5 Tips On Bringing Home The Bacon
Whether you call it bacon, Benjamins, or big bucks, cash – and having enough of it – is key to running your business. Here are five tips related to managing and getting the most out of your business cash.
1- All banks are not the same.
Choose your bank wisely, and don’t be afraid to switch if you need to. Banks know they have a “high switching cost,” which means it’s one big time-consuming hassle for customers to change banks.
A couple of things that are important when choosing banks (some of which we never knew to ask five years ago) include:
Is your accountant able to connect your accounting system with free bank feeds, saving you hours and hours of accounting work?
How automated is your bank? The more automated, the fewer errors, and the more likely the bank is to have competitive services, features and prices.
What is their policy on holding large deposits?
Do they offer ACH services?
Does your payroll withdrawal need to be approved each pay period?
Accountants have experience with banks, so if you are in the market for a new one, feel free to reach out and ask us our opinion on the easiest bank to work with.
2- Keep the number of cash accounts to a functional minimum.
Certainly, you’ll need at least a business checking account, often a business savings account, a business PayPal account, and perhaps a petty cash fund. You may also want a separate account for payroll; a lot of companies do. But if you need more accounts, there should be a functional business reason to support them. That’s already a lot of accounts to reconcile and keep track of each month.
The same is true of credit card accounts. It’s the keep-it-simple approach.
3- Reconcile all of your cash accounts every month.
Keeping all of your cash accounts reconciled each month is a good idea. If a bank error, accounting mistake, or even fraud occurs, you can catch it and get it resolved more quickly than if you delay.
You’ll also have more accurate information about your balances and can move and manage your money better.
As you learn your balances each month, you can also move money around. Unless you spend a lot out of PayPal, plan to move that money to pay off debt or into your checking account on a regular basis.
4- Maintain a cushion in your checking account.
If your checking account hovers close to zero more often than not, you may be wasting precious time watching your bank balance instead of spending time to manage your business. If you make a small error, you may get hit with costly overdraft fees, making your cash situation even worse.
Instead, consider depositing a fixed amount, like a cushion, that you never spend. You won’t get overdraft fees, and you won’t have to watch your balance so closely. You may give up some interest income, but the time freed up and the reduced worry will be worth a few extra pennies.
5- Watch your liquidity.
Cash is to business as water is to people; we can’t live without it. Make sure you have enough to cover future obligations, and when possible, build up several months of reserve for emergencies. Anything that you can liquidate quickly, such as accounts receivable, can count toward this fund too.
Try these five cash flow tips to keep bringing home the bacon in your business.
Making Deadlines Can Save You Big Bucks In Your Business
There are a lot of deadlines that come with running a business. Missing some deadlines can have serious financial implications to the health of your business. Let’s take a look at how much you’ll save by being on time with the following deadlines.
Payroll
One of the toughest deadlines of all, making payroll, is essential to keeping employees happy. Making payroll tax deposits on time is even more crucial. You’ll save the following in penalties by staying on time with payroll deadlines:
If you’re 1-5 days late with payroll tax deposits, the penalty is two percent of the payroll.
If you’re 6-15 days late, you’ll pay five percent in penalties.
If you’re more than 15 days late, the penalty goes up to 10 percent.
And that’s just the federal penalties, not your state penalties.
Income Taxes
Everyone knows about the April 15th deadline to file your taxes. Some people file an extension and have until October 15th. However, we need to remember that the best estimate of your tax liability needs to be paid by April 15th even if an extension is granted. Failure to correctly estimate and pay income taxes leads to a penalty that is calculated by multiplying the number of days the tax is late by the effective interest rate.
Paying Vendors
If we’re slow to make our accounts payable payments, our vendors may tack on a penalty, but the larger consequence is the effect on our credit score.
Business Goals
It’s so easy to let internal deadlines slide, but they may be the most important of them all. To move your business forward, set goals with deadlines so that you can measure your results.
Mastering Deadlines
Here are a couple of tips to master your deadlines so you can avoid the above consequences:
Keep a list of deadlines, or hire someone to help you with them.
Make a mental commitment to yourself that the deadline is important to your business.
Set aside the time you need to prepare for the deadline. Block time on your calendar and stick to it.
Remind yourself of the consequences of missing the deadline.
Try not to overcommit. Delegate other tasks when possible.
If possible, automate or systematize the processes around the deadline so that it’s met automatically.
Stay up late if you have to in order to meet your deadline.
Celebrate when you meet your deadline!
Three Super-Easy Ways To Boost Your Revenue For 2018
Every business has a gold mine in its current customer base. But not all business owners remember to mine this gold because they are too busy trying to attract new customers or developing new products or services. This is the perfect time of year to step back and remember the three easiest ways to grow your business revenue using your existing customer base.
1. Upsell current clients.
Offer steady customers a product or service with more features than they usually purchase. Examples include moving a client from coach to first class, from a budget vacation to a luxury one, from a standard model car to a luxury version, from an off-the-rack suit to a designer suit, from the standard service to an all-you-can-eat version, and from a regular meal to a super-sized one.
