Start off on the right foot and keep creditors off your back by always paying slightly in advance of the due date. Rack up points with your suppliers and let them know you value the relationship. Sometimes you may find that they offer discounts or promotions to businesses that consistently pay punctually.

Negotiate when you can – ask for extensions or offer partial payments. And keep current products in circulation – make sure that you don’t suffer from a freeze-out of production.

As hard as it may seem, offer cash on delivery whenever you can and offer back-payments upfront to ensure you don’t end up losing days of business.

Keep communication fluid between you and your creditors or suppliers as well as you and your clients. When a client is due to pay, let your suppliers know your timeframe and when you will have the money.

Save your cash when you have it and use credit or loans to buy essential items. Cash reserves will ultimately come in handy. When you have cash in hand, make smaller payments wherever possible and prevent a debt hole.

“Keep creditors off your back by always paying slightly in advance of the due date.”

Keeping current on your accounts is a sign that you are handling all aspects of your firm with responsibility and accuracy. Falling short can fast become overwhelming, hinder operations and shut you down.

Paying on time keeps your reputation intact which is vital to success. Satisfied clients come back and recommend you to other potential customers.

Satisfied lenders, bankers, loan agencies and suppliers will extend the same courtesy when they trust that you are a savvy, organized and trustworthy client.

For small firms the crisis meant an end to cheap loans from banks, creating another crisis on its own. Small businesses rarely have a monetary buffer large enough to cushion against the inevitable hiccoughs that choke cash flow, most often a slow paying client for a large job. So how can small firms get their hands on money without resorting to loan sharks?

The most tempting and easiest source of debt is to use credit cards. Banks and financial institutions are often criticized for luring customers to cheap credit cards with promises such as forgoing interest for a six or 12 month period.

The obvious problem is that credit card interest rates can be exorbitant, over 20 percent in some cases. A firm can sink under the weight of spiraling interest payments so a credit card is a last resort.

One alternative is to turn to individual investors. Peer to peer lending has bloomed with several websites introducing lenders to borrowers without a bank as intermediary. Sites such as Prosper.com and Lending Club are a source of unsecured and secured loans.

Prosper.com considers itself to be “the eBay of loans”; potential borrowers write a request for a loan of up to US$25,000 and specify what it will be used for and the maximum interest rate they are willing to pay. Lenders can choose to fulfill the entire loan amount or part of it, and need only reveal their screen name. Loans are repaid over one, three or five years and there are no repayment penalties if you would like to pay it off earlier.

Friends and family are another source of funds. If you are concerned about souring important relationships, consider a site like Virgin Money. This website does not provide loans, only a mechanism and guidance for borrowers who have already found lenders.

Virgin Money deducts money automatically from the borrower’s account on agreed dates, and can arrange payment terms that would be difficult to negotiate with a bank. These include a delayed start to payments or seasonal repayments that match your income.

There are more conventional sources, too. The most common business loan is an overdraft which is a limit set by the bank on the amount of money a customer can draw from a checking account after his or her own funds have been exhausted.

“Sometimes an unexpected cost – or an opportunity – breaks ground and you must scramble to find the money.”

Like a credit card, an overdraft is tempting because it is a revolving loan (money paid back can be borrowed again) that can be conveniently accessed without setting up another financial arrangement. Interest is charged on the amount owed to the bank.

Overdrafts have their own shortcomings. The bank can call them in at any time with no warning, and extra conditions can stipulate that a percentage of the money must remain in the account.

Succession planning can limit dissemination and downfall, and can be a simple step-by-step process that will ensure future success. It requires a long term approach: investing in mentorship and leadership can reap benefits as many as 20 years down the line.

“To assume there will be a natural successor is a common mistake.”

Start by taking time to consider your ultimate goals (but be aware that goals, and therefore plans, will fluctuate). Build flexibility and evaluation periods into your plan. To assume there will be a natural successor or that your most desired candidate will want the position is a common mistake, especially in family-run firms.

Factor a wide range of possibilities into your plan. In order for a next of kin to seamlessly take over and generate a flourishing legacy, they must have the willingness, desire, training and know-how required for any entrepreneurial position.

Set milestones in your plan that include evaluation times and periods of consideration. You need to account for changing situations – have one or more of your children now enrolled in college, entered a master’s program or taken a job at a competitor’s firm?

If your planning leads you to selection of one family member over another, try not to let feelings, favoritism and emotional attachments play a part. Remain as impassive as possible yet respect family bonds. Try to stay true to your original succession ideal, and make the decision based on who has demonstrated their ability to maintain your desired legacy.

