Checklist to Increase Your Startup’s Cash Flow



It’s true that cash flow is the salient dynamic that leads to the failure or success of a business.

Whether your new company’s performance is stagnant or you’re growing quickly, cash flow is paramount.

There are at least 11 ways you can increase cash flow for your business to function properly.

morgueHere are the tips:

1. Save time and energy

Use good accounting software such as Bookkeeping, Quickbooks, Sage Peachtree, or Simply Accounting. Make sure you check out all the options to make certain your business needs are met.

For example, Simply Accounting doesn’t perform time billing.

Also, if you want an inexpensive software option for just one computer without remote access, Bookkeeper might suffice for you.

2. Software benefits

Such software-generated invoices will tell customers where to send a check, the amount to pay, and the due date. Make certain you bill the right person and department.

3. Invoice promptly 

Generate and distribute your invoices promptly. Depending on your type of business, e-mail your invoices, forward invoices as soon as you finish a project, present invoices in person, or include your invoices with the product.

4. Be consistent

Make certain your customers know you have a businesslike approach and will charge late fees for past-due amounts

5. Weekly statements

Until you can relax about cash flow, produce weekly financial statements. For more information, see my primer for best practices in preparing financial statements.

6. Consider discounts 

To accelerate cash flow, consider allowing discounts if customers pay before the due date.

7. Due diligence

If a customer doesn’t pay in a timely manner as prescribed by the due date, be in touch right away. Otherwise, it will hurt your cash flow.

8. When to negotiate

If the customer can’t pay on time, negotiate the best arrangement that you can. In the future, if you decide to have a business relationship, decide on a strategy.

If you believe it was an honest misunderstanding and the customer is fully capable of paying on time, no further action is probably needed. Otherwise, for any future dealings, take the precaution of getting at least partial payment in advance.

9. Timely receivables

If you have more serious concerns about timely payments, here’s what to do if accounts receivables are a problem.

10. Cost cutting 

Review your costs and look for items to cut back.

11. Deposits 

ASAP, deposit your funds in your bank account. If cash flow is tight, delay making payments as long as it won’t hurt your business relationships. Take advantage of early payment discounts. Consider online bill paying on the due dates or using business credit cards to keep the cash on hand.

From the Coach’s Corner, here are related topics:

Budget Planning Tips for a Micro Business — For entrepreneurs, often the most difficult part of launching a business is preparing financial projections. It may not be the most enjoyable task, but budgeting is imperative for maximizing performance.

12 Tips for Profits to Keep Your Business Dreams Alive — Most businesspeople agree the economy continues to be challenging. Signs of a lingering downturn are everywhere. Business activity is slow. Governments at all levels report low tax revenue and are restructuring, and not spending. On top of it all, customers want you to cut prices.

 “Success is a poor teacher.”
-Robert T. Kiyosaki


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






Why Accounting, Finance Can be Ideal Careers for Women



Women who are frustrated in their careers and who are looking to make a change might be well-served if they consider accounting or finance.

Why?

Such a career affords a better balance between a career and personal life. That’s one of the conclusions from a Mergis study. The recruiting firm conducted the study in 2011.

Disgusted WomanThe survey offers inspiration for disenchanted women.

“It is encouraging to the profession to note that both men and women are highly likely to recommend the profession to others,” says Patricia Dinunzio, the Mergis regional managing director. “But, that said, one of the greatest take-aways from this survey is that there is a clear need for accounting and finance mentorship programs.”

About 66 percent of surveyed men and women think success in accounting and finance is achieved by getting a mentor.

But only 31 percent of men and 28 percent of women have ever had a mentor.

Eighty-six percent of men and 80 percent of women say they’d advise relatives to pursue such a career.

Moreover, for young women, 88 percent of men and 86 percent of women say the career would be advantageous.

More Mergis results:

Best Practices for Encouraging Young Women to Enter the Field

— More than half of women (61 percent) and men (55 percent) believe there is a need for greater promotion of accounting and finance as a career choice for women.

— Half of the women and men surveyed claim greater mentoring programs would help.

— Thirty-five percent of women and 26 percent of men feel greater education programs about the field are necessary to pique interest.

— Greater availability of scholarship grants would also be an incentive to further promote the career, say 34 percent of women, while only 13 percent of men polled feel that to be the case.

Most Important Factors Leading to Personal Career Success in Finance and Accounting

— About half of both men (48 percent) and women (51 percent) rate accounting and finance skills and expertise as the top factor to success.

— Relationship building and personal networking came in second according to 41 percent of women and 39 percent of men.

— Forty-one percent of men believe that developing management skills is a priority as compared to only 22 percent of women who do.

— Approximately one-third of men (37 percent) and women (34 percent) claim gaining accounting and finance experience is critical to personal success.

Less Than Half (48 Percent) Of Women in Accounting & Finance Satisfied With Their Careers

— Women are less satisfied with the progression of their accounting and finance careers than men. Specifically, 59 percent of male workers in accounting and finance consider themselves to be satisfied, as opposed to 48 percent of women.

— Women in accounting and finance ranked being challenged (35 percent), compensation (27 percent) and flexibility (12 percent) as the most important factors to satisfaction in their career.

— On the other hand, men in accounting and finance ranked compensation (35 percent), being challenged (29 percent) and flexibility (12 percent) as the most important factors to satisfaction in their career.

As a result of the economy, it’s true that many accounting firms are working overtime to make their numbers. But the survey caught my eye because I’ve long believed detail-minded professionals who are good with numbers and undecided about their careers should consider a career in accounting or finance. There will always be a demand for such skills in the public and private sectors.

