Tag: business

Stay in Touch With Your Accountant Even After Your Tax Return is Filed

Posted by Diane Pineda on

Tap your CPA’s knowledge and experience

As your business grows so do the complexities of complying with the regulations and requirements that may apply to you and your business. Your accountant is available to assist with accounting and compliance issues. In a business environment where these rules and regulations are constantly changing you want to be sure you are covered. Make sure you keep the lines of communication open throughout the year and take advantage of all the knowledge and expertise your accountant has to offer. The added value from keeping in touch with your accountant could extend well beyond tax services.

How is your business actually doing?

COMPLIANCE conceptIf you are familiar with basic accounting and maintain your own set of books, but can’t seem to make sense of the reports your accounting software is producing it may be time to sit down with your accountant. This is a great way to analyze how your business is actually doing. Your accountant is well versed in what your cash flow and finances are comprised of and could be an extremely useful resource when it comes to planning your future, setting goals, and assuring growth.

Consider outsourcing your bookkeeping

Success and growth may mean that more time and focus is needed with daily operations. The accounting and tax rules and regulations that become applicable are also more complicated than what you may have seen in the past. Allowing your accountant to take charge of the bookkeeping tasks allows you to focus on managing your business and creates a relationship where there is constant communication.

Together, you can develop a strategic plan for the future while discussing aspects of your business that may need change or attention. The conversations and accuracy of the financial reports will provide you with an accurate understanding of your businesses profitability and allow for accurate projections to be made which results in an easier tax filing season.

Ask questions

You should be asking your CPA questions about the financial aspects of your business that you may not be familiar with and would like to learn more about. These conversations can lead to you feeling more comfortable and confident while making informed decisions to assure a successful business.

Stay in touch

Your accountant can offer the proper guidance needed to make you consider all possible outcomes, consequences, or opportunities that may arise when making business decisions. Keeping them informed about any significant changes is imperative to avoid negative repercussions when it comes to accounting or compliance issues. Be sure to stay proactive in keeping your accountant apprised of decisions regarding your personal finances, business engagements, and any other significant changes in your life. With expertise in many different areas, your accountant can offer you insight and support even after you’ve filed your tax return.

Additional resources

If you haven’t yet found the CPA that’s right for you, check out the post, “How to Choose the Right Accountants.”  The post, “Does Your Small Business Need Help with Bookkeeping Tasks” can help you decide if outsourcing these important tasks is right for your small or mid-size business.

Choosing The Right Accounting Software

Posted by Maria T. Rollins on

Get the Accounting Software Your Small Business Needs to Succeed

If you are looking for an accounting system for a small business you may want to start by reviewing the features included in prepackaged solutions such as QuickBooks or Xero. These are relatively inexpensive and can be set up and functioning quickly with some user training.

Businesswoman working on laptop.Depending upon the version purchased, these packages will offer the user the ability to perform basic bookkeeping functions such as

  • Creating estimates and invoices
  • Syncing bank or credit card accounts
  • Printing checks
  • Reconciling bank accounts
  • Exporting data to Excel
  • Maintaining a General Ledger
  • Providing basic financial reports such as Balance Sheet and Profit & Loss statements.

If not offered in the basic versions, more advanced features may include preparation and printing of 1099’s, payroll, inventory tracking, time & billing, budgets, and enhanced financial reporting. In addition to the pre-packaged accounting software, there are many add-on applications that can automate many business processes.  For example, applications are available to provide point of sale solutions, enhanced inventory management, paperless bill-pay processes, employee expense/reimbursement processing and sales tax automation. There are even CRM and document management add-on applications available to help manage and grow your business.

Do your homework before buying accounting software

Not every app will integrate with every software package or version so it is important to do your homework. And if remote access is important to you, many packages offer both cloud-based and desktop versions of their software. Be sure to compare the features offered in each since certain functionality may be available in one and not the other.

It is also important that the system you use for your business provide an audit trail and the ability to lock down closed accounting periods. These functions will protect the integrity of the data and limit unauthorized posting or deletion of data.

