Archive for October, 2009

Want to stay in business and be profitable in this economic climate?  The answer is to plan, but it is difficult to think in terms of three to five year plans these days.  So focus instead on the next 12 to 18 months and use “what if” scenario planning and stress testing along the way.

Build scenarios
Create a forecast for the next 12 months to 2 years. Take your business plan and then impose a series of scenarios. A business-as-usual scenario, for example, might have flat growth. Another scenario might project a 10% drop in revenue and a 20% increase in input costs.  These scenarios show you the effect on the business of outside forces, and allow you to develop contingency plans to mitigate their effect if you start to detect their impact through your monthly reports.
You might decide that if revenues decline for two or three consecutive months, then you will implement a stronger marketing and sales program. If that fails, then you might move to significant cost reduction activities. Look at what happens if the company loses customers and suppliers.
You might need to draw up plans to create other ways of drawing revenue, like discounting, or going to other markets or changing production. Identifying a critical threshold means you can start thinking about how to mitigate it.

Develop your business plan
Critical to forecasting is your  business plan;  it should cover market analysis, organization and management, strategic analysis, marketing and sales, products and services, the amount of funding needed to start or expand the business, and financials. The best business plans are updated every six months, though you should be reviewing it quarterly.

Do you find when it comes to a choice between serving a paying customer and writing a business plan, like most small businesses, you go for the money? Lack of time is a major reason many small companies don’t have plans. The answer for some businesses is to prepare the plan on the weekend. It might take an entire day, but it’s a worthwhile exercise.  continue

They both record the same information:  SALES.  Invoices record sales on an accrual basis, sales receipts record sales on a cash basis.

An invoice records the sale as income and increases accounts receivable, as of the date of the invoice, even though you haven’t received the PAYMENT for the sale.  To complete the sale process started by using an invoice, you must “Receive the Payment” against the invoice, which will reduce your accounts receivable.
This is a two step process:  Increase to Accounts Receivable = Sale and Payment = Reduction to Accounts Receivable.

A sales receipt is used when you receive the PAYMENT at the time of the sale. In other words, this is a cash sale.  In completing a sales receipt in QuickBooksTM, you record the sale as income and deposit the PAYMENT in to Undeposited Funds or a bank account, at the same time, using the “sales receipt” form.
This is a one step process:  Sale = Payment.

In addition, in QuickBooks, a sales receipt is also often used when a client gives you a deposit towards future work.

To learn how to use QuickBooks more efficiently in your business, contact Teri at 619-463-6851 or by e-mail at teri@terimilligan.com.

Recent economic trends have caused many contractors and other businesses to deal with accounts receivable issues.  Five years ago, when the economy was better as a whole, there was less concern with enforcing a contractual right to payment because bills were being timely paid.

For those contractors dealing with collection issues, not much can be done to “squeeze blood from a turnip”—if your customer has no money, collection efforts are often futile.

But to best assure your ability to collect debts, a few steps can be taken at the contract stage and during your work to best assure your ability to collect.

As a litigation attorney, I can advise you that these are the circumstances that best allow me to collect debts owed to my clients:

• Clear and certain scope of work terms set forth within a signed contract, including signed change orders confirming any revisions to the scope of work or the contract price (don’t forget to make sure your home improvement contract meets the legal requirements of Business & Professions Code section 7159, otherwise collection will be even more difficult);

• Attorneys’ fees provisions in a contract that help you leverage payment short of incurring attorneys’ fees;

• Service charge provisions in a contract that further help you leverage payment of at least the principal balance owed; continue