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Small Business tips

Cash is King: Maintaining Liquidity in your Small Business

Cash is King: Maintaining Liquidity in your Small Business

Cash is the single most important factor for the survival of any business. Hence the term, cash is king. Therefore, your business wellbeing is determined by how easy it is to get cash when it needs it. A liquid company has more cash available at its disposal than an illiquid firm. Therefore, it has a better chance at expanding.

A small business must be liquid to get loans, finance projects and handle an emergency. As essential as fixed assets like buildings are for a company, it cannot be quickly converted into cash. To maintain liquidity, current assets like investment and inventories, which you can quickly to change to cash, are more valuable for your small businesses than fixed assets, like vehicle.

No matter how prudent you are as an entrepreneur or a solopreneur, you would need to spend money on certain things. These are called expenses. Lower expenses boost your money reserve. You can reduce your small business overhead costs like rent, repairs, telephone bills and accounting fees. A great way to minimize accounting fees is by using online accounting software for small businesses.

Your account receivable and account payable are two essential variables you must manage effectively to monitor and maintain positive cash flow and further increase the liquidity of your business. If you cannot afford not to buy on credit, then try to negotiate longer term of payment with your creditor. More so, make your customers pay their debt on time by offering them incentives, like a discount, that would make them pay faster. You can also send billing notice as a reminder for late payment to your customer. The bottom line is; get paid quicker and pay slower.

There are times you have excess cash in your account. When this occurs, the best thing to do is to invest the excess cash. There are different forms of investments but the best one to keep your business afloat has to be open-ended and with higher interest. You must be able to have access to your investment when you want just like your savings, but it must also give you higher interest than your savings. A capital investment like machine might seem like a significant investment, but factors like depreciation and leakages must be considered when buying such items. This is because; it might tie down your money instead of keeping it.

Loans and personal finance are not just ways of funding your business; they also prevent it from drowning. A loan is one of the means of keeping your business breathing or even as a way to get start-up capital. However, to finance your business or getting cash through a loan, you must negotiate to spread the loan repayment for a longer period. This would reduce the burden on your business.

Since you are an entrepreneur, you can fund your business through personal finance when you are short of cash but do not make it a habit. Ensure you separate business finance from personal finance. In fact, one great way of ensuring that your small business stays liquid is to reduce the amount of personal drawing you make from the business.

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myBooks

Cashflow Report Demystified

Cashflow Report Demystified

Your cash flow report should be answer the following questions with accuracy and precision;

  • How much does your company have right now?
  • How much cash did your company generated?
  • And what was the cash generated was used for?

If you come across it as statement of cash flows and it can be a one page statement to several pages. In the cash-flow statement, the in-flow and out-flow of cash within a set period. What the cash-flow expresses is the liquidity and not the level of profitability.

The cash flow report can be broken down into three in an online accounting software; cash from operating activities, cash from investing activities, and cash from financing activities. When a cash flow is based on generally accepted accounting principles (GAAP), a fourth category known as disclosure of noncash activities.

Cash flow report allows for a comparison of the inflow and outflow of cash to guage the performance of a business.

Depending on the type of business you run, the cash flow report always follows the same format. Through this guide below, you should know what to look out for when looking into a cash flow statement.

Cash From Operation Activities

Usually, a cash flow statement is computed by a cloud accounting software using the indirect method. But essentially, this is the step used in computing this section;

NET EARNINGS + DEPRECIATION AND AMORTIZATION – CHANGES IN WORKING CAPITAL

When all the necessary adjustment has been effected, you’ll have the net cash generated from the company’s operating activities.

Cash From Investing Activities

This section captures the changes in long-term investments and capital expenditure. Capital expenditure in this context can be purchase of machinery, equipment and operation vehicle. While long term investments range from debt, and other equity.

Usually, there’s always a cash outflow from investing activities. For example, when a company buys a car, furniture, fixtures or equipment, it is calculated as outflow. While it is considered as cash inflow when a company divests the assets.

Cash From Financing Activities

When there’s a change in the long-term liabilities and equity section of the balance sheet, it appears as financing item on the cash flow report. When the business issues or repurchase stocks, shares and bonds, it is considered a financing activity.

When capital is raised by the firm, it is deemed as a cash inflow while payment of dividend is seen as cash outflow.