Accounting software for a growing business

So what do you do when you believe you have outgrown the small business packaged software solutions such as QuickBooks or Xero?

First, be certain that it is the accounting software that you have outgrown and not your operational software. For example, a large volume distributor may have intricate inventory management, markup and costing operational needs that are best managed through industry-specific operational software. If this is your dilemma, then it is not only necessary to evaluate the accounting functions of the software; most often, the operational functionality will take the lead in the selection process.

Although they are getting better, we often see excellent industry-specific operational systems that lack functionality and integrity on the accounting and financial reporting side. In these circumstances, it is important to determine if the benefits of operational reporting outweigh the accounting functionality. If so, some customized software enhancements may be needed at additional cost. These operational and accounting software packages will be much more costly than packaged software and require significant training for all users. Most often it is recommended to run a new system simultaneously with the prior system until the integrity of the data can be tested and trusted.

In either scenario your accountant should be able to help you in the software selection process. He or she should understand your business operations, user needs and reporting requirements and be able to offer valuable insight in your selection process. Your accounting software should allow you to process transactions efficiently and provide financial reporting that will help your business be more profitable.

If you have questions about choosing the right accounting software for your small business, KRS CPAs can help. Give me a call at 201.655.7411 or email me at mrollins@krscpascom.

Structuring a Business Sale to Minimize Income Taxes

Posted by Gerald A. Shanker on

Many of the considerations in structuring a business sale are dependent upon the type of entity that operates the business.

For the purposes of this post, we will limit our discussion to sales of businesses operating in the corporate form, either as S or C corporations.

Tax Advice Puzzle Shows Taxation Irs HelpIn a business sale, the seller prefers to sell the stock representing the business ownership, but the buyer prefers to purchase the assets of the corporation. The seller wants a stock sale because it generates a capital gain, taxed at a 20% rate.  The buyer prefers to purchase the assets because the full purchase price is allocated to the assets purchased, creating tax deductions for depreciation and amortization.  In a stock purchase, the buyer steps into the seller’s shoes, receiving no tax benefit from the price paid until the business is sold.  This issue is usually resolved by compromise, sometimes involving a price adjustment.

C corporation vs. S corporation asset sales

There is a significant difference between an asset sale by a C corporation and an asset sale by an S corporation. Sale by a C corporation results in double tax because the selling corporation is taxed on the gain on the asset sale, and the shareholders are taxed on the distribution to them by the corporation.  Sale by an S corporation that has been an S corporation for at least five years preceding the sale is subject to only one level of tax.  Because S corporations are pass-through entities that do not pay federal income tax, the entire gain is passed through to the shareholders for inclusion on their personal income tax returns.

If your business operates as a C corporation and you are contemplating sale, you should consider making an S corporation election.  This will allow you to avoid a double tax, but only if the corporation has been an S corporation for at least five years prior to the sale.  If the five-year requirement is not met, the S election will be disregarded for purpose of the sale and the sale will generally be treated as having been made by a C corporation.

In certain circumstances, a sale transaction can be structured in which the seller is taxed at favorable capital gains rates and the buyer receives ordinary deductions for a large part of the purchase price. This would occur if seller had personal goodwill, such as customer or supplier relationships not owned by the corporation.  In this structure, the seller would recognize capital gain and the purchaser would deduct the price paid for the goodwill over fifteen years.

Learn more about selling a business

For more information on this, see my article which may be accessed using the following link: http://krscpas.com/wp-content/uploads/2016/02/Business-Sales-and-Personal-Goodwill-G-Shanker.pdf

This article is intended to present general concepts in structuring the sale of a business. If you are considering the sale of a business, you should contact a qualified CPA for specific advice.

How to Choose the Right Accountants

Posted by Maria T. Rollins on

Tips for choosing an accountant for your business or family

Businessman showing a superhero suit underneath dollar symbolLet’s face it, to be called a certified public accountant (CPA) one must have a certain educational background as well as proven knowledge (i.e., by passing a rigorous exam). We believe CPAs have the business acumen that allows them to prepare basic financial reports and tax returns. You may also expect your CPA to fill the role of business consultant to help you achieve certain business and personal results.

