When reviewing financials with clients, they sometimes look at their Profit & Loss and almost immediately ask "Well, if I made $40,000 this year, where is it?" Business owners usually assume that if they made money it should be in their bank account. If it's not in the bank account, it can be because of a few different reasons. If they are paying off loans, a line of credit, a large credit card balance from a prior time period, or some other liability the money generated from the profit is usually allocated to these Balance Sheet items. If the business does not have any liabilities, it could be due to Equity Draws by the owners. Well if it's not Equity Draws or paying down liabilities, then where is it? It is most likely tied to your Accounts Receivable balance. This is the balance that customers owe the business for the purchase of their product or service.
Accounts Receivable Reporting
These reports are easy to find in QuickBooks. Under Reports, look for Customer and Receivables, and choose Accounts Receivable Summary or Accounts Receivable Details. This report will elaborate on the amount owed to the business, the customer who owes it, and the aging status of the balance. You can drill down into further detail by clicking on the line item you want to research. This will show the invoice associated with the balance. If the balance is incorrect, edit the invoice accordingly. This edit will do two things, lower your profit and lower your accounts receivable. If the amount you are editing is from a prior tax year, talk with your accountant first about how to handle it. My experience is that they want you to edit it within the current year, so this requires a bookkeeper who knows what they are doing.
Blame it on the mailman
Tracking down the money owed is where the headaches begin for owners/managers, it can be like pulling teeth. If it's way in the past, they have usually forgotten about it, and don't feel the need to pay for what they bought. If this is the case, you may end up having to take them to small claims court or hiring a lawyer. Usually customers can be coaxed into paying, but it may take some leg work by your bookkeeper or office manager. Customers may give you every excuse in the book, but they will eventually pay. I've heard it all 'check is in the mail,' 'the post office lost it,' 'I'm waiting to get paid from someone else, then I'll pay,' and the list goes on and on. 9 times out of 10 the check is never in the mail, I've never actually heard of the post office losing a piece of mail (besides all of Christmas cards and Thank You cards I mail), and when you hear the excuse about waiting for a payment to come in you can assume they are robbing Peter to pay Paul.
Bookkeeper to the rescue
Having your bookkeeper work on the receivables can be a great benefit for your business. You can see direct results with your bank account balance increasing, the stress levels of the owners/managers decreasing, and time being freed up for the owners/managers to focus on growth and sales. If you feel you money is tied up in Accounts Receivable and don't want to the hassle of tracking it down, get in touch with me and I would love to help.