What Makes a Business Successful? Part 1: Cash Flow

There are several keys to running a successful business: maintaining cash flow, developing your brand, knowing and understanding your targeted customer, knowledgeable and dedicated employees and more. For this posting we are going to discuss cash flow.

Maintaining cash flow means having the money you need to cover day to day operations and to pay your loans and credit cards. Cash flow is NOT your profits or losses in your business (you can have a profit in a given period in your business and still have no cash in the bank).

What are some mistakes business owners make in managing cash flow?

• We have only one supplier of key products/supplies:  If you only have one major supplier, you may be missing out on discounts and the opportunity to get competitive pricing.
• We don’t have a credit policy (or don’t follow it): Define your credit policy for customers who do not pay up front. What will you do when customers do not pay within the terms you have offered?
• We operate on gut feel without analyzing the numbers: Looking at your financial statements on a regular basis to identify trends. This will help you determine when to change your pricing, reduce unnecessary costs and more before it becomes critical. 

To increase cash coming into your business:

1. Know your customers and their ability to pay (check credit references)
2. Invoice immediately and properly (don't wait until the end of the month to send invoices and make sure each invoice shows very clear payment terms; consider requiring all or part of the payment up front or COD)
3. Make payments easy for your customer (offer credit cards and discounts/incentives for early payment)
4. Work your past due accounts (call, not e-mail customers who are past due and keep a log of promises; stop providing products or services to customers in a delinquent status)

To decrease cash going out of your business:  

1. Take advantage of trade discounts from your vendor
2. Be proactive in talking to your vendors to set up better payment terms
3. Don't buy until you really need what you are purchasing (just in time concept)
4. Examine your payroll (are you paying a lot in overtime that could be reduced by hiring a part-time employee; be careful about changing employees to subcontractors unless they meet the IRS definition of a contractor)
5. Examine your inventory controls (does your physical inventory equal what you have on your books; are you using the FIFO - first in/first out -  method for inventory that has a shelf life; do you monitor employees who have access to inventory)
6. Consider leasing (while overall it may be more expensive, it may allow you to purchase necessary assets and still be able to make the payments)
7. Examine your customer service strategies (it's cheaper to keep customers than to constantly be looking for new customers)
8. Examine your marketing strategies (are you reaching your targeted client or are you reaching clients who really can't afford to pay for your offerings?)
9. Barter (use customer furnished products or services in exchange for your products or services)
10. Avoid unnecessary improvements (may sound like a no-brainer but it happens all the time!)

Most importantly, plan ahead. Prepare your cash flow projections each year by month. When your cash projections show that cash will be short, plan ahead to make changes to free up cash or to get a loan or line of credit. Don't wait until you are out of cash to change how you manage your cash! 

4.     

QuickBooks 2011: What's New

Here is what is new with QuickBooks Pro 2011 - Now Available!

Invoice multiple customers at once with Batch Invoicing: Automatically create a full set of invoices for customers with the same service. Just create the invoice once and select the customers

Quickly locate any account, report, or invoice with QuickBooks Search: Your QuickBooks file is the repository of record for your business, but finding the exact information you need is not always easy. With QuickBooks Search, all you need to do is enter the keyword, and it will pull up all the related reports, invoices, contacts and transaction details.

Stay on top of your receivables with the Collections Center: Quickly identify overdue and almost due invoices, and email all collection notices from your Outlook, Yahoo, Gmail or Hotmail1account in a few steps.

Complete transactions faster with convenient access to your customer or vendor's balance and transaction history: See at a glance important details such as your customer's payment history, estimates, and past orders with vendors right at your fingertips on the same screen, so that you can complete the transaction at one time instead of switching back and forth between screens.

Send invoices and estimates right from your business Yahoo, Gmail or Hotmail account: The new Webmail integration allows you to easily email right from QuickBooks without going through the steps of setting up Outlook.

Keep track of your vendors' remittance address: Keep track of your vendor's remittance with a convenient new field.

Mark which invoices have been paid with the Paid Date stamp: You can now quickly go through your stack of invoices without having to take time to look for individual payment dates.


Click here to purchase or upgrade to QuickBooks 2011

8 Tips for Year End Planning

Are you ready?


