Tips Guides

Almost any small business can use advice on how to improve its collection cycle. The first line of defense against late payments is a complete invoice. Your bills should be accurate, detailed and easy to understand. If difficult to understand, then your client will need to call for additional information. That translates into “you have been added to their to-do list,” which increases the time of your collection cycle. Include on each invoice:

- Your company’s contact information: name, address, tax id number, phone and contact person
- The date the invoice was prepared
- The customer’s name and address
- A description of the goods or services sold to the customer - itemize, if possible (An itemized bill is harder to contest.)
- The amount due, with sales tax amount broken out
- When the invoice is due

Once prepared, send invoices promptly. Another piece of small business advice is the longer you take to bill a customer the less likely you are to receive payment for the goods and services provided.

Many of my business mentoring clients are surprised to learn that the step requiring the most amount of time in the cash conversion process is the time it takes to collect on a customer account. The cash conversion process begins the moment they make contact with the customer, and ends when they have received and deposited payment from that customer; hopefully this cycle repeats itself each month.

The time it takes my business mentoring clients to collect their accounts receivable is measured by the average accounts receivable collection period. The average accounts receivable collection period is an important indicator for determining when their business will be paid for the goods and services it provides.

This simple calculation gives you a powerful tracking tool that helps you adjust your cash in-flow on an as-needed basis:

Step 1: Calculate your average collection period by dividing your total sales for the previous year by 365. This gives you your average daily sales volume.
(Total Sales / 365 Days = Average Daily Sales Volume)

Step 2: Then divide your average daily sales volume into your current accounts receivable balance to get the number of days it takes to collect a bill.
(Average Accounts Receivable Collection Period = Average Daily Sales Volume / Current Accounts Receivable Balance)

Now that you know your average accounts receivable collection period, you then need to interpret that number as it relates to your business by asking four important bookkeeping service questions.

Bookkeeping Service Question #1: Is your average accounts receivable collection period in line with the company’s credit policy? If your credit terms provide your customers with 30 days to pay their bills, then you should expect that your average collection period will be somewhere around 30 days - maybe a little longer. If your average collection period is 60 days then you need to examine other factors that affect billing.

Bookkeeping Service Question #2: Are you billing your customers consistently? Look at your Accounts Receivable Aging Report, the report that summarizes all of your outstanding invoices by client and number of days outstanding. Are the outstanding invoices on that report related to products and services sold within the last 45 days, or are they related to products and services you provided three months ago and just got around to billing? Create a procedure to bill customers once a week or each time you have a completed sale.

Bookkeeping Service Question #3: Are you billing your customers effectively? Are your customers calling you with questions about your invoice? Perhaps you didn’t have that important upfront conversation with your client about how you charge for your products and services. By having this conversation, confusion and anxiety over wondering if the customer is going to pay you can be eliminated.

Bookkeeping Service Question #4: Are you tracking overdue accounts and taking consistent action to collect past due accounts? Do you have an effective tool in place to track when an account comes due, and knowing who has paid their bills and who has not? When a customer’s invoice goes past its due date, is there a procedure in place to follow-up with that customer? Sometimes sending customer statements and making friendly reminder calls is all it takes.

By answering these four basic questions, implementing a few bookkeeping service procedures and heeding this small business advice, you’ll soon be running a fine-tuned collection machine.

Laurie O’Neil is the co-founder of The Bookkeeper’s Referral Network Inc., the place where business meets great bookkeepers. To get your copy of The 9 Disastrous Mistakes Most Freelance Bookkeeper’s Make in
Business (and How You Can Avoid Them!) visit http://www.bkpr-network.com

My least favorite thing is ’selling’ my services to potential new clients. It makes me uncomfortable. Then a few years ago, Beth my business coach said, “Linda, why not describe the reasons why someone needs good bookkeeping? Talk about that during your initial meeting.” I was skeptical; I didn’t believe it would work. She encouraged me to try the approach at my next meeting with a potential bookkeeping business client.

Well, I did, and much to my surprise her bookkeeping business advice worked! Not only did that client hire me, but also referred me to two colleagues. The approach I used - and still use - is simply to explain why it is so important to have good records.

