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.

Seven Strategies to Put the Spring into Your Sales

Spring is here and that’s the perfect time to try something new in your business to make things fresh.  Here are seven ideas to try in your business; pick the one that’s most likely to put the spring in your sales.

1. BOGO

“Buy one, get one” or BOGO deals are always hot and never grow old.  Even if it’s not common in your industry, see if you can adapt and create a deal like this.  The best thing about a BOGO strategy is it spreads more of your product or service around to a wider customer base, which can spur referrals or word-of-mouth, the best kind of sale.

Here’s an example of a BOGO applied to a service: Purchase a seat at a training workshop and bring a co-worker at no extra charge (or charge the price of materials and lunch to cover costs).  You can also offer one month free (cheaper than offering 10 percent off on an annual basis) if you have a service that is performed over time.

 2.Weekend Sale

Sales can move a lot of people to action.  The key is to limit the time that they can get the discount to a very small window.  Hold a time-limited sale when it is slow for you (could be during this month when people are hit with tax bills) to boost your volume.

 3.Freshen Up Your Displays

If you have a storefront, when is the last time you’ve freshened up your look?  Retail businesses work hard at this, but even if you aren’t in retail, take a look at what the customer sees.  Is it inviting?  Fresh?  Pleasant?  If not, do some spring cleaning!

If you work from home or have a virtual office, your website is your storefront.  See if it needs some spring cleaning so that you look more attractive to your prospects and clients.

4.Introduce New Features

Make a slight change to your existing product by adding a new feature, offering it in a new color, or something similar.  It will feel a little fresher to your clients, which may cause an increase in perceived value.

 5. Start a New Niche

Once you’ve gotten a couple of clients from a new industry, you’re off and running.  You will be able to learn from working with this new industry, and then you will be more valuable to others in that space.

Take a look at your client list, and see where you have just a few clients in the same industry but would like more clients like them.  Then go for it!

6.Flavor of the Month Club

Baskin-Robbins used to have a “flavor of the month” so that customers would be enticed to come into their ice cream shops over and over again.  You may be able to have an “item of the month” or even a VIP club where your customers get something new each month.  Your VIP Club could also include priority treatment with specials or discounts.  VIP clubs done right are especially effective in restaurants and retail, but can work in other industries too.  The goal is to increase the frequency of visits to your business by enticing clients to become regulars.

7.The Biggest Opportunity of All

We often overlook the top opportunity that’s under our own noses:  our current and past clients.  They trust us the most, which is the highest hurdle to new business.  If you haven’t contacted your top clients in a while, make a point to reach out.  More sales could be just a phone call away.

Now it’s time to spring into action on the one idea that resonates most for your business.

Five Ways to Protect your Cash

As entrepreneurs, we work hard for our money, and the last thing we need is to have it disappear due to fraud, hackers, or identity theft.  Some people have called 2013 the year of the hacker, which is worrisome.  But you’re far more likely to experience risks with disgruntled or financially desperate employees and contractors.  Mistakes happen, too, and when they do it can be costly to get them corrected.

Here are five ways to increase your financial controls so that you can lower your business risks when it comes to the handling of cash and cash equivalents.  As you read the list, check to see where you can tighten up controls in your business.

Checking for Checks

Do you have blank checks lying around?  If so, reduce the temptation and get them locked up.  You can also go a step further and have your accountant run a report each month (or week) of missing check numbers.  If any checks are unaccounted for, take action by processing Stop Payment orders at your bank.

Bank on It

If you are still getting your bank reconciliation on paper, where does it get mailed?  The business owner should always see the bank reconciliation before anyone else does.  Also, make sure the person that performs the reconciliation is not the same person that deposits the checks.  Segregation of duties is essential to improve cash controls.

Today, it’s a good idea to do all your banking online, if possible, so that nothing gets mailed.  In that way, you have some reduced risk over identity theft.

Some banks offer multiple-user access to your banking account, so that bookkeepers can get the information they need.  Lock that user ID down as much as possible, so that the user can only get to what they need to.  If they’re honest, they will appreciate the reduced level of responsibility and consider it a smart financial move.

PayPal Protection

If you have a PayPal account, keep the balance low by transferring funds frequently to your bank account.  You can also restrict access to reduce your risk.

