Category: Bookkeeping

  • Mistakes to Avoid

    Mistakes to Avoid

    It can be difficult to monitor and measure a growing business.  With added growth, your reports can become more complex, making it even more important that you avoid certain mistakes.  Below, we discuss some accounting mistakes you can avoid to keep your finger on the pulse of your business.

    Skipping Routine Accounting Tasks

    More often than not, a business owner has just been too busy to take care of their accounting needs and has to call us for help.  Nothing has been reconciled or even recorded for months on end, they’ve reached a tax deadline and they are in a panic.  While we don’t mind taking on projects such as these, it’s much easier on our client’s stress levels if bookkeeping is done on a routine basis.

    We understand that business owners are strapped for time.  However, doing all of the bookkeeping in a rush can lead to errors that will take far more time to untangle later.  Unreconciled bank accounts can be one of the issues that lead to these errors.  There are many times when small costs or expenses simply don’t get recorded in accounting software.  Reconciling your accounts with your bank allows you to catch these expenses, making sure that your software is accurate.

    Lastly, we see clients who simply record deposits as they are received instead of applying payments to open receivables.  This also leads to incomplete or incorrect software data and could lead you to send a past due statement to a client who has already paid their bill.

    Assuming Profits Equals Cash Flow

    Cash is king!  Every business needs sufficient cash flow to continue operating on a daily basis.  Unfortunately, many clients do a poor job forecasting expected cash flows.  For example, a client closes a deal for $50,000.  Expected expenses for this project are $20,000 leaving the client to believe they’ve just made a $30,000 profit.  Sadly, this isn’t always the case.  Could the project run over time?  What if the client pays late?  Maybe expenses are unexpectedly more than $20,000?  Each of these factors will impact the amount of cash flow available to the client at any time.

    Our company offers a regular cash flow report.  The formula we use is:

    (Current bank balances + anticipated Accounts Receivable)  – (uncleared/unpaid expenses + payroll expenses + budgeted expenses) = Cash Flow

    Most of our clients forecast their cash flow on a monthly basis, looking forward to the month ahead for anticipated expenses and income.  This helps them properly prepare for the month ahead.

    Not Saving Receipts

    Having a perfect expense report is great.  You feel good that you’ve recorded all of the little transactions into your software.  Then, you are audited by the IRS; without receipts, your expenses reports are useless.  Receipts are the proof that the IRS needs that you really did have a business meeting over dinner and that you didn’t just take your family to dinner on the company’s dime.

    Not Backing Up Accounting Software

    So far this year, I’ve helped three clients who needed to rebuild their company files.  Why did they run into this issue?  They made the mistake of backing up their software to an external hard drive or cloud solution.  One system crash or error can be all it takes to wipe out your files and all of your company data.

    I recommend that all of my clients schedule routine backups of their software.  My recommendation is that it should be backed up each time it’s touched.  If you or your staff is working on the software daily, back it up each night at 1 or 2 in the morning when nobody is working on the file.  If you only touch it weekly, set it up for a weekly backup or to back up each time you close the file.

    Backups need to be stored on an external drive, a server designated for the task, or to a cloud solution.  Backing up these files to your computer that stores the accounting software is almost as dangerous as not backing up at all.

    Doing Too Much Yourself

    We get it.  You’re a small business owner with limited revenue.  Doing the bookkeeping in-house seems a great way to keep costs low.  Sadly, this often ends up costing the company more money in the long run.  A knowledgeable bookkeeper will be able to manage your software and data much faster than you can.  Your job is to run your business.  This means it is often worth it to spend a few bucks to make sure that your books are done correctly the first time rather than spending hours trying to figure out how to correct an error you made.

    Not Planning for Inventory

    If your company sells product, it must stay on top of its inventory.  Businesses that don’t manage their inventory risk sales loss if product is not available.  Therefore, companies with product must plan to have product on hand at the end of the month to fill customer needs the first few days of the following month.  A simple formula for this is:

    Beginning inventory + purchases – sales = ending inventory

    If your company projects it will sell 200 widgets in February, your beginning inventory in on February 1 was 50 widgets, and the company wants 30 widgets in inventory at the end of February, the formula would be:

    200 projected widget sales + 30 ending inventory – 50 beginning inventory = 180 purchased

    This means that, in order to meet projected sales and to have 30 widgets on hand at the end of February, the company must purchase 180 widgets.

