Tag: Accounting

Taxes

~ C.O.R.E. Beliefs ~ Leave a comment

Happy Wednesday.  It is an amazingly beautiful day in Vancouver and tonight Kubae and I are guests of Key Bank and Jeff Taylor at the Portland Thorns game.  We haven’t decided if we are eating in before we go or heading over to the Max station early and grabbing something to eat in Portland before the game?  Kubae and I are from different parts of the spectrum as I enjoy cooking and eating at home while she loves trying new restaurants every chance we get!  Does anyone have a suggest for a pre-game meal?

I was asked the other day why I never talk taxes.  This is not entirely true as I have older posts where I talked about it; and in this blog I haven’t gotten around to it yet!  But to dispel the concern about taxes, I will gladly write a few words.

There are two separate issues to address when writing about taxes: Filing and Planning.  Filing tax returns is an obligation.  Now, it can be easy or painful and it is your choice!  To make tax filing easy (and less costly) I strongly suggest you follow my guidelines in the various blog articles about how to structure and organize your accounting.  If you keep it simple and put transactions in the right place, your tax preparer will be able to easily complete your return for you to file.  No muss no fuss.

On the other hand, the small business owner who does not pay attention to his accounting generally makes tax filing a massive undertaking.  You are now paying someone with an advanced degree several hundreds of dollars an hour to fix your books.  I have seen year-end accounting services run to several thousands of dollars, all because the business owner had no idea what he was doing and the accounting firm (us as much as I hate to admit it) never took the time to properly teach the client how to keep a good set of records.

Planning for taxes is not an obligation, but is essential to the health of your business.  However, there are a few rules to tax planning you should be mindful of:

  1. Planning requires your business to be profitable before taxes
  2. Planning demands time
  3. Planning needs alternatives

Keeping these simple rules in mind, here is how to work with your accounting firm on tax planning:

  • Keep your books up-to-date and properly adjusted
  • Set an appointment no later than August 31 to review your books with the accountant
  • Be clear on your objectives for planning (new purchases, retirement, etc.)
  • Think about what you and your business might need over the next 12-18 months

There is nothing more frustrating, for you or your accountant, than waiting until February to discuss the fact you made $250,000 in profit for the prior year and then went out and bought vital business equipment which cost $250,000 in January.  The problem becomes, obviously, that you owe $75,000 in taxes on the prior year profits and you spent all your liquid cash on the equipment!

Yes, this happened more than once.

By coming in early and discussing your plans and objectives, you give your accountant the alternatives for you to review and approve.  In the situation above, for instance (and in hindsight), a planning meeting in August might have showed that profit was $175,000 and the owner might have addressed the fact that a new piece of equipment was needed early the next year.

Two things would have come out of that conversation – accelerate the purchase of the equipment and use some reasonable amount of debt to finance the purchase.  Due to the way the tax law works, taxes would have been reduced and the Company could have retained working capital – two objectives met for the price of one!

Since we are now approaching optimal tax planning time, consider making an appointment with your accounting firm to discuss and plan your tax situation.  And if you are currently not working with an accounting professional or would like a second opinion, feel free to contact me and have a free no obligation consultation on your business and plans.

Have a great day.

Managing by the Numbers

~ C.O.R.E. Beliefs ~ Leave a comment

Good morning!  On the downward path towards the weekend.  The younger two are having their last day at school today and tomorrow starts their weekend with Kubae and me!  And then there is Father’s Day, where I will be grillin’ and chillin’ with all 4 boys and Kubae.  Life is awesome.

Does your business often seem out of control?  Do you think you are running around from one crisis to the next?  I used to find myself in a similar situation before I took my vacation from public accounting.  One thing I wish I had started earlier was managing by the numbers.

I don’t mean your accounting numbers, at least not totally.  I mean establishing goals and objectives, quantifying them, and then managing to those numbers.  Let me give you an example.

The first thing I have is my personal calendar.  My “Work day” starts at 7am writing this blog.  First, I plan my articles a week in advance.  I schedule 45 minutes each day to write and edit and I am shooting for under 800 words.  When I am done, I adjust my calendar for how long it actually takes me to complete the task and how many words I wrote.

My articles get written, I know if I am getting out of control and I do not stress out over it.  By setting the “numbers” I give myself freedom to perform to my highest standard and then measure, over time, how close I am to my objectives.

I also have targets for Number of views, number of readers, pingbacks etc.  I use all this feedback to plan future articles and how long I should allocate to research and writing.

My work day is also planned.  I schedule out on my firm calendar what work I anticipate doing and approximately how long I should spend on it.  The Firm has a great practice management system which tracks our time in minutes so I am able to see how long a task actually took me.

