small business tips

Proper financial organization provides a clear picture of your business's financial health, aids in compliance with tax regulations, and facilitates informed decision-making.    It’s not always easy for business owners to organize business income and expenses, since you’re already busy with other tasks, such as growing your business, marketing your goods or services and nurturing existing clients. If you’re interested in ensuring your business’s financial security and promoting growth, here are some practical tips.

The Importance of Organizing Income and Expenses

When you organize income and expenses, you’ll be able to get a better overall view of the financial health of the business. 

Financial Insight

Organizing income and expenses gives business owners a transparent view of their financial status. It allows them to see where money is coming from, where it’s going, and how much profit is being made. This clarity is essential for making informed decisions about budgeting, investing, and growing the business.

Tax Compliance

Keeping your business’s income and expenses organized  helps to ensure that you stay tax compliant. Even if you use a CPA, it’s helpful to your tax professional to have finances organized. This reduces chances that anything will be overlooked or lost in the “shuffle.” Remember, your CPA can only work with what you make available to them. If you fail to record expenses or income, they won’t be able to properly allocate them.

Informed Decision-making

It’s easier to make smart decisions for your business when you have a clear and honest view of your financial situation, especially when it comes to buying decisions or moves that require large investments. Having a detailed and accurate record of income and expenses allows business owners to analyze financial trends, identify areas for improvement, and make strategic decisions. It helps in setting realistic goals, planning for the future, and ensuring the business remains financially healthy.

Set up a Robust Accounting System

Your accounting system needs to support all aspects of your business transactions, including things like payroll, inventory management, payment terms, commissions, etc. It should include working with a CPA

Choose the Best Accounting Method

There are two primary methods, cash basis and accrual basis accounting. Cash basis accounting records income and expenses when they are actually received or paid, while accrual basis accounting records them when they are earned or incurred. Small businesses often start with cash basis accounting for its simplicity, but as the business grows, switching to accrual basis can provide a more accurate financial picture. For more about this, consult with your CPA.

Consider Accounting Software

You’ll need some kind of accounting software, which can streamline organizing your income and expenses. Most include downloadable reports, which you can then forward to your CPA. Ask your CPA which software they prefer you to use.

Issue Invoices Promptly

Ensure that invoices are issued promptly and accurately to avoid delays in receiving payments. Include all necessary details such as the date, services provided, payment terms, and due date. Prompt invoicing not only helps in maintaining a steady cash flow but also portrays a professional image to clients.

Record All Sources of Income

It’s essential to record all sources of income, not just sales. This includes any interest earned, rebates, or other miscellaneous income. Keeping track of every dollar that comes into the business provides a comprehensive view of your revenue streams and ensures nothing is overlooked.

Reconcile Accounts Regularly

Regularly reconciling your accounts is a vital practice in maintaining accurate financial records. Reconciliation involves comparing your bank statements with your internal records to ensure they match. This process helps identify discrepancies, catch errors, and prevent fraud.

Maintain Detailed Expense Records

Keep detailed records of all business expenses, including receipts, invoices, and bank statements. This documentation is essential for tracking spending, verifying deductions, and preparing for audits. Use digital tools to scan and store receipts electronically, making them easily accessible and organized.

Categorize Expenses Consistently

Consistently categorizing expenses helps in tracking spending patterns and identifying areas where costs can be reduced. Common categories include office supplies, utilities, payroll, and travel expenses. Most accounting software allows you to create custom categories, making it easier to organize and analyze expenses.

Separate Personal and Business Finances

Mixing personal and business finances can lead to confusion and potential legal issues. Open a separate business bank account and use it exclusively for business transactions. This separation simplifies bookkeeping and ensures that all business-related expenses are accurately recorded.

Schedule Monthly Reviews

Regular financial reviews are essential for maintaining an accurate and up-to-date understanding of your business’s financial health. Schedule monthly reviews with your CPA to assess your income and expenses, identify trends, and make any necessary adjustments to your budget or financial strategies.

Analyze Financial Statements

Analyzing your financial statements, including your income statement, balance sheet, and cash flow statement, provides valuable insights into your business’s performance. Regular analysis helps you understand your financial position, identify areas for improvement, and make informed decisions.

