A by cathy.

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I am Cathy. I am a Certified Public Accountant and a business consultant for years. I want to share my expertise thru this blog which is intended to help people who are planning or who are already in business. The topics range from Accounting for Small Business, Cash Management, Inventory Management, Assets Management and Financing. The terminologies will be simplified for laymen and business jargons will be explained for clarity.

Saturday, January 05, 2008


The success of a small business greatly depends on efficient cash flow management.

When I talk about cash flow here, I am referring to the movement of cash from the collections to the payments and the maintenance of a "safe" cash balance for operation.

So small businessmen should analyze the cash flow of the businessmen. One
does not need to be an accountant to do that. A working knowledge of where
the cash comes from and where the cash goes are all what the businessmen need.

This means understanding the components of business that affect the movements
of cash like:

1. Accounts receivable-

How long does the company collect its receivable? What are the terms of sales?
n/30 days? n/60 days?

The next question is what's the actual collection period? Is it really after
30 days or more than that? Is it really 60 days or it stretches out to 60 or

The next question is why the prolonged collection period?

With this question in mind, another set of questions should be answered.

1. Does the business send the invoice promptly?

There are businesses where invoice or statement is sent only upon the delivery
of services. But as to how long it is done depends on the person in charge of the billing.

Sometimes, the billing is delayed due to incomplete data or miscommunication
between people in the organization.

The problem could lie on the inefficient record keeping of the business.When
the billing comes, the person in charge of this function has no basis for
the charges.

2. Do the business make follow up of the collection?

It is not enough to send the statement or the bill. The business has to
make sure that it was received and a payment is being prepared.

3. Does the business continue to render service to delinquent clients/
If it does, it's time to review the accounts of this client.

More about accounts receivables in the next blogs.

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Friday, January 04, 2008

Handling Cash Expenses

My friend is complaining that he can not organize his receipts and monitor his expenses especially those which were not paid thru check--little expenses that when summed up together will make a dent on the profit like, office supplies bought in cash, taxi fare and other petty expenses.

I come across this website shoeboxed which offers organization of receipts for free.

Precisely, that's what I suggested to my friend who has his day job to attend to while managing his on-line business--a box-type of organizing his docs while waiting to be sorted out. Instead of a box however, there is an expandable folder/envelope which come with labels which he can use to store the receipts, notes and other small papers evidencing payments.

To handle the cash expenses, he can make use of a small box where he can put a fixed amount of money, say for example $ 100.00. Everytime, he spends out of the fund, he should put back the change, a receipt of a small paper noting what kind of expense it is. When the fund is running low, say for example, it is only 15.00, he can replenish the fund by adding $ 85.00 to make it $ 100 again.

The 85.00 represents the expenses for the period that can be itemized as follows:

20.00 taxi fare- Transportation Expense
35.00 bond paper and paper clips - Office Supplies
30.00 parking fee penalty - miscellaneous

If you have question, you can post in the comment.



Saturday, December 29, 2007

Understanding Cash Flow Part 3

Sources of cash flow:

The major source of cash comes from the customers or clients. Either they are paid in cash/checks/or by credit cards. Some sales are on account which are known as *accounts receivables so that cash will only flow to the business when they're collected.

Cash can also come from the owner or owners. When cash is tight, the owners may increase their capitalization. This is not considered revenue but as increase in their equities.

The business may also borrow from the bank which proceeds can be credited to the account of the business. But these two types of transactions are not regular done by the business.

Where do these cash go?

They are used to pay *liabilities such as suppliers, utilities or loan amortizations.

Salaries also have to be paid regularly and taxes may be paid on a quarterly or monthly basis.

The owner or management must be able to forecast its cash requirements for the next succeeding months in order to control the receipts and the payments functions.

Too much receivable uncollected will not only contribute to low cash position but will also increase the risk of bad debts.

*Accounts Receivables-refer to sales made on account and are collectible at a certain period of time.
** Liabilities are accounts payable to vendors/suppliers or other agencies where services acquired are not yet paid.
*** Equities refer to the owner or partners or stockholders share in the business ownership.

Related Articles:

1. Understanding Cash Flow Part 1



Friday, December 28, 2007

Understanding Cash Flow Part 2

Many people equate cash flow with profit. This is not so. Profit is the accounting term for the difference between the revenues and the expenses. Expenses are not necessarily cash and revenues may not have been received yet such as receivables.

In small businesses, cash basis of accounting is preferably used i.e. only actual receipts are reported are revenues and only payments made in cash are deducted as expenses.

Let me illustrate:

For example a total sales of $ 5,000 has been made which is 2,500 cash and 2,500 in receivables. Expenses amounting to $ 3,000 was paid for the same period.

Using the cash basis of accounting, the business will report a loss of $ 500.

Cost and Expenses..........3,000.00
Net Loss................... 500.00

If the accrual basis is used, there will be a net profit of $ 2000 excluding non-cash expenses such as depreciation.

Cost and Expenses..........3,000.00
Net Profit.................2,000.00

What is the cash flow in this example. Cash flow amounted to $2,500 while net cash inflow is negative $ 500.00. Cash outflow refers to the expenses paid.

Related articles:

1. Understanding Cash Flow Part 1

2. Understanding Cash Flow Part 3



Wednesday, December 26, 2007

Understanding Cash Flow Part 1

Cash in the Bank

When I was working as an accountant, my boss asked me why we don't have cash in the bank while the business seems profitable.

He did not know that cash flow is different from profit or revenue; neither is cash in the bank is equivalent to cash position.

Even if the bank statement shows $15,000 balance at the end of the month, it does not necessarily mean that it is the amount available for business to use for payments.
Between the cut-off period of the bank's last entry item and the date when the cash balance is being determined, there are payments which checks are not yet presented in the bank for payment.

