Tag Archives: Finance

Four ways to assess your business health

With the start of a new year comes promises to become healthier. There are plenty of ways to assess your physical health (weight, BMI, cholesterol, resting heart rate, blood pressure, etc.)  Why shouldn’t we be looking at our businesses similarly?  When thinking about the health of your business, here are four areas to review when assessing.

Numbers – Of course I have to start here.  Do you know if you are profitable?  Do you know which of your services, products, and clients are more or less profitable?  Do you know what your cash flow need looks like?  Do you know what your customer retention rate is?  And the lifetime value of a customer?  These are all great starting points, and we’ll dive deeper in the coming months.

Customer Satisfaction – Do you know what your customers are thinking and saying about you?  Are they happy?  Thrilled? Or are they liable to jump ship as soon as there’s another alternative?  Are there other products or services that you could be providing them?  Are they referring you to their peers?  Talk to you customers, or rather, listen!

Team – Do you have the right people on your team?  Are they in the right roles?  Do you have a stellar assistant or number two that can take much off your plate? Are your people growing and learning more about your business?  Are you delegating effectively?  Without the right team in place, you can’t grow your business and keep your customers satisfied.  Having the right team makes everything else possible.

Mission/Purpose/Brand – Do you know why you’re in business?  Yes, you’re delivering a specific product or service, but what do you hope to achieve by delivering that product or service?  What’s important to you in achieving that?  I’ve lumped these three different topics into one for a reason – they are what make your company stand out.  If for example – if your mission is to make financial forecasting accessible to any small business owner, you’re going to use basic English in your communications – not a bunch of financial gobbledygook.  You’re also going to offer a reasonably priced product and not something that costs a mint and needs a team of IT specialists to “implement”.  If your mission is to educate the world on the benefits of sustainable farming, you’re going to be investing in programs that further your goals and not just selling the fruits (and vegetables) of your labor.  Keeping your purpose in sight lets you make decisions that are consistent and authentic to who you are.

These are just a few ways to assess the health of your business. Besides numbers, customer satisfaction, team, mission, purpose, and brand – what other areas do you look at when observing your business’s overall health?

As we plan to dive deeper into these topics each week, it’s important to try and answer these questions for the upcoming year.  Making your business strong in all areas will help with the financial and overall success.

How To Price Your Small Business

How To Price Your Small Business

One of the reasons behind small business success, is appropriate pricing. When you price your product accurately, it can really help build the foundation for your business to succeed. The same goes for pricing your product or service incorrectly, your business may face problem that has trouble overcoming.

It’s not an easy task to develop and initiate pricing – in fact, most business owners say it can be one of the toughest tasks to think about. If you’re thinking about revamping your pricing for the new year, here are some tips on getting the price right.

 

  1. Service Costs

Every business has different services costs, and not accounting for them can cause financial issues. It’s important to analyze the cost of each service, to set the maximum profit and reduce any unprofitable services.

One way of pricing your services, are to analyze your total costs. Elements to factor are:

  • Material costs
  • Labor costs
  • Overhead costs

Always be sure to pay attention and never underestimate your labor costs. It happens all the time to small business owners.

 

  1. Competitor Pricing

What are your competitors doing? Sometimes it’s not just about covering your operating costs, but also about where you want to position yourself in the marketplace? Think about where you want your brand – do you want to be a low-end competitor in a high market? Or maybe the high-end competitor? Seeing what your competitors are doing and figure out what will get you the best understanding of the market.

A tip to keep in mind is, don’t try to compete with large store pricing. Most of the time they buy in large volumes so their costs are much less. Try to highlight other values of your company, such as excellent customer service.

 

  1. Understand Conversions

Do you know if you’re actually making a profit on a product or service? For example, if you’re getting only 10% of sales on a product that you’ve introduced – maybe you’re proceed too high. If you consider dropping the price by 15%, you could increase your conversion rate almost by 4.

Basically, never assume things are just ok – always look to see what could be improved and be more profitable.

 

  1. Price Higher Than You Would

Most business owners underprice their services. Not charging enough is a common issue for small businesses because they often don’t have the operational efficiencies of large competitors. The one advantage that a small business has over a larger company, is service – that is more valuable than anything.

Other reasons that can help you justify your higher prices over your competitors are:

  • Satisfaction with Customer Complaints
  • Knowledge of Product or Service
  • Helpful and Friendly Employees
  • Convenient Location
  • Exclusive Products or Services

 

  1. Pricing Below Competition

If you want to stay on the low-end or the competitive pricing, remember that your profit margin will drop – so you will need to think about your costs. To stay low with prices, think about the following:

  • Inexpensive Business Location
  • Inventory Control
  • Limit Product Lines to Fast-Moving Items
  • Design Ads for “Price Specials”
  • Offer Limited Services

This strategy can be successful, but could be difficult to maintain. Remember that your competition can match your lower price.

