Defining and implementing the accounting cycle for your business

My Post.pngManaging a small business is challenging. But if you can produce accurate accounting information, you can make better decisions and grow your business. When it comes to accounting, many business owners don’t know where to start. They need a roadmap that provides the steps required to create useful accounting data and financial statements. The accounting cycle is that roadmap.

What is the accounting cycle?

Accounting is the process of gathering information on business activity, posting transactions, and producing financial statements. The accounting cycle is a series of steps, completed in a specific order, that ends with a set of accurate financial statements. If you don’t follow each step in the cycle, you won’t produce accurate financial data.

Why is the accounting cycle important?

The accounting cycle can help you account for all financial transactions, protect assets from loss or theft, and report financial results to stakeholders. Small businesses often operate on narrow profit margins, and access to cash may be limited. These businesses have less room for error. Following the accounting cycle can help the business owner stay on track.

1. It protects your assets from theft

Assets are resources—vehicles, machinery, equipment—you use to generate sales and profits. Businesses must invest in asset purchases and maintenance. Without assets, businesses can’t operate. The accounting cycle protects assets from loss and theft. Imagine when a retail store purchases inventory, for example.

An accountant reviews the vendor’s invoice and the shipping receipt before increasing the inventory balance in the accounting records. Source documents support each accounting transaction, which reduces the risk of theft.

2. It helps you report financial results to stakeholders

Business owners may keep stakeholders informed for a variety of reasons. Stakeholders include employees, investors, creditors, regulators, and vendors. Investors want to know if the business is generating profits and that the business’s value is increasing. Creditors need to know if the company is generating enough cash to repay a loan. Vendors want to know if the business will continue to order goods and services and that the business can pay invoices on time.

The accounting cycle requires accountants to review the general ledger and the trial balance before using the information to create the financial statements. When a business owner can generate reliable financial statements, they can maintain good relationships with stakeholders.

How to implement each step in the accounting cycle

Every business should have a formal procedures manual that documents each step in the accounting cycle. The manual outlines each accounting task, how often the business must complete each task, and who is responsible for each task. Using a manual clarifies each process and reduces the risk of confusion.

Let’s look at an example. Outfield Sporting Goods follows the six steps in the accounting cycle.

1. Gather source documents

A source document is generated when an event happens in your business. Source documents include a receipt for a purchase or an invoice sent to a client.

On May 5, Outfield purchased $3,000 in leather materials to make baseball gloves. Their accountant reviewed the vendor’s invoice and the shipping receipt, which verifies that Outfield received the materials.

2. Determine the financial impact

Next, Outfield’s accountant must decide how the event impacts the accounting records. In this case, the inventory-material account increases by $3,000, and cash decreases by $3,000.

3. Post a journal entry

Outfield’s accountant records events the accounting records using journal entries. The journal entry includes the date, debit or credit, account number, account title, dollar amount, and a description of the transaction. The accountant enters this journal entry into the accounting system: – Read more

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5 ways to reduce small business debt

My Post (13).pngThe U.S. Small Business Administration (SBA) cites poor credit management, lack of money and personal use of business funds as some of the top reasons why small companies fail. Businesses that lack money to cover basic expenses such as rent and payroll can quickly spiral into delinquency or, worse, bankruptcy.

Moreover, the Bankruptcy Abuse and Prevention and Consumer Protection Act of 2005 has made it harder for small businesses to prove they should be cleared of all or some of their debts through Chapter 7 bankruptcy.

To ensure the overall financial health of your business, it’s imperative to know the various options available for methodically and effectively paying down business debt. From eliminating excess costs, to restructuring debts through a third party, being proactive and formulating a payback plan enables you to manage your bills before they become unmanageable.

1. Rework your business budget

Before attacking business debt, get a good handle of your current financial situation. If you’re falling behind on monthly payments, revisit your financial plan and adjust for unexpected changes in cash flow.

business budget helps identify your income sources, fixed costs and variable expenses. Budgeting also gets you into the habit of setting aside a monthly amount to pay your landlord, suppliers and creditors.

Seek professional advice from your accountant or contact non-profit associations like the SCORE Association for free business counseling, mentoring and online workshops on business budgeting. You can also automate the budgeting process using accounting software like QuickBooks to track money flowing in and out of your business. Ultimately, revisiting and revising your budget will help you better manage costs and form an action plan for reaching your debt-reduction goals.