How do you know if a CPA is right for you?

You can start by asking the following questions:

  1. How many years of (corporate, partnership, individual, estate) tax experience do you have?
  2. If I use you/your firm, who will prepare my tax returns? Who will be working on my account?
  3. Do you hold any advanced degrees? What associations are you a member of?
  4. What if I am audited? Will you represent me? What are the additional costs?
  5. Will you review prior years tax returns at no additional charge?
  6. Do you have expertise in my industry or with a specific issue relevant to my facts and circumstances (i.e. stock options, government contracts, tax credits, etc.)?
  7. How do you bill for your services/what will you charge?
  8. What if I need accounting or bookkeeping help? Do you offer these services?
  9. What if I need a loan or credit line? How can you help me?
  10. If I decide to use you, what should I expect?

These basic questions should spark conversation that will not only provide you with the assurance that the CPA is qualified, but it should also provide insight as to how the CPA can help your business or family. This conversation should allow you to evaluate how the CPA can educate you and how the CPA will collaborate with you to help you achieve your goals. The CPA should be focused on understanding your needs and clearly communicating how his or her skills and expertise will help meet those needs.

Most CPAs will tell you they meet many of their new clients through referrals from existing clients or from other professional service providers such as attorneys, bankers and investment advisors. Other business owners, family and friends are also good sources to seek out for accountant recommendations. If you are unlucky finding a CPA through referral, you can try your state’s CPA society as it will likely have a directory of its members. You can also check the CPA firm’s website and partner profiles for services offered, industries served and other specific expertise.

All CPAs are NOT all the same

The industries CPAs specialize in and the services they offer will vary according to firm size and partner/staff expertise. At KRS, for example, we provide full-service accounting, tax planning and preparation, business office processing and business valuation services to businesses. We also offer family office services, individual tax planning and preparation, and estate accounting and tax preparation to our individual clients.

If you have questions about choosing the right accountant for your family or business, I’d be happy to help. Contact me at mrollins@krscpas.com or 201.655.7411.

Accounting Methods for Construction Contractors

Posted by Simon Filip on

 

For construction contractors, there are more options for accounting methods than those available to other business taxpayers due to the unique nature of construction activities and the inherent imprecision that can arise in measuring profit at different points in time during a construction contract. The IRS provides several steps for construction contractors to follow when determining which accounting method is appropriate.

Concept of construction and design.Cash method – under the cash method, revenues and expenses are recognized based upon receipt and disbursement of funds. Contractors are generally eligible for the cash method of accounting, if they have $10 million or less in gross receipts annually for each of the past three years.

Accrual method – under the accrual method, revenue is generally recognized when all the events have occurred that fix the right to receive the income, and the amount of the income can be determined with reasonable accuracy (i.e., as billing invoices are issued). Expenses are deductible when all events have occurred that establish the fact of the liability, the amount can be determined with reasonable accuracy, and economic performance has occurred.

Completed-contract method (CCM) – under the completed contract method, no profit is recognized on a construction contract until completion of the contract.

Although the completed-contract method allows you to defer taxes on your income, it prevents you from deducting losses on unprofitable jobs until the contract ends. It can also push taxpayers into higher tax brackets by bunching income into a single year.

Percentage of completion method (PCM) – the percentage of completion method is a variation of the accrual method, where revenue recognition is measured not by a reference to billing but rather by applying an estimate of relative completion of a contract to the overall contract value. To determine how much income to report for each contract, calculate your project completion factor by dividing deductible project costs for that year by the total estimated cost to complete the project. For example, if you spent $100,000 on a project that will cost $1 million to complete, your project is 10% complete. Multiply that 10% factor by the contract’s total value to determine how much income to report.