Adjust Strategies as Needed

Based on your financial reviews and analysis, be prepared to adjust your strategies as needed. Whether it’s cutting unnecessary expenses, increasing revenue streams, or reallocating resources, being flexible and responsive to your financial data is key to maintaining financial health.

Organizing your business income and expenses is a critical aspect of financial management that can significantly impact your business's success. By setting up a robust accounting system, tracking income effectively, managing and categorizing expenses, budgeting and forecasting, streamlining financial processes, conducting regular financial reviews, and leveraging technology, business owners can maintain a clear financial picture, ensure tax compliance, and make informed decisions. Implementing these practical tips will not only help to streamline your financial processes but also position your business for long-term growth and stability.

by Kate Supino

No matter what kind of business you operate, positive cash flow is vital to its success. It’s so important that some businesses end up failing because they can’t get a handle on cash flow. What can happen is that a business ends up needing to take out loans to bridge the time between services rendered and payment received. The loans add up and become yet another set of bills that the business has trouble paying because of poor cash flow. Other scenarios can evolve due to poor cash flow, too. But no matter what the situation, it doesn’t have to happen to your small business. 

Understanding the Pain Points

Once you’re in a cash flow bind, it can be hard to look back and recognize the pain points that got you into this mess. But having forensic knowledge can help you to avoid complications in the future.

Late Payments From Clients

One of the most common problems that small businesses face is late payments from clients. There can be all kinds of reasons why a client pays late. One possibility is that they see your small business as non-threatening. Your invoice may get moved to the back of the line behind larger companies that have serious ramifications for overdue bills.

High Overhead Costs

Many small business owners try to keep things simple by controlling overhead. They may work from home, or hire contract labor instead of full-time help. But not all small businesses have the luxury of being able to have low overhead. And those monthly overhead bills can add up, draining away your liquidity and adding to your cash flow problems.

Season Fluctuations

If you have a seasonal business, you need to be adept at stretching your cash flow so it covers the months where you’re not bringing in as many sales. Even then, if you have a bad season, you could be in for an even rockier off-season time, trying to ride it out until your high season hits again.

Unexpected Expenses

Finally, unexpected expenses, such as equipment breakdowns or emergency repairs, can put a huge strain on a business's cash reserves. Without adequate planning and sufficient cash reserves, these unexpected costs can lead to cash flow problems.

Actionable Steps to Improve Cash Flow in Your Small Business

There are real, actionable steps that you can take today to improve cash flow in the future, and get money in the bank today. Here are some to consider:

Leverage Your Status as a Small Business 

It’s easy for your clients to ignore bills from large, faceless corporations. That is, until those giants do things like cut off the internet, the electricity or the phone service. As a small business owner, you don’t have the power to do that, nor would you want to. But you have a different kind of power. You have a face and an identity. Unlike those big corporations, you can get your client on the phone and remind them that you’re just a small operation that needs to pay bills to stay in business. Let your clients know that you’re relying on their timely payment. Chances are, you can get a payment agreement while you’re on the phone.

Offer Multiple Payment Options

Sometimes your client may be strapped for cash just as you are. This is a good time to let them know that you can accept credit cards for payment, too. If they still balk, let the client know you’re willing to accept partial payments. At least this way you’re getting some money coming in, and engaging with the client in a helpful manner that will make them want to continue doing business with you. Next, make sure you offer these payment options on all your invoices going forward, so your other clients know that they have multiple payment options.

Manage Overhead Costs

If overhead costs are eating your cash flow, it’s time to look at streamlining. Commercial real estate values are at all time lows thanks to more people working from home. Initiate some competition by getting lower estimates on other real estate locations. Let your landlord know that you’re looking elsewhere. It’s possible that they’ll be willing to come down in rent, in which case you wouldn’t have to move. But just in case, be ready to make a move if you find something where you can pay less overhead.

Build a Cash Reserve

It can be hard to build savings when you’re spending every penny on bills. But every business needs cash reserves, especially those with cash flow problems. Take the advice of many financial experts, and pay yourself first. Each time you receive a payment, take a certain percentage and tuck it away into a business savings account. You’ll be glad it’s there when you have an unexpected expense.

