Cash: Do you know where it comes from? Where it goes?

Your new salesperson just landed a new client. Happy days! However, she promised the customer two new buses to be used exclusively for the account. For a young company this creates a bittersweet emotion. The potential income is exciting, but can you afford the payments? Looking at last year’s income statement you determine that you are profitable enough to afford a 10% down payment and the monthly payments. It is close, but you are willing to take the risk. So you eagerly order the buses and prepare to make more money!

You are crushed and confused when the lender, who was so eager to take your business, only approves you for one bus. How can that be? He tells you that you will not generate enough cash to make the payments on two buses.

He explains that when you figured your net income to pay for the new buses, you did not subtract the annual debt portion of your existing bus loans, your property mortgage, and the money you owe your original angel investor. Even when you add back the depreciation expense you are short.

Disgruntled, you leave with “I am making money, but I don’t have enough cash!” We have heard this any number of times. Well, “making money” or “being in the black” is interchangeable with making a profit. However, having a profitable enterprise does not always correspond with positive cash flow. Conversely, businesses showing a loss can generate cash.

Many times your numbers are just this close. An industry CPA understands this and will prepare you for such expansion requests so that you can plan accordingly and without surprises. Are you ready for the expansion? How much can you afford to borrow? What will the expansion do to your operation? Perhaps this new opportunity and the expected revenue will generate enough additional cash to make the new payments. Was this figured into the loan request? Did you prepare a proposed income statement adding in the new revenue and expenses attributed to the new opportunity?

The Statement of Cash Flows is just one of the basic financial statements provided in CPA prepared financial statements. This is one of the reports that you really can’t get through QuickBooks without significant analysis and manipulation. Let’s look at the components that determine cash generation and uses.

Transactions that PROVIDE or BRING IN CASH include the following:

  • Cash sales
  • Accounts receivable collections
  • Borrowing cash
  • Cash sales of owned equipment
  • Expense refunds
  • Income tax refunds

Transactions that USE CASH include the following:

  • Maintenance payments
  • Sales refunds
  • Cash used for bus purchases
  • Taxes paid
  • Fuel payments
  • Debt and interest payments
  • Wages paid
  • Insurance payments

Common income statement items that DO NOT PROVIDE OR USE CASH:

  • Credit sales
  • Fuel and other expense accruals
  • Taxes accrued
  • Depreciation and amortization expense
  • Unrealized gains or losses

Let us at BUSBooks help you learn where your cash comes from and where it goes! Together we can move you forward.

The next Nerd News will discuss Budgets – Why are they an invaluable tool for your continued success.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

Income Statement – Your Bottom Line

Black Friday Sale! Wow, some stores are even opening Thursday evening.  But how did the term come to be? “Black Friday“ refers to the day after Thanksgiving and is purported to be the day many retailers transition from having a loss to a profit for the year, from the red to the black. We all want to operate in the black! After all, we are all in business to make money in our way and in our space.  The report we rely upon to measure that is the income statement and in general, it reports revenues, cost of goods sold, and expenses to arrive at the “bottom line,” preferably a profit, or net income.

Years ago, we called this report a “Profit and Loss Statement.” That is still the title it holds within the standard QuickBooks report listing. This report is useful for both management and outside users such as lenders. The focus for each group differs some, but both types of users want accurate reports on which to base decisions.

Accuracy includes proper and consistent recording of information and relevant account usage. Your accounts should be set up to provide meaningful information to manage the business operations and ease compliance reporting issues. To that end, knowing what the key areas of financial success for a motorcoach company is critical. Segregating key costs into their own accounts for evaluating and monitoring can be the difference between understanding why you are or are not achieving your financial goals.

Take a good look at your income statement.

  • Does it give you the information necessary to evaluate and monitor key areas of revenue and/or expenses?
  • Is it designed to give you sufficient detail?
  • Can you easily determine if your fuel and maintenance costs are within reason?
  • How about driver wages?
  • Sales wages?
  • How about your revenues? Are they growing each year? Shrinking?
  • Is your customer base changing?

