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Accounting for Small Business Debt
A business debt that you can't collect is certainly costly, but how you account for this unfortunate situation depends on several factors. Debts are typically invoices to customers that will not be collected.

If you never received money that you expected, the loss is not the same as theft. Your business cannot lose cash that it never had. For this reason, a cash basis accounting system does not have any debt expense. Cash basis only counts income when payment is received. A cash basis business does not have any accounts receivable in its bookkeeping. Receivable amounts were never added because uncollected invoices are not yet counted as income.

Creating a receivable only occurs in bookkeeping that adds income using accrual basis. Accrual basis accounting counts a sale as income when it's invoiced. If your business is accrual basis, the previously recorded income for an uncollectible invoice amount must be offset by a debt expense. The expense increase is balanced against a reduction to accounts receivable.

Most accounting software produces financial statements for either the cash or accrual method. Debt expense will only appear on the accrual income statement since only accrued income will include uncollected accounts receivable. The cash basis reports are unaffected. They show no debt expense because the expected income is already absent on the financial statements.

Costs associated with invoiced work represent cash lost for both cash basis and accrual basis. These expenses are captured regardless of whether customers pay the invoices you sent. But that's an issue for your accounts payable system, not accounts receivable.
How to Win Big in Today's Economy

The altered economic landscape presents innovative and nimble businesses with opportunities to thrive.

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Why Empathy in Leadership Is a Good Idea
A 2019 University of Oxford study found that workers are 13 percent more productive when happy, providing a conclusive link between happiness and productivity. As fear- and shame-based business models fall away, millennial-led trends of kinder, happier working environments and empathetic leadership are fast becoming the norm. Here's how and why being an empathetic leader is vital.

Much more than being "nice," empathy is understanding what someone is going through by looking at the situation from their perspective. In terms of leadership, empathy is understanding the varied, complex communication styles of each employee as well as acknowledging they lead separate lives outside of work.

By stepping outside themselves and into the shoes of others, empathetic leaders value open communication and relationship building. They also create a safe environment where employees can communicate their stress without fear. It's not about talking through the minutiae but rather working together to make the personal work experience less stressful by playing to strengths, working on weaknesses and clarifying uncertainties, much like an experienced coach and a well-oiled team.

Empathy also means facilitating problem-solving over reactivity. Steering clear of bad management pitfalls such as sending negative after-work emails, pointing fingers and scolding, an empathetic leader addresses the issue holistically. Allowing room for mistakes and subsequent problem-solving means that employees feel comfortable coming to you with challenges and will, in turn, be more transparent in their work.

When you lead empathetically, the workspace opens up to new perspectives, bright ideas and constructive solutions. With a positive feedback loop, empathetic leaders view diversity and inclusion as part of the fabric of a successful business. Inclusion-focused workplaces often find it easier to acquire and retain talent, increase performance and boost employee engagement.
Worth Reading
What's More Important for
Your Business, Productivity
or Efficiency?
By John Rampton
The push and pull between productivity and efficiency has both its up- and downsides. While one may come with a benefit, there's always the cost of what's not being achieved with the other. By breaking down and addressing the factors that affect productivity and efficiency, Rampton explores ideas to help walk the tightrope between the two worlds. The secret: working smarter, not harder.
Read More
10 Techniques to Transform
Your Phone from
Distraction to Super-Tool
By Forbes Coaches Council
Mobile technology has become our real-world superpower to unlocking next-level productivity. But with the "always-on" culture this creates, how do we ensure our smartphones remain our friends instead of turning into our foes? Top consulting experts give their best strategies to make use of apps that can help consolidate our communication, make quick decisions and stay organized.
Read More
How to Build a Powerful Email List That
Brings You New Business
Email has a tremendous capacity to grow your business. With all of the inbox clutter, how do we stand out from the crowd? If we view email blast recipients like we would a gathering of friends, getting noticed is much like being a good host and creating a warm, welcoming home:

House hunt. When selecting an email marketing platform, determine reasonable goalposts for your results and customer acquisition rates. Keep budget and energy investment in mind as you select your foundation and framework (hint: for small businesses, effective no- or low-cost solutions are very much available).

Invite them. Create an opt-in form on your homepage and on other high-traffic pages by simply offering an opportunity to subscribe. To go a step further, focus on obtaining new subscriptions at high-interest, high-fit points in your online sales process. For example, insert a checkbox to automatically opt into your newsletters at checkout.

