Accounting Reports: What is a Balance Sheet?

Keeping accurate and up-to-date accounting records is a critical part of being a business owner. Your books hold a wealth of information about the financial state of your business that you can use to make savvy decisions.

Accounting reports take the data stored in your books and present it in an easy-to-understand format. There are different types of reports that each serve an unique purpose. In this blog post, we’ll learn about the Balance Sheet.

What is a Balance Sheet?

A balance sheet provides insight into a business’s financial situation at a given time and is used to ensure the books are accurate. It consists of three sections: assets, liabilities, and the owners/shareholders equity.

Assets

An asset is anything owned by your business that has a monetary value. This section of the balance sheet will outline the value of each of your business’s assets. Some examples include:

  • Cash – The funds your business possesses, including the cash in your back account.

  • Accounts Receivable – Outstanding invoices your business is awaiting payment for.

  • Inventory – Items your business resells in its effort to generate revenue.

  • Equipment & supplies – Tangible items used in your business operations.

  • Reimbursable expenses – Expenses incurred by your business that will be paid back by another party.

  • Property – Building or land owned by your business and used in its operations.

  • Prepaid insurance – Current policies that have been fully paid for.

The purpose of this section is to calculate the total value of your business’s assets.

Liabilities

A liability is any debt owed by your business. The liability section of the balance sheet will include the total amount of debt your business owes. Some examples include:

  • Accounts Payable – Funds owed by your business to other parties, not including loans.

  • Taxes Payable – Money owed to the government for taxes.

  • Payroll Payable – Funds that are to be paid to employees for the wages they’ve earned.

  • Loans Payable – The balance of any loans from a bank or investor that needs to be paid back.

  • Credit Card Payable – The balance of any credit cards your business or employees use.

The purpose of this section is to calculate the total value of your business’s liabilities.
 

Owner/Shareholder Equity

Owner/shareholder equity is the value of assets that remain after the total value of liabilities has been deducted. It’s generally considered the source of the company’s assets. Some examples include:

  • Owner/Shareholder Capital – Investments made into the company. Including net income earned, minus withdrawals made.

  • Retained earnings – Net income that stays in the business, instead of being paid out in dividends or as payment to the owner.

What if your Balance Sheet doesn’t balance?

In the simplest terms, a balance sheet is Liabilities + Owner/Shareholder Equity = Assets. Like the name implies, this equation needs to balance in the end. If it doesn’t, you likely misrecorded a number, listed something in the wrong section, or left it off altogether. Here are some tips that can help you avoid mistakes:

  • Always review your entries for accuracy.

  • Make sure all withdrawals made by ownership are included in the equity section.

  • Use automated financial software to avoid human error.

  • Have a professional prepare your Balance Sheet.

Accounting reports shine a light on the different financial areas of your business. BookKeeping Express (BKE) can ensure your books are always updated and accurate and generate the financial reports you need to make smart business decisions. See how we can handle your bookkeeping needs so you can focus on what you do best.

 

Should You Hire a W-2 Employee or 1099 Contractor?

As your business grows, you’re going to need to hire good people to help out. But before you hire anyone, you’ll need to figure out what exactly their responsibilities will be, how long you’ll need to employ them, and what you can afford to pay them.

If you need to build a staff to help you run your business day in, and day out, then you will likely need to hire W-2 employees. But if you need short-term help for specific projects, you can hire a 1099 contractor instead.

The difference between employees and contractors

Contractors and employees are distinctly different. An employee works a fixed schedule and performs specific, recurring duties. They’re usually come to the place of business and are overseen by a manager while they work.

Contractors are often hired on a temporary basis to completely a project. They use their own tools and equipment and work on their own time, from their home or office. Contractors operate as an independent business and invoice for the work they perform.

One the biggest differences between employees and contractors is how income tax is withheld and paid. Businesses withhold taxes for their employees and issue W-2 forms at the end of the year. Contractors are expected to withhold and pay their own taxes and are issued a 1099 form at the end of the year by the different businesses they worked for.

The advantages of an employee

When your business needs extra hands, hiring an employee is often the most logical choice. There are many advantages to classifying a hire as a W-2 employee, including.

  • They learn how your business operates and to perform a wide range of tasks.

  • Their wages can be lower than a contractor since they’ll receive other benefits.

  • You know exactly when they’re available to work and have insight into how they’re performing.

  • They’re committed to your business since you’re most likely their only employer.

  • They have the desire to grow their career with your company.

The advantages of a contractor

Even though most businesses hire employees, there are certain situations when hiring a contractor is the better option. Temporarily hiring a contractor has specific advantages over hiring an employee, including:

  • They have specialized skills and can be counted on to complete complicated projects.

  • You can set a deadline for when the project needs to be completed and their employment will end.

  • You can determine a budget for their work so you know exactly how much their employment costs your business.

  • They can get right to work since they don’t require any training.

  • It can be easier to fire a contractor if they’re not working out.

What does your business need?

Whether you should hire a W-2 employee or 1099 contractor really depends on what your business needs. If you need help with different areas of your primary business operations, hiring an employee probably makes the most sense. But if you don’t know how to handle the other things that pop up, a contractor with the right skills can help.

You can also hire a contractor and offer them the opportunity to join as an employee if everything goes well. There are upsides and downsides to both employees and contractors so be sure to thoroughly consider your business needs so you can make the best choice.

If your business is growing, BookKeeping Express can be the perfect partner. We offer a wide range of financial services, including bookkeeping, expense management, payroll, and more. Discover all the different ways we can help you.

New Industries and Small Businesses Going the Franchise Route

A wave of new franchise opportunities are becoming available, according to a recent article from the Associated Press.

For a long time, only certain industries and major brands were synonymous with franchises. But now aspiring franchisees have a variety of options to choose from, outside of traditional industries like restaurants and hotels. Many of these options are being offered by the growing number of small businesses and new brands that are opting to go the franchise route.

Why smaller franchisors are succeeding

This new breed doesn’t offer the same brand recognition as long-established franchisors but they make up for it with a number of advantages. For example, start-up costs can be lower, competition for prime locations can be less fierce, and growth potential can seem unlimited.

There is also a personal aspect that comes with partnering with a smaller franchisor. The franchisee can have an easier time communicating with the parent company since they’ll likely be in touch with senior employees and possibly even the CEO. When it comes to the actual operations, the franchisee can feel like they’re running a local small business, as opposed to another cookie-cutter chain store.

The Associated Press’s article comes on the heels of a favorable report released by the International Franchise Association earlier this year. For the sixth year in a row, franchise small businesses are growing at a faster pace than non-franchise small businesses. More than 13,000 new franchise locations are expected to open this year, with many of them coming from smaller franchisors in non-traditional industries.

Should you franchise your business?

The potential for economic growth is a major reason why so many businesses are getting into the franchise game. Expansion can happen more rapidly with the help of franchisees but there are other factors to take into account.

There are numerous state and federal laws specifically concerning franchise businesses. The most well-known is the Franchise Rule enforced by Federal Trade Commission, which says all prospective franchisees must be presented with a Franchise Disclosure Document (FDD). An FDD shares various details about the company and outlines how the franchisee is expected to operate their business.

There is even more to consider besides legal requirements when deciding whether or not to franchise a business. Your business should be unique, easy to replicate, and be well suited to operate in different locations.

Whether you’re a fledgling franchisor or just starting to offer franchise opportunities, BookKeeping Express (BKE) can help. We can ensure all your franchisees keep consistently formatted financial records and provide the financial reports you need. Learn more about the benefits of working with BKE.

Accounting Reports: What is an Income Statement?

Keeping detailed accounting records for your business is important for many different reasons. For one, your books hold a wealth of information about the financial state of your business. You can learn a lot about your operations and make smart decisions by looking at the right data.

Accounting reports provide an overview of important financial information in an easy to understand format. There are different types of accounting records that each tell different stories about your business. In this blog post, we’ll learn why an Income Statement (or Profit and Loss Statement, as it’s also known) is important and what information it includes.

What is an income statement?

An income statement outlines your business’s profits or losses during a specific period of time (i.e. a month, quarter, or year). It breaks down your revenue and expenses so you can understand everything that influences profitability.

What is an income statement used for?

You can use an income statement to get a thorough idea of how your business’s money is earned and spent. You can analyze your expenses and find out if there are any costs that are exceeding the budget you set. You can also learn where your business is excelling by looking at your different revenue sources.

What’s to include in an Income Statement?

Income statements consist of various sections that outline expenses, revenue, and income. The exact categories might differ from business to business but here is what is included in a typical income statement:

  • Sales - Your total revenue for the given time period, organized by sales channel

  • Cost of Goods Sold (COGs) - Any costs your business incurs while creating the products or services it offers for sale. COGs can include the cost of raw materials, labor, or service-related expenditures (often referred to as Cost of Sales). You can learn more about Cost of Goods Sold in this blog post.

  • Gross Profit - Subtract COGs from sales to calculate your Gross Profit.

  • Operating Expenses - Common expenses incurred in the daily operation of your business. This might include payroll, marketing/advertising, utilities, rent, depreciation, insurance, and other overhead costs. This section can be broken down by category so you can easily analyze your expenses.

  • Total Expenses - The sum of all your business’s expenses.

  • Net Income (Before Taxes) - Subtract your operating expenses from gross profit to calculate your business’s total income before taxes.

  • Taxes - The total income tax your business owes for the given time period.

  • Net Income - Your business’s total income after paying taxes.

An income statement is crucial to understanding everything that influences your business’s bottom line. The key to generating this accounting report, or any other, is to maintain accurate books.

Learn how BookKeeping Express (BKE) can help your business keep accurate and up-to-date financial records.

 

 

Should You Start Franchising Your Business?

Franchise businesses have evolved beyond fast-food restaurants and gas stations. There are now hundreds of different brands across various industries that offer franchise opportunities to smart and capable people. In fact, the economic outlook is bright for franchises in 2016 and beyond.

If you run a successful business, you might have thought about selling franchise rights to other entrepreneurs. The overwhelming advantage is that your brand will grow at a much faster rate than you could achieve on your own. But there is more to consider. Here are some other questions you should ask yourself before you offer franchise opportunities.

Will my business be appealing to potential franchisees?

The truth is few businesses make for good franchises. Good franchise options have a strong appeal and clear distinction from similar businesses.

For example, if you own a typical burger restaurant, it probably won’t make for a great franchise. Even if it’s a successful business, it’s not the most groundbreaking concept. But if you offer unique menu items or have other factors that make you standout, other business owner may want to replicate you idea.

Is your business idea easy to understand and copy?

Successful franchises are easy to replicate. Any potential franchisee should be able to understand what you do and how you do it. That means the way you operate shouldn’t be too complicated.

If you do decide to go ahead and franchise your business, you should have clearly documented procedures. You want each franchisee to operate in a consistent manner so you should offer a “playbook” they can follow in order to achieve success.

Can your business succeed across multiple locations?

If your business is successful because of its specific location, that’s great. But it probably won’t make for a good franchise.

If you’re going to offer franchise opportunities, your business should be free of location restrictions. It should be able to succeed in any suitable location that is frequented by potential customers.

Do you understand the laws associated with franchising?

There are a number of federal and state laws that must be followed when offering franchise opportunities. For instance, you must present each potential franchisee with a Franchise Disclosure Document (FDD) that consists of very specific information.

Be sure to consult with a lawyer before offering franchise opportunities so you understand the laws you must adhere to.

BookKeeping Express (BKE) provides accounting and bookkeeping services for franchisors and multi-unit franchisees and businesses. If you do decide to become a franchisor, see how we can help.

 

A Payroll Guide for Restaurant Owners

A thriving restaurant operates like a finely-tuned machine. Each employee carries out their specific tasks to keep the entire operation moving forward at a steady pace.

As a restaurant owner, you need to make sure you’re fully staffed so all the cogs in your machine keep moving. Depending on your restaurant, you might need to employ quite a few cooks, dishwashers, servers, bussers, bartenders, and other positions. And each employee will likely work different hours at varying pay rates, making payroll difficult.

In this blog post, we’ll provide tips for efficiently managing payroll in your restaurant.

You withhold and pay taxes for your employees

Withhold and paying taxes on behalf of your employees is one of your main responsibilities as an employer. Each new hire needs to complete the correct paperwork before they start so you can determine the right amount of taxes to withhold. As they work and earn income, you’ll need to collect their taxes and keep on-going and accurate records.

