Fixed Asset Records

Your fixed asset purchases are an important part of business for a number of reasons. They are capital investments, which show how you’ve invested profits back into the company. That is part of the reason why they are listed on your balance sheet and not as an expense. The other reason is because they have an expected life of more than one year. Because they will be providing benefits to the company over a longer period of time, the expensing of their value is spread out over the useful life of the asset. We do this by recording depreciation expense for each of your assets.
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Proceed With Caution: When NOT to Change

If your business is just starting out, there’s a challenge that you’re about to face that you might not even realize. Yes, there are numerous business challenges you’re already going to be wrestling with over time, but here’s one that you need to figure out early.

Fortunately, this decision is a “set it and forget it” decision because once you’ve decided, you shouldn’t change.

I’m talking about depreciation. When you buy an asset, you spend a lot of money all up-front but it won’t always be worth that amount. To use a really simple example, if you bought a $25,000 car and kept it for 10 years, you know it wouldn’t be worth $25,000 in the asset column of your balance sheet the entire time. Cars depreciate just as all assets do.

So here’s the “set it and forget it” decision you have to make:

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How Raising Capital Impacts Your Financial Statements

Businesses need money to operate and unless your business has retained some earnings to draw from, you might need to go out and raise capital. Although there are complexities that blur the lines, you can broadly think of all capital as falling into two categories:

• Loan-based funding
• Ownership-based funding

Loan-based funding includes borrowing money from the bank or offering a bond or promissory note to private lenders. Ownership-based funding is essentially where you sell a piece of the ownership in the company as a share or stock. You’re probably already familiar with these concepts. But what I want to talk about in this blog post is how each type of funding impacts your financial statements. Knowing this will help inform you about the best choice for your situation when it comes time to raise some capital.

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“But my BAD debt isn’t really that bad… is it?”

Unless you get money from customers up-front before you give them the product or service they purchased from you, you will likely get shafted now and then from customers who will never pay.

In spite of your best efforts, these receivables end up getting older and older and you realize that you will never collect from them. Everyday people might call this “hopeless” but in accounting lingo, it’s called “bad debt“.

It’s tempting to just ignore your bad debt. (Hey, no business owner wants to be reminded of a customer who pulled a fast one on them). Unfortunately, doing that will artificially inflate the assets on your balance sheet while also misstating your profit.

But you do need to do something with these numbers! Here’s what to do:

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Transform Your Business With Spreadsheet Accounting – Part 2

In a previous blog post I showed you a way to put together a single file consisting of your three most important financial reports – the reports that every business should have.

I’ll be talking to you over the next couple of blog posts about these spreadsheets and how to put them together but in this post I want to pause momentarily to talk to you about the all-important question of WHY.

Why do we need those three financial reports? When we answer that question, understanding HOW the spreadsheets work falls naturally into place.
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