All posts by Judi Otton

It Was the Best of Times. It Was the Worst of Times. Budget Now. No Matter What.

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For business owners, December is never dull! You will feel pressure to close sales, deliver product, schmooze with your prospects and referral networks, show gratitude to your employees, and close out your books for the year. However, amid the chaos of holiday hoopla, it is critical to make time for a detailed review and inspection to ensure fiscal fitness in the year to come.

The end of December is the best time to populate your 2018 budget with your actual results, as well as create your 2019 budget goals. You can examine every dollar of revenue and expense for the whole year – and use these to establish 2019 budget goals, as well as your plan to achieve them. (GrowthCast can provide you with some easy-to-follow templates to make sure absolutely everything is covered. Contact us for help.)

Here are some helpful steps and considerations to guide your 2019 projections:

1. Dissect and double down on the revenue wins. What has worked to source your highest
margin revenue? How did you attract and retain your best lifetime value customers? Focus on re-creating your best sales and marketing strategies and processes.

2. Analyze customer (revenue) vulnerability and adjust… or let go. Which client relationships might go away, and do they matter to your long-term health? What happened? Implement a plan to align your service delivery, pricing or products to these customers’ needs. Or send high-maintenance/low-return customers packing… in the nicest way possible!

3. Rationalize expenses at the line item level. Where are you bleeding? Can it be stopped? Which expenditures fuel sales, customer loyalty, growth of operations? Where could you negotiate better terms with creditors, vendors, etc.? Which items are core to your business? Based on your goals and 2018 outcomes, determine whether you need to trim or further invest in order to thrive in the next year.

4. Take a hard look at your total business model and viability. Is there, realistically, a
profitable future? Are there lines of business, employees or customers that are dragging down your success? Objectively determine where to divest or fundamentally change, knowing that this step can be difficult when you are emotionally tied to your business.

5. Make the most of cash. Are you carrying expensive debt you would like to decrease? Is
there an acquisition or investment in technology, people/experts or process improvement that would propel you forward? Conduct a cost/benefit analysis.

6. Inform yourself by reaching out. Have you had meaningful conversations with employees, trusted advisers, vendors, customers or competitors? Have you joined industry associations? Are you aware of changes coming ahead? What have you learned that surprised you? Make sure you operate beyond your usual day-to-day schedule to expand your knowledge base and drive fully considered budget decisions.

At GrowthCast, we’re hoping that once you’ve put in all the discipline to manage your business’s fiscal health, you will be able reflect on your successes with great satisfaction and pride.

Becoming One with Your Customers – A 2-Part Series

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Part II: Growing Customer Loyalty… and the Bottom Line!

Often, busy, multi-tasking, success-driven business owners build day-to-day procedures and norms that are internally focused. In other words, we build our businesses – from sales to service to billing – that are based on our business needs, norms and challenges, rather than the desires and behaviors of our customers. In the long term, this is a risky proposition. A cohesive growth strategy should be centered around a satisfying customer experience at all points of contact across the life of the customer relationship. What does this mean?

  • What do you do to ensure an ongoing relationship, referrals and/or repeat sales?
    • Do you regularly touch base with customers with value-added information or just friendly check-ins?
    • Do you provide your most valuable customers with special offers and service levels?
    • Do you proactively and consultatively offer additional services based on customer needs?
  • Put yourselves in your customers’ shoes and consider all the ways they connect with your company by phone, on your website and face-to-face. What are the possible “pain points”? How might these impact your success?
  • Finally, what 3-5 things can each and every team member do daily address any issues you identify and provide the best customer experience possible? What can the company change on a longer-term basis?

Make this an “awareness-building/kumbaya/peace and joy” exercise. No finger pointing. If you recognize the hurdles and prioritize the changes you can build solutions and create forward momentum!

Becoming One with Your Customers – A 2-Part Series

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Part I: What’s it like being your customer?

Amid the year-end chaos that begins the moment the last piece of Halloween candy was handed out (or eaten surreptitiously at midnight – I won’t judge), it is incredibly beneficial for us as business owners and employees to take a time out. Reserve a few hours away from fighting daily fires. Gather your teams to reflect back and think ahead. Focus everyone’s positive energy on the ultimate source of your success – your customers.

Think about the following with your team: How would you assess the ease of doing business with you? Can your customers (or prospective customers) …

  • Contact who they need when they need them and through their preferred channel?
  • Understand their invoices and pay you conveniently?
  • Know what they are getting and what it’s going to cost?
  • Schedule service within a reasonable time?
  • Make optimal use of your product or service?
  • Find the information they need on your website and understand what you offer?

The little inconveniences may not seem like a big deal but, over time, they can add up to
dissatisfaction and attrition. Take stock and fix the small things, and you are on the path to
stronger relationships!

