A Simple Star t to

Mana ging Your Business

Finances

A Guide to the Essentials

QB_10/2004_01
 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

2
 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
3
 Six Ways Financial Management
Helps Your Business Succeed
2. Manage Customers and Sales.
Know and understand your customers
through consolidated records.
3. Production.
1. Cash Flow. Obtain goods and
Track the money services. Apply for and
going in and out of establish credit with
your business. your vendors.

YOUR
BUSINESS 4. Compliance.
Report your
6. Funding.
company’s incomes,
To be considered for
expenses, and payroll
a loan or investment,
accurately to the IRS.
you’ll need complete
financial statements.

5. Insight and Decision Making.

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

4
 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
• What’s the value of what my
business owns? Assets

• How much does my business owe to

Liabilities
others?
• What is my business worth? Equity

5
 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

6
 Cash Flow:
Money In and Money Out

Money In Money Out

Sales
Expenses

CUSTOMERS YOUR
BUSINESS VENDORS

Services /
Products Services /
Out Products
In

7
 Major Account Types
• Assets
– Current (cash, inventory, Everything your
accounts receivable, etc.) business
– Fixed (property, vehicles, possesses
machinery, etc.)
• Liabilities
– Current (within one year) Everything your
– Long Term business has
borrowed
• Equity
– Contributed capital: owner’s Everything your
investment business owns
– Retained earnings (profits)
Assets = Liabilities + Equity

8
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

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 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

EXPENSE Undeposited funds Other Current Asset
Advertising Expense Equipment Asset

Car and Truck Expenses Expense LIABILITY

Contract labor / payroll Expense Loans Liability
Cost of goods sold Expense Sales Tax Payable Other Current Liability
Entertainment / meals Expense EQUITY
Office expenses Expense Contributed Capital Equity
Repairs and maintenance Expense (Owner’s invested funds)

Supplies Expense Retained Earnings Equity

Taxes and licenses Expense (Business’ profits)

Utilities Expense
Other expenses Other expenses

10
 Accounts:
What We’ve Learned
• Consolidate your Use Industry Specific
record keeping Accounts
• Use a standard set of Master account lists –
accounts or categories a chart of accounts –
are readily available for
to “file away”
most types of
transactions—there is business. Choose one
a common language specific to your
• Keep it simple: industry, and make
Significant accounts minor changes if
only needed.

11
 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

12
Make the Most of Your Reports
What do you want to know about your sales?
• What is selling?
Gain insight into
• Who is buying?
the health of
• Who owes me money?
your business
with reports:
• Sales by item
• Sales by
customer
• Unpaid
invoices by
customer

13
Income Statement

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

14
 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.

15
 4. Manage Essential Tasks
Practice Session: Mark’s Atomic Graphic Designs

Money in Remember, the better

A. Record a sale you understand
B. Invoice a customer your cash flow
C. Receive a payment situation, the
better you’ll be
D. Make a deposit
prepared to make
Money Out
the right business
E. Write a check / record an decisions.
expense
F. Use a credit card / record an
expense

16
 A. Record a Sale
Practice Session – Money In
Money In: Record a Sale

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

17
 A. Record a Sale
Practice Session – Money In
Track Your Business

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

18
 A. Record a Sale
Practice Session – Money In
See Where Your Business Stands

Profit & Loss

6. Sales
increase by
$215.50.
6

19
 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

20
 B. Invoice a Customer
Practice Session – Money In
Track Your Business

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

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 B. Invoice a Customer
Practice Session – Money In
See Where Your Business Stands

Profit & Loss

7. Sales
increase by
$90.
7 8
Balance Sheet
8. Accounts
receivable
increase by
$90.

22
 C. Receive a Payment
Practice Session – Money In
Money In: Receive Payment

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

23
 C. Receive a Payment
Practice Session – Money In

Track Your Business

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

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 C. Receive a Payment
Practice Session – Money In
See Where Your Business Stands

Profit & Loss

4. Unchanged.
5
Balance Sheet
6 5. Accounts
4 receivable
decrease
Undeposited funds
appear in “Other by $90.
Current Assets”
6. Undeposited
funds
increase
by $90.

