Steps to Prevent Fraud
By altering company deposit slips, an employee was able to embezzle $244,000. She prepared two deposit slips: one put funds into the company’s account and the other put funds into her own bank account. This went on for over three years without detection because the employee handled both bookkeeping and deposit activities for the company.
Employee Dishonesty Is Costly and Common
Stories like this are more common than most business owners want to believe. According to the Association of Certified Fraud Examiners, an estimated 6% of business revenues are lost as a result of occupational fraud and abuse. This translates to losses of approximately $4,500 per employee!
Yes, Small Businesses Are Vulnerable
You might think that large companies are more susceptible to employee dishonesty; but it’s actually small businesses that are the most vulnerable. The average fraud costs small businesses (100 employees or less) a whopping $127,500 per occurrence compared to only $97,000 for the largest corporations.
Small businesses are more likely to become the victims of fraud than larger businesses because they don't have the controls in place to prevent it. As in the example above, many small businesses rely on one person to complete all their accounting transactions from beginning to end. This person opens mail, processes accounts, makes deposits, and handles invoices. While most employees will handle this work honestly, that kind of unrestricted access may prove to be too much temptation for some.
An Ounce of Prevention
“Most successful embezzlement schemes would have failed if inventory and accounting records were organized and up to date.”
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Safeguarding your business may be easier than you think. Some simple and inexpensive measures include keeping your company’s checks locked up, stamping incoming checks "for deposit only", and insisting that all employees take allotted vacation time. (Employees may avoid being away from work to prevent discovery of their crimes.)
Other solutions may require more effort — maybe even some outside help. According to the Small Business Administration (SBA), “Most successful embezzlement schemes would have failed if inventory and accounting records were organized and up to date. If records are always behind and the work is sloppy, theft will be much harder to detect.” The SBA also recommends that you bring in an outside party at least once a year to conduct an unscheduled audit of your books.
Sales & Marketing Metrics
Marketing Budgets and Metrics – A Primer
Marketing isn’t usually comfortable speaking Money. But being able to prove monetary worth in a corporation ensures gold will rain down upon your head. Okay, maybe that’s a bit much. But credibility and a seat at the leadership table will certainly be more likely. In this article I’ll cover Marketing Budgets (planning for how much a marketing initiative will cost), Marketing Metrics (determining, after implementation, how effectively you spent that money), and tips for communicating more effectively with the people who speak Money as their first language.
Part 1: Marketing Budgets
Where to Start: Four Methods for Setting Budgets
One of the most common questions marketers and business owners ask is, “How much should I spend on marketing?” It depends on many factors, including:
§ Your industry. (Some industries like cereal manufacturing invest heavily in marketing! Learn what companies in your industry are spending on their marketing. Consult industry publications, trade associations, and contacts you have in the industry for details.
§ Your competitors’ spending. (This information is harder to come by, but it can still be found. Official company documents, like annual reports, might tip you off. Or you might be able to piece together some estimates by observing their marketing initiatives: how many ads did they place in a certain publication and what size, what level of sponsorship did they provide for an event, etc.)
§ The development stage your company is in. (If you’re just starting out, expect to spend a higher percentage of gross revenues on marketing. That’s because you’re busy building awareness for your company. A more established business, with stronger industry awareness and word-of-mouth, will usually spend less on marketing.)
Here are four specific ways that businesses set their budgets.
What’s in the Checkbook Method
Many small businesses set their marketing budgets at what they think the company can afford. Basically, a business owner consults with his or her accountants and asks how much he or she can afford to spend on marketing. This method of setting budgets does not require a lot of thought and completely ignores the role of marketing and promotion as an investment on sales volume. It also makes long range market planning very difficult to accomplish.
Percentage-of-Sales Method
This is one of the most popular methods of budgeting for marketing expenses. Small businesses allocate a specified percentage of sales (either current or anticipated) for their marketing budgets. For example, a retailer had sales of $500,000 for the year might allocate a fixed marketing budget at 2.5% of sales. After simple calculation, 2.5% of $500,000 is $12,500.
There are a number of advantages to this method of calculating a marketing budget. First, a percentage-of-sales method means that the marketing budget will vary with the sales. This will satisfy the accountants or your financial officer because they would like expenses to bear a close relationship to the direction of corporate sales.