Choosing the right accounting method

The choice of accounting method can have an important impact on tax-related disbursements. Effective tax planning relies heavily on the concept of deferring the payment of tax. Construction contractors and their advisors need to consider the optimal method under their specific circumstances provide the greatest benefit.

If you have questions about the accounting method you should be using for your construction firm, contact me at sfilip@krscpas.com or 201.655.7411.

Who’s Really in Control of Your Internal Controls?

Posted by Maria T. Rollins on

As a small business grows beyond its owner or owners, a system of internal controls becomes necessary. We would all like to believe that our business assets are safe from unscrupulous employees and that the financial information we use to make critical business decisions is free from errors and omissions. However, without a system of internal controls, there is little possibility that even the most innocent error or omission will be detected.

Vote equalityInternal controls are the checks and balances that are in place to at least provide a fighting chance that errors, omissions, duplications and misappropriations will be detected and avoided. They can apply to many different aspects of the business.

For example a business can have internal controls over financial processes, IT applications and systems, as well as over human resources. My focus is on accounting and financial internal controls that a small business can put into place immediately without breaking the bank.

The 10 internal controls you need

Ten internal control procedures businesses of all sizes can immediately put into place:

  1. Separate the check writing and check signing responsibilities among two or more individuals. If using online bill pay, keep account passwords secure and only with those authorized to make the online payment.
  2. Have a person who is independent from the check writing or accounts receivable responsibilities open the mail. When opening mail, immediately endorse and stamp checks “for deposit only” and list checks on a log before turning them over to the person responsible for depositing receipts. Periodically reconcile the incoming check log against deposits. Small offices can have the business owner open all mail and populate the check log.
  3. Require paychecks to be distributed by a person other than the one authorizing or recording payroll transactions or preparing payroll checks. Have employees sign for their paycheck and periodically inspect signatures against employee files. Many fictitious employee schemes have been found through “surprise” in person paycheck distributions.
  4. Reconcile bank accounts monthly. Ideally these reconciliations should be done by an independent person who doesn’t have bookkeeping responsibilities or check signing responsibilities. If you don’t have the personnel to segregate these duties, make sure the reconciliation is adequately reviewed by another person or by the organization’s independent CPA.
  5. As part of the reconciliation process, periodically examine cancelled checks to ensure that checks are in sequence, payees are recognized, endorsements are appropriate and signatures are valid.
  6. Set account limits on company credit card use and require employees to submit original receipts for all purchases. Examine credit card statements and receipts each month to ensure charges are business related and authorized.
  7. Compare financial results against budgets, forecasts and prior year results. This comparison should be done monthly and any inconsistencies or variances should be investigated.
  8. Avoid time lags between approval and processing since falsifications can occur after the approval of the transaction. After approval the document should not be returned to the preparer.
  9. Limit access to assets such as inventory, petty cash and equipment. Periodically count the assets and compare the results to the underlying accounting records.
  10. Develop formal policies and procedures for purchasing. Separate the purchasing function from the requisitioning, shipping, and receiving functions. Include the verification of goods and services received to the contract or purchase order and invoice.

Protecting against fraudulent activity

Internal controls are not only needed to help protect a business against fraud or misappropriation by bad employees. They are used to detect innocent errors, duplications or omissions.

Once a business determines formal internal controls are needed it shouldn’t delay in establishing these procedures and protocols; as we all know, the longer the delay in implementing a process the more difficult the buy-in for change.

In the end management is ultimately responsible for the organization’s internal controls. Be aware that any system will be hard pressed to prevent or detect fraudulent activity through employee collusion. A good system of control will help to prevent what could be costly errors and omissions as well as discourage deliberate misappropriation of organizational assets.

If you have questions about setting up internal controls for your business, contact me at 201.655.7411 or mrollins@krscpas.com.

