Category: entrepreneurship

Growing from Within: How Developing Employees Strengthens Your Business

The labor market has eased a bit over the past few years; however, many small business owners still cite hiring and retaining qualified employees as a top concern. One effective way to address this challenge is to invest in developing your current team. When employees recognize that they have opportunities for growth and advancement, they’re much more likely to stay and build a long-term career with your company.

Why Develop Employees from Within?

When you help your employees grow and develop new skills, you reduce the risks associated with external hiring. These employees already understand your company’s culture, values, and expectations. You’re also familiar with their strengths and areas for improvement, making it easier to place them in roles where they can thrive.

Developing your team sends a strong message to your staff that you value them and are invested in their futures. Over time, this can lead to lower turnover rates, higher job satisfaction, and reduced HR costs. Plus, it ensures that valuable institutional knowledge stays within your organization.

How to Identify Employees with Growth Potential

A key part of employee development is identifying those who have both the desire and the potential to grow. Here are a few questions to help you spot employees who may be ready for advancement:

  • Does the employee take advantage of optional training opportunities?
  • Do they ask for feedback after completing assignments?
  • Are they willing to volunteer for projects that stretch their abilities?
  • Do they embrace challenges with a positive attitude?
  • Do they encourage and support their coworkers’ growth?

If the answer to most of these questions is yes, you may have a great candidate for further development.

Steps to Develop and Retain Quality Employees

Once you’ve identified potential leaders within your organization, consider the following steps to help them grow:

  1. Discuss Career Goals
    Have an honest conversation about their long-term goals and whether they see a future with your company.
  2. Outline Growth Paths
    Show them what different advancement paths might look like and what skills or assignments they’ll need to get there.
  3. Provide Learning Opportunities
    Offer on-the-job training, mentorship, classes, certifications, or cross-training in different departments.
  4. Set SMART Goals
    Help them create Specific, Measurable, Attainable, Relevant, and Time-bound goals that lead to expanded duties and promotions.
  5. Keep It Flexible
    Reassure employees that it’s okay to adjust their career path over time to better align with their skills and interests.
  6. Offer Consistent Feedback
    Regularly review their progress, offer constructive feedback, and ask how they feel about their growth and workload.

Final Thoughts

Retaining quality employees by providing opportunities for advancement is a win-win for both your team and your business. Employees feel valued, motivated, and loyal—and your business benefits from experienced, engaged staff.

Take a moment to reflect on your current employee development efforts and ask yourself, “How can we improve our processes to better support and retain top talent?” Small, intentional steps now can lead to stronger, more capable teams in the future.

Spring Cleaning Checklist for Small Business Owners

Spring is a season that naturally inspires us to declutter, deep clean, and get organized at home — and it’s a great time to do the same for your small business.

By the time spring rolls around, tax season is behind you, the days are getting longer, and the busy summer vacation months haven’t arrived yet. If this tends to be a slower season for your business, take advantage of it to freshen up your physical space, tidy up your records, and update your online presence.

Spring Clean Your Space

Start by walking through your business as a customer would. Enter through the front door and take a fresh, critical look at your surroundings. Ask yourself: Does this space feel clean, inviting, and up-to-date?

Here are some ideas to get started:

  • Clean your windows and doors — inside and out.
  • Sweep walkways and entry areas.
  • Replace burned-out light bulbs and check that all signage is clean and visible.
  • Declutter desks, counters, and waiting areas. Discard outdated magazines, brochures, and marketing materials.
  • Dust all surfaces, including shelves, windowsills, ceiling fans, and fixtures.
  • Remove or update seasonal décor and signage.
  • Reduce inventory by discounting or donating items that aren’t selling.
  • Organize and label storage bins.
  • Dispose of outdated equipment, like old printers and unused office supplies.
  • Deep clean restrooms and breakrooms.

A clean, organized environment makes a great first impression and boosts morale for your team.

Spring Clean Your Files and Records

An orderly business isn’t just about physical space — it includes your files, records, and systems, too.

Here’s a quick checklist:

  • Scan important tax documents and shred old paper copies.
  • Organize your digital files and delete what you no longer need.
  • Document your standard operating procedures (SOPs).
  • Close unused credit cards and bank accounts.
  • Update software and ensure your security systems are current.
  • Audit inventory and consider using inventory management software.
  • Back up critical data to the cloud or an external hard drive.
  • Review cybersecurity measures and update passwords.
  • Update your employee handbook to reflect any policy changes.

