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From Financial Data to Profit & Growth

August 4th, 2016

Too often business owners are so preoccupied with certain parts of the bookkeeping process that they don’t realize just how valuable their full set of financial data can be; should it be made available to them in an actionable way. Some business owners focus on preparing the yearly tax statement. Others may worry about that and their cash flow. And others might just use it to balance their checkbooks. If you choose to have us do your accounting, we can do all that and more. And most importantly, we can help you become more profitable.

First you need a reputable accountant, what we like to call a Profit and Growth Expert, to determine your business goals. These goals may include, but are not limited to, growth expectations, marketing plans, profit margins, and overall labor expenses. We ask important questions like, what do you want? And why do you want it?

Here is a technical way of looking at bookkeeping:

Bookkeeping: The practice involved in the systematic recording of transactions affecting a company, beginning with the data-entry process and ending with the preparation of financial statements. The art, practice, or labor involved in the systematic recording of the transactions affecting a business.

In layman’s terms, bookkeeping is the practice of determining which numbers are important to you and your business. Once that’s decided, we can set up a customized system that will organize the information you want and need. This is the different between the accounting services provided by a bookkeeper as opposed to a Profit and Growth Expert.

Let my firm, Solid Growth Accounting Services, be that Profit and Growth Expert, and advance you from a business that keeps financial records, to one that uses financial data to determine the best path to successful growth and prosperity.

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Posted in accounting, action plans, anaysis, best practices, bookkeeping, business goals, QuickBooks

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Taking Action on Cash-Flow

December 28th, 2015

Cash Flow womanCash flow is the lifeblood of any business, and in any business there are cash flow dangers. There is a capacity for a business to accumulate costs. They gradually grow month-by-month and your cash flow gradually diminishes to a trickle and finally dries up. Your only defense is to watch, record, compare and trend your costs.

Understanding what the numbers mean is crucial to your cash flow. Are sales trending up or down? Are expenses rising faster than sales? Is one product more profitable or better selling than another? How much do I need to sell to meet expenses each month? The answers all lie in the numbers.

The best way to measure cost trends is by analyzing the expense categories in your accounting software, and ideally graphing them to get a better visualization of their impact. If your company’s chart of accounts is properly designed, you can produce the graphs for each cost item and quickly be able to see that your power bill, for example, is gradually rising. This new perspective can now lead to an informed change in behavior that will reduce those costs or at least reduce the increase in those costs.

Once you have established your costs, you should compare them against the industry average, or at least use your own common sense and business experience. If you keep your books accurate and up to date, you will be able to calculate the relationship between your gross sales and the expenditure in any category. For example, with the help of your historical accounting data, you may decide that your postage should be 2% or 3% of gross sales. When you look over your month-end reports, you may discover that it has risen to 5%. Catching it early, you can now take corrective action.

If you are able to control your expenses, you can develop a healthy constant cash flow. When your bills are greater than your sales/receivables, your first reaction is most likely that you need to increase sales and collections. Although that is always a good idea, even when there isn’t a cash flow problem, there is still very good reason to pay particularly close attention to your expenses. If when looking at your figures you see that it takes five dollars to put one dollar on your bottom line, it then takes $5,000 of sales to yield $1,000. This means that saving $1,000 in costs is exactly the same as generating $5,000 worth of sales.

You need to look at your cash flow from an informed perspective. Here are five areas to focus on:

1. Mismanaging Credit
There are two common ways to mismanage credit in small business; granting credit without specific credit policies, and using credit with no plan for how to pay for it.

Both have a huge impact on your cash flow and are often closely related. For example, you have an opportunity to work on a big project, for which you will need to order materials. Your supplier expects payment in 30 days, but you won’t receive cash for the project for 60 days. Right away you’ve put yourself into a cash flow crunch that could take months to recover from financially. In the meantime, you’ve passed on smaller jobs that would have provided quicker cash at less cost. And, if you’re unable to pay your supplier on time, you’ve endangered that relationship as well.

2. The relationship between Receivables and Payables
In a perfect world, what customers owe you would be paid just in time for you to pay what you owe your vendors. But, as any small business owner knows “stuff happens”. The customer you thought would pay this week, doesn’t. So the bills you thought you’d pay this week, don’t get paid. Are your payables in balance with you receivables? If what you owe to others is far more than what is owed to you, then you have a cash flow problem. And if your receivables are particularly old, chances are you’ll never see that cash at all.

3. Focusing on profit instead of cash flow
Is profit the ultimate goal of every business? Did you know that many businesses that fail are operating at a profit? How can that be? For the small business, cash flow is the ultimate goal. No cash flow. No business.

