Unfortunately, the answer to this question is no. You simply can't let your business run on autopilot and expect good results. Any successful business owner knows that numerous adjustments--from decisions about pricing to hiring and investing--must be made along the way in order to achieve success.
So, how do you handle the array of questions facing you?
One way is through cost accounting.
Cost Accounting Helps You Make Informed Decisions
Cost accounting reports and determines the various costs associated with running your business. With cost accounting, you track the cost of all your business functions including raw materials, labor, inventory, and overhead, among others.Note: Cost accounting differs from financial accounting in that it's only used internally, for decision making. Because financial accounting is used to produce financial statements for external stakeholders, such as stockholders and the media, it must comply with generally accepted accounting principles (GAAP). Cost accounting does not.Cost accounting allows you to understand the following:
- Cost behavior. For example, will costs increase or stay the same if production of your product increases?
- Appropriate prices for your goods or services. Once you understand cost behavior, you can tweak your pricing based on the current market.
- Budgeting. You can't create an effective budget if you don't know the real costs of the line items.
Fixed costs don't fluctuate with changes in production or sales. They include:
- rent
- insurance
- dues and subscriptions
- equipment leases
- payments on loans
- management salaries
- advertising
- raw materials
- hourly wages and commissions
- utilities
- inventory
- office supplies
- packaging, mailing, and shipping costs
Tip: Cost accounting is easier for smaller, less complicated businesses. The more complex your business model, the harder it becomes to assign proper values to all the facets of your company's functioning.
How to Get Paid on Time
With the current economic conditions, the collection of accounts receivables is becoming more and more of a challenge. Strengthening your collection procedures may allow you to improve collection rates and shorten the aging days of your accounts receivables.The following suggestions will help your business improve its cash flow and tighten up its credit and collections policies. Some of the tips discussed here may not be suitable for every business, but can serve as general guidelines to give your company more financial stability.
Define Your Policy. Define and stick to concrete credit guidelines. Your sales force should not sell to customers who are not credit-worthy, or who have become delinquent. You should also clearly delineate what leeway sales people have to vary from these guidelines in attempting to attract customers.
Tip: You should have a system of controls for checking out a potential customer's credit, and it should be used before an order is shipped. Further, there should be clear communication between the accounting department and the sales department as to current customers who become delinquent.Clearly Explain Your Payment Policy. Invoices should contain clear written information about how much time customers have to pay, and what will happen if they exceed those limits.
Tip: Make sure invoices include a telephone number and website address so customers can contact you with billing questions. Also include a pre-addressed envelope.
Tip: The faster invoices are sent, the faster you receive payment. For most businesses, it's best to send an invoice with a shipment, rather than afterward in a separate mailing.Follow Through on Your Stated Terms. If your policy stipulates that late payers will go into collection after 60 days, then you must stick to that policy. A member of your staff (but not a salesperson) should call all late payers and politely request payment. Accounts of those who exceed your payment deadlines should be penalized and/or sent into collection, if that is your stated policy.
Train Staff Appropriately. The person you designate to make calls to delinquent customers must be apprised of the seriousness and professionalism required for the task. Here is a suggested routine for calls to delinquent payers:
- Become familiar with the account's history and any past and present invoices.
- Call the customer and ask to speak with whoever has the authority to make the payment.
- Demand payment in plain, non-apologetic terms.
- If the customer offers payment, ask for specific dates and terms. If no payment is offered, tell the customer what the consequences will be.
- Take notes on the conversation.
- Make a follow-up call if no payment is received and refer to the notes taken as to any promised payments.
We Can Help
If you'd like to understand the ins and outs of your business better as well as create sound guidance for internal decision making, consider cost accounting.If you need assistance we can help. We'll evaluate your business from top to bottom and determine the real cost of each component. With that as a foundation, we will help you draft budgets, adjust pricing, keep an appropriate level of inventory, and much more. Give us a call today!
Security Tax Services LLC
North Sound South Sound
2802 Wetmore Ave, Suite 212 33530 1st Way S, Suite 102
Everett, WA 98201 Federal Way, WA 98003
425.339.2400 253.237.0751
fax 425.259.1099 fax 253.237.0701
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