Masonry Magazine April 2003 Page. 35
Many smaller business people do business on a cash basis, therefore, when you look at their assets they have no accounts receivable or payables and costs are recorded only as they are paid in cash.
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Consider my earlier comment about increasing profit by including work-in-process inventory on the balance sheet, where you cannot bill it to customers at the end of the accounting period. Many masonry jobs have materials and partially-completed work on-site on the last day of the accounting period and the costs of producing this inventory are typically included in expenses. Thus, failure to actually bill out the work with profit can be captured in an asset account called work-in-process inventory that will turn into a receivable as soon as you bill it. The accrued profit receivable can be a small additional profit to help your "financability."
Cash vs. Accrual Accounting
CASH VERSUS ACCRUAL, accounting is another issue. Many smaller business people do business on a cash basis, therefore, when you look at their assets they have no accounts receivable or payables and costs are recorded only as they are paid in cash. Switching to the accrual basis will create assets which are "financable" as part of an overall growth company plan. Since most masonry companies work on a draw and partial completion basis, including both the amounts receivable and the unbilled work-in-process on a balance sheet will create more accrued profit, especially if sales are increasing. Payables will also be included so this is an incentive to keep bills paid if you can.
Create a Track Record
ANOTHER GOOD IDEA for getting financing is to create a track record. I find that taking cash and putting it into some municipal bonds, such as the Nuveen Dividend Advantage funds, which have a monthly income based on six percent per annum or better, tax free, can provide collateral for a bank loan you might not need, but would be a good positioning strategy. What you want to do is take $100,000 and buy some of these bonds and offer them to the bank as collateral for a $100,000 90-day note. The note may be at prime plus one percent to allow the bank to make money, but if you are a profitable company, the 5.25 percent interest rate on the note will be one percent or so less than the bond yield and the interest will be tax deductible. So if you are in the 15 percent tax bracket, you pay 4.8 percent after taxes and get