A business must do two things well to survive and prosper over time:
Taking these five steps when granting trade credit to your customers will minimize credit risk and improve your overall accounts receivable collections efforts.
Your credit application doesn’t need to be complicated, but it should help you gather information necessary to make a good credit decision. The application should indicate the legal name of the business and ownership; provide banking information, and information on trade credit grantors. Business often provide a preprinted “bank and trade references" list to you, but the importance of your application is that the customer, by signing it, grants you permission to contact their bank and trade creditors for payment history.
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Weve written several articles about the importance of regular financial benchmarking (both internal and external) for the health of a business. Of all the financial benchmark ratios a business owner could use to measure the financial health of their business, liquidity ratios may be the most important.
Most companies need a combination of equity and debt (from time to time) to stay healthy and thrive. Often, business owners choose not to get equity from a third party. Instead, they try to grow their equity from within.
Equity is the “at risk” capital in a company. Shareholders inject equity, either when the company starts or from time to time when necessary. Profits left in the company on a permanent basis also contribute to equity.
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.
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.
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.
For most businesses, the end of the year can be hectic. Employees who scramble to use their vacation time during the holidays can leave businesses short-handed. As a result, it can create a scheduling headache as employers try to balance worker requests for time off with the need to stay adequately staffed.