The difference is mostly in the decision making process. If you take on this big job, it will earn you a huge profit, but if you take on five smaller jobs, you’ll have cash to pay your bills. Yes, you want to be profitable, but every decision has to be measured against the effect it will have on cash flow.

4. Don’t forget your debt to the Tax Man
Some bills are easy to forget. Bills like sales tax, payroll taxes, estimated taxes. They just sit out there, almost off the radar. They don’t have to be paid right away. It’s easy to forget about them. But when they’re due, they’re due right now. And you better have the money to pay them or you’re in hot water with the Tax Man. That is not a place anyone wants to be. Pay them late or not at all and you end up with penalties and interest on top of what’s already due. Using the money that needs to go toward taxes to solve cash flow problems results in even more, and probably worse, cash flow problems when those taxes come due. It can take months or even years to recover.

5. Spending your company’s future on a sailboat
Haven’t you always wanted a boat, a fancy car, or a trip to Tahiti? It might be tempting to try to pass your personal purchases off as tax-deductible business expenses. But, it’s a bad idea for two reasons.

The people at the IRS are over-worked, but they weren’t born yesterday. The last thing you need is an audit that could reveal your transgressions and result in an unexpected tax bill plus penalties and interest. No company’s cash flow should have to suffer that indignity.

The other reason it’s a bad idea is that you are spending your company’s future on unnecessary expenses. Small businesses operate close to the edge. Unless you have a reserve to see you through the tough times, you’re always in danger of being on the wrong side of that edge. You must take care of the cash flow first. Then, you can pay yourself a properly taxed bonus and buy all the toys you want.

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Posted in accounting, Accounts payable, Accounts Receivable, action plans, best practices, cash flow, entrepreneur

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Turning Dead Inventory into Cash

September 22nd, 2015

Dead InventoryMost small retailers struggle with dead inventory at some point. Slowly, gradually, almost imperceptively over time, the percentage of dead inventory grows. The problem is thought to be modest, because the rate of growth appears to be modest, so modest measures are taken to deal with it. An extra markdown here, a special promotion there, but still there seems to be more of it this month than there was last. Finally, when the sheer amount of inventory involved becomes inescapable, and the realization that the measures to deal with it aren’t close to being sufficient, the whole thing starts to feel overwhelming.

So if you’re looking at a buildup of dead inventory, here are a few ideas to help you get started turning it into cash.

1. Patience and persistence
You didn’t get into this situation overnight, and you’re not going to get out of it overnight (Unless, of course, getting 10 cents on the dollar from a jobber or liquidator makes sense to you, which it may in extreme cases). Build ups of dead inventory are frequently accompanied by a cash flow crunch, so the instinct to search for a quick fix can be strong. The solution, however, rests with a persistent, sustained effort designed to deliver consistent, incremental results. The first and most important step is establishing reasonable, attainable expectations for what can be accomplished in any given period of time.

2. Can you return it?
You never know until you ask. And if you ask firmly, and structure your request as a win/win proposition, most vendors will be reluctant to respond with a flat out “No.” What do you have that your vendor might find valuable in return for its help? Your next purchase order perhaps. A test order on that new item or program your vendor has been after you to try. Maybe an increased share of your business. Open the dialogue, show your vendor the inventory you’re sitting on, it might have outlets that it can sell it to. Make clear that your request is a one-time thing, not a new standard operating procedure. Maybe the best your vendor can do is offer markdown money, or an additional discount off your next purchase order. At a minimum, that would help with cash flow.

3. Segment your dead inventory

It is critical to recognize that dead inventory is made up of merchandise with dramatically different characteristics and market value. Break your dead inventory into three categories, which could be referred to as Still-Sellable, Not-Sellable, and everything else (or Who-Knows-If-It Might-Sell).

A. “Still-Sellable” is the most desirable inventory of the items you haven’t been able to move. It’s the most marketable, and appears to be the easiest to sell and turn into cash quickly. Start here. Break out a style or item, feature it, sign it, price it to move now, and get your cash. When that style sells through, break out the next style or item. If you’ve been struggling with tight cash flow, this will be your quick fix. Most importantly, if you can move this dead inventory you’ll feel like you’re finally making progress.

B. “Not-Sellable” is all the merchandise (aka, junk) you know no one is going to pay a cent for. When you see it mixed in with or merchandised near the “Still-Sellable” items, it makes that look like junk too. So get that junk off the sales floor, away from the rest of your dead inventory, and most importantly, away from your customers. The truth is that since these items have no market value, it doesn’t merit the time and effort necessary to try to sell it. Think about donating it to charity. The resulting tax deduction is one tangible benefit you will receive; another benefit is that the rest of your dead inventory won’t look quite so bad and will likely be more highly valued by your customers. In the end, if you can’t find a charitable organization that will take it, donate it to your dumpster.