Here are nine reasons why it’s important for businesses to have good financial recordkeeping systems. Use one, two or all of them with your next potential new client. Whether your potential client is devising or revising their bookkeeping routine, remind them that the purpose of your bookkeeping business is to help them manage their business tasks.

#1 Reason for Retaining Bookkeeping Services: Monitor the Financial Success or Failure of Your Business
It’s hard to know where you are going if you don’t know where you’ve been. The same is true with your business - it’s hard to know how your business is doing without a clear financial picture. A good financial system provides answers to the questions: Am I making money? Are sales increasing? How do expenditures compare to sales?

#2 Reason for Retaining Bookkeeping Services: Provides the Information You Need to Make Decisions
Evaluating financial consequences should be part of every business decision. Without accurate records and financial information, it’s difficult to forecast the impact of any given course of action. For example, financial information gives insight as to whether or not it pays to hire another salesperson. Accurate records reveal the profitability of any line item.

#3 Reason for Retaining Bookkeeping Services: Obtain Bank Financing
The best time to seek financing is when you don’t need it. The bank will want to see your income statement, balance sheet and tax returns for the most current and prior years, as well as projected statements showing the impact of the requested loan.

#4 Reason for Retaining Bookkeeping Services: Obtain Other Sources of Capital
If your business has reached the point where you need to take in a partner or investor, any prospective associate will want to become intimately familiar with your financial picture. Suppliers and other creditors may also ask for certain financial records. The source of this information is based on your day-to-day recordkeeping.

#5 Reason for Retaining Bookkeeping Services: Prepare a Budget
All businesses should use budgets for planning purposes. Budgets keep businesses on track by forecasting cash needs and controlling expenditures. When companies seek financing, bankers or prospective investors look for budgets as evidence of planning and stability.

#6 Reason for Retaining Bookkeeping Services: Prepare Your Income Tax Return
No matter what your business entity, you must file an income tax return and pay income taxes. With good records, preparing an accurate tax return will be easier and filing will more likely be done on time. Poor recordkeeping may result in underpayment or overpayment of your taxes. If your CPA prepares your tax return, poor records could result in higher accounting costs.

#7 Reason for Retaining Bookkeeping Services: Comply with Federal and State Payroll Tax Rules
If you have employees, you are aware of the myriad of rules and regulations relating to payroll taxes. Payroll tax must be deposited according to strict deadlines. Late payments of payroll taxes result in severe penalties, including jail time!

Payroll tax returns must be filed quarterly, and must reconcile with payroll deposits made during the quarter. At year end, you’re required to give employees and the government W-2 forms, which must agree with your quarterly payroll returns. Sound bookkeeping practices, even if you use a payroll processor, will make compliance with payroll rules easy. Poor records will make it impossible.

#8 Reason for Retaining Bookkeeping Services: Submit Sales Taxes
If you collect sales tax, good records make it easy for you to compute the tax due and prepare the required reports. Sales tax must be deposited according to strict deadlines. Late payment of sales taxes can result in severe and unnecessary penalties and interest.

#9 Reason for Retaining Bookkeeping Services: Distribute Profits
If your business is a partnership, you will need good records to determine the correct amount of profits to distribute to each partner. If you’re operating as a corporation, profits that you’ll be paying out as dividends to the shareholders must be determined.

I encourage you to try this approach. It’s one of the best pieces of bookkeeping business advice that I can pass onto you.

Laurie O’Neil is the co-founder of The Bookkeeper’s Referral Network Inc., the place where business meets great bookkeepers. To get your copy of The 9 Disastrous Mistakes Most Freelance Bookkeeper’s Make in
Business (and How You Can Avoid Them!) visit http://www.bkpr-network.com

Starting your own business can be a very rewarding experience. You will enjoy freedom and flexibility you never imagined. You will also work harder than you ever have before but it feels completely different when you are working for yourself. Here are some tips to help you get off on the right foot with your record keeping.