7 Steps to a Better Business Budget

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Many business owners have some expectation of what their expenses and revenues will be in coming months, but most have not taken the time to put together and use a real budget.

In order to better understand your business, and maintain good financial stability – a business owner should consider the following when developing their budget:

 

  1. Look to the past – The past gives a good indication of what your ongoing expenses are, both regular monthly and occasional quarterly or annual expenses. Make sure your expenses are categorized consistently and your finances are up to date, otherwise, you’re not looking at accurate information.  Factor out any one-off expenses or things you don’t expect to have to purchase in the coming year.

 

  1. Look to the future – What are you going to do differently in the coming months? Do you expect sales to grow?  If so, will there be any cost to make that happen or satisfy your orders?  Do you want to hire?  Plan that out.  It’s great to dream big here – think of everything you could possibly want and then prioritize.

 

  1. Create a Spreadsheet – Microsoft Excel, Access, or any spreadsheet platforms will keep your business organized and well maintained. Use this to work up your budget (or email me to get my template sent to you). But once your budget is ‘final’ put it in your accounting system for easier tracking of budget to actuals.

 

  1. Expect the Unexpected – Stuff happens. You know it does.  Add a little padding to areas where you’re likely to need or want it – Office expenses, Equipment, Marketing, or areas you determine.

 

  1. Looking to Cut Costs – Use the budgeting process to see where you’re spending too much money and come up with other options. Energy costs can be astronomical if employees don’t get into a habit of turning off computers when not in use, turning off lights where they aren’t needed, and so forth. Solar programs may be beneficial in the long run to save on energy costs – its environmentally friendly and tax cut incentives are also a plus  Marketing costs can be a black hole if they’re not generating a return.  Make sure your dollars are working for you!

 

  1. Be a Smart Shopper – By shopping around for different suppliers or services, you can find competitive rates for what your business needs to operate. Say you’re a commercial contractor – you’re likely to outsource the mason work for the building clients. Be sure to shop around for quotes on the labor, supplies, and other factors that may come into play with your business. But be careful – just because someone gives you a great price, doesn’t mean their work is quality.

 

  1. Review Your Business Periodically – Make sure you have a great bookkeeper who track daily expenses, profits, revenue and inventory, and then keep track of how you’re doing against your budget. Having an accountant can help with reporting, or a CFO for-hire (like me!) who can help with budgeting and other financial forecasting.

Afraid to raise your prices? Don’t be – and here’s why.

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When we first start a business, the biggest question we often think is, “what should I charge?” We tend to start out where we’re comfortable and confident people will buy.  After a while we may find that we’re making sales easily.  That’s an indication to consider raising prices.  If you also find that you’re working at capacity and losing money, that’s also an indication your pricing (as well as your operations) needs to be reviewed.

What stops most business owners from raising the bar? Fear. Many business owners think that if they raise their prices, it will scare-off their customers and they’ll look to your competitors. Feeling nervous about the adjustment is normal, but consider that in some circumstances, price implies value.  You wouldn’t go to a discount doctor, would you?  You also may find that you do lose a few customers, but if you’re making more profit from the others, and new ones, you may be better off in the long run.

In an ideal world, your business should raise their prices every year. You Should evaluate your pricing annually, taking into account new capabilities your firm has developed, your overhead costs, and the general economy.

Look at media giant Netflix. The company originally had a streaming combo-plan for $10 per month. Soon after, they decided to raise their prices to $16 – that’s a 60% increase! Customers weren’t happy and unfortunately took to social media to complain (Kuadey, 2011). I’m sure there was a strategy behind this – perhaps one big increase instead of a bunch of little ones but do try to avoid this with your business.  If you do want to raise your prices this much, try it with new customers.

Your pricing sets the tone of the kind of company you want to be and the type of customers you are looking to have. For instance, if you are known for your low-cost pricing – customers typically won’t expect high-end customer service. If you have higher-pricing – customers will expect all the bells and whistles for what they’re paying.

Here are a few reasons to help make your decisions easier:

  • Growth – You’ll want to grow your business, not just gain a ton of new customers. It’s actually 6-7x more expensive to gain a new customer, than it is to keep a current one. (Source: White House Office of Consumer Affairs).
  • Cleaning House – Having the right customers is what matters most to a business. If you raise your prices, your low-quality customers will leave and go elsewhere – leaving those high-quality customers who see the value in what you charge.
  • Quality over Quantity – Your business’s increase in costs are not the same as increasing in price. Most of the revenue you get from increasing your prices goes toward increasing profits.
  • Competition – When figuring out where your new pricing should be, look at your competition. You may not want to be the lowest, or the highest, but show your customers the quality and service they can get.
  • Statement – Most consumers have heard the saying, “you get what you pay for.” If your services are too low, many buyers will assume there’s something wrong with it. Also, other competitors may follow suit and lower their prices, and then you’re just in a race to the bottom.
  • Focus – By raising your pricing, you need to look at the service as a whole. Will you also need to improve your quality of service? What other high-value items can you provide to your customers? By focusing on your value will help show your customers that you’re willing to focus on the overall experience in the long-run.