Keeping your records current and secure is essential for both day-to-day operations and long-term planning.

Spring Clean Your Marketing

Your online presence and marketing materials can get stale over time. A seasonal refresh ensures that your customers always see accurate, up-to-date information about your business.

To tidy up your marketing:

  • Check your online listings (Google, Yelp, Facebook, etc.) and verify that your address, hours, phone number, and email are current.
  • Update social media profiles with fresh content and accurate company details.
  • Clean up your client list by removing duplicates or inactive contacts.
  • Unsubscribe from newsletters and email lists you no longer find valuable.
  • Update your website with new photos, revised staff bios, fresh blog content, and a check to ensure all links are working properly.

A well-maintained online presence shows customers you’re engaged, professional, and paying attention to the details.

Final Thoughts

Taking time to “spring clean” your small business — physically, digitally, and online — will leave you better organized, more efficient, and prepared for the busy months ahead. A fresh, inviting business environment not only makes a great impression on customers but also boosts your own sense of confidence and control.

Do you have other business organizing or spring cleaning tips you use? I’d love to hear them — share your ideas in the comments!

The Power of 18 Minutes: How Small Daily Habits Fuel Business Growth

Being a business owner can feel overwhelming at times. There are constant demands for your attention, and the tasks you’d like to do to grow your business often take a back seat to the things you must do to keep the doors open.

Bills need to be paid, schedules made, inventory ordered, and payroll processed. Meanwhile, other valuable tasks—like updating your website, reaching out to potential clients, clearing out your inbox, developing new social media content, or reading a book to sharpen your skills—keep getting pushed to tomorrow.

Anders Ericsson popularized the Rule of 100, which says you can accomplish a great deal of learning, growth, and skill-building by consistently dedicating a small amount of time each day. Ericsson calculated that if you spent just 18 minutes per day on a task, it would add up to 100 hours in a year. The key is consistency.

Eighteen minutes is a small commitment. Most of us can find that many extra minutes in our day if we make it a priority. Here are a few suggestions to help you carve out those minutes:

  • Wake up 18 minutes earlier.
  • Take an 18-minute break mid-morning.
  • Dedicate a portion of your lunch hour.
  • Skip one half-hour television show.

Ways to Spend Your Extra 18 Minutes a Day

Read a business or financial book.
Depending on the titles you choose and your reading speed, you could finish 6–12 books a year by reading just 18 minutes a day.

Improve your social media content.
In 18 minutes, you can research trending topics and hashtags, write a quick post, respond to comments, and engage with followers and influencers.

Create a content calendar.
Spend one day a week using your 18 minutes to plan out your content calendar. In the beginning, you may need two days a week for this. As you get more efficient—or incorporate AI tools—you might only need one or two sessions per month.

Watch YouTube tutorials.
Many business-related videos are under 20 minutes and offer practical guidance on tools, software, or marketing tactics. (For example, I used YouTube to learn how to create newsletters in Mailchimp.) Just be careful to choose educational content over entertainment during this time.

Clean up your email inbox.
If you’re staring down hundreds (or thousands) of unread emails, it might take several 18-minute sessions to catch up. But once it’s under control, a session or two per month can keep it that way.

Make a networking call.
Reach out to a professional you’d like to partner with, follow up with a potential client, or reconnect with a former colleague. Plan what you want to say in advance and stay on task—most business calls last 5–15 minutes, so you can fit one or two into an 18-minute window.

Plan your day and set goals.
Many people find their most productive days start with a few minutes of intentional planning. Make a short list of what you need to accomplish and prioritize your top tasks. It helps you stay organized, focused, and less stressed.

Final Thoughts

Time is one of the most valuable resources a business owner has. By intentionally setting aside just a few minutes each day for the tasks that fuel your growth and sharpen your skills, you’ll start to see meaningful progress over time. Small, consistent actions can lead to big results—and it all starts with finding those 18 minutes.

How do you “find” extra minutes in your day?
How do you spend them?

I’d love to hear your strategies!

Preparing for a Business Loan: A Guide to Spreading the Numbers

When you apply for a business loan, your lender has a responsibility to the financial institution she represents to evaluate the risk of your loan request and make an informed decision. To do this, the lender will request your business tax returns, financial statements, and a personal financial statement. Then, she’ll likely tell you she needs time to “spread the numbers.”

So, what does that mean?

Spreading the numbers involves organizing the financial data you’ve provided into a standardized format, allowing the lender to assess your business’s financial health and loan eligibility. During this process, your lender will be looking at several key factors:

  • Trends in your business’s sales and profits
  • The risk involved in approving the loan
  • The overall health of your business
  • How your business compares to others in your industry

Your lender will also evaluate your application using what’s known as the Five C’s of Credit:

1. Capacity
Capacity refers to your business’s ability to generate enough earnings to cover all obligations and make the required loan payment. Lenders use the cash flow statement to determine this. Many financial institutions look for operating profits to be at least twice the debt service required for the loan.

2. Capital
Capital represents the assets your business owns, as shown on your balance sheet. A higher level of capital indicates a more stable and secure business. It can also serve as additional collateral for the loan, offering reassurance to the lender.

3. Collateral
Collateral consists of assets the business owns that could be sold, if necessary, to generate cash and cover loan payments in the event of declining revenues. This might include equipment, real estate, inventory, or other tangible assets.

4. Conditions
Conditions refer to the current state of the economy and trends within your specific industry. Lenders consider how these external factors might impact your business’s ability to repay the loan.

5. Character
Character is a measure of your personal reputation, creditworthiness, and reliability. Lenders evaluate character by reviewing your credit score, background, and history of financial responsibility. Issues like past bankruptcies or criminal convictions can be red flags and may affect your loan approval.

How to Make It Easier for Your Lender

As a borrower, you can help streamline the loan evaluation process by preparing a complete, organized, and accurate loan proposal package. Here’s how:

  • Provide a full set of financial statements, including: (1) three years of business tax returns, (2) the most recent balance sheet and income statement, (3) a year-to-date profit and loss statement, (4) a cash flow forecast, and (5) your personal financial statement
  • Ensure your financial statements are prepared using standard accounting formats. Many businesses rely on accounting software to generate standardized, professional reports.
  • Include written explanations for any significant events that have affected your business’s financial health or your personal financial position over the past year or two.
  • Carefully review your entire document package to confirm accuracy and completeness before submitting it to the lender.
  • Proactively disclose any potential red flags, such as prior bankruptcies or other character-related issues, to the lender upfront. Transparency builds trust and allows you to provide context before questions arise.

Final Thoughts

Most business owners want their loan applications to be processed quickly and smoothly. You can help make that happen by preparing your documents in advance and providing your lender with everything she needs to “spread the numbers” and make an informed decision. Thoughtful preparation not only speeds up the process but also positions you as a responsible, credible borrower.

If you’d like more guidance on understanding your financial reports, making informed business decisions, and evaluating your profitability, be sure to check out my other blogs for small business owners. Many of them are designed to help you gain confidence in reading your financial statements, spotting potential issues, and setting your business up for long-term success. You’ll find practical, straightforward tips you can start using today!

Comparing Your Financial Ratios to Industry Standards

Business woman studying her business's financial ratios

Knowing your financial ratios is critical to managing your small business successfully. If you are applying for a business loan, the lender will want to see that your net operating income is more than sufficient to cover your loan payments. In fact, most lenders expect net operating income to be approximately three times the required loan payment. This standard holds true across the industry.

However, other ratios can vary greatly depending on the type of business you have. For example, inventory turnover should be much faster in a restaurant or grocery store compared to a retail clothing or appliance store. Grocery stores often have low profit margins per item but sell a large volume of products, while appliance stores sell fewer items but need a higher margin per sale to stay profitable.

Fortunately, there are several sources of standard industry data that can help you assess how your business compares to industry averages. These resources include:

  • IBISWorld: Offers comprehensive industry analysis, financial statistics, and industry trends. It’s a fee-based service, but you may be able to access it for free through a university or public library. Many Small Business Development Centers (SBDCs) use these reports in client consultations.
  • ReadyRatios: This financial software allows business owners to input their financial statements and automatically calculate key financial ratios. It also compares your business’s performance to industry benchmarks. ReadyRatios offers both free and fee-based versions depending on your needs.
  • Statista: A platform providing a wide range of data, including industry-standard ratios, market trends, and consumer behavior. It also has both free and premium options.

Other sources include:

  • Trade Associations
  • U.S. Census Bureau
  • Bureau of Labor Statistics
  • Market Research Firms

Key Ratios to Compare

There are several important financial ratios you can use to assess your business’s performance. Here are a few to consider:

Revenue Growth

If your industry is experiencing strong revenue growth but your business is lagging behind, it’s important to investigate why. Ask yourself:

  • Are new competitors eating into your market share?
  • Have you cut back on marketing and advertising?
  • Are you failing to provide an exceptional customer experience?

Profit Margin

Before starting your business, you should research the industry’s standard profit margin and compare it to your projected margins. If you’re projecting a profit margin much higher than industry standards, you’ll want to carefully review your assumptions about costs and operating expenses. If your business is already running and your profit margin is too low, consider:

  • Are your costs rising faster than you’re able to increase prices?
  • Are you failing to collect receivables in a timely manner?
  • Have revenues fallen below the point where they can cover fixed costs?
  • Has the quality of your product declined, leading to returns and waste?

Cost of Goods Sold (COGS)

The COGS ratio varies widely by industry, and yours should align with the industry’s average. If it’s not, investigate the following:

  • Are your prices too high, leading to reduced sales?
  • Is your markup too low, cutting into profits unnecessarily?
  • Are you offering deep discounts to move inventory, suggesting a misalignment with customer demand?
  • Are you over-ordering perishable items, resulting in waste?

Inventory Turnover Ratio

Your inventory turnover ratio indicates how quickly you’re selling and replacing inventory. If your ratio is higher than the industry average, it may indicate that you’re turning over inventory too quickly, which could lead to lost sales on high-demand items. On the other hand, a lower turnover ratio could mean that you’re ordering too much or the wrong items. Striking the right balance between inventory levels and demand is key to boosting sales and minimizing excess investment.

Interpreting Industry Benchmarks

These are just a few of the key financial ratios you can compare. It’s important to remember that deviating from the industry standard doesn’t necessarily indicate a problem, but it should prompt further investigation. You may find that your business is more efficient than average, or you may uncover areas for improvement that could help you optimize operations and boost profitability.

Conclusion: Understanding Your Ratios in Context

By comparing your financial ratios to industry standards, you can gain valuable insights into how your business is performing. Regularly reviewing these ratios will help you stay on track, identify potential issues early, and make informed decisions about the future of your business. Industry benchmarks serve as a useful tool, but remember that each business is unique, and your financial strategy should reflect your individual goals and circumstances.

If you need help analyzing your business’s financial ratios or understanding how they compare to industry standards, feel free to reach out. I’m here to help you navigate your financial strategy and grow your business confidently! You can email me @ susan.ball5@aol.com

Know Your Financial Ratios: The Key to Understanding Your Business’s Profitability

Understanding your financial statements is crucial to managing your small business effectively. However, it’s just as important to analyze these statements to assess how your business is performing. One powerful tool to do this is financial ratios. These ratios can help you measure your business’s financial health and compare it to others in your industry.

Here’s an overview of key financial ratios every business owner should understand and know how to calculate.

What Are Financial Ratios?

Financial ratios are calculations that help business owners evaluate their financial performance. They allow you to measure things like liquidity, profitability, and leverage—giving you a clearer picture of your business’s financial health.

Measures of Liquidity:

Liquidity refers to how easily assets can be converted into cash to cover short-term obligations. To maintain financial stability, it’s essential for a business to have sufficient liquidity.

Current Ratio: The current ratio measures a company’s ability to meet short-term liabilities using short-term assets.

Formula: Current Ratio = Current Assets / Current Liabilities

A ratio greater than 1 indicates that the company can pay its short-term obligations using its assets. A higher ratio means more liquidity.

Quick Ratio: The quick ratio is another liquidity measure, but it excludes inventory from current assets, recognizing that inventory may take longer to sell and convert into cash.

Formula: Quick Ratio = (Current Assets – Inventory) / Current Liabilities

Inventory Turnover Ratio: This ratio measures how often a company sells and replaces its inventory during a period. A higher turnover suggests that inventory is being sold quickly. Inventory turnover ratios vary greatly from one industry to another. Businesses whose inventory is perishable must turn over their inventory in a few days, whereas businesses whose products have long lives turn over their inventory just a few times a year.

Formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Measures of Profitability:

Gross Profit: Gross profit represents the revenue that remains after subtracting the cost of goods sold (COGS). It’s essential for understanding how much revenue is available to cover operating expenses.

Formula: Gross Profit = Revenues – Cost of Goods Sold

Gross Profit Margin: The gross profit margin shows the percentage of revenue available to cover operating expenses.

Formula: Gross Profit Margin = (Revenues – COGS) / Revenues

A higher gross profit margin indicates a more efficient business model.

Net Profit: Net profit is the remaining revenue after subtracting all expenses, taxes, and interest. It represents the business’s overall profitability.

Formula: Net Profit = Revenues – COGS – All Business Expenses

Net Profit Margin: The net profit margin calculates what percentage of revenue remains as profit after all expenses are paid.

Formula: Net Profit Margin = Net Profit / Revenues

Operating Profit (EBITDA): After taking out the cost of goods sold and paying all operating expenses you are left with the Operating Profit. It measures the funds available to meet obligations, such as loan payments and taxes. It’s also known as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

Formula: Operating Profit = EBITDA = Gross Profit – Operating Expenses

Return on Assets (ROA): The return on assets ratio measures how efficiently a business is using its assets to generate profit.

Formula: Return on Assets = Net Profit / Total Assets

Return on Equity (ROE): The return on equity ratio shows how much profit a company generates with the money invested by its shareholders.

Formula: Return on Equity (ROE) = Net Profit / Shareholder’s Equity

Leverage Ratios:

Leverage ratios indicate the degree to which a company is financing its operations through debt, which is vital for evaluating financial risk.

Debt-to-Equity Ratio: The debt-to-equity ratio compares a company’s total debt to its total equity.

Formula: Debt-to-Equity Ratio = Total Debt / Total Equity

Interest Coverage Ratio: The interest coverage ratio measures a company’s ability to meet interest payments.

Formula: Interest Coverage Ratio = EBIT / Interest Expense

Debt Service Coverage Ratio: This ratio measures a business’s ability to cover its debt obligations (principal and interest payments).

Formula: Debt Service Coverage Ratio = Net Operating Income / (Principal + Interest Due)

A ratio of 2.5 to 3.0 or higher is often seen as a healthy benchmark by lenders.

How to Interpret Financial Ratios

Now that you understand the basic financial ratios, it’s essential to interpret what they mean. Some ratios, such as the debt service coverage ratio, are fairly standard across industries. Other ratios, such as inventory turnover or profit margins, can vary significantly between different industries.

In our next blog post, we’ll dive deeper into how to access industry data to benchmark your ratios and what variances in your ratios mean for your business’s performance.

Conclusion: Why Financial Ratios Matter

Understanding and calculating financial ratios is crucial for small business owners who want to assess their financial health. These ratios provide valuable insights into liquidity, profitability, and financial risk. By regularly tracking these ratios, you can make informed decisions about your business’s financial strategy and growth.

If you have any questions about how to calculate or interpret your business’s financial ratios, feel free to reach out in the comments below or email me at susan.ball5@aol.com. I’m here to help you manage your business finances with confidence!

Retiring the Penny

My father collected coins all his life. Some of these coins were put in folders or protective pockets, but many were stored in old jars. As a child, I liked to look through his many jars of coins for ones to add to my coin folders.  My maiden name is Whitman, and it was a source of pride that we always used Whitman coin folders for our collections. 

Today, I have several jars of Dad’s coins waiting to be rolled up and deposited in the bank or saved in coin folders. This picture shows two of these jars. I likely have thousands of pennies that Dad collected, and their sentimental value is worth much more than their actual value.

I’ve been thinking about pennies since President Trump announced that he would stop the production of pennies.  Some people fear that retiring the penny will cause prices to rise as businesses round prices up.  Others point out that it costs the U.S. $192 million per year to mint pennies at a price of nearly 4 cents per penny.  I wonder if the value of pennies will increase as they become rarer, so I did a bit of research.  Here’s what I found.

  • Officially, the U.S. does not have a coin called a penny.  Our one-cent coin is called the cent. The British have pennies, so our forefathers did not want to name a coin “penny.”
  • It cost 3.69 cents to mint a one-cent coin in 2024.
  • The cent was first minted in 1793; the Lincoln cent was introduced in 1909.
  • Eleven other coins and currency have been retired, including the half-cent coin, the two-cent coin, and the twenty-cent coin.
  • The penny will not go away anytime soon, as there are approximately 250 billion in circulation.
  • Prices will not necessarily round to the nearest 5 cents.  Most payments are made by check, electronic funds transfers, and payments apps, which will still be able to accommodate rounding to two decimal places.
  • Pennies are not likely to increase much in value. So, my 2,000 (estimated) pennies will still be worth about $20.00

Do you think it’s a good idea to retire the penny? Please feel free to comment and share your thoughts.

This article was published in my quarterly newsletter, along with articles on Scriptures that help you feel secure in times of financial stress, reducing spending by making it painful, and valuable Beanie Babies. If you would like to receive my quarterly newsletter on Honoring God with Your Money, please complete the form on the Contact page or send me an email to susan.ball5@aol.com

Know Your Financial Statements—The Personal Financial Statement

The Personal Financial Statement (PFS) is an important document that every business owner should understand. Unlike other financial statements, the PFS reflects the financial health of the business owner rather than the business itself. Many business owners mistakenly believe their personal financial situation is separate from their business’s financial health. However, that is not the case.

A business owner’s personal finances play a crucial role in determining whether a lender will approve a small business loan. Lenders review the PFS to assess if the borrower:

  1. Is managing their personal finances well
  2. Has cash to inject into the business
  3. Has collateral to support the loan

Moreover, landlords and franchisors often require business owners to demonstrate financial responsibility before entering into lease or franchise agreements. Additionally, a PFS is necessary for certain SBA certifications and for securing SBA-backed loans.

Many business owners struggle with understanding how to complete the PFS. To help, I’ll guide you through the process, using the SBA’s Form 413 as the reference. While each bank may have its own version, most will accept the SBA version.

Guidelines for Completing the Personal Financial Statement

Assets:

  • Cash on Hand and in Banks: Total cash on hand and in your bank checking accounts.
  • Savings Accounts: Total of savings accounts, including CDs and money market accounts.
  • Retirement Accounts (IRAs, etc.): Total all retirement accounts. Though this money cannot be used as collateral, it’s still an important asset.
  • Accounts and Notes Receivable: Money owed to you, such as tax refunds, security deposits, or maturing CDs.
  • Life Insurance: Include only the cash surrender value of life insurance policies (the amount you’d receive if you cancel the policy, after administrative costs).
  • Stocks, Bonds, Real Estate, Automobiles, and Other Personal Property: List at current market values.
  • Other Property and Assets: Includes boats, trailers, collectibles, and jewelry.
  • Business Ownership: If you own a business, include its value, calculated by summing cash, equipment, and inventory. Enter this as “Other Assets.”

Liabilities:

  • Accounts Payable and Notes Payable: Includes unpaid bills, outstanding credit card balances, and bank loans (excluding mortgages, student loans, and auto loans).
  • Auto and Installment Loans: Include the total debt and the monthly payment for auto loans, student loans, or other installment loans.
  • Life Insurance Loans: If applicable, list any loans against life insurance policies.
  • Mortgage Liabilities: Include the total debt secured by any real estate, including first and second mortgages and home equity loans.
  • Unpaid Taxes: List any unpaid income tax, property taxes, and personal property taxes.
  • Other Liabilities: Include private loans from friends or family, legal judgments, and unpaid child support or alimony.

Net Worth: Net Worth = Total Assets – Total Liabilities

Additional Sections to Complete

Once you’ve filled in the basic table, additional details about your assets and liabilities are required in the sections below.

Section 1: Income

  • Salary: Include wages or salaries you regularly pay yourself from the business and any other employment.
  • Investment and Real Estate Income: Provide details of income from investments or properties.
  • Other Income: This might include disability income, foster care payments, and retirement income (but not alimony or child support).
  • Contingent Liabilities: Include any loans for which you co-signed, or set-aside funds for contingencies like lawsuits or IRS audits.

Section 2: Loans and Credit Cards

Provide details on all outstanding bank loans, credit card balances, student loans, auto loans, and personal loans.

Section 3: Stocks and Bonds

Provide details on stocks and bonds owned, including the number of shares and their current values.

Section 4: Real Estate

Include all properties owned—both free and clear, and those with mortgages. Use online sources like Zillow to estimate current property values.

Section 5: Other Assets

Describe the assets listed in Accounts Receivable, Other Personal Property, and Other Assets. Include the asset and its value, e.g., “2024 tax refund expected: $1,450” or “2018 fishing boat: $9,000.”

Section 6: Taxes Owed

Provide details on any unpaid taxes owed to the federal, state, or local government. If you’re on a payment plan, include the balance and payment terms.

Section 7: Other Liabilities

Provide details on any other liabilities not already covered in the previous sections.

Section 8: Life Insurance Policies

List the face value of your life insurance policies and the cash value you would receive if you cashed them out. If you’ve borrowed against any policies, include those details here as well.

Be sure to sign and date the form, and include your Social Security Number. If you are married, your spouse must also sign and date the form.

When lenders, landlords, or franchisors review your PFS, they’re evaluating whether you manage your personal finances responsibly, if you’ve taken on too much debt, and whether you can meet your financial obligations. Managing your personal finances well is critical, not only for your own peace of mind but also to demonstrate your ability to manage your business effectively.

Conclusion

The Personal Financial Statement is a key tool in securing financing for your business and demonstrating your financial responsibility to potential partners. By completing it accurately, you’ll be better prepared for any financial assessments that come your way. If you have any questions about how to complete your PFS or need further assistance, feel free to drop a comment below or email me at susan.ball5@aol.com! I’m happy to help you navigate this important aspect of your business finances.

Know Your Financial Statements—Accounts Payable

Most small businesses have a number of unpaid bills at any given time. Inventory has been delivered, but the invoice isn’t due yet. Utility bills arrive two to three weeks before the due date. Retail sales tax has been collected but not remitted to the tax department. Payroll withholding taxes are being held in escrow until it’s time to file quarterly reports. These unpaid bills are known as accounts payable.

It’s crucial to keep track of your accounts payable so you know how much is owed, to whom, and when the bills are due. Managing your accounts payable effectively offers several benefits. A statement of accounts payable will help you achieve this.

Benefits of a Statement of Accounts Payable

  1. Effective Cash Flow Management
    Accounts payable should be included in your cash flow statement for the month they are due. This ensures that you’ll have enough cash on hand to cover those bills. It also helps highlight months where a shortage might occur, allowing you to arrange a line of credit to meet forecasted shortfalls.
  2. Avoidance of Late Fees and Interest
    Tax authorities impose penalties for late filing of quarterly tax payments and monthly sales tax reports. Banks, utility companies, and suppliers may also charge late fees or interest for bills that aren’t paid on time.
  3. Take Advantage of Discounts
    Many suppliers offer discounts for early payment. A statement of accounts payable lets you easily spot vendors offering discounts, so you can ensure bills are paid on time to take advantage of these savings.
  4. Maintain Good Credit and Vendor Relationships
    Timely payments are key to maintaining a strong credit score and healthy relationships with lenders and suppliers.
  5. Preparation for Loan Requests
    If you need to borrow money or establish a line of credit, lenders will often request a statement of accounts payable. This statement helps them evaluate your level of debt in relation to industry norms and your ability to cover outstanding debts if your revenue declines.

Creating a Statement of Accounts Payable

A statement of accounts payable is essentially a table that includes:

  • Name of creditor
  • Account number or invoice number
  • Invoice date
  • Due date
  • Amount owed
CreditorAcct/Invoice NumberInvoice DateDue DateAmount
Bill 1    
Bill 2    
Bill 3    
Bill 4    

Tips for Managing Accounts Payable

Managing accounts payable effectively is crucial for maintaining healthy cash flow and good vendor relationships. Here are some best practices to consider:

  • Separate Regular and Occasional Bills
    Keep distinct charts for bills that occur regularly and those that are occasional. This makes it easier to track and manage.
  • Record Monthly Bills on Your Cash Flow Statement
    Include occasional bills in the months they are due, not just the regular ones. This will help you get a clear picture of your upcoming cash flow needs.
  • Set Up Automatic Payments for Fixed Monthly Bills
    Set up automatic payments for bills like rent, loan payments, cell phone bills, and subscriptions that are predictable and have a fixed amount.
  • Estimate and Adjust for Variable Bills
    For bills that vary, like utilities or discretionary expenses (marketing, for example), use an estimated amount in your cash flow statement and adjust for seasonal variations.
  • Automate Bill Payments When Possible
    If possible, have bills go directly to your bank. This simplifies the payment process, especially if you’re using a bill-paying app.
  • Track Infrequent Bills
    For less frequent bills, like insurance payments, set up automatic payments to ensure you don’t overlook them.
  • Balance Your Checkbook Regularly
    Schedule weekly or bi-monthly checkups to balance your checkbook and confirm that all bills have been paid or are scheduled for timely payment.
  • Forecast Cash Flow in Advance
    Predict your monthly cash balances several months in advance to determine if sufficient funds will be available during slower months. If you forecast a shortage, take steps to ensure enough cash is available, like establishing a line of credit or injecting more capital into the business.

