Bookkeeping and Accounting Blog - Articles for Bookkeepers in Australia

October 30, 2019 Uncategorized

Understanding Your Profit and Loss Statement

Your profit and loss statement (P&L) helps you understand your business performance and profitability over time. It’s sometimes called an Income statement and its main purpose is to list income and expenditure.

Whereas a balance sheet is a snapshot in time, the P&L shows transactions over a specific period of time. This can be a month, quarter, financial year or any other period, and it can be a stand-alone report or a comparative period report.

Together with the balance sheet, these two reports provide a comprehensive understanding of the financial position and performance of a business.

The profit and loss statement has two main sections: income and expenses.

These may be further subdivided depending on the complexity of the business and reporting requirements.

Income or Revenue
Income primarily includes main business activities such as sale of goods or services. Other income such as interest received, capital gains or income from secondary business activities is also reported.
Expenses
Expenses are usually divided into two sections: direct costs, or cost of goods sold, and expenses. Cost of goods are those that are directly linked to the provision of services or sale of goods. For example, if you buy widgets from a wholesaler and sell them at a marked-up value, the cost of the widgets is a direct cost, not an overhead expense.

Other types of direct costs might be importing and freight costs, contractor costs or certain equipment. Some direct costs are fixed, that is, they are the same from month to month, or they could be a fixed percentage of sales; others vary in value but are still related to the income producing activities.

Overhead expenses are all the other expenses required to run the business, regardless of the level of income: for example, rent, utilities, bank fees, bookkeeping fees, professional development costs, vehicle costs and staff costs. Many of these costs form the basis of working out your break-even point, or how much it costs just to open the doors for business.

There are some expenses which may be reported as a direct cost in one business but an indirect cost in another type of business, for example, merchant fees or contractor costs.

The Bottom Line

Total income minus total expenses results in the net profit (or loss), is often called ‘the bottom line’. Often business owners are just interested in looking at the bottom line, but a true financial picture requires an understanding of several reports and an ability to see the big picture that the reports are illustrating.

The P&L is a vital tool to analyse for trends over time.

What does your P&L tell you about relationships and ratios between sales and expenses, seasonal changes and annual trends?
Have all your direct costs been allocated correctly?
Have you recouped all billable expenses from customers?

Financial statements help you understand the big picture for your business. With deeper understanding of your business operations and performance you can make informed decisions about your business finances.

October 23, 2019 Accounts, Bookkeeping, End of Financial Year

Understanding Your Balance Sheet

To understand the financial position of a business at a specific point of time, look at the balance sheet. The balance sheet may also be called the statement of financial position. Together with the Profit and Loss Statement and possibly other reports such as the Statement of Cash-flow, these reports provide a complete understanding of the financial position and business performance.

So what’s involved? – The balance sheet has three sections: assets, liabilities and equity.

What are Assets?

Assets are things and resources that a company owns. They have current and/or future value and can be measured in currency.

Assets may be subdivided on the balance sheet into bank accounts, current assets, (receivable within one year), fixed assets, inventory, non-current (or long term) assets, intangible assets and prepayments.

These include banks and other financial accounts held, accounts receivable (trade debtors), supplier deposits or bonds, stock on hand, property, equipment, vehicles, investments and intellectual property. All of these can be translated into monetary value.

What are Liabilities?

Liabilities are amounts owed to suppliers and other creditors for goods or services already received. Liabilities may also include amounts received in advance for future services yet to be provided by the business.

Liabilities are generally subdivided into current (payable within one year) and non-current liabilities.

These include accounts payable (trade creditors), payroll obligations (salaries, taxes, superannuation), interest, customer deposits received, warranties and loans.

What is Equity?

Equity includes owner funds contributed, drawings, retained earnings and stocks. The value of the equity equals assets minus liabilities.

Transactions that affect profit and loss accounts also affect balance sheet accounts. For example, providing a service increases the accounts receivable balance, which therefore increases the equity.

The Balance Sheet Equation

The balance sheet must always balance! Asset value = liabilities + equity.

For example, if you buy a new vehicle for the business at say $50,000, having paid a $10,000 deposit and taking out a $40,000 loan, the value of fixed assets increases by $50k, but the bank asset value decreases by the $10k deposit paid. The value of liabilities increases by $40k loan, thus leaving the balance sheet balanced on both sides of the equation.

The balance sheet equation shows you how much money you would have left over if you paid all your bills and debts and sold all your assets at a given date. This amount is the Owner’s Equity.

Note that the balance sheet equity total is not necessarily how much the business is worth at market value. Assets are listed on the balance sheet at their transaction value, which may be very different from the market value. Some assets may be worth more and others may depreciate in value. Business value is calculated not just on the balance sheet figures but many other factors.

Need more information?

Talk to us. Get the complete picture of your business performance and financial position, regardless of what stage of business you are at.

October 16, 2019 Accounts, Bookkeeping

Keeping on Top of Overdue Accounts

How long do your customers take to pay you?

A Xero Small Business Insights report showed that late payments to small businesses are improving. But overall, payments often still arrive after due date.

Keeping on top of overdue accounts is vital for cashflow. There are some easy things you can put in place today to reduce the payment time-frame in your business.

Send your invoices straight away – give your customer the ability to pay you promptly.
Include all the details your customers need in order to make the payment – such as a customer purchase order to make their administration easier. Make sure you include your payment due date.
Consider a prompt payment discount – even if it is a small percentage, it can be a motivating factor.
Follow up straight away – if your invoice is overdue, send a friendly reminder straight away. You can set this up in your cloud accounting software, so it’s automatic. The longer you leave your follow up reminder, the easier it is for your invoice to drop down the priority list.
Make sure you are talking to the right person – if you creditor is a business, find out who is responsible for accounts and build a relationship with them.
Pick up the phone – If the invoice is overdue, a friendly chat may have more impact than another email in the inbox. After your phone call, follow up with an email to confirm what you agreed.
Be ready with a solution – to clear the debt, can you start with part payment? Does the next order get part paid up front?

Reducing the average time-frame on payments for your business will help with your overall business health. Start with a straight forward system, clear credit terms and good communication with creditors.

Not sure where to start, give us a call.

October 9, 2019 Accounts, Bookkeeping, End of Financial Year, Uncategorized

Get Strategy at the Heart of your Successful Business

Businesses that have clear objectives or goals, robust accountability and a shared sense of purpose should always outperform those that just show up and go through the motions.

Strategy lies at the heart of most successful businesses. To achieve this you need to resource and execute with purpose. Few businesses have a strategic plan or a robust planning process. Changing this situation should be a top priority! Here are two top tips for business owners.

1. Process Creates the Plan

Getting strategy at the heart of your success will require you to carve out some time, get a process started and shake things up. There’s no better time to review and tweak your business model, future-proof compelling services and to get your strategic building blocks in place.

Just as every good strategy has key elements, every good plan needs a step-by-step process. In fact, the process is often just as important as the plan itself. A strategic planning retreat with your core team is a great way to start the process – find a spot offsite to get the creative juices flowing such as a beach, a park, or vineyard and set an agenda.

2. Key elements of an effective strategy

The key elements in a good strategy normally incorporate:

Vision – this is a statement that identifies what a company would like to achieve or accomplish.
Values – these are the fundamental beliefs upon which your business and its behaviour are based. They are the guiding principles that your business uses to manage its internal affairs as well as its relationship with customers.
Objectives – short term, long term. These should be SMART (specific, measurable, achievable, realistic and timebound)
KPIs – stands for Key Performance Indicators. These are measurable values that demonstrate how effectively a company is achieving key business objectives.
Actions – what needs to be done to meet the objectives? Make this simple and clear.
Owners – delegating tasks to specific owners to ensure follow through and accountability.
Deadlines – when your actions will be complete to ensure you make progress.

It doesn’t need to be much more complicated than that, but do invest the time and effort in doing this right. A proactive, value-add strategic model will need fresh thinking, debate, research and open conversations. Enjoy and embrace the process and you should end up with a good outcome.

Great planning requires a guide, facilitator and/or professional expertise to be as robust as possible. We can help your business and guide you through the steps.

Putting strategy at the heart of your business activity should not only give your business greater direction and focus but lead to stimulating, profitable opportunities too. It’s time to get started!

September 18, 2019 Uncategorized

Finding Work-Life Balance

Looking for a little more work-life balance?

Sometimes it seems impossible when you are in the thick of it. The following ideas might help provide some light at the end of the tunnel.

Prioritise – Work often dictates to us, rather than the other way around. Create a list of all the things that need doing and categorise them. For example, work out the tasks that are ‘important but not urgent’ and ‘urgent but not important’. Task or project management tools like Trello can simplify your workload and and help to prioritise your time.