Keep family members and important players in the know, sharing your thoughts and ideas along the way. Minimize the element of surprise or you may create hurt and dissatisfaction. When a decision has been made, be prompt and clear and do not hesitate to put the orders in motion. Do not leave things in a period of limbo and uncertainty.

A sound suggestion is to set up a board of trusted team members or colleagues to be your counsel. This keeps you informed and also allows your colleagues and team members to feel that they have a part in the decision making process.

And don’t write yourself out of the plan. Keep yourself in mind as your make decisions and craft out how you will remain part of your legacy after the changeover.

Remember to give thought and equal consideration to all options, even if the years eliminate some of them. You never know what financial environment you might find yourself retiring in, and in some cases the selling of the firm may prove the most profitable and stable way to take care of your loved ones.

As experienced professionals we have the expertise to assist with succession planning. With our assistance, you can increase the chance that all parties will achieve their desired outcomes.

Cash flow, as they say, is the lifeblood of any firm. It does not matter whether you are making thousands of cars a year or selling lemonade to neighbors, if you are stuck waiting for payment from clients, then you cannot pay your suppliers for the next batch of products to sell.

“Here are 10 tips to help you improve your cash flow.”

These 10 tips could help you improve your cash flow.

1. Consider giving discounts for payments upfront. Some firms will have a discount window of a month that clients must pay within to receive the discount. This is easier to enforce than a penalty for late payment and is more attractive to clients too.

2. Take as long as you can to pay your bills without incurring a late fee. If a supplier gives 30 days, then take the full 30. Pay regular suppliers before others; early payments can generate goodwill and improve the likelihood of obtaining credit.

3. Invest surplus funds in a high-interest bearing account or other financial vehicle. There is no point having idle money in a firm, but just make sure you can get your hands on it quickly if the need arises.

4. Create a cash flow forecast. Know when the money should come in, when it is likely to come in, and when you will have to pay it out. Knowledge is power as it will help you prepare for the inevitable delays.

5. Issue your invoices as soon as possible. This is one task that should be first on the list every day. Once sent, make sure you follow up the day after the invoice is overdue. A polite phone call to jog the memory or a second email can help things along.

6. Give clients many options for payment and emphasize your preference for electronic payment such as direct debit.

7. Split payments for longer projects so that you are not waiting for the full invoice at the end of the job. This has the advantage of providing some security of payment as well as increasing cash flow.

8. Monitor your stock and replace products that are unlikely to sell. Focus on the better selling, higher-margin items.

9. When things get tight, triage your payments. Call all your suppliers and negotiate extended periods or deferred payments. Do not pay the biggest debt first- pay the most important.

10. Link sales commissions to invoices paid rather than revenue billed. A cold call from your accountant to a client asking why a bill is unpaid is going to be less well received than the sales rep giving a friendly reminder at the next meeting. It also gives the sales person a reason to speak to the client again – and perhaps lay the ground for another sale.

The first step is to ensure that you have some knowledge of the industry or market in which the business operates. Then you need to screen for size and geographic location; how many team members will you want to manage?

Once you have identified a general profile, you will need the advice of an accountant, lawyer and banker to carry out a thorough appraisal of a potential candidate.

One of the best assets of a business is its history. With enough detail it should provide most of the information you need; its weaknesses and strengths, threats and, most important for a future buyer, its potential.

Balance sheets, income tax statements, cash flow statements, footnotes and tax returns for the past three years will give a good picture of the health of the business.

Projected earnings should give an indication of the business’ direction, although these need to be treated with a little more caution.

“Get out and talk to clients, suppliers and vendors to hear their side of the story.”

After the due diligence comes some basic questions to help you understand the circumstances of the sale. Why is the owner selling? Has the industry changed? Are there issues with supply, or does the company require a major refresh of equipment and inventory?

Don’t rely on the business owner to supply all the answers. Get out and talk to clients, suppliers and vendors to hear their side of the story. If you do buy the business, these are the people you will be dealing with on a regular basis so it is an opportunity to make introductions and demonstrate professionalism.

It also is an opportunity to unearth any complaints about how the business operates; a less than stellar reputation might affect the buy price.

The greatest danger is that a business’s profitability will suffer after the owner leaves. This could be due to several reasons; the owner could take crucial relationships with key clients, team members might follow the owner elsewhere or turn uncooperative, or business processes could turn out to be not so established that they function without the owner’s input.

The best advice when buying a business is to do your homework. Rushing in for an impulse buy could see you end up saddling yourself up with someone else’s problems. If it all goes well you should take over a strong source of cash flow and profits.

