Solid accounting systems are the backbone for every successful business. Keep in mind — you don’t have to do the books yourself. And, if you are not a trained accountant, it’s best if you don’t! However, financial literacy — the ability to read and interpret the reports coming out of your accounting software on a monthly basis — is crucial to the financial success of your business.
Rather than bore you with accounting jargon, let’s focus on how you can apply day-to-day best practices that will improve your overall accounting systems and enable you to make profitable business decisions.
Key Takeaways From Accounting and Bookkeeping for Bridal:
- As the owner, it’s important to improve your financial literacy related to accounting and interpreting financial reports.
- There are three primary financial statements: The Balance Sheet, Profit and Loss, and the Cash Flow Statement.
- Clean accounting data is vital for making profitable business decisions.
- It’s recommended to have an accountant who is experienced in the nuances of bridal shops and understands BridalLive.
Most Bridal Store Owners Are Not CPAs
You started your shop because you love the bridal business, NOT because you want to wrangle with Quickbooks. But you also know that getting your numbers straight is the only path towards a profitable, thriving business.
Without accurate numbers, how can you possibly determine how well the business is doing, let alone make strategic data-driven decisions? This is why getting your books in order is a priority, not a “nice to have” or something you put off until the next tax deadline.
You may not be an accountant, but you should know a few of the basics.
Accounting and finance in general feels overwhelming for many small business owners. If that resonates with you, just know that you are not alone. Exploring what you don’t know and what you don’t know that you don’t know is the first step.
The first order of business is to get your books accurate and up-to-date — and keep them up-to-date! Then, focus on becoming fluent in reading your financial statements. To get you started on your accounting and financial education journey, let’s make sure we’re all on the same page with a few basics.
Understanding Financial Statements
There are three primary financial statements:
- Balance Sheet — The Balance Sheet provides a snapshot of your company’s financial position (assets, liabilities, shareholder equity) at a specific point in time.
- Profit and Loss (also called the P&L or Income statement) — The purpose of the P&L is to understand and analyze a company’s historical performance as well as to forecast future performance.
- Cash Flow Statement — This statement blends elements of the P&L and balance sheet to show cash inflows and outflows over a chosen period of time.
As a business owner, you should learn how to read and interpret these statements to help you make data-driven decisions that move your business forward.
Cash vs. Accrual Accounting Method for Bridal
Your chosen reporting and filing method will depend on your specific context. However, the choice between cash or accrual is one of those topics where bridal stores are different from other small businesses. So it is important that you and your CPA fully understand the implications of your filing choice! The accounting method you use is important because:
- It determines when your business will recognize revenue and expenses. It also determines when you pay taxes on recognized revenue and when you can deduct expenses. You will get very different numbers when you run your reports on cash vs accrual in BridalLive.
- The timing, and therefore the overall amount of federal and/or state sales tax that you pay is determined by the filing method that you choose. You cannot simply switch filing methods without good historical reporting and the assistance of an accounting professional who understands bridal. There are a lot of nitty gritty implications here that we won’t get into, but please reach out if you have questions or concerns.
With cash accounting, revenue and expenses are recognized only when money changes hands.
Alternatively, accrual accounting recognizes revenue when it's earned. For a bridal store, this means revenue is recognized when goods are delivered to the customers. Cost of Goods Sold are similarly recognized when goods are delivered to the customer.
We can’t cover everything in this introduction, but hopefully this got you thinking about how to improve your accounting systems or where you may want to fill in some gaps on your financial education.
You can use your financial statements for decisions related to cash management, inventory budget, employees, tax strategy, owner distributions, resource allocations, and so much more.
For example, if you have a well-thought out chart of accounts (by chart of accounts, I’m referring to all of those categories you have set up in QuickBooks), it makes the ongoing business decisions easier. On the other hand, when you don’t have enough information and financial data, it’s really difficult to make decisions.
Clean, Up-to-Date Financial Statements Are a Requirement
Financial statements are not just for internal use. They may be used by creditors, potential buyers, investors, or business partners in exits, real estate transactions, or other negotiations.
You don’t want to be in a situation where one of these parties is asking for your financials, and your books are an absolute mess and will take weeks to fix. Many of these situations, such as business negotiations, are time sensitive. You want to be in an informed, prepared position.
We have the biased opinion (based on years of experience) that most business owners shouldn’t be doing their own books. Watching a business owner do their own books is a bit like watching a bride sew her own gown. If she’s a fashion designer, it will probably turn out fine. If not, she’s NOT going to learn it from watching a couple of YouTube videos.
Even if you are doing a passable job on your own books, there comes a time when you have to consider the highest and best use of your own time!
Since you’ve decided that you should not be doing your own accounting, how can you find a great accountant? Or if you’re already working with one, are they the best fit?
Bridal Industry and BridalLive Experience
Not every CPA or bookkeeper understands bridal. We recommend working with one that does, and especially a company that specializes in the bridal industry (not to toot our own horn, but BridalVision is the only firm that exclusively focuses on helping bridal store owners). There are countless questions that come up that are specific to bridal (should I depreciate sample gowns, how do I account for consignment sales, how do I write-off disposed inventory, how do I integrate QuickBooks and BridalLive, etc.) and you want to make sure your accountant can confidently answer those questions.
Another benefit to working with a professional who specializes in bridal is that they’ll be familiar with BridalLive. This includes the ability to interpret BridalLive reports and make sure BridalLive reports match QuickBooks.
Beyond the Basics
Does your accountant only focus on managing the books and meeting your tax obligations? If the answer is yes, it might be time to find an accountant who really understands the nuances of the bridal industry, and will make profitability the primary focus of your business.
Oftentimes, finding the right expert in areas that you are weak in (whether that’s legal, accounting, financial, etc.) can be a profitable decision. If you are looking for a profitability coach who knows accounting and the ins and outs of bridal store finance, explore BridalVision’s services.
Now that we’ve covered the basics of keeping clean accounting books, let’s dive into how you can use your store’s numbers to make data-driven decisions.