Income and Outgo are important, for certain

August 24, 2010 by

In my last blog, we learned the answer to “Why are my business’s financial statements important?” They let you know exactly where your business stands. And you definitely need to see that at the end of each month. Our focus was on the Balance Sheet which shows you the assets of your business (what you own), the liabilities (what you owe), and owner’s equity (what you’d have left if you sold all your assets and paid all your liabilities).

This time, let’s take a closer look at the Income Statement. Remember the accounting equation: assets – liabilities = owner’s equity. For the Income Statement the equation is revenue – expenses = net income (or net profit). The basis of using this equation is that during a particular period, usually a month, a business should match its expenses with the income that is generated by spending that money. In accounting lingo, this is called the matching concept. From that, we see the obvious importance of this financial statement: which was greater for this month, my income or my “outgo”? That’s easy to see, just look at the bottom line of your Income Statement.

Now for the part that connects the income statement with the balance sheet: revenues increase Owner’s Equity and expenses decrease Owner’s Equity. When your business provides services or sells goods, the money your customers pay you is income. This income increases your assets (a deposit to your checking account, for example), but it also increases your owner’s equity. On the other side, when you write a check to pay rent or utilities or wages, you’re using up an asset to earn revenue. This decreases the balance of your checking account, but it also reduces your Owner’s Equity. So what you’re really looking at when you see the bottom line of your Income Statement is how much your Owner’s Equity has gone up since you earned a net income, “Yeah!,” (as opposed to a net loss which reduces your Owner’s Equity, “Boo!”).

In conclusion, knowing whether your month ends up with a net income or a net loss is vitally important in making decisions regarding business transactions that you will complete next month. Understanding these ideas about the Income Statement will help you make informed decisions.

You can go deeper in your understanding of your business financial statements by reviewing them with a CPA. There is value in having a professional go over your financial statements with you and offer recommendations to improve your business. Why not check out Jeffrey D. Reimer, CPA’s website at for a comprehensive view of services available to small business owners?



Are monthly financial statements really that important?

August 11, 2010 by

So you decided to start a small business and have been going hard for a few months now. The questions come up: do I need to put together financial statements every month? Why are they important? And the answers are, “Yes, definitely!” and “Because then you know for certain where you stand.” Now, I can hear the business owner who says, “I know where I stand all the time; it’s the balance on the bottom line in my checkbook.” Well good for him or her, they know how much money they have in their bank account. But financial statements usually report the balances of numerous accounts. Your checking account is just one of those!

 So let’s look at this more closely. Financial statements give you a summary of the effects of all the transactions that your business incurred. Even if as the business owner you complete all the transactions yourself, can you remember them all and know the total effect on your profit (or loss)? Think of the accounting equation: assets – liabilities = owner’s equity. All transactions affect one or more of the elements in this equation. You write a check (an asset) to pay for expenses so you can earn income. You take out a small business loan (a liability) so you have more money to work with. And you complete quite a few more transactions during the month. Then at the end of each month, it’s very important to see a report of your financial position: what are the total assets my business has? What do I owe? How much would I have left if I paid off everything I owe? This information is used in the coming month to make important decisions about the transactions you’ll do.

In conclusion, would you rather know part of the story or the whole story including the ending? Yes, it’s necessary to know the balance in your checkbook. But once a month it’s vital to look at the balances of all your accounts, and the totals of your assets, liabilities, and owner’s equity. Then you are more likely to make the right decisions next month.

Look out for future blogs that focus on the Income Statement and the Statement of Cash Flows!

Strategic Planning

June 7, 2010 by

At Jeffrey D. Reimer, CPA, we have recently gone through a strategic planning session to help focus our CPA firm.  The process, established by Boomer Consulting and provided by the AICPA Private Companies Practice Section, essentially involved the following:

  • listing accomplishments;
  • evaluating the firm’s DOS (Dangers, Opportunities and Strengths);
  • reviewing growth models;
  • establishing vision and mission statements;
  • establishing the firm’s core values; and
  • developing strategic objectives with measurable initiatives, due dates and responsible parties.

