EntrepreneurAdvice

Closing the Books on 2011

2012-01-30T11:12:00.001-08:00

January is drawing to a close and you should have enough information to close the books for 2011. We use a checklist for our clients to make sure everything has been entered and all accounts reconciled or verified. A brief checklist looks like this:
1. Verify that all vendor bills are posted by the end of the year
2. Invoice any customers for any work done in 2011
3. Review Accounts Receivable and determine if any need to be sent to a collection agency or written   off as uncollectible
4. Review all loan payments to verify the correct allocation between interest and principal.
5. Reconcile
    a. Bank accounts
    b. Credit cards
    c. Accounts Receivable (compare the Balance sheet amount to the aging report)
    d. Accounts Payable (compare the Balance sheet amount to the aging report)
6. Create a list of 1099 vendors and calculate the amount due them.
7. File your 1099s
8. Adjust any prepaid items, such as insurance
9. Record any accruals for the year end for any other expenses which aren't included in Accounts        Payable or the credit card
10. Calculate and record depreciation and amortization expense as needed
11. Review asset and expense accounts to insure that all fixed assets have been recorded on the books
12. Prepare year-end reports: W2, W3, 940, 941, 1096, 1099, WT-6, WT-7, UCT101 and remit to the   appropriate parties
13. Review your financial statements for 2011: Profit & Loss, Balance Sheet, A/R aging, A/P aging,   Budget to Actual
14. Enter the budget for 2012 into your accounting program
15. Review your data backup plan for adequacy and clean up your paper files
16. Schedule your appointment with your tax preparer

Physical Inventory best practices

2012-01-23T10:58:00.001-08:00

Most accountants and business owners don't like to hear the word inventory at this time of year! I worked for a CPA firm for the first three years out of college and everyone who wasn't a manager or partner had to help take physical inventories on either December 31st or January 1st. My most memorable sounding experience was counting bull semen for a genetics company. It actually wasn't bad-test tubes stored in tanks of liquid nitrogen so it was cold, but the company was well managed so the the physical count went smoothly.

Every business which owns inventory needs to take a full physical count at least once a year. Year-end is the most common timing as it insures that the ending numbers are correct and the tax authorities hope it that COGS will be correct as well.

The way to insure that a physical count is as painless as possible is to plan and prepare well in advance. Planning will keep the count organized so employees don't get frustrated, time isn't wasted and the numbers are accurate.

Once you have set the date for the count, notify everyone of the shut down or non-shipment period. You don't want to be receiving new inventory when you are counting the existing inventory. Verify that all inventory has been received into your data system and all inventory transactions are current in your system prior to the count. Print out the count sheets and assign them to employees. The count sheets should have the amount on hand according to your accounting program and another spot for the actual count.

On the day of the count, make sure you have good coffee and perhaps, donuts on hand to start the process on a positive note! Divide the location into counting areas. Divide and conquer in little steps. Break the overall counting process into a series of smaller counts. Make sure employees know to make note of any damaged or obsolete inventory and that the items are properly marked if they aren't disposed of immediately. You don't want to make the mistake of counting them again next year! Make note of all counts and investigate any large differences between the system and the actual counts. Make your adjustments are you are ready to start the New Year.

Taking a physical inventory isn't something people look forward to, but if you are organized it can be relatively painless and it can leave you with a sense of accomplishment knowing your books are accurate to start the New Year.

Budgeting.....cash flow style

2012-01-16T10:42:00.000-08:00

Beth and I are big believers in budgets. It gives a business goals and benchmarks to guide decision making and can warn of developing problems with enough lead time to make corrections. When we create a budget, we use a cash flow format rather than a profit & loss format. Budgeting solely on income and expenses can leave out major pieces of your cash flow: money tied up in accounts receivable and inventory and money spent on fixed asset purchases and making loan payments.

Last year, one of our clients witnessed first hand the benefits of a cash flow based budget. The business was experiencing a slight downturn in sales while costs (specifically wages) were up. The client had a line of credit which was used to cover purchases in their slow period and our budget to actual analysis showed that in a few months, the line would not only be maxed out, but the expenditures were heading in a direction that would require even more money. Because the budget warned of this trend, the owner was able to quickly make some changes. She renewed efforts to bring in sales and she cut back on employee hours and thus wages by working a few more hours herself. As a result, the trend reversed itself and not only did she not hit the upper limit on the line of credit, she actually was able to pay it down to nearly $0.

We recommend all small business owner try to get a line of credit. Having a line gives a business flexibility during the slow seasons, it also helps during periods of rapid growth. Having a line of credit requires good cash management because the bank will expect the business to use the line properly. Proper usage dictates resting the line periodically (paying it down to $0). All the more reason to have a cash flow based budget and comparing actual results to the budget every month to make sure you will have the money to use your line properly.

New tricks in accounting

2011-12-20T14:09:00.000-08:00

We have been doing some reading to learn some new techniques for a new client. Our new client is a manufacturer whose accounting system was set up to operate in a lean environment. While we have heard of lean and Beth has managed a mill in a lean environment, we had not seen it applied to accounting. We have read a couple of books on the subject and while I resisted initially, I now get the point! I next tackled Throughput accounting, written by Steven Bragg. While I am sure it would not excite a lot of you, I found it fascinating.

The theory behind Throughput accounting is that every business has one area which dictates the speed with which the company operates. In a manufacturing environment, it is usually a piece of equipment. It can be due to policies (batch sizes or ordering procedures) or human factors (undersized staff). The main emphasis initially is to identify the constraint and then to maximize its efficiency. After that, the business must work to support this area. There are chapters devoted to scheduling production, pricing products and cutting costs. Really interesting and a different take on accounting and how it can support the operations and sales functions within a company. We are hoping it will help our client run more efficiently and, of course, more profitably.

We are hoping to take some time off next week to spend with our families, so we wish everyone a happy holiday season. Stay tuned in 2012!

Sales mix and contribution margin

2011-12-12T07:44:00.000-08:00

As you are creating your budget and planning for 2012 a review of both your product mix and the contribution margin each product brings to your business is important. The mix refers to the amount of each product you sell compared to total sales. Most businesses sell at least a few different things and the price is generally different for each product. The ideal situation calls for the highest margin products to generate the most sales. This isn't always the case which is why it is important to look at the contribution margin of each product and determine if the pricing is adequate.

Contribution margin can be thought of as the fraction of sales that contributes to the offset of fixed costs. Alternatively, unit contribution margin is the amount each unit sale adds to profit. The contribution margin is calculated by subtracting the variable cost of each unit from the price of each unit. Given the contribution margin, an owner can easily compute breakeven points and target income levels, and make better decisions about whether to add or subtract a product line and about how to price a product. The contribution margin can also be used to monitor the efficiency of manufacturing operations.

All the budgeting and planning we have discussed so far take research, a calculator and time, but the results are worth it. Small business owners who put this effort into running their business see the growth and profitability they want and need.

Using your budget to grow sales

2011-12-06T10:46:00.000-08:00

Now that you have created your budget for 2012, how do you get the most use out of it? One way to start is the look at the revenue part of the budget. How did you create it? What kind of growth are you planning for and how will you achieve it? You can use your sales growth goals from the budget to jump start your marketing plan. You cannot hope to achieve sales growth without a concrete plan. This goes back to our earlier post talking about strategic planning and re-determining who your target market is and how to reach them. You may want to sit down with a marketing professional to review your marketing plan and make revisions as necessary.

This is also a good time to look at staffing. Do you have the right number of employees with the right skills to implement your budget for 2012? Having the right people is essential to achieving your business goals. Next week, we will talk about looking at your product mix and examining the contribution margin for each product you sell.

Budgeting---quick and easy or detailed and effective?

2011-11-28T11:41:00.001-08:00

The traditional budget process takes the existing budget and increases or decreases it by a certain percentage. This is done as a whole for a really quick and easy method or line-by-line in a more detailed approach. Either approach gets the job done quickly but are the results worth it?

There are several more modern ways to create a budget for a business: Zero-based, Activity based and Kaizen are among the most popular. Zero-based budgeting reverses the process of traditional budgeting by starting each line item at zero. No reference is made to the current budget or prior spending levels, instead each expense budget must be justified.

Activity based budgeting groups the business expenditures by activities in the various functional areas such as administrative, sales and manufacturing. Activities are tied to the strategic goals the company has set and the costs needed to fund the activities are the basis of the budget. This technique allows a business to align its costs with its goals and objectives, reduce costs and improve business practices.

Kaizen is the Japanese word for continuous improvement and goes along with the lean process. The budget is set based on future improvements in all areas which means the budget cannot be achieved unless the improvements are made. This process forces a business to actually implement the changes it has developed during a strategic planning session or goal setting exercise. The approach has a company work to minimize costs at all stages of the product life cycle and in all areas of the business.

All three of these techniques are much more time consuming than the traditional process but all three give more realistic and thoughtful numbers to work with. The whole reason to budget is to help guide and manage a business better so even if the process is tedious, utilizing any of these techniques will help you grow your company and achieve greater results.

Preventing Theft and Fraud

2011-11-21T11:34:00.000-08:00

I was just reading an article about a local company who suffered a large loss due to employee theft which rallied the old internal auditor in me. Many small business owners think they don't need internal controls because they know all their employees and none of them would steal from them. While having a good relationship with your employees reduces the chance of theft or fraud, it doesn't eliminate it. The Association of Certified Fraud Examiners reported that in 2010, small businesses suffered losses of 5-7% of total revenue due to employee theft.

Theft from employees centers on what ACFE calls the fraud triangle: Motivation, Opportunity and Rationalization. As stated earlier, employees who have a good relationship with the owner/manager and who feel they receive adequate compensation are less likely to rationalize stealing from their employer. A good reason to have happy employees! Motivation can be due to excessive medical bills, a gambling problem, an addiction problem or other financial difficulties. Watching employees for signs of increased stress such as an increase in the number of personal calls received, changes in personal hygeine, changes in working hours (coming in early or staying late) or signs they are living above their financial means.

The last way to protect against employee theft is to limit opportunities. This is done by creating good internal controls. Even small businesses can set up internal controls as follows:
1. Having the owner demonstrate an active interest in the books and financial reports
2. Provide oversight and review of employees work
3. Segregating duties wherever possible

Duties to segregate include:
1. Separating the opening of mail (and logging payments received) from posting the payments to your accounting system and depositing them in the bank
2. Separating mailing checks with payments to vendors from recording the checks in the accounting system-even better is to use online bill paying where the bookkeeper can enter the payments into the system but only the owner can authorize the release of payment
3. Separating the entry of data into the accounting program from reconciling the accounts-the owner or an outside accountant should be reconciling checking accounts and credit cards

Other internal controls measures include:
1. Reviewing payrolls for reasonableness (is someone padding their hours?)
2. Requiring proper documentation for all purchases (invoices, receipts)
3. Having the owner sign all checks and maintaining control over all blank checks
4. Maintain a list of all fixed assets and doing a physical check periodically
5. Performing a physical count of inventory regularly
6. Requiring management approval for all credit memos or adjustments to accounts receivable
7. Reviewing the books for duplicate payments to vendors or increases in expenses which are unexpected

The ACFE estimates the median loss to businesses in 2010 from employee theft was $128,000 which can cripple some small businesses. Owners need to remind themselves that while they can delegate tasks to employees, they should not delegate their responsibility to supervise the activities. Reviewing the books can save your company so look at the financial statements regularly.

SWOT analysis

2011-11-15T06:13:00.000-08:00

Continuing with our year end planning, we are going to talk about SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. We like to use SWOT when starting a business plan as well as a year end planning tool. It gives the business owner the chance to determine if a start-up has the right mix of strengths and opportunities to offset the weaknesses and threats. As a year end planning tool, a SWOT analysis gives the owner the chance to look at the business with fresh eyes.

Strengths and Weaknesses refer to internal environmental factors a business faces. What is the business good at and where are they lacking skills, facilities? Strengths are the resources and capabilities that the business has to use to create a competitive advantage. What can your business do better than your competition? This can include patents, a well known brand name, a good reputation for quality and service, cost advantages from size or proprietary knowledge.

Weaknesses are things which leave a business at a competitive disadvantage such as a high cost structure, lack of access to good distribution channels, lack of a strong brand name, etc.

Opportunities and Threats are external environmental factors a business faces in their quest to succeed. Opportunities can include unfulfilled customer needs: what do customers want that no one else is selling or manufacturing? Creation of new technologies or loosening of regulations can also create opportunities for a business. Failure of a competitor is another way a business can find an opportunity.

Threats can come from a shift in customer tastes away from your products or services or the emergence of substitute products. A business must always be looking to create the next big product because eventually someone else will make a product to compete with yours.

A good SWOT analysis involves laying out all the strengths, weaknesses, opportunities and threats a business faces. How to best organize this information? A TOWS matrix, which we will cover next week.

Strategic planning

2011-11-07T11:21:00.000-08:00

We are back to discussing sales or more specifically, your market. A key part of any business plan is the marketing section. The plan lays out the exact market your business operates in both functionally and geographically. Your target market is defined and a good marketing section will have detailed planning for how to reach that target market. Also defined is your competition and how your business compares listing both strengths and weaknesses. We like to do a SWOT analysis with a TOWS matrix whenever possible when creating a business plan to help us define the businesses strengths and weaknesses as well as the competitions. If you aren't sure what a SWOT analysis is with a TOWS matrix, check us out next week!

While most small businesses define their target market and examine their competition at start-up, not all continue the process. We think it is very important for you to take a fresh look at who your target market really is each year as opposed to who you thought they would be. Sometimes the target market shifts and sometimes your assumptions as to who they will be turn out to be wrong. Knowing who is buying your products now is very important when determing how to reach new customers. It is also important to look at your competition on a regular basis and see what changes have occurred with them.

Major corporations devote a significant amount of time and money each year in strategic planning and small businesses should commit some time and money to this endeavor as well. Understanding who you are selling to and who else is offering the same products and services is very helpful when planning your marketing and your operations.

Budgeting process: expenses

2011-11-02T05:19:00.000-07:00

The last two weeks, we talked about how to properly create a sales forecast for 2012 which will be used to set goals and also in your budget. This week we will tackle the expenses. Many people approach the expense portion of a budget with a broad hand: they increase costs across the board by a set percentage. The better approach in to go line by line and gather your information. Talk to your landlord, your utility provider, your insurance agent and find out what they anticipate 2012 to look like. You will also want to consider your staffing levels. If your forecast shows increased sales, will you need more employees? All of this takes time, but you will have much more meaningful numbers to work with.

The whole point of creating a budget is to guide your decision making during the year. Can you afford to take advantage of a volume purchase discount? Can you afford to hire more employees? Is this the right time to expand or do you need to start accumulating cash in anticipation of an economic slump? Putting together a budget is a little tedious, but the information you get from the exercise is well worth it.

Getting ready for the new year: sales forecast

2011-10-27T06:19:00.000-07:00

Now that you have talked to your major customers and compared your year-to-date actual sales to your budget, you are ready to determine your sales forecast for 2012. While it is tempting to take the easy way and just bump up this year's sales by a set percentage, you will get more meaningful results if you put some additional thought and effort into the project. There are several techniques for arriving at a sales forecast and you will want to use all three and then set your budget where they intersect.

Technique number one for a retail business is to look at market statistics and see what the average sales volume per square foot of retail space. You can then apply this ratio to your own store. For other business types, the process is similar: look at average sales for the latest period available for your business sector. This will give you a baseline for your sales, but you don't want to stop here as you may be comparing sales in Chicago to Boston to Kalamazoo and that isn't accurate enough.

The next step in forecasting your sales is to determine for your specific location, how many households needing your goods live within say, 5 miles. How much will they spend on these items annually, and what percentage of their spending will you get, compared to competitors? Do the same for within larger distances (with lower sales forecast figures). (Use distances that make sense for your location and business type.) This step takes some time and research, but gives you additional accuracy.

The final technique is to set a sales budget for each product or service you offer. Use categories of products if you have a larger number and variety offered. If you offer say, four types of goods plus two types of extra cost services, estimate sales revenues for each of the six product/service lines. Make an estimate of where you think you'll be in six months (we should be selling four of these items a day, plus three of these, plus two of these) and calculate the gross sales per day. Then multiply by the number of days you will be open for each month in question. Now scale proportionately from month one to month six; that is, build up from no sales (or few sales) to your six month sales level. Now carry it out from months six through twelve for a complete annual sales forecast. You will be using the numbers from the first two techniques as a guideline as you develop this forecast.

Congratulations. you have now completed the sales portion of your 2012 budget. You will want to check actual to budget at least once a month to see where you are and what adjustments need to be made.

Next week, we will work on the expense side of the budget.

Sales variances and what they mean.

2011-10-18T19:05:00.000-07:00

Last time we talked about what steps you should be taking to close out the year with style. Expanding on the subject of comparing actual results to your budget, today we will talk about sales variances.

It is easy to compare actual sales results with what you had budgeted, the trick is to determine what caused the variance. Was it bad budget assumptions? (You always want to leave good notes with your budget as to what your assumptions were for sales and expenses). Was it a change in overall sales levels or a change in the sales mix? Sales mix means the combination of products or services you are selling. Most businesses have at least two different products or services they sell and the actual mix may be different from what you assumed when established your budget. Our first year of business saw our overall revenue exceeding our budget, but the mix was much different that we expected. We have gotten better every year at estimating our overall revenue and the mix. It is important to watch this mix as you may have different margins for different products/services. You need to understand the market potential for all your products and services and determine if your pricing and marketing is adequate.

Doing this analysis is what hones your understanding of your business and improves your ability to budget and to run your company. The more you understand your industry, your market and your business, the more successsful you will be.

What Do You Need to Do Before Year End?

2011-10-04T07:35:00.000-07:00

Yes, we know it is only the beginning of October, but this is the time of year we like to get our clients starting to think about the end of the year. Some procedures take time and others require setting up meetings so it is good to get a jump on the process. This is the time to compare your actual results to your current budget. This will give you some of the information you need as you create next year's budget. Consider what the variances are and what caused them. After you get an understanding of where you are now, think about where you are going next year. This is a good time to touch base with your major customers and find out that their plans are for the next year. Do they anticipate purchasing the same amounts next year or more? Or less? Based on the results of these conversations, you will want to update your marketing plan. This will help you set your milestones and metrics so you can achieve your sales goals. The next step is to create your budget for next year. A good budget is like a good map and it will help you navigate through the next year.
You also need to meet with your tax advisor. This is the perfect time for your advisor to see where you are so you have time to make decisions and adjustments before the end of the current year.
Getting these projects done now will allow you to concentrate on the end of this year and start 2012 with a bang!

Finding Customers

2011-09-20T11:31:00.000-07:00

Time is a commodity in most people's lives, but that is certainly so in the life of a small business owner. Generating leads which turn into sales takes time and sales are often a part of the job that small business owners do not want to do. The first business that I started eventually came to a standstill because I was not generating leads...I was spending all of my time just doing the technical work. That prompted me to spend some time in a sales business so that I could learn how to sell.

Some of the most important rules that I learned in that business was that you needed to devote specific time each week to the sales part of your business and you need to set concrete measurable goals (number of sales calls, number of networking events, etc) that you can hold yourself to. Making connections take time. Generating leads takes time. Following up with potential leads takes time. Writing proposals takes time. Closing deals takes time. All of these activities, however, are a necessary requirement for making sure that you always have new customers and new jobs ready to start.

Today I read a blog by Geoffrey James about 6 easy ways to make your lead generation and qualification process more effective so that you are spending your sales time effectively. (www.bnet.com/blog/salesmachine/six-easy-ways-to-find-more-customers). One of his recommendations is to obtain leads in order of effectiveness:

1) Referrals (friends, colleagues, existing customers and business contacts). Don't forget to ask these contacts for referrals on a regular basis.

2) Networking (meeting people at industry events and other occasions). Following up with 2 or 3 of these people after each event will help to build a relationship with them and push them into the referrals category.

3) Sales partnerships (working with other sales professionals in other companies that sell complimentary products).

4) Web visitors (potential customers who have visited your website.

5) Cold-calling (contacting potential customers based upon the information about them and their companies on the Web).

Another of his recommendations is to make sure that you eliminate bad leads as part of your lead qualification. Write down what a good lead looks like. Find out as best you can what type of prospect is likely to buy by gathering accurate quantitative data. You can supplement that information by examining the profile and traits of your current and past customers. Then tailor your networking and lead generating activities to generate good qualified leads. It is not worthwhile to just generate a bunch of leads. In fact, it is costly. You want to generate leads that are likely to turn into customers.

And finally, measure. Measure how well you are meeting your sales goals. Measure how many leads convert into a paying customer. Measure the traits of those that do turn into the type of customer you desire and continue to adjust your profile of a good lead based on that information.

Now get out there and generate some good leads!

My how time flies.....

2011-09-15T08:13:00.000-07:00

It is the middle of September. How did that happen, it was just summer! In the flurry of end of summer activities and getting kids back to school, we didn't get this blog updated. We realized that last post was 22 days ago and we were amazed that it had been that long. We failed to follow our own protocol-normally we divvy up the task of writing the blog articles and then we put it on our calendar. We have been pushing hard to get two business plans completed so our clients will be ready to open their new business and so we let some of our planning and procedures slide. This, of course, let's all of you see that we are human and we do fail at times. It also gives us a chance to reiterate how important it is for a business to plan and organize. We will be sitting down today to assign the remaining weeks of this year and get the writing time on our calendars. Do as we say and as we usually do!

Decoding Reimbursable Employee Expenses

2011-08-24T08:35:00.000-07:00

We have had a lot of questions from our clients recently related to meals and mileage and reimbursing employees, so this blog post is dedicated to trying to clearly explain how this business topic works.

Any food and beverage and travel expenses including mileage that are directly related or associated with the active conduct of a trade or business are allowed to be deducted as business expenses for tax purposes to the extent that they are not lavish and extravagant.

If these expenses are covered by an “Accountable Plan” they do not have to be reported as taxable income on employees’ paychecks. An “Accountable Plan” means that employees are required to turn in receipts and fill out an expense report within a reasonable time, generally 30 days after the expense is incurred. This applies whether an employer gives an advance, pays a per diem, or reimburses employee paid expenses. If an employee gives an advance, the employee needs to return the unused portion of the advance along with the expense report and receipts. Under an “Accountable Plan”, the employer does not report the expense on the employee’s W2 as taxable income.

If per diems are used under an “Accountable Plan”, they must be equal to or less than the IRS allowable per diem or the difference must be included as taxable income to the employee. If you use per diems, let us know and we will provide you with the current rates. For meals while traveling, per diems need to be pro-rated by a consistent, reasonable method for departure and arrival days because they are less than 24 hours for business purposes.

If the employer does not have an “Accountable Plan” (i.e., does not require employees to turn in expense reports and receipts to document the reimbursement or per diem), then the advance or per diem needs to be included as taxable income on the employee’s W2 and then the employee can claim the expense on their taxes.

When recording mileage, commuting miles (miles from home to the main place of business and back) are not allowed as a business expense. If commuting miles are reimbursed, then they must be included as taxable income on the employee’s W2. The employee cannot claim the expense on their taxes.

For business meals, some meals are 50% deductible and some meals are 100% deductible. We recommend setting up two separate meals accounts on your books to note the difference, such as Meals-50% deductible and Meals-100% deductible and to record the expenses under the correct category as they occur. Most meals that are on an expense report fall under the 50% category.

The meals that are 100% deductible are:

1. Recreational expenses primarily for employees who are not highly compensated, such as the business holiday party or the company picnic

2. Office snacks provided to employees at the office

3. Occasional meals provided on the employer’s premises to more than half of the employees for the convenience of the employer, meaning meals provided to employees to keep them working late or on weekends for the employer’s convenience (i.e., supper money).

4. Meal expenses (or goods, services, and facilities) made available to the public, usually for advertising and promotional purposes such as an Open House.

5. Meals for which the business is reimbursed for the expense

6. Meal expenses includible in income of persons who are not employees

Meals that are 50% deductible are:

1. Meals directly related to business meetings of employees, stockholders, agents, and directors

2. Office meetings and partner meetings

3. Meals with clients, customers, and vendors that will benefit the business

4. Meals while on business travel status (this requires an overnight stay).

5. Meals while attending a business seminar, convention, or any other form of meeting. Note: a meal during the course of a business day that does not have a business purpose (i.e., driving through McDonalds while on a day of sales calls within your normal territory) is not an allowable tax deduction.

We recommend that all employers adopt an Accountable Plan. This simply requires developing a procedure for reimbursing employees for the above expenses. We have a sample expense report that you can adapt to your business if needed.

Thanks goes out to Julie Kim from Watkins-Meegan for writing the most user friendly explanation of 50% v. 100% deductible meals that I have seen! Some of the words in this blog are hers.

How Much Accounting Do You Need?

2011-08-09T09:22:00.001-07:00

The questions about accounting plague many business owners. How much, how often, and who should I use are the questions that we often hear. My response is, "It depends".

If you are a service business with straight time invoicing to clients for services and just a few expenses such as advertising, office supplies, website, travel, meals and entertainment, then you often can do your bookkeeping yourself. There is very little complex accounting involved for simple service professionals. You will want to hire an accountant to come in and set up a system for you and discuss what is allowable for tax purposes, but you can generally handle the bookkeeping yourself. If you are too busy to handle it or you just hate it, then I recommend hiring a bookkeeper to help you with the daily or weekly tasks.

It is beneficial to hire a good bookkeeper who can come in at a lower rate and deal with the detail and stay on top of getting your data into your system when you are operating under one of the following scenarios:
(1) your business is relatively simple but has a larger number and variety of transactions
(2) you are complex enough to warrant a purchase order system
(3) you have many clients and you need to track specific expenses or time to the various clients which leads to more complex billing.
She can also help you complete your invoicing and schedule payment of bills, freeing you up to work on the money generating activities that drive your business.

Where you start moving to the need for an accountant who has a more knowledge of accounting practices than a bookkeeper is when:
(1) you start having more fixed assets that you need to be calculating depreciation on and maintaining a fixed asset subsystem
(2) you have inventory and you need to be tracking inventory and need to understand the accounting related to that
(3) you have higher accounts receivable and need someone to be keeping an eye on that
(4)you have multiple employees so you might want an accountant with some internal control experience to set up and monitor internal controls for you so that you minimize your risk of embezzlement or theft
(5) when your transactions start getting larger and you can no longer handle the oversight yourself. Quite often you will keep your lower rate bookkeeper for the normal data entry and then use the accountant to come in to reconcile accounts, provide some of that internal control, and oversee all of the higher end functions that a bookkeeper might not be able to tackle for you.

Where do you start crossing into the outsourced CFO work? Again, it's not necessarily a function of how large you are. It's more of a function of how complex you are:
(1) you have added enough employees that you need more oversight
(2) you have multiple product lines and you need to be tracking the profitability of each and making decisions about which product lines to abandon and which to keep
(3) you have multiple locations so there is some consolidation or comparison of data
(4) you need to be doing more budgeting and forecasting
(5) you have large working capital needs and so you need someone to help you to monitor and make decisions regarding your cash flow.

Accounting is one of those functions that people don't like to pay for because they don't see an immediate payoff. Those who have brought a bookkeeper and/or accountant into their business life will tell you that while the payoff may not be apparent right away, it will happen and having people with those skills helping will make your business easier to run and more enjoyable!

Are you too busy or are you procrastinating?

2011-08-09T08:06:00.000-07:00

Small business owners are usually extremely busy and often overwhelmed by the amount and variety of tasks they must accomplish in a given week. We often hear that there isn't enough time in a day/week to get everything done. We understand this feeling as we are small business owners too!

What we have noticed is that it is usually the unpleasant tasks that get pushed to the back and left undone. Beth and I share a calendars on Microsoft Outlook and we schedule all time we are working at clients there as well as any meetings we will be attending. What we don't always do is put tasks we are going to work on at the office on the calendar. Since we work from our virtual office (our homes), we do a great deal of work there. We have noticed that when we are not getting a job done that putting it on the calendar on a specific day, at a specific time pushes us enough to get the task completed.

We are great believers in calendars-ours are color coded and maintained rigorously. We schedule family events as soon as they come to our attention and as we are planning each month, we make sure we have set aside time for big projects which are upcoming.

If you find you aren't getting essential but unpleasant tasks (bookkeeping?!) done time after time, consider putting them on the calendar for a day and time you feel the strongest. We also have found that scheduling something fun right after the task you dislike also gives you incentive.

What techniques do you use to get all your work done?

QuickBooks and the IRS

2011-08-03T14:10:00.000-07:00

There has been a great deal of chatter on the QuickBooks LinkedIn groups I belong to about the IRS requesting QuickBooks files. There has also been related discussions about who owns a QuickBooks file-the company or the preparer (accountant, tax preparer, bookkeeper). Beth and I had lunch with a tax manager at a CPA firm today and she mentioned a client going through an audit and how the IRS agent was using the QuickBooks file. It was very interesting the hear that the agent was reviewing all the items in the Meals & Entertainment expense account and disallowing any checks which didn't have a name and business purpose in the memo area. Those which did include those details the agent accepted without asking for the receipt. Further evidence of the benefits of detailed bookkeeping! It also shows how far accounting software programs have come. We recommend using description and memo fields to provide the detail about who you are meeting with and the purpose which may save yourself the time and expense of digging out a receipt should you be audited.

Beth and I feel that our clients own their QuickBooks file even if it is located on our computers rather than theirs. The majority expressing an opinion on LinkedIn concurred although there were some practitioners who felt that files on their computers were their property. Although I am sure a lot of work went into creating those files, the information belongs to the company creating the data, not the company or individual creating the QuickBooks file. The difference in opinion does indicate that when interviewing, companies should ask a potential accountant or bookkeeper who would own the file when they are interviewing candidates.

Why you should learn to love accounting

2011-07-19T06:02:00.000-07:00

My goal in life is to get everyone to love accounting. I don’t think I’m going to succeed but I’ll keep trying. What do I love most about accounting? It’s all about balance. Balanced equations, balanced transactions, balanced books. In these turbulent times, couldn’t we all use a little balance in our lives? So how can accounting bring some balance to your business life?

Try focusing on managerial accounting. Large businesses have cost accountants, Fortune 500 corporations have whole departments devoted to the discipline. Successful small business owners need to assume this role as well. It is not as scary as it sounds. We are fortunate in this time period to be able to make use of a variety of accounting software programs. Beth and I are QuickBooks Pro-Advisors, but there are many other good programs out there that make accounting and bookkeeping easier for the small business owner. We have noticed that too many small businesses have only a tax accounting focus to their accounting. We suspect that is because most small businesses use a tax preparer to finalize their books and a tax preparer is naturally focused on what the business needs to file their taxes. It is very important to keep the tax authorities happy! It is also important to recognize that tax accounting is only a small component of the accounting picture.

Managerial accounting is using the information your accounting program or accountant is providing to help you guide your business. This means you must have financial statements prepared and available to you on a monthly basis. This is where the focus shifts from tax accounting which relies only on a year-end statement to managerial accounting which requires monthly statements. Ideally, as the small business owner, you have prepared a budget for your business and you are comparing your actual results to your budget regularly. You should also be comparing this developing and this task will bring these problems to your attention before they reach a crisis point. If your gross profit is less than you expected you need to understand why. Is your main supplier charging more than you anticipated? Are your shipping costs running higher? Do you have an employee theft problem? If your supplier is charging more, do you need to raise your own prices or can you get your sales staff to increase volume and earn you a volume discount. If shipping costs are rising, do you need to add a surcharge to your customers? If you suspect theft, do you need to install security cameras in your warehouse?

In today’s tough economy, no business can afford to be blindly operating at a loss. If you are losing money and you don’t know why, putting on your managerial accountant hat can help you answer the questions and formulate a plan to solve the problems. So do you love accounting a little more? Maybe not, but hopefully you can see how it can help bring some balance to your business life.

Accounting Solution for Mac Users

2011-07-06T08:07:00.000-07:00

Today we ran across a solution for all of our Mac users who struggle to find a good accounting solution for their business. Intuit's QuickBooks for Mac is generally viewed as the best solution for Mac users, but even at that it is missing many of the best features that QuickBooks Pro or Premier forWindows has developed.

The solution that presented itself to us today is to purchase Parallels Desktop for Mac. For approximately $80, this program allows you to seamlessly run both Windows and Mac OS X on your Mac. This allows you to keep your Mac with everything you love and to also be able to purchase QuickBooks Pro or Premier for Windows with all of the advanced features that they provide. The best of both worlds!

Dumpster Day

2011-06-21T12:43:00.000-07:00

Beth and I are reading a couple of books on organization for our own benefit and to help our clients. She is reading Organizing for the Creative Person by Dorothy Lehmkuhl and I am reading Getting Things Done by David Allen. Beth has already garnered some great ideas from her book and I was just struck by a great concept in mine: Dumpster Day! David Allen recommends all individuals and businesses instituting an annual Dumpster Day during which all employees come to work in jeans and tennis shoes, set their phones to go to voice mail and sort through all their stored stuff. This involves sorting through all files, file cabinets, in-baskets, drawers, etc. and deciding what is worth keeping and what is no longer relevant. I love the idea-imagine how refreshing it will be to pare down all your stuff. We will institute this at E&S Entrepreneur Advisors, LLC and the Schuldes household. How about you?

Do you have enough suppliers to keep your business running?

2011-06-12T16:24:00.001-07:00

The earthquake and tsunami in Japan are having worldwide economic consequences. Clearly, the Japanese government and some Japanese corporations have revealed inadequate disaster preparedness and risk management programs. This is having impacts on many other countries and businesses as products produced in Japan are becoming hard to procure and the recovery is predicted to take a long time.

While this may not seem relevant to a small business owner in Wisconsin, parallels can be drawn. Every business owner needs to make sure they have an adequate source for all products, materials and supplies. Relying on only one source is dangerous for any size business. Part of any well run business is the regular review of potential suppliers/vendors for both price and quality. Having a backup plan should disaster hit one of your suppliers is vital to keep your own business running smoothly. This can also be true for clients or customers. If your business is too reliant on one customer and that business suffers a setback, can your business survive?

5 Small Changes That Can Improve Your Bottom Line

2011-06-07T08:26:00.000-07:00

When we are working with small business owners on improving their profit and cash position, they are often expecting us to identify some big area where improvements are clearly needed. Sometimes that is the case, but more often we will be recommending a number of small changes which add up to the needed improvement. The following are 5 areas where we are often able to make a little change.

1. Sales: Implement one new sales and/or marketing strategy. If your business is dependent upon networking, then attend 1 more networking event each week. If you have employees, ask everyone to attend 1 networking event each month where they are focused on generating leads. If your business is dependent upon sales calls, commit to making 1 more sales calls every day. That may take only 10 minutes per day, but adds up to a total of 20 more sales calls per month.

2. Cost of Goods Sold: Shop for alternate vendors. Evaluate order frequency and quantity for volume discounts. Evaluate the product to see if there is any component that does not add value to the customer and reduce your product cost by removing it.

3. Technology: Spend some time analyzing the costs/benefits of the ever-changing technologies available today. Frequently the ROI is quite high even in the short-run in terms of improved efficiency which can be translated into reduced costs, or better customer service, potentially higher capacity and even improved sales.

4. Other Expenses: Nothing should be sacred in terms of business expenses. Look at each line on your P/L and make sure that every dollar being spent is done with a forethought. Renegotiate rents. Get alternate quotes on insurance. Look to paperless alternatives for record-keeping and billing to reduce office supply costs.

5. Track Performance Metrics: Every business should be tracking non-financial performance metrics in addition to the bottom line. Evaluate each different advertising and customer relations tactic to verify that it is producing results. Track the hours spent on various activities to be sure that you and your employees are focusing efforts on enough of the income-producing or billable activities. Take surveys to be sure that what you are offering really has value to the customer.

A small company may already perceive itself to be running lean, but is still able to make a number of small changes to improve the cash flow and cash position.

Taking Action

2011-05-31T17:34:00.000-07:00

A new client of ours recommended the book "Getting Things Done" by David Allen and commented that it was a real life saver in her business. I have just started reading it and what has struck me the most so far is his statement that the best way to reduce stress and increase productivity is to take action. This struck a chord with me as I have often found this to be true. When I have been worried about a presentation at work or fretting about a friend in need, stopping and asking myself "what are you going to do about this besides worry?" and then taking action has reduced the anxiety.

When we are reviewing financial statements with our clients and pointing out areas of concern, our first question is "why do you think this is happening?" but the next question is always "what are you going to do about it?" Merely making note of a negative trend in your business is not enough although it is the first step. This is why we focus on managerial accounting and work with our clients on reviewing their financial reports regularly. The sooner you spot a negative trend, the sooner you can take action.

When has taking action reduced your anxiety or increased your productivity?

Succeed At Running Your Small Business

2011-05-19T04:49:00.000-07:00

What does it take to run a successful small business? Many entrepreneurs are caught off guard by the amount of work and the variety of tasks they must perform when running a small business. It is easy to get overwhelmed by all the jobs both big and small. Is there any way to make the juggling of all these tasks easier?

Some jobs are easier to deal with than others simply because the owner likes the particular task. Others are easier to avoid because the task is distasteful. The fact of the matter is that each task is crucial to the success of a small business and cannot be avoided. So how can you get them all accomplished?

Set up procedures and processes for your business. Take the time to figure out how best to organize your office, your business, yourself. Write down all the jobs that must be done to keep your business running and determine when they must be done. Then determine who is best suited to complete each task. If you are a one woman shop then it would appear that you must do everything but consider whether it would be money well spent to outsource some of your tasks. Hiring a bookkeeper or enlisting a payroll service may free up your time for income producing tasks which will pay for the outside service and allow you to do what you love and what you are good at.

We recommend putting undesirable tasks right on your calendar. Figure out what time of day and what day of the week works best for you to get the dirty work done and schedule your least favorite tasks for this time. Then stick to the calendar. Get the job done and crossed off your to-do list. You won’t believe how good it feels. Use to-do lists, a calendar and an organization chart and you will find your business running more smoothly and your life feeling less hectic.

So any other good ideas out there to help a small business owner stay organized and on track? Let us know.

Running your business with a proactive attitude

2011-05-09T08:43:00.000-07:00

One of the seminars we are working on deals with how you can run your business more effectively if you approach life with a proactive attitude rather than always reacting. Here are just a few topics to inspire your curiosity:

Develop short and long term plans, set up a budget, have goals and benchmarks to measure your planning and goal setting.

Write up job descriptions for employees and have regular job performance reviews.

Get expert help when you need it: accounting, IT, marketing are a few common areas where many business owners seek help.

Develop a good risk management policy. Many small businesses are run with a very small staff and it is important to plan ahead and have procedures in place in the event someone else has to step in due to illness or injury.

This is just a start to the topic and we have many more areas to cover. Any suggestions as to what else we should cover?

Hate making the dreaded Cold Calls?

2011-04-26T06:46:00.000-07:00

We have all heard the old adage “it is easier to keep a current customer than to find a new one”. I was reflecting on that this week due to two experiences that we have had in the past year.

First of all, in compliance with my to-do list, I was following up with a past client who had indicated that they were making some changes in the spring. Her comment struck home when I called and she replied, “I’m so glad you called. You were on my list to call but I have been so busy with…” That says it all. As business owners wearing our sales hats we don’t like to pester other business owners. We know how busy they are and how much we all resent interruptions. But good customer service is all about listening with the intent to understand. By listening well during conversations, we can understand the current and potential situations that make up our clients’ world. We can make notes to call them at a future date and if we have gained their trust in our past transactions with them (see our April 7 post), then those future sales calls will be productive.

Conversely, let’s use the marketing firm that we used last year as a poor example of following up. Last year we hired a local marketing firm to help us with our PR. Our marketing plans were on track except we realized that we were hesitating when it came to our PR and so, as we would advise our clients, we outsourced what we were clearly not good at. That firm proposed a more comprehensive marketing program than we were able to commit to last year, but we explained our situation and settled on the PR work that we wanted as well as some website SEO. The PR firm did get an article published on our business in 2 area papers, but did not accomplish everything that was on the PR plan that they had laid out which included TV spots, radio interviews, and more. Perhaps that is the nature of PR. I don’t know as they did not follow up with us to review their progress.

What I do know is that once our budgeted dollar amount was spent last October, we never heard from them again! No phone call to find out if we were now in a position to address some of the other areas that they had recommended to us in 2010. No follow up call with us in 2011 to review our situation and marketing needs for this year. We had simply not heard from them since until a PR article that we submitted ourselves ran in the area newspapers a few weeks ago. We understand that we are a small business and therefore not highly lucrative for them, but we are a few thousand dollars per year and that dollar amount could potentially increase as we grow. This was an example of poor sales work on their part. We actually did have some marketing work to accomplish this year and we sought out a different source.

The moral of this article is: follow up regularly with your current and past clients in addition to looking for new customers. If you did your job well, you have already earned their trust.

Speed of Trust and Small Business

2011-04-07T13:52:00.000-07:00

I had the opportunity earlier this week to attend a webinar hosted by the Institute of Management Accountants (IMA) of which I am a part. The speaker was Stephen Covey talking on the Speed of Trust. As with everything I study which is intended for global business, I like to ponder how the same concepts can be applied to small business. This topic, in particular, had some very concrete applications especially to others like us who are in service businesses.

One of the main points that Stephen Covey asserts is that trust is more than a social value. Rather it is has an economic impact as well. As trust increases, the speed at which work gets done increases and the cost decreases. According to Covey, trust is a function of 2 things: Credibility and Behavior. He cites 4 Cores of Credibility. The first two, Integrity and Intent are related to whether people trust our character. The second two, Capabilities and Results, are related to whether people trust our competence.

Without understanding the theory that Stephen Covey proposes, I have observed scenarios working with clients where we can accomplish a lot in a short period of time if we are trusted because we are not having to meet continually to explain every step and have everything approved. This increases the speed of our success with clients and therefore reduces their bill. A lower bill makes our services feel even more valuable to our clients and they recommend us to others thus increasing our income. That perfectly describes the Trust Dividend cited in the Speed of Trust.

Applying this to the small business service providers, we can increase the speed at which our clients trust us by:
1. Making sure that our actions speak as loud as our words to our integrity.

2. Declaring our intent. Clients are not going to think that things should be done our way just because we say so. We need to explain the why behind what service we want to do and why it is important to them. This shows them that we are actually looking out for our clients and not just trying to make money off of them.

3. Continually staying on top of the latest changes and trends in our field. For Susan as a CPA and myself as a CMA we are required to complete 30 hours of continuing education each year. Even if that is not required in your field, be sure that you are staying relevant.

4. Making sure that we provide the results that we promised. Deliver our best on time every time. Keep our commitments.

I recommend that people everywhere read Stephen Covey's best selling book The Speed of Trust to gain even more insight on how you can increase your own Speed of Trust within your organization and with all of your stakeholders.

5 tips for the Home-Based Entrepreneur

2011-03-29T05:40:00.000-07:00

People often struggle with how to be a successful entrepreneur based out of their home. The distractions are many, but the rewards are great! As with all entrepreneurial success, working from your home requires some upfront planning and discipline colored with your personal priorities and style.

1. Set up an office. Designate a space that is your own, preferably with a door, with your desk and equipment, a good chair, files, and everything that you need set up for maximum efficiency. That doesn’t mean that you always have to work from that spot, but when one son is practicing his drums and the other is on the guitar, it is nice to have a place to retreat to which is promotes concentration.

2. Invest in technology. Nothing wears you down faster than having to walk to a different room to plug into your printer every time you need to print a document. Set your house up with wireless technology. Purchase multiple monitors if that makes your work more efficient. Invest in the software you need. New solutions and improvements are developed daily which simplify the tasks at hand.

3. Know yourself. Understand your moods. Know the times of the day that you work the best, and schedule your work activities around that. I wake up in the morning with my mind already thinking about the day’s issues. On days that I am not scheduled with morning clients, I often grab a cup of coffee and start my day working on my laptop from my bed. I can accomplish a lot between 6:30-8:30 from that comfy location. In fact, that’s what I’m doing right now! Then I take a break to exercise and get dressed for the day before I start in again for another couple hours of concentrated work. Some days I pause my workday at 3 pm to drive children and make dinner, but then use the evening hours to finish up any research or reading that is needed while my children are doing their homework and my husband is reading as well. My point is that while my workday may look random and disjointed, it is actually a well-laid out schedule of activities placed during their most effective windows of time.

4. Block time on your calendar. This is an old Stephen Covey tip which I like to jazz up with color coding. Block off your income-generating work related activities in one color (client work, client meetings, etc.). Block off time for working on your own business in another color (your own marketing, accounting, strategy work, etc.). In a third color block off time every week for your important relationships (spouse, children, friends). In a fourth color block off time for community involvement. And in a fifth color block off time for you! The color coding is an effective way to see that you are building balance into your life which will help sustain your entrepreneurial spirit.

5. Focus. Work from daily priority lists to help you work with a purpose. When you sit down to work for a two hour window, make sure that you know what task (or tasks if you need variety) you are going to accomplish and then don’t let yourself get distracted by phone calls, e-mails, or interesting articles. This is not the time to change a load of laundry or load the dishwasher. You save those tasks for your breaks. You can judge what is considered worthy of an interruption, so hold yourself accountable. After all, you are your own boss, so hold yourself to the same standards that you would expect of your employees!

Although it doesn’t work for all personalities, with some planning and discipline you can successfully run your business from your home.

Why do I have to do my accounting?

2011-03-21T09:32:00.000-07:00

What is accounting really? Techniques or a language that allows you to keep track of the money coming in and going out of a business. Many people are uncomfortable with accounting because they are unfamiliar with the terminology. I can’t tell you how many times I tried to explain to friends struggling with an accounting class in college how assets could be debits, liabilities-credits while income was a credit and expenses were debits. They always thought assets and income should act the same way. I tried to get into the theory behind double entry accounting and how the balance sheet and income statement flow through each other, but some people just got bogged down with the terms.

The nice thing about the invention of accounting software programs is that the terminology has really become a non-issue. With QuickBooks or other programs, the user is filling out forms or writing checks and the program “writes” the entries for you so you don’t need to know whether you are debiting cash or crediting sales. Once you let your discomfort over the terminology go, you can focus on learning how to use the program. Modern software has nice features built in that require you to enter data such as customer names and addresses only once and then each time you invoice that customer, all that information is automatically entered into the form. Even better, once you’ve learned how to use your accounting software, you can really reap the benefits of good accounting by learning how to use the many reports the programs can generate.

The whole point to establishing a good accounting system is to provide you, the owner, with the information you need to run your business. The less time you spend on the bookkeeping portion of the accounting process, the more time you will have for the analysis portion. It is the analysis that will point out the questions your business is asking you. While modern accounting programs can’t answer the questions, but they can point you in the right direction and give you the information you need to find the answers.

A successful small business owner learns how to make the most from her accounting process by selecting the right program, learning how to use the software, learning how to read the financial statements and using all the great information to make the decisions needed to keep her business moving forward.

Why do small businesses fail?

2011-03-10T10:24:00.000-08:00

Even though the economy is starting to turn around, we still see too many small businesses closing their doors. Why?

The business didn't take the time to understand what set it apart from it's competitors or didn't articulate that to the market clearly enough.
The business wasn't set up for success. A well developed business plan wasn't created which listed all the start up expenses and assets required and located the funding for these expenditures.
The business didn't know what it's break even point was and didn't systematically determine it's pricing.
The owner wasn't prepared for how hard a small business owner has to work and the sacrifices that need to be made during the start up years.
The owner lacked the people skills to effectively deal with employees, customers and vendors.
The business didn't have proper financial information to make decisions and change strategies. Good financial statements are NOT just for your tax preparer to use. They help you understand what is or is not working in your business.
The owner had insufficient or irrelevant experience to run their own business. Many people who have always been an employee have no idea what it takes to be a business owner. The owner of a small business has to know about labor laws and tax codes and licensing requirements and record keeping rules........

It breaks our hearts every time we see a business with a good product or that offers good service fail because it didn't have the proper infrastructure or organization. We have often thought business owners should be required to take a class so they do understand all the rules and regulations they need to follow and all the other things they need to understand.

Helping Partners to Remain Friends

2011-02-23T06:05:00.000-08:00

It has been an interesting few weeks as we have been working with a couple of clients who are severing partnerships and going their own way. Overwhelmingly we notice the problems that arise when you do not obtain legal help in setting up a partnership or a multi-member llc and you do not have the proper operating agreements in place.

These are the typical scenarios: Best friends decide to start a business to promote a shared dream. No thought is given to how the business will be managed if one of the partners develops health problems. A husband and wife form a business together, trusting each other completely. No thought is given to what would happen with the business in case the couple divorces. For too many businesses, the llc is formed by filing the Articles of Incorporation, but the set-up stops there. The operating agreement is the important next step after filing the Articles of Organization to form the LLC.

Businesses are started with excitement and good intentions. Part of the up-front set-up, however, needs to be a detailed operating agreement including the solutions for the worst-case scenarios. The following lists some of the topics to be covered in the business operating agreement:

1. Who are the members of the LLC (that's right, member is the correct terminology)?
2. What did each member contribute to the business?
3. What are the requirements for a new member to join the business and how will the price be determined?
4. What are the requirements if a member wishes to withdraw from the business?
5. What will happen if a member becomes mentally or physically disabled. For what lengths of time?
6. If a member withdraws, how will the buy out price be determined?
7. How will duties be separated and/or shared?
8. How will disputes be resolved?
9. How will profits, losses, and distributions be split among members?
10. What will happen in case of a divorce in a Marital Property State like Wisconsin? Do you have the proper documents and signatures in place so that you do not end up in business with your partner's ex-husband in case of a death or divorce?

These are just the building blocks of an operating agreement. They can be as detailed as you think helpful. As in all things related to business, planning up front saves you a tremendous amount of grief in the end. Agree on the solutions up front and you will save yourselves a lot of heart ache later.

I invite you to share your lessons learned if you went into business without an operating agreement and ended up with problems later on.

Learning to run your business with your iPhone

2011-02-10T08:18:00.000-08:00

Sharlyn Lauby of Mashable had a recent article about online learning apps available for iPhone users. Beth and I haven’t jumped on the iPhone bandwagon yet, but for those of you who have, this is a list of apps available to you:

• Learning To-Go by INTERSOG included Pocket MBA, Pocket CFO and Pocket Manager

• Sandler Training offers courses on sales and sales management

• Skill-Pill has 2 minute videos for hundreds of business topics

• CellCast Widget provides a mobile library with hundreds of topics

• iTunesU gives you access to Stanford’s Entrepreneurial Thought Leaders series

Next time you are picking up your kids after practice or waiting to see the dentist, take advantage of the down time to take in a little continuing education. We are big believers in constant learning and improving. Any apps out there we missed?

Are consultants worth the price?

2011-02-01T10:55:00.000-08:00

I recently read a case study by Jessica Bruder in the New York Times. She was detailing the struggles a family owned business was going through after years of uncontrolled growth which resulted in the company being “functionally bankrupt”. They were hoping, at best, for an $80,000 loss on $3.5 million in sales. Desperate, they hired a consultant to come in and analyze the business and determine what was needed to save the company. The consultants determined that the business was lacking internal financial and operational controls. Employee job descriptions were weak and the organizational chart was haphazard resulting in a lack of coordination, inefficiency, frustration and a tendency for workers to focus a single task.

The thrust of the article was whether the $170,000 the consultants would charge to implement the turnaround plan was worth the money. The plan called for creating more detailed financial data which included job-costing as well as an improved organizational chart, job descriptions and employee performance reviews. Several experts offered their thoughts which included:

“If the long-term problem is that the family has exceeded its managerial capabilities, then getting a list of solutions from a management consultant — however accurate or perfect a list it is — won’t solve the problem.” Matthew Stewart “The Management Myth”

“This is the definition of crazy. Each year they keep doing the same things and hoping for a different result. I think they’re smart to bring in an outside resource, but I would make sure the resource is focusing on the entire business, not just operations. And I would make the payment performance-based.” Chris Carey of Chris Carey Advisors.

Beth and I offer consulting services such as this and we are helping a couple of businesses turn themselves around. We don’t charge $170,000 but we are interested in people’s opinions on the effectiveness of consultants. What have your experiences been?

Work With Purpose in 2011

2011-01-24T06:25:00.000-08:00

You've vowed it before, but 2011 is going to be the year that you begin to work with purpose as you manage your business. 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 2011 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 time line assigned to them. If the time line 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.

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.

Don't work another day just reacting to business. Put your goals in place before the end of the month and move your business forward with purpose in 2011!

Perceived value in a tough economy

2011-01-13T10:13:00.000-08:00

I was at an advisory board meeting for the Better Business Bureau today and we were discussing perceived value. We were talking about the reasons some businesses chose not to renew their accreditation with the BBB and it came down to perceived value.

With many small businesses continuing to struggle financially, owners must make hard decisions on where to spend money. Some areas are not negotiable-insurance and rent must be paid as do employees. Other areas are not as obvious such as memberships or dues. Accounting often falls into the same category-lacking perceived value.

Beth and I have been fortunate to retain all our clients through the last 2 years, but we often run into the value question when we are meeting with perspective clients. They know they need help, but the idea of the accounting bill can be hard to swallow. Those businesses who do retain us do come to see the value of our work which is why they remain clients. We make sure to post their recommendations and testimonials on our website and on Linked In so potential clients can see what people have to say about our work.

My husband often finds himself in a similar situation. He is the sales manager for a local business which is fortunate to have over 50 years of quality products and service to their name. Despite this sterling reputation, they often find businesses interested only in the bottom line-they want the lowest bill or the cheapest alternative and not the best value. Again, it is a question of perceived value. There may be other businesses that provide a cheaper product, but the buyer may find that the quality is lower and the maintenance higher and in the long run, the overall cost to the business will be higher. Some individuals find this concept difficult to comprehend upfront.

Any ideas on how to combat the question of perceived value?

What needs to be done now that the year is over?

2011-01-05T13:00:00.000-08:00

Happy New Year! The end of a year brings several things that business owners need to accomplish. Whether you do the work yourself or your accountant helps you, the following list will help you to be sure that nothing is forgotten.

1. By January 15, 2011, anyone who has been paying estimated taxes needs to pay the final installment for 2010. This is sent in on Federal Form 1040-ES and for Wisconsin business owners Form WI 1ES.

2. By January 31, 2011, 1099 Forms need to be sent to all service providers who are not taxed as corporations and you paid more than $600.00 in 2010. They must also be sent to any lawyers regardless of the amount that you paid them. For 2011, make it your policy to have all service providers fill out a W-9 before you pay their bill. That way you are sure to have their information come tax time next year.

3. By January 31, 2011, W2’s need to be sent to all employees. Other payroll reports and returns that need to be completed by this date are the 2010 4^th Quarter Federal Form 941 or annual Form 944, Federal Form 940, and for Wisconsin the 4^th Quarter Form WT-6 and Annual WT-7 as well as the 4^th Quarter UCT101 for the Department of Workforce Development. If you have not been paying in monthly or quarterly, payment will be due with these returns.

4. By January 31, 2011, the sales tax return for either the month of December, the 4^th quarter of 2010, or the entire year of 2010 is due depending on your sales tax filing status.

5. Your Financial Books need to be reviewed for accuracy and completeness. Below are several areas that are critical to look at before you close your year:

a. Accrue any year-end costs associated to payroll in 2010 which were not paid until 2011.

b. Ensure all vendor bills are posted by the Dec. 31, 2010 date.

c. Ensure all clients are invoiced for 2010 business.

d. Adjust any outstanding receivables that are considered uncollectible against bad debt expense. Verify that all receivable reports are accurate and equal the Accounts Receivable account balance.

e. Verify that all accounts payable reports are accurate and equal the Accounts Payable account balance.

f. Reconcile all bank accounts, savings accounts, credit card accounts, and loan accounts.

g. Conduct a physical inventory count and record adjustments.

h. Adjust any prepaid items that need to be expensed.

i. Calculate and record amortization and depreciation.

j. Review asset and expense balances to ensure that all fixed assets have been accurately recorded. Also verify that the detail for assets is recorded in a fixed asset ledger.

k. Adjust any prepaid deposits to earned revenue.

l. Print and review year-end reports.

m. Back-up your data.

No Need to Budget!

2010-12-23T09:46:00.000-08:00

“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

2010-12-14T07:25:00.000-08:00

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

2010-12-10T06:48:00.000-08:00

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

Year End Planning

2010-12-06T13:13:00.000-08:00

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

2010-11-23T05:56:00.000-08:00

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

2010-11-08T14:46:00.000-08:00

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

2010-10-28T11:31:00.000-07:00

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

2010-10-19T13:03:00.000-07:00

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

2010-10-05T08:12:00.000-07:00

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

2010-09-30T12:01:00.000-07:00

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!

2010-09-20T14:45:00.000-07:00

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

2010-09-10T05:28:00.000-07:00

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

2010-08-17T19:03:00.000-07:00

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

2010-07-29T14:09:00.000-07:00

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

2010-07-19T12:16:00.000-07:00

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?

2010-07-09T08:08:00.000-07:00

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?

2010-06-28T17:34:00.000-07:00

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

2010-06-15T10:00:00.000-07:00

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

2010-06-07T16:02:00.000-07:00

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

2010-05-24T12:34:00.000-07:00

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

2010-04-29T13:02:00.000-07:00

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

2010-04-19T07:58:00.000-07:00

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?

Social media for small businesses

2010-03-25T12:45:00.000-07:00

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

2010-03-11T08:27:00.000-08:00

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?

2010-03-03T08:13:00.000-08:00

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!

2010-02-22T18:19:00.000-08:00

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!

2010-02-10T18:31:00.000-08:00

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?

2010-02-02T15:02:00.000-08:00

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

2010-01-21T09:26:00.000-08:00

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.

2010-01-13T13:35:00.000-08:00

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

2010-01-05T04:59:00.000-08:00

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.

How do make running a small business easier?

2009-12-14T18:12:00.000-08:00

Transitioning from Corporate Executive to Small Business Owner

2009-12-02T19:33:00.000-08:00

Today Susan and I began to teach an Entrepreneurial class geared mainly to executives downsized with the current economy and looking to start their own businesses. In preparation, I was reflecting on some of the differences between managing in a corporation and managing a small business and some of my early struggles in making that transition. Many of the skills are transferrable, but need to be toned down to account for less time, money, and staff. They are often, however, the very skills that lead to success in the small business world.

1. Strategizing. Most executives have been heavily involved in strategy sessions. A common misperception with small business is that you do not need to spend as much time on it as with large corporations. Nothing could be further from the truth. The big difference is that the strategizing team will not be readily available. One of the first things a small business owner should do is identify a team of experts to help him strategize. These might be people hired as employees, they might be experts whose services are outsourced, or they might be a group assembled as an Advisory Board.

2. Budgeting. Many corporate executives have been involved in budgeting so they understand the process, but many have only been responsible for developing their department budget and have had sales forecasts and production schedules prepared for them by other departments. One of the major hurdles for adjusting to managing a small business is that the small business owner is responsible for the entire budget, not just one piece of it. Depending on the type of business, the budget can be more or less complex than the executive is used to, but since there are no other departments to shift funds between to make up differences, it requires just as much thought and foresight.

3. Accounting and Business Information. Large Corporations spend vast amounts of money on Integrated Business Information Systems. When starting a small business, the business owner needs to perform the job of a systems analyst, detailing exactly what information is required and desired to run the business and make informed decisions, and then performing a cost/benefit analysis in regards to potential solutions. There are many industry specific programs which can be customized for certain industries as well as the popular software programs on the market (QuickBooks, PeachTree, MYOB, etc). Each business owner needs to determine the balance between having the information needed to make well-informed decisions and the time and resources available to gather this information.

4. Defining Goals and Measuring Performance: Many small businesses simply begin with an idea and open their doors for business. The business owner that takes the time to define specific, measurable objectives for all areas of the business and then compares actual results to those objectives will be in a better position to quickly adapt to any variances or changes noticed. Awareness and quick adaptation are vital for small business success. Many corporate executive will be thrilled with the speed with which a decision can be implemented in a small business environment.

5. Managing Employees: Corporate executives are often well-trained in managing and motivating a workforce. Never is it more important than when you own your own business to apply those skills to hire the right employees, train them well, communicating your mission and objectives and encourage independent thought and innovation within that mission.

For those of you that have made the transition from corporate executive to small business owner, what is your experience?

What can good accounting do for your small business?

2009-11-18T08:01:00.000-08:00

Stay Sane While Running Your Small Business

2009-11-09T19:00:00.000-08:00

What do you need to keep sane while running your small business? Organization, routines, structures, priorities, and most important, a guiding mission. The key to getting all the work done in an efficient and effective manner is to set up the structure, steps and routines to keep you and your employees on track.

The key to making the process work is to become aware of your own personality and style. Organization techniques that work for your neighbor may not work for you because you each approach work and life in a different way. Some people are visual and need lists and reminders visible to keep them on track.

Once you figure out the ideal organizational structure for you and your employees consider all the tasks you need to accomplish in your business. Write them all down, no matter how small or insignificant they may seem. A little intimidating, isn’t it? Now you need to prioritize the tasks and figure out a timeline for each one. Some things will need to be done daily, others once a month and so on. You need to have prioritized first so if you run out of time at the end of a day, you’ll sleep at night knowing the most important jobs were completed.

How can you get all these tasks done and still have time for a personal life? Delegate where you can. Entrepreneurs are often unable to let others take charge. You can’t do it all so train your people well and let them work. Job descriptions and procedure manuals can help you insure that the works is done the way you need it to be. Try to be open to other ideas and other ways to get a job done. Your employee may have a great idea so hear him out. Make sure everyone understands why they are performing a task in a certain way. People are much more likely to remember how to do a job and to do it well if they understand why it is important and what the ultimate goal.

Don’t underestimate the importance of having a mission statement for your business and using it as you establish a structure, routine and processes for yourself and your employees. Creating a solid organization structure with good procedures, effective routines, clear priorities and a well defined mission will keep your business running smoothly and make the work environment more fun for everybody.

Budgeting Part III: How to use your budget to manage your business

2009-10-27T17:35:00.000-07:00

The question that I often receive from small businesses regarding creating a budget is “What’s the point?” Underlying that question is the real question, “How do I use a budget to help me manage my business?” So let’s attempt to address that question.

First of all, when we talk about creating a budget, we usually mean a Pro Forma Profit and Loss Statement. In essence, if everything goes as planned, this is what our profit (we will only think positively here) will look like. I recommend taking this one step further and also creating a Pro Forma Cash Budget, budgeting for when you actually expect to receive and spend your cash. This will allow you to anticipate when you are going to have an abundance of cash and when you are going to have some cash needs so that you can plan for them. For example, if you run a retail business you can expect to do most of your business in November and December so you will end the year with a large cash balance. Before you spend it all or hand out large bonuses, look at your Cash Budget for January through April to see how much you money you need to keep in cash to get through those tough sales months.

Once you have your budgets prepared and you have finished your first month in the new year, do a comparison between your actual amounts and your budgeted amounts. Most importantly, be sure that you can explain the variances. If your Cost of Goods Sold is higher than expected you might want to be sure that it is because your Sales are higher than expected as well. If your labor expense was higher than anticipated can it be explained by an unanticipated order or have you not been watching your overtime closely enough? If you are a restaurant and your food purchases have increased but your sales have not, you may need to make sure that someone is not stealing food from you.

For each of the explained variances you will also want to consider whether it is a one-time anomaly or if this is something that you expect to continue. If it is a one-time event and you have overspent your budget then you know that you will need to adjust your spending down in a different month. If it is an event that you expect to continue, then you will want to adjust your budget to take the change into account. The favorable adjustments are easy. It is the negative variances that require some decisions on the owner’s part. Just remember that you developed your budget based upon your company’s strategy, which means that you need to make sure that all adjustments to your budget are also in line with your strategy.

The point of a budget and a good financial management policy is that you have planned for what you expect to happen and you are now analyzing the data and reacting quickly to your business needs.

A strong grasp of your business finances is essential to running a successful business. As with all things financial, if you find that this is not one of your strengths, then don’t just push it aside and ignore it. Get the help that you need.

Focus Your Business With An Effective Budget: Part II

2009-10-21T13:48:00.000-07:00

So how do you create a budget for your small business?

In these challenging times, it is more important than ever to put together a comprehensive budget for your business to use in the next year. We recommend creating both a budget for your Profit & Loss and a budget for your Cash Flow needs. For those of you who are new to the budgeting process, here are a few pointers:

Pull out your prior years’ income statements and look at your historical data. Which income streams have been most successful for you and have provided you with the highest margins and therefore the most money? Which products or services have not performed as well as expected? Consider whether they can be improved and if not, eliminate them.

Look for patterns in your income stream and expenditures. If your money coming in from sales doesn’t match with timing of your major expenses such as seasonal inventory purchases, real estate tax payments or insurance premiums, setting a budget can help you make sure you are saving enough money to pay for these items.

Think about using zero based budgeting. Don’t just take last year’s budget and add an arbitrary increase in sales and expenses. Do some research and consider what a reasonable sales figure will be. Figure out what your staffing needs will be based on this sales figure. Talk to your major suppliers and your utility providers and see what price increases may be in your future. Consider what items are necessities and which expenditures are really luxuries. Evaluate every item in your budget and consider whether it is in line with your strategy for your business. With the economy still recovering, you need to maintain a lean approach to both your budgeting and the actual managing of your business. There is a wealth of information available to help you with the creation of your budget if you do a little research.

A well planned budget process can take some of the stress and fear out of managing your cash flow throughout lean times and allow you to spend your money wisely and avoid running up credit card balances.

Focus Your Business With An Effective Budget

2009-10-12T08:06:00.000-07:00

We often encounter resistance at this time of year as we begin to speak of budgets with our small business friends. The feeling is that budgeting is a time-consuming process with little benefit. What's the point. We disagree. This blog is the first of a three-part series to make our case for the need for small businesses to devote some time in the next two months to establishing a good budgeting process.

Before you can create a budget, you need to know your long term (the next 5 years) and short term (2010)goals and your strategy for reaching those goals. So pull out your old business plans and take a look. Have you been following your plan? If you have not been following it, why? With the changes in the economy, do you need to rethink the direction of your company or are you just taking a little business detour?

If you do not have a business plan, then now is the time to at least formalize your operating strategy. What is your business? What differentiates you from other businesses offering the same services in your industry? Who is your target market? Are you reaching them? Do they know that you exist? After you have given some thought to these questions, take out a piece of paper and draw 3 columns with the following headings: 5-year vision, 1 year strategy, and tactics.

Under the 5-year vision, write down specifically how you want your business to be defined. Where do you want to be in 5 years? For example, you might want to be known in your market as the cutting edge new idea generator. Be clear here to define on paper who your target market is for the cutting edge new idea generator. Who do you expect your customers to be? Do some research to find out who these people are; who they are currently buying from so that you know who your competitors are; why they are buying from them. What is happening in your industry as a whole? Do you need to be considering alternative products and services if you think that your current products are going to be obsolete in the future? Under the 5-year vision you might also want to consider internal operations as well: what skill positions do you think you will need? What work environment do you want to create?

Next analyze where your business is compared to that 5-year vision. How close are you to achieving those results? What do you need to do to get there? Under your 1-year strategy column, write down where you need to be by the end of 2010 in order to be on track for your 5-year vision. This may include some specifics as to the dollar amount of sales that you need to achieve or the staff that needs to be in place by year end, etc.

Under the Tactics heading, start writing specifics. This is where you place your need to develop your specific advertising and promotion plans, your foray into social media, your need to create a specific video for your website. You might have a tactic to develop job descriptions and procedure manuals for your staff. Be as specific as possible here as this is the content that you will use to create your budget.

Now that you have your vision and strategy in place, you are ready to create a budget that helps you to reach your goals as opposed to a budget that merely states how you have been spending your money over the past few years. Tune in next week for a discussion on how to use this information to create a good flexible working budget.

A Practical Plan to Help Your Business Survive H1N1

2009-09-30T13:45:00.000-07:00

Will you be ready if the H1N1 virus hits your business? According to the Institute for Business and Home Safety, an estimated 25% of businesses do not reopen after a major disaster such as a flu pandemic. The most important thing that you can do is to develop a written plan and do it now!

Under the heading of prevention, encourage your employees to get the flu shot. Consider placing posters in your break-room to remind people to wash their hands and practice good workplace hygiene. Place hand sanitizers at strategic locations such as next to all keyboards and phones. Now might be the time to encourage social distancing, limiting handshakes, etc. Encourage employees to stay home if they are sick so that they do not spread their illness to their co-workers.

Review your Sick Leave Policy to be sure that it is flexible, non-punitive, and well-communicated. Consider allowing employees to work from home if possible or to come in on off-hours to allow them to care for sick family members during the day.

Review your job descriptions to identify which tasks are critical and which can be postponed if necessary. If you begin to lose employees to illness, can the remaining staff combine the critical tasks and keep the business functioning? Update your procedure manuals so that anyone can step in and perform the essential tasks if necessary, even if there is no one available to train them. Take the time now to do some cross-training for your essential tasks.

Worst case scenario, who can you bring in to staff your business if you have a major outbreak? Contact family members, neighbors who are not working full time, etc., who might be willing to help you out in an emergency. Bring them in for some high-level training if possible. Talk to your area temp agencies now to develop a plan to cover for your skilled positions.

Look at some of your other essential functions, such as suppliers and subcontractors, to evaluate whether your business can keep going if their business has to shut down for a period of time. If not, identify alternatives. Who will take care of business if YOU are sick or home caring for a family member?

Develop a list of contacts based on your above plan. Communicate, communicate, communicate so that all of your employees know what to do and where to find the information.

If you are looking for more information, the Department of Homeland Security, the CDC, and the SBA has issued a guide to help you develop a plan. You can access this along with other flu related information at www.flu.gov.

Social media for the small business owner

2009-09-22T11:13:00.000-07:00

We just attended the New North’s Best Practices Panel Discussion about Social Media. The speakers were Heidi Strand, co-owner of Blue Door Consulting; Dana VanDen Heuvel, the Marketing Savant; and Margie Harvey, VP of Human Resources at Miles Kimball Company. Here are a few practical pointers taken from these experts to help the small business owner or entrepreneur get started on your social media journey.

First you need to develop a social media strategy. How will social media fit into your overall marketing strategy? What do you want to achieve from your social media interactions? Are you hoping to improve brand awareness or do you want to increase your sales? Once you have determined your goal, you need to consider who your customers are and where they are in the world of social media. You do not want to be concentrating on developing a Facebook Fan page if your customers are not on Facebook. How do you know what social media outlets your customers are using? Ask them. It can be as simple as that. While you are considering who your customers are currently, also think about whom you want them to be in the future. Good social media work can help pull in an entirely new customer stream.

Make sure that your foray into social media starts small. Chose one tool to begin with and focus on mastering it. Spend the time making sure that your content is relevant, useful and well executed, but don’t spend so much time trying to refine your efforts that you don’t get the job done. As Heidi Strand quoted, “Perfection is the enemy of done”. In the quick fire world of social media, some imperfection is expected and tolerated.

The final thing to remember is that you must commit some time and resources to your social media interactions to make them work. Schedule regular time into your week to blog, tweet, LinkIn or write your online newsletter.

If you are in the New North region, considering attending these quarterly presentations because they are always relevant and worthwhile.

Time Management Tool

2009-09-14T20:25:00.000-07:00

Every once in awhile I run across a new website or a new tool that really hits a chord with me and I need to sing its praises. Two weeks ago I discovered www.rescuetime.com and I recommend this to everyone who is an entrepreneur, a person with numerous insatiable interests, and a business that is not moving forward at the pace you would like. For those who fit into that category, time management is more than just a business technique that should be focused on; it is one which must be mastered if you ever hope to be successful! You start your day with great intentions to work on your business and then, thanks to the internet, get distracted by your many interests. The day goes something like this:

Today, like every day, you begin your day by vowing to make those sales calls that you know are critical to keeping every business moving forward. You sit down at your desk to work and you always begin your day by quickly checking your e-mail. You fire up your computer and the internet opens to your home page which is your favorite news service. Oh, that’s an interesting headline…you will just take a peek at it. What’s that? There is a reference made in the article which you know nothing about! So you look it up on Google…half an hour later you emerge from your little side-trip. No sales calls yet, but you are a little more knowledgeable about the world. So now it is time to get back to your e-mail. You read your e-mail and respond efficiently to the pressing items. Then your eye begins to flow to all of the updates and on-line newsletters to which you have subscribed. You begin to read. Again, all interesting information, however you continue to read and research miscellaneous items for the next two hours. By this time you need to meet with clients, fill your orders, prepare quotes, or do whatever is your core business function. This takes you to the end of your day. Once again, no sales calls were made.

Rescuetime.com is a free download that allows you to track where you spend your time on-line. It is like holding a mirror to your face. You can set rules, such as no more than 30 minutes on the news per day, and the program will alert you when you have hit your limit. You can set goals, such as 2 hours of concentrated sales calls, and the program will block any distracting websites during that time if that is what you desire. The program graphs where and how you spend your time and you can use this information to chart a plan of action for your future. This is a program which helps you to reclaim time that is lost to your varying interests and helps you to focus on the business tasks at hand. If I have described you, and you are looking to move your business forward to the next level, I recommend that you give it a try. To your success!

2009-09-08T05:47:00.001-07:00

My goal in life is to get everyone to love accounting. I don’t think I’m going to succeed but I’ll keep trying. What do I love most about accounting? It’s all about balance. Balanced equations, balanced transactions, balanced books. In these turbulent times, couldn’t we all use a little balance in our lives? Accounting can help give you some. See-something to love already and a reason to love accountants. Yes, I’ve heard all the jokes; my husband loves to accumulate them. So how can accounting bring some balance to your business life? Try focusing on managerial accounting. Large businesses have cost accountants, Fortune 500 corporations have whole departments devoted to the discipline. Successful small business owners need to assume this role as well. It is not as scary as it sounds. We are fortunate in this time period to be able to make use of a variety of accounting software programs. Beth and I are QuickBooks Pro-Advisors, but there are many other good programs out there that make accounting and bookkeeping easier for the small business owner. Managerial accounting is using the output from your accounting program to manage your business. We have noticed that too many small businesses have only a tax accounting focus to their accounting. We suspect that is because most small businesses use a tax preparer to finalize their books and a tax preparer is naturally focused on what the business needs to file their taxes. It is very important to keep the tax authorities happy! It is also important to recognize that tax accounting is only a small component of the accounting picture.

Managerial accounting is using the information your accounting program or accountant is providing to help you guide your business. This means you must have financial statements prepared and available to you on a monthly basis. This is where the focus shifts from tax accounting which relies only on a year-end statement to managerial accounting which requires monthly statements. Ideally, as the small business owner, you have prepared a budget for your business and you are comparing your actual results to your budget regularly. You should also be comparing this year’s results to prior year’s financial information. Red flags should pop up if financial problems are arising and this task will bring these problems to your attention before they reach a crisis point. If your gross profit is less than you expected you need to understand why. Is your main supplier charging more than you anticipated? Are your shipping costs running higher? Do you have an employee theft problem? If your supplier is charging more, do you need to raise your own prices or can you get your sales staff to increase volume and earn you a volume discount. If shipping costs are rising, do you need to add a surcharge to your customers? If you suspect theft, do you need to install security cameras in your warehouse?

In today’s tough economy, no business can afford to be blindly operating at a loss. If you are losing money and you don’t know why, putting on your managerial accountant hat can help you answer the questions and formulate a plan to solve the problems. So do you love accounting a little more? Maybe not, but hopefully you can see how it can help bring some balance to your business life.

Fix Your Credit Score

2009-08-28T06:12:00.000-07:00

Most people who approach us to help them write business plans and organize their businesses will at some point need to obtaining financing. If you are worrying about losing your job or dreaming of starting a new venture or perhaps looking to take advantage of the SBA loans while in the next few months while their fees are still suspended, then pay attention now! The process of fine-tuning your idea and researching and writing your business plan may take some time, but there is something that you can focus on immediately to improve your chances of getting a good rate on a loan: your credit score. Obtain your FICO score immediately. If your credit score is not as good as you would like it to be, then you need to do some work to improve it.

An excellent score is a score greater than 750. So what do you need to do to move yourself towards that number? First of all, you need to have some revolving credit lines and you need to hang on to them and manage and protect them for a long time. For credit companies, a long time means about 20 years. My oldest credit card is 14 years old and that only gets me a GOOD rating for that portion of my credit score. If you do have a few old cards that you are not using, assign a recurring purchase such as a monthly charitable deduction to those cards to keep them active. In this time of tight credit, credit companies may take away cards that are not active and that hurts your credit rating by reducing the amount of total credit that you have available.

This brings us to the second piece that you need to manage, your credit utilization rate. EXCELLENT credit scores require your credit utilization rate to be less than 20%. Less than 10% is preferrable. This means that if you have $50,000 available credit on various cards, your total amount actually charged should be less than $5000. The point to a credit card is that you make purchases and then you pay them down to $0, preferrably by the next payment due date so that you do not incur any finance charges. Credit cards are one of the most expensive ways to finance purchases with rates often between 10-33%. So if you are looking to make a purchase that you cannot afford to pay for within the next month or two, consider a different type of loan or even think of saving up ahead of time for the purchase. Stay on top of how much you have charged in a given month. If you have a credit card limit reduced or a card closed, then you will need to pay off some of the debt on your card even faster to keep your credit utilization rate in line.

The most important factor when managing your credit score is to pay on time. Mark the due dates on your calendar; check your amounts due and arrange payment on-line instead of waiting for statements to come in the mail. If paying by mail, send it 10 days ahead of the due date. Whatever your trick, just make sure that you pay on time. This is a high-impact part of your credit rating and it is the simplest thing that you can take action on.

What if you haven't been able to pay down your credit cards yet? Consider reallocating your budget, dropping or reducing one or two items and directing that money toward your credit card payment. Or consider taking on a second job until your cards are paid off and allocating all of that second income to your debt payments. If you are thinking of starting your own business, you could even hold onto that second job for a little while after your debts are paid off to build up some of the equity savings that you will need in order to obtain financing for starting your business.

2009-08-20T05:38:00.000-07:00

You can’t watch the news or read a paper these days without the topic of health care reform coming up. It is hard to get through the rhetoric and decide what our legislators should do. I do know this: my family has been through several serious health issues in the last 18 years and they have had an impact on our bottom line. My daughter was diagnosed with leukemia when she was seven weeks old. She went through 28 months of chemotherapy and we are blessed to say she is cured. The bill for her first month of treatment, which did include a helicopter ride to Madison, a week in the ICU, surgery, numerous blood transfusions and several doses of chemotherapy, cost $52,000. Fast forward 18 years and this year my husband developed a herniated disc in his neck. He had outpatient surgery and was in and out of the hospital in 12 hours. The bill from the facility was $56,000. Just for the facility. Something is clearly out of line. We are fortunate to have health insurance through my husband’s employer who has felt the impact of our health woes as well. The company was dropped by their carrier the year after our daughter was diagnosed and when they found a new carrier, the rates were significantly higher. This resulted in a larger portion paid by the employees which meant less take home pay for all of them. Uwe Reinhardt had a commentary on the CNN website this week that was very informative. “Milliman Inc., an employee benefits consulting firm, publishes annually its Milliman Medical Index on the total health care spending by or for a typical American family of four with private health insurance. The index totals the family's out-of-pocket spending for health care plus the contribution employers and employees make to that family's job-related health insurance coverage. The Milliman Medical Index stood at $8,414 in 2001. It had risen to $16,700 by 2009. It is likely to rise to $18,000 by next year. That is more than a doubling of costs in the span of a decade!”
Uwe Reinhardt is James Madison professor of political economy at Princeton University's Woodrow Wilson School. From 1986 to 1995 he served as a commissioner on the Physician Payment Review Committee, established in 1986 by Congress to advise it on issues related to the payment of physicians.
I listen to people rant and rave and fear change. They say we don’t need to reinvent the wheel. I am still not sure what the answer is but we do need change and I think we need less shouting and more listening if we are going to solve this problem. Go to CNN.com and click on commentary for the entire article. Susan

Transitions

2009-08-06T12:56:00.000-07:00

Our local newspaper has an ongoing series in the business section about people in transition. That concept resonates with me as summer winds down and the fall begins. When Beth approached me with the proposition to combine our consulting practices, it was a perfect time to undertake such a project. My kids were both at a stable point in their lives with my daughter half-way through her senior year of high school and my son finishing up middle school. Stephanie had already been accepted into college so I could focus all my energies into starting up a new business. As a new school year approaches, I’m very glad I have work to keep me busy! My husband and I will be taking Stephanie to Madison on August 27th to begin her college years at UW-Madison. We know she will do well and have a great college experience, but we will miss her a great deal. My son will be starting high school this fall so he will also have plenty to keep him occupied so he won’t miss his sister as much. I’m not sure the dog is going to enjoy all these changes. He likes having the kids home in the summer and he definitely has not liked my working this much.

We seem to be entering a transition time in the economy as well. The S&P 500 went over a 1000 this week for the first time in nine months and the housing market is starting to stabilize in many key areas. It remains a good time for all business owners to keep reviewing their business plans, studying their financial statements and considering their options for the future so they will be ready to reap the benefits of a rebounding economy. Many people fear change, but when faced with new challenges and situations, its best to consider them an opportunity rather than am obstacle.

Susan

Working from Home in the Summer

2009-08-01T06:03:00.000-07:00

Summer is a difficult time to be working out of a home office. When I first began working out of the home instead of in an office, I did it right. I set up an office area with my own computer and printer, files, resources, office phone, and, most importantly, a door. I made lists, designated office time, and worked efficiently during those hours. Eventually, as my children grew and were eventually gone to school all day, and with the purchase of my first laptop, I found myself migrating to my favorite areas in the house to work instead of staying in my office. It was sunnier in my kitchen, beautiful in my garden, comfortable in my living room, and so that is where I found myself working.

There have been a few days this summer that have forced me to retreat back to my office just to get things done. Friday was one of those days! My husband was getting ready to leave for a hiking trip with his friends and sat down next to me in the kitchen to talk just as I was reviewing a client's notes for a business plan that I am helping him write and preparing for a telephone interview which was to take place in 45 minutes. We had plenty of time to talk prior to that moment, but he was busy packing. I did take my phone call in my office, but was interrupted by my 17 year old answering the home phone and actually bringing it to me while I was talking on my business phone. Trying to restrain the sarcasm in my voice I asked her to take a message. Then I was interrupted when my daughter left for work, my husband left on his trip, my son needed me to take him to the store, and so the entire day continued. By 5:30 I didn't feel as though I had accomplished much at work, and I hadn't taken a working vacation day either (you know, the days when you decide that you are going to take a vacation day to get all of your housework and errands accomplished). It was sort of that land in between that work-at-homes experience.

As I thought about this, however, I realized that I have actually become spoiled by the focused quiet time that I get during the school year when I am working at home. I remember back to the days in my cubby in the corporate world when I was interrupted constantly by team members, colleagues, and bosses with questions, requests, demands, or just to chat. So, while I may be lax with my workspace during the school year, I need to reinstate my office rules during the summer months when everyone is home and when my husband takes much of his vacation so that I can get my work done and actually enjoy some vacation time with my family before the winter snow flies again.

6 Ways Financial Management Helps Your Business Succeed

2009-07-24T10:28:00.000-07:00

As we work with small businesses and entrepreneurs we are noticing that many view the preparation of Financial Statements as being mainly for the use of their lenders and the taxing authorities. While we realize that those two groups do need accurate and timely financial statements, small businesses should be taking the lead from large corporations and using their financial statements to manage their daily business. We would encourage small business owners to focus on Financial Management as well.

What is Financial Management? It is the process of recording what money is coming in and going out of your business and using that information to generate reports which help you to make good decisions in running your business. Information from financial management is used by both internal and external decision makers.

Six Ways Financial Management Helps Your Business Succeed:
1. Cash Flow: Clearly understand how much money (cash) comes into and goes out of your business and WHEN it flows into and out of your business.
2. Manage Customers and Sales: Know who your customers are, what they purchase, how much they purchase, and when they pay. Use this data to compare your actual Accounts Receivable Collection timeline to the terms that you are offering your customers.
3. Manage Purchases and Production: Know who your vendors are; what and how much you purchase from them and at what cost, and what your payment terms are with your vendors (when you have to pay them). If you are manufacturing a product, know how much you are producing in a given time period and what it costs to produce your product.
4. Insight and Decision Making: Make informed strategic decisions regarding pricing your product for profitability, marketing, employment, growth, and financing.
5. Funding: Complete and accurate financial statements are needed for finding funding through banks and outside investors.
6. Compliance: Report your company’s income, expenses, and payroll accurately to the IRS and your state government.

We are developing a Webinar to teach small business owners how to use their financial statement for financial management. Stay tuned.

5 Things a Small Business Owner can do Today to Survive this Economic Downturn and Thrive in the Rebound

2009-07-17T14:31:00.000-07:00

There is a feeling of frustration and despair for many small business owners as they are trying to hang on and keep their business afloat during this economic downturn. But all does not have to be doom and gloom. There are some concrete things that you can do now that will improve your situation and position your company to thrive when the economy turns around.

1. Improve your cash flow situation. The main things that drive cash flow are Accounts Receivable, Accounts Payable, and Inventory. First let’s look at Accounts Receivable. In theory, Receivables are created as soon as you sell your product or service. In reality, Receivables are not created until you send out an invoice. So that is the place to start. Look at how you bill your customers and make sure that you are sending out your invoices immediately! One of the main reasons that small businesses fail is that they fail to invoice their customers. This is particularly true of the creative types…you know who you are.

Secondly, reassess the terms that you are offering to your customers. To do this you will have to look at the terms that your vendors are offering to you. Matching Accounts Receivable collections to Accounts Payable timing means that if you have to pay your vendors in 30 days, then you need to be sure that you are collecting from your customers in 30 days.

The third step is to actually collect the Receivable in a timely manner. The day that a Receivable is past due, you will need to pick up the phone and call your customer to ask for the payment. When we say the day that a Receivable is past due, we do mean that day. Not next week, or pretty soon a 30 day receivable is being collected in 45 or 60 and your cash flow is now drying up. Put a procedure in place for this task. The phone will be more effective than an e-mail or a letter which is easily ignored. Often just politely reminding them that the payment is due and asking exactly when they expect to send it is all that is needed. If your customers know that you expect payment in 30 days, pretty soon they will pay you in 30 days without you needing to remind them. Remember, everyone is struggling with their cash flow, so this area is definitely the case of the squeaky wheel gets the money.

Next let’s look at what you can do with your Accounts Payable to improve your cash flow. While it is tempting for the accountant in me to say just stop spending, that is really not practical. In truth, you do have to spend some money to make money. If you shrink your spending too severely on such items as marketing, for example, you may shrink yourself right out of business. The most important technique for Accounts Payable is to not pay them early unless there is a really good discount and you have the cash flow to take advantage of it. If your bookkeeper or accountant only cuts checks once or twice a month, hold off mailing them until they are actually due. An old trick is to write the date due on the envelope where the stamp will go.

The third component to cash flow is Inventory. Now is the time to really look at what is selling and what is not. Whatever inventory system you use, print as detailed reports as you can and look at how long items are sitting around in your business. Mark down the slow moving items and get them out of there. Make sure that you are reordering only the items that are really moving well. Money tied up in slow moving inventory is money that cannot be used to purchase new items. Focus on just-in-time inventory which means that you are only ordering the minimum amount that you need to stock your business in the short-term and work with vendors to get a quick turnaround time for reorders. If you need to fill space, think out of the box and consider rearranging items for a new look, bringing in consignment items from hungry vendors, or working with other retailers to display some of their merchandise in your facility.

2. Analyze your operations for efficiency. Look at what every employee is doing and make sure that there is no duplication of effort. Review job descriptions (or write them if you do not currently have any). Make a flow chart of your process to see what tasks are being done by whom. Follow a process from beginning to end to verify that it is being completed in the simplest way by the fewest people while still having enough separation of duties to protect your business from theft or embezzlement. Streamline. Make sure that there is a reason for every task that everyone is doing and that the reason is not just that that is the way it has always been done. Try to maximize income-producing tasks. Cross-train your employees so that you can move personnel around, reduce overtime, and protect your business from employee absences. Get rid of dead weight. Nobody can afford to keep employees who are not doing their best possible work and carrying their weight, especially in a bad economy. Improving your operations when times are tough will set you up to prosper when times get better.

3. Revisit your business plan. Make sure that you understand your market in today’s economic environment. What are people buying right now? How are people spending now? Is your market growing or shrinking? Where do you fit in to your total market? What is your niche or competitive edge? Is it still a competitive edge? Who is your competition? How are they doing in today’s environment? Who are your target customers? With cash at a premium, it is vitally important that your marketing efforts reach your target customers.

4. Start using your financial information to manage your business instead of just saving the data for your tax preparer’s use at the end of the year. We call this focusing on Managerial Accounting versus Tax Accounting. The information you need to implement the steps outlined above to improve your cash flow will come from using your financial statements. Keep up with your bookkeeping daily. Understand what concrete data you need to help you make your business decisions. Get help now to set up your system to be able to pull out that information quickly and efficiently. Have solid numbers at your fingertips. If you do not know how to read and use your financial reports, hire someone to teach you. Your financial system can help you manage your business on a daily basis if you understand it and use it.

5. Look to the future. What are the trends in your industry? Read, read, read! Don’t just keep doing the same thing over and over in hopes of hanging on. Instead, plan for the future. Be a trendsetter, constantly evolving. React quickly. Be forward thinking. Life is constant motion and those who go with the flow not only survive, they thrive.