Author: Admin

Budgeting – Uninspiring But Critically Needed Work


Budgeting is one of those topics you would rather avoid, but in business, it’s an absolute necessity. To prepare a reasoned and thoughtful budget, an accountant must start with a broad-based critical analysis of the most recent actual performance and position of a given business by the managers who are responsible for getting results.

Then the managers decide on specific and concrete goals for the coming year. It demands a fair amount of management time and energy. A budget should be worth this time and effort because it’s one of the key components of a manager’s job. To construct budget financial statements, a manager needs good models of the profit, cash flow and financial condition of your business.

Models are blueprints or schematics of how things work. A business budget is, at its core, a financial blueprint of the business. Budgeting relies on financial models that are the foundation for preparing budgeted financial statements. Those statements include:

–Budgeted income statement (or profit report): This statement highlights the critical information that managers need for making decisions and exercising control. Much of the information in an internal profit report is confidential and should not be divulged outside the business.

–Budgeted balance sheet: The connections and ratios between sales revenue and expenses and their corresponding assets and liabilities are the elements of the basic model for the budgeted balance sheet.

–Budgeted statement of cash flows: The changes in assets and liabilities from their balances at the end of the year just concluded to the projected balances at the end of the coming year determine cash flow from profit for the coming year.

Budgeting requires good working models of profit performance, financial condition, and cash flow from profit. Constructing good budgets is a strong incentive for businesses to develop financial models that not only help in the budgeting process but also help managers in making strategic decisions.

A Brief Description Of The Sole Proprietorship


A sole proprietorship is the business or an individual who has decided not to carry his business as a separate legal entity, such as a corporation, partnership or limited liability company. The proprietorship business type is not a separate entity. Any time a person regularly provides services for a fee, sells things at a flea market or engage in any business activity whose primary purpose is to make a profit, that person is a sole proprietor.

If they carry on business activity to make profit or income, the IRS requires that you file a separate Schedule C “Profit or Loss From a Business” with your annual individual income tax return. Schedule C summarizes your income and expenses from your sole proprietorship business activity.

As the sole proprietor of a business, you have unlimited liability, meaning that if your business can’t pay all it is liable for, the creditors to whom your business owes money can come after your personal assets. Many part-time entrepreneurs may not know this, but it’s an enormous financial risk. If they are sued or can’t pay their bills, they are personally liable for the business incurred expenses and liabilities.

A sole proprietorship has no other owners to prepare financial statements for, but the proprietor should still prepare these statements in order to keep abreast of how his business is doing. Banks usually require financial statements from sole proprietors who apply for loans. And a partnership needs to maintain a separate capital or ownership account for each of the partners.

The total profit of the firm is allocated into these capital accounts, as spelled out in the partnership agreement. Although sole proprietors don’t have separate invested capital from retained earnings like corporations do, they still need to keep these two separate accounts for owners’ equity – not only to track the business, but for the benefit of any future buyers of the business.

The question you should ask yourself when planning to start a business of your own is, which business type affords me the most protection under the law? And the answer to this question is most assuredly the general corporation; but along with the protection it provides to you, the business person (or CEO), comes the added responsibility of adherence to the law as well as your obligation to stock holders, if any. The decision could be an interesting one that may take some time to come to terms with.