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Member of Russell Bedford International, a global network of independent professional service firms.
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.
Every business, no matter its size, needs to have enough cash to pay the bills. Focusing solely on sales and profits could create issues when invoices arrive and you find that there aren’t enough funds available to pay them. Below are five ways you can be proactive and improve cash management for your business:
1. Create a cash flow statement and analyze it monthly. The primary objective of a cash flow statement is to help you budget for future periods and identify potential financial problems before they get out of hand. This doesn’t have to be a complicated procedure. Simply prepare a schedule that shows the cash balance at the beginning of the month and add cash you receive (from things like cash sales, collections on receivables, and asset dispositions). Then, subtract cash you spend to calculate the ending cash balance. If your cash balance is decreasing month to month, you have negative cash flow and you may need to make adjustments to your operations. If it’s climbing, your cash flow is positive.
Note that once you have a cash flow statement that works for you, you can automate the report in your accounting software. Or, you can create a more traditional cash flow statement that begins with your net income, then make adjustments for non-cash items and changes in your balance sheet accounts.
2. Create a history of your cash flow. Build a cash flow history by using historical financial records over the course of the past few of years. This will help you discover if there is a particular time of year which needs more attention.
3. Forecast your cash flow needs. Use your historic cash flow and project the next 12 to 24 months. This process will help identify how much excess cash is required in the good months to cover payroll costs and other expenses during the low-cash months. To smooth out cash flow, you might consider establishing a line of credit that can be paid back as cash becomes available.
4. Implement ideas to improve cash flow. Now that you know your cash needs, consider ideas to help improve your cash position. For example:
5. Manage your growth. Be cautious when expanding into new markets, developing new product lines, hiring employees, or ramping up your marketing budget. All of these activities require cash and you don’t want to travel too far down that road before generating accurate cash forecasts.
Understanding cash flow needs is one of the key success factors in any business. If you are in need of tighter cash management practices, contact Cray Kaiser and we’d be happy to help you.
As a business owner, your day is primarily focused on fulfilling your overall mission, meeting customer needs and keeping up with day-to-day obligations. While less of your time is likely to be focused on the accounting policies that your company is using, we’re here to remind you just how important those policies are.
The accounting policies you adopt create the internal reporting standard that’s reflected in the financial statements of your business – all of which impact how you benchmark and communicate success. What story are you communicating to the outside world? How can you report the story in a way that is easy to understand but still communicates who you are, what you do and how you are achieving success?
First, when selecting accounting policies to use, your first goal should be reporting operational activity and not necessarily based upon ease of recordkeeping. For example, cash basis reporting is easy as we record transactions on the flow of cash in and out of the organization. But it doesn’t account for the significant operational activity that takes place between the use of cash funds and the collection of such funds. Operational activities, such as the conversion of raw materials to finished goods, are central to our operations but are omitted in this process. In this case, using an accrual basis reporting, which tends to be more complex, would tell your story with more clarity.
Another missed opportunity is not prioritizing book reporting objectives over tax objectives. Your operational story becomes diluted when you select accounting policies based solely upon your tax strategies. While minimizing tax obligations is important, reduced profitability is not a story you want the outside world to know. You want your story to be one of steady growth and investment. This occurs when you choose accounting policies based upon operational objectives rather than tax objectives.
As you review your internal financial statements, take a moment to reflect on the story they are telling the outside world about your business. Is it a story of steady growth and investment? Or is it sending a mixed message? We recommend revisiting your accounting policies to ensure that they convey your operational story in a positive, more accurate light. Should you need any assistance, please don’t hesitate to contact Cray Kaiser. You can also click here to learn about our Accounting Services.
As a business owner, your day is primarily focused on fulfilling your overall mission, meeting customer needs and keeping up with day-to-day obligations. While less of your time is likely to be focused on the accounting policies that your company is using, we’re here to remind you just how important those policies are.
The accounting policies you adopt create the internal reporting standard that’s reflected in the financial statements of your business – all of which impact how you benchmark and communicate success. What story are you communicating to the outside world? How can you report the story in a way that is easy to understand but still communicates who you are, what you do and how you are achieving success?
First, when selecting accounting policies to use, your first goal should be reporting operational activity and not necessarily based upon ease of recordkeeping. For example, cash basis reporting is easy as we record transactions on the flow of cash in and out of the organization. But it doesn’t account for the significant operational activity that takes place between the use of cash funds and the collection of such funds. Operational activities, such as the conversion of raw materials to finished goods, are central to our operations but are omitted in this process. In this case, using an accrual basis reporting, which tends to be more complex, would tell your story with more clarity.
