Are You Making Money?

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When I am helping clients who are new business owners the end goal of financial reporting can be just to file their taxes. What may happen as their business grows is the need for a capital loan to make an investment in their business and then all of a sudden they will need more information at the request of the bank or another third party. I like to empower my clients to understand what is going on inside of their business whether they need funding or are ready to hire a new team member. One of the most important things to know as a business owner is that you are making money. The Profit & Loss can give you that information. 

The Profit & Loss answers the questions:

• What did I sell?

• What did I spend?

• What is left after that?

What Did I Sell?

If you take a look at your Profit & Loss you will see that it is organized to show your sales categories at the top portion of the report. Each category is like a sales bucket symbolizing how you generate revenue for your business. It enables you to compare your sales buckets to see what sold well this month vs. last month or another period. In this way, you can make adjustments to categories that aren’t doing so well and dig deeper into those categories that are selling like hotcakes! The result is your total income amount. 

What Did I Spend?

This section is broken into Cost of Goods Sold/Cost of Services vs. Expenses. Cost of Goods Sold/Cost of Services which are the direct inputs needed to generate revenue. If you offer services and not a physical product then you would look at things like subcontracted labor or a direct third-party vendor you use to deliver a particular service for one of your sales categories. The total Cost of Goods Sold is subtracted from total income to arrive at your gross profit. 

The second part of the “What Did I Sell” section deals with operational expenses. You are going to see things like advertising, bank fees, office supplies, insurance, etc. These are the outputs that are needed to run your business regularly. The key number to look at here is the total expenses amount. The result of this section is that it can help you to see what expense categories are providing a real benefit to your business vs. those you might want to change to get a greater benefit or save money.

Just remember that it usually costs money to make money and that your viewpoint about business expenses should include looking at what is an investment into your business vs. a commodity that can easily be substituted for something else. It’s like going to the grocery store to buy cereal. Some people must buy the name brand of certain types of cereal and others are fine with the store brand. It just depends on what you feel brings the most value to you. 

What Is Left Over?

The bottom half of the Profit & Loss answers the question most if not all business owners want to know which is did I make any money? The bottom-line number is what we all work for right? :) It is good to start with a goal in mind before you start analyzing this number or else it’s just a number without context. If you have generated more sales than expenses then you will have a net profit if you have generated more expenses than sales then you have a net loss as your bottom line number. 

Financial reports help to shape the story of your business. One of the most important questions that all business owners want answers to is are they making any money? The Profit & Loss answers this question by breaking down the report into three sections arriving at the bottom line number which tells you if your business is making any money. It is more helpful to have goals and metrics to analyze your numbers against to spot trends and to make sure you are successfully hitting your business's financial goals.

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How Can I Measure How Well My Business Is Doing?

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You are busy. 

Let’s just establish this fact upfront. 

There are kids to pick up & drop off, shopping to be completed at the grocery store, a house that needs to be kept tidy and that is just the first part of your to-do list. Next, you put on your CEO boss hat and there is a whole list of things that need to be done underneath that umbrella like delivering exceptional customer service, marketing efforts, networking events, professional development, customer meetings, performing the service you offer, and if you have a team then that creates yet another to-do list. 

I am guessing that you haven’t gotten around to looking at your financial reports yet. 

I GET IT!

However, it is super important to check in regularly on the financial status of your business to see how well your business is doing. This can be done weekly or monthly but a regular cadence must be established. So now that you are penciling in this essential task item, let's take a look at how you can measure how well you are doing in your business by looking at your financial reports starting with the Balance Sheet.

The Balance Sheet

The Balance Sheet takes a snapshot of the financial status of your business at a specific point in time. It answers the following questions: 

• What do I own? This can be found in the asset section of your Balance Sheet.

• What do I owe? This can be found in the liabilities section of your Balance Sheet.

• What is left in my business after that? This can be found in the equity section of the Balance Sheet.

The entire picture that can be provided by looking at the Balance Sheet is to assess the net worth of your business. If you were going to sell your business to an interested party does it look attractive?

The Asset Section

In the asset section, you will find the balances of your checking accounts, savings accounts, and any other liquid account meaning if you needed cash you could hypothetically go get the money out of your account. Additionally, you can find the accounts receivable account which keeps track of what customers owe you, equipment, and intangible & tangible assets. The most liquid assets are usually listed first. The more cash you have to take care of operational expenses the better. 

