Before 2018 ends, it is good idea to complete an overview of your business achievements. The best analysis of progress is to scrutinize your accounting records. As Kevin O’Leary from TV’s Shark Tank says, “Always know your numbers!”
Your analysis should be done before year end so you can understand what you need to improve, avoid or correct in the new year.
There are several accounting challenges every business faces regardless of size. Here are some ideas to overcome accounting challenges before 2019 starts.'
Improving Cash Flow
It’s important to calculate how quickly you collect cash. In other words, understand your cash and billing cycle. I’ve seen small businesses struggle with cash collections because their cycle wasn’t properly implemented and monitored. For example, there wasn’t a repeatable process to send customer invoices in a timely manner.
Sometimes, the issues are simple to fix, such as verifying billing addresses before sending invoices. Is there a policy for sending invoices immediately after services have been rendered or a product shipped?
Understanding this process will increase the likelihood of getting paid on time. Ensuring clear communication between you and your customers on the terms of your services makes the process easier for everyone to understand.
You can also consider alternative modes of payment. Do not rely on cash only as this method of payment can cause delays in receiving payments from your clients. Other options for receiving payments can include credit cards or allowing online invoicing for customers.
- Want more tips about improving cash flow? Check out our Infographic on Creating a Balanced Cash Flow Cycle
Shed Bad Clients
Bad clients can be an accounting challenge. By this, I mean clients who either don’t pay on time or don’t pay at all. It’s pretty obvious such customers are bad for business and can drain your time and energy.
Also, delinquent clients damage your accounting ratios, which can impact your business credit. For example, bad clients increase your allowance for doubtful accounts balance and the corresponding bad debt expense on the income statement. Banks and other lenders refer to these accounts to decide whether you’re effectively managing cash and whether you have too much bad debt on your books. Implementing a policy for bad customers will improve how you deal with bad debt while keeping your focus on servicing customers who pay on time.
- Speeding up your receivables by a week or even a few days can have a long-lasting impact on your cash flow. Find out helpful tips in our Managing Receivables guide.
Check Accounting Ratios
Most businesses fail to perform an analysis of their accounting ratios and as a result can be blindsided by poor performance. Prepare ratios for Inventory Turnover, Debt-to-Equity Ratio, Working Capital, Current Ratio and Accounts Receivable Turnover. The ratios will tell you the financial health of your business and the areas you should focus on in the new year. Like seeing a doctor for an annual physical, you can identify potential problems before they become too large to overcome. Ask your CPA to help with preparing your accounting ratios.
- Want to know more about working capital and why it’s important? Click here.
Call your CPA
Schedule a meeting with your Certified Public Accountant before the end of the year to discuss your business plans for 2019. With recent tax law changes, now is the time to determine whether making year-end purchases, deferring revenue and paying state taxes have tax advantages or consequences.
About Ebong Eka
Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.
Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.”
Ebong is also the founder of The $250 Tax Pro, which provides tax preparation and consulting services in the Washington, DC area.
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