 

Each year, be sure to look at your pricing and your business’ financial health. Not increasing pricing when needed, can result in loss of cash flow when your business is ready to grow.

Have questions about pricing? Reach out to me at judi.otton@growth-cast.com.

 

Tips To Keep Your Books Current & On-Point

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According to a small business administration study, over 28% of businesses go bankrupt due to problems with the financial structure of the company, and in many cases this could have been avoided.[1]

Understanding your accounting reports is essential in order to stay on top of business so you can manage your finances and make informed decisions based on facts.

These tips will help keep your books current and your habits on point.

 

The necessity of good accounting practices for small businesses

  • Not having adequate accounting procedures in place is akin to financial suicide and could easily cost over $100,000. The average time lost by having to fix and implement a system is 200 hours or more.

 

Poor Record Keeping Has Consequences

  • Overlooked/unpaid expenses.
  • Penalties incurred for filing taxes late.
  • Mingling of assets (savings vs. checking, personal vs. business, etc.)
  • Difficulty paying bills and employees.

 

Your Cash Flow

The Cash Flow Cycle – Cash Flow is a complex, vital process and requires knowledge of a company’s financial accounting systems general management of financial information, and proper inventory control.

 

A Basic Formula Covers –

  • Accounts Payable – liabilities, money you owe
  • Net Income (the bottom line) – revenues, expenses, net income
  • Accounts Receivable – assets, money you receive

 

What Documentation Is Needed?

Every Business has financials that evaluate the health of their business. It’s important to take a look at your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement.

 

Reading The Statements

Profit and Loss Statement – Show net profit. Major components:

  • Revenue
  • Cost of goods sold
  • Gross profit
  • Expenses
  • Net profit

 

There are two basic equations:

  • Revenue – Cost of Goods Sold = Gross Profits
  • Gross Profit – Expenses = Net Profit

 

Balance Sheet – It’s an overall picture of where your company stands. It includes:

  • Assets – cash, stocks, accounts receivable, inventory, equipment, vehicles.
  • Liabilities – credit card balances, taxes, accounts payable, accrued payroll, loan repayments.
  • Equity – retained earnings, common stock

 

Cash Flow Statement – Analyzes cash generated and used for a specific period. It includes:

  • Operating activities
  • Investing activities
  • Financing activities
  • Supplemental information

 

Sales Forecast

Helps eliminate future earnings (typically 1-3 years) and informs your sales strategy.

 

Projected Annual Sales:

Total Revenue To-Date + Run Date x Remaining Number of Sales Periods

 

Projected Monthly Sales:

Actual Monthly Sales From The Same Time Last Year / Last Years Remaining Sales x Run Date x Remaining Number of Sales Periods

 

Historical Sales:

Company Revenue To-Date / Number Of Sales Periods x Info On If Product Services Have Changed

 

Business Ratios

Financial tools used by financial analysts, investors, and bankers to determine your financial health include different types of standard business ratios:

 

Main Ratios:

  • Total Debt to Total Assets – Shows your percentage of assets financed with debt.
  • Pre-Tax Return on Net Worth – Shows the shareholder earnings before taxes.
  • Pre-Tax Return on Assets – Shows how the company manages and allocates resources.

 

Other Ratios:

  • Net profit margin
  • Return on equity
  • Accounts receivable turnover
  • Assets to sales
  • Current debt/Total assets

 

Finding Someone to Help (Like Me!)

If you’re spending too much time on your business’ financials or you don’t fully understand what you’re looking at, it may be time to hire a professional. It’s still vital to have basic accounting knowledge, but you’ll save yourself time and money by hiring someone who knows what they’re doing – again, like me.

 

Good accounting is crucial to the growth and longevity of your business. Over time, it will help you create and manage budgets, forecast future revenue, track expenses and look at the overall health of your business. Email me to help go over any of these statements or equations – I’m here to help!

[1] Making a Market Forecast Estimate, Bplans

Creating a Business Budget is Just About as Important as the Business Itself!

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Think about it – when drawing out a plan of action for your business, you can minimize any unexpected cash flow issues, control spending, inform decisions in other departments, assist with financing applications and reduce overall risk. Here are 12 steps you can take right now to create a business budget.

