If you’re a seasonal business owner, you might feel tempted to take an extended vacation during the off-season.
You absolutely deserve a break!
But instead of ignoring your business all together, consider using your downtime to get your financial house in order—and priority #1 should be your books.
(Shouldn’t gaining new customers be at the top of your list? Yes, expanding your customer base is always important, but focusing on your books is just as important, if not more so.)
Here are 3 reasons why your books should be your #1 off-season priority:
1. Help with Managing Your Receivables
During your seasonal rush, you might be too busy to collect money from your customers who are slow to pay you. It happens to everyone.
But if you haven’t set up a good invoicing and receivables system, you might lose track of who owes you money and how much. So make it a point to set up or revamp your receivables system this off-season to keep the cash flowing in.
Here are some tips for developing an effective receivables system:
Consider sending bills electronically: email is faster and easier to track than regular mail.
Just find an invoice template online and customize it for your business, making sure that your invoice includes the amount owed, detailed description of the services rendered, payment address, and payment terms.
Multiple Payment Methods
Give your customers as many payment options as possible and you’ll find that most pay on time.
Look into the pros and cons of allowing payments by cash, check, credit card, electronic funds transfer (EFT), or PayPal, and decide which options work best for you.
Try accounting software like QuickBooks or Intacct.
The best programs include invoicing and receivables functionality, and most have wizards that walk you through the set-up process.
2. Prepare for Next Season
When the new season starts, you don’t want to be short on inventory. On the other hand, you don’t want to have more inventory than you need, either—since that’s an unnecessary expense that directly impacts your bottom line.
Avoid these common mistakes when managing your inventory:
Having Too Much Inventory
If you have too much inventory at the end of the season, you could find yourself selling it at a discount or housing it in an expensive storage facility during the off-season.
Look at your previous seasons and make a projection for about how much you think you’ll need.
Although QuickBooks and Peachtree are technically accounting software, both have inventory features that’ll help you track your stock and get a dollar value for it.
Focusing on Every Item
You might not have the time to accurately track and forecast your inventory needs for every item you sell, so keep in mind that as a general rule, 20% of your items generate 80% of the demand.
Focus on those items first, and then look at the next highest-selling 30% of your stock.
Forgetting to Backup your Data
You might be doing a great job tracking your inventory in an accounting software program or on a spreadsheet on your computer, but what happens if your computer crashes or gets stolen?
You need a backup plan.
That plan could be as simple as saving your data to a thumb drive every night—that you should store separately from your computer—but you’ll also want to regularly backup your entire computer and store that data someplace safe.
3. Make Yourself More Attractive to Lenders
As a seasonal business, it’s almost certain that you’ll have slow months…
But that’s no excuse for not organizing your finances during that period!
The Importance of business Financing
There’ll probably be times when you’ll need a business loan to pay your bills or handle unexpected expenses, and the rates you’ll get won’t be as favorable if you’re showing unbalanced books.
According to Steve Goodrich, managing partner of North End Financial, here’s what it takes to get a loan.
North End runs a personal credit report and looks for bank liens or bankruptcies. Though they might present a problem, what’s more important is whether the business can pay back the loan.
According to Goodrich, “For seasonal businesses, we look at cash flow, not their annual financials.”
Cash flow is the money that “flows” into and out of your business, and a cash flow statement is an easy way to show a lender your business’s net increase or decrease in cash for a given period of time—usually a quarter or year.
Your Business’s Cash Flow
To maintain a positive cash flow, it’s important to make cash flow projections.
By putting effort into your projections, you can avoid purchasing supplies and inventory during times of heavy cash outflow and negotiate with lenders to have bills due during times of heavy cash inflow.
What do you base your cash flow projections on?
Simply put—your books!
This will show you a history of what your income and expenses are and when you incur them.
You’ve just learned 3 big reasons why you should make your books a #1 priority during your off-season, and these 3 reasons all have one thing in common:
They’re all about increasing the financial stability and long-term viability of your business.
The post 3 Reasons Your Books Should Be Your #1 Off-Season Priority appeared first on Fundera Ledger.
from Fundera Ledger https://www.fundera.com/blog/2016/06/28/books-number-one-off-season-priority/