Wearing Too Many Hats?

As a business owner, you have to wear plenty of hats. You’ve got to be a salesperson, inventory manager, inventor, chief paymaster, and human resources director.  It never seems to end. If only your hat was like the one worn by Dr. Seuss’s  The Cat in the Hat Comes Back.  His hat contained little cats of various sizes to assist him as needed.  Granted, they weren’t the best helpers in the world, but eventually, they got the job done. 

Since little cats aren’t an option, what can you do when you start to feel overwhelmed? Start by valuing your own time. Decide where you get the highest and best use from your personal effort. Are you the only person who has the contacts to bring in the big deals? Or are you the best estimator in the business? Maybe planning and product development are your thing. Spend your time and energy on those tasks.  Once you have a clear sense of the value of spending your time on the right things, it is time to do less of everything else.  While giving up control can be scary, the payback from focusing on your highest value activities will make it worthwhile. 

Your accounting software can help by automating the mundane tasks. Once the volume of transactions expands beyond your capacity to keep up, however, it is time to look for a qualified bookkeeper to assist you. The bookkeeper can stay on top of payments and receipts while you provide the oversight. You will want to maintain control of the bank statements, sign checks, and review any new customers or vendors who are added to your system.  Also, be sure to review the outstanding payables and receivables weekly and at the end of every month. 

By staying focused and spending your time on the most important activities, you might find yourself with time to reread the entire Dr. Seuss collection.  You won’t believe the business lessons that can be found in “Green Eggs and Ham.”

Accountants: Help You Can Count On

Most people associate accountants only with the chore of filing their income taxes or with the preparation of audited financial statements. However, these services, while valuable, are just the tip of the iceberg. 

Most CPAs offer a number of other valuable services that can help you achieve your business and personal goals:

Money in the bank. Cash flow is critical to keeping a business afloat. Your accountant can help you create a cash flow model that considers your long-term funding needs. Once you have a clear picture of those needs, you can sit down with a banker for help covering any working capital shortfalls through either a line of credit or longer-term financing arrangements. 

Medical insurance.  A medical disaster can wipe out your savings. You need to have medical coverage that gives you peace of mind. Your accountant can help you evaluate different insurance options including nondiscrimination rules and the tax consequences of offering health care and other benefits to your employees 

Early retirement. Eventually, you will want to enjoy the fruits of your labor.  With the help of an accountant, you can determine the best way to maximize tax-deductible retirement contributions for yourself and your team. 

Motivated employees. How can you incent your employees to help you meet your business goals? Your accountant can help you evaluate your current compensation plan to create individual and group goals as well as daily, weekly, and monthly measurements that keep everyone moving in the same direction. 

Family legacy.  You don’t want the bulk of your assets ending up with the IRS. You need to have a will, and you need to know the tax consequences of passing on your business and other assets to your heirs. Recent changes in estate and gift tax have made planning in this area more important than ever. Your accountant can help you maximize the value of any assets you bequeath to your heirs.     

Optimized technology. With business moving at the speed of light, you don’t have time to waste. You need your software to make it easy to run your business efficiently.

Sure, your accountant can help you file your taxes, create a proper set of financial statements, and evaluate leasing versus buying an asset. But their exposure to businesses of every size across different industries means they also have lots of ideas in other critical areas. They know what works for a given business and what doesn’t. They understand history and can help you plan for the future. If you have a question, chances are you can count on your accountant for answers.  

Reviewing Financial Statements: Putting The Numbers In Context

When I present a financial statement to my clients, one of their first questions (after “Where did all of the cash go?”) is, “Is this good?” They want to know if their individual result—their bottom line, or margin as a percentage of revenue, or top-line revenue growth—is good in comparison with everyone else. Once they see that their revenue has grown or their bottom line is a positive number, they want to put that number in context. 

Here’s the problem.  There are very few businesses exactly like yours. As soon as you start trying to benchmark results across companies, geographies, and industries you start running into unique differences.  What’s worse, the less favorable the comparison between your numbers and the “benchmark” is, the more likely you will be to find reasons to explain or justify the difference.  While a comparison exercise and the resulting discussion can be informative, a straight comparison to someone else’s empirical results (particularly when the calculations are not standardized) can be more frustrating than insightful.  

The best benchmark: your goals.  Rather than comparing your results to any other company, compare them against your own goals.  Pull out your five-year plan. Are you on track?  Then look at your current year budget.  Did you plan well? Where did you miss the mark?   

Consider these questions: 

• Were you on track with revenue growth?  

• Did you expect your operating expenses to be XX% of your total revenues?  

• How did your revenue growth compare with your growth in Accounts Receivable? If AR grew by a higher percentage than sales, you might have a collection problem.  

• If sales of one product or service failed to hit your goal, how will your marketing strategies need to change?  

• Is your best customer still accountable for XX% of your revenues? How much profit do they represent? 

• Are you building equity in your business? 

Rather than looking to external indicators as a measure of your own success, look inside: Evaluate your results again your personal goals. Be sure to consider not only financial measures, but your deeper, more personal goals, like building a legacy, spending more time with family, or funding retirement.  If you find yourself coming up short year after year, it is time to either seek outside assistance or consider modifying your plan, at least in the short term. 

Getting Everyone On The Same Page

In my humble opinion, the key to any successful business is communication.  I’m not talking about marketing or communicating with your customers and prospects, which is of course important. I’m talking about communicating with your team.  That applies, by the way, whether you have zero employees or millions.  If you are a sole proprietor running a business with no employees, you might be wondering who exactly you are supposed to be communicating with.  I don’t mean to discount those voices in your head, but I’m not just talking about communicating inside your organization.  You need to connect with your team – with the people who support you both inside and outside your organization. 

Inside your organization

If you have employees, you need to make sure they understand where you are taking the business. They need to have access to key financial and operational goals but more importantly, they need to be involved in creating a budget and building a plan for the area in which they work. Open Book management, which many people claim to support, is not just about sharing the financial statements at the end of the year; it’s about connecting everyone in your organization to your core purpose, message, and business objectives from their first day on the job. When people feel a part of something, they start thinking and acting like owners. And with full information, everyone on your team can make the kinds of daily decisions that you would support.  Think about the number of small decisions made by a cashier in a grocery store each day.  “Should I hold up this line to look up the price or should I just estimate to keep the line moving?  Should I accept these expired coupons? Should I spend the time deciding which variety of apple this is or just take my best guess? “ 

Outside your organization

Every business works with outside professionals. At a minimum, there should be bankers, accountants, and lawyers to advise you on matters of importance.  What are you doing to keep them in the loop? There are a number of changes in your business that can impact not only your bottom line but also your exposure to fines, penalties, and worse. But as a general rule, small businesses contact these professionals only when forced by a crisis to seek assistance.  (Much of the blame rests with these very professionals who charge by the hour for their time and make it costly to ask questions.) Consider sharing not only your long-term plan but also any financial updates, monthly progress reports, and more with your bankers and accountants. Include notes about new customers, territory expansions, asset acquisitions, and the like so they can advise you of any regulatory impacts on your business. 

By trying to maintain too much control of your financial information, you are not only limiting your team’s potential, you are also reducing your chances of success. The less information you provide to the members of your team, the more likely it is that they will make the wrong decisions for your business.  The more you make your team a part of your business and financial goals, the more control you will have in ultimately achieving them.