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Where did my Profit go?

Posted on November 5, 2014 at 1:44 AM Comments comments (29)
  -Understanding the Myth of Profits.

  As a Business Owner, Have you ever wondered why you cannot seem to get hold of your profit? Most Business Owners ask the question....." I see that I made a Net Profit of $XXX, but where is it? ".We have been looking at the topic of profit making, and this topic is a great mystery in Businesses.
  We agree that making Profit is a good thing and a negative profit (Loss) is not a good one; however, the mind game begins when there is profit, but no money in the Checking account. Do you also wonder why you don't go out of Business, when your Profit & Loss Statement keeps showing a negative profit (Loss)?
  The Answer is simple: PROFIT IS NOT CASH.

  The most important fact to remember about Profit is that, Profit has no connection to how much Cash is in the bank. A Profit and Loss Statement shows the movement of transactions, which occur in your Business for any given period (monthly), and the total net effect of these transactions constitute the balance that you see on your reports.
   An Example is when you enter a Business transaction, and an invoice amount of $3,000 is created in your Books, your Profit and Loss Statement shows the Sale and Resulting Net Profit, but there is NO CASH, until the invoice is paid; this money remains in your Account, only for a period of time, because when you pay your vendors or make your Bill Payments/Loan Payments, the money is being used up.
  Let's take a Loan Payment as another example; Most Business Owners forget that only the interest portion of a Loan Payment appears on a Profit & Loss Statement, while the Principal portion of the transaction occurs on the Balance Sheet. In this case, another portion of profit has been used to pay the principal.

  In conclusion, It's not Magic...........It's just having a basic understanding of how transactions occur in your Business and its effect on your Profit & Loss Statement, as well as your Balance Sheet. The Ultimate Goal is to make better financial decisions. However, take Note, You can be profitable and still be broke (Did I hear someone scream?). Turning Profit into Cash is the secret to managing your Net Profit Balances.

   Our Next Newsletter will feature, how you can turn your Profits into Cash; if you need help with understanding your financial reports, why don't you give us a call? We would be glad to help you. 

 




Setting up the Right Accounting System for your Business.

Posted on September 5, 2014 at 12:50 AM Comments comments (7)

Setting up the Right Accounting System for your Business.
  
Every Business needs a good Business Accounting System to increase their Business' chance for success. When Starting a Business, the first focus should be on building systems and processes, that allow us to accurately capture as much data as possible, from the setup process; It is important to remember that this process helps us to learn about our businesses and enhances our decision making, as well as giving us a better idea, of what is going on in our Business.

This Month, we will be looking at the processes of setting up the right business accounting system for our Organization. Below are some points to consider, when setting up your Business Accounting System:

  • Maintain Separate Books: When Starting a Business, the first thing to do, is to set up a Separate Bank Account for your Business, as well as a Business Debit/Credit Card. This helps to properly distinguish your personal expenses from your Business expenses, and enhances accurate tax deductions during tax periods. In addition, IRS Auditors are always quick to disallow expenses, when your Business Expenses are mingled with personal expenses.  

  • Types of Business Entity: It is important to choose the right legal and tax entity for your Business. For Tax Purposes, Sole Proprietors use a 1040 Schedule C to report their activity, while other Business entities flow their profits into their individual tax return, through a Schedule K-1. The C-Corporations require separate tax returns, without a flow- through of the profits into the personal tax returns. Every Business Owner needs to think carefully about getting the right business entity, so that you will not have unpleasant surprises during tax periods.

  • Cash versus Accrual: These are the two approved methods of Accounting. The Cash Method is based on recording payments, immediately they are made, and revenues are recorded, when they are received. The Accrual Method is the method , whereby transactions are reported , when there is an established obligation. For a transaction to occur, this means that Income should be recognized before its receipt, and expenses are charged, before the Bill Payments. The Accrual Method of Accounting is actually the preferred method for most Businesses, especially for Tax Purposes.

  • Sub-Ledgers: Most Businesses recognize the need to organize their business transactions into accounting groups. These Groups use their own reporting system, known as " Sub-Ledgers", and they fall into these categories:

  1. Accounts Receivables - Money Others Owe You.
  2. Accounts Payables - Money, that you owe your Vendors
  3. Sales - Revenue & Money, that you receive
  4. Fixed Assets - Assets & Properties that your Business Owns.
  5. Inventory - Goods & Materials that your Business holds for the purpose of Resale.


