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“Danny is one of the highest quality individuals you could ever hope to do business with. He is a humble man with a great sense of integrity and work ethic. I would trust him with anything.” July 8, 2009

Jeff Hood, Owner, Technology Officials, LLC.

“We view Danny as a valuable extension of our service capability here at H A Beasley & Company. Danny, my staff and I work together in serving various clients where he takes a CFO role with us as outside, independent accountants. I believe the clients agree with us that Danny provides outstanding value and excellent, expert service..” August 29, 2009

H A Beasley, Owner and Managing Director, H A Beasley & Company PC

Have you ever asked yourself the question “I am making a profit but I don’t know where the cash is?  Many business owners tend to manage their business strictly from the income statement.   An income statement is very important to a business as it provides a historical view of what transpired in the company over a period of time and gives the business owner, banks and other investors a better perspective of what contributed to the net profit or loss reported.  However, the income statement does not necessarily translate into an increase or decrease in cash.  Understanding how the income statement results will impact the cash flow of the company is equally important, yet often ignored.

Anyone running a business needs a clear vision of how their business decisions affect the finances of the company to achieve the success they desire.  “Cash is King” and every business owner should have a clear understanding of the financial implications of their business decisions to increase the chance of success.  If you don’t take control of your cash, it will most certainly take control of you.

Here are some common issues that may affect the cash flow of the business:

1.       Invoices issued upon the shipment of product or the delivery of services is delayed because the supporting information has not been processed in the accounting system on a timely basis.

2.       Past due receivables are increasing because customers are experiencing cash flow issues themselves.

3.       Customers are paying their invoices short because of product quality issues or invoicing errors.

4.       Inventory is increasing faster than sales because of over purchasing inventory components in comparison to current production needs.  

5.       Staffing is increased to meet short term demand without any confidence that the demand will continue to support the additional cost.

Monitoring these issues is not a difficult thing to do.  A simple report incorporating income statement and balance sheet information every month will focus management in the right areas and help to improve the cash flow of your business.  This report should identify the customers management must contact to resolve quality and past due collection issues.  It should also identify excessive inventory issues and other cost drivers that may impact the financial results of the business.

Next, management must become disciplined to obtain its cash balance from the accounting system and not the bank.  Your bank will not show checks that have been written and not presented to the bank for payment nor will they show receipts that have not been deposited at the bank.   These unreported bank transactions should represent the difference between the bank balance and the cash balance reported in the accounting system.  Relying on your accounting system cash balance, which is periodically reconciled to the bank balance, will allow you to avoid serious and expensive mistakes.

Finally, management must establish a process to create cash flow forecasts to understand where the cash will be during the next 13 to 26 weeks.  Establishing cash flow projections is simply using a few basic principles with your intuition and knowledge of the business.  Adjust for any significant changes you expect to happen that are different from the past and never project revenues that you cannot be fairly certain will occur as this will create a false sense of security.  Finally, review the projected cash balance by week to determine any unexpected shortfalls.  Further analysis will identify priorities that management must focus on to resolve the issue identified in the forecast to avoid real problems in the future.

Understanding your cash flow will give you peace of mind and help you start to take control of the financial side of your business.  In addition, it will provide the management team with a course of action to grow the business profitably while knowing where the cash is.

Top qualities:

“There are many people you meet in life some good, some bad and some family. Steve Friedman is a special kind of person. He genuinely wants to help and cares about the people he works with. His insight into business is extraordinary, his ability to communicate and make people understand is beyond the norm and he does all this in a calm and quiet manner. He speaks his mind and lets you know just where you stand. To just recommend Steve is an injustice to people that need his help. Even if you think your business needs some advise get Steve in as soon as you can.” August 18, 2010

David Ebenstein

Business owners run their business to make money, right? Then why do so many owners make unprofitable decisions?

There was a great article in the Wall Street Journal titled "Major Airlines Fuel a Recovery by Grounding Unprofitable Flights." The article talked about the progress that U.S. airlines are making to become profitable and provides several valuable points for business owners.

In one part of the piece, writers Evan Perez and Melanie Trottman noted:

"The big carriers, which for decades have doggedly pursued market share at any cost, now are focusing just as aggressively on the profitability of each route and flight. The so-called legacy carriers... have abandoned many of the tactics that have contributed to their cyclical weakness. They are increasingly unwilling to fly half-empty aircraft to stay competitive on a given route just for the sake of feeding their nationwide networks.

Though their recovery is still in its early stages... the airlines' new emphasis on profitability appears to be paying off."

Imagine that!

Running the business in order to make money appears to be paying off. A brilliant strategy, indeed.

There are several fascinating points here that I would like you to carefully consider.

Be a Lover of Reality

If you ask a business owner whether he runs his company to make money, the answer will always be "Yes." The reality is that he doesn't. At the risk of sounding a bit blunt, you don't either. This is an important reality to recognize and accept.

Try this little test for the next 30 days. Listen for anyone in your company (including yourself) using words like "brand," "market share," or "shelf space." When you hear those words, you can be sure that you've just found an opportunity to make some money.

Why? Because those words always are used to justify unprofitable decisions. They are big red flags that you are not making decisions based on a common-sense approach to profitability. When you hear those words, ask yourself this simple question, "Are we making this decision based on profitability or for some other (possibly hidden) reason?"You have to clear away the smokescreen in order to put your focus on profitability and common-sense decision making.

Is Market Share Your Mantra?

For example, when you hear an executive justifying a decision based on its supposed impact on market share, he's really saying, "I want to look good versus the competition, but it's a lot easier to give our products away than have to sell them at a profitable price."Here's what happens when market share becomes your mantra. The sales force gets the okay to start selling on price. Your salespeople cut prices in order to generate volume. The volume comes and the company ramps up quickly to meet the new demand. That ramp up always drives costs up. In a manufacturing company, for example, the increased production creates capacity issues, and it begins to see requests for capital expenditures to solve the problem. Meanwhile, the competition has lowered its prices to try to get some of the business back. The sales force has gotten used to selling on price, so it comes back to you with a plan to foil the competition by lowering the price--again. Profitability continues to be driven lower and lower while the need for cash to support the higher revenue goes up. That's a recipe for disaster.

This happens to company after company despite how illogical it sounds. You have to battle it out by sticking to your guns. You have to be maniacal in your focus on profitability.

Start by removing market share from your company's vocabulary and see how fast you can improve profitability. Remember, one of the fastest ways to make more money is to stop doing things that lose money.

I recently had a conference call with one of my partners and an engineering client of his. They were curious about whether QuickBooks could handle their requirements for invoicing. QuickBooks has a very rich set of functionality which allows a company to charge their clients for billable activity of their employees and track those costs to the customer and produce great Job Profitability reports. This article describes how this is accomplished.

Click here to read the article

A recent article in The Wall Street Journal  ("When You're Most Vulnerable to Fraud" by Rob Johnson) told the stories of two small businesses that were victims of employee fraud. One was a $10 million manufacturing concern in Salem, Va whose chief operating officer pocketed over $300,000 that was supposed to go to the IRS to cover payroll taxes. The other was a $6 million videoconferencing company in Memphis, TN that was the victim of a bookkeeper who stole over $260,000 in the form of bogus bonuses and commissions. In both cases, the business owners were experiencing rapid growth with record sales at the time of the fraud. As the article points out, small business owners are at the most vulnerable to employee fraud when times are great and they have less time to focus on the company's finances and administration, oftentimes relying on one key individual for these tasks.

In his book, The Danger Zone, Lost in the Growth Transition, Jerry Mills, founder and chief executive officer of B2B CFO Partners, devotes two chapters to the problem of employee fraud, describing many instances of employee theft that he has dealt with over the years. Most of these cases were aided by the business owner unintentionally placing the employees in a position to steal from the company due to concentration of duties and a lot of trust put in one person.

Embezzlement is a big problem for small business. The Association of Certified Examiners (AFCE) reports that 31% of all business frauds nationally were in companies wih fewer than 100 employees with another 23% happening in companies with under 999 employees. Additionally, the losses tend to be larger in small companies ($150,000) than in large($84,000), more than likely due to less formal financial controls.
So what can a small business do to mitigate the chances of employee fraud? While there is no "silver bullet" to completely eliminate the chances of fraud, there are ways to prepare a strategy to help reduce or minimize fraud in a company. The AFCE offers the following tips:

  - If you're delegating responsibility for accounts receivable and accounts payable, don't put the same person in charge of both, even if that means you have to hire and additional employee.

  - Be aware of employees who are involved with your coampny's finances and never take time off. Embezzlers rarely take vacations for fear their theft will be discovered by someone filling in.

  - One common internal fraud is kickback's involving vendors, so stay alert to unusually close relationships between employees responsible for finances and suppliers and customers.

  - Be the first person to open your monthly business bank statements. Even if you don't have time to examine them closely, your attention sends a strong message. When reviewing your bank statements, take a look at the actual canceled checks to confirm where the money actually went.

  - Look at receipts for deposits of both federal and state taxes.

  - Maintain an open-door policy that encourages employees who have suspicions about misappropriations or questionable spending to tell you in confidence.

