Accounting Firm Success

The 3 Financial Statements Credits to Mighty Digits,?follow him for more accounting insights! Here's the original post ----- These 3 statements are affected by close to every action taken in your Finance & Accounting department Let's take a deep dive on each: ?? ???????????? ?????????????????? (also known as Profit & Loss) This represents everything in terms of what your company is EARNING... as well as what your company is SPENDING Here are the major sections (and what they mean): ? REVENUE What is being earned via sales ? COGS The cost to deliver your product or service ? GROSS PROFIT Your profitability in carrying out your product or service (Revenue - COGS) ? OPERATING EXPENSES All other costs that relate to your core business, but aren't necessary to carry out your product or service (IE not COGS) ? NET OPERATING INCOME Gross Profit less Operating Expenses ? OTHER INCOME Money earned that is not core to the business (common ones can be interest income, or cash back from credit cards) ? OTHER EXPENSES Expenses that are incurred that are not core to the business (common ones can be depreciation and interest expense) ? NET OTHER INCOME Other Income - Other Expenses ? NET INCOME Net operating income + other income ?? ?????????????? ?????????? Here you can see a snapshot of everything the company OWNS (assets)... while also understanding what the company OWES to creditors (liabilities)... and the money put into the business through investments & prior profits (owners equity) It is separated by 3 sections: ? ASSETS What the company owns that represents economic value. Common ones are cash, accounts receivable, and prepaid expenses ? LIABILITIES What the company owes to creditors. Examples can include credit card balances, accounts payable, and deferred revenue ? EQUITY This is the net value of the company that the owner's can claim, and is typically comprised of amounts invested, and prior earnings (retained earnings) ?? ?????????????????? ???? ???????? ?????????? This statement shows you all of the details that makes up the movements in your cash balance on the balance sheet. It is comprised of 3 sections ? CASH FROM OPERATING ACTIVITIES This section shows all of the cash flows from activities related to operating the business ? CASH FROM INVESTING ACTIVITIES Here you show the cash movements from long-term assets ? CASH FROM FINANCING ACTIVITIES Here you show the cash from all equity investments and debt injected/paid out from the company

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Is EBITDA a good metric? Credits to Josh Aharonoff,?follow him for more accounting insights! Here's the original post === Is EBITDA a good metric? That depends on who you ask… and what you use it for. First… ?? What is EBITDA? EBITDA stands for Earning before Interest, Taxes, and Depreciation It’s a very common term you’ll hear in Finance & Accounting ?? How do you calculate EBITDA? Like the name suggests… Start with Net Income [+] add back your interest expense [-] subtract out your interest income [+] add back your taxes [+] add back your depreciation [+] add back your amortization OK…now that we know what EBITDA is and how to calculate it…is it a good metric? ?? Pros to EBITDA ? Can be a good proxy for free cash flows → although not perfect, EBITDA can be a good measure of a companies free cash flows ? Simplifies Comparisons → EBITDA helps you compare businesses in a similar industries against one another ? Valuing a company - it’s common to use EBITDA as a multiple in order to get to a valuation ? Focuses on operating performance → EBITDA removes metrics that aren’t part of the normal course of business ? Widely accepted → everyone knows the term EBITDA ? Useful for high growth companies → since depreciation & amortization are not included, it tells more of a story related to profitability & growth ?? Cons to EBITDA ? Ignores changes in working capital → EBITDA doesn’t account for changes in items like inventory, accounts payable, or accounts receivable ? Is not a GAAP metric → EBITDA is not a metric that you’ll find in a Profit & Loss ? Vulnerable to Manipulation → you’ll often times hear of an alteration of EBITDA, that can be misleading ? Fails to consider capital structure - EBITDA won’t show you how the company is capitalized, and how much debt needs to be repaid ? Does not Represent cash flow → EBITDA can wildly differ from your actual cash flows ? Lacks industry specific considerations → your EBITDA won’t inform you of whether it’s a strong or weak indicator of performance in your industry ? Ignores the Quality of earnings → income from recurring sources are more attractive than non recurring sources, but EBITDA won’t inform you of this ? Excludes important expenses → Taxes, Interest, Depreciation, and Amortization can all be material expenses that the business faces

