Archive for the ‘Cash flow’ Category

The Home-Based Business: Basics to Consider

Friday, April 19th, 2013

More than 52 percent of businesses today are home-based. Every day, people are striking out and achieving economic and creative independence by turning their skills into dollars. Garages, basements and attics are being transformed into the corporate headquarters of the newest entrepreneurs – home-based businesspeople.

And, with technological advances in smartphones, tablets, and iPads as well as a rising demand for "service-oriented" businesses, the opportunities seem to be endless.

Is a Home-Based Business Right for You?

Choosing a home business is like choosing a spouse or partner: Think carefully before starting the business. Instead of plunging right in, take time to learn as much about the market for any product or service as you can. Before you invest any time, effort, and money take a few moments to answer the following questions:

  • Can you describe in detail the business you plan on establishing?
  • What will be your product or service?
  • Is there a demand for your product or service?
  • Can you identify the target market for your product or service?
  • Do you have the talent and expertise needed to compete successfully?

Before you dive head first into a home-based business, it's essential that you know why you are doing it and how you will do it. To succeed, your business must be based on something greater than a desire to be your own boss: an honest assessment of your own personality, and understanding of what's involved, and a lot of hard work. You have to be willing to plan ahead, and then make improvements and adjustments along the road. While there are no "best" or "right" reasons for starting a home-based business, it is vital to have a very clear idea of what you are getting into and why. Ask yourself these questions:

  • Are you a self-starter?
  • Can you stick to business if you're working at home?
  • Do you have the necessary self-discipline to maintain schedules?
  • Can you deal with the isolation of working from home?

Working under the same roof that your family lives under may not prove to be as easy as it seems. It is important that you work in a professional environment; if at all possible, you should set up a separate office in your home. You must consider whether your home has the space for a business, and whether you can successfully run the business from your home.

Compliance with Laws and Regulations

A home-based business is subject to many of the same laws and regulations affecting other businesses and you will be responsible for complying with them. There are some general areas to watch out for, but be sure to consult an attorney and your state department of labor to find out which laws and regulations will affect your business.

Zoning

Be aware of your city's zoning regulations. If your business operates in violation of them, you could be fined or closed down.

Restrictions on Certain Goods

Certain products may not be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, sanitary or medical products, and toys. Some states also prohibit home-based businesses from making food, drink, or clothing.

Registration and Accounting Requirements

You may need the following:

  • Work certificate or a license from the state (your business's name may also need to be registered with the state)
  • Sales tax number
  • Separate business telephone
  • Separate business bank account

If your business has employees, you are responsible for withholding income, social security, and Medicare taxes, as well as complying with minimum wage and employee health and safety laws.

Planning Techniques

Money fuels all businesses. With a little planning, you'll find that you can avoid most financial difficulties. When drawing up a financial plan, don't worry about using estimates. The process of thinking through these questions helps develop your business skills and leads to solid financial planning.

Estimating Start-Up Costs

To estimate your start-up costs, include all initial expenses such as fees, licenses, permits, telephone deposit, tools, office equipment and promotional expenses.

Business experts say you should not expect a profit for the first eight to 10 months, so be sure to give yourself enough of a cushion if you need it.

Projecting Operating Expenses

Include salaries, utilities, office supplies, loan payments, taxes, legal services and insurance premiums, and don't forget to include your normal living expenses. Your business must not only meet its own needs, but make sure it meets yours as well.

Projecting Income

It is essential that you know how to estimate your sales on a daily and monthly basis. From the sales estimates, you can develop projected income statements, break-even points and cash-flow statements. Use your marketing research to estimate initial sales volume.

Determining Cash Flow

Working capital–not profits–pays your bills. Even though your assets may look great on the balance sheet, if your cash is tied up in receivables or equipment, your business is technically insolvent. In other words, you're broke.

Make a list of all anticipated expenses and projected income for each week and month. If you see a cash-flow crisis developing, cut back on everything but the necessities.

If you think a home-based business is in your future, then don't hesitate to give us a call. We'll set up your business and make sure you have the proper documentation system in place to satisfy the IRS.

 

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Physician Practice Management: Increase Cash Flow Through Cost Segregation Study

Friday, November 9th, 2012
If your practice owns (or is planning to buy, build or remodel) a medical facility, a cost segregation study can offer numerous benefits including substantially reduced taxable income, increased cash flow and lower property tax bills.

Basically, the cost segregation study analyzes total building costs and breaks them down into structural and non-structural assets (real property and personal property). In the case of newly built or purchased medical buildings, many assets can be properly reclassified as personal property, and are therefore eligible for depreciation over a much shorter period of time. The result is larger tax deductions, sooner, which of course increases current cash flow.