Bottom Line

In simple terms, a cash flow statement shows the present strength and the future outlook of a business. Through the cash flow report, it will be glaring whether a business has enough liquid cash to offset it expenses. Through the cash flow report, a business can predict expenses for the future and use in computing budget for the future.

For an investor, looking through the cash flow report might give an assurance of success. However, a negative cash flow does not always translate to a bleak future for a business, it may point to expansion by the company which creates a need for a higher cash outflow.

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myBooks

Understanding Balance Sheet Report

Understanding Balance Sheet Report

There are cornerstone accounting books, and the balance sheet is one of the three, others are the cash-flow statement and the income statement. In simple terms, the balance sheet is better known as the “statement of financial position.” As a business owner or shareholder, you may find it difficult understanding the balance sheet, don’t be bothered you are not alone as this article will educate you. In your balance sheet, you will find assets, liabilities, and equities. These three are related and forms the backbone of the balance sheet. The almighty formula of the balance sheet is expressed below;

ASSETS = LIABILITIES + EQUITY

  • What Stands as Assets?

Assets are used in running the business. They are every property owned by your company. Assets are often sub-divided into two, current assets and fixed assets. Current assets are convertible to liquid cash within a financial year, while fixed assets are properties that take longer than a year to convert to cash.

Look into your balance sheet; you should see items such as equipment, machinery, cars, or something that last beyond a year, these are fixed assets. The other type of asset is represented by items such as cash, cash equivalent, and account receivable. Your inventory, work-in-progress and raw materials are also current assets.

  • And What are Liabilities?

In your liabilities section, you’ll see unpaid taxes, salaries, money owed to vendors and other unpaid day-to-day bills. In the liabilities section is also your unpaid loans, mortgage, and other payables.

Other liabilities may include interest on these loans, the principal value and interest accrued. Items in the liabilities section are itemized using a cloud accounting software.

  • Lastly, The Equity

The items that will be displayed on your free bookkeeping software for this section will vary based on the business you are operating. As a sole proprietorship, you will have owners equity and a draw account. Let’s assume it’s a partnership, look out for an account for each partner which the total must be the original cost of set-up. For a corporation, a common stock that will tally with the value quoted in the Articles of association will be marked out.

In most balance sheet drawn up by online accounting software, you will find the assets at the top, followed by the liabilities and the equity.

Analyzing The Balance Sheet With Ratios

myBooks Online accounting software makes it easy to understand your balance sheet. Financial ratio analysis is the dominant technique used in drawing out inference from the balance sheet. Financial ratio analysis as computed by an online accounting software for small businesses, a knowledge of the financial standing of the company can be derived.

Through a cloud accounting software, the current financial condition of the business in synergy with the other two cornerstone books can be pictured by anyone even without accounting knowledge.

Drawing out a balance sheet is purposeful for investors and business owners to understand the profitability of the business. This is known through what the business owns and owes.

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myBooks

Understanding Profit and Loss Report

The profit performance reports that are prepared by business managers around the world are better known as profit and loss reports, or simply P&L reports. There is no fixed timing of their preparation; the teams can create them whenever the managers are in need of this analysis; it may be on a monthly basis or quarterly as well.

The profit and loss statement is also named as an income statement or in some cases, statement of operation. This report is a summary of expenses, revenues and profits or losses of the respective company. P&L Report is prepared on the basis of set accounting principles and it includes details about matching, revenue generation and accruals as well. Important to mention that it is different from the general cash flow statement.

Understanding Profit and Loss Report

Firstly, a profit and loss account is called other names; income statement, earnings statement, revenue statement, or an operating statement. Every public company must release the profit and loss statement along with the cash-flow statement and balance sheet annually. In the profit and loss account, you’ll find the revenues, expenses and profit or losses over a specified period. In precise terms, the profit and loss account explicitly state a company’s ability to generate sales, manage expenses and the possibility of profit or loss. Profit and loss account is guided by accounting principles such as revenue recognition, accruals, and matching.

