Blue Heron Bookkeeping Articles
Important Things About Accounting For Your Business
- Bookkeeping
- Accounting – Cost Analysis
- Accounting – Budgets & Forecasting
Bookkeeping
Bookkeeping involves recording and organizing the business transactions that have occurred in the course of the business. Bookkeeping is the foundational part of accounting and largely focuses on classification of transactions.
Many small businesses choose to perform their bookkeeping on their own which is okay for a vast majority of companies so long as you set the books up properly. Spending money on the front end, while your company is young, to properly set up your bookkeeping operations is well worth the expense.
If you choose to hire a bookkeeper, take advantage of your bookkeeper and don’t let them be just a monthly cost to you. Utilize their knowledge on how you should best create a chart of accounts that allows you as the business owner to fully understand your business. Make sure your bookkeeper has your back and notifies you of charges which are abnormal. The best practice to follow is sending all receipts of all expenses to your bookkeeper to apply to the charges they see. Essentially, the bookkeeper is matching the receipts you provide to the business expense made on your credit card. The bookkeeper should then send a list of charges they were unable to match with a receipt for you to approve and validate as a business expense. This process provides greater protection of your money rather than trying to remember every charge. This practice should ultimately save your business a lot of money.
Accounting - Cost Analysis
A cost analysis can be broad or a specific analysis developed to review the costs you have incurred. The goal of a cost analysis is to analyze whether you are paying too much for certain items and whether those costs have been rising over time. This analysis can provide valuable insights into which costs can be reduced and identify an action plan for reduction.
Having a cost analysis done on your business is a consultative effort by an accountant to help you identify improvement opportunities. Many business owners focus on their product and lack their focus on reviewing business expenses. Just as increasing revenues is good for the business, so is reducing costs. Having someone perform the analysis, who has experience with many other businesses, can bring a large benefit back to the business owner. Having an accountant who is specialized or an accountant who currently interacts with your business on a consistent basis is the best person to hire for this analysis. They understand what your business should look like and can significantly help you with ideas and cost reductions to help you make more money.
Accounting - Budgeting and Forecasting
Budgeting and forecasting, though significantly different, both create plans for the future and help determine what the future should look like. Both of these services provide a benchmark for you to work with, that will aid you in making decisions.
Budgeting is the act of anticipating expenses and revenues for a set period of time, typically a year. By creating a business budget, you can better identify inflows and outflows as expected and not expected which also helps identify significant changes within your business. Most companies who create budgets, compare their monthly expenses and revenues against that budget to see whether they are meeting set goals.
Forecasting is predicting the future through assumptions in the form of financial statements. The first step in forecasting is to identify what assumptions you plan to make and how that is a change from the current situation. You divide these assumptions into units and apply dollar amounts to each of the units. By setting expectations when the units of the assumptions occur, you build differences into your current financial statements which form your forecasted financial statements. For example, if you plan to hire a new employee in your forecast, it will affect your wage expenses and therefore you must increase your wages for that month going forward. I recommend performing a forecasted financial model when starting a new business or bringing a new product to the marketplace.
Hopefully this was a helpful dialogue to assist you in making decisions and properly analyzing their effect on your company. As always, feel free to reach out if you have any questions or would like to discuss your bookkeeping needs.
I want to bring solutions to people within our community around The Villages, FL. I run Blue Heron Bookkeeping, a bookkeeping and accounting firm, which focuses on helping those who run businesses within our community. I want to give back valuable time to owners so they can focus on their product. I also want to reduce costs to owners, making it more advantageous and easier to scale out the business. This, in turn, allows them to provide greater value to the community.
Managing Partner of Blue Heron Bookkeeping
BlueHeronBK.com