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Category: Profit & Loss Report

 

Financial reports can be an incredibly helpful tool for small businesses. They can help you determine how much money you can pay yourself each month. Or they can help you decide if it’s time to expand your business. As helpful as financial reports are, they can only help you if you understand how to read them.

Luckily, Ben Sutton, Vyde’s co-founder and CPA, took the time to explain how an income statement and balance sheet work. It’s not the same as getting a 5-year accounting degree, but it’s going to give you the knowledge to make smart business decisions. Watch the video below for a great in-depth example of how financial reports work or keep reading to learn more.

Financial Reports Start with a Bank Statement

One of the things we ask our clients to send us each month is his or her business’ bank statement. This is so that we can begin to build your profit and loss, or income statement, and balance sheet. We’ll go through the bank statement to look for expenses and income. Expenses can come from a variety of places such as:

  • Marketing costs
  • Supplies
  • Food & entertainment
  • Business equipment
  • Auto expenses
  • Loan payments
  • Owner distributions

Income is simply what money your business generates. Customer payments are the most common form of income.

Keep in mind that as we move on these expenses will be split between the profit and loss statement and balance sheet. This is where the accounting rules come in. An accountant can determine what pieces of information belong on a profit and loss statement and what belongs on a balance sheet.

What Does My Profit & Loss Statement Tell Me?

A profit and loss statement (P&L) shows the revenues, costs, and expenses for a certain time period. We like to provide our clients with a monthly or quarterly P&L statement.

The P&L is only going to show the exact income and expenses that your business had that month. Accounting rules tell us which expenses belong on the P&L and what belongs on the balance sheet.

First, you will count any income your business had. Customer payments, as we said before, count as income. One confusing point would be any loans that you have taken out during the month. It may seem like income because money is coming into your account, but it isn’t. A loan is a liability and doesn’t belong on a P&L

Before we move on to regular expenses, we’ll want to look for the cost of goods sold. Cost of goods sold is what you spend on items that are required to produce your business’ services or products. This isn’t a required section on a P&L, but it’s useful for management to see what they’re spending directly on their services.

Next, are the monthly business expenses. Expenses are any other purchases that you make for your business. These include food, entertainment costs, auto expenses, and marketing costs. Some of the other expenses we listed in the first section aren’t part of the P&L. For example, business equipment and owner’s distributions aren’t part of the P&L. They are part of the balance sheet.

Once you have determined the income, the cost of goods sold, and the expenses, you total that to determine if you have a net loss or a net gain for the month. The P&L isn’t going to tell you how much money you have left in the bank. It’s simply telling you if you spent more than you brought in that month.

What Can I Learn From a Balance Sheet?

A balance sheet gives a company a quick glimpse at its assets, liabilities, and equity. The balance sheet will be broken down into those three categories: assets, liabilities, and equity.

The assets section starts with how much cash your business has on hand. Then you list your physical assets. If you bought equipment for your business during the month, like a computer or other purchases generally over $2,500, they go in the fixed assets category. To determine your total assets, you add your cash with your fixed assets.

Next, we’re going to go through our liabilities. Liabilities refer to money that we owe and include business loans, credit cards, auto loans, and more. After we’ve determined your business’ liabilities, we can move onto equity.

Equity is usually the most complicated part of the balance sheet. In the equity section, you’ll enter your owner’s distribution, or what you paid yourself that month. You’ll also see your retained earnings. The retained earnings are calculated by either adding the month’s net income or subtracting the month’s net losses from the last month’s total retained earnings.

Finally, you’ll add your liabilities and equity together. If you’ve done everything correctly, it should add to the same amount as your assets. That’s why it’s called a balance sheet. Because your assets should always equal your liability and equity.

Why Do I Need to Understand My Financial Reports?

Before we address the conclusions you can draw from your financial reports, we want you to understand how the P&L differs from the balance sheets. The P&L shows a period of time. Whereas, the balance sheet shows a point in time. So, the P&L can show you what you made, or lost, in your business in one month, and the balance sheet shows you overall where your business is at the end of the month.

Lesson 1: Don’t Manage Your Business Off of the Cash Balance. Manage it Off of the P&L.  

Without looking at both the P&L and the balance sheet, you can’t make smart business decisions. If you just look at the balance sheet, you may see that your business still has money, so you may try to pay yourself more, or make a big purchase. However, if you see that your P&L shows a net loss for the month, you might hold off on those decisions. The two go hand in hand when it comes to making a decision. You have to look at both to get an idea of where your business is truly at.

