(415) 418-0020 info@proteafinancial.com
5 Financial Reports You Should be Running

5 Financial Reports You Should be Running

There’s an assortment of financial reports involved in business accounting and bookkeeping. Each one contains the information you need to form an accurate and holistic view of your company’s financial health. There are five reports you should be running on a consistent schedule when you own any small business, especially wineries. Keep reading to learn why these reports are crucial to the success of your company.

 

Profit and loss

A profit and loss report, also called a statement of operations, provides an overview of your winery’s key performance factors. The frequency of P&L reporting varies – monthly, quarterly, and annual statements all have their place. The goal of P&L reporting is to track sale trends and profit ratios over time.

To complete the report, an accountant compares the income of your business against all sorts of expenses. These include how much it costs to sell your products, admin expenses, taxes, interest on loans, marketing budgets, and so on. The sum of your business expenses is then deducted from the sales revenue to determine your company’s net income.

It’s important to collect and review these reports over time. On report is a snapshot in time. Several forms a dynamic assessment of how well a business is doing. This data is invaluable if you want your small business to thrive for years to come.

 

Balance sheet

The process of fermenting, bottling, and selling wins is lengthy. Every winery depends on a mix of liquid accounts and long-term investments to support such time-consuming operations. A winery is also likely to have short-term and long-term liabilities and financial backing from shareholders.

These factors are tabulated and compared when your accountant prepares a balance sheet. You’ll find that there are two sections to any balance sheet: one, a summary and breakdown of all company assets, and two, a summary and breakdown of all company liabilities.

The assets section will include the cash you have to spend, the value of your inventory, the equipment you own, and any accounts receivable on your books. The liability section includes accounts payable, unearned revenue, and long-term debts. The final calculations reveal your company’s net worth. Reviewing yearly balance sheets is an excellent tool to track the growth of your winery.

 

Statement of cash flow

The revenues and expenses of a business fluctuate frequently. And while P&L reports and balance sheets provide immense data sets, they don’t always offer the precision you need. A statement of cash flow allows you to record, track, and predict the actual amount of cash your business has on hand during a given time period.

For example, a winery needs to invest money in multiple pieces of bottling equipment. The cost of the initial purchase, interest owed, and the depreciation of value are all accounted for in monthly expense reports. However, the depreciating value of machinery doesn’t actually remove money from your account.

Instead, a cash flow statement only tracks your liquid assets. Regular cash flow reporting will show you the amount of cash you have on hand throughout each week, month, or quarter. Wineries can use these reports to predict how much cash they’ll have at a future point and enables them to make long-term plans.

 

Net profit margin over time

The net profit margin of your company is crucial to seeing and developing success in the long term. The basis for this type of report is the net profit margin ratio. The ratio divides your business’s net profit by the amount of revenue earned. To phrase it another way, this report explains how much your net worth grows with every dollar of revenue you earn.

A net profit margin report should be completed frequently. It provides an inside look at how effective your investments in inventory and labor are at producing money from your company. Knowing the profit margins for your company is the first step to course correction when you start losing money.

 

Accounts receivable versus accounts payable

Reporting accounts receivable versus payable is vital for daily operations and long-term financial planning. These types of reports document either your liabilities or your assets in real time. This information is needed to pay debts on time, budget for upcoming expenses, and ensure your books are accurate as well.

Accounts receivable reports detail outstanding money that your business is owed. In a winery setting, you might have receivable assets because a local market purchased several cases of wine to stock their shelves. Payable accounts are liabilities you are expected to pay. This includes expenses like rental space and raw goods inventory.

 

Conclusion

These five reports are the pillars of your business’s financial health. They require the utmost accuracy and need to be completed on a frequent basis, which is why Protea Financial can help. As a small business owner, it’s difficult to find time to manage all accounting and bookkeeping. Compiling and reviewing reports on a regular schedule is a challenge.

Additionally, few business owners have the training and expertise required to prepare reports correctly. Protea’s certified accountants and bookkeepers are ready to help. Your dedicated team will ensure that every transaction, asset, and liability is accurately reported. This means you can focus your attention on reviewing the big picture and deciding how best to grow your business.

7 thoughts for 7 years

7 thoughts for 7 years

In the month of March we as a company, Protea Financial, are celebrating seven years of guiding small businesses with high quality and cost-effective accounting. This is truly a surreal moment for us here at Protea Financial, as we celebrate our success. What started out as a mere extension of a business has since morphed and grown into something much bigger – the dream of better accounting for everyone. With this milestone front of mind, I have been taking time to reflect on the journey and I want to share my seven key/favorite/most important moments in the journey so far.

Getting our first real client

We had been operating for a couple of weeks focusing on a couple of entities run by my business partners, then we received a call from a winery in the Napa Valley. It was a really high profile, well-known winery.

Though the client did not last very long, it did provide me with insight into who we should be. The experience with this client made it clear that we would focus on bookkeeping for the wine industry and that we were going to operate remotely. The time with the client was not a success but the learning on the client set us up for who we are today.

Setting up our subsidiary in South Africa

After nine months of working with contractors and paying them hourly we made the move to open a company in South Africa and hire some “real” employees.

This was massive! One, it meant we have a real business, with a real concept but mostly importantly it also meant that I was no longer able to worry about just myself. Every decision I make, every action I take, did not just affect my life but it had an effect on other people’s lives and livelihood.

This really was the moment that I realized it would not be enough to just be a good accountant but I needed to step up and be a manager and a leader.

As a 30 year old in a new country, it set a fire inside me to bring my beliefs in what good accounting is to life!

Making a hire in US

Honestly one of the scariest moments in the journey to date!

We had been in business for a few years and I needed help. We had grown beyond my ability to provide the quality of service we wanted to be known for to our clients by myself. In the tricky and competitive hiring market of the North Bay we not only needed to find someone who wanted to provide bookkeeping services but also work at home by themselves with a Team in a different country.

We went through a couple of options that just did not work out. This was less than ideal, but we learned from these trials who we are, and what we can offer. Today we have four fantastic Team members in the North Bay. Hiring them would not have been possible without the learnings from the first few attempts.

Hiring a new manager in South Africa

There was a major learning curve when we started out. I had managed teams in high pressure environments, but nothing I had learnt prepared me for managing a high performing Team on a different continent in a fluid business.

In a tough decision I needed to hire in above the Team I had in place. This is something I never wanted to do, I’m a believer in development of your own talent, but it needed to be done. What made this decision even tougher was my current manager was a great friend. I had no choice though. I needed help. I needed someone who could manage the Team and deal with admin to allow me to concentrate on strategy, client experience and growth. I needed someone that would be tough, direct and could execute on my vision.

I was lucky enough to stumble onto Sonja. Coming in from a less than traditional background, Sonja was exactly what we needed. Sonja quickly became my right-hand person, allowing me and the business to thrive. The right person at the right time!

5 year celebrations

What a special time! I was able to go down to South Africa with my family and business partners and enjoy a wonderful celebration. If you follow us on Facebook you will know we love to celebrate and this one was the best. It was nice to celebrate a great milestone and take the time to connect and think about the future.

It was also an opportunity to thank so many people involved in our success. It was wonderful to take time to say thank you.

Giving back

Giving back is core to who we are at Protea. As part of the business plan it was really important to me to find time and resources to be able to give back to those in the community and especially to help those that they are unable to help themselves.

Over the years, we have helped out at animal shelters, supported sterilization of animals, supported children’s homes, supported women’s shelters and supported people who need food.

Giving back motivates me to work harder every single day to be able to help. Looking back at how we have been able to support others over the last seven years makes me happy.

This very moment

This month. This day. This very moment.

The idea that I have even have this opportunity to celebrate success of seven years in business seemed like something of someone else’s dreams on day one.

