Have Questions? We have Answers

In our line of work, we get a lot of questions on anything and everything related to owning and operating a business (and we’re happy to answer them, too)! While a lot of these questions are usually pretty easy to answer, sometimes we get a few that really make us think. Even then, we enjoy researching and finding the answers to help business owners be successful.

So, what questions do you have about your business? We would love to help you reach your dreams and goals.

In case you think your question might be too far out there, we promise it’s not. Check out some of these questions (and our answers) to get you started on finding the information you need to watch your business succeed.

“I have invoices coming out of my ears! What do I do with all of them?”

When you have a large amount of invoices to deal with, it’s easy to get overwhelmed and lose track of what needs to get done. When invoices aren’t being properly managed, your business can see some serious negative side effects, such as fraud. Following this list of tasks can help you make sure you’re keeping everything in check. Looking to an automated system, such as QuickBooks, is also a great way to keep your invoices at a manageable level.

“Where in the world did all of my cash go?”

This question is more common than you may think. While your business may be profitable, you can still be running out of cash, which might be a concern. Financial struggles can be hard, but our professionals are available to help. Check out this blog – and then, let’s talk!

“Why don’t I have enough time to do everything that needs to get done?”

We get it: owning and operating a business means you have a lot on your plate. From accounting and finance, to human resources to the day-to-day operations, you probably don’t have enough time to do it all yourself. The good news is you don’t have to! Consider your team of employees. What can you delegate to take some of the burden off your shoulders and free up some time? Another option is outsourcing. When you outsource some of your business activities, such as your accounting processes, you free up time to focus on why you got into business in the first place.

“What is this accrual accounting thing I hear so much about? Am I doing it?”

Knowing the specific ins and outs of accounting can be a confusing, daunting task. What it comes to what method of accounting you are using, the water may get even muddier. Maybe you’ve heard of cash based accounting and accrual accounting, but you really have no idea where to begin. We’ve written multiple blogs on how to tell the difference and how to select what fits your business and set up your books. Check them out!

“Taxes terrify me. Where do I even begin?”

Taxes are a complex issue, and questions regarding this topic are common. Whether you want to know more about R&D tax credits, employer vehicles and mileage, how to track your taxes or even all those pesky (yet necessary) forms, we’ve got you covered. Check out our tax archive for answers to all your most pressing questions. If you can’t find the answer, let us know.

Remember, although we numbers nerds really like our financial lingo, we promise to answer your questions in a way you will understand, not just a bunch of accountant talk. After all, we want to see your business succeed!

Happy Small Business Week!

Happy Friday! We hope you’ve had a great week – after all, it was National Small Business Week!

What’s Small Business Week you ask? Dating back to 1963, the President has announced National Small Business Week every year. The purpose of this event is to recognize and celebrate the important, inspiring and amazing contributions of entrepreneurs and small business owners (personally, we think small businesses should be celebrated all the time.)

In honor of National Small Business Week, we want to share some of our favorite fun facts about small businesses – after all, we think they’re pretty neat!

  • According to the Small Business Administration, more than half of Americans work for or own a small business, and they create roughly two out of every three jobs in the US.
  • There are somewhere around 30 million small businesses in the US and of those, roughly 22 million consist of one lone employee!
  • One of the fastest growing industries for small businesses is the service industry – think auto repair and hair salons (but likely not in the same place.)
  • In 2015 alone, venture capitalists invested nearly $60 billion in small businesses. People know and understand the importance of these businesses – they show that by supporting ones they believe in.
  • Good news on profits! 2016 was the fourth consecutive year of improved net profits seen in businesses with less than $5 million in revenue.
  • Three of the top five challenges said to be facing small businesses in 2017 are increasing profit, growing revenue, and cash flow – finances really do matter!
  • Some of the biggest names in the business world (think Apple, Starbucks, Coors) all started out as small businesses, thanks to some generous funding.
  • Over half of small businesses have a CFO or controller (either in house or outsourced) managing their finances.

