Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
If you already have a budget, it’s probably been difficult for you to stick with it this year. Unless you provide products and/or services that have been in great demand since COVID-19 took hold, you’ve likely had to adjust your budget significantly.
While there are still likely to be uncertainties next year, better days are ahead! And in the meantime, you can start proactively planning for 2021 by creating a budget. Your budget will increase your awareness of all of your projected income and expenses, which may make it less likely that you’ll find yourself constantly running short on funds.
Here are 10 tips for budgeting so you can make your process more effective and realistic:
1) Use what you already know. Unless you’re launching a new business, you already have the best resource possible: a record of your past income and expenses. Use this as the basis for your projections.
2) Be aware of your sales cycle. Even if you’re not a seasonal business, you’ve probably learned that some months or quarters are better than others. Budget conservatively for the slower months.
3) Distinguish between essential and non-essential expenses. Enter your budget items for the bills and other expenses that must be covered before you add optional categories.
4) Keep it simple. Don’t budget down to the last paper clip. You risk budget burnout, and your reports will be unwieldy. Instead, think broader and expect that your exact expenses will fluctuate slightly.
5) Build in some backup funding. Just as you’re supposed to have an emergency fund in your personal life, try to create one for your business. Knowing that you have a cushion will give you peace of mind and financial protection.
6) Make your employees part of the process. Ask your staff for input in areas where they have knowledge. They may have suggestions for line items that can be eliminated or ways to get creative and save money (see #9).
7) Overestimate your expenses, a little. This can help prevent “borrowing” from one budget category to make up for a shortfall in another.
8) Consider using excess funds to pay down debt. It’s simple: debt costs you money. The sooner you pay it off, the sooner you can use those payments for non-essential items.
9) Look for areas where you can change vendors. As you’re creating your budget, think carefully about each supplier of products and services. Can you find less costly alternatives? Can you bring some of these expenses in-house?
10) Revisit your budget frequently. You should evaluate your progress at least once a month. In fact, you could even start by budgeting for only a couple of months at a time. You’ll gain a lot of knowledge about your spending and sales patterns that you can use for the future.
QuickBooks Online offers built-in tools to help you create a budget. To get started, click the gear icon in the upper right corner and select Budgeting under Tools. Click Add budget. At the top of the screen, give your budget a Name and select the Fiscal Year it should cover from the drop-down list by that field. Choose an Interval (monthly, quarterly, or yearly) and indicate whether you want to Pre-fill data from an existing year.
Tips for Budgeting: Use data from a previous year to create a new budget in QuickBooks Online.
The final field is labeled Subdivide by, which is optional. You can set up budgets that only include selected Customers or Classes, for example. Select the desired divider in that field, then choose who or what you want included in the next field. Click Next or Create Budget in the lower right corner (depending on whether you used pre-filled data) to open your budget template. If you subdivided the budget, you’ll see a field marked View budget for. Click the down arrow and select from the options listed there.
To create your budget, simply enter numbers in the small boxes supplied. Columns can be divided by months or quarters, and rows are labeled with budget items (Advertising, Gross Receipts, Legal & Professional Fees, etc.). When you click in a box, a small arrow appears pointing right. Click on this, and your number will automatically appear in the rest of that row’s boxes. When you’re done, click Save in the lower right. You can edit your budget at any time.
Tips for Budgeting: QuickBooks Online supplies a budget template that contains commonly used small business items.
QuickBooks Online provides two related reports: Budget Overview displays all of the data in your budget(s) and Budget vs. Actuals shows you how you’re adhering to your budget. To print these reports, select Reports from the navigation bar and then under Business Overview select the budget report you need.
We know that creating a budget can be challenging, but it’s so important – especially right now. We would be happy to look at your company’s financial situation and see how QuickBooks’ budgeting tools, and its other accounting features, can help you get a better understanding of your finances. Please feel free to reach out to our Accounting Services team today to get started and discuss additional tips for budgeting.
As your year-end reporting is being finalized, you may be asking yourself, “what can I do in 2020 to streamline my financial reporting process?” This is a common question we hear at Cray Kaiser and one worth spending a few minutes discussing.
