The Basics of Money Management

The Basics of Money Management


The Basics of Money Management

Getting paid and money management can be tricky business because, in addition to customers, cash flow and managing your accounts properly is what keeps your business humming along. Consequently, getting paid in full and on time, as well as understanding money management, has to {become|be|turn into} a priority, even {if|in case} you elect to hire an accountant {or|or perhaps|or even} bookkeeper to manage the books. {You will|You’ll} still {need|have} to familiarize yourself with basic bookkeeping and money management principles and activities such as understanding credit, reading bank statements and tax forms, and making sense of accounts receivable and payable. {You also have|You have to|You also need} to give careful consideration to the purchase payment options you offer customers, {including|such as} cash, checks, debit cards, {credit cards and online payment|online payment and credit cards} options, as well as establishing payment terms and debt collection in the event of nonpayment.

Opening a Bank Account Once {you’ve|you have} chosen a name and registered {your business|the business of yours}, you {will need|are going to need} to open {a commercial|a business} bank account. Setting up a business bank account {is|is actually} {easy|simple}. Start by selecting the bank {you want to|you would like to} work with–think small-business-friendly–and call to arrange an appointment to open an account. {There’s|There is} not much more required than that. {However|Nevertheless|Nonetheless|But}, when you go, make sure you take personal identification as well as your business name registration papers and business license, because {these are|these’re} {usually|typically|normally|generally|in most cases|ordinarily|often|as a rule}  {required|needed|necessary} to open {a commercial|a business} bank account. The {next step|following step|next thing} {will be|is going to be} to deposit funds into your {new|brand new} account (even {$100|hundred dolars} is {okay)|) that is okay|) which is okay}. {If your|When your|If the} credit {is|is actually} sound, also ask the bank to attach a line of credit to {your account|the account of yours}, which {can|may|might} prove {very|quite} useful when making purchases for the business {or|or perhaps|or even} during slow sales periods to cover overhead until business increases. {Also|Moreover ,} {be sure|make sure|be certain} to ask about a credit card merchant account, debit account, and other small business services.

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When it comes time to set up your financial books, {you have|you’ve} {two|2} options–do it yourself {or|or perhaps|or even} {hire|work with|get} an accountant {or|or perhaps|or even} bookkeeper. You {might want to|may want to|should} do both by keeping {your own books|the own books of yours} and hiring an accountant to prepare {year-end|year end} financial statements and tax forms. {If|In case} you {opt|choose} to keep {{your own|your own personal|your very own} books|the own books of yours}, {make sure you|be sure you|be sure to} invest in accounting software such as Quickbooks {or|or perhaps|or even} Quicken {because|since|as} {they’re|they are} {easy to|very easy to} use and makes bookkeeping almost enjoyable. Most accounting software programs {allow you to|let you} create invoices, track bank account balances and merchant account {information|info}, and keep track of accounts payable and receivable.

{If|In case} {you’re|you are} unsure about your bookkeeping abilities even with the aid of accounting software, {you may|you might} {wish to|want to} hire a bookkeeper to do {your books|the books of yours} on a monthly basis and a chartered accountant to audit the books quarterly and prepare {year-end|year end} business statements and tax returns. {To|In order to|to be able to} find an accountant {or|or perhaps|or even} bookkeeper in {your area|the area of yours}, you {can|are able to} contact the U.S. Association of Chartered Accountants {or|or perhaps|or even} the American Institute of Professional Bookkeepers. In Canada, you {can|are able to} contact the Chartered Accountants of Canada {or|or perhaps} the Canadian Bookkeepers Association.