1. Keep Receipts For All Transactions From The First Day Onword. If you pay for everything with a check, debit card, or credit card this may not seem necessary. As a tax accountant I can assure you that it is. The IRS will disallow deductions if you do not have receipts to accompany your bank and credit card records.

2. Avoid Cash. I can tell you the easiest way to get into hot water with the IRS is to pay for things with cash and then not have a receipt. For many of us we are in a habit of using cash from the time we were kids. For your own business though, you need to avoid cash.

3. Deposit All Your Income. It is very tempting to withhold cash from your business receipts but I advise you do not. Instead be aggressive with your expenses. If you are in an industry where cash deals are common the IRS will look for evidence of cash deposits in your checking account. If they are absent you will have a lot of questions to answer.

4. Use QuickBooks. Inuit owns 80% of the small business accounting software market and for good reason. Their software is easy to learn and easy to use. Within a few hours after installing you can be producing your own professional financial statements. It is the software I use for my own accounting/tax business and also what I use to produce client Financial Statements and Payroll Reports.

5. Report Employee Earnings Timely. There are several services on the market that will be glad to do your Payroll Reports and process your employee checks. Shop around and get the best deal. This market has become more competitive which means there are some good deals out there for you. For example, if you are in a high risk industry you can get a reduced WCF rate with a company like ADP. With the amount you save in disability insurance for your employees your Payroll Tax preparation expense is essentially free.

6. Use A Business Credit Card. Using a business credit card has many benefits. You can usually find one with no annual fee, 0% introductory interest rate and even cash rewards. But for the purpose of this article one of the primary benefits is for your record keeping. At the end of the year you will receive a summary of all your expenses by category. Give this to your accountant along with your other records at tax time. This will make your accountant’s job easier which should lower his/her fees.

There are many other items to consider when starting your own business and I recommend you speak to an accountant as soon as possible. If you already have someone preparing your tax returns then you can start with them. Make sure they are familiar with hiring your spouse and children, medical reimbursement plans, business plans and entity structuring. Do not stay with an accountant who is not familiar with these because you cannot afford to.

Zach Allred is a tax accountant with a desire to provide tips about good credit card practices. You can visit his site to compare business credit cards. You can also visit his home based business site for other resources and free articles.

Goal setting is crucial to the success of any business, but is particularly important for entrepreneurs in the bookkeeping service business who can become distracted with multiple priorities. Goal setting allows us to be proactive, instead of just being reactive. We’ve all had days where we leap from one crisis to another, but we know that’s not a preferred mode of operation for our bookkeeping services! Goals direct actions, give us something to aim for, and serve as a yardstick for measuring our bookkeeping business’s success.

When setting business goals, I use a successful goal-setting formula that a business coach
mentor taught me. The formula incorporates a strategy or strategies for accomplishing the goal: “I will (goal + performance measure) by (specific actions).”

For example, suppose that you want to increase revenue. First specify the goal: “I will increase revenue this month by twenty-five percent.” Setting a specific goal builds in the criteria you will use to evaluate your success.

In this case, at the end of the month, you’ll either have increased sales by twenty-five percent compared to the previous month or not. Then, specify the strategy that you will use to work towards accomplishing the goal: “I will increase sales this month by twenty-five percent by offering a ten-percent-off sale on all inventory and advertising this sale in the local newspapers.”

This makes evaluating your success or failure easy because your goal is specific rather than general. Suddenly, instead of just having a goal that you may or may not achieve, you have a specific plan to follow to achieve the goal you have set.

If you avoid setting goals, here are a few bookkeeping business secrets for goal-setting success:

Bookkeeping Business Secret #1: Have Short-Term and Long-Term Goals

The first thing I do when setting goals is to consider where I would like to be five years from now. Once I have determined my long-term goal or ideal scene, I work backwards by breaking this ideal scene down into short-term goals and specifying milestones that need to be achieved along the way.

If the task seems too daunting with a five-year plan, establish 90-day goals. Limit goals to three specific things that you want to accomplish. Write out each goal and put a due date next to it. Then write out each step that needs to be taken, by when, and what type of support you need to accomplish that goal. Then schedule in your calendar time to honor the commitment you just made to yourself.

