Category Archives: Accounting

What is the Value of Data?

Posted on January 4, 2012 | Leave a comment

A blog I follow posted a link to a study on soda consumption. Being a faithful Mountain Dew drinker I took a look. Yikes, it would take me 50 minutes of jogging to burn off a soda! That’s about 50 minutes more than I currently do!

Then I started thinking this sounds a lot like accounting. Accounting is essentially a big hunk of data. Similar to slapping the number of calories on the back of a soda can, the fact that the company spent $1,859.49 on office supplies last year doesn’t mean much unless it is put into meaningful context.

  • What if that expense doubled from the previous year? Did you expect that?
  • What if it declined, but you expected it to be under $1,000 for the year because your company went paperless last year?
  • How many customers or transactions does it take to make $1,849? Is that more or less than you thought?

Does your accounting system tell you any of this? It should.

→ Leave a comment

Posted in Accounting, Business management

Small Business in 2011

Posted on December 23, 2011 | Leave a comment

I love this infographic from Intuit. Scroll down to the reasons entrepreneurs start their business…nowhere does it say “To spend time doing accounting.”

You unleash your passion, find your WHY and let me deal with the accounting and tax compliance.

 

→ Leave a comment

Posted in Accounting, Business management

What is cash flow?

Posted on November 17, 2011 | 1 Comment

While reading this excellent article about a guy teaching his son some early business lessons using a soda machine, I got to thinking. No, I wasn’t thinking I should buy my son Adam a soda machine (he’s only 4).

I thought about small business owners and how crucial cash flow is to them. Wikipedia defines cash flow as “the movement of money into or out of a business, project or financial product”. From experience, I also know that many make the mistake of equating profit with cash flow. While related, the two are different. I’ve heard several times “I’m making money on these jobs/sales, but we never seem to have any money.”

For example, Wal-Mart is known for their killer distribution system. They can get products from vendor to warehouse to store shelves so fast, I would guess they might actually sell a lot of the product before they even have to pay their vendors. That is basically the dream scenario when it comes to cash flow -  collect the sales revenue before you even have to pay for the cost of that revenue.

But not every company has that power. Take a contractor for example. Due to the nature of the business, they are usually paid some money up front and the balance at the end of the project (perhaps some in the middle if there are multiple steps in the job). Assuming the contractor prices the job to make a profit, his cash flow is still less than ideal, since he will probably incur all the costs of the job – materials, labor, permits, etc. before being paid in full.

So how does he handle this? There are 3 types of cash flow in a business and each of those can certainly help:

  1. Cash flows from operations – this is cash generated (or used) from normal business activities – selling, collecting accounts receivable, paying accounts payable, etc. In the case of our contractor, he could use cash from previous jobs to foot the costs of the current jobs and so on. In my opinion, this is the best way to run a business.
  2. Cash flows from investing – this includes cash generated (used) from things like selling (buying) equipment. Usually selling equipment to meet operational costs is not a good idea, since you will probably need that equipment later on.
  3. Cash flows from financing – this covers cash generated by issuing stock or taking on debt or used by paying dividends, repurchasing stock or paying down debt. Many companies have a line of credit with a lender that can help bridge the gap temporarily. However if it is overused it can lead to trouble.

There are several ways within each of these three types that business owners can manage their cash flow. Next time you sit down and look at your books, don’t stop at your profit & loss  (income statement), take a look at your cash flow statement too. It is a good tool to help understand the total picture. Or why even a profitable company may be struggling with cash.

How is your company managing cash? What strategies have you used to improve your cash flow? I’d love your input, either in a comment below or via email.

Thanks for reading.

 

→ 1 Comment

Posted in Accounting, Business management, Fun

Does Your Accounting System Fit Your Business?

Posted on October 7, 2011 | Leave a comment

After writing my own tribute to Mr. Jobs yesterday, I started reading some others. I’ve talked about Simon Sinek before, and I subscribe to his blog, so naturally his tribute was one of the first that popped up. The second paragraph really struck me:

He (Jobs) was singularly devoted, not to technology, but how people interacted with technology. It wasn’t for us to fit into a world of computers, it was for the computers to fit into a world of people. And that’s what made Jobs different. That’s what made Jobs special.

