Options for Small Business Accounting

Over the years I have tried a variety of small business accounting solutions.  A huge leap forward for small businesses is the cloud based small business accounting software. Based on my experience a small business' best option is a "cloud" based solution. A cloud based small business accounting package has some significant advantages and a few disadvantages.

Advantages:

• Your software is always the current version
• You can allow direct access to your outside CPA. This may be the best feature since it allows you to very efficiently book the entries that I used to wait til the end of the month (or quarter, or year, or when the taxes get done). Now when we have something odd to book we simply call the CPA, we login together and the CPA shows us the proper booking, What used to go on someone's "to-do" list is now done correctly the first time.
• You can access your bookkeeping and accounting records from anywhere. Small business owners often complain about being tied down in their chair at the office but you don't need to be.
• You can outsource many activities which a remote user can do part time and at a lower cost because they can access your accounting system. This could save you hiring a full time person or trying to train people to do complex jobs part-time.

Disadvantage:

• There's a monthly subscription fee depending on the level of service you choose.
• Getting your CPA to use something other than Quick Books might be a challenge. But remember, you have to use the system everyday. If you find a system that works better for you than Quick Books have a discussion with your CPA about the benefits to you.

Although Quick Books is the most widely used and certainly a safe choice, I find the Quick Books "on-line" version to be slow and cumbersome. 

There is also the option of outsourcing virtually all of your bookkeeping to a company.  If you want to see what services an outsourced bookkeeping company provides go to GrowthForce they are experts at outsourcing small business accounting services.

Other related posts:

• What Do You Buy When You Buy a Business?
• Using Personal Credit Cars to Finance a Small Business

Here's the Cheapest Small Business start-up Experience You Can Buy

Here's a great book about starting a business. A real life recount of the ups and downs and lessons learned the expensive way.

This book will give you the cheapest experience you can buy. Learning from others start-up business mistakes is always better, and lest costly, than learning from your own.

What on earth is a coverage ratio in financing with an SBA Loan?

When dealing with financing of various sorts you will come across the term "coverage ratio". It my be in the context of "Interest coverage ratio"  or "debt coverage ratio" or some other similar nomenclature.

Here's the basic concept of a coverage ratio. The coverage ratio is designed to determine what margin for error there is in a borrower's ability to pay back the debt.

Let's use an example assuming you are buying a business, here are some basics:

• Business Purchase Price $500,000
• Seller's Discretionary Earnings (SDE) $175,000 (Seller's discretionary earnings is the business earnings before Interest, Depreciation, Taxes, Amortization and Owner's Compensation).
• Down payment Buyer has available $100,000
• SBA Loan $400,000  financed for 10 years @ 7% =  $4,644 per month payment which = $55,750 per year.
• Salary the Buyer needs from business to pay living expenses  $100,000.

Coverage Ration Calculation  

SDE                                       $175,000

Salary needed                         $100,000

Available for Debt Service      $75,000

Amount of Debt service          $55,750

Coverage ratio is                     1.35   Amount available for debt service divided by actual debt service.

Generally speaking when seeking an SBA Loan the coverage ratio required will be between 1.25 and 1.4.