Thursday, December 19, 2013

Reducing taxes without breaking the bank

This is the time of year many business owners meet with their tax planners to get an idea of what the tax bill will look like come April.  Frequently, the tax planner advises the owner to spend before year end in order to reduce taxes.  It is obviously more enjoyable to spend money on a new laptop versus paying income taxes.  We caution our clients to keep the big picture in mind before going on a spending spree.  

A business owner should consider what are his/her cash flow needs are now and in the near future?  If you spend the money now to avoid paying higher taxes, will you have the cash you need to pay your rent, cover payroll and pay yourself?  Employing strategies to reduce taxes are great as long as they don’t create cash flow issues.  

Meeting with your tax accountant on a regular basis will help monitor taxes and control cash flow.  It is easier to deal with a growing tax burden throughout the year rather than getting panicked at this time of year and making rash purchases to reduce the tax bill.  A business owner will still need money in April to pay taxes so spending too much can backfire.

Being proactive always puts you in control more than being reactive!

Tuesday, December 10, 2013

Annual meetings for small business owners

Wow, how can it be December already!  This year has just flown by.  We just had our annual E&S Entrepreneur Advisors meeting and it was very worthwhile.  Legally, all LLCs are required to have an annual meeting, even the single member ones.  It can be boring to have a meeting with yourself, so we recommend meeting with a trusted friend or advisor.

We talked about where we have been and where we want to go with the business. We looked at numbers and statistics-who are our largest clients and what types of services generate the most revenue for us.  We went through each of our clients and gave a brief synopsis so we both know what is going on with them.  We keep notes on all of our client dealing, but it is nice to talk about things and not just read about them.  We set goals for each of our clients and ourselves.

We talked about needs for the upcoming year including technology and education.  We try to stay current with the systems and programs available to us and our clients.  While we are not cutting edge, we try to keep up with the ever changing environment.  I just got a new laptop and I am working on getting comfortable with it.  It has Windows 8.1 so I can toggle to a more traditional desktop which helps!

It is often hard to find time to take stock of your business when you are a small business owner, but it is really important to do so.  We are fortunate to have each other to bounce ideas off of and to make decisions about the future of the business.  If you are a solo business owner, it is helpful to find other small business owners or advisors to serve this role for you.  Taking the time to determine what has worked well for your business and what hasn't, what needs to stay the same and what needs to change is vital to all businesses.  Make it a fun meeting-chose an off site location and treat yourself and those you are meeting with to a nice meal.  You will leave feeling satisfied in many ways.

Monday, November 25, 2013

How much do you know about accounting? Part III

We have discussed the Balance Sheet and the Profit & Loss Statement so today we will address the Statement of Cash Flows.  This financial statement is the most complete because it encompasses everything that happens in a business.  The Balance Sheet deals with assets and liabilities and only gives the net profit activity.  The Profit & Loss Statement only deals with revenue and expenses and ignores all activities involving assets and liabilities.  The Statement of Cash Flows details exactly how money came into a business and how it left, whether this was by earning it, collecting it, borrowing it or spending it.

The Statement of Cash Flows starts with your net profit or loss for the period you are examining and then adjusts for any expenses which were not truly cash expenses such as depreciation.  It then goes on to look at other ways the business spends money or bring money in.  If you borrowed money from the bank, that improves your cash flow as you now have brought cash into the business which can be used to buy equipment, buy inventory or pay for expenses.  If you use a credit card or get terms from a supplier, the same thing happens: you get products or services for your business which you didn’t have to pay cash for.  So as far as cash flow is concerned, increasing your debt is a good thing.  There is one exception: loan payments are a reduction of cash flow. 

The next thing the Statement of Cash Flow considers is the other ways money leaves the business besides normal operating expenses.  If you are a sole proprietor or an LLC, your owner or member draws are a use of cash.  Draws don’t show up on the Profit & Loss so business owners sometimes wonder why they made a profit but have no money in the bank?  The answer is Cash Flow.  Other ways money leaves a business besides loan payments and owner draws: Increasing your inventory levels, purchasing fixed assets or paying down your credit cards or loan balances.

Understanding cash flow is very important to running a successful small business.  There have been many cases where a business is successful as far as generating sales, but fails because it doesn’t generate enough cash flow to keep going.  

Monday, November 11, 2013

How much do you know about accounting? Part II

Last week we talked about increasing your knowledge of accounting and focused on the Balance Sheet. This week we will focus on the Profit & Loss Statement (P&L) also known as the Income Statement.

The P&L provides all the information about what you earned (sales or revenue) and what you expended for whatever period of time you are interested in.  Our QuickBooks program can show us a P&L for a day, a week, a month, a quarter, a year or even longer.  You can also get this same information with the same time period from the previous year along side it for comparison.

A typical P&L starts out with the Sales or Revenue.  The amount of detail provided depends on how you have set up your books.  When we are setting up accounting programs for clients, one of the first things we ask is "What kind of information are you looking for from your books?  How much detail do you want/need?".  Some people want different categories for their sales and others are content with one number.  We track revenue by the different types of services we provide so we can see what is generating the largest amount of money for us.

If you are a manufacturer or a business with inventory, the next section of the P&L will deal with Cost of Goods Sold (COGS).  COGS is exactly what it sounds like: the cost of making or buying the goods you then sell.  The amount of detail here will also depend on what type of business you have (do you have labor as well as materials needed to produce the goods) and how your books are set up.  It is nice to see percentages along side the dollars at this point of the P&L.  Dollars alone won't give you the whole picture as your COGS may have increased in dollars, but only because you have made more because you are selling more.  The percentages would show you that the COGS increased in dollars, but remained the same % which would mean that you did make more because your sales are increasing.

The next sections of the P&L deals with all the other expenses which occur when you run a business.  The detail here is also dependent on the set up of the books.  Do you want  to know how much you spent on credit card processing fees and bank service charges or are you comfortable lumping them together?  Do you want to see what you spent on repairs for equipment vs. repairs to your facilities or is one number for repairs and maintenance enough detail for you?

The end of the P&L is what most people are interested in: is there a net profit or loss?  If your expenses are larger than your revenue, there will be a loss.  Sometimes you will have a loss for a specific period of time (typical for seasonal businesses) which isn't alarming as long as the business generates a profit for the whole year.  A company can survive a loss, the economic downturn of a few years ago proved that.  Having sufficient cash flow makes that much easier which we will address next week.

Monday, November 4, 2013

How much do you know about accounting?

We love to increase our clients' accounting knowledge.  Even though they won't ever become experts, it helps to have them have a basic understanding of accounting concepts.  This basic understanding helps them to manage their business better, even when they are utilizing our services.

We usually start with the financial statements.  We will walk our clients through their financials every month, explaining what we see and what improvements can be made.  I will walk you through the Balance Sheet this week and we will tackle the Profit & Loss next week and the Statement of Cash Flows the week after that.

The Balance Sheet shows a business owner what they own, what they owe and what the difference between the two is.  What they own is their assets, what they owe are the liabilities and the difference between the assets and the liabilities is the equity in the business.

Assets are listed by liquidity from most liquid (current assets) to least liquid (fixed assets).  Liquidity refers to how easy it is to convert the item to cash.  Obviously cash, checking or other bank accounts are the most liquid because they are cash!  Next comes accounts receivable and they just need to be collected to become cash.  Then we have inventory which must be sold first which converts it to a receivable which then needs to be collected. There are other types of current assets such as prepaid expenses (if you pay for a whole year of insurance coverage in one payment, you can have one month's worth be insurance expense and the remaining 11 month's worth will be prepaid insurance - an assets.  Each month you will expense a portion until it is all gone and it is time to pay the next year's premium).

Fixed assets are the least liquid and are the things that you buy and expect to use for over a year.  This includes computer and other equipment, vehicles, furniture, and real estate.

