Inventory is usually the largest current asset of a business that sells products. If the inventory account is greater at the end of the period than at the start of the reporting period, the amount the business actually paid in cash for that inventory is more than what the business recorded as its cost of good sold expense.
When that occurs, the accountant deducts the inventory increase from net income for determining cash flow from profit.
The prepaid expenses asset account works in much the same way as the change in inventory and accounts receivable accounts. However, changes in prepaid expenses are usually much smaller than changes in those other two asset accounts.
The beginning balance of prepaid expenses is charged to expense in the current year, but the cash was actually paid out last year. this period, the business pays cash for next period's prepaid expenses, which affects this period's cash flow, but doesn't affect net income until the next period.
As a business grows, it needs to increase its prepaid expenses for such things as fire insurance premiums, which have to be paid in advance of the insurance coverage, and its stocks of office supplies.
Increases in accounts receivable, inventory and prepaid expenses are the cash flow price a business has to pay for growth. Rarely do you find a business that can increase its sales revenue without increasing these assets.
The lagging behind effect of cash flow is the price of business growth. Managers and investors need to understand that increasing sales without increasing accounts receivable isn't a realistic scenario for growth. In the real business world, you generally can't enjoy growth in revenue without incurring additional expenses.
Need help figuring out the confusing world of accounting? If you're planning on growing your business in the new year, we'd love to help! Contact us for a free consultation.
The best way to keep your business going long term and to experience more success is to continue to grow and expand. If you’re not growing and expanding, you’re stagnating. There are many ways in which you can experience continuous growth and expansion in your business and your life.
Start a Joint Venture Partnership
Get out of your comfort zone and work on a project with someone you might normally see as a competitor. If you know someone who promotes complementary products and/or services to yours, get on board with them to promote something jointly. The more often you participate in JVs, the more you’ll expand awareness of your business and offerings.
Create More Products or Services
Diversifying your offerings can help you expand and grow, too. For example, if you currently offer groups or online courses on how to do something, you can expand to offering one-on-one coaching services to delve even deeper than your current offering does. Plus, you can charge more money.
A fast way to grow and expand is to simply get more clients. Of course, you’re only one person so you might need to outsource more work to others to ensure that you can accommodate more customers and clients.
Teach What You Know to Others
If you have a skill that you can share with others to teach them to become successful like you, don’t keep it to yourself. Share it. You won’t create more competition even if you think that will happen. Instead, you’ll not only get more customers, but you’ll also be seen as more of an expert.
Write a Book
If you’re already an expert in something, the way to expand your expertise is to write a book on the topic. Then, use the book to promote your other products and services. You’ll earn from the book and from the added promotional opportunities the book provides.
Get on the Speaking Circuit
Once you have a book, a course, and a coaching program, you can easily get on a speaking circuit. Through paid speaking engagements you can get the word out about your business to a lot of people and finally solidify your expertise.
Be Consistent and Persistent
If your business is already growing and expanding, keep doing what you’re doing. At the end of the day, consistency and persistence pay off for every business model.
Network More Efficiently
Take a look at how you go about networking, and who you’re networking with. You want to network strategically with potential joint venture partners, potential customers, as well as colleagues.
Enlist the Help of Professional Bookkeeping and Accounting Services
Many businesses fail to grow because they do not keep accurate records for every aspect of their business. Without accurate bookkeeping and accounting, your business will suffer and eventually fail as it will have no records or projections to help it progress. Our entire team hold degrees and are fully qualified to help you fill the need for proper accountancy in your business. Please contact us for a free consultation.
Growing and expanding requires self-awareness of what you are doing and what you’re not doing to move forward. Occasionally assess your goals to ensure that you are on track to be where you envisioned you would be at a specific time. If you’re succeeding, keep on doing what you’re doing. If you’re behind, it’s okay; you just need to adjust.
One way to make collecting on invoices easier is to set up an automated invoicing system. Or, you can use invoicing systems that work with email and PayPal. Thankfully, today there are so many systems that you can surely find the right one for you.
In the “old days” you had to wait for a check to arrive in the mail; today you can use many different payment processors like PayPal, ACH, Stripe.com, and more.
Problems with Invoicing
Some of the most difficult aspects of invoicing are:
* Getting accurate invoices out on time – A real key to invoicing is to make accurate invoices that include all the work done up to the point of the invoice. Without a good system, you could forget work that you’ve done.
* Following up when payment is overdue – Sometimes payments are late; sometimes it’s the client’s fault and sometimes it’s your fault due to the invoice not showing up. You can’t know if you’re not paying attention and following up.