Some customers simply need to be given permission to splurge on themselves, so why not by you? Others have outgrown the standard package but find it hard to break routine. With a gentle nudge from you, a percentage of your clients will purchase the upgrade, therefore boosting your sales with little effort on your part.
2. Cross-sell current customers.
Restaurants practice this the most, asking us if we want appetizers, dessert, or fries with our entrée, and you can apply this to your business too. If you offer two services and a client is only participating in one service, make sure they know about the other service you offer, and find out if they have a need for it.
This is called cross-selling, where you offer a current customer a service or product that they don’t already purchase from you. For example, an attorney that does trademark work for clients might also let clients know that they do wills, too. A pool builder who also offers maintenance service will want to follow up with the new pool owner once the pool is built. A real estate agent who also manages properties will want to let rental property investors know about this service.
3. Raise prices on current customers.
If your costs have gone up but your prices have remained the same, you’ve accidentally given yourself a pay cut. No one wants that, so raising prices is an option that will restore your profit margin to the way it was before costs went up.
If it’s been a while since you’ve raised prices, it might be time to make an adjustment. Review your price list for your services and products and determine what you need to do to bring the numbers back in balance. Let us know if we can help with some profit margin or breakeven calculations to help you make this decision.
Raising prices requires careful consideration and timing. Customers do expect periodic price adjustments, so don’t let procrastination or fear hold you back from making a good solid business decision here.
All three of these strategies will help to raise your average revenue per customer and boost your overall revenue without a lot of additional work on your part. Try these strategies so you can enjoy a more prosperous 2018.
Is It Profitable To Blog
One of the many online marketing options available for businesses is blogging. A blog can act as a company’s daily newspaper, letting customers and followers know the latest news about what’s happening. It can also be a wonderful revenue-generator.
As long as the content of your blog is relevant to your readers, you can post on a wide variety of topics. You might want to let clients know about an upcoming sale, a new employee, or a tip related to a product or service of yours.
Some businesses make a separate revenue stream out of blogging. The most profitable blog today is the Huffington Post. Revenue from blogging can be earned in many ways:
By selling ad space to people who want to get their products in front of people who read your blog
From sponsors
By holding events your readers attend
From commissions from the sale of products on your site
By creating products and services such as membership sites which allow paid access to your resources
Making money from blogging through one of these revenue streams takes work. Not only do you have to find or create content, you’ll need to attract readers too.
You can also simply use your blog to generate a following for your products and services. The right content can improve customer service, educate customers on your products which leads to better client retention, or inform them of the benefits of your products during your sales cycle.
If you’re not a writer, there are plenty of freelance writers available that you can hire to create your blog posts. You can also curate articles, meaning you can find existing articles and ask the author if you can re-publish theirs.
Creating a blog is easy with software like WordPress or apps like Blogger.com WordPress.com, and Wix.com, and all of these solutions are free.
Think about how a blog can impact your business for the better.
Do You Have Past Due Accounts?
If you perform a service or ship a product before you get paid, then you likely have a balance in your Accounts Receivable account. If customers pay when their invoice is due, all is right with the world. If they don’t, then your cash flow slows down and your bank balance is not as high as it should be. Here are some tips, preventive and supportive, to help you keep your accounts receivable current.
Granting Credit
When you deliver your service or product before your client pays you, you are in effect their “bank,” granting them credit. Not everyone deserves to be granted credit. Consider running credit checks, especially if you are billing large amounts of money for your sized business.
You may also want to ask for a retainer or deposit prior to starting work or shipping your products. This will smooth your cash flow and reduce your credit risk.
Offer Multiple Payment Options
When a customer is ready to pay their bill, make it easy on them by offering multiple payment options. Perhaps they will pay faster if you take payment by credit cards. Many people have extra money sitting in their PayPal accounts, so that is another payment option. Apple Pay and Android Pay are relatively recent options to consider adding.
You may also want to revisit the credit cards you offer: MasterCard, Visa, and American Express are universal, but many places also take Discover and Diners Club. If you are doing international business, consider JCB (Japan), China UnionPay, and RuPay (India).
Collection Process
Once an unpaid invoice has reached its 90-day mark, the chances of collecting it are about 50 percent. This means that you will need to put some aggressive collection processes in place prior to the 90-day mark.
If the invoice is due in 30 days, start at the 35- to 40-day mark with a friendly reminder. At 60 days, your customer needs a strong reminder and perhaps a phone call. At 75 days, they need to know what consequences there will be for not paying. Will you report the customer debt to credit agencies? Will you turn the account over to a collection agency?
At 90 days, it’s probably a good idea to make one final collection effort and then turn it over to a collection agency. It might sound too soon, but the odds of collecting something much older go down significantly as time passes.
At any rate, create your own process, and automate it as much as possible. The main thing is to stay on top of it.
