Do receipts, invoices, and credit card bills take up space on your desk and in your mind?

There is a way to organize your business finances. By creating a simple, yet functional way to organize your business you will find it easy to sleep at night and increase your creative flow.

1. Purchase Accounting Software –You will want to talk to a consultant that can perform a needs based analysis on your business and help you purchase the right software for your needs. An accounting software consultant will be able to advise you on the ability to upgrade when your business is ready for a more robust system.  They will also provide training in the software to get you up and running quickly. Soma recommends Sage Simply Accounting ™. You can even download your banking information directly into the software, a real time saver. Begin tracking sales and expenses from the beginning of your business, don’t let it get behind! If you do not want to do the bookkeeping, hire a Professional Bookkeeper www.ipbc.ca right away and be sure to check their credentials.

2. File your paperwork -.  Keep all original receipts, credit card statements and bank statements along with sales tax remittances and payroll deduction remittances for seven years. Consider purchasing a scanner. They come with software that allows you to sort the receipts into categories and store them electronically. You will never have to dig thru paper files again.

3. Close each year – At the end of each year, reconcile all your accounts, print/scan your annual Financial Statements, and close out your year. Don’t forget to back up your accounting data files.  Give your accountant a copy of your accounting software file to prepare your income tax return.

4. Run Reports Regularly – Tracking your profits and losses using the right tool will help you analyze your financials monthly. At the end of each month, run an Income Statement and a Balance Sheet (collectively known as Financial Statements). The reports from the software will provide the guidance and tools need to move your business forward to the next level.

Nightee Night

Dianne Mueller CPB – Certified Professional Bookkeeper

Soma Small Business Solutions

www.simplysoma.com

Some small business owners just starting out believe that bookkeeping is a matter of just watching their checkbook. As long as nothing bounces, their business is doing alright! However, more and more small business owners are realizing the importance of understanding the critical role bookkeeping plays in the success of their business. Good books are needed to make successful and profitable decisions. So, whether you want to or not, it is important that you learn some of the basics to help you make those important business decisions.

The more you learn the more you will understand about your business’ finances. Fortunately, once you get the basics down and are comfortable with reading and understanding your financial statements there really isn’t any need to learn in-depth ratios or extremely difficult reports.

Basic Bookkeeping Terms:

Assets are simply what your business owns (i.e. checking account balances, cash, accounts receivables, inventory, furniture, fixtures, equipment, vehicles, buildings, land, goodwill, etc…). They contribute directly or indirectly to future net cash flows.

Liabilities are what your company owes others. Financial obligations represented by transactions that have aleady occurred. Payroll taxes withheld from employees paycheques and HST liabilities are both typical financial obligations to Canada Revenue Agency. Accounts payable (Trades or supplies that have given you terms), loans, credit card balances, etc). Revenues collected in advance ( a deposit) is also a financial obligation your company has until the goods or services have been supplied to your customer.

Equity represent the investment portion and equity from the company’s owners, partners or shareholders. Equity accounts vary depending on the type of legal entity. For example, a corporation’s equity accounts may include common stock, preferred stock, treasury stock, additional paid-in capital, and retained earnings. A partnership’s equity accounts, however, may consist only of partners’ capital.

Income is what the business sells. This could be products, or services. It is generally referred to as revenue.

Cost of Goods Sold is used to track how much a particular product or service costs you to buy or manufacture for re-sale, and what type of margins the business is making.

Expenses are accounts that are used for administrative and overhead costs (i.e. telephone, rent, payroll, travel, etc…).

Net Income, or Net Profit, is not an account, but rather an amount that comes from subtracting your expenses and cost of goods sold from your sales/income. “In the black” means you made some profit or negative “In the red” means your expenses were more than your sales.

The Assets, Liabilities and Equity accounts are found on the Balance Sheet. The Sales and Expenses accounts are found on the Income Statement or sometimes called the Profit and Loss Statement.

Financial Statements are the life blood of any business and should be used to guide your business growth.

Dianne Mueller, CPB