How to spring clean your business' finances.
The winter and tax seasons are finally over, and beach days are within reach. As a business owner, it can seem like the work never stops, but by taking the time now to get your financial house in order, you can free up your schedule this summer for much needed downtime with family and friends.
Towards that goal, New York Life identified financial best practices for business owners to take advantage of this spring to help ensure smooth sailing for the rest of the year and beyond.
Streamline your bookkeeping.
Setting up an organized bookkeeping system will save time and make it easier to stay on top of your business. For Maria Vasquez, a New York City based small business client of New York Life, going paperless made all the difference. "Since switching from paper-based bookkeeping to an accounting software, I have been able to clear out filing cabinets filled with old invoices," she says. "It took some time for me and the team to get it set up and get used to the system, but now it is so easy to use, and it saves me so much time."
Here are some tactics to get started with streamlining your business’ bookkeeping:
- Make use of software: Utilize accounting software and applications to make bookkeeping less manual and give you back more time.
- Take advantage of free trials: Many companies offer free trials of software. Take advantage of these trials to identify the program that works best for your business before committing to a solution.
- Create invoice templates: This simple task will make sending invoices easier and less manual.
Follow up on past due accounts.
If you don't keep on top of accounts receivable, you could see past due payments pile up and have a significant negative impact on your business cash flow. Like many of her business owner peers, Vasquez's "major struggle is cash flow, due to not receiving payment from [her] clients in a timely manner." To help tackle this issue Vasquez and her team “take time to call clients for collections at least once a month. We've found that most of our clients will pay promptly after a call."
Here are four practices to consider for your business:
- Determine your "days sales outstanding" goal: This is an estimate of your average collection period, typically between 15 and 45 days. It's important to understand your goal, because payments — or the lack thereof — can significantly slow your company's cash flow.
- Set up an accounts receivable timetable: Create an accounts receivable timetable or other system that can be used throughout the year to track payments, and keep on top of them.
- Make paying easier for clients: Determine if there are steps you can take to streamline client collections, such as accepting new forms of payment.
- Review your payment policies: Take time to determine if you need to change your payment terms, or even discontinue working with customers who have trouble making payments.
Analyze your pricing.
Identify if your pricing is at the optimal point. Among the questions to ask are whether you can lower your prices and attract more customers and ultimately boost your profit — or raise your prices and retain enough customers to increase your profit.
For Vasquez, a review of her business’ fees led to a rare but necessary price increase. "We've been in business for 15 years and had rarely increased our hourly rate because we didn't want to upset our customers — they have bills to pay, too," Vasquez says. "After realizing our pricing needed to better reflect our expenses, we finally adjusted our rates, and none of our customers were upset — the cash flow is looking a lot better."
To get started, here are three strategies for you to take action on:
- Competitive analysis: Compare your rates with similar products and services offered by your competitors in the market, and strategize how you want to price your products in comparison.
- Cost analysis: To help maximize profits, identify the material, labor and overhead costs associated with making a product and service, and brainstorm ways to lower them.
- Pricing models: Consider how to incorporate new pricing models, including tiered pricing (discounts based on sales volume) or add-on pricing (additional fees for services beyond baseline).
Perform an audit of recurring expenses.
Often, people sign up for automatic payments for services and/or subscriptions and forget to cancel them when they no longer need them. This is the perfect time to review outstanding contracts, insurance policies, etc. As your company grows — and evolves — you may need to modify the details of these contracts and policies. Vasquez found it's worth the effort to audit these expenses.
"I am so busy day-to-day, and some months I just don't have time to analyze every credit card statement in detail," Vasquez says. "I recently did, though, and realized I had auto payments set up for services I don't even use regularly. Now I make sure I look more closely because even little fees add up."
Here are some tips to get you started:
- Review recurring payments: Determine if you have recurring payments set up for services you no longer use, and take the time now to cancel them.
- Renegotiate contracts: For the services and products that you do need, look into whether the vendor offers other pricing or subscription options that better fit your needs.
- Review insurance: As your company evolves, so may your insurance needs — making sure your business has the right coverage will help set you up for success, no matter what happens.
Identify trends for better planning.
As you review models for bookkeeping, accounts receivable and pricing, you should also identify and analyze trends in each of these areas. Trend analysis helps you understand what to expect from your business and can help you set realistic — and successful — outcomes.
"I recognize the importance of staying up to date with the numbers, so I meet with our accountant and insurance agent a few times a year and talk about the business," Vasquez says. "They are always noticing trends I might have missed, and it is really helpful to know these things for planning purposes."
Effective trend analysis methods include:
- Chart trends: Examine trends for revenue, cost of goods sold, cash flow and seasonal fluctuations. This will give you insights on what's working — and what's not — and help with business planning.
- Compare and contrast: Analyze trends by comparing them to the same periods in the previous year and five years' prior to get a pulse on how your company is performing.
- Consult the experts: To assist in this process, consult with your financial professionals, including your accountant and insurance agent — they can help analyze trends and use the findings to map a blueprint for your future.
With the closing of tax season, it's the perfect time to give your business a fresh start by taking the time to do a thorough cleaning of your business and financial practices. Every business is different, but finding ways to make the most of technology, automation and support can get your business running like a well-oiled machine, so you can look forward to enjoying your summer, worry-free.