Your business is in crisis if sales are not covering expenses.

By Anya Petersen-Frey, SBDC Region IV Director

If you’re dipping into savings at a rate rapidly depleting your reserves, your business is facing potential problems.  It’s time to step back and evaluate; careful of ‘throwing good money after bad’. Investing more money to retrieve losses is a gamble. If you choose to put money into the business, first understand how the business is doing and what the future of the business might be. Consider the following:

• Is your business expanding so the future looks brighter? If your business is new, evaluate the time needed for a chance to succeed. If your business is mature and not growing, it’s a different case.

• Can changes be made to improve sales?  Remember, if your business is not doing well and you don’t change your technique, you’ll keep getting the same results.

• Can you cut costs?

If expenses have been cut to the bone, the business continues to lose money each month, and you don’t see a way to change the situation, you have a tough decision to make. Sometimes closing the business is the best choice. The experience gained will be invaluable in evaluating and operating another business.

Many business owners think financial crisis happens suddenly. Most of the time financial concerns burdening a business are a management issue and accumulate over a period of time. Below is a checklist to help you organize your financial management. Accounting needs vary, so this list is not comprehensive; it provides a guide to help a manager understand the most common tasks to maintain accurate accounting records.

Daily:
   • Total cash on hand.
   • Record income. Enter sales and cash receipts daily using software or a handwritten ledger.
   • Note payments made by cash or check.
   • Record inventory; add new items.

Weekly:
   • Review accounts receivable. Decide what action to take with slow pays; follow through.
   • Examine accounts payable; take advantage of discounts.
   • Prepare payroll – this may be bi-weekly.
   • Revise inventory to deduct items sold.

Monthly:
   • Balance the checkbook. It’s worth the time to reconcile your checking account to your bank statements.
   • Compute monthly totals for sales, expenses and payroll, including payroll liabilities.
   • Handle tax deposits; file federal or state taxes due.
   • Determine the status of accounts receivable. List unpaid accounts and the length of time outstanding – 30, 60 or 90 days. Use this list to decide which accounts need more aggressive collection tactics.
   • Check inventory levels; note items not selling so they can be replaced with new products.
   • If using petty cash, reconcile; replenish as needed.

Quarterly:
   • File estimated tax returns.
   • Send in sales tax – monthly in some communities.
   • Create an income statement and balance sheet – did you meet financial goals? If not, how can you improve in the upcoming quarter?

Yearly:
   • Figure total sales, expenses and payroll.
   • Prepare an income statement and cash flow. The income statement will show sales, expenses and profit for the year. The cash flow statement shows the cash position of your business.
   • Create a balance sheet for the year. This will show the value of your business and owner equity.
   • Send 1099 and W-2 forms to contractors and/or employees who worked for you during the year.
   • Gather paperwork needed for tax preparation.
   • If utilizing an accountant, turn over copies of tax documentation; discuss the financial condition and tax strategy of your business.
   • Set up books for the upcoming year.

The items on this list are not new. Many small business owners simply fail to put these basic accounting principles in place or don’t understand how to do so. Nearly 99% of small business failure is due to poor management.

If you need help, contact an accountant, another business professional or an organization, such as the Small Business Development Center.