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Financial

● When, How & Why You Should Hire an Accountant For Your Business --

Every business needs to handle their accounting in some way. Often the owner will try to handle it themselves. Except for extremely small firms, this can be a major mistake. Not because the owner can't do it, but because it takes them away from much more important work that is critical to the business' success. (7.25.2017 - © 2017 R. Kulzick)

● 5 Common Misconceptions About the EB5 Immigrant Investor Program

Thinking of investing in an EB5 venture or using one to obtain business capital? - Here's an explanation of some common misconceptions. (3.15.2016)

Borrowing

● Need a loan to get your business going again? --

For information on the general criteria used for evaluating a business loan, as well as special factors and varied weightings for particular businesses and industries, see this article by Ray Kulzick on LinkedIn. (4.03.2017 - © 2017 R. Kulzick)

● The Main Reasons Banks Turn Down Small Business Owners for Loans --

Need money for your business? Thinking of getting a bank loan? Concerned you may be turned down - wasting valuable time in the process?

● Nearly $1.3 billion in SBA lending in FY 2016 for South Florida --
South Florida small businesses continue to expand including more use of SBA loans.
Under the SBA lending program, business owners have lower down payments and often can take out longer loans, said Peter Salas, regional manager for specialty finance at JP Morgan Chase. "The SBA allows 20 to 25 years amortization," he said. (11.17.2016)

● Keeping Your Business Debt in Check --

Some smart ideas for planning and managing debt.

Don't get in over your head - use debt for the right reasons to help your business grow. (12.24.2015)

Cash Flow

● 5 Tips for Organizing Your Business' Cash

Are you losing control and feeling overwhelmed managing a growing business? Some practical and timely tips for regaining control over your spending, cash flow, finances and accounting. (1.14.2016)

● 3 Rules About Cash Flow That First-Time Business Owners Need to Know

Some basic tips regarding cash flow traps. The time to avoid cash flow problems is by planning for cash (not just profits) in advance. See the items below for more information and an example. (2.05.2016)

● What Does a Business Need - Cash Flow or Net Profit? --

If you started a business last year and it now has more cash than you put into it, is it profitable?

According to the way accountants measure things, you have a profit for a given period if you add up your sales, subtract your expenses, and end up with a positive number. If you end up with a negative number, you have a loss. For an explanation and example of the difference between cash flow and accrual accounting, see the item below.

Unfortunately, adding up your sales is not the same as adding up the cash that came in, and your expenses won't always equal the cash that went out. For example, you have sales without receiving cash by making a sale on account, and you receive cash without having sales when you borrow money or receive a customer payment on account. Likewise, you incur an expense without spending cash when you make a credit purchase or when you record depreciation on the books. You can also spend cash without incurring a current accounting expense when you buy an asset such as a building or a computer.

Cash or Accrual Profit?

So which do you want - cash or profit? Well, you want both. To keep your business afloat for the short-term, you need cash to pay suppliers and employees (perhaps even yourself). In order to obtain that cash, you may have to expedite collections from your customers, stretch out payments to your suppliers, or borrow from your bank.

Over the long-term, however, you will need to show a profit. In other words, the sales that you ultimately realize in cash must exceed the expenses that you ultimately pay in cash in order to maintain a successful business.

● Example of Cash versus Accrual Accounting --

The selection of an appropriate accounting method, both for financial reporting and for tax purposes is a very important decision for a business. Once a method has been chosen, it is difficult to change, particularly for tax purposes.

There are quite a number of accounting methods that can be used, and that might be appropriate for a particular business enterprise. The most common are cash basis and accrual basis.

Under the cash basis, revenues and expenses are recognized when payment is made or received. Under the accrual basis, revenues and expenses are recognized when they are earned. To clarify this, a simple example is presented below.

For illustration purposes, assume the following facts (a real-world example would be much more complicated):
1. A new architectural professional service business has fixed costs of $5,000 per month all of which must be paid in cash.
2. It starts with $15,000 in cash invested by the owner and does not need to spend any money on equipment, deposits, or initial supplies.
3. It is fortunate and lands a good contract for architectural design services which will cost it $10,000 per month in salaries and other direct costs for 10 months ($100,000 total).
4. The client will pay the firm $16,000 per month for 10 months ($160,000 total). Payment is on the basis of billing the first of each month for the prior month's services and the client has 45 days to pay.

The following projections for the first 5 months (cumulative year-to-date) are in thousands of dollars and based on the above facts.

Accrual Basis - Profit & Loss

Month		1	2	3	4	5

Sales		16	32	48	64	80
Variable	costs	(10)	(20)	(30)	(40)	(50)
Fixed	costs	(5)	(10)	(15)	(20)	(25)
Profit		1	2	3	4	5

Accrual Basis Balance Sheet

Cash	0	0	(15)	(14)	(13)	(12)
Accounts	receivbl	16	32	32	32	32
Total	Assets	16	17	18	19	20

Initial	investment	15	15	15	15	15
Current	profit	1	2	3	4	5
Total	Equity	16	17	18	19	20

Cash Basis Profit & Loss

Sales		0	0	16	32	48
Variable	costs	(10)	20	30	(40)	(50)
Fixed	costs	(5)	(10)	(15)	(20)	(25)
Profit		(15)	(30)	(29)	(28)	(27)

Beginning	cash	15	15	15	15	15

Ending	cash	0	15	(14)	(13)	(12)

In other words, although accrual basis accounting shows the business as making steady profits of $1,000 per month, the business is not going to be able to complete the contract - probably having to close the first week of the second month because it has run out of cash and cannot meet its payroll.
Note that we may be able to extend the payment of some of our costs, in which case the cash-basis costs would decline some, being replaced with accounts payable, a liability. If we are a service business, as in the example, these would probably be relatively small and would not effect the outcome. (12.24.2015 - © 1999 R. Kulzick)

Receivables

● How to Deal With Overdue Accounts Receivable --

Collecting overdue accounts receivable is more an art than a science. Half the problem can be alleviated with proper procedures up-front, such as customer screening, written proposals, and credit checks.

Once an account becomes delinquent, you have some decisions to make. Some customers should be handled differently from others. A long-time client who suddenly stops paying may have a problem which can be worked out while maintaining your relationship. Conversely, a new client who turns delinquent may require quick action, which could jeopardize your relationship.

Collection steps should include demand letters and follow-up telephone calls. Document the results of each step. This will prove beneficial in the event legal action becomes necessary.

If your collection efforts fail, you have the option of writing off the account or using a collection agency or an attorney. There are pros and cons to each option.

Collection Agency. A collection agency should have a good reputation. The agency should provide you with references, have adequate bond protection, and maintain a separate trust account for each of its clients. An appropriate fee could range from twenty to twenty-five percent of the funds collected. A lower fee may indicate the agency is only interested in collecting easier accounts.

Attorney. Larger accounts may be turned over to your attorney. An experienced attorney may be able to collect even the most difficult accounts or be able to collect them more quickly. Many firms work on a contingent fee basis but may require a down payment for out-of-pocket costs.