Category: Financial Management

  • 15 Accounting Concepts & Bookkeeping Terms Every Business Owner Should Know

    15 Accounting Concepts & Bookkeeping Terms Every Business Owner Should Know

    Have you just started a new business or want to improve your understanding of both bookkeeping and business finances? Then, it’s a good idea to familiarize yourself with a handful of important bookkeeping and accounting terms.

    It’s not just about knowing what they mean, but doing your best to gain a deeper understanding of these important concepts through personal experience and from working with your bookkeeping service provider.

    Your mastery of these terms and their associated practices, along with other concepts covered elsewhere, allow you to manage your money better, balance the books, interpret cash flow statements, know your financial assets, keep track of financial transactions, stay organized with your financial reports and financial records, use business credit cards with greater care, and improve your business operations. To help you sharpen your grasp of these concepts, we have prepared this informative post for you. Let’s explore them now. 

    Business owner learning about accounting concepts and bookkeeping terms

    1. Accounts Payable

    One accounting term every business owner should know is accounts payable. It refers to the combined bills that your company owes and needs to pay. However, it does not include payroll expenses. Since these expenses are not paid immediately, they are classified as liabilities.

    Some examples include unpaid bills and credit card statements. When you think about buying something new, you need to go through accounts payable to determine whether you can even make a purchase or not. It is a basic business function, and will affect business performance.

    2. Accounts Receivable

    Another common financial term that you must know as a business owner is accounts receivable. If you are unfamiliar with accounts receivable, it refers to money that your customers owe to your business for the products or services purchased.

    Accounts receivables are classified as an asset since it is money that your company will eventually receive from customers. Generally, you will need to keep an eye on your invoices to track accounts receivable. Bookkeeping software will help in this area by keeping data organized and ready for analysis. However, you need to make sure you’re entering the correct information into your system in a timely manner. 

    Late payments can affect daily operations and create cash-flow issues, especially for smaller companies with less overall cash on-hand from day to day. Their volume of sales will often be less than more established companies are, therefore, affected more dramatically by unpaid bills. Stay on top of accounts receivable.

    3. Accruals (accrual basis accounting)

    With accruals, income is recorded when it is earned and expenses are recorded the moment they are billed. This means that real-time accounts won’t match the recorded profit. However, accrual accounting is a method that offers a long-term picture of the business’ income and expenses.

    4. Balance Sheet

    A balance sheet is an important financial statement that offers a quick insight into the financial position of a business. You can rely on it to find out what your company owns and owes. Also, a balance sheet lets you know how much capital you have. You can use it to compare the values and performance of different areas of your company to find out which ones are driving you forward and which are holding you back.

    5. Assets

    Small business owners and business leaders of all kinds should also know what assets are. In the simplest of terms, assets refer to all the resources a business owns. It is important that you understand that there are tangible and intangible assets. Some examples of assets include cash, real estate, inventory, owned equipment and vehicles, and investments.

    Calculator representing accounting concepts and bookkeeping terms

    6. Liabilities

    Liabilities are the opposite of assets. They are financial or legal debts that a business owes, such as accounts payable, taxes, credit card debt, and mortgages. Every small business owner needs to make sure to keep their liabilities in check, as they can put pressure on cash flow and business activities.

    7. Burn Rate

    Burn rate is a calculation that allows you to find out how long your company will be able to operate with the cash you have without making a profit. You can monitor the burn rate of your business to determine the amount of time it can sustain itself without income.

    8. Cash Flow

    A notable accounting term that you might have heard of is cash flow. It refers to the amount of cash that comes into your business and the amount of cash that goes out. It includes both losses and gains. Cash flow includes financing activities, investment activities, and operating activities. Of course, it’s generally a good idea to maintain positive cash flow for success.

    9. Depreciation

    Most assets that your business owns will depreciate. In accounting, depreciation refers to the loss in value of an asset over time. You have to calculate the depreciation of current assets to determine their cost over their life expectancy. Some of the assets that you will need to record depreciation for include buildings, equipment, and machinery.

    10. Credit

    In accounting, a credit is an entry in which you record a decrease in assets or an increase in liability, along with a decrease in expenses or an increase in revenue (as opposed to a debit that does the opposite). With a credit, net income increases on the company’s income statement, while a debit reduces net income.

    11. Dividends

    When you pay your shareholders or stockholders for their investment in the company from the profit generated for the year, the amount paid is called a dividend. You distribute the earnings of a business and reward owners. The business will not be able to pay dividends if they record a loss.

    12. Expenses

    The costs a company pays or owes to purchase anything are called expenses. There are different types of expenses, as mentioned below.

    Accrued: These expenses have to be calculated and reported, but are paid later.

    Operational: These expenses are vital for running the daily operations of a business.

    Variable: These expenses are often paid on a regular basis, perhaps each month, but periodically or frequently change in cost because of shifting markets or increased/decreased usage. Examples of variable expenses include the cost of raw materials and goods (cost of materials), fuel prices, utilities, delivery costs, credit card fees and more.

    Fixed: These expenses remain the same from month to month or even for years. Some examples of fixed expenses include salaries and rent, insurances, cell phone and internet plans, property taxes, loan payments and more.

    13. Forecasting

    To predict business trends that might occur in the future, you need to get proficient at forecasting. With forecasting, you analyze past financial data and current trends which allow you to anticipate your future sales and gross profit as well as how long it might take you to pay off certain outstanding debts.

    Business owner familiarizing himself with accounting concepts and bookkeeping terms

    14. Break-Even Point

    When you first start a business, you are likely to come across the term break-even point. It refers to the point in which total costs and total revenue are equal (total expenses equal total revenue). Therefore, your business will neither make a profit nor a loss at this specific point in time. 

    15. Profit and Loss Statement

    Lastly, business owners also have to know what a profit-and-loss statement is. It is an earning statement that enables you to determine whether you have made a profit or loss during the year. Also called an income statement, it lets you evaluate the performance of your company fo a specific period.

    You can create monthly, quarterly, and yearly profit-and-loss statements to make important decisions. An income statement shows the sales revenue and the expenses as well as the profit or loss realized by the business. Therefore, you can use it to find out just how profitable your business is and gain some traction on where to go next. 

    Bonus Term

    Just because we thought you might enjoy it. 

    Return On Investment (ROI)

    Return on investment (ROI) is a performance measure. It is used to determine the profitability of a particular investment. It is also used to compare the efficiency of a number of different investments. ROI attempts to measure the investment’s return relative to the investment’s cost.

    If you want to calculate ROI, divide the return of the investment by the cost of the investment.

    In Closing

    If you want to have a solid understanding of basic business accounting and bookkeeping concepts, it’s vital that you do your homework, meet with your bookkeeper, and take your financial acumen seriously. Successful entrepreneurs and leaders have a strong grasp of money management, budgeting, accounting, investment, and other aspects of finances.

    There is much more to learn about each of these concepts, and many more terms to get a hold of. But this is a good place to begin and will hopefully inspire you to keep learning, keep refining your financial practice, and to make wise decisions regarding your company’s financial well-being.

    Sound Accounts helps business owners make sense of their budgets, their cash flow, and their goals, with experienced, attentive bookkeeping support and solid advice. Contact us today to get started and ask how you can qualify for 6 months of free QuickBooks.

    To learn more about accounting and bookkeeping terms, check out our frequently asked questions below. 

    FAQ

    What are 5 common accounting or bookkeeping terms?

    1. Financial Statements: These are statements you can review to determine the financial situation of a business. Four primary financial statements include the statement of owners’ equity, statement of cash flow, income statement, and balance sheet.

    2. Asset: Everything that is owned by a business is an asset. It can either be tangible or intangible. Assets are shown on the balance sheet in their cash value. Some examples of assets include a patent, trademark, cash, equipment, vehicles, real estate, and land.

    3. Liability: The debt owed by a business is called liability. It includes unpaid rent, income tax, salaries, and loans, and more. Liabilities are classified as long-term and current on the balance sheet.

    4. Revenue: The sum of the money that your customers have paid or will pay for your goods or services is known as revenue.

    5. Expenses: All the costs you incur for generating income are expenses. There are fixed expenses and variable expenses.

    Why do small business owners need to have an understanding of bookkeeping and accounting practices?

    Money management makes all the difference in long-term success. The best CEO’s, entrepreneurs, and leaders understand the power of making a plan, following a budget, investing wisely, keeping good records, staying compliant, balancing the books, and using cash flow more strategically. 

    WIthout a solid understanding of these concepts and the ways they affect your business, you cannot expect to achieve your goals. 

    What are the 6 Golden Rules of accounting?

    You need to know the following accounting principles if you want to run your business successfully.

    Accrual Concept: It is an accounting method where revenue or expenses are recorded the moment a transaction occurs instead of recording the transaction when cash is received or paid.

    Business Entity Concept: It states that the transactions associated with running a business need to be separately recorded from those of its owner.

    Money Measurement Concept: It states that a business can only record a transaction if it can be expressed in terms of money.

    Going Concern Concept: It is an accounting term that requires a company to have enough resources to continue operating indefinitely.

    Duality Aspect Concept: It states that every business transaction needs to be recorded in two different accounts.

    Realization Concept: Revenue can only be recognized once the goods or services associated with it have been delivered.

  • Choosing the Best Business Bank Account: Top Features and Benefits

    Choosing the Best Business Bank Account: Top Features and Benefits

    One of the hardest decisions that a business owner needs to make is choosing a good business bank account. As there are plenty of options to choose from, it can feel overwhelming. Despite the abundance of choices, there is a good fit for you and your organization. We’ve designed this article to help you make the right decision by giving you a rundown of key features or attributes to look for. 

    You want your banking to go smoothly from day to day. Choose a bank that offers the services you need and the support you deserve. Let’s dive in. 

    business owner choosing the best business bank account

    1. Size Matters

    When choosing a bank account, size is something that you cannot afford to overlook. You should understand that big does not always mean better. Also, you have to determine your business needs and whether you prefer a large national bank or a small community bank.

