Three short tips for your new venture from an accounting point of view
1 RECORD YOUR TIME
If you are a sole trader with a relatively new business, recording where you spend your time is key. How much time are you spending generating leads versus how much time is spent developing your product or service? Your time will not be completely occupied with work relating to your customers (as you may not have enough customers at the beginning). Over time, this will change of course, but the key to staying focused on your business, is recording your time.
When not fully ‘busy’ with working for customers, we can get distracted or unfocused looking into various opportunities, instead of focusing on why we began our business. If you wanted your business to be nine to five but find you have time free, that time can be spent making calls, setting up meetings, getting feedback from your customer base.
Record how much time is being spent with your customers. Over time you should see this increase. Recording where your initial sales come from is also good practice. To know where your customers are coming from, allows you to focus your promotion in that area. This does not mean spending money advertising (when you may not have a marketing budget), it means being aware of where customers are coming from, so you know how best you can interact with them and grow your customer base.
2 RAISING INVOICES (IN A TIMELY MANNER)
If your business is online and a sales invoice is automatically generated and paid when an order is made, then this will not be an issue for you. A lot of new businesses struggle with the amount of administration they have to deal with. Watching your bank account, ensuring your bills are paid and dealing with day to day queries, can be time consuming. If your business is not selling online, like the above example, the most important piece of administration work you can do is raise your sales invoices in a timely manner. You may have terms of engagement or a contract with your customers, if so, ensure your invoice is in line with your terms.
While some business owners prefer to spend time working on their business, they sometimes overlook this key area. Customers value the work you have done just after you have performed the work (and they are happy customers). If they receive an invoice a while later, they may forget what a good service you performed. It can also make your business look like it is not well run.
Work performed and not yet billed is called ‘work-in-progress’. Your focus, as a business owner, will be to keep this amount to as low as possible. Finding ways to get jobs done quicker, and therefore, invoice quicker and get paid faster, is the aim.
Once you raise sales invoices, the customers are then referred to as ‘Debtors’, anyone that owes you money.
3 COLLECTING CASH
As mentioned in point 2 above, you may have contracts or ‘terms’ in place with your debtors. If so, the terms or contract should state when you expect payment. Most small businesses state 30 days from the date of the invoice. Whatever your terms, if you have not received payment within the specified period, it is important you follow up immediately with your debtors once payment is due.
For various reasons, many people do not like making telephone calls looking for payment from their debtors. This is the one area you should learn to become comfortable. Overcoming any awkwardness or shyness talking about money is very important. We are dependent on ourselves, when self-employed, to ensure cash comes into the bank and we can pay our suppliers or staff. For that reason, this is one of the most critical areas of your business, cash collection.
For many small businesses that may be on your debtor list (if they have cashflow issues), unfortunately, payments tend to be made to the businesses who actively chase cash hardest. If someone is getting an emailed statement from one supplier or a telephone call from another (or even a visit, if necessary), it will be the visit or the telephone call that will prompt the quickest payment.
Obviously, this is very unfair, however, it is a reality many small businesses face and for that reason, it is most definitely the most important of the Top 3 Tips.
1. Record Your Time
2. Raising Invoices (in a timely manner)
3. Collecting cash
By Wendy Merrigan
Making money in your first few months (or years), can be challenging. Many start-up businesses struggle financially in the first few years.
This does not mean you cannot make a profit in your first year. On the contrary, I have seen many small businesses, controlling their costs and ensuring they focus on making money from the very beginning.
When we hear the phrase ‘time is money’ so often, it can be easy to forget just how true that statement is.
Wasted hours of your time, most definitely costs you money.
Make sure you send invoices to customers in a timely manner. If you are dealing with a new customer for a large amount, bill little and often.
Spread your invoices out by billing ‘on account’ where possible.
‘Show me the money’ as Gerry Maguire said. Once you have sent your invoices, be sure to chase payment in line with your terms. By learning to overcome talking about payment terms or negotiating price, you are learning a skill that will improve your business in the long run.
If you are unsure of how to deal with any of the advice, please talk to your financial advisor, accountant or bookkeeper.
Wendy Merrigan, Chartered Accountant. Wendy has an accountancy practice that looks after small and medium size business. Everything from setting up your business to bookkeeping, to payroll and year-end accounts work.
Wendy also runs free workshops. The ‘Goal Focused’ workshop will be run on 13th April in Wicklow Town.
‘Understanding Your Finances’ is being run with Helen Creegan-Walsh in the Central Hotel, Exchequer Street, Dublin in June 2018. Wendy will cover the records to keep, knowing what expenses to claim and growing your business using your numbers. Helen will cover investment and financial advice for sole traders, explaining what can be achieved using practical examples.
[Article published in March issue of Self-Starter Magazine]