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Business Tips – How Mistakes can turn to Profits

Business Tips – How Mistakes can turn to Profits

Business Tips – How Mistakes can turn to Profits

You’ve botched up on a job or following up a client who is now upset – and you don’t know whether to admit your mistake/klutz, service or forgetfulness. There are solutions when you know how mistakes can turn to profits – here are some tips –

Warren Harmer at Flying Solo writes 

I’d been getting a lot of telemarketers calling the business line, trying to convince me to buy everything from shares to advertising, or to extract donations for a variety of causes. So when I received a call from, (I hate to admit), an Indian chap who kicked things off with “the reason for my call today” I went in automatic not-interested mode and immediately asked “are you trying to sell me something?”

His response caught me off guard: “No I’m looking for help with a business plan”, then our call was cut off.

Feeling embarrassed, I stewed for the next hour, trying to justify why I need not admit my ill-judgement and call back. The self-talk was quite convincing, but I overcame it, swallowed my pride, called back and apologised.

The customer was very appreciative that I had called back and the conversation quickly moved on to his project. At a project meeting a few days later, he said he had no intention of calling me back, but when I made that call and apologised he said to himself “I gotta go with this guy”.

Ian Mills at Magic Dust web design, shares his observations 

So from my own experience and from the common stories I hear from being involved with over 4000 small business clients, I have compiled what I see as the five biggest mistakes people make when running a small business.

1. Underestimating the Amount of Effort InvolvedOne of the biggest frustrations I have in business is how simple and quick it is to have an idea, but how long and how much effort it takes for that idea to actually manifest itself as a living reality. In business,things seldom go exactly to plan, they take longer than expected and almost always require more resources to complete than originally planned. Being aware of this and cooperating with it allows you to plan more effectively and alleviate a lot of surprises and stress. Also when you’re running a small business you are responsible for everything so anything that hasn’t been delegated will always end up on your plate – this can accumulate to be a huge amount of “stuff.” So be realistic, be prepared, keep things as simple as possible and try to delegate or out-source aspects of your business as soon as you can.

2. Not Having a PlanUnless it’s part of an investment pitch I personally don’t think you don’t need a lengthy and highly detailed business plan, but you still must have a plan. Without one you’ll be making reactive decisions without perspective. So you need a focus, strategy and game plan to use as a guide and reference point. Use your plan to pull you out of the endless barrage of daily tasks, remember where you are going, course correct and prioritize if need be, and then get back into it. Have business goals at three months, six months, one year, two years and five years. Keep your plan simple and realistic so it can be easily revised as the needs goals of your business change.

3. Failing to be AgileJust because you have a plan doesn’t mean everything will go to plan. It is important to have a clear focus but it is equally important to be flexible. You need to be very mindful of what is and isn’t working. Quite often the business you start will not be the business that you end up with. It will morph and change. Keep your eyes open for the opportunities and the possible threats. Be willing to shift your focus into what is working. Holding on too tight to your original ideas or plans of how things “should” go and fighting for that plan may not be your best path for success. Be flexible and go where the money is, not where you want it to be. Among the advantages of being small is that you can adapt quickly. Be open to the feedback that you get from staff, customers and competitors, and be willing to course correct.

4. Not Hiring HelpKnow what you are good at and not good at, and be realistic about how much time you have. It can be easier to identify what we are good at but it can take real honesty and vulnerability to look at yourself and assess your own weaknesses. From my experience the greatest momentum I have had in my business was when I let go of what I wasn’t great at and hired people who are great. When running a small business there is a tendency to want to do everything yourself.  It seems logical to save money and keep control, but both of these motivations can be very limiting. When you are in touch and attuned to the reality of what you are good at and bad at you will be placing yourself and the business in the best possible context for success. Do what you do well and look to hire, or out source, in those areas that you are weak.

5. Not Keeping Your Bookkeeping in OrderIf you think this point sounds boring or unimportant you need to pay attention. Without accurate bookkeeping you are flying blind. Imagine driving a car and suddenly closing your eyes — it can be that dangerous. Whether or not you’re a numbers person, you need to make sure your bookkeeping and finances are kept in order, and then pay attention to the figures. Ultimately the success or failure of your business is measured by your financial records. The more accurate your records are the more informed you will be to make intelligent decisions about the business and to course correct when needed — whether that’s avoiding trouble or capitalizing on what’s working. You may have heard that “what you do after you fail determines your ultimate success,” so try and make your failures as small as you can.

Expect to make mistakes, but plan to succeed. Be focused but stay flexible. Be creative but be open to the experience of others.

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia

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MYOB – Beginner – I entered the wrong amount against supplier bills – how do I fix it?

MYOB – Beginner – I entered the wrong amount against supplier bills – how do I fix it?

I entered the wrong amount against supplier bills – how do I fix it?

Caller questioned meI have paid a supplier via online banking for the total on their statement, but when I went to record it in MYOB Account Right, I realised I had not deleted a bill I entered twice and it was included in the allocation of the amount paid – how do it correct this?

AnswerYou can correct it – the payment has to be deleted first – so:

1.     find the payment in bank transactions – easiest way is to use Find Transactions (Ctrl+Y) or from the lower part of any Command Centre;

2.     Open the transaction (white arrow on left);

3.     In the TOP menu click Edit then Delete Payment;

4.     Then go back and delete the un-wanted bill – and check all those remaining bills match the statement (if you agree with the supplier);

5.     Then re-enter the payment you made and CHECK BEFORE you Save that it is what it should be!

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much!

Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Business Finance 101 – The Cashflow Statement – Using an example of  how to construct the Statement

Business Finance 101 – The Cashflow Statement – using an example of  how to construct the Statement

Business Finance 101 – The Cashflow Statement – using an example of how to construct the Statement

Last month we explained what the Cash Flow Statement tells us. This month is an example of how to construct the statement so we understand where it comes from.

