Surviving a Slow Season and Increasing your Cash Flow

Wednesday, January 15th, 2020

Maintaining and managing healthy cash flow is key for small businesses, particularly if your business is seasonal in nature, like a construction or landscaping business. Remember, work tends to wax and wane with the seasons and you will need to consider the slow times during more prosperous times of year in order to survive. Without adequate cash flow, you won’t be able to pay vendors, payroll, or rent during the off-season.

Create a Statement

The first thing to do is create your cash flow statement to track money coming in and going out of your business. The aim is a positive cash flow year-round, to meet your financial commitments and responsibilities.  

Forecast your Cash Flow

Once you have constructed your cash flow statements, you can develop a cash flow forecast for the next year. This will demonstrate the highs and lows of the company due to the season which helps you better predict and prepare. This also identifies if you need to figure out a plan to gain additional capital to supplement the slower seasons in order to survive.  If you spot a potential issue, begin to apply for help and financing before it becomes an emergency; a cash flow forecast helps you do this.

Collect What is Due

To increase your cash flow, become more assertive about collecting what is owed to you. Have a payment policy in place that rewards prompt payment for service. Make payment arrangements short-term and aggressively go after outstanding debts. Be persistent with patrons that are slow to pay and request deposits on scheduled projects or products to generate more incoming cash.

Play with Payments

Play around a little bit with creditors in terms of extending payments a bit longer during the slower months. Stretch out payments during the off-season if the creditor is open to this to give you more time to collect from those that owe you, too.  

Cut for a Cushion

Cut back and create a cushion for your business. Reduce what is going out and increase what is coming in to prepare for the slower season; it is as simple as that. Come up with creative ways to increase offerings during these times, while cutting down on services, subscriptions, and payments that you are making to help build your nest egg.

Get with a Program

Invest in an accounting software program, like QuickBooks, that is user-friendly and inexpensive. This software will help you create cash flow statements that allow you to monitor and assess your fiscal situation at a glance. This allows you to adjust and identify issues before they become financial crises.

Talk to a Professional Today

Remember that hiring a financial planner and accounting professional is the most prudent and practical way of sustaining and surviving during all seasons. Work now to preserve cash flow and build reserves for later. Don’t wait until times are tough to reach out for help; plan ahead and talk to the industry experts at BMH Accounting today.

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5 Financial Variables to Improve your Business or Brand’s Bottom Line

Tuesday, December 31st, 2019

Want to see improvement in your business or brand’s bottom line? Pay attention to your company’s Financial Variables and discuss these influences with a qualified accounting professional to determine if your revenues can be improved, or to learn more.

Five financial variables that can improve your bottom line are:

1) Look at your Profit & Loss Statement  

When was the last time you looked at your Profit and Loss (P&L) statement? This document lays out your revenues, expenses, and costs during a determined period of time. 

All public companies are responsible for issuing these statements quarterly, as well as at the end of the fiscal year. Reviewing and understanding a P&L statement can help you evaluate your business’ fiscal health.

2) Know the Shape of your Finances  

Over half of small businesses are negatively impacted by late payments; how are your finances? Make a resolution to pay invoices on time and save late fees and charges. These expenses impact your cash flow and bottom line, over time.

3) Get Familiar with Your Cash Conversion Cycle  

The cash conversion cycle (CCC) measures the amount of time that it takes to move inventory, get paid, and, in turn, pay your own creditors. This cash flow determines how long between payments as well as how quickly you can turn-over your product. 

A familiarity with your CCC can indicate if you have a healthy cash flow as well as how long your company can survive in tight times. 

4) Become More Aware  

Part of your business self-awareness comes from checking out your financials. Develop and revisit a cash flow forecast and business budget for your company. 

It makes good sense to set aside a time, such as the end of the fiscal year, to review all your management practices and financial habits with a reliable and reputable accountant. Don’t have an accountant? Make now the time to retain one.

5) Tally Cash on Hand  

Do you know how much cash and liquid assets you have on-hand? It may surprise you; sometimes, companies don’t have as much readily available capital as they think – and need- which could put you in a bind if business is slow. 

Don’t risk the fiscal health of your company; take time to count up what you have on hand for liquid assets, i.e. cash, and begin to think about setting up a rainy-day fund.

Making changes or deciphering financials for your business can be confusing; make sure to discuss your options further with your accountant before altering the way you operate your company. These industry experts may be able to help guide and advise you on the best ways to reach a better bottom line.

Want to learn more about these financial variables, or other ways to enhance the condition of your company? Talk to the accounting professionals at BMH Accounting; they are familiar with financial variables that can make a significant difference in the overall value of your business investment.

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5 Key Mistakes That Could Lead to a Small Business Failure

Thursday, October 31st, 2019

A small business failure can be surprising in terms of what led to the demise and how it may have been avoided. There are some common errors that many small business owners and entrepreneurs make that lead to problems that cannot be overcome. Subsequently, it is these errors that often lead to the end of the company or business.

Avoid these 5 key mistakes that lead to a small business failure:

 

Money Issues  

Probably the biggest reason for small business failure is money; aim to keep your overhead as low as possible and track all your expenses. Be frugal, even when you don’t need to be and be on the lookout for ways to monetize and further improve your bottom-line. Always have a goal of streamlining your operations in efforts of curbing costs and improving revenues to succeed.

Too Big, Too Fast  

Another reason small companies don’t succeed is that they try to take on too much, too fast. Start small, such as a pop-up shop or an event like a festival or fair to learn the market. Some businesses assume there is a market for something only to discover that there simply is not; know the market before investing.

