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Accounting

Get your cash under control

Cash Flow Management

By | Accounting, Cost Controls, Finance, Sales | No Comments
Get your cash under control

photo credit: kenteegardin via photopin cc

The number one reason why banks fail? Cash. Reason why the mortgage and housing business went belly-up? Cash. The real difference between the rich and the poor? Cash.

Let me qualify this. There are assets that create wealth over time. Usually when you think of assets you think of houses, investments, etc. However, you still have to manage the cash that these assets produce.

It’s not enough to take home a profit. Cash in the business will give you flexibility to overcome down-turns and take advantage of unexpected opportunities.

I think it’s a good idea to look at a few strategies that will help you keep a bigger cash reserve and not run so close to the margins.

Collect revenue quickly.

This may sound simple, but I’ll bet you’ve had this problem. A big part of collecting starts before the project does.

You have to develop a discipline of billing and create systems to support it. Most A/R problems happen because of miscommunication or false expectations between the client, the contractor, and the billing office. So set your system and your processes to eliminate both.

Determine your payment policies.

If you are providing large-ticket items that may require you to finance or spread out payments for your clients, how you receive payment should be part of the proposal, explained from the beginning, and carefully laid out in all of your agreements. Deposits and expected payments depend on the size of the job or deliverable. The bigger the job, the lower the overall percent you will need to get the first few weeks of work started. Some jobs you may be able to collect only the material costs up-front and spread out payments as you need them. In many instances you should get half the agreed price up-front.

Regular and prompt invoices.

Again, this depends on the size of the job. For smaller products, invoices need to be delivered and collected the day of completion. On larger projects make sure you are billing monthly or every 15 days. Billing this way eliminates lags in your cash and also prevents sticker-shock for the customer. A side benefit is how much more closely you watch your material and supply costs associated with each job.

Price appropriately.

This is not just to help you win large proposals – this includes the services, materials, and supplies that you provide. A 2% change in your net revenue can mean a 30% change in your profits.
Here is a profit and loss that I analyzed for a small contractor and how I suggested he make changes.

 

A 20% increase in your price can create a 146% increase in your net sales

By increasing what he charged for labor and materials by 20% we were able to more than double his gross profits.

He was concerned that this would lose him bids – it didn’t. Instead he found that he was no longer in a bidding war. His customers were less likely to nickel-and-dime him on every little thing because they could see that he did not cut corners.
What profits are you missing out on by not pricing appropriately?

Review your overhead regularly.

I was sitting with a client not long ago and had suggested to him that he needed to raise his hourly rate. Over the months that we worked on his leadership and organization, he continued to resist raising his price. One day he had an epiphany. He wasn’t making enough money to cover his overhead and was not including his overhead costs in his bids. He decided he needed to raise his prices.

You would be surprised how a 2% change in an overhead cost like insurance can drastically impact the bottom line. Take your P&L and your cash flow statement and take it line-by-line and create a strategy on how to trim 1% from each expense.

While this is not an all-inclusive list, these are some of the easiest areas to review and keep in line.

  1. Labor – Do you have a staffing model that ties labor hours to production/revenue? How often is your staff going into over-time? Are you leveraging your own efforts by delegating properly?
  2. COGS – Do you know exactly how much of your raw materials go into your product? For restaurants this means portion control and strict recipes. For a contractor this means knowing how much material will be scrapped and how much of it you can “up-cycle” (or use in creative new ways?).
  3. Taxes – When was the last time you had a CPA check your taxes and not just prepare them? If your CPA or tax preparer is only preparing your reports and returns and not suggesting tax savings, it’s time to find one who does.
  4. Insurance – Whether it’s your liability, worker’s compensation, or employee benefits, having this reviewed and bid out to several providers every year can drastically reduce how much you pay.
  5. Facilities/Equipment – How much you pay in up-keep and repairs might be more than what it would cost to get new equipment.

By regularly reviewing your overhead as you look at your budget, you can increase your profit by tens of thousands of dollars every year.

A word of caution: Cutting expenses is good stewardship of your business and can really help you focus on what is most important for your continued success. The danger here is that a short-term gain in profitability by cutting expenses can hurt your long-term growth potential if you aren’t careful. Do your research to make sure you aren’t cutting yourself off at the knees.

If you are going to have a successful business, control your money. Don’t be ashamed to get paid what you’re worth. collect it quickly, and then be fastidious about how spend it. Cash is the fuel to your business. Don’t starve it to death.

