Kenneth Boyd's Blog, page 48
May 1, 2019
Four Reasons To Check Your Credit Score Today
It could be thinking about starting your own business.
Perhaps you want to get into a position to own your own first home.
Maybe your car is coming to the end of it’s lifespan and you will need to buy a new one soon.
Whatever scenario life throws at you, keeping on top of your credit score by requesting a free credit report is absolutely essential. If your credit score is low, it can have a massive affect on many areas of your life. So, if you have no idea what your score is, here are some powerful reasons to check it today.
If you manage a business and want to increase your productivity, I highly recommend QuickBooks accounting software. Read this article to decide if you need the desktop or online version of the software.
#1- It Could Save You Thousands
All of us need to borrow money at some point, and the interest rate we pay is directly linked to our credit score.
If you have a bad score, you will be completely ineligible for some loans and credit cards, and are only likely to be able to borrow at a very high rate of interest. This may only seem like an abstract matter of percentages, but it can add up to thousands of pounds over the time you’re paying it back.
It’s also worth keeping in mind that having no credit history at all may be as bad as having a poor one – it’s all about how much of a risk or an unknown quantity you seem to be.
Each lender has their own criteria about where they draw the line, but you can research what you should be paying in interest for a loan or a credit card, based on a particular credit score.
Make sure that you translate the percentage interest rate into dollars of interest – seeing the figures written down in black and white makes it easier to understand the financial impact.
Use online accounting software to dramatically increase your company productivity. Find out more here: QuickBooks Online Edition – Free Trial
#2- It Could Get You A Job
OK, so no-one is going to get a job based just on their credit score alone, but many people don’t realize that it can be an important deciding factor, or even that some employers do a credit check.
If it comes down to you versus another candidate for a job interview, but you have a poor credit report, who do you think will get offered the job? An employer wants to know that you are reliable and able to manage things responsibility, and a bad credit score is an indicator that all might not be well in that area.
QuickBooks Online Edition – Free Trial
#3- Cheaper Car Insurance
Car insurance is one of those necessary evils in life – no one really wants to pay it, but we all have to. That said, your credit score has a large bearing on the cost of your car insurance premium!
In fact, US studies into the matter have found that people with no credit history can pay more than double what people with a good score do, even with the many other deciding factors taken into account.
#4- Making Improvements
You can improve your credit score by getting your personal finances in order. Consider taking these steps:
Action Steps To Consider
Create a budget, even if that budget is simply on notebook paper.
Separate your expenses between fixed and variable, and take a hard look at your variable spending.
Take steps to cut your variable expenses each month and put the amount you save into a separate savings account.
Consider using a budgeting app to monitor your spending
Save 5% of your monthly gross income
Improve Your Finances, Increase Your Credit Score
Monitoring your score closely means that you can prevent minor issues from becoming large problems, and also save money on your insurance costs. Life really is cheaper with a better credit score.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(amazon author page) amazon.com/author/kenboyd
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
The post Four Reasons To Check Your Credit Score Today appeared first on Accounting Accidentally.
4 Ways for Small Business Owners to Reduce Stress
Running your own business is a dream come true for many people, but it requires a lot of hard work.
As a small business owner, particularly when first starting out, you may find yourself fulfilling lots of different roles in your business, from cleaning the office to being your own admin assistant.
There’s always plenty to be done.
With so many tasks to juggle and so many commitments on your time, it can be hard to keep a balance in your life, and things can get stressful quickly. Use these tips to help you regain control by using practical ways to reduce your stress levels.
If you manage a business and want to increase your productivity, I highly recommend QuickBooks accounting software. Read this article to decide if you need the desktop or online version of the software.
#1- Stay Organized
When you’re short of time and every moment is consumed by work, it can be hard to stay on top of everything that you have to do.
Taking some time to get yourself a little more organized could save you time going forward. You may feel that you have a hundred things that you need to do buzzing around in your head. If so, why not release them from your head and get them down on paper?
Writing a to-do list is such a simple thing to do, but will help you to see much more clearly what you need to do, and will stop you having the added pressure of trying to remember everything. Of course, you will also have the added satisfaction of ticking things off the list as you tackle them.
Writing everything that you need to do, in order of priority, will help you to focus on the most critical items on your list.
Use online accounting software to dramatically increase your company productivity. Find out more here: QuickBooks Online Edition – Free Trial
#2- Get Everything in Order
There’s nothing more stressful than having unresolved problems buzzing away in the back of your mind.
Tackling these irritating issues may feel overwhelming to start with, but should make you feel a lot better afterward. If you can’t resolve on your own, getting some expert help may be the answer. For example, seeking advice from a civil attorney may be helpful, if you have a business dispute that needs to be resolved.
Staying on top of your paperwork and keeping everything tidy in your workplace can also really help to bring your stress levels down, as you won’t be hunting around in a panic looking for important documents when you need them. Once everything is in order, it should be a lot easier to keep things that way, and will ultimately save you time in the future.
#3- Take Control of Your Finances
Getting your personal finances in order is another tool to reduce the stress of managing your business.
Action Steps To Consider
• Create a budget, even if that budget is simply on notebook paper.
• Separate your expenses between fixed and variable, and take a hard look at your variable spending.
• Take steps to cut your variable expenses each month and put the amount you save into a separate savings account.
• Consider using a budgeting app to monitor your spending
• Save 5% of your monthly gross income
#4- Find Some Balance
Don’t forget to ensure that you get some time free to spend however you wish, and that you are not continually working.
QuickBooks Online Edition – Free Trial
Trying to do everything yourself is not only time-consuming, it’s also stressful. Little things, such as taking a break now and then can help to reduce stress, and you may even find that getting out into the fresh air and taking some time out improves your productivity too.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(amazon author page) amazon.com/author/kenboyd
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
The post 4 Ways for Small Business Owners to Reduce Stress appeared first on Accounting Accidentally.
April 19, 2019
How to Hire an Interim CFO
Big financial decisions can sneak up on you- when you’re not prepared to make an informed decision.