 

Have questions or need help developing a price plan? Email me at judi.otton@growth-cast.com.

 

 

Understanding Your Balance Sheet

Being able to understand the different types of financial documents and information your business has should help you better understand your financial position. Learning how to decode a balance sheet will help give you the tools you need to make important decisions about your business.

 

A balance sheet, or sometimes called a “statement of financial position” provides a snapshot of your company’s financial position on a given date. This statement gives you details of your assets, liabilities and equity – and is usually prepared at the end of a reporting period, such as a month, quarter or year.

 

The balance sheet is based on the basic accounting equation: Assets (value of everything the business owns) = Liabilities + Owner’s Equity (How the business paid for the assets). Most statements report assets in the left and liabilities and equity detailed on the right. They should both be consistent with the equation – having the same dollar amount for each side.

 

Assets –

Assets are best described as anything your company owns that has some sort of monetary value. Your assets are concrete items, such as cash and inventory – as well as marketable securities. Different types of assets are listed on the balance sheet based on how quickly they can turn into cash if needed.

  • Current Assets – Cash, inventory, accounts receivable, short-term investments and pre-paid expenses.
  • Fixed Assets – Long-term assets such as property and equipment. Cannot be converted into cash for at least one year. Depreciation must be calculated.
  • Other Assets – Intangibles, like patents or trademarks held (only if you know their fair market value).

 

Liabilities –

This is what your business owes, in order of how soon the payment is due. For example, liabilities reflect all the money that your business owes to others – including loans, wages and other debts. Just like assets, liabilities are also categories based on their due date in which you expect to pay them.

  • Current Liabilities – Accounts payable, accrued wages, taxes and interest due within a year.
  • Long-Term Liabilities – Mortgages, bank loans and anything due in more than a year.

 

Owners’ Equity –

Sometimes called net worth or net assets, represents the assets that remain after you deduct what you owe. Valuing a business can be extremely complex – the owners’ equity doesn’t always represent the current market value of your business. Depending on the legal structure of your business, such as if you’re a sole proprietor, in a partnership or have stockholders, can also reflect on your owners’ equity.

  • Owner’s Equity – The money you have left over after selling everything in the company and paying off liabilities.

 

Balancing Act –

Assets and liabilities should “balance” out. Typically, balance sheets include previous data for comparison. Calculating the basic financial ratios can track the performance of your business, identify trends and help implement the strategies of your business.

 

Data from other balance sheets compared with current ones can help guide you to an even more in-depth understanding of your business’ finances. Of course, I am here to help guide you through these complex statements and help manage your business finances for the future.

 

End-of-the-Year Checklist for Small Businesses

I love this time of year!  Thanksgiving is my favorite holiday.  It’s tempting to focus on holidays, traveling and family visits, but tend to forget about your businesses 4th quarter closing. Now is the time of year where your business needs your attention the most, especially when it comes to your finances. Keeping on top of the details between November 1st and January 1st will not only keep you on top of year-end closings but off to a strong start in the New Year.

 

Here is a checklist of what you need to do for your business before the end of the year.

  • Accounting – Make sure you’re maintaining excellent financial records throughout the year. By December, it will be extremely helpful for you and your accountant.
    • Running Reports – Take a look at where your business stands financially, compared to other years. You’ll want to run a profit and loss statement, a balance sheet and a cash flow statement. By looking at these reports will give you a good indication of where you are financially and where you are headed.
    • Analyze Cash Flow Statements – By looking at your cash flow, you can see how your money was spent throughout the year. There is three specific aspect’s that you’ll want to analyze:
      • Operating activities (revenue and expenses); investing activities (assets purchased and assets sold); financial activities (loans and repayments).
    • Vendor Information – Make sure all your vendor information is corrected in your system. Purge or disregard any inaccurate information or if you don’t need to reconnect with them.
    • Reconcile Accounts Receivable – Make sure you have a list of outstanding invoices or which clients still owe you money. Try to get these settled before the end of the year to give next year a fresh start.
    • Double-Check Payroll – Stay on top of any issues which may need your attention. Don’t forget to check any health and life insurance benefits as well.
    • If you have big purchases your considering and have a profit, this is an excellent time to make those purchases and reduce your tax liability.
    • Make an appointment with your accountant to discuss any other tax saving strategies you can take advantage of before year end.

 

  • Information Technology (IT)
    • Back It Up – Make sure all your account files and client files are backed up and secure. Have an external hard drive available or cloud-based system.
    • Back-Up Contacts – If you do most of your business over the phone or computer, make sure you back them up – even if you have to keep an old address book.
    • Download Files – Dropbox is perfect for keeping documents and reports as a back-up. The Golden Rule for data backup is 2:1 – create 2 separate digital copies in 2 separate places and 1 offline copy.
    • Evaluate Your File System – Creating a file-naming system is especially important in businesses, especially those share servers. Make sure any and all files are uniform to the method you prefer.