How your accounts are set up can go a long way in helping you evaluate these and other questions. A CPA who understands your business can help you design a chart of accounts and report format that makes these questions easier and quicker to answer.

Various users of the income statement will want to see different levels of detailed information. Managers will generally need more detail to evaluate and monitor operations to help guide the company to the owner’s financial goals. Lenders and governmental agencies look at a more macro scale. Lenders look for key indicators for future cash flows to support new lending activity.  BUSBooks can help provide the information in either format to make each user’s evaluation more efficient.

Preparation of financial reports, and their interpretation, can help guide your business into the black far before the last Friday of November. Contact BUSBooks today.

My next Nerd News will discuss Cash – Do you know where it comes from? Do you know where it goes?

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

Balance Sheet – A Snapshot of What you Own, and What You Owe

Photo by Adam Wilson on Unsplash

To lovers of Rock N Roll, standing on the corner in Winslow, Arizona has a special meaning. Jackson Browne first hung out there with the girl in a flatbed Ford and is now joined by his old buddy, Glenn Frey. Jackson wrote the song, but it was Glen and the Eagles that made “Take it Easy” recognizable by folks worldwide. Any savvy driver that operates a tour bus through the southwest keeps this corner in his sightseeing toolbox.

But what if you are a nerd, and an extreme nerd that becomes a CPA, what is your culture’s famous corner? Would you believe Dubrovnik, Croatia? Read on. You see, there is this formula, a core of double entry accounting: Assets = Liabilities + Owners’ Equity.  This is the magic that makes accounting and the Balance Sheet work. It is like E = mc2 for scientists! The other core is debits = credits, but one lesson at a time.

The Balance Sheet is like a financial snapshot in time and it is important to know what it tells you. In simple terms, what you own is reported under the heading Assets; what you owe is reported as Liabilities. The difference is the accumulation of profits and investments made into the business by the owners, also known as Equity. Accuracy of balance sheet account balances is important to telling your financial story.

Some of the most common balance sheet accounts are listed below by type of account.

ASSETS 

  • Cash
  • Accounts Receivables
  • Prepaid Expenses
  • Inventory
  • Property and Equipment

= LIABILITIES

  • Accounts Payable
  • Lines of Credit
  • Notes Payable

+ OWNERS’ EQUITY

  • Capital Stock
  • Additional Paid in capital
  • Retained Earnings
  • Partners’ Capital

Any accountant that is worth their salt will insist that everything balances. Additionally, and what many in house preparations miss, is the accuracy of the accounts. During a reviewed compilation a CPA will review and reconcile the underlying information such as:

  • cash bank statements
  • accounts receivable detail balances
  • inventory counts
  • prepaid schedules
  • detailed fixed asset schedules for buses and other equipment
  • accounts payable detail
  • loan statements and amortization schedules
  • stock certificates issued and capital accumulation schedules
  • retained earnings

This process regularly ensures that your “financial snapshot” tells your story accurately. By using a CPA, and especially one that understands the nuances of your industry, this tedious process is completed for you.

But you ask, “so what? We have some money in the bank and we no longer struggle to make payroll or bus payments.” Our answer to you is congratulations! You must have worked hard and long to get there. Nonetheless, are you satisfied with this level of success or do you want to maximize your company’s potential? Do you know what that potential is? Do you have the correct data necessary to plan, assess the risk and make smart financial decisions? Accurate financial statements are first in an operator’s financial toolbox. Understanding what they mean is the second. Let us at BUSBooks help you plan for the future.

Why Dubrovnik? I can explain further and also expand on the history of double entry accounting, but you will be better entertained by clicking Steve Mariotti of the Huffington Post.

Someday I am going to stand in that same square, perhaps even on a corner, and give reverence to my profession’s founder. I will wear my finest bean counter hat, tip it, and count my blessings.

Our next Nerd News will discuss the Income Statement – Your Bottom Line.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.