Do You Know Your Small Business Vitals?

On a doctor’s visit, the first thing the nurse does is take your vitals:  your temperature, blood pressure, pulse rate, and respiration rate.  These basic measurements are the first place doctors look to see if something is wrong with our health. 

Knowing your vital signs, and especially when they are out of whack, is good for your health.  In the same way, knowing your business’s vital signs, and especially when they are out of whack, is good for the financial health of your business. 

Vital Measures

If you’ve been in business a while, you might already know the “vitals” you like to track.  Here are some common ones for a small or new business:

·            - Checking account balance(s)

·            - Amounts owed (bills, payroll, and loans)

·            - Revenue for the month and year-to-date

·            - Sales by customer so you can see the top five to ten largest customers

    

      As time goes on and your business grows, you may want to add some of the following:

·            - Revenue for the month and year-to-date compared to last year

·            - Net income for the month and year-to-date compared to last year

·            - Days Sales Outstanding which is a measure of how long it take to collect on an invoice from a client

·            - Revenue by service or product line in a pie chart

These are just a handful of the many options there are when it comes to measuring the results of your business, and it would be difficult for us to list all of them here.  The point is to decide proactively what you’d like to track on a monthly basis.  Then you can set up the process it takes to get those numbers delivered to you in the format you prefer. 

Once you decide on the numbers you need to run your business, you’ll be able to take your “vitals” whenever you want.  But you can take this to the next level with one more idea:  exception reporting. 

Being Exceptional     

It’s great to glance at your numbers periodically, but there can be a lot of data to wade through.  How about getting a report that tells you only when the numbers go out of range?  This is called exception reporting, and requires that you set ranges for each measure you want to follow.  If the measure stays within range, you do not have to be alerted.  However, if it falls out of range, then you can get a report to tell you what’s going on so you can take the right business action. 

Exception reporting is not all that common in small business, but can save a busy owner a lot of time. 

A Clean Bill of Health

By determining the vitals you want to watch for your business and putting a process in place to monitor that information, you will be helping your business stay healthy.  If we can help, please reach out and let us know.  The doctor is IN. 

Five Ways to Rev Up Your Referrals

In the vast majority of industries, referrals are the most cost-effective way to gain new clients and grow your business.  When you attract new clients through referrals, your marketing costs are lower, your selling process is easier and more effective, and the referral usually makes for an excellent client.  It’s just good business sense to look at how we can proactively increase our referrals.   Here are five ideas.

1.      Your Email Signature

We know it can be embarrassing or uncomfortable to ask your clients and friends directly for referrals.  A great compromise is to add a line to your email signature that takes care of it for you.  Here are a couple of wording options:

Your referral is our greatest compliment!

Referrals are the lifeblood of our business. We thank you for yours.

We appreciate your referrals.

Adding one of these lines to your email signature file is a subtle notice to everyone you email that you are open to taking referrals.  It’s indirect enough to where no one feels put on the spot, and it takes all of five minutes to implement. 

2.  Acknowledge Your Referral Sources

When you find out someone has sent you a referral, be sure to acknowledge that person with a thank you note or a gift.  (Be sure to check any licenses you hold so you know what restrictions you are under concerning gifts to clients; some industries disallow it.)

You might want to reward your top referral sources with more than a thank you note.  If you are not sure who your top referral sources are, we can help you create a report in your accounting system so you can track that information on a regular basis. 

3.  Set Up a Referral Program

Creating a formal referral program generates several benefits:

·         It formalizes the process of asking for referrals.  This lets clients know you’re serious and interested in referrals. 

·         It gets the word out to everyone without anyone feeling pressured. 

·         It is cost-effective and still far lower cost than using other marketing channels. 

·         It is not too time-consuming and produces results.

To set up your referral program, decide how you want to reward your referral sources.  It could be as fun as awarding prizes such as Kindles and tablets to clients who send the most referrals to you.  The cost of the prize is a small price to pay for the lifetime revenue of several new high-quality clients.  Send a letter or email out announcing the program, and then set up a process for tracking. 

If you’re in an industry where prizes and programs are simply not done, then a simple letter requesting referrals will work too.  Be sure to include a description of the specific type of client you are looking for; you are far more likely to get referrals when clients know who to look for. 