The Liabilities Section

In the liabilities section, you will find all the vendors you owe like your suppliers, credit card companies, any bank loans, lines of credit, and vehicle loans. This section is broken down between current liabilities like accounts payable or vendor payables versus long-term liabilities like bank loans. The liabilities section tracks your obligations to outside parties. This is similar to how you would keep track of your personal finance activity like your mortgage loan, car loans, and personal credit cards. The less you owe others the better. 

The Equity Section

The equity section shows what is left in your business. Investopedia states, “Equity is the remainder value when liabilities are subtracted from assets.” Additionally, the Corporate Finance Institute shares that, “Equity, in the simplest terms, is the money shareholders have invested in the business including all accumulated earnings. The equity section shows the changes in company equity, from an opening balance to an end-of-period balance. The changes include the earned profits, dividends, inflow of equity, withdrawal of equity, net loss, and so on.” 

In other words, this section keeps track of any money that you contributed to your business since its inception which includes any bank account balances that were used to establish the bookkeeping records which are called opening balances. It also includes any money you took out of the business via the ATM or maybe you mistakenly paid a personal expense from your business account (which is a no-no :) but it happens. This is listed as a draw or distribution depending on the entity type of your business. 

All of this is important to understand as the business owner and is a mouthful. I was originally going to cover all 3 financial statements: The Balance Sheet, Profit & Loss, and Statement of Cash Flow but decided to break it down into chunks because it is a lot of meat to chew on. 

I hope this information is helpful to you as we travel on the road to see how to measure the financial well-being of your business.

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Should I Use Budget & CashFlow Forecasting Reports In My Business?

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As a small business owner, I understand that you most likely did not get into business to look at budgets and cash forecasting reports. 

You probably would rather chew paper than think about those words and I certainly would understand. Let’s start with defining exactly what both of these words mean.

According to Nerd Wallet, “ A budget is a way to balance income, expenses, and financial goals for a specific length of time.” I think of it as a roadmap for your business finances that helps you stay in control.

In the same spirit, “A cash flow forecast according to Business.vic.gov.au, involves estimating cash coming in and going out based on past business performance.”

Why Should You Care?

There are a ton of benefits to using these reports regularly in your business: 

• Resource Allocation

• Financial Planning

• Tax Planning

• Cash Flow Management

• Risk Management

• Goal Setting

• Cost Control

• Performance Management

The list could go on but I think you get the idea. 🙂

There are numerous benefits to utilizing budget and cash flow forecasting reports in your business. It can help you to stay in control of your finances, make informed decisions, and help overall with meeting the goals you have for your business.

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The Importance Of Working Capital Management

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Successfully managing working capital is the lifeblood of any business. Let’s first define working capital. According to Netsuite.com, “Working capital is calculated by subtracting current liabilities from current assets, as listed on the company’s balance sheet. Current assets include cash, accounts receivable, and inventory. Current liabilities include accounts payable, taxes, wages, and interest owed. Additionally, key attributes are:

Working capital is a financial metric calculated as the difference between current assets and current liabilities.

Positive working capital means the company can pay its bills and invest to spur business growth.

Working capital management focuses on ensuring the company can meet day-to-day operating expenses while using its financial resources productively and efficiently.

Here are a few reasons why working capital management is important:

Managing working capital successfully helps with meeting your short-term obligations and ensures you have enough liquidity in your business to fund day-to-day operational expenses like payroll, utilities, and other business expenses.

Managing working capital well means that if an operational interruption occurs like Covid you have enough money to keep the business running and prevent major disruptions.

Efficient working capital management can help with managing debt and increasing profitability.

Successful businesses understand the importance of keeping a keen eye on their working capital and cash flow. It is extremely important to put together a plan to manage working capital on a regular basis to ensure your business stays healthy and strong.

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How To Successfully Manage Debt In Your Business?

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Picture this:

You have a growing business, your customers are happy and you are happy providing services to them. The sales are increasing month after month and finally, all your hard work is starting to pay off. There is one problem. You are exhausted and hiring a new team member would be so helpful to take the strain off you and help to keep the momentum going in your business.

