Modern accounting through double-entry bookkeeping was first described in 1494. While traces of accounting can be found way before that, it was nothing similar to what we see and practice today.
By definition, accounting is the practice of recording, summarizing, analyzing, and reporting an organization’s financial transactions. Although the primary objective of accounting is tracking finances, it majorly impacts the actions of stakeholders, management, regulators, and tax authorities.
Several bookkeeping methods and tools are used to gather, analyze and present accounting data in a consistent and standardized manner. In this article, we’ll understand why accounting is important, how to do it effectively, and a few mistakes you should avoid as yoga teachers. A comprehensive review of some accounting software is also provided.
Effectively running yoga studios requires precise estimation, planning, and execution of business decisions. While many other additional factors contribute to the overall process, finances are the most fundamental. Here are the reasons why accounting is important for yoga teachers.
Bookkeeping and accounting empower yoga studios with detailed information on inbound and outbound financial transactions.
Financial statements make recording, classifying, and summarizing financial transactions easier and help stakeholders, management, investors, and creditors make informed decisions.
Tax laws, financial regulations, and reporting standards are maintained through accounting and bookkeeping. Aside from keeping you updated on the latest tax benefits, complying with these regulations protects yoga studios from unnecessary tax fines, legal action, or damage to their reputation.
Governed by a few standards of practice, accounting influences organizational and external decision-making to a great extent. Through your financial health, creditworthiness, and managerial accounting, your investors, creditors, and financial managers can effectively make the right decisions.
For example, balance sheets, income statements, and cash flow statements are scrutinized and analyzed by investors and stakeholders to determine the valuation of the yoga studio and its worthiness to secure an investment.
On the other hand, lenders derive the D/E ratio (debt-to-equity), times interest earned ratio, and a few other financial ratios solely from accounting statements. These metrics are used to determine the risk of lending a certain amount to your yoga studio.
In addition to meeting regulations, accounting helps you stay transparent about your financial activities and optimize day-to-day operations. By determining growth opportunities and optimally allocating scarce resources, you can create budgets, track efficiency, understand public perception, and develop long-term strategies for your yoga business in the fitness industry.
A simple example of this may include the introduction of new yoga classes and yoga teachers. Reviewing your accounts for the previous year will give you a good idea about your monthly income and expenses. By forecasting the financial changes influenced by introducing new classes and yoga teachers, you can determine the viability and budget of your plans.
There are a few distinct differences between accounting and bookkeeping. While both are essential financial elements for your yoga studio, they rely on each other to a great extent.
Bookkeeping is the process of recording and managing expenses, income, tax returns, loans, interests, payrolls, and every other financial transaction in the original account books. The books are necessary for regular financial reporting and analysis. Basic bookkeeping skills are required to handle the process. Moreover, accounting software can simplify and manage bookkeeping tasks through automation.
On the other hand, accounting demands the skills to manage accounting practices and policies. In accounting, the books are carefully analyzed and interpreted to offer insight and prepare income statements and balance sheets for your yoga studio. In essence, accounting services start where bookkeeping ends. However, some modern software can even generate financial reports and analytics.
As a yoga business owner, you’ll need to maintain several books, including rent, overhead, income, cash flow, and taxes. Depending on the volume of your operations, you may need to hire accountants or invest in software. Here is a basic set of guidelines that can help with basic accounting services for your yoga studio.
A chart of accounts is a categorization practice followed by accountants to easily track assets, liabilities, equity, revenue, expenses, and income. A basic chart of accounts for your yoga studio should include:
The numbers that you can see here are the denotations commonly used by accountants and software. As these accounts may include thousands of entries, assigning a numbering system helps identify the entries easily with the first digits from the studio’s ledger (1,2,3,4,5…).
Be very cautious when creating or deleting new chart accounts. Discourage the creation of new duplicate accounts and the deletion of inactive accounts to avoid confusion. Moreover, space out the numbers (1010, 1020, 1030...) to make room for any new accounts between them.
Effective accounting involves tracking and recording every financial transaction that takes place in your yoga studio. Every detail, no matter how minute they are, should be recorded for accounting purposes. For example, a yoga mat that has been lost and replaced should be recorded in the inventory and expense account.
Monthly expenses like rent, salaries, and utilities should be updated every month to avoid confusion and unintentional tax irregularities. For easier accounting, consider avoiding cash altogether to transact. Take payments online, make payments online, and buy online.
Reconciliation of bank accounts refers to the process of comparing your yoga studio accounts with your bank statements. This ensures that every transaction is accounted for and prevents discrepancies in the future. While large companies may reconcile their accounts every day or week, you should be fine with a monthly analysis.
The first step is to allow your software or accountant to access your bank statements. You also need to have the company ledgers that we mentioned earlier. Usually, manual ledgers are maintained in spreadsheets or logbooks.
More often than not, your bank statements won’t reflect the exact transactions. This may be due to outstanding payments, floating deposits, and clerical errors. Regardless of the reason, make sure to take the necessary actions. Cash balance should also be compared.
Your accountant is responsible for creating financial statements such as:
As mentioned before, these statements are used by investors, lenders, and management to make informed decisions. The steps involved in the creation of these statements are:
Cash flow is the amount of cash or cash equivalent that your yoga studio generates and spends over a period of time. Typically, the higher the number, the better the valuation of your studio. Maintaining a positive cash flow is important to sustain and thrive.
Usually, three types of cash flow are considered for different purposes:
In all three types, depreciation of assets, income, working capital, and capital expenditure (Capex) are calculated and considered.
A few mistakes that new or even established yoga studios often make in terms of accounting are:
Mixing personal and business accounts for transactions, payments, and collecting fees often create issues with the regulations imposed by the tax authorities. Even if you’re the sole proprietor, consider keeping the tabs separate.
Misplacement of invoices, failure to collect fees, failure to make regular financial reporting and ignorance towards account reconciliation can create issues when accruing invoices and due payments. While this may not seem to be an issue in the short term, it can create confusion while filing taxes.
Discrepancies in financial data can put you in undue circumstances of federal investigation and fines. Stay legally compliant and avoid tax fraud by never hiding your income in the statements.
Regularly reconcile your accounts to keep financial data updated with bank statements. Failing to do so can cause discrepancies and future issues.
We have reviewed some accounting software that we find the best for yoga businesses:
Designed to cater to small and medium-sized businesses, Quickbook is used for managing several accounting-based activities including invoicing, managing expenses, payrolls, and taxes.
Pros of Quickbook include:
Cons include:
Equipped with features like reconciliation, invoicing, and expense tracking, Xero is developed for medium and small businesses, including yoga studio bookkeeping services.
Pros of Xero include:
Cons include:
Offering a range of features including payroll, expenses, and reconciliation management, Wave is a cloud-based accounting software best fitted for yoga studio bookkeeping services.
Pros of Wave include:
Cons include:
We’ve discussed the basics of yoga business accounting with a step-by-step guide to kickstart your accounting today. Hopefully, you will be able to avoid the mistakes mentioned in the article by using the best own business accounting software.