Building Your Business

Starting a small (or large) business can be a daunting and intimidating thought. As an accountant, management consultant and writer, it's my job to break the tasks of setting up and managing a business into easy-to-follow steps to help business owners spend more time focusing on their passions.

In these pages, I know that you will find something to implement today to make your business stronger and more profitable, whether you are just starting out or are an experienced entrepreneur.

Every small business has lots of small expenses for which writing a check would be impractical: Running to the store for coffee cream, for example, or getting stamps at the post office. Enter petty cash.

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If you are like many small businessowners, when you get a copy of your financial statements at the end of the year from your accountant, you flip through them, nod as if you know what they're trying to tell you, and file them away in a drawer, never to see the light of day again.

Knowing how to read your financial statements, however, can help you to understand what happened last year in your business and what's likely to happen this year. Let's have a look at the three major documents in a typical financial statement package.

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Textbooks abound on the subject of costs in a small business. Most will make your eyes glaze over with boredom. However, a little knowledge of your costs and cost drivers will help you understand your business better and plan for the future.

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Ratio analysis scares many small business owners, but it can be one of the most powerful tools to ensure that your business is on track to its goals. It can also act as an early warning system to let you know that there's cash flow trouble on the horizon.

Ratios are simply the relationship between two or more numbers. We will be looking at three standard ratios in this article: accounts receivable turnover, accounts payable turnover, and inventory turnover. These three ratios help you determine the health of your working capital (the funds you have available to pay for day-to-day operating expenses).

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In the startup years of a small business, the owner is generally concerned with some of the more urgent issues, such as whether he or she can make payroll next week, whether that new customer is going to place an order soon, and whether an employee needs to be formally disciplined.

But there's another critical aspect of your business- you. As owner and manager of your business, your time and investment are valuable and worthy of compensation, even in the startup years.

You wear many hats in your business but the two main ones are that of manager and investor. We'll look at each of these roles separately.

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What is the purpose of your business? What do you need to do absolutely correctly in order for you business to succeed? What are the activities that you absolutely cannot screw up without losing significant amounts of business?

These questions are answered by examining your Critical Success Factors or CSF's. Critical Success Factors are defined as those activities that a business undertakes that allow it to succeed.

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Debt. It's the word many small business owners hate to hear. It's a reality for most businesses, however, to incur debt to finance operations, at least in the start up years. Although many small businesses are denied credit in the first few years, others have bankers and credit card companies begging for their business, especially those companies whose owners have substantial personal assets to attach.

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Great! You've made the decision to purchase a personal financial software package to track your finances. But, before you go to your local office supply store to buy one, there are some decisions that you need to make regarding what you want the program to do for you. The more planning you do up front, the more money and aggravation you will save yourself. Know the answers to the following questions:

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It may seem very strange to you to be thinking about leaving your business when you put so much effort into starting it up and growing it. But there will come a time when you will want to move on, and the earlier you plan for that eventuality, the better off you will be. Even if you plan on working until you drop, you will indeed drop someday and you need to have planned out what happens to the business then.

Many exit strategies require months or years to implement, so it makes sense of map out the strategy that's best for you as early as possible.

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Business valuation is not an exact science and depends substantially on the type of business and assets you have. There are many expert business valuators who can help you nail down a value when you're ready to pass over the reigns. However, having at least a sense of the value that you are building in your business is important.

You know that your business is worth at least the fair market value of the assets minus the payout value of the liabilities. If you have been working to systematize and grow your business, it will be worth substantially more. Undervaluing your business can have serious consequences on your retirement lifestyle, so it pays to do your homework and get professional help.

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Most businesses can be separated into two broad categories: those that sell a product and those that sell a service. Service businesses have some unique challenges in tracking the work flow and the clients themselves.

If your business sells a product, tracking your customers and sales is easy- the product has a defined price and your cost to sell the product is also defined, and includes things like your cost of purchasing the product (if you are a retailer or wholesaler) or your cost to build the product (if you're a manufacturer).

If you're selling a service, however, it becomes more difficult and more critical to track all of your inputs into providing that service to your clients.

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In addition to having a strong tracking system for the work that comes in and goes out, it's important to track statistics on your clients, such as the number of clients, the frequency of their visits, the average billing per client, and the quality of the clients. Tracking this information will help you to grow your business profitably and to serve as an "early warning system" if you're headed for the rocks.