Additionally, I would recommend small businesses to have a seasoned senior-level executive watch over the shoulder of their controller or other employees responsible for the company's finances. This person should visit the business at least once per month to look into the computer system and look at the details of the financial statements and just walk around the building or plant to see what is happening with the company. The business owner should meet regularly with this person to receive input as to what is happening with the business. The accounting and other staff should be told that this professional is looking over things on a regular basis. This should help reduce the temptation to steal.

Finally, the business owner should be a positive role model, setting the tone for integrity, trust, ethical behavior and equitable management. Business owners should not give their employees an excuse to be dishonest or unethical because they perceive the owner acts that way by taking company cash without proper documentation. Owners that operate under the adage that "This is my company and my money, and I will use it as I see fit" may find themselves in a situation where the old saying of "perception is reality" comes true. Business owners should not want a negative perception to become reality and should set the right example and be the leaders that people can look up to and respect at all times.


 
     

I’ve been giving a fair amount of consideration to mission statements lately, and the impact they have on the bottom line.  On the one hand, I’d like to say that they tend to be too general and not influential enough on the day to day performance of a company.  On the other hand, I realize that a carefully crafted mission statement can make an enormous difference in the unity of your employees and the strategic direction of the Company as a whole.

If your mission is something really long and vague, like  “Our mission is to create a friendly work environment where our employees work hard to ensure that our clients are satisfied with our products and that our customer service is great.”, then you aren’t really helping yourself or your employees to drive in any particular direction.  There’s no real world application to a statement like that – no way to measure its effectiveness.

On the other hand, take a look at some really great mission statements:

Google: "To organize the world’s information and make it universally accessible and useful."

Walt Disney: "To make people happy."

Western Union: “the fastest way to send money worldwide”

A mission statement doesn’t need to be long, and it doesn’t need to capture every aspect of your business.  It just needs to speak to the heart of the company – the power that drives success.  If all of your employees are working toward a common goal (like making people happy) and it’s front of mind, then their behaviors and decisions are much more likely to align with the vision of success the owner has for the company. 

If Disney’s mission was to produce great movies for kids, or build amazing theme parks, or the like, they might have missed the mark in terms of the consumer reaction to their products.  By focusing on making people happy, they actually have greater flexibility to engage in multiple revenue streams, channels, geographies, etc.

So as you begin to consider who you are and who you want to be in 2011 and beyond, your mission statement might just be the right place to start.  It might even be the driving force behind your future successes. 

We’re wrapping up the Summer of 2010, and that means one thing.  You should now begin planning your 2011 budget.  While 2011 may be a better year for your business, you should not assume so without first carefully looking at your business, your competition, and your customers.  At a minimum, prepare a contingency plan . . . but more about that in a future article.

The principal reason to budget is to help you focus on everything you do which can increase sales and profitability.

Here are a few suggestions of areas you should consider, a simple checklist for 2011:

1.   Outsource.  Look at every function that is performed and consider outsourcing to reduce costs and to improve performance.

2.   Cut your personal expenditures.  This action frees you up from worrying about those costs if the business is still slower than you’d like.

3.   Reduce your personnel costs.  Instead of hiring new full-time employees, consider part-time employees that can help with the work-load without incurring all the costs for a full-time employee.

4.   Take advantage of tax incentives.  If you are hiring, look into possible incentives for training and tax holidays.

5.   Decide about year-end bonuses now.  If you won’t be able to give a bonus to employees who have received them in the past, tell them now so that they can plan accordingly.  You don’t want to have that kind of negative surprise later this year.

6.   Reward employees for cost-saving ideas.  A gift card to someone who suggests ways to reduce costs or be more efficient is a way to motivate employees and thank them with something tangible.

7.   Raise prices.  You may not be able to do so, but don’t overlook this possibility if you haven’t adjusted your pricing recently and, in particular, if your costs have increased.  You’re at least trying to hold your own in this economy – not go down with the ship.

8.   Communicate with your customers and prospects.  If you do so using an eNewsletter, for instance, there are ways to identify who clicks on a link to a story or a product, and that might help you with your marketing and sales plans.

9.   Update your website.  That’s an entry point for many buyers.  Offer some promotional incentive to move inventory.  (And consider other social marketing alternatives.)

10.Educate your customers and prospects.  Use your website to provide information that will enhance your position as an expert in your field.

11.Offer something for free.  It could be product, or an hour of consulting services.  Something to make people think about you and what you sell.

Finally, if you don’t receive reliable financial statements – statement of operations, balance sheet, and cash flow information – on a monthly basis, you need make changes right away.  You simply cannot manage your business without that information – and that’s your principal responsibility as the owner or president of your company . . . to manage.  (That’s also why you need to prepare that budget!)