If you’re gone through the process of starting a business and your company has grown, you’ll need some financial help eventually.
Finding an interim CFO to consult with you on important business issues can be a lifesaver. So, before it’s urgent, use this answer to understand what a CFO does, and how to find a consulting CFO who can help your business get to the next level.
Growth is Exciting
Growing your business is exciting, and it validates your product or service idea. Starting a new product line, bringing on a big client, and adding new locations will energize you and your team- but you also have decisions to make.
And those decisions may be beyond your capabilities.
If you manage a business and want to increase your productivity, I highly recommend QuickBooks accounting software. Read this article to decide if you need the desktop or online version of the software.
Here are several reasons why you may need the help of a CFO:
When an Interim CFO May Be Necessary
Before you can make a decision on a CFO, keep in mind that a bookkeeper posts business transactions, and that an accountant handles more complex accounting work and reviews the bookkeeper’s activity. As your firm grows, payroll, inventory and other accounting areas will become more complex.
A CFO manages the entire accounting function, including the preparation of financial statements.
You may start by having a CFO review your monthly accounting records, and ask for help interpreting your financial results. A CFO with industry experience can give you some key metrics and ratios to assess your business results.
If, for example, you are a retailer and carry inventory, a CFO may suggest looking at days sales of inventory as a metric to track the amount of available cash that is tied up in inventory.
Use online accounting software to dramatically increase your company productivity. Find out more here: QuickBooks Online Edition – Free Trial
Here are some other ways that a CFO can help you make better decisions:
Efficiency: You need experts to perform some of your accounting work, in order to operate more efficiently. Say, for example, that sale growth requires you to issue 150 invoices in May, rather than the typical 45. You need an expert to help you work more efficiently.
Find capital: Many owners eventually need to find sources of capital, in order to grow the business. You may raise capital by issuing stock to investors, or by borrowing money from a bank. Both stock investors and creditors will require a set of audited financial statements prepared by an accounting firm.
Preparing for sale: You’ll need to have a variety of accounting records in place before a company sale can be completed, and a CFO can help you identify the records that you need, and to prepare any records that are missing.
Generally speaking, an interim CFO can install operational and financial systems, and create a budgeting process that includes annual forecasts for sales, production, and cash flow.
Most important, your CFO is a trusted advisor- someone who can help you make the most important financial decisions in your business.
QuickBooks Online Edition – Free Trial
How to Find Your CFO
You may be surprised just how valuable a good CFO is, and how many people will be happy to refer a talented CFO to you. Here are some sources you can tap to find an interim CFO:
Friends, business peers: In addition to asking friends, you can find a CFO candidate by asking other people in your industry. Maybe an industry contact hired an interim CFO before taking on a full-time CFO, for example.
Attorney, accounting firms contacts: These professionals deal with CFOs all the time. Attorneys work with CFOs on contracts and business transactions, and accounting firms work with their customer’s CFOs on audit, tax returns, and consulting work.
University with start up incubators: Incubators are created to help startup firms launch businesses, and these companies need interim CFOs. Check with universities in your area.
Work your contacts until you find 2-3 CFOs who may be candidates for your firm.
Finding the Right Person
Interview each CFO, and ask them if they have experience in your particular industry. It’s also important to find out about their availability, and if they can be responsive to your needs.
Use these tips to find an interim CFO who can help you grow your business on a part-time basis.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(amazon author page) amazon.com/author/kenboyd
(website and blog) http://www.accountingaccidentally.com/
Image: Andrew Neel
The post How to Hire an Interim CFO appeared first on Accounting Accidentally.
April 16, 2019
Simple Steps To Increase Your Rental Income
Buying a property as an investment is a big step – you need to make absolutely sure you’re getting a return for the amount of risk that you take.
Your rental income is a business, like any other, and you should run it that way. Constantly looking for ways to make small improvements to increase your yield from the property you own should be a standard procedure. Use these top tips to make sure you’re turning a profit.
Use this site to apply for a loan Find My Rate at Social Finance Pay off credit cards or invest in a major purchase
Keep Your Property Fully Occupied
Much like a grounded plane, every time your rental property is without a tenant, it’s not making you money.
Your aim should be to minimize the time your house isn’t occupied by arranging long-term contracts, vetting tenants carefully and cultivating a good relationship with them so you can catch wind of any troubles quickly.
When you do have expected periods without a tenant, reduce the turnaround time as much as possible, so that you can remarket the property within a week or so of the previous tenants vacating.
Many freelancers and business owners may have times when cash flow is a problem. Use this site to apply for a loan Find My Rate at Social Finance in order to cash flow your business until you can collect receivables from customers.
Lower Your Admin Costs
Every amount you pay out in administrative costs for your rental properties is money off the bottom line, so look to streamline where possible.
Find a leasing agent who will offer a fixed fee, rather than paying per property, or look for an online leasing agent.
If your properties are in sought-after locations, an online leasing agent can to be much cheaper. This freedom and flexibility can drastically reduce your admin costs.
It all comes back to vetting tenants thoroughly and being approachable, so the renter feels they can tell you if there are any changes to their financial circumstances – if so, you’ll have a much better chance of cutting down your losses than finding yourself with the cost to hire a collection agency.
Regular Property Inspections
It’s a good idea to insist on regular property inspections, even if you feel you have good tenants.
Spot checking isn’t just about seeing that whoever lives there is taking care of the place. It’s about identifying potential issues that the tenant may not even have noticed, like blocked gutters or loose roof tiles.
Minor repairs to a roof or replacing small things are far less expensive to fix than if problems are allowed to develop unchecked.
Also make sure that you have an inventory list for new tenants. It helps to ensure that everything is accounted for, especially if you have multiple properties to manage, and also allows you to accurately compute any deposit funds needed to cover damage and repairs.
Get Your Rental Income Right
This one is an easy principle, but can be quite tricky in practice. It’s good practice to review your rental charges at least annually – you can do this by requesting a rental valuation with a leasing agent.