  •   Bookkeeping Setup: Maintaining the Books is the most important part of your Business Account Setup, and is required by Law. Your Bookkeeping System incorporates all the above mentioned points, to create usable information, which enables you to see how your Business is doing and make wise decisions. There are various Bookkeeping Tools, to help you maintain your accounting records. Examples are Microsoft Excel, QuickBooks, Sage ,Xero; but the most preferred tool is QuickBooks, because it syncs with your Bank account and updates your records regularly, and this helps ,you stay on top of your account.
 
     You need to spend time in setting up the right Accounting system for your Business, if you want your Business, to be successful. We know that it is easy to get caught up in all the administrative tasks and will suggest that you ask for help
 
Do you have the right Accounting System for your Business? It's not too late to set up a good system for you, why don't you give us a Call to help you out.

Remember: You are increasing your Business chance for Success, when you make your Account Setup, a priority.

Tips for Managing Your Business Cash Flow.

Posted on August 5, 2014 at 2:49 AM Comments comments (26)

 It's already the eighth month of the Year, We are gradually getting to the end of the year, and soon it will be time for Year End Reports. In our last Newsletter, We discussed the concept of Cash Flow and how it affects our Business Operations; this month, we will be looking at tips to manage our Business Cash Flow.

  Being in Business for yourself is like being an Air traffic controller, especially in the area of cash flow management ; You can imagine trying to control 100 Airplanes landing simultaneously on two runways; this can be an upheaval task, but we regularly see clients line up their monthly bills, their projected income, business projects and business expenses and try to combine all these activities, at the same time, trying to ensure a steady cash flow into the business; you can imagine, the projected outcome, if all these activities are not properly coordinated.

  Cash Flow is the heartbeat of every Business, and if a Business does not have the cash on hand to pay their vendors, they will definitely run into problems. The main Cash Flow Problem, that Business Owners face is as a result of Lack of Creative Cash Management. Below are some Tips to overcome the Ups and Downs of Cash Flow Problems in your Businesses:

1) Always Schedule All Payments: Most Business Owners line up their monthly bills, compile them, sit down and issue all the checks and set up Bill Payments at once; but the trick is to have a " Holding Pattern". It is advisable to schedule each payment, in order to get to your vendors in a timely landing, without affecting other Cash Flow activities. 
  Every Business has Three (3) tiers of Checks Disbursements Groupings:        
a) Must Pay Group- These are payments that can hurt you, either in cost or ability to operate your business, if they are not paid. These include items like Taxes, Rents, Payroll and Service Charges.
b) Important to Pay Group - These are payments, that have a reasonable grace period, and if not paid, a financial penalty can be incurred, as a result of Nonpayment. These include Utility Bills , Credit Card Payments and Insurance Payments .
c) Flexible Payment Plan Group - Suppliers, Vendors and Wholesalers, that supply most Small Businesses are the best sources of flexible credit financing. Most of them will continue to work with you, if you arrange a regular payment plan with them.

  • Tip #1: Try to schedule Payment Dates, into the Three (3) tiers of Checks Disbursements groupings and issue check/Bill payments accordingly.

2)  Make Payments on your Revenue, not on uncollected Sales : I am sure, that none of us will want to land a plane, hoping that the runway is beneath us in the fog bank, as also Business owners, it is not advisable to make projected payments on uncollected revenue. You may wander, what happens to Credit Facilities, Guess What, Most Credit Facilities still have a timeline for payment.

  • Tip #2: Always prepare your Cash Flow Statement and financial reports, and review them periodically, to have a full knowledge of your Cash Flow.

3)  Do not use Payroll Taxes to float your Business Operations: Studies have shown that most Business Owners use the Tax liabilities, collected during payroll, to float their businesses, rather than remitting the payments to the appropriate Tax Authorities. They don't realize that they spend more in potential penalties, fees , interests, time and aggravation, if they engage in this act. Tax Liabilities grow, if they are not remitted at the appropriate timing.

  •  Tip #3: Try to discipline yourself to deposit the payroll tax money collected, into a Separate Bank Account, until you are ready to remit the payments.

4)  Establish Relationships with your Credit Provider: It is very important for every business owner to plan for a rainy day. Having a great relationship with a vendor, that gives you a credit facility, avoids cash flow storms, which might bring in a sense of desperation or lack of control. 

  • Tip #4: If you work with a quality company, that provides working capital or credit facility, stick with them and build a relationship, once they know your credit worthiness, they will be there to help you quickly, in times of need.

