6 BUSINESS GIFTS THIS CHRISTMAS

   It is that time of year when people begin to think of gift receiving more than gift giving. I was never one for dreaming of expensive or outlandish gifts since I truly believe in the concept “it is the thought that matters”. However we business types deserve a wish list of gifts this year. It will help us get out of this economic rut and make Christmas 2012 all that much better. So here we go :

   1/ I want a year in which business has no further regulations to follow, a moretorium so to speak. This will give all of us some very valued free time to actually think about growing our business.

   2/ I want all businesses to hire one more person in 2012. This will not only reduce our unemployment but stir the economy to gretaer growth.

   3/ I want 30% of our foreign aid budget redirected to training facilities in the good old USA. Although I am a ” political ” in this blog, I think it is about time that we help ourselves in redirecting workers in this new technology century.

   4/ I want lending institutions to offer 1 million dollars of loans without interest for one year as a community reinvestment tool. After the first year many businesses will have made it on their way and can pay twice the interest in year two to catch up.

   5/ I want a commitment to greatness between labor and management. We all have children and grandchildren that will need good sound businesses to work in and why not now to get that started.

   6/ BUT most of all I want COMPRIMISE between all of us as a goal. What has happened to meeting halfway to get things done. We do not compromise anymore in most anything we do. It adds time, effort and the sense of non being when all we do is argue with each other. Let us all agree to grow up in 2012 for the good of business, family, politics and friendship.

7 REASONS TO GROW YOUR BUSINESS

     This past week I met with a couple of business owners regarding what might be ahead for 2012. As one might expect , one was very positive on their business for 2012 and the other was not. With the latter we spent some time talking about the many positives that come from growing a business. In today’s post I wanted to share with you 7 of the reasons why every business should grow. here they are:

   1/ The old adage of declining if you do not grow is almost always correct. I can’t remember a business that I serviced that wanted not to grow or even thought about it. Each had a different approach but the object to grow was present in all.

   2/ With growth comes value. This does not always happen but growth can bring other things such as greater market share, better pricing and manageable inventory levels that all influence growth.

   3/ Employees want to be with a growing company. In today’s environment, no growth predicts unhappiness in your workforce. People leave for better opportunities or simply give up in their everyday job functions. This drop in morale can signal tough times ahead for all.

   4/ Competitors take notice and you can begin to affect how they do business. If your growth is due to service, inventory levels or pricing this can make your competition react adversely and indirectly increase your business.

   5/ Growth provides protection. Growing businesses offer an advantage in the marketplace. Customers want to be with a company that is growing and will leave a declining business faster.

   6/ Why be in business if you are not in it to succeed ? I remember a few years back a client of mine was involved in a number of industry organizations. In each one he took an executive position and when I asked him why he stated that it is actually easier to be active than non-active. His point was to influence his industry and conversely make his business more recognizable.

   7/ Finally those of you looking for an exit strategy should consider growth paramount. With growth you can hire and train more good people who will add value as well as an alternative to selling sometime in the future. Don’t overlook this key reason to grow since it offers you the owner a variety of ways to deal with your business.

     I am sure there are many other reasons to grow that are not listed here. One thing all have in mind is bringing value to your business. Always expect big things from your business and never be disappointed. Just work smarter.

6 YEAR END COMPENSATION IDEAS FOR BUSINESS

     Around this time of year I get unusually busy trying to project where my client’s business will end up. Often besides ways to enhance the look of financial statements we discuss various tools to accomplish a particular goal. Sales, inventory levels, collecting accounts receivable and equipment purchases are all constant areas of concern for small business. In addition many of my talks evolve around compensation levels for the current year and what they believe will be issues for them in the next calendar year.

     Some of these discussions pertain to rewarding employees for their hard work. Many involve bonuses, salary increases, benefit increases and other forms of compensation. Here are 6 ideas for compensating your employees to consider.