Delegate – Letting go can be an opportunity for others in the team to shine. Alternatively, bring in a contractor to help clear the load and you may find they bring in new ideas, create opportunities or streamline the process. Don’t limit yourself to what’s on at work – think about what would help at home too, such as a meal kit delivery to simplify the end of the day.

Book it in the diary – We are all guilty of putting off an exercise class or a coffee catch up because work takes over. These events are important for your mental and physical health and may give you space for creative thought or the ability to think with more clarity. Plus, you’ll return to work feeling more productive. Book it in and consider joining a group so you are more committed to turning up!

Use the technology to help you – ‘Always on’ technology such as smart phones are designed to make life easier but we’ve ended up busier than ever. So choose the apps and tools that can reduce the stress. Whether it’s for communication and meetings, or your filing and accounting. An app could save you time and allow you to get on with other things. We can help with the right accounting software solution to reduce the paperwork.

Share with your network – Are there individuals in your network who face the same challenges or can help you achieve your goals? Set up a monthly breakfast to catch up, support and learn from each other. You’ll go back to work with new inspiration.

Do what you love – At the end of the day, your work is ‘part of’ your life not separate from it, so if you enjoy it, you’ll feel you have more ‘balance’.

Get in touch to talk about how we can help you achieve balance in your business.

September 12, 2019 Accounts, Bookkeeping

Choosing a new business bank account?

A business bank account is an essential requirement for any business. But with so many banking providers out there, how do you know which business account to choose?

The key is to know what you require from a bank account and to choose a bank that understands the banking, financial and funding needs of your business.

Choosing an account that fits your business needs

Whether you’re a new sole trader or an established limited company, it’s advisable to maintain a clear divide between your personal and business money. So, it’s vital to open a business bank account, giving you a separate account to handle your business transactions.

The choice of available accounts can be baffling, with the big corporate banks and high-street providers offering a range of accounts and new digital challenger banks also adding to the available options for business owners.

When looking for a business account consider:

Bank charges – some banks offer free banking, others will charge you a monthly fee. And most accounts will charge you for things like cash withdrawals, payments in foreign currencies and going into (or over) your agreed overdraft limit.
Earning interest – look at the interest rate paid on the balance in your account. The higher the interest percentage, the more money you’ll earn on the cash in your account. The rate is unlikely to be high, but it’s still worth assessing the potential for a return.
Overdraft facilities – cashflow can ebb and flow in any business, so an agreed overdraft facility can often be a lifesaver when cash becomes tight. Look at what overdraft is available and what you’ll pay in penalties if you exceed the agreed limit.
Access to finance – if working capital gets exceptionally low then you may need to borrow a lump sum of money. If the bank has attractive options for bank loans, invoice financing or asset financing, that gives you and your business more flexibility.
Mobile apps and technology – digital is changing the banking sector at an incredible pace, so look at the quality and functionality of the banks internet banking, mobile banking apps and online financial management tools. Many of the emerging challenger banks are digital-only and offer a great online experience for business users.
Support and relationship management – the big banks have cut back their bricks and mortar presence on the high street in recent years. Look at whether you’d have access to a business banking adviser, or whether support is all online or done over the phone. A good relationship with your bank is invaluable when cashflow is tight.

Talk to us about selecting your ideal bank account

If you’re in the market for a new business bank account, come and talk to us. We’ll help you understand the key requirements you need from your account.

September 4, 2019 Uncategorized

Tradies and Mental Health

“For most tradies, the first thing that comes to mind when you mention “work” and “health” in the same sentence is OH&S and staying safe on the job. That’s not surprising when you consider that the trades sector is one of the most dangerous industries in Australia. It’s responsible for more than half of all worker’s compo claims, yet makes up under a third of the workforce.

Staying in shape and eating right probably comes to mind too when talking about health. Indeed, heart disease is Australia’s leading cause of death and almost everyone is related to, knows someone, or may have first-hand experience with heart problems.

And yet, there’s one health condition that doesn’t get talked about nearly enough. This is despite the fact that that one in five people experience it each year and one in two experience it in their lifetime.

What is this incredibly common health condition that so few people talk about?

Tradies and mental health

That figure just mentioned? One in five Australians experience a mental issue each year and one in two do so during their lifetime.

Yes, mental health issues like depression and anxiety are incredibly widespread, yet mental health isn’t something most tradies talk about during smoko or after knocking off. That’s even more surprising when you consider the many serious mental health concerns faced by people working in the trades sector.

