Archive for the ‘Accounting’ Category

2012 Personal Tax due date is Monday!

April 12, 2013

Don’t forget…Monday is the due date to file your Personal Taxes for 2012! If you can’t meet the deadline, you must file an extension to extend this deadline. Don’t wait until the last minute!

 

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2013 Accounting Tip #11

March 19, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

Balance your Cash Drawer/Register. Believe it or not, some small businesses feel that this is not important or they simply did not want to fool with the hassle of balancing their Cash Drawer/Registers.

There are multiple reasons why you need to do this. First, if you are not balancing, how do you know that the money is not slipping away? Employees are not dumb and though most people are honest, why put them in a tempting position? Or a position where they will rationalize and borrow money from the register and put it back later? Most of us don’t mind helping out but we should be asked.

Count your Cash Drawer/Register and balance them daily, at the beginning of a business day and at the end of a business day. It is also good to have a second person double checking the final numbers so that you leave no room for error. If you don’t want to do it yourself assign a trustworthy person the task and periodically check them. It is a lot easier to find and fix any mistake today than it will be at a later date. It also makes reconciliation go a lot faster than stopping at that point to find the discrepancy.

2013 Accounting Tip #10

March 12, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

Deposit your receipts timely.  Depending on your volume, this should be done either daily, every other day or at minimum once a week.  It is best that you deposit your receipts each day in order to reduce the risk of money being lost or stolen, and checks not clearing by the time they are deposited.  If your business does not have a lot of cash receipts, you should at least deposit your receipts every week. All checks, money orders and cash items received should be deposited intact without any deductions for expenses or advances. Use your petty cash fund to pay expenses or advances that require currency.  Better yet, write a check to reimburse the person for the expense so that you have tracking on that expense and it is accounted for.  It is not recommended that you keep large quantities of cash at your place of business.  Have a specific cash amount that you keep on hand in a petty cash fund for those instances when you need to make change.

2013 Accounting Tip #9

March 5, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

Consider working with a Professional. Accountants have been trusted and respected allies to small business owners for many years. Their intimate knowledge of the profession as well as tax laws in their jurisdiction will save you money almost every time. I know how tempting it can be to save a buck and do it yourself, but it’s almost never more cost-efficient in the end. An accountant will almost always find more deductions and keep you penalty-free. On that note, the cleaner your records, the fewer billable hours you’ll have to pay, so make sure you’re organized year-round. But when things get technical or taxes are due, save yourself the money, time and headaches and call in a trusted professional.

2013 Accounting Tip #8

February 26, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

Make sure you pay yourself a living wage.  Many business owners are just trying to get their gig off the ground.  In doing so, their focus is on creating sales and running the day-to-day operation without having a plan on what they are going to pay themselves.  Don’t buy into the myth that all owners make a large salary from the get go.  Remember that as your business grows you will likely achieve a higher rate of pay, but this is not always true.  Many business owners consequently just draw out money whenever they feel like it or need it to not have their personal checking account bounce.  Don’t do this.  Have a plan.  Decide in advance how much of a draw you need to make a living and pay your personal expenses.  Once you have determined what is a decent wage for yourself, schedule this draw on a regular basis realizing that it may not be a wage that you want it to be, and may have to be adjusted as you work at building your business.  Make sure you follow the tax strategy for paying yourself depending on if you are a Sole Proprietor, S-Corp, C-Corp or LLC.  Seek the advice of a Tax Professional if you need additional input.

2013 Accounting Tip #7

February 19, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

Most business owners hate to do their paperwork, especially the nitty-gritty relating to income and expenses.  Many times they are not ready to see the impact of the details.  Therefore the task gets put off.  This is the biggest mistake you can make.  You need to set aside about an hour each week to organize your receipts, file your bank & credit card statements, reconcile your finances, and don’t let other things take priority during this time!  You’ll have more insights into your business, be able to make more informed financial decisions and let alone have everything organized when tax time approaches. Something always feels more pressing than your finances, because as a business owner it is all up to you.  But when you find the time every week, you’ll feel your stress levels — now and at year-end — fall fast.  Do yourself a huge favor and do it in bite size chunks and don’t put it off.  Schedule it in your weekly routine.

