Beyond Taxes - How Your Profit & Loss Statement Can Help You Run Your Business

You would be surprised how valuable your Profit & Loss Statement is and how it can help you manage your business. It can show you if you material, labor or administrative costs are too high or too low. It can also show you the trend in your business so that you can capitalize on favorable trends and mitigate negative trends. And finally, your Profit & Loss Statement can provide the foundation for creating a budget and truly enable you to get control of your costs.

Most small-business owners think of their bookkeeping as a necessary evil that is useful only for the preparation of tax filings. But your Profit & Loss Statement is much more than that. Comparing the current year financial activity to the prior year can tell you how your business is progressing - whether the trends are headed up or down. If they are headed up then you can expand on what you are doing right. This will increase your profits and make your business stronger. Conversely, if the trend lines are heading down, you can identify what is causing the negative trend and then make changes to rectify the situation. Maybe your quality is slipping or your vendors are causing delays in the production cycle. Whatever the problem, by figuring out what is going wrong, you are sure to improve your business.

Another useful tool is calculating costs as a percentage of sales. This calculation will tell you if your material or labor costs are too high and show how your selling and administrative expenses are tracking against sales. Costs that are too high will eventually put you out of business. But costs that are too low are a real danger too. It could indicate a decrease in product quality or reduced customer service.

By digging a little deeper you can identify which product lines are most profitable. It might surprise you that a product receiving little attention has a great gross profit. That is your starting point for a marketing program to push a product with low sales volume but great gross profit potential.

Your Profit & Loss Statement is also a useful tool for creating a budget. Once you have identified your sales streams and costs, you can estimate what those items will be next year. It might surprise you that a small increase in sales without a corresponding increase in costs can have a dramatic positive effect on the profitability of your business. At the same time, increased costs without a corresponding increase in sales can cut deeply into the profitability of your company. This is especially true of labor costs which are often the highest cost in a business.

So take a few minutes and look at your Profit & Loss Statement. Compare it with last year and see how your business in progressing. Then look at those percentages to see if your costs are too high or too low. You will be surprised at how much valuable information is available just by reading your Profit & Loss Statement.

Linda Dawson is a Certified Public Accountant with more than 25 years experience helping small and start-up businesses. Dawson & Associates has just introduced their latest service, the Virtual Accounting Office. Learn more about this exciting new product at http://www.MyVao.com.

What is the Single Most Important Thing to Learn in Business? Accounting

If you ask a business person, entrepreneur or executive what the most important thing in business is they are likely to tell you; people, sales, capital or a product and service that people desire. Sure, those are important, but they often miss accounting.

A company with a sharp pencil, which knows where it is at, at all times, is more likely to make money, have a better cash flow and grow the business over a long period of time. A company that is weak in its accounting has a greater chance of business failure in the first 5-years and no company; small, medium or large is exempt.

If you are a small business person and you feel as if there is more to know, then why not register and take some accounting classes at the local community college level? If you are an entrepreneur, then you need to understand how to create realistic proformas, how to attain money and how to insure your cash flow is strong so you can start, grow and succeed in your entrepreneurial endeavors.

Flying by the seat of your pants in your own business and juggling all the finances is fun and exhilarating, but as the business grows larger and larger it's time to either hire an accountant or learn how to do that part of it also. Not only will good accounting help you make better business decisions, but it will also keep you from going to jail for making a mistake on your taxes, withholding or misstating your income. I sincerely hope you will consider all this as you seek to increase your knowledge of business accounting.

"Lance Winslow" - Lance Winslow's Bio. If you have innovative thoughts and unique perspectives, come think with Lance; http://www.WorldThinkTank.net/.

Accountants - How They Can Help Your Small Business

Do you own a small business? If you do, you need an accountant. Many small business owners think they can handle their financial matters all by themselves. As far as they're concerned, big corporations like Fortune 500 companies need accountants, but they can take care of their own needs in that area. This is a big mistake for any business owner to make, and it will cost you money in the long run.

While it may be true that you've got a fairly good handle on your business numbers, it's highly unlikely that you could do anywhere near as good a job as professional accountant could do for you. If you bake bread, that's what you should focus on. Carpet cleaners should concentrate on doing the best job cleaning carpets they can. And the time you spend taking care of your books could be better spent getting more customers, or managing your client list. Spending hours a week or several hours a month is not a good use of your time. An accountant can free you up to make more money by not having to worry about the tedium of bookkeeping.

A good accountant can also show you leaks in your business. Maybe you're spending too much money each month on a certain form of advertising. An accountant figure up how much return you're getting on each form of advertising and tell you which ones are working and which ones are ineffective. This can have a huge effect on your bottom line.

And taxes? Forget about it! Every business owner dreads quarterly tax filing season, and it can be a nightmare for a small business that's just getting off the ground. And if you're growing by leaps and bounds, keeping up with all the paperwork to do your own taxes can drive you bonkers. Let a pro handle that stuff.

An accountant can free you up to do what you do best, can show you ways to improve your profits, and can make sure you've got all your ducks in a row when it comes to your dealings with the IRS. Every day you go without an accountant for your small business is another day you're losing money.

Rocket City Local is the Huntsville, AL directory people turn to first. Check it out today to find a Huntsville, Alabama accountant

Top 7 Tips For Solicitors - Bookkeeping

Solicitors' accounts can be a minefield. Solicitors have enough on their plate without the additional stress of trying to remember and apply all the Solicitors Accounts Rules (SARS) that exist, and so for this task, they may well rely on their Legal Cashiers. In this article, we attempt to outline the top 7 tips that all solicitors should know when it comes to Legal Accounts.

1. Purchase invoices/counsel / expense receipts must be retained for VAT purposes.
It doesn't matter what the amount is, any expenses need to be supported with a receipt. If a vat inspection took place this information needs to be produced.

2. Outstanding bills with money in client account - need a weekly report.
SARS states that monies in client accounts, relating to payment of bills need to be transferred 14 days from receipt. If these are left for more than 14 days you will be in breach of SARS. So solicitors do need to be on top of their books, to be able to ensure that the relevant postings are made in good time.

3. Balance in client account must be returned it to the client.
It is important the balance is not billed to clearall funds. Any balance must be returned to the client regardless of the amount. For small amounts for example, anything under £1.00, then it's best to return that in the form of stamps as you often find that many people won't cash small value cheques, and so you are left with lots of unreconciled cheques waiting to be cleared in the bank. Many solicitors have small balances going back many years. As an exercise, it might just be worth trying to contact these past clients and returning their funds to them. It will simplify matters, and who knows, they may need your services again - you could be contacting them at the right time.

4. Use the office account when you want to draw a cheque against uncleared funds.
You actually don't have to sit and wait for funds to clear... if you get the authority from a practise partner, then you can draw a cheque against uncleared funds. On the one hand, this can save you time in your practice, but you need to be aware, because if the cheque is returned as unpaid you are in breach of SARS. Drawing funds, which ultimately turn out to not exist will result in an overdrawn client account. This is not allowed, because it means you've used client A's fund to support the activity of Client B. Client B needs his own money. Overall, the best way to avoid any of the above is to have your unpaids go through the office account.

5. Have a process for sending funds back to the client.
This is similar to tip 3, but it's slightly deeper. Despite many solicitors 'knowing' that they really ought to return clients funds to the client, very few actually get around to it. Failing to do this results in cumbersome books, and you don't want this. What you need is a process for sending funds back to the client - particularly when the cheque has not been cashed. You can't just close these accounts, if they have uncleared cheques sitting there. Nor can you just keep the money. You need to show that you have attempted to return the funds more than once. Failing this, then the solicitor needs to make an arrangement to send the funds to the Law Society. They have a Benevolent Fund, and they make the decision whether it will go to the charity or whether you can keep it. If it's for under £50.00 then it can normally go to a charity of your choice e.g. The MS Society. But what you cannot do is send the client a bill for it. Some solicitors do it, but it is wrong.

6. Cheques drawn should be sent to the client immediately.
Large cheques drawn and not banked after two weeks should be queried. If you haven't sent it out, it should be returned to cancel with possible interest added to the cheque. Solicitors have been known to draw cheques and sit on them while they benefit from the interest. This is wrong.

7. Documentation for yearly audit must be retained and filed in date order.
Paying in books, bank statements and bank reconciliation's signed by partner, are items that the auditor needs to refer to, to perform the yearly audit. Ideally, archive the records, and keep them for 6-year minimum in case an Inland Revenue inquiry arises.

To avoid the headache, you can always outsource the legal bookkeeping job to an experienced bookkeeping company such as Boogles Ltd. Visit: http://www.boogles.org or call 0844 8844 622 for more details.

What is a Chartered Accountant and Why Should You Hire One?

For many people, an accountant is something that they feel they only need once a year when they are doing their taxes, if then - but the truth of the matter is that a chartered accountant is an individual who can help you out in a great many financial areas. Whether you are looking on your own behalf as a private citizen, or you are curious about what a chartered accountant can do for you or your business, you'll find that you can consider some of the following pieces of information.

When you are making a comparison between a chartered accountant and a regular accountant, you'll find that there are several important differences. Technically, anyone can call themselves an accountant who regardless of what licensing or education that they have. A person who calls themselves a chartered accountant, on the other hand, is someone who retains a membership in either the Institute of Chartered Accountants in England & Wales, the Institute of Chartered Accountants of Scotland or the Institute of Chartered Accountants in Ireland. These organizations will only allow membership after a series of examinations have been passed and after a certain amount of working experience.

Essentially, when you are working with a chartered accountant, you will find that you are working with someone who has a certain baseline of experience and certification under their belt. When your financial situation is complicated, or if you find that you are in over your head when it comes to financial matters, you'll find that taking on a chartered accountant can help you figure out how to proceed. You may also feel that retaining a chartered accountant will give you a great deal of peace of mind when it comes to the assurance that your financial matters are being handled competently.

When you are looking to retain a chartered accountant, you'll find that the accountants who engage in public practice work will have a practicing certificate which will declare them fit to do so. This means that they have met further requirements and that they have the appropriate professional experience with which to serve you.

When you are looking for someone to look over your financial matters, you'll find that a chartered accountant will most likely be the most competent individual in a place to do so. Take some time and make sure that you look into your accountant's credentials and to make sure that you are confident in their ability to handle your affairs.

Wilkins Kennedy have been offering professional services to business owners across England and worldwide for 126 years and have the expertise and experience necessary whether your business requires accountancy or taxation advice, or the annual audit is due.

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The Importance of Bookkeeping in a Business

If you run your own business, no matter what size, bookkeeping is a legal requirement by H M Revenue and Customs.

Basic records you must keep

Your basic records will normally include:

• a record of all your sales, with copies of any invoices you've issued
• a record of all your business purchases and expenses
• invoices for all your business purchases and expenses
• details of any amounts you personally pay into or take from the business
• copies of business bank statements

You or your accountant will use these records to create a profit and loss account - which shows the sales income you've received and the expenses you've paid, and what profit/ loss you've actually made. Your tax liability will be based on this.

Other records you must keep

All businesses are different and there are many specific types of detailed records that may need to be kept. Some examples of records you should keep include:

• cash book
• petty cash book
• order notes and invoices
• copy sales invoices
• details of any other business income received
• details of any private money brought into the business
• till rolls or other form of electronic record of sales
• details of any other income
• any cash taken out of the till to pay small business expenses
• bills and invoices for purchases and expenses
• a record of stock on hand at the end of the year
• all bank and building society statements, pass books, cheque stubs and paying-in slips which include details of business transactions

If you do not keep accurate and complete records you may end up paying more tax than is due because of lack of evidence of tax deductible expenditure or/and inaccurate sales records causing H M Revenue and Customs to assess your expected sales . If you pay an accountant to prepare your accounts they will charge you based on how long it will take them. If your records are more accurate this will reduce the time taken and therefore reduce the amount they charge.

The above reasons are sufficient to ensure you keep good books and records but the most important reason is to ensure you have control over your business and that you can assess its profitability and the cash flow situation therefore ensuring you are aware of any potential problems as soon as possible and can make business decisions with all available information at hand.

Alan Butler is a director of A Butler and Company, chartered certified accountants, based in Derby, providing a personalised service to local business owners and individuals.

Four Software Limited, 5A Darley Abbey Mills, Darley Abbey, Derby, DE22 1DZ, Tel 01332 200 604, Fax 01332 344329, http://www.foursoftware.co.uk

Diagnosing Common Errors in Quickbooks Part One - Negative Balances in A-P and A-R

Introduction

Diagnosing problems in a QuickBooks file is easy once you know what you are looking for. It's usually a matter of glancing at the chart of accounts for anything out of the ordinary. The problem is that most business owners aren't sure what is out of the ordinary and what isn't. This is the first in a series of articles that will explain how to diagnose what the problem is and how to correct the problem once known.

Negative Balances in A/P or A/R

Although this may seem kind of basic for those who have been entering data into QB for a while, for those who haven't this may be new information, so hang in there for their sake. Accounts Payable is the account automatically created by QuickBooks when you enter your first bill. This is the account that all these amounts go into and from which these same amounts are taken when you pay the bill. More often than not, the clients I see for the first time have a negative balance in the A/P and cannot explain why, nor do they know what to do with it.

A negative balance in the A/P would indicate that YOU owe your vendor money, and though there are legitimate reasons why you would give a credit to a vendor, a refund for extra material sent, etc., most of the time it is the result of a simple mistake. That mistake is the entering of a payment to a vendor without entering the bill that the payment should apply to. This happens when the data entry clerk is not using the Enter Bills/Pay Bills screens and is simply entering the amounts paid into the check register. Since there is no corresponding bill, (according to QuickBooks) the amount of the check is entered as a credit toward the vendor specified.

Likewise, a negative balance in the A/R indicates that there are customers that your company owes money to. And again, there are legitimate reasons you would credit a customer, but often it is a mistake. The mistake that is made is that a customer payment is recorded without a corresponding invoice being recorded. If the invoice isn't recorded, then according to QuickBooks, this customer doesn't owe you anything, upon receiving the payment and recording it, you now have a customer you owe money to, but not really.

NOW HOW DO I FIX IT?

As with all questions related to accounting, the answer is, "that depends". If these are current mistakes and the bank accounts have not been reconciled as of yet, the method of correction is easy. For the A/P, look for the Pay Bills and enter in the same check number that you used earlier and pay the bill in that screen. The little 'oh-oh' screen will pop up telling you that this check number is already used, ignore it and use that number anyway. When you are done with all of these entries, return to the register and look for those identical check numbers, the ones entered correctly will have BILLPMT in the box below the check number, delete the one without that designation and you will have completed the task. Fixing the A/R is not much different, (assuming that the reconciliations have not been completed!) enter an invoice dating back to the time of the payment received for whatever that customer ordered. The invoice will counter the credit received and will bring the balance out of the negative to zero, unless the customer of course, still owes you for work done.

WHAT IF EVERYTHING IS RECONCILED?

If the negative balances date back into months that have been previously been reconciled and the bank statements and QuickBooks match, deleting these payments by customers and reentering them applying them to invoices will throw off all reconciliations for the rest of the year. You will then have to re-reconcile the bank accounts and that can be tedious.

For A/P corrections after reconciliations, DO NOT DELETE THE BILLS! We have to be a little creative with this so here goes. First, create a fake bank account; call it Adjustment Bank or First Bank of David, whatever you wish. Go to the Pay Bills screen and use the fake bank account to pay the bills you are sure have already been paid.

Once you have completed the entries, make a fake deposit from an account called adjustment into the fake bank account for that same amount of the already paid bills. This effectively zeroes out the bank account, which you can then make inactive.

For A/R corrections after reconciliations, since the amounts have already been received and deposited into the right bank account that has already been reconciled, simply entering in matching invoices to compensate for the received funds will not affect the bank account, and thus will not affect the reconciliations already done. Just make sure to tie out the payment to the invoice number you create by using the invoice number in the payment memo box. Since the amount won't change you won't have to worry about affecting the reconciled transactions.

CONCLUSION

Admittedly, this is not the ideal solution, and if you only have a few of these transactions and it won't require an entire year of re-reconciliations, you should do it the long way. However, this way gets you done sooner and let's you get on with the day to day business you love to do. I hope this helps you with your QuickBooks issues.

David Roberts, CFE, CQBPA, MBA, lives in Kissimmee, Florida with four girls, three dogs, two snakes and one wife. He has been a member of the ACFE for five years and has been studying fraud for longer than that. He is the owner of Homesoon Accounting Services which specializes in Quickbooks Consultations and Fraud Prevention and Detection.