Accounting Tips For Managing Your Business
We, your certified chartered accountant, have a few suggestions to improve business success. We look at discounts, current assets (“cash”) and talk about due diligence for those thinking about buying or selling a business.
Accounting Tips
Sales discounts and discount reserves: Does your business regularly offer sales or cash discounts to customers who pay early on their invoices for goods and services? If so, it’s a good idea to set aside a reserve fund to cover these sales discounts. The amount of this discount reserve should be based on your estimate of the likely total figure for discounts that will be taken.
As customers actually take the discounts, credit the accounts receivable account for the amount of the discount and debit the sales discount reserve. This way the discount is clearly in the same period as the associated invoices, so it is easier to account for all aspects of the sales transaction.
Current Assets: those items owned by the business which could be turned into cash within the normal operating cycle of the business, usually 12 months. Examples of current assets are:
- Cash on Hand
- Deposits
- Sundry Debtors
- Cash Floats
- Inventory
- Stock
Due Diligence: during a typical investment negotiation process, the investor will conduct due diligence which will include reviewing the business plan, intellectual property strategy, market research document, debtors, inventory levels, management team and employees.
The potential investor will normally conduct his/her due diligence investigation on the business model and assumptions (financial and otherwise) presented in the plans. If the investor is still interested in a possible acquisition or investment, the investor will then proceed with a review of the pricing proposal for the business.
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