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I awoke this morning fueled by a solid three hours of sleep, not in my own cozy bed to the usual comforting aroma of coffee, but on a cement-hard dorm bed listening to the sounds of dozens of 10-year-old feet running up and down the hallway on the other side of my door.

Although it may not sound like fun to many of you, I am honored to be here. I am one of the parent chaperones for my son's Grade 5 field trip to the JUMP program at Wilfrid Laurier University. JUMP is a 3-day educational program for grades 5-8 students held during May and June of every year. Students are taught university courses at the junior level and live in residence for the duration. There are more than 40 schools and 1,600 students from across Ontario who experience the program every year.

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Have you ever dealt with a business owner who seems to speak a different language? Or one that appears disinterested or distracted? Have you continued to work with these businesses, or did you end up giving that business to another company?

The way you communicate with your customers and potential customers can have a huge impact on your customer retention and growth. Customers want to feel comfortable when meeting with you and they need to be able to understand what you're telling them without having to resort to looking words up in a specialized dictionary.

Here are some tips to improve your customer communications:

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It will happen eventually. As your business grows, you will at some point outgrow your current accounting system, whether you started out with a manual ledger, an Excel or Lotus spreadsheet, or simply a shoebox (or refrigerator box, depending on the number of receipts your business accumulates).

The need for a new accounting system may manifest itself in many different forms. You may find that payroll is becoming more onerous to calculate and track as you hire more employees. If you run a manufacturing or resale business, you may keep running out of stock on high-turnover items because you are out before you know it. If you run a service business, you may start losing track of how much time should be billed to each customer. Regardless of the various symptoms, the problem remains the same: your bookkeeping system is taking more of your time than it's worth.

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It's the beginning of another new month, and it's Groundhog Day. If the groundhog pops his furry little head out of his hole and sees his shadow, there will be six more weeks of winter. If it's overcast and he doesn't see his shadow, spring is around the corner.

How many of you small business owners out there feel like that groundhog? You think that the success or failure of your business is dependent upon environmental factors completely out of your control.

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Understanding the flows and ebbs of cash in your business is critical to scouting for warning signs of impending cash crunches. Bookkeeping software like QuickBooks can tell you that you will be getting money in the door, but without knowing when, you're going to be left not knowing if you can pay the bills.

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For most small business owners, it is difficult to keep up with the broader economic news while still trying to run a company. But as the headlines start discussing the possibility of recession more and more, it's important for entrepreneurs to pay attention to the writing on the wall and start protecting profits.

So what can you do to make sure that your business is "economy-proof"? Here are ten practical ways to strengthen your business:

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As a small business owner, you have lots to do as you come closer to the end of the year. The last thing on your mind is most likely filing income taxes for your small business or corporation. Heck, they're not due for months yet. The sooner you put your mind to organizing your financial records for tax purposes, the smoother the process will be and, most likely, the more money you'll be able to keep in your pocket when it's all over.

Here are some things that you can begin to organize now to get a jump on the taxman:

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It's that time of the year again for most of us- the holiday season. Whether you celebrate Christmas, Hanukkah, Kwanzaa, or any of the other year end celebrations that happen at the end of this month, you will very likely be distracted from your business by many holiday activities such as gift shopping, attending lunches and parties, and mailing cards to distant friends and family.

Your employees will be similarly distracted. Recently, Workopolis (an online job search and recruitment website) posted a survey on its site that was responded to by over 14,000 employees.

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Some businesses call it the "war chest." Some, preferring a more gentle moniker, call it a "rainy day fund" or a "cushion." No matter what you call it, it's important and just good business sense for every small business to have some previous profits tucked away for those inevitable times when surprise losses or expenses rear their ugly head and threaten to strain your company's resources. Having business savings set aside has many benefits, including allowing you the freedom to take more calculated risks in your business and being able to take advantage of business opportunities as they arise.

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For those of you who are new to QuickBooks, and for those who have had some experience but would like to find quicker ways of doing repetitive tasks, here is my list of the 10 most useful QuickBooks short-cut keys.

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Here are some handy tips for those who are new to QuickBooks or who have experience but need ways to save time when processing daily transactions.

