Keys to Successful Cash Flow - Managing Receivables
Wednesday 29th of September 2010 11:34 AM
A steady flow of revenue is critical to keeping your business afloat. You may have customers placing orders, but if they aren’t paying on time this can wreak havoc on your cash flow. Receivables are the bills that are sent out to your debtors (customers). The payment received from these bills is the life and future of your business, so managing your receivables effectively is crucial to success.
Here are some tips for handling accounts receivable:
Timely Invoicing: This may sound like common sense and something that you would set in motion when an order is placed, but sometimes invoicing can fall on the back burner and stack up. Make a point of creating the invoice when the order is placed or contract agreed upon and deliver it to the customer.
Customer Deposits: It is also called Unearned Revenue and Prepaid Income and represents money the company received in advance of providing a service or product to a customer. Customer Deposits is classified as a current liability on the balance sheet because the company still owes the service or product to the customer. Customer deposits turn into cash as you earn them through the purchase of materials or services rendered, so don’t count (or spend!) the deposits before they are earned.
Final Payments/Retainage: Establish the expectation from the beginning that final payment and, if applicable, any retainage (money held prior to completion of a project) is due when the work is completed. The day before a job is completed, fax an invoice to your customer reminding them of the agreed payment terms and ask to have payment ready.
Contracts/Agreements/Up-Front Financial Discussions: Check the financial health of your customer before offering them credit by using a rating service such as Dun & Bradstreet. Also ask for five business references and don’t neglect to call them. Have your payment schedule outlined clearly in your initial contract to avoid problems later. Include accepted payment methods, cash discount amounts if any, late payment fees, customer deposits and final payment details.
Collections Process: Follow-up on late payers with phone calls and letters. Don’t send out new merchandise or provide additional service if bills remain unpaid. Collection agencies charge hefty fees (often 30% or more of amount collected), so try to collect as many customer payments as possible through reminder letters and calls. Create a sense of urgency within your company about collecting money and establish a daily target for cash receipts.
Keys to Successful Cash Flow - Managing Payables
Wednesday 22nd of September 2010 02:33 PM
Last time we tackled managing accounts receivable, and managing your payables is just the opposite. Instead of collecting at the earliest possible moment, you should never pay a day sooner than you have to, unless you get a discount for doing so. A lot of people believe in staying ahead of bills and paying them as early as possible, but that's just poor cash management. You want to keep your money in your hands as long as you can. When to pay vendors?
Some creditors are more important than others. Those that are essential to carrying on the business have to be at the top of the pile. Payroll, taxes, key suppliers, any necessary licensing or permits and insurance should be paid first, followed by rent and utilities. Less essential bills still need to be paid on time to maintain your financial position, and if there is a problem, you should speak to the vendor right away to arrange a payment plan. Don’t pay early
Pay your invoices on the last day they’re due and not before unless a large discount is given. Carefully consider vendors' offers of discounts for earlier payments. These may provide you with a way to reduce overall costs, but examine the terms closely. Make partial payments
If you are having difficulty making payments, ask creditors if you can make partial payments for a period of time until your cash flow returns to normal. With seasonal ups and downs that sometimes come in the equine business, try to negotiate partial payments in the off-season and pay in full during your peak time. Use EFT to make payments directly on vendor websites
Use electronic funds transfer to make payments on the last day they are due. You will remain current with suppliers while retaining use of your funds as long as possible. Discuss payment terms when choosing vendors
Don't always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can improve your cash flow more than a discount price. Negotiate beneficial payment terms up front before signing a contract or agreeing to a purchase.
Always be shopping for better pricing on commodity products/services to keep your costs down. Just because you have been using the same vendor for years doesn’t mean they offer the best prices. If you are a longtime customer and find a better deal elsewhere, don’t hesitate to go back to your supplier and see if they will meet or beat the price. Consider outsourcing rather than hiring employees, which is the largest cost to most companies. Your savings on payroll, benefits, and workspace will be significant and often the outsourced employee will be more dedicated and knowledgeable in their role.