    Mismanaged Debt

    Companies can get money to operate their businesses in a few ways.  You could sell shares of your company by issuing stock or borrow money and take on debt.  If a company decides to take on debt and doesn’t monitor the amount of debt borrowed over time, they may run into difficulties repaying that debt.

    To monitor this, we suggest a formula called the debt-to-equity ratio.  This formula is:

    Total debt / company equity

    In many instances a typical ratio is 2 to 1, or $2 debt to every $1 of equity in the company.  Firms with a ratio of 3-to-1 or 5-to-1 may see this as a red flag that their debt is becoming unmanageable.

    Take a Deep Breath

    If you find that you are making these mistakes with your company, relax.  Sound Accounts is here to help you either get organized or by taking over your bookkeeping so you can do what you do best; run your business!

  • Outsourced Books

    We Make It Easy

    Bookkeeping is moving farther away from desktop computing and deeper into the cloud.  This means that there’s no reason to have an in-house employee managing the day-to-day transactions of your business.  Additionally, outsourcing can tighten a company’s budget while maintaining high quality bookkeeping.  Our list below explores a few reasons why you may want to outsource your bookkeeping and accounting functions.

    Save Money and Reduce Overhead

    Hiring an in-house bookkeeper can significantly increase your expenses.  Outsourcing your bookkeeping, however, can save as much as 62% from your bottom line when you no longer must worry about their salary, payroll taxes, or benefits.  Additionally, you will save on training, software, hardware, and office supplies.

    Save on Technology Costs

    Outsourcing means you don’t need to buy costly hardware or software for your bookkeeping needs.  A good bookkeeper will have access to the most up-to-date software and will have the expertise necessary to properly use those tools to assist your business.

    Automate and Reduce Paper

    You can lower your carbon footprint!  Hiring a bookkeeper who can access your files online will reduce paper and toner use as well as use of your copier, fax machine, and your printer.  Less filing and storage of hard copies will also free up your time.

    Focus on Growth

    When you are running a business, it’s important to keep growing.  Unfortunately, when you are spending time on your bookkeeping, those are minutes you aren’t spending growing your business.  It’s also likely that, unless you have an accounting degree, a bookkeeper is going to manage your transactions far more efficiently than you can or may even want to.  Your accounts receivable, accounts payable, manage vendor relationships, issue financial statements, payroll can all be handled by your outsourced accounting team.

    Access to Financial Metrics

    Most bookkeepers will do more for you than just enter your daily transactions and give you an update on the business health each quarter.  Ask your bookkeeper questions about your business on a regular business so that they can provide you with the types of reports you need to see to make sure you are progressing financially.

    Gain an Outside Perspective

    Internal employees are often loyal to the company they work for.  This may make it difficult for them to deliver less than positive news to the boss when they see something going wrong or a negative financial trend.  Outsourcing your bookkeeping means bringing in a neutral third party who will not hesitate to let you know when your financial health is going sour.

    Reduce Fraud

    There are three main components that, when combined, often lead to fraudulent behavior.  These components are: perceived unshareable financial need, perceived opportunity, and rationalization.  According to a study released in 2012 by the Association of Certified Fraud Examiners, small businesses are the most common victims of fraud.  When a small business does not have access to a competent controller, they are more likely to miss abnormal activity occurring within the transactions and billings.  However, when small businesses outsource these functions to bookkeeping experts, one of the legs of the fraud triangle is removed – opportunity.

    Scalable Options

    Growing your business or identifying areas to reduce spending becomes much easier with outsourced bookkeeping.  Your bookkeepers can give you feedback and suggestions to assist you with increasing your profits.  Bookkeeping and accounting firms also have teams of people available to work on your account.  If you ramp up production, you don’t have to worry about hiring additional staff to manage the added bookkeeping tasks.

    Better Tools

    It’s difficult to stay on top of the latest software.  However, that is exactly what your bookkeeper needs to do.  They will have access to the most updated bookkeeping software and apps.  Having to consistently upgrade these powerful tools for an in-house accounting team could become cost prohibitive.

    Peace of Mind

    No business owner should leave their finances to chance.  Utilizing an expert who handles your account with integrity and honesty allows you to focus on growing your business.  You will need to manage and monitor in-house accounting teams.  However, the bookkeeping contractor must make sure the work is done properly and on time.

    For more information, contact us for a free consultation!