Small business bookkeeping

7 small business bookkeeping tips for time-pressed business owners

Is your small business bookkeeping taking too much time out of your already-busy day? Here are some quick tips to simplify your financial admin.

small business bookkeeping

Remember a time when it was so simple to sort your business receipts, bills, invoices and general paperwork? You might have just been getting started and spent a lot more time growing your business than you did organizing your books. But then you started selling more, got more customers, more paperwork flooded in and everything erupted!

Managing administrative work can become complicated as your business grows (especially if that growth happens quickly) and that once simple admin process can quickly escalate into a daunting challenge. 

Now, even a small error or oversight can impact your P&Ls, Income Statement, revenue projects — and snowball into a big end-of-year mistake that affects your payroll and taxes. So save your money, time and maybe even some gray hair by establishing an easy-to-follow bookkeeping process.

Here are seven essential bookkeeping practices that every small business owner should follow:

1. Separate your business and personal finances

This is essential for every business. Personal finances need to be kept separate from your business expenses, which is best done from the initial point of purchase. If not, you’ll end up with a mangled mess of expenses within multiple account statements to sort through and label at the end of the year. You also don’t want to end up with a shareholder account that is too high — forcing you to claim that ‘additional’ income all at once.

To limit the crossover, don’t use your personal credit card for work purchases and vice versa. However, this can happen from time to time (standing in the checkout line and realizing you don’t have your other card), so make a note of that and flag it immediately with your bookkeeper. It can be helpful to take a picture of the receipt just in case you misplace it along the way or invest in a small business bookkeeping mobile app 

 

Small business bookkeeping tips: Financial Statements

2. Document all expenses

No matter how small the expense, it’s important to track your purchases and payments. Whether it’s on a company credit card, debit account, by cheque or a cash payment, keep a record of those transactions. In addition, download your banking statements each month so you have a file of those for easy access on your hard drive. 

If you have a bookkeeper or admin person, ensure they have access to those statements and are reconciling every month — flagging any questions and clearing them up so you don’t have a backlog later in the year (when you might forget what happened months before.) This also helps you assess your business cash flow in real-time and understand where potential gaps may lie.

Related: 3 biggest financial challenges facing business owners

3. Schedule weekly bookkeeping time

Aside from the monthly reviews, set aside time in your calendar for weekly admin time. This could even be 30 minutes every Monday morning to update your Quickbooks or financial software, pay bills and review bank account balances. By making it a regular and easy task, you will feel more in control of your business financials and less intimidated at the end of the year when you need to dig into the dusty books.

 

Small business bookkeeping & accounting tips

4. Follow up on account receivables

Even more critical is ensuring the money owed to your business is coming in on time. Knowing when invoices should be paid and how that impacts your cash flow is critical to making future business decisions. Within your accounting software, ensure all invoices are entered with the right term dates. 

In your weekly bookkeeping time, review this section to see what has been paid, what’s coming due and, most importantly, what is past due. If you have a collections person or team, get them on the case asap. But if it’s just you managing the books, pick up the phone or send an email to follow-up on the payment. The personal touchpoint with the customer could help get payment quicker and further solidify a good relationship.

5. Monitor cash flow trends

The worst-case scenario in business is running out of cash at a pivotal time. By monitoring your accounts, knowing the seasonal trends in your industry and having a reliable projection for your business, you’ll be ready well in advance. So how do you do that?

Setting up a cash flow statement and budget is step one. (You can follow the steps here.) Next, calculate your DSO, DPO and DIO as part of your cash conversion cycle, which can reveal a host of opportunities and potential roadblocks in your way. Look for warning signs such as taking too long to pay suppliers, changes in sales or customer reorders, or even unusual spikes and dips in payroll. Anything out of the ordinary could warrant a little extra attention.

 

Small business bookkeeping & outsourcing to a professional

6. Outsource to a trusted pro

Despite your best intentions, sometimes the admin work for your business will still be your last priority. Getting help on these steps ensures that things are managed proficiently — freeing you up to spend more time on running the sales, service and operations of your company. 

