Tag Archives: medium business

Financial Planning

How To Manage Debtors To Keep The Cash Flow Positive

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Cash flow management is one of the most important aspects of a business that should never be taken for granted. If the cash flow management of a business is not smooth, it can face numerous financial and reputation-based issues, which just become more complex as the time goes by.

Big businesses that supply goods to their customers on credit mostly go through numerous debtor management issues, which can lead to financial issues for the business and a negative business cash flow.

Following are some tips for such businesses to effectively manage their debtors:

1- Adjust Accordingly

No client is the same. A business has a set of old clients that are trustworthy and new clients who cannot be trusted so much. Therefore, a business should keep the credit allowance and credit terms based on the type of customer it is dealing with.

Moreover, important information of all the clients asking for credit terms, whether they are new or old clients, should be sought which includes credit score, bank history, bank terms and financial transactions. All of this information should be evaluated before deciding the credit terms or thinking about allowing credit to the clients. If the financial information provided by the client seems too risky, the business can run a credit check on the client, just to be safe.

2- Make Everything Clear

While dealing with finances, businesses should not leave a room for doubt for the client. All the conditions should be well-communicated to avoid any future problems. Make sure that you give a precise due date of payment to the clients and stress it over so that it is taken very seriously.

If the payment is scheduled to be received after a few months, bi-monthly reminders should be sent to the client to assure that a thorough follow-up is in practice. Not notifying the client for a few months and then straight away calling them up for payment is a major mistake that most businesses make which results in delayed payments.

All the credit terms should also be well-understood by the client so that future scrutiny can be avoided.

3- Provide Numerous Methods

Businesses that provide their customers a vast range of payment options are more likely to get paid on time as it increases the ease of payment. Methods such as online banking and internet payment methods (for small payments) should be set-up so that the client can make the payment with absolute ease.

4- Installments

 Financial experts suggest that huge payments should be broken down into installments to ensure that timely payments are received and that the clients are not intimidated with paying a huge amount all in one go. This works best in keeping the cash flow positive and also decreases the financial risk in case the client defaults.

5- Default Cases

In cases of big payments, there is a higher chance that the debtors default in which a business can choose to hire a debt collection agency, if all the negotiations fail.

Tax Planning

The 3 Most Effective Tax Planning Strategies for Small and Medium Scale Businesses

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The prime focus of tax planning is to arrange one’s financial activities for the year in such a way so that the lowest possible amount for tax payment is incurred. Undoubtedly, the most difficult time for small and medium enterprise owners is the tax season in which they have to pay a taxable amount on all the income they’ve earned during the previous financial year.

Most business owners end up paying more than they should because they are not well aware of the legal tricks they can use to minimize their tax burden. But now, you can save up on taxes by following the three awesome tax burden reduction strategies mentioned in this blog.

Reduce Your Income

One of the key determining factors in figuring out the taxable amount is adjusted gross income also called AGI in short. Your tax rate and different tax credits also rely on AGI. Since the AGI play a vital role in the entire journey of determining and making tax payments accordingly, it is best to pick the adjusted gross income as the starting point of your tax planning process. If you are not sure what AGI exactly is, it is actually the entire income collected from all resources minus the adjustments made to the aggregate income.

Ideally, if your total income is high, your AGI will also follow the higher trend and if you make less income, your AGI for the year will decrease automatically. Therefore, the most effective method to minimize the tax load is to slash down your income. But how exactly can you reduce your income? The answer is pretty simple. Just set aside a large chunk of your income for your retirement plan by following the conventional IRA plan or 401k at work plan.

Boosting Your Tax Deductions

You can also smooth out your tax situation over all by focusing on your taxable income. Now the taxable income actually is the left over amount that is calculated once all the deductions and exemptions are cut off from AGI. Itemized deductions is what you should aim for in various categories such as interest on mortgage, charity, health care, tax planning and preparation expenses, local as well as state taxes and expenses linked to investments.

The best way to do this is to record all your itemized expenses incurred throughout the year in an excel spreadsheet and review it from time to time. By recording all these expenditures, you can easily compare your standard deduction with the itemized expenses incurred within the one year time frame. Remember to always consider the higher of your standard deduction or itemized deduction. When itemizing your expenses, make sure you pay more attention to three main categories; donations to charity, state taxes and interest on mortgage.

Using Tax Credits To Your Advantage

Once you have adjusted your taxable income to reduce your tax burden, the next step is to take full advantage of the tax credits. Some tax credits that can help in minimizing the taxable amount considerably are going to college, adopting a child or setting aside money for retirement.

SK Financial CPA is where you should get help from when filing for taxes by letting professional CPAs and CFAs give you advice on how to present your accounting statements for the year.