Think accounting's a chore? Think again.
The thrills, chills, and spills of running today's small business.
If you view accounting with the same enthusiasm you normally reserve for trips to the dentist, you're not alone. Many business owners see accounting as merely a way to satisfy the needs of regulators or bankers—a hassle that takes them away from their real business.
But it doesn't have to be that way. Done properly, accounting can be fulfilling, and even exciting. It can help you navigate the roller coaster ride of running a business and weather the thrills, chills, and spills that make up a typical business day.
All aboard: Keeping an eye on cash
Many new business owners start out with a focus on cash. You start out slowly with one or two customers and then continue to grow. If you sell goods, you sell everything for cash and you spend what you have to buy more inventory. If you sell services, you might invoice clients by email or on Word documents and trust they'll remember to pay you. You rely on your chequebook or online bank balance for the information you need to run your business day to day.
That works great—for a while. But what happens when it's time to change suppliers, add a product or service, buy equipment, or hire employees? At that point, cash balances are not enough. You need to know what's around the next bend. You start asking questions like "who owes me?" and "how much do I owe my vendors and suppliers?
Thrill: I have lots of cash in the bank!
Chill: But I owe twice that amount for rent and electricity tomorrow.
Spill I guess I should have a better handle on my cash requirements.
That's where an automated accounting system can help.
By keeping track of when and where your money is going, an automated system can help you identify customer payment trends, display daily, weekly, and monthly cash needs, and make sure you can take advantage of any early payment discounts offered by your suppliers.
The right system takes the mystery out of managing cash so you are free to concentrate on generating more of it.
Climbing the first hill: Customers, suppliers, and inventory
Once cash is under control, your focus shifts to the real heart of the business—customers, suppliers, and products or services. At this point, you have probably begun to buy and sell items on account and you need to be able to take advantage of bulk purchase and early payment discounts.
Customers are your most important asset. In addition to recording customer sales, you need a way to manage your customer list, establish credit terms, and make sure you get paid.
Thrill: I have all of this money due from my customers!
Chill: But I hope they pay me soon.
Spill Why did I give this customer such a good price when it takes him so long to pay me?
An automated accounts receivable solution can help you keep track of your sales and your customers.
You can generate reports showing who owes what and when it is due. You can review payment history and set credit limits so that slow-paying customers can't keep buying products or services. And you can store billing and shipping addresses. The right system can help you focus your time and energy on serving your best customers.
Suppliers and Inventory
To stay in business, you need products or services to sell. If you sell products, you have to find suppliers and you have to accumulate inventory. That means you need to negotiate supplier discounts, keep track of invoice due dates, and make payments to vendors. At the same time, you have to keep track of product reorder lead times, quantities of goods on hand, and slow moving items.
Thrill: I have all of this product to sell!
Chill: Do I have the right products for sale?
Spill Why do I have 50 of the wrong color items on hand?
Now you can turn to that same automated solution for help managing accounts payable
You can analyze purchases by supplier to negotiate discounts and review your product mix to see which items are moving quickly and which ones are languishing on the shelf. You can use reports to keep your inventory replenished and to review profitability by item. At any time, you can correct your item mix before you get off track. The right automated system can help ensure that you are buying the right items, in the right quantities and at the best possible price.
Burst of speed: Employees
As your business grows, you may start to add employees—which can add a new layer of complexity to your business. Not only do you need to pay and withhold the correct amounts from their paycheques, you also have to track, report, and remit funds to federal and provincial authorities.
Thrill: I got all of my employees paid!
Chill: Good grief, now I have to file a bunch of tax returns.
Spill How did I miss that tax deposit deadline?
Once again look to your automated solution for help managing all aspects of payroll.
The system can help you track hours, dollars, and all appropriate withholdings, print paycheques, and generate reports. And it should automatically calculate remittance amounts for quick payment so you can stop worrying about deposit deadlines. With the right software, you can keep your employees happy while keeping the authorities off your back.
Speed bump: Compliance
Every business has to comply with a myriad of rules and regulations. Few business owners enjoy the hassle of dealing with federal and provincial taxes but the July change to the Harmonized Sales Tax (HST) in certain provinces threatens to make compliance even more complicated.
Thrill: I sold a bunch of products to a new customer in B.C.!
Chill: I don't know how much tax to charge.
Spill I wonder how much penalty I will have to pay for not collecting the proper amount of tax?
Changes to tax rates, taxability rules, and filing requirements are a regular occurrence for most businesses. An automated solution is designed to store, track, and manage tax rates and rules. Well-designed systems also support updates that can bring your system into compliance with very little pain. With the right solution, you can easily respond to changes in rules and rates and reduce your risk of penalties.
Rounding the bend: Reporting results
Once you have your transactions and compliance under control, you are ready to focus on your results. You want to know if you made a profit and if you charged enough to cover your rent and utilities. That's when you need a financial statement.
Thrill: I ended the year with positive net income!
Chill: Why are some of these expenses so high?
Spill I think I should be charging more for some of my products.
An automated system will manage the recording of transactions for you.
While you're busy selling, collecting cash, and paying the bills, all of the transactions are being recorded properly so they feed to the proper lines on your financial statements. That frees you to focus on the insights you can gain from reviewing first your income statement and then your balance sheet and cash flow statements.
From chore to adventure
Once you have an automated system that handles the accounting, you will be free to focus on the joys of running your business. You can revel in the acquisition of each new customer, delight in the thrill of watching that new item fly off your shelves, and take pleasure in paying the full amount due to your suppliers well in advance of the deadline. You can pay your employees quickly and easily, comply with any new law that comes your way, and then savor your profitable results. You're ready to sit back and enjoy the ride.