The accounting feature is usually laid out in a spreadsheet fashion so all of the various contributors are easy to see. You can assign numbers to accounts as well as use names to represent them. You can add as much or as little information as you want to keep track of. You can add columns for dates and times as well as for debit and credit amounts. The software will also keep a running total for you so you do not have to add and subtract on your own. This means your finances will be more accurate and up to date then by doing record keeping by hand.

The church accounting software is a great way to keep track of single or multiple resources a church may use in receiving money. You can create separate records for each fund-raising event and one basic record for the overall church fund. You can also keep separate records of payroll accounts as well as any other money the church might pay out or distribute in its practice. Anyone who works with a church budget will greatly appreciate the time saved by using the software for their record keeping tasks.

The Current Ratio is used by short-term creditors to determine a company’s ability to meet short-term financial obligations. Short-term creditors prefer a high Current Ratio. Higher current ratios are an indication of lower risk and consequently, lower current ratios suggest higher risk.

The current ratio is calculated by dividing current assets by current liabilities:
(If you don’t know what Assets or Liabilities are, Check this out).

Current Ratio: Current Assets
Current Liabilities

Here are two examples:

EXAMPLE 1
Current Assets: $250,000 (this includes cash, inventory, accounts receivables, etc.)
Current Liabilities: $75,000 (this includes financial obligations that will be paid within the year)

$250,000 / $75,000 = 3.33 (This situation is less risky for short-term creditors)

EXAMPLE 2
Current Assets: $100,000
Current Liabilities: $125,000

$100,000 / $125,000 = 0.80 (This situation is more risky for short-term creditors)

One reason that you need to understand about this ratio is that creditors prefer a higher current ratio because it reduces risk BUT owners tend to prefer a lower current ratio because this could be an indication that more of the firm’s assets are working to grow the business.

This is a repeat post…

It only takes 30 minutes to 1 hour a day MAX, for most small business owners, to update their accounting records. This pre-selected time will ensure you have accurate records and will help you make better business decisions during the year.

I had a bookkeeping client a few years ago that didn’t keep up with his records. He operated a very small retail shop in my home town and only recognized about 10-15K per month in revenue. His books were in shambles and it didn’t take long before I realized he had been losing money. When I started, he handed me 2 years of bank statements and a box full of receipts. Fortunately for me, he didn’t use cash for any of his purchases so the receipts were duplicated in the bank statements and I didn’t have to rummage through the box to try and make sense of the mess. After about a week I had his books updated.

When I sat down with him to go over the financial statements, he immediately noticed that one of his major reseller accounts wasn’t being recorded. After a little investigation, we realized that this reseller had been selling my client’s products for 2 years. My client would drop ship the product(s) and then was supposed to invoice the reseller. Once the invoice was received, it was paid and the cycle continued. My client hadn’t invoiced the reseller for 2 full years.

The amount of money that should have been collected was about 1K per month, which isn’t a staggering number by itself, but is mind-boggling when compared to the total revenue collected each month. It represented about 5-10% of his total revenue.

Lucky for me, I approached the reseller and brought this to his attention. He had no idea. I offered to clean up the mess and consequently got another bookkeeping client. If the accounting records for both parties had been maintained each month, my first client could have collected an additional 1K per month and my second client wouldn’t have been stuck with a 24K bill which was due in full and not spread over 24 months.

Chalk this up for a lesson learned and keep up with your bookkeeping.

Stay tuned for easy to understand lessons on bookkeep for the small business owner.

Here’s why…

Accounting can be seen from 2 different views. The first is from the eyes of the non-accountant. Words that enter their minds are boring, mundane, an expense, required, structured, records, paperwork, confusing, taxes, CPA’s, nerds (I can say that, I’m an accountant), etc. For the average free-spirited and creative entrepreneur, accounting rubs the wrong way.

The second set of eyes is from the accountant’s point of view. Again, words that enter OUR minds are important, decision making tool, structure, decision making tool, analyze, decision making tool, accountability, decision making tool, etc. We are nerds. I will be the first to admit it. I’ll also be the first to admit that all of us, in some form or fashion, have at one time, wanted to cross over to the dark side of entrepreneurship but our structured and nerdy ways of thinking won’t let us. It’s best if we leave that side of the biz to the creative type.

The non-accountants, however don’t have that luxury. You have to cross over and see our world at some point. It’s just the way it has to be. If you take some time to learn how to account for your transaction, you can literally turn your financial statements (the reports created from record keeping) into powerful… I really mean powerful decision making tools.

Here’s how this blog is going to go from here on. In the next post, I’m going to share some examples of poor business decisions that could have been avoided if proper analysis had been done on the Finance statements. After that, I’m going to teach about some bookkeeping essentials that will be easy to understand and apply. Believe me, you don’t have to have a degree in this crap or be a genius to understand this. I’m going to make it easy. I’m going to make bookkeeping exciting and fun…okay maybe I’ve gone to far. I’m going to make it easy.

Stay tuned!