With fall in the air, the end of the year is just around the corner. Here are eight tips for planning for the end of the year for your business:

1. Get your financials in order: Even the best accountants can make mistakes when rushing to meet deadlines and having to sort through a shoe box full of receipts and documents. Whether you've consistently maintained accurate financial records or you have a drawer full of receipts to sift through, getting your books in order is the first and most important step. We can help you with this.

2. Consult with your CPA: Check to see if there are some tax saving steps you can take before year end.

3. Meet tax deadlines: Make sure you have everything prepared on time means starting now. Deadlines differ depending on when your tax year ends and your business entity and meeting deadlines can minimize penalties and interest. Here are a few:

• W-2 and 1099's: 01/31/11 for recipient copy, 02/28/11 for copy to SSA/IRS
• Form 940 (federal unemployment): 02/01/11
• Corporate tax return (calendar fiscal year): 03/15/11
• Sole proprietor/Single member LLC (schedule c): 04/15/11

4. Don't forget your retirement. When you contribute to an IRA or other retirement plan you can reduce the amount of income taxed by the IRS.

5. Keep everything! Keep all receipts, old check books, bills and invoices, mileage logs, canceled checks/proof of payments, and any document that supports deductions and credit claims on your tax returns.

6. Analyze this year's financial statements.Look at trends on your Profit & Loss Statement. What can you do to reduce costs or increase revenues for the next year? Look at your balance sheet. How do your current assets (liquid assets) compare to your current liabilities (what you owe)?

7. Evaluate this year's goals.Now that you see where your business stands, it's time to take a look at how it got there. Pull out your business plan or action plan and review the previous goals you'd set for the business. Did you meet your goals? Why or why not? What could be done better?

8. Plan for next year. Avoid disorganization and future stresses by planning for next year NOW. Use what you've learned in preparing your finances and evaluating the current year to set next year's goals, prepare an action plan, and start implementing that plan. We've got a Strategic Action Plan form we can share with you to help with this.

Getting Healthy

Recently, my staff and I decided we wanted to get healthier. We each set our own personal goal for getting healthy and we shared our goals with each other - everything from walking a certain number of steps every day to losing weight. We even set up a tracking board (in the breakroom, of course) to track our successes and challenges. You notice I said challenges, not failures! Just the fact that we have identified our goal and stated our intention is a positive step. We are confident that by the end of December, we will be well on the way to accomplishing our goals.

We have started to share healthy recipes and we are bringing in healthy snacks. We are even working on finding a fun walk/run we can all particpate in.

So what have I learned so far?

It's not going to happen overnight.
I will backslide occassionally and that's OK.
It's hard to eat healthy when you travel a lot.
Any positive change I make is going to make me healthier.
I really do like fruits and veggies!
It's hard for a night owl to change habits and get more rest!
It's more fun to walk with someone.
If Drew Carey can do it, so can I!

Any suggestions are welcomed!

Step One: Get Organized!

If there is one thing I've learned while running a small business, it's that nothing gets accomplished without organization. While there must be room for "creative feedom" in most industries, simply being organized makes a huge difference in the every day and long term operation of the business.
When starting a business, in many cases, one begins with a great idea. A person sees a market need or comes up with what they believe to be an amazing service or product and they are ready to hit the ground running! While this drive, passion, and ambition is admirable it's imperative that this innovative businessman or woman step back and make a step by step strategic plan for the future. They have to get organized!
Whether beginning a new company or maintaining a current one, disorganization can be a huge issue.
Financial disorganization can cause the biggest problems. Here are a few simple bookkeeping tips on how to get and stay organizing and avoid finding yourself or your business in a finacial mess.

1. When it comes to bank account statements:

• Request a statement with month-end cut off date. This will save time when reconciling records with the bank statement each month.
• Do not file statements and canceled checks without reviewing them.
• Review statements immediately for unauthorized checks.

2. Cash or accrual?

• The cash accounting system is typically much easier to maintain
• The IRS allows you to use the accrual system if you have $5 million or more in sales or if you carry large inventory.

3. Keep audit trail.

• This is just a record of all your invoices and checks in numeric order.
• Be sure to never skip numbers.
• Record voids in numeric order as well, just mark them as "void". This assures that there are no gaps in your numeric system.