Lay out the welcome mat. Develop your own exclusive club that invites your subscribers back with welcome emails that foster further engagement. Tell them what to expect, why they should keep a lookout for your emails, the tailored offerings they can look forward to and how to navigate your website between communication.

Pamper the party. Offer incentives for your customers' attention. Coupons are very much alive: the recommended standard is a 20% minimum discount to get consumers to act. When emailing current subscribers, you never know who will forward your email to their friends. Always include a "call-out box" that incentivizes new subscribers to share.
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Links You Can Use - Customer Appreciation
Expressing appreciation can further expand customer loyalty and grow your bottom line. Here are tools and resources to develop and automate a highly customized customer appreciation strategy:
18 Customer Appreciation
Ideas Your Customers
Will Love

Customer appreciation plays an important role in retaining customers. Here are 18 different "big picture" ideas of how you can make your customer feel valued.

Read More
7 Types of Customer
Appreciation Emails
You Need to Send

ABCD: always be customer dating. Here
are reasons to be the first to reach out
and show your customers how much
you appreciate them.

Read More
How to Write Thank You
Letters to Your Customers
to Show Them You Care

The written word adds a powerful
personal touch that leaves a
lasting memory. Unleash the
power of a handwritten note.

Read More
6 Customer Loyalty
Programs for
Small Businesses

Showing appreciation and creating loyalty go hand in hand. Here are customer reward programs designed for small businesses to take that extra step.

Read More
Setting, Measuring and Evaluating Business Goals
Unlike waiting and hoping for a change in unfavorable weather, adverse business conditions are within your power to alter. The process requires knowing the sources and causes of difficulties so that they may be corrected. Unfortunately, access to necessary data is often compromised by an entrepreneur's focus on ordinary daily activities. The solution is establishing a habit of setting goals and having a desire to identify the progress you're making.

Setting Measurable Business Milestones

Current goals should align with the larger vision you had when starting your business. Objectives for this year should be measurable targets accompanied by action steps to accomplish them. When your actions don't produce the expected goals, making corrections is crucial.

Short-term goals are set by working backwards from your big vision. You want to decide the measures to achieve along the way to your ultimate long-term aim. Decide what spending and cash reserves you'll need in the future to have the earnings you desire. These factors embody the planned scale of operations. Then you can set near-term milestones. Finally, you identify the routine activities that seem most conducive to reaching those milestones.

Income Statement Evaluation

Your big vision may be something out of your wildest dreams. But current goals require a dose of realism. Obviously, resources of time and money are limited. Your burden is using them optimally. The milestones are how much money you can derive from the available time. Scrutiny of the business income statement conveys not only this realized profit but also how you achieved it.

Revenue on the income statement informs you of how much you were paid for your time. Each of the expense categories reveals what you had to spend for earning the revenue. This information uncovers expenditures that can be reduced by a revision to your action steps. Changes in spending behavior can increase the profit resulting from the same amount of revenue. But altering the wrong expenses may adversely impact revenue. Continuous examination of income statement details shows you which actions are best at meeting your milestones.

Balance Sheet Examination

Evaluation of business milestones doesn't end with the income statement. Examining the business balance sheet is also a key step for refining actions to meet your goals. Balance sheet items identify many of your milestones. For instance, the amount of assets (especially cash) that your business retained from its earnings is on the balance sheet.

Remember also to check the liabilities on your business balance sheet. Some of the cash and other assets may have been acquired with borrowed money. At the bottom of the balance sheet is business equity, which is the difference between business assets and liabilities.

In the equity section is an account for the funds you have personally withdrawn from the business. This is a negative amount that reduces the earnings retained by the business. When you have a long-term vision that necessitates reinvesting earnings, your near-term goal is building retained earnings. Evaluating a milestone for retained earnings is an example of a measurement to regularly scrutinize. When you get off target, a revised action plan is desirable.
This newsletter and any information contained herein are intended for general informational purposes only and should not be construed as legal, financial or medical advice. The publisher takes great efforts to ensure the accuracy of information contained in this newsletter. However, we will not be responsible at any time for any errors or omissions or any damages, howsoever caused, that result from its use. Seek competent professional advice and/or legal counsel with respect to any matter discussed or published in this newsletter.

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