The next category on a Balance sheet is the liabilities which details all the debt the business has.  This is also listed by liquidity and starts with current liabilities.  Current liabilities include credit card charges, accounts payable (people who you owe money for goods or services provided which you didn't pay for at the time the service was provided or when the goods exchanged hands), payroll items (wages and taxes), the loan payments due in the next year, the balance on a line of credit, deposits or down payments you have received from customers or clients, and sales taxes are the most common types of current liabilities.  If the payment has to be made within the next year, it is a current liability. Long term liabilities are the portion of loans which will not be paid in the next year.

Equity varies depending on the legal structure of the business.  For LLC's it is usually Member equity (the amount of money the owner has put into the business to start it and any additional funds they provided over the life of the business) and Member draws (the money the owner has taken out of the business).  For corporations (S or C) there will be a more complex equity structure which includes Retained Earnings, the current year's net income and often stock of some sort.

Ideally, the assets of a business will be larger than the debt so the business will have positive equity.  The balance in a Balance Sheet comes from the equation Assets=Liabilities + Equity.  This is best explained by realizing that assets must be paid for so how were they paid for?  If you didn't pay cash for them, then you incurred debt so as your assets increase, usually so will the debt. All the other nuances in the equation as to numerous to detail in one blog article Balance Sheets must always balance!  Modern accounting software programs have taken some of the difficulty out of this process as QuickBooks and Sage and other programs are written so that your Balance Sheet will always balance even if it doesn't always look good!

Wednesday, October 30, 2013

Guest Blog: Stop Being a Business Owner and Start Building a Brand

Beth read this great blog and we wanted to share it with our readers.  Well said, Robin Wilson!

The Great Recession forced people take the initiative to go into business for themselves and take advantage of the entrepreneurial climate. Now there’s a new phenomenon facing many of the self-employed: they’ve become successful but can’t seem to take it to the next level. While they’ve done a great job building a business, they have yet to build a brand. Building a brand is what all small business owners need to strive in the new economy to get noticed, gain recognition and enjoy a new level of success.
Having a strong customer base for your product or service is important, yet the better route is becoming a brand name that is recognized everywhere.  More opportunities will come to your business once you create an established brand.  Here are five strategies to stop being just a business owner and start building start a brand:
-       Build partnerships inside and outside of your industry – The old saying “it takes a village” is the best advice to turn your business into a brand.  The more key partnerships you build both inside and outside of your core area of expertise, the more opportunities will come your way.  In the digital age, this is becoming even easier thanks to social media platforms, blogs and other online sites like YouTube.
-       Increase visibility – Speaking engagements, sponsoring giveaway bags at events or media appearances are some great options if you do not have the budget for traditional advertising. The more you get your name out there, the more recognized you become.  Plus the upside to speaking engagements and media is they are both implied endorsements.  While advertising offers visibility, the downside is that anyone can purchase an ad.
-       Products – Don’t just offer a service; turn it into a product. Anyone can become an author or produce an audio program these days.  Our core business is interior design, but we have leveraged our expertise with a licensed line of kitchens, furniture, hypoallergenic bedding and bath products. Plus, we wrote a book and are working on a line of mommy & baby products since I am a new mom. Get creative and see what products you can introduce to the market.
-       Persistence – It’s called brand building for a reason: it takes time and your foundation must be based on expertise in a core area.  We all want it to happen overnight and to be the next big thing. But it takes a lot of persistence and years to build real customer loyalty.  If it’s rushed or faked, people will see right through it.  If done correctly, you’ll have a loyal following that will support your business over time.
-       Tag consistently – What catch phrase are you using to describe your company or product? However you brand yourself, keep it consistent. I’m tagged as Robin Wilson, an eco-friendly or healthy space designer. Use the same language in all that you do, and the social media marketplace will begin to understand your branding.
As business owners, we tend to do everything we can to serve our customers. And while that is very important, make just a small amount of time each day to implement some of these strategies, and you’ll start to make the transition from business to brand, and watch your company grow.

About the Author:  Robin Wilson is a nationally recognized healthy space designer and president of Robin Wilson Home in New York City.  She has a line of hypoallergenic luxury comforters sold in Bed, Bath & Beyond stores in North America.   

Wednesday, October 23, 2013

Don't rush your startup

We met recently with a potential client who is starting up a new business with several partners.  They are excited about the business and eager to get started.  So eager that they have begun operating without really getting the business foundation established.

Just as a building needs a strong foundation, a business does also.  A business foundation consists of three cornerstones: The business plan, the operating agreement and the working capital.  The business plan will detail what the mission of the business is, what the structure will be (legal entity), who the management will be and how the business will market itself. The operating agreement will detail how much each owner put into the business, how much of the business each person owns, how decisions will be made, how each owner will be compensated, how profits or losses will be allocated.  The final cornerstone is the working capital which means how much money is needed to get the business up and running until it is operating at a profit and where is the money coming from?

The partners in this potential business don't have the legal entity established.  They need to decide if they should they be a multi-member LLC operating as a partnership for the IRS or a multi-member LLC operating as an S Corp for the IRS or an actual S Corp or a C Corp? The correct entity will be clear once they decide exactly how the business is going to handle expenses and how to best compensate the partners/owners.

They also haven't put together a business plan which will lay out how they will manage the business and how they will be compensated.  How they will make decisions, who is responsible for what?  What happens when there is a disagreement?  What happens if they need to put more money into the venture?  How does one member leave the business if they decide to?  Lots of decisions to be made and it is really important to do this upfront.  A good operating agreement will detail exactly how all these things will be handled so that when the situation arises, the procedure is already established.

Finally, they have not determined what the start up budget is and how it will be funded.  Many a great idea has failed to succeed because there wasn't enough money to keep the business running until it was profitable. Part of a typical business plan is the pro-forma financial statements which forecast what the profit and loss, balance sheet and cash flow will look like for the business for the first three years of operation.  The creation of these statements determines how much money the business will need to start up and continue operating until it can support itself with its own revenue and cash flow.

We have seen businesses start without an operating agreement and it never ends well.  Problems will arise and if you haven't established how the problems will be dealt with, the partnership is apt to fail.  We have also seen businesses fail because they hadn't put together a business plan which showed how the business needed to start and how it needed to be run.  Seeing a great product or service fail because the business ran out of working capital before it could support itself is very sad.

It is understandable that people get excited about starting a business and putting together the business plan and operating agreement are not glamorous or fun.  They are critical to the success of the business and the partnership so don't rush your start up and do the ground work first.

Tuesday, October 8, 2013

Taxes for small businesses, part II

Last week we talked about how income taxes work for the owner of a small business.  It is a subject which confuses many and can cause problems if not handled properly.

This week, we will focus on estimated taxes and how best to handle them.  Employees have their income taxes obligations handled via payroll deductions.  Every paycheck, an employee will have payroll taxes deducted which covers medicare and social security.  They will also have the amount they have requested deducted for income taxes.  When the employee goes to file an income tax return, the amount of taxes owed is reduced by the amount already paid via paycheck deductions.

The owner of a small business handles income taxes differently.  They generally do not get a true paycheck and instead receive what the government and accountants refer to as an owner's draw.  There are no deductions for medicare, social security or income taxes deducted from an owner's draw.  As we said last week, the government doesn't care about draws when taxes are calculated.  Small business owners take care of medicare and social security obligations once a year when they file their income taxes and pay Self Employment tax which is added onto the income tax everyone pays.  To handle income taxes, it is usually recommended that small business owner's make quarterly estimated income tax payments.  Once a quarter, you fill out 1040-ES and make a payment to the federal government.  How much?  That is always an interesting question.  You need to cover 90% of the current year's income tax with estimated taxes or 100% of the prior year's tax obligation.  Many tax preparers focus on the 100% and calculate the estimated taxes to cover this obligation.  This method removes any penalties from under payment but may leave the tax payer with a large bill come April.