From the Coach’s Corner, more career advice:

Need a Career Change? 10 Steps for a Career Makeover — So you think you want to change careers. Or perhaps you need a career makeover. You’re not alone. Professionals of all stripes have found they need to retool their careers or re-engineer themselves.

Job Hunting? Tips to Land Your Dream Job with Style, Substance — Yes, the competition for jobs is ferocious. Unless you’re in accounting, healthcare, mechanical-repair or proficient in sales, good jobs are hard to find.

Career Advice — An Alternative to Applying for Jobs Online — As a job-hunter you know that a significant number of companies, nonprofits and public-sector agencies use an online tracking system to accept applications and screen out applicants. It cuts down on their paper work and saves them time.

With a Mentor, You Won’t be Alone in Making Career Decisions — You don’t have to be alone in making career decisions. No matter what you do for a living, there’s one investment on which you can count to improve your career. Plus, it won’t cost you any money.

Going to College to Improve Your Job Prospects? Make the Right Choices — Whether you’re fresh out of high school or you’ve launched a career, a college degree will improve your job prospects. Yes, it’s true employers increasingly want to hire applicants with college degrees and in many cases with advanced degrees. If you’re considering more education, however, you need to ask yourself key questions.

Only accountants can save the world! – through peace, goodwill and reconciliations.

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry. 


Budget Planning Tips for New Entrepreneurs



For entrepreneurs, often the most difficult part of launching a business is preparing financial projections.

It may not be the most enjoyable task, but budgeting is imperative for maximizing performance.

“Eight out of 10 companies fail in the first two years due to insufficient cash,” warns esteemed financial consultant Roni Fischer.

In addition, you’ll need to be on top of your financials in order to grow – whether you hope to obtain a bank loan, attract investors, invest in equipment, or hire employees.

“Companies need to develop both an annual operating budget and a cash plan,” says Ms. Fischer.

“The annual operating budget provides a roadmap for your operations for the next 12 months – including your projected sales to customers, your associated costs to produce these items, your marketing and customer services costs, as well as your overhead expenses,” she explains. “The difference between the revenue (sales to customers) and the costs is your projected income (or loss) for the year.

“Along with the annual operating budget, you’ll want to project your cash flow,” adds Ms. Fischer. “For early stage and emerging companies, cash flow is difficult to sustain as growth always requires cash. Therefore, it is imperative to know when you will be collecting receipts from your customers and when your bills need to be paid to ensure you have adequate cash to honor your payroll and vendor payment commitments.”

Ms. Fischer is president of RLF Associates, Inc. in the Los Angeles area. I’m very familiar with her work. As a leading consultant for over 25 years, she provides expert financial and management solutions for firms ranging from start-up companies to multi-hundred million dollar corporations.

“Eight out of 10 companies fail in the first two years due to insufficient cash.”

Ms. Fischer offers the following guidance for preparing your monthly projections:

Key Elements for an Annual Operating Budget:

  1. Prior Performance. If you have data from the prior year(s), this can be helpful in preparing your current year budget. 
  2. Sales Projections. Be pragmatic about your forecast. Include how much you plan to sell and at what price. Anticipate the elasticity of customer demand vis-à-vis economic conditions and price points. 
  3. Cost of Goods Sold. This includes materials and labor (your “direct” costs for producing the items), and your ”indirect” costs for manufacturing. 
  4. Expenses. Include your sales and marketing expenses as well as your overhead costs – such as salaries, rent, utilities and supplies. 
  5. Operating Income. Calculate sales, less cost of goods sold, less expenses to determine your operating income (or loss). 
  6. Assumptions. Ensure that your assumptions are reasonable and achievable. Base your projections on your experience, instincts, market research and other available information.

Key Elements for a Cash Plan:

  1. Beginning Cash Balance. Start with the cash you currently have in the bank. 
  2. Cash Receipts. Estimate the cash you anticipate receiving from your customers; considering the payment terms you have offered to them. Keep in mind that although you may have “sales” in December, you may not collect the cash until January or February (or later). 
  3. Cash Disbursements. Project the cash you will need to pay your expenses in a timely fashion. Consider every expense from payroll (and associated payroll taxes) to rent to other operating costs. 
  4. Cash Surplus or Shortfall. Starting with your beginning cash balance, add your cash receipts, and subtract your cash disbursements. If the result is a “positive” number, you have a surplus. If the result is a “negative” number (less than zero), you have a shortfall, and will need to review your annual operating budget to determine which expenses you can reduce, which payments you can defer, or where you can obtain a loan to cover this shortfall. 
  5. Financing. Determine if you have the required funds for the period in question. Hopefully, you will have a surplus. If not, consider other sources for obtaining money such as a bank line of credit, factoring your accounts receivable or obtaining a loan from friends or family members. Make sure you maintain a cash reserve for contingencies. 
  6. Ending Cash Balance. Calculate your ending cash balance by starting with your beginning cash balance, adding your cash receipts and any financing, and subtracting your cash disbursements. The resulting amount will be the beginning cash balance for the next period.

You’ve no doubt heard the adage, “Cash is king.” So make certain you have ample reserves to operate your business.

(Note: Ms. Fischer is premier financial consultant, and a fellow member of Consultants West, www.consultantswest.com, a roundtable of veteran consultants in the Los Angeles area.)

From the Coach’s Corner, here are some related resource links:

Primer for Best Practices in Preparing Financial Statements — A good financial system is vital for your business. Not only will a properly prepared financial statement tell you what’s transpired in your business, it will give you a snapshot regarding your future.  Measurement of cash flow is paramount.

