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Every business firm must have adequate cash flow balance in their account. You never know when a need can arise wherein you require immediate cash. If you don’t have sufficient cash in hand, then it can damage your reputation or cost you some money (if you take money from financial institutions, interest rates must be paid).
Here are some accounting tips to avoid cash flow mistakes.
1. Improper Records
One of the common bookkeeping mistakes made by small businesses is not to record the transactions. It’s impossible to expect you to remember each and every transaction. At times, some businesses do not know how to maintain records. They may add revenues in books of account even before the payment is received, just because the goods are supplied. The revenue entry should be made only after you’ve received the payment.
2. Long Credit Period
If you give a long credit period to your debtors, then there is a possibility of a low cash balance. The credit period you receive from your creditors should be lesser than what you give to your debtors. Giving credit to unworthy debtors is not recommended. Also, allowing credit on smaller amounts should be avoided. The cash conversion period should be reduced.
3. Paying Too Early
Making early payments to your creditors before the due date is not necessary. If you have a good rapport with your creditors, you can ask them to extend the credit period. You can also ask for a longer credit period if there is a big payment to be made.
4. Calculating Errors
Errors in calculations are one of the many bookkeeping mistakes. This happens if you do not have a well maintained accounting system.
5. Error in Forecasting
Sometimes, errors in sales forecasting can lead to inadequate cash flow. If you overestimate future sales, then you would liquidate the present cash to increase your sales. However, if the sale does not increase, then your money gets blocked in the excess stock available with you. Therefore, it is important to take into consideration past data as well as the current economic condition for forecasting. This will minimize the errors in forecasting.
The above mentioned accounting tips should help you to avoid bookkeeping mistakes when it comes to cash flows. Bookkeeping mistakes can be avoided with the use of better software available for accounting and taking professional help. If you face cash flows problems often then it is better to consult an expert accounting firm for assistance.
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Do you think revenue and profit are the same? . Well, this is not true. In accounting terms, there is a substantial difference between revenue and profit. When you receive revenue, it does not mean that your business has earned a profit. While your business is doing well, being well-versed in accounting and bookkeeping gives your business an advantage. This is because then you are able to assess and manage your funds in a better way.
This is why businesses need the help of professionals accounting firms who assist them in their day to day book-keeping and accounting systems. Revenue vs profit can be explained in following points.
Top and bottom line
Revenue vs profit compared as the top vs bottom line. In a business, revenue is considered as the top line. Revenue is the total amount of money earned by the company after the sales of its goods or services. Profit is considered as the bottom line. Profit is the sum total of the income after deducting the cost of the materials, operating and non-operating expenses, debts and taxes.
Another difference between revenue and profit is the dependency. Revenue is independent on its own while the profitability depends upon the revenue earned. The greater the difference between the revenue and the expenses, the greater is the profit earned.
Revenue and profits come in two types. Revenue can be received from operating activity which is the core business of the company. This is known as operating revenue. The second type is revenue received from a non-operating activity, which is called as non-operating revenue.
The two types of profit are gross profit and net profit. Profit received after deducting the operating expenses is known as gross profit. Whereas profit earned after deducting the debts, interests and taxes is known as net profit.
One major difference between revenue and profit is the tax applicability. A tax rate is applicable only when you’ve earned a substantial amount of profit. You cannot be asked to charge tax for the revenue earned. The tax rate if applicable or not can only be known when you close the books of accounts at the end of the financial year since profit is calculated at the end.
The above mentioned points will assist you to know revenue vs profit. It is important that firms maintain a proper record of all the transactions and accordingly understand the difference between the two terms. A good book-keeping practice will help you in analyzing the income statement and accordingly work out plans to increase the revenue and profitability of the firm. A professional accounting firm is the best guide to help you.
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A payroll system is an integral part of all organizations. This system is responsible for employees’ salary compensation, and also plays a vital role in protecting the company’s reputation by ensuring compliance with various legislations. Payroll affects every aspect of your business, from the goodwill of the company right down to the morale of its employees. If you have a small business, you too can set up a small business payroll system. When you set up a small business payroll system, it becomes easier to maintain as you grow in future. Here are steps to set up a payroll.
Registering with Canada Revenue Agency (CRA)
You must have a Business Number (BN) and a Payroll Program for your company by registering with CRA. A Business Number is a unique 9 digit number, used to identify a company for tax matters in Canada. In a Payroll Program, you need to gather some information and decide your first remittance due date. The following information is required for a payroll account.
The steps to set up a payroll account can be done online as well.
The next step is to collect the Social Insurance Number of your employee and file Personal Tax Credit Return. Once you’re done, you can go forward with calculating the deductions. CRA has an online calculator to estimate tax deductions. Ensure that you have the information regarding employee province in order to calculate proper deductions. Use the payroll deductions online calculator to determine your share to deduct from each pay period. For this, you must know the provincial and territorial location of the your employee.
Remitting Payroll Deductions on Time
You need to remit Canadian Pension Plan (CPP) contributions, Employment Insurance (EI) premiums and Income Tax Deducted from your employee. In order to decide your remittance date and frequency do the following:
In case you need any help in the above points take services of a professional firm. You will have to pay high penalties if you are late in remitting your employees payroll deductions. The penalty is as follows.
Follow the above steps to set up a payroll system. Setting a payroll is a complex and time consuming task but it is beneficial to both the organization and the employees. So, if you need assistance to set up a small business payroll system, consult a specialized bookkeeping firm.
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Cash flow issues in the business are quite common especially if you do not maintain a proper record of your transaction. Cash flow problem arises when you are not able to make payments as and when the amount is due. It can be payments to your creditors, the company employees, the administrative, finance expenses and so on. Your company may be doing well in terms of sales and profitability but you may face cash flow issues in the business. Certain ways you can increase cash flows and solve cash flow problems are mentioned below.
Prepare a cash flow forecast
It is important that you maintain an accounting system in order to keep a track of your finances. An accounting checklist also helps.
It helps to prepare a cash flow forecast, as you can make use of previous year’s data to make a forecast for the current year. Cash flow forecast will enable you to see which months you can expect to see a cash deficit or surplus. Accordingly, you can manage your working capital to solve cash flow problems.
Managing inventory for small businesses is difficult. You must ensure that your working capital does not get blocked in excess inventory. If you have fewer inventories, then it will increase cash inflow but will affect the daily operations. A reasonable level of inventory should be stored in order to cater to consumers. It is difficult to decide the adequate amount of inventory, therefore inventory financing control should be done.
Offer discounts for early payments
You can reduce the credit period by offering discounts on the credit sales. You can offer discounts if your debtor pays you the entire amount earlier than the stipulated date. Discounts should be applicable only if the early payment is made before 10 days or so than the due date. This method can increase cash flows quickly. It should be noted that discounts are usually provided on large payments.
Move receivables to finance companies
You can either accept payments from your debtors through a credit card facility or you can search for finance companies which will offer loans to your debtors. In both cases, you will get the payments immediately which will increase cash flows. You don’t have to go after your clients to collect the receivables. The finance company is usually a bank who will manage it.
Reduce the credit period
Another method to avoid cash flow issues in the business is by reducing the credit period. However, when a company receives huge orders the credit period is for a longer duration. You can reduce the credit period of clients who do purchases in smaller quantities. For larger amounts, you can take some money upfront in advance. You can also collect payments in small amounts, say for a full payment of $100, 000 ; you can ask them to pay ten thousand every month. This will lead to cash inflow for every month and solve cash flow issues in the business.
If you are looking for any assistance relating to cash flows or accounting services for your business get in touch with a professional accounting and book-keeping service provider.
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Business insurance is a critical part of running a successful business as it protects your business from risks. Business insurance policies change year after year, which is why it is important to review your existing insurance policy before you renew it. Renewing a business insurance policy that does not safeguard your business from risks is pointless and is a waste of your hard-earned money. That is why we have compiled a list of tips for you to consider before you renew your business insurance.
Obtain multiple quotes
Renewing or buying a business insurance without doing research and shopping around for the best deal is a mistake you do not want to make. Reach out to multiple business insurance agencies and obtain their policy quotes and benefits brochures. This will help you to make an informed decision before renewing your existing policy. Even if you have no complaints with your current business insurance plan, it doesn’t hurt to look around in the market for a better one.
Check coverage clauses for property
Whether you run your business out of a leased property or from your own property, business insurance costs should include coverage for your property. Some business insurance plans do not have coverage listed for vacant buildings and leased property. Check the coverage provided for property under the plan you are looking at before you renew your business insurance.
Review your business’ insurance needs regularly
You need to do a thorough valuation of your business which includes calculation of the net worth of your business and equipment and also your liabilities. With the growth of your business, the business insurance needs of your company might defer. Inventory growth, the size of assets and liabilities may change and may require a different business insurance coverage. Be sure to review your insurance needs periodically and weigh them against the growth of your company.
Get your data insured
What good is your insurance plan if the business insurance costs don’t provide coverage for data? Data breaches and thefts are a huge business risk and having business insurance for electronic and cyber data is imperative. Check with your business insurance provider for adequate coverage of electronic data and security breaches before renewing that insurance plan.
Determine replacement value of equipment
This is an important business insurance tip to consider. Be sure to check the market value of office equipment and machinery to determine the insurance limits. Insurance companies roughly estimate the value of equipment as $10,000 per employee and that is the book value of the coverage that you will receive in case of an accident. Checking the market cost of all your equipment will allow you to understand the business insurance costs that you are eligible for and how much you will need to pay in case of a difference between book value versus replacement value.
These are the important business insurance tips that you need to remember before you renew your business insurance. Contact a reputed business accounting firm for accurate business valuation and asset and liabilities calculations before you choose a new business insurance plan.