Income vs Expenses Credits to Mighty Digits,?follow him for more accounting insights! Here's the original post ----- They are the Yin and Yang of your P&L And the represent the complete opposite from one another Let's start with the definition... 1?? What does Income & Expense mean? ?? Income means amounts generated from sales ?? Expenses means amounts consumed 2?? Where are Income & Expenses found? They are both on the P&L ?? Income can be found in the Revenue, and Other Income section ?? Expenses can be found in the COGS, Opex, and Other Expense section 3?? How are both recognized? ?? Cash Basis means income is recognized when cash is collected, and Expenses are recognized when cash is paid ?? Accrual basis means income is recognized once it’s EARNED, and Expenses are recognized once they are INCURRED 4?? What are the journal entries? They both feed into your Owners Equity on the balance sheet Which means Crediting is good, Debiting is bad ?? Income goes up with a credit, and down with a debit ?? Expenses go up with a debit, and down with a credit 5?? What are some common examples? ?? Income - Subscriptions, Product Income, Consulting Income ?? Expenses - Advertising & Marketing, Hardware COGS, Payroll 6?? What are some commonly associated accounts? ?? Income - Deferred Revenue, COGS, Cash, Accounts Receivable ?? Expenses - Accounts Payable, Accrued Expenses, Cash, Credit Card, Prepaids 7?? What are some things to also keep track of? ?? Income - Measure your Gross Profit, and ensure you are collecting cash quickly ?? Expenses - monitor all recurring charges, and be mindful of when you have AP that’s coming due 8?? What are some things to watch out for? ?? Income - Don’t mix up Revenue (from your core business) with Other Income (non core activities), or vendor refunds (which should be a negative expense, and not income) ?? Expenses - Don’t mix up COGS (cost to deliver your product / service) with Opex (cost to run your operations), or Other Expense (costs not related to COGS or Opex), or capitalized items that go on the balance sheet (like inventory, or fixed assets)

10 Accounting KPIs Credits to Nicolas Boucher, follow him for more accounting insights! Here's the original post ----- You work in accounting? These are the 10 KPIs I would recommend you to know: 1/ Accounts Receivable Turnover Description: Measures how quickly a company collects outstanding debts from customers Formula: Net Credit Sales / Average Accounts Receivable 2/ Accounts Payable Turnover Description: Measures how quickly a company pays its suppliers Formula: Total Supplier Purchases / Average Accounts Payable 3/ Working Capital Ratio Description: Measures a company's ability to meet its short-term financial obligations Formula: Current Assets / Current Liabilities 4/ Debt-to-Equity Ratio Description: Measures the proportion of a company's financing that comes from debt versus equity Formula: Total Debt / Total Equity 5/ Gross Profit Margin Description: Measures the percentage of revenue that is left over after deducting the cost of goods sold Formula: (Revenue - Cost of Goods Sold) / Revenue 6/ Net Profit Margin Description: Measures the percentage of revenue that is left over after deducting all expenses, including taxes Formula: Net Income / Revenue 7/ Return on Assets (ROA) Description: Measures how efficiently a company uses its assets to generate profits Formula: Net Income / Total Assets 8/ Return on Equity (ROE) Description: Measures how much profit a company generates with the money shareholders have invested Formula: Net Income / Total Equity 9/ Inventory Turnover Description: Measures the number of times inventory is sold and replaced during a period Formula: Cost of Goods Sold / Average Inventory 10/ Fixed Asset Turnover Description: Measures how effectively a company uses its fixed assets to generate sales Formula: Revenue / Net Fixed Assets