When I read that, I immediately thought of accounting. I wonder how many small businesses try to fit their company around the accounting system they are using, rather than figuring out their needs and finding a system that meets those needs. How many of you go out and buy QuickBooks, Peachtree, etc., set it up and start using it without a thought about if it will really deliver what you need?

One of my goals as a CPA devoted to helping small businesses is to make accounting and tax as simple as possible, and that includes internal accounting processes & systems. If you are not getting what you want out of your accounting system, whatever it is, I’d love to hear from you….in the comments or by email.

Thanks for reading.

→ Leave a comment

Posted in Accounting, Business management, Tactics

Random small business links

Posted on September 29, 2011 | Leave a comment

I found a couple excellent blogs/articles today that were too good not to share.

First, Seth Godin, always a compelling storyteller, writes about the recession….which he argues is really two recessions. This is the best take I’ve read and really lights the way to where we are going. I especially love the arguments on racing to the bottom to save some kinds of jobs instead of adapting and innovating and creating new jobs.

Second, Norm Brodsky writes a piece in Inc. magazine about keeping your eye on your company’s balance sheet. Most business owners are so obsessed with the other main statement – the income statement – they completely forget (or don’t even know) about the balance sheet.  I especially like the last few lines:

Numbers run companies. It’s your responsibility as an owner to know and to understand not only the income statement but also the balance sheet of your business. You ignore them at your peril.

I am especially in tuned to this as a CPA. Many times I’ve heard a business owner say “I’m making money, but my business is still struggling”. A lot of times we can find answers by looking at the balance sheet.

 

→ Leave a comment

Posted in Accounting, Business management, General

Numbers+

Posted on August 4, 2011 | Leave a comment

Bean-counter. Number-cruncher. 10-key jockey. That is what most people think accountants are.

Yes, we can do those things for you. But I prefer to let technology automate as many of those simple tasks as possible. That’s because I like interpreting the data to see how it can help my customers be more successful.

This article from the NY Times touches on a few examples of how a little accounting knowledge helped save some businesses from early failure.

Are we making money?

Are our customers paying us?

Are we spending our money wisely?

These are a few questions a business needs to ponder, maybe with the help of a friendly CPA. Like this real life example:

Last week I was talking to a customer of our firm. They had been using a software package since I’ve been involved (about 6 years or so) that they had outgrown probably even a few years before then. We advised them nearly every year during our meetings that a new software package might would likely give them better information. But business gets in the way sometimes, so only recently did they commit to a new accounting system. It went live earlier this year.

The customer’s head finance person is sold. She told me the reporting was so much better that they are now actually able to tell how profitable each job is. She said the project managers were in awe of the level of detail they were now getting and were already making changes based on the information. Changes that would help them increase profits and possibly even shut down projects that were not cutting it.

That was a High Satisfaction Day.

 

→ Leave a comment

Posted in Accounting, Business management

Legos

Posted on August 2, 2011 | Leave a comment

I don’t know about you, but when I was a kid Legos were my favorite toy. Heck, my brothers and I still dump out the big tub of Legos and start building when we go to my parents house…of course they are for the grand-kids to play with. Yeah right.

Legos come with directions, but most of the time, after building the kit we would take it apart and mix the new pieces in with the older stuff.  I barely remember playing with the actual “thing” we built with the Legos – it was more fun to constantly build, tear it apart and rebuild something else.

Business is kinda like that I guess. Build something up using the directions (Google “how to start a business” – see how many hits you get), play with it for awhile, if you don’t like it you can start something else. Business is constantly evolving, it is always a good idea to take a look at your processes and see how you compare.

For example, most accounting used to be done by pencil and paper – a tedious exercise that would take forever and encompass many, many pages of green, lined ledger paper. By the time the accountant was done, he was probably too tired of footing columns to care what the numbers were saying.

Contrast that to today where accounting software and technology has almost allowed us to view real-time reports of what and how the business is doing. It is clear a paradigm shift is happening in accounting, unfortunately not all firms are happy with this. Did I mention you can do this from just about anywhere via a mobile phone or laptop computer?

It is truly an exciting time to be in my profession. We have so many cool tools at our disposal. The coolest thing about them? Seeing how they can help our customers achieve their business goals.

→ Leave a comment

Posted in Accounting, Fun

Flow

Posted on July 8, 2011 | Leave a comment

Read this blog a few minutes ago.

Add QuickBooks or whatever accounting system you are using to the “other basic tools” and I’d venture to guess there are a few ways you or your staff could save time.

What would you do with an extra 30 minutes or hour per day? I’d love to come in and sit down with you to see if we can improve your flow.

kevinmccoy.cpa (at) gmail (dot) com

 

→ Leave a comment

Posted in Accounting, Business management

Why Accounting?

Posted on July 7, 2011 | 2 Comments

One of my Thriveal co-horts, DeepSky, posted this excellent entry about why they are in the accounting business.

It got me thinking about why I do this for a living and still enjoy it after almost 13 years.

It started with a love of numbers. I thought accounting would be a better fit for me than a bland business degree. I thought it would be fun to look over all those numbers and try to make sense of it all. To turn all that data into a nice, clean financial statement or tax return. All these years later I realize that numbers are a mere fraction of this business (no pun intended). It is really about relationships.

Yes, those financial statements and tax returns are important. But so is making sure my customers are getting the results they want out of their business, whatever that may be. And like the DeepSky folks, I think accountants can deliver those results.

So my “why” has really evolved over the course of my career. Developing relationships with people that enjoy the challenges of owning a business, and doing what I can to help them succeed, is why I get up and go to work in the morning.

→ 2 Comments

Posted in Accounting, Relationships

Small Business Record Keeping 101

Posted on June 16, 2011 | 1 Comment

I’ve recently co-hosted a couple seminars with Lori from On Target Bookkeeping to help small business owners streamline their accounting process and hopefully save them some time crunching numbers. The seminars primarliy focus on using QuickBooks to accomplish this.

As a primer to the QuickBooks tutorial, I introduce some basic record keeping tips and resources, so I thought it would be a good idea to re-post that info here.

Why Keep Business Records?

  • Is the business making money? To me this should seal the deal – how will you know if you’re making money without any data?
  • Who is buying from us or owes us money? (customer info) This type of data can be used for marketing, cross selling or simply to keep track of accounts receivable.
  • Who are we paying? (vendor info)
  • Financial statement preparation – transactional data can be compiled into easy to read financial statements that give management (or third parties in the case of financing) an idea of the health of the business.
  • Tax compliance – income, sales, payroll, etc.
  • Substantiation for items reported on tax returns (no records = no tax deduction = lost money)

What Records Should Be Kept?

  • Gross Receipts – deposit slips, invoices, credit card and cash register reports (if applicable)
  • Purchases for Resale – vendor invoices, purchase orders, cancelled checks, credit card statements
  • Expenses – cancelled checks, credit card statements, receipts, expense reports
  • Assets – when/how acquired, purchase price, subsequent improvements, depreciation schedules
  • Travel/transportation, entertainment and meals have special requirements – see IRS Publication 463.
  • Employment related expenses also need special care – see IRS Publication 15, Circular E for examples.

How Should Business Records Be Kept?

  • Can be as simple as a business checkbook or as complex as a large, multi-user computerized accounting system, depending on the business size and complexity.
  • Technology often allows for automation of routine tasks.
  • Find a system that works and use it – even the most complex system will fail if the data is incomplete.
  • Bottom line: More time spent keeping records = less time spent working on your business

For more information also see IRS Publication 583 – Starting a Business and Keeping Records.

What type of record keeping system do you use? How is it working? What would you change if you could?

→ 1 Comment

Posted in Accounting, Business management, Tax