Best Business Practices

Does your business not function as efficiently as you would like? Now is the time to assess your current business setup and improve productivity from both a managerial and employee perspective.

Improving Productivity from a Management Perspective

Review and Improve Technology

As a business owner, you are constantly busy with running your business. This can cause you to be unaware about your business process, and where it could be updated. It is crucial to review your current software and technology and how they interact with your business. If they don’t match your business model, it is time to try a different setup that will naturally be more efficient and better suits your business’ needs.

Adopt a Mindset of Continual Improvement

Let your employees know that you want them to improve items of concern before they become problems for the business. Proactivity is crucial for increasing productivity, as well as just making life easier for employees in the future. A way to show your devotion for improvement is to encourage learning opportunities for your employees. Provide your support in these endeavors, both internally and externally. An employee that feels supported will want to go above and beyond for your business.

Identify Performance Goals

Communication with your employees is the most important aspect of a business. The culture you create will either limit employees or motivate them. Performance goals are the way to do this. Give employees goals with deadlines and commit to the due date. It’s also important to give positive feedback and constructive criticism to your employees at the end of each project so they feel properly valued in the workplace for their contributions.

Improving Productivity from an Employee Perspective

It’s important to inform employees on how they can improve their own performance and productivity in the workplace. Create correspondence with these components in mind.

Avoid Unproductive Meetings

Most companies become involved in routine meetings for administrative and team purposes. It’s in good practice that employees take the time to write notes for their timely meeting whenever something of note happens. This strategy works better than scrambling to look prepared when the meeting comes, because your issues can properly be addressed. Simply creating a shared agenda that employees can contribute to before the meeting will boost productivity and provide better content to address.

Create a Balanced Work Schedule

As an employee, it can be very difficult to manage time with multiple tasks and deadlines that create an overwhelming environment. It is very easy to feel burnt out in the workplace. Having a better schedule can improve energy levels and boost morale. Employees must utilize their breaks efficiently. For example, have a change of scenery when it is time for a break. Exercise can vastly improve the way one feels at work. It is important to move around and get the blood flowing while at work, because of the natural, sedentary nature. It can be a smart tactic to implement time blocks for tasks. Stay focused on a task for an hour and then walk around for a stretch after the fixed duration. This will create a beneficial rhythm where an employee can feel productive without feeling burnt out.

Do Not Attempt to Multitask

Fun fact: multitasking is actually a myth. It is not possible to complete multiple tasks at once. You actually complete tasks slower this way because your brain can only focus on one task at a time. Multitasking is not productive despite the way it is shown. Having a task schedule for multiple items due is a better way to effectively use your time than trying to commit to all of them at the same time.

Office productivity can vastly improve when both business managers and employees are dedicated to improving their quality of work. Productivity does not change instantly but these ideas can help a business step in the right direction towards improvement.

Like many small business owners, you may plan on working until you are ready to retire. And, once you reach that point, you may expect to sell your business and live off the proceeds. Or, you may have partners or children who can keep the business operating once you are ready to step away.

However, smart business owners plan for all eventualities. They plan for success but they have a fallback plan in case their efforts don’t bear fruit. As a business owner whose business is probably by far your biggest asset, it makes sense to think about those things that could go wrong and take steps to protect yourself now.

What steps should you consider taking that can protect your future financial security? Consider these contingency strategies:

Put a Retirement Plan in Place

The only constant in business is change. And many changes can harm a business’s financial viability. What would happen to your retirement dreams if your business experienced a serious setback? New technologies come along and make some businesses obsolete. New competitors erase older, established firms and economic downturns impact consumer and business spending. Natural disasters can seriously damage a business’s operations and cause widespread financial loss.

Funding a retirement plan during your working years can help protect your future financial well-being. Additionally, a retirement plan can provide important tax benefits. For example, your contributions to your retirement plan are typically tax deductible while earnings on investments in your retirement plan account grow tax deferred until you begin taking distributions.

As a small business owner, you can choose from a variety of tax-advantaged retirement plans. Each option has distinct advantages and disadvantages when it comes to costs and the burden involved in plan administration. The input from your financial professional can be helpful when reviewing the appropriateness of a particular retirement plan with regard to your business’s specific situation.

