Tax & Business Newsletter: December 2021

Here are several cash flow management tips to keep your business humming along as we head into 2022. Also read about tips for safeguarding your business’s inventory from inside and outside threats.

Tax & Business Newsletter: December 2021

In this issue:
Cash Flow Tips for 2022
Preventing Inventory Theft

Here are some cash flow management tips for your business as we head into a new year.

Have a plan to pay your bills. Forecast the flow of your key bills over the next twelve months. Review your bills, sort according to priority, and schedule payment dates so the most important items, like rent and payroll, are paid first. Then pay your bills on time, neither early nor late. Take as many discounts as possible.

Negotiate terms with suppliers. Some invoices are due on receipt; others, a few days later. Negotiate the longest payback terms possible and ask for early-payment discounts. A two-percent discount might not seem significant, but on bulk orders savings can accumulate. Depending on your industry, you might set up a vendor payment schedule that better reflects your accounts receivable payment behavior.

Quickly collect receivables. When a customer places an order, try to get paid as soon as possible by sending invoices promptly, confirm that the invoice was received, and immediately follow-up on past due payments. Also consider discounts to customers who pay quickly, and an option to pay invoices online instead of taking several days or longer for a check to arrive via mail.

Track inventory turnover. The inventory turnover ratio measures the number of times inventory is sold and replaced in a given time period (annually, quarterly or monthly). It’s calculated by dividing cost of goods sold by average inventory. Frequently calculating this ratio is a great way to see if you have inventory that has gotten stuck in your warehouse (and ultimately not converted to cash!).

Be smart with debt. As a general rule, consider taking out a loan of no more than 75% of an asset’s value, and aim for loan terms that don’t exceed the useful life of the underlying asset. Debt can be a valuable tool for growing and sustaining your business, but be careful not to overextend.
Please call if you have questions about how to be better at managing your cash in 2022.

Preventing Inventory Theft

If you’re in the middle of or planning for a year-end inventory count for your business, now is a great opportunity to revisit and update your policy for safeguarding your inventory. If you don’t currently have a policy, consider starting one in 2022.

With some studies estimating that employee theft accounts for over 75% of inventory shrinkage, safeguarding your inventory could mean big savings for your business. Here are some tips for protecting your inventory from both inside and outside threats.

Tips to Protect Your Inventory

Hire with care. In this season of labor shortages, it may be tempting to hire any person who’s willing to work. But conducting a background check may be beneficial as part of your overall interviewing process.

Restrict access. Ensure that only authorized individuals are allowed to handle inventory. Keep high-value products and tools in a warehouse security cage and provide keys to supervisors only. Consider locked cabinets for exceptionally expensive items.

Detach departments. If feasible, keep receiving, warehousing, and shipping functions independent. The purchasing department should not be involved in accounts receivable or the receipt of merchandise. By maintaining a discrete distance between accounting and inventory-handling functions, you’ll reduce the risk of theft.

Implement consistent anti-theft policies. Such guidelines might include prohibitions against taking backpacks into merchandise areas or duplication of access keys. Require unique login IDs for access to inventory control systems so you can track transactions by user.

Check and recheck. In addition to your annual inventory count, spot-check inventory and merchandise throughout the year against purchase orders, shipping receipts, packing lists, and online inventory records.

Install security cameras. If you suspect inventory theft may be an issue, consider installing cameras in employee and customer areas, including stock and break rooms. Periodically review video footage. Let employees know that the cameras are active and being monitored.