Large companies typically manage their finances more skillfully than small businesses. They keep expert accountants and CPAs on staff and they hire talented audit firms. Even so, small companies can use some of the same techniques to achieve results.
According to this article by Barry Moltz for the OPEN Forum, here are seven "tricks" small businesses can step up their accounting and get the results of a big company.
- Set longer A/P payment terms. While it is important to pay vendors within the agreed-to terms, try to negotiate longer payment terms up front before the purchase. 30 day terms are no longer the universal standard.
- Get paid up front. Many large companies no longer give credit to any of their customers. Credit is a privilege, not a right, and nowadays it is risky to extend credit. Be sure you accept credit cards and/or electronic funds transfer as alternate payment methods.
- Was the A/R invoice received? Many large companies make a followup call or e-mail to customers to ensure their invoice was received and to find out when it is scheduled to be paid. If payment is not received on the promised date, they make a reminder call.
- Use credit cards to pay bills after 30 days. Large companies use corporate credit cards to pay an invoice when it becomes due (30 to 90 days from purchase) to enjoy another 30 days of cash flow. (This works only if you pay the credit card balance each month and do not use it as a permanent loan.)
- Bill on time. Many large companies bill daily and do not wait until the end of the month.
- Move to a different state. Many corporations relocate their business where the tax burdens are the lowest, such as Alaska, Hawaii and Maine. The worst states for taxes are Tennessee, Arizona and Louisiana.
- Careful accounting tricks. Large corporations use many techniques to "manipulate" sales or profits. Here are a few that can be used (under your accountant's advisement):
- No provisions for bad debts, even though the debts are old and the customers are out of business.
- Recognizing the income of a long-term contract when it is signed rather than when the income will actually be realized.
- Selling fixed assets (property, machines, computers) and recognizing the income as normal sales.
- Changing the depreciation policy.
- Treating some operating costs as investments.
Here are some of our past blog posts on accounting that you may also be interested in: