A Simple Start to Managing

Your Business Finances

A Guide to the Essentials

QB_05/2005_01

INSTRUCTOR
LeAnn Markowski, Certified QuickBooks
ProAdvisor & Notary Public
Bizy Hands Bookkeeping Service
Provide Onsite & Remote Services
http://www.bizyhandsbookkeeping.com

907-306-1828 | [email protected]
2

STUDENT HANDOUTS
Student Handouts

http://webservicesfp.lscsoft.com/downloads/aicdownloads/Handouts.pdf

Sample File

http://webservicesfp.lscsoft.com/downloads/aicdownloads/Training_sample
_file.zip

Financial Management Essentials

1. Introduction to Financial
Management
2. Why Accounts are Important
3. Using Reports
4. Managing Essential Tasks:
Practice Session
5. Tips and Resources
6. Appendix: Additional
Concepts & Terms
4

1. What is Financial Management?

Process of:
Running your
business
Recording money
coming in and out
Using reports to:
Understand
how your
business is
doing
Make decisions
5

Six Ways Financial Management

Helps Your Business Succeed
2. Manage Customers and Sales.
Know and understand your customers
through consolidated records.
1. Cash Flow.
Track the money
going in and out of
your business.

YOUR
BUSINESS

6. Funding.
To be considered for
a loan or investment,
youll need complete
financial statements.

3. Production.
Obtain goods and
services. Apply for and
establish credit with
your vendors.
4. Compliance.
Report your
companys incomes,
expenses, and payroll
accurately to the IRS.

5. Insight and Decision Making.

Make informed decisions and price your product or
service for profitability with financial reports
6

Information is Power
What do you want to know about your business?
How much money am I bringing in?

Sales

How much am I spending?

Expenses

Is my business making any money?

Sales Expenses

Whats the value of what my

business owns?

Assets

How much does my business owe to

others?

Liabilities

What is my business worth?

Equity

2. Financial Accounts
Why They Matter to Your Business

Accurate record keeping lets you understand and use

all your information
Money in from
payments received
Data on customers
and vendors
Record of your
bank accounts
Money out for
checks written,
refunds and other
expenses
8

Cash Flow:

Money In and Money Out

Money In

Money Out

Sales
CUSTOMERS
Services /
Products
Out

Expenses
YOUR
BUSINESS

VENDORS
Services /
Products
In

Major Account Types

Assets

Current (cash, inventory,

accounts receivable, etc.)
Fixed (property, vehicles,
machinery, etc.)

Liabilities

Current (within one year)

Long Term

Equity

Contributed capital: owners

investment
Retained earnings (profits)

Everything your
business
possesses

Everything your
business has
borrowed
Everything your
business owns

Assets = Liabilities + Equity

10

Categorize Your Transactions

With a Chart of Accounts

Chart of Accounts
Master account lists a chart of
accounts are used to sort your
transactions into categories
Each account category contains
sub-accounts
11

Chart of Accounts:

Your Master List of Accounts and Sub-Accounts

NAME

TYPE

NAME

TYPE

INCOME

ASSET

Sales

Income

Checking

Bank

Other income

Other income

Accounts Receivable

Accounts Receivable

Undeposited funds

Other Current Asset

Equipment

Asset

EXPENSE
Advertising

Expense

Car and Truck Expenses

Expense

Contract labor / payroll

Expense

Loans

Liability

Cost of goods sold

Expense

Sales Tax Payable

Other Current Liability

Entertainment / meals

Expense

Office expenses

Expense

Repairs and maintenance

Expense

Supplies

Expense

Taxes and licenses

Expense

Utilities

Expense

Other expenses

Other expenses

LIABILITY

EQUITY
Contributed Capital

Equity

(Owners invested funds)

Retained Earnings

Equity

(Business profits)

12

Accounts:
What Weve Learned

Consolidate your
record keeping
Use a standard set of
accounts or categories
to file away
transactionsthere is
a common language
Keep it simple:
Significant accounts
only

Use Industry Specific

Accounts
Master account lists
a chart of accounts
are readily available for
most types of
business. Choose one
specific to your
industry, and make
minor changes if
needed.

13

3. Reports

Understanding Your Business and Decision-Making

Reports help you understand how your business is

doing

Use reports as a
planning tool

Gain insight into

your sales
Income statement
(P&L) shows your
profitability
Balance sheet
shows assets,
liabilities and
equity

Regularly monitor
your profitability
and your cash flow
14

Make the Most of Your Reports

What do you want to know about your sales?
What is selling?
Who is buying?
Who owes me money?

