Overtime Ruling Delayed

Remember that time we told you about the new overtime ruling and why you need to care? (If you need a refresh, go here)

Well before you put everything into action, you may need to pump the brakes.

On November 22, Judge Amos L. Mazzant III, a judge in the U.S. District Court for the Eastern District of Texas, delayed the new salary level threshold for overtime pay.

What?

As a reminder, earlier this year, the U.S. Department of Labor updated its overtime regulations. That update more than doubled the salary level for employees to be exempt from overtime pay. Prior to the update, the overtime pay threshold was $23,660 annually. Under the new ruling, it’s now $47,476 annually.

This means that an estimated 4.2 million U.S. workers who previously were not required to receive overtime will now be eligible for overtime.

Cue some unhappiness.

So why is there a delay?

In October, several states filed a request for a preliminary injunction. This basically means they challenged the Final Rule put in place by the U.S. Department of Labor. And Judge Mazzant granted their request.

What does this mean for me?

The most immediate consequence will be that the new overtime ruling will no longer take effect on December 1. Instead, there will be time for further court hearings and discussions on the Final rule.

In other words, we all have to stay tuned. But for now, the current ruling is still in effect. We’ll keep you posted as things progress.

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

 

Behind the Metrics: Profit & Profit Margin

profit-profit-margin-2This set of blogs will take you behind some of the metrics you should be measuring in your business. We’ll talk about what they are, what they really mean and more.

Today we’re talking about something you more than likely care about in your business: PROFIT.

But what exactly is it? Bottom-line profit is when you have more revenue (sales) than expenses.

Three Types

Yes, there’s more than one kind of profit. Or rather, more than one way to measure profit. These three types include: gross profit, operating profit and net profit. And they’re all three found on your income statement.

Gross Profit

This is your total revenue minus the cost of goods sold. In other words, it’s the amount of money you’re getting from your customers less the expenses it took to make your product or provide your service.

Revenue – Cost of Goods Sold = Gross Profit

Operating Profit

Operating profit is your profit from your core business functions (the reason you’re in business in the first place).

The difference between gross profit and operating profit is pretty straightforward. Gross profit is a direct look at your revenue after expenses from sale. Operating profit looks at profitability after you take into account your operating expenses. We’re talking salaries, administrative costs, etc.

Gross Profit – Operating Expenses = Operating Profit

Net Profit

Consider this how much profit you make after you take into account ALL of your revenue and expenses.

Operating Profit ± Other Income & Expenses = Net Profit

Other income and expenses? We’re talking investment income, income (or loss) from sale of property and equipment, interest income or expense, taxes, etc. This is your “bottom-line”.

But wait, there’s more.

Along with your profit is a fun thing called profit margin. These profitability ratios helps show the financial health of your business. Profit margins can be looked at as a trend (this year compared to last year, this month compared to last month, etc.). Or you can benchmark yourself against similar companies to gain a better understanding of how you compare to your peers.

By monitoring your profit margins, you can see if what you’re doing is working or if you need improvement. Further, it will help you forecast (budget) your future revenues and expenses. It’s pretty powerful.

Of course, as you may have guessed, there’s more than one type of profit margin.

Gross Profit Margin

Gross profit margin looks at the percentage of revenue left over after you account for all of your costs of goods sold. It’s calculated by taking gross profit and dividing it by revenue.

Gross profit margin tells a story (you knew it was coming) about how effectively and efficiently your business is producing your product or providing your service.

Net Profit Margin

Net profit margin looks at the big-picture of your business. It portrays the percentage of revenue that actually turns into profit for your business. It’s calculated by dividing net profit by revenue.

Net profit margin is particularly important for your business because it gives you a bottom-line view of your profitability and overall health.

The moral of the story

Profit and profit margins are among some of the most important metrics to track for your company. They give you a picture of where you’re currently at, what’s working (and what’s not) and can even show you where you could be headed in the future.

 

A Business Owner’s Thanksgiving

thanksgiving-graphicHappy Thanksgiving from all of us here at Eide Bailly! With the big day being tomorrow, we hope your turkeys are roasting, pies are baking and stomachs are ready to enjoy a delicious meal shared with friends and family.

There are many things people are thankful for– whether it be friends and family, having food on the table or good health.

What are you, as an owner, thankful for about your business?