2. Reduce business expenses

Next, take a look at your operating costs. Figure out which expenses you can axe versus services that are necessary for the daily operation of your business.

For example, do you pay for subscriptions that you use infrequently? Are there professional memberships you can suspend temporarily until you get your financial house back in order? Consult your accountant or use accounting software to forecast the financial impact of cutting costs in different areas of your business.

If you’re leasing an office, consider subletting unused space or downgrading to a smaller work area to reduce your monthly rent. You may also be able to negotiate reduced prices and flat rates with certain vendors. For example, software providers often provide discounts for bills paid annually versus month-to-month.

Your financial statements can be particularly helpful in pinpointing expenses contributing to your debt. Cutting costs may be the fastest way to increase cash flow and chip away at your liability before resorting to more drastic debt-reduction measures.

3. Increase customer sales

In addition to slashing costs, look at ways to increase customer sales that will boost your revenue. Offer mark-downs on merchandise and discounts on services, especially for loyal and repeat clients.

Additionally, ramp up accounts receivables by following-up on late payments from customers. For instance, presenting your clients with discounts for paying fees upfront can help improve your cash flow.

4. Communicate with creditors and lenders

If you find yourself falling behind on payments, prioritize debt payments to determine which creditors and suppliers must be paid first. Your cash flow statement should be particularly helpful for identifying delinquent accounts and missed payments. – Read more

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How to offer online services: A practical guide for businesses

My Post (7)It can be a challenge to shift traditional, in-person services to virtual services. But many small business owners will need to go digital while Americans practice social distancing because of the coronavirus.

Offering online services may help maintain your cash flow and pay the bills. They may also lessen the disruption to invaluable services, without which some could suffer physically, mentally, or professionally.

Mira Sternberg is one such service professional who’s learning how to help her clients in new ways because of the coronavirus. She and her colleagues at Express Professionals in Longmont, Colorado, recruit job candidates.

“Typically, I interview around 15 candidates in person and visit two to four client companies each week to conduct business reviews and facility tours,” Sternberg says.

But those services have changed since CDC and WHO recommendations went into effect. She and her co-workers are adapting to a world of social distancing in a field built on interpersonal relationships.

“We’re still open for business and committed to helping client companies and job seekers,” she says. “We’re conducting lots of phone interviews to keep our workforce full.”

Sternberg says her team is available to clients via phone, email, and even FaceTime or Microsoft Teams.

“Stay safe, but think outside the box. Just because you can’t do business the same way doesn’t mean you can’t be successful and provide the support and encouragement your clients need,” she says. “Make yourself available via phone, and don’t default to email. A conversation—just hearing another voice on the other end of the line—in this period of semi-isolation can mean a lot to a client who’s feeling the strain.”

7 tips for providing remote services

1. Stay flexible in your communication strategies

Offer to meet clients virtually in just about any space: on the phone, over email, or over a video conference. Consider services like FaceTime, Teams, Zoom, BlueJeans, Google Hangouts, and Skype.

2. Create a high-quality experience with the right technology

Make your virtual sessions successful by working somewhere with a reliable internet connection. Ensure privacy for your video-conferencing sessions by locking your meetings so that you don’t get any unwanted visitors.

3. Research virtual service options in your industry

Some counselors and therapists, for instance, are practicing teletherapy. Meanwhile, HIPPA-compliant apps can help healthcare professionals better communicate with patients via text. And when in doubt, many industries can use YouTube or Facebook Live or live Instagram videos to deliver client services.

4. Encourage group participation

Don’t limit yourself to one-on-one meetings—consider virtual meetings or group presentations as well. Some conferencing services have screen-sharing and whiteboard options, so you can write on your screen to demonstrate examples. Some video services and webinar platforms even have settings to mute attendees in a one-way presentation to avoid background chatter.

5. Tell your clients about your plans

If you’ve found a way to continue helping your customers in a virtual space, let them know. Your new style of doing business might even work better for some clients. Think of it as a learning experiment for future use. Share your new online services proactively with an email, social media posts, or even a personal phone call. – Read more

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