Business Planning: Planning for Cash Flow

Cash seems to be on everyone's mind. Bankers say they have money to lend, but they aren't finding many qualified borrowers. Companies are struggling to stay ahead of their bills and meet payroll. They might be selling products or services, but cash is the problem.

One of the most common business questions we hear is "Where is my cash?" We have tried a million different ways to answer this question. We prepare cash flow statements- no one reads them.  We talk people through them and it doesn't help. We've  resorted to colored chalk, drawing on napkins, and large stickie notes. But it's still a hard concept for non-accountants to grasp. We hear something like,"You must be joking. How can I have profit and taxable income and not have any cash in the bank?"

Up until now, it's been one of those eternal frustrations for our profession.

But not any more.

Now we've got a tool called $COPE IT!tm by Mentor Plus. We can SHOW you exactly where to find the cash in your business.

It's right where it's always been -- but now, rather than telling you about it, we can show you. We can use your financial statements to build an interactive model that lets you see the relationship between profit and cash. Rather than talking about it, we can show you why selling more units at the same margin won't impact your cash flow problem. We can help you set a cash flow target and work backwards to achieve it. And it's even got colors, charts and graphs.

If you would like to learn more, contact Mary at for an invitation to our next cash flow seminar. 


Year To Date Information Access; Push vs Pull

As you sit down to review your results for the year, take a moment to think about your accounting software. Is it meeting your needs? Every package on the market today does a good job of recording daily transactions. You don't have to worry about keeping things in balance or losing transactions. When it comes to making timely business decisions, however, you should expect more support from your accounting software.

Most systems provide financial statements and operational reporting. If you have a question, you can run a report and find the answer. You might be able to run onscreen inquiries or review transaction histories. Eventually, you can find answers to any questions you might have. The problem is that you have search for the information you need. This is the pull approach to information management.

Top systems make information accessible. They might have a dashboard that displays key ratios and builds a graph of expenses by category. Other systems put data in one area to support different roles- the collection team might find accounts receivable aging, customer phone numbers, and invoice details in one place. Other systems let you create automated alerts and triggers that send e-mails to designated people when a defined condition occurs. There are a number of different ways to do it - but the key is that these systems make information available to users who need it. These solutions push important information out to users.

In order to make timely decisions, you need good information. If your system isn't making it easy for you to access information, you might want to meet with your software vendor or local supplier. Ask them about ways to improve your access to information and find out about training opportunities. A little time invested in learning about ways to get better information can save you time and money. And once you have the right information at your fingertips, you ‘ll be better able to steer your business in the right direction.


Taxes; Santa's Not The Only One To Plan Ahead

December is a busy time. You barely have time for all of that holiday shopping, party planning, and entertaining. But December is year-end for most businesses. Once December 31st rolls around, you're stuck with whatever results are reflected on your financial statements. Here are a couple of things you need to check now to make sure your numbers are on track.

First, decide if you are planning for tax purposes or for financial reporting purposes, as the two objectives are usually in opposition. Financial reports generally get presented to a banker (book basis), while the tax information determines how much income tax you pay (tax basis). (You might need some assistance weighing the trade offs of any decision you make.)

Next, review the following items:

Inventory. If you sell products, inventory is the number one asset account that can impact your profitability. Take a physical inventory now and compare it to the carrying value on your financial statements.

Impact: If your inventory balance on the books is too high, a downward adjustment to inventory will reduce your net income. If it is too low, an adjustment upward will have the opposite impact on net income. Typically inventory adjustments will impact both your tax- and book- basis net income.

Accounts Receivable. Review your accounts receivable for any uncollectable accounts. If all possible collection effort has been expended, you might want to consider writing off bad debts this year.

Impact: Writing off of a bad debt will generally reduce your net income for both book and tax, unless you have previously established a book reserve for bad debts.

Repairs and Maintenance expense. Review this account to see if you have recorded purchased assets as expenses in error. Generally purchases of over $500 should capitalized as a fixed asset and written off over a period of years.

Impact: Moving an expense to a fixed asset account will increase net income for financial reporting purposes. The same asset purchased can likely still be fully expensed for tax purposes making this an optimal adjustment to make. (There are cases where you will have differences between your tax- and book-basis income.)

Accounts Payable. Review the list of unpaid invoices in your accounts payable aging report. Be sure you have captured any amounts due for items that have been received but not invoiced. There may be supplies or inventory items that have been added to your shelves before you are billed. These costs need to be added as adjustments to your Accounts Payable liability account and recorded against the proper expense or asset account.

Impact: Generally increasing your accounts payable balance will increase an expense account, which reduces your net income for both book and tax purposes, but it depends on the nature of the item.

Payroll accounts. Review your payroll accounts to ensure that you have recorded gross pay as an expense and have added any employer taxes as payroll tax expenses. Also consider any bonuses that will be accrued or paid before the end of the year.