You decide to tap into loan solutions to help with cash flow. This isn’t a bad idea but is it a well-planned idea?

Many times as business owners we have to make decisions on the spot to keep progressing forward but using debt without planning for how you will pay it back can be a recipe for disaster. 

What are some key things to consider to successfully manage debt in your business?

• Create a budget plan for how you will pay the loan back.

• Make sure you are considering your business goals when taking out the loan.

• Don’t overleverage yourself and take on too much debt.

• Manage your working capital.

• Monitor your cash flow.

• Negotiate good terms that you are comfortable with.
  

  The financial challenges that entrepreneurs face when they are in a growth phase can be tough. The key to successfully managing debt is first understanding all the moving parts associated with servicing the debt and making a realistic plan to pay it off as soon as possible.

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Got Cash? 3 Tips To Manage Cash Flow

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Cash flow management is critical for any business's success. According to efinancemangement.com “The fundamental goal of cash flow management is to ensure that the incoming flow of funds is always greater than the outgoing so that the business sits on a surplus. 

Here are 3 tips to help you to achieve this goal:

Tip One - Create an emergency fund for your business

According to PNC Bank, “Surveys show that 17% of business owners say that if faced with two months of declining revenue they would have to close, and other statistics show that 25% of businesses won’t open again after a disaster.” Think about what happened as a result of the pandemic. The first step to creating an emergency fund is understanding how much you need to operate each month and how many months you would like your emergency fund to cover.

Tip Two - Create a Budget

This tip goes hand in hand with creating an emergency fund. This is about going deeper to dig out specific information to create categories of spending so that you can create a plan that is realistic based on your past experiences.

Tip Three - Track Your Money 

This one is the most important tip because if you don’t know where your money is going you can’t create a plan for it. 

Successful cash flow management is key to running a successful business. It starts with getting clarity about the current status of your finances. Additionally, creating an emergency fund and a budget will help you to achieve your goals and stay cash flow positive.

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What Do Banks Look For When Deciding To Give A Business Loan?

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Your business is growing and you need more time in the day to do everything. A new team member would be great BUT you want to maximize cash flow and some of your cash is still on its way. 

What do you do?

It’s like the chicken and the egg because you need one thing to do the other. It might be time to look for a business loan at your local bank but you are not sure what they will ask from you. 

Today I want to share the top 3 things banks look for when giving business loans.

Number One: Credit History

We all understand the importance of having good credit but some of us might need help understanding one of the easiest ways to get there. Sorry, this will not be earth-shattering news. I was recently at a local networking event sponsored by US Bank and one of the panel guests from US Bank said the best practice for having good credit is using no more than 50% of your total credit utilization. She went on to say of course not carrying a balance month to month is also a great way to establish good credit. If you need help achieving this goal check out a goals coach courtesy of US Bank. 

Number Two: Business Plan

The banks want you to show them your plan before they show you the money. It makes sense and we see this even on popular tv shows like The Shark Tank. The sharks always start by asking about elements of the entrepreneur's business plan like asking about sales projections, who is their target market, and many other questions. It starts with your business roadmap. If you need help with getting started on this check out SCORE.org  for help.

Number Three: Financial Statements

Yes, the banks want to look at your business health through the lens of your financial reports. The financial reports tell the story of your business. The income statement tells the story of your sales, expenses, and what was left. The balance sheet tells the story of what you own, owe, and what remains as equity in your business. Additionally, banks look at the financial statements to locate trends in revenue, profitability, and cash flow. They are looking for strong healthy businesses that will be able to pay them back. If you need help with creating your business financial story I am always here to help.

To recap, you need money because there are only 24 hours in a day, and hiring a new team member is paramount. Additionally, you want to maximize your cash flow and use O.P.P. (other people's money:) to help grow your business. The banks are looking for 3 key things which are good credit, a solid business plan, and your financial story via your financial statements. My challenge to you is to take a hard look at your business and these three criteria to see if your ducks are in a row. If they are not in a row try scheduling 15 minutes per. day to work on them.

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What Services Can A Bookkeeper Provide For My Business?