Accounting / Finance – Why and How to Determine Your Break-Even Point — Uncertainty can kill hope in business. Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools. One important tool – know your break-even point (BEP).

Do You Know What Drives Your Profit? (There Are 4 Drivers) — For profits, entrepreneurs must learn how to manage their financials and performance, which are difficult tasks. Savvy business owners know who their ideal clients or customers are. Entrepreneurs realize financial benefits when their revenue from business exceeds their expenses and taxes. This results in a much easier task – deciding whether to save, spend or invest the profit back into the business. So, it’s imperative to know what drives profit.

Embezzlement – 21 Tips to Protect Your Nonprofit or Company Assets — Embezzlement is a widespread nightmare in business and the public sector. If you surf the Internet using the key word, embezzlement, you’ll find seemingly countless headlines.

6 Values for Financial Protection — Part two of two-part series: “Solutions for a Roller Coaster Marketplace”   Debt is the catalyst for all financial woes – for individuals and the aggregate economy in the United States and globally, esteemed associate Joey Tamer astutely reminds us.

11 Tips to Win Your Entrepreneurial (Marathon) Race — For successful small firms, strong cash flow doesn’t just happen. Advertising firms to tech startups have a system. They plan and implement with precision. Using these strategies, you, too, will safely walk the tightrope to stay above water.

“If you aren’t practicing and playing to be first, then maybe you shouldn’t be an entrepreneur.”

Robert Kiyosaki


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





Photo courtesy nenetus at www.freedigitalphotos.net

Do You Know What Drives Your Profit? (There Are 4 Drivers)



For profits, entrepreneurs must learn how to manage their financials and performance, which are difficult tasks. Savvy business owners know who their ideal clients or customers are.

Entrepreneurs realize financial benefits when their revenue from business exceeds their expenses and taxes.

This results in a much easier task – deciding whether to save, spend or invest the profit back into the business.

Until employees and customers actually walk a mile in an entrepreneur’s shoes, they often think a small business owner is wealthy.

That may or may not be true.

In recent years, the odds are that many small business owners are still struggling.

Smart, hardworking business owners enhance their chances for success.

They accomplish this by completely understanding the critical factors that drive profits and they tirelessly focus on those profit-drivers.

Savvy business owners know who their ideal clients or customers are.

Profit drivers

The four basic drivers of profit:

  1. Price
  2. Variable costs (variable costs change as a result of revenue from the cost of sales)
  3. Fixed costs (also known as overhead)
  4. Sales

Which of the profit drivers have the most impact on an entrepreneur’s success? Price. That’s because increases in price immediately add to any profit margin.

Many entrepreneurs make the mistake of focusing on sales volume without regard to price. Especially, in a sour economy, business owners are focused on selling to alleviate ageing issues.

The dilemma, however, is that sales increases are tied to increases in variable costs, which lead to less profit.

Conversely, decreases in variable costs increase profit margins, but total revenue will not increase.

Many business owners fail to realize that cutting fixed costs do not affect revenue, which means it has the least effect on profits.

Entrepreneur mistakes

The three biggest profit-mistakes of entrepreneurs:

  1. Business owners are so focused on developing revenue from prospective customers, they fail to concentrate on their existing customer base.
  2. They fail to build their brand image so they miss opportunities to increase prices.
  3. When they cut good marketing and lay off employees to cut costs, most often they’re cutting their investments in their business muscle — not fat.

To elaborate on mistake No.2 — missing brand-building opportunities to increase prices — successful entrepreneurs determine how much they can hike prices without losing profit.

Many entrepreneurs make the mistake of focusing on sales volume without regard to price.

True, you will most likely lose the 18 percent of customers who only buy products at the cheapest price. But depending on the amount of a price increase, you can still make a better profit.

Price-sensitive customers who do not appreciate value, most-frequently make the most-undesirable customers. They’re high maintenance, and demand the most service. They complain the most and most-readily return products.

The moral: Build your brand to maximize prices and target the best customers. That’s what leads to long-term profits – and success.

From the Coach’s Corner, here are more relevant strategies:

8 Simple Strategies to Give You Pricing Power –– If you’re struggling with pricing strategies, you’re not alone. Many big companies have struggled, too. By way of explanation, according to a study, almost 90 percent of executives in a global survey forecasted their continued growth. However, they anticipated implementing just minimal price increases as they continue to slash costs, or at least closely monitor expenses, for positive cash flow.

For Stronger Profits, Avoid 11 Typical Pricing Mistakes — In general, how can you manage the sweet spot – between your price-optimization and costs? Dennis Brown of the consulting firm, Atenga (www.atenga.com), says many companies make 11 pricing mistakes: Companies base their prices on their costs, not their customers’ perceptions of value…

Quick Checklist for Profits You Can Implement Today — Here is a top-10 checklist for profits: 1. Review and fine-tune your business plan. Be sure to discern your competitive landscape and benchmark your main competitors. 2. Bring on the A team – both in staff and advisors. Recruitment and training will remain important, and seek the best mentors and professionals for inspiration to help you sustain growth…

Why Your Customer-Loyalty Program Might Not Be Profitable — Researchers are warning businesses that their customer-loyalty programs, which are designed to increase repeat business, may be causing more harm than good. Even though “customer prioritization” is widely used by companies, the researchers warn they’re a double-edged sword and represent the dark side of customer loyalty programs. As a result, businesspeople get stressed out after implementing customer-loyalty programs because they lose profits when they unknowingly and disproportionately increase service costs.

