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Greetings!
Time for your business checkup - see the article below for the final part of our 3 part series on Cash Flow - The Pulse of Your Business.
ECL Consulting, LLC's Business Coaches work with business owners and managers in the areas of business management, administration and strategic planning to maximize the potential of the business and help owners realize their dreams. By coaching you through every vital part of your business, we help create the plan, inspired action and measurable results to achieve your vision. |
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Cash Flow: The Pulse of Your Business |
Part 3: Analyzing You Cash Flow
The sooner you learn how to manage your cash flow, the better your chances for survival will be. Furthermore, you will be able to protect your company's short-term reputation as well as position it for long-term success.
The first step towards taking control of and properly managing your company's cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management.
Some of the more important components to examine are:
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Accounts Receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative effects there will be on your cash flow.
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Credit terms. Credit terms are the time limits you set for your customers' promise to pay for the merchandise or services purchased from your business. Credit terms affect the timing of your cash inflows. One of the simplest ways to improve cash flow is to get customers to pay their bills more quickly.
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Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy is necessary to ensure that your cash flow doesn't fall victim to a credit policy that is too strict or to one that is too generous.
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Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
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Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable sometime within the near future, "near" meaning 30 to 90 days. Without payables and trade credit, you'd have to pay for all goods and services at the time you purchase them. For optimum cash flow management, you'll need to examine your payables schedule.
Some cash flow gaps are created intentionally. That is, a business will sometimes purposefully spend more cash to achieve some other financial results. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts or spend extra cash to expand its line of business.
For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans and trade credit are just a few of the external financing options available that you may want to discuss with us.
Monitoring and managing your cash flow is an important task to perform in order to ensure the vitality of your business. The first signs of financial woe will appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps. With cash flow management and analysis, you will be able to plan on how you're going to direct your cash surplus with assurance that you will have adequate funds to cover day-to-day expenses.
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Getting Organized
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As a small business owner you wear many hats. With all the rewards and responsibilities of ownership, it's no wonder that paperwork often falls to the bottom of your list, along with organizing your office, work flow and schedule.
If you want to eliminate misplaced paper files, know exactly where you put that document on your computer, have a clutter-free pathto your desk, and remember important deadlines and appointments every time, contact us to put ECL's Organizing Solutions to work for you!
Better yet - call us BEFORE you get stuck to free up your time & start saving money! |
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Ask An Expert |
 Q: I just found out about a deduction I could have taken on my federal taxes, but I've already filed. What can I do? A: You've discovered an error or determined that you are entitled to a previously unclaimed credit or deduction, after your tax return has been filed. Do you need to amend your tax return?
The IRS usually corrects math errors or requests missing forms, such as W-2s or schedules, when processing an original return. In these instances, do not amend your return.
However, you should file an amended return if any of the following were reported incorrectly:
- Your filing status
- Your dependents
- Your total income
- Your deductions or credits
You may also elect to amend your 2008 return if you are eligible to claim the new first-time homebuyer credit of up to $8,000 for a qualified 2009 home purchase. The amended tax return will allow you to claim the homebuyer credit on your 2008 return without waiting until next year to claim it on the 2009 return.
Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ submitted electronically or by mail. Be sure to enter the year of the return you are amending at the top of Form 1040X. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the IRS processing center for the area in which you live. The 1040X instructions list the addresses for the centers.
The Form 1040X has three columns. Column A is used to show original or adjusted figures from the original return. Column C is used to show the corrected figures. The difference between the figures in Columns A and C is shown in Column B. There is an area on the back of the form where you explain the specific changes being made to the return and the reason for each change.
If the changes involve other schedules or forms, attach them to the Form 1040X. For example, if you are filing a 1040X because you have a qualifying child and now want to claim the Earned Income Credit, you must attach a Schedule EIC to show the qualifying person's name, year of birth and Social Security number.
If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you owe additional tax for 2008, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.
Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
Form 1040X and instructions are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Ever have a tax, QuickBooks or accounting question, but didn't know who to ask? Now you can Ask An Expert. Send us your question and we'll answer it here. | |
Have you enjoyed this newsletter? Have any suggestions for things you'd like to see covered? Have a question for our resident Accounting Expert? Let us know by emailing us.
Each issue will cover different topics and have different features, so watch for us each Tuesday.
Remember, we provide accounting and cash flow solutions for successful companies -- yours!
Sincerely,
Eli Larriva
ECL Consulting, LLC
(520)241-0371
info@eclconsulting.com | |
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