No Need to Budget!

“I have never made enough money to need a budget.” I heard a variant of this comment at least three times this month. I want to dispel this myth. If you are ever to get ahead in life, EVERYONE needs some sort of budget. Before my daughter went away to school this fall I sat down with her and we looked at the money she had saved, what other sources of income (i.e. jobs) she might have coming in, and developed a budget for her to follow. Since her finances are simple, we set her up on Mint.com so that she could easily track her spending versus budget.

Tracking expenses and budgeting needs to be done at EVERY level of income in order to get ahead in life. I have seen people not able to make ends meet on $20,000 of income, on $50,000 of income, and on $100,000 of income.

The discussion of setting a budget for small businesses often leads to the discussion about personal budgets as so many micro entrepreneurs’ personal and business financial positions are intertwined. People don’t track personal spending and don’t set personal budgets and therefore they rebel against these tools for their business as well.

If you are ever going to succeed, you need to be purposeful in what you do. Planning and budgeting is a tool for being purposeful and not just letting your financial position unfold. It is the difference between controlling your destiny and letting it happen to you. This is true in both the personal and the business realm.

People don’t track expenses and use budgets because it is not a FUN activity. It requires self-discipline. I am a financial analyst and have utilized these tools my entire life and I still grumble every time I sit down to work on my family finances. The feeling is universal! However, the rewards are great!

People don’t like budgets because they fail to account for surprise expenditures and they don’t have savings to fall back on. The key is to make savings a priority with each paycheck so there is an emergency fund to dip into if necessary. Be creative if necessary to come up with the extra. My husband always empties the change out of his pockets at night and does not put it back in his pockets in the morning. Early in our marriage I used to scoop up that change and that was the beginning of our savings.

So here’s the quick technique in a nutshell. It is nothing that you haven’t heard before, but it is a dose of common sense and perhaps brutal reality.

1.       Discuss as a family your goals and priorities for this year, for five years, for long-term.

2.       Stop using credit cards to pick up your extras. Credit cards should only be used with careful foresight and should be paid off in full every month. Using them to shore up your lack of income only leads to worse financial problems.

3.       Track all of your expenses so that you understand what each member of your family is spending money on.

4.       Write down your monthly income.

5.       Decide what portion of your income needs to be put into savings (emergency fund first, then short-term and long-term goals) and make that happen. This is a key point to your budgeting success!  There MUST be some surplus somewhere to cover the unexpected. You CANNOT say that there is nothing left for savings. Savings must come BEFORE your expenses.

6.       Make sure that your savings + expenses are not greater than your income. You will only continue to dig a deeper hole if you spend more than you earn. If savings plus expenses are greater than income then  you need to make some changes (and the answer is NOT to cut out savings):

a.       Take on a temporary second job until you reach your goals of paying off old debt or building up the initial emergency fund.

b.      Cut your expenses. This could simply mean cutting out your daily coffee or cigarettes, but if things are really tight it could mean making tough choices about where you can afford to live and what you have and what activities your kids participate in.

Make the changes necessary to live within your means, to manage your finances with purpose, and to get ahead in life. 2011 is your year!

IRS guidelines for Small Business Health Care Tax Credit

IRS released final guidance for small employers eligible to claim the new small business health care tax credit for the 2010 tax year. The credit is generally available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For the first three years, the maximum credit is 35% of premiums paid by eligible small businesses and 25% of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum credit will increase to 50% of premiums paid by eligible small business employers and 35% for eligible tax-exempt organizations.


The maximum credit goes to smaller employers-those with 10 or fewer full-time equivalent (FTE) employees – paying annual average wages of $25,000 or less. The credit is completely phased out for employers who have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.

Eligible small businesses will first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on its tax return.

FTE is calculated by taking total hours worked by all employees (whether they received benefits or not) for the year and dividing by the total number of employees.

Annual average wages is calculated by taking total wages/salary expense for all employees (whether they receive benefits or not) by the FTE.



Full article found on accountingweb http://www.accountingweb.com

How Great Leaders Inspire Action

This video clip from Simon Sinek is inspiring for all sizes of business, from the solopreneur to the major corporation. 

Year End Planning

Beth and I have been meeting with all of our clients to get them started thinking about plans and goals for their businesses in 2011 and to get feedback on our performance in 2010. 

Those who have meet with us have expressed the feeling of satisfaction that getting organized for the new year has given them.  Those who have been working with us on their budget for 2011 have really been happy with the feeling of control having a budget and a plan has given them. 

Budgeting can be a little tedious, but the results are well worth the efforts.  We encourage our clients to use flexible budgeting which means when we compare budget to actual each month, we discuss whether the variations are controllable or whether the information or assumptions we used to create the budget may have been inaccurate.

Budgets help not only with controlling expenses, they also give a small business owner income goals to meet. 

Start thinking about the New Year and let us know how your budgeting and goal setting is going!

Giving Thanks leads to Small Business Success

In this week of Thanksgiving, I want to take a few minutes to reflect on Giving Thanks in the context of running a small business. I recently acquired two new motivational posters to hang in my office along with my business Vision Statement. These are visual reminders about the reason that I am in the business I am. Both of the motivational posters have a line in them regarding being thankful. 

In a customer focused business model, who are the people that you should be conscious about thanking?

Thank your customers. Thanking your customers not only shows your appreciation but makes you approachable so that you can build a relationship with your customers which will keep them coming back. This relationship also allows you to ask for feedback in order to keep your company focused on your customers’ needs.

Thank your vendors and subcontracted service providers. Let them know that you appreciate the role they play in providing the services and products which allows you to run a successful business. Cultivating strong vendor relationships creates a win/win situation and allows you to provide better service to your customers.