Here are a few friendly suggestions:

  • You’re living your dream –Just like the pride felt from cooking up a delicious meal to share and seeing everyone enjoying your hard work, business owners should be thankful for the pride that comes from running their own business. Your hard work and determination got you to where you are, and you’ve been through the ups and downs of the business and still made it through.
  • Passion –As you watch some Thanksgiving football, think about the players who are passionate about the game or the fans who are passionate about their team. Business owners can also be passionate about their company and job. Most entrepreneurs love what they do, and channel that passion into their business to make it the best it can be. Being passionate about your business can help lead to success, and that is something worth being thankful for.
  • Creativity — As a business owner, creativity has likely been a key factor in getting you to where you are. Whether it helped you come up with your logo or even your business strategy, creativity has been key in helping your business come to life. The excitement and challenges that come with owning a business allow for a business owner to constantly call on that creative function to come up with new solutions and answers to make the business better.
  • Failure – Yep, you read that right. It is common for entrepreneurs to have faced failures throughout the process of starting their business. However, it is important to be thankful for these failures because they are also learning opportunities. When you work for someone else, you might not get the opportunity to take risks and learn from those failures. Being a business owner allows you to take risks and innovate with the freedom to fail and learn.
  • Flexibility –It would be difficult to not be thankful for the flexibility that comes with owning your own business. Owning your own business allows you to make your own schedule (most of the time), attend events without having to ask for permission or time off and to be your own boss. No matter how tough things may get, it’s rewarding to work for yourself. Although you may work extremely hard, the flexibility to be your own boss deserves some thanks.

 We hope you find many things to be thankful for not only this Thanksgiving, but every day as well.

 

 

Exit Planning: Continuity

As a reminder, this blog series is based on The Seven Step Exit Planning Process created by the Business Enterprise Institute (BEI).

Throughout the course of this blog series, we’ve covered some important exit planning steps, such as business valuation and setting exit objectives. However, situations arise that we aren’t able to plan for.

So how do you prepare your exit plan? One word … continuity.

Business continuity planning, in its most basic sense, prepares the business owner and all related parties for unforeseen circumstances impacting the business. Events such as death of an owner or a disability are often covered in continuity planning. Continuity planning communicates the owner’s wishes regarding the continuity of the business in writing. You should also ensure it includes both short term and long term plans.

Here are a few questions to consider when starting to think about continuity planning:

  • Do you have a plan for your business if the unexpected were to happen to you?
  • Who can operate and control your business and financials if you’re gone?
  • Do your employees, specifically senior management employees, know of your plans?

While you might think it’s slightly morbid to think about, remember how important this is. Take a moment to think through these questions and then begin to draft your continuity plan based on the answers.

Here are BEI’s top five recommendations for content in a continuity plan:

  1. Extra Pay for the Extra Mile| The stay bonus plan emphasizes how critical it is for certain employees to remain with the business after your departure. Start with figuring out which employees these are and how much they’ll make for sticking around. From there, a bonus amount can be determined. The stay bonus gives these awesome employees an incentive to stick around with the business rather than jumping ship…but with a great business like yours, they’ll probably want to stay no matter what.
  2. Handing Off the Baton|This recommendation covers the terms of ownership transfer when the time comes. It allows remaining employees and/or co-owners to make the right move when transferring ownership. In other words, it makes sure all your hard work is being handled correctly. It may also include exceptions to the terms, such as transfers to family or other employees of the company in the event of an unexpected death or disability.
  3. Where’d the Money Go?| This recommendation covers what steps need to be taken in the event financial resources are no longer available to support the business. In this part of the plan, it is common to summarize the financial support of the company, such as leases, loans and lines of credits. The financials of your business can also include possible solutions in the event commonly used financial resources are no longer available.
  4. Back to the Basics| The continuity instructions cover the basic aspects of the plan on a written or electronic instruction form the owner can complete, sign and store with all other important personal planning documents. It is important to frequently review this to ensure everything is updated to match any recent changes. The instructions should include the desired future of the company which covers sale and transfer of the business. Not sure on who you want your business to go to? Check out these blogs for guidance on making this choice. In addition to who the business will be sold to, the instructions may also contain the desired price for the business, including a general price range and an absolute minimum sale price. Important information is often found in the instructions, such as important dates and deadlines and other information not easily obtained. Think of this as a game plan with all the directions clearly explained.
  5. Salary Summary| The last recommendation summarizes the plans to pay salary or compensation to the owner and the value that can be expected on departure for the business. This can include events that would trigger such payments, payment amounts and termination of payments.

Although there may be other important information to consider depending on your own unique business, these five recommendations are a good starting point for business continuity planning.

Just like all other aspects of life, change is constant and it impacts us and our business whether we are ready or not. Continuity planning helps you be prepared for these changes so your business can continue to be successful after your departure.