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business budgeting

On Paper, On Purpose

By | Accountability, Accounting, Cost Controls, Finance | No Comments

business budgetingIn many organizations, one of the most hated seasons is budget season. Your past performance and ability to stay within projections are carefully analyzed. You are also responsible for developing every detail of your budget for the next year and justifying that amount. Often you are not just justifying your budget to your own boss, but also justifying your amounts to his boss or even a panel or board.

 

Why do good organizations focus on budgets so heavily? There are some basic principles at work here that everyone, big or small, needs to take into consideration:

 

  1. Spending decisions are easier to make when you have decided in advance when you have the time to work through the logic of how to run the business without the emotional pressures.
  2. A budgets is really a goal. Knowing what you expect from your business in terms of sales, revenue and expenses helps you to focus on the activities that are going to make your business the most successful.
  3. The difference between a goal and implementation sometimes is accountability. By continually comparing your performance to your budget, you can hold yourself accountable and keep motivated.
  4. Budgets can also be a communication tool to your employees. By laying out the expectations of the business in terms of black and white numbers, your team can better understand what you expect of them.

Often managers don’t use the budget tools they are given wisely and end up losing their department a great deal of money. Business owners make the same mistake.

 

Dave Ramsey says that every dollar should be put down on paper, on purpose every month. Just knowing your budget numbers for each month and not walking blindly will make a large impact in your success.

 

You have to know where you stand before you can know the direction to take.

 

pie

Aren’t Numbers Fun?

By | Accounting, Cost Controls, Finance, Systems | No Comments

Business Numbers matterNumbers, numbers, numbers.

 

Hate them or love them, they run our world. Material wealth is based on a number assigned to the value of your assets and the revenue they produce. How we feel about something is often reduced to a scale between 1 and 10. Even in social media, you base your “acceptance” on the number of likes, shares or re-tweets.

 

So what numbers matter to you?

 

Some numbers you should track even outside your accounting books. Some numbers many businesses need to keep include sales effectiveness (sales calls/store visitors, positive responses, objections, etc.) or quality measures (Re-dos, refunds, material waste, labor hours) but are often not kept.

 

iContact (the email provider I use for this newsletter) provides me with numbers about how many open the email, how many click through, or how many unsubscribe. I use this feedback to know what content you would prefer to read, how to format it and the best time to deliver it.

 

The challenge with keeping numbers is establishing a discipline to:

  1. Record the numbers
  2. Analyze the number to make sense and
  3. Use the analysis to improve your systems.

 

What do you need to know in order to improve your business?

Know your sales least common denominator

Break Down Your Customer Numbers

By | Accountability, Accounting, Cost Controls, Finance, Marketing, Strategic Planning | No Comments

Walgreens over the last few decades has become the most prominant drug store in the United States. When I was growing up, Rite-Aid and Eckerd pharmacies where the top two “corner pharmacy” giants. Jim Collins, in “Good to Great,” details how Walgreens went from a struggling family-run corporation to a national brand.

 

Know your sales least common denominatorOne of the key components that Walgreens focused on for their growth was their per-customer sales. This is a simple number that averages a store’s receipts per customer. Everything including the location, store layout, sales, and product positioning is sculpted towards increasing their sales-per-customer numbers.

 

It is critically important to know your “least common denominator.” For a primary care medical practice you would use charges and collections per visit whereas a surgical practice would use charges and collections per surgery because of what insurance calls global fees that cover all follow-up visits. Every business should know it’s least common denominator to drive business.

 

When you look at your ratios from your your P&L and Cash Flow statements, you take a 30,000 ft view. By looking at your least common denominator you can begin realizing sales and cost-savings that you are missing on a macro level.

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Know your numbers and ratios

Understand Your Business’s Ratios

By | Accounting, Cost Controls, Finance | One Comment

Know your numbers and ratiosEarlier this week, I talked about knowing your numbers. The key to knowing your numbers is having good ratios that tell you how your business performs relative to your sales.

 

I believe in having strong budgets that tell your money where it is going before you spend it. A budget is created based on past experience and how your numbers have performed in the past.

 

However, sales and performance are not always predictable. So having your ratios set up help you to know if your expenses are in control and appropriate for your sales.

 

First, make every expense a percent of your total sales. While reviewing these ratios, determine what the ratio SHOULD be. Next (this is the hardest part) make a plan to get that ratio into the right range.

