Some restaurants might raise money with outside financing or by selling assets. However, the majority of the cash should come from its cash flow. Why is understanding cash flow necessary for your restaurant? Here are a few things to understand about these cash flow statements.

What Is Cash Flow?

This term is the amount of money you have made from food and beverage minus what you spent on operating costs. Understanding the restaurant’s cash flow can help budget for expenses and allow investors to see the potential in your business. If you want to calculate your restaurant’s cash flow, you can use the following formula:

Cash Inflow – Cash Outflow = Total Restaurant Cash Flow

However, there are a couple of things to take into consideration. You will need to know your inflow and outflow of cash. For the inflow, you need to add up all the money that comes into your restaurant during a specific period, including food and beverage sales. You can also include merchandise sales, received loans, catering and event money, and other items your restaurant has sold. That is known as your cash inflow.

Next, you need to determine your cash outflow. During this stage, you will want to add your operating costs for the same period. These expenses include utilities, inventory, rent, insurance, payroll, restaurant furniture, kitchen supplies, and appliances. Adding all of those expenses will give you the cash outflow.

With those two figures, you can calculate your total restaurant cash flow.

Reading the Restaurant Cash Flow Statement

There are three crucial statements for restaurants that help manage finances: the balance sheet, income statement, and cash flow statement. The restaurant’s cash flow statement will determine whether your company is financially healthy. These cash flow statements are broken into three categories:

• Cash flow from operating activities
• Cash flow from investing activities
• Cash flow from financing activities

However, the two most important aspects of the cash flow statement are financing cash and net income.

Financing cash will show that your restaurant has borrowed money or raised funds by selling stock. To an investor, your financing cash will show whether you have the money to pay dividends.

As you may have guessed, the amount of money the business produces is called the net income. This figure does not tell the whole story. Instead of relying on a single number, investors will look at the cash flows. If the restaurant’s cash flow is smaller than the net income, it could be a sign that the company is losing money.

Restaurant Cash Flow Management Tips

Now that you understand the basics of a restaurant’s cash flow statement, how can you properly manage your cash? First, you may want to work with our small business accounting services. We can provide advice to help manage those expenses and assets.

Aside from that, here are a couple of tips for your business.

Have a Restaurant Cash Flow Forecast

By analyzing your restaurant’s point of sales system, you can guess the amount of cash flow for the upcoming year. While sales can always change, you will have a little more insight into what you should be making for the forthcoming year. You can then decide whether to cut back on spending or invest more money into the business. A restaurant cash flow statement allows you to create seasonal budgets. With that, you can navigate those ups and downs in the industry.

Streamlining Your Costs

If you are unhappy with your restaurant’s cash flow, you might want to reduce overhead costs. Take time to talk to vendors and utility providers about whether you can lower your payments. You may want to remove low-profile or less popular items from the menu. Also, you could reassess your schedule and cut down on staffing hours.

Don’t Rely on Credit

When you have to pay back those debts, it can take a massive chunk out of your restaurant’s cash flow. Instead of relying on credit, you might want to talk to vendors about getting a discount when paying in full.

Get Those Books in Order

While bookkeeping is not a glamorous part of the job, you must stay on top of your books and accounting. A clearer picture can give you a more accurate look at your financial health. If you don’t want to handle this responsibility, consider hiring a professional to take on the bookkeeping and accounting tasks.

Diversify the Vendors

When you rely on one vendor, it may be convenient, but it can put you in a bad situation if something happens to their business. You can get the best deal and negotiate on those prices by working with multiple vendors. Plus, you will always have a fallback if a company goes out of business or runs out of an item.

Save for Emergencies

With a large cash flow, you might want to spend it on something big for the restaurant. However, take a portion of that money and set it aside for emergencies. If you are prepared for expenses, you will not scramble to take out a high-interest loan or pay on credit in an emergency.

A restaurant cash flow statement is vital to understanding the financial picture of your business. Without it, you will not know whether you’re making money or spending too much of it.

When you need an accountant for your small business, reach out to TMD Accounting. Our family-owned and -operated business has been serving the community of Gloucester County for over 40 years. We are a flexible and affordable way to keep track of your restaurant finances, including those cash flow statements. Schedule your consultation by calling 856-228-2205.