Another missed opportunity is not prioritizing book reporting objectives over tax objectives. Your operational story becomes diluted when you select accounting policies based solely upon your tax strategies. While minimizing tax obligations is important, reduced profitability is not a story you want the outside world to know. You want your story to be one of steady growth and investment. This occurs when you choose accounting policies based upon operational objectives rather than tax objectives.
As you review your internal financial statements, take a moment to reflect on the story they are telling the outside world about your business. Is it a story of steady growth and investment? Or is it sending a mixed message? We recommend revisiting your accounting policies to ensure that they convey your operational story in a positive, more accurate light. Should you need any assistance, please don’t hesitate to contact Cray Kaiser. You can also click here to learn about our Accounting Services.
Small business owners are constantly looking for ways to save money and streamline processes in order to stay competitive. Using a cloud-based accounting software, such as QuickBooks Online, is one way to save time and money. Cloud-based platforms require little capital outlay for equipment while offering access to massive data storage and computing power. And because the software handles calculations, you can spend time growing your business instead of crunching numbers. Whether you are a small or mid-size business, moving to the cloud is one way to become more efficient and boost profitability. Here are the top five benefits of moving to the cloud:
Manual data entry is not only inefficient, but it is also prone to errors and compliance risks. With cloud-based accounting, automation of manual processes is possible and allows for automatic synchronization and reconciliation without the need for countless hours of work. Cloud accounting software will check for data entry errors, multiple entries, or other common accounting mistakes, which improves your data’s reliability.
Typical accounting software only allows access to a single user. With the cloud, multiple authorized users, including your accountant, can access the software simultaneously from anywhere with an internet connection. Business owners can now login in real time with their accountants and view the same screen to discuss specific transactions. This makes it easy for your team to collaborate and can help streamline internal controls and reduce error. In addition, teams can stay connected to their data and their accountants.
Maintaining a traditional accounting software can be costly. The cloud spares companies the expense and disruption of needing to update installed software company-wide and cuts the cost of maintaining secure servers in an inhouse data room. With the cloud, everything is done online, which means regular upgrades push automatically and inhouse storage isn’t needed. This helps streamline software maintenance and reduces administrative costs, as they are managed by the cloud service provider.
The cloud provides a secure way to store information. Unlike a hard drive, it can’t be lost, stolen or wiped out. Cloud technology provides backup functionality to prevent the possibility of data loss. You can also control the privacy access of your confidential data with login details. This provides the user with the flexibility to log in using any computer or mobile device, which is great for those on the move.
Most cloud accounting software can integrate with other cloud-based software which allows you to automatically transfer data into your accounting system – or vice versa. Third party applications provide users with options to customize their software and processes – doing away with the “one-size-fits-all” notion. These add-ons can help business owners with specific needs like payroll services, job management and a more robust inventory system to name a few
Businesses in any industry will find a myriad of benefits when moving their accounting processes to the cloud. Cloud-based software isn’t limited to any particular industry, but here are a few examples of how certain industries benefit from cloud-based software such as QuickBooks Online (QBO):
The world of accounting will continue to change and be impacted by advancements in technology. It is vital for businesses of any size to keep up with these changes in order to grow and stay healthy. If you are interested in learning more about moving to the cloud, contact Cray Kaiser today.
Financial literacy in today’s economic climate is more than just receiving reconciled accounts in periodic financial statements from your accounting firm. It is the ability to know where you are today, where you are going, and the plan to achieve it. To achieve your goals, you need to invest in a system, process and an advisor who can relay knowledge to you in a way that is easy to understand. This will allow you to change direction, set measurable goals and celebrate your successes.
Business owners often get caught in the weeds and believe the way to solve a problem is by digging deeper into the soil. Have you ever paused to look at the key financial drivers that are causing the problem? Understanding the underlying problem and the impact it is having on your business is key. A skilled accounting firm has the ability to educate you on the meaning behind the numbers reported in your financial statements.
Accounting is based on a double entry system, meaning we must have a debit and credit that are in balance. You can also think of accounting as the study of financial relationships, meaning as we debit one account, we have a corresponding credit in another. To provide meaning we need to understand the relationships. Your financial statements are simply the summation of your transactions for a given period. By taking these financial statements and using ratios or non-financial data, you can begin to unravel the context behind these relationships – allowing you the opportunity to transform your business.
In the restaurant industry the key components of cost of goods sold includes food, beverage, paper goods and labor costs. The summation of these costs is also referred to as the prime costs. Often, your financial statements may report these costs on one line called cost of goods sold. By performing a simple ratio such as cost of goods sold divided by sales, we can determine how efficiently we are utilizing our resources to generate sales. By benchmarking this ratio month after month, we can begin to identify changes in the ratio that may need to be investigated. The benchmarking can be against your own data but should also be compared against industry data to better evaluate how you are performing.
