finances

How sales can help finance in your small business

June 17, 2010 by admin Leave a Comment

Every once in a while many company finance teams evaluate the profitability of your customer base. One of the important criteria is a measure called days sales outstanding or DSO. The calculation measures how long it takes an invoice to be collected once the product is shipped or service is preformed. There are certain customers who gain some measure of infamy with the finance department credit analysts and A/R collectors. If the situation continues long enough, the finance department will ear mark this customer to be dropped. Because this can affect company market share, the marketing department and the sales team generally have adverse reactions to this measure. So how does a good owner or president/CEO resolve the issue?

A good way to assist the finance group is to get the support of the sales team. Give them laptops so that when they are on sales calls they may access the invoices for the customer. If there are any invoices over a certain delta, the sales team should be involved in helping to collect the delinquent invoices. If you business can not afford to buy laptops for the sales team you could consider renting them from a source like www.rentacomputer.com who can assist your business in their temporary needs.

If the sales team works in conjunction with the finance department, then there wont be any surprises when its time to review the customer list. Both departments will have a part of keeping the customer with in financial limits. On the other hand, by keeping the customer within proscribed limits, the sales department keeps its hard earned customer and market share. In this case both departments and the company as a whole wins, and if in the unfortunate event a customer does need to find a new source, then there is buyoff from everyone that this unfortunate measure must be taken.

Have sales and finance view each other as a team and your company’s DSO will drop, and that is a very, very good thing!

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Sales Tax exemption certificates: Yes, you must keep track of it!

April 26, 2010 by admin Leave a Comment

Sales Tax exemption certificates: Yes, you must keep track of it!

In my business career I have seen this happen three times: Once I was a credit manger, once as a major account sales rep, and once as a financial consultant, companies that sold products out of state and did not keep exacting records of sales tax exemption certificates. In two of the three cases, the result was devastating for the business. The state sales tax commission team audited the business and heavy fines were imposed along with sales tax in arrearage including hefty late fees. Then it seemed all the neighboring states-through some miracle of unhappy coincidence sent their sales tax audit teams in as well (although they swore they never tipped off the other states, yeah right!). It was a major contributing cause for two of the three businesses to end operations!

So what to do? If yours is a new business, include a sales tax exemption certificate with every new account package which should include a signed credit application and a request for a freight guide. If you are the owner of a small business make this part of your day before your employees start working! I have found sending the new account package works best if you send this to your customer’s controller. This is generally a very visible person of director level who will know where to route this very important paper work. Also, if the controller has any questions about your businesses policies and practices, he or she will generally call or have an appropriate person call to “iron out” any details. Send these out by mail since most will require a signature and request that the packet returned complete (so you only have to handle it once). For the record, I am a huge fan of “if you touch it, you scan it” (if it comes to you in paper form). Many of these tax certificates will come to you via email-save them to a CD and store a copy off site. The same holds true for the certificates that are mailed or faxed, scan them then save them to a CD, and store a copy of the CD off site. Keep a log of every packet that your business sends out (an Excel worksheet should be sufficient), and check them off as they return. Later as your business grows you may delegate this to a trusted employee like an office manager and later the company controller.

Following this simple practice of keeping sales tax information up to date can keep you company in good standing with the state and prevent costly and heartbreaking audits for your small or new business.

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Is your business behind the money curve?

March 31, 2010 by admin Leave a Comment

Does your business have a nice sized A/R but little money to show for it? Is your company accounting manager always ducking collection calls? You may be behind the money curve. Here’s how it happens:

You may have a few large customers that name their own credit terms or just pay slow. The key ratio that every business owner should know is days sales outstanding or DSO. DSO measures how long it takes for an invoice to be turned into cash. Your accounting manager can calculate this number for you or you can find the formula here:

http://www.investopedia.com/terms/d/dso.asp

The idea as the business owner is to turn your receivable into cash as fast as possible, the larger the DSO number the longer it takes. All business have creditors and suppliers and the problem is when your business pays out faster than your finance department can collect the receivable, in consumer terms, you’re upside down. How can you speed up the process?

1) Motivate the collection staff-If you really want to know where the problems are with your business, take a trip to the credit/collection department. Good credit people will usually have a solution as well. I know it’s not in vogue in these economic times, but offering a bonus for cash collected is not a bad idea. In fact, it’s a very good idea.
2) Offer a cash discount-This is giving some of your profit away but it motivates your slower paying customers to pay, it may be worth the 1 or 2 percent discount.
3) Factor your invoices-Selling your invoices to a factor also takes away profit, but you get your cash over night. Factors are great financial advisors since they are in “the money game” every day.
4) Transfer some of your risk to someone else-This strategy is probably for a medium business. Some business set up a dealership network to service certain accounts. They sell their product to a middle main who then deals with the slow paying account. The middle man then charges a premium for the product or service because he knows he’s going to wait to be paid.
5) Try to get some of your money upfront as a down payment (medium to large companies will resists this strategy so be prepared)
6) Take credit card payments-this is another strategy to get paid in a very short time, just make sure you read the agreement very carefully.

Looking for a GeoVison Security Camera System to help secure your small or medium business? Call www.CameraSecurityNow.com today at 877-422-1907 for a free phone consultation. Ask about the new Hybrid DVR/NVR surveillance solutions.

Now you’ve taken an order but your supplier does not want to extend a credit line.

March 15, 2010 by admin Leave a Comment

This is one of the more frustrating things that you can encounter as a business owner. You or your sales person has gone out and “won the battle” by bringing back a good sized order, and now the credit person on the other end of the phone does not want to extend terms or enough credit line to cover the business. The first reaction is to call up and vent on the credit person, but this, as we have discussed earlier, is not in your company’s long term best interest. The first question many business owners want to ask is “why,” but it is probably more important to ask “who.”

Why is a question that leads to debate and confrontation while who gives a business owner what he or she might need-more information to get a review or reversal. Was the decision made by a credit manager, senior credit analyst, or accounts receivable clerk? If it was a clerk, they might be following a strict set of guidelines and are not encouraged to think “out of the box.” Same thing for a junior credit analyst, they do not have years of experience to draw on to get the deal done or be experienced enough to offer creative financing. Your first step is to call your liaison with your suppliers company-your sales person. Make sure you get the name of the person making the decision and ask the sales person their job title. Your sales representative should be able to convey how much clout the person making the decision has within their organization. Many sales people (who want the sale) might make a visit back to the credit department for you. A few hours later the deal might show up totally approved! (By the way, even finance people have a heart; I approved a deal that I knew I should not have. The sales rep told me,” Without this deal my kids won’t get Christmas.” What would have you done, probably what I did-approved. Boy was I hating life about March when the company could not pay-the key thing- this deal was approved and it was nothing about business or credit analysis).

If the deal is quashed by a Senior Credit Analyst or Credit Manger who is much respected inside their own company for years of prudent judgment, then make them your ally-ask them to draw on their experience to help you get the deal done. Remember without A/R these people don’t have jobs, so present yourself as a cooperative potential customer needing their expertise. They will begin to like your approach immediately. They might offer to finance half the deal with the other half on American Express. If after 5 deals-paid with in terms, then they will offer a total credit line of x amount. Also ask them if they report to D & B or TRW business reporting, and if they would do this for your company. Most will be glad to help!

Looking for a GeoVison Security Camera System to help secure your small or medium business? Call www.CameraSecurityNow.com today at 877-422-1907 for a free phone consultation. Ask about the new Hybrid DVR/NVR surveillance solutions.

Dealing With Dun & Bradstreet – Part Two

March 9, 2010 by admin Leave a Comment

As was mentioned in part one, a new business owner will eventually encounter the good people from Dun and Bradstreet who can be quite aggressive in trying to get information on your business. Some small business owners consider this “none of your business,” but viewing D & B in this way is to immediately start heading down the wrong road. Instead, a better view point is to view your Dun & Bradstreet report as a marketing tool for your business, produced at D & B’s expense!

What this does not mean is giving Dun and Bradstreet everything that they want (or falsifying information which is actually a crime). It does mean giving D & B the information you want them to have! For example, if you have opened an auto repair service, have worked many years in the field before at a major garage, and sponsor a racing team, this shows a commitment to automotive industry both for work and leisure, that’s excellent press! This is a part of what D & B calls the ownership antecedents (your work history).

Continuing with the auto garage theme, if your company pays an auto aftermarket supplier like Jasper or Target like clockwork, list them as trade references (although large companies like this probably report via electronic trade). Know who the credit manager or credit analyst is and have their phone, fax, and e-mail ready. In fact, have a credit sheet prepared that you can give the D & B reporter, or fax or email in to D & B. Also have a bank reference with a business banker who is willing to talk to either D & B or your potential supplier’s credit department. This makes your new business look professional. Know what these people are going to say before you hand this information out by building a good relationship with them as was mentioned in part one. (When I was a senior credit analyst for a Fortune 50 company, I had a medium size business owner who called me every month to make sure that his accounts payable was paying within terms, and that I could in good conscience speak well of his company).

If your company has financials that are solid (ask your accountant how your companies balance sheet and income statement would look to a potential supplier), submit them to D & B who will then run some ratio analysis, and then tell the world how financially solid your small company looks. If your financials do not look that strong at the time, politely defer them for a later time.

Taking these steps can help your small company grow and add to its financial prestige, and the best part of it, Dun and Bradstreet helps you pay for it!

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Dealing with Dun & Bradstreet, Part One

March 7, 2010 by admin Leave a Comment

As a new small business owner, one generally starts out with a great idea for a product or service, a lot of drive, and hard work. Sooner or later, however, your business, a supplier, or a customer is going to “run a Dun & Bradstreet report” to find out your company’s financial standing. This inquiry is generally generated by your customers purchasing department to make sure that the partnership will financially be able to smoothly continue, or a supplier’s credit department to ascertain if it should extend credit terms.

Its is becoming routine for your potential customer to request (from their own in house credit department) a Dun and Bradstreet report (or D & B) because they want insure that your company will be able to deliver goods and services in an ongoing business relationship in a timely manner. It is very important for many customers, who rely on “just in time” deliveries to know that their supplier is not going to be placed on credit hold and thus collapse their supply chain, perhaps shutting down their production lines. This can cause late deliveries to their own customer and an unhappy work force (who might have been sent home early do to lack of parts or production materials).

If your company is applying for trade credit from a supplier, looking up a D & B report is routine. In a medium to large company, this is usually done by a Credit Manager or Senior Credit Analyst. In a small company, it might be done by an accounts receivable clerk. In any case, the first item looked at will be the composite credit rating. The rating has two components: the Financial Rating Classification and the Composite Credit Rating.

The Financial Rating Classification is the financial size of a given company based on its Net Worth reported on its balance sheet. These ratings start at HH for a very small company to 5A for a huge company like Microsoft. This rating helps the analyst to determine a company’s ability to pay its obligations. There are other ratings but these are most routine.

The Composite Credit Rating is a measure of a company’s willingness to pay its bills. This is information is gathered from your company’s suppliers who report to Dun & Bradstreet (and very many companies do). This is a rating from 1 to 4, one being the best and four being very limited.

As a small business owner, you want to cast your company in the best possible financial light. The simplest way to start is to pay your invoices on time and when you can’t, you need to make an ally of your supplier’s credit person. These people can grant your more time to pay and might even consider the invoice paid on time if approached in the right way. The best way to do this is to be pleasant and communicate with them in a timely manner, and not wait for them to call and “collect” on the invoice.

Continued In Part Two.

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Mint Money Management on the Move

July 17, 2009 by Etha Walters Leave a Comment

I hesitated writing a review about Mint.com because when it comes to money in times like these you simply cannot afford to fall prey to another internet fly by night; but after researching my little review, I have discovered that Mint.com is a quiet and steady freight train that could completely evolve the way we handle our money.

Mint is a money management website where you can view all your accounts in one spot. All you have to do is answer a few questions and give information for each account that you have and then Mint connects to all your accounts and brings all that information to one place where you can generate reports, plan a budget and access where all of your money is going and where to make cutbacks. I know what you’re thinking, giving all your personal account information to a website does sound like a security risk. However, after Mint gathers all your account information and creates a secure, encrypted connection to your account, they no longer keep that information on file.

Mint.com has also partnered with Yahoo! to give you at-a-glance views of your spending, budgets and investments, plus timely alerts, delivered right to your My Yahoo! personalized homepage; and for privacy reasons, your actual account balances are never displayed.

Mint has a little ways to go before its concept is fully functional, for example not all banks or creditors have joined mint yet; but for the most part I do recommend checking it out. We just might be seeing a development that is going to change the way we handle our finances online.