4. Deposit cash right away. This ensures that all income will be properly recorded.

5. Keep records stored on a computer system. It's important to frequently back-up this information and may even be a good idea to keep paper records as well.

Some of the most important things to remember, but easiest to forget, are simple, basic principles like be consistent and don't overcategorize. The best strategy is to have a structured system of staying organized from the beginning, work it into employee training, and do what you can to maintain the organization of your business.

(Some information in this blog was found at http://www.onlineorganizing.com/. See the site for more information and tips on organization!)

Internal Controls and QuickBooks

Internal controls are necessary to reduce the risk of fraud. Even employees who are honest can be tempted when they handle large sums of money on a regular basis. This is especially true it the business owner has not implemented any access controls or set up shared control over the business finances. With the additional pressure of an unstable economy, the temptation can become too great for some people if there are no controls in place – remember desperate people do desperate things.

Once the control policies and procedures are established, management should ensure that the controls are being followed.

One thing to consider when creating an internal control policy is limiting permissions for people using QuickBooks® and creating a separate user sign-on for each user. In a small business environment, bookkeeping is often performed by only one or two employees. However, it is still important to give serious consideration to the areas of the system they are allowed to access. QuickBooks® will allow you to limit or even deny a user’s access to certain areas of the system. Management should take the time to become familiar with the capabilities of QuickBooks® and to limit an employee’s access in areas that might not be appropriate. Make sure you have a policy in place that does NOT allow employees to share passwords! If you have a larger accounting staff, you should limit access by areas of responsibility among staff (i.e. A/P vs. A/P). No single person in the organization (other than the owner) should have “ADMIN” rights to everything. The issue with making someone other than the owner an administrator is that it allows them to cover their own tracks, or over-ride important control provisions.

Summer Hiring

With politics and business laws continuously changing, it’s hard to keep up with all of the federal rules and regulations for running a business. What do I have to do and what is optional? How do I handle payroll for a student intern? What paperwork should I file if I employ my own child? With summer in full swing, many of you have probably signed on new employees for part-time help. Whether it is a full-time seasonal employee, a part-time student intern, or your own family member, there are some important things to keep in mind as you hire summertime help.


Remember:

• For 100% Parent Owned Entities Employing their Children

 If the parent owns 100% of the business, the owners’ children may work any number of hours or any time of day. Children under 16 years of age are not permitted to do hazardous work, work where food is cooked, or work near flammable or hazardous materials

 100% owners hiring only immediate family are not required to pay minimum wage. BUT if they regularly employ others minimum wage must be met, even for family.

 Wages are exempt from FUTA if owners’ children are under 21.

 If the owners’ children are under 18, wages are exempt from FICA but FIT must be withheld on W-2s filed for children.

 For other employed children under the age of 18, obtain an age certificate recognized by the U.S. Department of Labor and your state Wage and Hour Division (WHD). This is to be returned to the workers at time of termination; these workers may not do hazardous work.

 Other children ages 14-15 are permitted to work 8 hours/day, 40 hours/week, June 1- Labor Day, between 7 a.m. – 9 p.m. if school is not in session. These limits do not apply to news carriers or children employed by a parent who is the 100% owner of the business.

 Children under 14 cannot be hired unless hired by a parent who is the sole owner.

• Pay for a holiday is optional for part-time and summer help.

• No paid vacation time is required. However, if one chooses to give paid vacation time some federal and states laws apply.

• Providing health insurance or other benefits to temporary or part-time employees is optional. If these benefits are not offered, however, it should be stated in a written benefits plan.

• A Federal W-4 should be obtained from all summer employees, including seasonal workers, part-time, and foreign students.

• One should withhold FIT (Federal Income Tax) from all summer employees unless their W-4 results in no withholding.

• FICA should be withheld from all workers, even those who receive Social Security benefits and high school students. (students under 18 working for sole-owner parents are exempt from this)

• Overtime is due for any time worked past 40 hours in the workweek, but is not required for paid time-off.

• And don’t forget that you may be eligible for 6.2% HIRE exemption from employer Social Security tax on the wages of summer help.
Be sure to read about The Roper Group’s new hires at http://bit.ly/ropernewemployees

(information contained in this article was found in the June 2010 edition of The General Ledger: The Complete Newsletter for Professional Bookkeepers)