Can Your Business Succeed in a Recession?

In a struggling economy, businesses suffer. Whether the company is a local store selling widgets or a large, interstate corporation producing running shoes, many managers and owners have learned lately that credit is tight and customers are spending with far more discretion. Folks are tightening their belts. In fact, before a recovery really takes hold, many more firms will shut their doors and seek bankruptcy protection.

That’s the bad news. On the flip side, some businesses, even small businesses, no, especially small businesses, actually thrive during tough economic times. What sets such companies apart? What are they doing that you can copy?  You don’t need to re-invent the wheel.  Where you see other businesses being successful, borrow their ideas.

They focus on core products and services. If your business has wandered far outside your core competencies, it may be time to pull back. Of course, if a sideline product has become a cash cow, you might want to morph into an entirely new business. On the other hand, sticking to the stuff you know best is generally a wise course to follow.

They engage in prudent cost cutting. When recession hits, some businesses panic. They slash inventory, lay off workers, and cut prices to the bone. But when customers can’t get help because your firm has too few workers, or can’t get goods because your shelves are empty (see many stores at your local mall), they may conclude that your business is on the ropes. Cutting costs and reducing prices should result from a well-designed plan that fits into a long-term strategy.

They seek opportunities. When businesses fold, new markets often open up. If you are competing with 6 other firms, then you have to share the wealth; when only two of those businesses are left, you may gain new customers (will you have the staff and goods to handle them?) Also, some of those newly laid off workers just might come to you — with a little work on your part.

They pamper loyal customers. When money is tight, it’s vital to retain your customer base. That may mean offering discounts, gift cards, or loyalty rewards. A recession is also a good time to focus on your best customers. Let your loyal clients help build your business.

They stay visible. Letting people know that your company is still operating is crucial during the down times. Keep attending chamber of commerce meetings, promote your firm on the local radio or television station, or write an article about your products for the newspaper.  This is exactly the time to advertise.  Make sure your potential customers know you are there for them.

Business success depends on many factors, some of which are outside your control. But following the proven habits of prosperous companies can help your firm thrive as well.  Know who you are and who your customers are and stay true to your values.  That will enable you to succeed in business and in life.

 

Learn some Record-keeping Basics (then Take it PAPER-LESS!)

Running a successful business entails keeping accurate and timely financial information.

A CLEAR FINANCIAL PICTURE ALLOWS YOU TO MONITOR THE SUCCESS OR FAILURE OF YOUR BUSINESS.  A GOOD RECORD KEEPING SYSTEM ALSO PROVIDES YOU WITH THE INFORMATION YOU NEED TO EVALUATE THE CONSEQUENCES OF YOUR FINANCIAL DECISIONS AS WELL AS TO ACCURATELY PLAN FOR THE FUTURE.

As a small business owner, you most likely rely on a CPA to do your taxes but what are you doing on a daily basis?  Do you do your books late at night?  Do you ask your spouse (who may have no experience doing books) to handle your daily financial information?  It is best that you outsource these daily functions.  Otherwise you will need someone in your organization to take on the responsibility of keeping an accurate set of financial records. It’s NOT JUST the first step in taking control of your financial information and operations — proper record keeping will not only assist to ascertain the value your business operations, it is required by the law.

Read more about record keeping basics below, then consider setting up your office using PAPERLESS record keeping system.

For starters, make sure that you file paid bills, canceled checks and other business documents in an orderly fashion and keep them in a safe place. You may use manila folders, filing boxes, or an accordion file divided into “car,” “utilities,” “entertainment” and so on. At a minimum, put receipts in the proper categories throughout the year so it would be easier to total them up at tax time.  Staple the adding machine tape to each folder or stack of receipts.  You are not required to keep records in a formal “set of books;” however, you need to find the best record keeping system that works for you.

Take record keeping seriously. A perfectly adequate record keeping system for a small business might include some or all of the following:

• Check register – preferably a separate bank account for your business and your payroll (if you have payroll).  Make sure that when you receive your bank statement every month that you prepare bank reconciliation.  This document will help you balance your checkbook.
• Summary of receipts of gross income – totaled daily, weekly or monthly. Keep track of where your money comes from, putting notes explaining the origin of all money received.
• Monthly summary listings of expenses – Disbursements record (check register or expense journal) showing payments of bills. This could be a purchase journal or an expense journal where you record all the transactions in which you paid out cash or checks.
• Asset purchase listing (equipment, vehicles, real estate used in business)
• Employee compensation record (if you have employees)

Now that you are familiar with basic record keeping requirements, you need to think about how you could take this to a paper less environment.