Gain insight into

the health of
your business
with reports:
Sales by item
Sales by
customer
Unpaid
invoices by
customer
15

Income Statement

Summarizes the
revenue and
expenses of a
company over a
period of time
Also called a
Profit & Loss or
P&L

16

Balance Sheet

Shows the assets,

liabilities, and
equity at a given
moment in time
Assets =
Liabilities + Equity

Equity also referred to

as Owners Equity
or Retained Equity.
17

4. Manage Essential Tasks

Practice Session: Marks Atomic Graphic Designs

Money in
A. Record a sale
B. Invoice a customer
C. Receive a payment
D. Make a deposit
Money Out
E. Write a check / record an
expense
F. Use a credit card / record an
expense

Remember, the better

you understand
your cash flow
situation, the
better youll be
prepared to make
the right business
decisions.

18

A. Record a Sale
Practice Session Money In

Money In: Record a Sale

Customer
buys
business
cards.
Pays on spot
with cash.
You issue
sales
receipt.

19

A. Record a Sale
Practice Session Money In

Track Your Business

1

5
4

Issue sales
receipt
Record:
1. Customer
2. Item
3. Quantity
4. Payment type
5. Date

20

A. Record a Sale
Practice Session Money In

See Where Your Business Stands

7
6
8
9

Profit & Loss

6. Sales increase
by $200.00
Balance Sheet
7. Assets
increase by
$215.50
8. Liabilities
(sales tax
payable)
increase by
$15.50
9. Equity
increases by
$200.00
21

B. Invoice a Customer
Practice Session Money In

Money In: Invoice Customer

Customer buys
graphic
design
services.
You complete
the design.
You invoice
customer.
1

22

B. Invoice a Customer
Practice Session Money In

Track Your Business

1

5
4

Create invoice
Record:
1. Customer
2. Service
3. Quantity/hours
4. Payment terms
5. Date

23

B. Invoice a Customer
Practice Session Money In

See Where Your Business Stands

Profit & Loss

7. Sales
increase by
$90.
Balance Sheet
8. Accounts
receivable
increase by
$90.
9. Equity
increases
by $90
24

C. Receive a Payment
Practice Session Money In

Money In: Receive Payment

Customer pays
by check for
business
card design
services
invoice.
Record receipt
of payment.

25

C. Receive a Payment
Practice Session Money In

Track Your Business

1
2
3

Receive
payment
Record:
1. Customer
2. Payment
type
3. Enter
amount

26

C. Receive a Payment
Practice Session Money In

See Where Your Business Stands

5
6

4
Undeposited funds
appear in Other
Current Assets

Profit & Loss

4. Unchanged.
Balance Sheet
5. Accounts
receivable
decrease by
$90.
6. Undeposited
funds
increase by
$90.
7. Equity
unchanged.
27

D. Make a Deposit
Practice Session Money In

Money In: Make a Deposit

Go to bank to
deposit
check for
design
services and
cash for
business
cards.
Make deposit.

28

D. Make a Deposit
Practice Session Money In

Track Your Business

1

Make deposit
Select:
1. Cash and
Check
2. All funds to
deposit

29

D. Make a Deposit
Practice Session Money In

See Where Your Business Stands

4
5

3
Undeposited funds
appear in Other
Current Assets

Profit & Loss

3. Unchanged.
Balance Sheet
4. Checking /
Savings
increases.
5. Other current
assets
decrease.
6. Equity
unchanged.

30

E. Write a Check / Record an Expense

Practice Session Money Out

Money Out: Write a Check

Pay your
telephone
bill by
check.
Write check /
record
expense.

31

E. Write a Check / Record an Expense

Practice Session Money Out

Track Your Business

2
1

Write check
Select:
1. Payee
2. Amount
3. Transaction
type
(Expense
Utilities)

32

E. Write a Check / Record an Expense

Practice Session Money Out

See Where Your Business Stands

Profit & Loss

4. Expense
(Utilities)
increases by
$45.
Balance Sheet
5. Checking /
Savings
decreases
by $45.
6. Equity
decreases
by $45
33

F. Use Credit Card / Record an Expense

Practice Session Money Out

Money Out: Use a Credit Card

Buy office
supplies
with credit
card.
Use credit
card /
record
expense.

