Most business owners don't give importance to getting an accounting software to manage their business. Or they get the software without any training, hoping against hope that they can learn to operate the software by themselves or by their staff.
This is a story of a business entity which got into serious bank problems after 8 months into their new businsss. Their business is a service-based, and is profitable. They have managed to raise orders of almost Rm 1.3 million within 8 months.
So, what is their problem?
blog managed by MYOB Malaysia Professional Partner
Showing posts with label CashFlow Management. Show all posts
Showing posts with label CashFlow Management. Show all posts
Sep 11, 2010
Jun 9, 2008
Does your company name ends with the letter 'A'?
If you own a company whose name ends with the letter 'A', you may become a victim of con job. You should be on the alert for similar tricks.
The local newspaper highlighted 2 cases of business-owners who were duped by a man who seeks employment with companies with names ending with the letter 'A'. At the same time he will register a company with similar name, but with an additional letter 'I' at the end.
He will add the additional letter 'I' to the payee name on the cheque, and he then presents the cheque for clearance into the bank account of his newly registered company.
Thus, 'Kujiwa Corporation', will be altered to read 'Kujiwai corporation', and "Aluta Metal' is modified as 'Alutai Metal'.
How can you, as a business owner, prevent the occurrences of such con cases in your business?
Cheque-writing "Do's' and 'Dont's"
I would like to reproduce the words of caution that's printed on the front of the cheque book; some 'Do's' and 'Dont's' for your protection against forgery, fraud or other un-authorised alterations on cheques :
1. Write the payee name, amount in words, and figures left-justified, without leaving any unused spaces. Don't leave wide spaces for other words or figures to be added.
2. Rule through any un-used space with a pair of parallel lines.
3. Conduct regular reconciliation of cheques paid against bank statement.
4. Don't use laser printer, felt-tip pen, erasable pen or pencil, or other non-impact printing techniques to write cheques.
5. Don't give cheques to strangers, even if they represent themselves as Customer's agent. When in doubt, confirm with the other party.
6. Don't exchange cheques for cash with unknown persons.
7. Don't make alterations on cheques.
8. Don't use window envelope to send cheques by mail as this could reveal the contents when being held against the light. Use opaque or good quality envelopes
Customer management
1. Send regular statements to the customer. All overdue accounts should be closely monitored.
2. Have stricter credit control policies.
3. Make a record (in a 'cheques received' book) of all cheques received through the mail, and ensure that they are banked in immediately. Nowadays, most banks have automated teller machines (ATM) which allows you to bank in cheques during off-peak hours. Select the ATM which has scanning facilities which allows the cheques to be scanned.
4. If you entrust a sales person to collect customer cheques, you may want to cross-check the records of the sales visit with the payment collection records. Follow up with a courtesy call to the customer in cases where you suspect foul play.
Read Con man with 'A' certain penchant. The con-man absconded with a cool Rm 292,000 within 2 months.
The local newspaper highlighted 2 cases of business-owners who were duped by a man who seeks employment with companies with names ending with the letter 'A'. At the same time he will register a company with similar name, but with an additional letter 'I' at the end.
He will add the additional letter 'I' to the payee name on the cheque, and he then presents the cheque for clearance into the bank account of his newly registered company.
Thus, 'Kujiwa Corporation', will be altered to read 'Kujiwai corporation', and "Aluta Metal' is modified as 'Alutai Metal'.
How can you, as a business owner, prevent the occurrences of such con cases in your business?
Cheque-writing "Do's' and 'Dont's"
I would like to reproduce the words of caution that's printed on the front of the cheque book; some 'Do's' and 'Dont's' for your protection against forgery, fraud or other un-authorised alterations on cheques :
1. Write the payee name, amount in words, and figures left-justified, without leaving any unused spaces. Don't leave wide spaces for other words or figures to be added.