Keys to Successful Cash Flow - Budgeting
Wednesday 15th of September 2010 11:32 AM
Cash flow is said to be the lifeblood of any business, including your equine business. The first key to successful cash flow is budgeting. Budgeting is an important and necessary part of small business ownership. To begin with, lenders and investors are going to require a budget before they agree to partner with your company. More importantly, a budget can be a valuable tool to help you meet goals and stay up-to-date with the financial condition of your business. A budget must be based on figures that are supported by reasonable expectations. Those expectations are based on prior financial performance and anticipated growth.
Here are a few tips to get started:
Know your fixed and variable costs. Fixed costs can be closely estimated as they generally stay the same and changes can be easily projected since they are based on static or semi-static figures. Variable costs are tied to your production, so you can determine at the beginning of the year your production figures based on previous results. This estimate won’t be as precise as fixed costs, but you should still be able to get a pretty good idea. Know when vendor payments are due, so you can budget for them in the proper time period.
Understand your business cycle. With the passage of time, your equine business will go through various stages of the business life cycle. Learn what upcoming focuses, challenges and financing sources you will need to succeed. Changes in the economy and market can decrease sales and profits, so have a plan in place for such downturns.
Understand your customers’ payment cycles. Keep on top of your customers’ payments as late payments squeeze cash flow and can throw off your budget if payments aren’t received in a timely manner.
Project your sales revenues. In making a reasoned sales revenue projection, you’ll actually perform three separate analyses for Current Business, Sales in the Pipeline, and New Business. For each category, you’ll make an estimate of how much income you expect to realize on a month-by-month basis and enter these figures on a spreadsheet. The final result will be a monthly revenue projection for the next year or so.
Hidden 1099 Tax Change
Wednesday 8th of September 2010 11:30 AM
If you are a business owner, prepare to spend a lot more time collecting data, keeping records, and generating/sending paperwork. And if you have previously provided goods and failed to report income, know that that will change starting in 2012.
Currently, businesses must send 1099s to all individuals who provide more than $600 worth of services to that business in a calendar year. Independent contractors are used to receiving this form, and paying self-employment taxes on the income. Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.
So if your equine business buys $900 worth of wine and cheese for a party, you’ll have to send a 1099 to your supplier. As this Business Week article points out, the requirement will even apply to money you spend at places like FedEx or the local gas station. This is going to cause huge issues because even a small business may have to produce and send 100+ 1099s and report them to the IRS.
The government hopes the changes in 1099 reporting will generate additional tax revenue on income that has previously gone unreported – and it’s in the health care bill because that revenue could potentially pay for some of the bill’s costs. More details will be known about Form 1099 changes when the IRS releases further provisions – a date when those provisions will be released is not yet known.
The IRS Wishes You Many Happy Returns
Wednesday 1st of September 2010 12:30 PM
Once you have your bookkeeping system in place, it is wise to become familiar with some additional tax forms you may need when it’s time to file your yearly taxes. The Internal Revenue Service requires businesses and individuals to file “information returns” to report certain business transactions. An information return is not an income tax return - it is used for reporting purposes only. Businesses or individuals must disclose to the government the nature of payment transactions, the amount, and to whom the payment was made. Information on the return is used both to assist taxpayers in preparing their returns and to allow the IRS to match the information from the specified transaction to the other parties involved. Persons required to file information returns to the IRS must also furnish statements to the recipients of the payments.
Some of the most common filings that impact average businesses are as follows: Form 1099 Misc:
Payments in excess of $600 per individual for services rendered (such as subcontractors, landlords, and other nonemployee compensation)Form 1098:
For payments of mortgage interest in excess of $600 to individuals on loans owed by the businessForm 1099 DIV:
Payments in excess of $10 per recipient for dividends, and stock dividendsForm 1099 INT:
For payments in excess of $10 to recipients of interest incomeForm 8300:
Report of cash payments received by a business in excess of $10,000 per transaction or related transactionsForm W-2:
Payments to employees such as wages, tips, and other compensation, withheld income, social security, Medicare taxes, and advance earned income credit payments
When it comes to monitoring taxpayers, the IRS spends a lot time computer matching with information returns. Even a small discrepancy between what is on these forms and what you report on your tax return will be caught and could result in months of hassles with the IRS. Generally, issuers of information returns must provide copies to recipients by January 31 and to the IRS by February 28. Plan for many happy returns with your equine business by making sure forms are completed on time and accurately to avoid problems with the IRS.