. These are simple accounting tricks that will guarantee you won't fall behind in your books anymore. we follow these tips in our business and we advise clients to do the same in cases where they are doing the bookkeeping and handing off the QuickBooks files to us at the end of the year for tax prep. Without further ado, here they are:

1. Set a schedule to reconcile accounts

Your bank accounts, credit card accounts, and cash clearing accounts need to be reconciled on a regular basis. we suggest each month if you have employees and have moderate to a large amount of transactions going on. Mark it on your calendar each month, because missing a month or falling behind and then trying to reconcile accounts can get messy and confusing. this is number one in our bookkeeping tricks for a reason. It's so simple yet this is the number one problem people face, consistency in reconciliations and entering financial data. If you do not use accounting software such as QuickBooks or simply accounting or wave accounting, even writing down transactions on a general ledger paper notebook can help you track income and expenses to get a pulse on how your business is doing.

Smaller businesses may opt to reconcile each quarter so that they have the profit and loss statement to see how their business is doing. this is fine if you use QuickBooks Online or QuickBooks desktop version and have a smaller sized business with few transactions each month. We would set the benchmark 100 transactions. if you have less than 100 transactions in a quarter, you are probably OK to do the bookkeeping once a quarter instead of once a month. also, a key factor in how often you will need to reconcile accounts is how often your GST remittances are due. if GST is due each quarter, and you have few transactions to reconcile, doing the books each quarter is fine. If GST is due each month it just makes sense to book keep each month.

2. Study the P&L statement

The profit and loss statement is the lifeblood of your company. you need to be studying your profit and loss statements each month to see how are you are doing. It's a good idea to have a look at these statements every month and compare them to last month as well as the current month in the previous year. Some businesses are seasonal and it is inevitable that they will make more money in certain months. for example, a landscaper is going to make more money in the summertime if his main business is designing new landscapes.

The profit and loss will also tell you what's your individual expenses are. From there you can better understand how well advertising is working and when too much money is being spent in certain areas. Keeping a close eye on the profit loss statement can even indicate if employees are using company vehicles for personal use or if too much money is being spent in certain accounts. The small business owner, you will want to know these statements like the back of your hand and before too long you should have a pretty good idea of what will happen if you spend a little extra in advertising or what percentage of your gross income goes towards the cost of goods. Good business people know the ins and outs of a profit and loss statement.

3. Keep a close watch on accounts receivable and accounts payable

I remember working with a business that was doing really well. there was plenty of work and new work was coming in regularly. Yet they were struggling because too many of their clients were not paying fast enough. Money can go quickly into new jobs in new contracts, if the completed jobs do not pay it can really hurt the business. The accounts receivable is the best way to see which clients are paying and which take too long to pay. For clients that take a long time to pay, you may want to consider progress billing or higher deposits for future contracts. some businesses will just have a higher accounts payable for whatever reason. You will have to expected this and have cash to be able to float your business during the times that you were waiting to collect payments. Using credit cards or line of credit can get expensive and is not a smart way to float your business since you don't know how long you'll be waiting to collect that money. keep a pulse on your accounts receivable so that you know what to expect and take action based on that.

With accounts payable, you'll be able to tell what's left for you at the end of the day. Some businesses think they do much better than they actually are doing because they are constantly paying bills. if your business has high overhead costs, the accounts payable is something you want to go through carefully so that you know what to expect and you can float your business in times where income is not as high.

4. Know your balance sheet

The balance sheet is one of the most popular reports in accounting second to the profit and loss. It is such an important financial report because it compares assets and liabilities. The basic formula for each balance sheet is going to be this:

Assets = liabilities + equity

An asset is anything that is owned by your company. this is the most popular name for things owned by your company, but some people refer to them as resources. an asset can be vehicles, cash, bank accounts, supplies, machinery, and equipment. These all show up on the balance sheet.  accounts receivable is also an asset because it represents money that is owed to the company but has not yet been received.

Sometimes on balance sheets we will see prepaid expenses. let's say that a company pays 5 years worth of rent , but it only can expense the first year on a tax return. the money that it spent on the other four years of rent will go on the balance sheet as an asset.

Depreciation is also under the assets on a balance sheet. this one is different though, because it will be a negative. this is called a contra asset because it shows how much depreciation has been deducted from the  assets to current. Once the asset reaches 0, the asset has been fully depreciated.

Under the assets are the liabilities on a balance sheet. liabilities are obligations that the company needs to meet in the future. These can be alone or notes payable, interest payable, wages payable, taxes payable, or any other accounts payable. The less common liability would be down payments and deposits for work not yet done.

The Shareholder's Equity is the difference between the liabilities and assets. There are other items in the equity section of a balance sheet such as common stock and retained earnings. The common stock is the amount that the stock owned by the shareholders. Typically this is offset in a shareholder loan account.

The balance sheet is a simple accounting tool that any business owner can use to see what the company is worth and what changes have occurred over time.

These are some of the accounting basics for any small business we implement with the clients we work with as a part of our bookkeeping services. Send us an email if you'd like us to help you with bookkeeping, accounting, or tax preparation services. Dymas Services Ltd. is based in Calgary, AB and offers remote bookkeeping to businesses across Canada.

Contact Dymas Services Ltd. Today 


Post a Comment