2. Rule through any un-used space with a pair of parallel lines.
3. Conduct regular reconciliation of cheques paid against bank statement.
4. Don't use laser printer, felt-tip pen, erasable pen or pencil, or other non-impact printing techniques to write cheques.
5. Don't give cheques to strangers, even if they represent themselves as Customer's agent. When in doubt, confirm with the other party.
6. Don't exchange cheques for cash with unknown persons.
7. Don't make alterations on cheques.
8. Don't use window envelope to send cheques by mail as this could reveal the contents when being held against the light. Use opaque or good quality envelopes
Customer management
1. Send regular statements to the customer. All overdue accounts should be closely monitored.
2. Have stricter credit control policies.
3. Make a record (in a 'cheques received' book) of all cheques received through the mail, and ensure that they are banked in immediately. Nowadays, most banks have automated teller machines (ATM) which allows you to bank in cheques during off-peak hours. Select the ATM which has scanning facilities which allows the cheques to be scanned.
4. If you entrust a sales person to collect customer cheques, you may want to cross-check the records of the sales visit with the payment collection records. Follow up with a courtesy call to the customer in cases where you suspect foul play.
Read Con man with 'A' certain penchant. The con-man absconded with a cool Rm 292,000 within 2 months.
Feb 15, 2008
Bank reconciliation
Why is it important to reconcile your bank balance in accounting terms?
For a video tutorial of how to perform a bank reconciliation in MYOB Accounting, click Step-by-step tutorial for bank reconcilaition
First of all, we need to define Bank reconciliation.... It is the process of matching and comparing figures from accounting records against those presented on a bank statement.
Bank reconciliation allows companies or individuals to compare their account records to the bank's records in order to uncover any possible discrepancies.
The bank statement sent by the bank is a third party record of the payments and receipts made from the company's account.
The bank statement can flush out payments (or bank credits) which we would otherwise not known, for example, bank charges for outport cheques, stamp duty for issuance of chequebook, and interest for bank overdraft etc.
A bank reconciliation report will show:
1. Cleared Cheques
2. Cleared Deposits
3. Outstanding cheques
4. Uncleared deposits
All uncleared and outstanding entries in the bank reconciliation should be investigated for its authenticity, more so if it dates back more than 2 months.
If cheques remained uncleared for a long length of time, it may be because the cheque never reached the supplier, in which case, you may need to cancel and re-issue a new cheque. More importantly, it also sends out warning bells as to whether the services (expenses) was genuinely incurred or not in the first place.
Uncleared deposits, on the other hand, may mean that the collections were recorded but not banked in on time. If the period between recording and actual bank-in is too long (say, more than 3 days, for local cheques) you need to review your banking process to ensure that receipts are banked on timely manner. You may also want to investigate whether the moneys were received in the first place, because the recording in the books could be a mistake, or a fraudulent entry. And you need to take steps to ensure that the mistake / discrepancy is not repeated.
Another thing to note, the reconciliation procedure should NOT be done by
- the person who has access to the cheque book, or
- the person who signs the cheques,
- or the person who is responsible to deposit the moneys received
Preferably, bank reconciliations should be done by someone who doesnt't have any direct access to the Company's bank accounts.
In one case, the financial controller only found out about a cheque that was issued and cleared without his knowledge, when he was going through the bank statement. This resulted in an investigation and was traced to the work of the owner's son.
In smaller companies, it is not possible to segregate the functions, so it is very important for the business owner to review the reconcilation (bank balance, customer balances, supplier balances) to flush out any discrepancy, between the inter-related amounts.
For a video tutorial of how to perform a bank reconciliation in MYOB Accounting, click Step-by-step tutorial for bank reconcilaition
First of all, we need to define Bank reconciliation.... It is the process of matching and comparing figures from accounting records against those presented on a bank statement.
Bank reconciliation allows companies or individuals to compare their account records to the bank's records in order to uncover any possible discrepancies.
The bank statement sent by the bank is a third party record of the payments and receipts made from the company's account.