Calculate projected sales and set aside a percentage of the told figure for marketing expenses, keeping in mind that 3 percent of sales is an average figure for advertising and promotional costs alone. Higher percentage allowances generally produce greater results if dollars are wisely used. The marketing fund must also cover general administrative expenses, travel, supplies, postage, resource development training, sales force expenses, marketing research, subscriptions, and professional memberships. Although the budget must be flexible enough to allow for miscellaneous expenditures, it is necessary to live as closely as possible within the confines of the predetermined allowance.
Keep up with the Joneses Method
Some companies set their marketing budgets to achieve "share of voice" parity with their competition. Basically, this means that one merchant finds out how much the competition is spending on marketing and then spends the same. There are two sides to this story. On the positive, maintaining relative parity will prevent promotion wars in the marketplace. On the negative side, this method assumes that the competition knows what they are doing-which may or may not be true.
The Objective-Task Method
This method is most often considered as the best budgeting method. The budgeting process under this method begins with objectives or "what do we want to accomplish" principals. The budget is developed by costing out the expenditures necessary to achieve the desired sales objectives. Although this budgeting is very realistic as to the growth and communications needs of a company, it is often limited by the ceiling set by management. The tactics that a company may deem necessary to achieve the growth objectives may exceed the monies set aside by management for a given year. Nonetheless, this method will prove to be the most logical for any marketing or promotional budgeting.
It is important to note that preparing marketing and promotional budgets should not be treated lightly. At the beginning of the planning stages, tobacco retailers should be clear on what their sales and revenue growth objectives are for the coming year(s) and be prepared to stay on course to achieve those objectives. Deviating from the plan will drastically alter expected results and any evaluation of the effectiveness of the plan will be very difficult and make it hard to justify the annual expenditures.
Part 2: Marketing Metrics
Consider a recent study by the CMO Council that found less than 20% of top technology marketers surveyed had developed “meaningful, comprehensive measures and metrics for their marketing organizations.” The last major study on marketing ROI found that 68% of marketers were unable to determine the ROI of their initiatives.
With all of the recent buzz over marketing ROI, the truth is, it is not necessarily the most appropriate metric for every marketing initiative. While determining marketing ROI is ideal for large initiatives and initiatives where it can be easily determined, such as direct mail or online marketing, it can be complex and cost prohibitive process to accurately determine marketing ROI on small offline branding campaigns. Don’t get me wrong, marketing ROI is the ideal measure, but it can be costly to properly implement. The majority of CFOs will agree and want to set thresholds for when marketing ROI is used as a measure of effectiveness.
Why Measuring Matters
Measuring alters the way you think. Using metrics you’ll start thinking in a more disciplined fashion by asking more detailed and strategic questions that follow a train of thought. And the answers you gain will spur you on, in turn, to expect greater things from your marketing.
· Helps you identify trouble spots in your marketing, or the sales process that supports or follows your marketing.
For example, after analyzing your lead generation efforts, you may find your company getting lots of leads, but not closing many of them into sales. Is that because your prices are too high? Is there a significant difference between your product and your competitor’s product that prospects only find out about after they call you? The more you learn about what the weak links in the chain are, the better you can address them strategically and improve results.
· Helps prove your worth. Helps you show that your marketing efforts are making progress and adding value to the company.
There is a strong correlation between marketing measurement practices, the corporate perception of marketing and the marketing budget. Firms that measured their results had marketing budget increases that were nearly twice the percentage of those that did not measure results. Companies that measured their marketing results increased their annual marketing budgets an average of 11.2% in 2004, while those companies that did not measure marketing results increased their budgets by 6%. (Source: Communications consultants Blackfriars Communications, Inc.)
The critical key is to outline your expectations up front and put in place a mechanism to track your results.
Show Me the Numbers: Three Keys to Getting Started
Don't drown in data. Instead, start small with these three steps:
1. Review your business model and objectives
2. Keep your metrics simple
3. Assign a unique identifier for every campaign
Review your business model and objectives
Consider taking a look at your organization's business model to help you determine what to measure. Profits? Turnover? Customer loyalty? Also, what are your business objectives and goals? What is the particular goal of your advertising campaign? Define metrics to tie in with those, then before you gather data figure out how you want to track your campaigns and what you want to track.