The first thing you want to finalize for 2010 is your payroll. In addition to your usual payroll quarterlies (941, State Unemployment, and Labor & Industries) you must also file forms W-2 for all of your employees (with the corresponding W-3 – the total of the W-2s) and also Form 940 – Federal Unemployment Tax. Both of these forms can be printed out of QuickBooks if you have the Enhanced Payroll subscription. The only extra thing that you will need is perforated paper (the IRS requires it) for your employee copies of your Forms W-2.We have this paper in the office, if you would like some please email me and I will mail you some. If you do not have QuickBooks or the Enhanced Payroll subscription, you can purchase W-2s at your favorite office supply store (which usually comes with software to help you print them out) and you can print Form 940 from the IRS website. Remember you will be printing three copies of Form W-2: one for the employee, one for your records, and one to send to the Social Security Administration.

IRS AUDIT TIP:

• Make sure that your filed Forms 941 for all four quarters add up to what is being reported on your Form W-3. If the amounts don’t match, it is a huge red flag to the IRS and they will send you a letter asking you to explain the difference.

1099s

All businesses are required to file the appropriate 1099s for payments made during 2010. There are many types of 1099s but the most common are 1099-MISC and 1099-INT. There are three copies of 1099s that you must produce; one for the vendor, one for your records, and one to send to the IRS. These are informational returns only.  You will submit these returns with a 1096 which is a summary of the 1099s.

In general, you must submit a 1099-MISC to anyone you pay more than $600 of the following to:

1. Rents – all types of rents, such as office space, machine rentals, and pasture rentals
2. Services – professional services (accountants, attorneys, architects, etc.)
3. Independent contractors

There are some payments that are not required to be reported on Form 1099-MISC, although they may be taxable to the recipient. These payments include:

1. Generally, payments to a corporation
2. Payments for merchandise, telephone, freight, storage, and similar items
3. Payments of rent to real estate agents

Above are the most common situations that I have found to be reportable in businesses that I work with. There are more reportable requirements but they are uncommon. For more information visit the IRS website.

Generally you must file Form 1099-INT to anyone who you made payments of interest over $600 to in 2010. The main exception is that you do not have to provide 1099-INT to banks or financial institutions. The most common example of when you would file a 1099-INT is when your company has a loan from a family member or friend. If you think that you might have this situation and need help please don’t hesitate to give me a call and we can figure out the proper amount of interest to report.

GETTING READY FOR TAXES

Now that you have all of your reporting requirements done it is time to get your QuickBooks file (or other method of recordkeeping) to us so that we can do your 2010 tax return.

We recommend that you do the following before you send your file to us:

1. Reconcile all bank accounts through 12/31/2010.
2. Review Balance Sheet as of 12/31/2010 for accuracy:
   1. Pay special attention to the following accounts – if applicable

i.      Accounts receivable

1. Review A/R aging report

ii.      Accounts payable

1. Review A/P aging report

iii.      Employee advances

1. Check for accuracy

iv.      Inventory

1. Make any necessary year-end adjustments

v.      Short term and long term liabilities

1. Make sure all payments are posted
2. Provide us with supporting documentation

vi.      Dividend distributions/member’s draws

1. Make sure there are no business expenses posted to this acct.

RECORDKEEPING

Finally after the taxes are done and the forms are filed you can put your 2010 documentation away and begin 2011. But what should you keep? How long should you keep it?  Below I have summarized the IRS’s answers to those questions.

What do I need to keep?

You will want to keep documentation that substantiates the following:

1. Gross receipts
   1. Cash register tapes
   2. Bank deposit slips
   3. Receipt books
   4. Invoices
   5. Credit card charge slips
   6. Forms 1099-MISC that you have received
   7. Purchases and Expenses
      1. Canceled checks
      2. Cash register tape receipts
      3. Credit card sales slips
      4. Invoices
      5. Account statements
      6. Petty cash slips for small cash payments
      7. Assets – property such as machinery that you own and use in the business
         1. When and how you acquired the asset
         2. Purchase price
         3. Cost of any improvements
         4. When and how you disposed of the asset
         5. Selling price
         6. Expenses of sale
         7. Payroll Expenses/Taxes
            1. Amounts and dates of all wages, annuity, and pension payments
            2. Amounts of tips reported
            3. Fair market value of in-kind wages paid
            4. Names, addresses, social security numbers, and occupations of employees
            5. Dates of employment
            6. Periods for which employees were paid while absent due to sickness or injury and the amount and weekly rate of payments you or a third-party made to them
            7. Copies of employees W-4s
            8. Copies of returns filed (941, SUTA, L&I, 940 and W-2s)
            9. Records of fringe benefits provided

You can keep these documents in paper or electronic form (example: QB keeps track of most of the above payroll information).