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Turbo Tax Deluxe is an easy-to-use but powerful tax preparation program that can be used online or purchased via compact disc or Internet download. Turbo Tax comes from Intuit Inc., the same company that produces QuickBooks for small business accounting and Quicken for individual bookkeeping. Turbo Tax Deluxe retails for $29.95 for state returns and an additional $29.95 for state returns.

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If you've ever tried to approach a traditional bank for start-up financing for your small business, you know what a difficult and mostly unsuccessful process it can be. Banks are in the business of risk management. They see start-up businesses as unproven commodities and, therefore, risky. Assuring a bank that its capital is safe and that your business will generate enough free cash flow to repay the loan with interest can be an overwhelming task. After all, would you lend you money?

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When looking at starting or growing your business, networking can provide lots of benefits, from camaraderie with other small business owners and entrepreneurs to providing a source of new customers and suppliers. There are many different types of networking opportunities from informal chats to highly structured groups, and everything in between. There are networking opportunities that will fit your style and business type.

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Starting a small business presents a multitude of challenges that can stretch your natural abilities past your comfort zone, but no challenge is greater for most entrepreneurs than being a boss. You may have originally decided to go into business for yourself so that you didn't have to work for "the man" any more. You wanted the freedom to develop your own style and make your own decisions. That's why finding yourself becoming "the man" can create so many challenges.

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Whether your business is just starting out or has been around for twenty years, one of the most important members of your external advisory team is your accountant, along with your business lawyer and financial planner. A good accountant can help you to avoid pitfalls along the road and can help you to make better decisions along the way. Choosing an accountant can be a daunting task. How do you know that your potential new accountant is qualified and experienced? What if you can't understand what they're saying as they converse with you in techno-speak? What happens if they steer you down the wrong path?

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QuickBooks Pro 2008 is the latest version of the Pro Series to be released. There are several new features in the 2008 version that make it well worth upgrading from prior QuickBooks versions.

One of the most useful upgrades is the ability to send emails from QuickBooks Pro directly through Microsoft Outlook.

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The holiday season is fast approaching once again and that generally means that businesses tuck into a comfy seasonal lull (unless, of course, you sell poinsettias). If you are lucky enough to be a business owner that can take a breather, why not spend some of that found time increasing your business knowledge? A recent study by Dunn and Bradstreet in the United States found that more than 85% of small business failures were a direct result of poor financial management. The good news is that financial management can be learned.

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Depending on where you live in North America, you are more likely to recycle at home than not. Each week, you take your sturdy blue recycling box to the curb filled with all types of plastics, metal cans, and cardboard. But how much thought have you put into recycling in your company's workplace? Every year, businesses are responsible for adding thousands of tonnes of paper, toner cartridges, and foam peanuts to our already overused landfills. Setting up a recycling policy and implementation plan doesn't take long and can provide your business with many benefits.

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As I was growing up, my grandparents were always a large presence in my life. They tried to share their life experiences with me in order to guide me to an easier existence than they had. They used typical "grandparent speak" in order to convey their lessons.

My grandmother was the budgeter, the bookkeeper, and the home economist of the family, so of course, her teachings revolved around the "a penny saved is a penny earned" philosophy. As I went through university and immersed myself in business, accounting, and economics courses, I realized that, after taxes, a penny saved is more than a penny earned. Sometimes, old-fashioned wisdom and common sense still applies.

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Like many of you, I can remember hot summer days at my grandparents' house, riding bikes in the driveway with my friends and swimming in the pool. I also remember my grandmother canning and stockpiling - "putting up" as she called it - for the long winter months ahead. Her pantry would always be full by the end of the summer with row upon row of canned goods and shiny jars of pickles and peaches and chili sauce. All these years later, my kitchen pantry is similarly stocked and, even though I can scoot out to the grocery store in February and run absolutely no risk of starving to death, I still feel safe having so much food on hand.

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On the hottest day of the summer, our air conditioning unit decided that it no longer wished to remain on this astral plane. Having it replaced immediately was the only option short of suffering through a sweltering weekend with nothing more than the cute paper fans my daughter so industriously crafted to help with our plight.

After perusing the Yellow Pages and phoning several contractors, I found a company that was well-established, had the units on hand and could come out later that afternoon. The price was what I had expected, but it was the final comment the contractor made on the telephone that surprised me. He explained that the price he quoted was for cash or check and that, if I wanted to pay by credit card, it would be an additional three percent to cover their merchant charges.

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