Monthly Archives: June 2010

Moving Your Business Forward: Part One

As the key decision maker for your business, it is paramount that your management style is proactive rather than reactive. While you should let your accountant and or bookkeeper prepare your financials the financial management responsibility still falls on you. Business failure may be averted by proper interpretation of your company financial statements and acting before it becomes critical. You need to know how to obtain real value from your statements. The financial statements you should be using to help you be proactive are the Balance Sheet, Income Statement and Cash flow Statement. Business failure is largely due to poor cash management.

Balance Sheet: A report that shows what your company owns and what your company owes at a given point in time.

Income Statement: A report that shows what your company has earned and what expenses it has incurred in a given period of time. It matches effort and accomplishment within a period.

Cash Flow Statement: A report that shows the inflow and outflow of cash. It shows all events on a cash basis as they happen.

It is of course necessary for a business to have enough cash on hand to meet its obligations. Inexperienced entrepreneurs often take a quick look at the cheque book balance, – a practice that can result in misuse of critical cash.

Many business owners find their companies in the position that their business is growing and their income statement shows a good profit; however the phone bill must be paid and there is no money in the bank to pay it. The telephone bill is paid with a credit card at a high interest rate. What is wrong with this picture? It is called a” cash flow problem”. The cash coming into the business is out of sync with the cash going out. You must have a clear understanding of how much and when you cash needs will occur. What sources of cash are available, and when? Small Business owners must understand a few important concepts

    Positive net cash flow: cash received exceeds cash paid out during a fixed period of time.

    Negative net cash flow: cash paid out is greater than cash received during a fixed period of time.

    Accounts Receivable; sales that are put on your customers account rather than paid for in full at the time of sale.

Credit Terms: the time you allow your customer to pay you

    Trade discounts: discounts that you offer your customers for shortening the time they take to pay you.

    Accounts Payable: the time that your company has to repay the suppliers

    Purchase Discounts: a discount offered to your company if you purchase a set volume of goods and services

You must also understand the difference between profits and cash flow. Net income is not Cash. Loan payments do not show up as an expense on your company’s income statement; however they are on the Cash Flow Statement as a cash outflow. Your Net Income figure must be enough to cover loan payments. The Income Statement shows all the sales during a period – whether or not the cash has been collected; and all corresponding expenses – whether or not you have actually paid for the supplies. Your sales figure includes cash tied up in Accounts Receivable. It also includes cost of goods which you may not have paid yet and therefore are part of Accounts Payable. You must understand the timing of your cash inflow and outflow to successfully manage your cash.

In my next blog we will take a look at ways to improve your cash flow and the warning signs of cash flow problems.

Dianne Mueller CPB

Soma Small Business Solutions

Self-employment and tax obligations “What you might not know”.

When making the transition to working for yourself, you will find that you must worry about a lot of tax obligations that weren’t your problem when you worked for someone else.

New Small Business Owners learn that they’re responsible for twice as much CPP as they paid when they were employees. And they must make quarterly instalments to Canada Revenue Agency on the estimate profits that they are making in their business.

They also learn that they are responsible for an equal amount payment of CPP (Canada Pension Plan) and one and half times the EI (Employment Insurance) amount of the statutory deductions that they must withhold from any employees paycheques. Both the employer and employee portions must be paid to the Canada Revenue Agency by the 15th of the following month. It is worth checking into any subsidy or percentage deductions that your business may qualify for under special government programs that may be available.

Ouch! That can hurt the cash flow

Employees have their taxes withheld from their paychecks and don’t need to worry about paying the government. Paying those taxes to the government is the responsibility of the business owner. Many owners find it hard to set aside that money for taxes owing and it is easy to spend the tax money when it is just sitting in the business checking account. One solution is to create a separate government tax account and transfer those amounts to the separate account until it is need to pay the remittance to Canada Revenue. Remember that Revenue Canada will charge penalties and interest when payments are not made on time, putting an additional load on your cash strapped business.

Keeping good records

Business owners no longer have the convenience of receiving a pay stub and a T4 slip at the end of the year that neatly reports their income and taxes paid. Record-keeping is essential. A profit and loss statement will provide the information needed to estimate the taxes that are owed on your profits and you can then remit quarterly instalments. Accurate employee payroll records are essential to provide pay stubs and T4 slips to your employees. A Small Business Software Program will make the record keeping fast, accurate and reliable. For over 20 years Simply Accounting has be designed by Canadians for Canadians and adheres to Canada Revenue Agency requirement.

Dianne Mueller, CPB

Why Not Just Use Excel To Manager My Accounts? (via Helping Your Numbers Flourish)

Wow, I could not have said this better.I know as a professional bookkeeper I am always trying to get small business owners to realize this.

Why Not Just Use Excel To Manager My Accounts? No reason at all!  Any spreadsheet application can be the perfect tool for capturing and analysing: Budgets – to compare and contrast the planned outcome of your budget against the actual outcome, this is often done using multiple spreadsheets.  This is how you can pinpoint problem areas early and modify your budget accordingly. Cash Flows – this gives you the ability to monitor income and expenditure on a regular basis. You can also use spreadsh … Read More

via Helping Your Numbers Flourish

Summer Schedule for Small Business Seminars – My First Year In Business

My First Year in Business – A Financial Overview

Starting a business is an exciting time, establishing your financial records and bookkeeping system should be one of the first orders of business. You will need to establish a separate bank account, put together a filing system, decide how to Invoice your clients. These are all parts of your business strategy. Come to this seminar to learn the different financial statements your company will need.

Gain an understanding of the components and difference between the balance sheet, the income statement and understand what a cash flow statement is. Learn how daily business transactions affect your financial statements and review CRAs requirements for record keeping.


Time 3 hours, cost $25.

Presented by: Dianne Mueller, SOMA Small Business Solutions

Tuesday, June 22nd, 2010, 10:00am12:00pm

Wednesday, July 7th, 2010, 10:00am12:00pm

Thursday, August 5th, 2010, 10:00am12:00pm

Hire A Bookkeeper not a House Cleaner

Hire a bookkeeper who is not trained and you will have a real problem on your hands. I’m always surprised at small business owners that ask their receptionist to be the bookkeeper as well. It’s kind of like asking your house cleaner to clean up toxic waste. The house cleaner can clean up the spill however; how will she/he know how to go about doing it safely? How will they know who to notify and what equipment to use? How would she/he know how to determine how dangerous it is? What government or legal obligations they have to report the spill to? What if she/he just threw out the rags into the regular garbage, putting herself and everyone else at risk?

If they can’t tell you what equity is or how accounting systems use debits and credits in equal amounts to balance an entry, they don’t belong anywhere near your books.

Lots of people have used Quickbooks or Simply Accounting, but do they understand what they are doing in the program? Both of these software programs are user-friendly and can lead to a false sense of ability. A professional bookkeeper will be associated with a bookkeeping association. Such as The Institute of Professional Bookkeepers of Canada.

Check their references.

Does the bookkeeper have experience in your industry? Or are you willing to teach them? If the candidate for your job has 10 years experience in retail bookkeeping but has never touched a set of books for your type of business, be prepared that there will be a learning curve.

Dianne Mueller,CPB SACC

Soma Small Business Solutions