A profit and loss account is prepared over a specified time frame; monthly, quarterly, bi-annually or annually. Regardless of the organization, a profit and loss account is built upon the simple accounting formula;

Structure of the profit and loss report:

There are so many important elements of this report. It can be designed on a quarterly basis, monthly or as per the fiscal years. Some of the most important categories of this report include:

  • Net income
  • Taxes
  • Interest expense
  • Technology
  • Advertising and marketing
  • Selling, general and administrative expenses
  • Cost of Goods sold
  • Revenue

SALES – COST= PROFIT OR LOSS

Both sales and cost are given different names in the profit and loss account. This makes the preparation of the profit and loss account difficult for anyone without an accounting training. However, this can be surmounted through online accounting software which is already built to recognize revenue sources and expenses.

The beauty of a profit and loss account lies in its ability to spell out in figures areas of success and struggle in the business. Through this, business owners and managers can monitor the activity of the company and proffer solutions in the event of a loss. For an investor or a prospective investor, the profit and loss account give them a clear picture of the financial health of your company. It gives them the financial standing of your business.

Every profit and loss is segmented into revenue and expenses. The revenue of your firm provides a detailed explanation of the income from all primary and secondary activities the business is involved in. This is also the case for the expenses which can either be primary or secondary. Of course, the most critical revenue that will determine your profit or loss is the income generated from sales as other secondary income can be unpredictable. Growth in your business will be a reflection of the revenue generated from sales.

For the expenses, two items must stand out; the cost of goods sold and the operating expenses. Through a cloud accounting software, you can monitor the cost and look into areas where you can reduce the cost to increase profits. For example, when you compute your profit and loss account using myBooks online accounting software, you can ascertain how much you are spending on raw materials. This will let you know if you need to change to another supplier to tackle cost.

Whichever online accounting software for small business you are using, it will provide the following metrics that will be utilized by your financial analysts;

  • Year over Year Numbers (Horizontal analysis)
  • Trend analysis
  • Gross profit margin, Operating margins, net profit margin and EBITDA margin
  • Valuation Metrics
  • Rates of return

Profit and loss report is beyond the numbers, and it tells all the story that needs to be known about the business. Through a profit and loss account, you are able to make crucial business decisions.

Impact of accountability principles:

As we already stated that this report is prepared as per the specific accounting principles; but you cannot observe the impact by just viewing the report. However, the final figure that is written at the bottom of the report may vary as per the total amount of money lost or made.

Some of the most important aspects that have a considerable impact on this report are:

  • Revenue recognition principle:

In general terms, revenue can be better defined as the cash received by the company. It is accountable for the accounts receivable and is placed on the balance sheet.

  • Matching principle:

Expenses are directly matched to the generated revenues, and they are evaluated during the entire period for which revenue is earned.

  • Accrual principle:

The expenditure and income must be recorded right when they occur; not when the cash comes in hand. This evaluation has a significant impact on the overall cash flow.

Analysing profit loss statement:

Every company has a profit loss analyst or simply the financial analyst who observes the P&L reports to make future recommendations for the better health of the finances in the company. The analysis of P & L statement includes:

  • Valuation of some important metrics such as price to book, P/E ratio, and EV/EBITDA etc.
  • Rates of return: Return on assets and return on equity.
  • Observation of margins: Net profit margin, operating margin, EBITDA margin and gross profit margin.
  • Comparison of the numbers over the years along with industry benchmarks.

Things to look while preparing a profit and loss report:

Those who are creating profit and loss report for the first time may need some guidance on how to do it right. Here are a few tips:

  • Choose the specific time frame.
  • List overall revenue of your business for that duration.
  • Calculate the overall expenses of your business for that duration.
  • Determine gross profit.
  • Analyse if you are making profits.
Categories
Online Accounting Software

How to Keep Your Team Connected and Inspired on Every Project

How to Keep Your Team Connected and Inspired on Every Project

The workplace is changing and heavily reliant on teamwork. Being able to inspire experts with different skill sets in your company will translate to a fresh perspective and insight on achieving the organizational objectives. However, before a team can collaborate towards success, they need to be able to connect and communicate. It’s not enough to just bring people together, giving them tools such as MyStaff and MyPlan will ease the burden of collaboration. As a business, you need to stop assuming that innovation comes from individual skills. Long-term success and innovation can be achieved through team efforts.