To top it all off, check out this video that shows even more statistics of just how important small businesses are:

http://mediahub.financialpicture.com/view/7823/481

We truly enjoy working with small businesses, and we’re happy to celebrate National Small Business week with you!

Strategies for Success

As you begin your business, or even as you’re running it day-to-day, it’s important to consider strategy. Putting strategies in place can help you stay on track and achieve your goals.

When developing success strategies for your business, there are three common strategies you can focus on to help your business.

1. Profit Strategy. It might seem obvious to focus your attention on profit, but it comes down to how deliberate you are in making plans to reach this goal. Have you thought about how much profit you are aiming for each week, month or year? How about your sales plans to achieve these goals? P.S. For more on all things profit, check out this blog.

2. Resource Management. Resources here refer to human and capital. You know, the people and things the business depends on to make a profit. Some businesses are heavy on human resources, such as service oriented businesses, while others are heavy on natural and capital resources, such as manufacturing or technology companies. Furthermore, some businesses even require a good dose of both. No matter what type of business you’re running, your resources are extremely valuable. If you don’t take care of them, you risk the negative impact it can have on your business’s bottom line.

So what do resource management strategies look like? Human resource management can take on many shapes and forms. Maybe it’s developing an employee wellness program to keep your employees healthy, or offering special perks like free lunches or themed days in the office. There are a lot of options when it comes to keeping one of your most important resources, your people, happy. (If you’re struggling with this part of the strategy, let us know – our outsourced HR practices are pretty great!)

It’s also important to have a strategy in place to manage your capital. Capital, which can be anything from the tangible machinery and buildings a business owns to the financial assets of the company, is essentially the backbone of your business. For your physical capital, it’s good to have strategies in place which determine when to renovate or upgrade items as they get worn down. You should also have a game plan in place for your financial capital. Consider creating a strategy that helps you determine which assets can be used for which projects, and which assets should be left alone to grow and invest.

3. Market Alignment. Having a strategy in place to fit in the market and give people what they want is a major key to having a successful business. You want your product or service to line up with the needs and desires of your potential customers – otherwise, no one will buy.

So how do you put together this type of strategy? First and foremost, it’s important to understand who your target market is. Once you know who you’re trying to reach, you can further develop your strategy of how to reach them.

When developing this strategy, it’s also important to keep in mind the possibility and impact of change. People always want something newer, faster, better, etc. Try to develop a strategy that is flexible and allows for change when it is needed. This can help you stay up to date with the market and ensure your business is always ready for the next big thing.

The moral of the story

Setting strategies early on, and taking the time to think through them, can help you set your business on the right path to grow into the dreams you have for it. Strategies help develop the tactics and plans needed to perform your mission, achieve your vision and reach your goals.

 

Business Myths: Busted!

There are a lot of misconceptions, myths, bad advice and even lies about what it takes to be a successful business. Most of these issues come from people who have never gone into business, or those who have failed and are trying to find somewhere to put the blame.

To help clear the air, we’re here to debunk some common myths about running a business.