Get a Line of Credit

Unlike a loan, a line of credit allows you to borrow only what you need, when you need it, plus you only pay interest on the amount borrowed. This flexibility can help cover short-term cash flow gaps without the burden of long-term debt that often signals the demise of small businesses. Be sure to make regular payments to pay down the debt, though, so the line of credit is always available to your business when you need it most.

Improve Inventory Management

For businesses that carry inventory, managing stock levels efficiently is essential. Overstocking ties up cash in unsold goods, while under stocking can lead to lost sales. Implement an inventory management system to track stock levels in real time, forecast demand accurately, and reorder supplies just in time to meet customer needs.

With these actionable strategies in place, you will be better able to work your way out of cash flow problems in your small business. And remember, your CPA has a lot of experience in helping business owners with financial conundrums. Contact yours today for personalized help. 

by Kate Supino

Over the years in our regulation-heavy business environment, small businesses have had forests of rules and regulations to wade through every year. The hard truth is that legislative and regulatory challenges (especially over-regulation) often hit small businesses the hardest. They have fewer resources in terms of staff, money, time and management attention to handle the sometimes massive tasks of keeping up with regulations.

As noted in a recent report, Paychex Inc. has compiled the following list of the current regulations that will affect business owners the most in the coming year

As Martin Mucci, president and CEO of the payroll, HR, insurance and benefits solutions provider explains: “Our summary of the year’s most important regulatory developments is designed to help small business owners understand how new regulations will affect their businesses in 2018.”

The following points will provide a general guide to small business owners as they navigate 2018:

Payment Evolution

In September of 2017, the second phase of Same Day ACH, permitting debits up to $25,000, became a payment option, giving cash flow management a boost. Faster payment options will continue to expand and become easier for small businesses to leverage in 2018. In March 2018, financial institutions will be required to meet a strict 5 p.m. local deadline for Same Day ACH funds availability.

State and Municipality

Many stats considering implementation of state-run retirement savings plans. At present, nine states have enacted laws that allow the development of these programs. Each state’s program is structured as a Roth IRA, a multiple employer plan (MEP), or a marketplace whereby users can comparison shop for plans. Employer requirements vary by state, with some requiring employer participation based on employer size and others keeping employer participation voluntary. Auto-enrollment of employees is also a state-specific provision.

Privacy

With the ever-growing cybersecurity threats inherent in a globally connected digital society, businesses that fail to adequately protect sensitive information with security and privacy safeguards face regulatory, reputational, and litigation risks, as well as crushing remediation expenditures. States’ attorneys general and federal regulatory agencies, such as the FTC and the Consumer Financial Protection Board, readily use their legal authority to investigate and bring enforcement actions against businesses for data security failures that lead to data breaches.

Pay Equity

Employers should note, however, that the changes made to the submission date of the EEO-1 (March 31, 2018) and the “workforce snapshot period” (4th calendar quarter of 2017) are in effect for 2018 submissions. It remains to be seen if the EEOC, with its newly appointed members, will choose to revisit the collection of employer wage data as they move forward with their Strategic Enforcement Plan for Fiscal Years 2017-2021, which includes a focus on gender-based pay discrimination enforcement. Pay discrimination based on gender also continues to be an area of great concern for states looking to more aggressively address recognized and documented gender pay gaps and to ensure pay equity in the workplace.

Overtime Regulations

A review of 2017 includes steady developments related to the Final Overtime Rule released by the Department of Labor under the previous administration, the latest of which was the invalidation of the rule in a Federal District Court. Activity related to federal overtime regulations will continue in 2018. A final rule is expected later in 2018.

Employee Verification

While documentation audits and worksite inspections seemed to level off in 2017, Immigration and Customs Enforcement has warned that it will quadruple the number of worksite inspections in the coming year. Under proposed legislation, mandatory use of the E-verify system would be phased in for all private employer.

In addition, see the following additional references:

• Paid Leave Laws
• The Affordable Care Act
• State Reaction to Federal Tax Reform
• Tax Reform

It should be obvious that even within the scope of small businesses there is much to be prepared for in terms of managing the demands of ever-changing legislation and regulation. While regulations have been reduced dramatically in some cases, there has been a tremendous amount of change, and it can take real work for small businesses to stay informed and up-to-date on those changes.

