Cash Flow, Baby!

If you are using software like Quickbooks to track the finances AND you are keeping it up to date with the transactions in your business, then I'm sure you've utilized the reports to help you with this.  If not, I hope you are using something similar or at the very least, some sort of spreadsheet to track the flow of money in your business.

The reports from accounting software programs can be a little intimidating for some.  And if you aren't using software, you still need something to help you "see" the money in your business.  A cash flow statement or worksheet is a little more simplified, and useful.  This might make some of you cringe but stay with me...this is important. I'll make it REALLY simple so it doesn't overwhelm you...

Let's say it's your very first month in business. YAY! Congrats!

You've contributed $500 to your business for Contributed Capital; You've closed your first two brides for full service planning packages with deposits at $2,500 each (you're on a roll, girl!); which brings your Sales/Svcs Income to $5,000 for the month. Bride #1 will pay her balance in May and Bride #2 will pay her balance in June.

Now let's talk expenses. Your normal monthly expenses consist of $500 in salaries, $500 in other operation expenses and $100 in tax payments, bringing your normal, customary expenses to $1,100 per month. In addition, in the month of January, you decided to attend an educational conference in April but you've paid for it in advance. The conference fee is $500 and you've estimated other expenses for the conference to run you about $300.

Take a look at your cash flow statement:

January, February and March look good with regard to cash flow, but look what happens in April IF you don't generate anymore sales. You'll run out of money. Even if you decide to forgo the $300 you've allocated for conference spending in April, you will still be short by $300. The next time you will see an influx of money is in May when Bride #1 pays her balance.  (Provided she pays ON TIME!)

In the beginning it's easy to want to spend money on all the nice "shiny objects" that grab your attention. Having this simple spreadsheet setup to show all the cash flowing in and out of your business will help you manage your cash so that you can make informed spending decisions in your business.

Still overwhelmed?  Call or email me so I can help.  Because if you are not paying attention to this part of your business, then you are setting yourself up to fail.  And I want you to succeed!

Until next time...

Aspire to Plan!

Why It's Important to Understand and Have a Good Bookkeeping System

A few days ago I told you why you hate the numbers. Was I right? Thought so...

Today I'm sharing why it's important to understand what your numbers will help you with in running your business. Then I share a three step exercise at the end to help you get your arms around your numbers so it's not so overwhelming.

Why its important:

To avoid unnecessary fees - This is a problem because it adds unnecessary expense. Being late on a payment or overdrawing your bank account, is like burning money! Banks charge hefty fees for overdrawn accounts, and this is just money wasted. If you aren't managing your money on a weekly or monthly basis, these fees can add up. (I HIGHLY recommend overdraft protection because occassionally there will be an oversight. But even so, why give the bank ANY of your money?)

So you won't be disorganized at tax time - You'll waste a lot of time and possible sleep trying to gather everything together at tax time in order to do your taxes. If you have your taxes prepared by a professional, then you risk adding additional fees for the time it takes your accountant to make sense of it all before they can even begin to prepare your taxes.

To be able to make informed management decisions; long term and short term - If you don't know your numbers and you don't know what's in your numbers, you can't make solid business decisions. If you don't know how much money you have in your bank account, you can't decide whether or not you can spend money on an opportunity that happens to come up during the day or during the month. Having a solid grasp of where your numbers are and where they are going will help you to make better management decisions. For the short-term, that may mean purchasing a piece of equipment that happens to be on sale this week. For the long-term, you may see a conference coming up in three to six months that you would love to go to but because you don't know what money may be coming in and what expenses are going out the door, you won't be able to plan for that big expense in the long-term.

Knowing the ROI on a particular outlay of cash - The benefit you get from the money you put into your business has to be measured in some way so that you can make adjustments accordingly. You need to know whats working and what isn't..like your advertising and marketing efforts...so that you can change them for better results.If it's bringing money in the door, then you most certainly want to continue doing it. If it's leaking money, then you want to get rid of it. You won't know that unless you understand and have a solid book-keeping system.

Saves you time - Time is a very, very precious commodity when you own your own business, especially entrepreneurs and small business owners. Your time is money, so it is more important for you to spend time doing the things you love; those glamorous things; the creative things; the things that led you to start your business in the first place, instead of sitting behind a computer, at a desk, crunching numbers.

Here are some steps, just three simple steps to getting started on understanding the finances of your business:

1. Make a list of all the different ways that money comes in and out of your business; cash, checks, Paypal, debit cards, and credit cards. Under each type of tender, name and describe some of the situations/transactions where you use those vehicles of payment. A new client sale, supplies purchases, lunch or coffee date with the client or vendor, marketing and advertising payments, one time payment and recurring payments, professional fee payments, membership fees, club fees, rent, utilities.
2. Next to each transaction type, write down whether it is a revenue transaction (service or product sale), or an expense. There are several types of expenses but I won't bore you with trying to determine that right now. Leave that for your accountant or bookkeeper to figure out.
3. Develop a process or system that you are comfortable with, to record the transaction (spreadsheet or Quickbooks). Make it simple so you'll be more successful at keeping up with it. Also, designate a place to store the receipt/invoice/documentation for each of the types of transactions listed above. Like a folder or envelope labeled with the contents and what month it's for.

