The Importance of Record Keeping

A survey of businesses filing for bankruptcy reported that 58% of respondents did little or no record keeping. This does not mean that a business will fail if good records are not kept – but record keeping combined with other good management practices dramatically improve the odds of success and prosperity.

Here are some easy and inexpensive ways to assure good records.

1. Set up an accounting system that will record all financial transactions. This is easiest done with an automated system like Quick Books.

2. Use the accounting system! Use it to write invoices, pay bills, and reconcile the bank statement. I had a client who used Quick Books only for invoicing – he wrote the checks manually and spent hours balancing the bank statement, and never really knew what his account balance was or whether he was making money. Regularly view reports that show your bank balances, what you are owed by customers, and what you owe vendors.

3. If you have two or more employees, use a payroll service to process payroll. This step assures that the critical payroll records are maintained, tax filings are properly made, and payroll taxes are paid on time.

4. Create an annual budget and financial projection that will serve as a road map in helping you to make sound business decisions.

5. Have a professional review your financial statements at least once a year.

6. Keep accurate and careful records for each customer. In case of a dispute you need to be able to substantiate your case.

7. Keep an accurate and up-to-date personnel file for each employee.

8. Carefully file, and have access to, important documents, such as leases.

Good record keeping breeds better organization which breeds a more productive business.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com

Collecting money from customers

So my client asked me, “How do I collect past due accounts. My terms are net 30, but customers are taking 60 days or more to pay. I do not want to alienate my customers by taking a hard line on collecting”. Here is what I suggested to this client (and to other clients who have accounts receivable issues):

1. Make sure that the payment terms are clearly noted on the invoice. These will be your terms – unless you have accepted a purchase order from a company that clearly spell out different terms, in which case you will have to show and accept the customer’s terms. Also, the invoices should be sent out as soon as products shipped or services rendered.

2. Two days before the due date, call the customer and ask for accounts payable. Introduce yourself as being from the accounts receivable department of your company. Then say, “my records show that our invoice (number) for (invoice amount) is due for payment (give due date). Can you tell me when the check will be written?” There will be one of several responses:

a) “I’m sorry, but I have no record of the invoice”. Your reply will be, “If you will give me your fax number, I will fax a copy to you right away”.

b) “The check will be written on (date).” Write down the response along with the person’s name and thank them for their help.

c) Most other answers will be delaying tactics. Leave your name and number and ask to be called as soon as the “problem” is resolved. Suggest that you will call back in one week to determine current status, and get name and extension of person you are talking with. (Then call back in one week).

This approach will a) make you the squeeky wheel that gets attention without being at all threatening; b) make the accounts payable clerk (especially in a larger company) your ally in getting the invoice paid.

2. If you have not received the check within five days of the committed date, call the clerk back and expressed surprise that you have not received the check yet. Ask for the date, check number, and amount of the check. If that information is not available, the check has not been written, so ask for a new commitment for a payment date. Repeat step 2 till paid.

3. If you have followed these steps and the invoice is 30 day past the due date, call demanding payment and follow up with a firm yet non threatening letter. If the situation lasts much longer, you may need to take much more aggressive collection actions.

Following these steps will usually result in much quicker payment, even from a business that is having financial problems.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com

Prepare for Catestrophic IT Failure

In the information age most businesses are totally dependent upon their computer systems. A brief power outage or server down time is more than just inconvenient – they can mean lost productivity and revenue. An extended loss of servers or other elements of the information technology (IT) infrastructure can be downright catestrophic. Companies have had to close their doors due to extended IT outages.

Here are some things a business should consider and do:

1. Have redundant servers

2. Back up data at least deaily and verify that backup media is properly storing the current data.

3. Store backu ups in a secure and fire proof location – preferably at a remote site.

4. Have a redundant off-site system.

5. Contract with a service company that provides remote preventative maintenance on your system, guaranteeing response time and timely hardware replacement when needed.

6. Install and keep upt to date firewalls and malware detection software.

7. Establish and enforce policies for use of E-Mail and Internet access.

8. Ensure that all software is current and well supported by vendors/developers.

9. If you use custom software, ensure that a) you have all applicable current source code, b) there is at least one person other than the developer who knows and understands the inner workings of the software.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

Mistaking Profit for Cash Flow

How is it that some small businesses show a profit on their income statements, but can not pay their bills? I have encountered this situation several times recently with small and growing companies. On the income statement the business seems healthy, but when the balance sheet is reviewed, the real story emerges.

A most common reason for no cash is that customers have been invoiced but not yet paid. I never understand why a business is willing to wait 45 or 60 days for customers to pay, yet will pay their own vendors within 10 days! The income statement may show a profit but the bank account tells a different story.