There may be loan proceeds that have been credited in the bank account and or there were charges that were debited from the bank's balance.

This is why a bank reconciliation is required at the end of the month to establish how much really is available for business as of the end of the previous month and is carried over at the beginning of the following month.

A simple proforma of a bank reconciliation is as follow:

Balance per bank ..................... XXX
Add Deposit in Transit*............ XXX
Less Outstanding Checks**...... ( XXX)
Adjusted balance per bank.....XXX

Balance per books.................. XXX
Add Bank Credits***...............XXX
Less Bank Debits****..............(XXX)
Adjust balance per bank......XXX

*Deposit in Transit are deposits made at the end of business day after the cut -off period of the bank statement.
**Outstanding checks are checks which disbursements have already been recorded in the books but payments are not yet made by the bank.

*** Bank credits refer to additions made by the bank to your account such as collections from your on-line payments remitted directly to the bank; loan proceeds and other adjustments that will increase the balance which are not yet recorded in the books.
**** Bank debits are deductions from your account such as bank charges.

Related Articles:

1. Understanding Cash Flow Part 2

2. Understanding Cash Flow Part 3



Tuesday, November 06, 2007

Reasons why small businesses fail 4

Having been in business and a business consultant myself, I feel that publishing the small businesses that an OFW may engage into is not enough. The manuals and the articles do not discuss the whole shebang of putting all your hard earned money in a business that spells SUCCESS. Although there is no such thing as guarantee in getting into business, the risk of loss is minimized when there is adequate planning before the first peso saved rolls out from the pocket.

1. Verifiying if there is really a market demand or demand is not yet fully satisfied--in short the market is not yet saturated. You do not need to hire someone to conduct a survey.

For example, you like to put up a beauty parlor. Easy. Wear your walking shoes, start from the point where you plan to open the business, count the number of beauty parlors that you can find within the next few kilometers. Same with fastfood or restaurants eateries, not unless it is located in a food court in a mall. But even then, the kind of food served in that location where you compete with a lot of food stalls will make you stand out from the rest. If you see that beauty parlors are more in number than the street blocks that you have passed by, forget the business.

Not because your relative can cook and or you learned the " how tos" in some seminars or manual, you can already put up a sign and say welcome to my business. That's dealing only with one aspect, the technical. The market demand is the most important factor in considering a business. Not because, you have some hobby that makes your friendslashrecepientslash of the custom made or handmade stuff as gifts encourage you to start producing in quantities, you will already start arranging for a loan.

Honey, try looking at your products and your friends. Are they only patronizing you, then keep the gifts in their closets --never used or displayed. Were your gifts recycled like the fruit cake that goes around the neighborhood or offices that if you're lucky, you get it back in a different
cute wrapper?

There may be success stories about how hobby turned into multi-million business but the writers may have omitted the part where the successful business owners learned the nuts and bolts of the businesses the hard way before they saw their "bottomlines" with profits.

2. Starting a business without adequate capital

Okay so there is a market. Allelujah. So you dance the dance of joy and start registering the business, getting the place and buying the equipment and other fixed assets.

Honey, the word CAPITAL does not refer to the size of the letters or the fonts used in writing. In business, there are three kinds of capital that you need. Kung baga, magkakamag-anak sila.

Fixed Assets Capital- Does your business need big capital outlay before you can even open your door to start the business ? Does you business need some special equipment like oven, stoves, kitchen utensils, tables, chairs and other minor machines to operate a restaurant? Does your business need a lot of chairs, computers, need renovations for the rented office or place to operate an internet cafe ?

Inventory Capital- Does your business require you to stock up some inventories of the products to be processed or sold or to be used in the day-to-day operation? You can not start a beauty parlor with just one color of nail polish or one bottle of nail polish remover. Iirapan ka ng beauty counsellors ninyo or ni Parloristang si Tanya aka Tonio.

You cannot start a boutique with all goods that are on a consignment basis.

Working Capital- This is the capital that "works" for you while you are waiting for the revenues to be adequate to roll over. Salaries for employee if you have one, rental payment, utilities,
replenishment of inventory stocks, transportation and other unexpected expenses.

Dapat mahaba ito as in if you estimate that the business will pick up only after six months, then your working capital should be more than six months. Ganiyan dapat kalalim ang bulsa ninyo.

We had this experience in the business that we put up here in the US. Our fixed assets capital were merely office desks and chairs and a reliable phone system.

What we did not expect was that in a matter of days, we were able to deploy nurses in hospitals. After a week, they need to receive their paychecks. That's industry practice. Violate that and you will see them moving to another registry. The hospitals and nursing homes pay only after six weeks. Others issue their checks more than six months especially of it is a hospital system where the parent company is in another state.

The bank would like to see our profit and loss. Actual not the projected one. So what did we do? I include that in my discussion of tapping sources of capital.

Related articles:

1. Reasons Why small businesses fail part 3

2. Reasons for the Failure of Small businesses Part 2

3. Reasons why small businesses fail Part 1



Monday, November 05, 2007

Hapinoy Store Program

The easiest business to put up is a sari-sari store; the difficulty is maintaining it.

Good news is there is a new project in town called Hapinoy Store program.


The target participants are the SAHMs or stay-at-home-moms who are going to be trained about inventory management, credit management and other stuff. (This is close to my heart because these were the types of seminars that I conducted in the Philippines when going to the different regions sponsored by foundations that help marginalized sector of the population).

According to Salve,

Microventures will take a chance on these stores by giving sari-sari stores a makeover with bright paint and the huge Hapinoy smile plus additional capital from CARD. The stores will have direct access to manufacturers resulting in a bigger margin, the nanays can qualify for trainings under sari-eskwela where they will learn about inventory management, credit management and other stuff.

For more of the concept go to inquirer.net.blogs.