For Profits, Manage Your Growth at the Right Pace — Entrepreneurs frequently try to rush their business growth. Certainly, growth is great but if you scale too fast, you’re looking for trouble. The key is to prepare. Note: You aren’t ready to grow if you haven’t developed a business model that will enable you to attract customers – at less cost – than what they pay you. How do you get there? Success comes after you develop habits that will help you build your brand, develop sound business operations and successfully deal with people.

“I don’t want to do business with those who don’t make a profit, because they can’t give the best service.”

-Richard Bach


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






Embezzlement: Guidelines to Uncover and Prevent it



Embezzlement is a widespread nightmare in business and the public sector. If you surf the Internet using the key word, embezzlement, you’ll find seemingly countless headlines.

Yes, embezzlement can happen anywhere to any organization. Executives commit 18 percent of fraud, according to a report by the Association of Certified Fraud Examiners (ACFE) in 2010.

ACFE, in calling it “occupational fraud” also said accounting department employees commit 29 percent of fraud.

ID-10074458 chanpipatManagement has to create an environment that will deter dishonesty. That’s a major responsibility of the board of directors and management.

Thorough background checks on new employees are necessary. You must avoid the common background-screening gaffes.

In new-employee orientation, discuss your company’s financial principles. Diplomatically emphasize that deceit, fraud or theft aren’t tolerated.

When policies are explained well, good employees will respect proper internal financial controls.

After all, without internal controls it’s easy for an employee to hide checks that arrive from customers and stamp them with their own personal bank account numbers.

If invoices aren’t recorded, even salespeople can personally benefit by selling products on the black-market or Craigslist.

Embezzlement examples

Actually, it doesn’t hurt for everyone to know financial procedures. As a Seattle business-performance consultant, I’ve seen this movie many times including embezzlement at a religious nonprofit, $200,000 in missing inventory at a retailer, and $250,000 at a water utility.

In each case, here’s what went wrong:

1. There were insufficient financial and inventory controls

2. No training for employees

In the water utility situation, the budget became tight and management intended to hire me for PR crisis management to calm utility ratepayers. But that wasn’t going to solve the core problem.

Intuitively, I knew the priority was employee training and installing controls. A PR campaign would have to come later. Fortunately, the training program resulted in improved morale, teamwork and communication. It greatly alleviated the PR crisis, so PR strategies were unnecessary.

Yes, fraud could have been prevented by alert co-workers. It doesn’t matter how much you trust employees, make certain no one finds it easy to commit embezzlement. In each of the above embezzlement examples, trusted employees were the culprits.

Yes, I know, it’s difficult in small companies because they can only afford a bookkeeper. But it’s possible to take precautions.

When policies are explained well, good employees will respect proper internal financial controls.

Typical sources of embezzlement

Here are the customary, potential problem areas:

  • Bookkeeping
  • Cash disbursements
  • Data processing
  • Inventory control
  • Purchasing
  • Receiving

Embezzlement red flags

Anticipate and analyze each area in which problems can arise. Write policies and strictly adhere to them in order to prevent thievery.

Here are the usual embezzlement red flags:

  • Abnormal increases in sales returns, which can hide payments for accounts receivable.
  • Atypical bad-debt write-offs.
  • Abnormal declines or uncommon small increases in cash or credit sales. This might be an indicator of unrecorded sales.
  • Bounced checks are often a sign of chicanery.
  • Shortages in inventory can mean employee thefts via phony purchases and unrecorded sales.
  • Negative surprises in expenses or profit decreases can result in money being tapped illegally.
  • Sluggish collections can hide embezzlement.
  • Employees who don’t take vacations or time off.
  • Employees who live a surprising, extravagant lifestyle.
  • Good managers walk the floor twice a day or make unannounced spot visits – be very wary of employees who resent such visits. Count on hidden problems.

Risk management: stop doing stupid things, start doing smart things for the mission.”

-Michael Piazza

Policies to prevent embezzlement

In general, establish an internal audit system and divide responsibilities. Yes, segregate all accounting duties. At each financial stage – whether incoming or outgoing – scrutinize all procedures. It’s imperative that you stay current in finance technology.

Here are 21 basic policies:

  1. Use a system that prohibits alteration of checks. Make certain checks are countersigned by two responsible employees. (Do not allow signature stamps using the same names as the check signers.) Better yet, pay bills online.
  2. Limit the dollar amount on checks. (It’s better if you authorize checks.)
  3. Make certain a person – other than a check-signer – prepares payments.
  4. Originals or copies of invoices and checks, including voided documents, are filed in numerical order.
  5. Prohibit anyone other than the principal – you – to endorse checks for credit.
  6. Determine who will receive checks and cash while designating someone else to record incoming funds, and appoint another person to take money to the bank daily.
  7. Bank reconciliations are not handled by the same personnel who handle cash receipts and cash disbursements. Preferably, review bank statements online.
  8. Regularly, at least once a month, mail statements.
  9. Prevent wadding by examining payroll records. Monitor payroll tax records.
  10. Conduct unannounced, spot audits.
  11. Designate different employees for ordering supplies, receiving them, and for paying them.
  12. More than one person should sign petty cash vouchers. Receipts should be numbered and attached, and filed numerically. Audit the cash drawer daily.
  13. Set an example by never borrowing from the cash box.
  14. Make sure the same employee who makes credit sales or loans does not write off bad debts.
  15. Back up records on a daily basis. Do not allow the same person who handles accounting do any backups.
  16. If you have a payroll person, ensure the payroll data is accessible to you.
  17. To prevent unauthorized raises or other undesired payments to employees, audit payroll records at least once a quarter.
  18. Lock up unused checks. Verify all checks and check numbers, including voided checks.
  19. Take inventory once or twice per year.
  20. Bond any bookkeepers or office managers. A good insurance agent will advise you. Make certain to follow all financial-control guidelines to avoid problems with the bonding company should an embezzlement occur.
  21. Have your cash and accounts audited each year by an outside accountant.

