Tag Archives: Financial Forecasting

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.

Why Financial Forecasting is Not Just a Financial Activity

Financial Forecasting

We tend to think of anything having to do with numbers as a financial activity, and that alone makes some of us shy away from it. However, financial forecasting and budgeting are so much more than just a financial activity.

First of all, financial forecasting is an operational activity. You want to make sure you have the resources – whether it is people, inventory, or cash – to operate your business. You also want to make sure your business runs as smoothly as possible. To enable maximum efficiency, avoid the kind of “fire drills” that come from a cash flow crisis whenever possible. Regular forecasting will minimize these fire drills and let you focus on your business.

Second (and most importantly), financial forecasting and budgeting are strategic activities and should be a part of any strategic planning activity. Developing a strategic plan without putting the resources (funds) in place to achieve it is a hollow exercise.

Don’t let those pesky numbers intimidate you, and don’t just lump them into that icky finance bucket. Make financial planning a part of your operational and strategic work.

Why People Struggle with Budgeting Apps

I recently read an article regarding the reasons people struggle to use most budgeting software. The author’s premise was that most software is too detailed and time consuming to keep up to date, so people give up on it.

While partially true, there are enough quick-and-easy options out there (like GrowthCast) that prove that there’s far more to the story. Here are some other reasons why business owners and others struggle with budgeting:

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“I don’t know what my expenses are going to be.”

Okay, maybe you don’t know the exact dollar amount of every expense, but you probably have a better idea than you think.  Additionally, you’re not required to get it exactly right – this is not a test.  Make your best guess, use some past data, and adjust as you get better information. Don’t make “perfect” the enemy of good.

“I don’t want to know.”

Oh, this one is insidious! I hear and see this in many different ways. Denial is not going to make the picture rosier. In fact, it’s likely to make things more difficult. Add to that the fact that you can’t make things better if you don’t know where you stand and have a way to measure progress.  Bite the bullet, put some numbers down and face the facts; only then can you change them.

“It’s too hard and too time consuming.”

Sure it can be, but it doesn’t have to be like this! You can spend tons of time building beautiful, complicated, super-detailed Excel spreadsheets, or buy some complicated software or app. But, there are so many other options now that are both easy and quick. This one shouldn’t stop you.

“I don’t have time.”

First off, it doesn’t have to take a lot of time. Second, do you have time for the emergencies that come up because you haven’t done your planning? No? I didn’t think so.

As you see, there are plenty of excuses. But, they are just that – excuses.  If you want to budget and forecast, you can. If you just don’t want to, I’d be interested in hearing why.

Leave a comment below; I’d love to hear what you have to say.

 

How did we use financial forecasting?

At my last company, as COO and later CEO part of my responsibility was overall financial management.  Early on, we were thinking about moving into a larger office.  The costs would have been substantially greater than what we were paying at the time, so our ability to pay for the space going forward was a concern. When we started talking about what our future revenues and cash flow looked like, I didn’t have a good answer.  We were a consulting firm with contracts extending out into the future for 1-6 months.  We had multiple contracts, all at different rates and costs.  Some were hourly, and some were projects with milestones attached to payments. So while figuring out our future revenues and cash flow was not simple, it was certainly not impossible.

That night, being the Excel geek that I am, I went home and spent all weekend building the first version of our financial forecasting tool.  It turned out to be incredibly beneficial in making the decision whether or not to move.  We didn’t move at that point, but now had a way to see when our revenue would support it.  Over time, I enhanced it to add cash flow forecasting, different types of projects, deals that were very close to closing, and some one time modifications to support different scenarios we were considering.  The tool was built in Excel, using multiple Excel workbooks, various look-ups and formulas and VBA macros.  It was fragile and temperamental, but hugely useful.

We reviewed our forecast often.  Certainly every time we had a financial decision, but the more we used it, the more we saw what a great indication of our financial health it was.  First of all, we could see points in the future when we had a big contract or multiple small projects ending at the same time, and focus on our marketing and selling to smooth out that “boom/bust” curve.  We were also able to see which projects and which customers were more or less profitable, and put our focus on similar projects.  Similarly, we were able to see where there were opportunities to improve our margins.  The more we used the forecasting tool, the more we valued it.  Traditional financials like Profit and Loss or Income statements tell you what happened in the past.  Our forecasting tools were able to tell us what was likely to happen in the future if nothing changed, and more importantly, it let us effect changes that changed our future.

I’m always curious about how others view financial forecasting, and how they use the results of a forecast.  I’d love to hear about your thoughts and experiences below.

I’ve spoken with many small business owners about this tool and found they, too, could benefit from this tool. So I decided to write the tool in a more sustainable platform and market it to small service-based businesses. If you think this may help you, stay tuned. We’ll be looking for beta testers soon.