How to Identify When the Time Is Right to Bring an Accounting Pro Into the Fold

Running your own business is a complicated affair with a wide range of different “moving parts” to concern yourself with, but many people don’t realize how many of them ultimately lead back to your finances until it’s far too late.

A large part of your ability to be successful in the long-term will ultimately come down to the rate at which you expand. Grow your business too quickly and you might spread yourself too thin. Grow too slowly and you’ll be passing up opportunities that are rightfully yours, leaving a lot of money on the table at the same time. Your control over your finances will dictate whether you’re able to strike that perfect balance the way you need to.

Marketing, paying vendors, paying employees, managing client relationships – all of it depends on the quality of your bookkeeping (or lack thereof). To that end, a large part of your success will ultimately come down to your ability to identify when the time is right to stop doing things yourself and bring a professional accounting provider into the fold. To do this, you’ll need to keep a few key things in mind.

The Warning Signs You Need to Know
As it does every year, Intuit recently released a survey outlining the state of small business accounting in the United States. The results are very telling in terms of when people should bring a financial professional into the fold – and what the consequences are of inaction.

Asset tracking, for example, is something that you may not immediately think impacts your bookkeeping, but it does in a fairly significant way. Ghost assets are fixed assets that have either been rendered unusable or are physically missing. However, “out of sight, out of mind” does not apply in this case – they still count toward a business’s tax and insurance liability, thus making it difficult to properly reconcile their books every year.

Of the people who responded to Intuit’s survey, 74% indicated that they didn’t understand this, and 49% said that they didn’t even know what ghost assets were in the first place. If you are among those numbers, congratulations on arriving at one of the biggest indicators that you need to bring a financial professional into your business (and also that you’ll likely want to conduct inventory on a regular schedule moving forward).

Other signs that the time is right to bring a accounting professional into the fold ultimately come down to the most pressing financial issues that most businesses face. 51% of people who responded to Intuit’s survey said that accounts receivable and collections were their most significant business challenge. 44% said that cash flow was always something they were concerned about, and getting a better handle on “money in vs. money out” was always a top priority.

Cash flow troubles, it is important to note, is the number one reason why most small businesses fail within the first four years of existence.

Other pressing issues included properly managing paperwork on a regular basis, accurately closing the books each month, and managing payroll. The major thing to understand is that a financial professional will be able to help with ALL of these things, taking the stress off your plate so that you can focus simply on running your business like you should be. If ANY of these things are ones that keep you awake every night, or you feel these issues are significantly affecting your ability to grow and evolve, guess what? It’s time to contact a professional to do as much of the heavy lifting as possible.

Never Underestimate the Power of Trust
Consider it from another perspective. Recently, small business owners responded to a survey outlining all of their most pressing accounting issues. The survey, conducted by Wasp Barcode Technologies, spoke to 393 small business leaders of nearly every organization size and industry that you can think of.

When asked to rank the professionals that they worked with on a regular basis in the order of importance, these business leaders overwhelmingly agreed that accounting experts were one of the single most valuable assets they had. They outranked attorneys, insurance agents, technology firms and even staffing services.

This is how important tax professionals are: Business leaders know that much of what they’re trying to do each day, along with what they hope to be able to accomplish in the future, would be impossible without the stable foundation that only an accounting professional can provide.

When It Comes to Accounting, Knowledge Is Power
At the end of the day, it’s important to remember what may be the single most important piece of advice for small business owners when it comes to accounting: It is far, far cheaper to hire an accounting professional today before things get out of hand tomorrow.

Think about it this way: A large part of the reason why you got where you are today is because you took the initiative and started to do things for yourself. You have a “can do” attitude that just won’t quit, and you’ve built something incredibly successful from the ground up as a result. But there are certain situations where you cannot let pride get in the way of making the right decision, and accounting is absolutely one of them.

You already have a full-time job: running your business. You don’t have the time to take on another one, let alone the expertise to guarantee that you’re making the best decisions at all times. Yet this is exactly what business accounting is – a heavily specialized, full-time job that requires a careful hand and attention to detail that is second to none.