Bookkeeping Business Secret #2: Be Relevant

Goals should help you attain a specific aim. Beware of goals that keep you busy but do not contribute directly to the overall goal you have set for yourself and the success of your bookkeeping business. If you don’t believe your goals are worthwhile, you won’t make the necessary effort to achieve them. For example, several years ago I wanted to work a four-day work week. I set the goal, but did not really believe that I could or should work only four days a week. Guess what? It never happened because I was not truly aligned with the goal.

Bookkeeping Business Secret #3: Review Your Goals Constantly

Review your goals daily. Keep them in plain view - by your desk or next to your computer. Goals are not something that you write down and file in a drawer. The more you embody your goals, the more real they become and the more aware you are of opportunities that cross your path to help you achieve those goals.

I write my goals on colorful 4×6 index cards and keep them by my bedside. I read them first thing each morning and then again before I go to sleep at night. This keeps me focused and moving toward my goals.

Bookkeeping Business Secret #4: Stay on Track

Once you establish clear goals you will begin to notice that opportunities begin to present themselves. When this happens, I ask myself a very important question which helps me to decide whether I should look further into the opportunity or let it go - “Does this opportunity bring me closer to my goal or further away from it?”

By asking yourself this simple question, you’ll be able to take decisive action towards accomplishing your goals. For example, a lovely salesperson from ADP has been calling me to schedule a meeting to show me their services and how they have changed. By asking myself, “Does this opportunity bring me closer to my goal or further away from it?” I have no problem deciding whether or not I should schedule the meeting.

Linda Hunt and Laurie O’Neil are the co-founders of The Bookkeeper’s Referral
Network Inc., the place where business meets great bookkeepers. To get your
copy of The 9 Disastrous Mistakes Most Freelance Bookkeeper’s Make in
Business (and How You Can Avoid Them!) visit http://www.bkpr-network.com

Book Keeping and Accounting is something foreign to many, maybe because they never cared to learn it thinking it is just a dull game of recording transactions using unnecessarily complicated terms and methods. Far from it, book keeping and accounting is a logical way of recording transactions in a professional manner so that the information could be used in the ascertainment of many other vital business criteria such as the profits or losses made, who owes you and how much; how much you owe others, or are you carrying enough cash in the business for meeting immediate commitments etc., just to name a few.

Accounting is something that is useful in your personal as well as professional lives, and it would be worth your while to shed your prejudices and listen! Accounting is nothing complex as you have mistakenly imagined. It is based on one of the most fundamental concepts that if one receives something, then obviously another has to give; and therefore every transaction has a two-fold aspect called debit and credit in accounting terms. Maybe this reminds you of one of Newton’s Laws that action and reaction are always equal and opposite.

Fundamentally, the study of accounting is built on (i) The Accounting Equation, and (ii) Double Entry Book Keeping.

(i) The Typical Accounting Equation:
Assets = Liabilities + Equity

(ii) Double Entry aspect of Book Keeping:
The perfect balancing of the accounting equation is guaranteed by this system.

I think it pertinent now to define Accounting as a system of summarizing financial transactions and recoding in such a manner as to facilitate using such records for later analysis, preparation of further financial statements, interpretation of accounts and communication as required.

Now let’s go a little further with the Accounting Equation enunciated above, and move on to its practical implications:

Assets are your possessions (including what others owe you) while liabilities are what you owe others. The difference between the two is called Equity, which includes capital introduced by you (if it is a sole proprietorship) or by shareholders (in the case of a limited liability company) plus or minus any retained profits or accumulated losses respectively. May I also just state in passing that capital introduced is not refundable to anybody and as such it is not a liability. Hence it is called Equity.

Say, you buy a Motor Vehicle for $40,000 for which you pay $25,000 out of your retained profits (or personal savings) and for the balance you take a loan of $ 15,000 from an outsider.

Substituting these values in the Accounting Equation, we have:

Assets (Possessions) = Liabilities (what you owe others) + Equity (Capital/Personal Savings)
$ 40,000 = $15,000 + $25,000

You see one debit of $40,000 is equal to two credits added together ($15,000 + $25,000) = totaling to $40,000.