    What makes big banks a great choice is the fact that they have lots of offerings, various branches, and more resources available for customers. Therefore, you will benefit from a variety of credit offerings as well as other perks such as lines of credit.

    On the other hand, a smaller community bank caters to local market conditions and will be willing to open an account for you based on your overall profile instead of just hard numbers such as your credit score. This also means that you will have an easier time obtaining a line of credit or loan. Moreover, a smaller bank might even charge lower fees or provide a better rate.

    At the end of the day, it all comes down to establishing a personal relationship with the bank. Therefore, you need to find out more about the type of professionals you’ll be working with. This is why it is a good idea to meet with representatives from both small and large banks to learn more about each one. 

    2. Account Features and Services

    Next, you need to consider the available account features and services. It is important that you compare the business checking accounts to find out which services are included and which ones you’ll need to add. Some of the features that you should look for include:

    • Business debit card access
    • Safe deposit boxes
    • Bill payment services
    • Payment Processing
    • Overdraft protection
    • Domestic and International wire transfer services
    • Low monthly service fees
    • Online Payments
    • Direct Deposit
    • Fee-Free ATM access
    • Check-writing services
    • Online banking services and mobile banking apps
    • Treasury Management (cash management services)
    • Money market accounts
    • Mobile check deposit
    • High level of security
    • Insurance
    • Business Loans
    • Reasonable transaction fees
    • Business credit cards
    • Convenient automated clearing house access (ACH)
    • and more

    In addition to the above, you also have to consider other perks. For instance, if you require assistance with cash flow management, it is important that you open a business checking account with a bank that provides this service. You might even want to create another business account for savings or to take advantage of certain investment instruments offered by the bank, such as certificates of deposit and other investments. 

    Now, it is best that you have all business accounts in the same place to simplify the management of your business finances. It makes sense to go through the full range of banking services offered by each bank or credit union.

    3. Interest Rates for Deposit Accounts

    Are you thinking of opening a business savings account or an interest-bearing business checking account? If so, research the interest rates of each bank. You need to make sure you choose a bank that offers the best rate available. It’s one more way to put your money to work for you.

    4. Service Fees

    Before you choose a business bank account, you need to take a close look at the service fees that each bank charges. There are different fees associated with each service including:

    • Overdraft fees
    • Wire transfer fees
    • Minimum balance fees attached to minimum balance requirements
    • Monthly maintenance fees
    • ATM fees and surcharges

    When you compare brick-and-mortar banks with online banks, you realize that the latter charges fewer fees. However, you also have to consider accessibility tomoney, as online only banks can sometimes make it difficult for you to withdraw cash.

    5. ATM Access and Branch Banking

    To make sure that you open the best business account, you need to consider ATM access and branch banking. Having an account with a bank that has various branches will put you at ease, as you’ll have an easier time accessing on-site services with so many locations around.

    The convenience of a physical branch is something that you simply can’t ignore. It will allow you to make daily deposits, speak with service agents face to face, and much more. You might want to visit an ATM to withdraw money as well.

    It is vital that you check each bank’s ATM network. If you fail to do so, you might have to pay hefty ATM surcharges, which are especially troublesome for small and new business owners who need every penny at their disposal. 

    Sign leading customers toward drive in business banking

    6. Transaction Limits

    Most business bank accounts have a transaction limit. It is important that you know your transaction limits are to ensure that you choose an account that meets your requirements and helps you keep your business moving along. 

    You’ll want a business checking account that allows frequent electronic transfers, bill payments, withdrawals, and deposits. The last thing you want is to deal with limitations on your business checking account when you’re trying to run your business.

    For instance, the bank might allow a limited number of checks to be written during a single month. Similarly, if you need to transfer funds electronically, it might have restrictions on the amount of money that can be paid through your bank account.

    It is important that you also keep in mind that there might be limitations on the number of transactions or cash deposit limits for each month. There might be a fee if you make additional transactions. If you can, choose a business bank account that allows unlimited transactions. Otherwise, you should calculate the fees and determine which bank is the most affordable.

    7. Introductory Bonus Offers

    Another frequent perk of certain banks is their introductory bonus offers. Many banks actually provide such offers to attract new customers. For instance, your business might be eligible for a cash bonus when it meets certain deposit requirements. 

    8. Access to Favorable Business Loans

    In addition to making use of a checking, savings, or money market account, it’s a good idea to choose a bank or credit union that offers low rates, great terms, several options, and strong support on their business loans. 

    Business owners often need to access more funding later on and going through your own bank can be very beneficial since you already have an established trust and relationship built. 

    9. Ease of Integration

    Lastly, you should consider ease of integration. If your business uses an accounting software program to manage finances, it might be a good idea to choose a bank account that comes with integration capabilities.

    This will make your life a whole lot easier. You should compare each bank’s capabilities when syncing a business bank account. It is also important that you choose a bank which provides additional integrations like tax preparation software and online payroll software.

    Cash for deposit into business bank account.

    In Closing

    Every business needs a bank account in order to operate successfully. But this doesn’t mean that you should simply choose the first one you think of. Compare your options. Research all their account offerings, range of features, fees, access, and customer service. 

    No bank is perfect but there will likely be a few that meet most or even all of your needs, and some that may surprise you with some extras. When you build a solid relationship with a trusted financial institution, the benefits can be numerous and enable you to expand your business as time goes on. 

    Sound Accounts helps business owners increase efficiency and make the most of their money with detailed, attentive bookkeeping support and valuable advice. Reach out today to learn more and find out how you can qualify for 6 months of free QuickBooks. 

    To learn more about business banking, check out our frequently asked questions below. 

    FAQ

    Which bank Is the best for business bank accounts?

    To help you get an idea of the best banks for opening an account, we have mentioned banks that offer a range of services.

    Chase is a trusted name and continues to offer a lot to their customers.

    If you only require online checking, Axos Bank is a good choice.

    For more branches, you might want to consider Wells Fargo.

    To utilize business analytics, you can opt for M&T Bank.

    US bank is the best option if you are searching for a brick-and-mortar bank with a solid reputation

    How much money should a small business keep in the bank?

    If you are planning on opening a small business bank account, you need to ensure that your bank account has enough cash for 3 to 6 months of business transactions. Otherwise, you risk struggling to pay for your ongoing operating expenses. 

    Should I go with a national bank or a local one?

    You are the only person who can answer this question. Visit a few of each to see what seems to fit better. If you’re more interested in a national or international name, a bank with greater assets, and lots of branches and ATMs, a big bank might be your choice. 

    However, if you want a more personal touch it comes to customer service, sometimes better loan rates and more lenient terms, along with an understanding of your community and local market, a local bank or credit union is probably your best partner. 

  • How to Avoid a Tax Audit: 12 Tips to Keep Your Business Safe

    How to Avoid a Tax Audit: 12 Tips to Keep Your Business Safe

    When it comes to running a business, you need to make sure that the IRS doesn’t consider your company a top priority for a tax audit. Otherwise, all your accounts will be investigated in detail, to see if your submissions and records add up.

    On top of this, you will have to provide evidence for each receipt and payment claimed. Since only a small percentage of small businesses are audited each year, there are some things that you can do to take corrective action and keep up to date. Be sure to keep up with financial statements. Complete records of all transactions. Get a handle on your cards, charges, and investment activities, and stay in control of your total financial picture with the help of a great bookkeeper. Here are some tips that will help you avoid a tax audit.

    Business owner trying to avoid a tax audit by being compliant and honest

    1. Always Evaluate the Numbers

    One of the most important tips that will ensure your small business isn’t selected for a tax audit is checking your numbers. You should know that when someone provides a tax form that reports income, the same information will be available to the IRS. Therefore, the IRS will expect you to include the details in your tax returns.

    If your numbers don’t match what other parties have mentioned, you will be issued a notice for an audit. It makes sense to double-check every detail that you enter on the tax return. Accounting and bookkeeping errors don’t just inspire audits, they affect the clarity of your decision-making and the perception you have of your company’s financial health.

    2. Do Not Continuously Report a Loss

    Another tip that you should consider is not reporting a net loss for more than two continuous years. If you report a loss every year, the IRS will be more likely to evaluate your tax returns and issue a notice for a tax audit. Besides, it might even disallow most of your business expense deductions. 

    3. Accurately Report Income and Expenses

    To minimize the chances of being called for a tax audit, you have to report your income and expenses accurately. For instance, it is important that you use your business bank account for receipts and payments. Besides, this will make it a lot easier for you to prepare tax returns every year, as you will just need to go through your bank statements.

    Although you can round the numbers to the nearest dollar, you must ensure that you do not go overboard. The fact is that the IRS will discover if the information entered is incorrect. It is best that you avoid rounding to hundreds or even tens. Your personal assessment of risk should always lead you toward the common sense decision of complete transparency, compliance, and preparation.

    Calculator, pen, and folio representing the tools of a tax audit

    4. Do Not Pay High Salaries to Shareholders Working for You

    A notable tip that you must consider so that you can avoid a tax audit is paying reasonable salaries to employees who happen to be shareholders as well. Although you can pay a high salary to executives to minimize profits and tax, the IRS would have some reservations against such a decision. This is why you should stick to a salary range that is typical of your industry.

    5. Be Wary of Contractors

    If your business process involves a lot of independent contractors, it will often be more prone to a possible audit. The reason behind this is that it is possible to avoid payroll taxes when you employ independent contractors. Moreover, you should go through the guidelines set out by the IRS for independent contractors to ensure that you follow the regulations perfectly. To avoid any complications, consult your bookkeeper. 

    6. Claim Only Legitimate Home Office Expenses

    The IRS is skeptical of home offices and reviews the expenses to make sure they are legitimate. For this reason, you need to only claim expenses that you know you can justify. You must have a separate space at home for your business. Working in your bedroom does not count. Moreover, having large expenses for utilities and maintenance (this risks an energy audit) when operating a home office will often result in greater scrutiny. Your method of accounting and keeping the books should always include an accurate record and justification for all home office expenses. 