Each month your company processes many transactions consisting of invoices, deposits and disbursements. The completeness of these transactions is confirmed once the bank and credit card accounts are reconciled. However, as you work with your accountant at year-end, many discoveries take place. As adjusting journal entries are recorded, operating results vary significantly from what was represented in your bank balance. But by taking a few extra steps each month, you can alleviate this issue by gaining consistency in financial reporting, identifying variances more efficiently and streamlining your year-end closing procedures.
Here are a few items to consider as you determine your monthly closing procedures:
Generating financial statements at the start of your monthly close process will allow you to identify the accounts you will need to devote additional time to for that month. The pre-close financial statements should consist of both a comparative balance sheet and income statement. By running these financial statements in comparative form by month and year, you will be able to quickly identify balances that are irregular and may need to be further analyzed.
The pre-close balance sheet should serve as your reconciliation checklist each month. Each account represented on the balance sheet should be reviewed to determine the appropriateness of the balance held at month-end. In many cases a reconciliation, report, or supporting documentation should exist to verify the balance. For instance, adjusted balances on the bank reconciliations should agree to the balance sheet account and accounts receivable and payable aging reports should agree to the balance sheet.
Unusual transactions such as assets containing credit balances and liabilities containing debit balances should be reviewed as these could represent misposted transactions and corrections may need take place at the transaction level.
The use of standard recurring journal entries can assist in recognizing expenses in the proper period. For example, as invoices for insurance premiums and other prepaid expenses are posted into a balance sheet account, the period the expense relates to should be identified. This period would identify the number of months an amortization journal entry needs. Setting up the amortization as a recurring journal entry will help ensure this transaction is recorded consistently each month. You can also mark the standard journal entry to end at a specific time period, thus reducing errors on the backend once the amortization period has ended. Most accounting systems allow for standard recurring entries (memorized transactions). These entries can also be set up for items such as depreciation and accruals for expenses paid at interim dates (i.e. interest, bonuses, etc.).
The end of your monthly close process should allow for a cursory review of the month-to-month variances as reported in the post-close financial statements. These variances should be supported by the reconciliations you performed, or in the case of the income statement, would allow you to drill down to understand the transactions that occurred during the month.
Each month you may discover certain extraneous transactions that occur outside the normal business cycle. These should be documented in a memorandum or executive summary that will help you in future months as you start to trend your business activity and operations.
Initiating a month-end close process such as the one listed above will provide a roadmap to assist you in understanding your business cycle, minimize year-end reporting surprises and help you make decisions throughout the year. Please contact Cray Kaiser if you would like additional assistance in setting up your monthly close process or reviewing your year-end reporting.
Successful entrepreneurs need drive, passion, the will to follow things through, and the hustler’s spirit that enables you to constantly try that new thing or relentlessly chase that next big opportunity. Not all entrepreneurs are numbers people, and that’s okay, because there are plenty of numbers people out there willing to offer support.
But whether you’re a serial entrepreneur or simply looking to grow your small business to a sustainable level, it’s crucial to have an understanding of your venture’s financial results. While small businesses don’t require the same horsepower in their accounting department—or even require an accounting department at all yet—as large companies and quickly-growing startups, it’s still integral for entrepreneurs of all calibers to have an iron grip on their financial controls, processes, and results to prevent roadblocks.
Your business financials aren’t solely about how much revenue the company has brought in stacked up against your expenses, or how many strategic maneuvers can be deployed to minimize your business tax burden. Understanding your key ratios, terminology, and the stories behind your numbers (and having the right accountants and advisors who can help you interpret them) will take you from simple compliance to long-term stabilization that allows you to grow your business.
And not only that, but where is it going? It can seem like operations are running smoothly because cash is regularly deposited, the bills are paid, and imminent tax filings don’t feel like a shakedown where you have to scramble to get the funds together. But while your bottom line might look good on your next attempt to raise capital, you could find yourself in hot water if it turns out that only one client constitutes most of your revenue. If that client goes out of business or otherwise decides to stop or reduce their payments, it could be significantly harder to pay back the loan you took out or demonstrate to your investor that you’re worth the investment.
Demonstrating that you can make a profit is important for raising capital, but raising capital isn’t a be-all and end-all. The time that you spend trying to qualify for loans, grants, and outside investment might be better spent getting more clients, users, views, income-producing property, or other important revenue drivers first. This could prove to be even more important than trying to keep your burn rate (cash outflow) under control. Constrained cash flow is usually why most companies fold within the first two to three years of operation, and often gets overlooked by busy entrepreneurs focusing primarily on raising funds or posting an impressive profit.
