Have Questions? We have Answers

In our line of work, we get a lot of questions on anything and everything related to owning and operating a business (and we’re happy to answer them, too)! While a lot of these questions are usually pretty easy to answer, sometimes we get a few that really make us think. Even then, we enjoy researching and finding the answers to help business owners be successful.

So, what questions do you have about your business? We would love to help you reach your dreams and goals.

In case you think your question might be too far out there, we promise it’s not. Check out some of these questions (and our answers) to get you started on finding the information you need to watch your business succeed.

“I have invoices coming out of my ears! What do I do with all of them?”

When you have a large amount of invoices to deal with, it’s easy to get overwhelmed and lose track of what needs to get done. When invoices aren’t being properly managed, your business can see some serious negative side effects, such as fraud. Following this list of tasks can help you make sure you’re keeping everything in check. Looking to an automated system, such as QuickBooks, is also a great way to keep your invoices at a manageable level.

“Where in the world did all of my cash go?”

This question is more common than you may think. While your business may be profitable, you can still be running out of cash, which might be a concern. Financial struggles can be hard, but our professionals are available to help. Check out this blog – and then, let’s talk!

“Why don’t I have enough time to do everything that needs to get done?”

We get it: owning and operating a business means you have a lot on your plate. From accounting and finance, to human resources to the day-to-day operations, you probably don’t have enough time to do it all yourself. The good news is you don’t have to! Consider your team of employees. What can you delegate to take some of the burden off your shoulders and free up some time? Another option is outsourcing. When you outsource some of your business activities, such as your accounting processes, you free up time to focus on why you got into business in the first place.

“What is this accrual accounting thing I hear so much about? Am I doing it?”

Knowing the specific ins and outs of accounting can be a confusing, daunting task. What it comes to what method of accounting you are using, the water may get even muddier. Maybe you’ve heard of cash based accounting and accrual accounting, but you really have no idea where to begin. We’ve written multiple blogs on how to tell the difference and how to select what fits your business and set up your books. Check them out!

“Taxes terrify me. Where do I even begin?”

Taxes are a complex issue, and questions regarding this topic are common. Whether you want to know more about R&D tax credits, employer vehicles and mileage, how to track your taxes or even all those pesky (yet necessary) forms, we’ve got you covered. Check out our tax archive for answers to all your most pressing questions. If you can’t find the answer, let us know.

Remember, although we numbers nerds really like our financial lingo, we promise to answer your questions in a way you will understand, not just a bunch of accountant talk. After all, we want to see your business succeed!

Signs of a Financially Healthy Business

We’ve said it before and we’ll say it again: strong finances are important. After all, without good finances, how will you pay your employees, take care of debts and ultimately make a profit? Your business depends on finances to be successful, so making sure they’re healthy should be a top priority.

Here are six signs your business is financially healthy.

  1. Your revenue is growing – This one might seem a little obvious, but it’s important nonetheless. When looking at your financial statements, you want to see a relatively steady increase in your revenue, whether it be weekly, monthly or even yearly. It doesn’t have to be a big increase either – just a small, steady change can show good health. You know what they say, slow and steady wins the race! Not only do you want to see your revenue growing, but it’s also a good sign if your cash balance is showing growth. Cash is necessary for the operations of your business, so a growing balance can help ensure you’re prepared for any surprises that may pop up.
  2. Your expenses aren’t growing – In order to be profitable, you need your revenue to be in excess of your expenses. To do that, you want your revenue to go up, while your expenses remain the same or even decrease (bonus points if your expenses are decreasing – that’s no easy feat!). While expenses may increase with growth, it’s likely your revenue will increase as well. Growth in your expenses is healthy as long as it’s proportionate with your revenue growth.
  3. You’re gaining market share – Whatever you’re doing, it’s working. Whether you’re offering a product or a service, people like it and are likely telling others about you. Because of this, you’re gaining more customers and staking a larger claim in the market. You wouldn’t be able to see this remarkable growth if it wasn’t for your financial health allowing you to make changes and adapt to the ever changing needs of your market.
  4. Your ratios are looking good – There are multiple ratios to pay attention to that can determine if your business is financially healthy. You want your debt ratios, debt-to-asset and debt-to-equity, to be low. These ratios basically tell you how much you owe in comparison to how much your business is worth or how much cash you have available to pay off debt. Ideally you’d want a high profit margin or above average for your industry (not all business are striving for the same profit margin), as it shows your sales are resulting in a high amount of profit. Finally, you want high turnover ratios. A high inventory ratio can signify you’re efficiently and effectively pushing inventory out the door instead of keeping it holed up in the back, while a high asset turnover can signify effective asset management.
  5. You’re retaining the right employees – Your people are at the heart of your business, and they’ve helped your business become what it is today. However, they likely wouldn’t have been able to stay on board if your business was struggling financially. When your business is financially healthy, you’re able to pay your employees (which is pretty important) and can often times provide added perks and bonuses to keep them around. If you need some ideas for keeping employees engaged and coming back for more, check this out!
  6. Your strong cycles support you throughout the year – If your business is in retail, your busy season is likely during the holidays. If you’re a service provider, your busy season depends on what type of work you do. Your business shows strong financial health if the revenue from busy season can carry you through the slow times. How? If this revenue carries you through, you likely have high enough balances in your accounts to support you all year long, rather than waiting for (and desperately needing) busy season. Pro tip: just because you have a healthy balance doesn’t mean you should go spending all the proceeds from busy time – you’ll still want a cushion for emergencies or new expenditures.