 5)  Invest in a Good Bookkeeping/ Accounting Service: It is important for Business Owners to have a grasp of their cash flow and understand the effect on their business growth. A Good Bookkeeping service is invaluable to your business, particularly in preparing your monthly financial reports and cash flow statements, which will help you, see how your Business is doing as well as maintaining your Business Cash flow. 

  •  Tip #5: Rather than worry about how to prepare your company financials and your cash Flow Statements, as well as trying to figure out, the amount of Payroll taxes to pay; let the professionals handle it.

  Understanding and Managing Cash flow has been a challenge for many Business owners, but with the application of these tips, it is possible to grow your Business to a greater level , and also have enough funds for other activities, that will bring more revenue into your Business. 
 
  Please feel free to contact us on 202-422-4586, if you will need further help on how to manage your Business Cash flow and financial Reports. We will love to help you. Remember: The best time to take control of your Cash Flow is RIGHT NOW.

Understanding Your Cashflow

Posted on July 2, 2014 at 1:55 AM Comments comments (110)


 Welcome to the month of July. We are done with the first half of the year and started the countdown to the remaining half of the year.

Our Newsletter for this month is on an integral part of every business; an area that is generally misunderstood by most business owners, but interestingly plays an important role in every organization. Have you taken time to look at your Cash flow Statement? Can you tell where Funds are disbursed in your Business? Do you understand the effect of your Spendings? The art of struggling to understand and manage your cash flow can be a huge distraction to your business; in this series, we will be providing you with quick tips on the basic method of understanding your cash flow.

  Our Areas of Concentration will be on:

 - Definition of Cash Flow
 - Drivers of Cash Flow in a Business
 - Facts about Cash Flow
 - Quick Tips on Understanding your Cash flow and applying it to your Business.
 - Managing your Cash Flow effectively.

 What is Cash Flow?

 Cash Flowis the movement of money into or out of a business, project or financial product, and can be measured at any specified period of time.

  The Following are the drivers of Cash flow in a Business:

  • Accounts Receivables (These are money owed to a Business by its customer, as a result of services provided or goods sold).
  • Inventory.
  • Accounts Payables (These are Vendor Payments, owed to vendors, for goods bought/services received on credit).
  • Capital Expenditures(Purchase of Equipments)
  • Borrowings/Debt Servicing.

  It is worthy to note that your Cash Flow originates from 3 Basic Operations:

 a) Cash Flow from Operations

 b) Cash Flow from Investing

 c) Cash flow from Financing

  Most Business Owners have problems with Understanding their Cash Flow because of the following facts: 

 a) A Profit or Loss in a Business does not equal Cash Flow.

 b) An Increase in Cash in your Business is not always good.

 c) A Decrease in Cash is not always bad. 

  Many Business Owners have problems understanding and interpreting their Cash flow, because of the technicalities involved; but I want to challenge you today, to take the simple test below, write down your answers and put it into practice, and watch your business grow; I bet you will be so thankful for this enlightenment:

  •   Focus on the TOP 3 changes in your Cash for the Month.
  •   Decide whether each change is good or bad.
  •   Write one line description of each change and look at the effect, it has on your Business.
  •   Once you are able to prove the effect of the change in your Business, hold on to the result and use it as a base, in your Decision making.

    By doing this exercise periodically, you will have a better grasp of your cash flow, and see its effect on your Business growth.  I will like you to try this exercise and forward your feedbacks. In my next article, I will be giving you tips on how to effectively manage your Cash flow in your Business.

    Please feel free to contact us, if you will need further help in understanding your Cash flow and producing your Cash Flow Report. We will love to help you.

   Remember: The best time to take control of your Cash Flow is RIGHT NOW.

   

 



 
 


 

 

It's Tax Preparation Time!!!

Posted on January 29, 2014 at 2:05 AM Comments comments (2)
  Wow, Where did the month go? First it was HAPPY NEW YEAR, and now it's almost the end of January 2014.Now,that the Holiday Season is far behind us, the month of January provides a welcome breather for busy schedules, but hold on, before you spend all your free time sprawling on your sofa, it's time to take a jump start on filing your taxes.

This is the time to gather your W2s, 1099s, Other Earned Income Statements, Contribution Statements, Receipts, Bank Statements and other important documentation, so even though the IRS states that Tax Filing will begin on January 31st 2014, because it needs extra time to ensure that the systems are in place and working properly, We still need to get ready and prepare ourselves.

