Viewing posts for the category Small business accounting

Mar

3 / 2015

The Simple Method To Make Any Business More Profitable, Permanently

Thanks to guest blogger Mike Michalowicz for sharing his advice with the Wave community. Mike is the entrepreneur behind three multi-million dollar companies and he is also the co-founder of Profit First Professionals, an organization that certifies accountants and bookkeepers in the Profit First method. If you're a Wave Pro, be sure to join this awesome group to help your small business clients put the Profit First method into practice. A big thanks to Mike for the work he does to educate and liberate business owners around the globe. 

The Simple Method To Make Any Business More Profitable, Permanently
by Mike Michalowicz

The formula for profitability has been established for ages. Every business owner, CEO, freelancer and entrepreneur knows it. It is even required, in the US by Generally Accepted Accounting Principles (GAAP), which in turn is enforced by the SEC in the United States and the International Accounting Standards Board internationally.

Using GAAP or not, the fundamental profit formula is the same:

Sales – Expenses = Profit

There is just one problem… The formula doesn’t generate profits. There is a reason that 21 million out of 28 million small businesses in the US are surviving check to check. It’s not that 21 million people are smart enough to start and build a business, yet not smart enough to turn a profit – its that they are relying on a flawed formula. Sales – Expenses = Profit is a lie. The formula prohibits profit.

Logically, of course, the formula is sound. A business must first sell in order to generate inbound cash flow. Then the business deducts the expenses utilized to deliver its product or service and to run its operations. What remains is profit. Profit, effectively, is a leftover.

While the GAAP formula makes logical sense, it ignores the fact that it is managed by people. We are, first and foremost, emotional beings, prone to ignore (or even defy) logic.

Cyril Northcote Parkinson, in his famous bestseller Parkinson’s Law, proposed that “work expands so as to fill the time available for its completion.” His theory has been generalized to state “The demand upon a resource tends to expand to match the supply of the resource.”

Arguably, money is the ultimate resource. In GAAP’s “Sales – Expenses = Profit” formula, the business owner sees the cumulative deposits (resource) from sales and has a propensity to conclude that all the money is available for expenses (the demand expands to match the supply). The new equipment purchase is justified because the money is there. A new hire starts, because the money is there. Profit? It is an afterthought. Therefore, there rarely is any.

Now consider a new formula, where a business takes profit first:

Sales – Profit = Expenses

Mathematically the formula is identical to GAAP’s. But from the perspective of human behavior, the Profit First formula is radically different. In the Profit First formula a preset percentage of deposits generated through sales are first allocated to profit. The remainder is used to pay expenses.

In practice, as deposits from sales come in a predetermined percentage, for example 15%, is immediately transferred to a separate profit account. The remainder is available for the business leader to run business as usual. The business owner will see his available cash (which has had the profit already deducted) and make decisions accordingly. The new equipment purchase may be delayed, or a more cost effective alternative may be found. A new hire won’t be made because the money is not there, and perhaps the entrepreneur will conclude was unnecessary in the first place.

While I have co-founded, built and sold two multi-million dollar technology service firms, admittedly they were never truly profitable. Every increase in revenue seemed to be matched with an even greater increase in expenses. Every day I checked (and still do) my bank balances. As the balances would climb and fall, so would my confidence and my spending. I lavishly incurred new, unnecessary expenses when my bank account was fat. I panicked when it was thin.

This behavior, I have found, is not unique to me. In fact, of the hundreds of entrepreneurs and business owners I have asked, the vast majority also do “bank balance accounting.” It was with this realization that I started doing Profit First for myself five years ago. That is when I applied the “pay yourself first” principle to the operations of my businesses. I became my own guinea pig for Profit First.

Every quarter since, I have posted a profit. Every business I have invited to flip the GAAP formula, has also posted a profit or, unfortunately in some cases, decided to give up the system because it put “too much downward pressure on expenses.”

GAAP offers so much more in business insights than most entrepreneurs could imagine, but it does fall short on working with an entrepreneurs “bank balance” habit. I have become an advocate for the Profit First approach to cash management, because of the one thing it does do extremely well. It works with the natural habit of business owners. And, it functions as a “plug-in” to all the GAAP accounting systems and processes I have place. It doesn’t change GAAP, it simply sits on top.