The bank statement can flush out payments (or bank credits) which we would otherwise not known, for example, bank charges for outport cheques, stamp duty for issuance of chequebook, and interest for bank overdraft etc.
A bank reconciliation report will show:
1. Cleared Cheques
2. Cleared Deposits
3. Outstanding cheques
4. Uncleared deposits
All uncleared and outstanding entries in the bank reconciliation should be investigated for its authenticity, more so if it dates back more than 2 months.
If cheques remained uncleared for a long length of time, it may be because the cheque never reached the supplier, in which case, you may need to cancel and re-issue a new cheque. More importantly, it also sends out warning bells as to whether the services (expenses) was genuinely incurred or not in the first place.
Uncleared deposits, on the other hand, may mean that the collections were recorded but not banked in on time. If the period between recording and actual bank-in is too long (say, more than 3 days, for local cheques) you need to review your banking process to ensure that receipts are banked on timely manner. You may also want to investigate whether the moneys were received in the first place, because the recording in the books could be a mistake, or a fraudulent entry. And you need to take steps to ensure that the mistake / discrepancy is not repeated.
Another thing to note, the reconciliation procedure should NOT be done by
- the person who has access to the cheque book, or
- the person who signs the cheques,
- or the person who is responsible to deposit the moneys received
Preferably, bank reconciliations should be done by someone who doesnt't have any direct access to the Company's bank accounts.
In one case, the financial controller only found out about a cheque that was issued and cleared without his knowledge, when he was going through the bank statement. This resulted in an investigation and was traced to the work of the owner's son.
In smaller companies, it is not possible to segregate the functions, so it is very important for the business owner to review the reconcilation (bank balance, customer balances, supplier balances) to flush out any discrepancy, between the inter-related amounts.
Oct 15, 2007
Good Cash Flow Management
Managing the cash flow of your business is very important for business survival.
If your bank balance is always on the low side, it means that your cash is flowing out faster than they are flowing in. You need to look into the possible causes of this happening :
1. Are you paying your supplier earlier than you collect from your customer?
2. Are you holding too much slow-moving stocks
3. Are you fully optimising the resources - staff, office space, office location?
To avoid a cashflow crunch from happening to your business, here are some PROACTIVE steps you can take:
1. Collect your accounts receivable. Yes, this may look silly on paper, but I have come across business owners who are too busy going round trying to to get more customers and more sales, not realising that the cash is in the receivables.
You must track what is owing by your customers and don't allow the invoices to go unpaid beyond the agreed credit period. Once the invoice goes 'stale', there is a probability of that debtor-company going out of business, and you will never be paid for the services or product sold.
Remind the customers of what they owe you, by printing the words 'Pay in 30 days' or 'Due upon receipt' on the invoices you send. And follow up closely by phone, fax, or email, when the invoices are due for payment.
2. Collect money upfront. Collecting some money upfront will secure the sale. I practice 50% payment upon confirmation of order, and full payment before commencement of services rendered. Some customers may object, and ask for varying terms of payment. But if you remain firm, and explain the rationale for it, your customer will comply with your terms. My rationale is that I want to concentrate on delivering quality service without having to worry about administrative matters.
Once my prospective customer said that his company's standard operating procedure is to pay suppliers only after 30 days. I replied by saying that it's my company policy to collect upfront and we don't make any exception, whether the customer is big or small. The customer relented, and we waited for 3 days for the cheque to be prepared before we deliver the product.
3. Negotiate with the suppliers. Ask for longer credit period to settle the amounts due. We once negotiated with one supplier to pay our debts in proportion to the sales of that product. This was the time when we mis-read the market condition and ordered stocks way beyond the demand. The alternative is to return the stocks which the supplier was not in favour of.
4. Sell your inventory! Have a closed door sale and offer great discounts to your existing customers, to liquidate the stocks and convert to cash.
5. Cut fixed costs. Sit down and find out areas where you can reduce costs as this will generate extra cash for the business. Areas to look into are telephone bills, and rental agreements.
6. Take drastic action . Look into the viability of moving your business to a smaller office where the operating costs are much lower. However you need to work out the moving-out costs (rental deposits, renovation cost) versus the staying-put costs, and the cash savings from the relocation.
If the credit squeeze prolongs, the business (and the owner) may face one of the following consequences :
1. Company lose out on business opportunities
2. Suppliers will harass you for payments, and may impose cash terms for new orders.
3. You feel stressed out, and this may affect your health, and your ability to think and strategise.
4. Your staff will lose confidence in the company's ability to continue as a going concern, and may leave you
5. Eventual closing down of business
Just remember, profit is merely a book entry. Cash is king. Take time to understand the cash flow cycle (sale-debtor-cash-stock-sale). Managing your cashflow is made easier if you have an accounting software, like MYOB Accounting, to assist you.
If your bank balance is always on the low side, it means that your cash is flowing out faster than they are flowing in. You need to look into the possible causes of this happening :
1. Are you paying your supplier earlier than you collect from your customer?
2. Are you holding too much slow-moving stocks
3. Are you fully optimising the resources - staff, office space, office location?
To avoid a cashflow crunch from happening to your business, here are some PROACTIVE steps you can take:
1. Collect your accounts receivable. Yes, this may look silly on paper, but I have come across business owners who are too busy going round trying to to get more customers and more sales, not realising that the cash is in the receivables.
You must track what is owing by your customers and don't allow the invoices to go unpaid beyond the agreed credit period. Once the invoice goes 'stale', there is a probability of that debtor-company going out of business, and you will never be paid for the services or product sold.
Remind the customers of what they owe you, by printing the words 'Pay in 30 days' or 'Due upon receipt' on the invoices you send. And follow up closely by phone, fax, or email, when the invoices are due for payment.
2. Collect money upfront. Collecting some money upfront will secure the sale. I practice 50% payment upon confirmation of order, and full payment before commencement of services rendered. Some customers may object, and ask for varying terms of payment. But if you remain firm, and explain the rationale for it, your customer will comply with your terms. My rationale is that I want to concentrate on delivering quality service without having to worry about administrative matters.
Once my prospective customer said that his company's standard operating procedure is to pay suppliers only after 30 days. I replied by saying that it's my company policy to collect upfront and we don't make any exception, whether the customer is big or small. The customer relented, and we waited for 3 days for the cheque to be prepared before we deliver the product.
3. Negotiate with the suppliers. Ask for longer credit period to settle the amounts due. We once negotiated with one supplier to pay our debts in proportion to the sales of that product. This was the time when we mis-read the market condition and ordered stocks way beyond the demand. The alternative is to return the stocks which the supplier was not in favour of.
4. Sell your inventory! Have a closed door sale and offer great discounts to your existing customers, to liquidate the stocks and convert to cash.
5. Cut fixed costs. Sit down and find out areas where you can reduce costs as this will generate extra cash for the business. Areas to look into are telephone bills, and rental agreements.
6. Take drastic action . Look into the viability of moving your business to a smaller office where the operating costs are much lower. However you need to work out the moving-out costs (rental deposits, renovation cost) versus the staying-put costs, and the cash savings from the relocation.
If the credit squeeze prolongs, the business (and the owner) may face one of the following consequences :
1. Company lose out on business opportunities
2. Suppliers will harass you for payments, and may impose cash terms for new orders.
3. You feel stressed out, and this may affect your health, and your ability to think and strategise.
4. Your staff will lose confidence in the company's ability to continue as a going concern, and may leave you
5. Eventual closing down of business
Just remember, profit is merely a book entry. Cash is king. Take time to understand the cash flow cycle (sale-debtor-cash-stock-sale). Managing your cashflow is made easier if you have an accounting software, like MYOB Accounting, to assist you.
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