It’s no secret understanding your finances and making sure they’re in tip top shape can help your business grow and become what you dreamed for it. Check in on your business and see how your business is doing with these six pointers – we bet you’re doing great!

Even in 2017, Cash is Still King

We’ve all heard the phrase “cash is king”, and we’ve even written a blog about it, but what does it really mean? In the business world, it means even a company with a healthy equity balance can get into trouble if their cash balance cannot support short term operations.

Here’s an example to help illustrate our point. The below table shows three scenarios. In each scenario, the company has $4,500 in current assets, $1,500 in current debt, and $7,000 in equity. The income statement remains unchanged in each scenario, however management in Company C is managing their working capital better, due to a larger chunk of their current assets coming from cash.

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How Long Until We Get Paid?

One of the best ways to understand how to improve cash and working capital management is to monitor “Days to Cash.” Days to cash measures how long it takes for a company to convert resource inputs into cash flows.

The days to cash formula measures the amount of time from when inventory is first purchased and the company has a cash outlay (payment period), how long it is held (turnover period) and how long until the customers pay their receivable balance (collection period)Publication1

In other words, where the balance in accounts receivable is greater and cash is down (scenario A), the collection period is 49 days, as compared to the 21 days noted in scenario C. With the turnover period and payment period the same in each scenario, it is easy to see how the balances in receivables and cash impact the number of days until the entity has cash deposited in the bank.

Why Do Good Companies Run Out of Cash?

There are many reasons a company runs out of cash. Sometimes, it is due to poor collection policies or overspending on equipment and inventory. Other times, it is based on how the company is structured; entities like colleges and universities are able to collect tuition dollars before the students start school, padding the cash balance. Yet other entities run out of cash because of their successes. These companies may grow too fast and their cash gets tied up in inventory or receivables.

With low interest rates and payments being automated and billed over longer periods of time, it might seem like cash isn’t worth all that much on the balance sheet anymore. However, the above example doesn’t lie: to keep your business operating smoothly, you need to remember that cash is king. Our team is available to help you manage your money and keep cash flowing smoothly through your business.

Accounting Tasks for Small Business Owners

Being a small business owner can be tough. You have a lot on your plate to handle, and sometimes it can seem downright overwhelming. From keeping up with the competition to making sure your employees are satisfied, being a small business owner always keeps you busy.

In the midst of all this, it’s important to ensure you’re not neglecting parts of your business. One area is (you guessed it) your accounting and finance functions. These functions often sound daunting and somewhat scary (don’t worry – we can help!), but they are too important to be forgotten.

We’re not saying you need to drop everything and pay attention to your accounting and your accounting only, but there are some simple tasks every small business owner should stick to in order to keep the business finances operating smoothly (and help make your accountant’s job a little easier).