    7. Pay Your Estimated Small Business Taxes

    In addition to the above, you need to pay your estimated small business taxes on time. If you believe that you would have to pay around $500 in taxes by the end of the year, it is crucial that you make quarterly estimated tax payments. Otherwise, the IRS will issue a tax audit notice and require you to pay penalties.You don’t want back tax-payments affecting your ability to make the most of your funds and pursue business expansion.

    Business owner counting cash during a tax audit

    8. Honesty Is Important

    If you think that you can submit tax returns with falsified information, you need to think again. It is vital that you are completely truthful. To avoid a tax audit, you have to accurately report income, expenses, and credits, along with a wide range of details such as financial actions including the purchase of supplies, labor costs, sales transactions, credit card activity, delivery charges, finance charges, mortgages, loan payments, assets and debt, investment income, and much more, whenever these details are required or requested. 

    9. High Earners Need to Be More Careful

    Most filers are people who earn less than $200,000 a year. If you fall in this camp, you should be able to avoid scrutiny, at least when it comes to this detail. On the other hand, anyone who makes more than $1 million and pays abnormally low income taxes will be audited.

    The IRS will look into your deductions, including charitable contributions. Furthermore, if you file Schedule C, your tax returns will be questioned.

    10. Make Realistic Deductions

    While reviewing your tax returns, the IRS will pay special attention to any deductions you have made. If there are unrealistic or unusual deductions, the auditor will issue a tax audit notice to call you in. For instance, if you claim charitable tax deductions that amount to 40% of your annual income, or claim tens of thousands in computer hardware purchase costs when you’re the only one on staff, you will likely be audited. 

    11. E-Filing Helps

    Since the error rate of electronically filed returns is 0.5%, whereas the error rate of paper returns is 21%, it is best that you file your returns electronically. Many taxpayers have opted for electronic filings over the years. In fact, around 138 million taxpayers e-file every year. Since there is a lower chance of mistakes when you file electronically, it is often the right move. However, combining this with a trusted bookkeeper is the way to completely protect yourself. 

    12. Match Up All Your Paperwork

    Lastly, you need to make sure that you have sufficient evidence for everything. The IRS will find out if there are any discrepancies. You need to review all government-issued forms, your own financial statements, and any important documentation so they match the information you report in your tax returns.

    Keeping good records and staying honest should help you avoid a tax audit. Now, if you are unsure about your income and deductions, don’t hesitate to team up with an accountant or bookkeeping service provider to help you out. 

    Graffiti representing the disappointments of a tax audit

    In Closing

    Tax audits are not much fun. It’s not the way you want to start off in the new year. Take your finances, your books, and your tax obligations seriously. Don’t get sloppy or accept errors. it will come back to haunt you. Remember, the IRS can come after you for bad tax returns for years afterward. 

    Be disciplined in your level of organization, your records, and your communication with your bookkeeper. Don’t add stress to your life. You’ve already got enough of that. Keep it all together each day, each week, and each month, so you’re never caught off guard or tempted to push details around during tax season. 

    Sound Accounts gives business owners greater confidence and peace of mind by providing top-notch bookkeeping support and sound advice. Contact us today to learn more and find out how you can qualify for 6 months of free QuickBooks.

    To learn more about avoiding a tax audit, check out our frequently asked questions below. 

    FAQ

    What are some common triggers for a tax audit?

    The following mistakes are likely to trigger a tax audit.

    Overestimating Donations: Although the IRS encourages taxpayers to donate money and items to nonprofit organizations, it makes sure that no one takes advantage of the system.

    Mathematical Errors: Another mistake that can trigger a tax audit is errors in your computations. Even though it might sound simple, most tax returns are audited just because of mathematical errors. This is why you have to ensure that everything adds up when you fill out your paperwork.

    Failure to Sign the Return: Whether you file your tax returns electronically or manually, you have to make sure that you sign them. Otherwise, you can expect additional scrutiny and the possibility of an audit.

    Under-Reporting Income: Even though you might be tempted to exclude certain income, the IRS will easily find out if you have under-reported it.

    Over-Reporting Home Office Expenses: If you are running a business from your home, you need to ensure that you do not over-report expenses. If the deductions are too large, the IRS will definitely raise an eyebrow and reach out for a talk. 

    Who gets audited the most?

    The IRS is more likely to audit taxpayers who have earned over $500,000 or under $25,000.

    How can you reduce your chances of being audited?

    Here are some of the ways you can reduce the possibility of getting audited.

    Not Reporting a Loss: If you report a loss, an audit is more likely. This is why it is important that you recheck your income and expenses before you claim a loss.

    Specify Expenses: Each expense you claim needs to be specific. Otherwise, it would be deemed fictitious.

    File on Time: By filing on time, you can reduce the risk of being issued a tax audit notice.

  • Year-End Bookkeeping Checklist: 8 Tips to Finish the Year Strong

    Year-End Bookkeeping Checklist: 8 Tips to Finish the Year Strong

    Being a business owner comes with its fair share of responsibilities. When the year is about to end, you are likely to struggle with bookkeeping procedures. In order to make it through the year’s end with confidence, it is necessary that you follow a detailed year-end bookkeeping checklist as it will ensure that everything gets taken care of. To help you get things in order and transition into the new year right, here are some tips to consider. 

    Business owner going through her year-end bookkeeping checklist

    1. Prepare and Analyze Financial Statements

    The first thing you need to do once the year ends is prepare and analyze financial statements. The fact is that financial statements provide a lifeline to every business by providing a glimpse into its financial standing. Look at all your reports, outstanding invoices, credit card accounts and credit card statements, cash-flow, accounts payable and receivable, and all financial reports.

    When you go through your statements to determine the state of your finances, you’ll have the information you need to forecast for the coming year and beyond. Your financial health gets clearer and your business goals are more attainable.

    Financial statements are necessary for preparing tax forms, and they help you, your accounting team or bookkeeping service provider, who can also serve as tax professional when the time comes. Financial records afford you a comprehensive evaluation of your business as you head into that year-end closing.

    When you analyze the year-end statements, including the income statement, balance sheet, and cash flow statement, you will get an accurate picture of your operations. The income statement is also called a profit-and-loss statement, and it summarizes the income and expenses for the year. This means that you will get an idea of how much revenue you generated and the payments you had to make.

    Some of what you’ll see on the profit-and-loss statement includes revenue, cost of goods sold, operating expenses, tax expenses, and other financial costs. 

    As for the cash flow statement, it simply lists all your cash inflows and outflows, along with a few other items of interest. Now, the cash flow can either be positive or negative. If it is positive, it means that you have some cash on hand. However, if cash flow is negative, it means you have to obtain working capital. The balance sheet shows what assets you own and how much debt you owe. 

    2. Collect from Pending Invoices

    Another tip that will prepare you for the new year is collecting from customers who have not paid yet. You’ve got to take care of all your uncleared transactions, unpaid bills, and unpaid invoices. You will need to put in some effort if you want to collect past due totals. But it’s worth it since you’ll have more working capital to expand your business in the coming year. 

    Some customers just need a nudge, a bit of a reminder. Another copy of the invoice and a friendly email should do the trick. To make sure that everyone pays on time, you can set up invoice payment terms, contact customers who have past dues, and establish a payment plan or automatic payments from some vendors. However, you must be professional, positive, and understanding at all times. Otherwise, you will struggle to collect from late-paying customers.

    If your customers or vendors are having trouble making payments on time, you should discuss a payment plan with them. It would enable them to pay in installments instead of leaving the entire balance unpaid. This allows you to prove to customers that you truly care about them and their requirements. But if you continue to have trouble after repeated attempts and letters, you’ll want to seek outside help, sometimes from a collection agency.

    3. Inventory Accounting

    Businesses that have inventory need to keep an accurate count of all the materials that are available on the premises or the warehouse. Otherwise, you’ll be dealing with inventory shortages or an unnecessary surplus.

    Towards year-end, you need to conduct an inventory check or inventory count. You will have to use inventory tools, inventory management software or even hire out the service, and determine if there are any discrepancies between the balance sheet and the count.

    When you account for inventory, you will determine how much money you have spent during the year on goods and supplies. Also, it enables you to find out how much money you will need for purchasing additional inventory going forward, and to adjust spending accordingly. 

    Business owner working through his year-end bookkeeping checklist

    4. Organize Business Receipts

    When it comes to storing business receipts, make sure everything is organized. As the year ends, it makes sense to tidy things up and prepare for the new year. If your receipts are disorganized, your business will have a difficult time making sense of your transaction history or how to move forward with certain aspects of spending or product and service offerings. There will also be a risk of inaccurate and sloppy books leading to difficulties with taxes, the possibility of an audit, and poor decision-making. 

    Here are some things that you can do to get all your business receipts in order.

    • Use folders and labels
    • Sort receipts by type of expense
    • Organize all the receipts chronologically
    • Store the receipts electronically on your computer

    Keep in mind that it is easier to stay organized than to organize a mess. Maintaining order is better than trying to fix chaos. You should file a receipt the moment you get it. This will minimize the risk of omission. Now, if you have accounting software, it would even be possible to upload the receipt along with all relevant documents associated with the transaction. This way you have a permanent electronic copy or record of the transaction.

    5. Reconcile Bank Accounts

    When the accounting year ends, you need to reconcile all your bank accounts. This will allow you to verify whether your accounting records are accurate and updated. Review your bank statements to reconcile the accounts. It is necessary that your actual bank balance matches your books. This is also a good time to remind you to keep your business and personal expenses separate.

    6. Review Your Accounts Receivable and Payable

    In addition to the above, you also have to review your accounts receivable and payable so that you settle debts and collections. You need to follow up with vendors and pay them off so that the new year starts with a clean slate. Also, you must ensure that your accounts receivable reflects how much money your customers actually owe you.

    Financial statements used for a year-end bookkeeping checklist

    7. Back Up Information

    If there is one year-end booking tip that you simply cannot afford to overlook, it is to back up information. This will save you time and make things a whole lot easier for you when you need to access that data for yourself or the IRS.

