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| Granville Island Market, Vancouver, BC (Canada) |
Finally, we reached the last part of the “7 Basic Things You Need To Know During Start-up Year”.
It was so much fun writing the last 6 issues, and hopefully they have
been helpful information for new entrepreneurs, and for some existing
ones.
Again, here’s the complete list of the 7 Basic Things You Need To Know During Start-up Year:
(1) Types of Business Organizations
(2) Business Product to sell and manufacture and service to perform
(3) How to keep business records
(4) Planning to have employees or sub-contracting
(5) Year-end Requirements
(6) Dealing with the taxman (Canada Revenue Agency)
(7) Preparing for the next fiscal period
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| UBC Campus, Vancouver, BC |
Preparing for the Next Fiscal Period
New
fiscal period is just like New Year. It’s a fresh new start for some
things that you wanted to accomplish in the last fiscal period, but just
didn’t happen. Whatever they are, this is your new chance.
Things to Do during the Next Fiscal Period:
a) Consistency in record keeping
b) Reconciliation of prior year’s amounts
c) Meeting company’s obligation to governing agencies and others
d) Interim financial statements reporting
e) Managers finding better ways of reaching goals and objectives
 |
| Downtown Seattle, WA, USA |
Consistency in Record Keeping
There
should be a consistency in business record keeping. It is required by
law, for fair presentation of financial statements, and in accordance
with generally accepted accounting principles (GAAP).
To
start the new accounting cycle, last year’s financial records will be
used as the opening balances, except for income and expenses amounts.
Last year’s Income and Expense amounts which have been brought down to
zero balances, and closed Income Summary to Retained Earnings will be
applied. Closing last year’s books is a way of separating accounting
business activities for each year. Balance Sheet accounts are considered
as permanent accounts, so there will be no closing entries required
during end of fiscal period, ending balances will be the opening
balances for the new fiscal period.
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| Downtown Vancouver, BC (Canada) |
Reconciliation of Prior Year’s Amounts
Reversing entries
for certain adjusting entries performed during end of prior period are
reversed on the first day of the accounting period, except for
depreciation, bad debts and other estimated amounts adjusting entries.
Though reversing entries process is considered optional by most
accountants, however reversing entries are applied for the sake of
simplification of subsequent transactions, as if adjusting entries were
not recorded in the prior year. This
method is more like a bookkeeping mechanics than an accounting’s
concepts, principles, and more on accrual than cash method basis of
accounting.
Year-end
book and bank reconciliation should be performed, making sure that all
deposits in transit, outstanding cheques, and bank charges are accounted
in prior year are matched and reflected in the financial statements. In
addition, all prior period accounting errors and adjustments are
accounted as well. Defending on each transaction, they are either added
back/deducted in the beginning balance of the current fiscal period’s
Statement of Retained Earnings, to correct/adjust balance presented in
the current Balance Sheet of the company.
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| Kits Beach, Vancouver, BC (Canada) |
Meeting Company’s Obligation to Governing Agencies and Others
Just
like in our personal life, we have to make sure that we have the
necessities to perform our daily activities. The same thing with
business, it has to make sure that it pays its rent or lease (if it
doesn’t owned its business place). Also, the company has to have
licences to operate the business, thus the company has to renew its
business licence and insurance, renew incorporation certificate, vehicle
licence and insurance, pays its utilities, and other related due
accounts.
Also,
making sure that the company files its income tax related to the
business, as an owner, partner, or shareholder, as a partnership (if
needs to file) or corporation itself. Please refer for more detailed
information in dealing with tax authority in my last article, part 6 of
7.
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| Locarno Beach, Vancouver, BC (Canada) |
Interim Financial Statements Reporting
Besides
the usual gathering of raw data, like monthly bank reconciliation, and
recording of other business related transactions, management will always
have to find ways of improving the performance of the company.
Financial statements serve as indicators of company’s performance, an
end product of the bookkeeping cycle, and applicable laws applied during
the preparation. Sometimes management will use external auditors too,
for additional credibility to financial statements presented.