  • Stay away from the back burner – When you’re busy and have a million thoughts running through your head, it’s easy to look at something and think, “I’ll take care of it later”. When it comes to invoicing, send the invoice right away. Better yet, add a process to automate invoices being sent right away. This will get the bill to the client quicker, which can in turn lead to you getting paid quicker, and who doesn’t want that? This reduces the risk of you forgetting to send it altogether, and can lead to improved customer satisfaction by being on the ball. When you receive this payment, deposit/cash/spend it right away, rather than letting it sit around and risk it getting lost or even stolen. Another option is to consider receiving electronic payments.
  • Keep your eyes open – Running a business means you have a lot of financial statements to deal with (think balance sheet, income statements, etc.). Likely you have an accountant who is helping you maintain these records and keeping track of what is going on with your financials (and if you don’t, let us know!). But, you should still be doing some monitoring yourself. No one knows your business as well as you do, so you should be able to notice if something seems off. Start by reviewing your cash flows weekly. Your cash flow can tell you the money that is coming and going from your business during the week, and this can give you a good picture of where you’re standing. Occasionally viewing other financial statements allows for more eyes to be on the lookout for any issues and red flags that may arise.
  • Track your taxes – We know that taxes aren’t everyone’s favorite topic, but they are really important. As nice as it would be to only worry about taxes during tax season, that’s not the case. Taxes should be monitored and kept up throughout the entire year, whether it be filling out forms, making tax payments or just keeping note of what you may need to change when you file your year-end taxes. Being alert and aware of what’s going on with your taxes can lead to less surprises come tax season.
  • Keep in touch –While looking over your financials and taxes, remember to keep your business advisor or accountant in the loop. Not only will it make their job a little easier, they’ll also be able to provide helpful feedback and answers so you can make smart, informed business decisions.

Running a business can be a challenge, and not monitoring your financials can make it more difficult than it really needs to be. By keeping up with these simple tasks, you can put you and your business in a better position and get back to working on what really matters – the success of your business.

Getting Your Business Back on Track

There are a lot of considerations that go into running a small business, especially one in the process of growing and improving, but it’s not always easy. In fact, often times it might feel like your business just won’t cooperate and you might feel like you’re losing control.

How do you get back on track and help your business live up to its potential? Here are six areas you as a business owner can focus on:

  • Sales – Sales figures can help you determine revenue and inventory purchases, so keeping accurate records is important. To do this, implement detailed policies and procedures for all types of sales, whether it be cash, checks, credit cards or online sales. Consider using an invoicing system when shipping goods and having proof of delivery when goods are shipped. Also be sure to check your invoices against sales and payments to ensure everything matches up correctly.
  • Accounts Receivable – We’ve mentioned this a lot: keeping up on accounts receivable is important. Income from your operations is what keeps your business going, so making sure you collect, and on time at that, is very important. To keep up on AR, establish collection policies in writing, and make sure to follow through on implementing these policies. Here are some ideas:
    • Establish a solid system for billing, such as numerical or batch processing
    • Have a timely review process for all accounts
    • Keep your accounts receivable separate from cash
    • Have security measures in place for communicating
  • Accounts Payable – Just like it’s good when your business receives cash, other businesses need to be paid as well. Keeping up on payments can help your business establish a trustworthy reputation which can ultimately lead to more success and growth. Unfortunately, AP is an area that many businesses struggle with. To stay out of hot water in this area, consider setting up procedures for cross checking payments, always check pricing options from competitors and vendors and be sure that billing amounts are being entered correctly.
  • Cash – Businesses that accept cash (especially a lot of cash) are at a high risk of loss due to theft or other discrepancies and errors. Keep your cash in control by having employees balance cash at the end of their shifts, have controls in place to ensure employees can’t pocket the cash without entering the transaction, check and reconcile bank balances regularly, keep all cash payment methods secure and pay attention to your business’s cash flows.
  • Human Resources and Payroll – Technology has made it easier for hackers, scammers and even bad-egg employees to commit fraud or other harm to your business. To keep your people (and your business) safe, consider the following:
    • Require password updates regularly- for you and your employees, and make sure to keep all passwords safe and not written down.
    • When it comes to payroll, review the details (do you know all those employees?) and checks/direct deposits to make sure pay is being disbursed properly.
    • Pay attention to any differences between payroll expenses and monthly budgets – this could be a red flag that someone or something has gotten access to your books.
  • Physical Assets – The physical assets your business owns, such as machinery or laptops, are of great value to your business – you don’t want anything happening to them. When it comes to laptops and other electronics, make sure they are safeguarded or locked up. This makes it difficult for someone to steal the physical piece itself, along with the information stored on it. Cyber security problems are on the rise (seriously, check this out), so keeping these assets on lock down can help prevent data breaches and other cyber-crimes. Record asset purchases and monitor use and depreciation on them to stay up to date on their value. Also consider setting a usage policy so assets aren’t falling into the wrong hands or being mishandled.

While there are many areas of your business that deserve your time and attention, these are some areas that can help you keep control over the growth and direction of your business. Your trusted business advisors can help you set goals and policies to ensure that everything is running smoothly in your business. If you need help, just ask!