    You do not want to lose important information, as your company’s financial history and other details help you steer your business in the right direction. Having a reliable backup system, including a trusted cloud backup service, along with additional in-house physical storage like tape and hard drives, makes all the difference. Data back up isn’t an option; it’s a necessity, and one no good business owner neglects. 

    8. Provide Documents to Your Bookkeeper

    Lastly, you must have all important documents on hand so that you can give them to your bookkeeper. . Bookkeepers are great at keeping things organized. But if you’re still handling part of the bookkeeping process and aren’t as organized as they are, make sure to provide them will all necessary documentation so they can excel at their job.

    Some of the documents that you will have to provide include sales records, invoices, petty cash records, bank statements, financial statements, loan information, and payroll records. If you are using software, it should take you just a few minutes to gather all the necessary documents. Talk with them beforehand to see what documents they need. 

    In Closing

    This should give you a solid start to your year-end bookkeeping checklist. It is important that you follow the steps mentioned above for a stress-free new year. Give your bookkeeper the info they need to help you succeed. And give yourself a break in the new year by starting off organized, up to date, and with clear goals for 2023. 

    Sound Accounts helps small business owners get organized, make sense of their finances, and sharpen their business with individually tailored bookkeeping support plans and trusted advice. Connect with us today to get started and find out how to qualify for 6 months of free QuickBooks. 

    To learn more about year-end bookkeeping preparations, check out our frequently asked questions below. And Happy New Year!

    FAQ

    What does a bookkeeper take care of at year’s end?

    When the year ends, a bookkeeper has a lot of tasks that need to be performed. The professional will have to go through all your accounting records, perform necessary entries, complete bank reconciliations, and prepare financial statements. Moreover, they will also prepare your business for tax season.

    How long will it take to prepare year-end accounts?

    Preparing year-end accounts is often time-consuming. The larger your business, the more time it will take. It can take an entire month for an accountant or bookkeeper to complete the work. However, it can take even longer if you try to take on the work yourself. It is recommended that you hire a bookkeeper or bookkeeping service provider to help you manage your books. That way, you can focus instead on leading your team and your business operations.

    Do bookkeepers handle invoicing?

    Yes, bookkeepers can handle invoicing. They are experts in several roles. Therefore, you should have no trouble asking your bookkeeper to take on the invoicing and other tasks such as preparing financial statements and completing the bank reconciliations as well as preparing your tax returns, as long as all tasks are clearly communicated early on, written in a contract, and your bookkeeper is getting paid accordingly for their work.

    What are some things I need to do as the new year approaches?

    • Organize your receipts
    • Back up your data
    • Print and go over all your relevant financial statements
    • Reconcile your bank accounts
    • Do a full inventory count
    • Collect all unpaid invoices
    • Pay any invoices you still owe
    • and more
  • Surprising Tax Deductions You May Not Be Aware Of

    Surprising Tax Deductions You May Not Be Aware Of

    Nobody wants to overpay taxes. However, many people overlook various tax deductions that could have helped them save more money. Whether you are interested in paying fewer taxes or just want to stay in the know, the following tax deductions will ensure that you have the information you need. If you’re a business owner, working from self-employment income, married filing jointly or separately, a full-time student, or have moved into a different tax bracket, this list will help you uncover more than just your standard deduction and develop a few great ideas to minimize your federal taxes.

    1. State Sales Taxes

    There are a few states such as Wyoming, Washington, Texas, Tennessee, South Dakota, New Hampshire, Nevada, Florida, and Alaska where residents are not required to pay income tax. This means that you get to choose whether to pay local and state income taxes or local and state sales taxes.

    If you live in a state that charges income tax, you should opt for local and state income tax deductions. However, residents of income tax-free states can claim sales tax deductions in two ways. They can either track all the sales tax paid during the year or rely on the IRS tables to determine how much state sales tax they have paid on purchases and major renovations.

    2. Reinvested Dividends

    Although reinvested dividends do not count as a tax deduction, it allows you to subtract the amount you reinvest from stock and mutual fund dividends from your taxable capital gains. If you are an investor, it would allow you to save a ton of money. You should definitely keep an eye on how much you reinvest from dividends received.

    cash symbolizing money saving tax deductions

    3. Charitable Contributions

    If you make out-of-pocket charitable contributions, you can deduct the value from your taxes. The fact is that the charitable contributions you make in a year can quickly add up. It makes sense to write off the cost of your good deeds.

    A great thing about this tax deduction is that you can include just about every type of out-of-pocket cost including the fuel consumed by your car when you drove for charity or gave up ingredients for a soup to a nonprofit organization.

    4. Interest on Student Loan Paid

    Whether you have paid interest on a student loan you took out for your studies or on behalf of someone, you can deduct it from the chargeable taxes for the year. As long as a student hasn’t claimed themselves as a dependent, he or she can qualify for a deduction of up to $2,500. If you are a young professional or have recurring student debt, you should be able to benefit from some respite. It is definitely important that you take advantage of this tax deduction for education costs.

    5. Moving Expenses

    Military personnel still have the option to deduct moving expenses. Previously, every taxpayer was permitted by the IRS to claim moving expenses. As an active duty military member, you should be able to deduct expenses incurred for relocation. But you can only use this tax deduction for eligible expenses if you haven’t received any reimbursement from the government. You are not required to pay taxes on moving expense reimbursements either if the move was permanent and necessary for your job.

    Hence, you should look for those receipts in order to claim the costs of travel and lodging as well as for moving household items, shipping your automobile, and other moving expenses. After all, anyone who serves their country deserves a thank you. Why not some form of tax benefit.

    6. Child and Dependent Care

    Did you know that you can get a tax credit for caring for a child or other dependents? As you might already know, tax credits are a lot better than tax deductions, as they help reduce the total tax charged for the year. 

    Some people don’t know about child and dependent care credits. There is a tax-favored reimbursement account in place to provide some relief in caring for your loved ones. You can easily get a tax credit of up to $5,000. You can even claim an additional tax credit if you spend a lot on work-related child care. It is because of this reason that parents can cut their tax bills significantly.

    Moreover, the tax credit amount increases for households that have a lower income. The American Rescue Plan was introduced in 2021 and many of the changes it brought to the child and dependent care tax credit are still in place. It increased the credit and made it possible for taxpayers to get a credit if they do not owe any taxes. However, it is important that you consult with an expert to make sure that you take complete advantage of this tax credit.

    7. Earned Income Tax Credit

    The earned income tax credit is wonderful for many lower-income taxpayers. But there are still many people who do not claim it despite being eligible. The rules can be somewhat complicated, which can deter one from going after it. Since tax credits offer greater value than tax deductions, it is vital that you look more into this.

    The maximum amount you can claim varies depending on your filing status. It supplements low to moderate-wage earners. However, you need to understand that the tax credit is not only offered to someone who earns minimum wage. In fact, it provides support to the entire middle class, including white-collar workers who have worked fewer hours during a given year, took a pay cut, or became jobless.

    If you are wondering about the exact refund you can receive, you need to know that it all comes down to your family size, marital status, and income. In order to get a refund, you have to file your tax return regardless of whether you owe taxes or not. Furthermore, anyone who was eligible to get the credit previously but failed to do so can file during the year and get a refund for up to 3 tax years.

    8. State Tax Paid Last Spring

    If you pay quarterly taxes, you can claim the state tax you paid last spring. You should include the amount in the state tax itemized deduction of your return. Also, you can add the state income taxes that had been withheld from your salary. Hence, you should be able to save additional money when you utilize this tax deduction.

    Individual working on tax deductions

    9. Refinancing Mortgage Points

    When buying a property, you get to deduct the points you paid for obtaining the mortgage in one go. On the other hand, you have to deduct the points over the new loan’s life if you decide to refinance a mortgage.

    This would mean that you will be able to deduct about 1/30th of the points for the year in case of a 30-year mortgage. For instance, you would get to deduct about $33 for every $1,000 worth of points paid. Even though it might not seem like a lot, there is no reason for you to overlook this. Moreover, you can deduct all the points that you hadn’t deducted when you pay off the loan because of the need to either refinance it again or sell your house.

    10. Jury Compensation Paid to Your Employer

    There are some employers who pay their employees a full salary when they take on their civic duty but require them to hand over their jury fees. However, the fees paid to you have to be reported as it is considered taxable income. Therefore, if you have handed over the money to your employer, you should be able to deduct it so that you don’t end up paying taxes on money that you never even got to keep.

    Conclusion

    Of course, everyone wants to save money at tax time regardless of their income level. But finding the best tax breaks as an individual takes reading, research, and oftentimes, linking up with a good bookkeeper who can uncover every possible avenue of savings. Don’t short-change yourself by missing out on key opportunities and putting yourself and your family in a stronger financial position.

    Sound accounts empowers business owners with individually tailored bookkeeping service plans that increase efficiency and help businesses reach their goals. Contact us today with questions and find out how good life can be with a top-notch bookkeeper by your side.

    To learn more about tax deductions, check out our frequently asked questions below. 

    FAQ

    What are the easiest tax deductions?

    Some of the easiest tax deductions that you need to know about include state sales taxes, charitable contributions, travel, moving, medical expenses, and interest paid on student loans.

    What are some hidden tax deductions?

    Now, some of the hidden tax deductions that most people don’t know about are charitable contributions, earned income tax credits, and child and dependent credits, and certain jury duty costs.

    What expenses can I write off?

    The expenses that you should be able to write off include purchases, home renovation expenses, and work-related childcare costs. 

    Who can I talk to for help with saving money on taxes?

    A qualified bookkeeper or accountant will be your best advocate. They’ll be able to uncover savings, not only for you as an individual, but for your business as well.

  • Choosing the Best Legal Structure for Your Business

    Choosing the Best Legal Structure for Your Business

    One of the most important decisions that every business owner needs to make is deciding which legal structure to adopt. You have to understand that how you structure your business carries tax and compliance implications.

    There are a number of factors you need to consider in order to determine the right type of business structure for your company. It should help you maximize deductions, decrease personal liability, and enable your business to grow at a steady rate. To help you choose the best legal structure for your company, we’ll look at the available options. Let’s jump in.

