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Managing Your Business – A Refresher in Certain Basic Concepts

It’s challenging enough to run a business when times are good. It is even more challenging when times are bad. Many critical decisions need to be made on a day to day basis to help mitigate trends that could create a financial risk for your company. Business owners need to sift through real time accurate financial data and ask challenging questions of project managers and accounting personnel in order to stay ahead of financial issues that could negatively affect your company.

Some of the issues that can have a negative impact on your company in good and bad times are unrealistic job budgets, lack of control over rising costs, lack of timely billings, poor cash collections, delays in monthly closing of books and records and lack of accurate financial reporting.

Good internal controls over financial reporting, proactive management, and monitoring are some of the keys to success. Business owners should satisfy themselves that certain basic controls are occurring on a daily, weekly, and monthly basis.

Accurate job costing and quality project management is an important first step. Job costing is the process of tracking the expenses incurred on a job against the revenue produced by that job. A job costing report helps you ensure that all costs involved in a job have been properly accounted for and ultimately invoiced to the customer. A properly designed job cost report is a valuable tool in analyzing the profitability of your jobs. By working on improving profitability or eliminating your less profitable jobs you will make your business more efficient and ultimately add to your bottom line. In addition to monitoring direct costs, you should also track overhead costs and analyze your general costs.

Once all costs are captured, the billing process should begin. Obviously, if you can’t capture job costs timely and accurately, you will be unable to bill your clients properly. A best practice approach is to generate invoices to your clients as quickly as possible. The faster you can get an invoice to your client, you, in effect, accelerate the time frame for getting paid. The longer it takes your company to get billings out the door, the longer it will take for you to get paid. In the meantime, you still have to meet your payroll needs as well as pay your other expenses such as rents, utilities, insurance, etc. This is where good management practices are needed. Implementing good internal controls such as setting an aggressive timetable for closing the books, generating customer invoices and getting them in the mail in a timely manner, will help you improve your company’s cash flow.

On the collection side, as checks come in they should be recorded in your accounting system and deposited daily. A daily cash flow report should be prepared and reviewed by the owners and other key people of the management team.

After 30 days (unless contractually different terms exist), you need to have your key people begin to make collection calls to your clients. I have found it sometimes works better when you can have some face to face time with your clients to discuss open invoices. If you are going to your client for a meeting, consider adding your outstanding invoices to the agenda in order to take advantage of face time. No one wants to potentially upset a relationship with a “good” client over invoices, but you did the work and deserve to be paid in accordance with the terms and conditions of your contracts. If you can’t be at your client, then pick up the phone and make those collection calls. You may not get all of your old invoices paid but you are more likely than not going to get some of them. Remember, you don’t need to give your clients interest free loans especially when you have your own bills to pay. Cash is still king and there is no award for having a large amount of aging receivables.

To conclude, regardless of a good or bad economy, you need to continually review your company’s operations, monitor costs, billings and collections, and make adjustments as necessary. You also need to keep the pressure on your employees to meet financial targets and deadlines you established. By managing your business and not letting your business manage you, your business should continue to thrive and grow.