“It’s OK, I don’t need to track everything. I'll just wing it”, said no smart business person ever.
Unless you plan on running your business flying by the seat of your pants, reporting is a necessity. Reporting can be summed up in a few basic methods to track, analyze and understand the ins and outs of your business. Your daily tracking efforts feed these reports to aid in analysis and forecasting. Having access to this information is also important for tax and legal compliance.
Being a good reporter of your business means maintaining a fluid effort toward day to day recording, future-casting and monthly check-ins. Not only do you need to stay on top of it, you need to be able to feed the data into reports that gauge your business health from multiple angles.
Coming from a blank canvas of a new business, this can seem super overwhelming. With the right tools at your disposal and Accountfully in the mix, it doesn’t have to be. To build a solid base of reporting tools, it helps to understand the basic items required. Think of reporting as the roots of your business - you need a solid base to flow the information to the top. When you look at the information you see what is and what could be from a higher level.
Have Reporting And Have It Now
The first rule in reporting is you must have reporting. Reporting is not negotiable and it must also be timely reporting for it be useful. The goal of financial reporting is to be able to easily look at your numbers and answer the question, “Where am I today?” To properly answer that question you need up to date information.
Accountfully is very near and dear to having things available to you in real time and up to date. Using a part time bookkeeper or uploading receipts manually is not timely reporting. Having Accountfully manage your reporting solves the common challenge with using typical methods like do-it-yourself accounting software or hiring a part time bookkeeper. These solutions often result in financials reported too late. You get around to finishing up June, but it is already September. Sure, they're finished, but you’ve missed the boat on what reporting needs to be. That’s not good enough.
Chart of Accounts
Defining your personal chart of accounts is the next major step. While there are many generic options to use, understanding the industry you are in is a big part in knowing what to define for each. Based on your industry, you will need to have special categories to filter all of your expenses and revenue into. The more accurate these are, the more clearly you will see how things are doing.
These categories will also need to be organized properly from top to bottom. Gross or top-line revenue should be at the top, any deductions or discounts will file underneath. This shows a clear start and finish as you scroll down your accounts. How much you started with at the top, to how much is left at the bottom.
At Accountfully, we break things out by cost center. For example, you will be able to see separate items such as fulfillment, research and development, etc. Having things detailed and organized gives the ability to drill down into the detailed data of each. The more detailed, the more clear you see where your revenue and expenses go.
Profit and Loss Statements
Now that your cost centers are defined and you have a way of organizing each account, the profit and loss statement will make much more sense. The profit and loss statement is a key item to understanding the trends and performance of your business by showing profitability month over month. The profit and loss statement helps answer the question, “Is this a sustainable business?” These are a helpful tool to look at long term trends and get quarterly answers on how things are going. It will help you to understand how sustainable you are moving forward.
Just like the importance of timely reporting, the matching principle is an important concept to understand and abide by. It is also the basis for accrual based accounting. While it can seem more complicated, it gives a much more accurate picture of reality. This means ensuring that you are keeping revenues and their associated expenses in the same period of time. For example, your cost of goods sold in May should be shown alongside those associated sales in May. Not accurately showing these will show inaccuracies in sales, profits and expenses all around. Not understanding how you fare when it comes to purchasing and selling inventory, won’t help in making better decisions in the future.
Accountfully can segment the profit and loss statement by customer as well as by class. Classes can be by sales channel too. For example, sales from Amazon versus Distribution. You can also segment it by location or department, like operations, sales, research and development and marketing.
The Balance Sheet
The balance sheet shows you the health of the business at a specific point in time. While your profit and loss statement shows you performance over a period of time, the balance sheet gives you the “right now” view.
The balance sheet is a snapshot of your assets -- useful or valuable items for your business -- and liabilities - debts or payables you owe. The equity section is the difference between the two; your assets and your liabilities. In short, your assets should be greater than your liabilities.
The balance sheet is a really important item to review regularly and understand. It can tell you if you owe more money than what you currently have, the current value of your assets and the overall value of your business. By understanding how to keep the correct ratio of assets greater than your liabilities, you can avoid mishaps that may throw off your business balance. The balance sheet can provide warning signs so you can solve any problems before they derail your business.
Cash Flow Statement
The cash flow statement is the magic blending of your profit and loss statement and your balance sheet. Or in accounting lingo, this reconciles your profit and loss statement to the balance sheet. It helps answer the question, “What was my change in cash over a certain time period?” It also shows how well your inflow of cash is covering any debts or liabilities. By seeing how you cover any liabilities over a period of time, it can also show any patterns of cash flow that will help you in planning to cover future needs, such as payroll or lean times in sales. The cash flow statement is also a key tool to see if the business can sustain itself without the help of loans or investors.
The harmonious flow of a day to day recording effort will allow your business to have a strong base and a way to show its viability. Let the professionals at Accountfully guide you to understand how best to organize your efforts. We can drill down to the details and help you truly understand your operations. Having a professional team in your corner will help to identify how to best organize your reporting efforts. We can take what seems like a complex web of accounts and numbers to clear reports that show you how your business looks today and how to best move forward to hit your goals.
Give us the rundown on what you need and we can give you a plan to work with. Set up a call today and let’s get to work!