  1. Research Costs – Why? No one wants to pay more than they really have to.
  • Oversite costs to avoid underestimating expenditures.
  • Marketing costs are notoriously easy to underestimate.
  • For new businesses, include start-up costs.
  • Variable costs generally correlate with sales.

Fixed costs to include:

  • Rent
  • Utilities
  • Phone/Internet
  • Accountancy
  • Legal Fees
  • Technology
  • Advertising & Marketing
  • Salaries

Variable costs to include:

  • Costs of goods sold
  • Labor costs

 

  1. Project Revenues –
    • Forecast revenue
    • Use conservative revenue estimates
    • Use previous years’ figures as a starting point

 

  1. Figure Out Gross Profit Margins –
    • List all costs of goods sold
    • Subtract costs from overall sales revenue
    • Consider entire business vs individual departments

 

  1. Create a 12-Month Cashflow Projection
    • Allow for payment terms – e.g. 30 days
    • Allow for payment method – credit agreements incur expenses
    • Understand your opening balance & how this affects cashflow

 

  1. Adjust For Unreliable Payers
    • Allow for late payments in revenue column
    • Allow for bad debt
    • Create business policies to deal with late payment

 

  1. Adjust For Seasonality
    • Research seasonal demand for your industry thoroughly
    • Create savings at peak periods to cover quiet months
    • Allow for temporary staff is required to meet demand
    • Allow for increased production costs at peak time

 

  1. Adjust For Economic & Industry Trends
    • Consider general industry growth
    • Consider wider economic growth
    • Consult forecasts from reliable industry experts

 

  1. Decide How To Spend
    • Fixed rate energy plans help forecasting
    • Decide whether to buy or lease technology, vehicles, etc.
    • Decide whether to buy new or used products
    • Decide whether to buy on finance or outright

 

  1. Discuss Expenditure With Department Heads
    • Project one-off expenses
    • Agree necessary spending
    • Create targets to incentivize performance

 

  1. Prioritize Investment
    • Decide where to assign profits over forecasted levels
    • Consult key management and department heads
    • Discount non-essential expenses
    • Prioritize projects over individual costs

 

  1. Create A Contingency Plan
    • Conduct a risk analysis
    • Plan for financial underperformance and overperformance (which can bring it’s own set of challenges)
    • Consider impact of each option on business performance
    • Minimize loss in business-critical areas

 

  1. Plan Regular Budget Reviews
    • Quarterly budget reviews allow flexibility
    • Be reactive to over/underperformance
    • Adjust figures accordingly
    • Speak to your accountant or business consultant before making big decisions

 

Along the way of creating this budget, feel free to reach out to me with any questions. Each business is individual and unique, as should their plan. Contact us here for more information: CONTACT US HERE

8 Business Challenges To Overcome

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Growing your dream company can have some challenges along the way. With the rate that companies go out of business and fail, here are 8 challenges to consider, along with advice on how you can avert disaster before it strikes.

  1. Starting for the Wrong Reason – According to Forbes, more than 500,000 business are started each month – and many for the wrong reason. If you start for the right reasons, such as having a positive mindset that keeps you going no matter what. Some reasons not to start a business is if you think you’ll automatically make millions, or you just want control of something.
  2. Insufficient Capital – Starting a business without any capital is almost a death-knell. Most business owners underestimate the initial investment and ongoing expenses it takes, failing to manage proper cash flow. Protecting your capital can give you a good buffer for the ebbs and flow in your business.
  3. Improper Planning – Lack of planning is another reason many businesses fail and go out of business. Create a business plan and review annually. Regardless of length – planning is critical.
  4. Poor Management & Leadership – Effective management and leadership skills are essential to building success – lack of either can lead to confusion and conflict within the business. Make it a priority to acquire the skills you need to strengthen areas where you are weak.
  5. Expanding Too Quickly – Too often a company can experience bankruptcy as a result of expanding too quickly. Make sure you research and analyze what you’ll need for new employees, facilities and systems and make sure you can manage it.
  6. Failure To Advertise and Market – Many companies go out of business purely because the owner failed to promote and market. In 2016, nearly half of companies did not have a website (Forbes, 2016). Make sure your website is updated and can be easily navigated, set up social profiles and social networks, start an email newsletter and advertise on google, or wherever your target audience is found.
  7. Lack of Differentiation – Unique Value Propositions, described the qualities, characteristics, products or services that differentiate a business from its competitors. Once you understand your UVP, it will make it easier to communicate with your clients and employees.
  8. Unwillingness to Delegate – Business owners can be their own worst enemies, in that they seek to do everything themselves. Learn to delegate work to others while concentrating on the tasks that contribute to the growth of the company.

To learn more business tips, visit the rest of our resources and blogs.