Benchmarking 102: Prioritizing Benchmarks

In a previous blog, we learned WHY benchmarking is so important. Here’s a brief refresh:

  • It helps you understand your situation.
  • It can be used continually. Benchmarking is not a use it once and pitch it solution.
  • It provides you with real-time data. That is, as long your data is accurate, timely and relevant.

So now that we’re all up to speed, let’s revisit benchmarking again. After securing the accurate, timely and relevant data source you’ll use, the challenge becomes choosing which benchmarks to analyze and use as a proxy for business success.

Different industries, even different companies within an industry, could have different measures of success. For example, a contractor may have large subcontractor expenditures. Are these expenses normal considering the contractor’s sales volume?

Rather than define all these industry-specific key performance indicators (KPIs), we’re going to focus on a few financial metrics that are the most universally important to business and, when analyzed together, provide a quick and high-level review of a company’s health. Get excited.

  • Net Profit Margin. Generally expressed as a net-profit before taxes in a given financial period divided by sales. Another way to look at it is how many cents of profit you extract from each dollar it earns in revenue. This may be a rudimentary financial metric, but it is also the most important!
  • Liquidity Ratios. Did you note the plural usage? Good because there are two that need to be analyzed jointly.
    • Current Ratio is expressed as current assets divided by current liabilities. This metric shows your general liquidity, however it has some limitations. By including inventory in the calculation, it may provide a distorted understanding of your very short cash flow.
    • Quick Ratio is typically expressed as cash accounts receivable divided by current liabilities. Again, this ratio may not be perfect for gauging liquidity, but it is a useful and popular comparison to pair with the Current Ratio.
  • Turnover Ratios. Plural again … because there are three this time to consider:
    • Accounts Receivable (AR) is expressed as accounts receivable divided by sales, multiplied by 365 days. It roughly measures the number of days your company takes to turn accounts receivable into cash. Lower numbers are more desirable since it is better to have cash in the bank than extra receivable on the books.
    • Accounts Payable (AP) is expressed as accounts payable divided by cost of goods sold, multiplied by 365 days. The accounts payable ratio indicates the number of days you take to pay its vendors. Here, higher numbers are better as it means you are able to hold onto cash longer.
    • Inventory Days is expressed as inventory divided by cost of goods sold, multiplied by 365 days. Inventory days measures the number of days it takes to sell off inventory. As a note, this ratio is very specific to the industry. Imagine how long wine is stored at a winery compared to how long eggs are on grocery stores shelves. Generally, lower numbers are better.

By using some of these financial metrics repeatedly, you can being to build a picture of where your business should be going, where it’s excelling and where you can change and improve.

Takeaways from #SWNDWomen

Last weekend we were honored to be part of North Dakota Women’s Startup Weekend. There was so much inspiration and innovation. From hydroponic technology to help end the obesity crisis to jingles for your loved ones and more, it was a truly engaging weekend. For the full scoop on the projects and winners, check out Emerging Prairie’s recap.

Here a few of our takeaways from Sunday’s final presentations:

The need for good people. We’re not going to lie. We can’t imagine how stressful and exhilarating it must be to put together a startup in 54 hours. It probably helps when you have good people on your side to help you make your dream a reality.

The same can be true for any startup (not just those built in a condensed timeframe). “The number one difference in the success of a startup is people,” said speaker Mari Baker (learn more about her here). “A good hire makes all the difference in the world.”

Build a culture, not just a business. Yes you have to have a product or solution. Yes, you should probably have a business plan so you know where you’re attempting to go. Yes you should have an understanding of your finances.

But you also need to have culture in place to help drive your company. “Culture trumps strategy every time,” said Baker. It’s important to put it in place early on so that as your startup grows, you don’t lose sight of who you are at the heart of your company.

Don’t forget about YOU. You’ve put a lot of time, effort, blood, sweat and tears into this dream of yours. You’ve worked hard. But along the way to seeing your dream become a reality, don’t lose sight of YOU. According to Baker, one of the keys to success is being able to take care of yourself first. She likens it to the security talk on an airplane: put your oxygen mask on before helping others.

Further, know where your strengths are … and where they’re not. Come on, no one is perfect. Identify areas where you have weaknesses and hire people who have strengths in those areas. A well rounded team who has the ability to learn, adapt and adjust along the bumpy startup way is key to success.

And a few more …

  • Fail fast.
  • Life ebbs and flows. Try to achieve balance over time.
  • Always ask: Who are the smartest people? Work with them.

 

Cheers to everyone involved in _SWNDWomen

 

 

 

Tips for Hiring (& Keeping) Employees

One of the fun things you get to do when you run a business is hire staff. After all, without them you can’t grow to the level you want, unless you like wearing multiple hats all the time. While it’s great to watch your team grow, hiring new employees can be a frustrating and grueling process.

We’re here to tell you that it can be easier … well, at least a little bit.

Background Checks

You’re growing and you need help NOW. So you hire the first person that walks in the door with a halfway decent looking resume right? Wrong. Without doing some due diligence (not just an accounting term my friends), you can end up in a world of hurt.

Welcome to the world of negligent hiring, a fancy legal term that breaks down like this: if you don’t do your due diligence (which includes background checks), you are responsible for the destructive actions of your employees.

But background checks do more than just protect you legally. They can give you valuable information, such as:

  • Verify information on a resume
  • Assure a candidate is qualified for the position
  • Obtain criminal information

Placement Services

Need to hire but don’t have the time or resources to make a hire? Placement services can help you, essentially acting as an HR and recruiting department. This process involves meeting with management, searching for qualified candidates, screening candidates and recommending a candidate for hire. In other words, it takes a whole pile of stuff off your to do list.

Shameless plug: Eide Bailly has placement service capabilities. Plus, we’re really fun to work with.

Fraud Hotline

You have the employees, but you want to ensure things are running efficiently and there’s no sketchy business going on. Utilize a fraud hotline. Fraud hotlines allow individuals to anonymously report wrongful behavior and allows employers to have insight into what’s going on in their organization, even when they’re not present.

These are just a few of the ways that you can hire the right people and continue to maintain the vitality of the organization you dreamed of running. Human resources is essential to your organization, but it can also be tiring, especially when it’s one of the many things included in your job description. So before you try and do it all yourself, consult with a business advisor … they may just be able to take some of the work off your plate (we sure can).

A version of this post first appeared on Eidebailly.com.

 

 

 

Don’t Take Our Word for It

We love helping you dream about what’s possible when you don’t have to work in the day to day operations of your business.

But don’t take our word for it. Mike even says that we make numbers kind of fun. Seriously, check it out!

Dare to dream about what’s possible … we’ll be here to help you every step of the way. #ebPossible

Something to Brighten Your Tax Day

NOTICE: Taxes are due today!

Hey, wait…isn’t tax day April 15th? Come on numbers nerds, get with the program.

Well, in most cases, you would be correct. Normally the most awesome day of the year is April 15. But this year is special. Why? Because this year Emancipation Day was observed on April 15th by the District of Columbia and therefore tax day was moved to April 18th.

That means you were given a few extra days to file your tax return or extension (you still have to pay though). But who needs the extra days right? You’re already on top of it, we’re sure.

In honor of tax day, we thought we could take a break from the normal content and spread some laughter with some of our favorite tax humor. Enjoy!

The hardest thing in the world to understand is the income tax. – Albert Einstein

How do you tell an introverted accountant from an extroverted one?

An introverted accountant stares at their shoes, an extroverted one stares at yours

What’s the difference between an accountant and a lawyer? The accountant knows he’s boring.

Woman goes to the doctor and finds out she has 6 months to live. Her doctor advises that she marry an accountant.

Woman: Why marry an accountant? Will that make me live longer?

Doctor: Well… no, but it sure will seem longer!

Why was the accountant so excited on the weekend? Because he gets to wear casual clothes to work.

How to Understand Intangible Assets

At the start of your business, you focus a lot on value. How do you create it? (Here’s a hint.) What do you do better than others in the industry? What sets you apart?

Along the way you may end up creating intangible value or intellectual capital.

What?

Yes, you read it right. On the way to creating value for your overall organization, you can create intangible value. Intangible value, otherwise known as intangible assets, are exactly what they sound like: assets that don’t have a physical presence. Read, you can’t pick it up or touch it.

Examples of intangible assets include:

  • Brand names
  • Trademarks
  • Non-compete agreements
  • Licensing, royalty and standstill agreements
  • Lease agreements
  • Franchise agreements
  • Patents

Okay, go on.

Just because you can’t touch it doesn’t mean it can’t provide value. The best way to think about an intangible asset is that it helps you make money.

As a refresher, value is created when a buyer is willing to pay for it. So if a piece of intellectual property gives your investors the belief that they will have future earning power, value is created.

For example, if you patent your technology, it means only you can use that technology now without prior consent. This can provide value to an investor as they know they can now work exclusively with you in order to bring a product to market … and they won’t have to worry about lack of recourse if copy cats arise.

Sounds great. What’s the catch?

Intangible assets have a great deal of risk generally associated with them. So in order to prove value, you have to reduce some of this risk.

Here’s a few ways how you can do just that:

  • Intellectual property – Protect it. If it’s patentable, patent it. Then you can later sell this asset or obtain royalties for others to use it.
  • Customer relationships – Obtain long term contracts. They may not be fun, but contracts are important. They protect you, whereas relationships do not.
  • Workforce – Obtain employment agreements and non-compete agreements. This protects you in case you have an employee that decides to go rogue.

Protect myself. Got it. Anything else?

Intangible assets will grow in value as you expand your market and grow your product. They may be the most valuable assets you have in your business. So pay attention to them and make sure they’re protected.

 

 

Why HR Matters

You spend a lot of time building up your organization and perfecting your product. But what about your people? As a small business owner, staffing is vitally important, especially for organizations in growth mode. These are the people that keep you from working long(er) hours, help you scale and provide you with valuable feedback.

Often, human resources (HR) is over looked, especially as you’re trying to wear multiple hats. But we’re here to tell you it’s an essential component of any organization and critically important to get right.

Here are a few reasons why:

It’s the law. There’s a lot of legal stuff surrounding HR, and not just in the context of the fun stuff like disciplinary action and termination.

“While most managers are aware of the legal snares that come with termination decisions, the hiring process is equally fraught with legal peril. Most commonly, applicants who were not hired may allege discriminatory failure to hire on the basis of race, gender, age, disability, or some other legally protected category. It is also possible that applicants may pursue claims based on inappropriate inquiries made during the application or interview process” (source).

For instance, did you know you can’t ask about age, citizenship status or what they enjoy doing in the spare time? And we’re just getting started.

Cheers to happy, healthy employees. You have champions for your finances, your marketing, your operations. In a small business, these might even all be you. An HR professional or team is the champion of your people.

Part of their job is to gauge and maintain employee satisfaction. They can send out satisfaction surveys, meet with key team members and facilitate exit interviews, all of which will give you vital information and insight into the people on your team.

Why is this so key? In small organizations, people are often performing multiple duties, as well as carrying around a lot of knowledge about the way things are done. Think about what would happen if you lost just one key individual during the early stages of your business? How would that affect your bottom line?

Let’s not forget about the cost of training a new employee versus maintaining a good employee. It can cost anywhere between 30 to 50% of an employee’s salary to onboard a new employee. Yep, we said 30 to 50%.

Improve and resolve. When you’re just starting a company, you’re looking for anyone to help make your dream a reality. But what happens if, as your company expands and grows, you realize one particular employee isn’t in the right place within your organization? Do you have a plan to improve employee performance?

“Without a human resources staff person to construct a plan that measures performance, employees can wind up in jobs that aren’t sustainable for their skills and expertise” (source).

Let’s also take into account that we’re all human beings and so, sometimes, we don’t get along with everyone else. Do you know who within your organization will handle workplace conflict? As ideal as it would be to say, “We’re all adults, figure it out,” it’s best to have a skilled professional handle employee relations and conflicts.

Onboarding, off-boarding and all other things boarding. When an employee begins working with your company, they need some sort of training (unless they’re a genius). HR helps to perform onboarding functions like training, review of benefits and can even be part of the interview process.

They can also work with current employees to make sure they’re able to improve on their skills and qualifications by providing training and development opportunities. By identifying areas for improvement, they can work to improve the skills of your current work force, saving you time and money in hiring and training new employees.

And if an employee decides to leave, they can work to ensure they know the reasons why (through a little thing known as an exit interview) as well as that they’re not walking away with valuable knowledge which hasn’t been transferred.

The bottom line is that HR doesn’t only affect people within your organization. It affects your bottom line. It’s important to have systems in place, all the way from recruitment to exit, to ensure you’re not only compliant, but also employing good, quality people.

Seem like a whole ton of work? We can help. The Possibilities Center is pleased to announce our newest endeavor, HR Consulting. Contact Lisa Fitzgerald (lfitzgerald@eidebailly.com) to learn more.