We believe it is better to look at the current year's income and if it is significantly more profitable than the previous year, pay more in estimated taxes.  If the tax payer has the ability to plan and save and prefers to set the money aside and pay the additional taxes in April, that is perfectly fine.  Many small business owners are busy running the business and don't keep an eye on the checking account and may find the additional cash has been eaten up by operating costs and they are in a panic come tax time.

Some owners find it helpful to have a separate checking or savings account to taxes.  They transfer money into this account for payroll or sales taxes if they do not have to remit these monthly so the funds are available when the taxes are due (quarterly or annually).  Others do the same with income taxes, they essentially withhold from themselves so they have the money not only when the quarterly estimated taxes are due, but also when the tax return must be filed and paid.

Estimated income taxes are paid on April 15th, June 15th, September 15th and the following January 15th. IRS Publication 505 covers estimated taxes in detail.

Monday, September 30, 2013

Taxes for a small business owner

I had a meeting recently with a client who is new to the small business ownership world.  He had met with his tax advisor and was confused about the dollar amounts the advisor had estimated would be owed for 2012. We then had a meeting with the client, the advisor and myself to make sure we were all in agreement as to what the business owner would potentially have to pay in income taxes next April and how best to prepare for it.

We always recommend meeting with your tax advisor on a regular basis so there are no surprises come tax time.  One area our clients struggle with is understanding how taxes are calculated for a small business owner.  It is more complicated that many would think!  If your business is an LLC and you are the only member/owner than you are considered a sole proprietor by the IRS.  The federal government refers to LLCs as Disregarded Entities as they are really a legal invention, not a tax identity.  If your business is an LLC and is owned by two or more people, then your business is usually treated as a partnership.  Both single member LLCs and multi-member LLCs have the option to file as an S Corp, but that is a topic for another time.

For both types of LLCs, the focus for taxes is the bottom line: what was the business' net profit or loss for the year.  The government does not care about what amount the owner(s) drew out of the business during the year (what they paid themselves).  The owners will pay income taxes on the business whether they took all of the money out of the business or none.

In addition to income tax, owner of small businesses also have to pay self employment taxes.  This is another area that confuses people.  When you are an employee, you pay the government 7.65% of your pay for medicare and social security and your employer pays 7.65%.  When you own your own business, you are both employer and employee so you pay both shares or 15.3% of your net income to the federal government to cover your medicare and social security obligations.  Unlike an employee who has the 7.65% taken out of every paycheck, a small business owner pays the 15.3% when they file their income taxes every year.  This often catches people off guard as it can be a hefty sum if your business enjoyed a profitable year.

Such was the case for my client.  He has had a good year so far and the tax advisor had estimated the tax correctly.  Fortunately, the client has time to plan for taxes and will have the money available come April.

Next week, I will talk about estimated taxes for small business owners and the pitfalls some encounter.

Tuesday, September 24, 2013

What does risk management mean to a small business owner?

Risk management is the analysis, assessment, control and avoidance, minimization or elimination of unacceptable risks. What types of risks are we talking about? Loss of key customer, loss of key employee, loss of key supplier, damage to facilities or equipment from fire or weather, theft (of real property or intellectual property or identity).

Every business, no matter the size, should conduct a periodic review of its risks and determine if there are adequate plans in place to minimize them. We have had a couple of storms in our area this year which proved to everyone that having a backup generator is a necessity for some businesses. The best way to perform a risk assessment is to compile a list of what could happen and how the business can either reduce the risk or handle the consequences. Small business owners can form a support group who can help each other out in the case of emergency. Where can you temporarily set up shop if you lose your building? Who can lend you equipment if yours fail? Who can step in for you if you get sick or injured? Who can you bring in if a key employee gets sick or injured? What will you do if you lose your biggest client? Who can you turn to if your biggest supplier fails?

Some of these risks can be managed with insurance so having a good insurance agent and meeting regularly is important for any business owner. Other risks can be managed with the creation of good procedure manuals and lists of passwords, user names, and key contacts in the event of illness or injury to the owner or key employees.

 Make a point to conduct your own risk assessment before the end of 2013 so you can start 2014 knowing your business risks are under control.

Thursday, September 19, 2013

Skills you need to succeed as an entrepreneur

To be a successful entrepreneur or small business owner, you obviously need to be skilled in some area whether it is accounting, photography, medicine, massage, counseling, etc.  There are other skills you needs as well.

The skills which are least desired but most needed to succeed are the boring ones:  organization, money management, time management.  Being a good filer or a good bookkeeper isn't glamorous, but it will help your business succeed.  Listed below are the skills often mentioned as necessary to achieve success when starting up and running a small business:

  1. Planning-take the time to develop your business plan so you know you are charging the right price, located in the right spot, advertising in the right area and listed in the right directories.
  2. Managing money-starting up a business takes money and you don't want to waste it so keep track of where you are spending it.  Many people leave the bookkeeping and accounting to later in the development of their business and then find they have wasted money on ineffective advertising or excess amounts of office supplies because they didn't see how the expenses were adding up.
  3. Selling-there are many very skilled individuals who don't succeed in business because they are unable to sell themselves or their product.  Someone has to sell for every business so if you just can't do it yourself, you will need to hire someone to do it for you.
  4. Learn how to negotiate-there will be many times you will need to be comfortable negotiating to get the best price or level of service for your business.  
  5. Follow-up and follow through-many people fail to make follow up calls to prospective customers or business colleagues.  One expert I heard says you need to touch base with someone seven times before you can turn them into a customer so just meeting someone and then making a sales presentation isn't enough.  You don't want to turn into a pest, but you do need to touch base periodically to see if now is the right time to do business.  You also need to follow through on all promises you make to a customer or client.  Failure to deliver on time or as promised is a sure way to lose a customer.
  6. Limit the number of hats you wear-Staples has a great commercial where the same guy is performing all the jobs in a company.  This is often the case for a new small business owner, but at some point you can't do it all.  Figure out what you are good at and concentrate on that and delegate the other tasks to someone who is good at them.
We hear frequently from people who complain that they just can't get caught up or they just can't turn their business around.  Staying organized, staying on top of all the key elements to your operation, making sure someone is selling for you are what needs to be done to succeed.  

Wednesday, September 4, 2013

Exit strategy

When Beth and I started E&S, our exit strategy was to close the doors once we were ready to retire.  We didn't think the business would ever stand on its own so we had no plans to grow the business to where it would be a saleable asset.  The business has grown much more quickly than we expected and with several kids in college, we frequently get asked if one of our kids will take over the business some day.  Thus far, none have chosen to major in accounting or finance but we each have a freshman this year so who knows?

Every business owner should be thinking about his/her exit strategy whether they are just opening the business or have been operating for decades.  Your business changes with every passing day as do you so your exit strategy may change as well. 

How you manage your business will change depending on what your exit strategy is.  If you plan on selling your business, you will be more concerned about showing a profit versus keeping income taxes to a minimum.  Tax preparers are focused on minimizing what you will pay in income taxes, which is great unless you want to sell your business and their tax planning has resulted in the company just breaking even every year.  A business which has consistently shown minimal profits is not very attractive to potential buyers. 

You will also want to have sufficiently sophisticated accounting and sales systems to impress a potential buyer.  Having good systems in place takes time so knowing you may want to sell the business some day will allow you the time to develop your systems, procedures and your business. 

Another thought is bringing an employee into the business who can one day purchase it from you.  For this to work, you will need to be watching for an employee who has the skills to not only carry on the technical side of the company, but the business side as well.  They will also need to have good personal financial habits so they will have the money and credit rating to purchase the company when the time comes.  Giving the employee room to grow and develop and planting the idea of buying the business will take time and planning.

Take time as part of your annual review of your business to think about your exit strategy and determine if you are on the right path.  Beth and I will probably just close the doors on E&S some day, but maybe there will be another Schuldes or Ehlers interested in continuing E&S!

Tuesday, August 27, 2013

I am not a numbers person

I was reading an interesting column in the New York Times recently which offered advice on whether a small business owner should sell her business.  Jay Goltz owns five businesses in the Chicago area and blogs for the New York Times.  The woman had  borrowed money from relatives to buy her business and was worried that she wasn't going to be able to pay them back.  Jay was able to work through the finances with her and determine that she should be able to keep going and paying the family back was not going to be a problem.

Why didn't she realize this herself?  She wasn't doing her accounting.  She was relying on an accountant to do her taxes, but she really didn't know how her business was doing in between visits to the tax preparer.  Beth and I see this more often than we would like.  As we have said before, accounting is about much more than just having numbers to prepare your taxes.  If this woman had someone helping her review her finances on a regular basis, she would have known that while her cash flow was a little tight, she was profitable and the cash flow was adequate to cover her expenses, taxes and loan repayment. 

It so so important for all business owners to understand not only the profitability of their company, but the capital structure and cash flow as well.   A profitable business can run into problems with cash flow which can sink them.  Having too much debt or slow moving inventory can result in cash flow problems.  While it is not necessary for a business owner to be able to read financials themselves, it is necessary for them to deal with the results so getting help interpreting them is crucial to the survival of a small business.

Many people aren't familiar with or comfortable with reading financial statements but this is something that can be learned. We try to review the financials with our clients every time we meet with them so they understand what the numbers are saying.  It is always fun to see how much more they understand each time we meet.  The time spent reviewing financials is often brief, but the small business owners we work with always feel better after our session is complete.

Tuesday, August 20, 2013

Things I am not good at

I was just reading a blog with ideas for writing a blog.  As any of you who write blogs know, the hardest thing about writing a blog is finding ideas.  The article claimed to have 93 business blogging topic ideas.  It didn't really, but it had some topics to get a writer started, at least.

One suggestion was to write about something you are not good at which I thought was interesting. I am not good at reading tax codes-they give me a headache and this is why I am a managerial accountant, not a tax accountant.  I am not very good with technology issues so I wish we had an IT department.  I am not good with insects or rodents.  We had a mouse in our house a few years ago and I actually jumped up on a chair and screamed when I saw it, to my chagrin.  I like to follow the rules and to maintain order although I am trying to learn to be more flexible.

One thing I have learned as I have matured is that it is ok to admit when you don't know something or you were mistaken about something.  One thing I have not learned is how to forgive myself when I make an error.  When someone else makes a mistake, I always reassure them that it is ok and I generally am sincere when I say it.  Most of the people I know are hard working and conscientious and any mistakes are not due to carelessness.  I would say the same is true of myself, but I just really struggle when I do make a mistake.  I worry about it endlessly instead of just looking to see if anything needs to be done to correct it and if anything can be done in the future to prevent a similar error. 

Any suggestions on how to get over your own mistakes?

Monday, August 12, 2013

Disaster recovery plans

We had quite the storm in northeast Wisconsin last week!  The weather service has now determined there were five tornadoes which struck various parts of our region resulting in an estimated $15-20 million dollars in damage.  Beth and I were without power from 12:45 am on Wednesday morning until 10:30am Thursday morning.  We were both fortunate to have generators so no loss of food and we were able to keep our cell phones and laptops charged.  No internet access, but we were able to keep up with email via our cell phones.  We worked Wednesday afternoon at a local coffee shop along with many other small business owners looking for power and internet access.  We are lucky to have two really nice spots in downtown Appleton which offer plenty of space, light and internet access as well as good food and drinks. 

This storm got everyone thinking about how to deal with disasters such as this.  Businesses like ours, which doesn't require a physical location, were able to get up and running quickly by relocating to gain access to power and internet.  Businesses with a store front were not so lucky.  Some had emergency generators and so were able to open on at least a limited basis.  Most of the grocery stores in our area were open and able to sell the basics but they all lost the products in the freezer sections.  One of my favorite gas stations was without power and lost out on all the gasoline and coffee sales their competitors enjoyed during the 34+ hours the area was without power.  Hopefully they had business interruption insurance.

The federal government has templates for businesses and communities to use to create disaster recovery plans.  The templates walk you through what things you need to think about, what contacts you need to be able to access quickly (insurance agents, power company, key employees, key customers).  The people in our area who contacted the tree removal experts before they even opened jumped the line and were able to get their homes or businesses cleared more quickly than those who waited until later in the day.

Here is a link to a disaster recovery plan template:

I recommend all small business owners create a plan of their own to make sure they mitigate the losses that can occur thanks to mother nature!

Monday, July 29, 2013

Going paperless

We are trying to do our part to keep the planet green by going paperless, but it is difficult for accountants to give up our beloved documents!  Here are a few suggestions on how to reduce your paper footprint:

First, find a good scanner which means one that scans multiple pages and gives you options on what you want to do  with it.  Ours handles regular documents as well as business cards which is nice.

Next figure out what you will do for centralized data storage.  This can be done with a file server or by using cloud based storage such as Dropbox, Google Drive, SkyDrive or SugarSync.  Most of these offer initial space free.  We just had to pay for our Dropbox upgrade as we are converting our old paper files into cloud based.

You will want to make sure your files are searchable.  Windows 7 and 8 offer Fast Find and there are other tools/apps which provide the same service such as Voidtools Everything, dtSearch Desktop and Copernic Desktop Search.

Having a paperless Fax will reduce the amount of paper you need.  RingCentral, PATLive, MyFax and RapidFax are all options for this service.

You can also reduce your paper footprint by using an online calendar and CRM system for contracts and To Do lists.  Microsoft Outlook provides this service as does Google.

Paperless bill management is another way to reduce your waste.  Manilla, Mint, CalendarBudget and MyCheckFree are options and many financial institutions offer this service as well.  We email all our invoices so we don't use paper or envelopes or stamps.  Our clients have the option of printing the invoices if they wish or just keeping the electronic record. 

Expense reporting can also be done paperless  with Expensify or Concur.  Many bill and expense management options work well with mobile devices which makes it easier than ever to gather the information for recordkeepers.

Finally, you can prepare and review financial statements in a paperless manner by viewing them on your computer screen.  The availability of large screens for meetings means you can project the financials so everyone can see them without the need for printing them. 

Going paperless is not only good for the planet, it also is good for your bottom line.  Less paper means less expense!

Monday, July 22, 2013

The importance of education

My youngest brother is an Associate Professor of Music at DePauw University School of Music.  He emailed me last week asking for my opinion (as well as two other family members with accounting and financial backgrounds) on the accounting courses required by DePauw for their Music Business degree.  The school currently requires both Managerial Accounting and Financial Accounting courses.  Some feel this redundant thus Scott's request for our opinions.  The managerial course focuses on the creation and use of information for internal management decision making including job costing, budgeting, pricing and outsourcing decision making.  The financial course deals with traditional accounting as it relates to the preparation and use of financial statements.

The unanimous opinion of those asked was that both courses are necessary for the candidates to be successful in their careers.  A good manager needs to be able to understand all the underlying factors at play in any business and those are most readily apparent in the numbers.  Obviously accountants such as myself are useful allies in any business, but the more a manager or an owner knows, the better.

The most successful clients we have are those who want to understand their business and are willing to take the time to learn from us what their financial statements are saying.  It is not necessary for a small business owner to have an accounting degree or even to have taken accounting classes.  What is necessary is that they respect the need for good financial information and to have the desire to understand it.  Successful business owners are willing to spend the money to insure that they have current and accurate financial information via good bookkeeping and accounting processes.


Tuesday, July 2, 2013

What kind of loan do you need?

When we are helping a client write a business plan, one of the major considerations is cash flow and the working capital that will be needed during the start-up phase of the business.  New business owners are often unaware of the different types of loans available to them.  This article will detail the types of loans and their proper usage.

The easiest way to differentiate between loans is the manner in which they are disbursed and repaid.  A line of credit is very similar to a home equity loan: the business can request a disbursement when it needs the money and pay it back when they don't.  There is no set repayment schedule and interest is charged based on the average balance each month.  This type of loan is often used to smooth out differences between when a business receives money from its customers (accounts receivable terms) and when it pays money to its vendors (accounts payable terms).  Some businesses have to buy their inventory in bulk at certain times of year and then sell it at a later date.  Using a line of credit provides the business with the cash to pay for the inventory and still leaves operating funds while the inventory is sitting on the shelves.  The key to successfully using a line of credit, is to pay it off when the inventory is sold and the money is collected for the sale.  It is important to try and "rest" the line or pay it off in full periodically.  Remember, the line is supposed to be for temporary, seasonal or short term cash needs.

Term loans are generally disbursed all at once and have a set repayment schedule involving interest and principal payments.  This type of loan is used for longer term cash needs such as the purchase of equipment or real estate.  The length of the loan or the repayment schedule should match the expected life of the asset being purchased.  If you are buying equipment expected to last for five years, you would like to have it financed with a five year loan.  This matching principal is common in the accounting world and really does help a business cash flow properly. 

There may be times that the lender writes a loan with a shorter term than the repayment schedule which results in the need for either a balloon payment at the end of the loan's life (a large final payment) or a refinance of the remaining portion of the loan when the loan comes due.  This does create some risk for the business as it must insure that it either has the money available to make the balloon payment or the ability to refinance the loan when the original loan comes due.  Many businesses were caught short in 2009-2011 by loan structures such as this. 

Having an understanding of the different types of loan structures is helpful to a small business owner so they know what type of loan to ask for and terms to negotiate for. 

Monday, June 24, 2013

Tips for Forming a Successful Partnership

Beth and I have helped a few clients form partnerships in addition to forming our own.  We have also seen some business partnerships fail do to poor planning.  Here are a few keys points to consider when contemplating a business partnership.

The most important element to a successful partnership is the compatibility of the partners.  They need to make sure their visions for the business are in sync before the business launches and they also need to set up the infrastructure for decision making as the business grows and develops.  The best way to insure that your visions match is to put everything in writing.  It is easy to hear what you want to hear and be fooled into thinking you want the same thing.  It is much harder to make this mistake if your vision statement or mission statement is written out in great detail.  This may not be the statement you make public as it may be more detailed that the world needs to see, but it is crucial to determine if the people are meant to be business partners.

The next subject that needs to be tackled is the division of ownership.  What ownership percentages work best for the potential partners?  Beth and I are equal partners which was discouraged as many people feel having equal ownership with only two partners can created stalemates.  We have not found this to be the case, but it is worth considering. 

Once you determine what the ownership percentages should be, the partners need to decide what the buy in will be.  This is a much more complicated decision which we will address next week.  After the buy in price is determined, the next subject will be division of duties.

The partners should create a list of all duties the owners will be responsible for (and for a small business, this will probably be everything!) and then split them up based on individual skills and preferences.  Make sure you think how best to divide up the unpleasant as well as fun jobs to try and balance each partner's workload.  You will also want to look at tasks in terms of time they take on a daily, weekly and monthly basis to make sure the workloads are balanced and achievable.

The final thing to determine is how the owners will be compensated.  Partners in a LLC generally do not get paid with paychecks, but by taking draws.  The method for determining how much the draws should be is also very important.  It may not be equitable to pay yourselves based on ownership percentages.  One partner may have had more money available to invest in the business and therefore may own a larger percent of the business, but if the partners are working equal hours, equal draws may make sense.  However the draws are calculated, make sure the process is documented in writing to, once again, prevent misunderstandings or miscommunication.  Partners should also be open to changing the manner in which draws are calculated if they find their original method doesn't create the results they were looking for.  What they want is for each partner to feel as if they are being fairly compensated for their work on behalf of the business. 

Tuesday, June 18, 2013

Best Practices: Accounting Part III

Small business owners wear many hats which often includes the accountant's.  Sometimes they wear that hat because they can't afford to hire someone to handle the accounting.  Sometimes they do the accounting because they feel it gives them more control.  No matter what the reason, the accounting has to be done so if the owner isn't finding the time or isn't doing it correctly, then delegating the job is a must.

We recommend all entrepreneurs start out doing their own accounting so they fully understand what is needed for their business.  If the owner doesn't have training in accounting, getting help setting up the accounting program is always a good idea.  Once the program is set up and the owner is trained on how to use it, it does make sense to have the owner doing the work during the start-up phase of the business.  It saves money and it really lets the owner understand how it should be done. 

As the business grows, the cash flow should improve which may allow for the hiring of an employee or a contractor to handle the accounting.  The decision on whether to use an employee or sign a contractor to handle the process depends on several factors.  If the business only needs someone part-time and the work isn't complicated, hiring an outside service is usually practical.  As the business grows, there may come a time where a full time accountant is needed.  At this point, bringing someone in house is a good idea. 

The next stage of accounting growth occurs when the business has reached a point where a CFO is needed.  This often occurs before the company has the cash flow to hire a full time CFO.  Fortunately, the development of outsourced CFOs allows small business owners to fill the gap by hiring an outsourced CFO until they grow the business to the point where the can have their own CFO.

So in the best scenario, a business begins with the owner handling the accounting, grows to where an part-time accountant comes in to handle the work, then the company hires a full time accountant.  Next, the business adds to its roster an outsourced CFO and finally grows to where a full time CFO is hired.  The additional knowledge and sophistication each step gets is what allows the business to grow to the next stage.

Tuesday, June 11, 2013

Best Practices: Accounting II

When I am speaking to potential entrepreneurs, I am often asked if they should hire someone to help with the accounting.  With the emergence of accounting software programs, many small business owners go it alone when they start their business.  This usually is a mistake unless they have an accounting background.  While QuickBooks, Peachtree, and other programs are very user friendly, there are some common setup errors that occur.  There are also differences in how the programs function so picking the right one for your business is very important. This is where an accountant can be very helpful.

Spending the time to make sure you have the right program for your business and the right set-up can make the accounting process function smoothly right from the start.  Having good accounting means you will have usable financial statements which a new business owner needs as they are working through the crucial start-up phase.
Many business owners only think about accounting at tax time.  Accounting software programs cost money so utilizing the information available from them year round is sensible.  Trends can be seen in financials if you know how to read them so using accounting information from a management perspective is also crucial.  We meet with many of our clients quarterly to help them review their financial statements.  Having fresh eyes look at the numbers often provides insights the owner may miss.  While the owner knows the business inside and out, they usually do not have the experience analyzing the financials and this is where your accountant can be useful.
If your business is going through a growth spurt or a slump, you may also need an accountant’s expertise.  Figuring out how to manage cash flow through a period of rapid growth or putting together a turnaround plan if your business is struggling is another useful function of accounting.
When do you need help with your accounting?  When you are starting a business, on an ongoing schedule to keep your business on track, when you are growing or when you are struggling.

Tuesday, June 4, 2013

Best Practices: Accounting

I have a saying I like to use when discussing accounting:  good record keeping allows for good bookkeeping and good bookkeeping allows for good accounting.  Good accounting gives you good financial reporting and good financial reporting helps you run your business.  We have discussed record keeping and bookkeeping best practices in earlier columns.  This week will start the accounting portion of the equation.
One of the best innovations in accounting has been the invention of accounting software programs.  Programs such as QuickBooks have eliminated much of the need to understand debits and credits which means lay people have a much better chance of completing their accounting themselves.   Successful users of accounting software programs take the time to select the correct program for the business and make sure the program is set-up correctly.  People often run into problems and frustrations when the program doesn’t work for the type of business they are running or the set-up is incorrect and therefore the numbers are wrong. 

The best way to insure success with your small business accounting in 2013 is to take the time to select the best accounting software program for your specific business and to get help with the set-up and training as to the correct usage of the program. 
Once you have purchased the right program and had it set-up correctly, you will find the accounting process to be much less arduous than you feared! 

Tuesday, May 28, 2013

Best Practices: Bookkeeping

Not everyone enjoys the data entry and detailed tasks involved in bookkeeping.  It is an essential part of running a business, so a small business owner needs to figure out the best way to get the job done.  Many owners tackle the job themselves in the early stages of their business to conserve money and then delegate the task once cash flow allows for it.  Bookkeepers can be hired as an outsourced service provider or as an employee depending on the amount of work that needs to be done. 

The bookkeeper enters all financial transactions into the accounting system used by the business.  Transactions include purchases, sales, receipts and payments by an individual or organization. This can be old fashioned paper ledgers or software programs.  QuickBooks has the most popular accounting software available for small businesses but there are many others available. 

We recommend consulting with an accountant before you select your accounting software program to make sure you have the best program for your business.  Some programs do not have all the features certain business owners need such as inventory management or progress billing.  We also recommend that you hire an expert to help with the setup of your accounting software program.  We see far too many cases where incorrect setup leads to incorrect financial statements.  Setup and training are always cheaper than cleanups.
Once you have your accounting program set up, you will want to establish a good process for getting the data entered.  The sooner the data is entered the better so you will have the information you need to run your business.  Details such as who and why are always easier to recall shortly after the event so entering purchases and other expenses quickly is always a good policy.

Good record keeping makes it easier to have good bookkeeping.  Next time we will learn how good bookkeeping creates good accounting.

Tuesday, May 21, 2013

Best Practices: Record keeping and filing

Having good record keeping practices and organized files makes running any business easier.  It is always wonderful if you start out with good habits, but you can still start afresh if you find yourself in a mess right now!

You should always have one file or binder or box labeled Permanent Files.  Whether to use a file or binder or a box depends on the size of your business.  You will probably start with a file and move to a binder or a box as your business grows.  The Permanent File should contain your LLC Articles of Organization or partnership agreement, your Operating agreement, your FEIN paperwork, your Seller’s Permit and any other paperwork from the State, copies of your insurance policies, any patent or trademark documents.
The next file or box you need is for your tax documents. You will want a file or folder for the current year and then a box or drawer for prior years.  Your tax file will contain your Sales tax forms, your Usage folder if applicable (you put any bills that may need usage tax calculated on them in here for your tax preparer or accountant to review), payroll tax forms, estimated income tax forms.  You will also put any correspondence from tax authorities in this file after you send a copy to your accountant or tax preparer.  Correspondence from any tax authorities should be brought to your service provider immediately. 

You will want some filing system for your customer information.  Names, addresses, phone numbers, key contacts, account numbers, any contracts or agreements will all be filed for each customer you have.  If you collect sales taxes and a client has a WI Exemption Certificate, file this in the customer file. 
A final filing system is needed for all your vendors and suppliers (people or companies who bill you for products or services you buy).  This is usually done by Vendor name which is the easiest way to file and to search.  It is also the best way to file should you be audited for Sales tax compliance.  Some people like to file their bills by type: utilities, services, etc.   This method is acceptable, but isn’t advisable should you find yourself subject to a sales tax audit.  A way to compromise can be to color code your file labels for type (red labels are utility providers; green labels are inventory vendors, etc.). Make sure you have a W9 on hand for all service providers who are not Corporations.  You will need the information from the W9 to file 1099s at the beginning of each year.  You will keep this information by year so have one box or cabinet for the current year and
other drawers or boxes for prior years. 

One final note on record keeping and filing is whether all this is done with real paper and files or virtually.  More and more government filings and bill paying is done online so these documents start in the virtual world.  Anyone who keeps receipts knows how quickly they fade so scanning them into a cloud based system is a good idea.  You can scan and file/store all the above information into a virtual file cabinet at the start of each year and then you will only have the current year in paper form.  Some businesses transfer the information into the cloud monthly rather than yearly.  If your virtual cabinets and folders are well organized, you can access the information as easily as if they were in paper and you need a lot less space.

Wednesday, May 15, 2013

Best Practices: Employees Part IV

One final article on employees and then we are on to accounting!

So you have researched what you need to do to be an employer, spent the time crafting the position you are going to fill, interviewed and hired the best candidate-now what?  Now you need to make sure that the training continues.  Employees need regular performance reviews to continue to grow and develop.  An employee should have a performance review at least once a year, preferably more often than that. 

Using the job description you created for each position, ask the employee to rate him/herself on each task.  Then, do so yourself and compare the answers.  Make sure you let the employee knows what he/she is doing right as well as what areas need improvement.  Be specific: don't say reduce the amount of accounts receivable that are over 60 days.  Instead ask the employee to make weekly phone calls to accounts which are overdue.  Problem solve together on how to improve performance. 

Employers can also ask employees what the employer can do better!  Creating and maintaining a positive environment is a best practice for any business.  Employees are often the face of your business so make sure they are presenting themselves and your business in the best light.

Tuesday, May 7, 2013

Best Practices: Employees Part III

We have reviewed the best way to prepare for hiring employees which means planning what the position will look like and reviewing all the laws and regulations regarding employment.  We also talked about the best way to hire an employee.  Now we will discuss what to do once you have found the right employee for your business.

Once you have hired your employee, you will need to have him/her fill out a myriad of paperwork.  All employees must complete an I-9, a W-4 and the state equivalent (WT-4 in Wisconsin).  The I-9 should be filed in a folder with any other I-9s you have/will accumulate.  The other forms will go into a folder for that specific employee.  You will also need to complete the online New Hire filing in the State of Wisconsin 

If the position you are filling warrants it, you will want to have an employment contract signed by the employee and this will also go into the employee's folder.  It is a good idea to have initial employment contracts reviewed by your attorney.  If you don't need a contract, you will still want to provide the employee with written employment policies and the job description you created for the position before you started the hiring process.  The employee should sign these to acknowledge he/she has received them and read them and this should also be placed in the folder.

It is always a good idea to have employees start with a probationary period.  An employee is considered an at-will employee during a probationary period which means they have no expectation of continued employment and can be removed for any reason prior to the end of the probationary period.  The fact is, no matter how thorough the interview process, you never know how well the employee will work out until they get started.  Using a probationary period assures the business that only the employee who is a good fit with work ethic, attitude, competency and skills will remain part of the team.  The probationary period is typically at least three months and can be as long as 12 months. 

Creating a solid training process is another must for employers.  Employees will perform only as effectively as their training so putting the time into bringing a new employee into the business is very important.  This should include written manuals with policies and procedures as well as hands on experiences.

Once again, the secret to success in being an employer is to plan, plan, plan.  Plan how to be an employer, plan how to advertise for an employee, plan how to train your employee. 

Wednesday, May 1, 2013

Best Practices: Employees Part II

This week we will go into greater detail on some of the laws and rules you need to be aware of before you become an employer.  As we noted last week, the Department of Labor and the State of Wisconsin have websites with all the information you need as an employer. 

Some things to look for on these websites:  The information you need to maintain in employment files for each of your employees, the posters you need to have displayed somewhere in your business, the rules about unemployment insurance (both state and federal) and the rules for filing and paying payroll taxes.

A key piece of information regarding payroll taxes: The Federal Government takes payroll taxes very seriously and failure to remit taxes withheld from employee paychecks is considered theft.  Falling behind on remiting payroll taxes has severe consequences.  Paying 1-5 days late can result in a 2% penalty, 6-15 days late brings a 5% penalty and 16+ days means 10% penalty.  Depending on the amount the business was to remit, this can be a significant amount of money.  The government can also proceed with civil proceedings such as filing liens against your property until the taxes are paid in full and criminal proceeding can and do occur and can result in imprisonment. 

The Federal Government is also allowed to go after personal assets if a business fails to remit payroll taxes even if the business is an LLC.  This is how seriously they take payroll taxes!

Again, the message to take away from this article is to do your homework before you become an employer.  There are many different payroll tax providers who will assist in setting up your payroll process or teaching you to maintain the system.  Unless you have experience with payroll, it is advisable to use one these experts to get you off on the right foot as an employer.

Tuesday, April 23, 2013

Best practices-employees

We thought it might be helpful to run a series called Best Practices.  We are often asked what the best way is to handle various business tasks so we have a lot a material available.  We will start with one of the trickiest areas of owning and running a business: employees.

The best advice we have regarding employees is to do all your homework first!  Decide what tasks you will be delegating to an employee and what skill set the employee will need to accomplish these tasks.  Next, create a detailed job description for the position.  We often see frustration on the part of owners and employees when there isn't a good fit.  Consider the core values or your mission statement when thinking about the skill set your employee will need.  If you need the employee to be able to sell, then make sure they understand this, are comfortable with this and have the personality and experience to achieve this. 

Once you know what the position will look like and what skills you will need, you need to be ready to hire an employee.  If you have never had an employee before, there are a lot of rules and regulations you need to be aware of before you start.  Brush up on the types of questions you can legally ask and which ones you cannot ask.  The US Department of Labor has a good site to get you started:   You will also want to check with your state to see what additional laws you need to comply with.  The State of Wisconsin has a good website for employers: You will need to get set up with the Federal and state government's to have employees and get the proper identification numbers and payroll filing sites set-up.  You will also probably need Worker's Compensation Insurance so check with your insurance agent. 

When you have the job description complete and you understand all the rules you need to follow to be an employer, now you can set out to advertise for the position.  For many entry level or part-time positions, advertisements on craigslist or local registry may be sufficient.  For positions requiring more education and experience, you may want to consider using an employment agency to do the initial screening for you.  Make sure you understand what the costs are upfront so you can decide if it is a good use of your money. 

The summary for this article:  the best practice for being an employers is to do your research and homework first to make sure you understand everything you have to do and to insure that you hire the best person for the job. 

Tuesday, April 16, 2013

Who will run your business if you get hurt or sick?

Small business owners are often so busy working in their business; they don’t have time to work on their business.  This phrase is repeated often by experts and is a legitimate issue.  We recommend every owner set aside a day or two each year to work on the business and a great way to start is putting together a risk management policy.
What is risk management for a small business?  Identifying all the potential risks to the business and establishing policies and procedures to mitigate or eliminate the risks.  One of the major risks for the smallest of businesses is the loss of the owner.

What happens if you get really sick or injured?  Who will run the business while you recover?  Once you identify who can help with this risk, put together a manual to help the person do it.  Write down all your valuable contacts: names, addresses, phone numbers.  Write down all your due dates and deadlines for projects, contracts, jobs, etc.  Write down all your passwords and logins.  Ideally, the manual should have schedules showing what to do daily, weekly and monthly.  Assume you are going to be completely incapacitated and the person taking over will be on their own.  Talk to your insurance agent about a disability insurance policy.  Most people have life insurance which will provide for their family if they die, but many do not think about what happens if they are unable to work due to illness or injury.  Some comprehensive business insurance policies provide this type of coverage which can pay to staff to fill in while the owner is recovering. 

Another area of risk management is for small businesses with multiple owners.  The partners need to determine what they will do if one of them is disabled.  How long can they remain part of the business if they are unable to work?  How will the business determine if they are disabled?  How will the business buy them out if they are unable to work any longer?  This also applies to the death of a partner.  We recommend working with a good business attorney to really work through all these types of issues in an operating agreement.

This is a good time to look at your calendar and set aside a specific time to deal with this issue.  Write it on your calendar and take the time off to get this crossed off your to-do list!

Monday, April 8, 2013

Pricing your services

Pricing your services is always an interesting process for people like ourselves.  You have to look at what your competitors are charging, of course, but here is a starting point to determine if your business is capable of earning enough income to support itself and you!

First you need to create an operating budget for the business which will tell you what your annual expenses will be.  Make sure you consider all the different things you will need in order to run the business.  Next determine how much money you will need personally to draw from the business.  If you don't have a personal budget, now is a good time to create it.  The amount you need the business to provide you with is your target income. 

Next you take the target income and divide it by the number of weeks in the year you will be working (if you are planning on taking time off for vacation and you are the only revenue generator for the business then take that into consideration) and then divide by the number of hours per week that you are going to be available to work on the revenue generating tasks.  Be aware that your business will also have non-revenue generating time needs as well (administrative tasks must be done as well) so be honest about how much time you will have each week to generate revenue.

Here is an example:  I need my business to earn $50,000 to support me and the business needs $13,000 to pay its expenses so my target income is $63,000.  I am not planning on taking any time off my first year of operations, but there will be holidays like Christmas and Thanksgiving so I will use 51 weeks as my available weeks.  I can work 10 hours a day so this start-up period and I anticipate that there will be a lot of administrative things I will need to do, such as writing a blog, networking, writing proposals, continuing education, answering emails, handling other social media, taking care of the business' accounting, etc.  I am leaving 6 hours a day for revenue generation for now.  That leaves me 1530 hours a year to generate income (6 hours a day x 5 days a week x 51 weeks in the year). 

Taking the $63,000 target income I need divided by the 1530 I have available, I need to charge $41.18 an hour to have the business earn enough to support itself and me.  I then will need to look at my competitors to see if this is reasonable.  If it is too high, perhaps starting a business such as this isn't right for me! 

Wednesday, March 27, 2013

Selling, selling, selling

My husband and I are accompanying our daughter this week as she visits prospective grad schools.  She has three in mind and we checked out the first one on Monday and Tuesday.  The school has the number one program in the country for her discipline and we really enjoyed touring the building and meeting with professors and current grad students.  The interesting part came when we met with the administrative staff to discuss money.  Stephanie will be an out of state student and the cost to attend is two to three times as much as the other programs she is considering.  Instead of telling us why she should be  willing to pay so much more (program is number one in the country, higher professor to student ratios, experts teaching in each discipline, better internship and research opportunities), they apologized and tip-toed around the issue.

We run into this inability or unwillingness to sell quite often with small business owners.  No matter how great the product or service is, you have to make people aware of it and that means selling.  A small business owner has to be willing and able to get out there and sell or the business will fail.  If the owner is a true introvert, then the business plan must include a budget for a sales person.  The business must be ready to trumpet the virtues of its products or services at every opportunity in order to get the business under way.  A truly great product or service can make the prospective buyer's life better so the seller shouldn't be apologetic about taking the buyer's time to explain it.  Be proud of what you have to offer and sell the benefits.

We are off and tomorrow to visit another school.  We know this one will be less expensive as they offer reciprocity for in state tuition so we are hoping she will like the looks of the program and the campus.  We haven't ruled out the first school, but they certainly could have made a stronger case for themselves. 

Don't be afraid to get out and trumpet the virtues of your products and services.  Potential buyers will be much more receptive than you think if you have the attitude that you are out to help them!

Monday, March 11, 2013

Repost of Entrepreneur time management article

This is a great article about time management published by Entrepreneur. All small business owners stuggle to get everything done so try some of these techniques and let us know if they work for you.

10 Time Management Tips That Work

Are you working on clock time or 'real' time? Learn how to manage your day by understanding the difference with these 10 time management tips.

Chances are good that, at some time in your life, you've taken a time management class, read about it in books, and tried to use an electronic or paper-based day planner to organize, prioritize and schedule your day. "Why, with this knowledge and these gadgets," you may ask, "do I still feel like I can't get everything done I need to?"

The answer is simple. Everything you ever learned about managing time is a complete waste of time because it doesn't work.

Before you can even begin to manage time, you must learn what time is. A dictionary defines time as "the point or period at which things occur." Put simply, time is when stuff happens.

There are two types of time: clock time and real time. In clock time, there are 60 seconds in a minute, 60 minutes in an hour, 24 hours in a day and 365 days in a year. All time passes equally. When someone turns 50, they are exactly 50 years old, no more or no less.

In real time, all time is relative. Time flies or drags depending on what you're doing. Two hours at the department of motor vehicles can feel like 12 years. And yet our 12-year-old children seem to have grown up in only two hours.

Which time describes the world in which you really live, real time or clock time?

The reason time management gadgets and systems don't work is that these systems are designed to manage clock time. Clock time is irrelevant. You don't live in or even have access to clock time. You live in real time, a world in which all time flies when you are having fun or drags when you are doing your taxes.

The good news is that real time is mental. It exists between your ears. You create it. Anything you create, you can manage. It's time to remove any self-sabotage or self-limitation you have around "not having enough time," or today not being "the right time" to start a business or manage your current business properly.

There are only three ways to spend time: thoughts, conversations and actions. Regardless of the type of business you own, your work will be composed of those three items.

As an entrepreneur, you may be frequently interrupted or pulled in different directions. While you cannot eliminate interruptions, you do get a say on how much time you will spend on them and how much time you will spend on the thoughts, conversations and actions that will lead you to success.
Practice the following techniques to become the master of your own time:
  1. Carry a schedule and record all your thoughts, conversations and activities for a week. This will help you understand how much you can get done during the course of a day and where your precious moments are going. You'll see how much time is actually spent producing results and how much time is wasted on unproductive thoughts, conversations and actions.
  2. Any activity or conversation that's important to your success should have a time assigned to it. To-do lists get longer and longer to the point where they're unworkable. Appointment books work. Schedule appointments with yourself and create time blocks for high-priority thoughts, conversations, and actions. Schedule when they will begin and end. Have the discipline to keep these appointments.
  3. Plan to spend at least 50 percent of your time engaged in the thoughts, activities and conversations that produce most of your results.
  4. Schedule time for interruptions. Plan time to be pulled away from what you're doing. Take, for instance, the concept of having "office hours." Isn't "office hours" another way of saying "planned interruptions?"
  5. Take the first 30 minutes of every day to plan your day. Don't start your day until you complete your time plan. The most important time of your day is the time you schedule to schedule time.
  6. Take five minutes before every call and task to decide what result you want to attain. This will help you know what success looks like before you start. And it will also slow time down. Take five minutes after each call and activity to determine whether your desired result was achieved. If not, what was missing? How do you put what's missing in your next call or activity?
  7. Put up a "Do not disturb" sign when you absolutely have to get work done.
  8. Practice not answering the phone just because it's ringing and e-mails just because they show up. Disconnect instant messaging. Don't instantly give people your attention unless it's absolutely crucial in your business to offer an immediate human response. Instead, schedule a time to answer email and return phone calls.
  9. Block out other distractions like Facebook and other forms of social media unless you use these tools to generate business.
  10. Remember that it's impossible to get everything done. Also remember that odds are good that 20 percent of your thoughts, conversations and activities produce 80 percent of your results.

Monday, February 25, 2013

How to spend less time dealing with email

Have you ever given thought to the amount of time we spend dealing with emails?  We track all our time, whether it is billable or not, so we know exactly how much time we spend or waste on it!

One thing I have noticed is how much easier it is to find an old email if there is a sufficiently detailed subject line.  It is also imperative to limit the subject of an email to as few topics as possible.  It can actually be more efficient to send multiple emails to the same person if the topics are widely divergent.  For this to work, people need to start fresh email threads when the topic changes rather than continuing to "reply" to the same thread. 

Another trick I have been taught is to look at your emails from latest (or newest) to oldest if you are in email catch-up mode.  This allows you to see if some items have been dealt with or answered by someone else and therefore your response isn't needed.  It seems unorthodox to read your email in this manner, but try it-it works!

Another tip is to limit your "reply all".  Take a moment to consider whether everyone who received the email needs your response.  We all spend a lot of time reading and deleting emails that we really didn't need to receive. 

If you are overwhelmed by the volume of emails you deal with every day, consider how many subscriptions you received via email and how often you get updates from Linked In and other groups.  Pare down your lists to the publications you really are reading regularly and unsubscribe to those you are not.

Do you have any other email tips or tricks?  Let us know!

Tuesday, February 19, 2013

3 Essentials of Cash Flow Forecasting

One step that is often overlooked in managing the small business is forecasting Cash Flow. Even if budgets are created the critical step of translating the budget to a cash flow forecast is avoided. Why? Lack of time, lack of resources, and lack of knowledge regarding how are the most cited reasons. It often seems like an overwhelming process, even for accountants who are not focused on Management Accounting. However, this critical step that we provide for many of our clients is what has allowed them to reassess their business practices in time to make the necessary changes to keep them out of financial trouble.

Cash Flow forecasts are by definition rolling forecasts. I like to prepare a higher level 12 month cash flow forecast to see the larger picture and then a more detailed short term weekly forecast that runs for just as long as you reasonably can predict what will occur. That might be 4-12 weeks depending upon how quickly you collect your receivables and how predictable your sales are. I revisit the short-term forecast as often as necessary (daily, weekly, or monthly) depending upon the needs of the business and only reassess the higher level 12 month forecast if something has changed drastically.

1. In order to begin you need to know a few key facts about your business. The first is when you expect the revenue to come in. If you do not offer any terms and are paid up front, then your revenue forecast will be the same as your weekly sales forecast. If you do offer terms, then you need to continually keep a pulse on 2 items, the percent of your sales that are credit sales and your average days to collect your outstanding Accounts Receivable (A/R turns in financial terms). You will need to determine if these factors change significantly at various times of the year or if you can analyze them only occasionally. Initially I would look at them monthly to get a feel for what they are doing and how they are reacting to the economy. Besides being necessary for your Cash Flow forecast, watching these two numbers can also be an indicator of how your customers are reacting to larger economic events and what is happening in their businesses. Further, it can be an indication of whether you are being too lax in your own collection policy.

2. Secondly you need to do some analysis of your expenditures. You need to analyze when your own payments are due (how far ahead do you have to purchase to fill your sales demand, what percent of your inventory terms are prepaid, net 30, net 60?). Add to this the various weekly and monthly payments that are due such as payroll, insurance, rent, interest and loan payments, tax payments, distributions to owners, to give you a comprehensive layout of when your cash needs to be spent.

3. The third piece is your sources of funds outside of collections. If you have a line of credit that you can tap into or a loan you can draw upon, then you need to factor the limits of that into your equation.

Build a spreadsheet using all of these parts and I guarantee that you will more effectively stay on top of your cash flow needs. You will see the shortfalls before they occur. You will know how much cash you need to have each week and can then work on the various strategies to bring in cash more quickly, extend the time needed to pay your vendors, and plan your capital expenditures more wisely. Cash Flow Forecasting is one ore tool to allow you to run your business, not have it run you.