What Are You Waiting For?

January 28th, 2011

Have you started off 2011 with a “bang”? Do you have a written game plan to work from? Chances are you answered both questions with the same response. If you started off the year with a bang, you probably had a plan to follow. Likewise, if you didn’t start off with a bang, you probably lack a good plan.

WHAT ARE YOU WAITING FOR? You are 1/12th of the way thru the year. Now is the time to get things moving in the right direction, at the right speed. Draft a plan, noting specifically what needs to be accomplished, and the steps you plan to take to accomplish the plan. This doesn’t have to be a “masterpiece”. It is for you to work from. Just get something down on paper that reflects what’s in your head.

Put the basic steps down, with a timetable of some type, and get working on implementation. Develop a plan for implementation that covers the issues and keeps you on track.

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Welcome To 2011!

January 8th, 2011

Now is a good time to take a few minutes to review progress made in 2010 and set direction and priorities for 2011. What things worked well in 2010? What didn’t work? Why? Should you tweak your approach or abandon it for a different strategy?

Take a good look at what you are doing. Do you have a business plan? If not, take some time and write one – it doesn’t have to be 200 pages with color graphs – just put the essentials down on paper so you have a reference point. Then, throughout the year you can compare progress against the plan. Look at things like products being offered. Are all product lines making you money? Do your existing customers really know what all you have to offer?

Now is a good time to review costs. Are you spending your money wisely? Can you reduce costs (and stress) by outsourcing some tasks? Is your advertising producing results? Are your vendors treating you as well as you treat your customers? Maybe it’s time to review WHO you are doing business with. This applies to your customers as well. If you have customers that are marginally profitable and/or consume an inordinate amount of your time, maybe it’s time to renegotiate or eliminate.

What are you doing to stay abreast of new ideas in your industry? What are you doing to improve your management skills? Many areas have a Small Business Development Center (SBDC) available to small business owners. Our local SBDC http://www.volstate.edu/tsbdc/ provides a tremendous amount of help and classes to small business owners. We all need to carve out some time to improve our skills – who knows – you may learn something that actually saves you time and makes you money!

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Have you met your Accountant?

November 9th, 2010

When is the last time you sat down with your accountant? Too often the answer is “last time I did my taxes”. If you are a small business owner, you should be working with your accountant on a regular basis, monitoring your financials and keeping your finger on the pulse of the company. One of the things to monitor is profits. Be aware of the impact your profits will make on your tax liability.

Start tracking profits early in the year. We typically review them quarterly to see what the trend is, and how things should end up at the end of the year. Of course you will have to take into account the way your business may cycle throughout the year when estimating year-end profits, but our approach is to look at each quarter’s profits. Say you realized a $15,000 profit for the first quarter, and $20,000 for the second quarter. If your business has been relatively consistant, without major ups and downs, it might be reasonable to expect similar profits for the last two quarters. If that were the case, you would expect your year-end profits to total somewhere in the neighborhood of $70,000.

Rather than waiting until your taxes are done and your accountant tells you that you need to make a very large capital investment, or you will be hit with a large tax bill, be proactive. Start planning early so you will have the money available to make a large capital investment, or a sizable contribution to your reitrement account. So many small business owners get blind sided at the end of December, needing to come up with a large amount of money, in a short period of time. So rather than putting money into the business, they end up paying it in taxes. Give your accountant a call – plan ahead.

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Improve Profits

November 1st, 2010

How often do you scrutinize your Profit & Loss statements? A great way to increase profits is to look at your P&L item by item. Strive to understand what each expense was – what caused it, how much it was, how your expenses compare to others in your industry, and if you can reduce or eliminate the expenses.

Look at each expenditure as if you are reviewing someone else’s business. Look with a fresh set of eyes. Be alert for things that may have been set up when business was good, and the pressure to minimize expenditures wasn’t as strong as it is now. Many times we make purchasing decisions when times are good, we’re busy, and money is coming in regularly. Some of these decisions may be made by employees. Sometimes we’re so busy that we choose an option because it is easy, rather than because it is the best option. Many times this results in higher expenses.

Another area ripe for savings is that of tasks that can be outsourced. You may be able to outsource something for far less than you are currently paying. One business owner was paying his in-house bookkeeper $35,000 per year. He could outsource this for about $500 per month, resulting in an extra $29,000 per year in his pocket!

Keep an open mind and question every expense. Look for other ways to accomplish whatever task you are paying for.

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Cash Flow Management

October 8th, 2010

Lack of cash is one of, if not THE top reason for small business failures. Monitoring cash flow is essential for small business owners. And it’s not a “one-time” review. It needs to be done on a regular basis. If you do cash flow projections, you’ll know ahead of time, if cash shortages are going to hit in the future. This gives you the ability to manuver and adjust your finances to be able to pay the critical bills. Many times this helps avoid running completely out of cash.

Managing cash flow consists of itemizing future expenses and revenues, and then putting them in the time frame that they will occur. Some of the details will have to be estimated, but as you go through this process, you will get better at knowing “when” and “how much” to project for revenues and expenses. You also will adjust figures as the estimates become actuals.