Management
will likely use the most recent financial statements or have an interim
financial statements generated each month or every quarter for
decision-making purposes. Interim Financial Statements are more for
internal use and for specified parties only, not all phases of
accounting cycle are performed, thus adjusting entries, closing entries,
and post closing entries trial balance are not included.
Managers Finding Better Ways of Reaching Goals and Objectives
Each business is different, thus it is important for managers to make decision according to company’s goals and objectives.
Usually managers’ performance on their day-to-day operation of the
business is reflected on financial statements presented. Financial
statements are usually influenced by users’ requirements, preparer’s
role and intentions, complexity of business, and the company’s needs of
funds. Thus, managers should consider accounting policies that fit for
the company’s situation. They should be able to find ways of solving
issues through the ability of evaluating the situation and applied
appropriate solution.
Managers should always focus on objectives, facts and constraints for every situation.
They have to be able to interpret the financial statements properly, as
to the preparer’s criteria used, materiality level placed on each
transaction recorded, and to use it appropriately in the decision
process. Also, there should be consistency on criteria and polices applied in order to established credibility on the financial statements.
Furthermore, managers should find ways of designing a system how to deal in times of inflation and price changes,
which historical data and the accrual method might not be the best
basis for decision making for financial statement users. It is important
for managers to see the true picture of its financial statements,
especially for non-cash items. They should be able to find alternatives
and apply measurement that make sense and address the issue.
Managers
should monitor items in the balance sheets that are suceptible to fast
deflation, like long-term assets such as fixed cost, investments in
stocks, and derivatives (financial intruments). Also, keep an eye on
your stocks and bonds for dilution and higher interest on long-term
liabilities. Though owners enjoy the tax deductibility of interest on
borrowed funds for investment, but for how long you can pay these higher
interests. Market risk can definitely affect your business, especially
when it becomes larger, thus extra monitoring is crucial.
Also, managers should be able to monitor profits generated and the liquidity of the assets
acquired. They have to make sure that before directors can declare
dividends to shareholder, or owners can withdraw funds, that funds are
coming from company’s earnings and not from owners’ investments. This is
to insure the long term existence of the company. Thus application of
certain ratios are encouraged as to profitability, liquidity, activity
and coverage ratios of the company’s financial statements amounts,
especially ratio analysis such as return on investments, debt-to-equity
ratio, and so on.
In times you might expand
your business and have subsidiaries. As a parent company, though over
all you have healthy net income showing on your consolidated financial
statements, but keep an eye on subsidiaries that are losing money and
deal with them separate for improvement. Likewise, in some cases, your
income statement might be showing a net loss because of a huge amount of
depreciation or/and losses related to your fixed and related assests.
Keep an eye on the difference between cost vs. expenses that affect your
net income.
Running a business can be so exciting if you have the know-how-to-survive-and-succeed
kit. A good manager can easily detect problems, prioritize their
importance to the organization, always finds effective solution or best
alternatives in solving the problems. They are always able to provide answers to questions such as: Is
the company bringing enough funds to meet its obligation? Is the
company making healthy profits? Are the shareholders satisfied with
their returns on their investment? At what level does the company credit
rating is? Is there any room for improvement and expansion?
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| A family picture taken in May 2011 (Yvonne was absent in this picture). |
Most managers are problem solvers,
but there will be times when they get burn out and lost their
motivation. Therefore, directors should be able to step in this
situation, encouraged and inspired managers and all staff working under
them to always think the best for the company. The company might be able
to generate additional income through expansion of the business,
produce and sell other related products, hiring more people for support.
Always remember, good people are assets to your company.
Try to help and support them when they need you. So, if the business is
doing well, probably an increased in wages, or provision of added
benefits, like bonus plan, stock options, or other incentives on
productivity are not too much to ask. They are definitely a few of
driven factors in the retention of staff, long-term existence and
profitability of the company.
___________________________________________________________
I hope all the “7 Basic Things You Need To Know During Start-up Year” have
been helpful to you, either you are just thinking to start your own
business, or even for current businesses that just need some extra
pointers.
Also,
I hope you enjoyed browsing a few of the thousands of pictures taken
from my collections, from few years of being an amateur prhotographer!:)
Good luck with your business.
Please feel free to leave comments/inquiries or you may contact me at:
