Category: Accounting

Nowadays, it looks like every person owns a dream of becoming a business owner (Also see Characteristics of Successful Business Owners). A lot of people think that start running a business on your own is an attractive way of life that shows the greatest freedom. Before you jump into entrepreneurship too soon, you have to ask yourself some questions to make sure that becoming a business person is the appropriate way of living for you.

What type of business do I want?

It is time for you to start thinking about the types of business you intend to handle. Find out an area where there is a requirement or a demand, then register a company that fulfil those clients. Starting a business is not regarding you and the things you like. You are not going to earn money if you only want to set up a firm to boost your pride. Your clients are only concern about how can your service provide them with the solutions they need.

How much money do I require?

Money is one of the most vital elements for all firms. The sum of profit your business can generate determines whether your company will sustain and grow. The fundamental areas that you will have to make an investment in are your service or product development as well as advertising and marketing. You want to begin generating income as soon as possible to ensure you can invest in the development of your company.

What are the taxes that I need to pay?

The legal structure you selected, the location of your business, as well as the revenue and expenditures you have incurred within a financial year will affect the taxes you need to pay. You must document all the transactions of your firm. You will not want to see a lien being placed on your business due to the unpaid taxes. As a startup, you should engage an accounting firm in Johor Bahru to manage your taxes and accounting so that you can spend more time on the core functions of your business.

Who are my target clients?

It would be best if you never thought that everyone is your client. All companies should develop themselves so that they are capable of serving a particular customer base who possess particular wants and needs. Identify whether your customers will be those who think that prices are more important or those who pay more attention to the value of the products and services you offer. If you are aware of this fact, you will be able to develop an advertising and marketing approach that functions to entice your preferred customer.

What are the services or products my business will offer?

It would help if you did a proper investigation about your clients so that you get to know the best way of serving their wants and needs. It is better to inquire about your target market straight away about what kind of products or services they will buy. Acquiring this information enables you to develop a service or product, which is highly possible to be purchased repeatedly.

You have to put in a lot of effort if you want to handle a company on your own. Before starting your business, you need to accomplish a great deal of work to make sure that your company is going to be successful (Also see How Can Bookkeeping Services Indicate Business Health?). If you think that you have prepared yourself to realise your dream of becoming an entrepreneur, be ready to work extremely hard to make your firm a successful one.

The inventory cost stands for the cost you need when you keep the goods in stock. People often express it as a percentage of the value of inventory (Also see Financial Reporting Standards 2 Inventories). The management can calculate this cost to identify how much inventory they should keep with them. It comprises of the ordering costs (the related expenses when you order the goods), holding costs (the associated costs when you store the products), administrative costs, cost of money, costs of space, as well as the cost of obsolescence.

Ordering Costs

Another name for ordering cost is the setup cost. These costs comprise of the salaries and incomes of the procurement personnel, overtime (if any), related benefit, taxes, as well as other expenditures. If a company needs to pre-qualify a new vendor before he can supply products to the company, the expenses may include the cost of labour of the engineering personnel of that industry who is in charge of completing the tasks. Typically, companies would often include the ordering costs in the overhead costs. They should allocate the ordering costs based on the number of units they handle in every period.

Holding Costs

Holding costs are the cost you need to acquire, store, as well as dispose of inventory. They consist of the cost of space you need to keep the stock, cost you need to obtain the stock, as well as the cost of obsolescence, which is the cost to dispose of the spoilt or remaining products. Holding prices contributes the most to the inventory costs (Also see How Can Bookkeeping Services Indicate Business Health?).

Administrative Costs

The salaries and wages of the cost accountant, as well as the non-operating workers, contribute to the administrative costs. Cost accountants are people who play a role in compiling the costs of items sold and the costs of inventory, replying to demands for analysis of other inventory, as well as guarding their position to auditors. You will have to include related general workplace costs in the administrative costs too.

Cost of Capital

Cost of capital is the interest that you have to pay to your creditors on the funds you use to purchase the inventory. A lot of firms would use some loans to obtain stock. If a firm has not taken any loan, the cost of money stands for the interest income related to the funds they have allocated to acquire the inventory.

Costs of Space

Costs of space are the expenses associated with the storehouse. It includes the costs of utilities, storage racks, maintenance, inventory managing devices, insurance, storehouse workers, as well as depreciation. All buildings will depreciate eventually, and this is where the depreciation comes from. Insurance plays a vital role in securing the inventory from theft, as well as loss as a result of humanmade and natural disasters. Costs of space may consist of the expenses on safety devices, for example, fire suppression systems and alarm system.