 

 

 

Is Your Business Struggling Financially?

Starting a business can be fun and exciting, but it can also have its ups and downs. Your business might go through periods of growth where business is booming, but you also might see times when you’re not bringing in any money and your business is struggling to hang on. However, sometimes these financial issues are more than just temporary. Often times, there are underlying issue that cause financial struggles.

Here are some signs your business may be facing some serious financial struggles.

1. Cash Flow isn’t Flowing Smoothly – Cash flow issues are common throughout the life of the business – they’re even considered normal. What’s not normal is when these cash issues become a routine. These cash flow issues can have a number of causes, but some of the most common include smaller profit margins, loss of sales, theft and allowing accounts receivables to get too backed up. For help understanding cash flow, look here!
2. Tax Troubles – Ah yes, taxes. Just like individuals, businesses too must pay taxes. Businesses usually have income tax on the federal and state levels, as well as sales tax and employee taxes. When your business starts struggling to make these payments, something isn’t quite right. By not being able to pay taxes, a business can find itself falling behind on other financial obligations, and might even find themselves in some hot water with the IRS.
3.  Mountains of Accounts Payable – It should go without saying that you need to pay your bills. Whether it be your vendors, your internet service provider or your cleaning company, these people need to be paid for their services. When you “pay” for these on credit, they go to the accounts payable ledger, and not paying them off can create quite a mountain of bills. Struggling to pay your bills is a huge red flag that your business is having serious financial struggles.
4. Aging Assets – Wear and tear happens – it’s part of a product’s life cycle. However, a lot of this can be prevented or lessened by working on the upkeep of your assets. By failing to take care of them, serious problems can arise. If you neglect your store front and let it look run down, this can turn customers away as it isn’t appealing. If you have manufacturing machinery that isn’t preforming smoothly anymore due to wear and tear, production may slow down, be incorrect or even stop altogether.
5. Bookkeeping Blunders – Bookkeeping is cool – it tells the story of where your business has been, where it is right now and where it could go in the future. Neglecting your books can lead to some serious financial complications. Without accurate records, you may not know how much money you actually have, and this can lead to uninformed decision making. Having accurate books can also help you discover any issues, such as fraud, that may arise.
6. Cobwebs in the Bank – When you have cobwebs in the bank – you know, an empty or really low account balance – your business can face some serious financial consequences. Having a low balance can lead to overdrafts, and overdrafts can lead to some nasty charges for spending money your business doesn’t have. If you keep encountering these fees and charges, you will just end up digging your business into an even deeper hole – one that may be impossible to get out of.
7. Missing in Action – There’s an old saying “when the going gets tough, the tough get going.” However, in your business, leaving is the last thing you want to do. Often times, when businesses face financial issues, the owners are hard to find or contact. They may be overwhelmed, or feel like a complete failure. However, this can just lead to more problems, such as a decaying reputation, confused employees and deterioration of the already terrible financial issues.
8.  Inventory Issues – If you are selling products, you want them to fly off the shelves. When your products aren’t selling like hot cakes and are instead sitting in inventory for long periods of time, this could be a sign of a major problem. If you’re holding on to too much inventory and not selling it, you’re basically spending money on storage. If you sell products that could spoil, keeping them in inventory too long can result in losing money off ruined items.
9. Empty Handed Employees – Your employees keep your business running smoothly. When you’re not able to pay these precious assets, you know your financials are struggling. Not being able to pay your employees can result in them leaving the company and even bad-mouthing about how they were treated. This can lead to more reputation issues. Without employees, it will be tricky for your business to remain successful.
10. Profit Problems – As a business, your main goal is likely to make a profit. Profit, in its simplest form, is when you have more revenue than expenses. Although an obvious sign that your business is struggling financially, this is an important one to keep in mind. If your profits, such as gross profit, operating profit or net profit aren’t looking pretty, something isn’t right. Along with your profits, you want to have high profit margins, which signify what percent of your revenue actually turns into profit for your business.

Finances keep your business up and running, but when your business has financial issues, everything can come crashing down in a hurry. Luckily, our numbers nerds understand these money problems, and are ready to help you dig your business out of the deep, dark hole of financial struggles.

The Hidden Monsters of Accounting

halloween-graphic-finalHappy Halloween! With it being the scariest time of the year, you are probably thinking about black cats, jack o’ lanterns and how to sneak away with a little bit of your child’s Halloween candy. However, you’re probably not thinking about another topic that can be frightening to some: accounting!