To bring even more meaning to the relationships within cost of goods sold, you will need to investigate costs in more detail. One way to do this is to extract data on your costs individually such as having a food cost percentage to sales along with separate calculations on beverage, paper goods and labor. As these ratios fluctuate over time, you can determine the reason why and how it may affect your future selling prices. The outcome of this analysis may lead you to raise prices, change a supplier or review labor schedules.
You can also track non-financial data such as number of patrons served, number of hours open, and facility square footage. When comparing the non-financial data to sales we can get average sales per patron, per hour and per square foot. These averages can be compared over a period of time to gain an understanding of changes in your business or peak times for your business. This information in turn can be used to schedule your workers, order inventory or even adjust your restaurant hours.
Your accountant can provide significant value by educating you on ratio and non-financial data to help you analyze your financial statements and guide you in discussing the efficiency of your business, forecasting operating results and providing the strategic direction for your business. We often refer to these tools as key performance indicators (KPIs). By tracking KPIs on a regular basis and keeping ongoing communication with your accountant, you can begin to understand the relationships in your financial statements. This understanding will provide you the ability to make decisions in your business that will allow you to track the realization of your strategic goals.
If you are not already having these discussions with your accountant, now is the time to tap into the value they can provide. As you begin the new year, we recommend identifying KPIs to track. Please contact Cray Kaiser today if you would like to discuss your financial reports.
The CK team recently attended the QuickBooks Connect conference in San Jose, CA. We learned valuable information on how we can better help our clients leverage technology to more efficiently manage their day-to-day accounting. We’re excited to share some of these insights with you below.
The theme of this year’s conference was “Anything Is Possible,” and when you are running a business, this is indeed the case. You may not know what lies on the road ahead but understanding your business’ finances and managing them efficiently can allow you to make things happen that you may not have known were possible. We want to help you cut down on the day-to-day accounting tasks you do as a business owner and spend more time concentrating on what matters so that you have the tools you need to scale your business.
In order to help you take your business to the next level, here are five apps we recommend using with QuickBooks Online for efficiency and productivity:
Expensify is a top-rated expense reporting system that tracks receipts and mileage with ease. The best part is that it streamlines your process by automatically syncing all your expenses into QuickBooks.
Tsheets is the best app for employee management. It allows you to track timesheets, manage your employees’ time and create timesheet reports. The user-friendly interface makes it easy for staff to use and you can even accomplish true job costing with labor using the Tsheets app.
QuickBooks Online is great at a lot of things, but if there was one thing it could improve it would be its inventory and manufacturing functionality. SOS solves these problems by integrating directly with QuickBooks to save you time and money by reducing duplicate data entry. SOS allows you to do total inventory and manufacturing workflow and management and even integrates with your shipping provider.
Have you ever wished you could have a digital file cabinet for all of your bills, receipts, and bank statements? Hubdoc has the ability to link your online banking and vendor accounts to its system, allowing the program to automatically retrieve and organize new bills and documents as they become available each month. Documents are secured by bank-level protection and bills and statements can be sent directly from the program into QuickBooks Online.
An all-in-one CRM and project management app, Method can help you stay on top of your projects at every stage. Easily track customer payments against project milestones and manage contacts, tasks, projects, events and emails.
For more information on any of these apps or QuickBooks Online, please contact us today.
Click here to learn more about CK’s QuickBooks services.
When it is set up and maintained properly, QuickBooks can be an incredibly helpful and powerful tool for business owners and managers. The software can provide up-to-date financial statements and cash flow data and create general efficiencies in your accounting. However, too often we see that QuickBooks is either underutilized or simply a burden to our clients.
With tax season behind us, we thought it would be helpful to share a few challenges that we encountered with our QuickBooks clients this year. These challenges added additional barriers and complications during tax season. By being proactive and taking action now, you can help make next tax season much easier to navigate.
The most common QuickBooks issues included:
1. Unorganized Chart of Accounts: Your financial statements are the framework that gives insight into your organization’s financial health. The financial statements are born from your Chart of Accounts. It’s easy to think more detail is better, but that’s not always the case. Having too many and/or an unorganized Chart of Accounts can hinder the amount of information provided by the financial statements.
For example, when analyzing financial statements, you often want to perform trend analysis (looking for increases, decreases or baseline for certain items). This can be extremely difficult if there are too many accounts. When this occurs, there is an increased chance of the same account appearing multiple times as a subaccount. Thus, creating confusion for those performing the data entry, resulting in errors in the financial statement reporting.