The easiest way to do cash flow projections is to start with an excel spreadsheet and put dates (either weeks or months) across the top. Down the left side you list espected beginning cash, revenues (sales $) and expenses. Then it becomes a matter of subtracting expenses from revenues to show what your on-hand cash balance should be. There is a good book on cash flow management called “Never Run Out Of Cash” by Philip Campbell that explains things pretty well.

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Calculating Break-Even

September 15th, 2010

Have you calculated your breakeven point lately? Have you EVER calculated your breakeven point? Even if you have calculated it in the past, it may have changed. It’s important to know how much business you have to do to cover your costs. This is the absolute minimum you can do, and still stay in business. Obviously, your goal should be to do much better than breakeven, but there should be a warning siren go off if you get near this point.

It’s not too difficult to calculate your breakeven point (BE). Let’s start with a couple of definitions. We need to define FIXED COSTS, VARIABLE COSTS, and SALES. FIXED COSTS are things like rent, utilities, payroll, insurance, etc. Basically all of those expenses that don’t change drastically with the amount of product sold. VARIABLE COSTS (also called Cost Of Goods Sold – COGS) are those costs directly associated with the product such as purchase cost, and any assembly or installation costs. SALES is defined as the total dollar amount invoiced.

The formula to calculate BE is:

Breakeven Point = FC/(1-VC/S)

Where: FC = Fixed Costs
VC = Variable Costs
S = Sales

As an example, let’s calcuate BE for Sam’s Small Shop. From the income statement (also called P&L) we get the following figures:

SALES = $100,000

FIXED COSTS or Cost of Goods Sold = $70,000

VARIABLE or General & Admin = $20,000

Sam’s Breakeven Point (during the period indicated by the income statement) is:

Break-Even Point = FC/(1-VC/S) and

VC/S = 20,000/100,000 = .20

1- VC/S = 1 – .2 = .8

FC/(1-VC/S) = 70,000/.8 = $87,500 = BE

Sam has to sell $87,500 to breakeven.

Breakeven can be calculated for any time period (week, month, year), provided you have accurate data.

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Starting A Business?

August 16th, 2010

One of the first tasks for someone starting a business is to develop a budget of cash required to start and run the business. You need to address CAPITAL requirements, FIXED costs, and VARIABLE costs.

Capital requirements are expenses associated with such things as equipment, vehicles, and buildings. Typically these will be your big ticket items required to get the business off the ground.

Fixed expenses are regular expenses that you will have, whether you sell one widget or 100,000 widgets – things like rent, salaries, insurance, retainer fees, registration fees, licenses, garbage collection, etc.

Variable costs are things such as production labor, sales commissions, payroll & unemployment taxes, and raw materials and supplies for production.

You will need these figures to write your business plan, calculate breakeven points, plan working capital, etc. The more accurate you can be with your estimates, the better your business plan will be, and the less likely you are to run out of cash. There are resources available to help you develop your estimated costs. Most industries have an industry group that typically compiles statistics you can use. If you can’t find an industry group, look for similar businesses that might have similar expenses. Don’t short change this exercise. It can mean the difference between success and failure!

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Are You Keeping Your Website Fresh?

August 9th, 2010

Do you change your website periodically? Or is it the same stale information that you wrote way back when you set up the site? To come up in the searches, you need fresh (relative) content on your site. You may want to start a blog to keep things changing. Maybe post weekly tips (Accounting tips, Sales tips, Inventory Management tips, Tax tips, etc – whatever your specialty is).

The key is to make your site interesting and updated so that when someone visits, and then comes back a month later, they aren’t looking at the same old dated material. The search engines also recognize when material is dated and stagnate. This works against you in the quest for position on the search results pages. You don’t have to publish a novel every week. Just add new relevant information.

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Marketing Your Business

August 2nd, 2010

What have you done today to grow your business? You should take some action every day to further the business. Some days it may be a large action; other days a smaller action. But the important thing is to do SOMETHING every day. It may just be calling a business associate that you haven’t talked to recently, to catch up on how their business is doing. It may be sending a press release to the local paper. It may be launching a $10,000 television advertising campaign!

Most small businesses have a difficult time dropping $10,000 at one time on advertising. But you CAN attend a Chamber event. Or join a networking group. Or meet a business associate for lunch to discuss how you can help each other get more business. It doesn’t have to take an enormous amount of time. Sales is the lifeblood of any business. You have to spend time on it if you want to grow your business.

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Financials

July 27th, 2010

Do you review your financials on a monthly basis? Every small business owner should! I know – it’s about as fun as taking a fastball to the mouth – but is IS vital to the success of your business. Review source and amounts of revenue as well as expenses. Many owners glance at the “Total Sales” number, then turn to the back page, look at the “Net Profit” number, and then toss the P&L into their desk drawer.

What I’m suggesting is to actually LOOK at the numbers. Is there a way to increase sales? What can be done to reduce expenses? Get out of your “zone” and challenge those expenses. How hard is it to take an hour or so, once a month? Really dig into why you are spending your money. Every dime you cut from expenses goes into YOUR pocket…

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