We promise, it’s not that scary… we numbers nerds actually find it pretty fun! But, there are some monsters hiding in the accounting world that you should always be on the lookout for.

The Zombie — Assuming Profits Mean Cash Flow

It’s easy to make a sale (we’re talking either a sale of goods or services) and subtract your costs and then record the remaining amount as a profit. But if you’re allowing your customer to purchase on credit (meaning you are letting them pay you later), don’t be too fast to count it as cash in your pocket and spend it on your Halloween costume. What if it takes longer than expected to collect? What if you don’t collect? Now you have cash flow issues you weren’t anticipating.

It may be tempting to think profits and cash flow are the same, but by doing this, you’re giving yourself a twisted image of your company’s real condition and this can lead to even bigger problems down the road. Like a zombie, your financial statements (if you don’t understand them) can rise from the dead and scare you. If you need more help with this concept, check out this blog.

The Vampire – Not taking Bookkeeping Seriously

It’s easy to pretend bookkeeping doesn’t exist (just like vampires). However, if you’re not keeping accurate books, you might be in for major struggles that can be very painful in the future.

No matter the size of your business, investing in accurately tracking your business financials can be compared to garlic. That’s right, maintaining a good bookkeeping system can protect your business from the vampires who can suck your financials dry. Having accurate, timely financial statements also gives you confidence when making your business decisions. 

Frankenstein – Not Having a Clear Budget on Each Project

Does your company operate without a budget? And we’re not talking about the kind of budget you fill out at the beginning of the year and forget about the rest of the time. We’re talking about a rolling budget; the kind you reference and update throughout the year (ebbs and flows with the changes in your business). Operating without any financial guidance could result in a freaky experiment with the end product not being what you hoped for.

Operating without a clear budget can make it difficult for your company to keep in check, and can lead to spending a lot of your hard earned money unnecessarily (nobody wants to flush money down the toilet). Don’t throw everything into one pot and hope it turns out. It is best to have a rolling budget to start with the end in mind and to help provide a roadmap for getting there.

The Witch – Lack of Accountability

Do your people know what is expected of them? And do they know what they should be doing day-to-day to meet those expectations? Lacking accountability can lead to some serious confusion; it may be a struggle to figure out who’s flying around on which broom.

It is extremely important to define everyone’s roles and performance expectations. Not only that, tell them how they can meet those expectations by relating them to their day-to-day tasks. We’re talking about KPIs (key performance indicators). Need a refresh? Check out this blog.

And now a plug for accounting (let’s be honest, you knew that was coming). Having timely, accurate financial information is important as many KPIs are tied to financial information. Make sure you are holding your people accountable against accurate information.

The moral of dealing with this Halloween monster…having accountability in your business can help your people know which broom they should be flying and be able to fly them in the same direction.

The Ghost – Failing to Reconcile Your Books With the Bank

Failing to reconcile your accounts frequently can come back to haunt you. When you reconcile your books, you are ensuring an account balance is accurate and correct, and that it can be tied back to supporting documentation (such as your bank statement). Without reconciling your accounts, there could be a ghost hiding around the corner. Boo!

All accounts should be reconciled (especially the balance sheet), no matter the size. From cash to accounts payable, these accounts all have an impact on your financial situation. Small to mid-sized businesses should especially be sure to reconcile their books every month to ensure the accuracy of their financial information. And don’t be afraid to reconcile them more frequently. For example, if you are experiencing cash flow deficits or concerns, you may want to consider tracking your accounts receivable, accounts payable and cash more frequently just to keep those ghosts at bay.

The Mummy – Managing All Accounting Tasks In-House

It is a common misconception that handling all of your accounting activities in-house will allow you to save money. That’s not always the case. Depending on your situation, outsourcing might actually save you money. In some cases, outsourcing is less expensive than hiring internally (remember all the cost associated with your people, onboarding, training, wages, benefits, etc.). Not only that, a reputable outsourced accounting provider may save you money due to costly bookkeeping errors.

If your business is too busy getting wrapped up in all of the accounting details, you may struggle to pay attention to other important parts of the business, and this can hurt your company – whether in the loss of revenue, customers or even reputation. Outsourcing your accounting needs (we can help!) allows you to ensure the other parts of your business are running smoothly, and lets you get back to why you got into business in the first place.

 

Although these accounting monsters may be scary, they are avoidable. With the right knowledge and skills, your business can avoid these tricks and instead focus on the treats of timely, accurate financial information.