Finally, listen to your instincts. Again, be on the lookout for turf-minded employees. If you suspect embezzlement, investigate and run to the police. Don’t hesitate.

From the Coach’s Corner, here are special editor’s picks for related resource links:

Primer for Best Practices in Preparing Financial Statements  A good financial system is vital for your business. Not only will a properly prepared financial statement tell you what’s transpired in your business, it will give you a snapshot regarding your future.  Measurement of cash flow is paramount.

Accounting / Finance – Why and How to Determine Your Break-Even Point  Uncertainty can kill hope in business. Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools. One important tool – know your break-even point (BEP). A BEP analysis should be an integral part of your financial planning.

Finance Checklist for Strategic Planning, Growth — Strategic planning in finance for growth means avoiding trendy fads. Instead, it requires an ongoing down-to-earth approach in order to create value. Here are seven steps.

For Maximum Business Tax Savings, Year-Round Strategies Are Vital — Many business owners find they can plan their futures, operate their businesses more efficiently year-round, and take maximum advantage of tax savings when they file their returns. Ask your tax advisor about these 9 strategies.

You Can Creatively Manage Your Cash Flow 7 Ways — If you’re taking the pulse of your business, of course, the first thing to consider is your cash flow. If your cash flow is poor, you feel poor because you can’t pay the bills nor can you use money for what you’d like to do. Your image can also suffer with vendors or with customers, if you don’t manage your cash flow.

Plagued by Chargebacks? 5 Ways to Fight Back — Increasingly, merchants are being victimized by chargebacks in illicit of behavior credit-cardholders. To avert being victimized by such fraud, here are five key steps.

Keys to Protect Yourself from Skyrocketing Trend – Tax Identity Theft — Tax identity theft is increasingly victimizing Americans, according to the Internal Revenue Service. As many as 1.5 million Americans were hit by tax-refund fraud according to IRS Special Agent Kenneth Hines in a 2014 published report (Feds prosecute tax-fraud cases).

The average Joe should be just as concerned about embezzlement, even more so, because it’s so easy to do. All you have to do is be trustworthy to do it.”

-Peter Henning

 

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





Photo courtesy of chanpipat at www.freedigitalphotos.net

Accounting / Finance – Why and How to Determine Your Break-Even Point



Uncertainty can kill hope in business. Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools. One important tool – know your break-even point (BEP).

A BEP analysis should be an integral part of your financial planning. If it isn’t, you can count on suffering from unnecessary stress – emotionally and financially. You need to be able to make the right decisions because positive cash flow is paramount to facilitate success.

morguefile4811263248597BEP benefits

Generally, there are multiple benefits to knowing your BEP, for example:

1. You can track when or if you’ll break even.

2. You’ll be in a better position to evaluate whether your new products or services are good ideas.

3. Whether to expand in other ways.

4. Businesspeople who perform such analysis are often more profitable.

5. In a loan scenario, the bank will want to know your BEP. Plus, you’ll know how much you’ll need to sell to successfully pay off the loan and to make a profit.

Success can be dangerous as it sometimes leads to complacency in financial management. If your business is on a roll – your profits are strong and your cash flow is positive – you’re probably not worried about your financial position.

But one thing is clear in business – you can expect negative surprises. You should be prepared for any contingency. And there are many.

You need to be able to make the right decisions because positive cash flow is paramount to facilitate success.

To name a few: You could lose your best talent, your products can reach the end of their life cycles, or you can be hit by an earthquake or hurricane.

Sure, it helps to stay up-to-date on your checking account balance, general ledger, sales receipts and your monthly profit and loss statement. But these are insufficient – if you’re to accurately ascertain how and when to pay the bills and to meet your payroll, especially in this uncertain economy.

Time is a valuable commodity in business. Even in good economic times, most entrepreneurs are too busy putting out fires and reacting to problems.

If you understand where your BEP is, you’ll know instantly whether you can cover your obligations and know how far ahead or behind you are in terms of cash flow. The longer you wait to develop such financial information is to invite disaster. So, it’s best to be proactive.

In essence, the BEP is where your revenue equals the cost of sales plus expenses.

Mistakes to avoid

It’s a mistake to determine just your cost of goods or services but failing to consider your fixed costs or operating expenses, which are also called overhead.

A good friend, Neil Delisanti – the esteemed former Small Business Development Center advisor in Washington state, and who taught at the University of Puget Sound and The Evergreen State College – helped thousands of people. He also advocated a break-even analysis.

He provided this basic BEP formula: BEP = Fixed Costs divided by Gross Profit as a Percentage.

For example, if your fixed costs average $2,000 per month and your gross profit is 40 percent, your cost of goods is 60 percent.

How this BEP is determined: $5,000 = $2,000 divided by .4.

This formula indicates you will have to achieve $5,000 in sales to cover your cost of goods and fixed expenses.

If you attain your BEP in each reporting period you’ll be OK. After you achieve the BEP, the balance is yours.

Remember, this proactive tool is helpful to avoid or get out of difficulties while you still have time to do the necessary footwork. So manage the books and be ready for change – any change — especially negative change.