 

  • Human Resources
    • Bonuses – Decide if you want to offer a bonus or other end-of-year incentive before the end of the year. Doing it before January will impact your profits report.
    • Staffing Needs – Take an inventory of your current staff and determine if you’ll need to hire more employees for the next year. Make sure you budget these additional expenses in the upcoming year.
    • Collect Accomplishments – What milestones have you and your company accomplished? Acknowledge them and your staff for an outstanding performance.

 

  • General Business
    • Inventory – Make sure you conduct an inventory count before the year’s end and make corrections as needed. This is the time to make sure you are not only keeping accurate records but not experiencing any loss.
    • Make New Goals – Have you accomplished any of your goals this year? What about next year? How will your path be different for the upcoming year? Also – write down your financial goals and talk to a professional (like us!) about how to achieve them.
    • Check Your Website – When was the last time you did a thorough look through your website? Make sure every button works, every phone number is correct ad links are working properly. It’s imperative to make sure everything is in working order.

 

Closing out for the end of the year can seem like an overwhelming task – but staying on top of your business goals and finances will make next year a lot easier.

Still have questions? Email me at judi.otton@growth-cast.com to help plan your own check-list.

15 Financial Management Tips for Beginners

15 Financial Management Tips for Beginners

Separate Business Expenses from Personal – This will help keep your personal spending separate from your business costs. Plus, having a business credit card could come with a higher credit line, for unforeseen expenses. Not separating the two can cause confusion when you’re analyzing your yearly spending. It could even potentially get you in tax or legal trouble.

Get A System That Works – Getting your finances in order is just as important as any commitment you make. Organizing your financial paperwork, such as bank statements, insurance and mortgage payments and financial debts – this will help reduce the confusion. Create a monthly budget and payment system that will allow you to easily obtain the important document for payment, filing, and inquiry.

Don’t Think Too Small – Sure, you may not have many expenses to manage, but that doesn’t mean you should settle for an Excel spreadsheet. During tax season, sending over a spreadsheet, bank statements and loads of receipts is going to make your accountant’s job just that much tougher. Having a software program where you can easily input expenses, will not only keep track of expenses and deductions – but can help make your business more profitable today and forecast your financial future.

Connecting All the Dots – When you connect your bank accounts and credit cards to an accounting software program, you can reconcile and download statements as needed.  Even easier than that Excel spreadsheet!

Save Time (and Money!) – Having your expenses automatically inputted into a program will not you save time on data entry, but you’ll be ready for tax time!

Pay Yourself First. Always – Try putting away a percentage of your earning away in an account and budget a reasonable amount to live on. You should make sure that your business is serving you! Read more about “paying yourself first” in the book, “Profit First” by Mike Michalowicz. http://profitfirstbook.com

Save For a Rainy Day – It’s important to make sure you have an emergency fund for whatever comes your way. Whether you put away $25, $50 or even $100 a month aside, it’s imperative to keep money on-hand for unforeseen expenses – like taxes.

Keep Up with Your Finances – Make sure you set time aside each week to tackle financial tasks. Weekly tasks could include checking your cash position, record transactions or review your projected cash flow, and following up on late payments from clients. Depending on your volume, you may need more or less.

Get Appropriate Help – If you’re (realistically) never going to keep up with QuickBooks, hire a bookkeeper. If you need help on your budgeting, managing your cash flow, or growing your bottom line, feel free to give me a call to see if we’re a fit.

Make Sure Your Profiting – On each sale you make, you should be making a profit.  It may not be huge, but it should be something. Otherwise, you’re working AND losing money – and who wants to do that?!

No Profit? Why Not? – If you’re not making a profit on every sale, this needs addressing.  Ask yourself if it’s due to specific clients, specific products or services that are the most troublesome? Or have there been random things that have gone wrong that have been corrected.  This is not unusual for a new business.  Just make sure you’re not repeating the same mistakes.  You already paid for that lesson!

Have a Plan to Grow! – I’m not talking about a giant binder that sits on a shelf gathering dust.  Have some ideas mapped and start trying them. Make sure you try them one at a time – It’s never going to get easier.

Know Your Financial Responsibilities – Do you know your Sales Tax, Payroll Tax, Quarterly Taxes, State Filing or Specific Licenses in your field? Not knowing is not a valid defense and could be very costly later on.

Checklist! – I’m a big checklist person.  Create a checklist so you know what you should be doing weekly, monthly, quarterly, and annually. Make it a recurring task in your task management system of choice.  If you want mine, click HERE. Try the downloadable app “Wunderlist” on your computer or phone.

Look at The Big Picture – Allocate some time for thinking. Allow yourself to spend some time either weekly, monthly or yearly to reflect on how things are going. Figure out the best time of day that you’re most creative, and generate new ideas and goals.

