5 Ways a Well Designed Accounting System Makes You Money

A properly designed and managed accounting structure pays for itself.  Hard to believe?  Always thought that the accounting department was a “cost center?”  Let me show you how looking at your accounting from a CFO’s perspective will not only pay for itself, but be a revenue stream as well, thereby creating equity for your business.

1.  Pay all of your vendors using the “2%-net10” option.  Vendors who give you 30 days to pay your invoice will usually also offer you a 2% discount if they receive the payment early, within 10 days of the date of the invoice. So, for every $10,000 in “payables” (accounting jargon for “what you owe your vendors”) you save $200. If they don’t offer this option, talk to them about it.
2. Offer those same terms to your customers/clients. If you are bootstrapping your business on credit cards, or have taken an equity line of credit out on your house or are otherwise financing your business, then consider offering those same “2%-net 10” terms to your customers.  You may book a ton in sales, but cash is king.  Get the cash. Every $10,000 in uncollected “receivables” (accounting jargon for “what your customers/clients owe you”) can cost you around $200 a month in interest and bank fees.
3. Single-source your vendors.  Instead of switching from one vendor to another for the same need, stay with one vendor.  For example, when I worked in corporate as Director of Finance for a trade book publishing company, printers were always calling me up trying to get my business with “introductory” pricing.  I could have printed our books using five different printers and saved some dollars.  However, I didn’t do that because staying with one vendor, single-sourcing, builds up an institutional memory that yields so much more value and saves money in the long term.  You build a relationship with your vendor.  And it is in their best interest to treat you like a partner, not a sale.
4. Don’t go with the cheapest price.  Paying bottom dollar does not guarantee that you will be saving money.  True, you’ll be paying fewer dollars, but ask yourself, “Why is the price so cheap?”  It could be that it is a loss leader and that the low price won’t be around for long.  Maybe the vendor is experiencing hard times just now, but when s/he gets back on their feet, prices will go up.  Could be that the vendor will get so many customers because of the cheap price that they won’t be able to deliver as promised.
5. Take advantage of vendors’ discounts for prepaying. Some vendors give you two ways to pay for a service.  My old web hosting company, for example, offered a prepayment of $120 for the year or $19.99 a month.  Now any cash strapped business might be tempted to go the $19.99 a month, but at the end of the year the cost for that service would be $240, twice what the “pay in full” price was.  Even if you had to borrow the $120 and pay 25% interest, you would still come out $90 ahead.  Start thinking in terms of what a service or product costs you over the period of one year, instead of what the monthly charge is.  Think bigger!

One thing that all of these features have in common, besides the money savings, is the time savings.  And you’ve heard that “time is money.”  Why is that, exactly?  I think it’s because we can always make more and more money, but we can’t make more and more time.  We all have the same 24 hours in a day, the same 7 days in a week.  So if you can spend ½ a day in business development, reaching out to potential customers with the possible potential of $25,000 in new sales instead of spending that same amount of time on the phone chasing down past due receivables, wouldn’t you want to do that?  Not only would you increase your bottom line, you would have a lot more fun.