<![CDATA[TEPUI ACCOUNTING SERVICES - Education]]>Sat, 18 May 2024 15:32:10 -0700Weebly<![CDATA[Five things that every business owner should know to avoid failure.]]>Fri, 24 Jul 2020 03:26:12 GMThttp://www.tepuiservices.com/education/five-things-that-every-business-owner-should-do-to-avoid-failureStarting a business is an exciting venture. Unfortunately, small business failure is all too common. Statistically, 20% of all new businesses fail within their first two years, then 45% of those fail within their next five years, and 65% of the remaining business fail within the subsequent ten years*.

There are many reasons for business failure including: 
  • poor research into their respective market
  • problems with their business plans, little capital investment
  • poor location/internet presence
  • poor response to market demands
  • expanding too quickly
The common thread to all of these is inadequate management and the biggest reason for these failures. Specifically, most of these failures can be traced to a lack of financial accountability and understanding of the company and its ability to thrive in their respective market.

Being a talented craftsman or a gifted marketer can help with some of these reason above, but does not automatically make a knowledgeable and effective manager. Accounting, also known as the language of business, is not easy and it can make or break your business.

Here are five of the most common mistakes most small businesses make when managing their businesses. 

1. Thinking Profits and Cash Flow are the Same Thing
Most new business owners confuse these two. It's east to think that profitability means there's enough cash to run the business. Unfortunately this isn’t true. Conversely, if there's positive cash flow, the business isn't necessarily profitable. The only way to distinguish between these two is to maintain good accounting records, and understand how to read financial statements. As a non-accountant, it's easy to misunderstand that an expense means cash goes immediately out, and sales means cash comes immediately in. The reality is that in accounting, some expenses aren't immediately settled and sales aren't immediately collected.

Additionally, there is money spent on capital equipment, loan repayments, and payments/distributions to the owner that are NOT considered expenses and do NOT impact profit. They do however have a real impact on the balance in the bank. For this reason, businesses can show a profit, but have no positive cash flow. On the other side, if they're borrowing or receiving investors money, it’s easy to have a positive cash flow, but not be profitable. The accrual rules of accounting can make this even more difficult to understand, for this reason, a good understanding and a competent accountant are important to any business.

In short, management should take the time to understand the financials and invest in a competent accountant. 

2. Not Closing the Books Each Month. 
Appropriate month end close procedures keep the books relevant and increase the accuracy of the financial data. For each month, every purchase and sale must be accurately accounted for in the appropriate period, although this is relatively easy to accomplish, if this is not done on a regular basis, the amount of work to get this data entered and reconciled increases exponentially and the ability to make good and timely decisions is hindered. Utilizing technology to eliminate the human error factor and speed up the recording of these transaction is necessary for any business to have timely and relevant information. Management should utilize their available options for payments and purchases offered by their bank, business credit cards, and online accounts such as PayPal. These usually have the ability to connect directly to the businesses accounting software, making the monthly reconciliation of these transactions seamless. With automation, the month end reconciliations and entries are much easier and can make the production of accurate and timely financial statements much easier. Failing to have a quick and seamless month end close can lead to inaccurate reports and financials that are too out of date to make good financial decisions.

In short, a good monthly close can help to make good timely business decisions based on relevant, accurate, and timely data. 

3. Mixing Business and Personal Finances
For every new business the ownership has a difficult time juggling personal and business expenses. Each business needs a bank account, cash supply, and accounting system. Any funds the owner personally puts in or takes out must be properly documented in the businesses accounting. Having a separate business account that is independent of personal accounts is essential for tax deductions, business financing, and reduces the likelihood of penalties in case of an IRS audit. Blurring the lines between business and personal finances will make accurate accounting impossible, and make the owner and the  business financially vulnerable.

In short, appropriate segregation of personal and business finances keeps the company from being vulnerable. 

4. Forgetting to Record All Transactions
It's important to count all expenses even the small ones. Every transaction, even the smallest ones, must be documented. The best solution is to get a receipt for every purchase, even for purchases made from petty cash. Make notes on the back of the receipts to clarify the purchase details so they can be properly entered into the accounting system, and determine locations to store the receipts before and after they are entered. Using electronic solutions is best especially if these can be uploaded directly into the accounting software. Policies should be established for the process of accounting for every transaction, and will help streamline the processes.  

In short, all transactions should be recorded with good descriptions utilizing automated services as much as possible. 

5. Not Understanding Your Accounting Software
Accounting can be complex. To be successful, most management will need to hire a professional accountant to handle their finances or invest in some business software that can provide clear, concise in-house accounting. Although contracted accounting is a wonderful solution, management still needs to understand their software and accounting processes. 

Since accounting is a complicated and precise process, learning to use the software can be an ongoing challenge. Many of these softwares offer training courses that will enable a better understanding on how to utilize all the features of the software fully, and not get tripped up by common mistakes. 

Even with how robust the training, there are times that a well-trained accountant can not be substituted. When presenting financial statements to bankers, investors, or vendors looking for credit, it's is highly suggested that management engage a professional accountant. This can save many hours of frustration for management, and increases the likelihood of securing the intended goal through well presented and formatted financial statements. 

Preparedness is Key
Failure is not inevitable. A well-planned system and understanding of accounting is a vital step to success. This can eliminate inadequate management eliminating the biggest reason for failure. Specifically, this increases financial accountability and understanding of the company and its ability to thrive in their respective market. It is recommended to decide the accounting direction ahead of time, obtain all the training needed to understand the financial statements, and contract or hire competent accounting professionals to empower management to guide their business with the confidence and knowledge necessary for success and avoid the statistics of failure. 

*U.S. Bureau of Labor Statistics
https://www.investopedia.com/financial-edge/1010/top-6-reasons-new-businesses-fail.aspx

]]><![CDATA[The Difference Between Bookkeepers, Accountants and CFOs]]>Fri, 08 May 2020 16:28:01 GMThttp://www.tepuiservices.com/education/the-difference-between-bookkeepers-and-accountantsMost people think bookkeeping and accounting are synonymous, and in many ways they are very similar. While bookkeepers and accountants work toward the same ends, their roles in supporting your business are very different when it comes to the accounting and financial cycle. Chief Financial Officers (CFOs) are not synonymous with either and are more of an extension used to manage the business strategically into the future. 

Bookkeeping is generally more of a transactional and administrative role, this role is more concerned with recording day to day financial transactions. Whereas Accounting is more subjective and focused on the overall consolidation of these transactions to give you a good business overview. The CFO uses all of this internal information coupled with external factors to create a strategic plan for the business. 

Here we will explain the functional differences between accounting and bookkeeping, as well as the differences between the roles of bookkeepers, accountants, and the chief financial officer. 

The function of bookkeeping
Bookkeeping is the process of recording daily transactions in a consistent way, and is a key component to building a financially successful business.
Bookkeeping is comprised of:
  • Recording financial transactions
  • Posting debits and credits
  • Producing invoices
  • Maintaining and balancing subsidiaries, general ledgers, and historical accounts
  • Completing payroll
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where a bookkeeper records the amounts from sale and expense receipts. This is referred to as posting and the more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper.
The complexity of a bookkeeping system often depends on the the size of the business and the number of transactions that are completed daily, weekly, and monthly. All sales and purchases made by your business need to be recorded in the ledger, and certain items need supporting documents. The IRS lays out which business transactions require supporting documents on their website.

The function of accounting
Accounting is a high-level process that uses financial information compiled by a bookkeeper or business owner, and produces financial models using that information.
The process of accounting is more subjective than bookkeeping, which is largely transactional.
Accounting is comprised of:
  • Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
  • Preparing company financial statements
  • Analyzing costs of operations
  • Completing income tax returns
  • Aiding the business owner in understanding the impact of financial decisions
The process of accounting provides reports that bring key financial indicators together. The result is a better understanding of actual profitability, and an awareness of cash flow in the business. Accounting turns the information from the ledger into statements that reveal the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic tax planning, financial forecasting, and tax filing.

The bookkeeper role vs the accountant role
Bookkeepers and accountants sometimes do the same work. But in general, a bookkeeper’s first task is to record transactions and keep you financially organized, while accountants provide consultation, analysis, and are more qualified to advise on tax matters.
Bookkeeper credentialsTypically, bookkeepers aren’t required to have any formal education. To be successful in their work, bookkeepers need to be sticklers for accuracy, and knowledgeable about key financial topics. Usually, the bookkeeper’s work is overseen by either an accountant or the small business owner whose books they are doing. So a bookkeeper can’t call themselves an “accountant.”
Accountant credentialsTo qualify for the title of an accountant, generally an individual must have a bachelor’s degree in accounting. For those that don’t have a specific degree in accounting, finance degrees are often considered an adequate substitute.
Accountants, unlike bookkeepers, are also eligible to acquire additional professional certifications. For example, accountants with sufficient experience and education can obtain the title of Certified Public Accountant (CPA), one of the most common types of accounting designations. To become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and possess experience as a professional accountant.

Bookkeeping vs accounting summary
Bookkeeping
Accounting
Recording and categorizing financial transactions
Preparing adjusting entries
Posting debits and credits
Preparing financial statements
​Producing and sending invoices
Completing income tax returns
​Maintaining and balancing subsidiaries, general ledgers, and historical accounts
Financial analysis and strategy
Completing payroll
Tax strategy and tax planning
Recordkeeping     ​
Financial forecasting
The Chief Financial Officer 
The most common question when it comes to the CFO is “Can’t I just have my accountant do this?” Seasoned business leaders know that the value each of these roles brings to the table is quite different, especially in how they contribute to boosting the business machine's success.
Whether you run a small or medium-sized business and think you need a CFO or you haven't thought much about it yet, you need to understand the difference between a CFO and an accountant.

Strategy vs. Tactics
While both of these initiatives are essential to build and run a success-oriented company, a CFO focuses on planning and executing a broad, all-encompassing growth initiative using industry knowledge, experience, and tactics. They serve as more of a visionary, pursuing long-term success through expansion, mergers, and capital investments.
Small business accountants tend to focus on smaller, shorter-term tactical actions that improve current results; their training is primarily in finding and correcting inefficiencies that affect the near-term, and they rarely focus on a long-term perspective.
To visualize this, Imagine the accountant is the one showing you where you have been and how you got there, the CFO is the one that uses this information, along with outside information, to charts a strategic plan for your business should go. 

The Bottom Line
Organized financial records and properly balanced finances produced by the bookkeeper, coupled with smart financial strategy and accurate tax filing by the accountant and CFO, contribute directly to the long-term success of every business.
Some business owners learn to manage their finances on their own, while others opt to hire a professional so that they can focus on the parts of their business that they really love. Whichever option you choose, investing—whether it be time or money—into your business financials will only help your business grow.
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