2013 Accounting Tip #6

February 12, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

When you’re looking for insights into your business spending, don’t forget to properly track what is likely one of your biggest expenses: labor. Whether you’re paying for full-time staff, part-time staff or you’re the only one on the payroll, make sure you’re tracking the costs of wages, benefits, overtime and any other costs associated with labor. By tracking your spending on labor, perks and benefits, you may find you have more money to incentivize your employees — or that you’re outspending your budget.

Either way, doing the math now can help you make better decisions later.  Knowing what it costs you to have employees doing work for you, is part of the picture as to whether you are able to grow your business further with your current people or if you will need more people.  It is provides a picture as to the profit of your business venture when you know what it costs you to produce in man time hours.

2013 Accounting Tip #5

February 5, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

Finally, don’t forget to get paid for the services or products you provide.  You might think that this one seems pretty obvious, but in reality you would be shocked at how many small business owners don’t properly track invoices and customer payments. You need to have a method at keeping track of your services and/or product so that you can invoice your customers timely.  If you’re not keeping proper records on what your customers or clients owe you with the information in a format that you can make sense of at a glance, it could be months before you realize you have outstanding invoices. You could be charging late fees if your customers are not making payments timely.  If you don’t know if a customer has an outstanding balance, you could be collecting payments late or missing some altogether. Make sure you’re properly tracking all payments due and recording when each invoice is paid, how long customers generally take to pay, and which customers you have had difficulties collecting payments from in the past.  This will help you stay on top of all business revenue and is the first step at Cash Flow Management.

2013 Accounting Tip #4

January 28, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

Start a folder for Charitable Deductions for each Calendar year.  As you make the deductions, make sure to put a copy of the receipt in the folder so that you have them all in once place when you file your tax return the next year.

In order to deduct your charitable contributions on your tax return, you will need to have the backup records to support this.  This means that no matter how the transaction occurred whether it was by Cash, Check, Money Order, Credit Card, or donation of goods, your records need to include all paperwork regarding the transaction that includes a receipt from the Charitable Organization or your bank record if you were not given a receipt.

2013 Accounting Tip #3

January 22, 2013

2013 Accounting Tip #2

January 15, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

Those new shoes aren’t a business expense, but your business credit card was handy so you used it. Sure, you can pay back your business for a personal expenditure, or the other way around.  However, when you do this, things get complicated fast, and you don’t need that headache. By keeping separate bank and credit card accounts for business and personal, you’ll save yourself hours of work and make it easy to keep track of deductible expenses in one place. It also makes it clear when you are reviewing your Profit & Loss Reports pertaining to Income and Expenses for the year. If you are mixing business and personal expenses, you are never going to have a true picture of what your business is doing and the bottom line.  We recommend handling business and personal finances as independently as possible, besides the fact that the IRS states it is required otherwise they consider those transactions as a co-mingling of funds.

Do yourself a favor and start the year out with a clean slate even if you did things differently last year.

2013 Accounting Tip #1

January 8, 2013

There are many ways to get organized for taxes. Each person needs to find the way that works for them to ensure that they will stay consistent and current. We will provide you some tips at getting started, you may even find a tip that you like better than your current way of doing things.

You will need to keep track of your receipts each year. Depending on your volume of receipts, number of bank accounts, credit cards, and cash purchases will determine what method is the best for you. You will need to consider how often you reference your receipts and depending on how many of them you have, how you want to search for what you need when the time comes.

One option is to create envelopes labeled for each month and year [example: January 2013] and put all receipts in the envelope in date order, with most current in front. Another option is to staple or paperclip the receipts that match and attach them to each bank account and credit card statement for each closing period. If you don’t have many receipts, just putting them in a file folder may work for you.

Your CPA or Accountant is not going to be fond of you bringing your receipts all in a wad or stuffed in a shoe box. Take the time to create a little bit of organization and you will make their job a lot easier!

my client says: “I am Snow White”

March 5, 2012

The other day I made a call to a client to check in, say hi and let them know to be expecting an envelope in the mail from me.  I let him/her know that he/she probably was going to wonder why  I had “resent” paperwork that I previously had sent him/her and I wanted him/her to know it was updated, new copies, to get rid of the old unless he/she wanted to keep both.  Why?  Because this is what I did:

I provide Medical Billing, Consulting, Training and Accounting Services to my clients.  This client was very late at getting me their data for the 1099s for their Independent Contractors as the information was never loaded in Quickbooks when I obtained their account.  I have provided this client with items that need to be completed, but it still hasn’t been done, so I had to rely on them for data because mine was “missing” .  In my rush to meet the IRS Deadlines for 1099 Forms and filing their 1096 Form, guess what I did?  I forgot to create my own 1099 for providing services to them.  Yup.  So I did all that timely for what???  Just to have to redo it.