Use services like Zoopla to sign up for email alerts on other rental properties in the same area so you can have a basis for comparison. You need to strike a fair balance with how much rent you choose to charge. If you pitch the property as too expensive, you can struggle to get tenants, but undercharging means that your pocket takes a hit.
Make sure that you include a clause in your rental agreement that gives you the right to increase rent charges in line with the rate of inflation once a year, otherwise you may be stuck with escalating expenses with no corresponding boost in income.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
The post Simple Steps To Increase Your Rental Income appeared first on Accounting Accidentally.
April 14, 2019
How To Start a Business: 21 Steps (With links)
“I just need a checklist to start my business.”
Well, I hope you’ve found it here.
If you’re entrepreneur who is starting a business, you’ve got a lot on your mind. So, to organize all of those thoughts, here’s are the steps you can take to start your business. Learn how to start a business, and you can outperform the competition.
#1- Idea Validation
This is the step many entrepreneurs skip.
You’re excited about your idea, and you move straight into creating your product or service for the masses.
But that’s a mistake.
First, you need to validate your business idea, which I list here in 4 steps. If you don’t seriously consider these 4 components, run away from your product idea screaming…
a) What problem does my product or service solve?
b) Do customers feel that solving this problem is urgent?
c) How much will they pay for a solution to the problem?
d) Are there enough of these people to justify creating and marketing the solution?
The idea here is get your product or service in the hands of a relatively small group of people, ask them to use it, and then get their feedback.
If your product solves a problem, and you can sell it profitably to a large enough group of people, you may have a valid business idea.
If you’ve had a financial setback, this article can help.
Get Up to Speed on Accounting
Every business owner must understand the basics of accounting, in order to post transactions and to generate financial statements.
Accounting is a cycle that starts with gathering source documents (invoices, receipts) and ends with the financial statements. The cycle repeats every month and year.
#2- Chart of accounts
The chart of accounts is listing of each account and the account description, and your accounting software will provide a standard chart of account that you can change as needed.
#3- Journal entries
Accounting transactions are posted using debits and credits, which you can read about in detail here. A journal entry records all of the needed detail about a particular transaction, including the dollar amount, the accounts used, the date, and a brief description of the transaction.
#4- Trial balance, adjustments, financial statements
A trail balance is a list of every account and its balance as of a certain date. Accountants generate a trial balance to review the impact of transactions, and to assess the overall financial status of a company.
At the end of each month, accountants post adjustments to the trial balance, and the adjusted report is used to generate the financial statements.
If you manage a business and want to increase your productivity, I highly recommend QuickBooks accounting software. Read this article to decide if you need the desktop or online version of the software.
#5- Three important financial statements
Here are three most important financial statements you need to generate and review each month and year:
A balance sheet is a financial statement the lists a company’s assets, liabilities, and equity balances as of a specific date. The three components of the balance sheet are driven by the balance sheet formula:
Assets – liabilities = equity
The income statement, on the other hand, is generated for a period of time (month or year), and is created using this formula:
Revenue – expenses = net income.
The income statement is connected to the balance sheet through the net income account. Net income in the income statement increases the equity balance in the balance sheet.
Finally, the statement of cash flows documents the cash inflows and outflows in a business, which are separated into three categories: operating, financing, and investing. Think of this report as summarizing the activity in your checkbook.
The ending balance in cash is equal to the cash balance in the balance sheet.
Reviewing your monthly financial statements helps you to make informed decisions, and make improvements in your business.
Use online accounting software to dramatically increase your company productivity. Find out more here: QuickBooks Online Edition – Free Trial
#6- Create a Business Plan
Once you validate your business idea, and you have a basic understanding of accounting, you’re ready to create a formal business plan.
To make the process easier, invest in business plan software. Using software allows you to address each required component for your plan, including tools to create a set of projected financial statements.
#7- Raising capital
You may decide to bootstrap your business, meaning that you fund the business out of your own pocket, using savings or taking out a personal loan.
If, instead, you decide to raise funds, there are two ways to raise capital to operate your business. You can sell ownership in your company by issuing stock (equity), or you can borrow money and take on debt. If a firm doesn’t monitor the amount of debt borrowed over time, repaying the debt may become difficult.
Produce a complete business plan using software- even if you don’t have outside investors or creditors. Writing your plan forces you to consider each important factor in your business.
#8- Create an Annual Budget- Before the Year Starts
Create an annual budget each year, before the new year begins.
Start by making some assumptions about sales prices, units produced, and your labor and material costs (if applicable). At the end of each month, you’ll compare you actual results to you budget, and investigate any differences.
Reviewing budgeting and actual results helps you find ways to reduce costs, increase sales and improve company profits.
#9- Three big issues with cash flow
The most important part of your budget is a cash flow forecast. Each month, you’ll estimate cash inflows from sales, cash outflows for payroll, and other costs, and project an ending cash balance.
Here are three big issues that you must address in a cash flow forecast:
Accounts receivable: This term is defined as the dollar amount of credit sales that are not collected in cash. You need to consider the dollar amount of receivables, and the average amount of time it takes to collect the receivables in cash.
Inventory: The dollar amount of inventory needed to fill customer orders over the next several months. You need to plan for inventory purchases, and how you’ll pay for inventory. If you run short on inventory, you may lose sales- and possibly customers.
Debt payments: Interest payments, and any repayments of principal due in the next few months.
These three factors must be in your cash flow forecast.
#10- Plan for asset replacement
You need a long-term plan to replace assets as they wear out, and you need to budget for repair and maintenance costs.
If you own a restaurant, for example, you’ll eventually need to replace fixtures, furniture, ovens, and refrigerators. Keep a listing of these fixed assets in your accounting system, and track the remaining useful life of each asset.
Say, for example, that a $1,000 commercial refrigerator will last another two years. If that’s the case, you need to set aside funds to replace the asset, or plan on financing the purchase with a bank loan.
Invest the time to create an annual budget, and you’ll see a big payoff as you move through the year.
QuickBooks Online Edition – Free Trial
#11- Understand How Do You Generate Income
Now, that question may sound odd.
“I generate income from anywhere I can!”, you may say to yourself.
But to succeed in business, you have to generate the vast majority of your income from operations. That’s because income from operations is repeatable and sustainable.
If you manufacture baseball gloves, for example, the majority of your income comes from making and selling gloves. Selling a piece of equipment for a gain is nice, but it’s not something you can count on every month.
Drive income and sales from your day-to-day business operations.
#12- Determine a reasonable level of profit
Your profit margins will be affected, in part, by your company’s industry, as well as the amount of competition that you face. If you operate with an industry with a large number of competitors, you may be forced to keep your prices lower than you prefer.
Perhaps the biggest profit factor is your customer’s perception of the value of your product or service. If clients strongly believe that your product solves a problem, they may be willing to pay more.
Use all of these factors to determine your sales prices, and a level of profit on your sales that is reasonable, considering all of the factors listed above.
#13- Analyze the profit on each product
Profit margin is defined as (profit / sales), and it measures the profit you make on each dollar of sales. This ratio allows you to compare the profit on a $5 hammer with a $200 lawn mower, and a product with a lower sales price may have a higher profit margin.
You may have more profit selling the $5 hammer.
Sales mix, on the other hand, is the percentage of total sales that each product represents. Home Depot, for example, sells thousands of products, and lawn mower may only be 1% of total sales.
If you sell multiple products, you can increase profits by selling more items that generate a higher profit margin.
Managing Your Business
Once your business is up and running, use these tips to effectively manage your business.
#14- Timely bank reconciliations
If you don’t reconcile your bank accounts quickly, you may not catch errors and possible fraudulent transactions in your cash accounts.
Successful businesses reconcile all bank accounts and investigate possible errors within a few days of each month end. Your company may post more transactions to cash than any other account in your accounting system, and the bank reconciliation can help you find errors and reduce the risk of theft.
#15- Monitor accounts receivable
Firms that do not closely monitor accounts receivable and enforce a formal collection policy may not generate sufficient cash inflows to operate.
Your accounting software should provide an aging schedule for accounts receivable, which groups your receivables based on when the invoice was issued. You should monitor this report and implement a collections process to email and possibly call clients to ask for payment.
#16- Preventing employee theft
As your firm grows, you’ll add employees and process more transactions. Growth also increases the risk of employee theft, and you need to take steps to reduce this risk.
One way to reduce your risk of theft is to segregate duties between different employees. Protecting cash from theft should be your number one priority for segregation of duties.
Whenever possible, these three specific duties should be kept separate:
Custody of assets: The person who has physical custody of the checkbook should not have any other duties related to cash processing.
Authority: Who has authority to sign a check? If you own a restaurant, for example, your manager may have authority to sign checks for purchases of food received at the restaurant. That same manager should not have access to the company checkbook.
Recordkeeping: This duty refers to posting accounting entries and reconciling the bank account. The role of the accountant must be segregated from the other duties.
For a very small business, it may not be possible to segregate these duties. Maybe the owner handles two, or even all three of these tasks. A growing business, however, needs to separate these duties.
#17- Create a procedures manual
A procedures manual is a written document that explains how you complete every routine task in your business. It tracks how each task is performed, who is responsible for the work, and how often the task must be completed.
Using a procedures manual clarifies how you do business, reduces confusion about the work you do each day, and serves as a great training tool for your staff. If every routine task is documented and understood by your team, ignoring the procedures and attempting to steal assets is more difficult.
Get Help From Experts
As your firm grows, it may be less costly to outsource some elements of your business operation to a third party. Here are several points to consider:
#18- Outsourcing payroll
Payroll is often the most time-consuming accounting task, and your firm may benefit by outsourcing this complicated process to a payroll firm.
Managing payroll is difficult, because the federal, state, and local tax laws may change frequently. Businesses that don’t outsource the payroll function may spend too much time on the process, and make errors that trigger tax penalties and interest costs.
#19- Bookkeepers and accountants
If you need help with accounting, you may eventually hire a bookkeeper or and accountant.
So, how do they differ?
Here are the differences between the bookkeeping role, and the responsibilities assigned to an accountant:
Bookkeeping responsibilities
Bookkeeping refers to the recording of financial transactions in an accounting system. Business owners hire bookkeepers to post customer sales transactions, inventory purchases, and company expenses into the accounting software. Using the services of a bookkeeper frees up the owner’s time for more important business tasks.
Accountant’s role
An accountant can use the transactions prepared by a bookkeeper, along with payroll data and other records, to generate monthly financial statements, including the balance sheet and income statement.
Accountants use their higher level of training to make decisions and judgment calls that bookkeepers don’t address. An accountant reviews transactions and posts more complex journal entries. Accountants also post adjustments to the trial balance and generate financial statements.
You may start by hiring a bookkeeper, and then hire an accountant on a part-time basis. At some point, you may need a full-time accountant to manage all of the accounting tasks.
#20- Hire an Interim CFO
At some point, your firm may be so complex that you need even more accounting and finance help, including a Chief Financial Officer (CFO). If you need an expert, but don’t have the budget for a full-time manager, consider hiring a interim CFO.
Many owners start by having an interim CFO review their monthly financials, and ask them to provide key metrics to track business results. If you’re a retailer, for example, a CFO might suggest reviewing days sales of inventory to track your inventory levels and related sales.
A CFO also manages your bookkeeping and accounting staff, and helps you make key financial decisions, such as a major asset purchase.
#21- Outperform Your Competitors
Simply put, business owners that plan outperform those who don’t.
If you invest the time and create a logical plan to start your business, you’ll save time, make better decisions, and you won’t waste valuable resources.
Implement a plan to start your business, and you can outperform the competition.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
The post How To Start a Business: 21 Steps (With links) appeared first on Accounting Accidentally.
