Posts Tagged ‘business finances’
Monday, August 30th, 2010
Liabilities: What your company owes
The second part of the balance sheet equation consists of liabilities. The more common term is DEBT.
The Definition
Like assets, liabilities are divided into two categories, short and long term, with numerous subcategories. They include all debts and obligations owed by the business to outside creditors, vendors, and banks.
A company’s A/P, payroll, payroll taxes are considered short term. The balances are due and will be paid within one year or less. Long term liabilities, could consist of mortgages on buildings, startup loans, and vehicle loans. Remember if a company is supplying a balance sheet for an outside source, such as a lender, the current portion (one year from the current date) of these long term liabilities should be recorded in the short term section.
Tags: Assets, balance, Balance Sheet, business finances, Current Assets, debt, Financial Statements, Fixed Assets, liabilities, long term, Long term assets, short term, small business
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Monday, August 23rd, 2010
Assets: What your company owns 
The items that a company owns are called assets and are divided into two categories, current and long-term and within these two categories are several sub groupings.
How does one decide which asset account an item should be placed in? A good determination would be how fast you can turn it into cash if you need to. The things that can be turned into money in your pocket within a short period of time belong in the current section and the assets that would take a minimum of three months to sell belong in the long term classification.
Obviously cash and savings are current assets, but so are your accounts receivable (as long as you usually collect them within 30 days) and inventory (as long as you turn it within 30 days).
Your office building and company vehicles are long term assets. With the real estate market having an abundant inventory of office buildings and the penny saver having hundreds of trucks for sale these assets are not a good place to look for fast cash.
Tags: balance, Balance Sheet, business finances, Cash Flow, Current Assets, Financial Statements, Fixed Assets, Office Building, Vehicles
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Wednesday, August 18th, 2010
Let’s get down to the simplest definition of a balance sheet. 
A Balance Sheet represents a simple equation: what your company owns (Assets), minus what your company owes (Liabilities), equals what YOU own. This is the same principle that applies in one’s personal life. You own a car, a boat, a house, personal items in the house, but you have a mortgage, a second mortgage, a car loan, and some credit card debt. You may even owe some money to a relative or friend. So like a company, you’re net worth is the amount of things you owe, less the amount you owe on them.
Tags: Assets, balance, Balance Sheet, business coaching, business finances, Cash Flow, Current Assets, Financal Statements, Long term assets, small business
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Tuesday, July 13th, 2010
There are three reports that make up the cornerstone of a company’s financial statements. They are the Balance Sheet, Income Statement and Cash Flow Statement.
The Balance Sheet is a snapshot of a company at a precise moment in time, while the Income Statement summarizes the company’s sales and expenses over a period of time, (monthly, quarterly or yearly). Like the Income Statement, the Cash Flow Statement is a report on a company’s activities over a period of time; however its purpose is to show how much cash comes in and goes out of the business. On the surface the Cash Flow Statement might sound a lot like the Income Statement but, as you will see, there is a big difference between the two.
So, as you might have guessed, the next series of financial blogs are going to dig deeper into these essential three statements that every small business owner must understand in order to effectively manage his or her company.
Tags: balance, Balance Sheet, business, business finances, Cash Flow, Financial Statements, Income Statements, small business, Statement of Cash Flow
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Tuesday, June 1st, 2010
Now it’s time to hire someone and you have chosen to classify them as an independent contract worker, what happens if you choose incorrectly? What could you be facing?
Many businesses have done just that, classified workers as independent contracts when in fact they are employees. If the IRS finds out about this incorrect classification through an audit it could put you out of business. By the way, most IRS audits are triggered because someone is disgruntled with a company or one if it’s employees. The taxes that should have been withheld will be calculated and interest and penalties will be added. The penalties could be up to 100% of the calculated tax. It won’t matter if the contractor paid their taxes or not. If they did, you will have to find them and prove it, in order to receive credit for the taxes paid. The IRS assumes that the incorrectly classified employee paid none of their taxes. As always with the IRS the burden of proof lies with you.
Next, what if the contractor is hurt on your premises and wants to collect workers compensation? What if the contractor is sued for damages for something in relation to the work they were doing for you and does not have their own liability insurance? I think you can see the bigger picture here. One must truly weight the possibilities of audit and mishaps in relation to the increased cost of hiring an employee.
Tags: business, business finances, contract worker, employee, employees, hire, independant contractor, small business
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Sunday, April 25th, 2010
While an “independent contractor” is different from a “standard employee”, the exact definition is not set in stone. In fact there are three places we can look for clues, common law principles, the Fair Labor Standards Act, and the decisions of some courts. Below are questions that need to be asked to determine contractor or employee. This list is by no mean comprehensive, for a more detailed list of requirements visit the IRS website.
