How Small Businesses Can Leverage Cloud Computing

Cloud computing is redefining how businesses run, impacting the operations of large enterprises as well as start-ups.  For some the notion of “cloud computing” is a relative new concept. 

Cloud computing provides businesses with access to the valued end result or output of equipment and   Most often, cloud computing is delivered as software as a service (SaaS) where users can access a web based solution via a subscription without the heavy investment in the IT infrastructure to support it.  Recent growth in cloud computing is partly driven by the growth in mobile technology platforms that allow users to access information anywhere, anytime.

software, without the ownership or maintenance costs required by purchasing it.

Although large enterprises with multiple geographically dispersed offices have benefitted from cloud computing, it has been an even greater benefit to small business.  Small businesses now have access to enterprise solutions via the cloud computing that would otherwise be unaffordable for them.  Even more importantly, these cloud based solutions allow small business to function more like larger business in the information they can access while simultaneously maintaining the flexibility and agility of a small business, allowing them to react and adapt to situations. 

Some of the benefits cloud computing provides for small businesses include:

• No heavy investment or maintenance costs in IT.  The software as a service method allows multiple users to subscribe to the solution.  The vendor providing the solution- Intaact, NetSuite, etc., absorbs the maintenance costs, and by offering the service on a subscription basis can pass along cost savings due to economies of scale attributable to user volume.
• Ease of implementation. Cloud based solutions eliminate the need for small businesses to invest in infrastructure development, training, and support. Businesses subscribe to the service, and training and support are provided by the vendor on an as needed basis.  The business owner can subscribe and unsubscribe to the cloud service as they wish.
• Redeployment of IT.  For small business with limited manpower, cloud based services free up time for IT resources to be redeployed on more strategic initiatives or reduce the need for full time IT employees.
• Security. Business owners should always check this, but reputable cloud based solutions are knowledgeable about the most up-to-date security measures and encryption technology.  This becomes one critical task which the business owner does not need to address, as the responsibility is absorbed by the cloud service provider who may have more expertise in this arena. 
• Scalability.  Most cloud providers offer packages with different access levels so that small businesses only need to pay for the services they require and use, resulting in overall cost savings for the small business.
• Business Continuity/Disaster Recovery.  As a small business, this is a critical task which can often lack the attention it deserves simply due to manpower and bandwidth.  Cloud based services assist with this, as they back-up critical data offsite as part of providing the solution, facilitating access to this data in case of an emergency.

Small to mid-sized businesses have the most to gain from leveraging cloud based solutions in their business operations.  If you would like to learn more on how Alan Neal & Associates can assist you with selecting and implementing an appropriate cloud based solution for your business, please call me directly at 423-756-4076 or email me at alan@alanneal.com

Evaluating the Efficiency of Your Accounts Receivable Processes

You can ensure your company's accounts receivable processes remain efficient by reviewing the performance of the collection processes and key metrics associated with them. Below are some suggested metrics that you may consider integrating into your financial analyses in order to determine whether you are using optimal accounts receivable processes. 

Receivable Turnover Ratio - This is your credit sales divided by average accounts receivable.  This measures the number of times trade receivables turnover during the year, and is an indicator of how efficiently your company is collecting credit sales. Maintaining a sound accounts receivable practice and a strong credit policy help maintain the liquidity of your business. The higher the turnover of receivables, the shorter the time between credit sales and cash collected on those sales. 

Days Sales Outstanding - This measures the average time in days that receivables are outstanding or uncollected. Generally, the greater the number of days outstanding, the greater the probability of delinquencies in accounts receivables. The longer your credit sales remain uncollected increases the probability of the inability to collect those receivables. 

Accounts Receivable Follow-up - The increase of two or three days in sales outstanding can have a significant negative impact on the liquidity of a small to mid-sized business. Consider creating an account collection procedure that provides the actions and methods for processing late or delinquent payments. The account collection process should commence as soon as the account becomes past due. These functions and reminders should be automated wherever possible. 

Consider evaluating your accounts receivable processes based on these metrics and practices to improve the collection process of your credit sales. 

 

Tips for Effective Budgeting

Budgeting is essential to every company regardless of size.  An effective budget helps with planning and is essential for reaching objectives and goals while preparing for difficult or unexpected financial situations. Here are 5 tips for creating an effective budget:

·       Budget should be for a specified period- The budget most often is based on the company’s fiscal year and broken down into monthly budgets. When creating the budget, consider the timing when both income and expenses will occur. 

·       Don’t try to budget to the penny-  Accurately predicting actual results is not the objective, it's about providing your company guidance for coarse direction.

·       Forecast your income and expenses- Review your current and historical financial data and project your income and expenses for a specified timeframe.  Income should include payments received from sales, interest, accounts receivable and other sources. For expenses, all expenditures should be included, such as payroll, materials, note payables, utilities and any other expenditure. 

