There are so many wonderful ways business owners are using technology every day for their digital marketing, as well as point-of-sale (POS) and bookkeeping.
Last week I met Cherie. Cherie owns a relaxed cafe in the holiday haven of Forrester’s Beach, NSW, and she let me record a short video of a customer paying for their meal using Square.Continue reading Clear Out Albert, Cherie’s Getting Square! (PayPal Alternative)
We created a free educational guide, called Introduction to Bookkeeping Beginner Basics, which is available to download from the EzyLearn website, and to complement that guide, we’ve been publishing a series of blog posts, also titled Bookkeeping Basics. We’re now three posts in, and we’re going to be look at the chart of accounts, which is the foundational element of every business’s accounting system. The Bookkeeping Basics guide will take you through how to set up a chart of accounts in your accounting software, whether you’re using Xero, MYOB or QuickBooks, while this blog post is going to explain why it’s important.
What is a chart of accounts?
The chart of accounts (COA) is an organisational tool that lists every account in a business’s account system. In the context of bookkeeping, ‘account’ is used to refer to a unique record for each type of asset, liability, equity, revenue and expense. So a chart of accounts, then, is just a system that organises your finances so that your reports make more sense and you can easily see the financial health of your business.
A well-designed COA helps the business to comply with financial reporting standards, and should be flexible enough so that a business can tailor its chart of accounts to best suit its needs. Within the categories of operating revenues and operating expenses, for instance, the accounts might be further organised by business function or by company divisions. As such, a COA can be as large and as complex as the business itself.
Understanding your ‘accounts’
When you set up your chart of accounts, it will be organised the same way every other company does – your banks accounts come first, then all assets, liabilities, equity, income, and expenses in that order. Here’s what each of those accounts mean:
Your accounts receivables are considered an asset, as is your income, but the two are completely different things. Accounts receivables are business claims against the property of a customer that’s occurred following the sale of goods and/or services, and income is what you have collected from the sale of those goods or services.
In other words, if you invoice a customer and give them time to pay, then that’s ‘accounts receivable’. When you collect the money and deposit it into your account, it’s ‘income’.
Liabilities are notes owed by the business. If you lease anything or you’re buying anything on credit – this includes suppliers who extend a line of credit to you – then it’s considered a liability.
An equity account would be any equipment the company has paid for, or would receive money for if it is sold. Cars, machinery, and certain office equipment are all considered equity. If you had a loan on a business vehicle, the payments you make would be considered a liability, but the vehicle itself would be equity. Each time you make a payment, the liability goes down, while the amount of the equity account would increase. To keep your balance sheet accurate, you need to track both.
Finally, expenses are just that: the money paid by the business for the operation and production of goods and services that are paid for immediately. This includes things like stationery or fuel for a business vehicle, which are paid for at the point of sale, is an expense, where a telephone bill that allows you 14 days to pay, on the other hand, is a liability.
Why a chart of accounts is important
Whether you’re using an old fashioned pencil and paper, an excel spreadsheet, or more sophisticated accounting software, such as MYOB or Xero, it’s important to know where your money is coming from and where it’s going to. A chart of accounts is the organisational tool that allows you to do that. And it’s important to keep it up-to-date, so that, if for any reason, you want a picture of how your business is performing financially, your reports will be accurate.
This blog post is part of our Bookkeeping Basics series, which are being published to complement our new educational guide, also titled Bookkeeping Basics, which you can download for free from the EzyLearn website.
ONE WOULD THINK that an accounting software program that is actually developed by accountants would be the best. However, some believe that the user experience is better with QuickBooks and Xero.
We’ve previously blogged about how QuickBooks accounting compares with MYOB. We’ve also done a comparison of all three accounting programs — MYOB, Xero and QuickBooks.
In doing so, it’s interesting to note that QuickBooks, for small business owners, at least, was the clear winner against MYOB in terms of reporting and user experience. But how does QuickBooks stack up against the increasingly-popular Xero? You may be surprised at the results.
WHEN RUNNING YOUR business, is most of the contact you have with your customers via your mobile phone?
In late 2017 I was involved in a renovation of a Newcastle investment property. During this, I came in direct contact with many tradespeople including:
- asbestos removal contractors
- builders, and
This Xero Accounting and PayPal training workbook is our free gift to you. It’s designed for all tradespeople — and anyone else — who does the bulk of their work (and their pricing) ‘out and about’.
It’s designed to help people who just want to get the financial aspect of their work sorted out — so they can get back to doing what they do best. In the case of these tradies, it was doing a great job on the tools.
DO YOU GET frustrated when you see the little box at the bottom of the BAS lodgement form? You know, the one where they ask how long it took to complete the form because I feel like writing, “It took 10 minutes to complete the form, but 4 hours to do the data entry and bank reconciliation work!”
Junior bookkeepers, accounts receivable and accounts payable clerks, and office administrators will all share that their most time-consuming work is data entry, coding and bank reconciliations. However, there is software available which almost totally automates this work — and it’s becoming increasingly accurate and speedy.
The Internet has spawned several cloud accounting software program all over the world including:
Credit Management is an Extra Job
I’ve always believed that as soon as you offer credit you’ve got yourself another business – a credit management business. When we first created our MYOB Daily Transactions course we designed it to take students through the cashflow process of where money goes when it first leaves your bank account and these are the main steps:
- Money in the bank (cash asset)
- Buy stock (inventory asset)
- Products sold on account (accounts receivable asset – Trade Debtors)
- Customer pays their account (cash asset)
The interesting part of this business process to me is the marketing (choosing the products, pricing, marketing message and advertising) and the credit management to get the money back. Each of these stages and their tasks carry a certain amount of risk but the credit risk part is actually something you can manage to try to eliminate altogether, but it takes work and a system.
Well the good news is that we’ve created a Credit Management Training Guide that goes through the different parts of your business where you can put measures in place to reduce this risk significantly – even if you are in the trades or building industry.
Credit Management is a Job for Contractors
Many tasks in businesses these days is actually contracted out to independent contractors because of the flexibility and credit management is a great example because it can be performed a day a week (for smaller businesses) and it can even be performed by a remote contractor (virtual assistant) working from their own home office. See Credit Management Services at Natbooks!
Since we’ve started working with local bookkeepers at National Bookkeeping we’ve realised that credit management and daily transactions type work is by far the most common form of task performed by a bookkeeper. The rate of pay for bookkeepers performing this work is generally lower, but it’s a great option for people like working mums or dads who want to fit their work into their children’s school schedules as well as corporate accountants who want to make a start on their own bookkeeping business in their local area.
The corporate accountants or accounts managers we speak with often start performing this work in their new bookkeeping business but as their business grows they fill this position with a contractor of their own. Pre Qualify to join National Bookkeeping
Paypal and Quickbooks
Last year I wrote about the joint venture between Quickbooks (Intuit) and Paypal and how they want to help businesses get paid faster. They commissioned a study last year found that Australian small businesses are owed a collective $26 million in unpaid invoices. That’s roughly $13,200 owed to each business at any given time, for which business owners will spend an average of 12 days chasing them each year.
It’s a lot of time and effort to earn that kind of money particularly if you’ve actually already earned it by supplying your products and services!
Check out our Credit Management information page and watch out for the announcement when we include it as a student inclusion for ALL students. We created this guide to help businesses use their accounting software to better manage the credit risk in their business. We’ve included information for builders and contractors about the Security of Payments Act.
Quickbooks is stealthily forming partnerships to fight MYOB and Xero
Small business owners know better than anyone the difference an an invoice paid on time (or early) can make to their cashflow. Yet, getting paid on time, never mind early, remains as elusive as a pot of gold at the end of a rainbow. A new union between PayPal and QuickBooks Online hopes to change that.
Since PayPal officially divorced from its parent company, eBay, earlier this year, the company has been edging closer and closer to the small business finance market, with products and services specifically aimed at small businesses that derive a good proportion of their business through online sales.
PayPal also seems to be fighting MYOB and Xero
In recent months, Paypal has started offering small business loans to businesses with an existing PayPal sales history, which serves to complement other, already existing services, such as PayPal Invoicing, PayPal’s Merchant Services, the PayPal Here card reader, and now the union with QuickBooks Online.
PayPal Invoicing vs. Quickbooks + PayPal
If you already use PayPal to accept payments from your customers, then you’re probably already familiar with PayPal’s invoicing service, which charges a small fee per invoice for the use of its service, rather than a monthly fee like most other accounting and invoicing packages do.
Until recently, PayPal’s invoicing service, as well as its card reader, has been of benefit to businesses that primarily sell goods on e-commerce sites like eBay, and don’t regularly invoice or accept payments in-person. The union with QuickBooks, however, changes that.
Now, businesses that primarily invoice their customers for good and services have access to the best of both worlds: an accounting package that’s inexpensive and the ability to allow customers to pay their invoices in just a few clicks using a credit card, debit card or PayPal.
How QuickBooks + PayPal works
Setting up a PayPal payment gateway within your invoicing or accounting software isn’t new; Zoho has been offering automatic payment gateways – using PayPal, Stripe or any other online payment service – for ages. But the QuickBooks union allows PayPal data to be automatically synced with QuickBooks, reducing all of the data entry associated with accepting payments with PayPal. In essence, it’s bank feeds for PayPal.
With QuickBooks and PayPal, business owners are able to send online invoices to their customers, who can then, with a few clicks of a button, pay them online using a credit card, debit card or PayPal account.
The idea is that businesses will be paid faster, because their customers are able to click a few buttons and pay invoices with greater number of payment methods. Of course, it relies on the customer already having a PayPal account.
What the QuickBooks-PayPal union really means for small business
What the QuickBooks and PayPal alliance really represents, however, is QuickBooks’s continued push into the accounting software market in this country, by aligning itself with a key player in the online payments space, which also happens to be going after small businesses with its own range of small business-centric services.
Currently, there are no other online payment services available in Australia (in the US there are a handful of alternatives, with Stripe being PayPal’s biggest competitor), so the QuickBooks-PayPal alliance gives the former a leg up over already-established competitors in the Australian marketplace, like MYOB and Xero.
Now that accounting software has entered the cloud, the marketplace has become a fairly crowded, cutthroat world, as the recent shuttering of Reach Accounting and the sudden introduction of Reckon One, by the very company that used to licence QuickBooks in Australia, has shown.
For small businesses, the Quickbooks-PayPal union may not mean getting paid faster, but it does represent a promise of continued flexibility in the way small businesses interact with their customers, whether it’s mostly in the form of regular online purchases, casual in-person payments, or mostly by invoicing for goods and services.
What’s your plan for 2016?
As 2015 comes to a close, you’re probably giving a lot of thought to your plans for next year and beyond. If those plans involve starting your own business and working from home, then start putting the wheels in motion NOW by enroling in our small business StartUp course or by visiting the StartUp Academy website and browsing the current business opportunities available.
EzyLearn partnered with StartUp Academy earlier this year to give our students and readers the opportunity to start their own business, while also having access to the training and guidance needed to make a new business a success. There are currently a number of business opportunities available across an array of different industries. Visit the website for more information and to register your interest.
There’s always Zoho Books
You may have a different opinion when it comes to paying your suppliers but I believe you should pay quickly. I’m talking mainly about service providers rather that product suppliers, but I think in small business it doesn’t matter.
Everyone loves to be paid on time and if you can get paid earlier, even better. It once took me 16 minutes to pay a supplier – OK, I was making other payments at the time, but still, it looked impressive.
I mention it today because one of my team told me that I was categorised by their accounting software as “high risk” and I wasn’t too happy – they use Zoho Books and it’s been recommended around here to team members who are just starting their own businesses as independent consultants. When I delved a little deeper I discovered that they offer automated bank feeds.
Zoho Books + Bank Feeds = Faster Reconciliation
We’re written about Zoho Books in several different blog posts about their free version which is ideal for virtual assistants, Zoho’s huge range of other cloud based software tools, and their fantastic automated tools to help you get paid faster and this time I was fascinated to learn about their banks feeds.
Zoho uses a company called Yodlee to enable Zoho Books users to get their bank feeds and they boast that “Zoho Books does not store any of your bank login credentials.“. This is a comforting feature in the cloud accounting wars that have erupted since MYOB started facing stiff competition online against SAASU, Xero and Quickbooks.
I wrote about the time saving features of bank feeds and showcased some of the training videos in our online MYOB Training Course. If you are interested there are two free training videos to help you understand bank feeds in MYOB as an overview and how to setup bank feeds in MYOB.
I discovered a great article by “Cloud Commentator” Sholto Macpherson at his Digital First blog where he wrote about all the different perspectives of modern day bank feeds and the opinions of ICB, Accountants and the software companies themselves. If you’re interested it’s an interesting and objective read.
Zoho Books is in the Clouds
Either way you look at it, the new online cloud based accounting programs give you the power to work from anywhere, the tools to get paid faster and the connectivity to complete your bookkeeping in much less time.
If you’re working as a contractor and using an Australian business number (ABN), rather than a tax file number (TFN), you’re self-employed, and this means you will need to invoice your customers for the products or services you provide in order to get paid.
If you’ve only ever worked as an employee before, you’re probably used to being able to set your clock to payday, but unfortunately this isn’t often the case when you’re a contractor.
Getting paid late — or worse, not at all! — can seriously affect your cash-flow, and in turn, affect the success of your business, which is why we cover things like financial planning in our Small Business Management and Start Up Course.
Too many small businesses suffer from cash flow problems, which is why our Small Business Management Course covers financial planning and how to monitor and manage your cash flow through debtor management. However, few small businesses suffer from poor cash flow because they’re unaware of how to manage their debtors properly.
Rather they suffer poor cash flow because they lack the resources to chase late payers or, as in most cases, they don’t have the time to stay on top of their accounts receivables to ensure their clients don’t become late payers in the first place.
This was the case for AJ Singh who, after selling a wholesale distribution business he had owned for five years, began to suffer poor cash flow problems with his next venture. After doing a little research, he discovered that over 90 percent of small-to-medium-sized businesses attributed the failure of their business to poor cash flow.
These startling statistics got the cogs in AJ’s brain turning and ultimately resulted in his latest venture: ezyCollect, a web-based software that synchs to your accounting software to manage your account receivables. We spoke to AJ to find out how ezyCollect works and how you could benefit from it.
Q: Can you explain how ezyCollect works?
A: By synching to your accounting software, ezyCollect uses the account information to send real-time, personalised reminders to customers using a variety of different methods (email, mail, fax, sms, etc). ezyCollect also schedules follow-up phone calls, and includes single-click “demand letters”, on demand credit checks and easy debt escalation tools.
Q: How do the functions of ezyCollect differ or improve on the functions already available within accounting software like MYOB?
A: The functions offered by ezyCollect are not offered by MYOB, but as an MYOB partner, the ezyCollect software enhances the value of MYOB as it reduces the labour costs associated with credit management.
Q: What businesses would benefit from using ezyCollect?
A: ezyCollect is great for businesses with a large number of smaller-value invoices, but all SMEs can benefit from using ezyCollect as it is a completely automated, secure cloud-based application. ezyCollect increases your cash flow and your productivity, because you’re not stuck on the phone all day chasing money when you could be out winning new business.
If you’re thinking about starting a new business, our Small Business Management Course covers the fundamentals you need to know to successfully own and operate a new business, including financial planning and managing cash flow.
If your business is suffering cash flow problems and you’d like to know more about ezyCollect, visit the ezyCollect website for more information.
I wrote a blog post about getting paid on time back in late June 2012 and thought I would share some information that might help if your customers are not paying according to your MYOB Payment Terms.
If you are not already aware, MYOB enables you to set payment terms at three levels:
- System wide default
- Customer (or supplier) card level
- Transaction (ie. Invoice) level
Debtor Control and Credit Risk
Setting up MYOB Payment Terms enables you to maintain tight control of your credit risk. When the MYOB Payment terms are set-up correctly you can run reports that show exactly how much money is owed to you and how old it is. The age of the debt is referred to as the Aging Period and it’s commonly 30, 60 or 90 days. We teach these MYOB skills in our MYOB Day-to-Day Transactions course.
Direct Debit Facilities
If you work in or own a business that provides ongoing services and charges a monthly fee then a direct debit facility is something you should definitely look into. Direct Debit services are traditionally offered by the major banks like St George Bank, but there are also some small and nimble companies that help you get paid on time and here are a couple of them:
When you decide to use these services you would create another “bank account” in your chart of accounts and keep track of the money that goes into these accounts, the fees they charge and then the money that comes out and into your main bank account. It’s very similar to setting up a Paypal account for your company, the Paypal account becomes another bank account in your MYOB file that needs to be reconciled.
I hope these tips help to reduce your debt collection woes and make for happier, healthier bookkeeping.