- Is the person relying solely on your business as their only source of income
- Does the person work at their own pace with a deadline defined in an agreement
- Is the person eligible for employer provided benefits
- Who exercises control over the work
- Who paid for the material, supplies and equipment to be used in the work
- Is the work to be performed an integral part of the business
- What is the degree of permanence for the person doing the work
- What type of skills are needed to do the work
Answering yes or no to any of the questions does not give a definitive answer to “contractor or employee”. Each situation is different and must be looked at in whole. Example, someone might be hired as a contractor, they rely 100% on the business for their income, work 40 hours a week, but have knowledge of an obscure computer programming language and own special computers that allows them to use this knowledge.
Tags: business, business finances, contract worker, employee, employees, independant contractor
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Monday, April 19th, 2010
At some point in your business, chances are that you are going to face the possibility of bringing on additional help so that your company can grow, or so that you can take a vacation, a day off!
It is at this point that you must confront the question that most business owners face; are you better off hiring employees or independent contractors. This is an important decision for the future of your business and one that should not to be taken lightly.
You can expect to pay 25 percent more when hiring an employee over hiring a subcontractor to perform the same work. You have to match the employee’s Social Security and Medicare tax, pay for workmen’s compensation insurance, liability insurance, and provide benefits. A lot of extra work and additional cost go out the window when an employee can be classified as a contractor.
Over the next five weeks we will look at the pros and cons of employee vs independent contractor and where a business’s position is legally.
Tags: business finances, emplolyees, employee, getting things done, hire, independant contractor, small business, woker, work smarter
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Monday, April 12th, 2010
Debit or Credit? You are probably asked this question every time you are at a checkout counter after reaching for plastic. So which should you use? There are advantages to both, but your choice should be credit as long as you are disciplined in paying off the balance right way. Here are some advantages of a credit card.
- If you pay the balance off each month you can get up to a 40 day free loan (float), the time between when a purchase is made and when you actually pay your bill. Good for your company cash flow.
- You have the option of withholding payment should you be unsatisfied with the quality of a purchase.
- The Fair Credit Billing Act means you have zero liability for fraudulent purchases, poor quality or damaged merchandise, or for merchandise that was never delivered. With a debit card the purchase is taken out of your checking account and is not returned until the transaction in question is resolved. This could severely impact your cash flow.
- Credit card users are not required to pay any amount that may be in dispute.
- You don’t run the risk of overdraft fees, as you can with a debit card. So if you’ve had problems avoiding those overdraft fees, paying just one annual fee to a credit card company may be less expensive in the long run.
- Credit cards allow you to improve your company’s credit score, because you’ll build a history of paying on time.
Still choose debit; then make sure you have a discussion with your banker about not allowing charges to be accepted if funds are not available in the company checking.
Tags: balance, Banking, business, business finances, Cash Flow, Credit Card, Debit Card, Overdraft Fees, small business, work smarter
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Monday, April 5th, 2010
Now that you have a budget, review it on a regular basis. As the year goes along start another version of your budget. Replace the estimates with the actual results of your work. Most owners tend to manage spending and overestimate earnings. Use your budget instead, it is a powerful tool and will give you good information on whether or not you are on track.
If you feed your budget with real number it will give you an instant view of your progress. Most of the CEO’s of the world are doing exactly that. Of course financial aspects are important, but they cannot replace your vision. However, your budget can bring you back to earth if your visions are too elaborate.
Tags: balance, Budgeting, business, business finances, Business Resolution, company vision, management, small business, Well planned budget.
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Monday, March 29th, 2010
Now it’s time to budget for the costs that happen now and then within your company. Are you planning something different this year that you have not tried in the past? For example:
- Are you planning on an intensive marketing campaign to go with the increased sale you have budgeted?
- Are you planning on purchasing new equipment this year? If so the depreciation will be an adjustment to your costs.
- If you have budgeted increased revenue for the year, will you need more office staff? Will you need a bigger sales force?
- With increases in employees also comes an increase in consumables like office supplies, gasoline for the delivery vehicles, cell phones, and yes even more coffee for the break room.
- An easy way to estimate these types of costs is to take the cost in each category from last year and divide by the number of employees. Now take the amount spent on each employee and multiply by the amount of total employee budgeted for this year. Once you have this number you can tweak the numbers to keep your margin in line with your projections.
Tags: balance, Budgeting, business, business finances, Business Resolution, company vision, goals, small business, Well planned budget., work smarter
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