Tag: planning

Imagine

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

Happy Friday.  I understand there is a great deal of angst out there what with Britain leaving the E.U., our own political turmoil and the risk of another global recession on the horizon; but try to keep it in perspective.  What goes down goes back up.  People will save for a while and then spend.  Your primary role as a small business owner is to remain faithful to your Company and the value it brings to customers.  So again, Happy Friday!

Kubae and I were talking last night and this morning about a woman, lets call her Ann, who was an excellent baker and who decided to open her own bakery.  She quit after two months and Ann’s comment was, “Why would I want to go through the trouble of baking 30 dozen cookies if I only make $1.00 a dozen?”

To which I replied, “Why couldn’t she make $1.00 a dozen and sell 30,000 dozens?”

Kubae’s response to my answer was, “What point is there in making 30,000 dozen cookies if she couldn’t sell them?”

I have written about it before but it is worth repeating.  Most small business owner focus on the wrong parts of the business.  They are worried about the cookies and not about how to get more of the right customers.  The right customer will not find you by accident.  It takes hard work, dedication, and a willingness to extend yourself to get your ideal customer to come to your door.

One of the things I like to do with a client is walk through their “Imagination”.  Much like a therapist, I ask him to close his eyes and imagine his small business as perfection.

  • “What does it look like?”
  • “Who are the customers?”
  • Who is doing what jobs in the business?”
  • “How much profit is it doing?”
  • Where is the business located?”

Most small business owners cannot imagine these things.  They are busy baking the cookies and worrying about “the perfect cookie” instead of “the perfect business”.

Build the perfect business.  This starts with knowing your ideal customer and then finding ways to get them to give you a chance to wow them.  There are many books on the subject, but I like Michael Gerber’s “The E-Myth” series and also John Jantsch’s “Duct Tape Marketing”.

Both authors try to get us to understand that, perfect cookies aside, there must be some overarching vision.  Both call for small business owners to “Work on their business, not in their business.”  Both call for small business owners to create systems and processes that can allow your business to grow profitably without you, the owner, having to carry out every last aspect of the business.

How does a baker sell 30,000 dozen cookies?  One dozen at a time to 30,000 people.  The hard part isn’t making the cookies, it is finding the customers.

Go.

Find.

Customers.

I know this has nothing to do with accounting, but there is no fun in accounting if there is no revenue and profit.  So, if you feel that making the cookies is driving your business, I strongly suggest you talk with a professional or work with a coach on how to improve your lead generation, prospect education and closing.  If you like, you can contact me for a free consultation to discuss how you might be able to generate excitement about your business.  And read the books!  You will be glad you did.

Have a great Friday and an awesome weekend.

 

Owning Versus Renting

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

Good morning and happy Thursday.

Today’s blog is brought to you by Kubae’s insistence.  It was brought on by our being guests of Jeff Taylor with Key Bank at the Portland Thorns match last night.  It was our first visit to the Key Box at Providence Park and she fell in love with it.  By it, I mean the food and the opportunity to watch the match while also enjoy some interesting conversations with the other guests.  It was a great evening and my thanks again to Jeff and the team at Key Bank.

The decision to rent or buy is often a very challenging decision.  You would think that it would be pretty logical – I will generate X dollars of revenues (or cost savings) by spending Y dollars on equipment.  Sadly, it hardly ever is given that level of scrutiny.  Most rent versus buy decisions come down to an emotional “Ownership” decision where I look at the fact I can call it my own instead of admitting to the world I rent.

For you lovers of logic and numbers, I do have a spreadsheet which will help you through this part of the analysis.  I also have a spreadsheet (actually it is just a blank workbook) for you to list out and quantify all the emotional reasons to own.  If you are interested in my Rent versus Buy spreadsheet, shoot me an email and I will send you a copy.

When asked if a small business owner should rent or buy, My first question is about utilization.  How much will it be used over the useful life of the item?  There are a few rules of thumbs out there but the one I work with is:

  • Rent if used less than 20% of its useful life
  • Lease if it is used between 20 and 80% of its useful life
  • Buy if used over 80%

An example:  A contractor needs a new work truck.  It can be driven about 350,000 over 10 years before it starts to run into trouble and should probably be disposed.  The contractor estimates she will put on 210,000 miles over a 7 year period.  First pass answer is  Buy.

The truck is designed to handle about 35,000 miles per year.  The contractor will use the truck 30,000 miles per year.  This comes out to 85% of the useful life of the truck.

I would not stop there though because the important question is, does it make financial sense?  My spreadsheet helps with that as it calculates the Net Present Value (NPV) of the investment in equipment and forces us to think about all the costs of owning the new item.  For instance, with a truck (like above) there are oil changes, maintenance, tire changes, axle replacement, etc. that one needs to consider.  I also consider potential revenue benefits for the investment as well since in most cases that is the main reason for buying an asset!  If all of these items generate a positive value then the decision is supported.

So back to why Kubae suggested that Owning versus Renting would be a good topic for today.  First, we lease our condo.  When we really do the math on the Rule of Thumb, we only  use the space about 62% of the time – since we both work in other offices and we typically spend our alternate weekends exploring; but to be sure we ran it through the Net Present Value calculation.  It actually calculated out with a better return on investment for us to lease a Condo rather than purchase it.

By the way, the same for the Subaru that Kubae drives.  We put on less than 1,000 miles a month so we definitely fell into that Lease category.  We didn’t even bother with the calculation as the answer felt right.  Plus we are excited about the changes to automotive technology which will reduce our dependence on driving even more, but that will come in a future article.

Key Bank did the exact same thing when it came to that Box at Providence Park.  They knew it would generate more than sufficient revenues to offset the cost and ran it through their own NPV calculation system.  Emotionally it might have made sense to invest in that Box but it only happened because it added value to their business.  Have you ever wondered why there are no Apple Fields or Intel arenas?

In business, especially in a small business where every dollar counts, I would strongly encourage you to try to take as much emotion out of the Buy versus Rent decision as you can.  If you insist on owning it even though all the logic says rent, then purchase it personally (or though a separate LLC) and then rent/lease it back to the Company.  If it can generate positive NPV for you that way, then your emotional hunch paid off.

I strongly encourage you to talk with your accounting professional about how to go about buying equipment and other assets for your business.  If you do not have an accounting professional or would like a second opinion, feel free to contact me.  I offer a free no obligation consultation to help us get acquainted and for you to see if we are good fit.

Have a great day.

 

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.