     1/ If your business has had a good year and you wish to share it with your employees , year-end bonuses are an easy way to accomplish your goal. I often caution businesses on these in that you may need to stress to your employees that these only come about in good company years. It is often hard for employees to understand that they may have had a great year but the company overall has not. Be cautious in both the amount and the reason for its payment when announcing these to your workforce.

   2/ Often in small businesses the company has a profit-sharing or company match savings plan. Many businesses look at this as a way to reward all employees for their service. Increasing the annual contribution can help your entire organization but again be careful on how it is presented.

   3/ Non cash compensation takes many forms and is often used by businesses that are in a growth stage with limited cash and capital. Extra days off for birthdays, early dismissals on Fridays and a shortened workweek in the summer are always a good way to reward employees without having to use cash.

   4/ Increasing benefits is another form of compensation that you can use to foster rewards to your employees. Adding insurance coverages for disability, health or adding a Section 125 plan can add value to every employee.

   5/ Job promotions can both stimulate and increase rewards to key employees. If your workforce does not see such promotions then you either have the wrong employees or are willing to lose them without this type of recognition.

   6/ Finally consider giving some ownership in your company to employees you want to keep over the long haul. You do not have to give them stock physically but earning a percentage of stock over a 5 or 10 year term can work wonders for your company. Many small businesses have so-called “phantom” stock plans. In these plans normally incorporated in an employee agreement your employee can earn a percentage of the company when and only when you sell. In this way you control the company until you decide to pay what has been earned. It is not unusual to see such agreements in a small business but consult your attorney before you dive in too quickly.

These are not everything you can do but offer you some alternatives to use if compensation is an issue with your company.

7 YEAR END THOUGHTS FOR FINANCIAL STATEMENTS

     As we get near the end of the calendar year  many businesses begin to plan for last-minute changes. Do we buy equipment or do we invest less or are we going to expand in the next year are all thoughts that go through an owners mind around this time of year. Therefore here are seven thoughts that will affect your year-end financial statements and could prove beneficial to the business if applicable.

   1/ Reduce inventory as much as possible. Keep in mind that the more invested in inventory at year-end inflates your balance sheet, reduces cash flow and can even increase profitability.

   2/ Pay down lines of credit. Banks and other financial institutions use your year-end financial statements as a basis for borrowing in the year ahead. Lower credit lines show proper use and impact favorably on the business.

   3/ Reduce payables to the number of days in your operating cycle. If receivables are collected on average  40 days then payables should not exceed 45 days of operating expenses.

   4/ Collect accounts receivables . The more cash your business has at year-end the better to pay down debt, reduce payables or maintain cash reserves. All of these things enhance a financial statement.

   5/ Institute payroll changes and or bonuses in January rather than in December. This will benefit both the business and the individual due to the tax implications in the following year. If your business is on an accrual basis of accounting you will still be able to deduct any such accrual.

   6/  Unless necessary for tax or operating purposes put off any capital purchases until the following year. This will conserve cash and improve the balance sheet.

   7/ Meet with your accountant or financial advisor before the middle of the month of December. This will help with the year-end planning process and make sure what moves are better before and after year-end.

Remember that your year-end financials are merely a snapshot of what happened on the last day of the year. Be aware of what impact your moves will make. They can both help and hurt.

6 THOUGHTS ON STARTING A BUSINESS

     I met this past week with a long-term client that had sold his company a little over a year ago. He and his wife were enjoying a retirement life filled with sun and recreation. However the entrepreneur in him was itching to get out. We spoke about an idea he had for a new business and after an hour or so of conversation he was left with more questions than answers. So in today’s blog I wanted to express some thoughts on starting a business.

   1/ Why are you interested in starting a business ? Is it out of necessity or out of boredom like my client ? This question will be the first question you are asked by friends, associates, business contacts and especially sources of finance. Although I do not have the best answer I believe doing this out of need versus boredom raises the antenna of interested parties and can make or break your idea.

