Budgeting Breakthrough

When you hear the word “budget,” what do you think about?  Most people would say something similar to

“Ugghh!” If you would rather do just about anything besides create a budget, you’re not alone.  The word “budget” brings up connotations of endless numbers, constraints, the opposite of freedom and creativity, and hard work, none of which are very desirable.    

Yet, the benefits of a budget are huge.  Budgets can help you with cash flow improvements, keep you on track for higher profits, and alert you to items that need further action. 

From “Budget” to “Profit Plan”

To be successful with budgeting, we need to get rid of all of the connotations that go with the word.  Perhaps it might work if we rename “budgeting” to “profit planning.” And then, rather than focus on how little we should spend, let’s start with how much revenue we’re going to make. 

Revenue Clarity  

It’s simple to create a revenue plan if you go backwards.  What revenue goal would you like to hit this year?  Just like we would never get in a car without a final destination, a revenue plan gives us a number to aim for in our businesses. 

Once you know your number, then we can use averages to come up how many sales or clients we need to generate in order to meet our revenue goal.  Here’s a quick example:  Let’s say you want to reach $5 million in revenue this year.  If you average order is $10,000, then you need 500 sales.  If you have multiple products and services, then you’ll need to sum the product of the average sale times the needed number of sales for each line. 

From there, you can make marketing and production plans based on the number of sales or clients you need. 

Protecting Your Profit

Think of the expense side of your “profit plan” as protecting your profit margins so that you can ensure financial gain from all the hard work you do.  Setting budget limits on spending will allow you to control overhead and other items so you can keep more of what you make. 

Exceptional Reporting

A great “profit plan” report will provide several things.  You can compare budget to actual, or better yet, just be alerted to the accounts showing exceptions.  You can also get an income statement that compares the current period with the prior year period so you can see how far you’ve come.  One last option is a benchmark report which provides industry averages so you can measure how you fare compared to other companies in your industry. 

A “profit plan” is a great tool for your business.  If we can help you with the process or provide you with custom reporting, please give us a call.  

Need an A/R Makeover? A Quick, 5-Item Best Practice Checklist

Technology has allowed businesses to make substantial improvements in their customer invoicing processes.  The good news is that when you implement these technologies, you will almost always get paid much faster.  

If it’s been a few years since the last time you’ve changed your accounts receivable processes, it’s time for a new look.  Here are five tips you can use to rate your own invoicing process.

1.      Invoice Creation

The best way to create all of your invoices in by the push of a button from one of about five types of systems that already have all of your data: 

• Time and billing, if you bill hourly
• Estimating and project management, if you use proposals
• Customer relations management (CRM) systems that have invoicing as a feature
• Point of sales systems that track open accounts
• Accounting system that includes an A/R component

There are a couple of key best-practice concepts to follow at this step:

• Eliminate any duplicate data entry you can.  You should only have to enter your invoicing data in one place, and it should flow to every other system that needs it.
• Automate as much of the process as possible.  Never start in Word or Excel, because this always means duplicate data entry somewhere.
• Have an easy approval process so someone else can do the data entry if needed.
• Keep your invoice data real-time so you can benefit from the next step, which is….

2.      Invoice Delivery

How you create your invoice will vary by the type of business you have, but the main thing to make sure of is that the invoice is approved quickly and sent out to the client as soon as the work has been done. 

The only way to do this is electronically.  If you’re still printing, stuffing, stamping, and mailing you invoices, you’re losing anywhere from two days to nearly a week before your customer even sees the bill.  Change that by using email or delivering the invoice electronically. 

3.      Invoice Terms

When do you want to get paid?  Most people feel it’s realistic to aim for 30 days.  But if you set your payment terms to Net 30, you’re more likely to get paid in 45 days, not 30, according to recent research by Xero, where over 12 million small business invoices were reviewed. 

Instead set your terms to 13 days or less, Xero suggests, because most small business debtors pay two weeks late.  Here is the infographic in case you want to check it out:  http://www.xero.com/guides/invoicing/

4.      Payment Method

How does your business rate when it comes to payment options?  If all you take is checks, you can add another week’s delay to your payment.  Instead, we recommend creating lots of choices for customers, such as taking: 

• Credit and debit cards through MasterCard, Visa, American Express, and Discover
• You can set up links online (best) or receive a fax or scanned form where you can enter the card into your back office. 
• PayPal
• ACH for recurring payments that the client agrees to draft from their bank account
• Checks 

Your industry may even have more options.  For example, in accounting, Intuit has their Intuit Payment Network (IPN) where small businesses can receive money electronically and send and receive requests for money.  IPN is far cheaper than PayPal fees, too. 

5.     Receipt

When you get paid electronically, it’s in your bank (or your merchant account) within minutes.  If you bank online, you can see things immediately now (it’s really amazing!).  When you receive a check, you have the overhead of preparing the deposit and making the trip to the bank.  If you have hundreds of paper checks, you also have additional bank fees incurred from processing the checks. 

If your accounting system interfaces with your bank, then you save a lot of time and money not having to post those transactions. 

Invoice-Free Zone

Why not get out of the invoicing business altogether by offering a pay-in-advance option?  Your Accounts Receivable balance goes to nothing, to name one of many benefits.  Not every industry can adopt this practice, but if you think creatively, you might find some ways you can implement this in your business. 

How did your A/R process rate on the 5-point checklist?  Got some ideas for improvement?  As always, please reach out if you have A/R questions or if we can help you implement your best practice invoicing system.