I am so fortunate for this opportunity. The opportunity to lead. The opportunity to help. The opportunity to add value and be a part of many journeys of success. I am so proud of the way we have been able to help so many people, especially in the last 12 months that have been crazy difficult.

Thank you to our supporters. Thank you to our clients. Thank you to the Team! You are all amazing and none of this would be possible without you.

We will continue to strive to be better every single day. We will continue to focus on better accounting for everyone.

The Basics of Financial Statements

The Basics of Financial Statements

A key aspect and skill in managing a company is the ability to understand financial statements. Because we operate in a competitive business environment, it is important to be able to identify a company’s financial position/health, business trends and risks at an early stage. The ability to analyze your company’s financial statements forms a key part in cultivating overall growth.

 

Let us dig into the basics of financial statements:

 

The Balance Sheet

The foundation of the balance sheet reflects the “book value” of a company at a specific date, also known as the reporting date. The balance sheet provides a clear overview of the company and can be divided into three components namely, assets, liabilities, and owners’ equity.

Assets: Anything that the company owns or is owed, and represents an accurate quantifiable value can be attributed to this asset.

Liabilities: Any legal obligations owed by the company to third parties. In a simplistic term, liability can be seen as the opposite of an asset.

Owners’ Equity: this refers to amounts invested by or owed to shareholders. If you had to subtract all the liabilities from all the assets you should effectively arrive at the owners’ equity value. The amount reflects the net worth of the company that belongs to the shareholders.

The term “balance sheet” is indicative of one important accounting principle which is that it should always balance according to the well-known formula: Assets = Liabilities + Owners’ Equity.

 

The Income Statement

The income statement (also referred to as the profit & loss statement) is an accurate record summary of revenue, expenses and other transactions over a given period. This is a particularly important document that allows you to analyze the progress and performance of your company. You can easily determine if your company is making a profit or loss, analyze expenditure/costing, identify business trends, etc.

The Income statement typically includes the following basic information:

Revenue: The amount that the company earned from sales.

Costs of goods sold (COGS): This figure is the cost of what it took to produce your goods. A simple way to put it, for each product that you sold, how much did it cost to make and get it into the hands of the customer.

Gross profit: This is the total revenue less the cost of goods sold.

Operating expenses: These are costs incurred to keep your company operating but aren’t direct materials or labor related to producing your goods or services. Examples of operating expenses include property insurance and taxes, building repairs and maintenance, utilities, administrative staff wages, etc.

Operating income: This is the income amount that reflects the gross profit less the operating expenses (other than COGS).

Net income: This is the company’s profit after all expenses and taxes.

The income statement provides you with a good indication of how well your company is performing. You will also be able to analyze financial trends on profitability, excess expenditure, cost-saving and if there is any excess cash to invest back into your company.

 

The Cashflow Statement

This cash flow statement provides a detailed overall view of what has happened to the company’s cash and the movement of cash over a given period. It is vital that a company has enough cash on hand to meet its obligations. A cash flow statement is typically broken into three sections namely, operating activities, investing activities, and financing activities. This allows for the reader to determine the following:

  • Operating activities indicate whether a company can generate cash from their normal operating activities (selling their goods or services).
  • Investing activities indicate the cash earned or spent from investments. This can include buying/selling physical property, vehicles, fixed deposits, patent rights, etc.
  • Financing activities indicate the cash raised/spent to settle debt and/or equity financing.

 

A positive cash flow figure reflects more money coming in than going out. A negative cash flow figure reflects more money flowing out (being spent) than flowing in. A negative cash flow figure is not necessarily a bad indication and this can relate to various strategic cash flow expenditure by management. The cash flow statement is vital when it comes to decision-making pertaining to the company’s cash position. It portrays the ability of a company to operate in the long term and short term based on the in and outflow of cash. Knowing this not only allows you to plan and budget in the long term, but also allows for better short-term strategical decision making.

