Risk Factors of Success

We often discuss risk factors for determining the possibility of a negative outcome. Here are my risk factors for a positive one - SUCCESS!

• Honesty with self and others.
• Forgiveness of self and others.
• Dogged determination.
• Hard work.
• Smart Work.  
• Confidence tempered with humility.
• A win-win attitude at all times.

Prescription: Apply a generous dose of faith daily and avoid distractions from your chosen path no matter what.

I hope that you find this blog entry encouraging.  Check back here periodically for more information that is meant to motivate and education you. In the meantime, be well and prosper!

Angeline Smith

What is Accounting and Why Should I Care?

Business owners and nonprofit managers might ask themselves the above question, but many are not comfortable asking anyone else. The idea of admitting that they are not clear or even interested in this practice is not something that most people who are responsible for running a business or organization want to admit. Many people in these roles would much prefer to focus on advancing the mission of their organizations (if non-profit) or selling their products and / or services (if for profit).   However, "deep down" they know the lack of knowledge in this area can be a major speed bump as they attempt operate effectively and to progress.

It is true that one does not have to earn a degree in accounting to be successful. However, having a basic knowledge of accounting will assist you in engaging an accounting professional who will guide you in the successful operation of your business or organization.

It is my intent, through this blog post,  to pique your interest enough to take the first steps in engaging an accounting professional to determine what is needed to make informed financial decisions and establish a basic scope of accounting services to help meet these needs.
Following are a few basic definitions related to the practice of accounting.

Accounting is...

Accounting is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a company's assets, liabilities and equity.

Accounting provides information on:

• The resources available to a company,
• The means employed to finance those resources, and
• The results achieved through their use.

Types of Accounting

Accrual Basis Accounting - Used for retail and most other businesses (except very small businesses)

System of accounting based on 'accrual principal' under which revenue is recognized (recorded) when earned, and expenses are recognized when incurred. Totals of revenues and expenses are shown in the financial statements (prepared at the end of an accounting period), whether or not cash was received or paid out in that period. Accruals basis accounting conforms to the provisions of GAAP (see definition below) in preparing financial statements for external users, and is employed by all companies except the very small ones (which use cash basis accounting).

Cash Basis Accounting - Used for small businesses and nonprofits who primarily engage in cash transactions

Accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. Cash basis accounting does not conform with the provisions of GAAP and is not considered a good management tool because it leaves a time gap between recording the cause of an action (sale or purchase) and its result (payment or receipt of money). It is, however, simpler than the accrual basis accounting and quite suitable for very small businesses (including nonprofits) which transact business mainly in cash. NOTE: While it does not conform to GAAP, it is still acceptable for many given their operational goals.

Cost Accounting - Used for manufacturing businesses

A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance. 

What is GAAP - Generally Accepted Accounting Principles?

Authoritative rules, practices, and conventions meant to provide both broad guidelines and detailed procedures for preparing financial statements and handling specific accounting situations. They provide objective standards for judging and comparing financial data and its presentation, and limit the directors' freedom in showing an unrealistic picture through creative accounting. An auditor must certify that the provisions of GAAP have been followed in reporting an organization's financial data in order it to be accepted by investors, lenders, donors and tax authorities.

How we can help

While you are very passionate about your product or service or your organization's charitable mission, you might not feel so warm and fuzzy about accounting. However, you know how important it is to be able to make sound financial decisions. If this concept intimidates you, we can help.
We can make this process less "formal" and "sterile" by gaining a keen understanding of your goals, recognizing that while the "business" side is important, your "passion" for what you do is equally important. When we meet for an initial consultation, we'll focus on the following eight (8) objectives with regard to your financial information:

1.      Identifying,
2.      Recording,
3.      Measuring,
4.      Classifying,
5.      Verifying,
6.      Summarizing,
7.      Interpreting, and
8.      Communicating

We will assess how each of these objectives will be met, specifically with your business or organization in mind, and work with you to establish a process that makes sense to you and that is affordable to you.

Contact me for a free one (1) hour accounting consultation.  

I certainly hope that you have found this blog entry useful as you go about the business of running your business. 

Please check in on my blog periodically for helpful business related tidbits and other insightful information.  In the meantime, be well and prosper!

Angeline

Why Failing to Plan Means Planning to Fail

As a small business owner, you likely only have a finite amount of resources that you can use to serve your customers. For example, if you run a small cupcake bakery (Petite Sweets) that offers catering services it is important to have enough cash on hand to purchase the raw materials needed to fill a catering order. But how do you know how much cash you need if that order has not yet come in? This is like planning a shopping list for a dinner party without knowing how many guests will show up or what foods to prepare!  Alas, this is a dilemma that many small business owners face.

I don't know what I don't know!

Unfortunately after uttering the above phrase, many business owners still dive in with both feet determined to bring their products and / or services to market. They believe that hard work and passion for what they do will be enough to survive and even thrive.
While survival is not entirely out of the question here, the business owner is lacking critical components of a successful business strategy - sales projections and cash flow forecasting.  Establishing an effective methodology for projecting your sales will provide a logical basis for how to use limited resources such as cash. Taking a stab in the dark and stocking your shelves hoping that "demand will meet supply" is quite a gamble. While there will always be a blind spot in terms of how your business will actually perform within any given period, there are efforts that you can undertake that will help you make informed decisions as to how you can allocate your precious resources more effectively.

How Can I Predict How Many "Cupcakes" I Will Sell In a Given Month?

If the owner of Petite Sweets asked this question, I would make an inherent assumption that she has a "reactive" perspective with regard to how she runs her business. If she has unlimited resources and she has the ability to supply the demand for her cupcakes at any volume, great!  However, this is not the case for many of us.  So given this scenario (limited resources), my response to this question would be with a question - actually two questions:

1. How many cupcakes CAN you sell this month given your resources, which include: Cash, Time, Space and Labor?
2. How many cupcakes MUST you sell given your income needs / goals?

Instead of scrambling to serve "whatever" demand might be "out there", it is important to establish a basis from which to plan.  Answers to the above two questions will allow the business owner to establish boundaries and limitations within which they can operate and still be successful.  In this case, the words boundaries and limitations are good and give you a context within which to operate. Isn't it comforting to know that you don't have to "chase" a phantom target, but that you can set goals that are realistic based on your situation, needs and abilities?

Wait! So You're Telling Me That I Shouldn't Try to Sell As Many Cupcakes as I Can?

Ah, but to the contrary, I am telling you that you need to know how many cupcakes YOU CAN (and MUST) sell before you start mixing that batter!  This involves planning in the area of marketing, which is another component of a comprehensive business plan and include the following steps:

Identify your target market(s). For example:

1. Children between the ages of 5 - 12.
2. Brides-to-be and or Wedding Planners.
3. Local restaurants.
4. Local business establishments.

Consider what might appeal to each of these market groups. For example:

1. Children might be drawn to the latest cartoon characters captured on cupcakes.
2. Brides might consider serving cupcakes to their guests instead of the traditional wedding cake.
3. Local restaurants might be interested in outsourcing their desert preparation.
4. Local business establishments might consider offering cupcakes to employees in their brake rooms or to customers who visit them frequently.  

Establish concise marketing strategies based on information gathered about what might appeal to each group. For example:

1. Appeal to local businesses and groups that already serve and or engage with children such as brownie troops, schools, child care centers, gaming locations, etc. Attempt to engage in a partnership with these businesses whereby they are incentivized to allow you access to their customers for advertising and sales purposes.
2. Participate in bridal tradeshows as a vendor.
3. Connect with restaurants as part of the local chamber of commerce to arrange a sales meeting where the cupcakes can be sampled.
4. As in #3 above, connect with local businesses and schedule sales calls with the intent of allowing employees to sample the products in order to create demand.

If I Have to Do All of That, When Will I Make the Cupcakes?!?

This is a reasonable question for a small business owner to ask.  Especially us "solopreneurs". The fact is, we have to strike a balance between working IN the business and ON the business.  Being out of balance in either of these areas can prove disastrous.  We can spend too much time on efforts to create demand and then not be able to provide the requisite products or services based on that demand. Or we can work hard to supply or serve our existing customers, and not allow time to promote additional demand that is necessary for long term sustainability.
So my response to the above listed question is - it depends. The amount of time we should allocate to the various areas of our business is based on many factors such as our ability to outsource some of the marketing strategy work in order to focus on "cupcake production", the number of sales we need to make to in order to earn our desired profit, the price we set for our products (or services), whether we provide our products or services on credit (meaning we don't get the cash right away), the time it takes to supply the predicted monthly demand that will be generated by our marketing efforts, etc. etc.

The Bottom Line

To ensure that your efforts to provide a product or service to customers will yield the results necessary to sustain your business, it is critical to consider EACH effort within the context of a comprehensive business plan.  Here are some of the questions you can answer after going completing the business planning process:

• Who are my customers?
• Who is my competition?
• How can I appeal to each customer group?
• What sets me aside from my competition?
• In what areas of business operations am I weak?
• In what areas of business operations am I strong?
• How much cash do I need each month to operate my business?
• How much should I charge for my products or services?
• Should I hire employees or use independent contractors?
• What standards and best practices are established for my business?

Whether you are a start-up, or a growing business it is important to have a plan in place to help you assess how you will react to factors directly impacting your operations over which you have no control.

A Business Plan is a Static Document, But Business Planning is a Dynamic Process

It is a critical starting point, but it is just not enough to develop a comprehensive business plan and go about your business. You must also develop a strategic perspective with regard to your business and engage in business planning on a smaller targeted scale on a periodic (monthly or quarterly) basis.
You can do this by implementing a continuous improvement process whereby you:

1. Assess the results of a recent period,
2. Compare the results to planned outcomes,
3. Identify opportunities for improvement (where actual results did not match planned outcomes),
4. Implement strategies to take advantage of opportunities for improvement,
5. Repeat 1 through 4 above.

Working with a small business consultant on a periodic basis to guide you through this process and to serve as an objective voice to avoid emotional business decision making is suggested but not required. This is one of the services that I provide to small business owners (including solopreneurs and nonprofits).

Those who engage in the continuous business planning  process report feeling more empowered and more in control of their business operations and future success.

I certainly hope that you have found this blog entry useful as you go about the business of running your business.  If you are interested in learning how I can help you  in your efforts to sustain and / or grow your business, contact me for a free one (1) hour consultation. 

Please check in on my blog periodically for helpful business related tidbits and other insightful information.  In the meantime, be well and prosper!

Angeline