If you're focusing on an online ad campaign, for example, you may want to track different types of leads and which leads result in sales. One way of tracking this data is to use one many software products or your customer relationship management (CRM) system to measure visits to certain pages and click-throughs. (Continue reading for tips on creating an identifier for your campaign.)
Once you have a clear method for collecting and measuring your data, you can see exactly how well a particular campaign or marketing tactic is working—and how well it ties into your overarching business goals.
A word of warning: Don't let existing data guide you in creating metrics; instead, let specific outcomes guide what you want to measure.
Keep your metrics simple
It's easy to get overwhelmed when looking at a mountain of data. Rather than trying to tackle the whole thing, start with KISS: "keep it simple, [pick your favorite s-word]." Choose one metric you've defined and work with that first. Continue adding metrics and validating data, and the data pile gets smaller and more manageable.
If your organization relies on a customer relationship management system, you may want to create your own spreadsheet based on the data pulled from the CRM instead of trying to make something happen within the CRM. Or, your organization could be on the hunt for a CRM system. In this case, don't expect the CRM to be a miracle cure. Too many organizations implement a CRM without researching both their own processes and how to find a CRM that best fits with those processes. So, try a simple database or spreadsheet and pick one or two things to measure. Grow from there. Perhaps, the database can begin with the identifier information mentioned below, so you can quickly find out which avenues are most successful in meeting your business objectives.
Use a unique identifier for every campaign
An excellent way to see which campaigns do well and which need help is by assigning each one an identifier so you know where the visitors come from. "When publishing any advertising that calls for a 'call to action,' you should always have specific contact information," says Dawn Wiggan, consultant with Dawn-Bennett Cole, LLC.
Wiggan gives an example of a call to action that takes a visitor to a company's site. The visitor should land on a page that's relevant and takes him or her to the landing page. When you run an ad in a local newspaper, use a link like www.company.com/news, so you can identify these visitors as those who saw your newspaper ads. When advertising in print, remember to keep the URL short because people have to enter it into their browsers.
With online campaigns, you don't have to worry about short URLs. "To track where your responses are coming from, check your log files (there are a number of software programs that can gather that information and tabulate it for you, and they are usually bundled in with your web hosting service)," explains Wiggan.
Set up multiple toll-free phone numbers and use them like you do with the unique URLs. Each phone number can be associated with a specific ad. "Your service provider will be able to provide you with a report of activity for each phone number. In that way, you can track where your advertising is most effective," she says. Collect and maintain the data in a database that includes the contact route (where the visitors found your ad) and watch for patterns. These help you identify where your ads are most and least effective.
What to Measure
The metrics you use don’t have to be complicated, just revealing. Every statistic that you spend valuable time compiling should act as a window into your marketing effort. Each metric should tell you something significant about your effort. Otherwise, what’s the point?
Two Common Metrics
New Inquiries (and Where they Originated From)
Inquiries (or leads) are the lifeblood of a company. Inquiries can turn into prospects, which in turn convert into customers. As your business grows, you’ll find your new business development efforts will crave new leads like a fire craves oxygen.
Ask: What are the ways inquiries come into your particular business? (Possible answers include calling and requesting a brochure, emailing with a question, sending in a reply card, stopping by a tradeshow booth, signing up for an e-newsletter, etc.)
Track inquiries on a monthly basis will help you pinpoint if there is any seasonality to your business and will give you time to react if there are dramatic changes.
The question you can’t afford to ignore: “How did you hear about us?”
New Customer Sales (and Total Revenue from Those New Customers)
In order for a company to grow, you must replace any customers that you lose through attrition AND bring additional new customers into the mix. That’s your primary objective as a marketer. You are seeking a steady stream of new customers.
To determine your true impact on the business, you need to know how many of the inquiries you converted to clients. To take it a step further, you could identify the revenue those new clients generated.
Here’s a sample of a report Jay Lipe (Marketing Toolkit for Growing Businesses) recommends:
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New Customer Sales Report
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Customer
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Annual Sales
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Source
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XYZ Inc.
ABC Co.
Climb On Inc.
On Belay Inc.
Beasley’s
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$300,000
$240,000
$174,000
$124,000
$ 94,000
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Yellow Pages
Referral-Trade Assn.
Yellow Pages
Referral – ABC Co.
Direct Mail
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Define a new customer as one who has 24 months or less of revenue history with you, and then generate a quick report showing your new customers, ranked by sales — high to low, and where they came from.
Prepare this report every January for the preceding year and you may begin to notice a pattern around where new customers are coming from, and what attracts them to your doorstep. Using this example, what preliminary conclusions could you draw?
The OTHER Measure
Another important set of measures you’ll use are efficiency metrics. These measures are used to evaluate the actual spending efficiencies behind your marketing efforts. How well is your marketing money being spent?
Spending more does not always give you better results. For example, placing advertisements is one of the more expensive marketing tactics you can pursue. Does it generate as many leads for you as accepting public speaking engagements, which you can usually do without incurring any expenses at all? And if you advertise in the Yellow Pages, an industry trade magazine and on online directory – you need to know which source brings you the greatest number of leads and at what cost.
Cost Per Inquiry (CPI)
This is sometimes called cost per lead, and is a simple metric that is extremely valuable in pointing out which marketing programs work hardest for you.
Example:
Total Marketing Expenses for a Program: $2,000
Divided by Total Inquiries: 10
Equals Cost per Inquiry (CPI): $200
Cost Per Order (CPO)
A related measure is Cost Per Order. While CPI is a measure of your spending efficiency to obtain inquiries, CPO measures your efficiency in closing orders. CPO is always higher than CPI because you’ll always have more inquiries than orders. But if your CPO is significantly higher than your CPI (say, 10 or more times higher), that may indicate that your weakness is in converting inquiries into orders (for example, your sales force needs training or you lack sales collateral)
Part 3: Speaking Money
Marketers are typically very good at developing a plan, as in step one above, especially when it comes to detailing the expenses. But to deliver what CFOs and CEOs require, we also need to deliver on the remaining four actions. This means that marketers who traditionally exercise the right, creative sides of their brains now have to start getting the synapses firing on the left side.
Below are four key steps to improving your ability to deliver measurable results in a way that even your CFO will approve.
Step 1: Determine the definition of success and how you will measure whether you have succeeded or not.
Think of defining and measuring success by answering these five questions:
- How you will define success in each of the relevant areas?
- What are the numbers that you will need to collect?
- How will you collect them?
- How accurately will you collect them?
- How often will you collect them?
CFOs and CEOs already spend a lot of the company's resources on the collection of data. They are used to investing in measurement systems and are able to understand the results if the metrics and measurements are properly in place.
Unfortunately for marketers, most of that data has to do with the collection of financial data or production data. But if the CFO can have a great accounting system, why can't the marketing department have the same systematization to measure its effectiveness?
Step 2: Align your marketing spend to marketing objectives.
Determine your short-term and long-term marketing goals in terms that your CFO and CEO like to hear—numbers!
To win the hearts and minds of your internal customers, your marketing budget must have not only the expense side but also specific objectives tied to them. Lastly, they must be broken down into specific components that they can easily identify with.
- Marketing to existing customers. Marketing to existing customers is important to keep them loyal (reduce churn) and to up-sell or cross-sell to them.
- Marketing for new customer acquisition. Most marketers fail to separate out new customer acquisition marketing from each of the other four marketing types. In a growth business, new customer acquisition is critical to achieving that growth. In a high-churn business, such as wireless phone service, new customer acquisition must exceed the amount of churn in order to deliver revenue growth.
- Marketing to increase brand and pre-purchase aspects of the purchase funnel. Marketing cannot be responsible for just delivering short-term revenue objectives. It must also deliver long-term revenue opportunities in the form of increased brand awareness, brand consideration and purchase intent. Depending on how you define your purchase funnel, marketing can deliver increases at each level of the purchase funnel as an investment in the delivery of future sales.
Step 3: Develop a feedback mechanism to help you improve marketing operations based on learning's and results from steps 1 and 2.
We've also found that marketers who can prove their results typically earn more than marketers who can't. The investment in the improvement of marketing effectiveness can have a huge impact both on the position of the company and on the position of your career.
Step 4: Step four is the simplest step of all but must come before all of the others. Get started!
Commonsense Reminders
When speaking Money to top management it is critical to use metrics that matter to them.
In the 1970s, the Polish government set out to make its furniture industry more competitive in the global economy. To that end, the government rewarded furniture factories based on the total weight of their products manufactured. As a result, the citizens of Poland now have the world's heaviest furniture, according to a March 4, 1999 article in the New York Times.
Of course, Polish officials didn't intend to produce heavy pieces of furniture; they wanted to increase production. Yet, as this example reveals, performance metrics can't produce their intended outcomes if they don't measure what really matters to the business.
As a marketer, you have no shortage of metrics at your disposal—including brand awareness, customer satisfaction, and ad readership, to name just a few. However, your CEO and CFO, as well as your firm's shareholders, care less about these metrics than they do about others—particularly cash flow—and though these metrics are generally not part of the marketing vocabulary, they should be. They enable you to tell the story of how marketing contributes to your firm's performance. Use the wrong metrics to communicate marketing's value, and you risk producing a lot of heavy furniture.
Remember to keep these things in mind:
W.I.I.F.T. What's in it for them? Use the same skill you have for connecting with external clients to reach out to your internal clients. Speak to them in their language - always come back to objectives and results.
Always under-promise and over-deliver. Professionals in marketing have an optimistic mindset. They think big, aim big. Modify your target if need be to ensure you hit it. Accountants operate from a more pessimistic outlook. (They call it realism!)
Communicate Promptly and Regularly. If you coordinated or attended a tradeshow, share the results shortly after it wraps up. Don't wait three months. The business owner and accountant are seeing the expenses going out - don't delay in showing them the results.
Provide quarterly updates along the way. And when year-end hits, put together a recap of the year. Remind the organization of all of the things you've done and what it has accomplished. Keep these RESULTS top of mind (yours and theirs) as you're putting together a budget for the year to come. Studies show that marketers who can prove their results typically earn more than marketers who can't. The investment in the improvement of marketing effectiveness can have a huge impact both on the position of the company and on the position of your career.
Finance .& Accounting Finance & Banking
Getting the Best From Your Bank
A strong relationship with an interested bank is an important part of your business. But for many entrepreneurs banking relationships can be confusing, frustrating and intimidating. Here are some tips for fostering a healthy partnership and getting the best from your bank.
First you need to understand how a bank thinks and what they consider to be a "bankable" business. While you might get most excited about things like product innovations and untapped markets, the bank is primarily interested in finding a business that will pay back its loans with little risk of anything going wrong. Before they open the purse strings, they'll want to see clear evidence that you have adequate cash flow, liquidity, leverage and collateral. Focus your energy on addressing these specific issues and reassure your bank that you can repay your loan.
The more the bank understands you and your business, the more they can help. Make yourself known at the bank, visiting from time to time so people know your face. Use these visits to keep senior-level bank personnel up to date on your business activities, informing them of both your achievements and the challenges you are facing.
The best time to establish a relationship with a banker is before you need money. And remember, a good banking partner can provide more than financing; they have a huge number of contacts and can help you network within the local business community
Not surprisingly, a bank looks hard at your books. A qualified financial professional can tell the story of your business in numbers. A professional can also help you compile current and accurate financial data. With this information in hand, you have more credibility and the process will be faster and more likely to be successful. Sloppy or incomplete information will raise an immediate red flag for the banker.
Studies show that businesses that have an association with a financial professional are less likely to have loans turned down and even get loans at slightly lower interest rates.
Be prepared to shop for a bank more than once during your business's life cycle. Your needs can change, and there are times when your bank might stop being the right fit for your business. On a regular basis you should be asking yourself questions like these: Is my bank competitive? Does it offer the products and services I require? Is the quality of customer service high? Do I have a rapport with my banker?
Establish a trusting and rewarding banking relationship. Your business will thank you.
Finance .& Accounting Accounting
A Commonsense Approach to Budgets
Remember when eggs had such a bad rap because of their cholesterol content that many Americans banned them from their diet entirely? Then came the Atkins revolution and suddenly eggs fried in butter with a side of bacon was considered a healthy choice. Both extremes ignored the option for a common sense, middle ground approach — the one most dieticians would recommend today.
A similar pattern has been playing out for budgets in small and mid-size companies. Many business owners are determined to avoid budgets altogether, for fear that they might be the start of an artery-clogging bureaucracy that would hamper flexibility. Others immerse themselves in the process with such rigidity and to such excess, that the real benefits aren’t realized.
As with most things, a balanced approach provides the healthiest answer. That requires us to debunk some of the myths that feed into the black (no budget at all) or white (a rigid budget carved in stone) extreme thinking that is common on this topic.
Myth: If I create a budget I need to stick with my initial estimates and decisions for 12 months. Now, it doesn’t make any sense to create a budget and then ignore it or make decisions without regard to your original plans, but here’s an often forgotten tidbit: your budget is yours. You don’t file it with the IRS, you’re not legally bound by its contents and you (hopefully) didn’t make a pinky-swear promise to adhere to it with unwavering exactness. By some estimates, almost 80% of companies that create budgets don’t change them even once during the fiscal year. That’s not how things work in real life. You can and should change your budget as circumstances require. Budgeting for a shorter timeframe, such as quarterly, might also be a viable option for your company.
Myth: I won’t be able to react as flexibly to an unforeseen crisis if I have a budget in place. The reality is that companies that create budgets tend to be more flexible and more proactive than companies without budgets. When you’re actively tracking your progress toward a specific goal, you can tell much earlier on if you’ve hit a snag. You can react while the situation is smaller and more manageable, and sometimes you can even see a problem before it occurs.
Myth: The budgeting process is too complicated and time consuming. Well, this is actually true for too many companies, but it doesn’t have to be. Many companies spend months agonizing over their budgets and devote upwards of 20% of management’s time to their creation. Although a certain level of detail is needed if the process is going to be effective, budgets can be fairly simple. And the time you invest in planning upfront is never wasted; it’s time you save down the road reacting on the fly to decisions that need to be made anyway.
Myth: Things change too quickly in my industry for me to commit to a budget. Sorry. Conditions change at break-neck speed in every industry, and it’s not a valid reason to excuse yourself from planning for the future. A budget doesn’t ask you to predict unknown events (i.e., Will gas prices go up? Will I have turnover in staff? Will new legislation be passed that impacts my business?). A budget requires you to look at the big picture and commit to the goals you want to achieve and the actions you plan to take — things that are largely under your control. If you’re unable to look critically at your business and determine what it is you want to accomplish in the next 12 months, you need to ask yourself why that is.
Myth: Budgets are meaningless. Everyone just fudges the numbers to paint a pretty picture of how things ought to look. Creating a budget that is based on too-lofty goals, hoping it will provide the inspiration to achieve them, is a sure-fire way to set yourself up for failure and frustration. One post on the internet compared budgets to pornography: “a fantasy about how the author would like the world to look, having no relation to the realities of the world, designed to titillate, stimulate and motivate the reader, but ultimately resulting in a sense of alienation and despair.” Long-term, that’s of no use. When it comes to budgets, keep it real.
Myth: I have a budget, it’s just in my head not on paper. Keeping mental note of your company’s projects, numbers and expenses is a bit overambitious. You may be able to do it for a while, but eventually your business reaches a size that makes it impossible for you to keep in tune with all of the details. If you have managers and employees working for you, it also prevents them from taking on some of the ownership and accountability for results with you. Even if you don’t feel like you’re big enough for a budget right now, you will be one day. It’s never too early to start a good habit.
Remember, budgeting is simply planning. It forces you to step out of the day-to-day details and look strategically at your business, to take stock of where you are and to set a goal for where you want to be. And let’s face it, without a formal tool in place that nudges you to action, that kind of planning is likely to take a back seat to all the other daily crises that demand your attention.
When you budget you’re really just translating your business plan into numbers. And when your budget is complete you have a tool that you can use to check progress toward that business dream, to predict cash flow and profit, to make good decisions and to identify problems before they occur.
Incorporating budgets into your mix of business processes can boost the financial health of your company. Don’t abstain any longer, but don’t overindulge either.
Finance .& Accounting Accounting
Customer Profitability
Logic would tell you that attracting a large number of customers and providing the highest quality of service is a sound formula for success. However, what that formula doesn't take into account is profitability. Satisfying the needs of all customers with little or no account taken of the value of each customer can be an expensive and resource wasting strategy.
It's a fact that in most businesses 5 to 15 percent of customers generate 100% of the net profit. In addition, those very small, unprofitable customers consume more resources than all profitable customers combined. Establishing a measure of customer profitability helps you focus on what your business should be doing, with whom, and how-as well as what you should not be doing and which customers you should not be pursuing.
One national retailer found that free valet parking was being utilized primarily by low value customers. Customers were using the service and raving about its availability, but the average customer utilizing this expensive customer service resource was shopping infrequently and generally during sales, when the margins were already down significantly. As a result, valet parking was offered only to the retailer's most valued customers, who were given a discreet sticker for their windshields.
Customer profitability is basically an equation of revenue minus cost of goods and service. You'll want to start by tracking all of the direct labor and material used in providing a product or service to the customer. Next, you need to identify all indirect service activities your company performs for each customer. Get detailed: include things like sales costs, packing and delivery costs, and merchandise returns. Establish a dollar value for each activity. After you begin to track both direct and indirect costs by customer (or market segment), you can subtract those costs from the revenue generated by each customer to get an accurate picture of individual customer profitability.
But don't stop there. Consider the total value of each customer's relationship with your company; what is the potential sales value of this customer over the life of the relationship? Will sales to this customer increase? Will selling to this company open doors to other divisions? Will working with this customer enable you to work with their competitors?
These are important questions and the insight they provide will help you improve profitability, target customers more effectively and position your company for the future.
Finance .& Accounting Accounting
Surviving The Economy
Blood pressure, weight, good cholesterol counts, bad cholesterol counts-today more than ever many of us are keenly aware of our "numbers." We know the key indicators of health and watch them closely to try to stave off serious medical ailments such as heart attacks and strokes.
The health of your business can also be monitored with key financial information, enabling you to act and react-a powerful weapon in keeping your business fit and strong. Business failure is a gradual process; it rarely occurs overnight or without warning.
Use available monitoring tools such as financial statements, balance sheets, income statements, and customer databases to be on the lookout for the following telltale signs.
• Sustained Cash Flow Problems: Managing your cash flow is your most important strategy. Poor cash flow is the number one reason that small businesses fail. An occasional crunch may not be cause for worry, but left unchecked, it can mean serious trouble.
• Too Much Business Tied Up In One Customer: Diversify your customer base so that no more than a third of your business comes from one customer.
• Unwarranted Increases In Expenses: Increased expenses sometimes indicate a lack of spending controls. Compare expenses against prior months and against the same period last year. Create an approval process for expenses over a certain amount.
Here are some ways to keep your company in good health:
• Monitor your finances and adjust your strategy based on your financial analysis. Stay on top of the facts to catch problems while they are still small.
• Control spending to conserve cash. Review expenses and see what fat you can trim without the business suffering. Add employees slowly and don't overstock inventory.
• Accelerate receivables. Don't be passive about bill collecting. Speed things up by asking for advance payments and rewarding early payers with a discount.
• Slow down payments. Don't fall into arrears with your vendors, but stretch out payments. If your payment is due in 30 days, avoid the temptation to cut a check the day the bill comes.
The old adage remains true-an ounce of prevention is worth a pound of cure.
Finance .& Accounting Accounting
Managing Receivables
To be successful in business you must be paid in a timely manner. If you're like most businesses, you sell on credit-asking your customer to pay an invoice within a set time, like 30 days. During those 30 days you are essentially lending money to your customer, with the expectation that you will be paid back. It is only when that invoice is paid that you have the cash you need to run your business.
Unfortunately, getting the money you're owed isn't always as easy as just sending an invoice. Almost all businesses have customers who are slow-paying or don't pay at all. If you're not proactive in managing your receivables you can quickly deplete your cash. Here are some of the best practices you can implement to protect your company from late payments and delinquent accounts.
• Make sure your customers are creditworthy. Perform credit checks and require credit applications to be completed before accepting orders. If the purchase amount is large enough, you can even ask for and review financial statements. Set credit limits and enforce them
• Run aging reports and review them often. These reports help you understand the makeup of your accounts receivable balance, showing which invoices are less than 30 days old, 30 to 60 days, 60 to 90 days, and so on. Make sure you or your staff knows how to interpret the reports to spot problems early on. And assign someone to follow up promptly with late payers. The older invoices get the more difficult they are to collect.
• Mail invoices promptly. The sooner you get invoices out, the sooner payments will come in. Also make sure that your bills are clear, accurate, and detailed; the more details you include on the bill, the harder it will be for the customer to dispute your charges.
• Use rewards and penalties. Consider including an incentive for prompt payment, such as offering payment terms that provide a 2% discount for payment within 10 days. Your pricing schedule could also include a penalty fee for late payments. Be sure to stay within the limits set by law.
• Pace your growth. A significant increase in sales can have a huge impact on your company's receivables and cash needs. Tap into the advice of a seasoned financial professional to develop a strategy for growth; options to consider might include additional financing, a line of credit at the bank, or price adjustments. You may need to sacrifice some growth to ensure you don't outpace your ability to pay your bills.
Successful companies continually seek new ways to improve their accounts receivable function because they know that improving the process can lead to significant financial gain. Fewer outstanding account balances mean fewer bad-debt write-offs and enhanced profitability. And a well-managed portfolio of receivables can boost cash flow and expand working capital.
Finance .& Accounting Accounting
Can Your Accounting Staff Take You To The Next Level?
When you start a company you're not thinking about the skills and talents your employees will need years down the road. You're focused on survival, and that often means hiring just about anyone who will take the leap of faith with you at the pay you're able to offer.
Typically a business owner hires a person they know and trust, maybe a sister or a neighbor, to do their bookkeeping. This person may not even have a bookkeeping background, they just have a greater aptitude for it than the owner.
As the business grows, the needs and requirements of the business exceed the expertise of the original bookkeeper. As transactions get more complex, the books can get messy. And while the bookkeeper focuses on keeping up with the basic tasks, the big picture details go unattended.
No one is managing cash, monitoring profitability, or building relationships with lenders-no one is paving the way for growth. Even if the owner knew how to present the business to a bank or investor, the numbers might not be reliable. It can end up literally handicapping the entire organization.
Your accounting operations directly impact the profitability and growth of your company. For example, when you're processing accounts receivables efficiently, payments are collected more promptly, cash flow evens out and banks view your business as being more credible.
If you don't feel confident that your accounting staff is poised to take your company to the next level, it's time to call in help.
Many business owners don't have an accounting or finance background themselves-leaving them ill-equipped to properly train and supervise a bookkeeper, much less tackle the bigger issues like cash forecasting, cost control and profitability analysis.
A CFO or controller can help in two important ways:
• By training and supporting your existing accounting staff, so they can operate at peak performance-this might include creating procedure manuals, automating some processes, and cleaning up books that are in disarray so that the bookkeeper can start over with a fresh slate.
• By performing financial duties that fall outside the expertise of the bookkeeper and the owner-this might include things like preparing and analyzing financial statements, creating business plans, defining budgets and performing cash flow analysis.
Finance .& Accounting Accounting
Tips on Finding a GREAT Part-time Bookkeeper or CFO
1. Choose a person who is experienced, professional, trustworthy and is fully checked out.
Make sure that you (or someone) has interviewed thoroughly, skill tested, and has done a background check on the person you choose. This person will be handling your money. Make sure they are worthy of that honor and responsibility. This is not a position to be hire on a "gut level".
2. Choose a person that can adapt to your changing needs.
If he or she has a full stable of clients, will they be around for a special project? What if your business grows to need more time? Will he or she be able to work expanded hours?
3. Choose a person that you trust is charging a fair and timely rate for their services.
Qualified bookkeepers can range from $30 to $65 per hour. CFOs can range from $75 to $250 per hour. Either end of the scale should generally be avoided. Be wary of someone charging too little - they may expand the job to fit a required paycheck.
It is also going to take time and money to get your books set up to start with. Expect to spend anywhere from $300 to $1,000 for most small businesses. You then pay an hourly fee on a monthly basis and after a few months will be able to predict what is regular cost will be in your cash flow.
4. Choose a person that will give you the level of involvement in your business you want.
Do you want a relationship with someone who has opinions about how you are running your business or someone who just makes the entries and gives you the reports?
5. Choose a person whose personality compliments yours.
You are not paying them to make you feel like a bad child! You must feel comfortable with them AND be absolutely sure they do not talk about your business to others.
6. Be watchful the first several weeks
How much time are they spending? Are they asking the right questions? Have you learned anything you didn't know before?
Owl Bookkeeping and CFO Services believes two things about a small business and its money. There should be a sense of stability and security around it and there should be more of it. Owl provides bookkeepers and CFOs who focus on those two things. For more informationa contact Stephanie at (612) 816-6007 or Stephanie@OwlBookkeepingandCFO.com, or visit them online at www.OwlBookkeepingandCFO.com