 

Bringing it all together can provide meaningful information

 

Whilst accountants work with financial statements on a daily basis and for them it is second nature, the same cannot be said for all business professionals and it sometimes becomes difficult to understand the financial jargon. You can however learn the basics of understanding financial statements and the benefits it can yield when it comes to analyzing the statements. Financial analysis of the balance sheet, income, and cash flow statements can provide useful information such as:

 

  • The financial health of the company
  • Assist with financial forecasting, budgeting, and cash flow planning
  • Maximizing gains or minimizing losses
  • Identifying trends and new opportunities to grow the company
  • Identifying and avoiding undue risk
  • Improving and visualizing strategic business decisions
  • Allows investors to analyze the profitability and market value of the company and decide whether they would like to invest

 

The possibilities of financial analysis and the usefulness of metrics are endless. It is important to have accurate financial statements prepared by experts that will provide you with invaluable data to analyze. The data itself won’t save your businesses – only you can.

 

Protea Financial is Your Outsourced Bookkeeping and Management Accounting Services:

 

The good news is that you can learn how to interpret financial statements even if you do not have a financial background. At Protea Financial we match our solutions to the needs of the customer. Protea Financial can support you with everything from bookkeeping services, preparing financial statements, order processing, inventory tracking, handling management accounts, and tax schedules in order to support your tax accountant. Protea’s goal is to provide timely, accurate, and high-quality financial information on which a business can act. We can work with you to provide an evaluation and find the best solution for your business.

 

 

 

 

 

Accrual Accounting vs. Cash Accounting – What’s the Difference?

Accrual Accounting vs. Cash Accounting – What’s the Difference?

There are two methods for recording financial transactions in your books—the cash basis and the accrual basis. The primary difference between these two is the timing of when transactions get recorded.

Choosing a method depends on your business’s needs, and most wineries should use the accrual basis to value inventory properly. However, we’ll discuss both ways so you can see how each impacts a business.

Cash Basis Accounting

The cash basis of accounting records financial transactions when cash changes hands. When you receive money from customers, you record revenue. And conversely, when you pay your bills, you’ll record the expense. It’s that simple.

Although the cash basis of accounting generally doesn’t comply with Generally Accepted Accounting Principles (GAAP), it’s widely used by small businesses and new companies due to its simplicity.

And using the cash basis doesn’t necessarily require hiring an accountant with years of experience. A competent bookkeeper will easily be able to keep your cash-basis books.

Accrual Basis Accounting

Recording revenue when it’s earned and expenses when they are incurred is the basis of accrual accounting. When cash is received or used is irrelevant to the recording of the income and expenses

The foundation behind accrual accounting is the matching principle. This means that companies match expenses with related revenues to calculate profitability for a specific period.

For example, when you sell a case of wine, at the same time, you need to record the cost of the wine and any related selling expenses so, at the end of the day, you know your profit on the sale of that case of wine. 

Accrual accounting will make use of accounts receivable and accounts payable to keep track of money owed to you and money you owe to others. These accruals allow you to match your expenses with the corresponding revenue.

For example, when you ship 20 cases of wine to your distributor with an invoice, those 20 cases’ sales price becomes a receivable to you. You earned the revenue by completing the sale but haven’t yet received payment.

 

The converse works for the money you owe to others. When you receive a shipment of glass bottles from your supplier, you incur the expense when you receive them. But you may not pay that invoice for 30 days, so you’ll have a payable on your books for the value of the bottles. Accrual accounting is more complex than cash accounting but does provide a truer picture of the profitability of your business.

Most larger companies and companies with numerous owners are required to use accrual accounting to adhere to GAAP principles. In fact, the IRS also has requirement on when accrual accounting must be used, namely for.

  • most businesses with inventory,
  • C-corporations, and
  • companies with more than $25 million in annual sales.

Examples of Effects of Cash and Accrual Accounting

Effects on Income

Assume you sell 100 cases of wine for $1,000 to your top distributor and the total cost of making, bottling, and packaging that wine was $500. 

Cash basis

You record the $1,000 in revenue when your distributor pays you.