Thank your employees. Let your employees know that they are an integral part of your team. Allow them the opportunity to shine and contribute to your business success. 

Thank your business acquaintances.  Drop a note of thanks for providing a referral or for sending a good article which you were able to apply to your business. The best way to encourage the continuation of behavior that you appreciate is to genuinely provide some positive reinforcement. A thank you is just that.

Thank your partners. They are the ones in the daily grind with you and they are often the last ones thanked for their efforts.

Thank your family and friends. Every successful entrepreneur has people in their lives who patiently endure long hours and endless conversations about work and who pick up the slack in our personal lives. Be sure to thank them for the effort.

Is there anyone else that you would include in this list? Give Thanks!

Activity ratios explained for small business owners

Last week we talked about liquidity and leverage ratios so this week we will tackle activity ratios and next week we will dive into profitability ratios.


Activity or Asset Utilization Ratios are used to determine how quickly some accounts are converted into sales or cash.

Accounts Receivable Ratios:

The accounts receivable turnover ratio gives the number of times accounts receivable is collected during the year.

Accounts Receivable Turnover = Net Credit Sales/Average Accounts Receivable

In general, the higher the accounts receivable turnover, the better, since the business is collecting its money from customers quickly and these funds can then be invested or used again.

The collection period or days sales in receivable is the number of days it takes to collect on receivables.

Average Collection Period = 365/Accounts Receivable Turnover

One cause for an increase in the accounts receivable turnover ratio may be that the business is now selling to financially unstable customers. The owner should review the aging schedule, which lists the accounts receivable according to the length of time they are outstanding to help determine if the credit policy needs revision.

Inventory Ratios:

Inventory turnover = Cost of Goods Sold/Average Inventory

Average Age of Inventory = 365/Inventory Turnover

If a business is holding to much inventory, money that could be used elsewhere is tied up in inventory. In addition, there are high carrying costs for storing the goods as well as the risk of obsolescence. On the other hand, if inventory is too low, the company may lose customers because it has run out of merchandise.


Operating Cycle: The operating cycle is the number of days it takes to convert inventory and accounts receivable to cash. A short operating cycle is desirable.

Operating Cycle = Average Age of Inventory + Average Collection Period

Total Asset Turnover: The total asset turnover ratio is helpful in determining the ability of the business to use its assets effectively to generate revenue.

Total Asset Turnover = Net Sales/Average Total Assets

Ratio Analysis: Part 1

Financial analysts often recommend ratio analysis as a way to measure the condition of a business. Many small business owners don’t know how to calculate the ratios or don’t understand what the ratios are telling them. We will discuss how to calculate important ratios and what they mean.

Financial ratios can be classified into four groups: liquidity ratios, activity ratios, leverage ratios, and profitability ratios. This week we will discuss liquidity ratios and leverage ratios.


Liquidity ratios help measure a business' ability to generate sufficient cash flow to pay it's current bills.
Liquidity is necessary to all business especially during economic downturns or slow periods for a company.

Current Ratio: This ratio is subject to seasonal fluctuations and is used to measure the ability of the business to meet its current liabilities out of current assets. A high ratio is needed if the business has difficulty borrowing on short notice.

      Current Ratio = Current Assets/Current Liabilities

Quick (Acid-Test) Ratio: The quick ratio, also known as the acid-test ratio is an even stricter measure of liquidity and is what saved many businesses when the economy fell apart in 2009.

    Quick Ratio = (Cash + Short Term Investments + Accounts Receivable)/Current Liabilities
Leverage (Solvency) Ratios. Solvency is the ability of the business to pay its long-term debts as they become due. An analysis of solvency looks at the long-term financial and operating structure of a business. The amount of long-term debt the business has is also considered. Solvency is affected by profitability, since in the long run no business will be able to meet its debts unless it is profitable.

Debt Ratio: The debt ratio compares total liabilities to total assets. It shows the percentage of total funds obtained from creditors. The more funding a business has from creditors, the more risk from a decrease in revenue and/or a decrease in profitability.

       Debt Ratio = Total Liabilities/Total Assets

Times Interest Earned (Interest Coverage) Ratio: The times interest earned ratio reflects the number of times before-tax earnings cover interest expense. It is a safety margin indicator in the sense that it shows how much of a decline in earnings a business can safely survive.

     Interest Coverage = Earnings before Interest and Taxes/Interest Expense

The key to all ratio analysis is what you compare the ratios to.  Industry standards are important as well as the business' own history.

Next week, we will discuss activity and profitability ratios.  What is your favorite ratio?

The Dangers Small Businesses Face When Hiring Employees

Employees are essential to the success of most small businesses and yet they are also one of the greatest sources of difficulties for small business owners. I wish the was some law requiring business owners to get proper training before they hire employees because there are so many things to know and so many problems can arise if you don’t handle employment issues correctly.


The IRS has a whole area dedicated to small business http://www.irs.gov/businesses/small/index.html and the State of Wisconsin has its own site http://dwd.wisconsin.gov/dwd/employers.htm We recommend all business owners read the information on these sites BEFORE they even begin the hiring process. There are rules about what you can ask potential hires, there are guidelines to help you determine if the worker you are thinking of using is a subcontractor or an employee. The majority of situations will result in an employee, not a contractor and business owners will save themselves a great deal of trouble if they make this determination ahead of time. Even part time, occasional or temporary help usually fits the description of employee. Your accountant, attorney, marketing advisor are all contractors for your small business. The people answering your phone, sorting your mail, staffing your events are almost always going to be categorized as employees by the IRS.

There are rules about what employment related signs you must post at your business, paperwork your employees must file out and you must retain and file with the appropriate agencies (federal and state). There are schedules to meet as far as filing and paying payroll taxes which if you fail to follow will create large penalties and interest for your business and possibly for the owner personally.