My client laughed and laughed and laughed at me and said, Misty, do you remember the scene of Snow White and the Seven Dwarfs where all the Dwarfs are counting themselves and they keep getting six and don’t understand when Snow White comes in and she counts seven and they think she is marvelous?  You are Snow White!

All I can say is at least my client has humor.  At least they didn’t chew me a good one.  At least they understood what I was trying to accomplish.  And at least it was mine and not someone else’s!

Can you laugh at yourself?  Can you admit your mistakes?  Share a funny client experience with me or another comment!  We love hearing from our followers.

Year End and IRS Forms

January 23, 2012

Year End comes every 365 days.  For many, it sneaks upon them very quickly each and every year.  Many people don’t plan ahead for tax time, yet if you are diligent and do the necessary steps in bite size chunks, tax time will not be a nightmare for you.  In order to evade the nightmare, you must plan ahead.  To plan ahead, that means you must be diligent to complete the steps required and be aware of what forms are needed on both a state and federal level.

Are you ready to file your IRS Forms for the previous calendar year?  Once you have all your data together you are ready to file your forms.  Today, I want to share with you a resource to assist you with the forms needed.  These forms may be purchased by many vendors.  However, did you know that you can order them from the IRS for free?  Yes!  It takes planning ahead, but you can order them here.  You can also search http://www.irs.gov to get instructions on the forms you need to file on a federal level.

What other free resources do you utilize for your accounting and tax filing purposes?

How To Keep Up with Your Accounting Records

December 19, 2011

None of us like paperwork and because of that, receipts get stashed in all kinds of places.  Your pockets, the car, your purse, your briefcase, your day planner, and some even get tossed away.  If you put processes in place, you can avoid many of the headaches at tax time by keeping track of your receipts and other required documents regularly and systematically.  This requires you to be organized and to have a filing system in place that works for you.  If you do this throughout the year, you will save yourself an enormous amount of time.  It is pertinent to have good record-keeping.  Keeping track of various transactions you made during the year will benefit you in more ways than one!

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three – seven years (see article by IRS here, but some documents – such as records relating to a home purchase or sale, stock transactions, IRA, and business or rental property need to be kept longer.  In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

  • Bills
  • Credit card and other receipts
  • Invoices
  • Mileage logs
  • Canceled, imaged, or substitute checks or any other proof of payment
  • Any other records to support deductions or credits you claim on your return

It is never to late to stop and put processes in place, so that you have efficient and effective good record-keeping throughout the year.  This saves you time and effort at tax time when organizing and completing your return and you won’t be stressed out because you have everything you need right when you need it!

10 Ways to Improve Your Accounts Receivable

April 25, 2011

Streamline information flow and accelerate turnaround with these tips on managing patient encounters.

Receiving maximum reimbursement with quick A/R turnaround in any healthcare practice requires careful attention to obtaining, documenting and communicating information. From the time a patient schedules a visit until the charge is closed out, proper management of information to and from your billing representative means the difference between fast reimbursement cycles and slow, drawn out A/R. Information about insurance coverage, demographics, diagnosis and status of claims should flow clearly and efficiently to support a clean claim submission the first time around.

Here are 10 opportunities in the lifecycle of a patient encounter where efficient management of information will improve your Accounts Receivable (A/R).