The paperless office is the future. It saves room, saves time, it is very simple to use, keeps the office neat and is 100% secure and reliable. No more overcrowded or messy file cabinets. No more archiving and storing your files each year – making new labels and file folders each year is a thing of the past!

At the start of a new year, it is a good time to look at how you handle all aspects of your business.  Invest some time now and reap great rewards throughout the year.

 

 

Small and Micro Business Owners – Look At Your Energy Equation!!

It has long been claimed that you have to spend money to make money.

Well the same is true with energy.

With all the demands of modern life, it’s hard to get enthusiastic at the idea of expending energy. But there are some things, which, on completion, leave you feeling more energized than before.

Here are five examples of things that give a good return on your energy investment.

Exercise

A workout is sure to put you in a good mood. Ironically, the less you feel like doing it, the better you’ll feel afterwards. Even a 30 minute walk is a crucial way to relax, refresh and re-focus, especially when you are busy. If you find exercise boring, try and find The Thing that you like to do. Whether it be Yoga, swimming, kickboxing or lifting weights, they are all a benefit to expending energy.

Spend time with stimulating people

Spend time with people you like to be with.  Whether they are mentors, partners, friends, etc, get chatting with whoever floats your boat.  Even attending special networking events with other clubs can encourage you to meet more stimulating business people.

Perform a kind gesture for others

This is the “Pay it Forward Philosophy”.  It could be something simple, like offering up your seat on the bus.  Or it could be a more involved task like volunteering your expertise to a community group.  There are endless ways to lend a helping hand, most of which will leave you with a spring in your step.

Perform a kind gesture for yourself

This is really important.  You can’t perform at your peak when you don’t feel good.  Get a massage, play a few rounds of golf, head out for some retail therapy and enjoy some “me” time.

Read a book

This will help you relax and take your mind off work, problems etc.

Overall, be happy and healthy and expend your energy.

 

What Are Your Financial Statements Telling You?

There are three basic financial statements: the balance sheet, income statement, and statement of cash flows.  These statements can provide a wealth of information to help business owners track what they own, the bills they owe, and incoming and outgoing cash flow.  These financial statements also provide insight when business owners are weighing financing options, managing day-to-day payroll and inventory, and looking for answers when their customers or orders are not meeting expectations.

Let’s start with the balance sheet (which is also known as a statement of financial position).  This statement provides a snapshot of your firm’s assets and liabilities at a point in time (usually at month end).  Take several of these snapshots over several months or years, and you just might find that your financial position is improving, especially if you have assets that have appreciated or business debts you’re paying off. Such an analysis can also spotlight operational problems, such as increasing receivables due to lax collection policies that need attention.  This is where a good accountant will start applying ratio analysis to compare past periods and also compare your business against other companies within the same industry.

The income statement (also known as a profit and loss statement) uses the same basic accounting data, but serves a different purpose. It tells the story of your business over a period of time, such as a calendar year. The income statement highlights revenues and expenses from routine business activities and extraordinary events, such as windfalls or casualty losses. Again, comparing these statements from month to month and year to year can pinpoint areas for improvement. For example, are your fixed costs growing over time? You may need to re-examine your location, utility contracts, or financing practices. Are your revenues stagnant? How is your cost of goods sold percentage?  How do you compare to other companies in your industry.  Maybe it’s time to rethink your business model or venture into new markets.

The cash flow statement can be a real eye opener as well. Certain transactions and events may not affect your income statement right now, but may result in a cash crunch if not addressed. Cash flow analysis can shine a spotlight on how much you’re shelling out for financing, payroll, and payments to contractors and suppliers. Proceeds from asset sales, loans, and notes also stand front and center on the cash flow statement. In addition, a well-constructed statement of cash flows can serve as the basis for realistic cash flow projections which is a must if you are thinking of procuring financing.

If you’d like help developing and analyzing your firm’s financial statements, give us a call.  If you are not using these documents to their fullest capacity (or at all) then it is time to start.  Do not let the New Year start without a commitment to review these documents at least on a monthly basis.