C. “Who-Knows-If-It Might-Sell” is everything in between, and can be segmented yet again. After you sell through the “Still-Sellable” items, slice off the next most desirable layer of inventory from this category, feature it, sign it, and price it to move. Understand that each successive layer of inventory is likely to require a greater discount to stimulate customer response. As you go along, in fact, the least desirable inventory in this category will likely start to look and feel more and more like junk, which is a good sign that you’re near the end of the process.

4. Selling dead inventory is not like running a clearance sale

Dead inventory is different than clearance merchandise; it’s generally older and lacking in current demand. If you find a layer of dead merchandise that customers aren’t responding to, pull it back and bring something else forward, then bring the first layer back forward at a later time at a greater discount. If you attempt to move it merely by taking an additional markdown without remerchandising it, as you might with clearance merchandise, you only reinforce in the customer’s mind that it may not be desirable even at that new, lower price.

5. Develop merchandising and selling strategies to minimize the impact on your regular business

The last thing you want is for your store to look like it’s going out of business. You want to protect the brand integrity of your store. This is why a slow, steady approach works best, so that your dead inventory never represents more than a small piece of your overall offerings. For some retailers, it may be a small feature just off the front of the store, or perhaps a dedicated table or rack on a traffic aisle further back in the store.

6. Price it to be irresistible

Forget what you paid for it, or what you are carrying it on your books for. It’s not relevant. Let me repeat this, because it’s an easy point to get hung up on: Forget what you paid for it, it’s not relevant; that was then, this is now. What is relevant now is the price your customers will pay for it, now. And like most everything else in retail, your customers will tell you very quickly whether you have it priced right or not.

7. And then there’s eBay

EBay has emerged as a viable avenue for retailers to sell off dead inventory, but not everything necessarily lends itself to eBay. If you are sitting on highly identifiable, branded items with an established market position, even if those items appeal to a very specific customer, eBay may work for you. The typical eBay shopper is sophisticated and well informed. They are usually looking for something specific, down to a manufacturer’s stock number. They understand the value of what they are looking for so you have to be priced sharply. It’s an absolute must that you competitively shop similar items on eBay before you post your items there.

When you are confronted with a buildup of dead inventory, it’s critical to make a clear headed but realistic assessment of what it’s going to take to move it through. It’s losing market value every additional day it’s sitting there. It represents cash that is likely needed for other critical business purposes, such as paying vendors, reducing debt, and/or fleshing out assortments or stock levels of key items or categories. The time to get started is now.

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Posted in accounting, action plans, Dead Inventory, Inventory, small business

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Controlling Overhead Costs

May 22nd, 2015

Overhead CostsThe cost of overhead can put your company in an uncompetitive situation due to the buildup of excessive expenses incurred in the running of your company. Without a breakdown of costs into production and overhead categories, you might not realize how much you’re actually spending on the operations side of running your company. Regular financial reporting and budget variance analyses will help to maintain the appropriate cost structure in a sustained fashion.

Overhead

The costs you incur to run your business and sell your product make up overhead. These are expenses you have even when you aren’t making your product. They include expenses such as rent, marketing, phones, insurance, administrative staff, office equipment, interest, office supplies, etc.

Identify All Overhead

The first step in determining your overhead is to identify it. If you don’t record every expense you have on a budget sheet or other financial report, do so. Start by creating production and overhead reports. Production expenses are costs that apply directly to making your product, such as materials and labor. Next, break down your overhead by function, such as marketing, human resources, information technology, office administration and sales.

Create a Purchasing Process

Assign one person to review and approve purchases so that they can see all expenses that are planned to be made before they are paid. Set policies for spending, such as requiring competitive bids for purchases over a certain dollar amount. Have your purchasing manager shop for better deals on common items you buy. Consider offering a bonus if your purchasing agent meets specific savings targets without sacrificing quality.

Review Contracts

If you outsource functions or sign leases, rebid your contracts annually, even if you end up using the same vendors and suppliers each year. Rebidding contracts prevents longtime contractors from inflating their fees, or encourages them to offer more services to keep your business. Frequently this will result in lower costs. A multi-year contract will usually favor the vendor. So, if you haven’t shopped your insurance in the past two years, do so, and discuss with your current provider how to reduce your premiums. Ask your utilities providers to visit your workplace to perform an audit and recommend how you can cut your monthly water, gas and electric bills. This annual process is a lot of work, but it sure pays off.

Improve your bookkeeping and accounting practices

From the start of the business, ensure that your accounting reports keep you aware of spending and revenue. This will help you analyze where you have over spent and where you can cut down on unnecessary expenditures. Well organized and up-to-date books have benefits beyond tax issues.