By tracking every aspect, I get feedback and can make adjustments to how I work or even what I work on.  This is an incredible tool for not only me, but the firm.  Because the goal is not to keep me (or anyone in the firm) busy, it is to get free time to start working on other things of value to our clients.

So, if your day seems to be a constant firefighting drill, I strongly encourage you to start planning.  Do it simply at first – use Google calendar and start blocking out time during the day for specific activities.  For instance, perhaps set the first hour of your day to be “respond to emails”.  Then, measure the actual time you spent working on it by either changing the calendar time or making a note.

Planning and feedback.  It works the same way in your business.  First, set your goals and objectives.  Do the work and track how it is going.  Then measure how well you are doing against the plan.  Based upon your measurement, consider modifying work processes to either reduce time or complexity.  Then roll out the new plan. If this sounds familiar to you, it is because it is the standard Lean Six Sigma approach of PDCA – Plan, Do, Check, Act.

If shipping on time is important, then set a goal that 95% of all shipments go out on time.  If having your construction team get to the job site on time is important, set a goal of 95% of jobs start on time.  Plan.

Every day, have a list of orders that needs to be shipped out that day.  Track how many actually got out the door.  Have your construction superintendent send you a text when the crews are swinging their hammer. Track the times.  Do.

Keep a running record of the plan and the actual.  Monitor the differences. Think about how to get closer to your goal or, if you are actually beating your goal, consider new goals and new ways to get to the goal.  Measure.

With your new plan and goals in place, train your team to carry out the work the way you planned it.  Yes, track everything.  Act.

As a small business owner, your time is absolutely precious.  There is so little of it and there are so many demands.  Only by planning can you get control of your time and perhaps get back to the real reason you started your business – to have the life you wanted.

If you are wondering how you can get started, I strongly encourage you to talk with you accounting professional.  We have been trained since the beginning of our careers to measure and we track time in exquisite detail.  If you do not have an accounting professional or would like to learn more about Currie & McLain, feel free to contact us for a free no obligation consultation.  We are here to help you get back the life you wanted when you began your journey.

Have a great Thursday.  FYI Under 900 words and 35 minutes.  🙂  I love managing by the number.

 

 

 

Marketing Expenses

~ C.O.R.E. Beliefs ~ Leave a comment

Happy Monday everyone.

On Saturday, Kubae and I went into Portland for an Urban Hike.  In all, we put in almost 10 miles (granted over 6 hours) and enjoyed an almost car-free downtown experience.

We even caught part of the Rose Parade, but mostly walked the Pearl District with brunch at the Brunchbox – Monte Cristo sandwich and late lunch at the Upper Deck on 13th.  For lunch we split the Fenway Club (which was smart because it was enormous) and lots and lots of fries.

I really enjoy our urban explorations, especially when a city is kind enough to shutdown auto traffic.

In my years of practice, I have discovered that, for the most part, small business owners have been slow to embrace marketing as a means to growing their business.  My observation is that there are two areas of the business which are typically thought about at the last minute when the owner strikes out on his own – accounting and marketing.  I think this is because these are the two areas they were not exposed to in the previous position when they got the idea to go into business.  These are also the two areas that protect the process – the business as you see it – by generating interest in your offering and then making sure that you are profitable.

There is the old saying, “You can lead a horse to water, but you can’t make it drink.”  But what if you had along a “Horse Whisperer”, whose sole job was to constantly whisper into the horses ear – in horse language – “You are thirsty, you are thirsty, you are thirsty…”  I think that by the time the horse was lead to water, it would be extremely difficult to get your horse to stop drinking!

This is the essence of marketing.  Marketing is all about building awareness of your business; what you offer and how customers can buy.  This should not be confused with the act of closing the deal – the sale.  Marketing gets prospects in the door and sales does the easy part… provided that your sales message supported all the marketing you have done.

Marketing is the front end of your business.  It is the telephone, your website, your email address.   It is about how your business looks when a customer walks in the door.  10,000 things that come together to present your business.  Marketing is all the things that give your prospects and returning customers that feeling you totally understand his situation and offer the right solution.

When it comes to marketing, think bigger picture.  Ask yourself how prospects look for products/services you offer?  Do they ask a friend or perhaps another trusted advisor?  Is your prospects first stop Google?  In today’s fast-paced world, you should consider that most new prospects and repeat customers, are going to search you on the internet so you need to be ready for that.

Since we are now at mid-year for most small businesses, I would encourage you to start your budgeting process for next year.  I know, no one likes to budget but it can really help you determine how your limited resources are going to be put to use in growing your business profitably.  By looking hard at what you have and what you want, you can start making better decisions about how you spend money to get the business you want.

Some things to consider:

  • The demographic of your target customer
  • What your target customer likes and dislikes
  • How they find a solution to a potential problem
  • Internet presence and searchability
  • Company phone number versus cell number
  • Email (domain) address – no Yahoo, Hotmail, or Google.
  • 800 number
  • Printed materials
  • Time

Put values on these items, both their cost and their potential revenue.  Be conservative on both sides.  The low dollar investment with high potential pay-out might likely be the area you want to invest your money in to generate new prospects.  But no matter how you want to invest in your marketing, you will definitely want to find measurements that help you know if your investment is working like you planned.

I strongly encourage you to work with your accounting professional and perhaps even a marketing consultant if you have questions.  Remember, your accounting firm’s Principals and Partners have many years of experience marketing and developing their business and can be a very useful resource for you.  And if you would like to have a second opinion or are looking for an Accounting firm that knows small business, feel free to contact us at Currie & McLain.  We would be happy to sit down with you for a free no obligation consultation about your business and how you might find ways to grow profitably.

 

Important Ratios for Your Busines

~ C.O.R.E. Beliefs ~ 1 Comment

Happy Friday.   In only a few hours, it is time for some Pinot Noir, rib eye, more Pinot, and perhaps a little Royal Painz.  I didn’t think I would like the show (it’s on Netflix) but if you would like to see a MacGuyver-esque doctor who makes housecalls, you may enjoy it. It is also Rose Parade weekend in Portland!   What plans do you have for this fun weekend?

I think a big part of why I enjoy accounting is that I get to see so many different things and work with so many different clients.  Each client is unique and yet so very much like every other business:

They have a “goal of making money now and into the future.” (the Goal by Eliyahu Goldratt).

Making money is the primary reason for being in business because at the end of the day, the Company must pay its bills and provide a return to the owners.  Anything less leads to the failure of the business.

I enjoy helping small business owners find ways to monitor how well they are doing in relationship to their goals and one area we spend quite a bit of time on is building key ratios and graphing them.  I then teach and help the small business owner’s staff complete the ratio worksheets and help explain what is shown on the graphs.

Below are a few of the ratios I think are very helpful to most small businesses:

  • Gross Profit per Labor Hour
  • Marketing Expense per New Customer
  • Website hits per New Customer
  • Website hits per Business Inquiry

Some of the ratios above are lagging indicators and some are leading – meaning that some measure how well the business performs (lagging) and some measure how new business comes in (leading).   Having a good mix of these measurements allows you to know quickly if your business is on track.

Naturally, these ratios assume that your accounting is current and you have developed ways to track the non-accounting data.  It also is very helpful to set an expectation for your business so you know if everything is running smoothly or if adjustments need to be made.

Examining each ratio:

Gross Profit to Labor Hour

I like this ratio as it essentially turns every business into a “service business” by ignoring the Cost of Goods Sold.  Gross Profit in a manufacturing business is essentially the amount of revenue available to pay the business and operating expenses.  By starting the calculation with Gross Profit instead of Total Revenues, you can measure the impact of your labor on generating the money to pay the bills and earn a profit.

Marketing Expense per New Customer

This ratio helps you understand what it costs you to attract a new customer to your business.  If you are spending $10,000 per month on marketing and attract on average 4 new customers, then the marketing expense per new customer is $2,500.  By knowing what the lifetime value of a customer, you can begin to ask if we are getting enough new business in the door and if we are effectively closing sales.

Website Hits per New Customer

As you transition your marketing efforts to online, this becomes a very important indicator of your marketing performance.  How many people come to your website and how many ultimately do business with you measures your site’s ability to educate and inform your prospects.

Website Hits per Business Inquiry

This ratio actually precedes the prior ratio by helping you examine your internet sales funnel at an earlier stage.  How many web hits actually end up with the reader clicking “I want to know more?”  You see that from this  initial click, the ratio Website Hits per New Customer has more meaning as  your chart can show the ratio between total page visits, total “interest” clicks and then number of new customers.

There are many different ratios that can help you manage your small business without having to get stuck in the details of your accounting system.  Talk with your accounting professional about ways to look at your business without having to interpret your financial statements and that can keep you focused on your Goal.  If you are not working with an accounting professional or would like to have a different set of eyes to help you, feel free to reach out to us at Currie & McLain.  We are happy to consult with you at no cost and no obligation and help you see your business in a new way.  And if you haven’t read the book, “The Goal” I highly recommend it.  It is a fun story, easy to read and provides new insight into other ways to manage your growing business.