Accounting and Budgeting

Paper or Plastic

SBOCTeam — Thu, 22 Oct 2009 14:19:00 GMT

When should your small business choose cash versus credit?

by Reed Richardson

The statistics staring at budding entrepreneurs are ugly-nearly two out of three new businesses won't survive past six years. A lack of a rigorous business plan, insufficient marketing, and poor product quality can, among numerous other problems, contribute to this sobering reality, but foremost among the reasons for early failure is a rather mundane and oft overlooked difficulty-poor cash flow management.

"Consumers are not stupid about banking issues, but they often are ignorant about the most efficient choices for themselves," noted E. Thomas Graham in a lengthy article on the FDIC Consumer News website that discusses using cash versus credit (click here to read more). Graham, who is president of the non-profit Personal Finance Employee Education Foundation as well as professor emeritus of consumer economics at Virginia Tech University, argues that many Americans-including many small business owners-are poorly educated about their own finances and, as a result, the choices they make on a daily basis often lead to long-term trouble.

Cash

Despite our economy's perceived obsession with credit, most transactions within our economy-from straightforward purchases like buying a soda at a vending machine to complex transactions like a massive cash-for-stock corporate takeover-still rely on good old cash. The most compelling reason for cash's continued dominance is its immediacy-"I want something now and I want to pay for it now." The buyer and the seller are both satisfied at the same time. This immediacy brings with it no extra transaction costs either, as FDIC Associate Director for Consumer Protection Kathleen Nagle explained in that same Consumer News article. "Cash is usually the cheapest way to go," Nagle noted. "No fees, no service charges, no interest payments."

Cash, of course, is (almost) universally accepted as well, making it the last and best form of payment no matter who is involved in the transaction or what's being purchased. Likewise, the primary hurdle for using cash-its availability-has been eliminated thanks to the vast network of 24-hour accessible ATMs now standing at practically every street corner. For small business owners that might be struggling to keep their head above water, using cash to pay bills and settle debts can offer a welcome oasis of simplicity and acceptance in an otherwise complicated and rejection-happy world. And no business ever fell into too much debt from just using cash on hand. Indeed, perhaps the most effective spending limit around involves looking into one's wallet or purse to see how much cash is left and to plan accordingly.

But cash as a payment method has its limitations and drawbacks as well. Unless you're an established customer or dealing with a public utility, cash won't be of much help when trying to execute most online or phone transactions. Nevertheless, cash is still considered the most liquid of all assets and, as such, it can therefore be the hardest to track in terms of how quickly it flows in and out of your business. Unless you are an inveterate receipt saver, a heavy reliance on cash can therefore easily mask where and how you're spending your money, which could lead to a cash flow disaster that shuts down your business if left unchecked. In addition, cash simply isn't well suited to large transactions or big-ticket capital investments and it offers the least in the way of consumer protections after the point of purchase-there's no way to stop payment or dispute a cash purchase after the fact.

Credit

By contrast, small businesses that rely more on credit get the benefit of time. In fact, credit cards are best thought of as short-term, roughly 30-day, interest-free loans. Putting off these payments for just one month can mean holding onto extra cash-and therefore earning more interest-which can be a boon to a small business's bottom line. But for this plan to work, a small business owner has to be diligent about paying off the entire amount spent at the end of their billing period. As countless examples have shown, if you fail to follow this rule or let spending with credit far exceed your small business's incoming revenue, you're in danger of adding extra costs to your purchases as well as over-leveraging your business. "After adding in the finance charges," the FDIC's Nagle explains, "you have [done] the opposite of buying on sale." Instead, she notes that not paying off your credit cards each month is "like marking up your purchases."

Still, credit and credit cards are only gaining in popularity because they increasingly offer many of the advantages of cash, yet with added consumer protections and built-in tracking mechanisms. Rare is the business that still refuses to accept some kind of credit card or, if you have a steady buyer-vendor relationship, delayed invoicing system, making the acceptance of credit for payment almost as ubiquitous as cash in today's economy. Plus, the Fair Credit Billing Act ensures that a small business can rely upon the consumer protection features of most major credit cards to ensure that the products or services it purchases match up with the quality promised by the seller. And for entrepreneurs looking to closely monitor all their outgoing expenses-no matter how small-over the course of a month, using a business credit card instead of cash is a simple way to ensure all those nickel-and-dime transactions get captured for later review.

Finally, as mentioned previously, credit remains the most popular method for making big-ticket purchases and for financing major capital investments, as it lets a small business spread its payments over time (while simultaneously depreciating those investments, in many cases). Still, using credit requires that someone be willing to lend that money to your small business and as many entrepreneurs have discovered, that can often be a more difficult task than expected. And trying to swear off credit purchases altogether is of little use as even those small business owners with the most modest of aspirations will one day require some kind of credit or lending for a purchase, so starting early and building up a reliable track record for borrowing and paying back is still a wise move.