Sometimes the error is simply the result of faulty accounting. A worst case example might be this. The business has borrowed $500,000 for equipment and is paying down the loan at, say, $10,000 per month. A portion of the payment needs to be charged as an expense, the remainder is applied againt the principal (a liability account on the balance sheet). The sloppy bookkeeper will apply the entire amount againt the principal, showing no expense.

The other faulty accounting scenario will be that the payment is properly applied, but the equipment is not properly depreciated. A depreciation amount should appear as an expense each month, thus reducing the profit. In either of these scenarios, cash has gone out depleting the bank account while the company is showing an inflated profit.

Another situation occurs when there is rapid growth. New equipment is purchased, and inventory is put in place in anticipation of future large billings. Both of these may require a cash outlay for items that will be put on the balance sheet but will not be immediately reflected in the income statement. Thus a profit may be shown, but there is no money in the bank!

Cash is king! Whatever the income statement shows, what really matters is what is reflected on the balance sheet. The simple rule of thumbe is: are current assets (cash and accounts receivable) enough to pay off current liabilities (accounts payable and other current debt)? If not, there will be cash flow problems.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

Internet Telephone Service

A month ago I decided to cut my phone lines (literally), and connect my home and office phones to the Internet using the Voice Over Internet Protocol (VOIP) technology. After some research I settled on Vonage which is one of the largest and best rated providers of VOIP to the home market.

As I was keeping my existing home phone and business phone numbers, it took about one week for Vonage to cancel my AT&T service and transfer the numbers to Vonage. It took about ten minutes to install the Vonage device and my transfer was complete.

It took about six months for me to make the decision, as I was skeptical about the quality and reliability of using the Internet for the all important telephone connections.

Here is my experience to date:

1. My phone bill has been cut in half, or will be once my first two months free has ended.

2. Both my business and home phone lines have all the bells and whistles one could want including call forwarding and caller ID.

3. In case the Internet connection goes down, calls from both lines are automatically forwarded to my cell phone. My Internet actually did go down for an hour last Friday and one call that came in was seamlessly routed to my cell.

4. All voice mail messages are available on the phone and as an attachment to an automatic e-mail.

5. All long distance calls are free throughout North America and much of Europe.

6. Quality of calls has been excellent – in fact in many cases better than on the old “land lines”.

7. It takes a few seconds longer for a local call to ring once the number has been dialed than using the old land lines.

8. Should the time come that I move – anywhere – I can take my existing phone numbers with me should I choose to do so.

9. I find that when I send outgoing faxes from my fax machine, that I often have to resend due to communication problems. As I send few faxes, this has been a minor inconvenience.

Bottom line is I find little not to like about using Vonage, and would do it all over again.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
email: will@limkemann.net

Ohio businesses miss a bullet

Yesterday the Service Employees International Union said that a coallition pressing for an initiative that would require Ohio businesses to provide paid sick leave has withdrawn the issue from the November 4 ballot. This controversial issues had been opposed by small businesses across the state and by business advocacy groups such as the Council of Smaller Enterprises (COSE). The governor had gone on record as opposing the issues. However there was sufficient labor support that the issue most likely would have passed had it been placed on the ballot.

The issue would have put yet another government restriction on Ohio businesses which would have made Ohio an even less competitive state in which to do business.

The governor is to be commended for his stand on the issue. The labor coallition is to be gratefully thanked for withdrawing the issue.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

Sales in Tough Times

Many clients I consult with have been experiencing weak sales. Some of these clients are in, or sell to, the construction industry which right now is very soft. Their experience has caused me to reflect on what businesses should do to increase sales when times are tough.

A knee-jerk reaction has been to cut back expenses in all areas of the business – including sales and marketing. While expenses need to be controlled, tough times are not when marketing or sales budgets should be trimmed. If anything, they should be increased.

This is the perfect time to update (or create) a marketing plan to assure that money spent on marketing is effectively and appropriately spent. Spend time and money on sales and marketing activities that provide maximum return. The marketing plan should include ways of measuring the results of all sales activities.

This is a time to recognize how precious each customer is. Spend time with each customer. Make sure you understand their needs. Give them excellent customer service.

This is a time to revisit prospects you have previously lost to competition. Learn why they went with competition and if there is any way you can win them back. Know that since you last talked with these prospects, some of your competitors may have disappeared or changed focus.

Any business can thrive and grow, even in tough times.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

Labor Day

Yesterday was a mixture of joy and sorrow. On the North Coast we enjoyed wonderful weather, while those in the south were enduring yet another major hurricane and wondering whether they would have a home to return to. Our thoughts and prayers have been with those hundreds of thousands of people.

On the joyful side, I celebrated a joint birthday with my four-year-old grandson, at a grand party hosted by his parents. From their yard we were able to see the Blue Angels as they performed in the annual Cleveland Air Show. It was a splendid afternoon with a chance to reconnect with many friends and family.

Well, today it is back to business – and tomorrow morning we’ll continue are trek in providing advice to business owners.

Will Limkemann