Monthly Archives: December 2016

Simple Small Business Accounting Tips

It’s an easy area to overlook. As a business owner, you might look at making your website more effective, improving your management skills, company morale, conserving electricity, and getting the best prices on your raw materials but there’s one place that you might not think twice about.

Your accounting department probably isn’t an area you scrutinize. One or two people sit at a desk all day, shuffle paper, type a lot, and at the end of the day, if bill collectors weren’t calling you, you’re happy.

Or maybe your accounting department is you. You might not be an accountant by trade so you’re always looking for a way to make the act of money shuffling more efficient is welcome. We’re here to help.

1. Consider Lockbox Processing

If you receive a large amount of customer payments, you’re a prime candidate for lockbox processing. Instead of having payments sent to your business address, they go to a PO box where the bank processes the payments and deposits them directly into your account. The bank sends you electronic records of the transactions that are automatically entered into your accounting software.

If it seems a little complicated, it will be at first but the amount of time saved by not manually processing payments makes the investment of time and money worth the hassle.

2. Improve Credit Screening

A sale is only a positive for your business if you actually get paid. A customer who doesn’t pay becomes a bad debt and that costs your business money. If you’re shipping product on credit, do a credit check first. Invest in software that will automatically screen customers and put a hold on shipments if their credit looks questionable.

Ask for a deposit or ship COD to avoid the accounting nightmare of chasing down bad debt. Even if you recover the debt, you probably lost money anyway.

3. Rethink how you reimburse employees

The process is often cumbersome. Employees who amass travel and entertainment expenses fill out a form, include a stack of receipts, and submit for reimbursement.

The problem, however, is the errors. Mislabeled codes, addition errors and missing information mean more work for the people processing the payment.

Instead, use an electronic entry system that prepopulates information and allows the employee to scan receipts. All or most of the process becomes automated.

4. Use a purchase card

One employee spends $5 and needs reimbursed. Another spends $10 and yet another spends $7. How about the $29 invoice that arrived today? All of these small charges take far too much time for such a small amount of money.

Instead, give key employees and/or departments purchase cards. When they make a purchase, they submit the receipt or invoice and accounts payable matches the receipt to the statement. Instead of multiple checks, they cut only one for the month.

5. Use a standard chart of accounts

Instead of allowing people to code invoices as they would like, make everybody use the same account numbers. When processes are consistent across all employees and departments, the accounts people can process paperwork more rapidly.

6. Make new employees complete all paper work before starting

Allowing important employee documents trickle in makes it more difficult for HR and accounts payable. Send the employee all paperwork prior to their first day and tell them that it has to be submitted before they start working.

7. Collect or apply taxes immediately

Waiting to do something later invites accounting errors. When employees are paid, account for payroll taxes right away. Same with sales taxes. And pay estimated taxes regularly and on time.

8. Set up separate coding for ongoing projects

If you’re constructing a building, creating new technology or other project that is ongoing, set up separate line items. This allows you to pay bills as needed but gives the project manager clean, easy to generate reports of how costs compare to the budget. Entering costs of the project into the general ledger at a later date means processing the same invoices twice. There’s no need for that.

9. Download bank records daily

If you’re using software like QuickBooks or another higher-end package, downloading transactions from the bank daily is easy and automatic. Not only does this allow you to check for fraudulent activity but it makes generating monthly reports faster. Higher-level managers don’t want to wait until the middle of the month for financial statements from the previous month. Easily solve this problem by doing the work throughout the month while transactions are fresh.

Special Tips for Selling Your Business and Retiring

The majority of business owners are planning on the proceeds from the sale of their business to fund their retirement. However, the 2013 State of Owner Readiness Survey revealed that over 80% of business owners have no formal transition plan.

Historically, only 25% of businesses up for sale actually sell. Those odds are likely to become worse as millions of baby boomers attempt to sell their businesses over the next decade in the Exit Bubble®.

Combine the lack of readiness with the historically low success rates for selling a business, and you could be looking at the perfect storm for business owners. Below are five tips to increase your odds for a successful business sale:

1. Start planning NOW! It is never too early or too late to start planning the sale of your business. You’ll need to become informed on the emotional aspects to anticipate, and educated on the numerous tactical complexities of the business sale process. This will help put you on a level playing field with buyers and increase the odds of a successful sale.