Also, in the event that you are audited the IRS will pay special attention to your business’ Travel, Transportation, Entertainment and Gift Expenses. This is an IRS target area that they will scrutinize so we highly recommend that you have the correct documentation to substantiate your deductions. If you are unsure of the documentation that is required below is a table that summarizes the IRS’s requirements.

How long do I have to keep this stuff?

The general rule is that you must keep all supporting documentation to your tax returns for a minimum of 3 years from the date you filed the income tax return. We recommend that you keep them for at least 5 years.  We also recommend that you keep your tax returns indefinitely.

The IRS recommends that you keep the payroll information at least 4 years after filing the 4^th Quarter for the year.

I hope this has answered your question about what needs to be done at year end. If you have any additional questions, please don’t hesitate to give me a call at 509-665-6600.

Asset-Based Finance

Companies that are unable to secure traditional bank funding can turn to asset-based finance to cover their needs. With asset based finance, a company uses its assets as collateral to secure structured working capital or term loans. If the business is unable to repay the loan, the lender takes the asset that secured the loan. Asset-based loans can be secured by a range of assets including machinery, equipment, accounts receivable, inventory or real estate. In its most basic form, asset-based financing involves tangible assets. A business can pledge one or more its assets as collateral to secure a loan. Once the loan is repaid, the asset the lender no longer has a claim on the asset.

Factoring

With factoring, a business sells its accounts receivable at a discount to a third party, called a factor. The business receives its funds immediately. The factor takes ownership of the receivables and assumes the right to collect on them and takes on the risks of non-payment. Factoring is not a loan, so the factor isn’t concerned with the firm’s creditworthiness but looks at the quality of its accounts receivable. The main drawback for the business is that it doesn’t receive the full value of its receivables. This amount forfeited can be high in percentage terms when compared to traditional forms of finance.

Invoice Discounting

Firms wanting to improve working capital and cash flow positions can use invoice discounting, also called debtor finance, to borrow a percentage of the value of the their receivables. Under these arrangements, the business gets access to a revolving line of credit (sometimes up to 90% of the value of outstanding invoices) which it can draw upon. For the service, the lender charges fees and interest on the amount borrowed

Like an overdraft, the business only pays interest on the funds borrowed. In most cases, confidentiality is maintained so that customers and suppliers don’t know the business is borrowing against its receivables.

The main drawbacks of invoice discounting are its high cost compared to other finance options and the loss of the company’s flexibility to make other finance arrangements once receivables have been dedicated as collateral. Businesses can start to rely on the improved cash flow invoice discounting brings and may find it difficult to leave the arrangement.

Merchant Cash Advances

A growing number of businesses needing a quick solution to cash flow challenges are turning to merchant cash advances (MCAs), a new and controversial form of finance. Merchant cash advance providers offer businesses a lump sum payment in exchange for a share of future credit card sales. This form of finance has become popular among retail, restaurant and service companies that have strong credit card sales but have poor credit ratings and little or no collateral.

Under an MCA arrangement, the provider collects a set percentage of the company’s daily credit card sales until they recover the amount they advanced plus a premium. The advantage for the business is quick access to funds without the need for a strong credit rating or collateral.

The main drawback of MCAs is their high premiums, which can be over 30% of the money advanced. This has led some to refer to MCAs as ‘payday loans for businesses’. Unlike traditional lenders, MCA providers don’t fall under finance regulations because they are buying receivables, and not making loans.

Tight credit markets and stricter lending criteria have made it necessary for companies to look at alternative forms of finance. Although these can offer benefits, they need to be scrutinized for their potential shortcomings.

Used with permission from RanOne Inc., McQuaig & Welk, PLL are licensed RanOne Consulting Group Members.

Businesses and people like to do business with professionals.

Open the door to the Virtual Assistant. Your aim should be to outsource non-core business processes, like bookkeeping, in-bound calls, typing, etc. to a professional person, well equipped to perform these tasks for you in a cost-effective manner. You won’t have to provide office space, equipment, computer, heating, etc. for virtual assistants. They might be part of an organization that specializes in this service and has its own equipment, or they might work from home. Either way you get the benefits of a fully qualified professional working in your business. You will find that even having your phone answered in a professional manner makes a lot of difference to your business. Keeping up with your bookkeeping so you know where you are at any given time, is vital to managing your business successfully. It allows you to recognize emerging problems with cash flow or other issues early enough to do something about them. All this will make your business much more professional – and provide you with the time and resources to grow.