 {If|In the event that} {you’re|you are} only washing windows on weekends to {earn|make} {a few|a couple of} extra bucks, {there’s|there is} little {need|demand} for accounting software {or|or perhaps|or even} accountant services. {Simply|Just} {invest in|buy|get yourself} a basic ledger and record all business costs and sales. {Since|Because|As} {you are|you’re} doing it on your own, {be sure to|make sure you|see to it that you} {use|make use of} a commonsense approach when calculating how much to invest in your business vs. expected {revenues and profits|profits and revenues}. {Also|Moreover ,} remember to keep all business and tax records in {a dry and secure|a secure and dry} place for up to {seven|7} years. {This is|This’s} the {maximum|highest} amount of time the IRS and Revenue Canada {can|is able to} request past business revenue and expense {information|info}.

Accepting {Cash, Checks and Debit Cards|Debit Cards, Checks, and Cash} In today’s {super-competitive|super competitive} business environment, you {must|should|need to} provide {customers|clients} with {many|numerous|a lot of|ltos of} ways to pay, {including|such as} cash, debit card, {credit card and electronic cash|electronic cash and credit card}. {There is|There’s} {a cost|a price|a charge} to provide these payment options–account fees, transaction fees, equipment rental and merchant fees based on {a percentage|a fraction|a portion} of the total sales value. But these expenses {must be|have to be|need to be} {viewed as|considered} a cost of doing business in the 21st century. You {can|are able to}, {however|nonetheless|nevertheless}, reduce fees by shopping for {the best|probably the best} service with {the best|probably the best} prices. {Not all|Only some|You can not assume all} banks, merchant accounts and payment processing services {are|are actually} the same, and fees vary widely. You {can|are able to} also check with small business associations {such as|such as for instance|such as for example|for example|including|like|such} the chamber of commerce to {see if|see whether|examine if|verify that|check if|find out if|determine if} they offer member discounts; {it’s|it is} {not uncommon|very common} to save {as much as|almost as|pretty much as} {2|two} {percent|%} on credit card merchant fees. {Just remember|Keep in mind|Remember}, consumers expect choices when it comes time to pay for {their purchases|the purchases of theirs}, and {if|in case} you elect not to provide these choices, expect fewer sales.

Cash is the first {way to|method to|technique to} get paid, which is {great|fantastic} {because|since|as} {it’s|it is} liquid and {there’s|there is} no processing time required. As fast as the cash comes in, you {can|are able to} {use|make use of} it to pay bills and invest in {business-building|business building} activities to {increase|boost|maximize} {revenues and profits|profits and revenues}. The {major|main|key} {downside|drawback|disadvantage} is that cash is risky {because|since|as} you {could|would} get robbed {or|or perhaps|or even} lose it. In cases {like that|that way}, collecting from {your insurance company|the insurance company of yours} {could|can|may} prove difficult if {there’s|there is} no paper transaction as proof. Even {if|in case} you prefer not to {receive|get|be given} cash, {there are|you will find} {people|individuals|men and women} {who will|who’ll} pay in cash, so get in the {habit|practice|routine} of making daily bank deposits during {daylight hours|daytime|the day}. Also {invest in|buy|get yourself} {a good-quality|a good quality} safe for cash storage for times when you {cannot|can’t} get to the bank.

 {If|When} {you’re|you are} running a service business, one the {most popular|most widely used|preferred} way {people|folks|individuals} still pay for services {is|is actually} with a check. {You have|You’ve} to take a few precautions to {ensure you|make sure you|make certain you|be sure you} {don’t|do not} get left holding a rubber check, {especially|particularly} when dealing with new clients. {Ask|Demand} to see a photo ID and write the customer’s driver’s license number on the check. If the amount of the check exceeds {a few|a couple of} {hundred|100} dollars, ask the buyer to get the check certified {or|or perhaps|or even} pay with a bank draft instead, {especially|particularly} if the client {is|is actually} new to {your {business|company}|the {business|company} of yours}. {Also|Moreover ,} get in the habit of checking dates and dollar amounts to make sure {they are|they’re} right. {I have|I’ve} been caught {a few|a couple of|a number of} times with wrong dates and dollar amounts and it {can be|may be|might be} {time-consuming|time consuming} to have {to get|to obtain|to acquire} {a new|a brand new|a whole new} check {because of|due to} a simple error.