In your quest for capital, your focus is likely to be directed toward the numbers investors are going to pay attention to: margins, profit generated relative to the capital you already invested, and how many users you have. But in being transparent about your finances, you’re not just being compliant with the law, you’re also giving a more accurate picture of where your business currently is and where you expect it to go.
Early stage companies are more likely to get investment less from promising financials and more from showing promise with the actual product and business model, so you don’t need to worry about getting the best-looking numbers to show. Banks, on the other hand, have stricter requirements for loan repayment and will be more stringent concerning financial compliance. They will want to see a proven track record and put more emphasis on your profit than growth potential, especially if you’re not a very capital-intensive business with significant collateral such as vehicles or real estate to secure the loan.
Regardless of whether you go for the more dynamic risk-taking with investor funding or the predictable repayment process with a business loan, all external capital sources will want to see proof of proper cash management even more than having stellar revenue numbers.
The ability to adequately control your cash inflows and outflows is what will help your company weather any storm. And a surefire way to make that happen is utilizing Mike Michalowicz’s “Profit First” model that changes the Revenue – Expenses = Profit expression into Sales – Profit = Expenses. While this is not an official figure to report on financial statements, it’s an excellent cash flow management mindset that helps business owners prioritize their personal and business savings so that operating expenses, expansion, taxes, and personal income are always being paid.
By “paying yourself” first, it ensures that your financial results are based on having enough cash on hand before you pay any expenses.
Any small business is required to furnish a cash flow statement to most investors and some banks, but you shouldn’t wait until you have one at the end of the month, quarter, or year. Go over your cash flow every week. In addition to expenses that could be cut or revenues that could be added or bolstered, you might have bottlenecks in your cash collection processes that could be eliminated and you hadn’t even realized it. To learn more about managing cash flow, click here.
The team at Cray Kaiser prides itself on not just being numbers people, but people people. Not only can we help you conceptualize financial results, but we can talk to you about what it means for your business and work with you to create strategies that lead to growth. Please contact us if you’d like to learn more.
With technology driving change in the accounting world so quickly, you may be overwhelmed with how this change can impact you and your business. Although you may have moved to a virtual work environment for day-to-day accounting processes, there is so much more you can do to streamline and customize your accounting to meet your operational demands. Last fall, the CK accounting services team attended the QuickBooks Connect conference in San Jose, CA where the theme was “Own Your Future”. Thousands of business owners, self-employed individuals, and accounting professionals came together to gain and share knowledge, skills, and insights to better run their businesses.
The takeaway from the conference was that the accounting world is evolving, and we need to be part of that evolution by using technology to streamline processes. Our mission as accountants and QuickBooks Pro Advisors is to assist you in understanding your operations, streamlining your processes, maintaining your control functions and providing you with trending applications to help you succeed. This technology is not meant to recreate the wheel but revolutionize the process through artificial intelligence (AI).
As a small business owner, you wear several hats ranging from accounting, marketing, and hiring. Accounting may not be your passion but keeping your books up to date and organized is crucial to your success. Meaningful financial statements can be a click away through applications and the automation of your accounting tasks. In this blog we’re providing an overview of a few ways to free up your time so you can spend it on other aspects of your business.
Bank Feeds: This feature allows you to link your bank and credit cards to QuickBooks Online (QBO) and automatically download cleared transactions. This process significantly reduces manual data entry and makes the month-end reconciliation process much simpler.
Bank Rules: This is an additional feature that can further automate the bank feeds by recognizing and categorizing transactions by certain details, including description, bank text and dollar amounts.
QuickBooks Payments: This feature gets you paid faster by allowing your customers to make a payment directly from your emailed invoice with one click. The payments are automatically received against open invoices, and deposits are automatically recorded in QuickBooks. Payments can easily be made by bank transfer or credit card.
ReceiptBank
Ditch the shoebox! With ReceiptBank, your clients can simply take a picture of an invoice or receipt and upon uploading, ReceiptBank reads the information and automatically publishes it in QuickBooks as a transaction.
Bill.com
Spend up to 50% less time paying bills. Bill.com delivers everything you need to simplify every step of your bill pay process with automated approval workflows, paperless document management, domestic and international payment options, seamless integration with QuickBooks software, and more.