When the day came around to pick up the truck, I had my wife drive me to the pick-up location. She waited in the car while I went inside to finalize the paperwork. After about 20 minutes she came in to see why I hadn’t driven away in our reserved truck. We found out that the location that was supposed to have my truck didn’t have one in stock. I didn’t expect this because I gave UHaul my credit card number when I reserved the truck 2 weeks prior to that day.

This wouldn’t have been a major problem if I had lived in a big city and could have just gone to another pick-up location, but at the time I lived in a small town which was 2 hours from the next UHaul site. This now became a major problem because I had arranged for laborers to help load the truck.

To make a long story short, 5 hours later I pulled up to my house with the truck.

The lesson I learned:

A seemingly “good system” doesn’t work if it’s not predictable. Predictability in systems instills confidence in employees, customers and all end users. In my case, UHaul had an online system that was easy to use. However, their system for fulfilling on their orders was unpredictable. I lost confidence in their “easy system” because of the unpredictable outcome.

Now the fun begins. If you haven’t started already, you need to begin accounting for every penny that goes out, comes in or just sits there in your business bank account. In the beginning, this task can easily be done with a spiral-bound notebook. When you start acquiring customers everyday instead of once a week, then most likely that notebook just won’t cut it anymore. You need a good accounting package; a system that does most of the work for you.

My first company was an accounting service firm where I worked with startup’s and offered a wide range of accounting and financial consulting. I used a number of software packages to track both business and personal finances for my clients. If you are just beginning to track your income and expenses, I would recommend getting a copy of QuickBooks. It’s easy to use for “non-accountants”. It’s quick to learn the program and it’s affordable.

A simple system like this will save time and headache as your business grows

In order to increase cash flow, opportunity costs need to be managed. For instance, if you own and operate a small lawn care service, you most likely don’t have the volume for a full time accountant (yet!). Many small businesses can keep records and make the necessary entries in their accounting software in about 5 hours a week. Unless you are running a bookkeeping firm, accounting probably isn’t your core competency. If you were to outsource this task to a professional bookkeeper, he/she would be able to complete this same task in about 1 hour a week. Even if you pay this ‘outsourced employee’ $50 per hour, the chances are good that your cash flow will still increase. Why? Remember, by outsourcing your bookkeeping you are freeing up about 5 hours a week, which could mean an additional 2-3 new clients. In the long run, those clients, with referrals, can amount to an increase in paying customers, all because you decided to focus on what only you can do (get customers) and let someone else do the busy stuff.

Outsourcing is one of the greatest resources for small to medium sized businesses, because it offers a cost effective solution to taking a business to the next level. The advantages to outsourcing are that it allows a business owner to focus on core activities and gives him/her access to professionals for everything else. As mentioned above, it also increases cash flow and in business, CASH IS KING.

In summary, outsourcing allows small and medium sized businesses access to large business resources at a small business budget.

Every transaction that happens in a business should have a supporting document(s). These documents are used as evidence that a particular business transaction actually happened. Supporting documents are used to make accounting entries. They also serve as support during an audit.

These documents should include the date, the amount, and a description of the transaction. These papers are known as source documents, supporting documents or are sometimes referred to as a paper trail.

Examples of supporting documents include but are not limited to:

Credit card receipts
Checks
Invoices
Purchase orders
Time cards
Deposit slips
Receipts

After a transaction has been entered, these documents should be kept for future reference. If a paper trail is not available, one should be created using a bank statement or another existing source.

When your business or an auditing firm needs clarification on a transaction, make sure that you have marked a visible trail that will justify your companies’ position on the matter. This will also give you more information when making crucial financial decisions. Information gives you a solid understanding of where you are, which in turn helps you know where you want to go.

LEAVE A TRAIL!

Assets are things, that a company owns, that have value. An asset is also that which is owed to a company such as accounts receivables. Assets include tangible items such as buildings, vehicles, equipment, tools and inventory. However, tangible property is not the only thing that can be classified as an asset; intangibles such as trademarks, patents, research and development, and goodwill are also included in the category of asset. Remember that cash is an asset. So, anything of value that is owned or due to the business should be included as an asset on the Balance Sheet.

A liability is everything that a company owes others. This includes money that a company might owe a supplier, payroll that is owed to employees, taxes owed to local, state and federal tax agencies, and money owed to banks or other lending institutions for loans or credit card balances. This list is not all-inclusive as there are many financial obligations that fall in the liability category on the balance sheet. I have just included a few of the most common ones found on balance sheets of small businesses.

In a nutshell, Owner’s Equity represents the money that would available to all the owners if the company sold all of its assets and paid off all of its liabilities. Equity increases when owners invest money into the company and/or when the company shows a profit and retains those earnings in the company instead of paying those earnings out in a dividend. Equity is often called owner’s equity, shareholder’s equity, capital or net worth.

The following formula represents the balance sheet:

Assets = liabilities + Owner’s Equity

Understanding the balance sheet and monitoring its changes will help a business owner understand important trends in the business and help he/her make better decisions.