Striking a balance
For an overwhelmingly majority of small businesses, a mix of cash and credit purchasing will end up being the right solution. Convenience at point of purchase is always a big driver in choosing between cash and credit, but many budding entrepreneurs fail to also consider the convenience factor when it comes to accounting for this spending later on. As managing cash flow is a critical part of a successful start-up, it's important to understand which spending preferences work (or don't work) well with the two main accounting methods. For example, the accrual method of accounting, which counts both debts and revenues on the books as soon the purchase or sale is made, provides a more accurate view of a company's current debt obligations, but can make it hard to judge just how much cash is currently available. A company using accrual accounting, then, might be better off using credit for more of its purchases. Conversely, a small business that follows a cash-based accounting method, where revenues and debts are only recorded once money actually changes hands, might be better suited to use cash or a debit card for most its daily expenses.

In fact, employing a debit card is perhaps the best compromise measure, one that builds in the immediacy and restraint of cash purchases, yet offers the flexibility as well as access to the often-generous rewards programs of a credit card. Linked to your small business's checking or money market account, your debit card, which effectively works as an electronic check, can become a quick and efficient way to combine many of the best features of both cash and credit purchases. For larger purchases you'll still likely need an actual credit card, but if your bank offers online access, a small business owner could then consolidate much of their company's spending within this account, which would allow for monitoring of spending going out, revenues coming in, and remaining cash flow on almost a real-time basis. And anything that gives you a better sense of your small business's cash flow is always a good thing.

Reassessing Your Business Plan

SBOCTeam — Thu, 27 Aug 2009 22:40:00 GMT

By Rieva Lesonsky

Business planning experts always stress that a business plan is a living document-one that you should regularly reassess and change as your business grows. But in the best of times, how many of us actually follow this advice? If you created a plan when you started your business, when was the last time you actually looked at it?

Well, now is the time to take that business plan out of the drawer. In today's economy, reassessing your business plan isn't just wise advice-it's an essential step to business survival. Let's take a look at the various elements of your plan and how you may need to update them.

The key elements of your business plan are the executive summary, description of your business, market analysis, marketing and sales plan, operations and management plan and financials.

Let's begin with the market analysis. Has your target market changed? Most likely, your target customers have less money to spend than they did when you launched your company. Maybe the demographic makeup of the city where your business is located has changed. Perhaps there's a subset of your target market that turned out to be your best customers, and you should shift focus to concentrate more on them. Update your market research and revise your business plan to reflect the new numbers.

Part of the market analysis is your competitive analysis. How have your competitors changed since you wrote your plan? Has there been consolidation in the industry? Maybe some former key players have gone out of business, and new challengers have emerged. Identify all your current competitors, including both direct and indirect competitors. Then do a SWOT (strengths, weaknesses, opportunities and threats) analysis. What are their strengths and weaknesses, what opportunities do these present for your company, and what threats do you need to be aware of?

Once you've assessed the market, it's time to update your marketing and sales plan. In today's economy, you're most likely looking to cut your marketing and sales costs, while still attracting new business. Are the sales and marketing tactics you've been using still working? Even if they are working, are they the most cost-effective way of getting results?

There are many more low- or no-cost means of marketing these days, including social media and online marketing. If you're not already using these methods, try building them into your revised marketing plan. If you can build your brand with free social networking methods, perhaps you can cut back on paid advertising.

If you have salespeople, do you need to change their compensation structure? How much could you save by cutting back on salespeople who aren't performing, and rewarding those who are? Would a different approach to the sales force pay off? Think hard about what is (and isn't) working for you. The goal is to do more of what works and less of what doesn't.

Next come financials. After you've been in business for a while, you will be able to create far more realistic projections than you could when you first wrote your plan. You'll need to create monthly financial statement projections for the next 12 months, quarterly for the year after that, and annual statements for the next two years. You should also project cash-flow statements-monthly for the next 12 months, then quarterly for the next three years. Finally, project a balance sheet for each of the next three years. Consider working with your accountant to ensure estimates are obtainable and realistic.

How have your financial projections changed since your original business plan was written? If your future financials look substantially less rosy than you'd hoped, try to figure out why. What element of your business isn't performing the way you'd expected? Is there one product or service that's consistently a money-loser? Maybe you're making good money, but spending far more on overhead than you anticipated. Pinpoint what the problem is and figure out how to address it.

Once you have updated these parts of your plan, it's time to take a look at organization and management. The changes in your market, your marketing and sales strategy, and your financials will dictate these changes. If you're adding an in-house sales force, for instance, you'll need to change your organizational structure to reflect that. If low sales are forcing you to slash expenses, you may need to eliminate some staff and outsource their duties instead.

In some cases, reassessing your business plan may lead to a full-scale overhaul of your business model. Perhaps your plan for a chain of retail stores isn't working, and you need to launch an e-commerce site instead. Maybe the business you thought would target teenagers is actually a bigger hit with their moms. In situations like these, you'll need to revise your business description as well.

Last, but not least, is the most important part of your business plan-the executive summary. Revise it, incorporating all the changes you've made in your business going forward. The executive summary is the shortest part of your plan, but the first (sometimes only) part potential investors and lenders read, so make sure your new summary captures everything that makes your business unique, exciting and likely to succeed.

Now that you've got your business plan updated, don't put it back in the drawer again. Refer to it often, and use it as a tool to guide you on your path to business growth.

Rieva Lesonsky is CEO of GrowBiz Media (www.growbizmedia.com), a content and consulting company that helps entrepreneurs start and grow their businesses. Follow her on Twitter at www.Twitter.com/Rieva

What�s the Best Way to Pay My Bills?

SBOCTeam — Tue, 02 Dec 2008 15:03:00 GMT

Part 1: Checks

By Christopher Freeburn

Paying the bills doesn't make anyone's list of favorite things to do. But, like it or not, bills come due and must be paid. No one knows that better than small business owners, who face a myriad of bills every month, ranging from office supplies and equipment leases to office rent, insurance, and marketing services.

Small business owners not only have to pay their bills, but do so in a way that lets them best manage their company's cash flow, insuring that there will be enough cash available to the business at any one time to meet all immediate obligations. In order to achieve this, small business owners must choose between the available payment options to select the one-or the combination of several-that best serves their business's needs.

The paper option

By far the most popular way for small businesses to pay their bills is the simple, old-fashioned paper check. Drawn against a bank account, checks have been the primary means of bill payment for both small businesses and consumers for decades. But that is now changing.

"Checks are facing stiff competition from other forms of payment," says Jim Sheridan, a Boston-based banking consultant. "Credit cards and electronic payment systems are growing quickly. Most businesses still use checks to pay bills, but the trend is definitely heading toward plastic and electronic payment systems. The last stronghold for paper checks are bills that are sent through the mail, but even there we are beginning to see movement away from paper checks."

Nevertheless, checks remain a popular method of bill payment by small businesses for good reasons. "There are some advantages to using checks over credit cards of electronic payments," says Sheridan.

Floating money

Paper checks still offer small businesses a short period of time between when a check is written and when the money is actually transferred out of the issuing business's account, often referred to as "float." During this time the money is still available to the business, and depending on the type of checking account, may still be collecting interest. This float period varies based on a number of variables. A check sent to a utility company, for example, will be marked as received when the check arrives in the mail, but the utility may not send the check to the bank for several days.

The leeway provided by float periods is decreasing, however. In 2004, Congress passed a law permitting banks to send electronic images of checks to each other instead of having to send the actual checks for processing. Under the law, electronic scans of paper checks became equivalent to the actual checks themselves. Since electronic transmission of scanned checks is significantly faster than actually shipping paper checks back and forth between banks, float times have fallen considerably as more banks adopt the system.

Accounting and control options

The traditional paper check also provides definite accounting advantages since the check itself becomes physical proof of a transaction. It is difficult for another party to dispute the receipt of payment if you have a copy of the cancelled check. In recent years, many banks have moved away from returning the actual cancelled checks along with your monthly account statements in favor of printed images of the checks. "It is far more cost effective for banks to print a scanned image of the cancelled check on your statement than it is to physically send you the actual check," explains Sheridan. "Both in terms of the resources needed to transport the actual check to your local bank and then send it out and the mailing costs of doing so." The scanned images on your monthly statement, however, still constitute valid evidence of a completed transaction.

Checks also allow a small business owner to change his or her mind and cancel the payment, even after the other party has received the check. A "stop-payment order" placed on a particular check will cause the bank to decline it. This ability can prove useful to small business owners if a given good or service is found unacceptable after the check has been written. However, most banks charge a fee for a "stop-payment" order, and stop-payment fees are usually among the highest charged by most banks, ranging from $15-$35 per stopped check. "Stop payment fees are like an insurance premium for the bank," explains Sheridan. "If you issue a stop payment order on a check and the bank accidentally pays the check-which does occasionally happen due to miscommunications-then the bank is liable for the amount of the check, not the customer."

Disadvantages of checks

The once unassailable dominance of paper checks as a means of paying bills has been eroding because of the clearest advantage of credit cards and electronic payment methods: cost.

Depending on your bank and type of account, your bank may charge you a small fee for processing every check you write. Purchasing blank checks also requires paying a fee (again, depending on the bank and type of account). These fees can add up.