Bringing in a professional sooner rather than later will not only help make sure that you have cleaner books and other records, it will also significantly reduce the chance that you’ll get hit with penalties for things like late taxes and allow you to be much, much more successful in the long term. These types of benefits, to say nothing of the peace of mind that only comes with knowing your accounting is taken care of, are things that you literally cannot put a price on.

Financial KPIs: What They Are and What You Need to Know

As a small business owner, the importance of making purpose-driven decisions is something that cannot be overstated enough. Every choice that you make must be one with a particular goal in mind – whether it’s to attract new customers, increase revenue, decrease expenditures, increase liquidity, etc. But simply making the decision itself is not enough – you also have to find a way to measure the result of your action against what you were trying to accomplish in the first place.

This, in essence, is what KPIs are all about.

Also commonly referred to as “key performance indicators,” they represent the best kind of measurable value that reflect how we’ll you’re doing in a particular context – the kind that is objectionable, black and white, and provides you with a clear indication of what you need to be doing moving forward. Thanks, in particular, to the evolution of cloud computing and the advent of real-time accounting, it’s easier than ever for business owners to monitor the health of their organization through financial KPIs.

When doing so, however, you need to keep a few key things in mind.

Financial KPI Considerations
Part of the reason why KPIs are so powerful in the first place is because they’re malleable – based on exactly what you’re trying to accomplish, you can take a micro look at a particular aspect of your finances to tell you how close or how far away you are from that goal.

With that in mind, it’s important to realize that there is no “one size fits all” approach to KPI selection. If you looked at the financials of your closest competitors, they might be tracking wildly different data than you are – even though you’re both operating in the same industry.

Because of this, you need to figure out the long-term goals that are most important to you first. Then, you can reverse engineer the KPIs that you should be watching to help guide you and your business in the right direction.

KPIs to Watch Out For
Now that you’ve got a deeper understanding of what KPIs measure in relation to your goals, it’s time to learn more about the specific KPIs that you should be paying attention to monitor those goals in real-time.

  • Operating Cash Flow. Also referred to as OCF, this points to the total amount of money your company is generating on a daily basis. This can be a great way to determine whether you’re able to maintain the positive cash flow needed for growth, or if you should start looking for external funding. OCF adjusts your net income for factors like depreciation, inventory fluctuations, accounts receivable changes and more.
  • Current Ratio. This KPI is an indication of whether or not your company can pay all of its financial obligations in one year. This takes into consideration all of your current assets and compares them with your current liabilities. A Current Ratio of less than one tells you that you will NOT be able to fulfill all financial obligations, thus requiring additional cash flow. For the best results, try to keep Current Ratio between 1.5 and 3.
  • Burn Rate. This clues you in on the rate at which your company is spending money on a weekly, monthly or annual basis. This is particularly helpful for companies that don’t necessarily go through extensive financial analysis, as it’s a quick look into whether or not your current operating costs are sustainable in the long-term.
  • Income. This, simply put, looks at how much money you’re generating. Based on how much money you’d like to be generating, you can then make a determination about how much you need to increase sales and, thus, set about trying to figure out how to do that.
  • Profit/Loss. This is a quick look into whether your company’s expenditures are MORE than your income.
  • Cash Flow Forecasting. Remember that improper cash flow is literally the number one reason why most businesses close prematurely. If you want to get better at cash flow management, you need to start taking a deeper look at what your cash flow is predicted to be both in the short and long-term. Diving deeper into this topic now can help you mitigate some fairly significant risks later on.

If you have any additional questions about KPIs that you’d like to see answered, or if you have other concerns that you’d like to have addressed in a little more detail, please feel free to contact our office today – someone is ready and waiting to provide you with the personalized level of care and attention to detail that you deserve.

6 Steps to Get Your Business Startup on Track For Long Term Success

It’s easy to think about startup businesses and consider the success or horror stories, but what about the average startups? The hard and bleak reality is that the majority of small business startups fail. So, to avoid being like the average startup, you need to create a plan for success.

Choose the Right Entity

One of the first steps to forge a solid start includes selecting the right entity for your business. This legal structure will affect the amount of paperwork you need to do and the legal ramifications you will face.