Cost of Obsolescence

The risk of having some inventory damaged while holding them in storage or keeping them unused is always present. It is a must to dispose of these items, typically at a decreased cost or even at no charge. We will call these as obsolescence costs. If there are perishable items among the inventory you purchase, your obsolescence costs could be rather high.

The inventory cost can be significant to your business, as you may have seen in the explanation above. Hence, it is crucial to hire the best accounting services Singapore to keep track of the cost of your business with due diligence. If you fail to do so, you may suffer from losses as the expenses can cause severe loss in profits as well as cash reserves. If you are facing any difficulties in dealing with your inventory cost, do not hesitate to seek help from an expert accounting firm to keep a tight grip of your finances.

As an entrepreneur, most probably you can tell the amount of gross earnings your business generates in a month when someone asks you. However, can you tell that person how much is your net profit? Most likely, you can’t. Financial accounting is not easy to understand. It is challenging, and you have to put in a lot of effort into it. Nevertheless, as an entrepreneur, you need to do so. It is because there are a lot of advantages you can get if you have a clear understanding of even only a few accounting measures which indicates your current and future business health (Also see Advantages You Can Get from a Simple Financial Analysis).

Profit Margin

You can calculate the profit margin by taking your overall net profit after deducting taxes and other expenses, then divide the amount with your sales. It is a helpful method that can aid you in predicting the amount of profit you will generate in the future.

Note that the approximations are not always exact and accurate. However, they are quite near to the real value. The important idea here is that you may utilise this measure to make decisions in advancement, as well as to examine if your company can appropriately sustain its profit margins so that you get to know ways to improve if you need any (Also see Ways to Increase Your Business Revenue).

Gross Margin

The gross margin is defined as the sale price of a specific item subtract the amount it cost you to acquire an opportunity to sell it. For example, your company sells pencils at S$1 per piece. You purchase them from your distributor at half of that price, which is S$ 0.50, and you spent S$ 0.15 on every pencil for its packaging. In overall, you spent S$ 0.65 to sell the item. Thus you have S$ 0.35 as your gross margin.

As a reminder, that S$ 0.35 is not yet your net profit. Other things that you have to take into consideration include the costs your company spends on rental payment, wages, as well as utilities. You will know how many pencils you have to sell to cover those expenses by adding up all the expenditures.

You may start planning about ways you can increase your profit once you have calculated how many pencils you have to sell in a month. You can purchase more to lower your cost, do advertisements, expand your business, and so on.

Later, if you realise that it is impossible to hit the target of your sales you require to cover your costs, you can start considering if you can sell other items to balance the overall costs of your business (Also see How Can Business Owners Manage Their Time Wisely). You may also think about how much you need to raise the price of the things you sell or the ways you may reduce costs on various other expenditures so that you do not have to increase the prices.

Income Statement

An income statement is also called a profit and loss statement. The income statement shows your expenses, costs, as well as profits for a specified period. It is the ideal way to have a clear insight into your net income. The net income is something that investors and business creditors are searching for, as it demonstrates the amount of money your company has earned or loss throughout the fiscal period. Your net income is the determining factor of the amount of taxable income of your company.

Cash Flow Statement

This is almost the same as your income statement, just that it is more comprehensive. The cash flow statements display everything which is going in and out of your business, which includes non-cash deals. This enables you to see more clearly about how your business expenses its funds throughout a certain period.
A cash flow statement is extremely important as it can tell you how and where your company is generating income and what decisions you’ve made about the expenditures.

It is hard to involve yourself deeply in the accounting side of your business. Hence it would be best if you collaborated with companies that offer professional accounting services Singapore. By ensuring that your firm’s books are managed by the experts, you can have peace of mind. This is because not only the finances of your company are safe, but you are collaborating with a team that is willing to lead your way towards being a successful entrepreneur.

If you want to evaluate the business performances of your company, financial analysis is what you should pay attention to (Also see Characteristics of Successful Business Owners). It includes a comparison of records, usually financial data prepared using Financial Reporting Standards (Also see FRS 1）. The purpose of conducting financial analysis is to utilise that interpretation and comparison of financial data to acquire a perception about the performance of a business. This will help you in determining areas that you can refine and improve. A simple financial evaluation may bring the following advantages to your company.

• It encourages the use of the same technique so that we can quickly identify the differences in the operations of a company as time passes.
• It provides answers to some critical concerns. For instance,
i) Why does a particular business make more profit than another?
ii) Why is a business less successful than the others?
iii) What sort of gains the shareholders will obtain from their financial investment in the company as they invest in the projects?
iv) How solvent is a business?
v) Does a company have a capability of paying its debt by the deadlines?
vi) How properly a company can handle its assets, especially its working capital, for example, creditors, debtors, inventories, and so on.