  1. To be successful, you have to be a pioneer – It’s often said you have to be the first one to develop and sell a product or service. However, this isn’t always the case. Think of Microsoft or Dell. Dell wasn’t the first computer and Microsoft wasn’t the first word processor. However, looking at the industry now, these two companies dominate! While the leading edge can be fun and exciting, joining an established industry with your own take on a product can also bring success.
  2. To be successful, you have to be cheaper –How you price your product does not always determine your success. Nordstrom and Ferrari don’t use a cheap pricing model, but they’re wildly successful. On the other end, Amazon and Southwest Airlines use cheaper pricing models and are also successful. The moral? Customers will pay what they think is fair for your product, but ultimately you have to decide how to model your product pricing. If you have a luxury item, customers will pay more for it. If you aren’t selling your product on the cheaper end, but are providing excellent service with it, your customers will give you business based on other factors besides price.
  3. The customer is always right – Let us guess, you’ve heard this one a few times before. If this was always true, it would be tricky to find any business being profitable. The truth is customers might be wrong sometimes, but they’re still important for your business. Take time to listen to what customers have to say, and use their valuable input when making business decisions. However, don’t let customer opinions overrule logical thinking or dismantle your business mission. When customers are wrong, they can sometimes cost you more money than they make you.
  4. Bigger teams mean bigger results – While having a bigger team can help get more accomplished, it can also hinder progress. Having too many people can lead to complicated lines of communication. It can also result in productive team members getting slowed down by helping new team members get up to speed. Team work can be great for your business, just make sure the teams are operating smoothly and efficiently.
  5. Failure means you’re doomed – We’ve been told our whole lives that being a failure is bad. In reality, failure is actually a stepping stone towards success. While failing can be a setback, it’s important to remember the lesson that can come from it. Failure is only a problem when you allow it to be the final stage, rather than taking lessons learned and growing from them. Sometimes our businesses must encounter failure in order to move forward.
  6. Knowledge is power – Unless you are actually applying this knowledge to your business or other endeavors, it’s just potential. Take what you know and consider using it to better your business, rather than keeping it to yourself. You never know what kind of growth and ideas you could spark from sharing your knowledge.
  7. Every customer is equal – Truth be told, some customers can actually be more valuable than others, but in their own ways. A customer who pays you more money isn’t necessarily of more value. Sometimes a customer who pays less for a smaller project might prove more value because they can help move your business in the direction you want it to go. A valuable customer will make you money, but will also align with your vision for your business.
  8. The more customers the better – Would you believe that some companies go out of business due to too many customers or unreachable demand for their product? If you have so many customers you cannot reach their demands, your business will struggle. Customers may start cancelling orders and taking their business elsewhere, which can result in word traveling that your business isn’t competent. Although it’s a tough decision to make, sometimes you have to turn away customers to keep up with demand and keep your capacity in check.

While some of these myths have some truth to them, many of them are just that – myths. By understanding what can really help or harm your business, you can put your business in a healthy position for growth and success.

 

 

 

 

It’s Lonely at the Top

You’ve started a business. Things are running smoothly, you’re drawing in customers and your employees are happy. Things are going great! Or are they? While everyone around you may be thriving, you find yourself stuck in a hole. You feel stressed, pressured and alone – even though you have all these great people around you. So, what’s going on?

Sometimes, it can be lonely at the top. You may have never thought being an entrepreneur would lead to these feelings. As an entrepreneur, you had a dream to start a business, and you followed that dream until it became a reality. You believed in and trusted yourself. When there were successes, you had your team there to share in them with you. But when there were failures and setbacks, there weren’t as many people around to take them on.

These feelings of loneliness can come from a variety of sources. Maybe you feel lonely because you sit in your office all day working on the core of the business, while everyone else is interacting and working together. Maybe you know the nitty gritty details of your business, but realize you can’t share these details with your employees because they just won’t understand. In other words, you know your vision and goals for the business, but you just aren’t able to share with everyone.

This loneliness might impact other areas of your life as well. Maybe you’re spending too much time traveling for work, so you’re missing valuable time with your kids or family. Your social life could be suffering, and your friends might think you’ve fallen off the face of the Earth. The loneliness you are feeling can even have a negative impact on your health.

Although this loneliness may seem impossible to deal with, there are some ways to combat and manage these feelings.