Profit First has transformed my own businesses for the better (if you consider consistent profits, better). Admittedly, Profit First is not the panacea to all cash flow problems, but it surely makes profit a habit.

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Feb

5 / 2015

Wave Pro of the Year: 2014

Congratulations to James Krener at Krener Bookkeeping & Tax

  

We had such a great year in 2014! Accounting and bookkeeping professionals have embraced the cloud, adopting new products and taking on new challenges. Now that functions like bank reconciliation and journal entries can be cloud-based and data entry can be automated, a paperless workflow is the new norm.

Wave has been around for more than four years, but our goals remain the same: to liberate small business owners and to help them succeed. We would not be able to do this without the incredible accountants and bookkeepers who help our customers every day. This past year, there was one Wave Pro in particular who really stood out, an individual who lives and breathes Wave's values. He took on new obstacles and offered an immense amount of his time to Wave customers who wanted to manage their finances more efficiently. It is my pleasure to announce our Wave Pro of 2014: Mr. James Krener and his team at Krener Bookkeeping & Tax

James welcomes all small business owners to learn more about their accounting system. A small business owner himself, he built his practice from the ground up with Wave. If you want to mix flexibility, generosity, and fun with accounting, KB&T has what you are looking for. 

The quote in the picture below resides in James’ office and represents KB&T’s ultimate vision: to help small business owners rise above their accounting, bookkeeping, and tax with easy and affordable resources.

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Feb

4 / 2015

Organizing your Small Business Expenses

Advice from Wave Pro: Madan Chartered Accountants

If you're a brand new small business owner, it can be tough to focus on accounting and bookkeeping with so many other things on the go. You've probably questioned the idea of bringing on a professional but you're not sure what services you need this early in the game. 

The team members at Madan Chatered Accountants are experts at helping small business owners succeed on Wave and they were generous enough to share some knowledge. 

Here are 3 things they think you should consider:
 

1. Why proper bookkeeping is critical for small business success

Hiring the right bookkeeper is essential for making and maintaining a successful business.  One of their main jobs is to create a budget for your company. A budget is a forecast of a company’s expenditures and revenues over a time period in the future (e.g. 3 months, 6 months, 1 year, etc.).

It’s important for business owners to prepare budgets periodically in order to:

1)    Better manage cash-flow

2)    Plan for any short-falls in cash (e.g. through bank financing)

3)    Help allocate company resources

4)    Set goals for revenue and profit

In addition to preparing a budget, you as a business owner, should review your company’s actual results against the budget to see if financial goals have been achieved and if there is room for improvement.


2. Benefits of reviewing company financial statements 

It’s important to review the financial performance (i.e. profitability) of your business at least quarterly with your bookkeeper so that you can: 

1) Quantify the business’ profits or losses.

2) Identify areas for improvement in sales.

3) Proactively look for cost savings opportunities.

4) Measure your financial results against your competitors.

5) Track your company’s financial performance against your goals.

This sounds great, but why should you care about accounting if your business has a healthy cash balance? Well, you should care because accounting will help you know if you’re profits are declining, whether there are signs of a sales slump in the future, and whether your cash will run out shortly.

  

3. How Wave Can Help You Organize Your Expenses

Wave is a 100% free program that allows small business owners to virtually keep track of expenses and cash flow with a cloud-based accounting software that will make your bookkeeping simple and easy.  The program allows you to connect your bank account to their secure system which will essentially eliminate manual data entry.  It has the ability to create transactions automatically and place those transactions into categories based on your business’s preferences.  The categories are divided into income and expenses.  They have a pre-set list of categories if you want basic bookkeeping, or you can create your own categories for a more advanced way to keep track of your records.

Wave helps you connect with accounting firms in your area that they think will help you out the most when the tax season comes around.  The program they offer for this is called the Wave Pro Network where small businesses can search for accountants in the areas of expertise that they need to expand their business.

