Small business for dummies; an overview
Owning Your Own Small Business Small businesses are the backbone of our economy. Many individuals dream of owning a small business. Accounting for dummies will lend a hand on the following topics: 1. Start-ups 2. Where do I get money 3. Financial statements Start-up You’re starting a business from scratch because you have a dream. To bankers, a “start-up” is a business that has been in operation for more than two years. Five start-up tips for small business: 1. Create a business plan. 2. Know your business by doing your research well. No business fails because the owner knows too much. 3. Drive, dedication and commitment are important qualities to make your business succeed. 4. Know your market.
5. Meet your banker. Even if you don’t need to borrow money now, your relationship can be invaluable. Seriously consider online marketing (
Internet Marketing: Integrating Online and Offline Strategies) Buying a business or franchise Most small business owners in the start-up phase already know what their business will be. If you’re less certain or unsure of the commitment you want to make in getting a new business off the ground, you could look at buying a business or buying into a franchise system. In a franchise the business idea is already established; contract with suppliers, inventory, and profit margins. Both routes have advantages and disadvantages that accounting for dummies has set up the following: - Buying an existing business can cut down on some of the risk associated with starting a new business. However, you may also be paying for the intangible of goodwill – the business’s reputation and customer base – an expense a new business does not carry. - You have a chance to review the history of the business you’re looking to buy and assess its stage in the life cycle – start-up, growth and maturity. With help of a lawyer, be sure there are no liens against the company and review any on-going contract the company may have. - You can buy only the assets of the company or, if it’s an incorporated company, the shares. This type of purchase also includes taking over the liabilities of the company as well as assets or shares. - Franchise are for individuals who like to work in highly structured environment in which expectations are clearly set out and ongoing support is usually available. However, there is not a lot of room for entrepreneurship in a franchise. If you are looking to spread your wings and try out your own ideas, a franchise may limit you. - It’s a good idea to spend a week at the premises and see the operation. Talk to customers; make sure the volumes are truly as stated. Some people prefer to focus on business and leave the paper work to others. In that case I strongly suggest shoeboxed which offers online bookkeeping services at: Secure your receipts at Shoeboxed Starting a business from scratch There are many important issues to consider as your business is starting up. One of them – the team of experts you’ll be putting together to advise you on particular issues. Growth Many small business owners are seeking independence that owning their own business can give them. Hiring people is the last thing on their mind. Running a business can be stressful enough without the responsibility of being able to afford paying someone else. That’s why in the beginning the owner is the manager, the doer, creator and the strategist. Soon you will be in the growth phase and are contemplating hiring employees. How much new business can these employees generate? Can I increase the number of clients sufficiently to cover the cost of my new employees? Hiring an employee will allow you to improve your lifestyle, give you the chance to take a holiday or spend more time with your family. When do you know it’s time to hire an employee? Well, when your partner doesn’t recognize you anymore or, your business plan can also help you work through this question. Review your goals and reassess what you want to achieve – independence, control and a better work-home balance. Think about whether you should be growing. Calculate where the business cycle is. Address all these issues, when you review your size and your decision to grow.
Where do I get money?
Whether you are starting up a business or have been in business for many years, the primary source of cash for your undertaking will be you. When you start, you have to put some of your own assets to work – cash, equipment, home office or inventory. Loans Most of us have borrowed money for house or a care and are familiar with financing the purchase through a trust company, bank or credit union. These are also the companies you should have and get to know as your team when borrowing money for your business. Operating line Is also known as lines of credit. This type of credit will allow you to draw money as you need it for day to day expenses such as: payroll, rent or inventory. This credit is to cover a short-term need while you are waiting for money to come in from your customers. Second mortgage Your house or other property can act as a source of cash. Taking out a second mortgage is the cheapest way to borrow money for your business. The interest rate on a second mortgage can be lower than line of credit or business loan. Leasing By leasing equipment, cars and office or factory space – you’re not spending large amounts of cash leaving yourself short to cover supplies, payroll and marketing, not to mention your personal expenses. Credit cards Majority of the small business owners use credit cards. When you pay for purchase with a credit card, the suppliers you deal with can be assured they will receive their payment. Because banks realize the importance of small business owners, some now offer business credit cards. You can borrow a rate equal to your line of credit and still have the 26 day grace period with no interest. Partners If you decide that you don’t want to go to a bank or use any of the above methods of raising cash, you might consider taking on a partner. Not only will your partner bring cash, this person will also bring an extra set of hands, eyes, fresh ideas and new network to your business. Talk to your lawyer for the best way to set up a partnership agreement.
