We recently had a few inquiries submitted to the Bean Counter (Have a question? Submit it here) about chart of accounts, what they are, and why they matter.
A chart of accounts is a way of sorting the information gathered from all the activities of your business. It is a list of categories used to collect information.
These categories could be something like:
- A Bank Account for all your checks and deposits
- A Sales account to accumulate all your information for invoices to you customers
- A Cost of Goods account to accumulate all the costs for the materials or goods that you sell
- Office Expenses for all the paper, ink, pens and pencils, etc that you purchase
A Chart of Accounts organizes these categories in a certain order so that you will know the status of your business and if you are making a profit.
If you're frustrated with the way inventory is (or perhaps isn't) being managed, there's a very good chance that you are not alone.
Inventory management is something that we discuss quite a bit on the DataCraft Blog (check out other inventory posts here) because we know it's a common issue among organizations, regardless of their industry.
We'd like to take some time to offer a few white papers that have inventory solutions for inventory accuracy.
Demand Planner
Businesses, regardless of their size or specialization, need to estimate and monitor demand for their goods and services in order to efficiently manage their operations. Reducing uncertainty of demand can significantly help businesses keep inventory and operating costs low while improving customer satisfaction. Download the Demand Planner white paper
Guide to Inventory Basics
Having problems with inventory accuracy? Implementing technologies such as bar coding systems, RFID, and pick-to-light are often assumed to be the solutions to inaccurate inventories. Whether you are planning on implementing additional systems or not you should consider taking care of the basics first.
Download the Inventory Basics white paper
Inventory Turnover Ratio
Inventory management is all about finding the right balance. Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of the business.
Download the Inventory Turnover Ratio white paper
Don't let inventory inaccuracy drive you crazy, learn how effective inventory management can increase productivity.
We are well into March and for some that means saying hello to warmer weather and sunshine and goodbye to snow and ice. For me, it's usually dominated by one thought and one thought 
only: sports.
Not only are we inching closer to the start of the baseball season, but March Madness is in full effect.
So what does a basketball tournament have to do with accounting basics and financial statement preparation and analysis?
In honor of the Big Dance, I'd like to offer you the Final Four of Financial Statements Preparation.
There are four financial statements needed to give a owners and investors relevant information about the company.
1) Income Statement
An income statement reports revenue and expenses over a period of time. There are two parts of the income statement: operating and non-operating.
Investors and analysts pay special attention to the portion of the income statement that deals with operating items. This section deals with operating items gives information about revenues and expenses that are a direct result of the regular business operations. Let's use basketball as an example. If a business manufactures basketballs, then the operating items section would talk about the revenues and expenses involved with the production of the balls.
The non-operating items section tells about revenue and expense information about activities that are not directly related to a company's regular operations. For example, if the basketball manufacturer sold some old equipment, then this information would be in the non-operating items section.
2) Owner's Equity Statement
The Owner's Equity Statement reports the chances in equity over a period of time. Retained earnings on the balance sheet are usually influenced by income and withdrawals. In order to get the information you need for the owners equity statement, which in turn provides information for the balance sheet.
3) Balance Sheet
The balance sheet is a snap shot of a company's financial condition and reports assets, liabilities, and equities at a given point in time. Each portion of the balance sheet let investors know what is owned and owed by the company. Assets should must equal total liabilities and owner's equity.
4) Statement of Cash Flows
The statement of cash flows shows the company's amount of cash inflows and outflows for a specific period of time. That cash flow statement helps to gage the financial performance of a company by asking where the cash came from, what it was used for and the change in the cash balance.
Earlier this week Monica Glenny spoke at the Belvidere Chamber of Commerce Manufacturer's Appreciation Breakfast.
The topic: inventory management. 
Based on the discussion and amount of inquiries after the event, I think it's fair to say that inventory is something that is on everyone's mind.
During Business Clarity sessions, effective inventory management is often brought up by clients, and they're issues aren't isolated to just them.
Inventory is an issue that plagues businesses of all sizes and the same questions typically come up:
- Do we have accurate accounts of all products, materials, or parts?
- What is the physical location of each inventory item?
- What is the cost of producing each unit of product or service?
- Are we ordering appropriate quantities of inventory for future production and sales?
- Do we have any inventory that has been sitting on the shelves for years?
- Are we currently holding too much or too little inventory?
These are all questions that can be answered with the correct work flow process and by understanding inventory ratios
Because it is such a common pain point and has been a hot topic around here lately, we have pulled together some white papers that cover different aspects of inventory management.
We've all been hit really hard by this winter weather, so what better way to relax than with a good book? We decided to take a break from our usual accounting basics and ERP software talk to compile a book list for you. Check out some of our favorites that made it to our 2010 Winter list
Make Today Count - John C. Maxwell (Center Street) This is the second time Maxwell has made it onto our reading list. (Check out the other time here). Maxwell's book discusses the importance of making the right decision in twelve critical areas of your life, or what he refers to as the "Daily Dozen." Maxwell suggests the path to being successful starts small with making the right choices on a daily basis.
The Narrative of the Life of Frederick Douglass -Frederick Douglass(Fall River Press) Considered a milestone in American history, The Narrative of the Life of Frederick Douglas chronicles the life of the famous abolitionist. Originally published only seven years after his escape from slavery, it became an instant success.
Common Sense -Thomas Paine (Penguin Classics) This is the pamphlet that started it all. First published in 1776, Common Sense challenged the authority of the British government and the royal monarchy. What made his writing so popular? He didn't try to wow the masses with philosophy, instead he wrote for his audience, not above them, impassioning them to want to make a change. It's still as inspiring today as it was nearly 250 years ago.
