Most good business managers can tell you how much of their time is devoted to dealing with problems in the business. I am never surprised to hear people tell me that business problems occur with immaculately bad timing. To solve a problem you first have to know that you have one. Business managers who are not competent problem solvers have no place in a good business.

It is vital that all business managers give adequate attention to the implementation of robust financial controls. Financial controls should be specifically designed to detect financial problems and immediately bring them to the attention of managers. A good reporting system is essential to the support of financial controls, this functionality can be found in most good small business accounting software. You have to be able to do side by side comparisons of period versus period or budget versus period and for this you need to make sure that your small business accounting software can generate the right reports. You should identify a small group of critical factors that you need to monitor and strive to make sure your accounting reports highlight these operating ratios and balances.

It is essential you consistently track margins and immediately scrutinise and address any differences regardless how small. Any change regardless of how minor in the margins or volumes of product sales should be closely scrutinised, understood and addressed as a substantial drop in profits will inevitably follow. Don’t ever let fixed costs deviate from the plan especially in the first quarter of the year. Track your debtors position very closely and focus on the average number of days it takes to receive payment of your invoices, the best way to do this is to use the Days Outstanding or Debtors report that you should find in most small business accounting software packages.

Experience is the way to learn and over time you will learn which financial controls should be highlighted in your accounting reports, just make sure you have the right small business accounting software that can generate these.

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I make instructional videos like the one above for business owners and their teams who are using our system to replace small business accounting software such as Quickbooks (the one above took me about an hour). I am amazed more people are not using this really easy way to turn what they know into content and start selling it through the internet to the connected market. I recommend you build your own information product (digital content) from scratch as the return on your investment in time will be higher (profit margin) and you will have the added benefit of being able to learn more about your customers and build more value into your product.

When I first saw how simple it was to create a video and upload it to YouTube or turn it into a podcast it made the hairs stand up on the back of my neck and I concluded I should share this essential skill with everyone. I can deliver my small business accounting software through just about every modal via the internet and guess what the traffic just follows.

The best instructional videos I have seen have always been produced using a technique called storyboarding this helps you decide and refine how you to best share your knowledge with your audience. As opposed to using pen and paper I generally like to use software slide making tools like Microsoft powerpoint or Apple Keynote as they are really easy to put interesting content into and you can use the output in your video. I am a great believer in doing as much as is possible without spending any money what so ever and gaining confidence in your idea and making some money before you start, I call this getting the rope across the river.

To create your videos I recommend a really good program called Camtasia studio from a company called TechSmith, it will enable you to produce high quality videos for YouTube, Podcasts and download to your customers computer in either QuickTime or Windows media format (don’t download the trial yet, just watch all of the tutorials). The reason I said not to download the TechSmith software yet was to make sure you maximised your use of the trial to create and sell your first video.

OK this was a brief overview of what tools you have to have to hand and get to grips with and in the next lesson which hopefully will be published on this blog in the next few days (owners permitting) I will go through a detailed description of how I create my small business accounting software videos.

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The essential reports you need to view the financial activity, the financial position and the timing of the amounts of cash coming in and going out of your business are produced from the information and balances recorded in your chart of accounts.

Good businesses know what they have to track and measure and why. The detail of what they want to track and measure is reflected in the design of their Chart of Accounts which in turn is a mirror of what is in their Business Plan.

Well run businesses use business planning to forecast what they expect to happen in the future. They always begin this exercise with the end in mind

Good businesses set less than five clear objectives and then think through and decide the best strategies to achieve them.

Strategies are then broken down into Activities with dates and priorities which are then communicated and assigned to the individuals or groups for execution.

The plan details the picture of what sales are forecasted to happen when, what the future financial activity, financial position and cash flow is expected to be.

Each assumption helps you define financial targets each of which has financial implications for a business. So it’s essential you are able to accurately track and measure these critical numbers

Cash provides the oxygen for every business and therefore it’s critical the supply and consumption is carefully managed to keep the business alive and help it grow and flourish.

Prudent and diligent financial planning and management can only be achieved if the underlying financial and supporting information behind the critical numbers is accurately recorded and well organised.

This can only be achieved with enduring discipline, a well organised chart of accounts and good small business management software.

Because of the rapid emergence of SaaS systems, online small business accounting software now makes it possible for business owners to see real time view of progress of their business against their plan.

Every number in the accounts of a business has a story behind it containing events and characters the details of which cannot easily be recorded in an accounting system therefore Small business management software as opposed to accounting software is now an essential part of the foundations of a well run business.

Continued in - Small business management software - The join between planning and accounting - Part 2 of 4

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In businesses that sell stock you will find a line directly below income called Cost of Goods. Reports in most small business accounting software will display this as COGS

This line represents the actual costs (COGS) associated with the Products you sold in the period you report from your small business accounting software. The objective of this line is to assist companies determine the gross margin/profit (the gross profit realised after acquisition of the stock).

To calculate Gross Margin subtract the COGS balance from the Income balance. Gross Margin is often expressed as a percentage and to calculate the gross margin and express it as a percentage just divide the Gross Margin by the value of sales you made in that period. Now if you’re a Services Business life is a little more complex if you want to determine the Gross Margin you make on Services (and you should). The reports in some small business accounting software systems will help you determine this.

Visit the Small Business Heroes channel on Youtube for videos explaining the Profit and Loss and other accounting elements. The next row underneath the COGS row details the running costs better known as the operating expenses. What was spent in the period on running the business is reported as Operating Expenses.

Expenses are often categorised into sections representing key functions such as Sales, Admin, R&D and other departments. As you can see these sections represent major functions or centres of activity in a business. Each of these rows details the expenses incurred in a period for example a month or a quarter.

The balances in these sections are derived from Expense Accounts and it’s really important that you know and understand that there are two major types of Expense in any business. These are Fixed and Variable expenses.

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If you are running a small business or using small business accounting software it’s vital that you master reading and understanding your profit and loss statement. And if you are stuck You will find videos on Youtube in the Small Business Heroes channel to help you understand this report or statement.

The profit and loss statement reports how much you’re selling, how much you’re spending and how much profit you are or aren’t making over a specific time period.

The Profit and Loss or P&L is often referred to as the Income statement, it tracks and reports the financial activity of your business over a period such as a month or a quarter.

I will give you a basic overview of the profit and loss to help you understand what it does and how it works.

I’ll show you how the profit and loss is formatted and the order in which it arranged in the report generated by your small business accounting software

I will also discuss the mathematics used in the profit and loss to express the bottom line or how much profit the business is making.

Just one important point before I begin. You will never ever be able to tell how much cash you have from looking in the Profit and Loss. Reporting or making a Profit doesn’t automatically mean you have Cash. The results of the financial activities of the business animate the cash positions to be found in the balance sheet.

Always first is Sales (in other words how much you’ve sold),it’s also known as Income or Revenue and is always shown at the top of the profit and loss report generated by your small business accounting software The balance or amount on this line is derived from your Income Accounts.The financial activity resulting from what you have sold are recorded in the income accounts.

So if you’re reporting by month and in March you invoiced or sold 1,000 worth of Products or Services. This line will show a balance of 1000.00 for March.

The lines in the top section present the resulting balances from transactions that occurred in the time period specified by you

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