If you don’t yet have a bookkeeper, look into adding this role (even part-time or on contract), which could save you countless hours. Your accountant may offer this service already or offer a referral to their trusted network, so start with a conversation with the professionals already on your team. 

When it comes to your accounts receivables and collections, when getting financing through invoice factoring at Liquid Capital, our team will also take care of that portion for you. 

Here are additional benefits of invoice factoring.

 

7. Reconcile monthly

This one is so important that it gets its own section. Reconcile all your paperwork and books once a month, along with your accountant and bookkeeper (as applicable). By reconciling monthly, you’ll catch errors associated with cash inflows and outflows earlier, keep accurate up-to-date records and be ready for financing if you’re ever in need. 

Staying on top of the admin will alleviate stress, a much-needed relief for most business owners, and prepare you for those unexpected surprises that are around every corner. 

 

Learn how to become lender friendly in our free eBook here. Get instant access with no download needed.

 


At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

Cash conversion cycle

How to determine your company’s « cash conversion cycle »

Learn the basics of a “cash conversion cycle” and how you can use it to your company’s advantage.

Cash conversion cycle

Every company needs a healthy cash flow to take on new opportunities, prepare for the unexpected and grow to their full potential. If you buy and sell inventory on account, it’s imperative that you know how long it takes to turn that inventory into cash.

This is the cash conversion cycle, and it’s key to making sure you’re on top of your company’s working capital.

Know your company’s cash conversion cycle

cash conversion cycle

Your company’s cash conversion cycle (CCC) tells you how many days it takes to turn your inventory purchases into cash. It’s a cycle that is all too familiar: you acquire inventory from a supplier, store that inventory, sell it to a customer on account, pay your suppliers and collect on your invoices — thus getting paid and putting cash back into the company.

The CCC is an important financial indicator of your company’s cash flow. It shows your ability to maintain highly liquid assets and is a metric that lenders and other finance providers will use to assess your potential risk level.

It’s not magic, it’s just math

Cash conversion cycle formula

You don’t need to be a magician to unlock the power of the CCC formula for your business. All you need are three figures to complete the basic CCC formula, all of which you can find in your financial statements.

cash conversion cycle formula

Let’s look at each component a little more closely.

  • DIO: Days Inventory Outstanding
    • This is the number of days on average that your company turns your inventory into sales. The smaller this number, the better.
  • DPO: Days Payable Outstanding
    • This is the number of days it takes you to pay your accounts payable. The higher this number, the longer you can hold onto cash, so a longer DPO is better.
  • DSO: Days Sales Outstanding
    • This is the number of days you’ll need to collect on the sales of that inventory after the sale has been made. Again, the lower the number, the better.

So the CCC is equal to the number of days it takes to sell your inventory, plus the number of days you need to collect on your sales, minus the days it takes you to pay your vendors.

Example:

Keisha runs a PPE manufacturing  company. Keisha always pays her suppliers within 30 days. She keeps enough inventory on hand to satisfy 60 days of sales and is good at managing this. It will take 52 days on average for her customers to pay their invoices. This would be her CCC formula:

CCC = 60 days – 30 days + 52 days

CCC = 82 days

Keisha’s CCC is 82 days, meaning that she will need on average 82 days of working capital to convert purchased inventory into cash.

The above is a simplified example, and to get accurate results you must calculate and track your DIO, DPO and DSO on a monthly, quarterly or annual basis, along with the dollar values for inventory and sales.

 

Calculate cash conversion cycle

How the Cash Conversion Cycle reveals hidden potential

Now that you have gathered the necessary numbers and ran them through the CCC formula, you will have a good indication of your cash liquidity position — and it can point your attention to what is helping or hindering your cash flow. Depending on the results, you may determine immediate areas that can be improved.

The longer the CCC, the more working capital you’ll need to manage your operations. And that can be an overwhelming challenge for many businesses. Generally speaking, companies want to shorten their CCC.

To shorten the CCC, you may be able to manage inventory levels better, get longer supplier payment terms, improve your collection process or adjust the payment terms you give your customers. However, this may not always be practical or something you’re wanting to change for a number of reasons.

Making adjustments that fit your business

Choosing to use an alternative financing solution such as Invoice Factoring can help to lower your CCC by turning accounts receivable into cash faster. 

Factoring can help to lower your DSO which means that you will get paid on your sales faster and have quicker access to working capital. This cash can then be reinvested into your company faster than if you had to wait on outstanding invoices to be paid out according to the usual payment terms.

Or you could get extended payment terms from suppliers to reduce the DPO portion of the formula or use financing tools such as Purchase Order Financing to help you make up the gap where suppliers are not providing adequate or any terms. By extending the number of days you have to settle your accounts payable, you can keep cash in the company and effectively increase your working capital.

However, the CCC alone cannot be a complete indication of liquidity. You’ll need to look at calculating other liquidity metrics like the current ratio and quick ratio to paint a complete picture. You may already have these calculations in place, but if you haven’t yet calculated your cash conversion cycle, it’s time to start crunching the numbers and tracking changes over time to manage your business better.

 

Reducing your DSO and DIO or stretching your DPO are also useful tactics that can help your cash conversion cycle to grow your business. Do you work in an industry where “inventory” doesn’t apply? There are also other ways that you can use the CCC. Keep reading our four-part cash conversion cycle series to learn more.

 

Read Part 2: Learn about the 7 proven cash flow tactics every CFO and finance pro needs to know.

Cash flow tactics for CFO

Read Part 3: Learn how to leverage your assets to grow your working capital

Cash-Cycle-Part-3-ABL

Read Part 4: Learn how to keep suppliers happy and the cash in your pocket

Cash Cycle


About Liquid Capital

At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital you’re talking directly to your funding source and a fellow business person.

resilience

Why every business owner’s most valuable asset is resilience

As a business leader, can you overcome adversity & daily pressures? Here’s why your resilience matters most & how to bounce back.

Resilience is a business leader's greatest strength

As far as inspirational commencement speeches go, it was a bit of a shocker.

When chief justice John Roberts of the United States Supreme Court addressed a graduating class in 2017, he wished them … bad luck.

“From time to time in the years to come, I hope you will be treated unfairly so that you will come to know the value of justice,” he said. “I wish you bad luck, again, from time to time so that you will be conscious of the role of chance in life and understand that your success is not completely deserved and that the failure of others is not completely deserved either.”

Only by experiencing adversity, Roberts suggested, can we develop the crucial quality we need to get us through it: resilience.

From Nietzsche to Kelly Clarkson

As a business leader, being ‘resilient’ allows you to “withstand or recover quickly from difficult conditions,” which you may face both internally and externally. An economic downturn, a market disruption, a botched expansion. A cancelled contract, an inventory snafu, a product that sinks like a stone. Unpaid invoices, unforeseen logistical roadblocks, or an employee who is underperforming.

How do you muster up the strength and courage to face the daily onslaught of challenges? Some will chalk it up to ‘entrepreneurial spirit,’ but author and psychologist, George Kohlrieser, points to resilience as the key. He defines this quality a step further, as it pertains to corporate and organizational leadership: 

“Resilience is the human capacity to meet adversity, setbacks and trauma, and then recover from them in order to live life fully. Resilient leaders have the ability to sustain their energy level under pressure, to cope with disruptive changes and adapt. They bounce back from setbacks. They also overcome major difficulties without engaging in dysfunctional behavior or harming others.”

To paraphrase Nietzsche – and a Kelly Clarkson song — “what doesn’t kill you makes you stronger.”

So what does resilient leadership look like? These snapshots may give you an idea. 

Business failure

Accept (and expect) failure 

Before launching New Coke, Coca-Cola CEO Roberto Goizueta conducted blind taste tests with nearly 200,000 consumers. After New Coke aced those tests, it hit the market on April 23, 1985. 

But New Coke fell flat. Coca-Cola was bombarded with thousands of angry calls and letters demanding the return of the original flavor. Just 79 days after introducing New Coke, Goizueta owned up to his mistake and brought the ‘old’ Coke back.

What went wrong? People’s hearts – their intense emotions about a century-old brand – simply overruled their taste buds. Goizueta learned that even if your business seemingly takes all the right steps (remember the 200,000 blind taste tests?) things can still go horribly wrong.

Despite your best planning and execution, failure will sometimes happen. Accept that. Expect that. And if it happens to you, learn from it.

Resilience is about being realistic

For James Stockdale, former U.S. vice-presidential candidate and high-ranking naval officer, taking a realistic view proved to be his saving grace. Although Stockdale survived seven years of torture and imprisonment during the Vietnam War, many of his fellow POWs tragically did not. 

As he explained to now famous business author Jim Collins, the most optimistic prisoners were, surprisingly, the least likely to make it out alive:

“They were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.”

Collins calls this the Stockdale Paradox, and warns business leaders of its dangers in his bestselling book Good To Great. As he further explains, “you must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they may be.”

Being resilient means being realistic about your situation, not deluding yourself with false optimism.

Hit your business goals

It’s not about being ‘perfect’

Roy Halladay won a lot of things, including two Cy Young Awards and a place in the Baseball Hall of Fame. Yet the pitcher’s relentless pursuit of perfection cost him his life.

After Halladay fatally crashed his small plane in 2017, an autopsy revealed morphine, alcohol, antidepressants and amphetamines in his system. How could someone so perfectly in control out on the baseball field spiral so out of control in his life?

Biographer Todd Zolecki says Halladay’s constant overtraining and insistence on playing for decades after a spinal fracture, ultimately led to his addiction and downfall. “Because he was so determined, he just felt like he needed to push through it, even though he was in such tremendous pain. But he just couldn’t walk away. He could never turn off the ‘I have to go max effort’ switch,” as Zolecki explained.

In the battle of resilience vs. perfection, the baseball star’s loved ones could see he was not able to overcome and bounce back. Brandy Halladay told Zolecki her husband’s quest for a perfect career took a toll on the most important team of all – his family. As she described, “everyone else [was] getting the hero and we’re getting what’s left over.” Instead of even spending time with their kids, he was left struggling with his physical and emotional pain. 

Extinguish flames

Extinguish your inner saboteur

When we experience a rough patch, it’s often easy to dig yourself a hole and focus only on the negative side of things. Author and business coach Paula Hope defines this as your inner “Saboteur” as she explains in her book focused on conquering negative thoughts that can equally impact your sales revenue.

“A Saboteur, in the context of new business development and the business professional who offers their professional services, is a negative thought, or series of thoughts, that create a level of emotional discomfort for the business professional.” 

Part of being resilient, as we have now come to understand, is to be able to overcome being knocked down. It’s important, regardless of the Saboteur’s intensity, that you don’t let it affect your confidence as well as your business performance. You will not be able to move forward without ridding yourself of those personal fears and doubts.

Business leaders ask for help

Don’t be afraid to ask for help

Perfection is impossible. Instead, reach for the inner strength to bounce back, instead of bending to the point where you (or those around you) completely break. Take care of yourself personally as well as professionally. And when you need help, reach out for it.

 

Next up: How asset-based lending work


Business owners and entrepreneurs will undoubtedly face financing issues and new opportunities requiring access to working capital. If you are searching for ways to overcome one of these challenges, reach out and we’ll provide you with information and options to explore. 

Images from Pexels, and Pixabay

Financements récents – Juillet 2020 - Liquid Capital

Financements récents – Juillet 2020

Financements récents – Juillet 2020 - Liquid Capital

selling PPE

Selling PPE? Follow these steps to secure funding

What a time to be in this business. Whether you were already selling PPE in the past or not, you may have found that you’ve somehow fallen into the space.

selling PPE

 

Orders are flying fast and furious for face masks, shields, gowns, gloves and that ever-critical hand sanitizer! From cities and government offices to private companies and industry organizations  — everyone is placing an order.

