This past weekend, my family and I toured Sun Studios in Memphis, Tennessee where Elvis got his start. The tour guide talked about the struggles of the small studio and ultimately how it had to sell the contract of a young Elvis Presley to RCA Records for $35,000 to cover its bills. The story has a happy ending in that the $35,000 was used to fund several other up and coming recording stars such as Johnny Cash, Roy Orbison and Jerry Lee Lewis, and that the studio made up for the seemingly bad deal several times over as a result.
So, what areas do small business’ have problems in and what are the solutions? Here is a list to think about:
Accounts Receivable and Collections: You’ve made the sale, great, now when do you get paid? Remember a sale is not a sale until the money is collected. How do you invoice your customers? Ideally, you should invoice at the time of sale. Some businesses bill on specified days (end of week/end of month), but whatever approach you follow, you should be consistent. How do you follow up on invoices to make sure payment are made timely? I recommend you track your invoices using an aging schedule and look at current, over 30, 30-60 and 90 day plus past due time horizons. Did you know that most invoices past 90 days only statistically have a 50% chance of being collected? What is your follow up process on past due invoices? Sometimes a simple phone call results in impressive results.
Act like a business: You should always have separate bank accounts for your business and personal needs. Ideally you should have two business accounts if you have employees, one for payroll and one for general business needs. Once you have these accounts established, use them! Run all your expenses, no matter how big or small through these accounts. This can be your accounting system. Make sure to reconcile your bank statements monthly, even banks make mistakes!
Financial Reports: Prepare at least on a quarterly basis basic financial statements which include; a profit and loss statement, a balance sheet, and a cash flow statement, and understand what each one is telling you. Perhaps the hardest one to understand, but most informative is the cash flow statement. If you do not know how to prepare or interpret financial statements find someone to help you.
Track your expenses: Have a system in place to keep track of what bills you owe and when they come due. It can be a simple as 31 file folders for each day of the month or a computerized aging schedule in a spreadsheet.
Payroll management: Most small businesses have difficulty in this area. Know how to calculate employee pay correctly under wage laws and be aware of payroll tax deposit laws. Penalties are stiff and could potentially put you out of business. This is an area to get help in if you are not comfortable.
Other areas of concern: Sales and use tax laws can be hard to understand and comply, as they can seem very complicated. Seek someone knowledgeable in this area, and don’t try to answer an audit without professional representation. Same goes for workers compensation audits.
All these challenges can be easily overcome with the right help. You can go it alone, but is that really what you got into business to do and is this your area of expertise? If you need help, reach out to a competent professional to guide you through these challenges. If you need help in any of these areas, Maxwell & Associates can help. Feel free to reach out to us at www.maxwellcpa.com or call us at 870.364.8992.