Most businesses have credit or debit cards to manage their non-check or automatic transactions.Â But I still run into some businesses that are relying on old school cash for various transactions.Â Don’t get me wrong, there’s nothing wrong with properly documented use of cash, but it’s rarely tracked well.
PLEASE, I beg you, do not randomly go to the ATM machine and take cash out for business use.Â If you are traveling, you’ll need some cash.Â If at all possible, pay for it personally, collect the receipts and/or keep a journal of how the cash was spent.Â Then get reimbursed from the business.Â This keeps your books clean, doesn’t raise eyebrows in the event of an audit, and gives you a great incentive to make sure you’re collecting those receipts.
Of course, the best action is to use a credit card as much as possible.Â With the credit card, there’s a record of the transaction.Â That means your bookkeeper knows to ask you for the receipts.Â Debit cards can work for this too, but I really prefer businesses to limit their use of debit cards.Â Unless you are keenly aware of the amount of money and the bank and on top of cash flow tracking, using the debit card can be a dangerous and expensive habit (overdrafts, inability to pay important bills, etc).
Like many others, I am in pursuit of the paperless office. There are many solutions out there, but finding the right solution is difficult. For my purposes, mac compatibility and an online solution were a must. In addition, I needed a solution that would accept emailed receipts, since75% of my receipts are in email format. I explored three solutions: Dropbox, Shoeboxed, and OfficeDrop. Keep reading to find out the pros and cons to each….
At this time of year, a lot of my conversations revolve around tax saving strategies. I’ve spoken with several CPAs recently and the advice for cash basis tax payers is consistent. If you are showing a net profit for the year, here are the top 3 strategies for reducing your 2010 tax bill:
- Defer income – If you can, push income into 2011. Delay the invoicing, ask your clients to hold payment until January, and/or be less aggressive with your collection efforts.
- Accelerate Expenses – Buy needed items before the end of the year and pay down your accounts payable. Cash basis tax payers don’t get deductions until the money is spent, so pay as many of your outstanding bills as possible. Some accountants caution that prepaid expenses (like rent) are not deductible until the period they are used. Check with your tax accountant before pre-paying regular bills.
- Buy Needed Equipment – If you are going to need equipment next year, buy it before year end to take advantage of the Section 179 deduction.
Of course, talking with your tax accountant and reviewing your specific tax situation is advised.
A relatively simple Microsoft Excel spreadsheet is usually the best tool for predicting cash flow.Â This spreadsheet will track when you expect your revenue to hit the bank account and when your bills and payroll will leave the bank account.Â The first column (each column represents a time period, usually a week) in your spreadsheet will begin with your bank account balance, then add incoming cash, subtract outgoing cash, and finally total to what you expect to have left in the bank.Â That ending bank balance will be the beginning bank balance in the next column (time period)…wash, rinse, repeat.
Sample Cash Flow Forecast
(Invoices are kept on a separate spreadsheet in this sample.Â Forecast would normally extend numerous weeks)
Most business owners have too much on their plate, so much in fact, they end up throwing cash and profit away. It’s not that they are so profitable and have so much cash they don’t know what to do, it’s that they “save time” by skipping the financial review. Here are 3 common places to quickly reclaim lost cash and profit (it’s like looking between the couch cushions for your business!):
1. Forgotten Subscriptions – Free trials and automated renewals are often forgotten. Almost every business I have ever worked with has some automatic charges happening on their credit or debit card for subscriptions they don’t even use.
Solution: Review all bank and credit card statements. Have your bookkeeper research any charges that are questionable. Also ensure that the subscriptions you want to keep are for the right amount. If you’ve changed the number of users, for example, you might not be on the right rate plan.
Recently, I received this question:
I bought inventory and pre-paid the invoice with a credit card. When I received the inventory, they said they had misquoted me and refunded me $50.00 on the order. The refund was made back to the credit card that was used to pay for the order.
The question (in two parts):
- This is a refund on the the whole order, not just a handful of the inventory itemsÂ (i.e. I am not returning anything, I’m just getting some money back on the job overall). Do I handle that by using Bill–>Misc and entering negative $50Â as the bill, which generates a return credit to me? AND
- If I do that, I am then being asked to to apply that $50 to one of my accounts, but which one?
I’ve been doing some interviewing lately and I thought I’d share some of the questions I ask potential bookkeepers. For more information on how I like to see them answered, subscribe to CrackerJack Business Insights. A full article will be in the October 21st issue.
- Do you think accrual or cash basis reporting is better for business management?
- What is the accounting equation (or balance sheet equation)?
- The bank account is off $0.72.Â How long will you spend looking for the problem and what steps will you take to find it?
- In cash basis accounting, how would you record a $600 annual insurance premium?
- How would you record a $600 annual insurance premium using accrual accounting.
- How many gas stations do you think there are in the U.S.?
- Rank the following in order of importance for business success: Sales, Teamwork, Quality, Service, Profitability, Integrity
- Tell me about a time when you didn’t agree with something your boss asked you to do.
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