Consider the following:

Men are three times more likely than women to take their own lives.
The suicide rate among young tradesmen is 3 higher than for other men.
Construction workers are at least six times more likely to die by suicide than on workplace accidents.
190 construction workers die by suicide each year in Australia.

Ideas to promote mental health at work

Think of looking after your mental health as another form of looking after your general health. Indeed, one of the best things you can do is to help raise awareness. Here are some great ideas to get you started.

1) Organise show bags or a display

Mental health organisations like MensLine Australia will gladly provide material to promote their helpful services. You can order promotional cards, postcards, flyers, posters and tip sheets, which will be mailed to you at no charge. Simply hand them out at work or put them on display. You can also download and either print or forward all items in PDF form.

2) Have a breakfast, morning tea or lunch

Why stop at just putting out some flyers and posters in the lunch room? Make an event out of it.

For a start, you’ll probably get a better response (it’s a simple fact of that people are more likely to turn up to something when there’s free food involved).

However, there’s another benefit that goes beyond just getting bums on seats. One reason why so many men struggle with their mental health is that many blokes might feel embarrassed, ashamed, or ‘weak’ if they open up. An event like this suddenly normalises talking about mental health and helps remove the stigma about this topic.

3) Arrange an activity like mindfulness

Mindfulness. Yeah, right. When do we break out the incense and New Age music?

You’d be forgiven if that was your first impression, but in actual fact, mindfulness is probably nothing like you imagine it to be.

In its simplest form, mindfulness (also called mindful meditation) is a ‘grounding’ technique. It helps deal with frustration, stress, anger and worry. It also helps improve focus, concentration and self-control.

As with so many things in life, don’t knock it until you try it. More professional people than ever are recognising the value of mindfulness, among them elite athletes and the armed forces of several countries.

Find out more about how easy it is to try mindfulness.

4) Arrange a screening or invite a speaker

A video (or series of videos) screening over lunch is a great way to help promote a helpful message. There are admittedly so many videos online that it might actually be hard to know where to start. One good way to go about it, is to do a search online for “tradies mental health”.

Video is surprisingly easy to share these days. Even if there are just a few of you who are watching, a tablet will often do. If you’ve got access to a TV (such as in a lunchroom) that allows for device streaming, then why not try that?

You can step things up to the next level if you know someone who can give a talk, or if you’ve managed to organise a speaker. Unlike video, you can ask questions afterwards and it comes with the benefit of live interaction.

Of course, if you’re battling with stress or worry, or just need to talk it out with someone, you can contact MensLine Australia at any time.

MensLine Australia is available 24 hours a day, seven days a week, with professional counsellors providing information and support for all emotional health and relationship issues.”

Article sourced from MensLine Australia https://mensline.org.au.

August 28, 2019 Bookkeeping, Uncategorized

Automation can ease your business workload

Small and medium-sized businesses are spending on average 120 hours a year on admin tasks, according to recent research into productivity at UK SMBs.

If your people are spending 120 hours wading through tedious and unproductive admin, that’s bad for the business and for your overall efficiency. Fortunately, technology and software automation can go a long way towards automating the low-level admin tasks.

Better productivity through automation

Automation is an important way to ease your business workload, with a host of different business apps and cloud solutions offering ways to automate your admin.

With ‘smart business tools’ increasing in number and choice, software is utilising automation algorithms, artificial intelligence (AI), machine learning and cognitive solutions to help remove the mundane admin tasks from your workflows.

Core processes that will benefit from automation include:

Automated bookkeeping – Just take a photo of your receipts, expenses and invoices and ‘optical character recognition’ (OCR) technology will digitise the output and pull it through into your accounts software. No data entry, no human error and no lost receipts! We can do the rest to ensure your records are accurate.
Automated credit control – chasing up debts and late-paying customers takes time. Automated credit control apps track your debtor numbers and automatically sends out customised chaser emails as soon as an invoice is late. This reduces your credit control time, speeds up cash collection and cuts your aged debtor figure.
Automated payment collection – the easier it is to pay you, the faster your customers will pay. Automated card payments and cloud-based Direct Debit solutions allow you to automatically take payment from a customer as soon as an invoice is due. Some solutions will even automate the invoice matching and bank reconciliation process.
Automated reporting and forecasting – the better your reporting and business intelligence, the easier it is to make informed decisions about your company strategy. Accounting platforms and fintech (ie. financial technology) tools now offer automatic, real-time reporting and forecasting, giving you access to the important numbers and metrics, fast.
Automated digital marketing – digital marketing is key to raising your brand’s profile. Marketing platforms offer important time-saving ways to schedule and post social media content, or email automation that sends a pre-programmed cadence of emails to specific target audiences within your wider customer base.