   2/ Does the product or service in your idea currently compete with a similar product or service ? If this is the case it will be that much harder to separate yourself from the others. Quality of the product or service will eventually sell but it could be a long road.

   3/ Have you put together a business plan ? Many people come to me with an idea for a business and they often do not think through all of what is involved. A detailed business plan will force you to think of some of the problems your business may entail and how to react to them.

   4/ Have you solicited opinions from other people in business to vent your idea ? Many times opening up with a trusted source especially one that has some business experience is easier to take than getting rejected in the marketplace.

   5/ How do you plan on financing this business ? If you are self financed be careful that you do not exceed your comfort zone. Like any other investment set some limits on how much you want this venture to cost you.

   6/ Are you realistic in your thoughts of success ? I once spent a great deal of time with a person starting a new business that when started exceeded beyond their business plan and they could not deal with the additional commitment. This was a good problem but caused havoc in this person’s life since their idea of a lifestyle business was different from what was necessary.

     These are some simple questions all new business owners should ask of themselves. Business today is not for the part timers. It is all-encompassing and can drain your health as well as your finances. Consider the downsides as well as the upsides. Remember it will be your business where the buck will stop with you.

7 WAYS TO LOOK AT INVENTORY

     Today I was reviewing a monthly set of financials for a manufacturing client and noticed that inventory was rising pretty steadily over the past year. We spoke about the build up and how to monitor it so it does not become a problem. I thought that today’s blog should incorporate some of the things we discussed as they apply to almost all inventory intense companies.

   1/ There can be too much inventory. In today’s economy the business goes to the one who has it in stock. However too much of a good thing can hurt you especially if you carry significant sums of slow-moving inventory. Be very careful to cull items in inventory once they become over six months old.

   2/ Update your costs at least quarterly. Again in todays markets, the costs for items like fuel and transportation are changing rapidly. What you think is your profit on an item can shift overnite and possibly rob you of increased profits.

   3/ Track your orders especially of fast-moving items. You may find that these orders are not keeping up with your needs either in delivery time or costs. Running out of your famous stock items will overtime start to affect your business.

   4/ Walk through your warehouse more often than not and keep an eye on what is building up. Often a visual check will bring you a better understanding of what is in excess or slow to move.

   5/ Do some financial modeling on your business. Ask your accountant to help you calculate inventory turnover, vendor invoices in payable by days, costs of products last year versus current and compare quantities last year to current.

   6/ Physically count your inventory a few times per year and not just at the end of the year. Counts always beg questions and it is better to deal with them during the year than at year-end just in case there are some errors.

   7/ Always monitor scrap sales for items and amounts. I once found a cleaning company helping themselves to the company’s scrap which was bronze. Over the years we estimated that some significant scrap was taken resulting in criminal charges against the cleaning company.

     This is not all-inclusive but ways to think about what in many cases is your largest asset. Remember that inventory can walk so protect yourself with established controls.

SIX THOUGHTS ON LEASE VS. BUY

     One of the most asked questions I have received over all my years in public accounting is ” Is it better to lease or buy ? “. That is sometimes a hard question to answer as a variety of issues can make either one better than the other option. Here are 6 thoughts on this commonly asked question.

   1/ What advantage is it to lease or buy ? – In years past the lease option held a variety of benefits to businesspeople. In the old days leases had little impact on your financials since there was no need to disclose such transactions. That changed some time ago when the accounting authorities required both disclosure and possible capitalization when they released capital versus operating lease disclosure requirements.

   2/ Are their tax considerations when you lease versus buy ? – Currently there are some differences in one versus the other regarding taxes since capitalization offers a quicker depreciation structure than an operating lease payment. However over the course of time each will give the same benefit but in order for one to be better than the other a certain tax situation must be present that would accentuate the quicker depreciation model.

   3/ Can one offer less cash upfront than the other ? – This answer is tough since today a business may be able to finance a purchase as easily as leasing. Again the particulars of a situation may offer one a better benefit but unless the effective interest rate on the lease is less than what the bank may offer , no cash down deals create equality.