Considerations in Buying a Business

Posted by Gerald A. Shanker on

 

I have helped many clients purchase businesses, and probably advised just as many to walk away from deals.  What makes a deal good and what are the important factors in evaluating the purchase of a business?  If you are considering purchasing a business, your goal should be to minimize the risk that you will overpay for the business.

businessman looking to successBuying a business is an investment decision, no different than buying stock in a publicly traded company. When investing in public company, you consider two factors; how much can you expect to receive in dividends and what do you expect the stock price to be when you sell.  Not all stocks pay dividends, but absolutely no sane person would purchase stock in a company if they expected the share price to go down during their period of ownership.

It is the same when you buy a business. The important factors are how much income will be available for distribution to you (the dividend) and how much will the business be worth when you are ready to sell (the share price).  The problem is, there is usually more uncertainty (risk) in a private business than in a public company.  As a purchaser, what can you do to understand and minimize the risk?

Consider the risk

Accounting records tell the story of a business, and speak for themselves. If the business does not have good accounting records that go back at least five years, that is risk.  The more explanations and stories that are needed to support the accounting records, the greater the risk.  I always tell clients that they should only pay for what the seller can prove.  As far as we are concerned, if income isn’t reflected on the books and reported on the tax returns, it does not exist.

Concentration risk is another important consideration. If the business is economically dependent upon a single customer or a few customers, a single product supplier, or a few key employees, the future of the business is risky.  What would the business look like if the important customer was no longer a customer, the single supplier could no longer supply product, or some key employees went to work for a competitor?  Could the business continue profitable operations if one or more of these events occurred?

More than a salary

If you buy a business and the only thing you get is a salary for working there, you are not buying a business, you are buying a job. Take the emotion out of your decision. You would be better off getting a job somewhere else and not putting your investment at risk. However, if you expect the business to grow, allowing you to receive more money in the future, and eventually sell the business for more than you paid, that is a different story and should be your goal.

I have touched on a few of the many things that must be considered in the purchase of a business. Before you buy any business, you should conduct thorough due diligence, which is usually performed by CPAs and attorneys experienced in business purchase and sale transactions.  This will help you understand the business, its risks, and provide the information that will allow you to estimate the value of the business.

If you’re buying a business and have questions about the risks involved, contact me at 201.655.7411 or gshanker@krscpas.com.

Good Business Performance Starts with Good Record Keeping

Posted by Maria T. Rollins on

Good financial record keeping is vital to the success of any business. Good records help plan for the future, prepare accurate financial statements and tax returns, and enable business owners to create sensible budgets and cash flow projections.Taxes_iStock_000001334173_Medium

Small-business owners have a multitude of issues to contend with, whether they are in startup mode or more seasoned. One area that often requires a bit more of their attention is keeping good financial and other records for their company.

How keeping good records makes for good business

Your bookkeeping records help you make smarter and well-informed business decisions, for one thing. You don’t know where you’re going if you don’t know where you’ve been. Solid financial record keeping for your business helps you plan for the future based on real data. Your company’s financial records:

  • Provide the basis and support for your tax return preparation (track income, expenses, deductions, etc.).
  • Help you prepare financial statements (income statement, balance sheets, cash flow) and other financial reports that help you monitor your company’s progress. Are you doing better or worse than anticipated or compared to prior years or budgets?
  • Track inventory and maintain better inventory controls and spending.
  • Identify income sources and pricing levels.
  • Collect revenues and know which customers owe you money.
  • Track your basis in property – needed to figure gain or loss on the sale, exchange or other disposition of property; depreciation, amortization, depletion, and casualty losses.
  • Are the foundation for formulating accurate, sensible budgets and cash flow projections.

So beyond the “why keep financial records?” are several other questions we often hear from our clients who are business owners.

Which records should I keep?

Although there is no law stipulating what you must keep, for a small business we recommend your bookkeeping records include reconciled bank statements, cash receipts by customer, payroll reports, vendor invoices, accounts payable and accounts receivable aging, and anything specifically related to your field or industry that you’ll need for your tax returns. We recommend tracking all your business-related income and expenses in an accounting software program.