How To Start a Business: 20 Steps (With links)
“I just need a checklist to start my business.”
Well, I hope you’ve found it here.
If you’re entrepreneur who is starting a business, you’ve got a lot on your mind. So, to organize all of those thoughts, here’s are the steps you can take to start your business. Learn how to start a business, and you can outperform the competition.
#1- Idea Validation
This is the step many entrepreneurs skip.
You’re excited about your idea, and you move straight into creating your product or service for the masses.
But that’s a mistake.
First, you need to validate your business idea, which I list here in 4 steps. If you don’t seriously consider these 4 components, run away from your product idea screaming…
a) What problem does my product or service solve?
b) Do customers feel that solving this problem is urgent?
c) How much will they pay for a solution to the problem?
d) Are there enough of these people to justify creating and marketing the solution?
The idea here is get your product or service in the hands of a relatively small group of people, ask them to use it, and then get their feedback.
If your product solves a problem, and you can sell it profitably to a large enough group of people, you may have a valid business idea.
If you’ve had a financial setback, this article can help.
Get Up to Speed on Accounting
Every business owner must understand the basics of accounting, in order to post transactions and to generate financial statements.
Accounting is a cycle that starts with gathering source documents (invoices, receipts) and ends with the financial statements. The cycle repeats every month and year.
#2- Chart of accounts
The chart of accounts is listing of each account and the account description, and your accounting software will provide a standard chart of account that you can change as needed.
#3- Journal entries
Accounting transactions are posted using debits and credits, which you can read about in detail here. A journal entry records all of the needed detail about a particular transaction, including the dollar amount, the accounts used, the date, and a brief description of the transaction.
#4- Trial balance, adjustments, financial statements
A trail balance is a list of every account and its balance as of a certain date. Accountants generate a trial balance to review the impact of transactions, and to assess the overall financial status of a company.
At the end of each month, accountants post adjustments to the trial balance, and the adjusted report is used to generate the financial statements.
If you manage a business and want to increase your productivity, I highly recommend QuickBooks accounting software. Read this article to decide if you need the desktop or online version of the software.
#5- Three important financial statements
Here are three most important financial statements you need to generate and review each month and year:
A balance sheet is a financial statement the lists a company’s assets, liabilities, and equity balances as of a specific date. The three components of the balance sheet are driven by the balance sheet formula:
Assets – liabilities = equity
The income statement, on the other hand, is generated for a period of time (month or year), and is created using this formula:
Revenue – expenses = net income.
The income statement is connected to the balance sheet through the net income account. Net income in the income statement increases the equity balance in the balance sheet.
Finally, the statement of cash flows documents the cash inflows and outflows in a business, which are separated into three categories: operating, financing, and investing. Think of this report as summarizing the activity in your checkbook.
The ending balance in cash is equal to the cash balance in the balance sheet.
Reviewing your monthly financial statements helps you to make informed decisions, and make improvements in your business.
Use online accounting software to dramatically increase your company productivity. Find out more here: QuickBooks Online Edition – Free Trial
#6- Create a Business Plan
Once you validate your business idea, and you have a basic understanding of accounting, you’re ready to create a formal business plan.
To make the process easier, invest in business plan software. Using software allows you to address each required component for your plan, including tools to create a set of projected financial statements.
#7- Raising capital
You may decide to bootstrap your business, meaning that you fund the business out of your own pocket, using savings or taking out a personal loan.
If, instead, you decide to raise funds, there are two ways to raise capital to operate your business. You can sell ownership in your company by issuing stock (equity), or you can borrow money and take on debt. If a firm doesn’t monitor the amount of debt borrowed over time, repaying the debt may become difficult.
Produce a complete business plan using software- even if you don’t have outside investors or creditors. Writing your plan forces you to consider each important factor in your business.
#8- Create an Annual Budget- Before the Year Starts
Create an annual budget each year, before the new year begins.
Start by making some assumptions about sales prices, units produced, and your labor and material costs (if applicable). At the end of each month, you’ll compare you actual results to you budget, and investigate any differences.
Reviewing budgeting and actual results helps you find ways to reduce costs, increase sales and improve company profits.
#9- Three big issues with cash flow
The most important part of your budget is a cash flow forecast. Each month, you’ll estimate cash inflows from sales, cash outflows for payroll, and other costs, and project an ending cash balance.
Here are three big issues that you must address in a cash flow forecast:
Accounts receivable: This term is defined as the dollar amount of credit sales that are not collected in cash. You need to consider the dollar amount of receivables, and the average amount of time it takes to collect the receivables in cash.
Inventory: The dollar amount of inventory needed to fill customer orders over the next several months. You need to plan for inventory purchases, and how you’ll pay for inventory. If you run short on inventory, you may lose sales- and possibly customers.
Debt payments: Interest payments, and any repayments of principal due in the next few months.
These three factors must be in your cash flow forecast.
#10- Plan for asset replacement
You need a long-term plan to replace assets as they wear out, and you need to budget for repair and maintenance costs.
If you own a restaurant, for example, you’ll eventually need to replace fixtures, furniture, ovens, and refrigerators. Keep a listing of these fixed assets in your accounting system, and track the remaining useful life of each asset.
Say, for example, that a $1,000 commercial refrigerator will last another two years. If that’s the case, you need to set aside funds to replace the asset, or plan on financing the purchase with a bank loan.
Invest the time to create an annual budget, and you’ll see a big payoff as you move through the year.
QuickBooks Online Edition – Free Trial
#11- Understand How Do You Generate Income
Now, that question may sound odd.
“I generate income from anywhere I can!”, you may say to yourself.
But to succeed in business, you have to generate the vast majority of your income from operations. That’s because income from operations is repeatable and sustainable.
If you manufacture baseball gloves, for example, the majority of your income comes from making and selling gloves. Selling a piece of equipment for a gain is nice, but it’s not something you can count on every month.
Drive income and sales from your day-to-day business operations.