   4/ How will my cash flow be effected ? – Leasing will often be cheaper in the initial stages of an assets’ life. It is not unusual to see a larger buy out option at the end of the lease versus a steady monthly payment offered by the bank or financing institution. Again if your business is short of cash and can’t borrow for the purchase, you can save early cash if you lease.

     5/ Am I stuck with the asset at the end of the lease ? – Some if not all leases today offer you a buyout option at the end of the lease. When the asset in question is one that could last well beyond the lease term it could be beneficial to buy out the lease and own the asset directly. In the case of assets that often do not outlive the lease term (office equipment, computers etc.) you may not want to extend the lease beyond the initial term.

   6/ Do economics play a part in a lease versus buy decision ? – Absolutely, with todays interest rates where they are situations that had advantages such as leasing many have become much more difficult to compare. Autos that are leased today are normally due to the leasee wanting to drive another car in three or four years. Unless your credit is bad you must consider the life of the asset you are either leasing or buying.

     In summary many of the easy differences between leasing and buying have become clouded today due to the economy and the low interest rates. You must consider a few things to help you with this decision. Economics, the life of the asset in question, cash needs, a particular tax advantage and  cash flow all play a part. I often ask clients to look at the cash outflow for autos in a lease versus buy scenario. Total cash out-of-pocket is often an easy comparison. Whatever the verdict ask as many questions as you can think of before closing the transaction. Use some of the above as a start.

7 INSURANCE COVERAGES FOR BUSINESS

     As we enter the fourth quarter of the calendar year many businesses begin the renewal phase of their business. This means that maintenance and repair contracts are once again revised and hopefully reviewed along with many facets of every business including salaries and compensation. One task most businesses will perform at this time will be to review their insurance coverages to determine if coverages and amounts are acceptable. Many and I hope most businesses will do this with their insurance agent. I have always found these meetings to be informative leading to some change in the current policy either by adding or deleting coverages. In this vein and keeping with my series of 6 or 7 things all businesses should consider, below is my list of coverages that most businesses must have.

   1/ General Liability Coverage- This is a sort of soup to nuts coverage for incidents that may become liabilities of the business such as fires, theft etc.

   2/ Umbrella Liability Coverage- As the word entails this is sort of policy of policies for general liability. This should cover catastrophes that are not covered (normally dollar limit) under the general liability coverage.

   3/ Business Interruption Coverage-If a business can’t do business do to a calamity this coverage will help pay the bills until the business is back up and running.

   4/ Product Liability Coverage – This coverage will protect you from claims arising out of your product usage that may harm a person or object.

   5/ Auto/Truck Liability Coverage – The use of the company car, truck or van creates a separate type of liability to the business. Unlike your personal policy coverages and amounts could vary widely depending on what the vehicles carry and distance.

   6/ Workmens Compensation Coverage- People hurt on the job are covered under this type of policy. Job descriptions are a key element here which can significantly increase premiums if not properly documented.

   7/ Officers and Directors Coverage- It may be useless to ask people outside the company to sit on a Board or act as a Director without this coverage.

   All of these coverages are individual to every company. Some may have little to no exposure others will need additional clarification before coverage can be done. Policy limits and deductibles are both an object of particular businesses as well as means to limit the premiums. That is why you should not go this alone. Your agent is more than qualified to help you find the best solutions to your business coverages. Use them. I have always found them eager to educate you and most often a steady voice in a tough world to navigate for  businesspeople.

     Although these coverages are not all-inclusive (for example with overseas travel some businesses need kidnap and ransom coverage) for business they are fairly representative of what most businesses will need. Pull out that policy and ask your agent why you may not have some of these coverages.

 

SIX WAYS TO OUTLAST A RECESSION

     I met with a good friend this week for breakfast to both socialize and to tap his brain as to what he sees going on in small business. We got to talking about this blog and he suggested that I begin a series of ways to succeed or avoid problems in business. I will tie it to my business by using Six or Seven ways. This week to kick off our current economic condition, I will give you some suggestions to outlast this recessionary period.