Technology will help improve productivity

There are many cloud-based tools now that will help your business save money, such as online invoicing, project management and others. Most vendors will offer a free trial period. The resulting efficiencies will reduce overhead costs.

Keep the head count constant

Efficiency is gained when revenue per employee grows. Technology, lean techniques, process engineering, etc. all are ways to free up time so employees can become more productive without having to add new headcount to grow. What if you could replace your lowest 10% of performers with new people that matched your top 10%? This would result in a huge productivity boost at virtually no incremental cost. There are a lot of techniques to improve productivity, but the point is that constantly growing headcount certainly will result in overhead growth that won’t necessarily result in profitable revenue growth.

Contemplate hiring freelancers or contract employees

There are certain functions in almost any business that can be outsourced to reduce the cost of space and other overhead. If you are hiring a full time employee, there are payroll expenses, health insurance and other costs that may be associated; this will slowly eat into profit.

Keep an eye on energy consumption

Switch off lights and other equipment when not in use. This might reduce energy consumption by 20%. If possible, use laptop computers instead of a standard desktops. Laptops consume approximately 80% less energy.

Reduce your phone bills

Use Skype, Google Chat or other chat services to get in touch with your employees or freelancers. You can also use web conferencing tools, such as GoToMeeting, to meet with clients online or make a presentation. It will significantly reduce your travel cost.

Ask vendors to own “their” inventory

Have vendors keep title to their inventory until sold. Normally inventory acquired from a vendor is held in your warehouse for use in manufacturing or resale to your customers. But why think of it as your inventory? It hasn’t been used yet so why can’t it still be their inventory? Best planning results in “just-in-time” delivery so there is no inventory. But this isn’t always possible, for instance, in industries like retail where a certain amount of inventory is necessary for your customers to by when they walk into your store. But again, why are you paying them and then sitting on their inventory? They need to own the inventory until time of sale.

A dollar gained in revenue is a very good thing assuming it leverages the current cost structure. But remember, only a small portion reaches earnings. A dollar saved from cost, however, goes directly to the bottom line. So while focusing on the top-line, don’t forget to engage in a systematic approach to controlling costs as a way to ensure long-term value creation.

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Posted in action plans, best practices, bookkeeping, Overhead, Uncategorized

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Leadership Skills for Entrepreneurs

September 25th, 2014

Leadership SkillsAs a small business entrepreneur in a dynamic business world, it is vital to stay informed on the things that impact your company. There is always more to learn about business, and consistent development is a component of success. Savvy business owners recognize that internal improvements are not limited to how the business runs but also to who is running the business. That’s why it is important to create opportunities to develop your skills so that you can improve business performance.

Here are three skills that are common to successful business owners:

Diligence

A large number of entrepreneurs start companies every day. They have great ideas in mind for companies that will make an impact in the market. Many of them take it a step further by getting the concepts out of their head and onto paper, but fall short when it comes to taking the next steps. Running your own business requires extraordinary commitment to get the results desired.

Management

Having your own business means cultivating the skills to be a self-starter. You need to be able to direct yourself to handle multiple tasks in order to manage your business well. You must have the ability to look at your responsibilities and motivate yourself to get going. Improving in this area equips you to work independently without requiring someone else to micro-manage your efforts. As a result, you can see the vision and run with it, looking for ways to put plans in action with the desire to produce good results.

Learn to prioritize by recognizing that you cannot do everything at once. Then arrange your tasks in the order of importance that will have the greatest impact on making progress on your business.

Finally, and probably one of the most important tips for managerial success, is to do what you do best and be willing to delegate or outsource the rest.

Good Judgment

As a business owner you will need to make many decisions concerning your company. So having the ability to make the best decisions from multiple options is very important. You may have had success by referring to your instincts, but when possible, use quantifiable data to back-up your business assumptions, and be sure to consult with industry specific experts when you come to challenges that you are unsure about.

Are diligence, managerial acumen, and sound judgment skills that can be learned, developed, and continually improved upon? If there is strong desire for success, and an understanding and acceptance that it is possible to achieve that success when you have a regimen for starting, running and growing your business one step at a time, then yes, they are.

One method commonly used by successful entrepreneurs, is to keep a reminder of your mission in front of you at all times. This can be in the form of a vision board, a handwritten note on a sheet of paper, or some other tangible item that reminds you to stay focused, and inspires you to take action. Write down your goals and the strategies that you will use to reach them. Convert big goals into bite sized steps so that you can continue to persevere when the task seems overwhelming. Continually develop yourself into a better and more capable business person every day.

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Posted in action plans, best practices, business goals, entrepreneur, management, small business, strategic planning

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