Additionally, paper checks need to be physically presented to the payee. For the most part, that means sending them in the mail. With postage costs rising sharply over the past few years, small businesses that mail a lot of checks are beginning to notice the cost. "Rising postage prices are a significant reason why so many businesses and consumers are turning away from paper checks for regularly recurring expenses like credit card and utility bills," Sheridan observes. "Equally, it takes a lot less time to pay these bills electronically and avoid the bother of writing a check and mailing it." Credit card and electronic payment systems can also be set up to pay bills automatically at a specified time each month, thereby eliminating the possibility that a payment would be forgotten or lost in transit, which might result in penalty fees or loss of service.

Cash Flow and Accounting

SBOCTeam — Thu, 06 Nov 2008 22:18:00 GMT

by MOBI.1

Cash fuel drives you in business just as jet fuel keeps a plane aloft. A pilot is very careful to accurately predict the fuel requirements. You should place the same importance on cash flow control because if, at any point in the future, you run out of fuel, like the pilot, you've got a BIG problem.

Cash flow control is a simple method of projecting your future needs for cash. It is an income statement covering future periods of time that has been changed to show only cash: cash coming in and cash going out and what your balance of cash is at the end of designated periods of time. This is a great tool because you can predict your future needs for cash before the needs arise.

In cash flow control, for each of a number of intervals of time, you make conservative estimates for your future sources of cash (IN) and future expenditures (OUT). Use low, conservative figures for IN items and use high estimates for OUT items. For the initial period, say a month, you start with the cash you now have. To this you add IN items and subtract the OUT items, which results in the cash at end of the month. The cash at the end of month becomes the starting cash for the next month.

The attached cash flow control spreadsheet shows that ending cash for this first period becomes the starting cash for the second period. The ending cash for the second period becomes the starting cash for the third period, and so on. Your projection should be made for an upcoming 12-month period. The projection will be a useful tool for you to arrange financing before it is required by showing your banker that you are sophisticated enough to provide for future cash in order to preserve liquidity.

You can use this simple cash flow format to make up your own cash flow projection for the business you have in mind. It is so simple, yet can be so valuable!
© 2003-2007 My Own Business, Inc. All Right Reserved.

Get Whats Coming to You

SBOCTeam — Thu, 17 Apr 2008 12:31:00 GMT

How To Get What's Coming to You

By Chris Freeburn

The key to maximizing the success of any business, big or small, is to maximize the amount of cash coming in, while minimizing the amount going out. That means making sure you are collecting as much revenue from customers as you can, while saving every penny possible on purchases made from suppliers. For a big business, this maximize/minimize strategy can boost profits, for a small business it can mean the difference between success and bankruptcy.

Make it easy
The best way to encourage prompt payment from your customers is to make payment as convenient as possible. That means offering them a variety of ways to pay. "Every customer is different," says Dave Bowman of TTG Consulting, a Los Angeles based consulting firm. "Each customer has his or her own unique financial situation and, depending on that situation, may prefer one method of payment over others." If you accept a broad array of payment options, you drastically increase the chances of both making the sale and getting paid quickly.

With credit and debit cards now the dominant payment that customers - both individuals and small businesses prefer to use when purchasing goods or services, accepting plastic is rapidly becoming almost a necessity. Credit and debit card issuers are eager to have their cards accepted as widely as possible, which means that it has become extremely easy for even the smallest businesses to obtain merchant accounts and credit and debit card processing equipment. Still, when choosing a merchant account, it helps to shop around and compare offers to get the best deal. Increasingly, consumers are using online bank transfers and wire transfers to pay for purchases in addition to credit cards. Most merchant accounts can be set up to accept these quick forms of payment in addition to credit and debit cards. Technology is quickly increasing the payment method options available to customers. "It's important for any small business to keep up with the latest popular options," Bowman says.

Discounts for early payment
One way to encourage early payment is to offer an incentive to the customer. Try offering a small discount say, one or two percent - off the total amount of the bill, if the bill is paid within a specified period after the invoice is sent. The period should be long enough to permit delivery of the invoice and a prompt response. Ten days is normally enough. "Providing incentives is a great way to motivate customers," says Bowman. "If you make early payment something that's in their own financial interest, they are more likely to take the hint."

Impose late fees
An alternative method is to impose a late fee, either in a specified amount, or in terms of a small percentage of the overall bill, for payment received after a specified amount of time. The amount of time after which the customer incurs a late fee must be reasonable, otherwise you will risk alienating customers who are struggling to meet their own bills. Late fees should begin at least 30 days from the date of the invoice.
Make sure that your company's late fee policy is noted clearly and prominently on the invoice, and that your sales people mention it when closing the sale. The customer must be aware of the policy for it to have the intended effect. Customers who were unaware of the policy will not be pleased if hit with unexpected penalties. "Nothing will irritate a customer more than being hit with a late fee without clear warning," warns John Tschohl, president of the Service Quality Institute. "If the customer doesn't believe he or she was fairly warned about the policy, that late fee could cost you future business."