  1. Initial Patient Contact – Front office staff or the patient scheduler should capture ALL pertinent information when a patient calls to schedule an appointment. Capturing general information like name, phone number and reason for appointment is a good start, but make sure you’re catching payor information as well. Does the patient have insurance? If so, who is the carrier, what’s their plan number? If not insured, are they prepared to pay up front and have they been briefed on your payment terms? Either way, answers to these questions will help in the insurance verification step and/or set proper expectations for payment at the time of service.
  2. Insurance Verification – Either the scheduler or billing representative should use the information from initial patient contact to confirm with carriers BEFORE the office visit. This opportunity offers the chance to confirm enrollment, coverage levels, co-pays/deductibles, etc. Traditional verification of benefits over the phone is effective but time consuming; remember that you can usually save a lot of time using on-line interfaces offered by many carriers today. If the result is “no coverage” for this visit, or the carrier is unable to verify coverage, a follow up call to the patient should yield updated coverage information or at least guarantee everyone is aware of payment responsibilities.
  3. Patient Registration – When the patient arrives at the office, the receptionist or a member of the front desk staff should verify ALL registration forms are accurate and complete. If it’s an existing patient, the receptionist should re-confirm that records are up to date. This step is the key to obtaining/confirming the detailed demographic data required for insurance claim submission – if anything is incorrect or missing, reimbursements can be delayed as much as a month or more. It’s also helpful for front desk staff to reiterate any out of pocket expense (such a deductible, co-pay, co-insurance) or self pay obligations at this time to confirm the patient is prepared to remit payment once the visit is complete if not before services are rendered.
  4. Provide Care & Document Services – While the patient is in the exam room, or immediately following the visit, all diagnosis and care should be clearly documented on encounter forms. Patient forms are then forwarded to the front to cross reference with information gathered during insurance verification in Step 2, and the bill for co-pays and self-pay patients is generated, if this was not done before the services were rendered.
  5. Collect Co-payment – All patients should be required to stop by the cashier or reception desk to remit payment for co-pays, self-pay, etc. BEFORE they leave. If preceding steps are completed properly patients will already be aware of obligations, so there shouldn’t be any surprises. A receipt can also be generated now for the billing representative to document exactly how much was remitted by the patient, should any later balance billing be necessary.
  6. Claim Generation, Submission, and Carrier Review – Clean claim submission is not just dependent on the information gained in steps 1 through 5, but also on processes that manage data efficiently. A good practice management or medical billing software will address this need, but as with other areas in life remember that you usually get what you pay for – it’s usually best to not cut corners. The alternative to spending thousands on software is teaming with a professional medical billing company for, usually, a nominal percentage of receivables. Either way, if information is missing at initial claim submission, denial can add several weeks to the reimbursement process. If all moves smoothly, reimbursements can be forthcoming in as little as 1-2 weeks!
  7. Insurance Reimbursement Received/Documented – Hopefully, all of the preceding steps have progressed smoothly and a clean claim was submitted. Our next step in managing claim information is proper documentation of reimbursements in the medical billing record. This step can often be simplified through electronic remittance and EOB notifications. If you’re not able to use electronic EOBs, then it becomes critical the billing representative is thorough in manual entry of all EOBs received. Keeping close eye on your EOBs – timing as well as reimbursement rates – can also identify which carriers are paying quicker and which might require a follow up call.
  8. Patient Invoicing – This step is about communication with patients. Just like carriers, providing patients with thorough information will further help to reduce turnaround time and minimize questions. Be clear and note dates of service, insurance payments, fees collected at time of service, and total amount due. These statements should be sent out as soon as an insurance determination is confirmed. Many statistics have shown the sooner an invoice is sent, the more likely, and faster, it will be paid.
  9. Enter Patient Payment – Upon receipt of the patient payment, the billing representative should enter payment information into the billing system and prepare to close out the charge. If payment is not received within a reasonable amount of time (i.e. 30 days), the practice should have clear policies in place for next steps. Small balances of say, under $5, might be taken as a write off; for larger balances a second invoice might be sent or the patient may be sent to a Collection Agency for further action. Regardless of your policies, don’t delay in taking action. A/R suffers most when these balances go unaddressed, carrying forward month after month.
  10. Close Out Charge – Once final payment has been received, or a determination has been made to write off or send to collections, the billing representative should waste no time in closing out the charge.

These steps can generally be applied similarly with any patient visit in almost any specialty or medical office. Whether you have a staff of 20 or just one person, one loop hole creates a chain reaction and it affects the entire process.  Keep these opportunities in mind as you consider ways to improve the flow of information and reduce your practice’s A/R turnaround.

Tax Time Check List

February 4, 2011

None of us just love tax time…in all seriousness, I don’t even think CPA’s do!  We have created a list for you to assist you in what you need to have together to file your 2010 Tax Return. 

