Do you have “Rhythm”?

In her article “Do you have “Rhythm”?” Donna Hover, CEO Advisor, addresses that there are three fundamental habits that companies must develop. The article does an excellent job of articulating the significance to a business of 1) establishing priorities or the importance of putting “First things First” as Steven Covey advises; 2) creating team “rhythm” through increased frequency of meetings; and 3) the importance of using data in making decisions for your organization.

What I like about Donna’s writing style in this article is that it focuses on practical “Tune-up” tools as she calls them rather than get lost in the esoteric.

Click here to download a PDF of Donna’s Article

To get more info on Donna’s Company Click here

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.

The Habits of Effective Money Managers

Someone once told me that character, an attribute that seems to be passé (sadly so), is the sum total of all of our habits as of a particular point in time. Of course that sum could be comprised of good as well as bad habits. Steve Covey wrote a terrific book several years ago entitled “The Seven Habits of Highly Effective People” which also espoused the importance of their development.

Today’s focus is the habits of effective money managers which we will number at five.

Habit 1: Effective money managers prepare a 1 to 3 year plan to guide the day-to-day activities. Now I am not talking about something the length of “War & Peace”, rather something that outlines your objectives by business function, the activities that will help you accomplish those objectives, prioritized in some fashion and with specific deadlines for completion. The key is it has to be in writing to help you crystallize your thinking and it needs to be flexible.

Habit 2: Effective money managers are realistic about the prospects of their business. How do you think most business owner characterize the prospects for their businesses? You have three choices; 1) Their view is generally optimistic; 2) Their view is generally realistic; or 3) Their view is generally pessimistic? If you picked door number one you win the prize. Most entrepreneurial types are woefully optimistic. Like we tell our clients it’s ok to assume the best but we must prepare for the worst because it will present itself.

Habit 3: Effective money managers know where they stand financially at all times, including having a clear picture of cash flow. Another question for you business owners; when do you go to the bank to borrow? Two choices; 1) when you need the money? Or 2) when you don’t need the money? If your answer is door number one you are disqualified! Answer honestly now, do any of you believe that banks are in the business of lending you money when you need it? This is an industry that took billions of dollars in TARP money from the federal government, that was intended to stimulate the economy, and hoarded it. For all intents and purposes commercial “lenders” kept the funds in their coffers which did nothing to help small and medium sized businesses or the economy in general. This is a glowing example that banks really don’t care much about a business owner’s cash flow problems and as a result you must be aware and anticipate the needs of your business. I still remember a great quote (though not the author) which went “The only way they can take you out of the game is if you run out of cash.”

Habit 4: Effective money managers know exactly where business expenditures go. Most business owners have a top line fetish; as long as the trend line for sales is north bound then management ’s thinking is “we’re good”. Wrong!!!! As indicated in our October 12, 2009 Blog entitled “Waste not, Want Not” (Click here to read) a focus on cost cutting will do more to drive the bottom line. While the thought of digging into every expense item in your operating statement might cause you to hyperventilate, I would suggest that’s not necessary. A more efficient approach is to apply the Pareto Principle; “80 percent of your expenses come from 20% of the line items in your operating statement.” For example, if there are 25 operating expense items in your income statement then by simply focusing on the 5 largest you will have addressed 80% of the money that goes out the door each year. This is an exercise that is well worth the investment of your time.

Habit 5: Effective money managers make no major decision without carefully considering all of the consequences. When I was growing up Dad had two rules; Rule 1) Don’t ever talk back to your mother and Rule 2) Don’t ever lay a hand on your sister. If I broke either rule, I had to pick myself up off the floor, compliments of my father. Those were consequences I clearly understood. As business owners, while the consequences might not be as physically painful, there will be consequences for bad decisions. As an advisor to businesses for over 30 years, I can relate story after story of bad choices made by our client base. More often than not had the clients invested the time to make an informed decision rather then force the timing, the results would have been better. In many instances the decision making process (or not) meant the success or failure of many case studies.

So there you have it and while developing these like any other habits wont guarantee a business owners success, they certainly wont hurt their prospects either. I am reminded of another quote regarding character which, as we know, is a composite of our habits. This quote, however, has a little more prophetic tone; “Sow a thought, reap and action; sow and action, reap a habit; sow a habit reap a character; sow a character reap a destiny.”

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.

“Waste not, Want not”

I owe my parents sincere thanks for instilling in me the value of money and the benefits of not living beyond my means. And while they would cringe at the amounts I have invested in my children’s “education”, those “large” sums will come back in spades in both short and long term. If you are asking whether or not I am looking for a return on that investment the answer is absolutely!

And yes I do measure how I spend money, even when it’s for my children, just as I do with the businesses I advise, whether I am an owner or an advisor. Ultimately every business must get their arms around costs, and the need to reduce them, if they are to drive the bottom line up and reach their net operating income and return on investment goals.

Reducing Costs

Most of us that have served the traditional role of “provider” for the family recognize just how difficult it is to cut back on the home front especially once certain habits have been established and you have a spouse that has no inclination to cut back in anyway, shape or form. Well in the management of a business, the attempt to reduce costs is met with about as much enthusiasm BUT the pain of the effort is well worth the pleasure derived.

Increase Sales or Reduce Costs; which is more Profitable?

Reducing costs can be far more profitable than increasing sales. If the company sells a product with a 20% profit margin after all costs – product cost, salaries, overhead, etc. – $1,000 in sales (minus $800 in costs) produces a $200 profit. A 10% increase in sales increases profit by $20. But a 10% reduction in costs saves $80, which is four times as much. Thus a reduction in costs of only 2.5% will produce as much profit as a 10% increase in sales. The smaller the margin on sales, the more dramatic the impact of cutting costs. With a 10% profit margin, a 10% cut in costs produces nine times as much profit as a 10% increase in sales.

So while it may be true that “(sales) volume cures a lot of ills” it should be crystal clear that a focus on cost cutting will do more to drive the bottom line than most are probably aware of. Thank goodness for Mom and Dad and their well placed knowledge.

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.

The Business Owners Arsenal

Perhaps the least understood and utilized weapon in the management arsenal are the business financial statements.  While I might have a particular bias because of my chosen profession, I can objectively say failure to use them in your fight for survival will, at a minimum, cause you to lose the battle and worst case, lose the war.

I can’t help but use the war/survival analogy as I know virtually every business owner deals with “conflict”, even “hand to hand combat” daily. Sometimes the skirmishes are with their employees, or perhaps their vendors, even their customers/clients. Either directly or indirectly the effect of the engagements shows up in what is collectively known as the financial statements.

Heavy Artillery

The Balance Sheet and Income Statement of any business is really the equivalent of heavy artillery when engaged in the battles. The business Balance Sheet provides a snapshot as of a particular point in time, e.g., as of September 30, 2009. Essentially it identifies the business resources available to sustain the troops through both existing and future engagements. In layman terms it shows you what you own, what you owe and the difference between the two or your equity. An understanding of its individual components, i.e., assets, liabilities and equity, and the knowledge to monitor the same monthly, creates a huge advantage when engaging “ the enemy”, a/k/a, your competition.

The Income Statement is a reflection of results of operations over a specific period of time, e.g., 1/1/09 – 9/30/09. Results of operations are never measured over a period greater than twelve months. The Income Statement should be a clear reflection, on an interim and annual basis, of whether the war is being won or lost.

“Begin with the End in Mind” – Steven Covey

As Covey suggests in his book “The Seven Habits of Highly Effective People”, we must have a clear understanding of where we are headed if we are to win the war. While understanding the financials of a business, and reviewing them monthly, may not guarantee a victory, neither will a weapon of mass destruction. If, however, your strategic plan is sound, in writing and flexible, these weapons make the likelihood of becoming a casualty of war that much less and perhaps even position you for victory.

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.

Trouble in Paradise

A new client came to me the other day concerned that while the business results for their most recent year end were the best yet, cash flow problems precluded them from being able to pay the Federal and State balances due by the due dates. This was a sign that all was not well with the health of the operation.

Most major business problems today fall into one of these four categories…

• Cash management.
• Pricing strategy.
• Cost control.
• Internal control systems.

Warning signs that one or more of these areas needs help include…

• An inability to pay trade creditors what is due, when it is due.
• An inability to meet the demands of taxing authorities, including failure to make tax deposits on time, if at all.
• An inability to cover lender demands in terms of due dates and amounts.
• An inability to secure traditional financing from a reputable commercial lender.
• A loss of customers.
• A loss of key employees.
• Poor operating results including weak gross and net profit margins.
• Weak or non existent financial information.

Any one of the above can be disruptive and threaten the viability and the future of any operation especially in a market like the one that exists today where there is absolutely no room for error.

As the old adage goes “diagnosis is half the cure” but, I would add, the diagnosis needs to be timely.

While business, even amongst the best operators, will always be a challenge, paradise can be regained but it will require immediate intervention and discipline.

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.

“Tis the Season”

One of the most common mistakes made by many accountants or financial advisors is their failure to adequately prepare a client for federal and state income tax balances due. This type of surprise is avoidable but proper planning must be done before year end in order to create some tax savings.

In that regard this is the time of the year that our firm is busy preparing tax projections for clients. The exercise essentially allows us to project the amount of money they will owe, or the refunds that they may be entitled to, come April 15, 2010. This information is especially important in a year where there may have been significant changes in client facts including substantial stock sales, changes in business results from one year to the next, sale of investment real estate or something as straight forward as marriage or the birth of a new child. All of these impact the bottom line results come the due date of the individual income tax return.

Most importantly, the projection process is cost effective. More often than not, the tax savings that are produced from the added planning are greater than the money invested in professional fees

This truly is the season to anticipate where you will be April of next year. Of course the choice is always yours but remember; nobody likes surprises except children at Christmas time.

This article was written by the expert tax professionals at Numerico, PC. Click here to view their website.