Communicate with customers
Your customers have their own problems to worry about. Sometimes bills get misplaced or forgotten by busy people. Before taking any punitive action, beyond any late fees already spelled out on the invoice, over a serious late payment, take the time to send out a letter reminding the customer of the overdue payment and requesting quick payment. Be sure to include a copy of the original invoice, the date it was sent, the amount due, and any policies your company has regarding late payments. Be professional and non-threatening. Even good customers are sometimes late. However, advise the customer that continued failure to pay his or her bill will result in further action, including the possibility that you will send the account to collection. The potential damage to their credit rating may prove sufficient to motivate them to pay.

Debt Collection
If all other efforts fail to induce late or non-paying customers to finally pony up, you can always hire a collection agency, or pursue a case in your local courts. In general, you should wait at least 90 days after the account was due, and only after several attempts to reach the customer by telephone and letter, before engaging a collection agency.
Sending an unpaid bill to a debt collection agency should be the very last option, short of initiating legal action against the non-paying customer. Debt collection agencies usually charge a percentage of any money recovered - normally 15-35%, depending on the agency and the size of the debt. Recognize that any account that is sent to a collection agency is very likely the last business you will do with that customer.

If the collection agency fails to obtain payment, you can consider hiring a lawyer and suing for the unpaid bills. However, given the expense involved, this option should only be pursued in the event of a large outstanding account balance and only if you believe there is a good chance of repayment.

Reducing your payments
If it is important to consider selling merchandise to your customers as building a relationship with them, then it is equally important for a small business owner to consider purchasing as forming comparably valuable relationships with your suppliers. Keep in mind that your suppliers have their own pressures and concerns so see if you can address those when negotiating a purchase. For example, many products have a "slow selling" period. If you know what periods are slow months for your suppliers, you may be able to negotiate a lower purchase price, or more lenient credit terms, for items purchased during this period. By helping the supplier move product during a slow period, you may increase the supplier's good will toward you and your business.

You should establish a payment system through which payments for purchased supplies will be received on time, but not unnecessarily early. This keeps your cash in your account for as long as possible. Try to avoid late payments, since they will only prove as annoying to your supplier as late payments from your customers are to you. If the supplier offers discounts for early payment, you should avail yourself of the opportunity. Doing so will save money and build up your credit worthiness with the supplier for times when you may need to buy on credit.

When considering discounts offered by suppliers, you should refrain from buying more than you think you will need, even if the discount is particularly good, or the credit terms are especially lenient. Purchasing discounts will do you little good if you end up with more product than you can sell.

It is useful to cultivate as diverse an array of suppliers as possible in order to obtain the best prices and terms, and to protect against the sudden loss of a supplier.

Protecting Your Company Against Embezzlement

SBOCTeam — Thu, 29 Nov 2007 13:36:00 GMT

When most people think of the term embezzlement, what often comes to mind are unscrupulous money manager's at large corporations who take millions of dollars through scams and fraud. However, embezzlement can and does happen even at the smallest of firms. The employee that manages payroll and cuts themselves an extra paycheck, or the employee that manages accounts payable and makes a payment to a "mystery firm", even the employee who handles petty cash and uses a few bucks without authorization to buy their lunch are all examples of embezzlement. Embezzlement can very quickly create cash flow and legal problems for a small business. You'll need good financial controls to ensure that one unscrupulous employee doesn't wreck your enterprise.

The following safe guards are useful to protect your small business against potential embezzlement:

1) Segregate financial duties.
Small businesses are particularly vulnerable to embezzlement because there's often just one person balancing the books, counting the cash, making the deposits, and sending out the invoices. Divide these responsibilities between several employees so no one person can steal without someone else noticing that there's a problem.

2) Review payroll checks for names you don't know, and for employees that are no longer with your company.
Unscrupulous payroll department employees sometimes sneak "ghost" employees into the system and pocket their salaries. Consider personally distributing payroll checks to each employee by hand.

3) Set up a positive pay arrangement with your bank.
Under this arrangement, you electronically send your bank a daily list of the checks you've written. If someone alters one of your checks or cuts a check without your knowledge, your bank won't honor it.

4) Review statements often
Whether it is your company's banking statements or company credit card statement, review them regularly for errors or irregularities. Even if your employees have primary responsibilities to manage cash flow, payables, and receivables - rather than solely relying on financial statements from your company's accounting software - check the statements from the financial institutions you do business with.

