Thursday, December 13, 2012

BOOKKEEPING - NOT JUST FOR TAXES


Inevitably, whenever I tell someone what services Windham Business Services provides, their first response is: “so, you do taxes?” No. Accounting and bookkeeping are distinct and separate activities from tax preparation. A tax return is the end result of a proper set of annual books, but not the only purpose behind preparing them.
The definition of Accounting is this:
the theory and system of setting up, maintaining, and auditing the books of a firm; art of analyzing the financial position and operating results of a business house from a study of its sales, purchases, overhead, etc.
Which is distinguished from bookkeeping which is:
the work or skill of keeping account books or systematic records of money transactions.
These are the areas where Windham Business Services provides the greatest value. We do the data entry bookkeeping work and provide you with the necessary analysis of the resulting reports.
This accomplishes two things for the small business owner.
  1. It takes away the JOB of bookkeeping from the owner. You are supposed to have a company, not a job.
  2. It provides the owner with the information and insights required to make sound decisions. The cornerstone of any good company.
Tax prep comes later and is important to prepare for, but the first order of business is just that: the business!

Wednesday, December 12, 2012

PROPER PLANNING – PART ONE


Unfortunately, with a lot of small businesses the old axiom proves true: they don’t plan to fail, they fail to plan. Your typical new entrepreneur jumps in feet first and the extent of the plan is to “make money.” It is only after that first meeting with the CPA or banker when they realize there is a lot more to it.
There are multiple pieces to a good a good business plan and they are all very important. The most critical of these is the financial piece. The adage of ‘Cash is King’ has never been more true. The Small Business Administration statistics show that fully 50% of new businesses will not be around in five years. The chief reason? Poor financial management.
There are three basic components to creating a financial plan for an existing business. No surprise, they are
  • Historical data
  • Present condition
  • Future projections.
The first of these is usually either the hardest or easiest and our focus for Part One of Proper Planning.
“Good” historical data is going to consist of a multitude of reports and accumulation of data. This will include financial statements (Income Statement, Balance Sheet, Cash Flow Statement), sales reports, purchase histories, bank reconciliations, etc. Now, gathering this information is relatively easy if the business was set up properly in the beginning: business accounts kept separate from personal, using an accounting software package (QuickBooks, PeachTree, Xero), a proper chart of accounts and so forth. If all of this was done, and correct bookkeeping practices are in place, the it is a matter of printing a series of reports.
Not having a properly set-up business can result on having to conduct a rebuild of historical data which can be difficult, time consuming and very expensive. The pain involved in this process is going to be a direct function of time and volume. How long has the business been operating? How many transaction a month are being processed? And if you want good historical data which will give you a clear picture of the business you cannot take shortcuts with this process. Summarized monthly entries cannot give you important data like customer and vendor concentrations, labor issues or job costs. Every transaction needs to be entered.
Once you have the data accumulated and the reports run it is vitally important you review and understand what you have. Financial statements are a critical tool for running a successful business and knowing your history is critical to planning your future. You cannot project future gross profits of 50% if you have traditionally only run 40%. How do you justify a 35% annual increase in sales when you have never had more than 15% in one year?
Whether you are preparing historical data for an internal business plan, a bank or an investor, it is critically important that it be accurate and that you understand what you are presenting. A Proper Plan is not going to come together without some reference to what has already happened. Know your history and you can plan your future. And do not try and do it all yourself. Either hire a qualified bookkeeper or contract with a reputable outsourced bookkeeping company. Your job is to run a company, let someone else take care of the books.