Impact: Adjustments that increase your payroll expense will reduce your net income. Tax requirements for deducting accrued expenses can differ from book treatment. We are happy to discuss your specific situation.

Now is the time to print out your financial statements, look for any unusual items, and make adjustments as needed. We will be happy to assist you in understanding your specific results and making any adjustments you might need before year-end.

How To Adjust When Business Banker Says No


Your major customer has suddenly started taking longer to pay his bills, so you decide it’s time to go apply for a bank loan. What happens if the banker says, “I’m sorry, but we aren’t able to extend you a line of credit at this time.” Rather than threatening said banker with bodily harm (as satisfying as that might seem) or worse, there are some alternative actions you might take. 


1.    Raise his comfort level. First, make sure you have presented the banker an accurate financial picture of your business. Did you print off a sloppily formatted internal financial statement and hand it to your banker or did you present a compiled/reviewed or audited financial statement prepared by a CPA? These two documents offer a different level of comfort for a potential banker, so you might want to consider getting a CPA involved in your financial statements. It might simply be a presentation problem.

2.    Find hidden cash. Maybe you don’t need a bank loan to generate additional cash in your business. If your dollars are tied up in inventory , you might need to consider alternative distribution channels for your product. Are there ways you haven’t considered to liquidate some inventory? Are there ways to create smaller packaging or smaller bundled units to bring down your overall price point without discounting?

3.    Fire some customers. OK, this one sounds counterintuitive, but think about it.Do you have customers who are using you as their personal banker?  Review your customer list and see which customers are responsible for the highest margins and the best payment terms. Maybe, if you have fewer customers who were more profitable and paid on time, you wouldn’t need to carry so much inventory or purchase so many raw materials. Cash flow is a symptom, not the root cause; change your focus and you might uncover the real problem.

4.    Talk to your suppliers. See how they are handling cash flow problems and look for alternate payment plans that might be available in the short term.  They might be willing to assist you by offering a monthly payment plan or other arrangement.

5.   Try again. Different banks have different requirements. Try another banker to see if your business fills a void in their portfolio. And if you still don’t qualify, find out from the banker what elements of your business need improving and see how you can make adjustments in your business.

How To Gain Business Perspective Next Vacation

Summer is all about vacations and family time, but for business owners, it can also be a great time to generate new ideas. Sometimes a new location and a change of scenery can be just the thing to trigger a new solution to a problem. Other times, you might find inspiration from a novel experience or adventure. If you will approach every outing with an observer’s curiosity, you might be pleasantly surprised at the ideas that appear. Your next vacation could lead to new opportunities for your business.


Here are five places you might find new ideas if you pay attention:


1. Customer Service. Every vacation dining and shopping experience can give you new insights into how to treat a customer. Did you have a stellar experience that made you want to sing the praises of a particular clerk or waiter? Did you encounter sub-par service at the airport? At the rental car company? Look for lessons that you might apply to your own business.


2. Processes. If you spend your vacation at a Disney resort or another theme park you will have lots of opportunities to see great processes at work. You might experience Disney’s Fastpass system which has drastically reduced the frustration of waiting in line. Or you might buy movie tickets from Fandango - isn't it a great time saver when you purchase those $15 movie tickets online?How might your processes be restructured to eliminate customer frustrations? Maybe you can find a way to improve your checkout or billing process. 


3. Promotional offers. Pay attention toyour own buying habits. Which promotional offers get your attention? What other offers do you observe as you shop in your vacation destination? Are there “buy one get one free offers” or “two for the price of one”?  You can bet retailers are testing different offers to see which ones are most effective. What new offers can you craft for your business? Decide how to measure results and then try different approaches to pricing your products or services.



4. Clubs/VIPs/Cards.  If you stay in a hotel, notice the benefits that are offered to special customers. Starwood guests get free night stays after a number of visits and can check in via a special line. Frequent travelers get special perks on most airlines – and business class passengers can go to the shorter security line for clearance. Isn’t it nice to be able to move to a special VIP line? How can you create an elite status for your customers or clients? 


5. Culture/Brand. Take note of the details that separate say a Denny’s restaurant from an Applebee’s or a Sonic from a Wendy’s. Then compare a Denny’s with a Westin hotel. Notice how each focus on the needs of their target market. For Denny’s it’s all about portion size and value pricing while the Westin focuses on high end comfort and exclusivity. You won’t see Denny’s investing in high end upholstery; neither will you see the Westin serving “Rooty Tooties” in their dining room. Look for brand ideas that you can apply to your business. 


If you have time left to sit by the pool, rather than reading another mystery novel, try reading a book on a subject that is new to you. Consider reading books on Improvisation, Writing, Psychology, Art, Mythology, Astronomy, Music or any other subject that sounds interesting. Stretch your brain. Ideas can come from anywhere when you have time to listen.  

Their answers are easier to understand.
Charlie Glas