Accounting and Budgeting

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.

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