There are many choices for processing payroll: online vendors such as Paychex, local payroll processors, and local accounting firms. Business owners should do their research and determine if it makes more sense for them to outsource this task or learn to do it themselves. Whatever the decision, education and training are essential to insure that all the rules are followed and all the schedules met.

Don’t lose money because you did not do your homework ahead of your hiring!

Other Sources of Financing for Small Businesses

While the economy is slowly turning around, many small businesses are frustrated by their inability to get bank financing. I recently read an article in the CPA Daily newsletter discussing alternatives to traditional bank financing.


Factoring:

Factors purchase outstanding invoices, allowing a business immediate access to cash instead of making it wait 30, 60 or 90 days for a customer to pay. Factors buy receivables generally without recourse, meaning they assume the credit risk of the business’ customer.

Equipment Sale and Leaseback:

If a business owns expensive equipment or machinery outright, anything from a fork lift to a printing press, it can find a lender who will buy the equipment for a lump sum and lease it back. During the term of a lease, the lessor (the lender) owns the equipment. When it ends, the lessee (the small business) can buy the equipment from the lessor or give it back and get a newer model.

Microloans:

As the name suggests, microloans tend to be smaller in amount, but can run as much as $150,000. "In many cases, that's enough to help them with working capital for a month or so and that's often all they need,” says Gary Lindner, chief operating officer of ACCION Texas, one of about 300 U.S. non-profit micro-enterprise lending institutions.

Merchant Cash Advance:

A handful of independent finance companies will give merchants a lump sum upfront in exchange for a share of their future credit-card sales. Different than a loan or lease arrangement, a merchant cash advance is based on a business’ monthly credit-card sales history. The upside: unlike a loan, there are no due dates and no fixed payments and it's faster to get approved. The downside: while there's no traditional interest rate, providers such as AdvanceMe, Merchant Warehouse, or AmeriMerchant will take a cut – called a split -- that is generally 15 to 17 percent of credit-card receivables.

Purchase Order Financing:

A financing agent advances money against a signed purchase order for finished goods or value-added products to help fund manufacturing and fulfillment of the order. This type of arrangement is helpful for companies such as import-export firms, which must pay for raw materials immediately but wait to get paid for their finished goods. Once goods are shipped and customers are invoiced, the transaction is closed out.

The upside of purchase order financing: it depends more on the credit standing of a business’ customer rather than its own. The downside: providers of these advances take a cut of a company’s profits, usually in the range of 4 percent or less.

If you chose to go an alternative route, make sure you do your homework and pick a reputable provider of funds. Do any of you have other suggestions for small business financing?

10 Tips for Working a Room

Networking is an essential part of every Marketing Strategy. Learn how to do it well and make it a productive use of your time.

1. Plan ahead. Put not only the event on your calendar, but block off time the following day to follow up and connect with the people you met.

2. Prepare. Dress appropriately, wear your name tag (on the right side!), have your business cards ready, plan your introduction.

3. Brush up on your small talk. Know the main news topics and have a few anecdotes, interesting books or articles, something on your reading list in your head.

4. Put on your smile, practice a good handshake, and remember to be focused on one person at a time. People want to talk to people who are pleasant and have a welcoming attitude.

5. Position yourself. Notice the flow of traffic and position yourself in a place that allows you to see who is coming and going and to be seen by others. You are not having a romantic dinner, so do not allow yourself to disappear into the corners of the room.

6. Know your goal. It is never my goal to gather as many business cards as possible. Instead, I make a point of meeting 2-3 new people and having a meaningful conversation with them and then reconnecting with 2-3 people that I already know.

7. Be customer focused. Ask questions about them. Get a conversation going, not a one-way monologue. Try to identify their needs. Figure out how you can help them.

8. Don't monopolize their time. 10 minutes is plenty of time to have a discussion and move on politely.

9. Introduce people. Everyone is at a networking event for the same reason, so introducing people is another way of being helpful. Think of yourself as a host in this respect.

10. Follow up with your new contacts. Connect on social media, set up a lunch, follow through immediately on any promises that you made. Meeting someone new is the initial goal. It is the follow up that begins the process of building a meaningful relationship.

Anything you would add to this list?

The CPA's are tweeting!

The Financial Accounting Standards Board and the Government Accounting Standards Board are tweeting!  This is either a sign of the apocalypse or a sign that social media is here to stay so we should all get on board. 

There are many people, usually those who are closer to retiring than to their college graduation, who feel social media is a fad or a waste of time.  There is probably no group more conservative than a bunch of accountants and if they feel tweeting has value, the rest of the world needs to consider the idea as well!  The signs certainly indicate that it is not a fad.  It can be a waste of time if you don’t have a well defined plan or strategy. 

Social media should be used to gain name recognition and brand awareness.  It can also be a great way to increase interaction with existing customers as well as potential clients.  For those of you who have been avoiding social media, there are many great articles and webinars to guide you. 

Just Google Social Media and see what you get!

Thoughts on Management and Parenting

Last week marked the bittersweet event of dropping off my (Beth's) oldest child at college. While slightly sad that I am no longer essential, I am proud to see how confidently she is managing this transition. I have been preparing her for this independence for years, gradually giving her more and more responsibility in the home: allowing her to decorate her bedroom as she saw fit (within my parameters of course), requiring that she make her own breakfast and lunch, and making sure that she knew how to cook, clean, sew, shop, arrange appointments, be organized, and most importantly, make decisions. Now is the time to let her try out her skills on her own and accept the mistakes along with the victories. My thinking is that if she was struggling and needing me too much at this moment, then I haven't done my job well as a parent.

This is not very different than the role that a good manager plays in the business setting. A good manager sets the tone, the direction, and the expectations and then allows her employees to assume more and more responsibilities. The entire purpose of having employees is to multiply the amount that can be accomplished by one person alone. Employees need to be provided with clear job descriptions and good training, and then gradually a good manager has to back off and allow the employees to try things on their own, learning from their mistakes en route to the accomplishments. Delegation can be difficult. Accepting that an approach might be different from the way you would have done it but nonetheless effective can be difficult. Both extremes, micromanaging and no managing, lead to nonproductive employees. But an effective manager develops competent employees who see the vision and help to move the company forward. Are you doing your job well as a manager?

Scams targeting Small Businesses

My brother sent me an email last week informing me that he had met with a firm that professes to do profitability and tax savings assessments on small companies and promised to save his company $100K the first year. My brother was wise enough to bring his tax accountant with him to the meeting and when the representative could not or would not provide any details as to how they could save the business $100K, they sent the company packing. They later found out the company has over 300 complaints filed against them with the local Better Business Bureau office.


I am on the advisory board for our local BBB office and at our last meeting, heard a story about a business in our area scammed by a firm promising to write them a business plan and set the company up a foundation which would make them eligible for thousands of dollars in government grants. The company paid $8K in fees which got them a cookie cutter business plan and no grant money.

The moral to these stories is buyer beware. There are more and more unscrupulous businesses and individuals looking to take advantage of a small business owner’s desperation. Before you sign any contract or send any money to a company promising to reduce your taxes or help you get grant or loan money, have your attorney or another trusted advisor look things over. If your cash flow is tight, the last thing you want to do is waste money in a scam.

Dealing with Taxes as a business owner

We have seen far too many people losing money and suffering sleepless nights over tax issues lately. I don’t prepare income taxes myself, but we do help our clients with sales and payroll taxes and we make sure their financial information is complete and accurate for their income tax preparers. Here are a few thoughts about taxes in general.


The right to collect taxes, whether sales & use, payroll or income, is dictated by law so if you don’t pay the amount of taxes you owe, you are breaking the law.

Every business owner needs to understand what taxes they owe and when. Find a professional you like and trust and have them teach you about your taxes. You don’t have to prepare all the paperwork if you don’t want to, but you do need to know what is due and when. You have to work with your service professionals to stay within the law.

If you run into cash flow problems and you can’t meet a tax deadline, don’t bury your head in the sand! File the proper forms or returns and then contact the tax authorities and arrange a payment schedule. The IRS and state authorities want to collect their money and they will work with you. Communication will go a long way to avoid levies and garnishments and fear. Avoidance leads to penalties and interest which grow at staggering rates. We have seen cases where the interest and penalties far exceed the actual taxes owed by the time the business owner sat down with the tax agency.

Owners also need to understand that money withheld from employees’ paycheck is still technically the employees’ money and not sending it to the proper agency is considered stealing. The IRS can come after a business owner personally to collect employee portion of payroll taxes even if the business is incorporated or an LLC.

Learn about your tax responsibilities and work with your service professional to see that you file and pay on time. It can save you and your business.

Learning how to be a business owner

I was reading the UW-Madison Business Alumni Magazine Update for Spring/Summer and I was excited to see the educational opportunities available for entrepreneurs. The fourth annual Wisconsin Entrepreneurial Boot camp was held at the School of Business. This event brings together graduate students from engineering, law and sciences to learn more about running a business by attending interactive sessions led by Wisconsin School of business faculty and real-world professionals. The university also offers two formal certificates in entrepreneurship-one for undergraduates and one for graduate students. The School of Business hopes to assist students in engineering, liberal arts, sciences, law and other majors learn the fundamentals necessary to run a successful business.


This all shows that having a great product or service isn’t enough to have a successful business. Business owners need to be able to read their financial statements and understand cash flow. They need to know what the trends are in their industry and in their market. They need to focus less on minimizing income taxes and more on building adequate equity and capital for their company. The economic downturn showed that businesses which had a plan and had proactive management and had adequate capitalization were able to weather the storm with much less pain than those companies without these essentials.

For those of you starting out or those who survive the latest recession, now is the time to get your business in good shape. Write a business plan, figure out what business knowledge or skills you lack and do something about it. There are classes available at local universities and plenty of books available, such as the E-Myth series. There are software programs available to help you write a business plan, or you can work with the many consultants out there who provide this service.

Entrepreneurs aren’t afraid of hard work so now is the time to take charge.

Is There A Wrong Time In Your Life To Start A Business?

So you have an idea and you have the entrepreneurial bug.The question arises: is this a good time in your life to start a business? In fact, is there a right time and a wrong time to start a business? This is a question we mull over ourselves as we work with various clients. Ours is not the business to deflate people's dreams. However, inherent in planning for success is pointing out potential weaknesses in the plan and developing a contingency plan.

So what is our opinion, you ask?

Whether you are male or female, I wouldn't plan to start a new business if you are in the process of getting married. The same holds true if you are thinking about having a baby within the next 5 years. Both of these events are life changing events. Until you are in the middle of them, you cannot imagine how they will affect your attitude, your energy, your ambitions, your time, and your resources. They are some of the most joyful, yet stressful moments in life. Businesses that start up in the middle of these phases of life often fail.

Go ahead and work on your plan, and do some contingency planning regarding your time and resources, for example, but if at all possible, give yourself time to get through these phases and adjust to your new life before throwing the stress of starting a business into the mix. You will likely have better success in all areas of your life by following this advice.

What is your opinion?

Where do we find entrepreneurs?

Beth and I were interviewed by a reporter for a local weekly paper recently and we were pleased by how well she captured our philosophy, our mission and our personalities. Yes, we’ve heard all the accountant jokes so it was nice that she tried to demonstrate that we do have a sense of humor! More importantly she wrote about our passion to help small businesses.