Debit cards {are|are actually} another option, but {to|in order to|to be able to} accept them, you {will need|are going to need} to buy {or|or even} rent a debit card terminal. Most banks and credit unions offer business clients debit card equipment and services. The processing equipment {will set|is going to set} you back {about|aproximatelly} {$40|forty dolars} per month for a terminal connected to {a conventional|a standard|a regular} telephone line and {about|aproximatelly} {$100|hundred dolars} per month for a cellular terminal, {plus|as well as|and also} the {cost of|price of} the telephone line {or|or perhaps|or even} cellular service. {There is|There’s} also a transaction fee charged by the bank and payable by you every time {there is|there’s} a debit card transaction, which ranges from {10|ten} cents to {50|fifty} cents per transaction, based on variables {such as|including|like} dollar value and frequency of {use|usage}.

Opening a Credit Card Merchant Account Many consumers have replaced paper money altogether in favor of plastic for {buying|purchasing} {goods and services|services and goods}. {In fact|In reality|The truth is}, giving {your customers|the customers of yours} the {option|choice|ability} to pay for purchases with a credit card is often crucial to success. {This is|This’s} {especially|particularly} true {if|in case} you {plan to|are going to|are planning to} do business on the web because {credit cards and electronic cash|electronic cash and credit cards} {are|are actually} used to complete almost all web sales and financial transactions. {To|In order to|to be able to} offer customers credit card payment options, you {will need|are going to need} to open a credit card merchant account. Get started by visiting {your bank|the bank of yours} {or|or perhaps|or even} credit union {or|or perhaps|or even} by contacting a merchant account broker such as 1st American Card Service, Cardservice International {or|or perhaps|or even} Merchant Account Express to inquire about opening an account. Providing your credit {is|is actually} sound, you {will run|are going to run} into {few|some|several|couple of} obstacles. {If your|When your|If the} credit {is|is actually} poor, you {may|might} have difficulties opening a merchant account {or|or even} have to {provide|make|leave} {a substantial|a sizable|a considerable} security deposit. {If|In the event that} {you are|you’re} still unsuccessful, the next best {option|choice|solution} {is to|is usually to|would be to} open an account with {an online|an internet|a web-based} payment service provider, {which is|that is} {discussed|talked about|reviewed} in the next section.

The {advantages|benefits|rewards} of opening a credit card merchant account enabling you to accept credit card payments {are|are actually} numerous. {In fact|Actually|In reality}, studies have proven that merchants who accept credit cards {can|are able to} increase sales by up to {50|fifty} {percent|%}. Not to mention that you {can|are able to} accept credit card payments online, over the telephone, by mail and in person, as well as sell {services|products} on an installment basis by obtaining permission to charge your customer’s credit card monthly {or|or perhaps|or even} per agreement. {Of course|Naturally|However}, all these benefits {come|are available} at a cost, {especially|particularly} when you {consider|see|determine|tell} that {you’ll|you will} have to pay an application fee, setup fee, purchase {or|or perhaps|or even} rent processing equipment and software, pay administration and statement fees, and pay processing and transaction fees ranging from {2|two} to {8|eight} {percent|%} on total sales volume. {Once again|Once more|Just as before}, these fees {must be|have to be|need to be} {viewed as|considered|seen as} the cost of doing business.

