Working When Overwhelmed
There will frequently be times in your business when you feel overwhelmed. There will be days or weeks when setbacks pile upon themselves, when everything that can go wrong will go wrong, and all at once. And you'll fall behind.
The danger in being overwhelmed is that it can lead to two disastrous pathways: one in which you're paralyzed into inaction by the seemingly insurmountable mountain of tasks before you, or one where you fall prey to the temptation of "multitasking" and fall to pieces trying to do too much at once.
Fortunately, procrastination and busyness are really two sides of the same evil coin. Today we're going to discuss how to catch up on what you need to do, even when the sky is falling.
Let's examine the Who, When, Where, and How of working when overwhelmed.
Who
This seems obvious enough. You, right? Well, if you have employees, there might be some tasks you can delegate. The trick is to assign appropriate tasks in a manner which does not eat up your time or create more work for you. If an employee is already capable and available to take something off your to-do list, that's great. If you are going to have to expend time and energy in explaining the assignment, it is better, while you are behind, to go ahead and do the task quickly yourself. Training can come later when more time is available.
Also, asking an employee to assume additional or different duties is not a time for the two of you to hold a vent session on how busy and behind you are. It's nice to have someone in the business with whom to commiserate, but that will have to come after you're finally caught up.
When
Now! If you are behind on work, start with the first thing on your to-do list and get to it. Don't go make coffee, don't check Facebook "real quick", and don't cultivate your Pandora station. Give yourself little breaks to do those things as rewards for tasks completed. But if you're waiting until everything is "just perfect" to start, you'll never get ahead of the work.
Where
As mentioned before, don't spend too much time getting your environment ideal before you address your to-do list. However, it is imperative that your area be relatively distraction-free. Put your phone on silent; close your office door if you have one. Even if you're in a co-working space, you can put in headphones, or something else that sends the message that you're not available for small talk. Do not have social media tabs open in your browser.
How
Start with taking a quick inventory of everything you need to get done. (No, don't make a complicated, color-coded Excel spreadsheet of your task list. That's just procrastinating with the illusion of working.) Personally, I love the Wunderlist app for keeping to-do lists, as it allows you to make categories and re-order your lists. See what assignments you need to complete first, and what can be put off. (Maybe have a to-do list for today, this week, etc.)
Block off time on your calendar for these tasks. Not only does it help you get in the mindset of, "I am scheduled to work on this, now", it sends a clear message to anyone you work with that you are busy. It particularly helps if you have the sort of business that includes frequent meetings, as it serves as a visual reminder to leave some time for solo work.
Get the first item on your list done as quickly as you can, with no breaks unless absolutely necessary. Check it off your list. Once you have made that first bit of progress, you'll be amazed at how much it motivates you to knock out the next item. Getting a few things out of the way can help you build momentum and feel accomplished. After that, you can battle that "overwhelmed" feeling and start to see that, though you are very busy right now, there is a light at the end of the tunnel and, when you get this backload of work completed, things will calm down for a while.
If work has piled up on you and you're feeling like you'll never be out from under it, try these steps. And stay tuned for our upcoming article on how to get organized and avoid becoming overwhelmed in the first place.
Bald for a Cause
Many of you have met Craig. If you had to point him out across a crowded room, he might be "the guy in the suit with the shaved head". And if you know Courtney, she might be "the tall girl with glasses". Depending on the month of the year, it might be "the short-haired girl with glasses" because, as you may know, Courtney regularly grows out her hair to donate to children with hair loss.
It's about to get a lot easier to recognize Courtney. Soon she'll be "the bald girl". On April 9th, Courtney is getting her head shaved as a St. Baldrick's participant. She is doing this to raise money for childhood cancer research. You can learn more about the specific needs in treating childhood cancer here, and about the work St. Baldrick's does here.
The event is April 9th at Raleigh Beer Garden, and we would love to see many of you there! If you're local, please consider turning out for the event, or even registering to have your head shaved, as well! If you aren't ready to go bald, please consider donating to St. Baldrick's to help fund research. (There is no set minimum. All donations are welcome.) And now, if you run into Courtney in mid-April, you'll know why she looks so different. (Hint: she got a haircut.)
Year in Review: Our clients' big wins in 2015
People tend to think of bookkeeping as a necessary evil. Your business has to have it, so just find someone who will do a decent job and whom you don't have to pay too much.
We beg to disagree.
We like to use our service to do more than just keep our clients' books clean. We like to go beyond balancing books to growing businesses. In that regard, 2015 was a very good year for us.
Today we want to showcase three clients who had big "wins" in the last 12 months.
C
lient #1: A Money-Saving Solution
One of our client's businesses was facing some difficulties staying profitable. Looking at the books, we found some areas where expenses were duplicated and some cases of fairly extreme overspending. We met with the owner and devised a plan to cut expenses. Once the plan went into effect, we were able to increase the bottom line by over $30,000 a month.
Of course...big deal, right? Everyone knows accountants are penny-pinching killjoys. Let's look at our second story, and see how we can help a client without forcing them to spend less.
Client #2: A Long-Denied Loan
A different client desperately desired a consolidation loan. He had gone to three different lenders, and been denied each time. He was getting nowhere in a hurry.
So, we took over.
First, we received authority to act on his behalf. Then we got to work, combing through his financials and organizing the data for presentation. Finally, we were able to present the information to the bank in the way we knew they wanted it. This time it was approved, and we were able to get our client a consolidation loan at one of the same institutions who had previously rejected him.
Thanks to those efforts, our client was able to consolidate his debt under one payment, and greatly improve his cash flow.
Still, that story isn't as great as...
Client #3: 
Money from Thin Air
Sometimes, something as simple as developing better procedures can make all the difference to a business. This was the case with a client who didn't have a good system in place for managing A/R.
Specifically, there was over $102,000 in receivables of which the owner was not even aware. (Some of the unpaid invoices were over two years old.)
When we discovered this large balance of aged receivables, we immediately began developing collections procedures, including a series of formalized letters to the debtors. Using the practices we put into place, over $30,000 has been collected within the last four months, with payments continuing to roll in.
To re-cap, that's money that the client did not even know existed.
These are just a few of our highlights from 2015. We can't wait to see what we do in 2016.
Ledger Nightmares: Entries only an accountant should make
One of my favorite holiday traditions is watching "The Nightmare Before Christmas". For those of you unfamiliar with the movie, here is the basic plot synopsis: The leader of Halloween Town takes an accidental visit to the land of Christmas and is so enchanted by all of it that he decides to give Santa the "year off" and take over in his place. The residents of Halloween Town are, needless to say, ill-suited for this task, and the results are hilarious and horrifying.
The problem is, they see just enough of Christmas to think they know how to emulate it, but they misunderstand the core concepts.
This is a frequent issue when non-accountants take on bookkeeping duties. Recording sales and expenses is one thing, but there are certain entries which really should be left to the professionals.
This week we're looking at the most frequently-confused accounting principles and discussing why it is better to not attempt these yourself.
Setting Up Chart of Accounts & Opening Balances
Though you would think bookkeeping would be simple with a clean slate, getting your company started can be one of the most complicated times, accounting-wise. (Okay, everything about starting a company is complicated.) There are legal and professional expenses, you must determine book value of any assets which you already have, and entering equity amounts can be difficult. (In particular, how you record money the owner contribues, whether as paid-in capital or a loan from the owner, can affect tax liability.)
When these issues are compounded by extra demands on the owner's time and focus (not to mention the learning curve associated with self-training on accounting software), you have a recipe for inaccuracies.
While you are setting up your business, get someone with experience to jump-start the accounting side of it.
Capital Expenditures
Expanding your business is an exciting time, particularly when you're investing in new locations. Whenever you are spending funds or assuming liability to obtain a physical asset which will be used for productive purposes for at least one year, that is a capital expenditure. Capital expenditures can be land, buildings, machinery, or even software upgrades (generally provided they meet a certain cost threshold).
For an amateur bookkeeper, capital expenditures might appear deceptively easy. Buying some land for a new plant site? Debit Land, credit Notes Payable, and expense whatever incidentals come up along the way, right?
Of course not! If it was that easy, everyone would do their own books.
If you record a capital expenditure like that, your book value will be off and when you calculate depreciation it will be inaccurate. (We'll get to depreciation and other contra-accounts later.)
Rather, when capital expenditures are recorded, you are also to include in the book value the net cost of getting the property ready for use. If the ground needed to be levelled, that cost would be included. Likewise, if there were salvageable materials present which were then sold, that gain would be used to reduce the book value. Certain legal and professional fees surrounding the sale may be included as well. It's all very interesting (but also very complicated for a layperson).
Referring to our example, what about that Note Payable? Assuming it's accruing interest, at year-end you'll need to make...
Adjusting Entries
Month-end and year-end adjusting entries are both necessary and a pain in the neck. There are several types of adjusting entries, such as adjustments for goods or services clients prepaid you for (Unearned Revenue), expensing those things for which you prepaid, recording accrued interest, etc.
One of the biggest dangers at year-end is recording adjustments to inventory. Even with consistent inventory tracking throughout the year, there are generally still adjustments to be made at year-end. Mistakes in inventory recording can result in over or understated COGS (Cost of Goods Sold) and inaccurate tax liability calculations. For reasons such as this, it's usually a good idea to have an accountant look at your year-end statements before preparing taxes. (Remember that many CPAs will simply prepare your taxes based on the statements you give them. For that reason, be sure you are hiring someone who will actually look for issues in the accounts themselves.)
Even if it's not a special occassion, such as making a major purchase or at year-end, there are still transactions that require bookkeeping assistance. Notably, any of those involving...
Contra Accounts
A contra account is one which is intended to have an opposite normal balance for that account classification. For instance, a sales discount is a contra revenue account, so it has a normal debit balance (whereas most revenue accounts have a normal credit balance).
Contra account entries have the potential to be very tricky, and the greatest offender for this is depreciation. Recording depreciation is essential for accurately estimating the current value of assets, but calculating it is a complicated process. First, life expectancy of the asset and salvage value must be computed. After that, straight-line depreciation is the simplest, but nowhere near as accurate as usage-based or the double-declining balance method. Finally, when the asset is finally sold or scrapped, the gain or loss must be calculated and recorded based on the present value. Of course, any errors can then negatively affect tax liability.
Long story short, any time you feel like you're getting in over your head, ask a professional. Trying to D-I-Y complicated accounting entries can turn your General Ledger into a horror story.
Living a Lie: The mistakes that make entrepreneurs go broke
"You have to spend money to make money."
"Maintain the image of success."
"Fake it 'til you make it."
There is an ideal of the successful entrepreneur as a jet-setting globetrotter, someone living high on their quickly-amassed profits earned through their brilliant business insight. We want the overnight success and rock star-status of Richard Branson. (Comparatively, Larry Ellison, who has over eight times the net worth of Branson, took a less meteoric path to wealth, and is relatively unheard of.)
The unfortunate side effect of our idolization of instant-millionaire entrepreneurs is that many have come to associate that glamorized lifestyle with proof of product value. In other words, "If I look and act successful, people will assume I know what I'm doing and hire me for my services!"
Here are the four most common ways entrepreneurs blow money on an image.
"I've gotta get my name out there."
Advertising is great. Advertising is essential. By all means, advertise! However...
Don't blow your budget on advertising. While seeing your company on a billboard or hearing your name on the radio is a great feeling, don't throw your money away on that illusion of the "big-time" without knowing for sure that you are going to get a good return on your investment. This is a mistake we have seen time and time again.
I once personally witnessed a (now closed) local small business flush away thousands of dollars on a radio ad which they were convinced would result in a flood of customers to their large weekend sale. They scheduled additional staff, opened early, and...no one showed. The ad was ineffective. In their frustration and desire to not have their money wasted, they played the ad on loop inside the store (i.e., the place where customers weren't), succeeding only in driving their employees crazy.
For the majority of small businesses, big-budget ad campaigns are not worth it in the early days. A local tv spot might make you feel like a celebrity (for better or for worse, given the quality of most local tv ads), but it cannot match the per-dollar effectiveness of a decent website, solid social media engagement, and positive word-of-mouth.
"I have to have a nice place to meet clients/customers."
The information age has transformed the world, and the way we do business in it. Meeting clients over coffee or lunch is a perfectly valid option, as is selling products online without a physical storefront. However, many entrepreneurs still seem to feel as if their business is less legitimate without a physical location.
Rent on offices and storefronts is a significant monthly expense, and that does not include furnishings, utilities, etc. Having a separate workplace to travel to on a daily basis has mental benefits in improving productivity, but it is not a cost to be considered lightly, nor is it a business essential nowadays. A gorgeous office with a big mahogany desk is a nice long-term goal, but it is not worth putting your company in the red.
"Yeah, I think I've got a place in the business for you."
We have written before on the dangers of expanding too early. However, this becomes doubly dangerous when owners begin creating positions for the sake of hiring friends and family. Middle management, and other positions which are not directly involved in revenue generation, are rarely necessary in a young company. It is good to be surrounded by people you like and trust, but, until your business has enough sustained profitability, employing people for positions you really can't support is like inviting people onto a raft with a hole in it. Everyone just starts sinking more quickly.
"The company's buying dinner tonight."
This is the big one and, really, the issue from which all the others stem. It appears that, since the invention of commerce, owners have fallen prey to the temptation to treat the company as a personal piggy bank, not realizing that they are essentially robbing themselves. Personal expenses being run through the company tanks profits, and can become risky from a tax perspective. (Inaccurately deducting too many things as "business expenses" sends up a red flag to the IRS.)
In some cases, a failed understanding of accounting reports results in owners bankrupting their own companies. For example, Owner's Draw does not show up on a Profit & Loss report. So, when an owner views the Profit & Loss report, they might see that the company is very profitable, and think everything is fine. Meanwhile, their overspending is bleeding the business's Retained Earnings dry. When an unexpected setback occurs, they suddenly realize they're out of money and the company goes belly up.
So what should you do?
Though stories of those who got rich quick are fun, it has to be accepted that, for the majority of us, success will be a longer journey. Just as we individuals must live within our means, so much our businesses function within their budgets. Slow and steady wins the race, a penny saved is a penny earned, etc.
"He worked hard and was patient, and eventually earned wealth and a comfortable lifestyle," might not be the most exciting story, but it beats that tired tale of the guy who tried to have it all right away and lost everything.
FLSA Compliance: Three Distinctions to Understand in Classifying Workers
The Fair Labor Standards Act has been in the news a great deal, lately. Multiple class-action lawsuits have been filed on behalf of unemployees who believe they have not been fairly compensated.
Many of these lawsuits have ended in either large settlements, or employers paying hefty fines and back wages.
To ensure that your business is in compliance with FLSA guidelines, understand the following three distinctions in classifying those who work for your business.
Who is a contractor and who is an employee?
Some employers have tried to lower their wages and tax liabilities by hiring independent contractors in place of employees. This is an option so long as you follow the criteria for contractors.
Per the IRS's "common law rules", there are three categories assessed when judging whether a worker counts as an independent contractor.
Behavioral Control. For an independent contractor, the business does not direct or control how their work is completed.
Financial Control. If the business controls financial or business aspects of the worker's job (such as purchasing equipment, advertising the worker's services, etc.), the worker is an employee.
Type of Relationship. Whether a worker is an independent contractor or an employee is determined by such aspects as the duration/permanency of the relationship, contracts describing the relationship, benefits provided to the worker, and whether the work performed is "a key aspect of the regular business of the company".
In addition to the IRS classifications, the U.S. Department of Labor provides their own "six-factor realities test" to determine whether a worker might be considered an independent contractor.
1. Is the work an integral part of the employer's business? This is similar to the language in the IRS rules regarding type of relationship.
2. Does the worker's managerial skills affect their opportunity for profit or loss? In other words, is the worker managing the business of the services they provide (for better or for worse) or is the employer directing that?
3. Compare the worker's relative investment to the employer's relative investment. If the business is providing the supplies, equipment, training, etc., the worker is likely an employee.
4. Does the work require specialized skills and initiative? Independent contractors are frequently professionals with specific skills over or in addition to those of the company's regular employees.
5. Is the relationship permanent or indefinite? Though they may work for the company for a very long period, contractors typically operate on a project-based or monthly contract.
6. What is the nature and degree of employer control? This correlates with the "behavioral control" aspect of the IRS common law rules.
Incorrectly classifying employees as contractors shifts tax burden to the workers, a misattribution which might later be remedied in court.
Of course, even if you only hire employees and no independent contractors, you still need to know...
Which employees qualify for exempt status?
"Exempt" employees are, essentially, those to whom you do not have to pay overtime. (Specifically, they are legally classified as being excluded from the FLSA overtime rules.) Non-exempt employees must be paid overtime in any period in which it is earned. As might be surmised from the topic of this article, knowing the distinction is important.
Certain professions are essentially exempt by definition. These are typically the classic "learned professions", such as doctors, lawyers, teachers, clergy, etc. However, they can also include high-level administrative positions. This does not mean that you can sit a secretary at the front desk for 60 hours a week and not pay him or her overtime wages. To be considered high-level, administrative employees must be intensely involved in the running of the business, or in assisting executives to do so. Think of a character like Pepper Potts from "Iron Man", who helps keep Stark Industries running by managing every aspect of Tony Starks's life. She would qualify for exempt status. (If you're not a fan of superhero movies, think of Emily Blunt's character in "The Devil Wears Prada".)
Excluding those jobs which are already considered exempt, there are three "tests" a position must pass to be considered exempt from overtime.
1. The salary level test. An employee must be compensated gross wages of $455 weekly ($23,600 annually) to be exempt.
2. The salary basis test. For any week in which any amount of work is performed, the employee is guaranteed a minimum amount. (Typically, the weekly figure is calculated by dividing a contractually-guaranteed annual salary.)
3. The duties test. This is actually three tests in one, and is designed to protect employees from being labelled "managers" in order to deprive them of overtime wages. For someone to be accurately considered an exempt supervisor:
a.) He or she must supervise two or more other employees.
b.) Management must be their primary duty.
c.) He or she must have genuine input into the job status (hiring, firing, promoting, etc.) of other employees.
To give an example, a store cannot put someone in a "keyholder" position (where they might just be the "Manager on Duty" available to customers, but with no genuine managerial authority over other employees, and the majority of their duties not specific to managers) and then work them over 40 hours a week without overtime.
What if the worker in question is not a contractor nor an employee? What if it's just a young person hanging around to learn the ropes?
For our third and final category, we are discussing...
When should interns be paid?
There have been several high-profile lawsuits recently regarding wage theft of unpaid interns. Young people hoping to get a "foot in the door" in their industry of choice were instead worked ragged with no compensation.
Fortunately, the U.S. Department of Labor has provided a clear six-part set of standards to determine whether an unpaid internship is valid under the Fair Labor Standards Act.
1. The internship must provide similar vocational training to an educational environment. The internship should resemble an educational training program more than it does a job.
2. The intern should be the primary beneficiary in the relationship. In other words, the intern should receive more education and experience from the employer than the employer receives work out of the intern.
3. If the intern is performing work for which the employer would have otherwise hired additional staff or required staff to work additional hours, the internship should be paid. Again, the employer can't use an unpaid internship to get work performed without compensation.
4. There should be no immediate benefit to the employer and the internship should be to the intern's interest. The employer might even be temporarily inconvenienced by the internship. However, under the ideals of an unpaid internship, it is presumed that the employer might recover long-term benefit from later hiring the intern as a well-trained employee, already familiar with company culture and procedures.
5. An unpaid internship can come with no job guarantee. This prevents employers from stringing along an intern for free work with the lure of future employment.
6. Both parties understand that no wages will be paid. An intern must be made aware from the beginning (before their first day at the internship) that this is not a paid position.
5 Things Business Owners Don't Realize They Need
We've all heard, "You don't know what you don't know." This is particularly true in business, where it can be easy to develop tunnel vision and focus on your own expertise at the expense of the company.
Accepting the premise that you don't know what you don't know, we can extrapolate that you can't get what you don't realize you need. Everyone knows they need sales avenues, customers, etc. But there are other business essentials which, though not as well-known, are utterly necessary. Here are five things businesses need (which you might not have thought of yet).
1. General Liability Insurance
It's no wonder that no one likes to think about getting insurance for their business. Buying personal insurance, for your house, car, or health is enough of a hassle. Getting quotes and comparing premiums and benefits for your business? That's just piling on.
However, general liability insurance for your business is an absolute essential. You can hope to never need it (I'm sure you're never planning to get sued) but, in the eventuality that you do, you will be grateful for it. Depending on the nature of your business, Commercial Property Insurance might be a recommendation, as well.
2. Workers' Compensation Coverage
Even more insurance! Laws vary by state but, in North Carolina, you are required to carry Workers' Comp if you have three or more employees, or if you have at least one employee and your business works with radiation. (If your business works with radiation, you'll definitely want those general liability and commercial property insurance policies, as well.)
Many employers try to avoid purchasing workers' compensation policies, but it is not a wise choice. Not carrying coverage opens you up to charges of fraud, huge fines and, in some cases, even jail time.
Now let's move away from insurance and segue into something else that can protect you from being sued by employees or the government...
3. A Good Payroll Provider
Unless your business is large enough for an in-house full-scale accounting department (in which case, we're flattered you're reading our blog), you need to be outsourcing your payroll. Running payroll manually is intensely time-consuming, and very risky. If you do not have a payroll expert on your staff, you are taking a big gamble with your tax withholdings and filings. According to the IRS, 40% or small businesses pay an average of $845 per year for late or incorrect filings or payments. (That's over a third of small businesses.)
Furthermore, outsourced payroll services have become ridiculously inexpensive and painless. We at The Bookkeeper are huge fans of Gusto Payroll, and frequently recommend them to clients. Their customer service is excellent, the interface is user-friendly (even for avowed Luddites), and packages start at less than $40 a month. And Gusto is one of many simple, affordable payroll solutions.
Please, do not take on the headache and risk of penalities associated with payroll, without researching your provider options first.
And while we're on the subject of taxes...
4. Sales & Use Tax
Who has to file sales and use tax? According to the North Carolina Department of Revenue, "Every person engaged in the business of selling tangible personal property at retail, selling certain digital property at retail, renting or leasing taxable tangible personal property in this State, operating a laundry, dry cleaning plant or similar business, or operating a hotel, motel or similar business in this State must register with the Department and obtain a Certificate of Registration. This includes a person who sells tangible personal property and certain digital property, or provides a taxable service at a specialty market, flea market, fair, festival, sporting event, or another event or function."
Needless to say, there are many, many people who should be paying sales tax who aren't. So if you are selling a tangible good, even if it's just from a booth at the fairgrounds on Saturdays, you should be filing sales and use tax. And if you do not know to do so, contact someone who does. If you are caught not paying sales tax, you may be assessed penaltyand interest. The risk is simply not worth it.
Now that we've bummed everyone else by talking about insurance and taxes for four entries, let's move on to what's surely going to be the most controversial item on this list...
5. A Website
In 2016, in order to maintain credibility, your business needs a website. (No, a Facebook page doesn't count, though it's better than no web presence at all.) A website (preferably with a unique, personally-owned URL, and not through a "freebie" site-building service) shows your customers and potential customers that you a legitimate, solid company. Your website is the first place people will go to look for information about your business. Not having any sort of web presence at all can read as very suspicious.
Furthermore, you are doing yourself a huge marketing disservice by not having a website. Web marketing provides the absolute most "bang for your buck" out of any form of advertising. Even if you have a successful business without a website, you could be reaching so many more potential customers and be more available to current customers.
Are there any other little-known business essentials you would add to this list? Let us know, and we'll amend accordingly.
Stop Eating Frogs
Mark Twain famously said, “Eat a live frog first thing in the morning and nothing worse will happen to you the rest of the day.” In recent years this has become a particularly popular sentiment amongst entrepreneurs, used as a reminder to not procrastinate in completing disliked chores. Small business owners typically have to manage so many different aspects of their company, it's inevitable that there will be some tasks they dread.
For many, their "frog" is accounting.
But, here's the secret...for some people, frog is a delicacy.
We may be in the minority, but, at The Bookkeeper, accounting and finance aren't just something that pays the bills. We actually find a lot of it fun.
Here are a few of our services which, though business owners typically find distasteful, we really enjoy.
Developing Business ProceduresYou know the only thing more fun than reading a collections procedure manual? Writing a collections procedure manual. It combines several of the things we love, like research, technical writing, and custom-tailoring business practices to an individual company. What's not to love?
Of course, we've heard some people refer to research as "boring" or technical writing as "tedious". But we feel the same way about SEO optimization and, apparently, some people enjoy that.
Budgeting
Budgeting seems to have a negative connotation for a lot of people. A budget is seen as something constraining. But we think budgeting is awesome. You get to look at all your revenues and expenses, and figure out where you can save or earn more money. Who doesn't like having more money? A budget lets you make plans and take steps to achieve your goals. Not knowing your budget is like driving blindfolded. Maybe exciting for some, but too risky for us.
Debt Repayment Plans
A lot of people who are in a great deal of debt don't like to think about how much debt they're in. Of course, ignoring a problem doesn't make it go away.
For business owners overwhelmed by debt, figuring out a way to repay it all is too big a frog to eat. Much easier to just make the minimum payments and try not to think too hard about those rising balances. Fortunately, we love writing debt repayment plans.
Like so many problem, debt seems a lot bigger when you're in the middle of it. That's why we enjoy taking an objective, mathematical look at the problem, and coming up with a tangible, step-by-step solution to eliminating it. And it is so exciting to show someone how they can, often without even spending additional money, be debt-free and have savings built up in, frequently, as little as five years.
Profitability Analysis & Pricing Strategies
Some people may be put off from some aspects of accounting because of the math involved, particularly when it comes to things like calculating gross profit margins. We at The Bookkeeper are huge fans of math, perhaps because of its consistency and objectivity or, perhaps, as the great philosopher Cady Heron stated, "Because it's the same in every country." (Yes, both Mark Twain and "Mean Girls" quotes in one article. Small business accounting can be very culturally relevant.)
Math is especially useful when it comes to looking at which products or services provide higher revenues or greater returns, and where prices can be raised to improve profitability. Using a little bit of math and research to make more money, without having to sell more or perform more work? That's fun.
These are just a few of the services we provide for our clients, not just because our clients find them difficult or loathe doing them, but because we actually do find them interesting. Where the client sees a live frog, we see a perfectly seared filet mignon.
If there's some chore in your business which you simply despise completing on a daily basis, whether it's finance-related or something else, consider whether it's worth it to you to pay someone else to eat that frog.
You're in business for yourself, so why do something you hate?
Constructive Criticism: How to tell when the "haters" have a point.
To start, let's consider "American Idol". (And while we're considering, please also think of a time when you made a terrible decision.) The show "American Idol" has identified and produced many highly-talented musical acts. However, it is almost more popular for its rejects, for those people who were so delusional about their abilities that they gain a short-term measure of infamy for their embarrassing auditions.
There is a running script shared amongst these rejected contestants where they disagree vehemently with the judges and reject their critiques, assuring the camera that they will achieve their dreams regardless of what any critics (frequently mislabelled as "haters" in these diatribes) say.
It is easy for us to find amusement at the expense of these failed performers. However, how many of us have made equally bad decisions which, mercificully, were not recorded for the benefit of a nationwide audience? Thinking back to a terrible decision you have made in your own life, were there people in your life who, at the time, advised you against that decision? Did you listen, or were you dismissive of them as critics?
I'm asking about these things because, lately, I've seen some terrible business advice being shared across social media. Particularly "inspirational" quotes such as
"Don't let the voice of critics paralyze you. Believe in yourself. You can do anything you set your mind to!"
On the surface, that sounds like great advice. "Nothing ventured, nothing gained," and all that.
However, the problem comes when entrepreneurs cannot accept any criticism, and instead write off unpleasant truths as the sour grapes of "haters".
So, how can you gauge when criticism is constructive and when it is truly just jaded attempts at crushing your dreams? Ask yourself these questions...
Does this person love me? Or, do they at least like you or care about you? There is the possibility that a loved one will be more cautious than optimistic, as they don't want to see you suffer a setback. Someone who is just a casual friend or acquaintance might be more encouraging, as its more important to them that you like them.
Alternatively, what is the likelihood that this person despises you to the extent that they would actively attempt to prevent your success? If the person disparaging your plans is an actual avowed enemy, feel free to ignore their criticism (and, perhaps, avoid interacting with them socially at all).
Think back to those hopeless "American Idol" contestants. The judges don't critique them because they hate them, and many of the contestants families offer them excessive encouragement out of blind (or, in this case, deaf) love. The judges are able to be objective because of their personal indifference to the individual.
Does this person stand to gain or lose from my failure or success? If you are discussing a new business venture with someone who would be a direct competitor, they probably are not rooting for your success.
However, if they are a spouse or someone with whom you are financially entwined, it's possible that their criticism is coming from a place of caution. While they might share in your success, they also stand to lose along with you in the event of failure.
Also beware of "friends" who are willing to build you up but not invest in you. There are people who will encourage you into risky ventures in the hopes that you will remember them in your success, but who will abandon you should you fail. While someone is patting you on the back, make sure they aren't also trying to hitch onto your coattails.
Am I paying this person and, if so, what am I paying them for? Obviously, as people in the business of providing financial guidance, we believe in the value of business coaching and related fields.
However, we do not see the value in "yes men".
There seem to be two types of people you can hire to help you with your business: The first type is how we at The Bookkeeper fancy ourselves. We want to help you succeed, but we don't think you're paying us just to give you "'Atta boys!" We want to help you set and achieve realistic goals and, if that means saying something you're not happy with, well, that's part of the service we're being paid for.
The second type of business professional (one that seems to be becoming more popular lately) is the professional encourager. They provide endless affirmation and assurance that, "If you can dream it, you can do it!"
They are paid cheerleaders.
And, as long as you know what you're getting into and that's what you want, that's fine. By all means, pay someone to tell you what a great job you're doing; it's your money.
But be aware that all of those good vibes do not guarantee your success. There have been countless business ventures that have failed despite entrepreneurs really believing in them.
Therefore, we hold to a less popular old saying: "When two people in business always agree, one of them is superfluous."
Disagreement can be healthy. We live in an imperfect world where not every idea is a good one and not every venture will succeed. Recognizing that can help you to recognize who is acting as a critic out of "hate", and who is doing it out of love.
Managing Accounts Receivable: Because sales are meaningless when clients don't pay you.
In order to stay competitive, many business owners find it necessary to extend credit to customers. However, if you offer later payment options, it is crucial that you have a well-developed and communicated accounts receivable system.
Here we have listed a few elements of a successful A/R management plan, and how to implement them in your business.
Communication. It's said to be the key to a good relationship, and that can apply to business relationships as well as personal ones. Communicating well is key to managing receivables accounts. Let's look at the who, what, when, and how, of A/R communications.
Who? This seems obvious, enough...the customer, right? But, in reality, it's not just the customer with whom you are communicating. Assuming you're not a 1-person operation, you need to be in good communication with your employees or co-workers regarding what promises and agreements have been made with the customer. If you contact a customer on Tuesday afternoon regarding a past due invoice, and they just told your partner that morning that the check is in the mail, your entire company looks disorganized and unprofessional.
What? When alerting a customer to a past due payment, simply informing them of the amount owed is not the best option. Providing a detailed statement, possibly with an itemized duplicate of the referenced invoice, is far more helpful. Important information to include is the amount owed, days past due, what services were rendered, options for remitting payment, and contact information for questions regarding the account.
When? Generally, you would expect to increase contact as balances get further past due. A gentle reminder the day after the due date if payment has not yet been received is appropriate, with missives gradually becoming more frequent and insistent as the invoice gets to 15 days past due, 30 days past due, etc. (However, it would be best to avoid multiple communications a day, as that could constitute harassment.)
How? "The medium is the message". For an account that is just barely overdue, a mailed or emailed statement (as described above) might be enough of a reminder. If more time passes without payment or a response from the customer, a more direct phone call is in order. This leads us to our next element of a successful accounts receivable management system...
Delegation. To maintain a good working relationship with the customer, it is ideal if you can separate the less pleasant side of that relationship, collections, from the more positive side, which is the work and value you provide to the client.
Delineating separate avenues of communication between the service and payment sides of your business can help you achieve your A/R management goals without damaging the rapport you have built with your client. Large companies have entire Accounts Receivable departments, but small businesses rarely have that option.
However, if you have more than one employee, someone other than the client's primary contact could act as the accounts receivable delegate. If you're the sole employee, you can even do something as simple as set up a separate email. (For instance, if your email is "[email protected]", you could set up an email called "[email protected]".)
The key is to avoid marring interactions with the customer which could lead to continued or future work by derailing the conversation into payment discussion.
Documentation. Good documentation can prevent so many problems in every area of business, but especially in accounts receivable. Before a single customer is invoiced, your A/R plan should be formulated and written down so everyone in your business knows exactly what the payment terms are, who is responsible for contacting customers, what to do in case of a dispute, etc.
Payment terms should be made clear to the customer before services are rendered, and should then be reiterated on the invoice. If a balance does become overdue, remind customers of the payment terms, and document every communication with the customer regarding the overdue balance. Reference previous conversations about the account in new discussions about them. Established fact is far more effective in encouraging remittance than strong emotions or harsh words.
What should you do with a customer who isn't paying?
If the customer hasn't gone ghost on you (in other words, if they are still maintaining some form of contact with you), and would like to continue purchasing goods or services from you, do not cut them off. Cutting them off completely is a great way to ensure that they will do no further business from you, and will not pay you the money already owed.
However, do not provide any further service on credit. Request pre-payment for any further work you perform, then apply that payment to their outstanding balance. This allows you to maintain a working relationship with the customer and recoup the money you are owed.