4.  Develop Referral Sources

One way to truly quantum-leap your business is to find new sources of referrals.  Your clients are a great source, but they each know so many people.  If your clients have been with you for a while, your referrals could stagnate because your clients have referred just about everybody they are going to. 

Keep your referrals growing by tapping into power partners.  These are small business owners that have the same type of client you do, but are not competitive at all.  The best way to reach out to them is to send them a referral!

5.  Set Up Referral Processes

There’s a lot your back office can automatically do when it comes to referral processes. 

·         You can remember to ask how a new lead heard about you when they first call.  Then you can record and track that, so that you will know where your top referral sources are.  You can systematize the thank you notes and gifts so they go out timely and automatically. You can regularly schedule times with power partner to keep them up to date on your business changes and opportunities. You can systematize a referral program or related communications to keep everyone informed. Once you set up these processes and delegate the tasks, you will grow your referrals and subsequently your revenues. 

Oh, and by the way, we appreciate your referrals!

What Does Popeye Have to Do with Accounting?

You might have heard the terms “cash basis accounting” or “accrual accounting.”  Your net income number can change depending on which method your books are set up for.  Here’s a simple explanation of the difference, with a little help from one of the most famous cartoon characters in history.

Popeye and Wimpy

You might recognize Popeye the Sailor Man from the television cartoons or other media.  His sidekick, Wimpy, was the one who was always hungry and always out of cash.  One of his favorite sayings was, “I’ll gladly pay you Tuesday for a hamburger today.” 

It’s All in the Timing

Let’s make today Thursday.  If Wimpy wants to pay us Tuesday for a hamburger today, here’s how it would be done for a restaurant on cash basis: Cash basis recording Wimpy’s hamburger purchase Both the sale and the receipt of cash would be recorded on Tuesday.  Companies on cash basis only record the transaction when the cash is received. But, if the restaurant’s books were on the accrual basis, it would be a different story: Accrual basis recording Wimpy’s hamburger purchase Wimpy’s hamburger sale would be recorded on Thursday, the day he ate the hamburger.  The receipt would then be recorded on Tuesday, assuming Wimpy made good on his promise to pay. You might be asking why a few days is such a big deal.  Outside of cartoon life, a couple of extra twists can happen.  It can be far more than a few days from the time you do the work to the time you get paid for it.  And often, these dates span different months and even years, affecting the amount you have to pay in taxes to various agencies.  Manipulating these dates (legally, of course) is one of many tax planning strategies that we can help you with.      

Choosing for Your Business

In many cases, the government has chosen which method you must use when it comes to sales tax, payroll taxes, and income tax.  That’s part of the reason we make the required adjustments to your books at year end. To help you run your business in a forward-thinking way, the accrual method is best.  You can record invoices for work you’ve done even though you haven’t received payment yet.  You can enter bills you need to pay before you pay them to forecast cash requirements.  Using accrual accounting, you can budget for cash flow needs as well as see more accurately what your revenue and income is looking like. For clients who remain behind in their bookkeeping and just want to catch everything up once a year, the cash basis is adequate.  However they lose out on all the good information they could have had throughout the year to run their business better. For other businesses, a hybrid approach between cash and accrual accounting can be the most cost effective. 

A Little Help from Popeye the Sailor

What would Popeye say about all this accounting talk? 

"That's all I can stands, cuz I can't stands n'more!" 

Accounting has finally come around to your smartphone

If you are the type of person who loves mobile apps, texting, and getting your email on your phone, then you’re in for a treat: accounting has finally come around to your smartphone.  Here are a couple of great developments you can try so you can stay on top of your numbers. 

Accounting Apps

For users of QuickBooks desktop and QuickBooks Online, an app is available to help you stay on top of your accounts receivables.  You can send invoices, view and update customer information, mark an invoice paid, and check up on customers’ balances. 

These apps work on the iPhone, iPad, and Android.  With QuickBooks, there is a small monthly charge after a free trial.   

Bank Apps

If you’re banking with a major bank, chances are “there’s an app for that.”  Downloading your banking mobile app will allow you to stay on top of balances, receive alerts, and manage your cash flow more effectively. 

Payment Apps

More and more businesses are collecting customer payments via their smartphones.  You don’t even need a merchant account for some of these payment apps, like Square, PayPal, or Intuit Mobile GoPayment, but it is cheaper if you do.  If you’re not already taking credit cards, it’s an effective way to get started; your customers can pay via Visa, American Express, MasterCard, and Discover. 