Depending on your occupation, you might have expenses related to: travel, meals, entertainment, wholesale goods or supplies, and equipment purchases or leases. In addition to your financial data, The Association of Records Managers and Administrators (ARMA International) offers these basic guidelines:

  1. Business documents – Establish your right to conduct business, such as articles of incorporation, by-laws, and business and tax-collection permits.
  2. Business agreements – Demonstrate your company’s obligations to your customers/clients, suppliers, vendors (such as contracts), and your staff (such as employee benefit packages and individual selections).
  3. Executive decisions – Show how business decisions were made and commitments honored, including annual reports, dividend records, board of directors meeting minutes and actions, and company health and safety documents.
  4. Regulatory compliance – Proof you have met legal and regulatory requirements of your industry.

How long do I keep financial records?

There is no set answer but general guidelines that relate to income tax returns are outlined by the IRS. Time frames range from three to seven years, depending on certain criteria (the IRS recommends “indefinitely” for certain other scenarios). Hold on to all filed tax returns and basis records because they will help with preparation of future returns and provide excellent financial history. Employment tax records should be retained for at least four years.

A good rule of thumb is to keep documents as long as you need to prove the income or expense/deduction on a tax return. Your accountant should be able to recommend the best course of action for you.

What is the burden of proof?

Burden of proof refers to your responsibility to substantiate entries, deductions, and statements made on your tax returns. If you plan to deduct certain expenses, you must be able to prove certain elements of them.

The IRS offers more in-depth information and guidance about the how, what, and when of maintaining financial records at https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Recordkeeping.

Can’t keep it all straight? No worries.

Maintaining your company’s books and other records may feel daunting to owners of small businesses without a controller, staff accountants or a good bookkeeper. Our Business Office Group’s EZ-Bookkeeper Solutions fill that void and relieve that pressure by handling all your full-charge bookkeeping and back-office administrative needs. This staff has been trained by our own CPAs and ensure your financial records will be well organized and in order, and that statements and reports will be properly prepared and filed on time.

Give us a call to find out more at (201) 655-7411 or go to www.krscpas.com/services/business-services-bookkeeping/ for details.

Buy-Sell Agreements

Posted by Gerald A. Shanker on

 

Buy-sell agreements are the most important, but perhaps most overlooked agreement that a business can have. These legal documents protect business owners when one owner leaves the company for any reason.

Although many businesses have buy-sell agreements, they were likely drafted when the business was formed many years ago and have not been looked at or updated since. If your business has a buy-sell agreement, take it out, read it, and ask your accountant to calculate what would happen if the agreement were triggered today. Evaluate the results from both sides, as a buyer and as a seller.

  1. The first question is, is the price calculated pursuant to the agreement fair to all parties? If is unfair, it is time to execute a new agreement. (By the way, don’t assume that the younger party to the agreement will be the buyer, or that the older party will be the seller. Owners may leave their businesses for many reasons.)
  2. Another important issue in buy-sell agreements is the payment terms. Does the agreement require a lump sum payment or payments over an extended period of time? If a lump sum payment is required, how will that payment be funded? If funded by insurance, is the policy still in force and is the amount sufficient to make the payment? That $1 million term policy that was purchased when the business was formed may not be enough to cover the price today if the business has grown. Also, term insurance expires at certain ages, perhaps leaving no funding for the agreement.
  3. If the agreement requires that the business be valued, it should specify the standard of value to be used. There are big differences between fair market value and fair value. I once served as an expert in a dispute in which the agreement used the term “value.” The standard of value issue was eventually resolved, but not before the parties spent a lot on legal fees.

Don’t pay the price for no agreement

Not having a buy-sell agreement is a different kind of agreement—one to spend a lot of money, perhaps hundreds of thousands of dollars, on professional fees, and years to resolve the issues. Companies without an agreement end up letting a judge or a jury decide what will happen to the business that they worked so hard to build.

Although it is often an uncomfortable conversation to have with your partner, it is a much easier conversation to have now, when you are both healthy, your interests are aligned, and retirement or disability is not on the horizon. It is a far more difficult to reach an agreement after a triggering event, especially when that conversation is with a widow or children who are not at all concerned with fairness.