AR Collect
Get paid faster. This app helps manage receivables and makes collections easier by syncing with QuickBooks and Sage products to send batch emails in a single click, automatically send past due notices based on number of days past due, send advance reminders prior to upcoming due dates, and much more.
QBO Full-Service Payroll
This is an automated payroll solution with integrated time tracking and tools that help you grow your business. It’s truly full service! Once you submit your payroll, they take care of everything else such as paying employees via direct deposit, submitting all tax payments, and filing quarterly and annual tax filings electronically (even W-2s). And the best part? Payroll is automatically recorded in your general ledger.
T-Sheets
This web-based and mobile time tracking and employee scheduling app can help keep you and your team organized. TSheets is an ideal system for businesses with employees who always, or sometimes, work outside the office. Remote employees can clock in and out using the TSheets mobile app, laptop computers, telephones, text messages or even Twitter.
There are many other industry-specific apps that can provide your company with a more robust accounting platform. Contact us for more information.
As AI continues to revolutionize the growth of applications it will continue to simplify and automate work, eliminate tedious tasks, and provide you with information so you can run your business successfully. The CK Accounting Services team is available to provide clients with direction on how to select the right tech stack. Contact us today to request a needs assessment and discuss ways your accounting processes can be enhanced through the use of apps and related technology.
The digital world is not only here, but it’s continuing to evolve and impact all aspects of our lives – accounting included. Last month the CK team took a trip to Silicon Valley for the QuickBooks Connect conference and we were reminded just how much technology has impacted the way in which we serve our clients. Technology has changed the way accounting departments are structured, how they communicate and the actual production of financial reporting.
The way in which we utilize technology to expand consultative services to assist our clients is the criteria that will set a firm apart from a digital firm. Here are three characteristics that signify a digital, forward-thinking accounting firm:
We are in an application (app) driven world. What used to be a wholly encompassed accounting system has been replaced with various apps that drive efficiencies within specific functionalities such as bill payments, cash flow forecasting, payroll, and much more. Those apps then integrate into well-known accounting platforms such as QuickBooks, Xero, Sage or NetSuite thus pulling all key information into one spot. Sometimes information can be communicated and reported with just a single click, resulting in a more streamlined and robust accounting software that is customized for each user.
Bank information is also typically a click away through a connected application with the financial institution. Rules and smart lists are used to record transactions and the output is posted in the form of transactions which are incorporated into the general ledger details. Both in-house and outsourced accountants can maintain the apps, understand discrepancies and reconcile accounts through the accounting system features. Therefore, selecting an accountant or accounting firm that is skilled with apps is a necessity in the digital world.
The development and utilization of apps and cloud-based accounting platforms allow for users, accountants and other personnel to work remotely. Face-to-face meetings have been replaced with video conferences, e-mails and chat platforms. The ability to facilitate verbal and written communication using these new methods is vital to the success of an organization in the digital world. The ability to get your message across in concise, easy to understand ways is imperative and a skill that will never be replaced with the newest app.
Investing in apps will reduce the time incurred on maintaining and recording detail transactions. This newly saved time can then be invested in enhanced financial reporting and data analysis. In other words, accountants are now utilized for more value-added services to research trends, project future operations, perform cash flow analysis and analyze cost saving initiatives. This allows departments to have more meaningful discussions, brainstorm and strategize for short and long-term planning. While there are various apps to assist in this regard, the real value is in the interpretation of the results that lead to significant business decisions. The opportunity to take on new investment opportunities that will strengthen your organization in the years ahead is invaluable and is not something that can be recommended by an app. It’s the true difference between a commodity-focused accountant and a forward-thinking, client-focused accountant.
Cray Kaiser continues to embrace the use of technology within the full suite of our clients’ accounting needs. We will continue to advise stakeholders with information that is one click away to allow them to manage and understand their financial data through apps and other tools. But we also remain steadfast in the ability to communicate, advise and offer best practices throughout the life cycle of your organization as you navigate the digital world.
We look forward to helping you leverage technology for the benefit of your organization. Please contact Cray Kaiser at 630-953-4900 today to get started or click here to learn about our Accounting Services.
