Posts Tagged ‘invoicing’

8 Reasons Small Businesses Can’t Make a Profit

November 11th, 2013

8 Reasons Small Businesses Can’t Make a ProfitI know from running an accounting and bookkeeping practice that many small business owners are making the same mistakes, and those mistakes prevent them from accomplishing the goal of being profitable. After all, a business isn’t there just to make money, it should be profitable.

This list of eight common mistakes that reduce or eliminate profitability is one all small business owners should check themselves against:

1.  Underestimating all the costs involved in producing, packaging and shipping a product
2.  Overestimating the size of the market for a product or service
3.  Undercharging for their services
4.  Not classifying expenses properly to take advantage of tax codes
5.  Purchasing too much, not enough or the wrong kind of insurance
6.  Overpaying on bank fees and credit card fees
7.  No collection process in place for customers that have not paid
8.  Not having accurate, up-to-date reports to provide the above information so corrections can be made

Many business owners try to keep their own records, (or have a spouse or friend help) and because they lack the knowledge and/or time to do it properly, they don’t have the information needed to evaluate and correct potential problems.

Sometimes there is enough money coming into the business to continue despite making many of these errors but correcting them could mean a much better payback for the owner. More often what happens is that the owner gets frustrated and overwhelmed. In such an environment of confusion time is not leveraged properly, decisions can be made in desperation, and more and greater mistakes are made, further distancing the company from its profit objective.

Once a proper bookkeeping system is set up and brought current, the owner can see the whole picture and assess where changes need to be made. Sometimes minor changes like switching to a different bank or credit card company, increasing prices, or outsourcing a specific task can have a big impact on profitability. Other times something more involved is necessary such as implementing a system of pricing levels, changing advertising tactics, or even changing the direction of the company to be able to offer a more competitive and profitable product line.

Having accurate bookkeeping, and its associated reports, provides the business owner with the necessary information to get a clear picture of the economics of the company. Evaluating business operations and making the day-to-day decisions becomes a process based on the facts of the business not the “feel”. Even if your company makes pants, you shouldn’t be running it by the “seat of your pants”.

6 Tips for Cost Improvement

June 12th, 2013

6 Tips for Cost ImprovementMost small business owners can agree that saving more money is a continually reoccurring topic. Cutting costs, boosting cash flow and paying less in taxes, will allow you to keep more of what you make, and is a good entrepreneurial frame of mind to be in.

To take this from prudent thinking to actual practice, and put more money in your own pocket, utilize these six tips to put your business on the path to fiscal improvement.

1. Talk to your employees
Employees who are on the front lines of your business, dealing with customers, processes and systems, often have ideas for ways you can cut costs. Have you listened to them? Sit down with your employees and brainstorm ways that costs could be cut without sacrificing quality. Make it more interesting for them by offering a bonus to the people who come up with ideas that have a positive impact on the bottom line.

2. Pay attention to detail
Often, substantial sums of money slip between the cracks a few dollars at a time. One good crack to seal up could be done by reevaluating your businesses recurring expenses. This could be a subscription you signed up for a year ago, insurance that you no longer really need, or a monthly membership fee to an organization you’re no longer involved with. Auto billing is a great way to reduce the cost of paying reoccurring expenses. But it is common that these fees can get rolled into your monthly credit card bill to the point that you no longer notice them. And little sums do add up. Go over all invoices and bills in detail and cut out anything you don’t really need. And don’t stop after looking at auto payments, review everything that isn’t providing a return on investment (ROI).

3. Negotiate with vendors
What you’ve been paying your vendors does not have to be the final word on what you continue paying. Ultimately, vendors want to stay in business too, and they’re dealing with a tough economy just as you are. Many are often willing to negotiate lower prices rather than lose a regular customer. The potential to save money, without even having to change vendors, can result in better prices on everything from office supplies to the phone bill. You certainly won’t lose anything by trying, and you may find yourself able to shave several hundred dollars off your monthly operating costs.

4. Stay on top of your invoices
One of the biggest cash flow problems for small businesses are the slow-paying customers. To speed up the process, make sure your invoicing system is working smoothly. Your invoices should be clear, easy to read, and simply state what is due and when. Make sure you’re meeting any special requirements of each customer, such as including purchase order numbers, and that your invoices are going to the right person at the right address. This may sound basic, but simple errors like putting the wrong suite number on an invoice can cause delays.

5. Enable customers to pay invoices faster
Once your invoicing system is cleaned up, look for other ways to encourage customers to pay you even faster. Depending on your industry and financial situation, this could mean offering a discount for cash payments or early payments. Encourage your customers to use e-payments. This will not only enable faster payment, but also saves processing time on your end.

6. Partner with your accountant
Sure, you have an accountant, but do you only get together at tax time? A good accountant can help shape up your business’s finances all year long. Enlist your accountant to give your company a checkup. What could be improved? Where could you cut costs, free up cash, or make more by putting profits back into the business? Check in with your accountant once a month to follow up on results, fine-tune systems, and make sure your company is on track. There is a wealth of information in your books for improved business decisions. Have your accountant help you access it and be rewarded with higher profits, better cash flow, lower expenses, reduced taxes, and more money going into your pocket.

7 Tips for Getting Paid

May 17th, 2013

Not getting paid by clients or customers is one of the most frustrating aspects of running a small business. But when not getting paid impacts your small business’s cash flow, it’s one of the most dangerous, too. What small business owner hasn’t worried about getting paid at some point? Whether it’s the number of customers that are running past due accounts, or the client who seems to be reluctant to pay for completed work, having proactive policies in place that anticipate these eventualities is your best defense.

Here are seven ways to make sure you get paid for the goods and services you sell.

1. Don’t extend credit automatically to new customers/clients.
Small businesses, just like large businesses, need to have credit policies in place that provide guidelines for determining which customers or clients will be extended credit and on what terms.

It may be your business’s policy, for instance, to never accept personal checks as payment, only company checks, debit cards, credit cards or cash.

If you are considering extending credit beyond that point to individual clients or customers, you should have a procedure set up where the customer or client has to fill out a credit application and/or do a customer credit check. The fee for a credit report can seem expensive depending upon how detailed the report is, but it’s definitely money well spent if it prevents you from not getting paid for that big sale.

2. Take partial payment in advance.
If it’s sensible in terms of the price of the goods or services, ask for a deposit or retainer up front. This is an increasingly common business practice for higher-ticket items and services; no reasonable customer should be offended by such a request.

For instance, if you provide services, you might charge a percentage of the projected bill or a set amount as a retainer before you start work on a project with the remainder due on completion of the task. Or break the bill into thirds, asking for a third before work starts, a third halfway through the project and a third upon completion.

The beauty of partial payment is that it ensures that you get paid something even if the customer or client defaults on the rest of the bill.

3. Invoice promptly.
This seems like a no-brainer but many businesses are slow to invoice their clients. And by establishing the degree of urgency with their own example, why should anyone be in any hurry to pay them?

Customer/client invoices should be prepared and presented immediately upon delivery of the goods or services, or as soon as reasonably possible. Not doing so can make your business look indifferent to getting paid and slow down your cash flow for no reason. Waiting to prepare your invoices at the end of the month, for example, you may be adding as many as thirty extra days to your cash flow conversion period. QuickBooks software and Point of Sale systems make quick invoicing easy.

4. State payment terms visibly and clearly.
If you want to get paid promptly, don’t leave it up to the customer or client to decide when your invoice should be paid. Rather than giving them invoices that say vague things such as “Payable upon receipt”, make sure your invoices state specific payment terms, such as “Payable within 30 days” or “Due Date: ____________”. Your invoices should encourage prompt action on the part of your customer.

5. Reward customers for paying promptly.
Offering customers a discount for paying their invoices early, can help you get paid more quickly. For instance, if the usual policy is to have payments due in 30 days, offer a small discount such as two percent to customers who pay within 10 days.

6. Establish a follow up procedure for customers who miss payments.
Even if you’ve never had a collection problem to date, you should still have a system in place for flagging late payments, and a procedure for contacting the customer or client when the payment is late. The more quickly you follow up on a missed payment, the better your chance of getting paid.

Typically, such a procedure starts with a letter that simply states the bill is overdue and requesting the customer’s immediate attention to the matter. Nowadays there are many channels that you can use to contact the customer. Some are more effective than others. If time allows, I recommend starting out with a phone call to “touch base” with the customer or client. You want to come across as friendly and polite, not threatening in any way. Sometimes the person has just forgotten or missed seeing a bill and a quick phone call is all it takes, meaning you get paid and you don’t have to go through any of the rest of the collections procedure.

Sending collection letters via email is nice because it automatically creates a copy of the collection letter for your files, and automatically date stamps your message. However, because of email filtering and email overload, it may not be a very effective way of getting your collection letters to customers and clients. You’ll want to send them in other ways, too, such as regular mail, fax or even courier, depending upon the size and importance of the debt.

7. Turn the overdue account over to a collection agency.
Collection agencies collect debts for a fee or percentage of the total amount owed. This fee is based on how old the debts are (the fresher the better) and how much business a creditor has to offer. Expect the rate for collecting consumer accounts to be higher than for business-to-business accounts. Collection agencies have experience with, and knowledge about debt collection that you, as an individual business owner, don’t have and hiring one can be well worth it, if the amount of outstanding accounts receivable warrants it.

Proactive Policies Are the Best Way to Get Paid

As you can see, the best ways to ensure you get paid for the products you sell and the services you provide is to have proactive policies and procedures in place to cut down on the number of delinquent accounts receivable your small business has to deal with.

Things such as having credit policies in place, performing credit checks, having a partial payment policy and being clear and upfront about your payment expectations, both in person and on your invoices will go a long ways towards ensuring that you get paid, and your small business doesn’t get stuck with a lot of bad debt.