If you're a small business owner, you're likely aware of various risks related to your line of work. One that you may not be familiar with is a high concentration of sales or credit. This threat arises when a small number of customers represent a large percentage of your annual sales or accounts receivable.
Most business owners know how to calculate fixed costs—like rent and equipment—and variable costs— such as wages, utilities, materials, etc.— related to providing goods and services. But there is another kind of cost to consider when making business decisions: lost opportunity cost. While lost opportunity costs can sometimes include intangible factors that are harder to measure, that does not mean they are not real. Savvy business owners understand how to identify and measure them, and how to respond when they arise.
Federal law has a large section of interstate commerce laws called the Uniform Commercial Code (UCC) which, among other things, provides for lenders to see what other lenders have secured as collateral for a business loan. Normally this is all collateral other than real estate. There are several forms within the UCC that business owners should understand because they affect their ability to secure future loans.
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In past articles, I’ve shared why a line of credit can be a great growth tool for any business, and compared the benefits of using a line of credit instead of a credit card. Business Bank of Texas offers several different types of lines of credit to business owners, including accounts receivable, inventory, and guidance lines of credit. Today let’s examine what a guidance line of credit is, and the appropriate use of one.
Topics: Bank Products
Everyone is busy these days, and business owners can be especially short on time. Between managing all the hundreds of activities required every day to manage a successful business, finding a few minutes to look critically at any individual aspect can be a challenge.
Topics: Bank Products
Almost all business owners will face a time when bills or employees need to be paid, and there isn’t enough cash on hand to pay it all. Working capital (what’s left over when current obligations are subtracted from current assets) is necessary to keep businesses afloat and to allow growth to happen. Unfortunately, businesses don’t always have enough of cash, and sometimes tough decisions have to be made.
That’s where a line of credit can be useful. Having access to a line of credit allows businesses to operate with enough money on hand to pay for short term debt and expenses, which is essential in times of growth or transition.
Topics: Business Best Practices
Whether you are setting up a new business or running a well established one, it is important to know the basic differences between cash vs. accrual basis bookkeeping. It is also helpful if you are applying for a loan to understand why your banker wants to see your books in an accrual format.
Accounting standards in the United States are called Generally Accepted Accounting Principles (GAAP). These are the accounting standards for all U.S. businesses. GAAP recognizes and provides principles for both cash and accrual accounting methods, as does the Internal Revenue Service.
Generally speaking, cash basis bookkeeping recognizes income and expenses when they are received or paid. If you are a cash basis bookkeeper you may have accounts receivable but they don’t show as an asset on your balance sheet. Your accounts payable also don’t show up as a liability on your balance sheet.
Do established businesses borrow? Or is that a business practice reserved for start-ups and first-timers?