Here is a Tax Return Checklist:

  • W2 & 1099’s – Wages and Compensation
  • Proof of jury duty pay
  • 1099-INT and/or 1099-DIV Interest and Dividends received
  • 1099-R Pensions, Annuities and other Retirement Accounts
  • IRA contributions (traditional, SEP, or rollovers)
  • 1099-B form(s) showing Brokerage Trades in Stocks and Bonds
  • 1099-G Unemployment Compensation and State Refunds from 2009
  • 1099-SSA form showing Social Security received
  • Schedule C /1099-MISC Reporting income and expenses for a small business/self employed income
  • Mileage Log
  • K-1 forms for income from a partnership, small business, or trust
  • Schedule D Capital Gains and Losses
  • Form 982 Used to report a cancellation of debt on a 1099-C
  • Record of income and expenses for your Rental Property
  • HUD-1 Escrow statement for property you bought or sold
  • Alimony received
  • Gifts to Charity/Donation Receipts
  • Healthcare Expenses (doctors, dentists, health insurance, eyecare, medicine)
  • Summary of Moving Expenses
  • Summary of Educational Expenses/College Tuition
  • 1098-E Student Loan interest paid
  • Summary of Child Care, Day Care, or Adult Day Care Expenses
  • Real Estate/Property Taxes
  • Motor Vehicle Registration
  • 1098 Mortgage interest paid
  • Job-related Expenses (union dues, job education, uniforms)
  • Loss of property due to casualty or theft
  • Gambling losses
  • Last year’s tax preparation fees

Be sure to bring written documents for additional income not reported on a W-2 or 1099 form, such as other self-employment income, rental income, or alimony. This could be a spreadsheet, bank statements, or other written evidence. Bring canceled checks, receipts, or spreadsheets for any tax-related expenses. This may include contributions to your traditional or SEP-IRA, moving expenses, college expenses, medical and dental expenses, real estate taxes, gifts to charities and churches, and daycare or childcare costs.  If you paid estimated taxes, bring a summary of your federal and state estimated payments and canceled checks.

How to Keep Up with Your Accounting Records

December 13, 2010

None of us like paperwork and because of that, receipts get stashed in all kinds of places.  Your pockets, the car, your purse, your briefcase, your day planner, and some even get tossed away.  If you put processes in place, you can avoid many of the headaches at tax time by keeping track of your receipts and other required documents regularly and systematically.  This requires you to be organized and to have a filing system in place that works for you.  If you do this throughout the year, you will save yourself an enormous amount of time.  It is pertinent to have good record-keeping.  Keeping track of various transactions you made during the year will benefit you in more ways than one!

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three – seven years (see article by IRS here, but some documents – such as records relating to a home purchase or sale, stock transactions, IRA, and business or rental property need to be kept longer.  In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

  • Bills
  • Credit card and other receipts
  • Invoices
  • Mileage logs
  • Canceled, imaged, or substitute checks or any other proof of payment
  • Any other records to support deductions or credits you claim on your return

It is never to late to stop and put processes in place, so that you have efficient and effective good record-keeping throughout the year.  This saves you time and effort at tax time when organizing and completing your return and you won’t be stressed out because you have everything you need right when you need it!

What is Cash Flow? – Part 2

November 22, 2010

Analyzing Your Cash Flow

The sooner you learn how to manage your cash flow, the better your chances for survival. Furthermore, you will be able to protect your company’s short-term reputation as well as position it for long-term success.

The first step toward taking control of your company’s cash flow is to set up a business budget and compare what you feel are reasonable expenses to what you have actually spent.  Set goals for how you are going to control this.  The second step is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing these gaps, is the key to cash flow management.

Some of the more important components to examine are:

  • Accounts receivable: Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.
  • Credit terms: Credit terms are the time limits you set for your customers’ promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
  • Credit policy: A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy – neither too strict nor too generous – is crucial for a healthy cash flow.
  • Inventory: Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
  • Accounts payable and cash flow: Accounts payable are amounts you owe to your suppliers that are payable some time in the near future (near = 30 to 90 days). Without payables and trade credit, you’d have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.

Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts, or spend extra cash to expand its line of business.

Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.

Remember without a business budget in place, it is hard to manage expenses and plan your cash flow structure of your business.

What is Cash Flow? – Part 1

November 15, 2010

Cash Flow is the Pulse of Your Business

Do you know the pulse of  your business? The realistic fact is that many small business owners do not fully understand their cash flow statement. This is shocking, given that all businesses essentially run on cash, and cash flow is the lifeblood of your business.