 

Behind the Metrics: Inventory

This set of blogs will take you behind some of the metrics you should be measuring in your business. We’ll talk about what they are, what they really mean and more.

We know what you’re thinking … of course it’s important to track inventory. And you’re right, it absolutely is. But it’s more than just the physical finished product in your warehouse you need to track. Inventory has several layers and they’re all important to your business.inventory

Let’s start at the beginning.

Inventory, at its most basic, is your goods on hand. We don’t just mean finished goods either.

Typically there are three components under your inventory account:

  • Raw materials (read, the things you’re using to create your product)
  • Work in progress (the product that’s almost there, but not quite)
  • Finished goods (we’re not going to explain this one)

These are all consider part of your business’ assets.

Seems pretty straight forward.

Well, not quite. Inventory might be a pretty straightforward concept, but tracking it isn’t. In fact, it can get pretty complex. Let’s take a look at the basics…

Raw materials are the basic components that go into producing your product. When raw materials are purchased you debit Raw Materials Inventory and credit Accounts Payable (or another payment type).

Once your product goes to production, you need to start adding in costs such as labor, supplies, occupancy and equipment. These costs can be broken into two (2) categories: direct and indirect.

Direct costs are costs that are easily identifiable to one (1) unit. For example, let’s say it takes a line worker two hours to assemble a unit [and line workers track their time to a specific unit]. The line worker makes $30 per hour. Therefore, you would add $60 to the cost of the unit.

Indirect costs are costs related to the production process however are not easily identifiable to one (1) unit. For example, as a part of the assembly process, the line worker must glue a component to the unit. You wouldn’t necessarily want to measure the glue each time; so you allocate a cost for the glue. You know that one (1) gallon of glue costs $20 and you expect to be able to complete 10 units for every gallon; so you allocate $2 to each unit for the cost of glue.

The direct and indirect costs are added to the raw materials throughout the production process. Here’s what the accounting could look like (actual accounting may differ based on specific circumstances … but this should give you the idea).

 

Account Debit Credit
Work in Progress $XXX
Raw Materials $XXX
Labor Allocation* $XXX
Supplies Allocation* $XXX

*Assuming when you pay the line worker and purchased the supplies, you recorded it to a wages and supplies expense, respectively under costs of goods sold.

Once the production of the unit is complete, you would debit Finished Goods Inventory and credit Work in Progress.

So what can your inventory tell you?

Other than the value of the asset you are holding, inventory can have a direct correlation to how they’re doing (we are talking profitability and cash flow).

What do we mean? Well if you’re holding on to too much inventory and not selling it, you’re basically a costly storage facility. Plus, if you use anything that could spoil, you’ve lost money. Not to mention, your inventory costs money to produce which is recouped when you sell the units; that can lead a cash shortfall if not managed properly. If you have too little inventory, on the other hand, you run the risk of not being able to complete sales in a timely fashion. Which might led to your customers going elsewhere to get the product.

So what do you do? Use an inventory management system. Oh, and a little thing like benchmarking against your peers will also help.

What else do I need to know?

Here are a few common metrics to be looking at within inventory.

Inventory Turnover

In simplest form, this is how often your inventory is sold and then replaced over a period of time. For instance, you can use this metric to see how many times you sell through your inventory in one year. One of the best things to do is then compare this to industry averages to gauge where you stand.

Here’s how you calculate it:

Cost of Sales

Average Inventory

Low turnover could indicate an excessive amount of inventory, as well as low sales. A high ratio, on the other hand, could indicate strong sales. Or it could indicate a large discount.

In essence, inventory turnover is about speed. But inventory turnover is also tied directly to profit. Why? Well, it doesn’t matter how fast you sell inventory if you’re not making a profit each time.

Days Sales of Inventory

Taking your inventory turnover one more step, this is a measurement of how many days it takes you turn your inventory into sales.

Here’s how you calculate it:

365

Inventory Turnover

The inventory to sales ratio is also the first part in a larger ratio, known as the cash conversion cycle. This cycle tracks how long it takes you as a business to convert your resources into cash flow.

Inventory Days of Supply

Days of supply takes your current sales levels and then tracks how many days your current inventory will last. As you can guess, this is an important metric because if you’re low, you’ll risk running out of inventory and not being able to fulfill sales.

The moral of the story …

Inventory management is important and has a direct effect on your business. So ensure you’re not only tracking your inventory, but also looking at it in relation to the sales cycle.

 

 

 

Taxes: When’s that due?

With the holiday season upon us, you’re probably thinking of the fun and festivities of the season and definitely not taxes.

Taxes? Why should you be thinking about taxes? Well, there have been some very important changes to tax due dates, and these deadlines will sneak up on you before you know it! Check out this infographic to see the deadlines so you’re not scrambling at the last minute!

tax-dates

Exit Planning: Increasing Value

As a reminder, this blog series is based on The Seven Step Exit Planning Process created by the Business Enterprise Institute (BEI).

Today we continue our journey through the exit planning process. Our last blog discussed the importance and method of finding out the value of your business, and today we will build off that concept with step three: increasing the value of your business.

After completing your business valuation, you may have found your business is not worth as much as you hoped. Because of this, selling your business will not generate enough money for you to live comfortably the way you were hoping. Another problem you could be facing is a lack of interested buyers, which could be due to the fact your business doesn’t pose much value to them.

So, how do you solve these problems? The answer lies within value drivers, which do exactly what the name suggests – they drive up value!

It would be a mistake to assume every business, no matter the type, could increase its value by utilizing every value driver possible. After all, each business has characteristics that make it unique. However, there are seven value drivers, according to the BEI, that are common to all industries and can be tailored to match each unique business.

Management Team – One of the most important aspects of any business is its employees. When you think of a management team, you should be thinking of those employees responsible for decision making, monitoring and setting objectives and motivating employees.

So how can this team be a value driver? It’s likely the team members have a variety of talents and skills that have helped the business become what it is today, and have a proven track record of success. Potential buyers are looking for a management team with staying power; in other words, they want these talented individuals to stick with the company to help ensure success. It is also common to assume if a management team can stay in place, the company then has the ability to keep and maintain customer relationships, which keeps the company’s reputation intact. The stronger the management team, the higher the offer from the buyer is likely to be.

Operating Systems – In addition to a great management team, buyers are also interested in what systems and policies are in place to continuously generate revenue from an already established, yet still growing customer base. These systems include, but are not limited to, procedures used to generate revenue and maintain expenses, customer relationship management programs (CRM) and means of distribution. Having these systems properly established and documented show the buyer the business can continue to be profitable after sale. Think from the buyer’s perspective; as a buyer, you want to be sure the business will grow and continue forward with new ownership and that it will not fall apart when the previous owner exits.

Customer Base – We’ve touched on the customer base in the previous points, but this value driver deserves its own emphasis. Buyers are looking for a business that has an established customer base that won’t be going anywhere soon. According to the BEI, it is a great practice to have a diverse customer base in which no single client accounts for more than 10% of total sales. This adds protection if a customer(s) is lost. When buyers are willing to shell out large amounts of money, they want to make sure they are getting what they’re paying for.

Facility Appearance – Although not a huge factor for most businesses, it is still important to keep in mind some buyers are very, shall we say, picky? Some buyers have a tendency to be more reserved with their spending if the physical appearance of the business or its equipment isn’t very appealing to the eye. A clean and organized office promotes the idea that the business is also well organized. Superficial improvements, both interior and exterior, can improve the marketability of your business.

Growth Strategy – It is important to have a realistic growth strategy in place. By realistic, we mean a growth strategy that fits your business, not an elaborate plan that is not attainable. Keep your growth strategy ambitious, but also attainable. This strategy can show potential buyers specific reasons why cash flow and the business will continue to grow after it has been purchased. The growth strategy should be based on factors such as market plans, industry dynamics and demand based on demographics, to name a few. The growth strategy helps the buyer understand your business, and where it will go in the future.

Financial Controls – Financial goals are not only an important part of how a business is managed; they also help to safeguard a company’s assets and support any claims of the company’s profitability. A buyer will not spend a large amount of money on a company without first knowing what the company’s cash flow has looked like; they need to have confidence in the company. Giving buyers confidence can lead to a much higher valued sale.

Cash Flow – To piggy back off the last driver, not only do we want financial controls in place, but we want to make sure the cash flow is All of the value drivers in some shape or form contribute to a stable and predictable cash flow, so it is important to focus on all of the value drivers to operate their business more efficiently. Buyers look for companies with a solid cash flow they can increase after purchasing, and are willing to pay top dollar for these companies.

What a buyer decides to pay for your business is dependent on many factors. However, to increase that number and get top dollar for your company, it will be beneficial to follow these seven value drivers down the road of exit planning success. Following these seven value drivers can lead to a competitive advantage over other businesses that will give your business the upper hand when it comes time for buyers to decide which business they would like to purchase.