    Business partners discussing legal structure.

    1. Sole Proprietor

    One of the legal structures that you can adopt is a sole proprietorship. It is common for people to first start their business journey as sole proprietors. You would have to use your personal social security number initially until you obtain a taxpayer identification number for the company by filing the IRS SS-4 form.

    You will make a request to the IRS to provide you with an employer identification number. The business would operate under your name. However, you do have the option to seek an alternative name by registering for a Doing Business As (DBA) designation. This will allow you to get a different name for your business. You will have to comply with specific rules depending on the state you reside in. Moreover, you might need to apply for a business trademark as well.

    The main reason why individuals decide to run their business as a sole proprietor is that they have to file their taxes together on their business and personal income. This ensures minimal paperwork and less hassle. Besides, people who are freelancing part time or are fully employed, can become sole proprietors. However, it is important to keep in mind that it does not provide corporate protection (corporate liability protection). For this reason, your personal assets would be at risk if you are sued or the business goes bankrupt.

    This happens because there is no legal difference between personal and business assets with this business legal structure. Hence, your personal assets would need to be sold in order to pay debtors.

    2. Partnership

    Another type of legal structure that your business can opt for is a partnership. A partnership is a form of business that is owned by more than one person. You can either form a general partnership or a limited partnership. A general partnership is where both profit and loss are shared equally. On the other hand, a limited partnership is where only one partner contributes and receives part of the profits, whereas the other partner controls the operations. When there is no separation between the business and the partners, it is possible to operate the business as sole proprietors. However, limited liability partnerships provide a liability structure.

    Partnerships are suitable for anyone who is going into business with their family member, business partner, or friend. Some great examples include an agency and a restaurant. The partners get to make business decisions regarding business activities, and your business plan together and also share profits and losses.

    However, you would be held liable for the decisions made by your business partner. You should also know that this structure costs more money than a sole proprietorship as it would require an attorney to review the partnership agreement.

    Both sides have to agree to the business partnership agreement. A great example of a business partnership that you should know about is Google which was co-founded by Sergey Brin and Larry Page in 1995. What began as a small search engine ended up taking over the world.

    There are plenty of reasons a partnership might be the best structure for your business. A partnership is relatively easy to form, as there is little paperwork involved. You might need to adopt a fictitious name and file a certificate for conducting business as partners. Moreover, an article of partnership agreement is an absolute must. You will also have to obtain a license depending on the type of product or service you provide.

    A great thing about running a partnership is that it makes it easier for you to seek a business loan. The reason behind this is that the bank prefers two credit histories instead of just one. What’s more, you will have to file a federal tax form 1065 as well as state returns. Then, you and your partner will need to report the shared income or business losses when filing your income tax return.

    Partnerships are popular as each owner brings working capital and a certain type of experience to the business. If you invest more capital into the partnership, you and your partner can decide that you will receive a higher percentage when it comes to profit and loss. Hence, you would be the majority owner of the organization. Some successful partnerships that you should know about include Apple, Microsoft, Hewlett-Packard, Warner Bros, and Twitter.

    Business team discussing their legal structure.

    3. Limited Liability Company (LLC)

    A limited liability company is formed to protect owners from business-related liabilities. This type of structure has been popular ever since its inception. Its simplicity and strong legal protection make it worth considering for many individuals. If you want to protect your personal assets, you should consider forming a limited liability company. It takes a sole proprietorship to the next level.

    You will appreciate the fact that it is quite simple to set up and does not cost a great deal of money. There is less paperwork and you get to benefit from legal protections from court judgments and non-guaranteed debts, even though your company would not be considered a separate entity.

    Having legal protections in place makes all the difference, and removes a considerable amount of stress from your life. However, if you make a personal guarantee on a debt, it would become a part of the contract and your personal funds would be at risk. This means that the corporate veil would be exposed and you could be held personally liable. Moreover, you will need to operate the business as a separate entity in order to retain its value. As for the earnings made, they would be subject to self-employment taxes. You might also need to pay an additional franchise tax depending on the state you operate in. Make sure to consult the federal government’s IRS website, your state’s tax site, and your accountant, to better understand your personal tax burden and all tax implications for your business.

    4. S Corp

    A subchapter S Corporation or S Corp, is a type of business structure designed by the IRS to enable an organization to be recognized as a unique entity. This means that it is considered a separate entity from the person who owns it. Because of this separation, you would benefit from limited legal liability. As there would be a separation between personal and business assets, you will enjoy peace of mind and greater financial safety for you and your family.

    What you will need to do is file separate tax returns for the organization. Form 1120S is normally filed. As profit and losses pass to the shareholder, the business does not get taxed. Instead, only the shareholders of the company are taxed. Moreover, if a shareholder works for the company, he or she can receive reasonable compensation for running the company. A fair market value must be paid to the shareholders for their work. Otherwise, the IRS would reclassify additional corporate income as wages and the S Corp would have to pay employment tax which includes Medicare taxes and Social Security.

    Generally, an S Corp is mostly suitable for people who would pay themselves a low wage in order to avoid having to pay self-employment tax. Furthermore, the company can be audited from time to time and penalties might need to be paid if there are violations.

    5. C Corp

    A C Corporation or C Corp is also a great option for independent professionals as it allows you to become a shareholder. You get to have the same status as any other Fortune 500 business. A C Corp is a separate entity from its owner. When you individually own the C Corp, you would be the majority shareholder. Although the structure might be more complex, it is more sophisticated and attractive for independent business owners.

    The IRS views C Corps as individual taxpayers. As the company would have limited liability, you will not be held personally liable for anything. Moreover, fringe benefit deductions are also offered, such as health reimbursement arrangements. A C Corp is subject to double taxation, which is something that you need to take into account. It’s good to gain a clear understanding of how your legal structure decisions affect tax treatment within your business so you can stay compliant, plan ahead, and continue to do business.

    Business partners discussing legal structure.

    Conclusion

    Different legal structures offer certain tax benefits, legal advantages, corporate and individual protections, and organizational advantages. It’s a good idea to do plenty of research in to each one, and seek advice from a good lawyer and an accountant so you can make the very best decision for yourself and your organization. 

    Sound Accounts helps business owners get organized, stay compliant, and make the most of their finances, with individually tailored bookkeeping service plans and ongoing advice. Contact us today to learn more and find out how to qualify for 6 months of free QuickBooks. 

    To learn more about business legal structures, check out our frequently asked questions below. 

     

    FAQ

     

    What is the best legal structure for my business?

    When it comes to selecting a legal structure for your business, you have to think about several factors – what kind of business you want to run, how you want to split up profits and liabilities, how much protection you want against legal ramifications, whether you want shareholders or to keep it entirely private, and much more. It’s good to consult an attorney and a financial professional for clarity and direction.

    Why is it important to choose the right legal structure for your business?

    The specific legal structure of your business affects many things, your taxes, how profits and responsibilities are divided, how much exposure you have to legal liabilities, whether stockholders are involved, and more. Your legal structure says a lot about who and what you are as a business, and allows you to function more successfully within your goals. It can also protect you from unnecessary penalties or the possibility of personal losses should problems arise. 

    Why is a Limited Liability Company (LLC) a good idea for many businesses?

    The main reason why limited liability is crucial for a business owner is that it ensures you are not held personally liable for certain court judgements and non-guaranteed debt incurred by the company.  

  • 12 Tips for Effective Inventory Management

    12 Tips for Effective Inventory Management

    Inventory management is considered one of the most difficult skills to master. There are so many aspects to keep track of. Some of these include:

    • Stock levels
    • Customer demand,
    • Obsolete inventory and excess inventory
    • Seasonal products and inventory turnover ratio
    • Storage space
    • Supply chain management and sales channels
    • Cost of inventory
    • Product types
    • Accurate forecasting and effective stock control
    • Demand forecasting
    • The right inventory management software
    • Customer satisfaction
    • and so much more.

    As a retailer or other business owner, you definitely understand just how much effort it requires, especially if you don’t have the right systems and tools.

    Inventory management can take up a lot of your time. And it will definitely affect your revenue. It is crucial that you find out how to successfully manage your inventory to avoid stress, streamline workflow, and save money. However, there is no need to worry, since, today, we’ll take a close look at 12 tips for effective inventory management. Here’s how you can handle your inventory more effectively.

    business managers working on inventory management

    1. Organize the Storehouses

    To make sure that everything is properly handled, you first need to organize your warehouses. It is necessary for the continuity of your infrastructure and business strategy. As you might already know, disorganization can lead to stock getting lost or supply movement getting backed up. 

    It is vital that you go through your storehouses and strive to ensure that everything is in its right place, rotated for date, and moving according to your schedule and plan. Moreover, this will also make it possible for you to find out if something has been missing and minimize the risk of theft. Also, your team will have what they need to succeed when they see a high level of organization and efficiency in your storehouses. 

    2. Monitor Regional Demand

    Next, you have to keep an eye on the regional demand for all your products. This will allow you to find out which products are in high demand and which might need adjustment because of declining numbers.

    Then, you can order products that are in greater demand to avoid a stockout situation. As for the products that are not as popular, you can simply store them until demand increases.Technology has come a long way and should be used for managing regional demand. The inventory management process is much improved by the right tools. You can even turn to data analysis to anticipate demand and customer buying trends. 

    3. Establish Effective Stock Reorder Points

    One tip you cannot overlook is setting effective stock reorder points. Each product should have a safety stock level set to avoid a stock-out situation. You will have to perform the write-offs and claims on a daily basis so that suggested orders are always accurate.

    You must never forget about seasonal products. Make necessary adjustments to safety stock when the season changes to accommodate these changes according to both past figures and current, changing trends. For instance, the demand for soups increases during winter and drops in the summer.

    4. Consider Training for Better Inventory Management

    In order to improve your inventory management skills, seek training. Developing an effective inventory management system requires a strong understanding of the basics and the different tools that are available.