The right entity will help you reduce your liability exposure and minimize your taxes. You need to ensure your business can be financed and run efficiently with a method that helps ensure the business operations will continue after the death of the owner. Along with making the startup process more organized in an official capacity for the company, the formalization process will also solidify the ownership of participants who are participating in the venture.

To choose your entity, you will first need to consider what personal level of risk you face from liabilities that could arise from your business. You will then need to consider what the best angle is for taxation, finding ways to avoid layers of taxation that can increase unnecessary expenses. Then, you will have to consider what kind of ability you have to attract investors and what ownership opportunities will need to be offered to key stakeholders. Finally, you will have to consider the overall costs of operating and maintaining whatever business entity you choose.

There isn’t necessarily only one entity that can fit your business. The key in this process is looking at how each entity will alter your business’s future to select the one that is right for you. You might choose a sole proprietor, corporation or limited liability company if you are a single owner. If your business is going to be owned by two or more individuals, then you might choose a corporation, limited liability, limited partnership, general partnership or a limited liability partnership.

Sole Proprietorship: The most common entity type where a single owner is personally liable for financial obligations. This is the easiest type of business entity to form and offers complete control to you as the managerial owner.

Partnership: When two or more people want to share the profits and losses of a business, they can benefit in a shared entity that does not pass along the tax burdens of their profits or benefits of the losses. In this entity form, however, both partners are personally liable for the financial obligations of the business.

Corporation: A corporation is an entity that is separated from the founders and handles the responsibilities of the organization for which it bears responsibility. The corporation can be taxed and held legally liable for its actions, just like a person. The corporate status allows you to avoid personal liability, but you will have to provide the funds to form a corporation and keep extensive records to keep the corporation status. Double taxation can also be seen as a downside to the corporate status, but a Subchapter corporation can avoid this situation by using individual tax returns to show profits and losses.

Limited Liability Company (LLC): This is a hybrid form of a partnership entity that allows owner to benefit from aspects of the corporation and partnership forms of the business. Both profits and losses can be passed to the owners without taxing the business and while shielding owners from the personal liability factor.

Plan for Growth

Even though the number one reason startups fail is due to the production of a product no one wants, you can’t just stop with a great product. As an entrepreneur, you have to know about every aspect of your business. Even if you are not an expert in the process of business and aspects of your company, failure in those areas can still cost you your success. You have to know enough to catch key problems in your company’s startup process.

Too segmented, and your company will struggle with gaps and overlap. If the CEO believes it is his or her job to lead, but not to market, then he or she may miss an important connection between target audience and company direction. If the marketer believes it is his or her job to market, but not to develop the website, then he or she might find the website design does not appeal to the right audience. Each individual needs to be both responsible and organic in their approach to helping the company move in the right direction.

While you want growth, you need to be prepared to sustain it. In order to get your venture capital secured, you need accelerated growth; grow too slow and you won’t be eligible for the funds you need to keep growing. Yet, your company will have to be equipped for that growth. The shifting size will alter your ability to work as an agile startup, will force you to reconsider a variety of your tools and may even make you update your physical headquarters. This is just one more reason your current company leaders and employees need to be flexible in the nature of their coverage and thorough in the application of their talents.

The second major reason that companies fail is due to a shortage of funds. These companies run out of cash because their growth stalls. Stalling growth can kill a startup by making them lose to the competition, lose customers, lose employees and lose passion.

Growth Hack

Once you’ve gotten your business prepared for substantial growth at a very rapid pace, you will need to focus your attention on increasing that growth. A relatively new term, growth-hackers are professionals that are specifically focused on the rapid growth of startups. Since the second largest reason startups fail is directly related to money shortages (and indirectly related to growth), you will want to focus a lot of your initial attention on increasing growth in creative ways.

The growth hacker job is usually done by a professional who stands in the place of a marketer. The growth hacker has to understand your startup’s audience and how to appeal to them for faster growth. The growth hacker will also break your large end goal (increased growth at a rapid rate) into smaller, actionable and achievable tasks, like doubling your content creation, to reach that end goal.

Watch the Money

In order to help manage the funds that you do have, you will want to establish financial controls to provide your startup with a solid foundation. The internal controls will include accounting, auditing, damage control planning and cash flow. You will need to have disciplined controls to ensure solid growth and help you never run out of cash.