Talk to us about embracing the power of automation

If your admin is starting to hold you back, come and talk to us about how automation can pick up some of the heavy lifting as well as giving you the metrics you need for decision making. We can review you business processes and identify the automation opportunities, helping you choose the best apps to drive your business efficiently.

August 28, 2019 BAS, Bookkeeping

Cash vs Accrual Accounting – It’s All About Timing

What are the two methods?

Understanding cash and accrual accounting comes down to timing.

In a cash-based accounting system you recognise income and expenses when they happen, that is, when the money arrives into or leaves your bank.
In an accrual-based accounting system, income is recognised at the date the customer is invoiced and expenses are recognised at the date of any bills received. The timing of income and expense reporting is independent of when the money hits or leaves your bank.

Let’s have a closer look.

Cash accounting – this method does not recognise accounts receivable or accounts payable. Each Business Activity Statement (BAS) is prepared on money received and spent within that BAS period. Whilst you still have to manage cashflow and planning, the financial activity is more aligned with the business activity.

This simple system makes sense to many small business owners as they are generally operating on a short lead time for bills and invoices. This means you get an immediate snapshot of the money you have in your bank accounts, although you still need to be aware of upcoming liabilities. Remember – Not all the money in your bank is profit! Cash-based accounting is available to businesses with less than $10 million turnover.

Cash accounting requires a good understanding of financial reports to get a true picture of the business financial position. There are many small businesses that have their activity statements prepared on a cash basis, while their tax returns are prepared on an accrual basis.

Accrual accounting – this method does recognise accounts receivable and payable and is a more complex system suited to larger businesses. Reports are prepared taking into account GST on invoices issued and bills received, regardless of payment.

This method requires a greater understanding of the balance sheet accounts and cashflow planning. The bookkeeping processes and accounting can be more involved, requiring movements to be made to allocate funds to the relevant accounting period. This method is better suited to businesses that allow for longer payment terms, contracts that are paid over time and have large accounts with suppliers.

Accrual accounting actually shows your true financial position when your accounts receivable and payable and other liabilities are kept up-to-date and accurate. This means you know what people owe you and what you owe others, so you can make well-informed business decisions and plan longer-term.

Here’s an example:

Ace Accounting issues a bill to you for services dated 15 June and due to be paid by 15 July.
If your business is on a cash BAS and you pay the bill on 15 July, this bill is included in the July BAS (or September quarterly BAS), even if you entered it into your accounts dated 15 June.
If your business is on an accrual BAS, this bill is included in the June BAS, regardless of when you pay the bill.

What’s best for your business?

Micro and small businesses are better off with the simpler cash BAS system. However, as a business evolves into a larger more complex entity, even if it has not yet reached the compulsory accrual threshold of $10 million, it can be beneficial to swap to accrual accounting for both BAS and tax returns.

Not sure? We can help you decide whether accrual BAS reporting is right for you, please call the friendly team at Flawless Figures Bookkeeping.

March 26, 2019 Uncategorized

Invoices – What should you include?

When you’re running a small business or working for yourself as a contractor, getting paid relies on sending your invoice. And because getting paid, and on time, is essential to staying afloat, it’s important to make sure that you’ve got all the important information included. Setting up your invoices correctly will ensure you get paid quicker. Here’s what you need to cover.

If a customer asks you for a tax invoice, provide one within 28 days. Your invoice needs to contain the following:

The words ‘tax invoice’, ideally as a heading.
Your business or trading name.
Your contact details- these aren’t technically required for invoices for under $1000, but it’s a good idea to include them in case the recipient needs to get in touch.
Your ABN or ACN.
The date you’re issuing the invoice.
An itemised list of what you’re invoicing for, including the price for each item or service. Make sure that you clearly indicate whether GST is included in the total price.

If you are using accounting software simply fill in the templates or you can see some examples of invoices on the ATO website.

A well set out invoice will make it easier for your clients and customers to pay you. Accounting software will make the job easier by providing the format for your business and increasing your efficiency. Talk to us about your invoicing to ensure you make it easy for people to pay you.

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