* Tracking payment to the right invoice – If you do manual invoicing and manual data entry, you may accidentally credit the wrong payment to the wrong invoice. Ask clients to include the invoice number on the check, or switch to an automatic invoicing system where your clients can click to pay their invoice online.
Here are some software solutions that can help.
* FreshBooks – This is a terrific invoicing software solution that allows you to accept several different ways of collecting payment. You can even mail an invoice through snail mail, or send through email. It has time tracking, expense tracking and many other features that help create accurate invoices automatically.
* QuickBooks – A professional solution that works in many ways, from allowing you to set up recurring payments, to sending one-time invoices, to collecting payment via ACH automatic deposit to your business account.
* PayPal Invoicing – You’ll have to make each invoice individually as it doesn’t have any auto features, but it’s free and included with your PayPal business account. It’s also easy to use and looks professional with your business logo included on the invoice.
* Recurring/Subscription Payments – Seek software that enables you to invoice and collect payment on a recurring basis. This way you don’t have to do it manually each month, which will be a huge time saver.
Using these systems can go far in helping you eliminate busy work when it comes to getting invoices out on time, accurately, and in a professional manner that demands payment without being rude or intrusive.
Going lean - It's not just for automakers and industrialists anymore. Strategies for stream lining that have traditionally been the stuff of factory floors are now within reach of small businesses. And technology is helping small-business owners achieve it faster. Software developers suggest that by tying in some app-driven tools, going lean can be more powerful and effective than ever before.
Simplify processes and reduce repetition.
Apps are increasingly the go-to tools for the endless pile of invoices, accounting worksheets and reservation logs that plague small businesses. And it's not just about automation. For example, a work-request submission could automatically create a draft invoice, schedule a meeting, add a contact to the CRM, create a new item in a project-management app, add the customer to a newsletter, and send the consultant a text message summary. All of this stands to cut administrative costs, again putting more resources toward business growth.
Your frontline workers become your key problem solvers.
Just as your customers are the key bearers of information about your product or service experience, your frontline workers are your best-informed sources for resolving internal situations. Free them from low-level tasks (as outlined in step 1), and get them involved in process reconstruction. The builders of lean industry knew this: They created "kaizen workshops" where employees who worked on the frontline and were familiar with the day-to-day details were instructed to tackle some of the hardest problems top-level managers wanted to solve. As your predecessors at that scale discovered, deep familiarity breeds deep insight when it comes to problem solving.
Introduce an "andon" cord.
In the old school lean factory, there was a tool that helped reshape how challenges are met. The tool is the andon cord. Pull it and the line stops. The idea was that the individual could save a whole project with a quick-enough response. Think about how this applies to problem solving in a small business. The dishwasher discovers that a glass cup is broken—he shuts down the prep lines before any more food goes out (preventing a dining-room catastrophe). Your shipping manager discovers that a pallet of boots instead of sneakers left the dock; she stops the trucks before they move another mile (saving fuel and time). Give your employees the equivalent of the andon cord, and they can stop the system and introduce a new piece of information or a warning. This is both authorized and encouraged. Empower your team and cut the waste, and potential damage, out of chain-of-command slowdowns.
Promote just-in-time problem solving.
The next step is that problems should be prioritized by a just-in-time process. Like a pyramid, you consider the problem with the highest impact potential to be in the top 20 percent of the model, and everything below those are secondary or tertiary focuses until they emerge as significant pain points. Sometimes they never do, but you deal with each solution at the just-in-time level. Additionally, as the automation from step 1 takes root, more free time becomes available to your team. And with it, you can start working on the secondary problems.
Streamlining your business processes can save your business and employees time and money. Some of these solutions may not be directly related to your business model, but finding ways to apply these concepts can be a huge help for your business.
If you don't keep track of how much money your business is making, you have no idea whether your business is successful or not. You can't tell how well your marketing is working. And I don't just mean you should know the amount of your total sales or gross revenue. You need to know what your net profit is. If you don't, there's no way you can know how to increase it.
If you want your business to be successful, you need to make a financial plan and check it against the facts on a monthly basis, then take immediate action to correct any problems.
Here are six steps you should take:
1. Create a financial plan for your business. Estimate how much revenue you expect to bring in each month, and project what your expenses will be.
2. Remember that lost profits can't be recovered. When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, "I'll make it up later." The problem is that you really can't make it up later: every month profits are too low is a month that is gone forever.
3. Make adjustments right away. If revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your rates. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably?
4. Think before you spend. When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase.
5. Evaluate the success of your business based on profit, not revenue. It doesn't matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason - don't be one of them!