   We want to give you some tips on what to look out for as you get ready to file your taxes. We all know, that there are some New Tax Filing changes:

  • Look for Every Possible Deduction: Some of the most commonly overlooked ones are charitable contributions, Student Loan Interest, Job Hunting Costs and State Taxes Paid last year.
                   -  It is worthy to note that many credits and deductions for Education were extended for 2013 returns, among which is the American Opportunity Credit, which is up to $2,500.

                  -  The Personal Exemption is $3,900; Standard Deduction is $12,200 for Married Tax Payers filing jointly, $6,100 for Singles and $8,950 for Heads of Households.

                  -  Tax Payers will still be able to deduct their medical expenses, but it will be more difficult for many to qualify. The threshold for deducting Medical Expenses now stands at 10% of adjusted Gross Income, which is up from 7.5 percent.

                  - Among the other changes, Tax Payers who work at home will now have a simplified option for taking a Home Office Deduction. Starting with 2013 returns, if you are eligible for this deduction, you can take a Standard Deduction of $5 per Square foot, up to 300 Square Feet. The Maximum Deduction using this method is $1,500.

                   - The Deduction for Business Use of a Car has also been simplified; you can use your actual costs or the IRS mileage rates. The standard mileage rate for Business Use of a Car in 2013 is 56.5 cents a mile, up from 55.5 cents.

                  - If you made Energy Efficiency improvements to your Home, such as Installing New Windows or a Qualifying Furnace or Heat Pump, you might be able to take an energy credit of 10% of the cost up to a lifetime maximum of $500,hence of the total, the IRS states "Only $200 can be for Windows,$50 for any Advanced Air Circulating Fan,$150 for any Qualified Natural Gas, Propane or Oil Furnace or $300 for any Item of Energy Efficient Building Property.

  •    Rapid Refunds: If you expect a Refund, the earlier you file, the earlier you will typically receive it. Using the refund to pay off interest-bearing debt is even more of a Plus.

  •   Planning Ahead: For those who owe taxes, earlier filing means more time to budget and set aside what will be due. Even if you file early, you still have until April 15th to submit your Payment.

  •    Double Check: If you prepare your own return, Completing it before the Deadline provides ample time to check and double-check your work to ensure that everything is correct before you file.

  •    Ensure that your Social Security/ Numbers/Individual Taxpayer Identification Numbers (ITIN) are entered correctly and the returns are signed. Those who feel that they need more time can apply for extension, until October 15th, but if you do file for an extension, remember to estimate and Pay any Taxes Due or you will face possible Penalty.

             We hope that these tips will guide and help you in your Tax preparations, Do you Need Help in checking your Reports and ensuring that everything is entered correctly and adequately reconciled? Do you Need Help in getting your Charitable Contributions ready? Do you Need Help in ensuring that all your Receipts and Invoices are correctly accounted for into your system, Remember that the more accurate your transactions are, the more deductions you can claim and invariably, the more accurate your Tax Returns will be.

         Why Don't you give us a call on 202.422.4586 or Email Us, to see how we can further assist you. We would love to hear from you.       
                 
      
                  

Why Use Quick Books Accounting Software?

Posted on May 8, 2013 at 2:30 AM Comments comments (21)
  
It is important for every business owner to have an effective accounting system in place, so that they can increase their efficiency and manage their finances effectively. When a client comes to us in need of Bookkeeping /Accounting Services, it is noticed that most of the time,many of the business owners do not have an accounting system in place and this puts their businesses and finance in a great mess.
 
An  accounting System is the basis of a good business and goes a long way, in showing how the business can handle its profits,manage its expenses, handle its payroll and invariably increase its net worth. We always advise our clients, to get QuickBooks, to handle their accounting/bookkeeping records.
 
QuickBooks is a set of accounting software solution that is designed to manage payroll, inventory, sales,purchases, invoices, receipts and other needs of a small business. It is usually tailored to meet the needs of every different industries and business types. We always encourage our Clients to use Quick Books and if they cannot afford it; we can set up their company QuickBooks file on our system, and prepare their reports and send in electronic files to them, to view, their company financial position.
 
We will go ahead to list a few reasons,why you should use QuickBooks for your Business Accounting Software:
 
  • QuickBooks can be customized to work, whichever way, you desire. It is specifically designed to be flexible and adaptable to a wide range of businesses. In addition,Quick Books have customized accounting packages for all industry typesincluding the ones for Contractors, Retailers, Health Care Professionals, Non-Profit Organizations, Real Estate Industries and several others.
 
               We also advise our clients on the suitable type of QuickBooks to use for their business and invariably help them in setting up the Software,to suit their Business type.
 
