Accounting and cash flow

If you're going to be in business, you must know how to keep score. To gain this knowledge will require that you go to school to learn both accounting and computer software that is used to support your particular business. With this knowledge, you can talk intelligently about your accounting needs with employees, bankers, and your own accountant.

The financial matters you will confront in your own business are little different than those of large corporations. Financial tools, coupled with an understanding of how to use them, will assist you in the proper management of your business. Without this understanding and without a dedicated commitment to using financial tools, you reduce your chances of success.

• Your business will be judged by the classic financial measures: the balance sheet, the profit and loss statement, and the cash flow statement. These three measurements will define the financial health of your company. In this session you will learn how:
• The balance sheet tells how much the business is worth.
• The profit and loss statement tells if your business is profitable or not.
• The cash flow statement predicts your cash balances into the future.

As a business owner, you need to feel comfortable with the values portrayed by each measurement. Understanding these three measurements will whet your appetite to learn more, which in turn will lead to your strategic use of credit and ability to make choices tying operational activities to the best use of funds. They will help you make better decisions.

You will also need to gain knowledge of accounting in order to evaluate your competitors or businesses you might wish to acquire (or be acquired by). While information about companies may be obtained from stock brokers or interviews with key executives, the best source to learn about your most successful and publicly owned competitors is to read their annual reports. You will need to understand accounting to draw intelligent conclusions. Accounting courses at your local community college will give you most of what you need to know.

You should consult an accountant before you start. This could be a Certified Public Accountant (CPA) who is a sole practitioner or a large accounting firm that can offer expertise in many areas (and whose fees tend to be higher). Another type of accountant is an "Enrolled Agent" (EA). EAs must pass a taxation test administered by the Internal Revenue Service.

You will need to decide how your accountant will prepare your annual financial statement.There are several levels of audit to select from.

At present, there are no national certification standards for bookkeepers like there are for CPAs or EAs. So, it may be best to look for referrals when selecting a bookkeeper. Many CPAs and EAs will refer you to people they have confidence in to help you with your accounting needs. Bookkeepers range from those who only pay bills or process receipts to "full charge" bookkeepers who can summarize bookkeeping activity for your CPA or EA to prepare tax returns.

On the other hand, if you want someone to advise you on business organization and prepare income and payroll tax returns, you will probably want a CPA or EA to help you. The more "routine" bookkeeping you know and do yourself, the better it is, because you can then afford a higher level of expertise.

You will need to determine what accounting software program will work best for your business and your accountant can help decide this.

Payroll accounting and reporting is increasingly complex. If you will have employees, look up the "Payroll Accounting Service" providers in your area. Your accountant may have a recommendation. This complicated function can be outsourced at a reasonable cost.

Ways that your accountant can help in dealing with your banker:
Sooner or later, you will need financing in addition to your start-up sources. It is important to establish banking relations BEFORE future needs arise. Your accountant can help you:

• Prepare cash flow control statements that will estimate what the cash needs of the business will be in months to come.
• Prepare a personal financial statement, including a balance sheet of your personal assets and liabilities along with a statement of income and expenses showing how much cash flow you generate each month. Banks will usually require a personal guarantee.
• Locate a banker. This can be helpful because the banker has had prior dealings with the accountant.
• Polish your business plan for your banker.
• Organize as much information as possible including financial statements in a neat and orderly fashion.

Methods of Accounting
Before you start, you will need to decide what form of accounting your business will use. There are two major types:

• Cash Basis Method: This is what the name implies; you recognize income when you receive the cash and you recognize expense when you pay the bill. Most service businesses operate on the cash basis because it is much simpler to understand.
• Accrual Method: Here you match revenue with expense regardless when the cash may or may not be collected. If you sell a product to a customer and he doesn't pay you for 30 days, the sale is recorded in the books on the day that you made the sale. When the money comes in the "accounts receivable" is then turned into cash. The same with expenses: if you incur an expense on one month but don't pay until the next month, the expense will be recognized in the month in which you incurred the expense. If you're in manufacturing or deal with inventory, the Internal Revenue Service generally requires that you be on the accrual basis.

Keeping Separate Business Records
Even in a small business you should, before you start, set up a business account even if you're a sole proprietor. It will be important to keep your business records separate from your personal records. This will make it easier for you and your accountant to pull records together for income taxes when the time comes. Your accountant can help you prepare and set up your company accounts, including establishing your checking accounts and or savings account for operating your business.

Tax Liability Issues
There will be a number of tax liability matters that you and your accountant will need to deal with:

• Income Taxes. If you start as a sole proprietor you will be reporting your business activity on a schedule that is attached to your IRS form 1040, called Schedule C. Not only will the sole proprietor pay income tax on business income, but the sole proprietor will also pay social security tax on this income. This is reported as a separate item on the income tax return. The social security tax can be quite a surprise for the new small businessperson who does not expect to pay roughly 15% of net income for social security tax on top of the income tax. Operating as a partnership or LLC does not relieve a partner of the obligation of paying self-employment tax. Your accountant can help set up estimated tax payments that will lessen the burden of your final tax bills as well as avoid penalties for not paying taxes as you go along.
• Payroll Taxes. If you have employees, your accountant can help you apply for necessary state and federal payroll numbers that you will need to file payroll tax returns. The federal number is called a "federal employer identification number" or FEIN, and these are obtained by form SS-4. Also, in every state there are local and state taxes that are required. For instance, in California you need to apply for a state identification number that will establish an account for you to pay the state withholding tax that you withhold from employees and the state disability insurance monies withheld. There is also a state unemployment tax that you pay. There may be other taxes that may be unique to your local situation.

Financial and Technical Assistance
Many times, there are sources of financing and technical assistance available to start-up businesses that are given by various organizations and agencies that wish to spur the development of small business. Your accountant may or may not be familiar with these sources, but this might be a question you would pose to a prospective accountant before you hire him or her. Financial and technical assistance may be available from:

• The Small Business Administration (SBA)
• SBA-guaranteed loans to businesses, handled through banks
• Local community banks, funded by the federal government
• Tax incentives available for hiring minority employees
• Trade organizations
• Service Corps of Retired Executives (SCORE), which is a nonprofit organization whose goal is to help small businesses become successful. SCORE offers workshops and seminars on various business topics and may give you the opportunity to talk to someone who has been down the same road before. Internal Controls
  "Internal controls" refers to what is needed in the handling of funds, where money in the form of cash, checks or credit cards, is exchanged for goods and services. The goal is to make sure that the business receives all of its income without any of it being siphoned off by waste, fraud, dishonest employees or just through carelessness. Even a business that is healthy in all other respects can be very vulnerable to failing from the inside through lack of internal controls. Your accountant can help set up appropriate controls for your particular business.

If you are in a manufacturing or retail business you will need to set up inventory policies and controls because inventory, similar to cash, can disappear very rapidly through carelessness or employee dishonesty. You need to have safeguards in place very early on in the process by setting up controls as to who can sign for goods and services and who controls the release of goods and services out the door after the processing has been completed.

Quarterly Returns
Quarterly returns are primarily payroll tax returns and sales tax returns. Start-up businesses need to file quarterly payroll tax returns and send the money that has been withheld from the employee's check as well as the employer's share of social security taxes to the federal government. Likewise, state income taxes that are withheld and state unemployment tax that the employers pay to the state must be accounted for. These are matters you need to get right from the beginning, so that these taxes are paid in the appropriate time frame and you're not penalized for late payment or non-payment of your tax obligations.

It is a common occurrence for start-ups to be short of cash. And it is very tempting to hold off paying certain obligations to conserve cash. Yet, you should not fall into that trap with your government obligations because governmental agencies have little patience with delinquent taxpayers.

Similarly, the sales tax money that you collect, in states that charge sales tax, needs to be forwarded to the state, either on a monthly or quarterly basis depending on the volume of your sales. Quarterly reports will be required to show how much you have collected and that you have submitted this money to the state in a timely manner.

Bank Account Reconciliation
We suggested earlier that you set up separate business accounts to make it easier to track expenses and business income. This bank account needs to be reconciled at least once a month when you receive your bank statement. You can save money by learning to do this yourself, and your accountant can teach you if you don't know how.

Reconciliation refers to taking the balance in your checkbook and reconciling or mathematically comparing it to the bank balance. You must also take into account any difference in those two balances that are due to checks that you have written that have not yet cleared the bank. If this is the case, your checkbook balance will be lower than the bank statement because the bank has not yet seen some of the checks you have written. So it is important that these outstanding checks get subtracted from the bank balance and the resulting number be compared to the number in your checkbook. When the two match, we say the account has been reconciled.

Employee Benefits Policy
As you add employees to your business, you will need to decide

• How many hours people will work.
• What holidays they are entitled to.
• What your vacation policy might be.
• If you elect to cover employee medical expenses or provide medical insurance, you will need to give some thought to what type of policies you will provide. This might be an HMO, PPO, or pick your own doctor policy.
• What sick leave policy to offer. Will you pay employees when they are sick or will this time be considered unpaid time off? Be sure to refer to the Fair Labor Standards Act when making this determination. There are different requirements for hourly vs. salaried employees.

There are a number of sources to give you some help in deciding these issues:

• Start with your accountant and lawyer.
• Your own experience in your particular industry will help determine your policy. What has worked for similar companies in the past is very likely a good way to consider going with your own company so you are competitive with other firms in your industry.
• Organizations such as SCORE can be helpful in determining policies and procedures.

Поиск по сайту: