Accrual Basis accounting is the only way to know where your business is on the profit measurement scale. Increase your profits and be more successful through financial accounting and best practices in accrual accounting. Business owners must match-up expenses and revenues so that you can accurately determine how much cash you have on hand for future investments. And accrual accounting is the best method for aligning your revenues with your expenses.

It’s not enough to know how much cash you have in your pocket right now. Lenders want to make sure you manage your accounts receivables effectively and pay your creditors on time.

How Does Accrual Basis Accounting Help Your Lender?

Well your lender wants to verify that your business makes enough money on a monthly basis to pay back your loan. By looking at your financial statements, lenders can quickly identify negative and positive financial trends in your business. Lenders are looking for good growth trends over the prior 12 to 24 months.

As lenders, the question we want answered is whether your business or commercial property produces enough cash on a monthly basis to pay back your loan. Your financial reports may indicate your business is profitable, but you may be cash poor. And it could be only a matter of time before your business runs out of cash and sputters to a dead stop.

If you’re in a cash strapped situation right now, a cash flow loan based on your accounts receivables may be the solution for you to help you rescue your business.

Two Critical Financial Functions to Manage In Your Business

The two main financial areas I want to make sure you oversee effectively in your business and with your commercial property is your accounts receivables and accounts payables.

Accounts Receivables:

Accounts receivables is the most important financial management function in your business to control. It’s about doing every thing you can do to ensure your customers are paying you on-time.

Accounts receivable best practice is critical to invoice your customers on a timely basis. Don’t wait until the end of the month to bill your customers. You may be surprised, but some business owners have a fear of invoicing their clients. If your industry allows it, invoice immediately. At minimum invoice on a weekly basis to improve your cash flow.

Train your customers to pay your invoices on-time.

For your commercial property tenants, you need to make sure you clearly communicate in writing your policies on when your tenant must pay the rent and other expenses that your tenant is responsible for paying. If your tenants don’t pay you on-time, then you can’t pay your lender as promised.

Accrual Basis accounting says that you recognize the revenue at the time you complete the work or deliver the product verses when you receive the cash from your customer.

Accounts Payables:

Accounts payable should be consistent. Align your money coming in with your money going out. Remember that “rent and payroll don’t float.” And you must pay your bills the same time every month to avoid late fees on credit cards for example.

You are the main controller in your company. Do you review every bill that comes into your company or do you simply hand off this task to your bookkeeper? It would be a mistake on your part to hand over your bills or bank statements to your bookkeeper without first approving each invoice from your creditors or correspondence from your bank.

And banks do make mistakes. You need to verify accuracy of charges and deposits. And you can’t expect your bookkeeper to know the intimate details of your business.

Accrual Basis accounting requires that you recognize expenses at the time the expense is incurred whether you have actually paid the expense or not.

Financial Analysis

Accrual accounting is the only accounting method which allows you to perform financial analysis. You can compare your performance to prior periods like comparing the current quarter to the same time period last year.

Financial analysis is always performed on a loan or refinance based on the accrual basis because your lender wants to be able to compare your books with similar businesses in the same industry.

At any moment and time in your business, you’ll be able to know where you stand in terms of profitability. You will have the control you need to make wise business decisions based on accurate financial information. You’ll know where to cut costs and where you should invest, which means you need to look at your financial reports on a regular basis.

Get Aligned With Your Business Performance

If you don’t understand the process, procedures, and software applications involved with accrual accounting, then you need to get help immediately. Accurate and timely financial accounting is about business survival.

You need to get a copy of my Business Survival Report right now to better understand the things you need to do for tracking your revenues and expenses effectively so you can get commercial finance for your business or a commercial property loan when you need it.

The other thing I recommend for you is to sign-up for my Financial Management Tune-Up consulting session. I’ll share with you my best practices and the step-by-step processes I recommend to better manage and get a good handle on your revenues and expenses in your business through accrual accounting.

No related posts.