The industry of bookkeeping and accounting has changed over the years. Traditionally a bookkeeper has been the one-stop shop for small business owners to handle all things related to the daily upkeep of their debits & credits. In recent years, the role of a bookkeeper has started to include taking on the role of business advisory with clients to explain what the numbers mean and how you can use them to help meet your business goals. 

A bookkeeper can provide the following services & more:

• Monthly bookkeeping management

• Weekly bookkeeping management

• Cash Flow Analysis

• Budget preparation

• Tech Stack Consulting

The list really depends on the unique needs of your business but the idea of a gray-haired lady or wired-brim glasses guy sitting in a corner with a paper ledger are things of the past. The 21st-century bookkeeper is utilizing technology to deliver real-time results for clients.

I hope this brief list sheds light on a bookkeeper's various services. Share in the comments below what current things you are struggling with related to your bookkeeping.

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4 Ways A Bookkeeper Can Help You In Your Business

You started your business because you were passionate about something and wanted to put your personal stamp on it. I know that sounds very general but at the root of every business owner's business is their passion for doing something that they could own. 

I am sure bookkeeping was not on your list:)

Many business owners might only see the QuickBooks Online commercials that pop up on t.v. during tax season and the thought of bookkeeping pops into your mind. I get it. Bookkeeping and accounting are not for everyone. You might have thought what can a bookkeeper help ME with? I have my spreadsheet and my shoebox and life is going fine.

Here are 4 ways a bookkeeper can help you:

• Help you get ready for tax compliance season - Yes this one is pretty popular from January to April but a lot of work needs to be done before these months roll around. 

• Help you get ready for tax planning -  If you are not already having tax planning meetings with your tax professional BEFORE you see them at tax time you could be missing out on many tax advantages. I can assure you that your tax professional wants clean books and a fresh copy of your financial statements to peruse while they chat with you about your tax strategies.

• Help you with managing daily & monthly operations - This is all the stuff that it takes to run your business financially. Let’s say you are getting very busy and want to hire some new team members. Do you have enough cash flow to support this? What do your monthly expenses currently look like? How much-projected revenue are you expecting to bring in? These are all questions that a bookkeeper can help you answer so that you don’t have to worry about hiring and then laying off your new team members due to a lack of funds. 

• Help with making strategic business decisions - Do you want to grow your business in different locations or provide new services? What is your goal for the business 5 years from now? In order to make your goals a reality it is important to look at the numbers and start creating a plan to make sure you hit those targets with no problem. 

The list of ways a professional bookkeeper can help you are endless and in my view depends on your goals. I hope this list answers your questions about what a bookkeeper can help you with. I would love to hear from you to learn more about your business and goals for the future. 

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Quick Tips To Stay Ready For Tax Time!

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Taxes - This word will make grown adults fold into the fetal position. It is filled with dread and stress. It has been around since the biblical days and it isn’t going anywhere. If you work for yourself then taxes can really seem scary. When you worked for someone else it was there problem to take care of and now it is yours.

No Fear

I know all things taxes can really put a damper on your day but I wrote a previous blogpost to help all the stress melt away and prepare you for smooth sailing during tax time. Check it out here.

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Are Your Finances In Shape?

We are almost halfway through the year. I am starting to see clients who are in need of cleanup bookkeeping help to be ready for the tax extended deadline in October. I am here and ready to help. 

It is always good to stay ahead of making sure that the books are in shape to take advantage of opportunities in addition to making sure you are ready for tax time. Last year, I wrote a blog post about this that has tips to help you navigate staying on track with your finances. 

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When Can I Start To Pay Myself In My Business

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You became a business owner to live the dream life. The one where you sleep in and take vacations when you want and earn a living from the fruits of your labor. This all sounds delightful, right? The reality according to a survey from Fundera is that 30 percent of small business owners don’t take a salary.

WAIT!

What happened to that vision of living the dream life? At least when an employer was a part of the equation a paycheck was delivered regularly. 

So what gives? 

Why are business owners NOT paying themselves? There could be many reasons, but one of the main reasons could be that they don’t know when they should draw a paycheck from their business. Here are a few factors to consider to help you decide to pay yourself:

1. Is your business profitable? If you look at your profit and loss statements and see a positive net income number, it might be time to start paying yourself.