  •   QuickBooks has been proven to be stable, reliable and consistent with using the best accounting practices, to produce financial statements, which most companies use to make business decisions that will move their companies forward. With Quick Books,you can make forecasts and budget projections, which are necessary tools if you want to move your business forward. You can contact us for more details regarding these business tools, and how to use it to work for your Business.
 
 
  •         You can grow your business with QuickBooks. QuickBooks will help you design a business plan to use while trying to secure a small business loan or line of credit, and also planning for the future. This software can create a projected Balance Sheet,Profit & Loss Statement and statement of cash flows in the formatrecommended by the U.S. Small Business Administration.
 
 
  •      The Use of QuickBooks can save you time on Bookkeeping and paperwork, because many of the simple Bookkeeping tasks are handled automatically in QuickBooks, thereby making it easier to run your business effortlessly. We have seen clients that tried doing their Bookkeeping on Microsoft Excel, and gone through so many headaches,to clear or balance an account item,after spending long hours without any solution; With QuickBooks, you do not have to exert as much effort and you are sure of getting immediate results and a reconciled account, which shows up immediately.
 
 
  •     You can create your Company Invoices with QuickBooks, as well as your receipts, and send them via email to your customers, rather than using a Microsoft template,that you always have to edit, which may lead to several errors and repetitions.With QuickBooks, once you create an invoice, it is synchronized with your accounting system.
 
  •       QuickBooks enables you to view your Accounts Payable(Vendors) and your Accounts Receivables (customers) without stress, and this will give you a clearer picture of how to handle your vendors and customers effectively.
 
  •        With QuickBooks, you can easily generate reports you need information on, so that you will always know where your business stands. As a business owner, you need to know whether you are making money or not, or whether your business is healthy or profitable. If you need to know further on how to use QuickBooks to perform this function, we are always available to train you, and show you the multiple ways, that you can generate over 100 reports on QuickBooks, which will invariably move your business forward.
 
 
  •       Every Business owner wants to get paid for their services and will also need a faster means of payments to improve the company cash flow; With QuickBooks Online Payments,you can e-mail an invoice or statement, through which your customer can easily pay you with a credit card or bank account transfer. This is really a great feature,because you do not have to wait for the check in the mail anymore.
 
  •      QuickBooks encourages paying your bills online, by setting up your current bank account on QuickBooks; you are ready to pay your bills without licking any envelopes or printing paper checks. You can even pay anyone from your credit card companies to your pizza service. In addition, the Online Banking feature lets you download your monthly statement from your participating bank directly into QuickBooks for easier reconciliation.
 
  •     Do you know that you can set up your liability accounts like Loans, Notes Payables,Credit Cards and Line of Credits on QuickBooks? Once this is done, you will be able to know your monthly balances, and see your principal and interest payments every month; doing this takes off so much stress than having to wait for the statements from your Bank ,or paying the extra charges, that will be required,in the event that you loose any of the statements.
 
  •        Payroll can be done via QuickBooks, this saves our client a lot of stress and money, because it will eliminate your dependence on payroll companies to prepare your payroll; and you get to see the number of hours, that your employees have worked in total for each pay period, in addition to the net amount that they are due,after tax liabilities. You are also in control of your Company Tax liabilities and payments.
 
 These are just a few of the reasons for using QuickBooks Accounting Software for your Bookkeeping services; we have found out that most business owners always underutilize a lot of the QuickBooks features, either because of ignorance or lack of training.
 
You can always contact us to train you on how to best utilize your QuickBooks Software.We offer various QuickBooks services at very affordable rates. Our  QuickBooks Services include:
 
-         QuickBooks Setup
 
-         QuickBooks Personalized & Group Training
 
-         QuickBooks Supervision/Review
 
-         QuickBooks Support
 
-         QuickBooks Tune Up
 
-         QuickBooks Cleanup
 
-         And many more
 
          It is always important to make the best use of your QuickBooks software in order to get the best financial reports for your business. Using QuickBooks Accounting Software is a smart and affordable way to get a handle on your books. Accurate records enhance educated decisions for your business and will save you money.
 
WHY DON’T YOU CALL US TODAY ON 202-422-4586 to schedule an appointment; so that we can show you the best way to use your QuickBooks Software, and if you do not have one, DON’T WORRY, We can always purchase one for you or set up your QuickBooks Company file on our system and send you regular reports, so that you can manage your business effectively and make great business decisions.
 
Please also feel free to fill out our contact form, so that we can get in touch with you to respond to your needs. We will love to help you.