Establish a Buy-Sell Agreement

If you have one or more partners or co-owners, it makes sense to have a buy-sell agreement. A buy-sell agreement helps ensure that you (or your beneficiaries) will receive fair compensation for your ownership interest. The agreement also facilitates the orderly transfer of ownership and management. A buy-sell agreement can be drafted among shareholders of an S corporation, partners of a partnership or an LLC, or even between an owner and a key employee.

When carefully crafted, a buy-sell agreement can:

• Help provide a smooth transition of control, management, and ownership to those who wish to continue running the business
• Spell out the financial aspects of the transition
• Establish a fair and reasonable price
• Help ensure the financial security of your family and other beneficiaries in the event of your unexpected death
• Create a built-in buyer for your interest in the business
• Establish, under certain circumstances, an estate tax value for the stock.

There are two basic types of buy-sell agreements: cross purchase and entity purchase (stock redemption). With a cross purchase agreement, the remaining owners agree to buy the departing owner’s interest in the business individually. With an entity purchase agreement, the business itself agrees to buy the selling partner’s ownership interest.

Life insurance is a common way of funding a buy-sell agreement. The proceeds of the policy are used to buy out the departing owner’s interest in the business.

Develop a Disaster Plan

No matter where your business is located, it is a wise precaution to assume that a natural disaster will impact it at some point. Adequate preparation can minimize damage to your systems, your equipment, and your physical plant, and may even protect you and your employees from harm. A key component in preparing for a natural disaster is a disaster plan.

Your disaster plan should include sections on personnel safety, management succession, and data preservation. It should outline the steps employees and managers must take in the event of a disaster.

Small business owners who conduct regular reviews of their business’ operating health are more likely to detect potential issues before they develop into major problems. Some areas should be monitored regularly since they hold the greatest potential for harming a company’s long-term financial health.

Cash Flow

You should be concerned if your cash flow is insufficient to cover expenses because payments for goods or services are slow in coming. Beware also if your cash reserves accumulate rather than being put to work. Excess funds may be parked in short-term investment accounts, but ideally, they should be put to work growing the business.

Gross Profit Margin

If it is shrinking over several quarters, your production costs may be rising at a faster pace than your prices. Or, it may because you are charging less than in the past. Either way, declining gross profit margins are a threat to the financial health of your business.

Receivables

If they are growing faster than sales, it is a sign that your customers are not paying what they owe you in a timely manner. You may need to take steps to improve your collection procedures. Be proactive and consistent about issuing invoices and providing any necessary supporting documentation. In addition, contact customers as soon as you detect any delays in payment and stay on top of accounts that are past due.

Debt

Almost every business carries some debt. It’s generally not a problem as long as it is kept under control. Too much debt is a different matter in that it can eat up your cash, cut into your profits, and reduce the return you’re getting on your investment in the company.

Assets

Turnover rates are an important measure if your business carries inventory. When inventory turns over slowly, cash flow suffers. Your best approach is to determine how many days’ worth of product you’d ideally like to have on hand and adapt your purchasing to meet that goal. Additionally, keep an eye on fixed assets. If you have equipment that’s not being fully utilized, you may be able to repurpose it. If not, it may be time to sell or donate it.

Professional Input Can Be Valuable

Business owners should evaluate a broad range of financial information when making decisions. The input of a financial professional can be helpful in the assessment of a business’s overall financial health

Small businesses make accounting errors and oversights regularly. Here, we cover five of the most common small business accounting mistakes. Read on to see if you’re making any of these mistakes and how to avoid them in the future.

1. You don’t take bookkeeping as seriously as you should.

Recording everything is an excellent rule to follow for bookkeeping and accounting for a small business. Ensuring that everything is recorded and categorized correctly in your accounts is essential, from small transactions like purchasing office supplies to large payments from customers and clients. No matter how small your company is, accurate bookkeeping and accounting methods are essential for a reliable assessment of your company’s health.

If you’ve slacked in this area, find the weak spots. For example, you may need to: categorize your assets and liabilities correctly, have a monthly accounts review, or establish a new bookkeeping system. A sound bookkeeping and accounting system is the only way to know how your business performs.

2. You refuse to outsource your accounting needs.

If you read point one above and the need to establish a new bookkeeping and accounting system rings true, you’ve identified a serious issue. Many small business owners decide to handle bookkeeping and accounting in-house because they feel “too small” to justify outsourcing those tasks. While the temptation to reduce costs by controlling the books in-house is tempting, it can be overwhelming when trying to manage a business and wear the accountant hat.

Handling your own accounting could be costing you money. Accountants understand ways to save businesses money that can escape others. They know all the ins and outs of taxes, deductions, write-offs, etc. It’s what they do all day, every day. Consider outsourcing your accounting to a qualified firm instead of missing out on opportunities to save money.

3. You outsource, but you fail to communicate with your accountant.

So, maybe you have already outsourced your business’s accounting. Are you communicating with your accountant? Does your bookkeeper know what’s happening in your business? Keeping up with all transactions – great or small – and sharing those with your accountant is vital. Overlooking even a small purchase can lead to costly issues over time.

A great way to make sure your accountant is fully apprised of any and all expenditures. Keep receipts and a record of all transactions. You can use receipt tracking software or keep a paper or digital log. Regardless of the method, your accountant will appreciate your efforts. Their job will be easier, and it can save you money in the long run.

4. You don’t record every expense, even the small ones.

This point cannot be emphasized enough. It is essential to record all business spending, no matter how insignificant you think. That $5 of petty cash you took out of the register to send your employee to pick up stamps for the business counts! This is particularly crucial for cash-based (i.e., retail) businesses. No expense is insignificant. This is a fundamental rule to follow for new companies. While it is easy to overlook the small stuff, as your business grows, you will be glad you were attentive because it makes managing your books so much easier. Again, this can be a big money-saver in the long run.

The bottom line: No transaction is too small to record. Save receipts, keep a record, tell your bookkeeper.

5. You assume that profit always equals healthy cash flow.

If you make a sale of $1000 that cost your business $300, did you profit $700? Not necessarily. Depending on the type of business you are in, additional costs could be associated with the sale that reduces the profit. For example, if you’re in retail sales, you must account for expenditures like overhead. What if the merchandise is returned and refunded? Handling the refund costs you money, and that cuts into profit. Suppose you’re in a business that provides services like construction or home improvements. In that case, you must consider setbacks and delays due to receiving materials, weather, etc. Any setback you experience in completing a job means less profit to your firm.

Not accounting for costly setbacks can give you a false sense of how your business is performing. While the numbers may look good on paper, a distorted picture of its financial health is detrimental to your success.

Awareness of these small business accounting pitfalls can help you improve in weak areas and position your business for long-term success and a healthy financial future.

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Contact our accounting professionals now for more help managing your small business finances.

Businesses that end up on the critical list usually show signs that they are ailing long before they need intensive care. By recognizing these signs and making a concerted effort to tackle the underlying problems early on, owners can often turn their troubled businesses around and return them to good health.

Warning Signs

Signs of distress may include:

• Several quarters of declining sales and lower profit margins
• Persistent cash flow problems
• Inability to meet a lender’s requirements for a working capital line of credit
• Declining productivity
• Poor employee morale
• The loss or failure of one or more significant customers

Don’t Wait

Business owners sometimes make the mistake of waiting too long to act on bad news. While a bad quarter or two often can be explained away, a persistent problem shouldn’t be ignored. A business that has previously been on a growth track has all the more reason to investigate the reasons for a downturn promptly.

Get on Firmer Ground

Once a continuing problem is recognized, steps should be taken as soon as possible to curb the downward spiral and stabilize the business. It may be important to update bankers and suppliers regarding the situation and let them know that efforts are being made to turn it around. Open communication can help show that management is serious about reviving the business and can make it easier to enlist help from these groups later on.

Analyze Operations

Decisions can’t be made in the dark. Despite the daily pressures that may only intensify during hard times, it’s important to keep financial records and disseminate key information to management for analysis. Expenses should be looked at in detail to determine which can be reduced or eliminated to improve cash flow.

Declining sales can reflect a slow economy, but a downward trend also may indicate that the business is losing market share. This is not the time to let customer service and quality standards falter. Nor is it a time to ignore the competition. A business that is repeatedly losing sales to competitors has to ask whether it is still in touch with — or has lost sight of — the market’s demands.

Take Action

Once all the groundwork has been laid, it’s time to put the plan into action and start making the necessary changes. This is the point when the owner’s leadership skills are put to the test. It is the time when he or she has to inspire and energize managers and employees to make a sustained, disciplined effort to revive the business and retain the support of suppliers, bankers, and customers.

Matthew J. Rice CPA provides a variety of accounting, tax, and financial services to Charlotte business owners. Call Matt Rice at 704-609-1119 and ask for a free initial consultation today to find our how we can work together for your success.