2. Create a clear vision of what comes next. One of the biggest reasons businesses don’t sell is that business owners don’t have a vision of what they will do next. They can’t imagine not being the owner of “XYZ Company,” and the fear of the unknown causes them to walk from a deal at the last minute (cold feet).

For you, what comes next might involve working in a different occupation, dedicating more time to charity work or becoming a coach. Taking the time for this introspection early in the sale process greatly increases your odds of successfully getting to the closing table.

3. Be armed with the facts. It is natural that, as a business owner, you value your business higher than most buyers. You have spent years of blood, sweat and tears building your company and know it inside and out. Unfortunately, buyers don’t have that same level of understanding or legacy. Before buyers begin to ask questions, perform your own pre-sale due diligence on your business. View your business through the eyes of a potential buyer to identify impending issues and arm yourself with detailed facts about the business. Sellers who can answer detailed questions with facts and data (as opposed to opinion and anecdote) instill confidence in buyers and make the due diligence process easier.

4. Minimize surprises. Surprises are fun for birthdays but not when selling a business. When dealing with a potential buyer, it is human nature to want to avoid discussing a negative issue such as a troubled customer relationship. Especially for proud business owners who feel confident the relationship issues can be resolved. Buyers may not have that same confidence without the years of history with that customer. Instead, identify potential negative issues during your pre-sale diligence, and disclose them immediately while you still have negotiating power. Once you sign the letter of intent, a negative surprise in due diligence could result in a reduced purchase price or a failed deal.

5. Don’t take it personally. Due diligence is the most personal thing you will do in business, and it’s critical you don’t take it personally. Buyers routinely perform due diligence to confirm what you have told them and to find potential reasons to reduce the purchase price. This is standard business practice. Buyers question everything about the business and want facts to support the answers you have provided. You might feel like you are being attacked and a buyer is criticizing your business. By having a vision for your life after you sell, and by being prepared to answer the difficult questions, you can keep your emotions in check and get to the closing table.

You may not be planning to sell your business anytime soon, but you might find yourself needing to sell your business. An unexpected illness (yours or a family member) or a significant change in your financial situation may bring you to the negotiating table sooner than anticipated. Preparing yourself and your business now will increase your odds of a successful sale when the time comes.

How to Get Approved Business Loans for Start-Ups

Businesses have trouble securing financing at the best of times. Normally you have to have two to three years of solid financials before a money lender like a bank will even consider lending you money. Often you need to have a strong personal credit record to be eligible for a decent business loan from start-up. There are other lenders that offer business loans specifically for start-ups so the process is easier now than it was a decade ago. However, to stand the best chance of securing those much needed funds, follow these four steps to cement getting approved:

Be a homeowner
As a homeowner you will already have created a history of borrowing and are in possession of a large asset that can be used as security. Lenders are risk conscious. Business start-ups are in a high risk bracket. There is no way to tell if your idea will work, or you are a good money manager or if the execution of the idea will go to planned. They have to rely on your existing assets to pay the debt in the event of default.

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Include all your assets in your application
The level of borrowing you can secure is normally determined by the amount of security you can place against the loan. Being a homeowner is suitable as usually that is the biggest asset a person or a family owns. In a business, there may be more than one person applying so each person should list their assets as security to garner the highest loan possible.

Items that are considered assets include:

Cash
Property
Shares
Bonds
Vehicles

The higher your asset value the more money you are able to borrow. Be careful not to overextend yourself as you are liable to lose each asset you use as security against your loan.

Have a good income record
Have your old tax returns on record to demonstrate that you have had a good history of income. Even though starting a new business will affect this, if it is demonstrated that you are capable earner then it does make the lender less cautious.

Account exactly where the business loan will be allocated
This is vitally important to getting your loan approved at the maximum level. If the lender can see where exactly the money is going they can ascertain if your application is viable. If you just make an application of $50,000 with no indication of how you are going to spend it then you may well get rejected. If you make an application for $100,000, where the total is itemized you are likely to be approved:

$15,000 is for premises
$50,000 is for equipment
$25,000 is for inventory
$10,000 is for staff

From this quick list, the money lender can see that if you default they can retrieve money from equipment and inventory that will account for 75% of the total loan as well as the security you have put up.