There could be more complex transactions requiring distribution to more ledger accounts as well as transactions involving only two ledger accounts. Every equation comprises of the double entry with one or a series of debits on one side of the equation equaling one or a series of credits on the other side.

In the two examples given below you will see how the two concepts of Accounting Equation and Double Entry are synchronized:

(i) Settlement of a liability by paying cash $50.
The liability represented by a creditor receives while your cash account gives.
Creditor (debited with) $50 = cash account (credited with) $50

(ii) Receipt of a debt from a debtor who owed you $75.
Your cash account receives while the debt represented by a debtor gives
Cash (debited with) $75 = Debtor (credited with) $75

Earlier we sited one of Newton’s laws to illustrate the concept of double entry in book keeping. At this point we would like to take you back to your algebra lessons way back in grade 8 or so where you were told that if you add something on one side of an equation, that you have to do the same to the other side of the equation too? It’s fair enough, is’t it? That is exactly what we ask you to do in book keeping too making the double entry equal and balancing.

Double entry book keeping is nothing so complex or weird as to defy fair and reasonable common sense. You can easily grasp the concept of double entry by training yourself to think logically as to who or what gives, and who or what receives in each transaction; and by framing the entries accordingly, while ensuring that the two sides of the equation are in agreement (balancing) and are consistent with common sense.

This article was written for Find This Online an online resource guide that offers a variety of articles written on different subjects. Visit us at Here for more articles on accounting information.

Company owners are often confused by the tangled web of business and financial regulations. To simplify the complicated financial part of the business, many of them choose to protect themselves by contracting for outsourced accounting services. On the other hand, some companies are still trying to handle their own bookkeeping or hiring non professionals to tackle the job in an attempt to save time or money. However, not using a professional is one that can cost a business owners more time and money than they realized they were gambling.

There are several reasons why choosing professionals to handle online bookkeeping services is one of the most cost-effective investments that a company can make.

Navigating the Regulatory Maze
The legal landscape changes quickly and businesses struggle to keep abreast of the latest developments. In our increasingly litigious society, ignorance of the law is no protection from significant financial liability.

This is one of the many reasons companies chose to employ outsourced accounting services. Unless a business is primarily involved in financial services, it is difficult to keep track of the changes. By hiring an experienced professional, not only does a company get its books in order, but it also gets financials done in compliance with the law.

Recent Changes Turn the Financial World Upside Down
The past few years have seen some of the most sweeping business reforms since the Great Depression. High-profile financial disasters like Enron and Worldcom have fueled public outcry for legal protection that has put a burden on all companies, public and private. It is harder for companies to use the casual internal bookkeeping services that have served them in the past. They need dedicated, full-time specialists that are familiar with today’s proper accounting practices, not the practices of ten years ago.

Using online bookkeeping services that use highly specialized accountants relieves the company of much of the burden of following frequent regulatory changes. These firms do nothing but financial work, so they can focus on using the correct practices and that protects their client companies.

You’re in Control When Using Online Bookkeeping Services
Although hiring an outside firm to do financial work can provide protection against liability, it doesn’t absolve the company of responsibility. For that reason, some companies are hesitant about using outsourced accounting services. They fear losing one of two things: control or security. If you choose the right service provider, neither of these will be a problem.

Online bookkeeping services give you full, real-time access to all of your financial data. Nothing is done without your permission or behind your back. You get regular financial reports that allow you to keep an eye on the company’s financial health. The service is there merely to process the data; all financial decisions are still yours.

That unlimited access doesn’t mean there is no security. In fact, your data is probably more secure if handled by online bookkeeping services. Professional companies have dedicated systems have hacker defenses, virus protection, and backup capabilities that small or even mid-sized companies can’t match.

Few companies need or can afford to hire a full-time, dedicated accounting staff and yet all companies need those capabilities. Outsourced bookkeeping services give you the benefit of expert financial services at far less cost.

Author is a freelance copywriter. For more information on Online Bookkeeping
Services, visit http://www.osibusinessservices.com