If you did not take advantage of a cost segregation study on a building you recently bought, the IRS allows you to deduct in the current year all of the depreciation deductions that the practice was legally entitled to, but did not previously claim.

 

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Financial Tips for February 2012

Friday, February 3rd, 2012
Review Your Savings PlanEstablish or review your savings plan to begin accumulating assets for your life goals. Professional guidance will be helpful in reviewing investment alternatives.

Review Your Retirement Plan

Establish or review your retirement plan. Explore the availability of deferred compensation programs through your employer, such as 401(k) and 403(b) plans. Begin contributing as soon as you are eligible.

Review January’s Budget vs. Actuals

Compare January income and expenditures with your budget. Make adjustments as appropriate to your February expenditures. Make sure you have invested your planned savings amount for January.

Collect Your Tax Information

Verify that you have received all necessary Forms W-2 and 1099 and a statement showing the year-end balance of IRA and Keogh plans. Contact the appropriate company for any that have not been received. For those that have been received, make certain that the amounts agree with your records.

Although taxes for personal returns are not due until April 17, it is best to get an early start since additional follow-up may be necessary.

 

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The Best Financial Tool for Business Owners

Saturday, June 11th, 2011
If there were a tool that helped you create crystal-clear plans . . . that provided you with continual feedback on how well your plan was working . . . that told you exactly what’s working and what isn’t, allowing you to consistently make smart business decisions to keep your business on track for success – wouldn’t you want to take advantage of it?

Well, there is such a tool. It’s called the Budget vs. Actual report. (more…)

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Cash Flow: The Pulse of Your Business

Tuesday, August 3rd, 2010

Unfortunately, many small business owners do not fully understand their cash flow statement. This is shocking, given that all businesses essentially run on cash, and cash flow is the lifeblood of your business.

Some business experts even say that a healthy cash flow is more important than your business’s ability to deliver its goods and services! That’s hard to swallow, but consider this: if you fail to satisfy a customer and lose that customer’s business, you can always work harder to please the next customer. But if you fail to have enough cash to pay your suppliers, creditors, or employees, you’re out of business! (more…)

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Cash Management Tips for Small Business

Friday, April 16th, 2010

Cash is the lifeblood of any small business. Here are some tips to help ensure that your business maintains a sufficient cash flow to meet its financial goals and keep running efficiently:

Toughen up your credit policies. Review the payment terms you offer to customers and tighten them up if slow payment is a problem area for your business. For instance, how long are customers given to pay? What action will be taken if a payment is missed? Be sure your credit terms are communicated effectively to customers before transactions are entered into.

  Tip: Consider requiring advance payments ‘at least in part’ for new customers.

 

  Tip: For many businesses, a routine credit check should be performed before a sales or service transaction is entered into with a new customer.

Come up with a budget – and stick to it. Surprisingly, many small businesses do not engage in the budgeting process. A budget can be extremely effective in helping you keep track of whether cost- and revenue-related goals are being met. Depending on the size and complexity of the business, the budget process might be informal or formal, lengthy or simple. Projected revenues and expenses should be broken down by months.

  Tip: If you don’t already do so, budget for next year’s revenues and expenses near the end of each year. Review budgeted to actual results monthly.

Tighten up billing. If collecting bills has become a problem for your business, you might want to consider increasing the intervals at which customers are billed–e.g., from three months to one month, or from one month to two weeks.

  Tip: Review your accounts receivable weekly or even daily to make sure slow payers are not allowed to slide.

 If you have questions regarding your company’s cash flow and credit/collection policies, please contact us.

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Avoid Three Common Errors in Budgeting

Saturday, April 3rd, 2010

When it comes to budgeting, a vital part of any business’s growth and cash flow, it’s important to estimate your spending as realistically as possible. Here are three budget-related errors commonly made by small businesses, and some tips for avoiding them. These errors tend to throw budget estimates out of line with reality, thereby taking away from a budget’s usefulness.

  1. Not Setting Goals. It’s almost impossible to set spending priorities without clear goals for the coming year. It’s important to know, in detail, what you want or need to achieve in your business.
  2. Cost Underestimation. Every business has ancillary or incidental costs that often don’t get budgeted. For example, each time you buy a new piece of equipment or software, you must budget for staff training and for maintenance of the equipment, as well as the actual cost of the equipment.
  3. Lack of Flexibility. Don’t be afraid to update your forecasted expenditures either several times per year or whenever new circumstances affect your business. Compare estimates to what you actually pay out, and then adjust your budget figures.

Tip: Consider reviewing your budget with us to help ensure accuracy and completeness. Your business growth and cash flow could benefit greatly.