6. Don't try to figure it out on your own, rather, enlist the help of bookkeepers and accountants. You've got your business to grow and shouldn't be spending time on managing your bottom line. Rely on professionals who specialize in doing that so you can focus on what only you can do.
No matter what industry or market your business is in, everyone has competition. If you don’t know the other players who are trying to take your clients away from you, now would be a good time to start making a list. In business today, you don’t always have to be the best. In many instances, you spend more time defending your claim and less time on the needs of your customers. Sometimes, people want reliability, convenience, or a product that is easy to use rather than one that's the best. Focus your efforts on being better than your competition. Below are four ways you can compete for business and win.
1. Offer superior customer service.
What is it like to buy from your company? When was the last time you called your own business to order something? Is it easy to navigate your website? Customer service is the easiest way to win and lose business. An account that took you a year to win might be gone in five minutes if someone on your team under-delivers on the promise you made to win the account in the first place. Don’t let another company steal your business because of better customer service.
2. Show a better understanding of your client’s customer.
If you sell to the retail market, how much do you know about the customers buying your product or service from your retailers? If it’s not selling, your retailers aren’t going to buy from you. Help them sell by better understanding the needs of their customers. Create collateral material that highlights the features customers are looking for in your type of product. How are similar companies positioning their products/services in retail stores? What’s their Unique Selling Proposition (USP)? It’s imperative to make sure you don’t sound like a copycat by promoting the same USPs as your competitors. It will confuse customers if you’re all saying the same thing.
3. Create a stellar social-media presence.
Customers today are doing everything online and on their phones. They buy and sell. They review restaurants and make recommendations to friends, family, and even strangers. Most of the discussions that took place offline years ago are now happening online. You can now connect with customers, influencers, partners, and even the media using social media. More importantly, you can keep an eye on your competition via social media. By following them on Twitter, LinkedIn, Facebook, Instagram, and other platforms, you will find out about accounts they have won and lost, events and conferences they are attending, new hires and people who left the company.
4. Get a better handle on what lies ahead.
If business were a road race, how advantageous would it be to know when to slow down and when to speed up? The right information can help you figure out when to move forward with your business and when to hunker down. If your business is seasonal (or your customer’s business is seasonal), you can use pertinent information to put together better business plans as well as a better contingency plan. These steps, along with some luck, give you a distinct advantage over other businesses that fly blindly into the future.
Notice how better pricing was never mentioned? In the end, you don’t want to commoditize your product or service. Trying to win on price is a race to the bottom. At some point, everyone enters negative territory in which the more you sell, the more money you lose. Instead, set your sights on differentiating your business using the four areas above.
Bean Counters Bookkeeping is a virtual bookkeeping business; so that you can focus on what is important, your business. www.thebeancountersbookkeeping.com
One of the most important things you can do for your life and your business is to make sure that you are focused. Multitasking has been proved to be nothing more than wishful thinking. You simply cannot do more than one thing at a time well. If you want to get more done, in less time, here are some ways to start getting focused.
Use a Calendar
Your calendar is your best friend when it comes to staying focused. Use it to make a list of things you are supposed to do each day and to set deadlines and check-up points, to make sure you’re being effective.
If you have a to-do list, it’s important to prioritize what you are doing so that you can do the most important things first. Each person’s priorities will be different. The truth is, if you are a small business owner, your first priority each day should be doing the work that you need to do for yourself as your “first” client.
Turn Off Noise
Turn off your phone, your cell, your email, your social media networks, and focus on each thing you’re doing 100 percent. Don’t focus on all the noise around you. It’s really hard to do, but you’ll find that the work you produce is of higher quality and that you‘ll get done faster.
Take a Walk
Whether it’s a walk or other types of exercise or movement... before you get down to work on any project, be sure to move. Breathe in deeply, breathe out deeply and clear your mind of all the junk going through it so that you can focus.
Try not to work for more than 90 minutes at a time without a break. Taking frequent breaks where you get away from your work or the project for at least five minutes will do wonders for your ability to focus. Now, don’t use this time as email checking time. Get away from your desk and do something else.
It’s gotten crazy that people have started to see multitasking as a virtue. The truth is that it is very inefficient, causes undue stress, and you don’t get things done any faster. Plus, typically what you do when not focused is of lower quality and you can’t get as much done.
Check Email Less
Two or three times a day is enough to worry about checking email. This is true even if you are a service provider. Let your clients know the times you check email, and set up an appointment system for clients to schedule phone calls.