No Back-up Plan  

Have you heard the expression, ‘prepare for the worst but hope for the best’? That should be your mantra when it comes to your small business. Always have a back-up plan and anticipate, even expect, things to occasionally go wrong or askew. That is simply part of doing business. Make sure that you are fully covered in areas like insurance, staffing, and that you have a slush fund ready for a rainy day.

Lack of Business or Industry Experience  

Are you sure that you fully understand the market that you are taking part in? Surprisingly, many businesses fail due to a lack of understanding of their market. For example, some restauranteurs may not understand the time, commitment, and money that it takes to open a restaurant in a specific area.  Many successful companies encourage entrepreneurs to go with what they know.

Underestimate the Undertaking  

Speaking of underestimation, make sure that you are well-aware of the effort and time that go into making a business successful. Remember that you will have a wide range of obligations, from marketing and human resources to serving clients and keeping facilities clean.  Make sure that you never minimize the work that it will take to make your endeavor a success.

These common issues are not always a result of the business owner making rash or compulsive decisions, but rather may be related to the industry, current market, or other unforeseeable circumstances that impact revenues and force closure.

For help keeping your business matters precise and timely, reach out to BMH Accounting, Don’t let mismanagement be the reason your business fails to thrive and succeed; get the accounting assistance that you need.

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Do Your Employee Reimbursements Comply with IRS Tax Regulations?

Thursday, September 12th, 2019

When it comes to employee reimbursements, you must be careful that they comply with current tax law and IRS tax regulations. If not documented and posted correctly, expense reimbursements may get confused for income, which can create a mess. Furthermore, when your staff struggles for prompt and accurate reimbursements, it can create hostility and angst at the workplace; make things a lot easier with the services of a tax or accounting professional and a solid accountable plan.

Employee Reimbursements

Using an accountable plan to document and pay employee expense reimbursements means that the payment is not part of your employees’ wages which makes them exempt from taxation, like federal income or employment taxes. This has benefits for both the employee and your company, as well. If you choose not to use an accountable plan for reimbursements, the payments are subject to taxes and considered part of your staff’s taxable income.

Business Connections

Remember and remind employees as needed that each reimbursed expense under your accountable plan needs to be connected to business; the definition of a business connection is that it is a legitimate expense- allowable as a deduction- and covered or incurred by your employee while they are performing services, tasks, or work for your company. Some examples might be hotel accommodations during a business trip, meals during work-related events, or gas driving to job sites or to visit clients. These expenses should be easily documented with receipts, bills, or statements.

Employee Accountability

Depending on the accountability system that you have in place for your Employee Reimbursements, it is key that a paper-trail documents the expenses and that any excesses are accounted for and paid-back. There are some IRS guidelines that can be adapted and adopted to your workplace- or you can set your own parameters for reimbursing employees quickly and also tracking expenses accurately. It is key to keep these matters clear and concise for when tax time rolls around.

Prompt Payment

Just as it is important for your employees to substantiate expenses promptly, it is important that you do what you can to expedite reimbursements, too. A reasonable time frame for substantiation of expenses is within 60 days, and any overage should be paid within 120 days, in most cases.

Tax Tips

  • Your employees may deduct their work-related expenses, but it requires itemization.
  • The deduction for these expenditures is limited to the amount that is more than 2% of their adjusted gross income.
  • Make sure that your reimbursement arrangements meet IRS requirements for an accountable plan, which may have potential tax advantages for you.

The safest way to deal with employee reimbursements is with a reputable and reliable tax or accounting professional. Talk to the experts at BMH Accounting to learn more and escape the worry surrounding employee reimbursements.

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Why a Cash Flow Analysis is Crucial for Your Small Business

Thursday, August 15th, 2019

Cash Flow essentially determines the health and solvency of your business. Poor management of cash flow is to blame for the downfall of over 80% of all businesses, according to one study. Cash flow is how money comes in and goes out of your business, and it is imperative to monitor.

Cash flow analysis takes a closer look at this movement:

Cash Flow Analysis

Cash flow analysis takes a closer examination of different things that could be impacting your cash flow; some of the things involved may be inventory, accounts receivable, accounts payable, and lines of credit. By looking at each of these components, you will find ways to curb costs as well as improve cash flow ideally.

Simple Equation

For a simple equation to conduct a cash flow analysis, compare unpaid purchases at the end of your month with your total sales for that same month. This will reveal if you will need to spend more money in the coming month than you have, which points to a possible cash flow issue. If your total unpaid purchases are more than the sales that you have due, you could face a money problem.

Identify Lags

Another benefit of conducting a cash flow analysis of your account receivables is that you will be able to pinpoint lags in prompt payment. In other words, the assessment should identify any customers that are slow to pay their bill with you.

Small Business

Small businesses should be particularly concerned with conducting regular cash flow analysis. This is key for companies that could grow quickly or that pay more for labor due to a smaller workforce. It is also key when you need to invest in equipment, inventory, or supplies to get off the ground.

This is very prudent for seasonal companies and businesses, also, like landscapers or holiday-themed stores and establishments. It is important to track expenses, revenues, and cash flow for these companies that depend on small spurts of patronage to thrive year-round.

Falling Behind?

It is not uncommon for cash flow issues to be the result of poor bookkeeping. Many business owners or entrepreneurs are simply too busy to keep their books, invoices, and accounts in order. Accounting software and services offer a solution to cash flow systems and analysis. Consider hiring a bookkeeper or service that will take care of cash flow statements on your behalf.

Want to learn more about cash flow statements and systems? Talk to the professionals at BMH Accounting; they will take care of bookkeeping to ensure small businesses, self-employed contractors, and entrepreneurs keep their books up to date and don’t fall behind in areas like accounts payable, invoicing, and collections- all that impact the overall health and success of any company.

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