#12- Determine a reasonable level of profit
Your profit margins will be affected, in part, by your company’s industry, as well as the amount of competition that you face. If you operate with an industry with a large number of competitors, you may be forced to keep your prices lower than you prefer.
Perhaps the biggest profit factor is your customer’s perception of the value of your product or service. If clients strongly believe that your product solves a problem, they may be willing to pay more.
Use all of these factors to determine your sales prices, and a level of profit on your sales that is reasonable, considering all of the factors listed above.
#13- Analyze the profit on each product
Profit margin is defined as (profit / sales), and it measures the profit you make on each dollar of sales. This ratio allows you to compare the profit on a $5 hammer with a $200 lawn mower, and a product with a lower sales price may have a higher profit margin.
You may have more profit selling the $5 hammer.
Sales mix, on the other hand, is the percentage of total sales that each product represents. Home Depot, for example, sells thousands of products, and lawn mower may only be 1% of total sales.
If you sell multiple products, you can increase profits by selling more items that generate a higher profit margin.
Managing Your Business
Once your business is up and running, use these tips to effectively manage your business.
#14- Timely bank reconciliations
If you don’t reconcile your bank accounts quickly, you may not catch errors and possible fraudulent transactions in your cash accounts.
Successful businesses reconcile all bank accounts and investigate possible errors within a few days of each month end. Your company may post more transactions to cash than any other account in your accounting system, and the bank reconciliation can help you find errors and reduce the risk of theft.
#15- Monitor accounts receivable
Firms that do not closely monitor accounts receivable and enforce a formal collection policy may not generate sufficient cash inflows to operate.
Your accounting software should provide an aging schedule for accounts receivable, which groups your receivables based on when the invoice was issued. You should monitor this report and implement a collections process to email and possibly call clients to ask for payment.
#16- Preventing employee theft
As your firm grows, you’ll add employees and process more transactions. Growth also increases the risk of employee theft, and you need to take steps to reduce this risk.
One way to reduce your risk of theft is to segregate duties between different employees. Protecting cash from theft should be your number one priority for segregation of duties.
Whenever possible, these three specific duties should be kept separate:
Custody of assets: The person who has physical custody of the checkbook should not have any other duties related to cash processing.
Authority: Who has authority to sign a check? If you own a restaurant, for example, your manager may have authority to sign checks for purchases of food received at the restaurant. That same manager should not have access to the company checkbook.
Recordkeeping: This duty refers to posting accounting entries and reconciling the bank account. The role of the accountant must be segregated from the other duties.
For a very small business, it may not be possible to segregate these duties. Maybe the owner handles two, or even all three of these tasks. A growing business, however, needs to separate these duties.
#17- Create a procedures manual
A procedures manual is a written document that explains how you complete every routine task in your business. It tracks how each task is performed, who is responsible for the work, and how often the task must be completed.
Using a procedures manual clarifies how you do business, reduces confusion about the work you do each day, and serves as a great training tool for your staff. If every routine task is documented and understood by your team, ignoring the procedures and attempting to steal assets is more difficult.
Get Help From Experts
As your firm grows, it may be less costly to outsource some elements of your business operation to a third party. Here are several points to consider:
#18- Outsourcing payroll
Payroll is often the most time-consuming accounting task, and your firm may benefit by outsourcing this complicated process to a payroll firm.
Managing payroll is difficult, because the federal, state, and local tax laws may change frequently. Businesses that don’t outsource the payroll function may spend too much time on the process, and make errors that trigger tax penalties and interest costs.
#19- Bookkeepers and accountants
If you need help with accounting, you may eventually hire a bookkeeper or and accountant.
So, how do they differ?
Here are the differences between the bookkeeping role, and the responsibilities assigned to an accountant:
Bookkeeping responsibilities
Bookkeeping refers to the recording of financial transactions in an accounting system. Business owners hire bookkeepers to post customer sales transactions, inventory purchases, and company expenses into the accounting software. Using the services of a bookkeeper frees up the owner’s time for more important business tasks.
Accountant’s role
An accountant can use the transactions prepared by a bookkeeper, along with payroll data and other records, to generate monthly financial statements, including the balance sheet and income statement.
Accountants use their higher level of training to make decisions and judgment calls that bookkeepers don’t address. An accountant reviews transactions and posts more complex journal entries. Accountants also post adjustments to the trial balance and generate financial statements.
You may start by hiring a bookkeeper, and then hire an accountant on a part-time basis. At some point, you may need a full-time accountant to manage all of the accounting tasks.
#20- Outperform Your Competitors
Simply put, business owners that plan outperform those who don’t.
If you invest the time and create a logical plan to start your business, you’ll save time, make better decisions, and you won’t waste valuable resources.
Implement a plan to start your business, and you can outperform the competition.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
The post How To Start a Business: 20 Steps (With links) appeared first on Accounting Accidentally.
April 9, 2019
How To Manage Your Finances After Job Loss
Managing your finances when you have a regular income can still be tough, but as long as you budget properly and don’t rely on borrowing, you should be fine. But what if you lose your job and that income suddenly disappears?
People think that it’s never going to happen to them, because they’re doing well at their job, but even the best employees can lose their job if the company hits hard times. You might also lose your job because of illness or injury, so it can happen to anybody at any time.
When you lose your job, you’re going to be in a very difficult financial position and if you’re not careful, you might end up in a lot of debt for years to come. But if you’re prepared and you know how to manage your money properly, you should be fine. Here’s how to handle your finances if you lose your job.
If you’ve had a financial setback, this article can help.
Have An Emergency Fund
The first step starts while you’re still in work.
It’s important that you’ve got a buffer to fall back on if you lose your job, which is why it’s so important to have a healthy emergency fund. You need to put some money aside each month to save up for situations like job loss, so you can still cover all of your important expenses.
If you don’t have an emergency fund, you’ll only have your last month’s wages and possibly a severance package to rely on- and that might not last you that long.
Action Steps To Consider
Create a budget, even if that budget is simply on notebook paper.
