It's 9 am on a Tuesday.
You've finally sat down at your desk.
You already knew it was going to be a busy day
But things are about to get that much more hectic.
Your budget has been miscalculated, and you're 3 minutes away from realising that you've overspent.
Money makes the world go round - and now you're running low!
Yep, you're stuck.
Read More: Wikipedia on Accounting
By trying to cut the costs of the accountant, you've taken charge of running the numbers yourself.
And no, it hasn't turned out well.
The same thing happened to one of my clients.
As they were a start-up and trying to break into the busy fashion industry, they thought that they could save costs by cutting back on their accounting needs.
Having eaten into 2 months worth of budget within the first 5 weeks , they declared an official emergency:
They were in the midst of some serious cash chaos.
Well, they were until they emailed me...
I advised them on how to take care of their own accounting, and guided them to the top accountants that could support their business instead.
DIY might be effective at cutting costs, but accounting requires particular care.
If not, problems could crop up with a hefty price-tag!
That's why we always recommend hiring an accountant to take care of your finances.
But that's not to say you can't do it for your own business.
This article is going to take you on a whistle-stop tour of accounting for non-accountants:
- What are the basics of bookkeeping?
- How do you analyze financial statements?
- How do you manage budgets?
- How can you avoid fraud and embezzlement?
- Our top-rated accounting software
By the end of this article, you should know the ins-and-outs of accounting, and be ready to take on your own.
You could be fluent in techno-mumbo-jumbo.
You could run the numbers and keep up with them.
But before we get into the nitty-gritty, it's best that we first define what accounting actually is!
How else would you know what you were doing?
Accounting is the measurement, processing, and communication of financial information about economic entities, such as your business.
Staying financially viable is key for a successful business, and accounting monitors this!
In more specific terms, accountants can carry out a variety of vital tasks for your business.
So, if you're looking to take on the accountant role yourself, knowing how to tackle these tasks is key.
These tasks can include:
Bookkeeping for the business
Analyzing financial statements
Ensuring the business avoids fraud
Producing tax returns
Preparing financial reports
Assessing the business' cash balance
Assessing the stock situation
Explaining changes in performance
Determining the financial position of a business
Carrying out payroll
Read More: The Guardian On Bookkeeping
Take the client I mentioned - their budget was the problem.
By making sure they knew accurate accounting like the back of their hand, and were up to speed with managing their budget, I could be sure that they wouldn't encounter the same issue.
Alongside my awesome accounting advice (which you are about to be subjected to), I also found them a low-cost accountant who had experience with businesses just like theirs.
This meant that if they wanted to skip the maths and stick to what they knew, they could.
And you can do the same.
Accounting is clearly a complex role to take on - unless you have the necessary training, that is.
Outsourcing your financial management doesn't mean that you're admitting defeat:
It means that you're making the right decision for your business.
Let's wind back to the basics:
Both bookkeeping and financial reporting to the managers and investors are considered the core functions of accounting.
And it's bookkeeping which falls as the first task to consider.
Bookkeeping is the recording of all transactions, costs, and income. From this information, accounting is done.
Thus, attaining accurate information will mean your accounting won't start off on the wrong foot!
Bookkeeping starts with using credits and debits to record accounting transactions.
Double entry-bookkeeping is when ledger accounts are maintained for assets, liabilities, capital, revenue, and expenses.
Entries on the debit side of the ledger record are what comes into the business; entries on the credit side go out of the business.
For every transaction the total debit entries and total credit entries must be equal.
And this keeps this basic accounting equation in balance:
Assets = Liabilities + Equity
Assets are the economic resources a business owns; liabilities are your business' financial debts; owners' equity (or net worth) is the money invested by owners and the profit earned by the business.
So, that's your financial transactions recorded.
Accountants are known for many things:
One of these things is being seriously good at maths.
And another is producing financial statements.
If you want to take charge of accounting for your business, you're going to have to meet both of those standards!
Question is, what kind of financial statements do they have to produce and analyse?
And how do they analyse them?
This is a summary of a business' financial position at the end of the period.