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As a business owner, you want to keep an eye on your finances, including your expenses. When you process any transaction, it needs to be recorded in the books. For that reason, you need to know the difference between liabilities and assets. Here is a complete breakdown of these terms and what they mean for your small business.

The Difference Between Assets and Liabilities

Before you can know the differences, you need to understand these terms’ meanings. Liabilities are existing debts that a business owes to a vendor, organization, employee, lender, another business, or government agency. Many of these liabilities will help the business owner finance their company, such as a loan. On the other hand, assets are the resources or sums of value that a business owns. These assets can provide long-term benefits to the owner and also help to generate revenue.

You must list all liabilities and assets on a balance sheet, which is a vital financial document for any business.

What Is a Balance Sheet?

The balance sheet is one of the three fundamental financial statements for a business, along with a cash flow statement and income statement. The balance sheet lists the business’s total assets and how those assets are financed. Balance sheets could be called a statement of financial position or net worth.

The balance sheet will be divided into two sections. All the company’s assets remain on the left side. A list of the liabilities and equity stays on the right. The liabilities and assets are separated into two categories: current and noncurrent. Liquid accounts, such as cash and inventory, are considered part of the current category. Property, equipment, and long-term debt will end up in the noncurrent categories.

Liabilities Examples

Liabilities are either long- or short-term. As previously mentioned, short-term liabilities are current liabilities, and those long-term ones are considered noncurrent. Current liabilities often include credit card balances, accrued expenses, unpaid invoices, and payroll taxes. Noncurrent liabilities are leases, deferred tax payments, and mortgage loans. You must pay those short-term liabilities within one year of incurring the debt. Long-term liabilities are often paid over several years.

Examples of Assets

Similar to liabilities, businesses can also have noncurrent and current assets. A current asset is known as a short-term one, while noncurrent assets are long-term. Current assets include investments, accounts receivable, cash, and inventory. Those noncurrent assets include equipment, trademarks, and patents. All of these items provide continual, long-term value to the businesses. However, you cannot convert noncurrent assets into cash within a year. Additionally, these long-term assets tend to depreciate over a period of time.

Along with that, assets are intangible or tangible. Intangible assets are non-physical items you cannot convert to cash, including trademarks, business licenses, logos, and patents. Tangible assets are physical items that you can easily convert to cash. These assets include bonds, equipment, and inventory.

Assets, Liabilities, and Equity

Once you figure out what you owe compared to what you own, you will want to know how much value is left over. That term is known as equity. You can figure that out by totaling your assets and subtracting those liabilities. For small business owners, your equity is the business’s net worth. If you have a partnership or sole proprietorship, the equity is often called the “owners equity” on the balance sheet. In a corporation, this equity is referred to as “shareholders’ equity.”

No matter the name, equity is vital to your company’s relationship between liabilities and assets. On the balance sheet, the assets equal the total returns plus the total equity. There are several accounting equations to use to determine these figures, such as:

• Equity = Assets – Liabilities
• Assets = Liabilities + Equity
• Liabilities = Assets – Equity

With those equations, your small business accounting services can determine if the business finances through debt or uses its own funds to operate the company. However, these equations will only work for those who use the double-entry bookkeeping methods for their books.

Equity can affect both sides of these equations. If the business only has figures for equity and assets, it can easily calculate liabilities with no issues. Remember that bookkeeping and accounting can be tricky for any business owner. For that reason, hiring a professional to help calculate your assets, liabilities, and equity may be a good idea.

Do These Calculations Matter?

Liabilities, assets, and equity are essential for your business accounting system. With these numbers, you know how much you own, how much you have, and what is left over for your business. You will know where your money is at any given point in your business. These numbers ensure you do not make mistakes in recording those transactions.

Balancing liabilities, assets, and equity is the foundation of double-entry bookkeeping. Without knowing these calculations, you will not be able to understand your business’s finances. As a result, you could have a strong cash flow, but you may have an outstanding debt that eats away at your profits. With a better understanding of these terms, you can confidently know the financial health of your business.

At TMD Accounting, we help you track your assets, liabilities, and equity. Our experienced team can assist with your small business’s accounting, bookkeeping, and tax matters. We are a family-owned and -operated business that has been serving the Gloucester County area for over 40 years. You can count on us when you need an accountant for my small business. Schedule an appointment by calling 1-856-228-2205.

Law firms have unique financial needs that must be addressed differently than how other types of businesses handle their finances. A law firm’s need for specialized accounting applies to both the firm’s business and accounting strategies and how they track and manage various types of accounts. Because of the requirements law firms have, they can benefit from working with accounting firms that offer small business accounting services to attorneys. TMD Accounting provides accounting services that focus on the unique accounting needs of law firms and can help your firm stay on track.

Help With Income Forecasting

Most law firms use billable hours to determine how much to charge clients. Many attorneys charge for their time in six- or 10-minute increments. Tracking billable hours can be a headache for many attorneys. To ensure that your firm is accurately determining its billing, we can help you transition to tools in the cloud to track your lawyers’ hours. Using the cloud can help you to accurately and efficiently track billable hours for every client while reducing or eliminating time losses. Many small- and mid-sized law firms contend with income fluctuations, which make managing your firm’s cash flow important to your success. Our accountants help law firms to manage accounts payable, create forecasts, and reduce the time involved with receiving payments for accounts receivable.

Optimizing Taxes

Employment agreements with attorneys can be structured by law firms in different ways. Some firms pay attorneys as independent contractors. Others hire lawyers as full-time, salaried employees. Some agreements might include profit-sharing or bonuses. What might work for your firm will depend on several factors. An accounting firm that specializes in providing services to law firms can help you choose the structure that works the best for your business.

In addition to your employment agreements, you also need to ensure that you have the right business structure. The business structure you choose for your law firm can affect the taxes you might pay. We can help you choose the structure that will provide you with the most tax advantages.

Tracking Trust Funds

Law firms must keep their clients’ funds in separate trust accounts and cannot commingle them with their other money. Many firms ask for retainers upfront before they begin work. Firms must follow strict rules when they hold client funds in a trust account for recordkeeping and client notification. It is critical for you to avoid commingling the funds with your firm’s money or using one client’s money to pay for services you provide to another client. If you mismanage your trust accounts, deposit funds in the wrong account, or fail to meet your recordkeeping and reporting requirements, you could face significant penalties, including the possible suspension of your law license. A specialized accountant can help to track client funds to ensure you avoid these types of mistakes.

Matter Cost Tracking

Law firms have both direct and indirect costs. You must correctly identify which costs are direct and indirect. The accounting for direct and indirect costs must be handled differently. Our accountants can help to identify which costs are direct or indirect and account for them properly.

How to Choose the Right Accounting Firm

Choosing the right accounting firm to handle your law firm’s accounting needs is important. Here are some tips to find the right legal accountant for your firm.

1. Ask About the Company’s Experience

While finding an experienced accountant is important, you want to find an accounting firm that has significant experience working with legal clients. Ask a prospective accounting firm about its experience working with law firms.

2. Ask About the Services Provided by the Firm

You will want to know about all of the services the accounting firm offers to law firms and their levels. For example, you will need to determine the degree of control you want to give the accounting firm over your bookkeeping. If you want comprehensive accounting services, you will want to look for a full-service firm. Some firms have bookkeepers to handle daily transactions. Others might charge more if you need to hire a certified public accountant to handle regular bookkeeping tasks.

3. Ask About Audit Support

It is a good idea for you to find an accounting firm that offers help in case your law firm is audited by the state or the Internal Revenue Service. The state licensing body can audit law firms to ensure they are accurately tracking and handling client funds, and the IRS audit can happen to anyone. Undergoing an audit can be stressful. If you have a trusted accountant’s help during an audit, it can greatly reduce your stress because you can feel confident in the accuracy of your financial data.

4. Ask About Fees

Accounting firms have different payment structures. Some charge flat fees for each task performed while others charge by the minute. You will want to understand your accountant’s fee structure so that you will know whether your accountant’s bill will increase each time you make a phone call or whether it will be calculated by task.

5. Ask for References

It is a good idea to ask other law firms about their experiences working with the accounting firm you are considering. Word-of-mouth referrals can help you determine which firms are known to provide good specialized services to law firms. You can also ask the firm you are considering to provide you with references from law firms that have used or currently use their services. Follow up with any references you are provided to ask about their experiences.

Talk to an Accountant for My Small Business

As an attorney, it is critical for you to carefully track your firm’s and your clients’ money. Working with an experienced accountant at TMD Accounting can help to ensure you meet your regulatory requirements and grow your practice. Contact us today for a consultation by calling 1-856-228-2205.