You will want to adjust and re-adjust your projections for cash flow, never allowing the cash to run dry. This also means you need to set maximum limits of purchasing authority to keep partners or employees from overspending. You will need to require all payments to be recorded on invoices to support audits and keep spending on track. Additionally, you will want to use an inventory control system and use an edit log to track changes made to your website. Don’t overlook your suppliers as sources of financing or assume that all shipments are accurate or in good condition. Ask for term discounts, pay on time and always create purchasing contracts to ensure your goods are delivered.

Measure Your Achievements

Key Performance Indicators (KPIs) are ways to measure the company’s success in achieving key business goals. You will want to establish KPIs on multiple levels in order to monitor your efforts on meeting your objectives.

You will want to use SMART KPIs that are Specific, Measurable, Attainable, Relevant and Timely. Goals that are too general, don’t have an end date and aren’t within your control are goals doomed to fail. To help your startup succeed, you need to discover the core objectives that will really improve your company status.

Work With Us

Finally, you need to spend more time growing your business than accounting for it. Remember, a misplacement of funds and lack of cash is the second biggest reason why startups fail.

Once you have a product that is worth taking to market and a plan in place to cultivate funding, you will be in a good place with your startup. Don’t let any of these points cause you to lose control of your business with a blind side hit that you could have prepared for.

Show Me the Money – Six Best Practices in Billings and Collections

One area where most small-business owners can improve their cash flow is in billings and collections. A thorough credit check before you offer payment terms is not enough. Here are six best practices that can make a real difference in your cash balance at the end of every month.

1. Get it right.

One legitimate reason for nonpayment is a confusing or inaccurate invoice. Make sure your invoices spell out in clear, plain English what was purchased, the price, the payment terms (or when payment is due), the customer’s PO number, when it was shipped, to where it was shipped, and any tracking number.

You may also want to tighten your sales process. Don’t start work without a formal PO from your business customers-many companies won’t pay against a verbal PO. When you receive a PO, make sure that it matches your quotation. Companies often put their payment terms on their paperwork, so if your customer tries to play this game, resolve any discrepancies before you start work.

Finally, make certain every shipment and invoice is 100% correct. Set up processes to assure the customer gets exactly what was ordered and that invoices are equally accurate.

2. Get it out.

See that four-day-old pile of shipping papers waiting to be invoiced? That’s a pile of cash you can’t collect.

Set a goal to issue all invoices within one working day of the ship date or completion of work. If your team struggles to meet this, give them the tools and/or manpower to make it happen. And if an invoice gets held up internally, make sure your supervision is immediately notified so the problem can be quickly resolved.

To further speed payments, try to invoice your customers by email. Some won’t accept emailed invoices, but getting even a portion of your billing done electronically will help overall cash flow.

3. Get it to the right person.

How many times has one of your employees called about a past-due payment and been told “we didn’t receive your invoice” or “that needs to be approved by the department manager”? It’s another game, one that can take weeks to play out. As part of getting an accurate customer PO, make sure your sales staff gets a valid address for invoicing.

Large sales deserve special attention. Where applicable, have your salesperson get the contact information for the customer employee that will approve payment. This might be a department or plant manager and maybe even the business owner. Also get the contact information for the customer’s finance-side people (accounting manager, accounts payable clerk), who will cut and approve the check. When your invoice goes out, make sure they all get a copy.

4. Get it sooner.

Offer a discount for early payment-for example, 2% off for payment within 10 days. Not all of your customers will take advantage of this, but it’s a great way to pull cash in.

5. Get friendly.

The best way to get paid on time is to build a positive working relationship with your customer before the money is due.

Have your salesperson call his or her customer contacts shortly after the invoice goes out. Confirm the product has been received or affirm that your assignment is now complete. Ask them if they’re satisfied with your work, what you can do better to improve, and if they’ve received your invoice. This communicates (in a nice way) that it’s time to start the payment process. If these calls uncover problems, it’s an opportunity to address them on the spot as opposed to when payment is past due.

