Small business bookkeeping is one of the foundation blocks of a successful business. It is also one of the most neglected parts of many small businesses.
Many small business owners do not bother with any bookkeeping until it comes tax time.
Some will go to the trouble of hiring a bookkeeper or accountant...
but then they don’t give the monthly reports a second glance.
Both are huge mistakes!
Sharon Osborn from The Talk can testify to that. She and Ozzie ended up paying almost two million dollars to the IRS in back taxes. She stated it was because she didn't pay attention to the financial side of their business. She tweeted this message soon after she discovered what she owed: "You can’t rely on anyone but yourself. You have to be on top of your own business affairs. My fault. Lesson learned."
So whether you do your own small business bookkeeping or hire your bookkeeping out...you must be on top of your own business affairs as Sharon so eloquently put it.
Preparing and reviewing a simple internal income statement can be an effective way of in making sound business decisions and staying on top of your business.
Analyzing your data in an
internal report such as the sample income statement above can help you
discover what is working and what is not, where you need to cut expenses
or where you might need to increase them, and how your income/expenses
are in comparison to another reporting period.
Here are some small business bookkeeping tips for preparing internal reports that are easy to understand and the most effective in making sound business decisions...
Tip 1: Title your income statement whatever works best for you. I have seen internal income statements titled several different ways. Here are a few of the most common:
I would also add a dash and on
what basis is was prepared such as Statement of Revenues and Expenses –
Income Tax Basis (see sample income statement above) or Statement of
Operations – Tax Basis (Unaudited).
You could also add a footnote on the bottom saying Notice to Reader “Statement prepared on an income tax basis not GAAP.
For those of you using the
accounting spreadsheets from this site, You will simply type in the new
title on January’s report and the rest of the reports will update with
the new title.
For those of you using QuickBooks: Go to reports → Company & Financial, → Profit & Loss Standard. Click Modify Report button, then click Header/Footer tab. Edit Report Title then click ok.
Tip 2: Rearrange your expenses. Arranging your expenses listing your biggest expense first. You will be able to tell a glance what your highest expenses are and monitor them.
In most accounting software the expenses will be listed alphabetically. In most software … to change the order of your expenses you will need to rearrange them in your chart of accounts first.
In QuickBooks, go to Lists, then Chart of Accounts (or press shortcut keys Ctrl + A). Click on the little diamond that is in that yellow bar at the top, then go down to your expenses and click and hold that little diamond to the left of the account you are moving till it changes to a four-headed arrow. Then simply drag it where you want it to move that account. P.S. You can do your income accounts the same way.
In your small business bookkeeping spreadsheets, you simply list them the order you want them in.
Tip 3: Set up a column to compare to your expenses in relation to your income. I do this so I can see at a glance what expenses are the biggest percentages of my income. I will closely monitor those profit-eating costs to see if:
In QuickBooks it is really
easy to add this column, simply pull up your Profit and Loss Standard
Report and click on the Modify Report button in the left hand corner. Go
down to “Add subcolumns for” and put a check mark in % of income. See
the sample income statement above.
In the small business bookkeeping spreadsheets offered free on this site, to the right of your last column, build a column titled % of Income.
The important thing is to prepare a monthly and/or quarterly profit and loss statement and then sit down and study it. See what you can change, improve, or reduce to grow your business.
Tip 4: Format it to compare a current reporting period to a prior reporting period. This is imperative! Take time to set up and study a comparative income statement.
You can compare this month to last month or better yet the same month a year ago. Compare this quarter to the previous quarters or to the same quarter a year ago.
Last of all always compare this year’s income statement to previous years.
Did your income increase or decrease? By what percentage? Did your expenses increase? In proportion to your income?
In QuickBooks, this is an easy report to create. Simply >: Go to reports → Company & Financial, → Profit & Loss Per Year Comparison.
These diagnostic reports can help you identify good and/or harmful trends. Are your expenses steadily creeping up but your income is staying the same or even worse ... declining?
If so, it is time to jump in and figure out what you can do to reverse this harmful trend.
Studying the data in internal reports will help you make wise and financially sound decisions for your business, so stay diligent in your small business bookkeeping tasks and watch your business grow.
Reference Source for this article: "Focus on Bookkeeping - Income Statement Presentation Tips" by The Bookkeeper's Notes, newsletter issue June 15, 2011, published by Bookkeeping-Essentials.com; "How To Read Your Financial Statements"
Setting Up Accounting Tip..
Click on image above for more details.
Keep you accounting system for your small business as simple as possible! The easier the better and the more likely you will keep it up to date.
QuickBooks Online Review..
Click on image above for more details.
QuickBooks Online (QBO) has grown by leaps and bounds since they launched in 2004 ...review of the revised QBO.