Online Payment Services

Online payment services allow {{people|individuals|folks|men and women} and businesses|businesses and {people|individuals|folks|men and women}} to exchange currency electronically over the {internet|web}. These services are {very|extremely|quite} popular with {consumers and merchants|merchants and consumers}. PayPal {is|is actually} {one of|among} the {more popular|popular|very popular} online payment services with more than {40|forty} million members in {45|forty five} countries, offering personal and business account services. Both {types of|kinds of|sorts of} accounts allow funds to be transferred electronically among members, but only the business account enables merchants to accept credit card payments for {goods and services|services and goods}. The {advantages|benefits} of online payment services {are|are actually} {that|} {they’re|they are} quick, {easy and cheap|cheap and easy} to open, regardless of your credit rating {or|or perhaps|or even} anticipated sales volumes, and you {can|are able to} receive payment from any customer with {an e-mail|an e mail} account. You {can|are able to} have the funds deposited directly into {your account|the account of yours}, have a check issued and mailed, {or|or perhaps|or even} leave funds in your account to draw on using {your debit card|the debit card of yours}. {The only|The sole|The one} real disadvantage {is that|is the fact that|is usually that} {most|nearly all|almost all} services redirect {your customers|the customers of yours} to {their {website|site}|the {website|site} of theirs} to complete the transaction. {This can|This could|This may|This will} confuse {people|folks|individuals} who in some cases will abandon’the purchase. {Nonetheless|Nevertheless|Nonetheless|But|However}, the {advantages|benefits} of online payment services far outweigh {any|some} disadvantages.

Establishing Payment Terms

Every {small-business|small business} owner also needs to establish {a payment-terms|a payment terms} policy. Although {you certainly|you|you definitely} want to standardize the way you get paid, at the same time {you will|you’ll} also have to be {flexible|versatile|adaptable} enough to meet clients’ needs on an individual basis. Setting payment terms covers deposits, {progress payments and extending credit|extending credit and progress payments}. {It’s|It is} {important|essential|crucial} to establish clear, written payment terms with clients prior to providing services {or|or perhaps|or even} delivering product. {Your payment terms|The payment terms of yours} should be printed on your estimate forms, included in formal contracts and work orders, and printed on your final invoices and monthly account statements.

Securing Deposits

If {you’re|you are} run a service business, {you have|you’ve} to get in the habit of asking clients for a deposit prior to providing services, {especially|particularly} if the work also involves product sales {that|which} have to be paid for by you in advance. {In this|With this|Through this} {case|situation}, the deposit {should|has to} be for at least the value of the materials. {If|When} {you’re|you are} supplying labor only, try to secure a deposit of at least {one-third|one third} to {one-half|one half} of the total value of the contract in advance of {providing|offering|giving} {any|some} services. Your order form {or|or perhaps|or even} contract {should have|needs to have|ought to have} the deposit {information|info} clearly stated. Information on canceled {orders or contracts|contracts or orders} and {your refund policy|the refund policy of yours} {should also|must also|also needs to} be on {your forms|the forms of yours}. Securing a deposit is {your best {way|method}|the best {way|method} of yours} of {ensuring|making sure|seeing to it} that, at minimum, basic out-of-pocket costs {are|are actually} covered should the customer cancel the job {or|or perhaps|or even} contract.

Progress Payments

Progress payments {are also|will also be|are usually} a way to {ensure|make sure|see to it} {that|} you {do not|don’t} leave yourself open to financial risk. {The key|One of the keys|The secret} to {successfully|effectively} securing progress payments {is|is actually} to prearrange your {contract and payment|payment and contract} terms. Agree on the amount that {will be|is going to be} due at various stages of the project. You {can|are able to} use percentages to calculate the progress payments, such as {25|twenty five} {percent|%} deposit, {25|twenty five} {percent|%} upon delivery of any materials, {25|twenty five} {percent|%} upon substantial completion, and the balance at completion {or|or perhaps|or even} within {30|thirty} days of substantial completion. {Or|Or perhaps|Or even} you {may|might|could} arrange for more concrete progress payments based on indicators {that|which} {are|are actually} {relevant|applicable|related|appropriate} to the specific {scope|range|extent} of work, {the job or the services|the services or the job} provided. {Regardless of|No matter|Whatever} the system you use, progress payments on larger jobs can dramatically lessen {your exposure|the exposure of yours} to financial risk.