5) Review your business credit
As important as it is for consumers to keep up with their personal credit history, it is as equally important that business owners are up to date with the information contained within their business credit report. You should review the information contained in your company business credit history regularly, checking for unfamiliar or unknown accounts set up without your knowledge.

As a business owner the buck usually stops with you, take steps to be sure the financial health of your company is protected by staying on top of your finances.

Accountant in a Box

SBOCTeam — Thu, 15 Nov 2007 15:01:00 GMT

The most popular accounting software packages allow small business owners to handle their routine accounting tasks with ease
By Morin Bishop

Small business owners are accustomed to doing everything themselves, including keeping the books. But prior to personal computers, small business owners with no background in accounting needed to hire someone to put together proper income statements, ledgers, balance sheets, and tax forms. Fortunately, today there is a wide array of software applications that guide small business people through each step of creating a proper accounting of their businesses' daily sales activities, expenses, salaries, and purchases; producing professional quality financial statements and even tax forms.

Below we look at four of the most popular accounting software packages for small business owners. All of the following software packages are available for PCs running Windows 2000, XP, and Vista.

1. Peachtree Complete Accounting 2008
(Sage Software; $269; http://www.peachtree.com)
Billed as a complete office accounting program for small businesses, Peachtree allows you to automatically create invoices, payroll records, and checks. The software walks you through the easy steps of recording expenses and customer payments, creating budgets, tracking sales and inventory, and creating detailed financial statements. Excel spreadsheets are integrated into the software, which creates general ledger, accounts payable, accounts receivable, cash flow, and balance sheets, among 125 other forms and reports. Peachtree supports multiple users, and discounts are available for purchases of licenses for three or more users. Peachtree does not currently offer a Mac compatible version of its software.

2. QuickBooks Pro
(Intuit; $199.95; http://quickbooks.intuit.com)
Perhaps the best known personal accounting program, QuickBooks Pro offers small business owners an incredibly versatile accounting program. Geared for people with little experience in accounting or accounting software, QuickBooks features tutorials and on screen help, as well as 30 days of free call center support after registration. QuickBooks tracks all of your business's financial information, including outstanding loans, and generates detailed presentations of sales, customer, vendor, and employee information. The program is capable of sharing information with other popular business software such as Word, Excel, Outlook, and Peachtree. The program features several useful new tools including a vehicle mileage tracker and a cash flow projector. It's also available for computers running Mac OS X.

3. Microsoft Office Accounting Professional
(Microsoft; $99.99; http://office.microsoft.com)
Microsoft continues to leverage the market dominance of its Office Suite by adding Accounting Pro to its array of programs. This software is fully integrated with Microsoft's enormously popular Word, Excel, Outlook, and PowerPoint applications, which makes moving data between programs and keeping on top of upcoming items a relative breeze. A startup wizard will easily import existing accounting data from a number of other programs including QuickBooks and Peachtree and the program can support up to five users at once. Additionally, Microsoft has added a number of services to the program to assist in expanding your business's online presence, including online payments through PayPal as well as invoicing and online payroll services provided by ADP Payroll. It's available for computers running Mac OS X.

4. Premier Accounting Small Business Suite
(MYOB; $299; http://www.myob-us.com)
Building on its Mac roots, MYOB's accounting software is most notable for its clear, easy to understand screens and data entry process. The software contains more than 100 business forms and report types. Features include simple data transfer between sales orders and purchase orders, payroll data importing and preview, and bank statement reconciliation with error correction. The program also allows you to track time billing, jobs, and inventory. Included in the suite is "Staff Files," an application that allows you to record employee evaluations, contact information, resumes, and insurance data, and also allows you to keep track of absences and overtime. It's available for both PC and Macs.

Morin Bishop is editor-in-chief of Priority magazine

Divide and Conquer

SBOCTeam — Tue, 09 Oct 2007 20:07:00 GMT

Keeping your business and personal finances separate makes sense for both you and your company
By Reed Richardson

Many small business owners view their business as an extension of themselves, an outlet for their drive or creativity. Other small business owners are so busy building their businesses that they have little personal life outside it. In either case, most small business owners have sunk so much time, work, and investment into their businesses that the business's finances may become inseparable from their own. But letting the boundaries of personal and business finances overlap can lead to problems that are better just avoided altogether.