Furthermore, Wave is a great way to organize your income and expenses so it is easier for your accountant to file your corporate tax return.  You do not need to rely on spreadsheets and word documents any more to try to organize your tax information.

Wave is not only great for bookkeeping, it is also seamlessly integrated with invoicing, credit card processing, receipt scanning, reports and payroll.

For free online videos on how to use Wave to complete your company’s books, see Madan CA's bookkeeping tutorials.

Allan Madan is a Chartered Accountant, Chartered Professional Accountant and Tax Expert who enjoys working with business owners, individuals and entrepreneurs. He has over 14 years of experience in public accounting. Prior to founding Madan Chartered Accountant in Mississauga, he worked for the prestigious firm Deloitte for six years, where he held the position of International Tax Manager.

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Jan

7 / 2015

A fresh start: How to make 2015 your most profitable year!

January is a great time to talk about setting up a bookkeeping program, prepping for taxes and ironing out a strategic business plan. 

To help get you started on the right foot, Wave is hosting a webinar with cloud accounting expert Danetha Doe. 

Danetha will share her expertise for how to align your business plan with your lifestyle and financial goals. As well as share her best practices for how to better organize your small business accounting in 2015.

Session overview:

  • Help you identify your primary business goals for 2015, and the importance of planning so that you can live the life of your dreams.
  • Tips for organizing your books, so you know exactly where your company stands financially. 
  • Learn how to take your business to the next level by creating a business plan and sticking with it.

Join us on January 15th at 4pm EST for the webinar!

This webinar is best suited for small business owners who:

... are new to Wave, and cloud accounting software.

... are new to doing their own accounting.

... live all over the globe.

... are looking to sharpen their financial planning and goal setting skills.

... would like to learn more about how to develop a business plan that works best for your small business. 

... would benefit from advice for how to balance personal and business wants, and aligning for your needs.

About Danetha Doe:

Danetha is a financial growth consultant for small businesses specializing in fashion, beauty and natural hair products. She works with clients to improve their cash flow, profit margin and financial success. She is co-president of the Future of Accounting, a professional community of more than 300 accountants and software developers in San Francisco. She is an accomplished speaker and writer; and has been featured on the Huffington Post live with Suze Orman, Mind Body Green, YFS Magazine, and many more publications for her expert knowledge of cloud accounting management.

Click here to check out Danetha's profile on our Wave Pro Network. 

Don’t forget to register for the webinar, space is limited!

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Dec

23 / 2014

Credit card processing fees for small businesses

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Shopping around for a credit card processing service (a.k.a. "merchant services") for your small business? You'll see some tempting teaser rates out there.

Here's what you need to know: Teaser rates have lots of conditions!

You might start with a low rate if:

  • it’s a face-­to-­face transaction
  • using exactly the right brand of credit card
  • with no rewards, miles, or special features

But be careful...!

  • Did you take your order on the phone, online or by mail?
  • Did your customer uses a credit card that gets rewards, like a Gold card, points card or a loyalty card?
  • Did your customer uses a commercial credit card?
  • Is your customer's bank in a different country?

If any of these is true, you probably pay a higher rate — a lot higher! Often as much as 3.5%, 4% or even more!

What about hidden fees?

If you’re paying a low teaser rate, you’re probably also paying a bunch of these fees on top:

  • terminal fees
  • monthly/quarterly/annual fees
  • statement fee
  • membership fee
  • monthly minimums
  • online access fee
  • imprinter fee
  • gateway fee
  • PCI fee
  • regulatory fee
  • breach fee
  • authorization fee
  • batch header fee
  • international transaction fee
  • APF/NABU/data usage Fee
  • refund fee
  • address verification service fee (AVS)

How much are you really paying in credit card fees? If you don’t know for sure, you’re probably paying too much. Understanding your credit card rates and fees will save you a lot of money!

With Wave, you get guaranteed, easy-­to-­understand low rates and no hidden fees, period. Pay 2.9% + 30 cents per transaction, with no surprises.

Learn more at waveapps.com/payments

(Prices for Canada & U.S.; for international pricing please see waveapps.com/payments)

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