 

Is Your Business Having a Cash Flow Problem?

For many small businesses, maintaining adequate cash flow can seem almost impossible. Customers are tightening their belts, lending institutions are rethinking their credit terms, and suppliers are struggling to maintain their own vendor relationships. In today’s economy, many business owners have seen their personal net worth plummet and some are facing bankruptcy.

All this makes today an excellent time to renegotiate with your vendors. If your business is struggling, then you can bet that your competitors are also.  Your vendor will be well aware of this and will be worried about losing an account or two or more.  So let’s use this to our advantage. If you are selling Zodiac rubber boats and you need to adjust your terms, you contact one of your key suppliers that provide the Zodiacs on terms of 2/15 net-30. (To get a 2% discount, you must pay the supplier’s invoice within 15 days; the entire payment is due in 30 days.) To bolster your cash flow, you renegotiate the payment terms to net-45 days. By retaining your money for another 15 days, you ease the strain on your bank account (especially helpful if payment cycles from your major suppliers tend to be aligned).  What else can you renegotiate?  How about the lease terms for your office space?  Instead of paying a month in advance, you ask the landlord to let you pay at the end of the month. You keep that cash in your pocket for another 30 days or so.

Of course, negotiation involves give and take. For example, you might offer a larger share of your business to a vendor or even agree to a small price increase in exchange for modified payment terms. Needless to say, you’ll want to think through any potential changes before you begin negotiations. To keep suppliers for the long term, it’s vital to make promises you can honor.

When negotiating credit terms with vendors, take time to identify the decision maker who can make the change happen. In some cases, a face-to-face meeting with this person will determine whether you succeed or fail. Don’t just e-mail the company secretary with your request. Nothing trumps a phone call or personal meeting, especially when trying to revise credit terms.

Finally, if you can’t make a scheduled payment, don’t wait for your supplier to call. Be proactive. Most vendors are willing to work with customers who make an honest effort to correct cash flow problems before they spiral out of control.

For additional ideas or help with this process, please contact us at Elite Assist, LLC (erin@eliteassist.net)

 

Some Advice For New Business Owners

Focus. Focus. Focus. 
Many first-time entrepreneurs feel the need to jump at every “opportunity” they come across. Opportunities are often wolves in sheep’s clothing. Avoid getting sidetracked. Juggling multiple ventures will spread you thin and limit both your effectiveness and productivity. Do one thing perfectly, not 10 things poorly. If you feel the need to jump onto another project, that might mean something about your original concept.

Know what you do. Do what you know. 
Don’t start a business simply because it seems sexy or boasts large hypothetical profit margins and returns. Do what you love. Businesses built around your strengths and talents will have a greater chance of success. It’s not only important to create a profitable business, it’s also important that you’re happy managing and growing it day in and day out. If your heart isn’t in it, you will not be successful.

Say it in 30 seconds or don’t say it at all. 
This is called your “Elevator Pitch” From a chance encounter with an investor to a curious customer, always be ready to pitch your business. State your mission, service and goals in a clear and concise manner. Fit the pitch to the person. Less is always more.

Know what you know, what you don’t know and who knows what you don’t. 
No one knows everything; so don’t come off as a know-it-all. Surround yourself with advisors and mentors who will nurture you to become a better leader and businessman. Find successful, knowledgeable individuals with whom you share common interests and mutual business goals that see value in working with you for the long-term.

Act like a startup. 
Forget about fancy offices, fast cars and fat expense accounts. Your wallet is your company’s life-blood. Practice and perfect the art of being frugal. Watch every dollar and triple-check every expense. Maintain a low overhead and manage your cash flow effectively.

Learn under fire. 
No business book or business plan can predict the future or fully prepare you to become a successful entrepreneur. There is no such thing as the perfect plan. There is no perfect road or one less traveled. Never jump right into a new business without any thought or planning, but don’t spend months or years waiting to execute. You will become a well-rounded entrepreneur when tested under fire. The most important thing you can do is learn from your mistakes–and never make the same mistake twice.