We strive to help people looking to start a business and those who are already in business. What we find when we are brought in to work with a small business that has been operating for a period of time, is that even if they have a great product or service, mistakes in running the operation can place them in a precarious spot. We are hoping the article will help us find more people at the start of their business lives rather than after they have run into problems.

So here is our question to all of you-how do we find these potential entrepreneurs and small business owners? We would like to help them start strong and avoid the common pitfalls so many micro businesses face. We want them to have financial information they can use to make decisions about pricing and advertising and hiring. We want them to know how to successfully interview and hire employees. We want them to manage their inventory and collect the money owed them for sales and services. So how do we find them?

Summertime for Mompreneurs

Well it's here! Summer has arrived! The kids are off of school. Camps have begun. Summer...in my opinion the most difficult season of the year for Mompreneurs...especially mompreneurs who work from home and have school age children andwork from home. Scheduling is crazy, the noise level is higher, there are more interruptions in the day, and the internal pull between running your business and providing a fun summer for your kids is at its peak. So how to navigate through these few precious months?

1. Organization is key: Decide how many hours you must work each week. Write your involvement in your children's activities onto your master schedule and then block your work time into your schedule as well.

2. Reclaim your office: During the school year I gravitate to my kitchen counter to work. When summer comes, I need to separate myself from the household activity and move my work back into my office.

3. Set rules: When I am working, the children need to understand that they cannot interrupt me randomly. When I am on the phone, they cannot be playing their musical instruments. Figure out where your problem areas are and set the rules accordingly.

4. Take some time off! You deserve it and the kids are only young once, so reward a good smooth-running workweek with a Friday afternoon at the pool.

What are your tips for managing your summer as a Mompreneur?

Operations plan for your small business

Last time we talked about the value of preparing a business plan for your small business. We focused on identifying your target market and determining how your product/service is different from your competitors. This week we are going to talk about operations and how to insure your small business can run smoothly at start-up and as it grows.


Many small businesses begin as a one person shop which means the owner tries to do it all. This is often dictated by the amount of working capital available but it can also be a good idea to insure that the owner knows how he/she wants each job performed. Doing all the work yourself allows you to determine what skills will be needed when you get the point where you will hire employees.

One drawback of doing everything yourself is finding the time. We recommend charting out all the tasks that need to be accomplished in your business and then assigning a time: daily, weekly, monthly, etc. We also believe every business should use a calendar and create set times to accomplish these tasks. Pick the times you feel the strongest to get those jobs which you find distasteful done: bookkeeping, collections, bill paying.

We also recommend writing job descriptions for all the tasks you are performing. This allows to get everything on paper and really think about how things should be done. The act of writing out the jobs can help you streamline and gets the work done as efficiently as possible. It also allows you to be ready to hire employees and train them much more quickly.

Setting your business up with a good operations infrastructure will make running your business easier and more fun! Any suggestions out there as to techniques which have worked well in your business?

Business planning

Beth and I were interviewed by a reporter for our local newspaper recently and he asked us for the number one piece of advice we would give to someone looking to start a new business. We told him “Have a plan”. This is probably not surprising to many people since writing business plans is a service we offer and we teach a class which helps prospective business owners write their own business plan. We picked this as our number of piece of advice because we have seen the failures and frustrations that come from a business lacking a good plan.


A good business plan is not just to give to a lender to get a loan for your company. Having a plan allows you to think through all the keys items and issues a successful business needs. I read a great article once which stated that “starting a business without a business plan is like driving on a winding mountain road at top speed wearing a blindfold.” What a great analogy! You might drive off the cliff and crash. You might end up somewhere but you don’t know where and it may not be where you wanted to be.

Today we will focus on the marketing end of the business plan.

A successful business is one that sees an unmet need in its community and fills that need. That means if you are looking to start your own business, you need to offer a product or service that meets a need in you r community-whether it is a regional community or an on-line community. Having a great product or service is only part of the equation for success. The next part is your target market: who will you be offering your product or service too? You need a specific target when you are selling and having a good business plan will help you identify this target. This will require some research on your part to determine who needs your product or service and where they can be found.

Once you have identified your target market, you need to figure out how you will find them or how they will find you. A truly useful business plan has a solid marketing plan within it. This is a specific blueprint of who your customers or clients will be and how they will find you. Are you going to advertise on bill boards, in magazines, in the newspaper, on television, on the internet? How much will each ad cost and how much can you afford? We will get into financial matters in a later article! You also need to think about how networking, referrals and testimonials will work for your business. Have you investigated all the social media outlets and determined how they will work best for you? A new business owner not only has limited financial resources, she also has limits on her time so a solid plan for networking is important.

Another key component to your business plan in laying out the metrics you will track to determine the effectiveness of your marketing. Ideally, you will be able to determine how each customer or client found you and you will use this information to decide where your marketing dollars and networking energies will be focused in the future.

Planning out who you will be selling to and how you will connect with them will help you focus your time, money and energy as you establish your new business. A good business plan will help you do just that. We will get into pricing, the operations plan, and other financial matters next…stay tuned!

Ethical Obligation of Lenders

Scenario:


A struggling small business hires a consultant a few years ago (prior to the recession). The business would like to secure some additional funds to finance its struggling operations. The analyst, after reviewing the financial statements of the business, informs the owners that financing will be difficult to secure given the current state of the business, namely negative owner's equity, and sets to work with the company to begin to write a business plan to move the company through the existing troubles and position it to be able to acquire the financing that it needs.

Just prior to this the owner had moved his bank accounts to a different bank in order to refinance some existing high interest credit card debt into a long-term loan with a better interest rate. Concurrently to writing the business plan, the owner continues to talk with his new bank, and they offer the owner an unsecured line of credit without requiring any financial statements from the company. Rejoicing with the company owners at their happiness, the bank does not take the time to explain to the owner what the bank expects to see as far as managing a line of credit.

