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Every business owner would like to have a trusted Chief Financial Officer as part of their staff to watch over their financial position. Someone who had the expertise and experience to oversee the accounting practices in the company, review the financial statements and provide them with sound counsel on financial decisions throughout the course of doing business. Someone who is intimately acquainted with the details of their business and their business goals. Read More »
Business owners make decisions about their business every day, some big and some small. The majority of these decisions would not warrant consulting with their accountant over. However, there are certain decisions in which involving your accountant would be the most prudent thing to do. Here are three of them:
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The number of employees who receive a printed paycheck is getting smaller and smaller. Most companies are changing their payroll to direct deposit systems. There are few companies that still give their employees a choice, but, for the most part, companies who have chosen the direct deposit route are now requiring that all their employees receive their paychecks in this manner. With so many companies doing it, there must be some good reasons behind it. Let’s look at what those are.
Want to know why some people lose so frequently at poker? It’s not because they’re unlucky. It’s because they’ll often add chips to the pot generously during the early bets while they’re figuring out if they have a good enough hand to play… but by the time they realize they DON’T have a good enough hand to play, they feel that they’ve paid so much already, they should keep playing just in case (even though the odds of winning are now largely stacked against them).
This happens in business, too. A business owner will invest in something (a tool, a piece of software, an employee, or a new asset, just to name a few) in order to help their business. Things go well for a while, but sooner or later that thing is no longer useful, but the entrepreneur keeps using it because they feel that they’ve paid for it so they should try to derive as much value as they can out of it.
Although it’s a common practice, it’s a mistake… and it’s often a costly one.
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Unless you get money from customers up-front before you give them the product or service they purchased from you, you will likely get shafted now and then from customers who will never pay.
In spite of your best efforts, these receivables end up getting older and older and you realize that you will never collect from them. Everyday people might call this “hopeless” but in accounting lingo, it’s called “bad debt“.
It’s tempting to just ignore your bad debt. (Hey, no business owner wants to be reminded of a customer who pulled a fast one on them). Unfortunately, doing that will artificially inflate the assets on your balance sheet while also misstating your profit.
But you do need to do something with these numbers! Here’s what to do:
