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The following observations are the result of years of experience in the field as both an accountant and a business owner.  These tips may seem simple, but putting them into practice can be surprisingly difficult. Please click the link below to view a topical discussion of each point.

There are some clients (or products) not to have.

Customer concentration risk can be a killer.

Software solutions: more expensive doesn't mean better.

Use technology to leverage back office staff.

Call on all receivables over 35 days old.

Don’t handle things twice.

 

 

 

 

 

 

There are some clients (or products) not to have.

One of the fastest ways to improve a company’s bottom line is to do job/client/product analysis, identify the money losers and either get rid of them or increase the amount charged.  The key is to calculate the contribution margin of each job/client/product to see if it is covering direct costs plus overhead and G&A.  If it isn’t, the company would probably be better off not pursuing this business.  In most cases it would be easier to simply cut the customer a check and save the wear and tear on personnel and equipment by not doing the work in the first place.  This ‘client/product  gleaning’ exercise can be very difficult for the growing company because firing customers or discontinuing products, although important to the overall profitability of the enterprise, is inherently counterintuitive.

Customer concentration risk can be a killer.

Nothing can close the doors on a business faster than losing the customer that accounts for a big chunk of business.  Addressing customer concentration risk is a difficult tight rope to walk.  On the one hand, a growing company never wants to turn down business from its largest customer nor do anything to jeopardize that relationship.  However many a large customer has caused immense pain, or in the worst case, closed the door of a supplier either through downward price pressure or an outright cessation of orders.  Client diversification, although never easy, is necessary for the viability of a growing company.

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Software solutions: more expensive doesn't mean better.

Accounting and ERP software vendors will try to convince you that theirs is the solution that’s perfect for you (with some minor work around, of course) and their software package is just what you need.  The downside is that they’ll make you pay dearly for that specialized functionality which you usually end up fighting in the long run.

There are inexpensive, extremely effective solutions out there that are easy to use and don’t require a ton of training to run.  The most prominent example is QuickBooks.  The folks at Inuit have designed an extremely easy to use, feature rich product that’s perfect for small business and can be purchased for less than $200.  Their online version is $9.95 a month and is particularly handy if you travel a lot or don’t have a full-time bookkeeper in the office.  Some of reasons QuickBooks works so well for small business are:

1.       Easily understandable reports built-in to the package,

2.       Seamless integration with MS Office products, particularly Excel and Word,

3.       On-line features like easy-to-use transaction downloads for banks or credit cards, electronic invoicing via PDF files, on-line bill pay and credit card payment processing,

4.       Stable and well supported product.  It has a huge user base and isn’t going to disappear next year and leave you stranded with a system that no one else uses.

 

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Use technology to leverage back office staff.

Moore’s Law continues to be the rule in the world of hardware.  Processing power gets cheaper and cheaper as its footprint continues to get smaller.  This immutable fact allows back office personnel to do more work, at a faster pace and with less aggravation.  Internal systems should change to allow technological leverage to work for you, rather than against you.  On-line banking, bill pay and transaction processing not only gets things done in real time, but also cuts down on the reams and reams of paper associated with the accounting department.

Call on all receivables over 35 days old.                                                                                                    Back To Top

As simple as this seems, many people simply don’t do it because it’s a pain.  The fact is, receivables are not like a fine wine.  They don’t get better with age.  Get on them sooner rather than later.

Don’t handle things twice.

Be they  inventory items, paperwork or data, it’s expensive to handle things twice.  Set up an organizational structure that allows for quick classification and disposition of items so you don’t waste time revisiting what to do with stuff over and over again.  For example, if you have sufficient cash to do so, pay bills online at the end of day, every day (or week, if you prefer).  Your vendors will give you preferential treatment because of your prompt payment and word will get around that you run a tight ship.  The accounting function will become more efficient because paying bills online means not having to run hard copy checks, get them signed, stuff envelopes with checks and remittance advices and stamp the envelopes.   An added benefit is the clean and uncluttered work space in the accounting department, which means there’s room to do the real ‘value added’ tasks like profitability review and trend analysis.

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“A person should not go to sleep at night until the debits equal the credits”

Luca Pacioli (1445 – 1517)

Widely regarded as the ‘Father of Accounting'

 

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