Your employee responsible for collections should also make a call-in this case, to the customer’s finance-side people. Your employee should confirm the receipt of your invoice, remind them of any discounts for early payment, and check whether there are any administrative problems with the document. They should not ask for a payment date. If possible, they should also try to get to know their counterparts. A simple “How’s the weather where you are?” is a great opening that can lead to a long conversations about, well, everything. Your customer’s payables team can be your best friend later in the collections process, but it won’t happen if you have not built a working relationship.

There’s one other person who needs to get friendly: you, the business owner or general manager. As your company develops large customers make sure you get to know your customer counterparts. A phone call from you asking “How’s my team doing?” is a great way to initiate a conversation and assure customer satisfaction. For very large projects, make a face-to-face visit. It will pay off later. If the time comes when a payment problem needs to be escalated, you will have an established relationship on which to call.

6. Make it fun.

Some companies take the “get friendly” notion to the next level. From putting silly “Thank You!” notes on their invoices, to handing out promotional swag, to sending little stuffed animals for on-time payment, it’s amazing how these goofy gimmicks can change the atmosphere around the collection process.

You want your customer to smile and shake his head as he signs the check to pay your bill. And if the day comes when your customer needs to decide whom to pay and whom to put off, chances are he will pay you first.

In Closing

What about the actual collections process? Good companies contact their customers if a payment is more than five working days late. You should do the same.

What’s different is that you’ve laid the foundation for a successful endgame. Any excuses for non-payment have been addressed. Your people know whom to call, and you have working contacts who will give you straight answers. Above all, you’ve strengthened the relationship with your customer and have built a basis for future business.

7 Ways to Boost AR Collections and Improve Cash Flow

“A sale isn’t a sale until you’ve collected payment – it’s just a loan,” a wise businessman once said.

If you’ve been in business for any length of time, you know how true this is. Many small businesses that were profitable on paper have gone bankrupt waiting for payment from their customers to arrive.

This makes accounts receivable (AR) collections one of the most important tasks for small business owners. Unfortunately, it’s also one of the most neglected. Here are 7 strategies you can implement to help boost your AR collections and improve your cash flow:

  1. Make sure your invoices are clear and accurate. If invoices are vague, ambiguous or flat-out wrong, this is sure to delay customer payments as they call to try to get things straightened out. In short, you don’t want to give customers a reason not to pay your invoices quickly.
  2. Create an AR aging report. This report will track and list the current payment status of all your client accounts (e.g., 0-30 days, 30-60 days, 60-90 days, 90+ days). This will tell you which clients are current in their payments and which clients are past due so you know where to focus your collection efforts.
  3. Give a bookkeeping employee responsibility for AR collections. If collecting accounts receivable isn’t the main responsibility of one specific employee, it will probably fall by the wayside as other tasks crowd it out. Therefore, make one of your bookkeeping employees primarily responsible for this task.
  4. Move quickly on past-due accounts. Don’t delay taking action once a client’s account reaches the past-due stage. Studies have revealed that the likelihood of collecting past-due receivables drops drastically the longer they go uncollected. Your designated bookkeeping employee should start making collections efforts the day after an account becomes past due.
  5. Plan your collections strategy carefully. Decide ahead of time how you will approach late-paying clients. For example, a friendly reminder call and/or email from your designated bookkeeping employee is probably a good first collection step. If this doesn’t get results, you can proceed to more aggressive steps such as sending past due notices and dunning letters.
  6. Consider offering a payment plan. Sometimes, customers have legitimate reasons why they can’t pay their invoices on time. Maybe the customer is having temporary cash flow problems and wants to pay you but simply can’t right now. In this scenario, you might consider working out a payment plan that allows the customer to pay the balance due over a period of time. The agreement should be made in writing and signed by both parties.
  7. Hire a collection agency. If all of these steps fail to resolve a collection problem, you might have to turn to a collection agency as a last resort. However, this is a serious step that should not be taken lightly, since it will probably jeopardize your relationship with the customer. Decide whether or not collecting the past-due amount is worth possibly losing the customer. Also keep in mind that the collection agency will keep a large percentage of the amount collected.

Very few small businesses can afford not to make AR collections a top priority. Following these 7 steps will help you improve your collections – and these improvements will boost both your cash flow and your bottom line.