Since many entrepreneurs start their companies with their own money, it's natural that the line between business entity and owner is blurred, especially in the early days. Corporations, partnerships, LLCs and LLPs are required by law to maintain official business accounts, but sole proprietorships-the most popular form of small business-are not required to do so. Many fledgling business owners haven't set up a business checking account or obtained a business line of credit or credit cards, so they use their own checks or credit cards when purchasing materials their new business needs. "It's very easy to charge that new printer or PC on your own credit card," says management consultant C. Davis Fogg. "After all, it's your business, and you're the one doing the buying." But doing so creates problems when you file your taxes, Fogg warns. "If you want to deduct business expenses from your tax bill, you are going to have to demonstrate to the Internal Revenue Service (IRS), that they are in fact business expenses," Fogg explains. If all the business purchases are mixed together with your personal spending, the IRS may question whether or not the deductions you claim are valid. If you deduct office equipment as a business expense, the IRS wants to make sure it is only used for business. If you've charged it on your personal credit card, the IRS can legitimately ask if the purchase was entirely business related. This can lead to a time consuming and ultimately expensive confrontation with the government. "No one likes an audit," Fogg says.

Segregating business expenses by using a company checking account or credit card keeps a sharp line between you and your business. This makes it much easier to justify deductions at tax time, since purchases like computer equipment or office supplies, which potentially could have personal uses as well, are clearly defined as business expenses. It can also keep the IRS from going on a fishing expedition through your personal finances, which might prove invaluable on its own.

This is particularly true if your business operates from a home office. The IRS has always been particularly picky about allowing home office deductions, Fogg says. Any evidence that you have used office equipment or space for personal purposes could give the IRS an excuse to deny important tax deductions. But aside from tax issues, mixing personal and business finances muddies your business's accounting. If it becomes difficult to parse your personal expenses from your business's, it will be difficult to get a good handle on exactly how well your company is doing. Worse, it could count against you in the event you try to get a business loan to expand your business. "Banks want to see clear, clean business accounts before they lend you any money," says Kay McDermott, a New York City-based CPA. "You need to demonstrate to the bank that not only is your business generating enough revenue to repay the loan, but that you are running the business professionally enough to keep that revenue coming in."

Co-mingled personal and business expenses often result in messy financial statements, Berman warns. Many banks will interpret that as a sign that you don't take your business seriously enough to maintain proper accounting. That alone can sink your chances of getting a loan or line of credit. Failing to separate business and personal finances is much less excusable today than it was in the past. Today many banks cater to small businesses and have established products and services geared to cater to small business needs. Additionally, there are numerous accounting and business management software packages available at very reasonable prices to help small business owners construct and maintain accurate and professional accounting records for their companies.

Reed Richardson is a writer/editor for Business 24/7 magazine.

Cash is King

SBOCTeam — Sun, 29 Jul 2007 22:59:00 GMT

Even successful small company can find itself in a cash crunch.
Here’s how to keep the money flowing
By Mike Robbins

You’ve done the work, but when will you get the reward? If you don’t quickly collect the money your company is owed, you’re providing interest-free loans to your clients—and robbing your firm of the cash it needs to flourish. Unfortunately, collecting that cash isn’t always as easy as it should be. A 2006 VISA survey found that receiving and collecting payments is the cash management issue that small business owners find the most challenging.

The key to receivables is understanding the policies of your client’s payables department,” says Ruth King, CEO of BusinessTVChannel.com and author of The Ugly Truth about Small Business (2005). “Does your new client require a supervisor’s signature on all invoices? Do they have special rules for large invoices?”

Make a friend in the client’s accounts payable department. If something goes wrong you won’t have to ask strangers to sort it out. And remember that if you fail to follow a customer’s billing rules to the letter, you might not even get a call warning you there’s a problem—many companies will simply file your flawed invoice and wait for you to figure out that something’s wrong. Their payment process won’t even begin until you resubmit an amended invoice, perhaps delaying your money for months.

Always get invoices out the door as soon as possible. Rapidly growing companies often are so busy getting their jobs done that they treat sending invoices as a low priority. But clients won’t pay your invoice until 30... 60... or even 90 days after they receive them, regardless of when the work was done. Each day that you wait before sending out an invoice brings your company one day closer to running short of cash.

Your invoicing responsibilities don’t end when the invoice goes out your door. If the contract says the client has 30 days to pay, pick up your phone on the 31st day and politely ask the client where your money is. Failing to follow up on overdue invoices won’t just slow your cash flow. It could cripple your lines of credit. Once invoices slip past 60 or 90 days past due, lenders start to question whether these bills will be paid at all, and might not allow you to borrow against this future income. Be particularly persistent about following up on late invoices in the summer, suggests Mills. Invoices are likely to fall between the cracks when employees in clients’ payables department and your own receivables department are on vacation. When invoices are paid, deposit checks immediately.

If a client is financially unable to pay your bill, keep the conversation friendly and try to set up a payment plan, even if that means you have to settle for a few hundred dollars a month until the client’s company is back on its feet. “This isn’t a perfect solution,” notes King, “but it’s better than calling in the lawyers.”

