How to Set Financial Benchmarks to Achieve Long Term Success

milestone2You need a starting point to establish business benchmarks. What better place to begin than with your own financial results. If you have been in business for at least a year then you can use annual data and look for specific areas to improve. Likewise, you can benefit from this practice in a brand new business, too. Here’s how.

The first step is to bring your books up to date.

Yes, I know, bookkeeping is not the most attractive task in business but it is something that we all have to do. If you are dead set against sitting down with the numbers consider subbing it out. Whatever you have to do this year to stay on top of the finances, do it. Believe me having this part of your business in order pays off when you know exactly how things are going. Also, when it comes to building your ideal business model with bench-marking, there is no room for guesstimates. Only actual will do. 

After completing the bookkeeping, the next phase is financial reports.

In this step, you prepare an accurate Balance Sheet, Profit and Loss Statement and a Statement of Cash Flows. These are the three basic reports that managers use in business. They are the score cards that provide information such as the amount of sales made, how much profit remains and what is the balance of cash in the bank. Other financial data that you may want to use for bench-marking comes from Accounts Receivable Aging, Accounts Payable Summary, and Debt Schedules.

Now you are ready for forecasts and benchmarks.

Using the historical information from financial reports is how to jump-start the process. The reports contain key numbers that you will use to calculate figures specific to your business. So rather than creating hypothetical measures, use actual financial results. Since business conditions rarely stay the same you should expect results change in future periods.

Your company is constantly changing so be prepared to forecast changes, too. One way to do this is by establishing a multiplier for each statistic you track. A multiplier provides the amount by which forecasts will increase. For example, if sales were at $100,000 at the end of the year and you expect them to grow to $150,000 over the next period, the multiplier will be 1.5 times the historical amount. Another point to keep in mind when forecasting is attrition so that you account for both the ups and downs in your business.

Overall, having the right data from the start is key to establishing benchmarks. When you couple financial information with thorough research in competitive performance, you have the makings for solid milestones in your business plan.

Do you use benchmarks in your business? Tell us how in the comments below. Want to learn what’s working for other entrepreneurs who are raising their financial IQ? Join our Facebook community.

To your success :^)

 

7 Ways to Lead Your Business and Ensure It Succeeds

succeedIf there was ever a time to pay close attention to leaders that are blazing the business trail, it is now. Entrepreneurs who desire to create viable companies will find it easier to learn from the experience of others. Let’s take a look at seven traits of today’s top entrepreneurs inside this article.

  • Enterprising Outlook. High achieving business leaders constantly seek ways to multiply their money. They are in the field making things happen and are not afraid to share their skills with the world. In order to grow they allow themselves to be stretched to do things that are out of the ordinary. Boldness and perseverance are stamps upon their character.
  • Willing to Get Help. An important principle that they embrace early on is partnerships. Successful entrepreneurs learn to build trust and collaborate with others to achieve bigger results in less time. Once the right team is in place, they go the extra mile to foster solid relationships, supporting partner’s success along the way..
  • Delegates to the Pros. Entrepreneurs who run viable companies have the right team members in place. True leaders realize the extent of their capacity and readily release the things that do not desire to do.
  • Always Learning. They are consistently learning, changing, and growing with their company. These individuals want to know “how to” elevate their business. They know that the business world is a constantly changing environment and those that do not change with it will not survive.
  • Self-Motivated. As business leaders look within themselves and connect with their own mission and purpose. This is what causes them to excel at what they do each day. True entrepreneurs will go to their grave having said, “I gave it my all and my all was good enough.”
  • Uses Common Sense. It is often said that entrepreneurs are born, not made. You can see this in the lives of many who may have dropped out of school or never completed a college degree. What makes them successful is their application of practical business principles and life lessons that they combine and turn into financial gain.
  • Never Allow Failures to Determine Success. Instead of quitting when the going gets rough, they are able to take a step back and a break, if necessary, but they do not stay down for long. Any time that you see them reeling from having missed the mark is a period of refocusing and getting their mojo back. You can bet that they are creating a plan of action so don’t let their temporary delay fool you. Be on the lookout because nothing aside from leaving this earth will cause them to lose their way.

 

Which of these qualities do you most relate? Were there any lessons that learned that can make your company more viable? How will you put them in action today?

To get more practical tips on becoming better in business, join our learning community of entrepreneurs on Facebook.

Training Nonprofit Board Members to Read and Understand Financial Reports

Sharon-Mikrut_285571One of the items board members are responsible for is to monitor the financial situation of the organization. As such, board members should be familiar with the types of financial reports the organization uses to demonstrate its financial standing. This article identifies the types of financial reports most commonly used by nonprofits, and stresses the importance of training board members to read and understand financial reports.

Some common financial reports include:

1. Profit and loss statement – this financial statement includes all of your revenue and expenses for a specific time period. The revenue section is generally first with the expense section following. You then subtract your total expenses from your total income and this yields a net profit or loss. Generally, losses are highlighted with a minus sign (-) before the actual figure. The purpose of this report is to reflect the organization’s financial status during the indicated time period. Board members usually review a profit and loss statement on annual basis, often at their annual meeting.

2. Balance sheet – this sheet itemizes the organization’s assets and liabilities and provides a snapshot of the organization’s financial condition at a specific point in time, not time period. Board members should review the organization’s balance sheet at least once a year.

3. Cash flow statement – this statement reflects the flow of cash and cash equivalents coming in and going out of the organization. These statements are useful in determining the short-term viability of an organization, specifically its ability to pay its bills. Examining the organization’s cash flow is important at any time, but conducting a cash flow analysis for startup organizations or those that have experienced recent financial hardships is always a good idea.

4. Monthly financial report – this report indicates the organization’s monthly income (what it brought in) versus expenditures (what it spent), in relation to its projections. For example, if an organization budgets $3000 a year for office supplies, and it has already spent the entire budget halfway through the year, the board should question why this happened (e.g., weren’t sufficient funds initially allocated for this line item, wasn’t the organization monitoring expenditures in relation to this line item, did the organization incur an unexpected expenditure, etc.). If the board meets monthly, they should review the previous month’s financial report. If the board meets every other month or on a quarterly basis, they should review any financial reports since their last meeting.

Regardless of which financial reports your organization uses, board members should be trained to know how to read and understand them. Some board members may have prior knowledge of financial reports but most do not know how to read or interpret financial information. Training in this area should be a part of new board member orientation and incorporated into ongoing training. Training could be conducted by an experienced executive director or board member, or you could ask your bookkeeper or accountant to provide training to potential and current board members. Whichever method you use, make sure that your board members are equipped with the knowledge to read, understand, and monitor financial reports.

With today’s technology, you can Google terms such as profit and loss statements, balance sheets, cash flow statements, etc. and uncover a wealth of information that can help you and your board members to become proficient in reading and understanding financial reports. There are also a number of nonprofit associations (e.g., National Council of Nonprofits, Alliance of Arizona Nonprofits) that provide information and articles (and forms, in some cases) designed to help nonprofits develop and monitor financial reports.

Copyright 2010 © Sharon L. Mikrut, All rights reserved.

If you want to make positive changes in your personal and/or professional life, and create the life you desire and deserve, then working with Executive & Life Coach, Sharon L. Mikrut, is the solution. Although her specialty is in partnering with nonprofit executive directors and managers to maximize their resources in a competitive environment, she is passionate about working with all individuals committed to personal and/or professional growth. Visit her website at [http://www.createitcoaching.org] or Nonprofit Professionals blog at [http://www.createitcoaching.com] and sign up for her free monthly messages, which are designed to help you run your organization in a more effective and efficient manner.

How to Overcome Resistance to Virtual Accounting

ImageFear of the unknown is one of the biggest challenges that people have . A common source of anxiety for entrepreneurs is sending data-sensitive financial files online. This is especially true when the exchange could increase the risk of your information ending up in the wrong hands. Below are tips to introduce you to file sharing tools, help reduce risks, and increase your comfort in collaborating with your accountant online.

  1. Ask if your accountant uses a secure file exchange portal. A growing number of virtual accountants are adding this benefit for their clients. The objective is to store files online over secure internet channels. Instead of sending files by email, files are uploaded to a secure site that requires a username and password and is only accessible by you and your accountant.
  2. Create a password for documents and files that you share. If you will be sending files by email, consider password protection. Programs such as QuickBooks, for example, can be setup to require a password when you log-in. This increases security in the event that someone intercepts the your attachments.
  3. Sign up for your own secure file exchange service. Companies such as YouSendIt and LeapFile  provides the flexibility of being able to send large files and files of various types. These features are important especially when you need to send copies  of software files to your accountant.
  4. Consider remote access to your computer.  Desktop sharing is quickly becoming a favorite among people who work from home and those with a small office space. If you want a simple means of collaborating and output in real time, this may be a good solution.  Another perk of site-to-site sharing is you never have to share office space, only computers.
  5. Save to portable media such as a flash drive or CD-Rom. The drawback to using this method is it takes more time to get your file to your accountant. This could be a problem if you need updates for time sensitive projects. If you’re in no hurry then these are both safe and reliable options.
  6. With all the hype about online collaboration, onsite accounting is an alternative that many people overlook.  This remains one of the best options if none of the other choices appeal to you.  The biggest drawback you may face is finding someone local to add to your team. If your office space and equipment are limited, this may pose a challenge but you can resolve this by having a set time and a dedicated work station for your accountant to be onsite.

How To Pick the Perfect Accounting Tools For Your Small Business

accountingsoftwareThe ever changing landscape of accounting technology runs the gamut. With the number of players in the market increasing by the day, the choices that small business owners can select from more than abound. Now, more than ever, entrepreneurs have a greater selection of accounting tools from which they can choose.  Having a number of  criteria in the purchase process makes the task less daunting. Here are several that can give you a jump start for technology that will make the cut.