34

F. Use Credit Card / Record an Expense

Practice Session Money Out

Track Your Business

Update credit
card register
Select:
1. Payee
2. Transaction
type (Expense
-- Supplies)
3. Amount

35

F. Use Credit Card / Record an Expense

Practice Session Money Out

See Where Your Business Stands

4
5

Profit & Loss

4. Expense
(Supplies)
increases
by $95.
Balance Sheet
5. Credit cards
increases
by $95.
6. Equity
decreases
by $95.

6
36

6. Tips and Advice

1.
2.
3.
4.

Getting Started
Helpful Resources
Online Resources
Congratulations!

37

Getting Started
Establish Good
Accounting
Habits
Record
transactions
regularly
Accuracy and
consistency are
essential
Fix mistakes as
they happen
Manage and
reconcile bank
account
regularly

1.

Build your toolkit

2.

Consider software packages such

as QuickBooks Simple Start
(Trial Edition is available)

Structure your accounts

3.

Start with a minimum # of accounts

and add as needed

Establish an accounting
routine and stick to it

Reconcile accounts monthly

Update financial statements
quarterly
38

Helpful Resources
Advance Your Knowledge

Professional Help
Accountants
Look for knowledge of your industry

QuickBooks ProAdvisors
Expert set-up can save you time
Free 1-hour consultation

Small Business Development Center

(SBDC) counselors

Training Tools
Take classes (either online or at local
colleges)
QuickBooks Learning Solutions (look

Expert help can make

the process of settingup and maintaining
your books much
easier. Be sure to look
for a professional with
knowledge of your
industry and of
course, dont be afraid
to ask for references.

under Training at www.QuickBooks.com)

39

Online Resources
Small Business Development
Centers
www.sba.gov/sbdc/
sbdcnear.html
Internal Revenue Service
www.irs.gov/businesses/
small/
U.S. Chamber of Commerce
www.uschamber.com
QuickBooks Financial
Software
www.quickbooks.com
Find a Certified QuickBooks
ProAdvisor
www.usequickbooks.com
/locateadvisor)

40

Congratulations!
You now know:
Why financial management is critical to effectively
run a business
How to set-up and manage your accounts
The usefulness of financial reports

Time to put your knowledge to

work! Good luck!
41

Appendix: Additional
Terms and Concepts
A Simple Start to Managing Your
Business Finances

Financial Management
Terms and Concepts
1.
2.
3.
4.
5.

Business types
Cash or accrual
Debits and credits
Journal
Ledger

43

Determine Your Business Type

1.

Sole Proprietorship

There are more than

23.7 million small
businesses in the
United States.
572,900 new firms
are founded each
year.

Source: SBA, Office of Advocacy.

Based on 2003 data.

2.

Partnership or Limited
Liability Corporation

3.

Two or more owners

S Corporation

4.

Small business with one or

more shareholders

C Corporation

5.

One owner

Large business with one or

more shareholders

Non-profit Organization
44

Choosing an Accounting Type

Cash or Accrual?
A. Cash accounting

The practice of recording sales and

expenses only when cash is actually
received or paid out

B. Accrual accounting

The practice of reporting income when

earned and expenses when incurred
Businesses with inventory (e.g.
retailers) must use this method

Choose whichever
accounting method
works best for you
the important thing is
to be consistent once
youve selected an
accounting type

Most businesses opt for accrual

method of accounting

At any given time, gives a more realistic

picture of the health of the business
45

Debits and Credits

Double Entry Accounting

Accountants use debits and

credits to describe how
transactions are recorded in
the general ledger
Each transaction increases
one account and decreases
another
System balances itself

You dont need to be

too concerned with
the mechanics of
double entry
accounting, debits
and credits, as
software programs
handle automatically.
But as a business
owner, you might run
into these terms.

46

Marks Atomic Graphic Design:

Journal

Journal
entries
capture all
cash in
and all
cash out
activity.

47

Marks Atomic Graphic Design:

General Ledger

General
ledger
(GL)
shows all
activity by
account
type.

48

Acknowledgements
Intuit would like to thank the following advisors
for their help developing this presentation:

Peter Pappas, Regional Director,

Connecticut Small Business Development
Center, Groton, CT

Neal Nelson, Counselor, Maricopa

Community College Small Business
Development Center, Phoenix, AZ

Charles Eason, Director, Solano College

Small Business Development Center,
Fairfield, CA
Do you have feedback, success stories or suggestions for
improving this course? Email us at [email protected].
49

INSTRUCTOR
LeAnn Markowski, Certified QuickBooks
ProAdvisor & Notary Public
Bizy Hands Bookkeeping Service
Provide Onsite & Remote Services
http://www.bizyhandsbookkeeping.com

907-306-1828 | [email protected]
50