Give Yourself Plenty of Time
Trying to do everything fast and over-scheduling yourself is a sure-fire way to become unfocused. Instead, give yourself more time than you think it will take so that you have plenty of down time. Being stressed out and rushing through things is a way to make mistakes.
Learn to give yourself time to do each thing that you need to do by turning off the noise and placing your focus on “first things first.” By narrowing your focus, you’ll enjoy your day more and each moment more - because you’ll shut down the noise that happens all around you and get to business doing what needs to get done.
Pro Tip: Outsource any tasks that don't require YOU and YOU ONLY to do (like bookkeeping), and focus on what you alone need to do for your business.
Most businesses fail to grow, with a vast majority remaining tiny, one or two-person entities. Even if a business isn’t destined to be the next Google, Amazon or Facebook, it can still become a thriving, mid-market company. Here are three barriers you need to bust through if you want your business to grow.
1. The Business Owner Won't Let Go.
According to a recent study, this is the primary reason that only 5% of businesses break the $1 million revenue mark and only about 12% of those businesses reach 10 million in revenue. Either the owner thinks he’s the only person capable of getting things done or he tried to delegate in the past but got burned by a bad hire and can’t trust anyone again. The only way to get through this is to find people who can do things better than you and who don't need to be managed. Will the people you hire mess up sometimes? Yes, but you just have to deal with that. If you suffer the short-term challenges of bringing someone up to speed, your life will get a lot easier and your company will be able to tackle bigger projects and contracts.
2. Being Too Cheap
In the startup phase, when you’re not making much money, you’ve got to be careful with even the small expenses. But there comes a point where you have to invest in your business or it won’t grow. You don’t have to break the bank, but at some point you’re going to have to upgrade some of your systems, whether that means your accounting software, phones, IT infrastructure or office space.
Probably the most important step you can take is to find a great accountant or CFO. Most entrepreneurs think they should spend money on making or selling stuff, like they did in the startup phase. However, as your business grows, you need detailed data about where you're making money - or not - to make the right decisions. Hiring a great accountant or CFO will cost you, but it will help you make money in the long run.
3. Not Adjusting to Changing Markets.
If your business starts to grow, you’re going to find yourself with more competition. For example, the big guys will realize you're on to something, get angry when you ruin their quarter, and try to knock you down so you don't steal any more market share. Meanwhile, your customers are going to want price concessions as they do more business with you.
When your business is in the beginning stages, it’s easy to get sucked into day-to-day operations but this is precisely when you need to start paying more attention to your market and begin delegating internal matters to a strong team. As CEO, your job is coming up with the right strategy to keep growing your business. It’s only when you are willing to adjust your mindset that your company will be able to grow.
Bean Counters Bookkeeping is a virtual bookkeeping business; so that you can focus on what is important, your business. www.thebeancountersbookkeeping.com
Who's Watching Your Money?
If bookkeeping is not your forte, hire someone to do it - you will save so much in frustration - just be sure to keep your fingers in the books. If you choose to hire a virtual bookkeeper, keep the following in mind:
1. Get QuickBooks
For ease of use, I highly recommend using QuickBooks and hiring a QuickBooks ProAdvisor. QuickBooks ProAdvisors have taken certification exams to insure that they know the system. I have used QuickBooks both for myself and my clients and highly recommend it for its ease of use/understanding.
The online version is great in that you can see the latest version of your books at any time and eliminate the annoyance of emailing files back and forth and wondering who has the latest version.
2. They must see both the forest AND the trees
You want your virtual bookkeeper to be detail-oriented AND to see/understand the big picture. They need to know what happens consistently - every month - and update your books without bothering you for items they should know about.
At the same time, they needs to be astute enough to see the larger picture and warn you of any impending problems before they happen. If you purchase a piece of equipment, she should know how to properly enter it into your bookkeeping software to avoid problems - and therefore save time and money - with your accountant (and the IRS) later on.
3. They must know your industry
You don't want to have to train your bookkeeper on your industry language, standard industry income or expense categories or other basics. The more up-to-speed they are, the faster they can hit the ground running and the sooner you will have good data. If they don't know your industry however, be sure to give them a rundown of lingo and how you refer to your customers/clients/tenants in order for you to get the most meaningful reports out of the gate.
4. They must provide timely reports
In hiring your virtual bookkeeper, insure that you put in a provision for when you want to see monthly financials. The date will depend on when your bank month ends - give them a few days after that date to reconcile your accounts and produce reports. At a minimum, you want to see a profit & loss, balance sheet and cash flow statement.
Take the time to review the reports so you can spot any irregularities before they blossom into problems. Not sure how to read a cash flow statement? Get a check/electronic funds transfer (eft or "auto debit") transaction detail instead. It will help you see where the cash is going.
5. They must know accounting terms and still speak "English"
Your virtual bookkeeper needs to know the difference between assets, liabilities, income, expenses and equity and be able to provide your accountant with the necessary data upon request. At the same time however, if you are not "numbers oriented", they also need to be able to explain the financial statements to you in plain English.
6. They must be trustworthy
Hiring someone to keep track of your bookkeeping requires a level of trust between you both. You need to feel comfortable that they will keep track of your information and maintain your confidentiality. At the same time, if they pay your bills and have access to your bank accounts, you must also trust that they will not abuse that privilege. And make no mistake, it is a privilege to have someone (particularly in a virtual relationship) trust you with their finances, their checkbook and their business. Good business sense demands that you protect yourself "just in case".
7. They must have great communication skills
If your bookkeeper will be communicating with your clients and vendors, they must represent your business as you would. Whether virtual or in-house, it's critical that your bookkeeper be a positive force that further enhances relationships. The question of money can, at times, be a sensitive matter. You need someone who recognizes that and communicates appropriately.
Always remember - these are your books and this is your business. While you may hire someone to manage the details of tracking your finances, and should do so if this is not one of your strengths, the ultimate responsibility for oversight is yours.
This article presents tips that are intended to help you complete your tasks in an organized manner through proper preparation. “Fortune favors the prepared mind”, as Louis Pasteur said, so keep that quote in mind as you peruse this array of pre-work prep tips.
1 Make a list of your tasks for the day.
A simple checklist of the things you need to do can be surprisingly helpful at keeping you on track. Aside from ensuring that you don’t forget to do any of the written tasks, when you see how much left you have to do, you can get serious about work. This can also help you avoid forgetting something and embarrassing yourself.
2 Check your agenda for the next few weeks.
There are times when tasks that have deadlines weeks from the current date will require preparation. As such, it is the best policy to always know what you should be doing within the next few weeks, so you can manage your time and resources properly. Remember to stay flexible, as changes can happen within those few weeks.
3 Use an app to keep track of your checklist.
Put your smartphone to work and use it to keep track of the things that need doing for the day. Apps like these can also help you prepare your schedule for weeks in advance. Remember that a smartphone is only as smart as the person who is using it.
4 Set up reminders for meetings and tasks.
When you set up a reminder on your cellphone, you are reducing the risk that you will run late or miss appointments and tasks altogether. Setting a reminder can also take a load off of your mind and allow you to concentrate better on the task at hand. Do make sure that your reminder ringtone won’t bother nearby people, or you could be lessening their productivity.
5 Prepare all the materials that you need.
Though arguably this can be considered part of the work that you do, for argument’s sake let us put it in this category. Having all the tools and supplies close at hand makes it easy to complete tasks because you won’t have to break your concentration (or spend time) going to get something.
6 Set your cellphone to silent or vibrate-only mode.
Loud ringtones don’t just break your concentration but also that of the people around you, unless you have your own office or something to that effect. Besides, it would be a bit embarrassing if you were surprised by your own cellphone. We don’t quite recommend turning your cellphone off because there may be urgent matters that can only come to your attention through your cellphone.
7 Have a personal phone and a work phone.
If you can afford it (and if you have a high volume of message / call traffic on your cellphone), then get different phones for your work and personal lives. The idea is that you pay attention when the work phone rings, and can choose to ignore the personal phone until you have the free time to check it.
8 Choose neutral ringtones.
This is a little less obvious. Using humorous ringtones or ringtones that carry some sort of emotional significance for you can be distracting. It can also bother nearby people. Using “neutral” ringtones – ringtones that simply notify and do not entertain – means that there won’t be emotional baggage with every ring, and you’re less likely to bother other people.
9 Manage your e-mail settings.
Setting a filter to redirect and categorize your e-mail messages can be helpful, especially if you use one e-mail address for your work and personal life (which is not recommended, especially if it is a corporate e-mail address). This way if something pops up in the personal e-mail inbox, you can let it slide ‘til later, while something that comes into the work inbox deserves at least a cursory glance.
10 Have the right Mindset for work.
Sometimes, all it takes is the proper mindset to keep working. How could you finish that report when your mind is wandering? With this in mind, it is best to prepare your brain for work the night before you go to the office. When it is finally time to work, you will go straight to business without wasting precious time to motivate yourself while the clock starts ticking.
What would you add to this list? Leave us a comment and share your thoughts!