Three sources are used to gather information for the cash flow statement rather than from the Trail Balance –

1.     Comparative balance sheets provide the amount of the changes in assets, liabilities, and equities from the beginning to the end of the period

2.     Current income statement to determine the amount of cash provided by or used by operations during the period

3.     Selected transaction data from the general ledger provide additional detailed information needed to determine how cash was provided or used during the period – eg asset purchase

Three steps lead to preparing the statement of cash flows from these sources

Step 1. Calculate the change in cash:
This is the difference between the beginning and the ending cash balance from the beginning and end period on the balance sheet.

Step 2. Calculate the net cash flow from operating activities:
This procedure is complex. It involves analysing not only the current year’s income statement but also comparative balance sheets and selected transitions data.

Step 3. Calculate net cash flows from investing and financing activities:
All other changes in the balance sheet accounts must be analysed to determine their effects on cash.

A worked Example – Compiling the Cash Flow Statement

To illustrate a statement of cash flows we will use the first year of operations for Business Pty Ltd.

The company started on July 1, 2014, when it issued 60,000 shares of $1 value common stock for $60,000 cash.

The company rented its office space and furniture and equipment, and it performed services throughout the first half year.

The balance sheets at the beginning and at the end of the 6 months are as follows.

Table1a

The Profit & Loss or Income statement and additional information for Business Pty Ltd are –

Business Pty Ltd
Profit & Loss Statement
For the period ended December 31, 2014

Table 2a

Step 1. Calculate the change in cash:
The company has no cash on hand at the beginning of the period, but $49,000 at the end of 2014. This is an increase of $49,000

Step 2. Calculate the net cash flow from operating activities:
The company has no cash on hand at the beginning of the period, but $49,000 at the end of 2014. This is an increase of $49,000

First the net profit/income must be converted. Under generally accepted accounting principles (GAAP), most companies must use the ACCRUAL basis of accounting, requiring revenues be reported when earned/invoiced and that expenses be recorded when incurred/authorised. Net income can also include credit sales that have not been collected in cash and expenses incurred that have not have been paid in cash. Thus, under the accrual basis of accounting, net income will not indicate the net cash flow from operating activities.

To calculate net cash flow from operating activities, it is necessary to report revenue and expenses on cash basis and can be calculated via either a direct method or an indirect method

1. Direct Method: (also called the income statement method) –

Business Pty Ltd shows sales/revenues of $125,000. However, because the company’s accounts receivable increased during 2003 by $36,000, only $89,000 ($125,000 − $36,000) in ACTUAL cash was collected on these revenues.

The company also shows operating expenses of $85,000, but accounts payable increased during the period by $5,000. Assuming that payables related to operating expenses, the ACTUAL cash operating expenses were $80,000 ($85,000 − $5,000).

Because no taxes payable exist at the end of the year on the Balance Sheet, the $6,000 income tax expense must have been paid in cash during the year. Then the computation of net cash flow from operating activities is as follows:

Table 3a

“Net cash provided by operating activities” is equivalent of cash-basis net income or the CASH Profit & Loss.

2. Indirect Method: (or reconciliation method) –

starts with Net Profit/income and converts it to net cash.

Increase in Accounts Receivable―Indirect Method:
If accounts receivable increase during the year, revenues on an accrual basis are higher than on a cash basis because goods sold on account are reported as revenues. In other words, operations for the period led to increased revenues, but not all of these revenues resulted in actual cash, but appear as an increase in accounts receivable. Therefore the increase of $36,000 in accounts payable must be deducted from net income.

Increase in Accounts Payable―Indirect Method:
If accounts payable increase during the period, expenses on an accrual basis are higher than they are on a cash basis because expenses are incurred for which payment has not taken place yet. Therefore the increase of $5,000 in accounts payable must be added back to net income.

As a result of the accounts receivable and accounts payable adjustments, net cash provided by operating activities is determined to be $3,000 for the year 2003. This calculation is shown as follows.

Table 4a

Observe that net cash provided by operating activities is the same whether the direct or indirect method is used.

Step 3: Calculate Net Cash Flows from Investing and Financing Activities:

Finally, we need to determine whether any other changes in balance sheet accounts caused an increase or decrease in cash.

For example, an examination of the remaining balance sheet accounts shows that both common shares and retained earnings have increased. The common shares increase of $60,000 resulted from the issuing of common shares for cash. This is a receipt of cash from a financing activity and is reported as that in the statement of cash flows. The retained earnings increase of $20,000 is caused by two items:

1.     Net income of $34,000 increased retained earnings, less

2.     Dividend declared of $14,000 decreased retained earnings.

Net income has been converted into net cash flows from operating activities, as explained earlier. The additional data indicates that the dividend was paid. Thus, the dividend payment on common stock is reported as cash outflow, and classified as financing activity.

We are now ready to prepare the statement of cash flows. We start with the operating activities section. Either the direct or indirect method may be used to report net cash flow from operating activates.

The statement of cash flows under indirect method for Tax Consultation Inc. is as follows.

Business Pty Ltd
cash flow statement-Indirect Method
For the period end 31 Dec 2014

Table 5a

As shown, the $60,000 increase in common shares results in a cash inflow from a financing activity. The payment of $14,000 in cash dividends is classified as a use of cash from a financing activity. By coincidence in this example, the $49,000 increase in cash reported in the statement of cash flows agrees with the increase of $49,000 shown as the change in the cash account in the balance sheet.

Need help? Not sure? Call for FREE 30min Advice / Strategy session today!

Call 0407 361 596 Aust and also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia