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Archive for the Management Tips Category

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.

 

The Death of the Annual Performance Review

If you have employees, you probably also have a process to help them understand how they are doing on their job performance. There’s a new trend in large companies to kill the annual performance review and replace it with continuous, instant feedback as well as a tool called an after-action review.

After-Action Review

An after-action review (AAR) is a fantastic process to help you look back at a project or period of your business to see what, why, and how things occurred and how they can be improved for the future. Taking a profit-focused view will help you get the most out of the idea.

The AAR provides you with a bit more formal process than a passing “hmm, how did we do on that project last month?” conversation in the hall.  For example, if you planned your client retention rate to be 90 percent and your rate was 85 percent, you may want to take a look at why that happened. Doing exit interviews or a survey with discontinuing clients can help to explain the five percent variation.

Continuing the example, once you have done the interviews, you may have some ideas for improvement. It might be to automate some communication, increase response time, add more time for explanations, or something else. Let’s say you got sick last year and lost some clients because your response time during that time was not good. This year, you can put a sick plan in place to call on a peer to help you out so your service does not suffer.

The AAR requires an open mind and you will need to accept responsibility. One of the key benefits of the AAR is increased accountability. The core questions to ask yourself and your team include:

  • What was supposed to happen?
  • What did happen?
  • What worked? What should we keep doing?
  • What didn’t work? What are some improvements?
  • What advice would you give yourself at the beginning of the year? (Or project?)
  • What personal lessons did you learn?

You can use the AAR to improve your business by using it after each large project, to measure goals, or for a specific timeframe. Look at your first quarter performance this year. Are you on track? What improvements do you need to make for next quarter that you can work on over the summer and fall? Some opportunities to use the AAR include:

  • Technology changes / additions or training
  • Staffing changes
  • Hiring process changes
  • Marketing changes / additions or training
  • Operations changes / additions or training
  • New service or product development / new niches
  • Changes in your existing services or products
  • Customer retention
  • Sales cycle changes or development
  • Pricing evaluations
  • Client surveys / communications / service level changes

The good thing about the AAR is you can make it as formal or informal as you want.  You can invite your team or do it yourself, although you’re going to need an open, unbiased mind.  Try it in your business, and let us know if we can help.

 

Beyond Saving Trees: New Trends in Receipt Management

Accounting automation has come a long way in the last few years, and the process of handling invoices and receipts is included in those changes. No longer is there a mountain of paperwork to deal with. In this article, we’ll explain some of the changes in this area.

Vendor Invoices

Most invoices are now sent electronically, often through email or from accounting system to accounting system. Some accounting systems allow the invoice document, usually in PDF format, to be attached to the transaction in the accounting system. This feature makes it easy for vendor support questions as well as any audit that may come up.

Some systems are smart enough to “read” the invoice and prepare a check with little or no data entry. Others are able to automate three-way matching – this is when you match a purchase order, packing slip, and invoice together – so that time is saved in the accounts payable function.

Receipts

Today’s systems allow you or your bookkeeper to scan in or take cell phone photos of receipts – whether cash or credit card – and then “read” them and record the transaction. This type of system cuts way down on data entry and allows the accountants to focus on more consultative work rather than administrative work.

Some vendors will email you receipts so all you have to do is use a special email address where your accountant is copied or forward the receipt as you receive it.

The biggest challenge for business owners is getting into the habit of photographing the receipt and sending it to the accountant. The days of shoebox receipts are not completely over, but cloud-savvy business owners are definitely enjoying the alternative options of today’s paperless world.

Approvals

Some systems automate bill approval. This is especially handy for nonprofits or companies with a multi-person approval process. It cuts down on approval time and the time it takes to pay the bill.

New Systems

Here is a short list of new systems that automate a part of the vendor payment or receipt management system. There are a lot more, in addition to your core accounting system, and all of them have different features, platforms, software requirements, integration options, and pricing.

  1. Bill.com
  2. Hubdoc
  3. Receipt Bank
  4. Expensify
  5. SmartVault
  6. Doc.it
  7. Tallie
  8. Concur
  9. LedgerSync
  10. ShoeBoxed
  11. ShareFile
  12. DropBox

If you are interested in finding out more about automating your accounts payable invoices or receipts, please reach out anytime.

5 Metrics to Gauge Your Business Performance

Sometimes, the most telling numbers in your business are not necessarily on the monthly reports. Although the foundation of your finances revolves around the balance sheet and income statement, there are a few numbers that, when known and tracked, can make a huge impact on your business decision-making. Here are five:

1. Revenue per employee.

Even if you are a solo business owner, revenue per employee can be an interesting number. It’s easy to compute: take total revenue for the year and divide by the number of employees you had during the year. You may need to average the number in case you had turnover or adjust it for part-time employees.