Virtual workers can be sourced from temp agencies or from contracting firms. Visit the internet for sites such as www.elance.com which offers expert programmers, designers, coders, writers, developers, translators, and admin contractors with tested skills. At McQuaig & Welk, we can provide virtual QuickBooks support and A La Carte CFO services. Our QuickBooks services run the gamut from complete bookkeeping to individual services. Our A La Carte CFO service involves our firm acting as an outsourced CFO. We find that many businesses in our area are not large enough to need a fulltime CFO but they need the services of one. In addition, we have clients whose CFO’s have limited capabilities so we are able to fill in the gaps in skills. Our clients that utilize this service are looking for someone that not only understands the numbers of the business but can offer expert financial guidance to the owner.

These relationships could be for finite time periods or projects, or just to fill a gap due to full time team member’s temporary absence – they are limited by time or project. So again you can afford to bring in professionals to perform tasks for you or your clients.

Since they are variable costs rather than fixed, permanent costs, when the project is completed the contract for your temp-workers/contractors finishes too, so it’s a useful tool for your cost management. If times are harder for your business and you need to reduce costs it is generally easier and faster to terminate a virtual assistant. If you need to terminate an arrangement early then it’s good practice (as well as courteous) to explain the reason for your decision to your virtual worker or supplier. The day may come when your business is doing better and you might want to start working with your virtual assistant again. It’s worth the thought that the contractor you hire today may hire you tomorrow on a project he or she is working on – networking is the way to go.

Employing people full time should only be considered for essential, ongoing and full-time work, this way you can provide a more secure workplace for your permanent team members – and maintain a less stressful working environment that allows you to meet your customer demands without working around the clock at tasks that are necessary but not core to your business.

Get The Edge

Probably 90% of the companies have too many products. Review your product range carefully and cut products that are not working. If you convert obsolete stock to cash, you’ll improve your working capital for the next three months because you don’t have to re-order. You can put that excess cash into marketing your good products and getting even better profits from those.

Used with permission from RanOne Inc., McQuaig & Welk, PLL are licensed RanOne Consulting Group Members.

Build scenarios
Create a forecast for the next 18 months to 2 years. Take your business plan and then impose a series of scenarios. A business-as-usual scenario, for example, might have flat growth. Another scenario might project a 10% drop in revenue and a 20% increase in input costs. These scenarios show you the effect on the business of outside forces, and allow you to develop contingency plans to mitigate their effect if you start to detect their impact through your monthly reports.
You might decide that if revenues decline for two or three consecutive months, then you will implement a stronger sales program. If that fails, then you might move to significant cost reduction activities. Look at what happens if the company loses customers and suppliers.You might need to draw up plans to create other ways of drawing revenue, like discounting, or going to other markets or changing production. Identifying a critical threshold means you can start thinking about how to mitigate it.

Develop your business plan
Critical to forecasting is your business plan; it should cover market analysis, organization and management, strategic analysis, marketing and sales, products and services, the amount of funding needed to start or expand the business, and financials. The best business plans are updated every three months.
Do you find when it comes to a choice between serving a paying customer and writing a business plan, like most small businesses, you go for the money? Lack of time is a major reason many small companies don’t have plans. The answer for some businesses is to prepare the plan on the weekend. It might take an entire day, but it’s a worthwhile exercise.

Helpful tools
You may not have the sophisticated forecasting tools of the big companies, but you can do certain things to plan ahead. Every business owner, even a small corner store operator, should be able to build a basic financial forecast model using Excel spreadsheets. It is really not that complicated. It’s a very structured process where you look through the historical financial statements and the balance sheet history. If necessary, attend an Excel training course and spend some time with your accountant getting help to set it up initially.

Talk to customers and suppliers
Stay close to your customers and suppliers. They will often have good information in their own areas of expertise that can help you develop a sense of likely trends. For instance, retail supply companies probably know quite a bit about customer buying behavior which can forewarn you about risks and opportunities in your own business.

Track targets and KPIs constantly
Going through the balance sheet every three months is simply not frequent enough in this climate. Prepare your monthly financials as close to possible to month end, and then run your stress tests constantly against the figures. Make sure that your key performance indicators, such as sales targets for each week, are in place. Analyze the month’s end financials comparing the actuals with your budget to see where you are performing well and where there are shortfalls.

Used with permission from RanOne Inc., McQuaig & Welk, PLL are licensed RanOne Consulting Group Members.