    A lack of training could prevent your organization from meeting its objectives and keep you from growing your business and your income. The fact is that you need to know about the latest improvements to be able to get ahead. Otherwise, it is easy to make mistakes and overlook inefficiencies.

    It is worth it to seek inventory management training. It will introduce you to new concepts and theories while reminding you of time-honored concepts. Consider taking an online course, an in-person class, or learning from a mentor.

    manager refining their inventory management strategies

    5. Focus on Loss Prevention

    Loss-prevention management should be top of mind for you. It all comes down to centralized systemic redistribution. Every good that makes its way into the storehouse should be monitored so that losses are minimized. It will help improve inventory outcomes.

    You must never take loss prevention lightly. By having effective checks on a regular basis, you will eliminate losses and improve overall security. Losses from theft are a major spot of vulnerability for many companies, and they can really dig into profitability and customer satisfaction. Do everything you can to refine your loss prevention strategy.

    6. Unite the Team

    If you want to ensure effective inventory management, you are going to need to bring everyone together. When the entire team is in sync, there are fewer chances of encountering inventory issues. Everything will be a lot easier when everyone is on the same page. It will decrease the number of misunderstandings, communication breakdowns, errors, internal conflicts, workflow inefficiencies, and so much more.

    There are several ways to encourage and lead team unity. Consider more effective strategies and comprehensive training, along with weekend workshops, better training for your supervisors, and equipping your team with better communication habits and tools for working together more seamlessly.

    7. Use the Right Technologies

    Inventory management has come a long way. Today, there are many inventory management systems that organizations can use for managing stock and workflow. To get started, you require an effective inventory management system as well as bar coding. These will allow you to manage nearly all aspects of inventory control and movement with greater precision and organization.

    Make sure to evaluate the different technologies that are available today, to ensure that you use a system that is equipped with the latest features. However, it can be overwhelming at first to choose which technologies to use. Find out what other strong agencies are using, read valuable reviews, talk to other business owners you trust, and discuss options with respected inventory experts. 

    8. Improve the Receiving Processes

    A great way to improve inventory management is to optimize the receiving processes. This will ensure that you have no trouble managing your bottleneck. It is vital that you identify repeat mistakes and eliminate them for good. Pinpoint week spots, slow areas, and redundancies so you can refine your workflow. On top of this, you must perform a quarterly check and a weekly partial inventory count to stay on the safe side.

    9. Hire Top Talent

    One secret to managing your stock better is to hire the right people. Your inventory management team must create effective processes to avoid inconsistencies. Therefore, it is in your best interest to spend more on talent. It will allow you to attract only the best employees. However, you also have to focus on choosing honest people to avoid losses.

    The fact is that even the most effective loss-prevention processes have their limitations and cannot always deter theft. This is why it makes sense to perform background checks before you recruit anyone. Also, perform ongoing training to ensure they remain as professionally fit and ready for any challenge.

    Make sure you hire the best receiving managers and clerks you can find, those with experience, drive, wisdom, technological know-how, good time management, and the ability to train and lead. The results will amaze you once you improve your receiving process.

    10. Manage Dead Stock Effectively

    No matter how careful you are at managing your inventory, you are likely to come across dead stock. Dead stock is non-selling stock, items that don’t move. No matter what industry you’re in, you will probably face this problem at one point or another.

    It is important that you create an exit strategy in order to deal with it. Although you might think that you will never encounter such a situation, it is always better to have things planned out. Consider clearance sales, selling it to other businesses at a discount, those who do have a history of selling these same items, or giving donating them to help others and to benefit from tax deductions 

    Managers using inventory management tools for more efficient work

    11. Create the Best Team

    Hiring the right people is not enough. Building the right team is about continual training, mentorship, bringing in new talent when needed, providing each member with the right tools and technology, opening better lines of communication and collaboration between departments, and more. 

    12. Never Force Stock Orders

    Lastly, focus on order accuracy. Study available data, order history, seasonality, current and future trends, and weigh these against available funds, storage, and company objectives, to order products that people really want to buy. Continue to place orders for items that sell well to avoid accumulating stock.

    Experimenting with new products is a good thing. But you can’t do it too often. You need a solid core that customers can count on, products that consistently bring in a solid income for you. Then, you can try out a new product now and then to see what might fit. 

    In Closing

    Inventory management is an important skill to master, worthy of your time, training, and considerable effort. Follow these tips to improve your process and always reach out for help and advice from those with more experience in this area. Control your numbers but don’t make choices out of fear. Make them from a place of knowledge, accurate data, thoughtful consideration, innovation, and common sense. 

    Healthy inventory management practices will increase your cash-flow, get you organized, improve productivity, and positively impact several other parts of your business. 

    Sound accounts helps businesses refine their processes, improve money management, and stay organized with top quality bookkeeping support. Connect with us today to find out how much better life can be with an experienced bookkeeping team on your side. 

    To learn more about inventory management, check out our frequently asked questions below. 

    FAQ

    What are the 5 steps to an effective inventory system?

    In order to get your inventory right, you have to follow the steps mentioned below.

    • Determine the types of stock you need
    • Liquidate the stock
    • Organize your inventory
    • Account for fluctuations in stock
    • Make cycle counts

    How does inventory management save time?

    Although inventory management might seem like a lot of work initially, it helps you save time by ensuring that you stay in the know about everything. Making informed decisions and putting together the right practices, technologies, and team members in one place, and leading them effectively, will go a long way to maximizing your resources and talent. This will energize your business growth. 

    What is the best way to manage inventory?

    When it comes to managing inventory, the best method that you need to use is FIFO (First-In, First-Out). It is widely used by just about every organization and is easy to implement. As the name suggests, you will make sure that the first item that makes its way to your storehouse is the first one out the door. 

    This protects you from out-of-date issues, internal conflict, disorganization, and more. 

  • Expense Tracking: 5 Tips for Small Business Owners

    Expense Tracking: 5 Tips for Small Business Owners

    Owning and running a business is no easy task. There is so much that you need to manage. It can be overwhelming, especially when you’re new. One of the tasks that you are likely to struggle with is expense tracking. According to studies, small businesses have a difficult time keeping track of expenses and managing money. That is, staying on top of business finances. Since it is crucial that you avoid wasting money, consider the tips mentioned in our post to stay on top of expense tracking.

    register or calculator symbolozing expense tracking

    Why Track Your Business Expenses?

    Although expense tracking can seem like a mundane task, it offers a host of benefits.

    1. It Increases Financial Awareness

    One of the main reasons you have to track your business expenses is that it allows you to become financially aware so that you can improve your money management strategy. Most companies fail as they struggle with cash flow issues and abiding by their business budget. Therefore, you have to account for daily expenses. Otherwise, your expenses would outstrip income and leave you vulnerable, at times, not simply in your business transactions, but with personal funds as well. 

    2. It Prepares You for Tax Season

    Tax season doesn’t have to be tiresome. By keeping track of all your expenses, you could even get some money back on your tax returns. It will also decrease the likelihood of fines. Keeping a meticulous record of your expenses and monitoring bank statements and financial statements will ensure that you know which expenses are tax deductible.

    3. It Ensures You Pay Employees on Time

    Tracking expenses will ensure that you are never in a situation where you cannot pay your employees their salary. Timely and accurate payroll will help keep everyone happy, help you protect your reputation, and allow you to attract stronger talent. 

    How To Track Expenses

    Of course it sounds like a wonderful idea. But you’ve got to know exactly how to track expenses the right way before you can reap its many benefits. Let’s make tracking expenses an integral part of your business plan, Here are some important steps to take to ensure you do it right. 

    1. Create a Separate Business Bank Account

    When it comes to expense tracking, you need to consider opening a separate bank account for your business. You should consider multiple accounts for business income, business savings, business-related expenses, and more.

    The last thing you want is to mix up your personal expenses with business expenses. Once you have created your company, you have to open a new bank account to separate your personal and business accounts. Not only does separating bank accounts help with keeping finances organized, but it also helps simplify everything and makes it easier for you to submit your accounts for both federal taxes and applicable state taxes. 

    Moreover, having a business credit card will eliminate any confusion associated with personal finances. It is quite easy to get a credit card for your business. Otherwise, you have the option of getting a debit card. A credit card is an absolute must for benefitting from the additional funding and to build your business credit rating.

    In fact, you should be able to find a specialized card for small businesses. It will enable you to make payments (both your credit card payments, and payments to vendors) without having to worry about cash flow issues. Also, it makes for an excellent strategy to avoid a cash flow shortage.

    Managing cash flow, expenses, along with loan and credit card payments shouldn’t be as difficult as some people make it. You can use accounting software and an experienced bookkeeping service to help you stay on top of these as well. 

    2. Use an Expense Tracker

    Another great tip for keeping track of business expenses is using an expense tracker. It will allow you to stay on top of everything. There are plenty of business expense management tools out there for you to choose from. You can easily use one on your mobile or laptop.

    It will ensure you can manage each expense instantly without having to perform additional manual entry procedures. It doesn’t get better than this. Only when you give it a try will you come to realize just how practical and time-saving it is.

    You should consider using a few mobile apps to determine which works best for you. Generally, you will just need to log the expenses and the tool will perform all calculations for you. The app will also sync with your accounting software and track every single expense. Therefore, you will get to use a centralized system for managing expenses. 

    Stay on top of supply purchasing, business mileage, additional business purchases, entertainment expenses, variable expenses, business loan payments, and much more. 

    3. Save Your Business Receipts

    Next, you have to scan each business expense to ensure that you overlook nothing. It is important that you have access to all your business expense receipts so that you are able to verify each expense in detail and be ready in case of an audit.

    Since you have a separate business account, you will have separate business receipts which you can store. Your expense app and software should enable you to scan each receipt from your purchases using your business credit card. Then, it will log all information so you can quickly account for everything, suddenly making your smartphone the ultimate tool.

    business owner working on expense tracking

    4. Immediately Record Every Expense

    Whenever you incur an expense, you should record it immediately as you might forget about it later on. In order for your business to be a success, you have to avoid overlooking anything. It is necessary that you account for each expense so that you maintain accurate records.