There are a number of different solutions to resolve this problem:
a. Use subaccounts when necessary to the financial reporting.
b. Merge accounts when you find too many accounts which are similar.
c. Mark the account inactive when you no longer need to use the account.
2. Disorderly Items List: QuickBooks defines the product(s) you sell as “items”. Over time, it’s easy to add inventory anywhere into the system and forget to keep amounts updated. This can sometimes create negative inventory amounts on your balance sheet. Here are a few quick steps to clean up your Items List:
a. Mark any items you no longer sell as inactive.
b. Ensure each item is correctly labeled inventory, non-inventory, etc.
c. Double-check the item exists with your physical inventory.
d. Make sure you keep the costs for each item updated.
e. Assign each item correctly with the proper revenue and cost accounts to ensure accuracy in your financial reporting.
3. Unreconciled Bank and/or Credit Card Accounts: Reconciling your bank and credit card accounts every month is very important. Why? Because it serves as a control to ensure that all cash and credit card transactions are accounted for properly. Performing this function monthly helps you identify problems before they get out of hand. Here are a few steps to take when reconciling your accounts:
a. Review uncleared transactions.
b. Make sure the transaction hit the right account.
c. Check to see if there are any duplicate entries.
4. Incorrectly Applying Deposits to Invoices: When customer balances appear on your accounts receivable aging as a ‘negative balance’, unless the customer has an overpaid balance, this is usually a pretty good indicator that something is wrong. In most cases, this is the result of invoices being applied incorrectly. Every time you get paid by a customer, you should be able to receive that payment against an open invoice. Take a second look to make sure this is happening in your QuickBooks account.
5. Not Applying Payments to a Vendor Bill: Sometimes vendors who have been paid still show amounts due on the AP Aging reports. This creates a situation where a company’s liabilities are being overstated. To correct this, you may need to void or delete the bill that has already been paid. We recommend contacting your accountant before deleting any entries as they may be linked to other transactions.
6. Misusing the Undeposited Funds Account: Are you receiving payments from customers but your cash account isn’t increasing on your financial reports? It’s likely that you’re using Undeposited Funds incorrectly. Undeposited Funds is an internal current asset account created by QuickBooks to hold funds until you are ready to deposit them in the system. When you receive a customer payment, open the deposit module, batch checks together that you’re taking to the bank, and record them as one single deposit in the software.
7. Forgetting to Lock a Closed Period: When you close out a month (or any period), make sure to lock it so that no one can go back and change the amounts that were used to file tax returns and financial statements. Please note that all entries should be made in the current period.
Following these few steps will allow management to make decisions using timely and reliable financial information. By taking the opportunity to implement these strategies now, next tax season will be less stressful and provide management greater opportunities throughout the rest of 2018. Our QuickBooks Pro Advisors team can provide you support in any of the above areas. Please contact Cray Kaiser today for more information on how you can maximize QuickBooks.
QuickBooks is the premier accounting software system for small business owners, and with good reason: it features robust reporting, an easy to use interface, customizable invoices, inventory tracking, ease of use when on the go, and more. In fact, recent upgrades have made QuickBooks even more impressive, adding additional flexibility and customization. Here’s what our team learned when they attended advanced breakout sessions at QuickBooks Connect, a three-day conference for accounting professionals:
The conference focused on the latest QuickBooks feature releases and the expanded offering of third-party plug-in modules that allow users to scale the software to fit their particular needs. The key intention of Intuit’s new cloud platform aims to empower business owners to scale their business and allow the software to scale along with them. From restaurants to construction to manufacturing and everything in between, QuickBooks has industry-specific features tailored to your business’s unique needs and allows the end-user and their accountant access from anywhere.
Some of these features include:
A significant portion of the sessions at QuickBooks Connect showcased their latest product, QuickBooks Self-Employed. There’s a good reason for that emphasis: today, roughly three in ten workers are self-employed, and over the next five to ten years, that percentage is expected to double. In keeping with that trend, QuickBooks has added multiple features, including an enhanced navigation and more detailed transaction reports that are specifically tailored to the self-employed individual. Here are a few of the software’s latest benefits that make running your business easier:
Whether you are an accounting professional or a business owner, QuickBooks is designed to streamline processes and simplify your experience. Even so, they can also be more complex to understand and learn. It’s essential to have the right guidance to ensure that your business is using the right version of QuickBooks and is set up for maximum success. If you’re looking for ways to make your accounting processes easier and more efficient, or just want to learn more, contact Cray Kaiser today.