No one will give you money. 
There, I said it. No one will invest in you. If you need large sums of capital to launch your venture, go back to the drawing board. Find a starting point instead of an end point. Scale down pricey plans and grandiose expenditures. Simplify the idea until it’s manageable as an early stage venture. Find ways to prove your business model on a shoestring budget. Demonstrate your worth before seeking investment. If your concept is successful, your chances of raising capital from investors will dramatically improve.  Be healthy. 
However, I promise that you will be much more productive when you take better care of yourself. Entrepreneurship is a lifestyle, not a 9-to-5 profession. Working to the point of exhaustion will burn you out and make you less productive. Don’t make excuses. Eat right, exercise and find time for yourself.

Don’t fall victim to your own B.S. 
Don’t talk the talk unless you can walk the walk. Impress with action not conversation. Endorse your business enthusiastically, yet tastefully. Avoid exaggerating truths and touting far reaching goals as certainties. In short, put up or shut up.

Know when to call it quits. 
Contrary to popular belief, a smart captain does not go down with the ship. Don’t go on a fool’s errand for the sake of ego. Know when it’s time to walk away. If your idea doesn’t pan out, reflect on what went wrong and the mistakes that were made. Assess what you would have done differently. Determine how you will utilize these hard-learned lessons to better yourself and your future entrepreneurial endeavors. Failure is inevitable, but a true entrepreneur will prevail over adversity.  If you doubt this lesson, go back and look at Abraham Lincoln’s record.  He learned from failure and used the lessons to make better decisions in the future.

 

Bookkeeping Mistakes Made by Small Businesses

Whether you have a small mom and pop business or run a major corporation, bookkeeping is a significant part of any business endeavor.  While it is typically not one of the more glamorous jobs, bookkeeping is at the heart of a company’s success, and errors can cost the company significantly.  Below are some of the most common errors that you want to avoid.

Not saving receipts of less than $75. While the IRS may not require such receipts, they provide backup documentation for the many deductions you may claim. It is very simple to have a folder for such receipts, which can prove valuable at tax time.  Better yet, scan the documents into a monthly receipts folder using the pdf format.  That way, if you need to find a document you can open the file and perform a search.

No support for your deductions. The paperless office does not exist in the real world, where audits do still exist. A paper trail, documentation or verification in the form of backup documents should be available, especially if all files are on the computer system, which could be prone to technical problems.

Along with the mistake above is this one.  Forgetting to track reimbursable expenses. Small business owners often pay for expenses out of pocket or with their own personal credit card then make the mistakes of failing to track these expenses. Why?  Because they stick it in their pocket and then wash their pants, they set it in the cup holder in the car and then spill coffee on it.  They then fail to submit the expenses to the company for reimbursement.  Develop the habit of putting all receipts in one spot so that you can then hand them to your bookkeeper to record.  Better yet, use a credit card that provides month end detail analysis.  That way, if the receipt is lost, the bookkeeper still has a record of the transaction.  It also provides a means of double-checking in case a receipt is misplaced.

Doing the books yourself or having your spouse do them for you.  No matter how much they hate it, many small business owners insist upon handling the books themselves.  Having a competent bookkeeper coming in to handle the books can be extremely beneficial in that they have the skills to do the job quickly and efficiently and will provide a second pair of eyes to find errors and make suggestions.  Besides providing professional, competent service, a bookkeeper frees you to spend more time on your business.

A lack of communication with your bookkeeper. Ok, you have hired an outside bookkeeper to handle your accounting needs.  It does not stop there.  No matter how good they are the do not have ESP.  If you get a loan, provide the documentation.  If you buy a new piece of equipment, provide the documentation.  If you take money from the petty cash box to go out to lunch, provide the documentation.  You should get my point by now!  Especially if you are a small business running on a tight budget, your bookkeeper is not going to scold you for taking money for lunch.  It might be the only meal you eat all day and it is your money! But they still need to know where it went because it is their job to keep you organized.  So give them a break. Having someone handling bookkeeping is only effective if they are filled in and kept up to date on all financial transactions. Other areas where there are frequent mistakes is paying someone a bonus and not reporting it or buying supplies and not providing the bookkeeper with the information or receipts.

Speaking of taking money out of petty cash for lunch.  A system should be set up whereby a set amount of money is in petty cash and each time money is taken out for any purpose, a petty cash slip is filled out. When the fund is exhausted, the slips will total the original amount and a check can be written to cash to set up the full amount again. Many offices are pretty cavalier about using the petty cash fund without keeping accurate records.  This will drive your bookkeeper nuts and lead to guessing about what happened.  It also could be a way that money flows out of the business without the owner’s knowledge.  While it is often necessary, each receipt should be numbered, signed and dated.