From the Coach’s Corner, here are related resource links:

Primer for Best Practices in Preparing Financial Statements — A good financial system is vital for your business. Not only will a properly prepared financial statement tell you what’s transpired in your business, it will give you a snapshot regarding your future. Measurement of cash flow is paramount. In the two forms of accounting – cash basis vs. accrual basis – the cash-basis system is much simpler.

Step-by-Step Solutions for a Company Turnaround — If you’re struggling like many businesses, you know the myriad of challenges exacerbated by the economy. However, despite the challenges, it is possible for businesses to successfully complete a financial turnaround. First, you might have to put on a different set of glasses – see this economy as a marvelous opportunity.

8 Simple Strategies to Give You Pricing Power — If you’re struggling with pricing strategies, you’re not alone. Many big companies have struggled, too. By way of explanation, according to a study, almost 90 percent of executives in a global survey forecasted their continued growth. However, they anticipated implementing just minimal price increases as they continue to slash costs, or at least closely monitor expenses, for positive cash flow.

You Can Creatively Manage Your Cash Flow 7 Ways — If you’re taking the pulse of your business, of course, the first thing to consider is your cash flow. If your cash flow is poor, you feel poor because you can’t pay the bills nor can you use money for what you’d like to do. Your image can also suffer with vendors or with customers, if you don’t manage your cash flow. Creativity, planning and communication are all vital in cash flow considerations.

Change is inevitable, except from a vending machine.


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






Best Practices in Preparing Financial Statements



A good financial system is vital for your business. Not only will a properly prepared financial statement tell you what’s transpired in your business, it will give you a snapshot regarding your future. 

Measurement of cash flow is paramount. 

In the two forms of accounting – cash basis vs. accrual basis – the cash-basis system is much simpler. 

ID-10042601 worradmuIn essence, the salient focus in the cash-basis system is getting money into your bank account. Then, you worry about paying the bills. When you make a sale, you deposit the funds. The date you receive the funds is recorded as the selling date. It doesn’t matter when you made the sale. 

Naturally, you pay your bills when the money is available. FYI, it doesn’t matter when the expense was incurred. In a cash-based system, the expense is recorded when it’s paid. 

Also, in cash-basis accounting, very little focus is given to matching the time period when the money is earned or the duration when they are incurred. 

In contrast, accrual-basis accounting is more complex. It will match your revenue to the actual period of time in which it’s earned; plus, it matches your expenses to the corresponding period of time in which they’re incurred. 

Again, it’s not nearly as simple as a cash-based system because it supplies a lot more data concerning the financials of your company. An accrual system gives you more meaningful information. You’re more able to keep records of the payments from the customers to whom you give credit. And it presents more information on your amounts due to your creditors. 

So, to keep your fiscal house in order, there is a common-sense approach for preparing financial statements. By using data from your ledger accounts, entries can be made on a worksheet. 

For the worksheet, it’s suggested you prioritize your entries in the following order: 

  1. Income statement
  2. Statement of retained earnings
  3. Balance sheet
  4. Cash flow statement

Here’s an explanation of each: 

Income Statement. You should include your expenses, revenue, and your net income. That means, of course, you convey your ledger account balances from your expenses, revenue, and your capital gains or losses. 

Statement of Retained Earnings. This report contains information from the start and ending of your retained earnings. 

A statement of retained earnings is derived from the following sources: 

  • Using your previous statement of retained earnings, list your beginning retained earnings.
  • From the prior income state, show your net income.
  • Indicate the dividends paid from this accounting period.

“The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction, cash flow is reality.”

-Chris Chocola

Balance Sheet. Your balance sheet shows the following: Assets, liabilities and equity of shareholders in the company. 

How it’s assembled: 

  • Show the remaining amounts of your asset accounts. They include cash on hand and your accounts receivables.
  • Indicate your liabilities in what’s aptly named your liability accounts. This will include all accounts payable and notes.
  • List your capital stock balance.
  • Record your retained earnings – this is taken from the statement of retained earnings. 

Cash Flow Statement. All the data is vital, and my sense is that the cash flow statement is all-important as it reflects your ability to succeed in business. 

It includes the numbers that show why there are fluctuations in your cash on-hand. The cash flow statement will indicate your sources of cash. Further it will indicate how you use cash in all phases of your business – including operations, finances and investments. 

Remember the difference between accrual and cash systems. As a cash-basis report, your cash flow statement can’t be drawn from the ledger account balances of an accrual accounting approach. 

So, you use one of two methods to create a cash flow statement from accrual-system data. 

Your optional methods are: 

  1. Direct – subtract your cash disbursements from your cash receipts in this method.
  2. Indirect – from your net income, you add or subtract your non-cash entries.

From the Coach’s Corner, here related resource links: 

8 Simple Strategies to Give You Pricing Power — If you’re struggling with pricing strategies, you’re not alone. Many big companies have struggled, too. By way of explanation, according to a 2011 study, almost 90 percent of executives in a global survey forecasted their continued growth. However, they anticipated implementing just minimal price increases as they continue to slash costs.

Step-by-Step Solutions for a Financial Turnaround — Difficult economic conditions have exacerbated the financial woes facing many businesses. But business success is possible for companies suffering through red ink. Here are financial solutions that will help facilitate a company turnaround.

11 Management Strategies for a Successful Turnaround — When it comes to management strategies for a successful turnaround, a quote by financial-world wizard Warren Buffett is apropos. “Risk comes from not knowing what you’re doing,” Mr. Buffett said. My response: “Touché.” It’s all about capital mobility created by effective management.