7 hours later, we had developed our 2010 stragetic plan.  The excercise proved valuable in many ways as it helped us focus our efforts on what is truly valuable for us individually, as a firm and for our clients.  The final “product” was a 2-page laminted document listing the mission essential pieces of our 2010 Strategic Plan.  We have published our vision statement, mission statement and core values on our firm website.

In addition to establishing vision and mission statements, core values and strategic objectives.  The most practical piece was the 15 measurable goals that were established to be completed this next 12 months.

Now that we have gone through this process, we would love to hear about the process you have gone through to establish your strategic plan.  If you do not have a strategic plan or need to update your plan, I would enjoy talking with you to see how you will accomplish this.

Jeffrey D. Reimer, CPA
The Virtual CPA

54% Interest on your Overdrawn Bank Account

May 26, 2010 by

Happy birthday to you, Virtual CPA! One year ago today was your first blog. And today is my first blog! My name is Dan Hartman and I work as a staff accountant for Jeffrey D. Reimer, CPA. Here begins my adventure into the world of blogging!

I’m wondering how many small business owners pay overdraft (OD) charges on a checking account that often dips below zero. If you never do, hurray for you! Go have dinner with someone special to you If you do pay these fees to the bank, please read on.

Everyone knows that interest is the cost of the use of money over a period of time. What interest rate would the bank pay you if you deposited money in a savings account or a Certificate of Deposit? When you overdraft your checking account, basically the bank is giving you a loan, even if just for a day or two while the balance is below zero. You can think of the OD charges as the interest that you pay the bank for that short-term loan.

So, here’s a simple example of the high interest rate you could be paying on your overdrafts. Let’s say you overdrew your account by $600 with 3 transactions, resulting in a $30 fee per overdraft. This is a $90 fee to establish a $600 loan with your bank. $90 divided by $600 multiplied by 360 days per year results in an annual interest rate of 54%! Compare this interest rate with the interest rate the bank would pay you on a savings account or even on a CD. Wow!

Effective cash management keeps track of your cash on hand, pays your vendors timely and keeps payments coming into the business from your customers. Various tools are available to manage your cash flow.

If you need assistance with cash management, I recommend that you contact the Virtual CPA at or visit

With the knowledge of what you are paying in overdraft fees, I would also talk to your banker to ask them about services available to limit the “interest” you are paying. This may include an overdraft protection line of credit. So go have a great discussion with your banker and save yourself some money!

See you later!


Your Business, My Attention

April 26, 2010 by

One of the most common questions I have been asked during the last 2 weeks is whether my work has decreased substantially.  The typical response is “Yes” now that tax season is over.  However, I often follow up with the comment that I now turn my attention to the May 15th and June 15th deadlines.  This is followed by a puzzled look.  Yes, many of my nonprofit clients have to file their reports by May 15th.  And my overseas clients have a June 15th filing deadline.  Amidst all of that, my year-around business clients get my attention also.  Now that April 15th has passed, my focus simply adjusts.  My intensity in one area, individual tax returns, moves to my nonprofit and business clients.

The work of an entrepreneur never ends.  There are always numbers to analyze, sales to project, and budgets to follow.  My job as a CPA is to give the guidance my clients need to effectively manage their businesses from the numbers.  Historical data is helpful in the form of financial statements to see how the business has progressed up to a certain point in time; however, there are many other tools that a CPA can provide a business owner.  Industry comparison, ratio analyses, 5-year projections and business valuations are just a few tools in the CPA toolbox.

The next time you talk with your CPA in the days to follow April 15th, ask about the business tools they have to assist you to better manage your business.  You may be surprised with their response and the individual attention you get.

The Virtual CPA

Jeffrey D. Reimer, CPA

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Key Financial Indicators for My Business

August 21, 2009 by

As a business owner and a CPA, I may go overboard on watching the numbers for my business.  However, every business owner should be paying attention to key financial indicators on a regular basis in order to effectively manage their business.

While each industry will have specific indicators, there are certain financial ratios that apply to business across industries.  In addition, each industry will have its own range that the average company’s ratios will fall within.

What are some of these key financial indicators I should be watching?

While there are certainly many ratios to follow, here are a few common indicators the business owner should be familiar with.

Current ratio=Current Assets/Current Liabilities

Generally, this financial indicator measures the overall liquidity position of a company. It is certainly not a perfect barometer, but it is a good one. Watch for big decreases in this number over time. Make sure the accounts listed in “current assets” are collectible. The higher the ratio, the more liquid the company is.