Not reconciling the books with the bank statement each month.  One of the fundamental aspects of bookkeeping is reconciling the books and bank statements every month. Nonetheless, there are businesses that do not do this and others where errors are made by not doing it properly.  It is difficult and time consuming to go back 2, 3 or more months later and try to remember what you did and why you did it.  Again, this is a good reason for hiring an experienced bookkeeper.

Not properly classifying employees. This is huge.  It could cost you thousands of dollars in unpaid payroll taxes.  Just because you call an employee an employee does not make it so.  There are specific guidelines to follow and a competent bookkeeper will be able to tell you what they are and whether you are adhering to them.  The proliferation of independent contractors, consultants, and freelancers has made it difficult to determine who is on staff and who is not. This results in an incorrect filing when it comes to filing taxes since there are different rules and regulations for employees and non-employees.

Not deducting sales tax. A common mistake in retail businesses or any business that charges sales tax is not deducting the sales tax from the total sales. You are already giving the government more than their fair share; do not make the mistake of counting sales tax as additional sales.  This results in a higher total sales amount and thus higher taxes to the business.

You may have heard the acronym GIGO (garbage in, garbage out).  If you do not have an idea of how or where to categorize a transaction, talk to the bookkeeper. There are fairly standard categories for expenses.  However, often expenses are entered into the wrong categories or too many categories are created. Use general bookkeeping guidelines for standard categorization and create as few new categories as possible. Try to follow generally accepted accounting practices.  One more reason to seek out an outsourced bookkeeper.

Finally, you may be asking why I keep suggesting using an outsourced bookkeeper.  Most businesses do not need to pay for someone full time, on staff.  They need someone 5 to 10 hours per week.  Do not pay to have someone sit around the water cooler.  Save your money to grow the business.  This should be the way you look at all your positions.

 

Have You Reviewed Your Business This Year?

Review all your systems from top to bottom. What is working and what is not? Why?  For both questions.  If it is working, is it the most efficient way? If it is not, why not?  Decide where the problems are and figure out what can be fixed. You might be able to fix them yourself, or you might need outside guidance. Maybe you need a computer expert to help you use the technology more efficiently or maybe you need a financial expert to improve the way you do your books. Whatever you do, don’t assume anything. Don’t assume that just because you have had a certain system in place from day one that it is adding value to your business or your customers. A system review (flow chart) can be an eye-opening experience for business owners. They are usually surprised to find that their business has fallen into habits that are hindering them from being more successful.  Don’t add extra staff for this process.  Start with your own staff.

Engage your employees as partners. The best people to help you solve problems, particularly those involving customers, are the ones who experience them on a daily basis.  That’s right. Your employees are a wellspring of ideas on how you can make your customers happier. Hold a start-of-the-year meeting designed to get them to share those ideas. This should be a light, enjoyable meeting where they feel comfortable sharing ideas.  ALL IDEAS!  There is never a dumb idea.  Two thoughts that may seem random and useless put together may yield unbelievable results.  Let them help you and they will own the ideas and implement them with gusto.  If you have had a good year, let them know by praising them – Publically – and if possible, in their paycheck.  They are your most important assets.  Without them, you have no customers, and no business.

Hold annual performance reviews.  Discuss with your employees what they can do to help the company run more smoothly.  While you are reviewing their performance, talk about their strengths.  Would they fit better in a different department?  Have then been doing the same job for years?  Look for signs of burnout.  Help good employees recognize that this might be happening and put them in a new job where they can regain their enthusiasm.

Clean up your office! Now that you have your employees engaged and ready to start the year off right, talk about what needs to be done to get ready for the year.  What can be shredded, what needs to be stored? It’s time to get rid of all of that stuff that you either don’t need or that doesn’t work anymore. Your employees will like working in a cleaner environment.  Chances are they will be happier and more productive.  And don’t limit your efforts to the inside of your building. Do not forget to take a fresh look at the outside of your business. Take the employees for an ice cream, coffee, hot chocolate.  While you are out for a walk, look at the building, get ideas.  Are there things that you could do to make it look nicer? You might even freshen things up with a new coat of paint or some potted plants.  As the employees see the place freshened up, they will come to work with a more upbeat attitude.

Who are your best customers? You may be surprised to find out that your best customers aren’t who you think they are.  Examine all your customers through a profitability lens.  The customer that demands the most time doesn’t mean they are the most profitable. You may find that the most needy customers and the most profitable customers are two different groups. While you should treat all customers well, identifying your most profitable versus your most demanding will allow you to decide if you need to “fire” some of your customers.  That’s right, sometimes you need to admit that you cannot do everything for everyone and suggest to your more demanding customers that they need to go elsewhere.

Touch base with your customers. Be sure to tell them you appreciate their business and ask if there is anything you can improve on or do differently to help them grow their business.  At the same time, if you have one or two customers that you went way over the top to complete their order, do not be shy to ask for a reference.  Try to do this at least once a month.  Word of mouth is still the most powerful sales technique.

Review all vendor contracts.  Take a look at how much business you are doing with each vendor. Are you getting optimum pricing based on how much you are working together?  Is the relationship mutually beneficial for you and for them?  If not, don’t be afraid to make a change. If you’re happy with your vendors, take the time to tell them. Let vendors know that you want to create a great relationship with them.

Review insurance policies. Often insurance policies are set up and then put to the side, forgotten, until something happens. Then, too many business owners discover that they are not adequately covered. Make sure that you meet (minimally) with your agent on an annual basis. By taking the time to make sure you have adequate coverage, you could save a lot of money and problems down the line. This is especially important if changes have taken place in your company during the past year that affect your liability.  Also, if you provide health insurance, you should look at any changes that have taken place and decide the impact on your business.

Review your marketing campaign.  Do you have one?  Was it effective?  What worked and what did not?  Again, engage your employees to help with this portion of your business.

Overhaul your website.  Again, do you have one?  Is it up to date?  Make sure any phone numbers, email addresses, business addresses etc are current.  Is staff listed?  Are pictures provided?  Make sure that these are current.  Make sure all information listed is current.

 

Double-Entry Bookkeeping

Most small businesses use a double-entry bookkeeping system for their accounting needs.  The two characteristics of double-entry bookkeeping are; that each account has two columns and that each transaction is located in two accounts. Two entries are made for each transaction – a debit in one account and a credit in another account.

An example of a double-entry transaction would be if the company wants to pay off a vendor (creditor).  The cash account would be reduced by the amount the company owes the creditor. That would be the debit. Then, using the double entry method we would reduce the amount the business now owes to the creditor account as it has received the amount of the credit the business is extending. That is the credit.  If you want to keep track of asset and liability accounts, you want to use double-entry bookkeeping instead of single entry. Other advantages that double-entry bookkeeping has over single-entry bookkeeping are that the owner can accurately calculate profit and loss in complex organizations, financial statements can be prepared directly from the books, and errors or fraud are easy to detect.

QuickBooks software provides a double entry system that enables your bookkeeper to track transactions and prepare month end and year end financial documents at a reasonable costs in a timely manner.  While QuickBooks has made it easier to enter transactions, it is still necessary to do the work.  This is where most businesses have trouble.  Usually they are to busy putting out fires or working on what makes them money.  And that makes sense!  But 2 or 3 months or more of non-entries starts to become a real problem.

Our suggestion:  find a reliable source to help you with your bookkeeping.  The cost is minimal compared to what the cost will be if it is not done correctly.

 

Five Simple Steps to Create a Budget

As we head into the New Year, it is important to know where you are going and as you move along, if you are hitting your expected targets.  This should not be an onerous or time consuming task but it is an important tool to help guide you throughout the year.

Five Simple Tips to Create a Budget

1. Think of a budget as a useful tool to help you set goals and measure progress.
2. Start with a sales revenue target – make your best estimate.
3. Estimate your cost of goods sold (e.g.70% of sales) and subtract from the sales revenue to determine estimated gross margin.
4. Forecast your variable expenses (items that vary according to the level of sales) and fixed expenses (items that stay the same regardless of sales). Subtract these expenses from your gross margin to determine net income (before federal taxes).
5. Break your annual budget into quarters and monitor your progress every month to detect problems and make corrections.