Now...go and create some time and space in your schedule to do your bookkeeping once per week or at a minimum, once per month. If you can't find the time in your schedule to do it, then hire someone to do it for you...to either create an easy, step by step system for your unique operating style or to actually do the bookkeeping for you each month.

Create the peace of mind you need to be a successful business owner as it relates to the creative side AND the financial side.

Tomorrow's post shows you what a simple, easy Cash Flow Statement looks like`and how it can help you.  Don't miss it!

Until next time...

Aspire to Plan!

Why Small Business Owners Hate the Numbers (Warning: Soapbox Post)

You may be wondering why I am qualified to write and speak about finances and the dreaded "numbers game" of running a business. I'll tell ya...

When I was a senior in high school, I decided to take a few business courses to breakup the monotony of all the chemistry, math and history classes I had to take in order to get into college. I took 6th period Accounting (lunch period) because I was more than likely going to ditch the class to hang out in the lunch room. Yes...I "planned" when I was going to ditch. I certainly wasn't going to use that time for a "serious" class! (See? I was a "planner" even back then!)

Anyway, long story short I LOVED the class. So much so that I did the homework way in advance of when it was due. The curriculum? Starting and maintaining the books for a fictitious company during a three month period. It was like a game to me. I think I had the entire first month's worth of transactions interpreted, recorded and books balanced by the first or second week.

Got an A+ in the class...off to UConn I went...majored in, you guessed it...accounting...and spent the next 25 years working my way up from bookkeeper to Director of Finance of a company here in Phoenix. I earned great money, enjoyed a great lifestyle and it exposed me to the in's and outs of running a business profitably.

That's why I love the numbers.

So here's a rerun of a post I did a few days ago...a reminder of why you hate the numbers:

1. You are not good at it. You haven't been trained to do it.

2. You don't have time to do it. You're busy running your business and your life. You'd rather spend time on the creative aspects of running your business.

3. You can't keep track of all your receipts or all of the ways you spend your money. Money goes flying in and out the door in different ways at different times. 

4. You don't know what receipt you should save and what you shouldn't save. You end up saving every little receipt for every little expense (annoying) and you're not sure if you should spend the time to file that receipt in a neat little place or because you don't know if that expense is really important.

5. You don't know how to record or categorize all the different ways you spend money. Again, this goes back to all of the different ways you spend money, whether it's cash, check, credit card. It's very confusing when you use all these ways of spending money, and what to do with each type of tender.

6. It's not glamorous. Flowers, linens, fancy cakes and taking pictures of insanely gorgeous couples is glamorous...crunching numbers is not.

Bookkeeping is not something that people enjoy doing, and it never will be, but there are ways to make it more simple.  Really, I promise.  Tomorrow I'll share more on why it's important and some simple steps to make it easy for you.

Until next time...

Aspire to Plan!

Why You Hate the Numbers and Five Reasons You Shouldn't

Talking about bookkeeping and accounting is fun for me.  Weird...I know.  It's like a game for me...crunching numbers and figuring out what to do with the information is what I do and what I know.  That's my expertise.

But...

I know y'all HATE the numbers...it's OK.  You don't need to learn how to love them like I do.  You are however, obligated to understand them.  Here's why...

To avoid overdraft fees in your bank account - Don't waste money by giving it to the banks...we've seen what they can do with our money...it ain't pretty.  Keep that money in your pocket by balancing your books often.

To avoid being dis-organized at tax time - Shoebox filing is NOT the way to go.  Setup a simple, easy to use filing system so when it's time to give an account to Uncle Sam, it's easy and stress free.

To be able to make informed business management decisions based on the financial health of your company - This is key.  You can't run your business efficiently if you don't know when to increase or decrease expenses.  And you won't know when to increase or decrease expenses unless you can "see" them in an organized way.  Utilize the reporting features in your bookkeeping software.  And if you don't have Quickbooks or some other software to help you manage, then setup a spreadsheet to track money coming in and going out.

Knowing your ROI - One of the major indicators your management reports will give you is whether or not you are getting a healthy return on your investments.  For example; you paid $500 for an ad in your local wedding publication.  If you don't track the revenue dollars and where your leads came from, you'll never know if that $500 investment was worth it.  Include a coding category for lead sources when coding your sales dollars so you'll know where to increase or eliminate where you spend your marketing dollars.

With a streamlined, efficient bookkeeping system you'll have more time to work on the creative, "glam" parts of your business.  Let's face it...working on the "business" of running your business is not our favorite thing to do.  Having systems in place allows us to "set it and forget it"!

So get crackin!  Or hire someone to do it for you :)

Until next time...

Aspire to Plan!

Cash vs. Accrual

After posting about basic accounting terms and their meanings last week, I received an email from one of my readers recently asking me to help her understand the difference between cash basis and accrual basis accounting. We emailed each other back and forth for a bit but after while I was just confusing her. I took a step back because I wanted to answer her in a way that would really help her instead of throwing a lot of theory at her.