Each day in the life of a nonprofit is spent managing limited resources, often requiring staff members to accept responsibility for tasks both inside and outside of their areas of expertise. That means that any interruption to operations such as staff termination, illness or other unforeseen events can greatly impact the ability to achieve the organization’s mission. And in those moments, nonprofits need additional support to keep basic operations running smoothly.
That’s where Cray Kaiser comes in. Our firm has been a significant resource to nonprofits when they’ve faced an unplanned crisis. When staff responsibilities are stretched thin, it’s vital that financial operations remain uninterrupted. But that’s not always the case, especially when the single team member responsible for accounting activities is unavailable.
Below is an example of how we recently worked with a nonprofit organization on their accounting services and the positive impacts it had on their operations.
One day, a local nonprofit organization found all of their accounting and financial reporting functions come to a halt due to an unplanned staff exit. The organization relied upon this single individual to perform a substantial portion of the day-to-day accounting tasks. And then suddenly, at a moment’s notice, the ability to pay vendors, access the accounting system and prepare for the year-end audit was lost.
Vendors were becoming impatient with delayed payments. The board was left unprepared for an upcoming external audit. The ability to secure continued funding was at risk. The problem had escalated to a crisis almost immediately. That’s when CK was called in.
Our first action was to work with the executive team to develop and implement a strategy to restore all accounting functions as soon as possible. Within a few days, we were able to get the backlog of vendor payments current, a check disbursement process streamlined and authorization levels more defined.
Then, our focus and attention shifted to the financial reporting process. Through this process, we found that significant time was spent in managing charitable giving with manual spreadsheets and that the donor reporting was non-existent. We identified and recommended best practices that enabled the organization to streamline reporting, strengthen internal controls and provide donors confidence that funding was allocated to the appropriate programs and activities.
Based upon these recommendations, CK worked with a third-party software provider and the nonprofit organization to implement a new accounting system. The addition of this software helped streamline manual processes and reduce organizational resources devoted to recordkeeping. Now, key donor reports are just a click away and transactional postings are fully integrated, requiring less manual journal entries into the system.
Finally, our nonprofit client was also feeling pressure for an upcoming year-end audit. As auditors ourselves, we had a clear understanding of the work papers and disclosures that would need to be provided during the audit process. This enabled us to assist the organization in planning for the audit by meeting with the new audit firm, preparing work papers and assisting the auditors with key disclosures for the financial statements. This knowledge and experience allowed us to educate the management team on the importance of providing a well-defined audit trail for transactions including up-to-date accounting procedures. At the end of the audit, our client received an unmodified opinion despite the significant personnel change.
Our relationship with this nonprofit client continues to be strong today not just because of the work performed in their time of need, but more importantly, through our efforts of developing strong lines of communication with the management team and board of directors. Throughout the process, we were there to provide vital communications and support, whether it was a conference call or our physical presence in the board meetings.
CK takes great pride in weathering the storm with our clients and being able to share in their successes. As for this client, we continue to provide weekly onsite visits for check processing, monthly reporting and annual audit preparation services. The organization continues to receive unmodified audit opinions and we help keep them updated on new regulations and standards affecting the industry. From time to time we even step in to provide advisory services such as cash management, payroll processing and customized reporting for various committees such as in the case of fundraising efforts.
Accounting services are a growing need for many organizations, whether a nonprofit or a closely held company, and they can be customized to meet your specific goals and objectives (even as they change and evolve).
Please contact Cray Kaiser for additional information on how these services can help you or click here to learn about our Accounting Services.
Which of my product lines are yielding the greatest margins?
Did I earn a profit from Location A last year?
Why is my top line revenue growth not attributing to an increase in my bottom-line results?
Which of my fundraising activities were the best utilization of our resources?
As a business owner or nonprofit organization, if you find that the answers to these questions aren’t a few keystrokes away, you most likely haven’t established profit center reporting into your accounting system. And now is the perfect time to do it!
Profit center reporting is a tool that management can use to review operational profit and loss results for a department, branch, product line, location or activity. It will also provide more meaning to overall profit and loss statements as it allows you to dissect the operational results into meaningful data that can be used in strategic planning.
You may not know that many accounting systems, such as QuickBooks, have the capability to track this type of operational data for you. It is usually an option that can be simply activated and requires little set up. Your accountant can help you with set up if you need additional assistance.