Gross profit margin=Gross Profit / Sales

This number indicates the percentage of sales revenue that is paid out in direct costs (costs of sales). It is an important statistic that can be used in business planning because it indicates how many cents of gross profit can be generated by future sales. Higher is normally better (the company is more efficient).

Accounts receivable days=(Accounts Receivable / Sales) * 365

This number reflects the average length of time between credit sales and payment receipts. It is crucial to maintaining positive liquidity. The lower the better.

Watching key financial indicators is not a science.  Correct interpretation of the financial indicators and their comparison to industry averages is vital to a proper understanding of the business’ financial position.

Obtaining professional assistance in determining these key indicators can be invaluable.  The Virtual CPA is here to assist you in that process.  Contact me at  You can also visit my virtual office at  Or you can call me at 1-866-423-9353.  Make an important decision today by having a CPA join your circle of advisors.

How is your business doing compared to your industry?

August 14, 2009 by

One useful tool for business owners is to look at how their business stacks up against their industry.  The challenge is obtaining real time financial data and ratios with which to compare.  And even if the information is available, it then is a challenge to interpret and respond to the information.

I would like to offer a free resource identifying industry ratios and suggestions for your business to respond to the information.

Free Industry Ratio Report and 30-minute Consultation with the Virtual CPA

Through August 31, 2009, I am offering a free report of your business industry’s key ratios and statistics followed by a free 30-minute consultation with Jeffrey D. Reimer, CPA to discuss the ratios and statistics and what they mean to your business.  Do you need to be a local business to benefit from this offering?  No, the Virtual CPA has leveraged technology to serve clients around the world.  However, it is important to note that industry data is obtained from U.S. businesses.

Contact Jeffrey D. Reimer, CPA at 1-866-423-9353 or via email at  Visit the Virtual CPA’s website at

The Value of Accurate Financial Information

July 23, 2009 by

Constuctive business advice relies on accurate financial information.  Without this type of information, it is difficult for business advisers and business owners to make informed decisions.

How many business owners are making business decisons based on reaction to events or simply how much money is in the bank?  As a CPA and business advisor, I find this a fairly common and disturbing.  How much better would these decisions be if they were made with accurate financial information?

What can a business owner do?

1.  Take the time or pay to have a bookkeeper track business finances accurately.  Most small business owners do not have the time and could more effectively use their time to grow their business.  Contracting bookkeeping help is a cost effective way of getting this information tracked without having to hire an additional employee with its related time and financial costs.

2.  Having accurate financial information is only half the picture.  Work with a certified public accountant who goes beyond the historical numbers to analytically look at the numbers and offer constructive business advice.  Being able to compare a business’ financial information with industry information is an important additional service to request from the CPA.

The cost of implementing the above suggestions will be well worth the return on investment.

For more information, visit the Virtual CPA’s website at

Commoditization of Basic Accounting Services

June 24, 2009 by

Bookkeeping, payroll and taxes are becoming commodities.  Small and large businesses can find these services from a variety of providers.  The more players that enter the market, the lower prices move.  Businesses can obtain these services with similar results from various providers.

Take employee payroll for example.  Your local bank, internet payroll services, off-the-shelf software, business adivsors and accountants are all competing for the same clients.  Payroll service is a commodity.

Therefore, how does the Virtual CPA fight against this trend?  He provides a higher level service that guides businesses through the current economic environment.  Business Advisory Reports is one tool that I use to provide my clients with the information necessary to make knowlegdeable decisions in a competitive marketplace.  I will take a client’s financial data and compare it to current industry ratios and offer advice in moving the business to a stronger financial position.  Your basic bookkeeper, payroll provider and tax preparer typically will not provide this value-added service.  This is where sound business management goes beyond finding the cheapest service provider to linking up with a business advisor knowledgeable enough to give the guidance necessary to effectively manage your business.

Virtual CPA

May 18, 2009 by

What is a Virtual CPA?  A virtual CPA is a certified public accountant leveraging technology to provide professional services to clients around the world.  Currently, my clients are in 14 states in the United States and 12 countries.  While my physical office is in Rochester, MN, my virtual office is at