Whether your number is good or bad depends on the industry you’re in as well as a host of other factors. Compare it to prior years; is the number increasing (good) or decreasing (not so good)? If it’s decreasing you might want to investigate why. It could be you have many new employees who need training so that your productivity has slipped. It could also be that revenue has declined.

2. Customer acquisition cost.

If you’ve ever watched Shark Tank®, you know that CAC is one of the most important numbers for investors. This is how much it costs you in marketing and selling costs to acquire a new client. Factors such as annual revenue, or even lifetime value of a client will affect how low or high you can allow this number to go.

3. Cash burn rate.

How fast do you go through cash? The cash burn rate calculates this for you. Compute the difference between your starting and ending cash balances and divide that number by the number of months it covers. The result is a monthly value. This is especially important for startups that have not shown a profit yet so they can figure out how much cash they need to borrow or raise to fund their venture.

4. Revenue per client.

Revenue per client is a good measure to compare from year to year. Are clients spending more or less with you, on average, than last year?

5. Customer retention.

If you are curious as to how many customers return year after year, you can compute your client retention percentage. Make a list of all the customers who paid you money last year. Then create a list of customers who have paid you this year. (You’ll need to two full years to be accurate). Merge the two lists. Count how many customers you had in the first year. Then count the customers who paid you money in both years. The formula is:

Number of customer who paid you in both years / Number of customers in the first or prior year * 100 = Customer retention rate as a percentage

New customers don’t count in this formula. You’ll be able to see what percentage of customers came back in a year. You can also modify this formula for any length of time you wish to measure.

Try any of these five metrics so you’ll gain richer financial information about your business’s performance. And as always, if we can help, be sure to reach out.

Five Steps to Getting a Loan

Most small businesses need help with cash during certain stages of their growth. If you find that you have more plans than cash to do them with, then it might be time for a loan. Here are five steps you can take to make the loan process go smoother.

1. Make a plan.

Questions like how much you need and how much you will benefit from the cash infusion are ones you should consider. If you don’t already have some version of a budget and business plan, experts recommend you spend a bit of time drafting those items. There’s nothing worse than getting a loan and finding out you needed twice the cash to do what you wanted to accomplish.

2. Know your credit-related numbers.

Do you know your credit score? Is there anything in your credit history that needs cleaning up before it slows down the loan approval process?

Take a look also at your standard financial ratios. These are ratios like your current ratio (current assets / current liabilities) and debt-to-equity ratio. If these are in line with what your lender is expecting, then you are in good shape to proceed.

3. Research your options.

Luckily, there are many more options for financing your business today than there have been in the past. Traditional options, such as banks, still exist, but it can be difficult to get a bank loan for a small business.

Here are some online loan sources where investors are matched with borrowers via an online transaction:

  • Kabbage
  • OnDeck
  • LendingClub
  • FundBox
  • BlueVine

Or you can go to Fundera and compare which loan is the most economical.

There is also crowdfunding, which is very different from a loan. Crowdfunding is a way to raise cash from many people who invest a small amount. Top sites include GoFundMe and KickStarter, where you can find out more about how it works.

Other ways to get cash include tapping into your personal assets: using credits cards, refinancing a house, and borrowing money from family and friends.

4. Create your loan package.

Most lenders will want to know your story, and a loan package can provide the information they need to decide whether they want to loan you money or not. A good loan package includes the following:

  • A narrative that includes why you need the loan, how much you want, and how you will pay it back. A good narrative will also list sources of collateral and a willingness to make a personal guarantee.
  • Current financial statements and supporting credit documentation, such as bank statements and credit history.
  • A business plan and budget, or portions of it, that cover your business overview, vision, products and services, and market.
  • A resume or biography of the business owners and a description of the organization structure and management.

While it takes time to put together a great loan package, it’s also a great learning experience to go through the exercise of pulling all of the information together.

5. Execute!

You’re now ready to get your loan. Or not. Going through these five steps helps you discover more about your business and helps you make an informed decision about whether a loan is still what you want and need.

Throughout the process, you may have learned new information that tells you you’re not quite ready for a loan, or that in fact, you are. At any rate, preparing for a loan is a great learning process, and the good news is there are lots of avenues for small businesses to get the cash they need to grow.

The Triangle of Fraud Risk

A 2014 Global Fraud Study conducted by the Association of Certified Fraud Examiners (ACFE) estimates that the average business loses five percent of their revenues to fraud.  The global total of fraud losses is $3.7 trillion.  The median fraud case goes 18 months before detection and results in a $145,000 loss.  How can you avoid being a fraud victim?

The first step is to become more aware of the conditions that make fraud possible.  The fraud triangle is a model that describes three components that need to be present in order for fraud to occur:

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

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

Motivation

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

Rationalization

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

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

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

Opportunity

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

Seventy-seven percent of all frauds occur in one of these departments:  accounting, operations, sales, executive/upper management, customer service, purchasing and finance. The banking and financial services, government and public administration, and manufacturing industries are at the highest risk for fraud cases. (Source: ACFE)

Prevention

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

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

Cool Tech Tools: Automate Your To-Do List

Keeping a to-do list is a great way to be productive, avoid having things fall through the crack, and unclutter your brain.  How you maintain your to-do list varies: some people use pen and paper because they love the feeling of crossing tasks off, others use Excel or Google documents.  Still others might try Evernote.

If all of those still have you feeling unorganized, then you’re in luck.  There’s a whole new genre of apps to automate your to-do list.  Here is a list of things to consider:

  1. Would it be great to access your to-do list from any device?
  2. Do you need subtasks?
  3. Would you like to set priorities and due dates?
  4. Do you want notifications or reminders?
  5. Do you want to share tasks with others?
  6. Do you have repeating tasks that need to be handled differently?
  7. Do you need to be able to make comments or notes for each task?
  8. Would it be nice to forward an email to your to-do list and just have it logged?
  9. Do you want to be able to print your to-do list?
  10. Do you want to be able to set hash tags, filters, and labels for each task?

Once you’ve thought about your requirements, now you can look for an app that meets it.  Here are two to get you started:

  • ToDoist.com
  • Wunderlist.com

If those don’t work out, Google “to-do list apps” and you’ll have a bevy of selections to choose from.  These to-do lists will work for not only business projects but also major life projects like weddings, vacations, and more.

Try these new to-do list apps and let us know what you think.

Cool Tech Tools: Google Drive

Google Drive, which used to be called Google Docs, is a great way to collaborate with team members and stakeholders that are in a different location than you are. Here’s a quick introduction (or refresher) on how to use this powerful collaboration tool.

Google Drive is a browser-based application that allows you to create documents, spreadsheets, presentations, and other documents that reside in the cloud. They can easily be shared with others, and both of you can see and edit the document at the same time.

Using Google Drive

To get started, you’ll need to have (or set up) a Google account. If you have a gmail account, you can use it. Log in to your gmail or Google account, and at the top right corner of your screen, you will see a square made up of nine small squares. You can click on it and select Google Drive.   Alternately, you can go to drive.google.com.

Time to Create

Once you’re on the Google Drive main page, you’ll see a large red CREATE button on the top left. Click it to create your first Google document. Select among the choices of spreadsheet, document, presentation, and more. Give the document a title, and start editing. The commands are very similar to Microsoft Office®, so there’s no learning curve.

Time to Share

When you are viewing a document, you’ll see a blue SHARE button on the top right side of your screen. Click it to enter the email address of a person you’d like to have see and/or edit the document.

You can tell who else is viewing the document at the same time you are because you’ll see a colored box and perhaps their picture on the top right side. You can also tell where their cursor is in the document; it will show up in another color.

As you create documents, you will see your list growing under My Drive. If someone else created the document and shared it with you, you’ll see it under Shared With Me.

So Many Uses

Here are a couple of ideas on how you can use Google Drive.

  • As a bulletin board for your employees or customers
  • For status reports on projects
  • As a to-do list when multiple team members are involved – they can check off the items as they go
  • As a collaborative note-taker when you’re brainstorming with another person
  • With a client when you need to explain part of a document – you can copy and paste from Word or Excel to Google Drive (but check to make sure everything came over)

Google Drive is great for productivity and makes communications easier. Try it and let us know how you use it.


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.

What’s Your Hourly Worth?

Time is the most precious resource on the planet, but sometimes we don’t treat it that way. In our businesses, it’s important to get everything done, but we can also get overwhelmed with all the little things that need to be done to take care of customers. One of the big differences between highly successful entrepreneurs and less successful ones is how they manage their time: the more successful simply value it more and treat it as the scarce commodity it is.

A great exercise to bring this home is to track what you do in one day. You can write a diary as you go through the day or simply recall what you did at the end of the day. List the tasks you did; then write the hourly market rate of each task you did next to the task.

Did you spend time on low-level tasks such as email cleanup, filing, order-taking, order filling, or handling routine customer questions? Or did you spend time calling up power partners, dreaming up new products or services, or restyling your marketing message so that it’s more impactful and reaches more customers?

What was the average hourly rate of the tasks you did today? Multiply that by 2,000 hours and compare it your gross revenues. If your gross revenues were higher than the value of the tasks you did today, then your revenue might be stagnant. If your annualized day was worth more than your gross revenues, then congratulations; you’re moving up and giving yourself a raise. Your business is likely growing.

If you’d like a raise, then the first thing to do is to start delegating the lower level tasks that are eating up all your time. They might be a comfortable way for you to pass the time, but they could also be keeping you stuck, overwhelmed, and moving toward burnout.

We all have the same amount of time each day. If we can free up our time to focus on more powerful action items that move our business forward instead of the chores that clog our progress, then our success will accelerate.

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