Some rules… Biding for…

Some rules… To remember

There are two pretty hard rules that underpin the integrity of both the Profit and Loss Statement and the Balance Sheet. The first one for the P&L is that the owner and the business are separate entities. The second one regards the balance sheet rule that business assets are, with few exceptions, locked forever at their purchase cost.

Starting with the separation rule, every financial transaction that occurs in the business is exclusively its’ domain. If a customer pays an invoice in cash and that money goes into the owner’s pocket, in the accounting system the invoice remains unpaid – until it’s recorded in the businesses’ accounts receivables ledger.

Similarly if the owner writes himself a check on the company’s account, it must be properly recorded. For example, if that check was for the reimbursement of an item purchased for the business it must be entered in the appropriate account ledgers. If it’s for another reason such as personal income, the appropriate taxes have to be booked, to include any related journals (like salaries payable).

The other hard rule deals with timing of activities. A sale made in January is reported there. And if its’ invoice is paid in February the payment is recorded in that month (as a reduction in accounts receivables). In spirit this rule is related to another constant that governs the balance sheet. There if an asset for the business is bought for $75,000 and increases in market value to $100,000, with only rare exceptions, its balance sheet value never changes.

Next up: Cash flow versus profits.

Biding for… a place in line

When it comes to that school system bid the Lotto “you gotta be in it to win it” axiom holds true. That starts with a visit to the school’s administrative offices where the purchasing department is likely housed. There you’ll typically receive an application form that must be completed to be considered as a qualified bidder.

That application is only the first step, and it might be a bit tedious to complete. It will likely require you to provide information like the length of time the business has existed, your social security or federal taxpayer ID number, and maybe even some limited financial information.

As an aside while you’re there you may be able to receive a copy of the last winning bid so that you can gauge the task ahead and decide just how attractive (or not) the potential business really is.

Once that form is completed, you’ll submit it to that same office and await the decision as to its acceptance. Once that hurdle has been crossed, you might have to post a performance bond to gain access to the bid invitation – although that step is generally only required with the bid’s submission. Do all that and you’re in the game. Whew!