Departmental Budgeting Credits to Josh Aharonoff,?follow him for more accounting insights! Here's the original post === Everything You Need to Know about Departmental Budgeting ?? Departmental Budgeting is one of the best ways to build a bottoms up budget that is both accurate, and defensible But the process can be complex & labor intensive, especially if it’s your first time Let’s do a deep dive on how you can create a departmental budget ?? What exactly is Departmental Budgeting? Departmental Budgeting is the process of preparing a budget based off of the inputs from Department Heads ?? When Should You Prepare a Departmental Budget? There’s no right or wrong time, it can all depend on your: ? Size of your company ? Amount of departments ? Transparency level available to Each Department Head ? Tools & systems in place for tracking & forecasting The general idea is that Departmental Budgeting is something that companies start to think about as they grow to a larger number of hires ?? How Do You Prepare a Departmental Budget? Step 1 → Start by Understanding the Existing Structure of your Data Do you have your P&L set up so that each department has it’s own section? Or do you utilize a CLASS feature, allowing you to drill into an added dimension to see departmental figures? Step 2 → Outline Who will do What Once it’s clear how your data is being tracked, make a list of each of your department heads Ask yourself… ?? Who will be accountable for each department? ?? What information will be shared with them? ?? What is their level of knowledge with Finance & Accounting? Step 3 → Export your Existing GL Information In order to best provide a projection… you’ll want to first provide any information on what is CURRENTLY happening in their department Step 4 → Prepare intake forms Now that your department heads have information on what is CURRENTLY happening… it’s time to provide them with a form in which they can enter in new spend for your forecast. This is typically done via what is called an “intake form”. Step 5→ Forecast your Headcount by Department Now that you have your expenses forecasted by department, it’s time to move on to the last and most important area of your opex… Headcount. Here you’ll want to showcase who is currently in each department, and all of the associated details with each hire, leaving room for department heads to enter in new hires. Once you have all of this information collected, you can combine each intake form into your Financial Model

4 ways to summarize a Profit & Loss Credits to Mighty Digits,?follow him for more accounting insights! Here's the original post ----- 4 ways to summarize a Profit & Loss Your Profit & Loss is one of the most popular reports to analyze. Every month you produce a new one and it’s common to share it with management investors… and your board of directors. But when presenting your Profit&Loss, it’s pretty rare to present the whole P&L. Why? Because your P&L most likely contains dozens of lines, it is not feasible to view in a pretty report. That’s where summarizing your P&L comes into play ?? What are 4 ways to summarize your Profit & Loss? It ultimately comes down to 2 methods: 1?? Summarizing By CLASS Here you assign a “tag” to each transaction in your accounting software. This in essence creates a new dimension on each transaction… allowing you to evenly divide up a transaction across multiple classes if need be. With this approach, your class will show on your X-axis…. While your P&L will showcase on your Y axis, typically summarized by a grouping With this approach, it’s common to use a class for each department, or location 2?? Summarizing by Chart of Accounts Grouping With this approach, you assign each GL account a specific grouping That grouping can be a cost/income type (payroll, software & tech, etc)… or a department. The key is that in order to accomplish this approach, your chart of accounts needed to contain this data via a 1 to 1 mapping. So if you want to showcase your Profit & Loss where your operating expenses are grouped by department… and your timeline takes up your X-axis with just 1 column for each period… you’d need to have a GL account as it relates to each department ?? What’s our preferred approach? We almost always summarize a Profit & Loss in our presentations via summary groupings, using a simple SUMIFS function. This allows you to get a glimpse of what’s happening at a high level… while inviting the reader to do a deeper dive on the full P&L offline whenever they have any questions. Using a class can add a lot of extra useful information to your financial reporting… but it comes with it’s cost. Now, instead of just assigning a GL account to each transaction… You also have to specify a class. And when you have multiple classes for a transaction? (ex: a meal with both Customer Support and HR)…. then you need to divide up the transaction so you can tag each portion to the relevant class. With great power, comes great responsibility ?? Companies try to resolve this by having a Profit & Loss that has a separate section for each department instead… To us, that gives the most flexibility…as you can then summarize your activity both by department, as well as summary grouping… while keeping your X axis to 1 column per period. The only downside? It involves a really lengthy P&L. Those are our thoughts on the best ways to summarize a profit & loss