The core problem for every entrepreneur and small business starting out is the same.

They need cash.

That holds true whether it’s a brand new business who needs cash to realize a great idea or a company who just needs to gain a competitive advantage and achieve growth.

Part of it, of course, is acquiring hard assets—equipment, real estate, office space, warehouse space, technology—and soft assets, such as regular, reliable employees and, occasionally, consultants who help guide the direction of the business.

The pressure to acquire all the needed assets to execute a great idea, especially on lone entrepreneurs, can be overwhelming. It’s especially daunting when the entrepreneur or small business sees a significant cash shortage and knows they will have to get help financing their goals.

This is where the Small Business Loan steps in.

Knowing how these loans work is critical, however. Of course, this is something we’ve covered in past articles, but today we will be revisiting those general principles with a slightly different approach on the topic as well as some new information not covered previously.

Here are a few key points to help you better understand this financing alternative:

SBA Programs

Perhaps one of the most well known funding alternatives is the financing available through the Small Business Administration (“SBA”). One of the advantages of the SBA is that it offers products specifically geared toward small businesses.

This definition from bplans.com zeroes in on the nature of an SBA Loan:

[The loan] is not a direct loan from the SBA itself. Rather, it is a loan that has been made by a commercial lending partner, but that the SBA has guaranteed for these partners and that has been structured according to SBA requirements. This helps to minimize the risk for both partners and borrowers. Only those without reasonable access to other funding sources are eligible for such a loan.

Regular Bank Loans

The best place to get a small business loan is still a bank, says George Cloutier, CEO of American Management Services, a consultant to small businesses. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders, though it’s not always a walk in the park for small businesses to get funding from a bank.

As NerdWallet points out:

Small businesses have a tougher time getting approved due to factors including lower sales volume and cash reserves; add to that bad personal credit or no collateral (such as real estate to secure a loan), and many small-business owners come up empty-handed. Getting funded takes longer than other options — typically two to six months — but banks are usually your lowest-APR option.

Small Business Lines of Credit

The primary difference between a line of credit and a regular loan is that with the loan it is drawn against usually once, that is, for the full-approved amount of the loan.

With the line of credit, on the other hand, it is drawn against on an as-needed basis. When the business’s cash position permits a pay-down of the line of credit’s outstanding balance, the borrower is typically permitted to do so.

The credit line situation is potentially less expensive than the regular loan situation because the outstanding principal amount of the line of credit is only for funds that have been put to immediate productive use, and hence, the associated interest charge is for immediate productive use instead of just sitting in a bank account somewhere. However, the fees (other than the interest cost) for putting a line of credit in place are usually more expensive than a simple loan.

The bottom-line is this: a credit line helps the borrower draw against the line of credit as frequently as needed (subject to outstanding principal limitations), and repayments less than 100 percent of the outstanding principal amount can be made as frequently as it makes good business sense to do so. It is incumbent on the borrower to pay attention to sensible cash management practices because of this flexibility associated with maintaining a line of credit.

BPlan.com says this about the line of credit option:

…for startups, a line of credit can help get your business off the ground, as many new businesses have limited capital needs, and a loan can quickly eat into your profits. For businesses that are already on their feet, a credit line offers a safety net, as well as great flexibility that business owners can use creatively to their advantage.

As this report notes, finding, applying, and getting approved for small business loans can be difficult, but the more prepared you are, the better. Be attentive to the following, as discussed by NerdWallet:

• Pinpoint why you need the money. Ask yourself how this loan will help your business.
  • Find the right loan. Choose a type of business loan based on your needs.
  • Find the best lender for you. Compare options based on the cost and terms of each loan.
  • See if you have what it takes to qualify. Gather information including your credit score and annual revenue.
  • Get your documents ready and apply. Know what documents lenders will need from you ahead of time.

In summary, if you keep the principles in this article in mind and look carefully at all of the financing options, you are more likely to get the crucial funds you need that will turn your big idea into a big success.