Enjoyed this blog? Contact me for more information about your business’s financial future at judi.otton@growth-cast.com.

The Top 10 Ways to Keep Your Business Financially Healthy

Recently, I gave a presentation on my “Top 10 Ways to Keep Your Business Financially Healthy” and thought I’d turn it into a blog post to share with all of you.

The Top 10 Ways to Keep Your Business Financially Healthy

  1. No co-mingling.
    No, this is not an HR issue! This refers to co-mingling personal and business funds. Not only does this make your accountant’s job a nightmare, it opens your personal accounts to inspection if you should have legal or tax issues with your business. The reason many of us have incorporated or started an LLC is precisely to obtain this protection of our personal assets (that corporate veil). But, co-mingling your funds pierces that corporate veil and negates any protection you might have. Don’t do it!
  2. Get a system.
    Having some sort of accounting system is key. You can’t do it all on spreadsheets or in a shoebox. Again – your accountant will hate you, but more importantly it provides you no visibility into your business. There are inexpensive, very easy-to-use systems out there, so there’s no reason not to do this.
  3. Have a checklist.
    Don’t miss a filing date or regularly scheduled task. There are too many things to do on a regular basis to skip this. If you’d like to get our regular advice on the matter, sign up for our newsletter and we’ll be happy to send it to you.
  4. Look ahead.
    Accounting systems can tell you what happened last month, last quarter and last year. While you can make assumptions from that, it’s not nearly as powerful as having leading indicators, a budget and a forecast to steer you right. Read more about why and how here.
  5. Know your margins.
    Make sure you know what it’s costing you to deliver your products and/or services. Include things like credit card charges and shipping. If it’s services, make sure you include all the additional costs beyond your employee’s salaries, such as payroll, taxes and benefits. These costs can be 20-25% or more of payroll. Delivering more services that you’re losing money on is going to put you out of business faster.
  6. Know who your best customers are.
    Most of us have customers that we make the most money from, who appreciate our value the most, and who we enjoy working with the most. If those customers meet all three criteria, that’s fantastic! Knowing what kinds of customers are best for us allows us to look for them and run screaming from those who are not, saving everyone a lot of headaches.
  7. Invoice promptly.
    The easiest way to keep your cash flowing is to invoice promptly and frequently. If you’re working on a long term project, invoice at multiple times during the project (if at all possible). To further assist the project, try coinciding your billing with specific deliverables. As an extra tip, follow up with customers immediately after their due dates if they are late with payment. Simply reach out with a nice phone call to remain “top of mind” when they do pay.
  8. Know your reporting responsibilities.
    We all have annual, quarterly, (and sometime even) monthly reporting responsibilities to the IRS. Additionally, local taxing authorities, states (registration), banks, investors and ourselves may all require additional reporting; make sure you know who needs what. If at all possible, prepare once and deliver to many to save yourself some time and effort. Don’t forget reporting (reviewing) financial reports yourself.
  9. Have a source of backup funds.
    One very common time for a company to experience a cash crunch is when they are growing. You might need funds to purchase raw materials, inventory, or pay people to perform services before you are paid. The time to line up this source of funds is BEFORE you need it. It can take time to get a Line of Credit or Loan approved, and banks are much more likely to lend when you are not desperate. Don’t wait until you are.
  10. Engage an expert.
  11. You’re an expert in your business, but may not be an expert in finance, accounting, or taxes. That’s why it pays to engage an expert and have reviews with them periodically (quarterly is a good frequency). Once you have a relationship with them, you can also call them and ask questions during the year to keep yourself on track.

I hope these suggestions were helpful. Any others suggestions on how to be financially healthy? Leave them in the comments field below.

Forecasting Growth

Is your company growing? Would you like it to grow?  We tend to think of growth as a universally good thing, and while it is a good thing, it comes with its share of challenges.

Did you know that almost every growing company will run into cash flow shortages? Or even worse, limited cash flow; something that will greatly stunt your growth. Think about it – if you sell widgets and the demand for your widgets is growing, you need to buy the widgets or the materials to make your widgets to satisfy market demand. Sure, you can finance that purchase – to a point. I don’t know anyone that has unlimited credit, and eventually you’ll run up against that limit.

Say you’re a service company. You think you’re in the clear because you don’t have to purchase or make inventory? Think again. You need to hire more people to perform more services. This can actually cause a bigger cash flow shortage because it can cost more, and payment may be delayed even further.

The best way to avoid stunting your growth is to figure out how much cash you’re (likely) going to need and make arrangements in advance. Whether it’s a line of credit, terms with suppliers, or pre-payments and deposits on certain orders, there are ways to mitigate the cash crunches associated with growth so you can grow to be as big as you’d like.

Forecasting Growth