Bookkeeping & Accounting - English Transcripts
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Traditionally, what would happen is someone would perhaps have the old approach of putting all the receipts and expenses in a shoebox…then giving it to your accountant at the end of the year and then letting him or her sort it out and 3-4 months later they come back with good news or bad news…you did or didn’t make money last year and you do or don’t owe taxes.
And this system was maybe not ok, but at least it worked at that time.
But, today, as our business cycles have become shorter and shorter and the pressures to understand the consequences of business decisions is greater and greater…it means that any company no matter how small has got to have good bookkeeping and accounting practices.
Over and over again really, it’s the sad tale that a company has insufficient or incompetent bookkeeping and accounting practices and it just causes them a great deal of trouble with all kinds of different players.
It’s a big problem with their relationship with the Internal Revenue Service…you need to report your business taxes and you need to do so in a way that they come in and audit. And if they’re too suspicious, they will audit and that’s something that no one wants to go through
You have responsibilities to other tax agencies as well, often at the state and local level. You have responsibilities to other partners or stockholders in the company. You need to be able to track your business activities and know what you have for real expenses and real revenues …and understand, track and predict those flows and all in all ..it’s a very great deal of information that if you don’t have access to to and you don’t have at your fingertips then you can’t make good business decisions.
You actually have a number of choices…one of them is you can hire an outside, part-time bookkeeping service to come in and set you up with a program to accumulate your receipts and build a transaction based business model.
And then give you on a very regular basis the information that you need to understand whether you’re making money in your business and if you aren’t making money what you probably need to do in order to change that very, very quickly.
The next level is…there are just a lot of business record keeping systems available from the ancient dome systems where you fill out a little loose leaf binder and track you track your business that way…
Often in a traditional family-based proprietorship, one member of the family runs the business while the other tends to the bookkeeping and manages the financial affairs.
Those systems are not responsive enough for today’s activities….and so you really need to move up to something such as a computer based system such as Quickbooks which a great many companies use these days and it’s a very simple process where you enter information according to various prompts and you get back …at the push of a button… accounting statements that basically tell you how you are doing….
Small businesses really don’t think of themselves as running management systems and yet the very accounting information they collect is the heart of their management system. The management system is the comprehensive information that they need to make good decisions everyday.
They need to have this type of information available and need to know as soon as they aren’t making money…they need to put their finger on that and stop that problem right away, because it will escalate rapidly.
So, today we can use a full blown MRP which is a management reporting system that will give you the information that you need in the context of something called “dashboard.”
A dashboard is a very interesting thing. It’s driven by two things: 1) you build a business budget that is specific to your business. It lays out in detail what every element of the operation is that goes into the system. Now, you’re accounting system starts to collect the operational data in that same format and it continually compares the two.
As soon as the actual operation deviates from the budget then it throws up a warning flag on this very simplified report format that pops up on your screen called a dashboard.
What it means is that the business doesn’t have to worry about all the areas of their business that are proceeding according to plan, they only need to worry about the area of the business that is not according to plan and then bring about corrective action as rapidly as possible on that element of the business.
0:55 (accounting #2)
For $150 a month you can have an ongoing system….you don’t have to worry about the software, where it’s lodged. You don’t have to worry about how it’s managed …you don’t have to have any IT people take care of the network or anything else.
And the information is generated and entered from a number of different places where it happens. Like you do with credit card sales. The information goes directly into the accounting system so some clerk doesn’t have to pull it off this account and go and enter it over into this system.
The automated system then turns around and compares all of those activities to your budget and tells you how you’re doing on a constant, real-time basis.
For more information on the topics discussed in this SME Small Business Learning segment, access the following links.
1) Internal Revenue Service
2) Small Business Training
3) Small Business Bookkeeping & Accounting System