6 tips for organizing your finances

August 13, 2015 -  By

LM0815-iStock_41754294_chartsAs a busy owner or manager of a landscape or lawn care firm, you have to juggle many functions. Unless you have someone on staff who has the skills to manage the finance and accounting piece, this function may be a source of frustration. The key is to stay organized. The following are six important things you can do to get your finances under control.

1. Talk to a CPA. When most people think of a CPA, they think of taxes, but there’s a lot more to accounting than taxes. A competent CPA should be able to file your taxes and prepare financial statements for banks, creditors and other stakeholders in your business. The overall goal of your accountant should be to help you accumulate and preserve wealth. Saving taxes is just a small part of this task.

2. Look at your business entity structure. There are a variety of ways to legally organize a landscape company, and it may be advantageous to change the legal structure as you grow. Generally, there are three business structures: sole proprietorship, partnership or corporation. A fourth choice—and a good one for this industry—is a limited liability company (LLC). For accounting purposes, an LLC can be set up like either of the first three and taxed accordingly. Under the current law, in most cases, S corporations will minimize your federal taxes. Consult your accountant or lawyer to help assess state and federal tax consequences and how this structure fits into your overall picture.

3. Separate personal and business finances. For legal purposes and to keep tax records straight, you want to make sure your finances are separate. Start by tracking your business expenditures accurately without commingling your personal expenses. The easiest way is to maintain separate bank accounts. Another simple idea is to get a personal credit card and business card and separate your purchases using the proper card.

4. Set up your chart of accounts to match your objective. Financial statements are the culmination of the accounting process. They’re used to convey a concise picture of the profitability and financial position of your company. The two most important financial statements that give you this snapshot are the profit and loss statement (P&L) and the balance sheet. The P&L shows how much profit or loss your firm made for a given period. The balance sheet shows what you own, what you owe and how much accounting equity you have in the company. But more importantly, financial statements show how the profit or loss was derived and how the assets, liabilities and equity are categorized. The categories are defined by the chart of accounts you set up when you begin your business. You should update it to ensure it provides useful information. It’s important that the person setting up the general ledger chart of accounts understands accounting concepts and the industry, so items like direct labor, material percentages, marketing and sales expenses are tracked properly.

5. Use QuickBooks to get organized. QuickBooks is the most widely used general ledger program among small businesses. It’s particularly enjoyed by non-accounting types, allowing them to perform accounting tasks using a graphical interface that reminds them of using familiar documents like checks and invoices. QuickBooks allows the business to manage revenue, expenses, payroll, cash flow and budgeting. Having accurate and timely information is paramount to success in the green industry, and it simplifies this process.

6. Set up a budget. Budgeting is nothing more than creating a coherent financial plan for some period in the future, usually one to two years. As you implement the plan, you can rate your efforts compared to the budget. Budgeting allows you to predict the amount of technicians, vehicles, equipment and more that you’ll need in the future based on your revenue projections. During the budgeting process, you determine the expenses you can reduce and analyze revenue to determine which area is the most profitable and if there are other areas that can contribute to the bottom line. You should budget annually and compare results to budgets monthly.

Understanding your finances is key to operating a successful business. The more you know, the more effective you will be at guiding a profitable ship through seasonality, growth and times of difficult cash flow. Working on the six items discussed above will help you maintain financial visibility.

 

Photo: iStock.com/Tuomas Kujansuu

Daniel S. Gordon

About the Author:

Gordon is a New Jersey-based CPA and owner of Turfbooks, an accounting firm that caters to land care professionals throughout the U.S. Reach him at dan@turfbooks.com.

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