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 :^)

 

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.

Have You Ever Began a Resolution Long After New Years Day?

winnersYou may have had your share of great starts and fizzled finishes as life got in the way but there is inspiration all around you. Whenever I fall short of a goal I remember that, “Winners never quit and quitters never win” because it puts situations into the right perspective. Here’s how it helps in managing your business.

Lazy hands bring poverty, but hard-working hands bring wealth.

Let’s say that you are behind in your bookkeeping and the year is almost over. Weekly calendar reminders and accounting updates flow through your Facebook stream but slothfulness holds you back. You are not alone. I polled a group of entrepreneurs who had reworked their schedules to include dedicated bookkeeping days. The results showed that even after eliminating the “I don’t have time for bookkeeping” factor, they still failed to get it done. Be sure to follow a routine so that you spot key insights and potential opportunities that only up-to-date accounting can brings.

Tide and time wait for no man.

When you do not control time it will control you. Each of us has different levels of discipline when managing business finance. Success starts by taking the first step. If you are resolving to getting the records in order, try this at your next bookkeeping session:

  • Remove distractions that compete for your attention.
  • Turn off social media, email, and take only emergency calls.
  • Come prepared with everything you need including client invoices, vendor bills, check registers, and bank statements. This will help you minimize workflow interruptions.
  • Finally, commit to a set time — maybe fifteen minutes or so and build up from there.

If you don’t get it all done in one sitting, no worries.  Just keep plugging away item by item and the next thing you know you will be all caught up. Remember, even as obstacles to staying on top of finances arise, there are far more reasons to keep trying than there are to throw in the towel.

Smile at your future!

Get Your Business Ready for the Bank

loanreadyA newly renovated building close to Darla’s home was the dream that reignited her spirit.  She was excited to have found a space with a surge in small business growth. Darla lived only a few minutes away and each day she’d pass by and read the sign on the window: “For Sale – Immediate Occupancy.” She imagined opening day walking through the intricately designed hardwood doors and welcoming her small business neighbors. From that point on she began to affirm, “This is the perfect location for me to transition from a home-based business.” In fact, it was the same vision she had written in her business plan over ten years ago.

Location. Location. And Finance?

Where have you dreamed of taking your business? Has it involved expansion? For many work-at-home entrepreneurs the thought may appear far off. When you have a good business model that your customers value, expansion creeps up on you faster than you know. When opportunity knocks (and it will appear) you should be ready to answer. Part of readiness is having the right amount of cash to move forward.

In Darla’s case, instincts told her that the business was spending more than it collects in sales. This was apparent because she was using credit cards to pay the bills and taking money out of personal savings. As good as the new sales potential may be, she could not afford the additional costs without outside funding.

Like so many others who work-at-home today you may find yourself in the cash needs dilemma and look for help from a bank. Before make sure that you have these items covered:

  • Balance Sheet listing the Assets (what you own), Liabilities (what you owe), and Equity (what you have invested in the company so far)
  • Income Statement showing your total sales, expenses, and net profit or loss
  • Cash Flow Projection – shows a 3-5 year forecast of sources of cash coming in and going out over a period of time

It makes no difference if you plan to fund a building, new equipment or a marketing campaign, it all boils down to this. When you sit down with a request for a loan, have financials that back your vision. At the end of the day, what matters most is being able to convince your lender.

Three Reasons to Keep Up-to-Date Financial Reports

decisionsYou want the time that you put into your business to be fruitful, right? Did you know that your financial reports holds the answer? You could be missing out on a healthier business if you do not have the right data and here are some reasons why:

So that you can stop guessing and start knowing. As a business owner there is no room to operate by the seat of your pants if you want your business to last. That is exactly what happens when concrete numbers do not exit. Fortunately, you can ensure success by keeping reliable and timely reports.

So that you’re already ready already. In other words positioning your company to respond fast makes you ready when opportunity comes. Knowing your financial  standing shows you when and how much cash reserves and future profits you can reasonably invest. Be sure that you are running a profitable venture, not an expensive hobby that’s producing a loss.

So that you’ll get the real story. Numbers on the financials are not exactly what they appear when they stand alone. When you drill down on each line item you get to see what happened during the period and why the numbers go up or down. Ask questions that give shed light on your customers buying habits and how the economy is causing sales and expenses to change. The goal is to understand what happened from one period to the next and how to keep your business moving ahead.

By having financials when you need them you are better informed and make smart decisions that’s not only make dollars–but also make sense.

Tip of the Day

To get bookkeeping done on time, create a simple checklist that includes routine record-keeping tasks.  Mark them off as you do them and be sure to add financial reports as the final items the list.

Are You a New Do-It-Yourself CFO?

image

How comfortable are you with doing your own accounting? If the thought of having your tooth pulled sounds more exiting than balancing your accounts, read on. There are seven great resources that will help you become fearless as a your own home-based business CFO:

Subscribe to a newsletter or magazine. Newsletters are short and concise which is perfect for the busy entrepreneur. This allows you to digest snippets of relevant financial information in bite-sized chunks. You can start by signing up for a general accounting newsletter or one of the blogs at Inc and Entrepreneur

Attend a financial workshop. Non-profit organizations such as the Small Business Association (SBA) host free and low cost training. The workshops are designed to help the novice grow. You can learn more about these sessions by visiting the SBA website.

Get a book from the library. Another way to get money smart in business is by reading. There are many books by experts on the topic of small business accounting and finance. Take some time out to peruse library shelves. One book to keep handy is “Keeping the Books” by Linda Pinson. This is a great resource if you have very little experience in bookkeeping or records management.

Watch videos on YouTube. If you are not a reader or if imagery is more your speed, try the freebies on YouTube. There are countless tutorials by experts in the accounting field that you learn from online. It is also a great way to get added instruction to clarify the not-so-simple accounting topics that you read.

Listen to podcasts online. Similar to YouTube, you can also enhance learning by listening to internet podcasts. With this option, you have the ability to download sessions to listen to later on. These are especially good for when you want to maximize time exercising or driving in a car.

Take classes at a local college. Many universities and colleges now offer lifelong learning courses for people in business. These will take a bit more of your time and commitment but the one-on-one access to an instructor is often what you need to really understand how to manage money in business.

Invite an expert to train you in-house. Ask a business colleague if they work with an accountant who makes house calls. Some will come to your place of business or, with the use of technology, can train and answer your questions by internet or phone. On-site training is a convenient way to get up to speed on bookkeeping methods and technology. It is perfect for teams of employees and when you work alone.

Learning how to manage daily finances is key to building confidence as a do-it-yourself CFO. If you who have been in this role for awhile, I’d love to hear how you sharpen your skills in small business finance.