MAKING PAYABLES AND PAYROLL PAY OFF

The first rule of payables: don’t— until you absolutely have to. If you agreed to pay in 30 days, wait 30 days; if you agreed to pay in 60 days, wait 60. “If you’re late, just be honest,” advises George Cloutier, CEO of American Management Services, a small business turnaround consultancy. “If they call and ask about their money, say ‘We’re cutting your check on Friday.’ Don’t say ‘It’s in the mail,’ if it isn’t.”

Get to know the credit managers at your major vendors, and find out what they need from you to keep your credit terms attractive. Expect most vendors to be more interested in your credit worthiness than whether your checks tend to arrive a day or two late. “Vendors are much more sophisticated about credit than they were even ten years ago,” says Mills. “If you have a bad financial statement, or are just late with a financial statement, some vendors will be very quick to change your terms. Where you once had 30 days to pay, you might now be C.O.D. That can create a severe cash flow problem.”

Payroll is the single largest recurring expense for many small firms, and even successful companies can find themselves without enough cash to make payroll when their receivables vary dramatically from month to month. Cloutier suggests paying employees commissions based on performance whenever possible, to help reduce payroll expenses during stretches when sales and revenues are low. Pay salaries semi-monthly rather than bi-weekly if your revenues come in monthly. “It seems like a small thing, but if you pay every two weeks, there are two months every year that have three pay periods,” says King. “That third one can be a killer if your clients pay by the month.”

A significant number of small companies unwittingly fail to pay all the payroll taxes and overtime wages they’re supposed to, according to Greta Cairns, Vice President of Human Capital Development at SCI Companies, a professional employer organization. Then tax time rolls around or government auditors appear and between the payments and penalties, these companies face major cash crunches.

Should a temporary cash flow problem leave your company unable to pay its bills, contact your vendors as soon as you learn there’s a problem, explain the situation, and try to work out a payment plan. “Ninety percent of vendors will let you do this, if you have a good credit history,” says Cloutier. “It’s a lot better than hiding the problem and surprising them with the news that you can’t pay when your payment is already overdue.”

You might also consider tapping a line of credit from your bank. A good banking relationship can make a world of difference when a generally profitable business suddenly runs short on cash. To build solid relationships with your lenders, get in the habit of sharing all of your company’s financial news with them, even the bad news. If you’re going to have a slow quarter, explain why. And bear in mind that banks don’t just look at your business when deciding whether to loan you money, “They’ll also look at the business owner’s personal credit history,” says Vargo. “If you carelessly make late payments on your credit card, your business will suffer for it.”

EXPANDING YOUR PAYMENT OPTIONS
Providing your customers with easy payment options is an important consideration for small business owners. “The public is becoming comfortable with being able to pay for goods and services with a wide array of different means,” says management consultant Mike Rosen of Rosen & Associates. “Increasingly people expect to be able to use credit and debit cards at pretty much every point-of-purchase.” If your business is restricted to cash or check payments, it will hurt your competitiveness.

Establishing merchant accounts with credit card vendors will cost you in terms of the fees charged for each type of credit or debit card accepted. However, Rose says that those fees must be considered a cost of doing business in the modern marketplace and should be balanced against the potential cost of business lost because of customer inconvenience. “If a customer finds that he or she can’t use the credit or debit card they usually use elsewhere, they may go elsewhere. If you offer your customers few choices in payment, expect fewer sales.”

Rosen notes that cash and checks are declining in use relative to plastic or electronic money, and that small businesses will have to cope. “Setting up a merchant account to receive credit card payments used to be a hassle,” he says. “But today there is great competition among banks and financial services companies to provide such services, so it has become much easier for a small business to set up credit card processing and electronic payment services.” Rosen suggests shopping around for the best fees and array of services. Membership in local small business associations and chambers of commerce can also result in discounts on merchant account fees.

If your business operates a web site, you might consider an online payment service. Opening a online payment account is relatively easy and permits your business to receive payments via credit cards, electronic checks, and direct account transfers. There are merchant fees associated with such payments, but with online sales becoming an ever-more important arena for small businesses, accepting payment online will only become more of a competitive necessity.

KEEPING ON TOP OF YOUR COMPANY’S CASH

Track the cash balance in your corporate checkbook on a daily basis, suggests
George Cloutier of American Management Services. And don’t give check-signing privileges to anyone else. If you sign every check yourself, you’ll always know about every dollar your company spends.

Small business owners must avoid the temptation to treat themselves to luxuries when their businesses appear to be on the road to success.

Mike Robbins is the author of The Smart Guide to Planning for Retirement (John Wiley & Sons) and has written for numerous magazines such as Moneysworth, Mutual Funds Magazine, and the Forbes family of publications.