Past Due Accounts
From how you first engage with your clients to the last steps in the collection process, there are many cost-effective techniques to avoid past due accounts and the unpleasantness that goes with them for both parties. If this is an issue in your business, try these ideas above and reach out if you’d like our help.
Eight Ways To Increase Your Profitability
Increasing your profits might sound like it’s an unattainable dream just out of your reach. But there are a finite number of ways that profits can be increased. Once you understand what they are, you’ll have clarity on how to best reach your goals.
There are two primary ways to increase profits:
Raise revenue
Lower expenses
That’s not particularly enlightening or instructional, is it? Let’s look at the four ways you can increase revenues and the four ways you can reduce expenses to get clearer on what actions we can take.
Four Ways to Increase Revenue
1. Raise prices
The easiest way to raise revenue is to simply raise prices. However, this is not foolproof and assumes you’ll be able to maintain the volume of sales you’ve achieved in the past.
This method is also limited by market demand, what your customers are willing to pay.
2. Add new customers
Adding new customers is what most entrepreneurs think about when raising revenue. Increasing your marketing or adding new marketing methods is typically the way to add new customers.
Another related option is to work hard to keep the customers you already have. You can also potentially contact the customers you lost and ask them to come back.
3. Introduce new products or services
For some companies, your products and services are changing every year. For others, not so much. To increase revenue, consider adding new products or services that will bring in an additional revenue stream that you didn’t have before.
Even if your products are changing every year, you can consider adding something completely different that your customer base would love. For example, a hair salon could add a nail desk, a clothing store could add handbags or shoes, a grocery store could add a coffee bar, a restaurant could add catering, a landscaper could add hardscaping, and so on.
4. Acquisition
The final way a business can increase revenue is to acquire another business in a merger or acquisition.
Four Ways to Reduce Expenses
1. Negotiate for a better deal with vendors
If you’ve been working with a vendor for a while, you may be able to re-negotiate your contract with them. This is especially common with telecom companies. Call you phone provider and ask them for the latest deal. They always favor new customers over long term customers, but they don’t want to lose customers either. Just calling them usually yields a better price than what you are paying now.
2. Change vendors
If a vendor has gotten too expensive, it might be time to look for a new vendor. Health care insurance seems to be in this category. Often, changing providers will lower your costs.
3. Cut headcount
If there is not enough work to support your employees or not enough cash flow to pay them, then it might be time for a layoff or restructuring. You might also consider outsourcing a function that you previously did in-house.
4. Cut the expense or reduce services
It might be your business no longer needs to spend money on an expense. Perhaps this expense has been automated. In this case, it’s an easy decision to cut the expense out entirely.
Those are the eight ways to increase profits. Which one makes the most sense in your business? Create a plan around these eight ideas to boost your profit in 2017, and let us know if we can help.
Start The New Year With A 2017 Profit Plan
Are you ready for 2017 to be even better than 2016? If so, take a few minutes to reflect on the questions below and take action to set your 2017 profit plan.
Question 1: What were the three best business things about 2016?
No need to re-invent the wheel. If you knocked it out of the park in 2016, can you wash, rinse and repeat these tasks in 2017?
If you’re having trouble thinking of three things, here are some hints:
What apps saved you time and money?
Did you make some good hires?
Did you let go of a bad hire or two?
Was there a marketing campaign that really worked?
Were there any events you went to that generated great ideas?
Did you add or remove products and/or services?
Did you buy new equipment or open a new location?
Summarize the three best things that happened in your business for 2016 and think about how you can repeat them to enhance your 2017.
Question 2: What were the three worst business things about 2016?
While we don’t want to dwell too much on our failures, we do want to learn from them. Think about the three things that are causing you to lose time, money or gain stress, and decide if you can make changes for 2017.
Question 3: What vision do you have for your business in 2017?
At the end of 2017, what has to have happened in order for you to have a successful year? Think in terms of metrics as well as intangibles, such as peace of mind and happiness.
Once you know your destination, the fun is in creating a roadmap to get you there.
Your 2017 Profit Plan
If your vision includes financial goals, then creating a profit plan is one way to measure your progress throughout 2017. Start by deciding how much profit you want to make in 2017. From there, you can compute your revenue goal and make a plan. Then you can add expenses to complete the budget. Here’s an example:
Let’s say you want to make $50,000 in profit for 2017. You can do that in a number of ways:
Generate $500,000 in revenue and $450,000 in expenses.
Generate $2 million in revenue and $1,950,000 in expenses.
Generate $150,000 in revenue and $100,000 in expenses.
And so forth.
From your profit number, you can create a revenue plan. A revenue should include how many items you need to sell. Like this:
No. of units Price Revenue
Widget A 3,000 $200 $600,000
Part B 100 $2,000 $200,000
Service C 700 $1,000 $700,000
Total $1,500,000
Once you have your revenue plan, you can fill in your estimated expenses.
You might be thinking that this sure sounds a lot like making a budget. And it is. But it’s far more fun to work on something called a profit plan than it is a budget. And if you need us to do the number-crunching part, please feel free to reach out any time.