The consultant is not only flabbergasted, but has also now had her credibility undermined since the very thing she said would be impossible happened.

Continue the story:

Work on the business plan stopped. The business continues operating in much the same manner as before, drawing on the line of credit to finance the company’s short-falls, but never paying the line back down. The consultant repeatedly warns the owners that the bank will want to see the line of credit used and then paid down, but why should the owners listen to the consultant when she was so wrong the first time? Then the recession hit. The business took a hit and proceeded to draw even more on the line until it reached its credit limit. Given the pressures to the banking industry, the bank reviews the line, NOW asks to see the financial statements, visits the company, and determines that the line is operating as a long-term loan and thus they are pulling the line and refinancing it as a long-term loan which, by the way, they would now like secured by the owner’s home and the interest rate has doubled. All perfectly within the bank's rights.

Question:

Does the bank have an ethical obligation to clearly explain the different financing options to a small business owner? Should the banker assume that the owner is knowledgeable about the difference between a loan and a line of credit, for example? Should they be required to clearly explain that they have every right to reevaluate the line of credit at any time and call it or change the terms? My pharmacist asks and explains to me how my medication works…banks are also dealing with lives, the lives and fortunes of small business owners. What’s your opinion?

Improved Oversight Needed for New Businesses

Calling all you bankers, lawyers, accountants and other service providers who help people start their new businesses, please help us out.


We are finding far too many small businesses that have really created a mess in their first year or two of business because they didn’t understand some of the requirements of the particular business entity that they chose and other aspects of running a business. I am talking about payroll issues and accounting problems primarily.

A Sub-S corporation has different tax and payroll issues than a single member LLC and if an entrepreneur operates all year on their own and only meets with an accountant or tax preparer during tax season, there may be numerous problems with serious consequences including large penalties, fines, and interest which simply don’t need to occur. Many owners don’t understand all the rules surrounding employees and payroll and run into problems with withholdings and taxes and paperwork. Sure, it is ultimately their responsibility to know the rules, but I think we sometimes assume that the new business owner is more tuned in to the financial part of their business than many actually are. So much money and heartache could be saved if we perhaps worked a little harder to make sure that a new business owner has a plan for meeting the required tasks and that we follow up diligently during their first year in business to make sure that they are doing things correctly.

We would love to see some way of catching a business owner as the company is being established and providing a checklist to make sure they are starting strong and correct. It would be great if a personal banker helping a new business open a checking account asked the owner if they had all their employee and accounting issues properly handled. The same holds for attorneys helping set up LLCs and other business entities. So how can we all work together to give these small businesses a fighting chance to succeed?

Your thoughts? Comments?

Recommended Reading for Entrepreneurs

As a change of pace, we are listing some of our favorite on-line magazines, blogs, and websites that contain useful content for small business owners. We also recommend the Wall Street Journal, your local newspaper, and a trade magazine for your industry so that you can stay on top of emerging trends.

1. Entrepreneur Magazine  http://www.entrepreneur.com/
2. Entrepremeur for Women Magazine http://www.womenentrepreneur.com/
3. Inc. Magazine http://www.inc.com/
4. Business Week for Small Business Magazine www.businessweek.com/small-business
5. My Venture Pad Blog http://www.myventurepad.com/
6. The Customer Collective Blog http://www.thecustomercollective.com/
7. IRS for Small Business www.irs.gov/businesses/small/index.html
8. SBA http://www.sba.gov/
9. CPA Letter Daily  cpa@smartbrief.com
10. The Business and Financial section of the New York Times http://www.nytimes.com/pages/business/index.html


Do you have any you would like to add and share?

Social media for small businesses

Beth and I are in the process of updating our marketing plan including changes to our website and increasing our knowledge and abilities with social media. It is a sometimes frustrating and daunting task, but we feel it is important not only for our own business but also for us to be able to help our small business clients. We have been tweeting for a while, but with the encouragement of one of our clients who is a social media star, we have set up a Facebook Fan page. You can check us out at E&S Entrepreneur Advisors on Facebook http://bit.ly/9nYw6Q. We attended a great presentation on Twitter put on by Lisa Cruz of Red Shoes Pr so our tweeting skills should improve soon. If you are looking for a great primer on Twitter, check out Red Shoes blog at http://www.redshoespr.com/blog/


If any of you out there have any other best practices for social media, let us know!

Grow your business thoughtfully

Beth and I are finishing up a class we are teaching on business planning. The last topic of the course is growth or more specifically, planned growth. While the word growth may sound wonderful after the agony small businesses have suffered during this economic downturn, uncontrolled growth can bring disaster. There are three main problems uncontrolled growth can cause:


Cash flow is the most frequent problem that occurs if a small business does not plan and control its growth. More sales mean more cost of goods sold which means more purchasing which means more money to be paid out for purchases. How are you going to fund your growth? Can you arrange for extended terms from your suppliers now that you will be ordering larger quantities? Can you require a deposit from your new customers and use that money to fund your inventory costs? What is your relationship with your bank? Talk to your lender and see if the lending environment in your area will provide you with a line of credit to fund your growth.

The next issue growing businesses face is management. This usually occurs when another location is established. Make sure your existing operations are stable and well managed by someone else before you turn your attention to a new location. You will notice I said you. New locations should always be run by the owner or existing upper management. This will insure a continuation of the processes, procedures and philosophies that have made your business successful to date.

The final problem is maintaining quality. We have all witnessed what has happened with Toyota in the last month. It is debatable whether the company’s problems stem from poor management, greed or losing sight of what made them successful. Whatever the cause is, it is a lesson to be learned by all businesses. A company must stay focused on its core values and mission in order to succeed.