What No One Tells You about Raising Investment Capital — Investment capital is available during all economic cycles, according to leading consultant Joey Tamer. Ms. Tamer has proven approaches for raising money. “In good times, risk capital is available from all sources, and they compete and sometimes share hot deals with each other; the practice is termed syndication,” said Ms. Tamer.

What Should You Divulge When Asking for Investment Capital? — If your startup is the next big thing, but you want venture capital, you can start smiling. Yes, financing has been difficult to obtain in recent years. But entrepreneurs wanting venture capital have reasons for at least a small celebration – the money is starting to flow again after the Great Recession took its toll.

“The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction, cash flow is reality.”

-Chris Chocola 

 


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





Photo courtesy of worradmu at www.freedigitalphotos.net

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SBA Web Chat: Tips on Healthcare Tax Credits

 

Aug. 4, 2010

If you need up-to-date information on healthcare for your small business, the Small Business Administration is holding a Web Chat. The SBA’s Web Chat will highlight small business health care, with a focus on how the Affordable Care Act will benefit small business owners through available tax-saving incentives.  

Participants can learn about the newest tax credits they can take advantage of, and additional tax provisions to be implemented during the next several years.  

John Tuzynski, chief of Employment Tax and Specialty Programs for the Small Business Self-Employed (SB/SE) Division at the Internal Revenue Service, will host the August web chat on “Healthcare and Small Business.” 

SBA’s Web chat series provides small business owners with an opportunity to discuss relevant business issues online with experts, industry leaders and successful entrepreneurs.  Chat participants will have direct, real-time access to the Web chats via questions they submit online in advance and during the live session, with instant answers. 

WHEN: August 12, 2010, 2010, 1 p.m. ET. Mr. Tuzynski will answer questions for one hour.      

HOW: Participants can join the live Web chat by going online to www.sba.gov, and clicking “Online Business Chat.”  Web chat participants may post questions before the August 12th chat by visiting http://web.sba.gov/livemeeting/Aug10/ and posting their questions online. 

To review archives of past Web chats, visit online at http://www.sba.gov/tools/monthlywebchat/index.html.

From the Coach’s Corner, however, please note these columns:

Healthcare Reform Increases Costs to Workers, Study

How Healthcare Law Would Affect Small Business

Oxymorons: ‘Healthcare Reform’ and ‘Public Servants’

Look for Significant New Fair-Value Accounting Standards



 Aug. 4, 2010


As a company shareholder, you will see more transparency as the result of new fair-value accounting standards proposed by the Financial Accounting Standards Board (FASB). But the transparency means substantially more work to prepare financials, according to Daniel Figueredo, manager of San Francisco Bay Area accounting firm, Burr Pilger Mayer.

He was interviewed by Sue Ostrowski at the Smart Business Network.

“The new standards in the exposure draft will help converge the U.S. generally accepted accounting principles (GAAP) with international financial reporting standards (IFRS),” says Mr. Figueredo. “It’s a pretty robust draft with many new disclosure requirements. If it’s issued as is, it will be challenging for businesses.”

Mr. Figueredo says companies will be required to divulge how they arrive at conclusions when presenting fair-value financials based on changed assumptions.

“One of the most significant disclosure requirements that could affect businesses is the need to disclose a sensitivity analysis that attempts to measure the uncertainty in your fair value measurements categorized as level 3, which are the items that require the most management judgment to value,” Mr. Figueredo tells Ms. Ostrowski. “You will have to disclose the range of that price change, thus giving a reader a sense of the degree of possible swings to your balance sheet for other likely fair values that one could have arrived to.”

As an example, he cites banks with mortgage-backed securities.

“These instruments require a fair amount of judgment by management to value, and would likely be categorized as level 3,” he explains. “Factors considered in measuring the value of a mortgage-backed security could include pre-payment assumptions, default rates, loss severities and discount rates, to name a few.”

He says banks will have to establish the most-salient valuation assumptions. Then, they will have to ascertain other sums that were possible to consider in determining a different conjectural fair value.

Another significant change:

“As part of the new provisions, the exposure draft indicates that you should not consider blockage factors for level 2 or 3 fair value measurements,” he explains. “That essentially means that you should not take further discounts to fair value just because you own a large chunk of shares, such as with large investors like Warren Buffet’s Berkshire Hathaway or hedge funds.”

He explains the difference if a company should have to liquidate:

“…that sale will affect the price of the stock (typically downward),” he says. “But you could very easily sell smaller chunks of stock over longer periods of time. Blockage discounts are viewed as transaction costs, and the effects should be recognized when the decision to sell a block is carried out, rather than as period to period fair values.”

The article also explains more on how the changes will affect companies, what types of firms will be impacted and how they can prepare. For more details, here’s the link to the article:

From the Coach’s Corner, if you’re like a lot of companies in a financial turnaround situation, here’s a resource: Step-by-Step Solutions for a Company Turnaround. 

Use Psychology to Ease Your Debt-Collection Headaches



What are your choices when your accounts receivables reach 60 to 90 days past due? After all, cash flow is a paramount priority.

Stellar debt collection is all about emotions. Certainly, you don’t want to be too aggressive in debt collection and lose possible revenue from slow-paying customers – they might soon be able to pay you.

Even a court judgment isn’t a cure-all. Nor do you want to let your receivables cripple you.

Many businesses face this perplexing problem – unlike what we’ve experienced in recent recessions. Consumers don’t have money to spend so they’re not consuming.

Consumer spending usually helps end recessions. But they probably aren’t buying from your vendors.

So turn to psychology to understand how to ease your debt collection nightmare.

ID-10068612 imagerymajesticFirst, recognize four salient issues:

1. Tight credit has traumatized business. Many of your business customers can’t get credit. For countless businesses, the credit issue started with Advanta.

Advanta was the nation’s 15th-largest credit card company with about 360,000 small-business customers.

It declared bankruptcy in Nov. 2009 – five months after it cut off all credit to its customers. Advanta CEO Dennis Alter was quoted by CNN as claiming the economy hurt his company (Bankruptcy filing is a blow to small business).

That’s partially true, but there is plenty of evidence to the contrary. Advanta and other credit card companies helped create the Great Recession.

Advanta was repeatedly accused of bilking countless customers with predatory interest rates at higher than 30 percent for dubious reasons, and abruptly cutting credit lines without warning to unsuspecting businesses long before the recession was acknowledged by economists. 

Little wonder about Advanta’s downfall. Its business customers couldn’t pay their credit card bills. Here’s a representative sample of complaints.

2. Weaker sales and fewer exports. The red ink cycle in the gross domestic product isn’t over. GDP growth has been well-below average during the Obama presidency.

The majority of small business owners isn’t feeling relief. We continue to see universal evidence of the slow recovery from the Great Recession in loss-leader sales and empty commercial space.

3. The national debt. Government debt under the Obama Administration as a share of the nation’s GDP averaged 76 percent. The nation’s massive debt increases every split-second and is best illustrated by the U.S. Debt Clock.

4. Mounting healthcare costs. Employers are suffering from double-digit percentage increases. And the root causes of escalating healthcare costs haven’t been solved by ObamaCare. 

The majority of slow-paying customers are likely to be downtrodden, but not mean-spirited. If a slow-paying customer has an otherwise good track record with you, the odds are you’ll see your money when conditions improve – if you practice empathy.

Consider a different approach

So in view of these woes what can you do to improve your receivables? Consider using the Golden Rule and train your staff in empathy techniques.

The majority of slow-paying customers are likely to be downtrodden, but not mean-spirited. If a slow-paying customer has an otherwise good track record with you, the odds are you’ll see your money when conditions improve – if you practice empathy.

Empathy means a breezy, easy-going approach. Treat past-due accounts like you’d want to be treated. Ask friendly, open-ended questions to get your customers to talk with you. Listen to how they hope to repay you.

Case study

Admittedly, in my third year in business, I fruitlessly felt anger toward a client who didn’t follow my counsel and his company consequently fell on hard times. As I dragged my bag of resentment around, it grew bigger and bigger. My obsession was a drain on my emotions.

Fortunately, I remembered a passage in an old best-selling paperback book, “Love Is Letting Go of Fear,” in which author Gerald G. Jampolsky, M.D., related his experience with a non-paying client. Dr. Jampolsky, who was angry over the nonpayment, changed his mind and used a new g0-slow approach to the problem.

Soon, he unexpectedly received payment.  But that wasn’t his motive for an easy-does-it approach. He did it for his own serenity. For more on Dr. Jampolksky’s organization, visit: www.corstone.org.

I decided to try his approach. So when the client owed me more than $4,000, I decided to let go of the problem after being unsuccessful after months of collection efforts. To my surprise – a year later – I got a phone call with a promise to pay in full. Yes, the check arrived three days later and it didn’t bounce.

Two other lessons

Two other best-practices to avoid problems with your receivables:   

  • Don’t be so eager in taking on new clients, and be certain to practice due diligence. I politely turn down new businesses as clients if they’re not a right fit. There are  steps to consider before turning down new business
  • Closely monitor clients’ progress. Even if they pay me a retainer, I hold them accountable if they ignored my suggested best-management practices. They won’t succeed if they don’t follow recommendations.

FYI, five years after my $4,000 surprise, I got an opportunity to see if I indeed learned my empathy lesson:

As I was turning into a parking lot to meet buddies for our weekly sailboat race, a young waitress with a small child rear-ended my late-model vehicle. The damage was slight – about $100. The driver begged me not to report it and promised to reimburse me. I agreed.

Soon, I realized the joke was on me – she was not in a position to pay – so I decided to let go of it. My loyal accountant was more than chagrined with me.

But just an hour after deciding to let go of the matter, I unexpectedly met a person who formerly worked for one of my clients. He mentioned how my work benefited his ex-boss, and asked me to approach his new employer to offer my services.

A week later, I had a new client, who became my biggest. Not to be gauche, but it was six figures a year in revenue for nearly five consecutive years. Meantime, my accountant began to tire from my chortling soon after I won the disagreement.

The moral: Treat each situation differently. What goes around, comes around.

Don’t ignore your receivables

However, this doesn’t mean you should ignore collection problems. But don’t approach each customer with a sledge hammer. See the situations as opportunities for growth and more options for due diligence.

In conclusion, think long-term. As much as possible, treat your customers as partners and use the Golden Rule – treat others as you would like to be treated if you were in a similar plight. What goes around comes around.

Besides, if you use due-diligence with customers early on and use best-practices in management, you’ll be OK. The odds are the majority of your delinquent customers will remember your empathy and will remain loyal after their situations improve.

From the Coach’s Corner, for retailers, here’s a related resource: Plagued by Chargebacks? 5 Ways to Fight Back

“Interest on debts grow without rain.”

-Yiddish Proverb




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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry. 





Photo courtesy of imagerymajestic at www.freedigitalphotos.net

Seattle business consultant Terry Corbell provides high-performance management services and strategies.