Scott Gregory, Your Trusted CFO

Fantastic Financial Info to Know: Tracking Your Accounts Receivable

Do you sell to your customers on credit?

By that, I mean do you offer some sort of payment terms such as:

• Net 30 days
• Net 45 days
• Net "Hope My Clients Pay Me Someday"

If you do sell on credit, it is essential to the financial health of your business to have a solid system in place to monitor the following information:

• Who owes you?
• How much they owe you?
• How long they have owed you?

THE ACCOUNTS RECEIVABLE AGING REPORT TO THE RESCUE!

If you use QuickBooks or other accounting software, the built-in Accounts Receivable Aging Summary report will be your best friend.

This report quickly summarizes the key details mentioned above for easy review and monitoring as shown in the screen shot below:



Naturally, you will want to build an internal system that allows you to take follow-up actions on anyone that has gone into overdue status (or to even be proactive on invoices about to come due!).

ACCOUNTS RECEIVABLE ARE THE LIFEBLOOD OF YOUR BUSINESS

A simple thing to remember - every dollar that shows up on the accounts receivable report above is a dollar that is NOT in your business checking account. That money is not helping you pay your bills, purchase inventory or meet your payroll obligations.

I know it is difficult to envision playing the "bad cop" and having to contact your customers to collect on overdue amounts. However, if you don't make these important calls, your invoice may very well go to the bottom of the stack. And that is not a good place to be.

ADDITIONAL RESOURCE

The Guide to Getting Paid: Weed Out Bad Paying Customers.. by Michelle Dunn

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Fantastic Financial Info to Know: Profit and Loss Report with a Twist

When it comes to managing the finances of your business, it is essential to be comfortable with certain critical benchmarks.

This "Fantastic Financial Info to Know" series will introduce you to three of them.

CRITICAL BENCHMARK #1 - SEEING YOUR PROFIT AND LOSS WITH A % OF INCOME CALCULATION

Your profit and loss report provides a recap of your income and expenses for a certain period of time, whether it be a week, month or year.

It is also extremely helpful to know not just what the dollars are, but also how all of those line items stack up as a percentage of your business income.

AN UP CLOSE LOOK

The sample report below shows just what a Profit and Loss Report with a % of Income Calculation can look like (click on the image for a larger view):

Using this example, you can quickly and easily see just how significant the various expenses of the business are in relation to the income level.

In a flash, you can see that the job expenses are a bit over 37% of the total income and the payroll expenses are running slightly more than 26% of the total income for the year (this profit and loss report was run for a year-to-date basis for demonstration purposes).

Are these percentages too high? Too low? That is where some historical trends can be very helpful. If you create this same profit and loss on a monthly basis and track some of these key figures, it will then be easy to spot trends (either favorable or unfavorable) in your business finances and then take appropriate action from there.

THE PROFIT AND LOSS WITH A % OF INCOME COLUMN IN QUICKBOOKS

The above report was created using QuickBooks accounting software with just a few mouse clicks and is also available in other accounting software as well.

If you need help getting your QuickBooks organized to provide this type information to you on  a regular basis, contact me so we can talk further about your situation.

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