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Improving Cash Flow: How to Get Paid On Time

Monday, March 8th, 2010
Martin C. Lougen, Jr.,  CPA 
 

In “Cash Flow:  The Life Blood of Business” we  touched upon collecting receivables as part of a solution for  improving cash flow.  Here are a few more details to help you get paid on time.

Define your policy. 

It’s important to have a clear credit policy.  Your sales force should not be able to sell to customers who are not credit-worthy, or become delinquent.  A system of controls for checking out a potential customer’s credit should be in place before an order is delivered.

Tell Customers About Your Payment and Collection Policy

Make sure invoices include a telephone number customers can call or a website address customers can access with billing questions, and a pre-addressed envelope.

The faster invoices are sent, the faster you will receive payment.

Follow Through on Your Payment and Collection Terms

If your policy is that late payers go into collection after 60 days, then stick to that policy.

Here is a suggested routine for calls to delinquent payers:

  • Become familiar with the account’s history.
  • Call the customer and speak with whoever has the authority to make the payment.
  • Request payment in plain, non-apologetic term.
  • If the customer offers payment, ask for specific dates and terms.  If no payment is offered, inform the customer of the consequences.
  • Take notes on the conversation.
  • Make a follow-up call if no payment is received and refer to te notes taken as to any promised payments.

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Cash Flow: The Life Blood of Business

Wednesday, January 27th, 2010
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Cash is essential to the success of any business. Cash is the “life blood” that keeps a business operating. If cash dries up, the business fails. Understanding your business’ cash flow is a key managerial skill. Failure to properly plan cash flow is one of the leading causes of small business failures. Understanding the basics will help you better manage your cash flow. Cash flow considerations become even more important as the economy struggles and businesses need to tighten all financial controls.Your business’ monetary supply can exist either as cash on hand or in a business checking account available to meet expenses. A sufficient cash flow covers your business by meeting obligations (i.e., paying bills), serving as a cushion in case of emergencies, and providing investment capital.

The Operating Cycle

The operating cycle is the system through which cash flows, from the purchase of inventory through the collection of accounts receivable. It measures the flow of assets into cash.For example, your operating cycle may begin with both cash and inventory on hand. Typically, additional inventory is purchased on account to guarantee that you will not deplete your stock as sales are made. Your sales will consist of cash sales and accounts receivable credit sales, usually paid 30 days after the original purchase date.This applies to both the inventory you purchase and the products you sell. When you make payment for inventory, both cash and accounts payable are reduced. Thirty days after the sale of your inventory, receivables are usually collected, increasing your cash. Now your cash has completed its flow through the operating cycle, and the process is ready to begin again.

Current Assets

Cash and other balance-sheet items that convert into cash within 12 months are referred to as current assets. Typical current assets include cash, marketable securities, receivables and prepaid expenses.

Cash-Flow Analysis

Cash-flow analysis should show whether your daily operations generate enough cash to meet your obligations, and how major outflows of cash to pay your obligations relate to major inflows of cash from sales. As a result, you can tell if inflows and outflows from your operation combine to result in a positive cash flow or in a net drain. Any significant changes over time will also appear. Understanding this will lead to better control of your cash flows and will allow adequate time to plan and prepare for the growth of your business.It is best to have enough cash on hand each month to pay the cash obligations of the following month. A monthly cash-flow projection helps to identify and eliminate deficiencies or surpluses in cash and to compare actual figures to past months. When cash-flow deficiencies are found, business financial plans must be altered to provide more cash. When excess cash is revealed, it might indicate excessive borrowing or idle money that could be invested. The objective is to develop a plan that will provide a well-balanced cash flow.

Planning a Positive Cash Flow

Your business can increase cash reserves in a number of ways.

  • Collecting receivables: Actively manage accounts receivable and quickly collect overdue accounts. You stand to lose revenues if your collection policies are not aggressive. The longer your customer’s balance remains unpaid, the less likely it is that you will receive full payment.
  • Tightening credit requirements: As credit and terms become more stringent, more customers must pay cash for their purchases, thereby increasing the cash on hand and reducing the bad-debt expense. While tightening credit is helpful in the short run, it may not be advantageous in the long run. Looser credit allows more customers the opportunity to purchase your products or services. You should measure, however, any consequent increase in sales against a possible increase in bad-debt expenses.
  • Taking out short-term loans: Loans from various financial institutions are often necessary for covering short-term cash-flow problems. Revolving credit lines and equity loans are types of credit used in this situation.
  • Increasing your sales: Increased sales would appear to increase cash flow. However, if large portions of your sales are made on credit, when sales increase, your accounts receivable increase, not your cash. Meanwhile, inventory is depleted and must be replaced. Because receivables usually will not be collected until 30 days after sales, a substantial increase in sales can quickly deplete your firm’s cash reserves.

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