2. What stage is your business in? If you’re in the early stages of your business then it makes sense to put everything back into the business to help it grow and press pause on paying yourself. However, if you are in a growth stage in your business, it might be time to earn an honest living and pay yourself.

3. If you are a sole proprietor for example and your tax bill is out of control then putting yourself on the payroll might be the way to go. Discuss your thoughts about paying yourself with your tax professional. They will be able to assess the best course of action to take depending on your entity type and tax situation. 

There you have it! 

I hope these factors will help you in your decision-making process.

It’s so important to know if your business is profitable or not. That is the starting point. The very next thing to do is talk with your tax professional to start planning when and how to pay yourself. You work hard and deserve it.

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Welcome To The Month Of April!

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April is here and the 1st quarter of the year is behind us. I hope that the year is getting off to a good start for you and that sales are pouring in. This month we will look at 3 reasons why knowing your numbers and the status of the financial health of your business matters. The 3 reasons are:

To help you to know if you can pay yourself and how much

To help you to know if it is a good time to hire new team members

To help you to know if you are making money or is it time to close down your business.

I am excited to dive into why knowing your numbers and the financial health of your business is crucial to being a successful entrepreneur. I hope you are ready for the journey.

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The Final Piece of the puzzle: Licensing & Tracking Your Business Finances

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The entrepreneurial journey can be exciting and rewarding. In the previous post I shared a few tips to help you get started on your journey. This week we will finish the tips list with discussing how to make sure you have the correct licenses for your business and my recommendation on software to use for setting up the tracking system for your business finances.

Licensing For Your Business

It is so important to get started on the right foot when you start your business and making sure that you are operating legally is paramount. According to Legal Zoom, “Virtually all businesses will need a license of some sort, and many will need to apply for a number of different licenses and permits. The types of licenses and permits your business requires will depend on where you live and the type of industry you’re in.” Check out their checklist to make sure you have the right licensing/permits for your business.

System For Tracking Your Business Finances

You are going to put in many hours and days getting your business off the ground and selling to your customers. You will have your own personal money that you will use to fund your business and hopefully a ton of customer sales. Once the money starts flowing in then you will most likely focus on how to keep the process going and taking a moment to see how financially well your business is doing might take a backseat. That is unless you get started on the right foot. My recommendation is to set up your business bookkeeping system using Quickbooks Online. This will help you to begin tracking your business finances correctly from the start. Once you have opened your business checking account then you are going to want to subscribe to Quickbooks Online and connect your bank to the software so that you can start tracking your business activity within the software. 

This is important so that when tax time rolls around you will have all your ducks in a row to get the most tax deductions possible. My suggestion is to start with their basic subscription called Simple Start and as your business grows then you can always upgrade to a higher plan later. Incidentally, I do not recommend the Self-Employed Subscription as it only tracks the Profit & Loss activity and you can’t upgrade to a higher subscription later. This subscription is basically geared towards working professionals who intend on doing a side-hustle and not go into business as a full-time entrepreneur.

The entrepreneurial journey is filled with ups and downs but getting started on the right foot will help you to be a successful.

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3 Tips To Stay On Top Of Your Finances!

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Greenback,Moolah & Dinero. These are all references to money. For many of us the profit and loss report is the most important financial statement that we want to see on a regular basis. Why? Because it tells the story of how much we made, how much we spent and what is left over affectionately known as the bottom-line. So how can we stay on top of our finances so that we can know how much money our business is making?

1. Use a bookkeeping system on a regular basis to keep fresh data flowing into your reports.

2. Look at your reports on a regular basis. If you have monthly bookkeeping done and don’t review your reports on a monthly basis then you won’t be able to measure how well financially your business is doing. If you don’t understand your reports a good bookkeeper can help you with that roadblock.

3. Spend some money on a good CPA who will help you to create tax planning goals for your business.

We are all in business for different reasons BUT the one neutralizer is that we want to make money. The bottom-line is the reason and by applying the tips above you will be on the road to financial success.