We all hope that growth is in the future for our own businesses and for our country. Just make sure your growth is planned.

Are You Concerned About the Integrity of Your Financial Information?

Every once in awhile a situation arises which reminds me of the reasons why Susan and I were compelled to start E&S Entrepreneur Advisors, LLC. This week I encountered one of those situations: a situation that happens over and over through no fault of the service provider, but which greatly impacts the small business owner.

If you bring your information to your tax accountant in a reasonable time frame (not March 31!) and your tax accountant immediately suggests filing an extension, then that might be a flag to you that your books are not in good order. If your tax accountant is asking you a lot of questions and indicates that they will have to make quite a few adjustments, then that is another flag that your books are not in good order.

Tax accountants are extremely busy from the beginning of the year until tax time, especially the smaller CPA firms and Single-Person Tax Providers. They do not have the time to be straightening out your books. They file extensions and then put your information aside until they do have time later. And, depending on the tax accountant's demeanor, they may never tell you that you are accounting for things incorrectly. Remember, the tax preparer's main focus is on taxes.

In the meantime, many small business owners are frustrated and overwhelmed. They end up incurring late penalties on their other year-end government reports and operating 6 months into the following year, at a minimum, with poor financial information. They are not comfortable with the integrity of their financial data.

If you are in this situation, give us a call now to set up a Free Consultation. We will straighten out your accounting situation and put procedures in place for you so that you have the vital information at your fingertips each month in order to effectively manage your business and make timely business decisions.

Why Operating Agreements are great!

Beth and I are often asked how our working relationship affects our friendship. We were friends for over eight years before we became business partners. I feel that working together has made us better friends. What has allowed this to happen is all the work we put in before we started working together.

When we were exploring the possibility of forming a partnership, we had extensive conversations about how we envisioned the business working and growing. We talked about our skills and our fears-what were we good at, what scared us, what could Beth never count on me to do (cold calls-shudder). After all the talking was done, we committed all this information to paper. We have a very detailed operating agreement.

Last week, a situation arose in our business that we had a difference of opinion over how to handle. We exchanged several emails on the subject and gathered all the information we needed to make a decision. Then we followed the terms of our operating agreement: we talked in person. It is so easy to have misunderstandings when communicating via email. We were able to reach a compromise we both felt comfortable with and this difficult situation did not impact our working relationship or our friendship.

The moral of this story: Most businesses put a good deal of time and money into creating operating agreements and business plans. Use them! Any other good stories out there about using your business plan or operating agreement to solve problems? Let us know.

Budgeting......it's not too late!

What are the components to a good budget?

Yes, we are back to budgeting. It is only mid-February so there is still time to create a great budget for 2010. Your company’s budget should really be assembled as a master budget which is made up of an operating budget, a financial budget, a capital budget and finally a sales budget.

The operating budget deals with your basic business operations: what do you need to run your business? Categories in your operating budget will include marketing budgets, staffing (employees costs), as well as other expenses related to running your company. Take the time to talk to vendors and suppliers so you have good numbers to work with.

A financial budget is concerned with where the money is coming from to keep your business running. How are you going to obtain all the resources you need to run your business? This is looking at your cash flow and determining the timing of when money comes into your company through sales and collection of receivables and when money goes out through payment of expenses, purchases of inventory and other assets as well as payments to yourself, the owner. A line of credit from a bank is the best way to deal with timing issues in your cash flow. In light of a continuing tight credit environment, many small business owners are relying on credit cards to manage their cash flow. This can be a dangerous path to take if your balances push you into high interest rates.

Your capital budget is for evaluating and determining the growth of your company. Careful analysis is recommended before purchases of fixed assets are made or a new product or line is launched.

As you can see, a good budget deals with much more than just expenses. Now let’s talk about revenue.

Creating a good sales budget depends on good research and goal setting. This is a good time to look at where you fit in today’s economy. What is your competitive edge and how are you communicating it to your target market? After you have analyzed trends in your market and your industry, you can create a good sales forecast for your business. Next you will want to write down short-term and long-term goals detailing how you will achieve your sales as forecasted. All this work will allow you to set up a workable and helpful sales budget which when placed into your master budget will give you a masterful tool to manage your small business.

What Non-Financial Business Measures Do You Track?

Susan and I had the opportunity last weekend to be interviewed on the Biz Talk radio show where we talked about the importance of planning for small businesses. As promised in our last blog, today I am going to blog about some non-financial measures that small businesses might track. Pick and choose or add your own to measure progress toward your business goals.

First, let’s focus on acquiring customers. If your company has a goal of increasing customers, you might begin by tracking any number of the following items: the number of new leads, the number of leads contacted, the % of leads which turn into prospects, the number of new clients, the % of prospects which turn into clients, the number of prospect contacts required to move the prospect to a client, the total sales to new clients. The information gathered from these measures can help you fine tune your sales process.

For tracking customer satisfaction you might track customer returns, complaints, the time it takes to return phone calls, the time from order to completion, the number of on-time deliveries, how close your estimates are to actual invoices.

To track the effectiveness of your marketing efforts you might track where potential customers heard of you, the number of new accounts per marketing campaign, and the total sales dollars per marketing campaign.

If you are trying to track efficiency, you might keep track of time to complete billable services, unbillable activity hours, set-up time, lead-time, defects or time spent correcting errors, scrap or waste in manufacturing, parts availability or extra trips to get parts for service technicians, and of course, production rate per hour or per day. By tracking some time and productivity measures, you can begin to hone in on practices which are taking too much time and then can search for technology solutions or implement better procedures to solve these problems.