Conclusion

A statement of accounts payable is a simple but powerful tool for tracking your bills and maintaining healthy cash flow. By following the tips above, you’ll be able to manage your accounts payable effectively, avoid late fees, and maintain good credit and vendor relationships.

If you have any questions about managing your accounts payable or tips for creating your own statement, feel free to drop them in the comments below. I’d love to help you better understand this important aspect of your business finances!

Know Your Financial Statements—Accounts Receivable

If your business extends credit to customers, understanding and managing accounts receivable is essential. Accounts Receivable (AR) refers to the money customers owe for services rendered or goods delivered, and it’s a critical part of your cash flow. Many businesses—like professional services, utility companies, and wholesalers—work with accounts receivable.

What Are Accounts Receivable?

When you extend credit, you’re essentially allowing your customers to pay later, often within a specified number of days. For example, if you deliver goods or services to a customer, you may allow them 30 days to pay the bill. In this case, you would have an account receivable until that payment is made.

To effectively track AR, businesses use an aging schedule, which categorizes accounts based on how long the payment is overdue. At the end of this blog, I’ve provided a helpful Accounts Receivable Aging Schedule Template. This template outlines what to include in your report, but if you prefer to create your own, it offers a great starting point to ensure you’re tracking the necessary information. Typical categories are:

  • Current (not yet due)
  • 1-30 days past due
  • 31-60 days past due
  • 61-90 days past due
  • Over 90 days past due

Why Does This Matter?

An Accounts Receivable Aging Report plays a significant role when you apply for a business loan. Lenders will review this report to assess how much of your business’s sales are made on credit, how it compares to industry norms, and whether there’s a risk of non-collection. Specifically, lenders are concerned about the percentage of receivables that are more than 60 days overdue. If the report shows high delinquency, it could signal poor cash flow management, which might lead to a loan denial.

Why Managing Accounts Receivable is Crucial

Effective AR management is key to your business’s cash flow health. Here are a few strategies to keep in mind:

  • Measure the Effectiveness of Discounts
    Many businesses offer early payment discounts, like “2/10 Net 30,” meaning a customer gets a 2% discount if they pay within 10 days, but the full amount is due in 30 days. If a lot of customers are taking advantage of the discount, cash comes in quicker—but your profit margin takes a hit. Understanding how well your discount terms are working can help balance cash flow with profitability.
  • Monitor Customer Behavior
    Let’s say you’ve had a loyal customer who consistently pays early for the discount, but now they’re paying late or just on time. This could be a sign that they’re experiencing cash flow problems. If so, it’s worth reaching out to see how you can help. Perhaps they need smaller orders, or you can work out a payment plan to keep the relationship strong and reduce your risk of uncollected debt.
  • Improve Cash Flow Management
    By closely tracking overdue invoices, you can promptly follow up with reminders. If certain customers consistently pay late, it might be necessary to put a hold on further orders until they clear their outstanding balance. Proactively managing receivables ensures that cash keeps flowing into your business and reduces the risk of uncollected debt.
  • Assess and Adjust Credit Terms
    If few customers are taking advantage of your early payment discount, it could be time to reassess your credit policy. Maybe your discount isn’t big enough to incentivize early payment. Or perhaps customers need more time to pay based on how quickly they can sell your product. Adjusting your credit terms might help accelerate cash flow without compromising customer relationships.

The Risk and Reward of Extending Credit

Offering credit is an excellent way to attract new customers and keep current ones loyal. A discount for early payment can boost cash flow and reduce the risk of bad debt. But, as with all things in business, extending credit comes with its risks—delayed payments can affect cash flow, and offering discounts reduces profit margins. It’s important to stay informed about industry standards, track your AR regularly, and adjust your policies as needed. Most accounting software has monitoring features that can make this process easier.

Here’s a template for an Accounts Receivable Aging Schedule:

Final Thoughts

Tracking accounts receivable is more than just a financial task—it’s a critical element in your business’s cash flow management. By understanding how to monitor, manage, and adjust credit policies, you can strengthen your business’s financial health and make sure cash continues to flow in the right direction.