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 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.
1

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 D. Make a Deposit
Practice Session – Money In

Track Your Business

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

27
 D. Make a Deposit
Practice Session – Money In

See Where Your Business Stands Profit & Loss

3. Unchanged.
Balance Sheet
4. Other current
5
assets
decrease.
4 5. Checking /
3
Savings
Undeposited funds
appear in “Other
increases.
Current Assets”

28
 E. Write a Check / Record an Expense
Practice Session – Money Out
Money Out: Write a Check

Pay your
telephone
bill by
check.
Write check /
1
record
expense.

29
 E. Write a Check / Record an Expense
Practice Session – Money Out
Track Your Business

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

30
 E. Write a Check / Record an
Expense Practice Session – Money Out

See Where Your Business Stands

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

31
 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.
1

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 F. Use Credit Card / Record an Expense
Practice Session – Money Out
Track Your Business

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

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 F. Use Credit Card / Record an Expense
Practice Session – Money Out
See Where Your Business Stands

Profit & Loss

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

34
 6. Tips and Advice

1. Getting Started
2. Helpful Resources
3. Online Resources
4. Congratulations!

35
 Getting Started
Establish Good
Accounting 1. Build your toolkit
Habits – Consider software packages such
1. Record as QuickBooks Simple Start
transactions (Trial Edition is available)
regularly 1. Structure your accounts
2. Accuracy and – Start with a minimum # of accounts
consistency are and add as needed
essential
1. Establish an accounting
3. Fix mistakes routine – and stick to it
as they happen – Reconcile accounts monthly
4. Manage and – Update financial statements
reconcile bank quarterly
account regularly

36
 Helpful Resources
Advance Your Knowledge

• Professional Help Expert help can make

– Accountants the process of setting-
• Look for knowledge of your industry
up and maintaining
– QuickBooks ProAdvisors
• Expert set-up can save you time your books much
• Free 1-hour consultation easier. Be sure to look
– Small Business Development Center (SBDC)
counselors for a professional with
• Training Tools knowledge of your
– Take classes (either online or at local colleges)
industry – and of
– Attend local business seminars
– Build a network with other business owners course, don’t be afraid
– Use QuickBooks learning solutions to ask for references.

37
 Online Resources

Small Business Development

Centers
www.sbdc.gov/sbdc
Internal Revenue Service
www.irs.gov/businesses/s
mall/
U.S. Chamber of Commerce
www.uschamber.com
Try QuickBooks Simple Start
Edition (Free Trial)
www.quickbooks.com
Find a QuickBooks
ProAdvisor
www.usequickbooks.com
/locateadvisor)

38
 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!

39
A ppendix: Additional
Ter ms and Concepts

A Simple Start to Managing Your

Business Finances
 Financial Management
Terms and Concepts
1. Business types
2. Cash or accrual
3. Debits and credits
4. Journal
5. Ledger

41
Determine Your Business Type

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.
1. Sole Proprietorship
• One owner
1. Partnership or Limited
Liability Corporation
• Two or more owners
1. S Corporation
• Small business with one or
more shareholders
1. C Corporation
• Large business with one or
more shareholders
1. Non-profit Organization

42
Choosing an Accounting Type
Cash or Accrual?
A. Cash accounting Choose whichever
• The practice of recording sales and accounting method
expenses only when cash is actually works best for you –
received or paid out
the important thing is
B. Accrual accounting to be consistent once
• The practice of reporting income when you’ve selected an
earned and expenses when incurred
• accounting type
Businesses with inventory (e.g.
retailers) must use this method
Most businesses opt for accrual
method of accounting
• At any given time, gives a more realistic
picture of the health of the business
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 Debits and Credits
Double Entry Accounting

You don’t need to be

too concerned with
• Accountants use “debits and the mechanics of
credits” to describe how double entry
transactions are recorded in
accounting, debits
the general ledger
and credits, as
• Each transaction increases software programs
one account and decreases handle automatically.
another But as a business
• System balances itself owner, you might run
into these terms.

44
 Mark’s Atomic Graphic Design:
Journal

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

45
Mark’s Atomic Graphic Design:
General Ledger

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

46
 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 sbdcsupport@intuit.com.
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