    Keep in mind that it isn’t easy to remember every detail. Even if you have a tendency for remembering facts, it is best that you don’t take any risks. Instead, you should simply record the expenses on a business expense tracker application connected with your business accounting software.

    5. Determine Tax-Deductible Expenses

    Lastly, you have to know which expenses are considered tax-deductible. This will ensure that you get to deduct these expenses when calculating the taxable income of your business. You need to monitor tax-deductible expenses as they will help you save a great deal of money.

    Every successful business owner takes advantage of tax deductions. Some of the most common tax deductions that you should look out for include:

    • Office expenses
    • Tools and equipment
    • Self-education expenses
    • Clothing and laundry expenses
    • Vehicle and traveling expenses
    • Other work-related deductions

    It is important to access your state’s taxation codes and rules online to make sure you’re doing everything right. This resource will also explain which business expenses are considered tax-deductible.

    Conclusion

    Tracking business expenses is necessary for running a successful company. If you don’t take expense tracking seriously, you could end up suffering cash flow issues, supply problems, payroll issues, and much worse. 

    Fortunately, the above tips will allow you to track all expenses incurred by your small business with confidence. Make sure to use the best applications and accounting software choices to stay organized and up to date. It is also worth it to hire a bookkeeper to handle expense tracking. A bookkeeping service provider will have the experience, knowledge, and technology needed for top-notch money management. 

    Sound Accounts brings the benefits of top-notch bookkeeping and to businesses of all sizes. Get organized, improve your money management, stay compliant, and make the most of your dollars. Contact us today to learn more and find out how to qualify for six months of free QuickBooks.

    To learn more about expense tracking, check out our frequently asked questions below. 

    FAQ

    What is the best way to track expenses for a small business?

    The best strategy for tracking small business expenses is working with a bookkeeping service provider. There is only so much you can do on your own. It is wise to turn to an experienced professional with the knowledge base and tools necessary to achieve the best results. Afterall, you have your business to run.

    What strategies should I use to track my expenses?

    The following strategies will enable you to track all of your expenses.

    Activate Your Bank SMS: A great way to track each expense is by activating the bank SMS. It will ensure that you know whenever a payment is made using your business bank account.

    Record Every Transaction: Since you would eventually forget about the transactions incurred, you need to document each one immediately.

    Categorize Your Transactions: It is a good idea to categorize your transactions so that you can determine which ones need to be eliminated.

    What should small businesses keep track of?

    When it comes to running a small business, you are likely to incur a variety of expenses including:

    • Payroll expenses
    • Interest expense
    • Retirement plans
    • Employee benefits
    • Insurance premiums
    • Home office expenses
    • Depreciation of equipment
    • Rent or mortgage payments

    What are the 4 types of expenses?

    In order to get a handle on your business, you need to know about the different types of expenses common to business owners.

    Fixed Expenses: One type is fixed expenses. These expenses happen every month or year and are of a fixed amount. Some examples of fixed expenses include car payments, cell phone bills, mortgages, and membership fees. Fixed expenses are easy to track and anticipate but can change over time based on changing needs within your business. 

    Recurring Expenses: Also known as day-to-day expenses, recurring expenses are unpredictable, unlike fixed expenses. However, they are still reliable and can be budgeted. Some examples of recurring expenses include gasoline and electricity bills.

    Non-Recurring Expenses: Most business owners tend to be worried about non-recurring expenses as they cannot be anticipated and are likely to affect your budget adversely. These expenses can either occur once or a few times a year. They are likely to be hefty and can take a toll on your cash flow. Some examples of non-recurring expenses include car registration fees, moving expenses, and maintenance costs.

    Whammy Expenses: Whammies can throw your business under the bus. These are frustrating to deal with as they are incredibly unpredictable. Since you don’t know when whammy expenses will occur and how much you’ll have to spend, you may need to rely on your emergency fund or a loan to pay for them.

  • Better Financial Reporting: 8 Tips for Timely, Accurate Reports

    Better Financial Reporting: 8 Tips for Timely, Accurate Reports

    Accurate financial reporting is one of the foundation stones of financial stability and success. However, it can be difficult to ensure both timeliness and accuracy. Maintaining a high quality of reporting is necessary, not only for things like tax compliance, but to ensure you have the information you need to make better business decisions.

    Since market conditions change daily, stakeholders require access to updated financial reports on a regular basis in order to make these decisions. This is why businesses need to follow certain best practices to get their financial reporting right. Whether you’re in senior management, a new business owner, or any professional level in-between, timely, accurate financial reporting is a skill worthy of your best efforts. Let’s look now at 8 tips to ensure accurate reports. 

    1. Identify Critical Information

    One of the most important tips that you have to consider if you want to create financial reports on time is to identify critical information. Start by evaluating which documents are necessary for making data-driven decisions. Then, you must prioritize these documents accordingly. Simplify all of your deliverables so that every piece of critical information is provided on time.

    Besides, you don’t need an extensive profit-and-loss statement every month. Instead, a simple profit-and-loss statement will sometimes suffice. The same goes for your balance sheet and the statement of cash flows.

    business owner improving her financial reporting

    2. Use Collaborative Digital Tools

    In order to create financial statements on time, give collaborative digital tools a try. They will make your life a lot easier. Go through the digital tools available to you to determine which ones to use for automating tasks.

    These tools will also help reduce costs and allow you to get more accomplished. Some of the tasks that you can easily automate include inventory management, tracking receipts, making certain payments, tracking expenses, and other important functions.

    Besides, you can turn to bookkeeping platforms for centralizing data and generating financial reports with minimal time. There is just so much that you can do on your own. This is why you have to take advantage of the latest technologies. This will help you improve your reporting practices, easily create needed forms and documentation, gain quick access to any evidence of financial errors, stay on top of your pre-determined control criteria. 

    3. Create a Calendar of Events

    To stay on top of financial reporting, you are going to need to prepare a schedule for all the activities you expect to occur in a month. Before the start of a new month, go through your calendar to determine what events will take place and make sure there aren’t any necessary changes that need to be made.

    Even the simplest of schedules will make it a lot easier for you to manage your work, finances, and financial reporting. This is part of your control framework. You must ensure your team understands and agrees to the timeline so you can maintain consistency.

    Speak with your bookkeeper, audit committee, CFO, and other key decision makers in advance to clarify the scope of work for each month. During your meeting, set the specific parameters of key projects before you work on your financial statements. This will ensure every person is on the same page with regard to financial decisions, goals, and reporting. 

    4. Tailor the Reports for Your Industry

    The next tip that you have to keep in mind if you want to prepare financial reports on time and ensure that they are accurate is to tailor the reports to meet the requirements of your particular industry. Since every industry is different, you are going to need to make changes to your financial reports to meet these unique requirements. 

    Financial statements make for excellent tools when running a business. They enable business owners to make decisions proactively. Your focus should be on reliability and fulfilling the needs of your industry. Your stakeholders need to compare the financial statements of your company with other similar companies in your field or similar fields to be as relevant and productive as possible.

    5. Reconcile Your Transactions Regularly

    A great tip that will help you improve your financial reporting is reconciling transactions on a regular basis. The last thing you want is to have to make reconciliations at the end of the month. It will only make things a lot more difficult for you, as you would have to recall certain facts and figures and put in the extra effort to ensure accuracy.

    In fact, successful businesses know the importance of tracking and recording operational transactions daily. You also need to reconcile general and subsidiary ledgers every week to save a ton of time. If you fail to do so, you will have a lot on your plate and you will struggle with creating timely and accurate financial reports. The more regularly you reconcile transactions, the easier life will be for you.

    6. Prepare a Delivery Schedule

    In addition to the above, you need to come up with a delivery schedule to create your financial reports on time. It is best to dedicate plenty of time to building a detailed close schedule, as it will guarantee that everyone has an idea of what and when things need to be done.

    Setting a deadline for each task will ensure adherence to the objectives that guide your long-term goals. Most entries, schedules, and reconciliations should be completed before the period ends, so that you can focus on performing accuracy checks. Reviewers need to perform reviews early on instead of waiting.

    Prep work can make all the difference. That way, you no longer need to check on everyone constantly. Instead, your team members can come to you whenever they have issues.

    7. Leverage Data in Real-Time

    One secret to creating accurate financial statements is using data in real-time. Since most software packages integrate APIs, you should be able to extract all the data you need to create the reports. In fact, you can rely on software to make quick changes to reports and to save you time.

    The past few years have seen an improvement in the way people use technology. Remaining competitive and relevant in today’s world means choosing the right tools and making the most of available data-driven technologies.

    Data is your biggest asset. You have to use it to get the results you are looking for. The latest software allows you to obtain data in real-time with ease. Don’t hesitate to use it so you can unleash your organization’s full potential. 

    business owner working on better financial reporting methods for more accurate financial reports

    8. Focus on Flexibility

    Lastly, you have to improve flexibility. It is only possible when you optimize your workflow. Staying flexible, agile, and adaptive is important in every aspect of business, even in your bookkeeping, money management, and financial statements.

    These statements are more than just reports for filing taxes and attending board meetings. They serve as effective tools for making the right decisions. You want to be sure your workflow, data collection, and reporting methods meet the current needs of your company and your objectives and be ready to change some of them when they do not. 

    A quick way to get on top of flexibility issues is by automating much of the work. It is important that you use a modern cloud application for accessing accounting data and automating the creation of financial reports.

    It can be very time-consuming to sift through everything to create various financial reports. Also, automation helps reduce the possibility of making errors. You will save money and manage your company with greater confidence. Software is there for a reason. Use it to take care of some of the heavy lifting.

    Conclusion

    Creating timely and useful financial reports shouldn’t be difficult. It also shouldn’t be something you undervalue. It needs to be a key component in your financial goals and in the way you plan each month.

    If you are struggling to keep up with your company’s accounts, find yourself overwhelmed with more bookkeeping that you ever wanted to be, outsourcing to an experienced bookkeeping service provider may be your way out. It will, instead, allow you to focus on core objectives, like innovation, talent acquisition, training, operations, and growth. 

    Sound Accounts helps business owners achieve more and do so with less stress every day, by providing individually tailored bookkeeping support plans that meet the needs of companies in every market. Connect with us today to learn more and see if you qualify for 6 months of free QuickBooks. 

    To learn more about good financial reporting, check out our frequently asked questions below. 

    FAQ

    How do you ensure timely and accurate reporting?

    If you want to ensure timely and accurate reporting, you need to employ a bookkeeper or partner with a bookkeeping service provider to handle your accounts and allow you and your key players to focus on their strengths and goals. 

    Additionally, make sure you’re using the latest accounting technologies, reconciling accounts regularly, recording information immediately, reviewing your bookkeeping, reporting, and financial goals on an ongoing basis, and training your team to gather and provide the information you need to create accurate reports and projections. 

    Why is it important to provide accurate and timely reports?

    The main reason why you need accurate and timely reports is that they help you, your management team, and all stakeholders to make important decisions when they need to. Accounting is the language of business. By presenting the right financial statements, owners, board members, key investors, and your financial management team will have the right information to steer the company exactly where it needs to go.

    Some good reporting habits include:

    • Hire an external auditor.
    • Adopt strict internal controls.
    • Ensure accurate data entry by employing an experienced bookkeeper.
    • Reconcile internal and external records regularly to save time and effort.
    • Check the income statement and balance sheet to find out if any errors have been made and make necessary changes.

    What are some other helpful financial, organizational, and management habits to keep in mind?

    Studying consistently to make the most of business insights and for making improvements in management decision-making, the testing of controls, and providing reference standards for accounting.

    It’s important to make the most of annual reports, along with monthly, weekly, and daily reporting. Don’t miss staying on of your credit score, credit report, and credit history, maximizing your financial status and agility within your field, and owning up to the practice of transparent reporting. Use consumer reports, audit reports, and error reports to refine your practices, and make the most of technology and data to improve accuracy standards, while using your money to achieve the goals you set out from the beginning. 

  • 7 Strategies for Surviving a Cash Flow Crisis

    7 Strategies for Surviving a Cash Flow Crisis

    One of the worst fears that most business owners have is a cash flow crisis. Cash-flow management issues can leave companies in a difficult situation, where they have to struggle for ways to avoid liquidity problems.

    Knowing different strategies to survive a cash flow crisis is something that you cannot afford to overlook, no matter your business model. In order to take timely action and save your company from damage or insolvency, you should consider the cash-flow strategies mentioned here. Let’s begin.

    business owner dealing with a cash flow crisis

    What is a Cash Flow Crisis?

    Before we cover how you can survive a cash flow crisis, we need to have a better understanding of what it is. In the simplest of words, a cash flow crisis occurs when you spend more money than your business receives. It causes a cash flow shortage and can make it difficult for you to pay salaries, maintain cash reserves, keep your lines of credit, meet current payment terms,  budget for operating expenses, and much more. 

    Therefore, you have to stay alert and manage the situation with extreme caution and sound financial wisdom so that your business doesn’t suffer the same fate as so many other failed organizations. 

    The Best Strategies for Managing a Cash Flow Shortage

    There are certainly more strategies than we will get into today. But this list should give you a good place to start and put you in the right mindset of better financial management and a sound cash flow plan. 

    1. Improve Receivables

    Speeding up your receivables will allow you to deal with the cash flow crisis in the best way possible. The faster money flows into your company, the faster you can make payments and avoid cash problems altogether. You should be able to speed up receivables by providing pre-orders on products that are not yet in production. Other excellent tips that will improve your receivables are mentioned below.

    Ask for a Deposit from New Customers: It is always a good idea to ask your new customers to make a partial payment up-front so that you can have some cash available for operating and production costs. It also makes for an effective collections strategy, as people have an easier time paying in intervals and are more likely to stay with the agreement if they already have some skin in the game. 

    Send Invoices Early: The next tip that you must incorporate is sending invoices to your customers early. It is best that you send an invoice to each client immediately following a purchase instead of waiting to send it later on in the month. The earlier you send the invoice, the sooner the payment will be made.

    Send Invoices Frequently: You shouldn’t wait for the entire job to be completed before sending an invoice. Instead, you can cover the services that have been delivered so far by generating invoices every few weeks.

    Focus on Past Due Clients: Make sure to go through your accounts receivable to find past due clients and give them a call. You might want to offer a partial payment plan to ease the cash flow crisis. After all, you could use the money.

    Make It Easier for Customers to Pay: If there is one tip that always works for easing cash flow problems, it is providing additional methods of payment like mobile or credit card payment options and other savvy, easy-to-use payment apps. 

    2. Negotiate the Payables

    Another strategy that will help you survive a cash flow crisis is better negotiation of your payables. By delaying or reducing how much cash flows out of your business, you should be able to reduce the strain on your working capital. It might be best that you practice honesty with vendors and let them know that you are dealing with a cash flow shortage and could benefit from better terms or at least delaying payments for some time. If you’ve built a loyal relationship with your vendors, they will often be happy to work with you to find equitable solutions. 

    Even though not every vendor will be willing or able to do so, there are bound to be some that will allow you to make it through your tight situation using more favorable or creative terms. 

    managers dealing with cash flow crisis

    3. Adjust Your Business Plan for Improving Profit Margins

    When it comes to a cash flow crisis, a great strategy that you should consider is inspecting your business plan and strategy. You need to uncover the root cause of the cash flow shortage. There is the possibility that it is related to a recurring problem. This means it is time to look more closely at your process through detailed analysis, examining each area of your plan completely.

    Start by evaluating your profit-and-loss statements using job costing. It will allow you to determine the profit margins of each category, such as jobs, employees, clients, marketing strategies, events, products, or services, and more. Then, you will know which areas of the company are the least profitable so that you can make necessary adjustments to your business plan.

    Once you’ve evaluated your plan and come to some conclusions, you might have to make difficult decisions like letting go of certain clients that cost more money than anticipated, optimizing your pricing structure, and cutting down on expenses that appear redundant, excessive, or simply not paying off.

    4. Borrow Money

    In addition to the above, you should consider borrowing money to resolve a cash flow shortage. To bring more money into your company, you can either take a credit card advance or a business loan. You must evaluate the interest rates and the terms of each loan before you agree to take on new debt.

    It is vital that you consider your options to ensure that you don’t end up making any mistakes. You don’t just want to get rid of the problem temporarily. You should always borrow money with a long-term perspective in mind, with a clear understanding of how this new loan will both benefit and negatively affect different areas of your business. If your company is suffering from an intrinsic problem, taking on debt might not be the right option. But always do so with great consideration.

    5. Raise Capital

    Successful companies also opt for investor capital to increase their working capital. However, think about this decision, as you don’t just want to sell an ownership stake to anyone simply to resolve a cash flow shortage. You must determine which type of investor will suit your business, and choose only those who display the traits, knowledge base, and experience needed to bring the most benefit with the least amount of hassle. Raising capital is a solid option to remedy a cash flow problem, and can be a quick cash injection, but you should do so only after thorough research. 

    6. Cut Down Expenses

    Every single expense should be scrutinized to ensure that it is genuine and necessary. You don’t want to waste money when it is already a limited resource. You must be critical of how you spend each penny, and be able to link your spending to specific desired outcomes. It is the only way you can stay on top of things. Go through every expense to find out which expenses are unnecessary so you can eliminate those that aren’t benefiting your business and focus on those that are. You should only spend on expenses that help in generating revenue and expanding your reach.

    business owner dealing with a cash flow crisis

    7. Sell Unused Assets

    Lastly, you should go through all the assets your company owns and find out which ones are unused or underused, and sell them to improve your cash flow. Sometimes, cutting unessential expenses is just not enough. This is why you have to sell unnecessary items to raise much-needed cash. We often have more things around that aren’t serving our needs or have ceased being the useful tools we once enjoyed. Free up the cash and the space. 

    In Closing

    Since approximately 82% of companies struggle with cash flow issues, it is crucial that you learn how to deal with these difficult seasons in proven and creative ways alike. When you implement an effective plan which incorporates useful tips, sound financial wisdom, and thorough research, you should be able to avoid difficult situations and future cash flow problems or at least have a better grasp for how to get yourself out of them. And don’t forget to connect with a great bookkeeper to help you make the most of your finances and business plan. 

    Sound Accounts helps business owners organize and manage their finances successfully, so they can stop worrying about the books and focus on the core of their business. Find out the difference Sound Accounts can make in your business today. Also, see if you qualify for 6 months of free QuickBooks while you’re at it. 

    To learn more about dealing with a cash flow crisis, see our frequently asked questions below. 

    FAQ

    What are some strategies for reducing cash flow problems?

    If you want to reduce cash flow problems, there are two strategies that you need to follow. These are preparation and prevention. It is vital that you create a plan after analyzing your most recent financial statements, including cash flow statements, income statements, and balance sheets. 

    By going through your financial statements regularly, you will gain greater control of your financial usage and goals. Improving your financial position comes down to taking active prevention steps like tightening business operations, monitoring KPIs, and cash flow forecasting.

    What can I do to improve my company’s cash flow?

    There are a number of things that you can do to improve the cash flow of your business, which are mentioned below.

    Improve Receivables: The first thing you need to do is encourage customers to pay for products or services sooner than later. You will have to send invoices early on to get them to do so, and conduct regular but friendly follow-ups. 

    Negotiate Payables: Have a chat with your creditors to negotiate payables and negotiate more favorable terms.

    Eliminate Unnecessary Expenses: Keep an eye on all your expenses and eliminate ones that don’t contribute to your business.

    What parts does a statement of cash flow consist of?

    There are three parts to a statement of cash flow, which include cash flow from all the operating activities, cash flow from financing activities, and cash flow from investing activities. With just a bit of practice, you should be able to create a statement of cash flow for your business and improve your situation.

    It is good practice to monitor all your cash inflows and cash outflows, perform a cash analysis regularly, and be ready to constantly refine your business strategies, cash flow techniques, and daily decisions to become a better money manager and business leader.