Top 20 KPIs you must know! Credits to Nicolas Boucher, follow him for more accounting insights! Here's the original post ----- 1. Return on Equity Description: Profit a company generates with the money of shareholders → Net Income / Total Equity 2. Debt-to-Equity Ratio Description: % of company's assets that are being funded through debt → Total Debt / Total Equity 3. Working Capital Ratio Description: Company's ability to meet its short-term financial obligations → Current Assets / Current Liabilities 4. Net Profit Margin Description: % of revenue left over after deducting all expenses, including taxes Formula: Net Income / Total Equity 5. Gross Profit Margin Description: % of revenue left over after deducting the cost of goods sold → (Revenue - Cost of goods sold) / Revenue 6. AR Turnover Description: How effectively a company collects debt and extends credit → Net Credit Sales / Average Accounts Receivable 7. AP Turnover Description: How quickly a company pays its suppliers → Total Supplier Purchases / Average Accounts Payable 8. Invoice Processing Time Description: How efficiently accounting is at processing invoices → Total invoices processed / Total time spent on invoice processing 9. Fixed Asset Turnover Description: How effectively a company uses its fixed assets to generate sales → Revenue / Net Fixed Assets 10. Inventory Turnover Description: The number of times inventory is sold and replaced during a period → Cost of Goods Sold / Average Inventory 11. Revenue Growth Description: The increase in revenue from one period to another → (Current period revenue - Previous period revenue) / Previous period revenue 12. Market Share Description: The company's portion of the total market sales within its industry → Total Sales of the Company / Total Sales of the Market 13. Employee Productivity Description: Overall productivity and efficiency of the workforce → Total Productive Hours / Total Worked Hours 14. Innovation Index Description: Assesses the company's ability to foster innovation & drive new product development → Revenue derived from New Products/ Total Revenue 15. Brand Equity Description: Measures the perceived value & strength of the brand in the marketplace → Brand Awareness × Brand Perception × Brand Loyalty 16. Market Expansion Description: Company's success in expanding into new markets or segments → Revenue from New Markets / Total Revenue

9 Basic (and New) Accounting Skills You Need for Success The accounting profession is evolving! Today's accountants need a broader skillset than ever before. This article explores 9 key accounting skills you'll need to thrive, including: - Accounting fundamentals (double-entry system, financial statements) - Accounting software proficiency - Critical thinking & communication - Analytical skills & digital fluency - Do you have the skills to stay ahead of the curve? Read the full article to learn more and find tips to boost your accounting skillset:?https://lnkd.in/ggJMfuak Credit to: Capterra #accounting #futureofwork #financialanalysis #business

4 CRUCIAL metrics for any business Credits to Mighty Digits,?follow him for more accounting insights! Here's the original post ----- Gross Profit vs Net income vs EBITDA vs Cash Flows Each one of these metrics tells you something different and have its own time & place Let’s do a deep dive into each 1?? GROSS PROFIT ?? What it means ?? The amount that’s left over from your revenue after you subtract the cost to deliver your product or service ?? Where it’s found ?? The Profit & Loss ?? What’s the formula ?? Revenue - COGS ?? Why it's important ?? It helps you understand the maximum amount of money your business can earn - if you have a negative gross profit, you don’t have a business! 2?? NET INCOME ?? What it means ?? The net profitability of your business for a specific period of time - IE all income less all expenses ?? Where it’s found ?? The Profit & Loss ?? What’s the formula ?? Revenue - COGS - Operating Expenses + Other Income - Other Expenses ?? Why it's important ?? This is the ultimate number that you are generating in profitability from your business - if you keep posting losses, you will need to raise capital to sustain your operations 3?? EBITDA ?? What it means ?? Earnings before Interest, Tax, Depreciation, and Amortization ?? Where it’s found ?? Nowhere - it’s compiled separately and is a non-GAAP Metric ?? What’s the formula ?? Net Income + Interest Expense - Interest Income + Taxes + Depreciation + Amortization ?? Why it's important ?? Many feel that EBITDA is a good approximation for cash flows. It is also commonly used to value businesses 4?? Cash Flows ?? What it means ?? How much cash went in and out of your bank account ?? Where it’s found ?? The Statement of Cash Flows (or by taking the ▲ in cash on your balance sheet) ?? What’s the formula ?? Cash from Operating Activities + Cash from Investing Activities + Cash from Financing Activities (Or ending cash - beginning cash) ?? Why it's important ?? Cash is king - you can have the most profitable business in the world, but if your expenditures keep outpacing your receipts, you’ll have to raise capital to sustain your operations