Tips are taxable income

While all businesses need to keep accurate employee tax records, it can be more difficult for restaurants since tips are considered taxable income. Your wait staff and bartenders need to declare what they earn in gratuities so none of their income goes unaccounted for.  

It’s good practice to have a straight-forward policy on how tips are managed in your restaurant. You can brief your staff members on the policy when they’re hired so they’re clear of the expectations from then on. You can learn more about how to manage and account for tips in your restaurant in this blog post.

Keeping the right employment records

You’ll find that keeping the right records on each employee makes managing payroll much easier. The forms they complete when hired, the amount in tips they report, and records for each pay run can all be stored in the cloud. Cloud document storage keeps your office free of clutter and makes it easy to find and access the right documents when you need them. When it comes time to file your taxes, you’ll be able to easily find the information you need instead of digging deep into a filing cabinet.

Use cloud payroll software

One of the best ways to simplify your payroll responsibilities is to implement cloud payroll software. Different cloud-based systems are able to connect and share data, automating many of your back office responsibilities.

In the case of payroll, each employee can enter their hours and the tips they earned into the system. The software will automatically arrange for each employee to be paid and update your staff and accounting records.

Does your restaurant need help managing payroll or implementing cloud payroll software? BookKeeping Express (BKE) can help!

How to Set the Right Menu Prices in Your Restaurant

The general principle for running a profitable business is simple. Generate more revenue than you pay out in expenses. This can be accomplished by charging the correct amount for the goods or services your business offers.

However, if you own a restaurant, you know how difficult setting prices can be. Your goal is to provide customers with delicious food and a great experience but you also need to make sure every item on your menu helps recoup your operating costs and then some.

Setting just the right menu prices boils down to having a thorough grasp of your costs and understanding how customers perceive your restaurant.

Food Costs

Food costs are the total costs of each ingredient used to prepare a menu item. It includes everything from the main ingredient to minor items like seasoning, garnishes, and cooking oil.

To calculate food costs, you need to know the exact cost for each ingredient and follow a consistent recipe each time you prepare a dish. However, some food costs do fluctuate due to seasonality, availability, or other factors. Many restaurants use the highest possible ingredient cost when determining their prices or rotate menu items with seasons.

Once you have a solid understanding of each menu item’s total cost, you can start to work out the correct amount to charge. Food costs should be about 30-35 percent of your sales, depending on the type of restaurant you operate.

Other costs that factor into menu prices

Restaurants also incur a number of other costs that need to be covered by menu prices. Here are some common examples:

  • Labor costs – You need to account for the wages and benefits you pay your employees to prepare food, serve customers, and help operate your restaurant.

  • Preparation costs – Not all menu items take the same amount of time and effort. The ones that take more work merit a higher price.

  • Overhead expenses – Restaurants have a lot of overhead costs, such as rent, utilities, equipment, maintenance, marketing, and much more.

There will likely be other costs that are unique to your restaurant you’ll need to take into account. Just be sure you have insight into all your restaurant expenses, so nothing goes unaccounted for.

Determining your menu prices

Once you have all your costs worked out, you can finally set your menu prices.They’ll need to cover all your restaurant's costs and provide you with a profit. But you’re likely asking yourself how much of a profit is reasonable? You of course want to make as much money as possible but you don’t want to be labeled as an overpriced restaurant. Here are few factors to take into consideration:

  • What type of restaurant do you operate? – People expect a meal at a fine dining restaurant to be expensive and look for more value when eating at a fast-casual restaurant. Be sure that your menu prices align with your customer’s expectations.

  • What do your competitors charge? – Go around your community and see what similar restaurants are charging. It’s also an opportunity to learn what you can do better than your competitors so you can develop a loyal customer base.

  • What else makes your restaurant appealing? – Do you use local and organic ingredients? Are you located next to a famous landmark? Is there a beautiful view from your dining room? Is your restaurant historic or well-known? These small advantages that help attract customers allow you to have slightly higher menu prices.

Setting menu prices is a delicate balance and requires deep thought and cost analysis. But it’s an exercise that will set your restaurant up for long-term success so be sure to give your menu pricing the attention it deserves.

BookKeeping Express (BKE) can manage your restaurant’s books and give you insight into your expenses, revenue, and overall financial performance. Find out why so many restaurants love working with BKE.