     First, develop an attitude of controlling risk. Note that I said controlling and not avoiding risk because if I could do the other I would not need to write this blog. Controlling risks in business is nothing more than understanding the worst case scenario of a decision and subconsciously providing yourself an availability to end the practice if things go wrong. An example is when you decide to lower your prices to garner more of a market share. Don’t forget to consider the impact not only on your bottom line but a much more current result of loss of cash flow. If you reduce your prices too much for too long the loss of cash can spell doom rather quickly.

     Two, enlist the support of your key employees in your business changing practices. Without the help of key employees changes in anything that may affect the employee base could backfire. I recall a client that early on in this recession began to change the summer work week from five eight-hour days to four ten-hour days. Although I would have been pleased some employees had enough going on at night that this change created a substantial problem amongst the workforce.

     Third, find new and creative ways to bill and collect. Many small businesses have office practices that happen on certain days of the week or month. I remember when one business had a person that hated having bills cover their desk. Since they had a revolving line of credit it was easier for them to pay bills instantly rather than to wait the non discount period of thirty days. We calculated the interest cost of that business practice and it was evident that waiting the extra time was both beneficial and had enormous cash flow savings.

     Fourth, maintain a positive attitude. Many times I can enter a business and within a few minutes can determine if the business is doing well or not. Attitude like water runs downhill. If you as a leader show overt concern on a daily basis your staff as well as your vendors will get and give that message to others.

     Five, keep in touch with customers. I am reminded of a commercial on TV some years back where the president of the company wanted his employees to come face to face with their customers. He therefore bought all of them flight tickets to visit customers and experience them in person. You can ill afford the loss of any customer in this business environment. Keep in touch.

     Six, know whats going on in your industry. I recently had the experience of someone being out of their industry for some five years and then came back in to “do it again”. He failed to realize all the changes both inside and outside the industry within the past years. He embarked on a product that would change the industry without realizing that product was rendered obsolete by other changes. He wasted years and dollars on a product that if he had done his homework would have never gotten of the drawing table.

     Hopefully these six tips will help you live through and endure the good times ahead.

SMALL BUSINESS REGULATIONS

     I have looked back over my service career and am amazed at todays additional information that all small businesses must provide to various local, state and federal agencies. Across the board in areas such as taxes, employment, environmental, financial disclosure and product make up we as a society have increased the cost of doing business substantially. In this day of recession we have made it  difficult to overcome the pressures of doing business with unnecessary regulations. As we all complain as to the length of such periods of less in our economy any recovery is automatically lengthened by reporting requirements.

     In the field of financial reporting I can recall having less than twenty accounting pronouncements to follow back in the 1970′s. Today I am not sure how many entities now issue pronouncements to follow let alone the number that have been issued. At last count we were in the 150 range. Also such reporting requirements normally do not distinguish themselves as to the size of business. So companies doing 5 million per year in sales need to report information almost the same as companies doing 5 billion in sales.

     Having done a fair share of tax returns over the years, the tax code has been changed dramatically over the years. I recall the code being contained in a handbook about a half-inch thick back in the 1970′s and today it is approaching five times that thickness. Provisions have been changed a number of times with some actually being changed back to the initial wording. Couple this with the local and state tax agencies that were almost non-existent back forty years ago. We now have a minimum of two to three state agencies a business needs to deal with and this can be the same for any business in a major metropolitan area.

     WHERE HAS ALL THE SIMPLIFICATION GONE ???????

     No wonder people of all political beliefs have expressed frustration in attempting to do the right thing in following regulations. I have not spent any time on the many other regulations imposed by all areas of government but needless to say they are extensive. We wish to return to a prosperous economy but I for one would rather enjoy some simplification in both my business and personal life. Can’t our elected leaders understand how all of these regulations only add to the frustrations of all of us ? We have regulated ourselves to almost death. We need HELP !!!