·       Run budget comparison reports- This is often referred to as a “variance report." Comparing your budget with actual amounts earned or the expenses you incur will enable you to determine the corrections needed to grow your business.

·       Create profit and cash flow targets- Every budget should include profits and cash flow targets, because they are both bottom line measures that require different functions to control and manage them. Every year companies with very attractive profits go out of business for lack of cash.

Follow these five budgeting tips to create an effective budget for your business. Use your budget as a guide, and make corrections as needed to stay the course. 

Please tell us what you need to know! We welcome all suggestions for articles, interviews, or whatever else you might like to see in the next issue of Financial Matters. 

Forecasting vs. Budgeting for Small Business

Running a business presents many challenges, and there are financial practices available to assist in the planning and management of your company’s financial future. The use of financial forecasts and budgets 

 

can help you determine where your company is headed and how you can achieve your financial objectives and goals. People often use the terms "financial forecast" and "budget" interchangeably, but each provides distinct and essential functions. It is important to determine the functions of each in order to apply them effectively.

Forecasts - Make predictions or projections of expected revenue and expenses based on historical data, managerial expectation and foresight, and other factors into an uncertain future. A financial forecast seeks to predict a company’s financial position, cash flows, sales, expenses and other figures in the future. Forecasts are more flexible and will change as your company’s financial position and market factors change.

Budgets - A budget is a detailed financial plan consisting of a defined set of financial objectives that guide thedecision making processes and seeks to exercise control over the company finances and resources while guiding the company to where it needs to be. The objective is to insure that the company does not spend more than they are making in sales revenue. Often, adjustments must be made and are reflected in a “variance report." This report shows the budgeted amount compared to the actual amount realized. Budgets allocate money for specific purposes and are the objectives and goals set for the company.

Forecasting and budgeting are both financial practices that assist in preparing for a company’s financial future.  Typically budgets are prepared yearly, while forecast are prepared more frequently, usually monthly. Forecasts tend to change based on financial and market conditions, while budgets are more concrete.

It is essential for small and mid-sized companies to be aware of their finances at all times because one small operating error could spell disaster. That’s why it is critical for small and mid-sized company owners’ to forecast and budget. Knowing how much to spend and on what is the most important thing for a small business to stay solvent.

We are currently offering a free analysis of your forecasting and budgeting process. If you would like to learn more on how Alan Neal & Associates can help move your company forward, please call me at 423-756-4076 or email me at alan@alanneal.com
Alan Neal  CBA, CM&AA

Why Outsource?

Following are just a few reasons to consider outsourcing to meet your accounting needs: 

Reduce Overhead

• in-house accounting departments are expensive!
• avoid paying for space, equipment, employee benefits, etc.

More Time for Core Business Operations

• no hiring or training required for the accounting department
• no need to monitor 
• spend more time generating income! 

Accuracy

• financial data is entered by professionals
• accuracy is double-checked
• data can be accessed anytime, from anywhere

Access to Highly Trained Professionals

• work is performed by the appropriate professional
• your bookkeeper doesn't have to be CFO and controller and bookkeeper
• current employees can be better utilized

5 Tips for Forecasting & Maintaining Cash Flow

1. Calculate your break-even analysis. The budget process begins with a break-even analysis, the equation that shows a business' base cost to provide its product or service. Due to the uncertainty of revenue, businesses must keep fixed cost to a minimum, and manage the variable cost closely. Most business owners are preoccupied with covering daily expenses and making payroll, and fail to perform this analysis, exposing their businesses to undue risk. 

2. Re-evaluate fixed expenses. The fixed expenses normally represent the largest expenditures from a company's cash flow. As a business owner, you should second-guess your fixed expenses to see where savings may exist. Be certain the fixed costs are commiserate with revenue levels, and scrutinize all variable costs to death. 

3. Review financial status monthly for tax purposes. Review your financial statements monthly in order to know the tax liability incurred and include this liability into the cash flow forecasting schedule. 

4. Know your business and know your customers. Knowing your customers' payment habits is the key to producing a good cash flow forecast. When forecasting the in-flow and out-flow of cash, things rarely - if ever - go exactly as you plan. But, the better you know your business and your customers, the more accurate your forecast will be. 

5. Evaluate variable costs at least every six months. You should regularly evaluate or audit variable expenses, such as office supplies, for necessity. 

Components of an Effective and Efficient Cash Management System

In any business, as the saying goes, "cash is king," but it's especially true for small and mid-sized businesses where minor fluctuations in cash flow can have a tremendous impact - either positive or negative. Even so, many companies do not have a formalized cash management system. Many business owners tend to concentrate on earnings, rather than cash flow. Companies don't file bankruptcy because they incur an accounting loss; they bankrupt because they do not have the cash to pay their obligations. 