 

A quick example: in most restaurants, the food cost as a percentage of sales should be about 33%. If your food cost is around 40%, then there are several factors to investigate. There is spoilage (buying too much and not selling it before it goes bad), portion control, your pricing is too low, complimentary meals, theft, etc.

 

You can’t fix it if you don’t know there is a problem. . . .

 

Thou Shalt Know Thy Numbers

Thou Shalt Know Thy Numbers

By | Accounting, Cost Controls, Follow-through, Leadership, Strategic Planning, Systems | One Comment

Thou Shalt Know Thy NumbersDo you watch Shark Tank?

 

Let me give you the basic premise if you don’t. Entrepreneurs and inventors present their ideas to a panel of investors. They are then grilled about their business (or lack thereof) and then investors bid for investment in the business. Sometimes you see an amazing deal made – and sometimes the entrepreneur walks away with nothing.

 

One of the biggest “red flags” is when an entrepreneur doesn’t know his/her numbers. Here they are, in front of big-dollar investors asking for large investments and they don’t have a handle on how their business performs on important financial measures.

 

This is no different than any other business leader –whether you are looking for an investor or not.

 

As I work with my clients, I often see that they manage their accounts based on the number in their bank balance. They cannot tell you what they spend on marketing and what the return is. They don’t have ratios for measuring their COGS, supplies, or other variable expenses.

 

The numbers are not there for the IRS or to know how much money you made. The numbers exist for you to know how to improve your business from the inside and increase your profit.

 

The key is understanding your P&L and your Cash Flow Statement. Make sure you know the difference between the two and how to review both of them.

 

If you already know what they mean, review them. Often.

Success in business is defined by the measures you put on it.

What a Succesful Business Looks Like

By | Accounting, Follow-through, Motivation, Strategic Planning | No Comments
Success in business is defined by the measures you put on it.

Stop chasing the horizon.

Almost everyone wants to be successful. I say almost because I have met many that would be content without it.

 

Most people look back over a day or a week and see all the things they didn’t accomplish or complete. Or they look at the mile marker they had set and measure the distance between where they are and where they believe they should be. They measure their success by what the didn’t accomplish – which only discourages them.

 

Most people don’t know how to measure success.

 

I once heard Dan Sullivan, the creator of Strategic Coach, explain that success is like the horizon: you can never really “arrive.” 

I feel that it is much easier to set a mile marker and see how much closer you can get to it than yesterday. Don’t measure the distance left – look back at the distance you covered and the obstacles you passed.

 

What are you mile markers? 

 

When working with new clients, I often find they are not keeping track of how they are winning. Most are balancing the books on a regular basis – but they cannot tell you their margins, their COGS ratios, or what it costs to provide their service. A budget is the first mile marker you business should put in place.

 

The other problem I see is that many chase the wrong mile markers.

 

Define what your mile markers are. Make sure they are going to lead you to the right horizon. Then when you measure your progress towards success, consider the distance and the victories. You’ll be surprised.

Taxes

Death & Taxes

By | Accounting, Finance, Follow-through, Systems | No Comments

Taxes“It’s income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta.”

 

Dave Barry

 

 

It’s that time of year again. Ain’t it fun?!?

 

Don’t get  me wrong. I don’t mind paying my share for our military, roads, law enforcement and other systems we need in place to keep our society stable. There are just three things that bother me about paying taxes:

  1. The complexity
  2. The waste
  3. All of us become liars – some in order to pay less in taxes and some accidentally because of reason #1.

So what does that mean for your business?

 

Know what you are getting into. Find resources that help you make your business grow in spite of your tax burden. Use a group of professionals that can help you steer through it.

 

Make sure your professional is the right one. I just sat with a client this week that is very worried about how much he will owe in taxes. He has switched CPAs because he felt he had outgrown his previous CPA. Now it looks like he may have more tax liability than he planned because of poor advise and because he failed to do the next hint:

 

Prepare ahead of time. Make sure you are have a sales tax account if you are collecting sales tax. Make accommodations for your employee’s employment taxes and your own self-employment taxes. This is sacred cash and should never be disturbed until you have paid all taxes. It’s better to have a little too much in the account at the end that you can re-invest than to be stuck with a bill your business can’t bear.

 

Create a system and be organized. Unfortunately many of us have trouble keeping a mileage log, filing receipts, balancing our books regularly and keeping up with our tax commitments throughout the year: quarterly state taxes, estimated self-employment taxes, sales tax reports, unemployment and workers compensation. If you create a system to make them happen, it makes it easier to stay out of hot water.