Some business experts even say that a healthy cash flow is more important than your business’s ability to deliver its goods and services! That’s hard to swallow, but consider this: if you fail to satisfy a customer and lose that customer’s business, you can always work harder to please the next customer. But if you fail to have enough cash to pay your suppliers, creditors, or employees, you’re out of business!

What Is Cash Flow?

Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your clients or customers. The inflow only occurs when you make a cash sale or collect on receivables, however. Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.

Outflows for your business are generally the result of paying expenses. Examples of cash outflows include employee wages, purchasing inventory or supplies, purchasing fixed assets, operating costs, paying back loans, and paying taxes.

Cash Flow Versus Profit

Profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a quarter or fiscal year. Profit is a useful figure for calculating your taxes and reporting to the IRS and for an assessment in the bottom line of your business.  Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business. It is concerned with the movement of money in and out of a business. But more important, it is concerned with the times at which the movement of the money takes place so that you are able to manage all this effectively and efficiently.

Benefits of a Business Budget

October 25, 2010

What are the benefits of having a business budget?  Having a budget allows you to:

  • Forces you to outline your set goals and objectives.  By outlining specific costs you know what you need to do specifically in each area to achieve these criteria.
  • Review goals, discuss a strategy, set priorities, and plan realistic amounts.  Variable expenses can quickly get out of hand without a budget.  Allocations may need to be changed and a budget gives you this information. 
  • Plan expenses to determine how much revenue you will need to meet expenses and generate profit. 
  • Creates opportunity to plan ahead for shortfalls, slowdowns, and busy seasons.
  • Provides information needed to complete loan and financing options.
  • A quick glance at where you are with a monthly & annual picture of income and expenses.  This enables you to monitor cash flow.
  • Helps to pinpoint areas of success as well as areas that need tweaking. The ability to head off issues and plan for profit.
  • Opportunity to re-evaluate your business plan and reflect on how you will achieve it.
  • Many more budgeting benefits…

Business Budget Categories

October 18, 2010

So as you work at making your business budget, what categories do you need?  I have made a list of some of the important ones to get you started…you may want to expand it.

Revenue:

  • Sales Revenue
  • Sales Returns/Credits
  • Interest Revenue
  • Other Revenue

Expenses:

  • Advertising
  • Bad Debt
  • Cost of Goods
  • Depreciation
  • Employee Benefits
  • Equipment (Computers, Fax Machines, Office Equipment, Printers)
  • Fees (Bank, Legal)
  • Insurance
  • Interest Expense
  • Maintenance & Repairs
  • Marketing
  • Meals
  • Office Supplies
  • Payroll Taxes
  • Rent
  • Research & Development
  • Salaries, Wages, Commissions & Bonuses
  • Software
  • Training Classes
  • Travel
  • Utilities (Cell Phone, Electric, Fax, Gas, Internet, Phone)
  • Web Hosting & Domains

Each industry will have specific revenue and expense requirements, therefore you will likely expand and contract this list.  What other revenue or expenses to you have?

Business Budget Terms

October 11, 2010

Last week, we discussed why you need to have a business budget.  Today we will discuss terms you need to know in creating a business budget:

Net Income = Total Revenue – Total Expenses

Revenues: The income that is generated by providing a service, selling a product, earning interest on investments, renting extra office space, licensing technologies, selling advertising space, or licensing the use of your brand name. In the income statement template, there are categories for Sales revenue, Service revenue, Interest revenue, and Other revenue. 

Business Expenses: For a retail company, one of the main expenses is the cost of goods sold. For service businesses, this might not be such a large factor. Some of the other operating expenses may be advertising, salaries, rent, utilities, insurance, legal fees, accounting fees, supplies, taxes, etc.

Operating Income: In the multi-step income statement, the operating income is calculated from the Gross Profit minus the total Operating Expenses. In general, interest expense and income tax expense are not included as operating expenses, which gives rise to the term EBIT (earnings before interest and taxes), simply another name for Operating Income.

Income from Continuing Operations: This is the “bottom line”, calculated as the Operating Income minus interest expense and income tax (and plus/minus non-operating revenues, expenses, gains, and losses, if there are any). If there are no “below-the-line” items, then this is the same as the Net Income.