Lesson 2: Don’t Estimate Your Tax Liability on Your Owner’s Distribution  

Your financial reports are also going to give you an idea of what you owe in taxes. The biggest misconception small business owners have is that they are taxed on whatever money they pull out of the business, the owner’s distribution we’ve talked about. However, this isn’t true. The Internal Revenue Service (IRS) actually taxes you on your business’ net income. The IRS isn’t going to tax you unless you’ve made a profit on your business. In order to determine your net income, you’ll want to look at those income statements (the P&L) and determine if you had a net profit or loss. Once you know that, you can determine your tax liability.

I know the process can seem overwhelming at times, but analyzing both your P&L and balance sheet regularly can help you better manage and grow your business. If you are struggling to stay on top of your accounting and finances, reach out to our team at Vyde to see how we can help!

 

 

 

As a small business owner, you’re not expected to know the ins and outs of accounting…until you are. It isn’t until some kind of financial crisis happens that many small business owners are hit with the hard reality of what they don’t know when it comes to their books. We don’t expect you to know every definition in the accounting dictionary, but here are the top 10 accounting terms every small business owner should be aware of:

  1. Net Income: (AKA profit!) This term is sometimes referred to as ‘net profit’ or ‘earnings,’ but no matter what you call it, your net income is what’s left after your all of business expenses are subtracted from your earnings.
  2. Balance Sheet: A statement of the company’s financial position shown in terms of assets, liabilities and ownership equity for a specific period of time. This is a snapshot of the small business’ current financial position. The difference between the total assets and total liabilities is known as the company’s net worth. Basic accounting rules tell us that a company’s net worth must be equal to the assets minus the liabilities. We talked about balance sheets a bit more in this video.
  3. Income Statement: We also call this a profit and loss statement. An income statement is a summary of the company’s profits and losses during a period of time, usually a month. Income statements show all money earned during the month, as well as the operating expenses. Learn more about profit and loss statements in this video.
  4. Deduction: If you’ve been running a small business for any length of time, you’ve heard the hype about deductions. Basically, a deduction is any money spent to run the business, which in turn reduces your year-end taxable income. Deductions are great for lowering tax bills for small business owners.
  5. Asset: An asset is any item owned by the business that is expected to last several years. Assets normally refer to larger or more expensive items like cars, office furniture or computer equipment. If you are going to lease or rent property to tenants, it can include rental houses or improvements made to business property. General office supplies are not considered assets, but can be used as deductions.
  6. Liability: A business liability is an obligation that came about from a prior transaction done by the business. In accounting, a liability is assigned a dollar value and the business is responsible for repayment of that amount in the future.
  7. Revenue: Refers to all the money made by a company doing what a company does–whether they’re selling products or services, revenue is the total amount of money made. Sometimes you’ll see revenue referred to as “gross income.”
  8. Accounts Receivable: When you’ve sold products or services to a person or company that have not been paid, this is considered your accounts receivable. Your accounts receivable can be listed as assets on your balance sheet.
  9. Accounts Payable: This includes any bills you have yet to pay for your small business. The sum of all your accounts payables are listed as a current liability on your balance sheet.
  10. Tax Credit: this number is subtracted from the final amount of taxes you owe the IRS come tax season. If you have $1,000 worth of tax credits and you owe $8,000 in taxes, you’ll only pay $7,000.

Brush up on these quick need-to-know accounting terms and stay in the know about the basics of your small business bookkeeping and accounting.

 

Whether you’ve been running your small business for years or you’re an entrepreneur just getting your feet wet, the importance of a small business budget cannot be overstated. You have to learn how to manage money before you can earn (or save!) it. A budget can track cash on hand, expenses, and how much revenue you need to make your business profitable.

Your small business budget doesn’t have to be anything fancy. It can be scratched out on paper with a pencil, laid out in a spreadsheet, or created using business accounting software, like Quickbooks. Set budgets for a determined amount of time such as, monthly, quarterly or annually. It’s best to create a budget for each of those time periods. Then you can compare your actual and forecasted expenses.

Your small business budget

How to Set Up a Small Business Budget

Spreadsheets can really help you tackle your small business budget. As you create your spreadsheet, you’ll want to begin with your fixed expenses. These will include rent, loan payments, subscription costs, and the like. Next are your variable expenses which would include things like utilities, supplies, and labor.

Set a Budget

You can determine your budgeted expenses by averaging past expenses in each category. These expenses will likely change from month to month as different needs for your business arise. If you are just starting out and don’t have any numbers to work with, you can research the costs associated with your industry. Determine the averages based on your research, and then factor those into your small business accounting.

Forecast your monthly revenue and place it in a subheading titled budgeted income. Then, at the end of the month you can enter your actual expenses and actual income. You can then compare your budget with your actual numbers.

Analyze your Budget

Off to the side of the budget income and actual income you’ll need to determine the difference. This is the number you’ll want to reflect on at the end of each month. It is important to determine why your budgeted and actual expenses and income don’t match. Then you should make changes in next month’s small business budget to decrease the difference. By determining the reason for the difference, you can either identify potential problems. Which will help you fix it, or capitalize on a potential opportunity you had not noticed.

Entrepreneurs are capable of creating and maintaining a small business budget. However, it’s best to consult a professional CPA or financial advisor to cover all of your bases. A CPA can factor in any important legal and financial obligations you may have with the IRS.

Having a small business budget can help your business in numerous ways. You can improve business operations, create accurate estimations and effectively manage your profits. All of which lead to a more successful business and life.

Set a Budget

FAQs for Small Business Budgeting:

 
Why is a small business budget important?
A budget helps track cash flow, expenses, and revenue, crucial for business profitability and financial health.
 
What tools can I use to create a small business budget?
You can use spreadsheets, business accounting software like Quickbooks, or even pen and paper to draft your budget.
 
How do I set up a small business budget using spreadsheets?
Start with fixed expenses like rent and loan payments, then list variable expenses such as utilities and supplies.
 
How do I determine budgeted expenses if I’m just starting out?
Research industry costs to estimate averages for your expenses. Adjust as needed based on your business’s specific needs.
 
Why is it important to analyze budget variances?
Analyzing differences between budgeted and actual expenses/income helps identify potential problems or opportunities for improvement.
 
 
A small business budget is the only way you'll keep your business afloat. Learn how to set a budget that works for you and your business.

 

Accounting is one of those tasks that grow with your business. The bigger your business grows, the larger and more complicated accounting tasks become. Which means accounting mistakes are more prone to happen. You shouldn’t take managing a company’s finances lightly.

Many small business owners choose to tackle their own accounting and small business bookkeeping tasks and while some are able to pull it off, many are making costly accounting mistakes they don’t even know they are making.

Here are four common accounting mistakes to avoid in your small business:

Mixing business and personal finances

Mixing business and personal finances

While your business is still in its infant stage, it’s easy to use your personal bank account. Most new business owners use the same bank account and record keeping methods you’ve always used, without separating the two. However, this can be a costly mistake to small business owners. One of the first steps when starting a new business should be to open a new bank account. If you pay for business expenses out of pocket, keep your records for tax deductions and reimburse yourself. It’s the same idea as turning in receipts to your employer for a business expense. Try to keep your personal and business accounts as separate as possible.

Forgetting to record small transactions

Many small business owners don’t keep track of small expenses simply because they seem insignificant. Mailing a package, or purchasing file folders don’t seem like expenses you need to keep track of. However, it is essential that you track even the smallest of transactions, no matter how insignificant. Those small business-related purchases add up and after a while, you’ll rack up a decent amount of tax-deductible business expenses. If the IRS ever audits you, you’ll want to have records or each and every business expense. Not to mention, staying on top of the small transactions makes managing the larger business expenses that much easier.

Not setting a clear budget for each project

Failing to effectively budget even the smallest projects within your company can be a costly mistake. A project that isn’t properly budgeted can end up costing a company way more money than it should have. Simply because there is no clear plan going in. Set a budget for each project, convey that number to employees working on the project, and stick to it. Setting budgets for all projects keeps a business’ finances on track and cuts spending significantly.

Trying to manage all accounting in-house

When a business is first starting out, they have limited expenses which makes it easy to manage your own accounting. However, as your company grows, managing your own accounting could actually be costing your business money. While hiring an accountant will cost you more money each month, you’ll actually save money long-term. An accountant can help you free up your time and focus, find tax deductions you didn’t know about, and find errors that only an expert can spot. In fact, the IRS reported over $3 Billion in penalties and fees charged to business owners for mistakes in taxes and payroll in 2013.

Not setting a clear budget for each project

To speak with an accountant about saving your small business time and money, and avoiding these costly mistakes, contact Vyde today.

FAQs about Accounting Mistakes:

  1. Why is mixing business and personal finances a mistake?

    Combining finances can lead to confusion, hinder tax deductions, and complicate financial tracking. Separate accounts streamline record-keeping.

  2. Why should small transactions be recorded?

    Small expenses accumulate and impact financial records. Proper documentation ensures accurate tax reporting and facilitates financial management.

  3. Why is setting a clear budget for each project important?

    Clear project budgets prevent overspending, enhance cost control, and promote financial discipline. They ensure efficient resource allocation and project management.

  4. Is managing all accounting in-house advisable for growing businesses?

    While manageable initially, in-house accounting may lead to costly errors as businesses expand. Professional accountants offer expertise, uncover deductions, and mitigate IRS penalties.

  5. How can an accountant benefit small businesses?

    Accountants provide financial expertise, uncover tax-saving opportunities, and identify errors that could result in IRS penalties. Contact Vyde for professional assistance and long-term financial stability.

Accounting mistakes can be costly for small businesses. Make sure you avoid these four common accounting mistakes or hire an accountant to help you.

Before you read on, take a quick guess at how many small business start-ups fail within the first five years. No reading ahead!

According to the Small Business Administration, about half of all businesses fail within the first five years. 50% of businesses make it, and 50% don’t. Are you shocked? Maybe feeling a little unsettled about your new business venture?

If you’ve found a way to make money and suddenly it feels more like a business than a hobby or side-job, you’ve got a business on your hands. Congrats! Here are a few quick accounting tips for making sure you’re business is among the 50% that are still around five years from now.

  1. Keep it simple. Get organized, get legal, and get to work. The simplest entity you can form for now is a called a sole proprietorship. This means your business is owned and run by person and there is no legal distinction between the owner and the business. No employees, no payroll, no fuss.
  2. Obtain proper licenses and tax information. Since you’re going to be the owner/entity of your sole proprietorship, you’ve got a few other tasks to take care of. You need to acquire an occupational license (if mandated in your area) and you must remit all state or city tax collections on retail or sales your business collects.
  3. Concentrate fiercely on your business, but don’t be irresponsible. Now is the time to buckle down and build your business—find ways to market to your customers and clients, improve your products and services, and build your brand. As a sole proprietor, the IRS won’t even know you exist until after you file your first personal income tax return. You’ll file your personal taxes (like usual) and also a Schedule C form where profits and losses of your business are reported. If you don’t quite have a streamlined process of doing business yet, not to worry. For a sole proprietorship, a separate bank account is not mandated as it is for an LLLC or Corporation. If your business claims a loss during the first few years, those losses can offset your day job’s income and provide a possible tax refund.
  4. Develop an organized way to pay yourself. Another advantage of a sole proprietorship is that there are no payroll taxes taken out, and no set way you have to pay yourself. You can set up a certain percentage of profits you plan to pay yourself, or you can simply keep what’s left over after paying all business expenses. Often times, S corps don’t have to pay quarterly estimated taxes either. Click here to learn about specific scenarios when they do.
  5. Keep track of expenses and income. You don’t really have to do much with your receipts until tax season comes along, but definitely keep them in a safe place. Perhaps an easier method of tracking expenses and profits is to use a simple two-page Excel spreadsheet, one with incoming money, and the other with outgoing. You can use your business expenses as write offs at the end of the year which deduct from the amount of money owed on taxes.
  6. Plan to succeed, but be prepared for the worst. Remember that statistic from the beginning? If your business fails, no special forms are required to be reported to the IRS, you just simply stop doing business. All you have to do is file one final Schedule C and you’re done.

After your business experiences significant growth or you hit the five year mark, talk to a CPA about changing your entity type to one that could save you more money and be more efficient for your business. Vyde offers free accounting and small business bookkeeping advice all year long. Contact us with your sole proprietorship questions and we can offer some accounting tips and point you in the right direction.

Mazuma is turning 3! And, we’re doing the hula accountant-style over here because we’re celebrating another great year. We couldn’t have done it without you. We started with the idea that small businesses need simple, affordable accounting and because of you and the family, friends and colleagues you’ve referred to us we’ve grown. Thank you for entrusting us with your accounting.

There are all kinds of wonderful going on this week and you’re invited to participate in them all.

MAZUMA ANNIVERSARY SWEEPSTAKES

WIN A $25 GIFT CERTIFICATE TO YOUR FAVORITE RESTAURANT/STORE
ENTER BOTH CONTESTS FOR TWO CHANCES TO WIN

Say Cheese!

Grab your purple envelope and smile! Take a photo of you and your purple Mazuma envelope, add it to Facebook with a caption telling the world about your feelings for Mazuma. Share it with Mazuma to be entered into the contest. Want some free publicity? Stand by your business sign or hold up your bcard in the photo.
Be a Mazuma Star!
Tell your Mazuma story. Review and share Mazuma on Facebook to be entered into the contest.