  • Simplicity. Let’s face it. No matter how fancy dancy the accounting system is, if it complicates the workflow, no one will ever use it. The  objective of the technology should be to streamline the accounting process not to become burdensome and overloading your current capacity. With every new experience comes a learning curve. One way to shorten it and make things less complicated is by having staff trained in the use of the technology. This way questions are answered and policies for use can be established so that the transition is smooth sailing right from the start.
  • Efficiency. Speaking of smooth sailing… every small business that integrates technology should have a goal prior to purchase of improving the company’s accounting workflow. Technology can help to this end by automating many of the routine bookkeeping tasks that staff handles on a periodic basis. Key activities such as invoicing recurring clients and paying recurring bills are great examples of how accounting technology can help you save both time and money in the accounting process.
  • Productivity. Ever wondered if there was a way to get more done with less effort? The right technology integration in your business will help you do just that. Some programs are better at moving you toward greater levels of output than others. That is because there are resources that boast more advanced features like automated billing, online banking, automated data backup, and the like. So your selection should ultimately depend on the productivity categories your company identifies. There are accounting technology tools on the market that will allow you to start small and then add-on as the need arises. This is especially good to know when you are looking to expand but need to stay within a certain budget to meet the company’s cash flow needs.
  • Profitability. The name of the game in business is profit. I don’t know anyone in business today that invests their hard earned cash to simply break-even, or worse to purposely generate a net loss. With that said, keep in mind that one of the primary reasons to add accounting technology is so that you can increase your company’s profits. One way to do this is by ensuring that the cost of technology is less than what it will help you bring in. This may be seen in how your employees use the program and the type of information it provides. There is a saying in the accounting world, “Garbage in is garbage out.” In other words, make sure that what goes into the system is accurate, reliable, and timely enough to help managers (including you) make the best decisions possible from accounting data.

As you can see some accounting technology will have more bells and whistles than others. It goes without saying that buyer should beware before making the leap into the accounting tech and software world. What criteria do you use when select the right accounting technology for your small business? Leave your comments below. I’d love to hear from you!

Think About Business Taxes Before It’s Tax Time

taxentrepreneurStaying up on tax laws is key to paying the least tax possible when you’re self-employed. Even if you hire someone to complete your return, use these tax strategies to reduce what you owe.

Pay Less Tax By Legally Reducing Taxable Income

Many self-employed persons are surprised to find that they can reduce their taxes by lowering the income they will be taxed on. You can do this by following a tax reduction plan the entire year. One strategy that entrepreneurs often miss is saving for retirement. When you contribute to a retirement account like a Self Employed Pension Plan, for example, you not only pay less tax, but build tax free savings.

Estimate Taxes Ahead of The Deadline

When you work as an independent contractor instead of an employee there is no tax withheld. That does not mean that you are not required to send in what you owe. A top concern for many entrepreneurs is how much taxes they will have to pay. You can figure this out by keeping a good record of sales and then computing your gross income. A handy tool that can help with this is an income tax calculator. When you have the estimated amount, be sure to send them in. Paying on time helps you save money by not having to pay late filing fees.

File the Right Forms

When you file a business tax return you will need to complete the forms. The one that you do will depend on your company’s legal structure. For example, if you are setup as a sole proprietor then you will need to file a Schedule C to report business income. Other forms, including Partnerships, “S” Corporations and “C” Corporations have their own forms, as well.

Being self-employed has many benefits including earning as much as you’d like. What matters overall is not how much sales you bring in but how much you get to keep.

Do you use tax reduction strategies to maximize your profits? Share your time proven tips in the comments below.

25 Financial Management Tips for Entrepreneurs

checksuccessEntrepreneurs are experts in their field but when they first start out many do not expect to be responsible for so many financial decisions. The following list will help you consider what practices you may be overlooking and need to put in place.

  1. Setup procedures to get bookkeeping down to a science.
  2. Use projections to forecast cash flows.
  3. Build relationships with bankers.
  4. Get information on financing.
  5. Build a team of experts.
  6. Surround yourself with people who are smarter than you.
  7. Delegate to people who enjoy doing the tasks you hate.
  8. Get to know the main aspects of money management.
  9. Stay in the know about changes in your market conditions.
  10. Know what goes into a budget.
  11. Watch your costs closely.
  12. Aim to fund the business with adequate cash flow.
  13. Keep your financial ratios in line.
  14. Take a conservative approach to projecting sales.
  15. Remember that revenues and expenses rarely move at the same rate.
  16. Use marketing ratios to expand on what works.
  17. Find out what goes into a request for proposal.
  18. Build a credit profile for your company.
  19. Invest in assets to strategically add value to your business.
  20. Always put the company’s cash to work for you.
  21. Look for investment opportunities to multiply profits.
  22. Be careful when choosing debt over equity to cover the cost of growth.
  23. Make income producing activities a priority in your day.
  24. Understand what you are responsible for in accounting, tax and business law.
  25.  Learn to appreciate the value of numbers.

The use of knowledge is power. As you go forward, which of the tips can you implement now that will be most helpful to your business?