To help build successful teams that can connect and collaborate on projects, we’ve put together the following tips;

  1. Don’t Leave Teams To Connect on Their Own

It’s inadequate to bring people together as a team and expect them to be able to connect from the onset. Often, the strangers may be able to blend but a good number of times, it doesn’t work. There is some awkwardness that is frequently encountered when people come together, and they can be tackled through the following mediums;

  • myPlan: You need to keep the project goals in sight of the teams. This will make it a talking point and bring about ideas.
  • Bonding: Bring the team members under the same roof. Initiate events that are unrelated to the project that can help build trust and friendship.
  • Video Conferencing: If there are remote members, there’s a need to make them feel carried along. Let them be able to know what is happening in the team.
  1. Draft Out a Team Charter

Without a charter, the team will be working in the dark. The team needs to be aware of what is expected of them. This process should be carried out immediately the team is formed. For every team, there should be a charter that has the following items;

  • Purpose of the team; It should be in the form of problem and solution.
  • Mission and Objectives; the goals of the project should be spelled out.
  • Team Roles; Let every member know what others are bringing to the table.
  • Expectations; help them prioritize the objective and modus operandi for dispute resolution.
  • Budget and Resources; through a cloud accounting software, let every member know the available funding.
  1. Create and Reward Milestones

For the team to stay inspired towards the objectives, there should be milestones spelled out. At every milestone, a form of reward should be introduced to keep the fire burning. When there’s a breakthrough, the team leadership should point it out. This will create an unconscious feeling of success in the team. Knowing they are making progress with every move will create a hunger for more. You may even involve the team as to the form of rewards for the milestones.

Final Words…

Team leaders can easily build team spirit by using myPlan; this will keep the team together. To achieve accountability regarding finance, bringing everyone onboard via an online accounting software will help build trust.

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Small Business Accounting

Letting Technology Do the Hard Part of Running a Small Business

Letting Technology Do the Hard Part of Running a Small Business

The application of technology on a daily basis is now inevitable. Small business needs to take advantage of technology to ensure the smooth running of their business. Technology makes managing business easy and flexible. It also allows more collaboration with clients and employees as well as secure communication between the customers and business owners.

Bookkeeping and Accounting

Use cloud-based accounting software to simplify your accounting system. It becomes easy to track your expenses and prevent overspending with online budgeting. You also reduce the cost of going to collect money from customers when you utilize online invoicing. Online accounting software for small businesses also ensures that your bookkeeping is thorough. This simplifies tax filing simple while connecting your bank account with your business account. You can also go global with your business efficiently by carrying out multi-currency transactions with your software. Most importantly, online accounting software has affordable and flexible pricing.

Sharing and Collaborating

Technology allows speedy sharing of information among team members and employees. Productivity in the workplace can enhance greatly with technology because many people can now work on the same project from the planning stage through to the end. Means of communication, like e-mails and instant messenger, not only increase productivity, they also reduce the cost of internal communication. Members of the same team can also share data with cloud and have a face-to-face meeting with teleconferencing. As you expand your business, hiring more employees becomes inevitable. Technology makes this easier through computerized scanning of prospective applicant and video interviews using Skype.

Sales and Marketing

Entrepreneurs with access to social media like Facebook, Twitter, Google+, Instagram, and Whatsapp can promote their products or services on the platforms. It becomes easy to provide exposure for your business through web-based advertising. An Entrepreneur can benefit from the use of social media to reach many people at no cost. This reduces advertising cost while increasing the customer base of a small business. Small business owners also need to take advantage of online selling and e-mail marketing. Door-to-door marketing is now traditional when you can be in the comfort of your home or office and sell your products to as many customers as you want.

Customer service and feedback

Customers today need an instant response to inquiries and complaint; you can improve your customer service with technology. Online surveys and questionnaires give small business owners means of knowing the needs of their customers and work on their product or service as required. Furthermore, online forum and blogs increase the customer base and reach of small businesses. The number of hours spent answering customer complaint is also reduced considerably if the company has its website or blog, this is because questions frequently asked by customers can be compiled easily and answered with technology.

Final Words…

Running a business is a simple task for entrepreneurs who know how to use technology. The main advantage is that you do not need to be a tech-savvy to use technology in your small business. In fact, it is what you do on a daily basis to socialize and communicate. You need to channel it to benefit your business. Do not make accounting, marketing, collaborating and customer service daunt you, use what you have to do what you want for a minimal price.