Optimizing cash flow management is one of the most important tasks in achieving overall financial health. Efficient cash management goes beyond economic or financial planning. In order to convert your budgets and plans into cash forecast, you need a timeframe for transactions that generate income as well as those that relate to expenses.

An effectively administered and efficient cash management system will consist of:

Cash Flow Forecast - To effectively manage cash flow, you must be able to accurately forecast when you will receive cash and when cash must be paid out. The cash flow forecast covering a fiscal year should be based on the company's budget and adjusted for the timing of actual receipts and disbursements of cash for each line item of the budget. Using an accurate and detailed cash flow forecast, along with a detailed operating budget, enables businesses to evaluate future cash requirements, ensures that liabilities can be paid on time, and that capital can be secured to avoid a cash flow crisis. Optimally, businesses need to forecast daily, weekly, monthly, and annually, and compare the forecast against actual results and modify the budget and forecast when warranted.

Banking Relationships - The relationship between business owner and banker needs to be one of trust and partnership. The key is excellent communication. You need your banker on your side, and to make that happen, he needs to understand what you are doing and be confident in your expectations for the future. Your banker expects you to know much more about your business than he knows, and you need to keep him informed about your business and what you expect to happen in the future. The better you can project and forecast, the more confidence your banker will have in you, and the borrowing process will be smoother when the need arises. 

Line of Credit Access - Shortfalls in cash can be devastating to businesses, and depending on the extent of the shortfall, recovering can be difficult. Establishing a line of credit as part of your contingency plan offers benefits. In some cases a line of credit is the best solution to maintain liquidity. 

Investment Of Surplus Cash Program - Using your cash flow forecast and your detailed budget together ensures the availability of funds to pay liabilities and allows you to see the timing of surplus cash. Rather than allowing the bank to sweep the account, the surplus cash can be invested in higher yielding, safe investments. You can choose these investments based on the availability of the cash before it is needed to fund operations. Higher yielding investments will increase interest income and free cash flow, enhancing company profits and value. 

Technology: Changing Business Operations

Technology has influenced how the business world operates. It has influenced practically all aspects of day-to-day operations of businesses, both large and small. We live in a world that is more connected than ever. Business relationships are formed through social media platforms and on networks. Geographical boundaries are becoming less important, as clients are more focused on the quality of work performed, rather than where the work is being performed. In light of these changes, companies are assessing their business processes, including how their accounting departments operate.

The Cloud
Cloud computing, sometimes referred to as Software as a Solution (SaaS), is a model where the cloud provider installs and operates the applications, hardware and software in the cloud, allowing users access over the internet, as opposed to having to load the software on an individual hard drive or central server.

This technology enables users to access the programs from anywhere, anytime giving them more flexibility and 24/7 access to accounting data. Additionally, the companies that host cloud-based programs are often responsible for handling IT issues, data security, and backups, so that businesses can reduce their investments in IT services and staff, thereby increasing profitability.

Outsourcing
Although outsourcing has been around as long as work specialization has existed, in recent history more companies employ the outsourcing model and even outsource whole non-core operations. One of the most commonly outsourced departments is that of finance and accounting.

Business owners have realized that the processes in this department can be done more efficiently, and therefore more cost effectively, by companies equipped with the proper tools, processes and appropriately trained personnel. This practice is particularly beneficial to small and mid-sized companies, because it allows them to access a wide array of professional skill sets that otherwise might be inaccessible or unaffordable.

Virtual Accounting Office
When services are provided “virtually” the work is performed off-site, creating substantial savings. Besides not having the expense of a full-time employee, the business owner also saves the cost of office furniture, equipment, and even office space.

In addition to substantial savings, businesses enjoy access to accounting and finance professionals with specific skill sets. With geographical boundaries erased, the location of those skilled professionals is no longer an issue. Services can be performed anytime, from anywhere.

Reliable Access To Information
Technology changes the way business relationships are formed and how they work; it also gives us almost instant access to reliable information. Members of the workforce are accustomed to having access to information whenever they need it and having that information allows them to perform services quickly.

Monthly revenue and profitability reports are important tools when making business decisions, but in an age when work is performed in different time zones, and outside of traditional business hours, instant access at any time to additional data can improve operations. Decisions that can impact the company must be reached with real time data to insure the most effective and efficient course of action can be taken.

Businesses must embrace technology that impacts their accounting department to remain competitive. We are currently offering a free analysis of your accounting business processes and accounting systems. If you would like more information on how Alan Neal & Associates can help improve your profitability, please call Alan at 423-756-4076, or send an email to alan@alanneal.com.