You record the costs for the grapes, labor costs, bottles, etc. when you pay for those items, which was likely long before you sold the wine.

Gross profit reported at the time of receiving the cash from the distributor is likely to equal to the revenue.

Accrual basis

You record the $1,000 in revenue when you deliver the wine to the distributor.

You record the costs of the materials and labor at the same time that you record the sales revenue.

Gross profit reported at the date the wine shipped (or a different date depending on the shipping terms) and will be equal to sales revenue less the cost of the wine.

You can see how the cash basis doesn’t provide a good representation of profit when your revenue gets recorded long after the expense shows up on the income statement.

Effects on Taxes

Using the same example of 100 cases sold for $1,000 at a cost of $500, the tax effect creates a similar mismatch.

Cash basis

You probably (due to the length of the inventory cycle in wine) recorded most of your costs in previous years, making your taxable income lower in those years.

But this year, when you record the $1,000 in revenue, your taxable income will be higher because you don’t have the offsetting expenses.

Accrual basis

This year, you’ll be taxed on your $500 profit on this sale since you’ll record revenue and expenses in the same year.

You’re starting to see that the accrual basis creates more of a steady financial environment than the cash method’s peaks and valleys. Accrual accounting provides a clear picture of the profitability of a business as the income and expenses are matched.

Which is Better? Cash Basis or Accrual Basis

Choosing the correct accounting method will depend on your business’s specifics. Things to consider when deciding on a method include:

  • Do you think you’ll need bank financing in the future?
  • Is expanding the business to include more owners a possibility?
  • Will your books ever need to be audited?

Cash Basis

Pros
Cons
Simple and easy Inaccurate financial picture
Easy cash flow management No records of what you’re owed or what you owe
Good short-term view Doesn’t comply with GAAP

 

Accrual Basis

Pros
Cons
The better overall financial picture Requires more resources
Commonly expected in business The short-term picture can be skewed
Conforms with GAAP

Once you pick a method, you’ll want to stick with it for two reasons. Firstly, for consistency in your financial information. This way you’ll always be comparing apples to apples. Secondly, the IRS requires you to maintain the same method. If you ever want to change, you’ll need to ask for the IRS’s permission.

It’s best to consult with your accountant when selecting the accounting method that’s best for your winery and could be different for operational needs and tax needs. They can help you set up your accounting system and processes to ensure you’re recording your transactions correctly. You can also lean on them when you need expert help or additional hands to get the work done. Protea has decades of experience helping winery owners navigate the bookkeeping, accounting, and tax waters. Contact us today to see what we can do for you.

Why You Should Hire a Bookkeeper

Why You Should Hire a Bookkeeper

Running a successful winery requires you to manage numerous departments—production, processing, sales, and administration, to name a few. Often bookkeeping and accounting are some of the first areas neglected when there’s not enough of you to go around.

When you find yourself scrambling at tax time or with a pile of unopened bills, hiring a bookkeeper can help ease your burden. With a professional in charge of your day-to-day finances, you’re free to tend to the areas of your winery that need your expertise.

 

A Bookkeeper Will Allow You to Focus on Your Business

 

Great bookkeeping is the backbone of any successful business. Ensuring your bills and employees are paid on time, your taxes are filed, and your financial statements are current are just some of the things a great bookkeeper does.

While you may think that doing your own bookkeeping saves you money and allows you to better understand your business’s finances, every bit of time you spend crunching numbers is time away from building, managing, or expanding your business.

You didn’t get into the winery business because you enjoy accounting and administrative work. Your time is better spent working on producing wine.

Bringing in a professional to help with your bookkeeping can prevent you from being spread too thin and burnout. Stay focused on what you really love doing and leave it to the financial expert to handle the numbers.

 

A Bookkeeper Will Help You Better Understand Your Business

 

You know a lot about wine grapes, harvesting, and selling wine. Chances are you aren’t a skilled accountant.