Credit Card Control

If you use credit cards in your business, you’ll want to maintain tight control over them.  For each employee or contractor that needs to charge items on a credit card, here are a couple of points to consider:

  • If the credit limit on the current card is sky-high, then ask the bank to lower it or set up a new card with very low credit limits just for employee use.
  • Contact your credit card company and get a card in the employee’s name.
  • Make sure you can access the credit card transactions online.  They are immediate, and if necessary, you can closely monitor what’s going on.
  • Insist on a receipt brought to you for every purchase.
  • Create clear procedures, limits, and approvals before the spending occurs.
  • Don’t let the employee “keep” the credit card during off hours.  Keep it locked up on your premises instead.

Safeguarding Payroll

One of the biggest cash outflows for small businesses is payroll.  Here, segregation of duties comes into play again.  The person preparing the payroll should not be the one who approves it and actually runs it.

You can do this by having different user accounts and controls within your payroll system.

Hopefully, you already have a lot of these ideas in place.  If not, add the ideas you like to your to do list so that your business risks will be reduced.

Five Places to Find More Profits

It’s always a good idea to be on the lookout for ways to increase your profits, and luckily, there are many ways to do that.  One way is to focus on cost-cutting, and here are five places that are good to periodically review for cost-cutting possibilities.

Telephone

Re-negotiating with the phone company every one to two years is a really good idea.  Many telecommunications companies will often bargain with you or offer you a new deal just for checking in with them.

Has your business changed?  Do you need all those extra features you are paying for?  Could you do without those extra lines?  Would another phone plan save you money on long distance or international calls?

The risk is low:  one quick call will let you know if you can save money in this area.  It’s worth it to give it a shot, and while you’re at it, you can call your smartphone provider too.

Travel

Travel is always a great area to look into for possible ways to save.  Are all trips necessary and profitable?  Are there any meetings that can be done virtually instead of face-to-face?  Virtual tools such as GoToMeeting can make travel unnecessary.

What trips can be cut this year?  Can the number of people sent per trip be cut?  Can travel arrangements be made early to save money?  Are booking dates flexible so you can compare and find the lowest rates?  Is a taxi or rent car cheaper?

Dues and Subscriptions

Paying our annual dues for the club or association we’ve belonged to forever may be a habit, but is it beneficial for your business?  We might enjoying seeing everyone once or twice a year at the meeting, but we may not necessarily have to have a membership to do that.  Sometimes paying the guest rate is more affordable than the member rate if we are attending infrequently enough.

Review a list of organizations and publications you and your employees are part of, and choose which ones you are truly benefiting from.   If being an officer in one of your organizations is not getting you any new business, then you may eliminate a time drain by bowing out and letting someone else volunteer.

Labor

As your business grows, it can be a challenge to decide who to hire next.  The first place to look before you decide should be your existing employees.  What tasks are they doing that you are paying them too much for?  For example, do you have a manager doing clerical work?  If so, you may be able to piece together an administrative job that frees your current staff from all the clerical work they are doing.

It’s worth a look to see where your current employees are being overpaid and find someone to do those parts of the job.  You’ll save labor costs and come out ahead in the long run.

Fixed Assets and Equipment

Another place to save money that can be significant is purchases of large items such as furniture, automobiles, and production equipment.  It’s a good idea to get three bids from reputable vendors so you have a choice.  Going with the lowest bid is not always a good move; going for the highest quality is.

Look in these five places, and let us know how much you find to increase your profits.  As always, if we can help, let us know.

Are You Vulnerable to Fraud?

According to the Association of Certified Fraud Examiners (ACFE), over $3.5 trillion is projected to be lost to fraud worldwide in 2011 alone.  The typical organization loses 5 percent of its revenues each year.  While we have a lot to think about as entrepreneurs, we do need to take time to educate ourselves about this unfortunately common business loss.

The Fraud Triangle

An easy way to understand fraud is to learn about the Fraud Triangle.  The creation of the Fraud Triangle is credited to Dr. Donald Cressey, a well-respected criminologist and sociologist who made significant contributions to his field.

Three components need to be present in order for fraud to occur:

  1. Motivation (or Need)
  2. Rationalization
  3. Opportunity

When fewer than three legs of the triangle are present, we can deter fraud.  When all three are present, fraud could occur.

Motivation

Financial pressure at home is an example of when motivation to commit fraud is present.  The fraud perpetrator finds themselves in need of large amounts of cash due to any number of reasons:  poor investments, gambling, a flamboyant lifestyle, family requirements, or social pressure.  In short, the person needs money and lots of it fast.

Rationalization

The person who commits fraud rationalizes the act in their minds:

  • I’m too smart to get caught.
  • I’ll put it back when my luck changes.
  • The big company won’t miss it.
  • I don’t like the person I’m stealing from.
  • I’m entitled to it.

At some point in the process, the person who commits fraud loses their sense of right and wrong and their fear of any consequences.

Opportunity

Here’s where you as a business owner come in.  If there’s a leak in your control processes, then you have created an opportunity for fraud to occur.  People who handle cash, signatory authority on a bank account, or financial records with poor oversight could notice that there is an opportunity for fraud to occur with the ability to cover the act up for some time.

Prevention

Once you understand a little about fraud, prevention is the next step.   To some degree, all three points on the triangle can be controlled; however, most fraud prevention programs focus on the third area the most:  Opportunity.  When you can shut down the opportunity for fraud, then you’ve gone a long way to prevent it.

The Typical Fraud

The median cost of an occupational fraud case was $140,000, according to the ACFE.  It goes undetected for a median time frame of 18 months.   The most likely way to discover fraud is a tip from an employee who works at the victim organization.

Small Business Vulnerability

Small businesses are the most vulnerable to fraud, because they employ the least amount of fraud prevention controls.  Here are just a few quick tips to help prevent fraud in your organization:

  • Create a culture within your organization that deters fraud and provide employees with education about fraud prevention to reduce rationalization.
  • Tighten down access to financial areas, segregate duties, and use other internal control best practices to reduce opportunity.
  • Provide financial literacy programs to employees to reduce need or motivation.
  • The ACFE recommends that small businesses provide employees with an anonymous way to report suspicious activity.

While we hope fraud never happens to you, it makes good sense to take preventative steps to avoid it.  Please give us a call if we can help you in any way.

Life Beyond the Profit & Loss Statement – Do You Know Your Lifestyle Ratios?

Each month, you may anxiously await the reports that provide the numbers that help you manage your business.  Revenue, net income, total expenses, and payroll costs are just a few of the items that you may be monitoring on your profit and loss statement.  Those numbers will help you meet and improve your business goals, but the question is, what numbers are you using to determine if you are meeting your life goals?

It might be fun to come up with a few lifestyle ratios to help you measure and move toward your personal goals.  Here are a few for your consideration:

Passive vs. Active Income

If you’d like to work less as time goes by, then you’ll want to create your passive vs. active income ratio.  Make a list of all of your sources of income (not just business) in a spreadsheet.  You might have interest income, rental income, and investment income along with your business income or salary.

Then write down how many hours you spend working to earn each type of income.  For interest income, it is likely to be very little.  Investment income will only include the time you take selecting your investments and managing your portfolio. If you are active in your business, this will be the lion’s share.

Income is passive if you spend almost no time earning it.  Income is active if you spend time earning it.  (These definitions correlate to your time spent, not the IRS definitions.) Put the income in the appropriate column, passive or active.  You can allocate if necessary.

In the example below, this person is well on their way to retiring.  They also might question why they are spending so many hours working so hard for a fraction of their monthly income!

Income Monthly Hours Passive Active
Interest Income $5,000 0 $5,000
Rental Income $6,000 2 $6,000
Investment Income $20,000 1 $20,000
Business Income $10,000 167 $10,000
Totals $41,000 170 $31,000 $10,000
Passive/Active ratio 76% 24%

 

The “aha” comes when you see the numbers.  The numbers often drive people to action.  You might decide to be more intentional about moving your income to passive sources so you can do the things you want to do.

Leveraged vs. Unleveraged Revenue

Leveraging your business revenue is a way to work less while making more money.

Measuring leverage is business-specific.  Examples of revenue that are not leveraged include seeing clients one at a time and selling hours-for-dollars services without a staff.  Revenues that are partially leveraged include group programs such as classes and events like webinars and conferences as well as hourly consulting that your staff performs with your limited oversight.  And revenue that is fully leveraged includes product sales.  Once the product is developed, it takes little incremental time to sell (unless you’re in retail).

Here’s an example, assuming this business owner has a staff of five people.  Both hourly consulting and training classes are partially leveraged because the business owner spends time teaching, consulting, and supervising.

Revenue Leveraged Unleveraged
Book sales $500,000 $500,000
Hourly consulting $3,000,000 $2,500,000 $500,000
Training classes $2,500,000 $1,500,000 $1,000,000
Total $6,000,000 $4,500,000 $1,500,000
Ratio 75% 25%

 

If your revenue streams are flexible, you can work on moving more of your business income over to the leveraged side.  To create more leverage in the example business, the owner could sell or develop more products, hire another teacher, hire an additional consultant, and/or hire someone to review the consulting work of the employees.

Days Off vs. Days Worked

This ratio measures how much time we are able to spend away from the office.  It’s simple to compute, and you can estimate it if you don’t track your time.

Assuming a 5-day work week, there are about 250 working days in a year, not including about 10 holidays.  Estimate the numbers of days you were off, and divide by 250.  For example, if you took 5 1-week vacations from work last year, that would be 25 days, resulting in 10%.  This assumes you worked the rest of the year.

Your Lifestyle Goals

What’s on your “bucket list?” (This is a list of things you want to do in your lifetime before you die.)  Figure out the metric that will get you thinking about doing your dreams sooner rather than later.

You can have fun with metrics and ratios in and out of your business.  Here are some more ideas to think about:

  • The number of customers you have that really fit your ideal client and how many more you need to go.
  • How many countries (or states) you want to visit each year vs. how many you’ve already visited.
  • How many volunteer hours or dollars you spend vs. how much more you like to.

When you put your goals into numbers and on paper, they seem more real and achievable.  You can get an “aha” just by computing these ratios.  Hopefully, life beyond the profit and loss statement will get you closer to your dream life.

Twelve Low-Cost Employee Perks for Fun & High Performance

It’s always a good idea to help employees stay motivated, and there are many things you can do besides the traditional cash bonus.  Here are twelve ideas that cost little yet go a long way with employees, contractors, and other business associates.

1.     Compressed workweek. 

Employees love getting Friday afternoon off, or even a full day a week.  Providing weekday time off cuts absenteeism since the employee has a window to run errands that need to be done during business hours.

 2.     Social activities. 

Create social events that become a tradition in your company.  The employees will look forward to them.  If you’re not sure what to do, consider the hobbies of your employees, plan an event based on a holiday or anniversary, or simply have a meal out.

A business owner who offers training classes can have movie showings in their training rooms complete with popcorn on Wednesday evenings.  The cost of the movie and popcorn is minimal compared to the fun everyone will have.

3.     Telecommute part-time. 

If possible, consider allowing employees to work from home one day a week.  They love the flexibility, often get more done without constant interruptions, and save road time.

4.     Customized recognition.

Every employee likes to be recognized for a job well done, but each may differ in exactly how the recognition is expressed.  Instead of guessing, ask at the time the employee is onboarded whether they prefer gift certificates, time off, sports event tickets, cash, or public recognition.

5.     Bring a child to work.

Last-minute emergencies can come up regarding child care, and the question is whether the employer can help out.  Create a policy around when employees can bring little ones to work.  You might also want to have a list of childcare and/or eldercare referral services handy.

6.     Education. 

Education is always a great perk.  Here are some ideas along those lines:

  • Cross-train employees on job duties other employees do so you have a deeper bench of knowledge to pull from.
  • Consider reimbursing for professional memberships or allowing employees to attend professional association events.
  • Bring in an instructor who can teach self-defense.
  • Have on-site fitness yoga classes.
  • Encourage employees whose first language is not English to take English as a second language or accent reduction classes.
  • Send employees to learn a foreign language.
  • Bring in a teacher for CPR and first aid training.

7.     Stress reduction.

Who isn’t stressed out?  Treat employees to a massage, or bring in an instructor who can teach stress-reduction techniques like meditation.

8.     Casual dress.

On days with no client appointments or perhaps every Friday, offer a casual dress day.  It cuts down on dry cleaning, and employees are more relaxed.

9.     Errand concierge services.

Cut down on absenteeism and long lunch hours by bringing the errands to the employees.  I suspect local businesses would love the business.  Find a nearby dry cleaner that can pick up onsite and maybe even throw in a discount.  Do the same for car wash services, take-home meals from a caterer or local restaurant, prescription refills, postal services, banking, and more.

10.   Transportation.

Offer a subsidy for carpooling, public transit subsidy, or purchasing a hybrid car.

 11.  Discounts on products and services. 

Provide discounts on your services or merchandise for employees.

12.   Time off. 

Offer a creative twist to holiday pay.  Instead of the standard holidays, allow employees to have their birthday or job anniversary as paid time off.  Consider also providing pay while philanthropic employees volunteer their time and talents to nonprofits.

Try one or more of these twelve employee perks to rev up the motivation on your team.