Here’s to a very happy and prosperous 2017.
Your Daily Numbers
Some numbers need reviewing on a daily basis, and one example of this is cash. When cash is coming in from a number of places, it’s great to have a daily summary of what was collected.
It’s also great to make sure all the collections hit your bank account so you can feel confident that no errors were made along the way. A daily cash reconciliation report will serve both needs very well.
A daily cash report will vary depending on the type of business you have, but it will look like a combination of a bank reconciliation and a sales report wrapped into one.
If you are managing your cash closely from day to day, then this report will help you stay sane. You’ll need two very brief spreadsheets to get started. The first one below is your daily sales from all sources. Your accounting system may be able to generate this.
Today’s Sales
Cash $300.00
Checks $600.00
Total Bank Deposit $900.00
Mastercard Visa $400.00
American Express $200.00
Total Credit Card Due $600.00
PayPal $100.00
If your accounting system is up to date, all you’ll need to do is pull the cash balance and adjust for today’s activity. The following day, you can double check your accuracy and adjust accordingly using the last two rows.
Daily Cash Report
Book Cash Balance $5,000.00
Deposit from Today’s Sales $900.00
Merchant Deposit $600.00
Less Checks Written Today ($1,200.00)
$5,300.00
Expected Bank Balance Tomorrow $8,300.00
Actual Bank Balance $8,300.00
Explain any differences
If your accounting system is not updated in real time, you’ll need to start with the bank balance and correct it for uncleared transactions as well as list today’s activity.
Daily Cash Report
Bank Balance $5,000.00
Deposit from Today’s Sales $900.00
Merchant Deposit $600.00
Less Checks Written Today ($1,200.00)
$5,300.00
Checks Still Outstanding ($3,000.00)
Deposit from A/R Paid $5,000.00
Expected Bank Balance Tomorrow $8,300.00
Using these formats, you can easily extend them to cover the entire week. This way, you’ll know what your cash balance will be from day to day.
If you see the value of this report for your business and would like help creating it, please reach out.
The Best Payment Terms For Faster Cash Flow
A great way to speed up your cash flow is to get paid faster by customers who owe you money. One way to do that is to examine your payment terms to see if you can accelerate them. First let’s talk about what payment terms are common. Then I’ll share a study that showed which payment terms generate the fastest payments.
English, Please
Traditional payment terms are spoken in the following format:
Percentage discount/(Days due from invoice date), “Net” (Days due before payment is past due)
An example is 2/10, Net 30. It means to the customer that if they pay within ten days, they can take two percent off of the invoice due amount. If they don’t want to do that, they need to pay the full invoice within 30 days of the invoice date.
You could write “2/10, Net 30” on your invoice, but you will get paid faster if you write it out in plain English.
Industry Standard
If your industry “has always done it that way,” I encourage you to challenge the status quo. Getting your cash faster is important to all small businesses, so don’t let your industry hold you back.
Discounts
Most corporations are required to take discounts if they are offered, so offering an early pay discount might help you get paid faster.
Insights
There are several studies on how to get paid the fastest. Of course they all have different conclusions! FreshBooks advises that “due upon receipt” terms can work against you as most people decide that that can mean anything. They suggest using wording that says “Please pay this invoice within 21 days of receiving it.” Here is their blog post on the topic:
Xero produced a page on the topic as well. Their research suggests that debtors pay bills 2 weeks late on average. They also suggest using terms of net 13 or less in order to get paid within 30 days. Here is their page on the topic:
https://www.xero.com/us/small-business-guides/invoicing/invoice-payment-terms/
Feel free to contact us if you’d like help deciding on payment terms for your business.
Influencing Your Word-Of-Mouth Results
Just about every business relies on “word-of-mouth” marketing to get the vast majority of its clients. If this is true for your business, then it just makes sense to figure out how to boost your referrals from all sources. Referrals are almost always easier to sell and they keep your marketing costs low. But how can you do that?
The first step is to make sure that you know who your best current referral sources are. If you’re not already asking the question to new clients “How did you find out about us?” then I’d recommend you implement that right away.
If you do know the answer to that question for each customer, then you can make a list of your referral sources. Take a look at the list, and see what these referral sources have in common. Here are some questions to ask:
Are they all customers?
Do they all have a profession in common? For example, are they all lawyers, massage therapists, plumbers, or pediatricians?
Have you properly thanked each of these individuals? If not, you can send out a thank you card or take them to lunch with no other agenda.
The last question to ask yourself is “where can you find more of the same type of people that are referring you?” If you discovered that you get a lot of business from dog groomers, then you may want to consider visiting every grooming salon in your zip code. You may also want to present a speech to a dog groomers Meetup group that you find.
You really can be proactive about your referrals so that business comes to you more easily. Try these tips to boost your referral sources in your business.
Five Ways To Streamline Data Entry
Are you manually entering data into your accounting system? If so, there may be a way to enter that data that’s faster, cheaper, and better. Data entry automation has come a long way. Here are five common ways to automate data entry so that it no longer has to be manually entered.
1. Bank feeds or online banking
If you’re still entering your bank transactions, the good news is you have an opportunity to save a significant amount of time and money on your accounting. Almost all banks and many credit unions provide interfaces with your accounting system so that checking account, savings account, and credit card transactions can be automatically entered directly into your accounting system. There are two ways to do this:
a. The older way is through online banking which can be started by working with both your accounting system and the bank. The fee is usually $25 per month, with additional fees for bill pay.
b. The brand new, more modern and completely free way is through bank feeds, which are available when you move to a cloud accounting system such as QuickBooks Online or Xero. Bank feeds are not available in desktop accounting systems.
2. A smart scanner
If a lot of paper flows across your desk, you can scan it in using a smart scanner that can parse the document and enter it straight into your accounting system. You will usually have a chance to edit and accept the data, which is far better than entering it from scratch.
3. Import and export functions
If you need to get data from one place to another, such as from a point of sale system to an accounting system, then using the export and import features of the software may be the most efficient method. There are also software apps that help you scrub the data and get it ready for the receiving system.
If you ever convert from an old accounting system to a new accounting system, this method will come in handy to get you historical data moved.
4. Interfaces and programmers
If you have a high volume of transactions that need to move from one place to another on an ongoing basis, it may make the most sense to employ programmers who can build an interface. Alternately, some systems can talk to each other already; they just need to be plugged into each other correctly.
5. Smartphones, tablets, and field service hardware and software
If your sale occurs out in the field, don’t wait to get the data into your system when you get back to the office. You may be able to complete the sale right out in the field, so that when you get back to the office, you can call it a day instead of keying in the day’s work.
Mobile accounting apps are where to look for this form of data entry automation.
No more manual data entry
In 2015, consider taking on the goal of no more manual data entry. If we can help, let us know.
How Understanding Assets Vs. Expenses Can Make You Rich
Assets and expenses both have a “debit” balance on the financial statements, but that’s where their similarities end. Spending on one can make you rich and spending too much on the other can leave you broke.
An expense is money you may need to spend, but after a year, there is nothing lasting to show for it. An asset is a tangible resource that is still worth something after a year or more and that belongs to you or your business. The best assets grow in value over time, but some lose their value too. Real estate typically goes up in value, while a car loses value, or depreciates heavily, in its first few years.
The best example of an asset versus an expense is spending on a mortgage versus rent. When you pay a mortgage, you own more of the property than you did last month. One day, you can sell your ownership in the property and get cash or another asset in trade. When you pay rent, there’s nothing left at the end of the month. There’s no accumulated value.
Generally speaking, spending on an asset builds or at least better preserves your wealth. Spending on an expense drains your worth because you don’t own anything at the end.
The path to building your wealth is to spend on assets when you have a choice and minimize expenses when you can.
In the book “The Millionaire Next Door,” one of the top examples to build wealth is to avoid replacing your car as long as you dare. It used to be a habit for some families to replace their car every two years. With today’s reliable models, you can go between five to ten years without having to replace your car. Although a car lasts more than a year and is considered an asset, it still loses value every year.
Investing in assets and reducing expenses will build your business’s net worth and increase profits. Look for ways you can apply this to your business and watch your money grow. As always, reach out if you’d like to know more.
Is Your Business Using The Right Accounting System?
Have you ever tried on a shirt or jeans and found they didn’t fit at all? They looked great on the hangar, but that was the end of it. Accounting systems come in all sizes, shapes, and colors just like clothing; and just like clothing, some accounting systems fit your business better than others. It’s not that easy to spot in a mirror when an accounting system does not fit a business, but there are other signs that will give it away. Here are five of them:
Numerous Workarounds
A workaround happens when your current system cannot do all the things you need it to do. A workaround can take the form of a spreadsheet, a report, a program, or a database that is created with extra time spent every month so you can get the information out of your system and manipulate it the way you need it to run your business.
Since no accounting system is a perfect fit for any one business, it’s normal to have some workarounds in place to meet your unique business needs. If you have too many, it might signal that you’ve outgrown your current system and need to find an accounting system that provides you with more functionality.
Downtime or Wasted Time
If you are unable to access your system when you need to do your job, then you are experiencing downtime in one form or another. You may be waiting for a file to be fixed, or the system may actually be down. If your system runs slowly, then that’s another form of downtime that wastes your time. If you have to take time to make backups and perform restorations, this type of activity does not add value to running your business. When you have too many of these time-wasters, it could be time to look for a better way.
Old Technology
If your accounting system is more than about three years old and you’ve chosen not to update it, then you may be missing out on newer time-saving features that could help you reduce the amount of time you spend doing your accounting. If your accounting system is more than six or seven years old, then you are definitely losing productivity. It’s time to bite the bullet and learn a new system so you can experience better profit margins in your business.
Limited Users or Security
If your current accounting system does not provide you with enough users, then you might have more expensive employees doing lower level jobs, which is costing you more in payroll expenses.
You may also need certain user permissions to be more granular than they are in your current system as you grant access to certain parts of the system to different users. If you’re on QuickBooks, that’s a really easy fix, so please talk to us about this.
We find that user access is a hot button with a lot of business owners, so if it’s true for you, please reach out and let’s have a conversation about this.
Limited Physical Access
If your accounting system is located on a private PC or server in your business, this limits access to your files. If you have more than one business location, you like to work from home, or your employees work from their homes occasionally, then you may want to look for a system that accommodates “anywhere, anytime” accounting. This is a pretty easy fix too, as this requirement is now quite common with business owners today.
The same can be said for mobile access. New apps enable many accounting features to be completed from your mobile phone, such as checking bank balances, approving a bill, and taking a picture of a receipt and uploading it, to name a few. If you want to do you accounting from your mobile phone, ask us about mobile apps that we can link to your system to enable this functionality.
Boosting Your Accounting Productivity
We might be a little biased, but accounting has gotten to be a lot more fun in the last few years with advancements in technology. If you see any of the signs listed above, it might be worth a conversation to see if your accounting system is the best fit for your business. Just reach out anytime.
Optimize Your Revenue Mix For More Profits In 2014
Many small business owners focus on generating more revenue every year, and that’s a great objective. But not all revenue is created equally. If you sell more than one product or service in your business, then you can benefit from looking at your revenue mix.
Although it’s fun to watch our revenues grow, it’s the profit number that really matters. If your expenses grow faster than your profits, then you have a lot of activity going on, but you don’t get to keep as much of what you make, which is what really matters.
An insightful exercise to try is to take a look at your revenue mix. Then you can ask “what if?” to optimize your profits.
Your Revenue Mix
Let’s say you offer three different services: Services X, Y, and Z. Your revenue pie looks like this:
X: $1.4 million or 70% of the total
Y: $0.3 million or 15% of the total
Z: $0.3 million or 15% of the total
Total: $2.0 million
In this example, Service X is clearly the service making you the most revenue in your business. But is it making you the most profits?
The profit you receive from each of these service lines is as follows:
X: $160K
Y: $20K loss
Z: $60K
Total: $200K
While Service X is generating the most profit volume for your business, it’s actually Service Z that’s the most profitable. Earning $160K on $1.4 million yields 11.4% return on Service X, but earning $60K on $300K yields nearly double the return at 20%. Service Z generates the most return. And if possible, Service Y may need to be discontinued or turned around.
Optimizing Profits
Your strategy for a more optimum revenue mix might be to sell as much of Service Z as possible, while eliminating or fixing the problem around Service Y.
It’s fun to experiment with different revenue mixes. And of course, there are many more variables besides profit, such as:
Which service do you prefer to work on?
Are you able to sell more of the most profitable service or are there marketing limitations?
Is one service a loss leader for the others?
Are you able to adjust price on the lower margin services to increase your profits?
There are many more questions to ask and strategies to consider to make you more money, which is why we love our job!
A New Year, A New Mix
We hope you’ll spend some time analyzing your revenue mix and having fun asking yourself “what if?” If we can help you expedite the process or add our perspective, please reach out anytime.
Avoid The Three Biggest Sales Mistakes And Close More Business
Every sales lead is precious. It takes a lot to get people’s attention these days, and once a lead or prospect comes in your door, you’ve accomplished that hurdle, but now you have another one: getting the business. To ensure you can turn those prospects into paying customers as often as possible, here are three mistakes we can all learn from and avoid at the very beginning of the sales process.
#1 Tech-Speak
Every industry has its own vocabulary. For example, pool service companies talk about “shock,” booster pumps, and cyanuric acid levels. If the salesperson starts slinging too many of these words around, the new pool owner is going to freak out.
Worse, you can end up going down a technical conversational path that derails the sale and has you answering all sorts of educational questions that the prospect doesn’t even need to know about if they hired you. It’s a sort of foxhole you don’t want to go down, at least not during a sales call, and especially not during the very first interaction with a prospect.
Continuing our example, a pool owner’s goals are usually that they want their pool looking awesome and safe to swim in. Although your business is likely to be far more complex than your prospect realizes, they will be scared away if you overwhelm them and sound like you will be difficult to work with. Instead, focus on their goals and how your services meet their goals.
#2 Lack of Interest
If your staff is tired when they answer the phone or if they simply answer the questions of the prospect and wait for them to ask the next question, then you’re likely to make a ho-hum impression on that prospect. It will feel like your company is not interested in them.
A great salesperson – or even receptionist — will answer a prospect’s questions, and will go further to find out more about the prospect’s situation. Establish a rapport by finding something in common with your prospect. Perhaps you went to the same college, grew up in the same neighborhood, or attended the same church.
Then find out about the business issue to be solved. What are their goals? Ask them for the big picture so that you understand where they’re coming from before you get into the details. This will make for a great start to the sales process as well as your relationship.
#3 Lack of Preparation
You may have called a vendor in hopes of finding out more about what they have to offer, only to discover they are not ready. This typically happens with new business owners or new staff. If the staff does not know the answers to the most basic of questions, then you could have a problem.
Prepare a list of questions that your staff is likely to get, and write in the answers so they will have this cheat sheet in front of them when they field calls. This will allow your employees to speak more confidently and more accurately with prospects.
Be sure they also know how to best handle the question we all love, “How much do you charge?” Providing a good answer to this question requires extra skills. You might consider putting together a sales script to handle that question or even putting your employees through some basic sales training.
Check to see if you need to avoid any of these three selling mistakes, and you’ll be on your way to more sales.
Five Fall Projects To Refresh Your Financial Results
As we move into the fall season and the final quarter of the year, it’s a perfect time to commit to a project in your business that will help you reach the year’s end in better shape. Here are five ideas:
1. Back-to-School Time
If payroll expenses are one of the higher costs in your business, then it makes sense to boost your team’s productivity and maybe also your own. Fall is back-to-school time anyway, so it’s a natural time of the year to take on a course, read a business book, or hire an organizer to help you get more from your workspace.
If you spend a lot of time doing email, consider taking a course on Microsoft Outlook® or even Windows; learning a few new keystrokes could save you tons of time. If you need more time, look for a book or course on time management. Look for classes at your local community college or adult education center.
2. A Garage Sale for Your Business
Do you have inventory in your business? If so, take a look at which items are slower-moving and clear them out in a big sale. We can help you figure out what’s moving slowly, and you might even save on taxes too.
3. Celebrate Your Results
Take a checkpoint to see how your revenue and income are running compared to last year at this time. Is it time for a celebration, or is it time to hunker down and bring in some more sales before winter? With one more quarter to go, you have time to make any strategy corrections you need to at this time. Let us know if we can pull a report that shows your year-on-year financial comparison.
4. Get Ready for Year’s End
Avoid the time pressure of year’s end by getting ready early. Review your balance sheet to make sure your account balances are correct for all transactions entered to date. You will be ahead of the game by getting the bulk of the year reviewed and out of the way early.
Also make sure you have the required documentation you need from vendors and customers. One example is contract labor that you will need to issue a 1099 for; make sure you have a W-9 on file for them. If we can help you get ready for year-end, let us know.
5. Margin Mastery
If your business has multiple products and services, there may be some that are far more profitable than others. Breaking these numbers out to calculate your profit margins or contribution margins by product or service line can help you see the areas that are adding the most income to your bottom line. Correspondingly, you can determine if you have any items that are losing money; knowing will help you take the right action in your business.
Refresh your financials this fall with your favorite idea of these five, or come up with your own fall project to rejuvenate your business.
Do You Know Your Small Business Vitals?
On a doctor’s visit, the first thing the nurse does is take your vitals: your temperature, blood pressure, pulse rate, and respiration rate. These basic measurements are the first place doctors look to see if something is wrong with our health.
Knowing your vital signs, and especially when they are out of whack, is good for your health. In the same way, knowing your business’s vital signs, and especially when they are out of whack, is good for the financial health of your business.
Vital Measures
If you’ve been in business a while, you might already know the “vitals” you like to track. Here are some common ones for a small or new business:
Checking account balance(s)
Amounts owed (bills, payroll, and loans)
Revenue for the month and year-to-date
Sales by customer so you can see the top five to ten largest customers
As time goes on and your business grows, you may want to add some of the following:
Revenue for the month and year-to-date compared to last year
Net income for the month and year-to-date compared to last year
Days Sales Outstanding which is a measure of how long it take to collect on an invoice from a client
Revenue by service or product line in a pie chart
These are just a handful of the many options there are when it comes to measuring the results of your business, and it would be difficult for us to list all of them here. The point is to decide proactively what you’d like to track on a monthly basis. Then you can set up the process it takes to get those numbers delivered to you in the format you prefer.
Once you decide on the numbers you need to run your business, you’ll be able to take your “vitals” whenever you want. But you can take this to the next level with one more idea: exception reporting.
Being Exceptional
It’s great to glance at your numbers periodically, but there can be a lot of data to wade through. How about getting a report that tells you only when the numbers go out of range? This is called exception reporting, and requires that you set ranges for each measure you want to follow. If the measure stays within range, you do not have to be alerted. However, if it falls out of range, then you can get a report to tell you what’s going on so you can take the right business action.
Exception reporting is not all that common in small business, but can save a busy owner a lot of time.
A Clean Bill of Health
By determining the vitals you want to watch for your business and putting a process in place to monitor that information, you will be helping your business stay healthy. If we can help, please reach out and let us know. The doctor is IN.
Five Ways To Rev Up Your Referrals
In the vast majority of industries, referrals are the most cost-effective way to gain new clients and grow your business. When you attract new clients through referrals, your marketing costs are lower, your selling process is easier and more effective, and the referral usually makes for an excellent client. It’s just good business sense to look at how we can proactively increase our referrals. Here are five ideas.
1. Your Email Signature
We know it can be embarrassing or uncomfortable to ask your clients and friends directly for referrals. A great compromise is to add a line to your email signature that takes care of it for you. Here are a couple of wording options:
Your referral is our greatest compliment!
Referrals are the lifeblood of our business. We thank you for yours.
We appreciate your referrals.
Adding one of these lines to your email signature file is a subtle notice to everyone you email that you are open to taking referrals. It’s indirect enough to where no one feels put on the spot, and it takes all of five minutes to implement.
2. Acknowledge Your Referral Sources
When you find out someone has sent you a referral, be sure to acknowledge that person with a thank you note or a gift. (Be sure to check any licenses you hold so you know what restrictions you are under concerning gifts to clients; some industries disallow it.)
You might want to reward your top referral sources with more than a thank you note. If you are not sure who your top referral sources are, we can help you create a report in your accounting system so you can track that information on a regular basis.
3. Set Up a Referral Program
Creating a formal referral program generates several benefits:
It formalizes the process of asking for referrals. This lets clients know you’re serious and interested in referrals.
It gets the word out to everyone without anyone feeling pressured.
It is cost-effective and still far lower cost than using other marketing channels.
It is not too time-consuming and produces results.
To set up your referral program, decide how you want to reward your referral sources. It could be as fun as awarding prizes such as Kindles and tablets to clients who send the most referrals to you. The cost of the prize is a small price to pay for the lifetime revenue of several new high-quality clients. Send a letter or email out announcing the program, and then set up a process for tracking.
If you’re in an industry where prizes and programs are simply not done, then a simple letter requesting referrals will work too. Be sure to include a description of the specific type of client you are looking for; you are far more likely to get referrals when clients know who to look for.
4. Develop Referral Sources
One way to truly quantum-leap your business is to find new sources of referrals. Your clients are a great source, but they each know so many people. If your clients have been with you for a while, your referrals could stagnate because your clients have referred just about everybody they are going to.
Keep your referrals growing by tapping into power partners. These are small business owners that have the same type of client you do, but are not competitive at all. The best way to reach out to them is to send them a referral!
5. Set Up Referral Processes
There’s a lot your back office can automatically do when it comes to referral processes.
You can remember to ask how a new lead heard about you when they first call. Then you can record and track that, so that you will know where your top referral sources are.
You can systematize the thank you notes and gifts so they go out timely and automatically.
You can regularly schedule times with power partner to keep them up to date on your business changes and opportunities.
You can systematize a referral program or related communications to keep everyone informed.
Once you set up these processes and delegate the tasks, you will grow your referrals and subsequently your revenues.
Oh, and by the way, we appreciate your referrals!
What Does Popeye Have To Do With Accounting?
You might have heard the terms “cash basis accounting” or “accrual accounting.” Your net income number can change depending on which method your books are set up for. Here’s a simple explanation of the difference, with a little help from one of the most famous cartoon characters in history.
Popeye and Wimpy
You might recognize Popeye the Sailor Man from the television cartoons or other media. His sidekick, Wimpy, was the one who was always hungry and always out of cash. One of his favorite sayings was, “I’ll gladly pay your Tuesday for a hamburger today.”
It’s All in the Timing
Let’s make today Thursday. If Wimpy wants to pay us Tuesday for a hamburger today, here’s how it would be done for a restaurant on cash basis:
Cash basis recording Wimpy’s hamburger purchase
Both the sale and the receipt of cash would be recorded on Tuesday. Companies on cash basis only record the transaction when the cash is received.
But, if the restaurant’s books were on the accrual basis, it would be a different story:
Accrual basis recording Wimpy’s hamburger purchase
Wimpy’s hamburger sale would be recorded on Thursday, the day he ate the hamburger. The receipt would then be recorded on Tuesday, assuming Wimpy made good on his promise to pay.
You might be asking why a few days is such a big deal. Outside of cartoon life, a couple of extra twists can happen. It can be far more than a few days from the time you do the work to the time you get paid for it. And often, these dates span different months and even years, affecting the amount you have to pay in taxes to various agencies. Manipulating these dates (legally, of course) is one of many tax planning strategies that we can help you with.
Choosing for Your Business
In many cases, the government has chosen which method you must use when it comes to sales tax, payroll taxes, and income tax. That’s part of the reason we make the required adjustments to your books at year end.
To help you run your business in a forward-thinking way, the accrual method is best. You can record invoices for work you’ve done even though you haven’t received payment yet. You can enter bills you need to pay before you pay them to forecast cash requirements. Using accrual accounting, you can budget for cash flow needs as well as see more accurately what your revenue and income is looking like.
For clients who remain behind in their bookkeeping and just want to catch everything up once a year, the cash basis is adequate. However they lose out on all the good information they could have had throughout the year to run their business better.
For other businesses, a hybrid approach between cash and accrual accounting can be the most cost effective.
A Little Help from Popeye the Sailor
What would Popeye say about all this accounting talk?
“That’s all I can stands, cuz I can’t stands n’more!”