Embrace the Struggle- Zig Ziglar and Julie Ziglar Norman (Howard Books) Written after a traumatic fall that lead to a head injury Embrace the Struggle discusses the importance of optimism to get us through the hard times we all eventually face. Through his own stories and the stories of friends, Ziglar highlights "living life on life's terms."
Exploiting Chaos: 150 Ways to Spark Innovation During Times of Change- Jeremy Gutsche (Gotham Books) Hailed by many as one the best business books of 2009, Exploit Chaos takes readers on a visual journey to help ignite ideas for a successful business. Gutsche's writing style and graphics fit in perfectly with today's busy reader. Looking for inspiration to put these challenging times to good use? Check out this book.
The Findability Formula: The Easy, Non-Technical Approach to Serach Engine Marketing- Heather Lutze (John Wiley & Sons) Ever wonder how customers are thinking when they search for a product or service? Lutze's book helps marketers at all levels of experience re-energize their website to make them more profitable. Her step-by-step guide to Pay-Per-Click campaigns helps to make your company visible throughout the customers' buying cycle.
Your monthly business financial statements provide information about previous months' activities, but even if the statements look good, you can still bet more out of them.
Many business owners rely on monthly financial statements plus monthly financial ratios. Ratios can be prepared from information already in your accounting software. Following are tools for measuring particular aspects of your business:
Liquidity:
- Current ratio - current assets over current liabilities.
- Receivables turnover - how quickly customers pay.
- Inventory turnover - how long your inventory sits.
Profitability:
- Profit margin - profit generated by sales.
- Asset turnover - sales generated by assets.
- Return on assets - profit generated by assets.
Solvency:
- Debt to total assets - percent of assets owned by creditors.
- Interest coverage ratio - ability to pay interest.
- Cash debt coverage ratio - ability to pay long-term debt.
Program your accounting system to produce key accounting ratios, review them monthly and get new insight on your business.
In talking with growing businesses, we're finding a common issue of data reentry. If your employees enter and re-enter sales information in multiple software programs, it can slow the sales process and allows for data entry errors. But how can you streamline the work flow management?
Answer:
Procedures within the sales process may be fragmented in various ways, for example:
- Sales inquiries are received by e-mail, telephone and fax
- Inquiries are maintained on a spreadsheet
- Price quotes are calculated on another spreadsheet
- Follow-ups are maintained on yet another spreadsheet
Most accounting software can maintain and integrate several procedures within a single program. The software applications can generate lead follow-up letters, check inventory levels and automatically reorder, forecast potential product demand and allow customers to enter orders through your Web site.
Streamline your software system. Your business will save money, and your sales force will become more productive.
Find the right small business Enterprise Resource Planning ERP software system and accounting software for your business. Download the Software Selection Guide.
Now that 2010 is here, people are scrambling to figure out how they're going to keep their New Year's Resolutions. They picked out their personal resolutions - lose weight, quit smoking, start a hobby, save more, spend less... but what about New Year's resolutions for your business? How are you planning on taking what you learned in 2009 and putting it into practice for 2010 and beyond?
Coming up with goals for the New Year is great, it gives your business something to work towards, but don't let it stop there. Planning out how you're going to achieve those resolutions is just as important as the resolutions themselves. They don't always have to be grandiose tactics, sometimes it's the simple steps that keep you on track.
Let's say your resolution is to pay more attention to the financial health of your business- take what we like to call "5 at 5"
Every day at 5:00 (or whenever your day at the office is winding down) take five minutes to review your key performance indicators. Here are some possibilities:
- Day's cash receipts
- Days' cash disbursement
- Current ratio
- Accounts Receivable (A/R) aging
Work your tactics into your daily routine, and your resolutions won't be as lofty as they seem.
What are some of your business resolutions this year? Better yet, how do you plan on keeping them?
At the risk of sounding cliché, can you believe how fast this year flew by us?
We only have a few days until 2010 is in full swing. In just a few short days, companies will be faced with getting ready for the New year while wrapping up 2009.
The big question we get from area businesses it "How do I handle my accounting software?"
Many accounting packages allow a "preliminary closing" of last year's files while permitting transactions to be entered in the New Year. Here are some tips to help in the transition to the New Year:
- Back up last year's data files.
- Review your software's manual for year-end activities.
- Hold your prior year data files open until ALL transactions have been entered in the system - including entries for income taxes.
- Be cautious when entering transactions - verify that you are in the proper year.
- When in doubt, ask for help.
Closing out one year while trying to prepare for another doesn't have to be confusing. Just follow the steps above and you'll be able to close out 2009 while prospering in 2010.
Unless your company is strictly service based, someone in the business is managing some kind of inventory. Or are they? Do you really know the answers to the following questions:
- Do we have accurate accounts of all products, materials, or parts?
- What is the physical location of each inventory item?
- Are we ordering appropriate quantities of inventory to accommodate future production and sales?
- Do we have any inventory that has been sitting on the shelves for years - "It was a really good buy!"
- How are returned items handled within inventory?
- What inventory items generate the most profit?
Many small to medium sized companies struggle with their inventory tracking software. Some businesses maintain procedures for tracking inventory that are labor intensive. Usually that "labor" is diverted from other revenue-producing activities such as manufacturing, retail sales, and service calls.
What inventory questions do you have? Knowing what information your business needs about its inventory is the first step in inventory management.
Take time to determine your needs; you will drive money to your bottom line with proper inventory management!
Want more information about inventory management? Download the Demand Planner white paper