You may know how much your grapes cost but do you know you receive a 10% discount if you pay your vendor a few days early? A bookkeeper will help you manage cash flow to ensure your business takes advantage of any money-saving opportunities.

As your winery grows, knowing how much cash you have in the bank isn’t enough. You’ll need to know how much money you have coming in and going out in the future. Keeping track of it in your head can lead to cash flow struggles.

A great bookkeeper will manage your accounts receivable and accounts payable to keep cash moving.

Having a bookkeeper who’s devoted to your winery’s books allows them to be able to spot irregularities early. Maybe a vendor is charging more or you are selling more than in the past, but you aren’t  collecting more sales tax. Addressing any inconsistencies from the start will save money and time in the long run.

An experienced bookkeeper can help streamline procedures too. They can help standardize how documents are retained or create a calendar to manage due dates of bills.

Tax Preparation Enablement

We provide your organization a true end to end solution to all of your tax needs. Tax season is year round to Protea – if you aren’t preparing daily, it’s too easy to get behind. We are always working with your organization to streamline your businesses tax management.

A Bookkeeper Will Help Keep Your Business Compliant

 

Taxes come in many shapes and sizes. Federal payroll and excise taxes. State payroll and income taxes. Sales taxes and business licensing.

Bookkeepers excel at organizing, recording, and filing. Experienced winery bookkeepers know the ins and outs of the various taxes your winery will need to pay. They will ensure processes are in place so that your taxes are filed and paid on time, preventing you from incurring penalties and reducing your anxiety.

State regulations govern the winery industry. Keeping on top of your winegrower’s license, wholesaler license, and your on or off-premise retail license is another area an experience bookkeeper can assist. They can ensure your licenses are renewed before they expire and can provide any necessary reports. 

If you have loan covenants to maintain or investor reporting to prepare, an experienced bookkeeper can manage this to ensure you don’t miss a deadline.

With a dedicated bookkeeper, year-end tax time can be less stressful. Your bookkeeper has kept your financial house in order throughout the year. This makes it easy to hand over your tax records to your tax professional.

 

A Bookkeeper Can Save Your Business Money

 

In addition to the compliance aspect of tax time, your bookkeeper is probably less expensive than your tax professional. Having a bookkeeper on staff who timely records your transactions decreases the amount of work your accountant has to do to prepare your tax return.

A high-quality, experienced bookkeeper will have a general idea of how much things costs. While they may not know specifics about the winery industry, they will know prices for office supplies, telephone service, and bank fees. This wealth of knowledge will prevent you from paying more than you should.

A bookkeeper will ensure your bills are paid on time so you avoid late payment fees or interest. These unnecessary expenses reduce your profits and may harm your business’s credit score.

Bookkeepers can also monitor your budget. They can provide reports comparing your budget with actual expenditures and will be able to zero in on any differences. With enough experience with your winery, they can also assist in developing future years’ budgets.

Even if you’re just starting on your business journey, hiring a bookkeeper early will prevent the stress and struggle that comes from DIY bookkeeping. And those further along the business path, now’s the time to consider the benefits a bookkeeper can provide.

Whether you’re looking to hire a bookkeeper as an employee or outsource it, having a professional in your corner makes sense. You’ll be able to focus on taking your winery to new heights.   

How to understand your balance sheet: A beginner’s guide

A balance sheet is a financial statement that provides an overview of the company's assets, liabilities, and equity at a specific point in time. It is important to know what each one means in order to understand how well you're doing. It can be difficult to understand...

Your Account Reconciliation is Now a Fun Activity

You may think reconciling your books is a tedious process, but it doesn't have to be. In this blog post we'll go over the steps needed to prepare a reconciliation and how you can streamline the process so that it's as painless as possible.   What is a general...

QuickBooks Beginner Mistakes You Must Avoid

If you’re familiar with QuickBooks Online, you know how spectacular it is in maintaining financial records for small and medium businesses. Whether you’re a business owner or an individual looking for reliable bookmaking software, QuickBooks is a great option....