The balance sheet is split up into 3 parts:
- Shareholders' equity
The balance sheet must balance with:
Assets - liabilities = shareholders' equity
The shareholders' equity value is considered the company book value'.
This statement determines the profit - or loss - for the period just ended.
This breaks down the revenue earned by a business against any expenses involved to either provide a net income profit or loss.
It can also be used to assess the efficiency of a business.
As it is split into 3 parts, it can be analysed in multiple ways:
1. Revenue and the direct costs associated with the revenue to identify the gross profit.
2. Operating profit can then be calculated by subtracting indirect expenses like marketing costs and depreciation.
3. Net profit is calculated by deducting interest and taxes.
By deducing the profit margin, you can see where the company costs are lower or higher throughout the operation.
Cash flow statement
This provides an overview of a company's cash flows.
It shows all the cash outflows that pay for a business' activities and investments, and all the cash inflows received from ongoing operations and external investments.
This statement demonstrates how a company is maintaining its cash position in order to fun itself and pay its debt obligations.
Each of these financial statements can evidently be used to evaluate the performance and value of your business.
Whether it's the profit margin, the shareholders' equity, or cash flow, each can provide insight into the financial management of your business.
Question is - could you cope with the calculations?
Could you find the time to assess and analyse each of these financial statements?
Let's face the facts: you've got a business to run.
And each of these financial statements take the knowledge, care and consideration that only a trained professional should take on.
So, why not swap the calculator for your business plan, and get back to what you know you're good at?
Assessing your past finances is one key component of an accountants' 9-to-5.
But the other popular activity is that of managing the future finances.
Yep - it's time to talk budgets.
Here's the official definition:
A budget is a formal statement of a business' future income and expenses.
Whilst it appears the simplest concept to grasp, managing it yet again involves a series of complex calculations that must be kept as accurate as possible.
So, to simplify the process, I've decided to layout every single step of managing a budget.
(You can thank me when you're even more successful!)
Determine revenue projections
Revenue projections should be based on historical performance and the projected growth income of your business.
My client wasn't just stressed about not being able to do their accounting
They were about to enter a popular season for their business, and were expecting a huge increase in sales.
I can barely do basic bookkeeping for my business
I have no idea how to handle a forecasted change in my revenue!
A couple of emails later and I had taken them through this list.
Hey presto - projections sorted!
Figure out fixed cost projections
This is an easy one.
Simply tap the calculator app on your phone, and add up costs that do not change.
This includes employee compensation costs, rent payments, and utility costs.
They are a minimal expense that needs to be funded.
Calculate variable cost projections
These are costs that fluctuate from month to month.
This can include overtime costs and supply costs.
Remember when I said my client had a forecasted boost in sales?
Well, alongside the projected increase in revenue was an increase in costs.
How else would my client pay for a greater amount of production?
Assess the annual goal expenses
You run a business, right?
That means you probably have a couple of goals.
It could be ranking on the first page of Google
It could be gaining 2,000 Instagram followers
Or it could be producing a certain type of product.
Regardless, if you have a goal, you need to project the costs for it.
Once you've come to your total, make sure this is accounted for in your budget.
If not, you'll be scraping the barrel for cash, and struggling to achieve it!
Tot up your target profit margin
Every business - even if you own a not-for-profit - should calculate their target profit margin and incorporate it into their budget.
Healthy profit margins indicate the strength of your business.
However, if you own a not-for-profit, the projected profits can be reinvested into the business.
So - your calculations have been completed.
And your budget has been budgeted.
Now go stick to it!
Fancy yourself an amateur accountant?
It's all well and good to keep a check on the money your business is making
But fraud and embezzlement can take away that money!
First, let's clarify the three types of fraud:
Financial Statement Fraud
Yep, it's super complex
Lucky for you, professional accountants specialise in complex.
In fact, some even specialise in fraud!
You've got 2 options:
1. Hire a top-notch accountant who can be sure that you're making money - and not losing it to criminal activity.
2. Learn the ins and outs of fraud prevention for non-accountants.
And guess what?
I've only gone and provided both these things!
Here are my top tips on preventing fraud and embezzlement in your business:
Have multiple employees carry out accounting duties
Are you in charge of accounting?
Then it's time to get a colleague to double-check your calculations.
Small businesses typically only have 1 accountant or person performing those duties.
This means that fraud often goes unnoticed!
When my client emailed me that evening, they cited the common fear of losing money to criminal activities.
In fact, they'd had an employee who'd swiped ||$||677||$|| from right under their nose only a few months ago!
I advised having 2 employees take the share of accounting to ensure a thorough job, and prevent theft again.
This is especially important as one employee who is taking care of accounting could be committing fraud and covering their tracks
The other employee can report that!
Scrutinise your business' bank accounts
Keeping up with your business' finances and whipping out a calculator now and then might be the simplified version of being an accountant
But keeping an eye on those bank accounts is key.
Opting for online banking options is now the golden rule for my client - paper-based statements can be easily manipulated and any fraudulent footprints covered.
Always look out for out-of-order checks, unknown payment recipients, and checks that were signed over to a third party and not deposited in a bank accountant.
I don't know about you, but I don't think I'd have time to do all this.
That's why my client - after 2 months of being an amateur accountant - decided to hand the reins over to a professional.
And they haven't looked back!
(Psst - we can find you one, too.)
Always audit your business' books regularly
Routine audits are always on an accountants to-do list.
And now, they should be on yours, too!
By checking your cash, refunds, product returns, inventory and accounting functions, you can be sure that you aren't any losing money to fraud.
Like I said: my client was keen to make sure fraud wouldn't strike their business yet again.
That's why I suggested a weekly audit.
Nothing was gonna' get past them. Not a single penny.
Just be an awesome accountant! (Or hire one, instead...)
Don't want to risk your precious profit to a fraudulent thief?
Here's the easy answer: be a good accountant!
Harder than it sounds, isn't it?
Then it's time to hand it over to an expert.
Accountants have the experience and expertise to fine tune your cash flow, and leave you to what you do best!
The good news doesn't stop there, however:
We actually can find you an accountant!
Maths is hard. Like, really hard.
I can just about use a calculator, and on a good day I can find an average in Excel.
Lucky for us non-accountants, the internet exists.
And it's all because some awesome accounting experts have created software that can do the hard stuff for us.
This software can make managing your accounts super-easy, and ensure that the accounts are super-easy for your accountant.
I matched my client's small fashion business up to accounting software that complemented their business needs.
And that's what I'm going to do for you right now!
Reviewers loved the ease of use, and simple options, such as easy budgets.
It might be the low-cost option, but users complained about the limitations of the software. You can send out a maximum of five invoices, and enter five bills, for example.
Reviewers mentioned the great customer service on offer, and the very knowledgeable customer support agents.
However, its range of basic features wasn't the most popular component of the software, and the better features are expensive!
Reviewers loved how easy it was to use and raved about the great customer service support on offer - this is key for amateur accountants!
However, FreshBooks is considered an expensive accounting service compared to the other software on offer.
There's 3 packages on offer, with the respective prices of each ranging from ||$||12.82||$|| - ||$||35.24||$||.
There's 2 packages on offer, with the respective prices of each ranging from ||$||8.97||$|| - ||$||14.10||$||
There's 3 packages on offer, with the respective prices of each ranging from ||$||14.60||$|| - ||$||56.37||$||.
Xero's accounting features can show you cash flows, transactions and account details. Personal expenses can also be managed from any app. It integrates with other systems like ADP or Bill.com.
This is considered the leading accounting software for small businesses. Plus, it has a built-in lending platform alongside a bookkeeping feature which allows you to outsource bookkeeping.
It's simple interface is brimming with features like invoicing and expense tracking. It even integrates with other services like MailChimp and PayPal, making this an easy and effective service.
Let's recap - by now you know how to take on accounting for your business.
And you should even know the software to support your new found accountancy role in the office!
But chances are you also know that accounting requires the time, care and consideration that you should be channeling into your business.
Not sure if accounting for your business is for you?
Then why not hand it over to the experts?
We can find you a low-cost, high-quality accountant who can take the reins of your finances.
And all you have to do is fill out a form!
(Beats trying to find fraud in your accounts...)