Separate your expenses between fixed and variable, and take a hard look at your variable spending.
Take steps to cut your variable expenses each month and put the amount you save into a separate savings account.
Once you accumulate $1,000 for an emergency fund, you consider investing your monthly savings amount in an investment.
Use this site to apply for a loan Find My Rate at Social Finance Pay off credit cards or invest in a major purchase
Claim Compensation
If it’s applicable, it’s important that you claim some kind of compensation. For example, if you feel that you were unfairly dismissed, you might be able to make a claim and get a payout from the company.
If you’re out of work because of an injury and you think that somebody else is to blame, you should get in touch with a personal injury lawyer and see whether you have a case. If you can make a compensation claim and get a payout, that money will really help you out while you find another job.
Unemployment Benefits
Depending on your situation, you may qualify for some unemployment assistance of some kind.
If you don’t have much in your emergency fund and you can’t claim any more from elsewhere, this kind of government assistance could really help you out. If you qualify, you could get up to $450 a week, which will help you to cover all of your essential expenses.
Many freelancers and business owners may have times when cash flow is a problem. Use this site to apply for a loan Find My Rate at Social Finance in order to cash flow your business until you can collect receivables from customers.
Cut Spending Drastically
You don’t know how long it’s going to be until you can find another job so it’s important that you make your money last as long as possible.
That’s why you need to have a look over your budget and start cutting out the expenses that aren’t really necessary. Things like TV subscriptions, eating out, gym memberships etc. should all be cut out of the budget for now. Once you start working again, you can resume spending as normal but for now, you need to stick to the bare essentials.
If you follow these steps, you’ll be able to manage your finances properly after losing your job, and you won’t have to resort to spending.
Hang in there- you can get back on your feet financially.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
The post How To Manage Your Finances After Job Loss appeared first on Accounting Accidentally.
April 8, 2019
How To Plan For The Cost Of Starting A Business
Starting a business may be the most expensive financial decision you ever make.
We all know that buying a home, and even moving to a new house in general, is expensive. And then there’s the cost of starting a family. But other than some of the more momentous life experiences, there’s also the idea of starting a business.
Now, for some starting a business can be inexpensive. It’s definitely safe to say that you can bootstrap it. But sometimes, there are expenses that you need to account for. And it always helps to be able to save up for the things you need. In order to do that, you need to plan for the costs that may come your way.
Use these tips to plan for your business startup.
If you manage a business and want to increase your productivity, I highly recommend QuickBooks accounting software. Read this article to decide if you need the desktop or online version of the software.
Create a Business Plan
You can’t always foresee or budget for every single thing in business. But, when you draw up a business plan, you will find that it’s much easier for you to work out what sort of costs might be coming your way.
A business plan should include the following:
The problem: What problem does your product solve, and how urgently must the problem be solved in the minds of your customer?
Differentiation: How is your product different than other offerings in the market?
Pricing: How much are customers willing to pay for your solution? A great way to find out is to perform market research. Ask a group of people to try your product. After they use your product, find out how much they would be willing to pay for your solution. If the price allows you to cover your costs and generate a profit, you may have a valid business idea.
Market size: This is the tough part, because you need to find a market that is large enough to justify starting your business. In most industries, you can determine the dollar amount of sales for a product or service. If, for example, you are entering a $50 million industry, you can calculate the potential size of your market by the percentage of the market you hope to control. 10% of a $50 million industry, for example, would be a $5 million business.
You can find great business plan software to help you create your plan, including tools to generate projected financial statements.
Use online accounting software to dramatically increase your company productivity. Find out more here: QuickBooks Online Edition – Free Trial
Save as Much as You Can
Here are some steps you can take to build a savings account:
Create a budget, even if that budget is simply on notebook paper.
Separate your expenses between fixed and variable, and take a hard look at your variable spending.
Take steps to cut your variable expenses each month and put the amount you save into a separate savings account.
So it’s a smart idea to build a savings balance, in order to cover your living expenses when you start the business full-time, and you have no guaranteed income.
Learn as Much as You Can
And at the same time, you will find that it really helps if you can learn as much as possible about the world of business and what you want to do.
Here, you can read, listen to podcasts and watch videos, attend conferences, and even take courses. You can also look to entrepreneurs, such as Kurt Svendheim, to see what they do. When you can learn from the actions of others, you can often keep the costs down and, in turn, learn as you go along too.
QuickBooks Online Edition – Free Trial
Minimize Your Expenses
The next thing you’ll want to do here, is to look to cut some of the costs you have in your living expenses.
If you need to pay for services or assistance or materials at all – even if the cost is small – it’s so important for you to have that money available. And when you’ve done an assessment of what you’re paying out for each month, you should easily be able to make cuts and make that possible.
Always Take Freebies
Finally, when you’re first starting out, it’s always a great idea to accept freebies or to look for great deals whenever you can. Of course, you may not always have this opportunity, and that’s fine. But if you do get offered free advice, materials, software, samples, or anything else then definitely snap it all up. It’s just so important for you to be able to keep your costs low, look for great deals, and accept generous and valuable help when it’s offered.
Use these tips to plan your business startup and to finance your new venture.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
Image: Andrew Neel
The post How To Plan For The Cost Of Starting A Business appeared first on Accounting Accidentally.
April 6, 2019
Stop Your Medical Bills From Damaging Your Finances
Far too many people end up being crippled financially by medical bills, even after they have been cured of their physical problems.
Luckily, there are some tactics you can use to stop yourself from getting into this position. Read on to find out more.
Start With a Personal Budget
The starting point to avoid the financial issues with medical bills is to create a personal budget:
Action Steps To Consider
Create a budget, even if that budget is simply on notebook paper.
Separate your expenses between fixed and variable, and take a hard look at your variable spending.
Take steps to cut your variable expenses each month, and put the amount you save into a separate savings account.
Fund a savings account for emergencies
Carefully review each retirement plan offering from your employer.
