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Archives for January 2020

The Inventory Valuation Method for Times of Rising Prices

The Inventory Valuation Method for Times of Rising Prices

During times of inflation and rising prices, businesses benefit not only from the additional business but the receipts that they receive for their business offerings. In short, a business’ profitability improves, more or less. However, with the increasing profitability comes the scourge of taxation that has got to be dealt with also. Bearing this in mind, a business would benefit a whole lot if it could somehow overestimate its costs for the purpose of reducing its overall profitability on paper. This is where LIFO comes into the picture. Here is an account of how it can help businesses in saving on their tax bills:

How LIFO Works

LIFO stands for ‘Last-in-First-out’. It is a method used for the valuation of inventory, dictating that the newest product is the latest to be sold, for valuation purposes. Or, in other words, LIFO assumes that the sales that you make are from the top of your pile, considering how the newest items are lined up on the top. In times of inflation, however, the cost of every succeeding product is greater than the cost of the preceding ones, which is the reason why the employment of LIFO for inventory valuation bears such good benefits. The resultant profits would, thus, be understated, meaning that the tax liability of the business will not be as great as it would have been otherwise.

The Matching Principle

Businesses that make use of LIFO are better equipped to make use of the matching principle, unlike the companies that make use of FIFO. It is because LIFO charges costs and revenues from similar time periods. FIFO, on the other, charges costs from such a time period that might not even be relevant anymore. LIFO allows the accounting practices to be performed on the most recent currency values, which is in line with the matching principle.

Better Pricing Decision

We all know the importance of pricing products at the most optimum level, right? Well, LIFO can help a business in doing exactly that. If a business is making use of cost plus pricing, the usage of LIFO would mean that the cost of goods sold would be determined on the basis of the most recently purchased goods. This will help in covering the material costs in a much suitable and better manner than the usage of FIFO, for example. What this ultimately means is that the price of the product, based on LIFO, will recover material costs in a much better manner than the usage of FIFO, owing to how all of the estimations are made on the latest cost trends, rather than the trends of the past!

When you take it all into perspective, LIFO certainly does appear to be the ‘perfect’ inventory valuation solution, right? Well, it is important to remember that there is no such thing as ‘perfect’ and everything has got its share of pitfalls. If you would like advice on what the best inventory valuation method might be for your business, the experts at SKB Accounting would love to be of assistance!

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The 3 Important Accounting Considerations for a SaaS Company

The 3 Important Accounting Considerations for a SaaS Company

Business models of companies that offer software as a service (SaaS) vary greatly from those  of other businesses. It’s important, for smaller or new companies to understand the important aspects of such a business, so that they may start off on the right track. Here are some of the important aspects of a SaaS company that require consideration:

Churn Rate

Churn rate is one of the most important factors in the growth of a SaaS company. Churn rate is the annual percentage of such customers who discontinue their subscription. Owing to the meaning that it holds, churn rate is also known as the rate of attrition. When you talk about the growth of any company, the basic principle remains the same. Companies grow when they attract new customers and increase profit margins. Similar is the case with SaaS companies. That’s the reason why the percentage of new customers, in any given year, needs to be greater than the churn rate for a SaaS company to grow. If it doesn’t, then it points towards the fact there are some business issues that the management might need to address. The consideration of the churn rate can do wonders for the decision making of a SaaS company, if used correctly, and can be of utmost importance in matters like the pricing of subscriptions.

Deferred Revenue

Most companies follow the accrual basis of accounting, right? Well, according to the accrual basis of accounting: revenue is supposed to be recorded as soon as it has been earned and not when it is received. What this means is that the figure of revenue for a SaaS company, for any given month, will be the sum total of the total income EXPECTED from the subscriptions, in the simplest of terms. But is there a possibility for a scenario when a subscriber doesn’t pay the subscription charges for any given month? Yes, it can. Under such a scenario, the monthly subscription of the client will show up in the SaaS Company’s revenue, when actually it hasn’t been received. What this means is that there is a high chance for a SaaS company’s revenue to be overstated. Therefore, it’s important for the management to consider the figure for deferred revenue, as well, when making business decisions.

Marketing Expenses

It’s also important for a SaaS company to consider its marketing expenses, owing to the importance of marketing to the overall model of the business. A SaaS Company might have hundreds of applications and software for customers to benefit from, but it won’t get any subscriptions unless the customers know about it, right? When you talk about marketing expenses, in general, it is important for a business to always keep them under check. SaaS companies need to remember, before spending extravagantly on marketing campaigns, that marketing expenses are as good as useless if they don’t translate into more subscriptions.

These are some of the important accounting considerations for a SaaS company. However, they form only the tip of the iceberg. If you’re looking for in depth advice, however, the experts at SKB Accounting would love to be of assistance!

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The Important Accounting Needs for a Wholesale Business

The Important Accounting Needs for a Wholesale Business

The formats of financial statements are, pretty much, standardized for most types of businesses. However, when it comes to the importance of different accounting heads for different kinds of businesses, it’s a different story altogether. What this means is that what might be an important consideration for one kind of business might not even matter for another. Here are some of the important accounting heads and considerations for a wholesale business:

Volume of Sales

One of the most important accounting heads, for a wholesale business, is the volume of sales. Why is that the case? Well, when you talk about a wholesale business, the backbone of the generated revenue (and profits) lies in the volume of the goods sold. It’s because the difference between the cost of the goods and the price at which they are sold, in the case of a wholesale business, is not as significant as it might be in other modes of business. Keeping an eye, therefore, on the volumes of the categories of goods sold is important, when it comes to making the relevant business decisions.

Commission

Commission is the percentage of profits from sales that is given to the designated sales teams responsible for the sales, both inside and outside the agency. When you talk about a business, the business would obviously wish for the amount of proceeds paid as commission to be minimal, right? The amount of commission paid out to the sales teams varies according to category of goods under consideration. If the goods under consideration already have a thriving market, then the commission paid out to the sales team would understandably be lower, right?

Discounts

Discounts are something that wholesale businesses are on the lookout for…always! If everything else is held constant, wholesale businesses tend to lean towards such brands and suppliers that offer them discounts on their products. The utility of these discounts to wholesale businesses is more than the mere saving of a little cash. If you think about it, if wholesale businesses get discounts on their purchases, they’ll be able to forward those discounts to their customers. This, in turn, will make the wholesale business standout among its competitors, which will benefit the overall business.

Marketing and Selling Expense

When you talk about the marketing and selling expenses, a wholesale business would prefer them to be as low as possible. Why? Well, because it will ultimately come out from the commission that the wholesale business receives for the selling of goods. If, for example, the marketing and selling expense per item, under a category of goods, exceeds the commission received for the sale of that item, then it means that the business would have been better off if it hadn’t sold that good in the first place, right? When making the decision on what to sell and what not to sell, marketing and selling expense should play an important role.

A wholesale business can be lucrative, no doubt, but that doesn’t mean that there’s no need for some expert accounting advice. If you are in need of some expert advice, then SKB Accounting has got you covered!

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Best Accounting Software for Your eCommerce Business

Best Accounting Software for Your eCommerce Business

Gone are the days when businesses needed to have big accounting departments to cater to all of their accounting needs manually. In the contemporary age, there are a number of good accounting software programs available for businesses to make use of. Here are the ones that will yield the best possible results for an eCommerce business:

QuickBooks Online

There aren’t many eCommerce businesses that would not know what QuickBooks has got to offer. The accounting software has been around for a long time, but the company is continuously making efforts for the purpose of making improvements and positive modifications to the software program. Over the course of time, QuickBooks has grown into a reliable bookkeeping and accounting software, owing to how it can be used as a cost-effective and reliable accounting system for eCommerce businesses.

QuickBooks not only allows its users to navigate easily but be able to perform tasks at the push of a button as well. What this means is that the software offers a unique mix of simplicity and effectiveness, which in an important requirement for the accounting software of any kind of business to have. On top of that, QuickBooks can be fully integrated to mobile phones, meaning that you can, truly, take care of your accounting needs on the go!

Xero

The Xero accounting software program is a worthy tool for the accounting department of any eCommerce business to have. It is because Xero has got a lot of eCommerce accounting procedures on offer for its clients, meaning that it is nothing short of perfect for small and medium sized online businesses alike. On top of that, Xero comes with complete customer support, which can be nothing short of a blessing for the smaller businesses. Everyone will be able to get the best bang for their money.

Xero has got the capacity to deal with all kinds of bookkeeping needs which an eCommerce business might have, ranging from the reconciliation of your bank balance to the generation of invoices.

Sage

The third name that comes to mind, when you speak of the best accounting software for eCommerce businesses, is that of Sage. Having been in the industry for more than three decades, Sage prides itself on providing accounting software packages that are capable of dealing with all kinds of needs, regardless of the kind of business. One of the major reasons why some of the eCommerce businesses choose to go with Sage lies in how Sage offers, perhaps, the most user-friendly experience possible.

With the Sage accounting software, eCommerce businesses are able to not only manage their expenses and income easily but generate helpful reports for the purpose of decision making as well.

It is a fact that the need of the accounting software for eCommerce businesses cannot be denied, nowadays. However, choosing the right accounting software, in accordance with the requirements of your individual business, can be difficult nonetheless. Bearing that in mind, it is advisable for you to make use of the experts at SKB Accounting so that the choice you make is the best for business!

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