I have only touched on a few of the issues surrounding buy-sell agreements.

Take a look at your agreement with your CPA and attorney to be sure that it is up-to-date, or contact me at GShanker@krscpas.com with comments and questions.

Cash Flow Projections Can Protect Your Company’s Future

Posted by Maria T. Rollins on

cash flow managementFor many small businesses and startups, managing their cash flow is a continual challenge. Questions that come up often are:

  • How do we manage seasonal peaks and valleys?
  • How can we keep our cash working for the business throughout the year?
  • What’s the best way to use excess cash to benefit the business?

Good cash flow projections will help any business stay on course towards a brighter future. If you have you ever heard the expression, “Failing to plan is planning fail” then you know how important cash flow projections are to the financial health of your business.

What is a cash flow projection?

A projected cash flow statement lays out a prediction of your company’s available funds over a period of time. It represents cash receipts minus cash payments (income and expenses) over a particular time period (e.g., month, quarter, year). It is a fundamental and vital business tool.

Cash flow projections affect and inform all areas of your business, from human resources to various operational concerns. A good cash flow projection should be realistic and based on your annual operating budget, prevailing market conditions, industry trends, and prior sales cycle data. This will all affect decisions about your inventory (retailers, manufacturers, distributors), staffing levels and payroll, business loans, and your accounts payable process.

If your business is in startup mode, a cash flow statement involves compiling a comprehensive list of budgeted expenses and a conservative estimate of revenues as well as the timing of payments and receipts. Professional and licensing fees, incorporation costs, security deposits and other expenditures associated with starting a business must be included.

Looking at these metrics will help you identify your company’s anticipated cash flow from income and expenses by month (which in turn informs your budgeting process). By updating these cash flow projections on a regular basis, using the actual financial records (receipts, checking account figures, etc.) you will be better prepared to keep that cash flow in the positive column. Managing your cash flow by having smart projections will also affect your company’s credit, as a lender will want to see those projections as part of the business loan process.

How cash flow projections help small – and all – businesses

Decisions that are guided by your company’s cash flow projection may include:

Accounts receivable – You can’t pay your company’s bills if you aren’t being paid by your customers. Cash flow projections will guide decisions about the payment terms to institute from your customers. For instance, does it make good fiscal sense to accept credit cards? What about offering discounts for early payment?

Sales forecasts – How accurate are the sales forecasts and how can we meet them?

Budgets – Budgets are vital road maps to keep companies on track against their actual income and expenses. A cash flow projection by month or by quarter will inform the budgeting process and then help business owners and managers course-correct as needed.

Inventory management – What’s on hand and how do you pay for it? How quickly does your inventory convert to cash? Do your vendors insist on large minimum orders or can you go on a smaller on-demand ordering system?

Business line of credit – You might need a line of credit from your bank to sail through seasonal cash flow crunches; a solid projection will help you get the credit you need to remain viable throughout the year. Another factor here is how debt service impacts your monthly cash flow.

Business loans – If you plan on making capital improvements or will be expanding and need business capital, showing the lender a smart cash projection chart will show you are keeping strong financial records and have long-range plans in place that align with your financials.

Excess cash – If your company is profitable and you find your cash flow is positive, take a look at projections to determine how to use that extra cash. Should you reinvest in the company (and avoid that business loan)? Pay down business debt? Expand into new markets? Award employee bonuses?

In short, projecting your sales and the accompanying cash those sales bring to your company will help you develop smarter budgets and guide more informed business decisions. Cash management will help you prepare for surpluses and deficits.

Getting started on developing your company’s cash flow projection

It all starts with accurate, timely accounting records. Most accounting software will provide cash flow and budget reporting. Or, ask us about our bookkeeping services for small businesses to get your financial records set up properly and maintained regularly.

Want to know more? Download our free Managing Your Small Business’ Cash Flow Guide to find out how to make the most of the money flowing into and out of your business. It’s filled with helpful tips and industry secrets to keep your revenue working as hard as you do.