Ask about the tax-deferred investing component of your firm’s retirement plan. Do your investments grow tax-deferred?
Once you implement these steps, you’ll be in better position to address the cost of an illness or accident.
If you’ve had a financial setback, this article can help.
Use Compensation to Cover Your Medical Costs
The first tactic that can help you avoid getting into crippling medical debts is to use any compensation that you receive to pay off what you owe.
Of course, to be able to do this you may need first to find a personal injury lawyer that can assess your situation and see if you have a case. After all, not all medical problems are the fault of someone else, and therefore not all will be eligible for compensation.
Use this site to apply for a loan Find My Rate at Social Finance Pay off credit cards or invest in a major purchase
Don’t Forget Insurance
Next, when it comes to health, prevention is always better than cure, and this applies to keeping your bank balance healthy too.
What that means is that even if you never plan on using it, investing in health insurance is usually well worth the monthly cost.
Of course, it’s even better if you can negotiate health insurance as part of the benefits package you get from your employer. Something you can learn more about here.
Shop Around for Hospital Costs (in a non-emergency).
If you are in an emergency situation, it’s evident that there won’t be time to shop around and find the cheapest medical facility.
However, when it comes to non-emergency surgery and treatments, it can be a smart move to compare your available options.
In fact, what is included in the price you will pay- such as medications, dressings, and even the services of an anesthetist- can vary from one institution to another, as can the overall cost.
To that end, getting quotes from a range of hospital, clinics and even non-emergency care centers can save you a fortune, and stop your medical debts from spiraling out of control.
Many freelancers and business owners may have times when cash flow is a problem. Use this site to apply for a loan Find My Rate at Social Finance in order to cash flow your business until you can collect receivables from customers.
Don’t Always Pick the In-House Medical Credit
For many people, being ill or injured is a confusing and vulnerable time.
Of course, this means that when an official at the institution you are staying in offers you the option of paying for the treatment you need on medical credit, you’re likely to take it.
Sadly, this may not always be the best choice, because institutions still charge interest on the money they lend you to cover the treatment you need.
In fact, it could work out much cheaper to choose another loan or even a 0% credit card option instead. After all, if you can get the treatment you need, but not have to pay any interest on it, something that can be even more difficult if you need to take time off work to recover.
Use these tips to manage unexpected medical costs, and to get back on track financially.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
The post Stop Your Medical Bills From Damaging Your Finances appeared first on Accounting Accidentally.
April 5, 2019
Five Ways to Make Retirement More Comfortable Financially
When you’re in your twenties, thirties, even your forties, retirement can feel like a long way off.
For this reason, it’s difficult to really plan seriously and figure out how your money is going to look at that time. However, as tricky as it is to imagine life thirty or more years into the future, it’s so worth doing so. The decisions you make in the here and now can massively affect the life you’re able to have later on.
Best of all, they don’t need to be any hassle, most of the time it’s small changes that will add up to make a difference. Once certain systems are in place, you can pretty much leave them as they are and let them gain traction. Here are some examples of ways you can make retirement more comfortable financially.
If you’ve had a financial setback, this article can help.
#1- Buy your home
Buying your home and being mortgage free when you retire is a smart move. That way, mortgage or rent costs won’t eat into your retirement money.
You always have the option to sell the property if you need to free up cash for care later in life, otherwise it’s something you can feel happy about passing down to your children when you’re no longer around.
Getting onto the property ladder is hard, but it’s something to aim for in life. Get your finances in order and save as much as you can so you can put down a deposit- it’s so much better than paying rent, because every payment goes towards a home that you’ll eventually own.
Most mortgage providers will only lend to those that will be finished paying before they retire, so be aware of that issue.
Use this site to apply for a loan Find My Rate at Social Finance Pay off credit cards or invest in a major purchase
#2- Start saving into a pension
It’s easy to put off sorting your pension, with the mindset that it’s such a long time away there’s no need to bother right now.
But it’s not the case, saving a decent amount depends on you starting early. If you’re an employee, in most cases your employer will be contributing to a pension fund for you. If you’re self-employed, you’ll need to sort this out and get it set up yourself.
A small amount each month is a good place to start, and you won’t even miss the income. By the time you retire, you’ll be able to live a much more comfortable life.
#3- Invest Each Month
Investments make your money work harder.
Instead of sitting in the bank, it could be generating further income with very little hassle to you. For example, if you invest in property, you can enjoy a monthly payment hitting your account each month from your tenants. If you hire an estate agent, they’ll do all the hard work for you.
Many investors put money into stocks and bonds, or use mutual funds that invest in equities and debt securities.
If you’re comfortable with taking more risk, you could get into FP Markets and use a Forex broker to give you financial advice.
Many freelancers and business owners may have times when cash flow is a problem. Use this site to apply for a loan Find My Rate at Social Finance in order to cash flow your business until you can collect receivables from customers.
#4- Pay Off Debt
Entering into retirement in debt is never going to be the best move.
Taking on debt will take money from your retirement fund, not to mention that it’s a source of stress. Aim to have any larger debts and expenses paid off by the time you reach your retirement years.
Having a savings account to pay more emergencies is also helpful. Even a savings account with a little money to act as a buffer can be useful for unexpected expenses and bills.
#5- Cut Your Expenses
When you’re no longer earning money, you’ll need to be careful of what you’re spending even if you’ve saved enough to give you a comfortable retirement.
Get your bills down to as low as they can be, consider making upgrades to your home, such as adding solar panels and having wall and loft insulation fitted to keep the heat in. There are lots of things you can do, which will all add up and make a huge difference over time.
It Will Be Here Soon
Retirement might feel like a long way off, but it’s something we should all be thinking about in terms of our finances. When you’ve spent your life working, raising a family and dealing with your responsibilities, retirement is a time for yourself where you can relax and enjoy hobbies.
Start planning today for a successful retirement.
Ken Boyd
St. Louis Test Preparation
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
The post Five Ways to Make Retirement More Comfortable Financially appeared first on Accounting Accidentally.