Extending Credit

In most cases {there’s|there is} no need to extend credit to consumers unless you deliver a service such as pest control {that’s|that is} billed monthly {or|or perhaps|or even} {a major|a big} contract {that is|that’s} completed in stages. As a general rule, when a transaction {is|is actually} complete you {should|must|need to} be paid in full. {However|Nevertheless|Nonetheless|But}, in the case of business-to-business sales, commercial clients will generally want some {type|kind|sort|form} of credit on {a revolving-account|a revolving account} basis, such as {30|thirty}, {60|sixty}, {90|ninety} {or|or perhaps|or even} sometimes 120 days after delivery of the product {or|or perhaps|or even} completion of the service. Ideally, you want to be paid as quickly as possible, so you {might|may|probably} want to offer {a 2-percent|a 2 percent} discount if invoices {are|are actually} paid within one week. And {if|in case} you do extend credit, make sure to conduct a credit check first, especially when large sums of {money|cash} {are|are actually} at stake. {There are|You will find|You can find|You’ll find} {three|3} major {credit-reporting|credit reporting} agencies serving the United States and Canada: Trans Union, Equifaxand Experian. All {three|3} credit bureaus compile and maintain credit files on just about every person, business and organization {that|which} has ever applied for credit.

Debt Collection

{No matter how|Regardless of how|In spite of how} careful {you are|you’re} when it comes to extending credit privileges to customers, {once in a while|sometimes} you {will not|won’t} be paid on time {or|or even} at all. {What can you|Precisely what can you} do to get paid? {The first|The very first|The initial} rule of getting paid {is to|would be to|may be to} keep the lines of communication open with your delinquent client, and keep the pressure on to get paid through the use of nonthreatening telephone calls, {letters and personal visits|personal visits and letters}. You {cannot|can’t} legally intimidate clients into paying you, but you {can|are able to} explain why {it is|it’s} in their best interest to pay you–namely, to {keep your|keep the|maintain your} business relationship intact, that nonpayment {can|is able to} hurt their credit rating {or|or perhaps|or even} that you {may|could} sue them {if|in case} they {do not|don’t} pay.

Another {option|alternative|solution} {is to|is usually to|would be to} hire a collection agency to collect the outstanding debt. Collection agencies generally charge {a percentage|a fraction|a portion} of the total amount owed as {their fee|the fee of theirs}, which {can|may} range up to {as much as|almost as|pretty much as} {50|fifty} {percent|%}. The Association of Credit and Collection Professionalsis {a good|a great} starting point for finding a collection agency to work with.

 Your final {option is|choice is} to take the delinquent account to {small-claims|small claims} court, but remember that {small-claims|small claims} courts have limits as to how much you {can|are able to} sue for in your {state or province|province or state}, ranging from $1,500 to $25,000. Filing fees vary by {state and province|province and state} as well, and these {must|must certanly|should|has to} be paid upfront. But {if|in case} you win, the fees {are|are actually} added to {your award|the award of yours}. As a rule of thumb, {small-business|small business} owners that {take|use} {people|folks|individuals} to court for nonpayment generally represent themselves, as the amount of the {potential|possible} award {is usually|is generally|is often} small and {doesn’t|does not} justify lawyers’ {fees and expenses|expenses and fees}. Even {if|in case} you win, you {will not|won’t} {necessarily|always} be paid {the amount|the total amount} {you’re|you are} awarded. {You may|You might|You could} win a judgment, {but still|however} have to chase the defendant through garnishment of {income {or|or perhaps|or even} seizure|seizure {or|or perhaps|or even} income} of assets to get paid. You {can|are able to} {learn|find out} more about the {small-claims|small claims} court process and filing fees by contacting your local courthouse.

James Stephenson invests his {15|fifteen} years of {small business|business that is small|business which is small}, {marketing and sales|sales and marketing} experience into {his books|the books of his}. {He has|He’s} started and operated numerous successful home based businesses, and {is|is actually} the {author|writer|creator} of Ultimate {Start-Up|Start Up} Directoryand Ultimate Small Business Marketing Guide, {as well as|and|and also} the 202 Series.

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