A financial evaluation will clear your doubts about the queries above. It is not necessarily used to solve those concerns.

• The financial analysis enables us to analyse the short-term and long-term liquidity, the performance of the business, as well as the operational efficiency of a company (Also see How Can Bookkeeping Services Indicate Business Health?).
• By using the financial analysis, we can evaluate the changes in the performance of a unit when compared to another. Besides comparing the performance of one firm to another, we can also make comparisons between a company and the benchmark of an industry.
• There are about fifty prominent accounting ratios which are useful in analysing financial statements. Nevertheless, we should never conclude the ratio performance of a firm only by looking at a single ratio. We have to compare the outcomes with the periods before. This is to enable us to know the trends and make comparisons between firms in a similar sector.
• We do not judge firms merely by looking at their financial or ratio analysis. Instead, we use it as a supporting document to analyse the business of a firm.
• Financial analysis is also vital to all the shareholders. For example:
i) Undoubtedly, shareholders would like to ensure that the company is well-managed and they want to minimise the funds that are tied up in the company
ii) Creditors and lenders would like to know how the company handle its working capital
iii) Lenders, for example, banks, will keep an eye on the liquidity of a company to ensure that the company can settle the capital amounts and the interests they owe on a loan
iv) Competitors will be curious if a competing company has the capability of managing its assets more efficiently since that might be a competitive advantage compared to them.

You will only be able to conduct an accurate financial analysis when your balance sheets, income statements and books of accounts illustrate the actual condition of your finances. If the accounts are not prepared using the proper double entries system (Also see Advantages of double entry accounting), it can be challenging for you to evaluate the performance of your company. Thus, it is crucial to employ a professional accounting service in Singapore to handle your firm’s finances.

Investment accounting is the management of finances of a company which has invested their funds in a variety of instruments and securities. On the other hand, custodial accounting is the management of the finances by a grown-up who represents a child. Each of these are specialized parts of the sector, and your regular accountants will not perform these functions (Also see Do You Need a Tax Accountant?). Investors should engage expert accounting firms in Singapore to handle these accounts.

Investment Accounting

It is not easy to make an informed financial decision. This can be very challenging when it comes to investing in the right investments at appropriate timing. Risks are everywhere, especially when some major players in the investment industry would track every action you take. Investment accounting includes not only record-keeping but also plan for future transactions about the financial investments they hold and any chances that might show up in the marketplace. A lot of people prefer to employ experts to ensure legal compliance and handle their investment portfolios (Also see Advantages You Can Get from a Simple Financial Analysis).

Custodial Accounting

Parents or guardians may want to give a sum of money to their children. However, they may save the money in a custodial account rather than keeping it in a typical bank account to make sure of the proper usage of that amount. When they deposit the funds in a custodial account, the child who owns the funds cannot spend the funds as he wishes, yet he needs the approval of the custodian, which is his parent or guardian. Sometimes, such accounts might be opened under certain conditions, for example, when the parents of the child pass away.

Similarities

While both the accounts might seem to be very different, they have some similarities between them. Firstly, the most significant one would be both of them involve instruments and financial securities. Typically, the parents will deposit the funds in an interest-bearing bank account or an investment funds company. Thus, the primary purpose of each of these is to gain return or profit on the principle amount. Secondly, in both, someone else, but not the person who owns the funds (the principal beneficiary), will manage the funds. In investment accounting, the investment manager will manage the funds, whereas, in custodial accounting, the responsibility would be on the custodian.

Differences

The significant difference between them would be the people who would use them. Businesses would practice investment accounting, whereas families or individuals will practice custodian accounting. The purpose of the previous is to obtain returns for business purposes, whereas the latter is to assist children in obtaining money while they are still under supervision (Also see Is Opening a Business Bank Account Necessary?). Both of them are ruled under distinct regulations, and they have different needs as well as legal obligations for the recipient. There is a difference between forms of instruments too. This is because there are fewer choices available in custodial accounting when you compare it to investment accounting.

Another difference is that in investment accounting, the directors of the firm can employ an investment manager to secure the funds they have put into the investment. Contrarily, in custodial accounting, the customer can hire the custodian or any financial institution himself to manage his property and accounts. Besides, while investment managers develop financial assets within an investment portfolio, custodial accountant (Also see Four Typical Myths About an Accountant) deals with the paperwork and financial transactions of the client’s accounts.