You may have all the supplier and trade connections to secure PPE inventory, but not enough working capital to close the deals. So how do you make sure you can deliver — especially if you’re presented with a surprise PO?

Here are six tips to help you access funds:

 

fake deal

Tip 1: Make sure the deal is legitimate!

There are a lot of fake deals and scammers out there, especially when selling PPE. Nefarious people are quick to take advantage of an industry in hot demand, so do your due diligence to ensure whoever you’re talking to has a credible business. Get professional help at this step, and ask your lawyer, banker, collection firm or other partners to do required background checks and extra investigation.

 

funding options

Tip 2: Investigate your funding options

You likely already have a banker on your side, and that can often be step one. But if you have a maxed-out line of credit, or a loan that can’t be extended, how will you get more funds released to make a new deal go through? Check out your options such as government programs (many are listed here), the CDFI Fund, community lenders and alternative lenders such as us here at Liquid Capital. We are happy to work alongside your banker.

 

funding partners

Tip 3: Connect your banker and your alternative lender

This step will benefit you greatly, for two main reasons…

1) It tells you that both your banker and your alternative lender are the trustworthy partners you need right now. They’ll be working together, in partnership, to help your business get the much-needed access to cash — as quickly as possible. If they aren’t willing to work together, you’ve got the wrong people on your side.

2) It gets you out of the weeds. You’ll have a lot more to focus on to close a PPE deal quickly, so having to be involved in the nitty-gritty of every aspect of financing decisions between the banker and lender would take up a lot of your time. Meet with them regularly, of course, but make sure they connect even more often to power through the details.

 

clever

Tip 4: Get clever about order on receivables

When you’re dealing with large financing deals and multiple partners, you’ll no doubt hear about the order in which your lender and banker will need to be placed on your receivables — also known as the subordination agreement. This might not be your decision ultimately, but don’t let this be a deal-breaker.

While your original financing partner may have first position, a new lender may also require they take this top spot. Someone’s got to give, but there are different ways of structuring deals, and you could suggest a split in the territory or some other method of segmenting the positions. For example, a second lender may be able to only take first position in one State, while the original lender retains first position across the rest of the globe.

 

Related: Learn how to become lender friendly and why you should perform a UCC search on your own company.

 

speed red flag

Tip 5: Speed is important, but too fast could be a red flag.

If you’re supplying PPE, your client likely wants their shipment yesterday. That will put some major urgency on your financing. If you’re structuring a PO financing or invoice factoring deal, for example, these can be done relatively quickly — but it will save you time, money and headaches in the long run if you go through the proper steps. If a lender promises they can rush this beyond a believable timeframe, be wary. You don’t want to get into a situation where you actually end up owing on payday loans or merchant cash advances — with enormously high rates.

 

deal

Tip 6: Line up an expert now, even before you have a deal

You might not yet have a PO, but the moment you do, you’ll want to have a trusted partner on stand by. If you’re currently selling PPE (or could be) — or your company does business for any essential service — start talking to new lenders now. Find out what solutions they offer, how they can structure deals, what other industries they work with, and their history of funding businesses like yours. Short-list the ones you think could help you, and you’ll be that much more prepared when a new client comes knocking on your door with the next big order.

 

Next up: How asset-based lending works

 


About Liquid Capital

At Liquid Capital, we work with clients who are selling PPE and those in other essential service industries — supply chains, food services, financial services, manufacturing, transportation services, construction, and resources and energy. Whether you’re currently operating from a virtual home office, or you’ve shifted back to the busy downtown hustle and bustle, we know business can’t stop. We’re business people ourselves, and our company is built on a network of locally owned and operated Principal offices. Whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

Images from Pexels, and Pixabay