In addition to having a solid business plan, you also need to find a good way to measure your success – you want to know if your plans and your action did what you expected them to do. Measuring success can be done by rating customers and employee satisfaction and your personal satisfaction. You can measure it by the increase in customers. Your financial statements are another tool you can use to see if you’re doing the right thing for yourself and your customers. How often you review your financials is up to you, but it should be done at least once every six months. Financial statements are created every time you or your bookkeeper puts an entry into the ledger. First, though, accounting for dummies has a list of advantages to keeping good records: - To identify the source of income. - To save money, including income tax. - To recognize where you’re loosing opportunities or money. - To keep you better informed about your business. - To help you get loans and other credits. Business structure and tax reporting Sole Proprietorship – is an unincorporated company you are simply an individual carrying on a business activity. You make all the decisions for the business and entitled to all the benefits deriving from the business. You are also responsible for all the costs, losses and obligations that your business undertakes. There is no distinction between the personal assets of the owner and those of the business. Another words, you personally owe what the business owes and you personally own what the business owns. As a sole proprietor you have to register for GST/HST if your worldwide taxable income is more than $30,000. You will report your income or loss from the business on your personal income tax. Partnership – A partner relationship is between 2 or more individuals usually created by contract agreement. It is important to have a contract, to set out the exact nature of the relationship between the partners. With a written document there is less chance of dispute. A partner by itself does not pay income tax and does not file an annual income tax return. Each partner has to file their own income tax and show their share of the income or loss from the company. Each partner must have a GST/HST number if each individual partners world wide income is more than $30,000. Incorporation – The concept was created to respond to large companies that need a way to create large amounts of capital through many people. The most significant feature of the incorporation is that it becomes a separate legal entity from its shareholder and separate from the people who own shares in it. The shares represent each individual’s interest in the corporation and can be bought or sold, so shareholders can buy and sell shares without affecting the day to day operations of the corporation. As a single entity, a corporation has to pay tax on its income and must file an income tax separate from its shareholder. It must also register for GST/HST if its worldwide taxable income is more than $30,000. Anatomy of a financial statement A set of financial statements consist of the following three elements. 1. Balance sheet 2. Income statement 3. statement of cash flow Balance Sheet – will show you what your business owns and what is owes, whether the difference is a positive or negative. A balance sheet shows you your net worth or your equity in the business. The balance sheet is a useful tool because it helps you assess your projections and where you’d hoped to be. It shows your assets are make up of: - Receivables (customers owing you money) - Cash in bank - Value of equipment and property The balance sheet also shows your liabilities and they are as follows: - Accounts payable (suppliers you owe money to) - Tax obligations - Loan or credit card payments The difference between the assets and liabilities is your equity. Balance sheet is a report usually done as of a certain day each year; it gives you a realistic or reasonable comparison from year to year or month to month. The accounting equation is: Assets – Liabilities = Equity $100,000 - $70,000 = $30,000. (This is the owner’s equity in the company) Income statement – Also called a profit and loss statement. This is a statement showing the profit or loss made during that year by comparing revenues with expenses undertaken to generate those revenues. The income statement is set up with the revenue at the top, followed by the cost of goods sold. A manufacturing company includes cost on inventory items sold and labour to process the inventory into finished goods. Ex: your company purchased 5000 bags of coffee. The bags cost you $25,000. (5000 x$5. per bag) You will sell those 5000 bags of coffee and double your money. Your revenue less your cost of goods and labour is your margin. Ex: Sales are $25,000; less cost of goods sold and wages $15,000. = margin $10,000. From the $10,000. margin comes off the administrative costs. Administrative costs – It does not matter what type of business you’re operating, the administrative costs are the same. They include such things as: - Accounting fees - Advertising - Office supplies - Utilities - Telephone - Insurance - Bank service charges - Vehicle expenses Take the above example with net margin of $10,000. Ex: Margin - Admin costs = Net profit or loss $10,000. - $6,000. = $4,000. (This is your profit) Statement of cash flow – When you review your balance sheet and income statement it doesn’t show you what your cash flow is. Cash flow is recording money coming in from customers and money paid out to suppliers, rent, bank fees etc. Some estimation is required for this statement, because you’re not sure how much money will be collected from customers in a given month. But, when you have been in business for a while, your estimation will be more accurate. Fixed expenses are those that come every month, such as loan payments, lease payments, rent, insurance and any auto debit you have set up with your bank. These items should come off your cash flow at the beginning of the month. Variable expenses are those that vary each month. Such as office supplies, advertising, wages and any other small expenses that pop up during the month. Ex: Cash collected – fixed expenses – variable expenses = cash in bank $50,000. - 15,000. - $30,000. = $5,000. Good luck, Shin
The days for paper-based ledgers to track your daily receipts are gone. Now there are several accounting or bookkeeping software available. Accounting software can become your friend and help your business in many ways: save time, reduce errors, customer and supplier organization, make payroll simple and keep track of inventory.
Every business needs to know where their money is going. There are some top selling accounting software programs that will simplify your small business accounting tasks and provide hundreds of reports so you can see at a glace how your business is performing.
Before you choose which bookkeeping accounting software to buy, keep the following in mind:
1-can it be upgradeable as my business grows.
2-is it easy to use and learn.
3-does it cover all the features needed for my business.
4-does it have the specifications to run on my computer.
5-does it have network capabilities.
6-will the supplier offer online and phone support.
7-is the price within my budget.