Not a facebook groupie? Send us an email with your review and photo to be entered in the contests or post it to google.

MAZUMA STYLE TRAINING VIDEOS LAUNCHED
As part of Anniversary Week, Ben Sutton taped a three part series exposing the real secrets of accounting and how to use it to be more successful in your business. These informative videos show the document you’ll receive from Mazuma each month and how to read the Income Statement, Balance Sheet and Ledger Report to get the most out of your Mazuma services. Ben even highlights ways to use the numbers in your real life situations. And, he uses normal words and examples. Insert applause here.

Profit and Loss/Income Statement Training

Balance Sheet Training

Ledger Report Training

PARTY ALL WEEK LIVE AND VIRTUALLY
All week long we’ll be partying online on our facebook and pinterest pages. Join the fun and share what you think of Mazuma and where you stash your purple envelope. Or if you have general questions, ask away. We’ll respond.

If you’re in the Utah area, plan on joining us for some food and fun. Watch for your invite in your inbox.

Thanks for celebrating with us!

When you’re juggling the operations of a small business, each task takes its turn at being the number one priority. As you check an item off your to-do list—order supplies, take inventory, create an advertisement, etc.—you’re that much closer to small business success. Your list, however, doesn’t seem to get any shorter.

Many small business owners who do their own accounting and small business bookkeeping find that those tasks seem to hang out at the bottom of the list and never really get done. Unfortunately (and fortunately in some regard) accounting is an ongoing task that is never complete.

Here are three of the most common accounting mistakes small business owners make and ways to avoid them and keep your finances on track.

1. Not keeping close track of money coming in. It’s always great to get paid, but often times, the money goes out as quickly as it comes in. This is especially true for businesses who are just getting established. Keeping track of which invoices have been paid seems to be one of those things that is continually pushed to the bottom of the list with the thinking, “I’ll remember who paid me and mark it off later.” When this happens and tax season approaches, you’re left with a big long list of receivables and you’re not sure who paid what and when.

The solution: There is no easy answer to this. However, there are a few ways you can make keeping track of your receivables a little easier. One is to set aside time each day to account for money coming in. That sounds fairly elementary, but you’ll be surprised at how much more accurate your records will be if you have ten or twenty minutes each day to update.

Another way to keep better track of money coming in is to accept online payments, that way the internet does the tracking for you. Programs such as PayPal are easy to set up and maintain, and they crunch the numbers for you. If you are a running a larger, more established business, you may want to invest the money in updating your website to include a payment feature that is unique to your company.

2. Not keeping track of expenses—no matter how small! On the flip side of keeping track of money coming in, you’ve got to manage your money going out. Since there are often a lot more little expenses than there are payments coming in, this is perhaps the most difficult aspect of accounting to stay disciplined on, both in business and in personal finances. It’s easy to think that $20 here and $40 there isn’t much in the big picture of your business, but those small expenses can really add up and surprise you each month. Keeping track of your small business expenses will save you a lot of headache come tax season and also help you gain a better understanding of your profitability.

The solution(s): Keep your receipts! If you don’t have a record of what you spent, how will you ever know what the mysterious $50 charge is to your bank account? Even if you don’t take the time to sit down and record every receipt as you make your purchase, keep ahold of them so you know which expense is which later on. Create a separate envelope in your car to put business receipts so that they are all together in one place when you’re ready to update your records.

Keep a separate card and bank account for your small business. No matter how small your business, this is never a bad idea. Don’t charge business expenses on your personal credit card, and vice versa. If nothing else, it keeps things simpler throughout the year and at the end of the year when gathering all of your financial information.

3. Not hiring a professional. If your business is small and money is tight, hiring one more person to do something for you that you think you can do yourself just doesn’t seem logical. The truth of the matter is, if you’re not an accountant, you probably need an accountant. While you will have another bill to pay, you’ll also save yourself a lot of stress and a lot of money down the road. You need to make sure you are taking advantage of all the deductions you can, staying up to date on ever-changing tax laws, and make certain you are bringing in more than you are sending out.

The solution: Hire an accountant. If you absolutely cannot afford one more monthly bill, at least hire an accountant to do your taxes for you rather than trying to do them yourself. Vyde offers a low, flat monthly fee to clients that include tax preparation and doesn’t increase as you go. Vyde is able to handle the accounting for many small businesses for as low as $50 per month. (We know we’re kind of biased on this one, but hey, we also know how quickly things can get out of hand.)