With many of these payment apps, you download the app, receive a reader in the mail, and are then able to swipe or key in a client’s credit card information.  You are charged by the transaction, or monthly, if you sign up for a merchant account.  Plus, you can often customize the receipts the client receives with your logo to make them look professional.   

Add-on Apps 

There are many other mobile apps that can increase your accounting capabilities.  Both ADP and Paychex have payroll apps for their clients.  There are numerous apps to extend many of your accounting functions, such as expense management, document management, invoicing, time-tracking, bill payment, and even work order management. 

Accounting to Go

Now you have a choice with your accounting:  you can “eat here” or take it “to go.”  If we can help get you equipped as an accounting road warrior, give us a shout.  

Budgeting Breakthrough

When you hear the word “budget,” what do you think about?  Most people would say something similar to

“Ugghh!” If you would rather do just about anything besides create a budget, you’re not alone.  The word “budget” brings up connotations of endless numbers, constraints, the opposite of freedom and creativity, and hard work, none of which are very desirable.    

Yet, the benefits of a budget are huge.  Budgets can help you with cash flow improvements, keep you on track for higher profits, and alert you to items that need further action. 

From “Budget” to “Profit Plan”

To be successful with budgeting, we need to get rid of all of the connotations that go with the word.  Perhaps it might work if we rename “budgeting” to “profit planning.” And then, rather than focus on how little we should spend, let’s start with how much revenue we’re going to make. 

Revenue Clarity  

It’s simple to create a revenue plan if you go backwards.  What revenue goal would you like to hit this year?  Just like we would never get in a car without a final destination, a revenue plan gives us a number to aim for in our businesses. 

Once you know your number, then we can use averages to come up how many sales or clients we need to generate in order to meet our revenue goal.  Here’s a quick example:  Let’s say you want to reach $5 million in revenue this year.  If you average order is $10,000, then you need 500 sales.  If you have multiple products and services, then you’ll need to sum the product of the average sale times the needed number of sales for each line. 

From there, you can make marketing and production plans based on the number of sales or clients you need. 

Protecting Your Profit

Think of the expense side of your “profit plan” as protecting your profit margins so that you can ensure financial gain from all the hard work you do.  Setting budget limits on spending will allow you to control overhead and other items so you can keep more of what you make. 

Exceptional Reporting

A great “profit plan” report will provide several things.  You can compare budget to actual, or better yet, just be alerted to the accounts showing exceptions.  You can also get an income statement that compares the current period with the prior year period so you can see how far you’ve come.  One last option is a benchmark report which provides industry averages so you can measure how you fare compared to other companies in your industry. 

A “profit plan” is a great tool for your business.  If we can help you with the process or provide you with custom reporting, please give us a call.  

Need an A/R Makeover? A Quick, 5-Item Best Practice Checklist

Technology has allowed businesses to make substantial improvements in their customer invoicing processes.  The good news is that when you implement these technologies, you will almost always get paid much faster.  

If it’s been a few years since the last time you’ve changed your accounts receivable processes, it’s time for a new look.  Here are five tips you can use to rate your own invoicing process.

1.      Invoice Creation

The best way to create all of your invoices in by the push of a button from one of about five types of systems that already have all of your data: 

• Time and billing, if you bill hourly
• Estimating and project management, if you use proposals
• Customer relations management (CRM) systems that have invoicing as a feature
• Point of sales systems that track open accounts
• Accounting system that includes an A/R component

There are a couple of key best-practice concepts to follow at this step:

• Eliminate any duplicate data entry you can.  You should only have to enter your invoicing data in one place, and it should flow to every other system that needs it.
• Automate as much of the process as possible.  Never start in Word or Excel, because this always means duplicate data entry somewhere.
• Have an easy approval process so someone else can do the data entry if needed.
• Keep your invoice data real-time so you can benefit from the next step, which is….

2.      Invoice Delivery

How you create your invoice will vary by the type of business you have, but the main thing to make sure of is that the invoice is approved quickly and sent out to the client as soon as the work has been done. 

The only way to do this is electronically.  If you’re still printing, stuffing, stamping, and mailing you invoices, you’re losing anywhere from two days to nearly a week before your customer even sees the bill.  Change that by using email or delivering the invoice electronically. 

3.      Invoice Terms

When do you want to get paid?  Most people feel it’s realistic to aim for 30 days.  But if you set your payment terms to Net 30, you’re more likely to get paid in 45 days, not 30, according to recent research by Xero, where over 12 million small business invoices were reviewed. 

Instead set your terms to 13 days or less, Xero suggests, because most small business debtors pay two weeks late.  Here is the infographic in case you want to check it out:  http://www.xero.com/guides/invoicing/

4.      Payment Method

How does your business rate when it comes to payment options?  If all you take is checks, you can add another week’s delay to your payment.  Instead, we recommend creating lots of choices for customers, such as taking: 

• Credit and debit cards through MasterCard, Visa, American Express, and Discover
• You can set up links online (best) or receive a fax or scanned form where you can enter the card into your back office. 
• PayPal
• ACH for recurring payments that the client agrees to draft from their bank account
• Checks 

Your industry may even have more options.  For example, in accounting, Intuit has their Intuit Payment Network (IPN) where small businesses can receive money electronically and send and receive requests for money.  IPN is far cheaper than PayPal fees, too. 

5.     Receipt

When you get paid electronically, it’s in your bank (or your merchant account) within minutes.  If you bank online, you can see things immediately now (it’s really amazing!).  When you receive a check, you have the overhead of preparing the deposit and making the trip to the bank.  If you have hundreds of paper checks, you also have additional bank fees incurred from processing the checks. 

If your accounting system interfaces with your bank, then you save a lot of time and money not having to post those transactions. 

Invoice-Free Zone

Why not get out of the invoicing business altogether by offering a pay-in-advance option?  Your Accounts Receivable balance goes to nothing, to name one of many benefits.  Not every industry can adopt this practice, but if you think creatively, you might find some ways you can implement this in your business. 

How did your A/R process rate on the 5-point checklist?  Got some ideas for improvement?  As always, please reach out if you have A/R questions or if we can help you implement your best practice invoicing system.  

Five Cash Leaks to Avoid

Cash flow improvement is a hot issue for small businesses; in many businesses, it seems like there is never enough cash when you need it.  The last thing a business owner wants is to reduce their cash balance unnecessarily.  To help you preserve or increase your cash, here are five cash management leaks to avoid.

1. Bloated Bank Fees

Some banks are more business-friendly than others.  We recommend you assess the fees you are currently being charged to see if you can discontinue any unnecessary services. 

•  Could you maintain a cash balance to avoid monthly fees?
• Are you being charged online banking fees and bill pay fees, and are these still necessary?
• Are you being charged for a high volume of transactions or cash drawer services, and are these competitive with other banks? 

Banks, including national brands, that have not kept up with technology and have not automated a significant amount of their transactions are inefficient and must charge higher fees to cover their processing costs.  If your accounts are located at one of these costlier banks, you do have a choice. 

2.   Overtaxed

Are you sure that you are paying the lowest amount of taxes you legally owe?  There are several places to look to make sure you have not overpaid taxes anywhere in your business or personally:

·         Payroll taxes

·         Sales and use tax

·         Franchise taxes

·         State and local income taxes

·         Property taxes

·         Federal income taxes

·         Taxes that are specific to your industry

In preparing income taxes, a few of the easiest items to overlook include carryovers from prior years and new deductions you become eligible for.  If you received a large refund this year, congratulations, but that means you gave Uncle Sam an interest-free loan on your money.  You can do better next year by estimating your tax payments and paying only what’s due.   

3. The Check Is in the Mail

Customers who take too long to pay you are big cash drains in your business.  Consider changing your terms, asking for deposits, or becoming more aggressive with collections to bring your DSO (days sales outstanding) down.  When you do, you’ll get an instant, permanent cash flow improvement.      

4.  Sweat the Small Stuff

You may have an eagle eye on your largest bank account, but what about your other cash stashes?  PayPal, petty cash, and business savings accounts are among the places that may not get daily scrutiny.  Make sure those accounts are properly reconciled and have the proper controls in place so funds don’t go missing. 

5.  It’s in Your Interest 

A nice problem to have is when your bank balances get too large and you don’t need the money immediately.  Make sure that money is still working hard for you by putting the excess in an interest-bearing account.  It’s not much these days, but every little bit helps.

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Make a Dash to the Cash  

If we can help you plug any of these cash leaks in your business, please don’t hesitate to reach out and let us know.