  • Collaborate – Finding a way to collaborate with your employees, even if it’s just one day a week, can be extremely beneficial. Find ways to engage your employees in what it is you’re doing, so that they can get a better understanding. Having your employees working with you, rather than just for you, creates a new relationship that doesn’t leave you feeling isolated.
  • Self-Care – At the end of the day, you will always have yourself – so it’s important to remember to take care of yourself. Whether it be allowing yourself to relax in front of the TV at night, hitting the gym or volunteering, finding ways to take care of your mind and body outside of work can help you feel better all-around and push off those negative feelings of loneliness.
  • Consider Co-working – If you live and work in a town that has co-working space available, take advantage of it. Often times, other business owners, entrepreneurs and CEOs will be doing the same thing – and this can provide a place for you to work around like-minded people. You might meet people who are going through the same struggles as you, and you might be able to form a relationship that is beneficial to both of you. Working around others can help you find a support system that can help you through the struggles of loneliness.
  • Find an Advisor – Looking to a trusted business advisor may be one of the best ways to beat the woes of entrepreneurial loneliness. It’s likely that your business advisor has dealt with feelings similar to what you are feeling – so they can really truly understand what you’re dealing with and how to help you. Having a trusted advisor also takes some of the burden of decision making off your shoulders.
  • Peer Groups – You can seek out advice and mentorship from other people besides a business advisor. Consider joining a peer networking group that interests you and matches with your situation. This will give you access to a network of people who can be there for you during life’s struggles, but are also ready to celebrate life’s triumphs. Being a part of a peer group gives you access to people who won’t let you feel alone.

While being lonely at the top might be a struggle, it’s important to remember your business depends on you. With the right amount support and guidance, as well as remembering to take care of yourself, it’s possible to overcome the loneliness of being at the top.

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.

 

Dear Bootstrapped Startup | Are you part of your bottom-line?

Bottom-line, what’s that? Also known as net profit or net income, your bottom-line is the amount that remains after you subtract all the expenses you incurred from the amount you earned from the sale of your goods or services.

Now the real question is, are you included in that calculation? In other words, are you paying yourself?

As a startup, there are several numbers that you should understand (and compute) including:

  • Startup Costs | The costs necessary to get your business up and running.
  • Ongoing Costs | The costs necessary to keep your business running.
  • Gross Profit | The amount remaining after you subtract the cost of goods sold (variable costs) from the price of your goods or services.
  • Break-Even Point | The amount of gross profit necessary to cover your operating expenses (fixed costs).

Speaking of variable and fixed costs. Let’s take a moment to talk costs … we know it can be confusing.

In many startup resources, variable costs are the costs directly associated with producing your good or providing your services. The more you sell, the more variable costs you will incur (and vice versus). We refer to these as costs of goods sold (COGS).

Fixed costs, on the other hand, are the costs you will incur even if you don’t have any sales. Fixed costs don’t necessarily increase (or decrease) because you sell more (or less). We refer to these as operating expenses.

For the numbers nerds, variable costs are the costs that vary from month-to-month. Whereas, fixed costs are consistent from month-to-month. Not only that, an expense could be a combination of fixed and variable.

Here’s an example … your payroll subscription costs $39 per month plus $2 per employee. The subscription itself is an operating expense (because you are going to pay this whether you sell 10 widgets or 500 widgets) that has fixed costs of $39 per month and variable costs of $2 per employee per month.

Okay, let’s get back on track.

When computing these numbers, startups often forget a critical component; the you part. Yes, I know what you’re thinking … it’s a startup. There isn’t enough for the you part. That might certainly be the case in the beginning, however without the you part, you can’t really figure out if your business is truly profitable (and therefore sustainable).

YOU should be included in the budget to ensure your business will be viable in the future. After all, what if you find out that, in order to achieve your ideal pay, you have to produce some unrealistic amount of widgets? Does that sound like fun? Not to mention, it’s always a good idea to have a number to work towards and track your progress against.

So, what should you budget? In general, there are two ways you can create a budget number for you. There is the essentials method (not a technical term) which is you sitting down and figuring out what you need to live. We’re talking just the bare essentials. The other option is market value. There are several resources available to determine what is reasonable to expect for pay in the marketplace. When it comes to actually paying yourself, you may need to start paying at the essentials level (or even below the essentials level) and gradually increase your pay as your profits become steady. The important part is not to forget about you.

YOU are a critical component of the success of your business, so make the investment in yourself. As always if you need further assistance with this topic, we are here to help.

Just a heads up, there are tax implications related to how and how much you pay yourself based on your entity selection (corporation, LLC, partnership, etc.). Make sure you discuss your pay with your tax professional (or one of ours).