 

Finally, get involved. Let your local, state and federal officials know how you feel. Become part of groups that influence how taxing decisions are made: professional organizations, business lobbyist organizations, and chambers of commerce allow you to amplify your voice.

 

At the end of it all: the only sure things in life are death and taxes. Be prepared for both.

 

 

 

Marketing Follow-Through

(January 30, 11:30 -1:00 – Poulsbo Chamber of Commerce)

Co-sponsored by the Poulsbo Chamber of Commerce, this is a FREE Lunch and Learn series.

Most of the time our marketing becomes a flash in the pan because we fail to follow through. Get some Ideas on how to close the gap and keep leads, customers and clients from falling through the cracks.

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Call 360.779.4848

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Get Surrounded

By | Accountability, Accounting, Leadership, Marketing, Operations, Systems, Uncategorized | No Comments

support“Surround yourself with people who take their work seriously, but not themselves, those who work hard and play hard.”

 

Colin Powell

Retired four-star general and former Secretary of State (2001-2005)

 

In the last few weeks, I have repeatedly come in contact with businesses that have achieved a level of success and want to take the next step, but can’t get through it. Often their biggest obstacle is getting the right people on the team.

 

This was emphasized in the Kitsap Business Forum on Tuesday. It seemed we kept coming back to the same point:

 

You shouldn’t do it all yourself.

This does not mean you have to hire and replace yourself in your business – at least not right away.

 

It means finding the core team you need to make your business a success. Here is my list of professionals you need to be successful. There are many others, I suggest every business owner have the following.

 

  • Accountant
  • Bookkeeper
  • Attorney
  • Insurance Agent
  • Banker
  • Marketing Expert (actually a team of experts here)
  • Cooperative/Complimentary Business owners
  • Accountability Source (Master Mind, Coach)

 

Surround yourself with great people and great minds. If you are surrounded by people or businesses that you do not wish to emulate – it’s time to get find a new group.

 

Don’t do it alone! Entrepreneurship is lonely enough already.

 

mayan_calendar1

Fiscal Cliff . . .

By | Accounting, Finance, life style, Systems, Uncategorized | No Comments

mayan_calendar1“Be Prepared”

 

Boy Scout Motto 

 

If you are reading this, the world has not ended – yet. Our politicians battle about the impending fiscal cliff that will spin the entire US economy into a financial disaster worse than the Great Depression. At the same time, our National Debt continues to rise, random mass shootings seem to be  happening everywhere, unemployment is still high, and any other headline you see in the news may impact your life at any moment

 

How do you protect your business and family from all of these impending catastrophes?

 

I’ll call on Stephen Covey to start. It boils down to circles of influence. Most of us have little influence on the debate in Washington. We vote, write our congressman, stay abreast of what is happening, and let our voices be heard in various other ways. Beyond that, we have little influence.

 

What we can do is prepare our selves, businesses, and families for the most probable of situations?

  • Reduce or Eliminate Debt. You don’t need to fear what the banks or lenders will do when they are in need of cash. Any of them call “call the loan” at any time and expect all of the debt to be payed back. Without debt, all cash flow is completely in your control.
  • Cash reserves. Keep six months of cash put away in an account. I suggest two accounts: one for your business and one for your family. The amounts there do not need to be extravagant – just enough to keep either the business from folding if there is no revenue and enough to take care of the bare necessities of your family (food, shelter, heat). These accounts can also be used when an incredible investment opportunity presents itself.
  • Educate Yourself. When the Zombie Apocalypse comes, have a basic knowledge of survival techniques: find shelter, build fires, find clean water and food. Not only will it protect you from the Zombie Apocalypse, but should you ever get stranded in a snow storm or caught in a natural disaster you will be ready.The same is true for your business. Knowledge and skill will help your business survive almost any catastrophe.
  • Have a Plan. This is something that they taught us in elementary school. If there is a fire, you should have an escape route, a back-up and a meeting place. The same is true for any other catastrophe that may occur. Know what you would do if . . .

 

When you are prepared, fear will not be the basis of your decision.

We Need You!

We are putting together Accountability Partnerships! This is a new accountability and educational format I have developed based on Napoleon Hill’s Master Mind.

Learn more at the Accountability Partners Website!

www.boommybusiness.com/accountability_partners.html