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More Reasons Why You Should Use Accounting Software To Track Finances

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The life of an entrepreneur is not for the faint of heart. The word busy is something that just comes with the territory. Nothing is more frustrating than working yourself to the bone but not having the information you need to make important business decisions. Here are a few more reasons why using an accounting software program like QuickBooks Online to track your hard-earned finances makes financial sense:

• It will arm you with information to determine if you can pay yourself

• It will help you to determine if you can start bringing on team members

• It will help you to pull reports to see if you are on the right track for your annual revenue goals

• It will help you to stay compliant with the taxman

If you have a special spreadsheet that you like to use to track your finances keep on using it BUT also use a professional accounting software system to track your finances so that you can pull reports to help you to make important business decisions. One day you might just decide it is time to ditch the spreadsheet.

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Follow The Rules Of The Road!!

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The key to building a solid foundation for your business finances is to follow the rules of the road. In the blog post last week we took a look at the chart of accounts in relation to building a solid foundation for your business finances. This week we will take a look at workflows in QBO. First, I need to ask the question:

Are you a rule breaker or rule follower?

 I know that I am equal parts rulebreaker & part rule follower:) 

When it comes to using QuickBooks Online I am definitely a rule follower. In order to ensure that you are getting the most out of the software, it is important to follow their predetermined workflows. One area that I see a lot of “rule-breaking” around is not using the workflow for receiving payments. The scenario can go something like this: your customers pay you and then you receive the payment and deposit the funds into your checking account within QuickBooks Online. 

This Is Great:)

You provided the service and your customer paid you. It sounds like everything is working okay UNTIL you try to reconcile your account and the money you deposited to your bank in real life isn’t matching what is showing in QuickBooks Online.

What Is Going On Here?

The problem is that the predetermined workflow was skipped and as a result confusion and frustration have taken hold. The proper workflow is to receive payments against the invoice and select the “deposit to” account undeposited funds. Next, the deposit that you made at your bank will show up in the bank feed and there will be a match that shows that you are good to go. In contrast, when the workflow is skipped then the funds you deposited into the checking account will not match what is shown in the bank feed because they are not grouped together which is how you made the deposit at your bank in real life.

I am a free-spirit and rule-breaker on something like eating more sweets than I need to. :)

But when it comes to QuickBooks Online following the rules is best because it can help you to build a solid foundation for your business finances and avoid frustration. 

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Are Your Business Finances Built on a Solid Foundation?

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As business owners we all want to make money and have the information we need to see if we are not doing so well. The ability to pull reports to make financial decisions about your business is one of the most important resources you have at your disposal. The information is only as good as the data that is in your accounting software. I am sure you are familiar with the terms “garbage in & garbage out.” This can happen if you don’t have the correct foundation set up in your QuickBooks Online software.

 I like to look at it this way

When you want to make a delicious sandwich what is the most important thing you must have first? 

Good Bread!!

If you have wimpy bread or cheap bread that doesn’t match the type of sandwich you are trying to make then it will be an epic fail and you will probably go to your favorite sandwich shop to buy the sandwich you want. But if you start with a delicious baguette or a good focaccia roll then you are on your way to building something quite yummy. Much in the same way this is how it works with building a solid foundation for your books in QuickBooks Online. The first step to building a solid foundation is to set up the chart of accounts correctly according to:

• Your entity type

• Your particular industry

• Your tax return (which goes back to your entity type:)

If you set up the chart of accounts according to the items above and use best practices then you are on your way to creating a solid accounting foundation for your business that will allow you to run reports and make sound financial decisions. It all starts with the “bread” for your books which is the chart of accounts. 

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Welcome To The Month Of April!

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I don’t know about you but the month of April just brings a smile to my face.

:)

There is something about watching the flowers come into full bloom and leaves growing back on the trees that just warms my heart. The weather here in Las Vegas is a comfortable 70'ish degrees right now and the sun is shining. In the next month or two, we will be on fire with the heat BUT that is later..lol

April goes hand and hand with spring cleaning and I have been doing a little bit myself these days. I have also been doing some spring cleaning in my business by taking a look at the overall health of my business and areas that I can make improvements. One area that I love taking a look at is my financial reports. This month I am going to focus on looking at the 3 major financial statements you should be looking at monthly and why they should matter to you. The 3 major financial statements are the Balance Sheet, The Income Statement (P&L), and The Statement of Cashflows. I hope you will join me on this financial journey and learn something that you can add to your business toolkit.

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