1. Simply Accounting by Sage Software
Simply accounting is a full accounting and payroll package with all the features any small business needs, including internet and e-commerce. This small business accounting software provides screen tips and drags and drop functionality making the accounting program easy to learn. Professional versions include a time and billing module as well as project costing.
Simply Accounting premier 2010 includes two-user license. The Canadian version will calculate GST/HST and PST/QST and prepares government T4s, ROEs through print and efile capability. Simply Accounting is available in first step, pro, premier, enterprise and accountant edition, with prices and software capability to suite every small business.
2. QuickBooks by Intuit Canada
QuickBooks is a full featured small business accounting software available in basic, online, pro and premier edition. The 2010 pro and premier versions have new features such as document management so you can store all your business documents in one place, customize invoices, cheque deposits and over 100 reporting options.
Like Simply Accounting, QuickBooks can also track Canadian taxes, print T4s and ROEs.
3. Peachtree Complete Accounting Software
The complete version of this small business accounting software includes over 100 reports and has in-depth inventory, time and billing and job costing. Peachtree Complete Accounting Software is multi-user ready and the value pack offers 3 or more users. The 2010 version includes business analytics that let you compare your business to the competition and examines key data. Peachtree is also available in premier and first accounting version.
4. MYOB Premier Accounting Software
MYOB offers three accounting systems, one for Mac users and two for windows users. The basic version of MYOB handles simple accounting needs, including banking, sales, expenses, and customer management. MYOB has more comprehensive accounting software with tools such as forecasting, budgeting, sales and receivables, purchase and suppliers, time billing, inventory, payroll, contact management integrated with Microsoft outlook, and logo design.
The four accounting bookkeeping software all have one goal in mind, to provide good accounting functions and reporting for your small business. The trick to buying software is the ease of use, support, and capability to upgrade.
Thanks for visiting our site,
Accounting Ledger Overview
Accounting ledger is summary of transactions which hold all your double-entry accounting. At first double entry might sound like twice as much work, but once the accounting ledger is build up with entries, you will learn to rely on the checks and balances that help you keep accurate records.
Double-entry accounting means every transaction affects and is recorded in at least two accounts. The total amount debit must equal the total amount credit. Therefore, the sum of the debits for all entries must equal the sum of the credits. Double-entry accounting helps to prevent errors by assuring that debits and credits for each transaction are equal. (This document is also available as pdf format. Click here: GENERAL LEDGER to view).
Having said that, if you go to the store and buy a hand saw? You are decreasing cash in the bank by $89 and increasing your expenses by same amount. That’s all there is to it, you just affected two accounts.
Debit Tools $89.
Credit Cash $89.
What puts a spin on this debit/credit business, is that most people think of credit as being negative or minus and debit being a positive or plus. But each account type is affected differently depending on the nature of the entry.
Assets are what the business owns and they are always a debit balance and liabilities are what the business owes and they are always a credit balance. Assets are positive and liabilities are negative because they need to be subtracted from each other to come up with the total value of the company.
When a liability account gets credited, you are adding a negative to a negative balance, which makes a bigger negative number. It increases your liability. Take the hand saw example. If, instead of paying cash you charged it on your account, the expense entry will remain the same but because you’re not taking money out of cash the accounts payable is affected with a credit.
Debit Tools $89.
Credit Accounts payable $89.
Let’s look at income and expenses. Income has a credit balance and expenses have a debit balance. Yes, I know we think of income as being positive and should have a debit balance but in the accounting world it’s the opposite. The way to remember this is, when you sell a product and customer pays you cash, you deposit the cash in bank and the bank is debited, therefore the income must be credited.
Expenses have a debit balance. You enter an expense as a positive (debit) number to increase your record of what you’ve purchased. Whenever you purchase an item, ex: office supplies, that goes to your expense account and gets debited. Expenses are positive and income is negative because they need to be subtracted from each other to come up with the total net income.
A little history – debit and credits are remnants of 18th-century English recordkeeping practices in which the terms debtor and creditor were used instead of debit and credit. The abbreviations, Cr. and Dr. use the first letter of there terms where Dr. resulted from debtor and Cr. from Creditor , just as we still do for Saint (St) and doctor (Dr).
The following chart shoes how debits and credits affect the different types of accounts.
|Account type||Debit (Dr)||Credit (Cr)|
Now, let’s start by entering some info into our double-entry ledger. Read the following examples, once you’ve figured out one side of the entry ex: debit side, the other must be the credit entry. (The pdf version of this document is available by clicking on this line here: General Ledger Document)
The T-accounts above are a helpful learning tool. It shows the effects of individual transactions on specific accounts. The T-account is so named because it looks like the letter T.
The left side of the T-account is always called the debit side often abbreviated Dr. The right side is always called the credit side, often abbreviated Cr. The difference between total debits and total credits for an account is the account balance. When the sum of debits exceeds the sum of credits, the account has a debit balance. It has a credit balance when the sum of credits exceeds the sum of debits. When the sum of debits equals the sum of credits, the account has a zero balance.
Please, see below a link to pdf version of this article. You can easily print it out and refer to at your pleasure time.
Thank you for your time,