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Bookkeeping is the process of regularly recording a company’s financial transactions.
Good bookkeeping helps you budget accurately, keeps you prepared for taxes, maintains organized records, makes it easier to see business targets, and gives you extra peace of mind.
A bookkeeper is someone who manages and inputs the transactional data into the accounting, payroll, payables, and receivables system(s). They document daily financial transactions; bookkeeping is transactional.
Bookkeeping starts with choosing the different sales and spending categories you would like to track. These categories are called your chart of accounts. For example, if you have more than one line of sales, you may want to track the deposits you receive in two different categories so that you know how much money each sales line made you. From there, you assign each transaction coming through your bank(s) and credit card(s) to the most relevant chart of accounts category. Once completing an entire month of assigning categories to transactions, you will be able to see a balance sheet and income statement which will summarize all the work you did into easy-to-read reports.
The easiest way to start is to sign up for a Xero or QuickBooks Online subscription. These cloud platforms make it easy to hook up your bank(s) and credit card(s) to the accounting system so you can begin assigning transactions to proper categories. These categories are called your chart of accounts. As you complete more and more of assigning categories to transactions, the accounting system will create a balance sheet and income statement which will summarize all the work you did into easy-to-read reports.
Bookkeeping is transactional.
Bookkeepers charge for their services in many different ways.
Accountant - The person closing the books every month (tying out banks, credit cards, loans, payroll, etc.). Accounting is more subjective and requires skilled interpretation, which is why accountants have gone through training and standardized exams to become certified as an accountant. They handle all financial information that is a part of your business.
Bookkeeper - Someone who inputs the transactional data into the accounting, payroll, payables, and receivables system(s). They document daily financial transactions; bookkeeping is transactional.
Controller - The person making sure that the accounting department is flowing smoothly. They make sure the Payables, Receivables, Bookkeeping, Financial, and Tax processes are flowing smoothly. The goal of the controller is to ensure everything is running smoothly so that the CFO can have financials timely.
CFO - This person’s primary focus is to support the owner’s strategic direction. They do this by budgeting, forecasting, and analyzing the strategic direction to ensure that the direction is economically achievable. The CFO is an expert at analyzing financial strengths and weaknesses and taking corrective actions.
Getting a financial forecast at least once a year is recommended because you need to be confident to run your business. A key part of gaining this confidence is knowing that you will make money if you execute on your goals, and you can't understand this unless you have planned it out. A financial forecast acts as a radar for your finances, giving you a look-ahead when planning and making decisions.
Without overcomplicating it, a CFO (chief financial officer) is the senior-level executive that leads and is responsible for managing financial activities critical to the success of the business, including cash flow planning, budgeting, forecasting, and negotiations.
Ultimately, a CFO is responsible not only for making sure the numbers are accurate and correctly categorized but also for the framing of critical short and long-term business decisions that directly affect direction and profitability.
It’s essential to assess and reassess the current state of your business to decide when you can benefit most from CFO services.
A business owner typically starts as the all-purpose utility knife, wearing the hat of CFO along with many other roles. Or, there may be no time at all for CFO activities, and that strategic financial side of the business is neglected.
This strategy of wearing many hats or simple neglect is manageable up to a point, but as your business grows you need to focus more on higher-level strategy, and CFO-level expertise becomes essential to help make critical decisions.
Unfortunately, finding room in the budget to hire a full-time or even half-time in-house CFO is not feasible for many businesses, even when the business owner would benefit greatly from CFO activities.
That’s where firms like Strata Cloud Accountants provide an excellent option. Strata Cloud packages the most valuable CFO services, namely forecasting, budgeting, and cash flow planning, into one-time, quarterly, and yearly offerings.
Since they can offer these CFO services in different timeframes and service options, it is much easier for a business to select what is most valuable to them specifically (with a transparent up-front cost that is within their budget).
A KPI is something that must be 1) measurable over a given timeframe (ex. monthly) and 2) consistently measured (accurate data). In other words a KPI has no use, or can even lead to bad decisions, if it is made up of inaccurate or inconsistent data. If the whole point of a KPI is apples-to-apples comparability over time, then consistently bad data can destroy KPI’s usefulness.
One of the foundations of what we do at Strata Cloud Accountants is to make sure our client’s data is set with consistent processes and captured completely in the accounting file. Although our customers are in different industries and have unique processes, we insist that the process of capturing data in the accounting file is consistent across all of our clients, to ensure that any client’s Financial comparability is preserved and KPI’s can be the most useful.
A KPI is only useful to you as a small business owner or operator if it helps you make better decisions that in the long run, lead to more profit or put more cash in your pocket. We’re passionate advocates of the KISS (keep it stupid simple) philosophy, so in that spirit, here is what we see as the most important Profit KPI and most important Cashflow KPI that every business owner should be regularly reviewing.
A forecast encompasses Profit & Loss, Balance Sheet, and Cashflow. Therefore, a forecast provides a better overall picture, and presents a projected answer to the all-important hypothetical question: “how much cash will I have in the future if I do “X”?” Dynamic forecasting also allows presentation of multiple scenarios (either side-by-side or as they come up), and periodic updates and refinement as more information is available throughout the forecast period.
A Forecasting Report is split into 3 main sections:
While Budgets are usually a projection of Profit and Loss only, a Forecast encompasses Profit & Loss, Balance Sheet, and Cashflow. Therefore, a forecast provides a better overall picture and presents a projected answer to the all-important hypothetical question: “how much cash will I have in the future if I do “X”?” Dynamic forecasting also allows presentation of multiple scenarios (either side-by-side or as they come up), and periodic updates and refinement as more information is available throughout the forecast period.
At Strata Cloud Accountants, we find this is very valuable to our clients in that they measure monthly performance against a budget, but they can also react aggressively as new opportunities come up or unexpected structural changes occur that were not accounted for in the original budget. In other words, with dynamic forecasting, you can effectively combat the dreaded “stale budget”.
A bookkeeper is someone who inputs the transactional data into the accounting, payroll, payables, and receivables system(s). They document daily financial transactions; bookkeeping is transactional.
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