And if you are trying to build a motivated team you might track employee turnover rates, suggestions for improvement per employee, number of employee suggestions implemented, new product or service ideas, training hours for skill improvement per employee, employee participation in non-business related company activities (i.e., service projects, family picnics, etc.).

Track the measures you choose in the most efficient manner possible, whether that be taking advantage of a feature already available in a software program that you own or whether it be as simple as tracking it on a spreadsheet. And then, as with budgets and all business planning tools, the key is to analyze the data that you track and make appropriate adjustments where needed to move your business closer to your goals.

What non-financial measures do you find most useful to track for your business? We would like to hear about your experiences.

4 Keys to Setting Goals for your business

It is the beginning of a new year and it is time to set new goals for your business for 2010. Setting goals is an important part of continuously improving your business. It allows the business owner and their employees to be proactive rather than reactive in their dealings. The specific goals for 2010 should align with the long-term strategy of the business. Below are several keys for setting business goals.

1. Goals should be relevant. That is, they should be something that somehow ties into your strategy.

2. Goals need to be actionable and measurable. It is not specific enough, for example, to state a goal of improving customer service. You need to understand how to improve customer service and state your goal in those terms. For example, an acceptable goal for improving customer service is to reduce project turnaround time by 3 days. You will then need to track and measure past and future project turnaround time.

3. Goals should have a timeline assigned to them. If the timeline is a longer period of time, the goal should also have benchmarks. For example, if the goal is to increase sales by $40,000 by December of 2010, then you might set a quarterly benchmark of $10,000 to track your progress toward the goal.

4. Goals should be reasonable. Goals that are completely unattainable serve no purpose toward improving your business operations. They only lead to frustration.

Obviously goals are usually focused on generating greater profits so they are often developed in the areas of customer service, sales, improving operational efficiency, and improving employee competency.

Check back next week when we blog about various items related to goals and operations that are useful for the small business owner to measure and track.

Building a team to make running your small business easier.

Still working too hard running your small business? Have you set up a team to help you manage your company? No matter how skilled you are and how diligent you are, you cannot run a business all by yourself. Even small businesses need a team.

Your management team can be employees or it can by outside consultants. Taking advantage of the skills and knowledge of an expert can improve your bottom line despite the costs to procure these skills. A valued consultant has an outside perspective that can bring clarity to your business operations.

How do you get the most from your professional services dollars? Make sure you do your homework up front and hire someone who has the experience your business needs. Talk through your expectations and spell them out in the contract you agree to with your consultant. Finally, listen to the advice you are being given. Even if you do not like what you hear, you need to consider the possibility that the expert is right! If your business is not running as smoothly as you would like or not achieving the profits you need, an outside perspective and fresh ideas are needed. The quickest route to failure is to keep doing the same things.

What are you looking for from a small business advisor?

Tips for Effectively Managing Employees

Entrepreneurs often find themselves thrown into the new roles of Employer and Manager, often for the first time in their lives. Bogged down by the other pressing tasks involved in running a business, many entrepreneurs do not give the role of Manager the proper focus that it requires. The reality is that poor management can destroy your business. Today I offer you a mini crash course on what I believe are the most important tips for being a good manager.

When I graduated from college and entered corporate America I asked my brother for some advice and this was his response: “Treat everyone, from the lowest man on the totem pole to the CEO, with respect. You never know who is going to be your boss some day.” I took that advice to heart and found that it served me well in my early days in the plants and then later as I became a manager.

On a practical note, what does it mean to respect your employees? It means understanding that your employees are individuals and taking the time to get to know them on a personal level, letting them know that they are important as human beings. It means that you understand that your employees are people with a variety of learning styles. As a good manager, it is your job to learn how to identify those learning styles and adapt your message to meet those styles. It means that you understand that your employees are thinking people capable of adding great value to your organization if you allow them the freedom to do so. It means the simple things, like showing up and working side by side with them when there is a problem, speaking politely with your employees even if you have an issue to resolve, being willing to pitch in and do the very jobs that you are asking your employees to do when times get tough, and following the same rules that you ask them to follow. If you don’t want your employees to leave early, for example, then don’t leave early yourself. Showing respect to your employees is the fastest route to gaining your employees respect as their leader.

In addition to respecting your employees, clear and complete communication with your employees is a must. By this I mean face to face communication giving your employees a chance to ask for clarification, as well as consistent reiteration with written communication. Communication requires a two-way exchange of information. Murphy’s law states that “if anything can be misunderstood, it will be misunderstood.” Clearly communicating your mission, objectives, and how it affects your employees is an important step in motivating your employees.

Finally, my favorite book on management is a book by Roger E. Allen, Winnie-the-Pooh on Management, given to me by my mother when I was promoted to my first managerial job. Despite all of the management seminars that I have attended and management books that I have read, I still go back to this book for the basics:

“A good leader will always try to make the project that she wants worked on seem to be exciting…That is really part of motivating individuals. Everyone will try to do a better job when they feel that the project is exciting and significant. By being part of something that is important, individuals will feel that they are important—everyone likes to feel that way.”

“Encourage and praise those who are working with (you)…living up to the good opinion that someone we respect has of us is a strong reason to do a good job.”

“(A good leader) treats individuals as individuals…He gives credit to others…An effective leader’s goal is to make his people look good.”
“(Give your employee) an important task to do—many managers delegate only unimportant or minor tasks, which is unfair to those they manage…(Don’t) tell him how to do it… let him decide how to accomplish the task …giving subordinates a chance to learn and develop their own skills and abilities… A manager has to learn that when she delegates, those she delegates to may make mistakes…By making mistakes you learn how to do things right, and you are not afraid to try new things. Delegation…allows managers to multiply their efforts.”

After all, multiplying our efforts is the whole reason for hiring employees to begin with.

Please share your tips on being a good manager in your small business.