Once profit center reporting is made available, the transactional processing, sales, and billing functions will need some tweaking. Each transaction, activity, product or service item needs a profit center code to provide the revenue stream for the reporting. This can usually be captured as you set up the individual sales categories or lists in your accounting system.
Segregating the cost structure for the profit center reporting may be more complex because there will be different categories of costs to consider. For instance, some costs are tied directly to a profit center and others are general in nature and may relate to several profit centers. These general costs may need to be grouped together and allocated into the profit centers on a monthly basis through a general journal entry. Your accountant can assist you in determining a reasonable basis to allocate such costs in order to provide you with meaningful data.
Generating reports by profit center is a byproduct of your transactional processes. With profit center reporting in place, management will be able to compare select profit centers to identify which units provide the highest sales volume, why different locations’ cost structures yield different results, and how both of these attributes affect the overall entity’s operational results.
Through this process, management can:
With a few changes to your accounting system structure and transactional processing, a wealth of data can be at your fingertips. The information gleaned through profit center reporting will assist you in understanding your operational activities more clearly, allowing you to make informed decisions and initiate strategic planning. Please contact Cray Kaiser if you’d like help setting up your profit center reporting or click here to learn about our Accounting Services.
According to the Association of Certified Fraud Examiners, nearly 30% of businesses are victims of payroll misconduct, with small businesses twice as likely to be affected than large businesses. Here are four payroll fraud schemes that every business should be aware of:
A ghost employee does not exist anywhere except in your payroll system. Typically, someone with access to your payroll creates a fake employee and assigns direct deposit information to a dummy account so they can secretly transfer the money into their own bank account.
Time stealing happens when employees add more time to their timecard than they actually worked. Sometimes multiple employees will work together to clock each other in earlier than when they arrive or later than when they depart for the day.
In an attempt to bump up a commission payment or attain a quota, sales employees may alter a sales contract to their benefit. A typical tactic used by a dishonest salesperson is to make a booked sale appear larger than it is and then slide a credit memo through the system in a later period. Companies with complicated commission calculations or weak controls in this area are the most vulnerable.
A popular scam, known as phishing, starts with a fraudster impersonating a company executive through email or over the phone asking an employee with access to payroll data to wire money or provide sensitive information. These imposters can make the correspondence look very real by using company logos, signatures and email addresses.
Being aware of these types of threats is a start, but you also need to know how to prevent and stop them. Here are some tips to reduce your company’s payroll fraud risk:
1. Create better internal controls – While most employees are trustworthy, giving too much control over your payroll to one person is not a good idea. Separating payroll duties and formalizing an approval process protects both your business and your employees.
2. Review payroll records – Designate someone outside of the payroll-processing department to periodically review the payroll records. Have them review names, pay rates and verify that the total payroll matches what was withdrawn from the business bank account.
3. Perform random internal audits – An internal audit is when you can really get into the details to look for potential payroll fraud. You can do an in-depth review of the whole payroll system or select a random sample of dates and employees. Keep the timing of the audit under wraps to prevent giving someone the chance to cover up their misdeeds.
Managing your business payroll is a daunting task by itself, and actively protecting against fraud adds additional complexity. If you need assistance creating internal controls to prevent payroll fraud schemes, please contact us today. You can also click here to learn about our Accounting Services.
You certainly know that profit and cash flow are both important elements of a healthy business. But what’s the difference? And what can you do to achieve positive cash flow? Read our insights below, and be sure to contact Cray Kaiser if you have any questions.
Profit is defined as revenue minus expenses. It may also be referred to as net income. Cash flow, on the other hand, refers to the inflows and outflows of cash for a particular business. In other words, profit is how much money your business is making when all is accounted for, but cash flow is how much money you currently have access to.
For small businesses, positive cash flow is the goal. You want to generate more money than you’re spending. And while this sounds simple, plenty of profitable businesses run into problems. It can be challenging to balance regular expenses like salaries, rent and technology with irregular revenue. Your sales might be strong, but if cash is stuck in inventory or accounts receivable, you have a cash flow problem.
So, what can you do to manage it? Statements, along with balance sheets and income statements, help provide insights into a company’s finances. Unfortunately, many business owners do not access a cash flow statement and they only rely on the balance sheet and income statement to help manage their finances.
An income statement, also known as a Profit & Loss (P&L) report, shows the bigger picture of how much money your business makes and spends within a given time period. In other words, it summarizes how your business earned revenue, paid expenses, and arrived at its bottom line.
Income statements account for financial factors beyond cash flow, non-cash expenses such as depreciation, and allow you to observe your business’s longer-term trends in spending and earning. Your income statement can help you answer questions such as: How did my business perform last year? Where can I cut back on costs? Will lenders trust me to repay their financing?
A cash flow statement shows the incomings and outgoings of your business’s cash within a given time period. It provides the shorter-term information you need on a daily basis. Your statement can help you answer questions such as: Can I afford to pay my bills? Do I have enough cash for unexpected equipment repairs? Will I be able to fund payroll on time?
Cash flow statements typically divide cash by use:
Both types of statements present different, yet related, information. The full financial picture of your company is incomplete without understanding both.
Higher profits are a great objective, but meeting the cash needs of your business requires careful planning. Staying in the green can be difficult, especially for startups and small businesses. Here are a few suggestions for staying on top of your cash flow:
You can learn more about cash management methods here.
At Cray Kaiser, we know that understanding the importance of cash management is key to your business’s survival and success. If you need help, please don’t hesitate to call us today at 630-953-4900. You can also click here to learn about our Accounting Services.
It’s hard to believe that summer is in full swing and in just another few weeks we’ll be at the halfway point of 2019! The first quarter of the year focused on getting the financial reporting and tax returns filed for the previous year and the second quarter was spent getting the current year up-to-date. Before we knew it, we were transacting business as usual. Somehow those goals of cleaning up accounting records became long forgotten. But we’re here to remind you not to forget the importance of accounting clean up projects!
It’s vital to get your accounting cleaned up before the year-end activities kick in and this is the perfect time of year to do it. Below are a few accounting projects you may want to consider taking on over the next few months. In the end it will set you up for success come December.
When was the last time you reviewed your record retention policies? If you are like many organizations, you retain hard copies until space runs out, then you look to discard old items. However, this may subject you to added scrutiny when you are unable to produce key documents for your business. The IRS and AICPA have guidelines to help you in formulating your record retention policy. We recommend that you formalize your current policy utilizing both physical and electronic storage. Remember, the goal of record retention is to be able to retrieve key documents in a reasonable period of time and this should be considered as you formalize your policy.
Your accounting records should be locked down for the previous year so no additional changes can be made to the year-end balances. If not done already, you should request a copy of year-end adjusting journal entries and a trial balance report from your accountant. These adjustments need to be recorded in your accounting system and a process needs to be performed in which you are able to lock the period so that additional changes cannot be made. Depending on the accounting system you are using this may be as simple as setting a password for the file. Doing this will provide assurance that you are starting 2019 with accurate balances.
Each year certain adjusting journal entries are recorded such as depreciation/amortization, prepaid expenses, and certain accrual items. Many of these adjustments can be maintained throughout the year to normalize your operating results and to help you to forecast year-end results. Reviewing the year-end adjustments prepared by your staff or an outside accountant is one way of identifying potential standard journal entries to record throughout the year.
It’s always a good idea to take some time to review the chart of accounts you are using to summarize your financial reporting. Are there significant accounts that you have to dig into the details to understand the fluctuations from one period to another? If so, it may be time to create accounts or sub-accounts to appropriately track certain transactions so that you can easily monitor fluctuations.
Do you have accounts set up to handle the record keeping for the various stages of your operating processes? For instance, are you tracking raw materials, work in progress and finished goods? If not, you may want to consider adding accounts and journalizing the flow of the inventory process.
Now is a good time to take an inventory of your outstanding agreements and contracts to identify any key performance requirements that you must meet to stay in compliance with the established terms. Often times, bank financing has compliance requirements such as ratios and bank balance levels that must be met on a monthly, quarterly or annual basis. Do you have processes in place to monitor the compliance of these key performance requirements? Routinely performing a review of these requirements will allow you time to make any necessary corrective actions in the event the requirements will not be met.
By being proactive and keeping your accounting organized now, you’ll be in the best position possible when it comes to closing out the year and preparing for taxes next spring. If you have questions or would like assistance with any of these accounting clean up projects, please don’t hesitate to contact Cray Kaiser today!
Click here to learn about Cray Kaiser’s Accounting Services.
