Given the difficult current economic conditions it is more important than ever that business owners take control of their finances. This means understanding who owes them money, to whom they owe money, and the profitability of goods and services sold. We suggest business owners review the following areas:
Cash
- Surprisingly many businesses have bank accounts that have not been reconciled in many months. It is critical to know your current cash balances. Quoted bank balances are insufficient as they do not take into account uncleared checks or pending electronic debits.
Accounts Receivable
- Review a current accounts receivable aging report to understand which customers owe you how much money and how many days’ sales outstanding are represented by your accounts receivable.
- Identify bad debt risks and determine collections strategies for those accounts.
- Establish credit limits to mitigate collections risk.
- Review credit hold policies.
- Establish criteria for cost-effectiveness of using a collections agency or litigation.
- Understand the cash flow impact of delinquent accounts.
- Review current accounts payable aging report to understand which vendors you owe how much money and how many days’ expenses are represented by your accounts payable.
- Identify vendors to whom the business owner has personally guaranteed debts
If cash flow does not permit payment of all bills when due, try to renegotiate payment terms with vendors and prioritize vendors based upon ongoing business plans.
- Review trends in growth rate and profit margins, both gross margins and operating margins, as well as the return on capital that has been invested in the business.
- Review the profitability of different goods and services, not just the business as a whole.
- Adjust cost structure and management attention to focus on areas offering the greatest potential for profitable growth.
SmartBooks can help in each of these areas.
You should know how your business is performing as you go, not long after the fact. Financial and operational reports are worth little unless they are available when business managers need the information to make good business decisions. A timely close used to mean 15 to 30 days after the end of a month. These days we can close a company’s books within a week using best practices and technology tools.
Cash
- SmartBooks accounts for cash on an ongoing basis and can provide a near-real-time cash balance to business owners.
- We provide weekly A/R report to clients to facilitate internal collections efforts.
- SmartBooks, with the benefit of having a founder attorney with collections expertise, can manage accounts receivables for clients to improve cash flow and minimize bad debt expense.
- We identify bad debt risks, recommend credit limits and credit hold policies, and assess when a collection agency or litigation is cost-effective.
- We provide clients weekly A/P reports so business owners understand their liabilities and can prioritize payment when necessary.
- We provide clients with a monthly income statement and analysis report showing profit margins and trends in growth rates and margins and return on invested capital. We can also track various other business metrics that are important to your business and generate those reports on a regular basis.
- For clients needing more extensive financial analysis, planning and management, we introduce one of our Chief Financial Officer partners to consult on strategic finance issues.
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