I decided that I would share the explanation here. I'm really trying to break the bookkeeping and accounting thing down to something tangible and useful. I believe every planner should understand the basic dynamics in order to make informed decisions about their business. Here goes...

I believe the more logical accounting method for a service business is accrual basis. Why? For two reasons...one, there is normally no tangible product being sold hence no need to record any inventory. Unless you rent decor items or have other streams of revenue that come from a tangible product, your only sales or revenue source is your time and expertise Secondly, the accrual method gives a better picture of the financial position of your company. For example:

You book a wedding in January. It's a June wedding. Your fee is $12,000; you require a 50% deposit and the balance two weeks before the wedding.

Under the cash basis method, you would recognize $6,000 in sales for the month of January and $6,000 in sales for the month of June. Throughout the six months, you will probably incur a steady stream of expenses.

If you were to look at the financial position of your company for the three months ended March, you would show one month that had revenue and three months of expenses. Looks a bit lopsided and unstable, don't you think?



Under the accrual basis method, you would recognize the sales evenly over the six months because generally, you provide your services evenly over those six months. This method will make your company's financial position look more consistent and stable. More importantly it gives you a clearer picture of your financial position.

Which is the easier to of the two methods? Hands down, the cash basis method is much easier with regard to the bookkeeping tasks you'll have to perform. Its also less complicated and easy to implement. Buy or pay for something...record it...DONE.

With accrual basis, you need to develop a system to record the transactions of your business. This requires more time and expertise, but its not rocket science...really. You just need a chart of accounts, a few spreadsheets and a commitment to stay on top of your bookkeeping.

I can hear each of you saying, "Huh? What are chart of accounts?" Okay, our next post will cover the chart of accounts for every wedding planner. I'll also cover how to record common revenue and expense items for both methods.

Please let me know if this is helpful or if you have questions!

Until then...

Aspire to Plan!

Do You Speak Accounting? Terms Every Aspiring Planner Should Know

With the exception of the summer following my freshman year in college, I've been around bookkeeping and accounting in each job I've ever had. I can talk about it in my sleep! Many business owners I know can't. Most of them cringe when they think about doing their "books" or when tax time rolls around.

These are the basic terms every planner who owns their own business should know. In my coaching practice, discussion of these terms is strongly suggested because I truly believe the financial health of a business depends on the financial oversight and decisions of its owner.

Learn these...know them...and if you need help with them I would be more than happy to discuss them in more depth. I promise not to bore you!

Accounting is a general term that refers to the overall process of tracking your business's income and expenses, and then using these numbers in various calculations and formulas to answer specific questions about the financial and tax status of the business.

Bookkeeping refers to the task of recording the amount, date, and source of all business revenues and expenses. Bookkeeping is essentially the starting point of the accounting process. Only with accurate bookkeeping numbers can meaningful accounting be done.

An invoice is a written record of a transaction, often submitted to a customer or client when requesting payment. Invoices are sometimes called bills or statements, though the latter term has a separate meaning, as explained below.

A ledger is a physical collection of related financial information, such as revenues, expenditures, accounts receivable, and accounts payable. Ledgers used to be kept in books preprinted with lined ledger paper -- which explains why a business's financial info is often referred to as the "books" -- but are now commonly kept in computer files that can be printed out.

An account is a collection of financial information grouped according to customer or purpose. For example, if you have a regular customer, the collection of information regarding that customer's purchases, payments, and debts would be called his or her "account." A written record of an account is called a statement, as explained below.

A statement is a formal written summary of unpaid, and sometimes paid, invoices. Unlike an invoice, a statement is not generally used as a formal request for payment, but may be more of a reminder to a customer or client that payment is due or that payment has been made.

A receipt is a written record of a transaction. A buyer receives a receipt to show that he paid for an item. The seller keeps a copy of the receipt to show she received payment for the item. Receipts are sometimes called sales slips.

A balance sheet is a statement listing a business's assets, liabilities, and net worth, or equity (the difference between the value of the assets and the liabilities).

Accounts payable are amounts that your business owes. For example, unpaid utility bills and purchases your business made on credit would be included in your accounts payable.

Accounts receivable are amounts owed to your business that you expect to receive. Accounts receivable include sales your business made on credit.

Bad debt is money owed for a business debt that cannot be collected; it can be deducted as an operating expense.

Net income is gross income less expenses; it represents a business's profit for a given year.

The accrual method of accounting accounts for income and expenses that are earned or incurred within the 12-month period, which is not necessarily when it is received or paid.

The cash method of accounting accounts for income and expenses when actually received or paid.

Double-entry accounting is a system of accounting that records each business transaction twice (once as a debit and once as a credit).

Still confused? That's ok...I'll be talking more about bookkeeping and accounting soon. The first step is to try and understand the above terms and how they relate to your business.

Next up I'll explain the differences between Cash Method (or Cash Basis) vs. Accrual Method (or Accrual Basis) Accounting, and how they relate to a wedding planning business.

Until then...

Aspire to Plan!