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Archive for Financial Management

Best Time to Make a Business Budget?

Posted by Linnea Blair on

11/08/2021

When is the best time to make a business budget?

I like to start planning in Q4 of my business year for the upcoming year. For most business who are on a calendar year, November is a great time. If your business operates on a fiscal year, then the month before the last month of your business year.

As a business coach, November is the month I coach my clients to start working on their Profit Plan for the coming year, which includes their Financial Plan, Hiring Plan and Marketing Plan. Its before the holiday rush and after the busiest season for many home improvement contractor businesses.

It’s a good idea to work through a vision and goal setting process first so you can be clear on where you want to go and how you want to grow in the next year.

I also suggest reviewing and reflecting on the current year that is nearly over to evaluate how your business performed in comparison to the goals you set a year ago.

Armed with that information, you can now embark on your planning and budgeting process for the coming year.

If you’ve missed doing your planning by the end of the year, the next best time is the very beginning of the year on which you are embarking. But, by doing your planning before the end of the current year, you can hit the ground running right after the new year with your plan in place.

For more information on budgeting and profit planning, download my Profit Planning Guide here.

Categories : Financial Management

Tags : Busget, Business Finance, Finance, Financial Management, Profit, Profit Plan

Budget your vacation?

Posted by Linnea Blair on

10/18/2021

I just got back from a 17 day vacation! Yes, seventeen whole days away from my business, on a road trip through five states. It was a fabulous experience! I loved visiting many National Parks and National Monuments and spending time with family. One of the extra good things about it though was that I had budgeted for it in advance. I made a big payment to my credit card when I got home and paid for the whole vacation.

I’m a huge advocate of an annual budgeting process for businesses. For many years, I’ve had a budget projecting income and expenses for my business. The business budget allows me to accurately project my personal income so I can make sure my personal budget works.

For a long time though, I’ve not been doing a great job at budgeting for vacations. I’d have a vague idea of an amount that I’d like to have for a vacation budget, but it’s been mostly aspirational. When it came down to it, I’d put most of my vacation on a credit card and then hope to pay it down soon. In my real world, that didn’t happen.

The last couple of years though have been different! I’ve learned to apply the “pay yourself first” model and used some ideas from the book Profit First by Mike Michalowicz. Not only do I put a percentage of gross income aside for taxes and charitable contributions, but I also put aside a percentage of each month’s income for vacation savings.

So, when I started planning my recent road trip, I budgeted an amount that made sense to me for lodging, food, gas, and entertainment. I also budgeted for several other shorter getaways that I had planned for this year. My vacation savings grow each month so by the time I was ready to start booking lodging, the funds were there waiting.

When I tallied up what I’d spent on the recent vacation, I was within $200 of my budgeted amount for this trip. Not a bad overage on a 17 day odyssey, especially when I consider that there were some Christmas gifts for family in the mix.

I had to share this with you in hopes that you will also find it helpful for your personal and business budgeting. It’s great it you can take two weeks away from your business, but if you can have it paid for in advance, that’s even better!
Here’s to your success!

Categories : Uncategorized

Tags : Budget, Business Planning, Finance, Financial Management, Profit

Know Your Numbers – What does it mean to you?

Posted by Linnea Blair on

10/28/2020

I often talk about the importance of “Knowing your Numbers”. But what does this really mean?

To start with, many business owners are not sure what their financial statements are telling them, or even how to make sense of those reports your bookkeeper sends you every month.

A lot of business owners feel a little embarrassed that they don’t know more about their financial results or how to tell if their business is profitable and solvent from looking at their Profit & Loss and Balance Sheet. I’m here to say, it is OK. You are on a path to learning. You don’t have to be an accountant to understand your numbers, but as a business owner, it serves you well to get some help to get clear on what you don’t know.

Here are some important things to think about:
You know what income and expense drive your business, right? I know you do because you’re a savvy entrepreneur.

You need enough sales to hit your revenue goals.
You need materials/resources and labor to produce or sell your service.
You need other expenses to keep the business running, like marketing, rent, utilities, auto, insurance etc.
You need to pay yourself a living wage, and you want to show a profit so you can reinvest in growth.
You need to have enough cashflow to pay the bills and cover debt payments.

Your financial statements need to help you make business decisions by showing you if you are on target with your planned income and expenses, and profit!

So how do you get there?
First you need a good layout and chart of accounts to be able to track the things that are important to track.

Second, you need to know that the information going into to the reports is accurate, so you need to have a detail oriented person recording your transactions in QuickBooks and that data needs to be reconciled with your bank statements and credit card statements every month.

Now, you have the foundation to move forward to not only analyze your results, but to do some real Profit Planning based on known data.

I offer Profit Planning classes and business consulting to help you move your business to the next level of growth and success. Feel free to contact me anytime.

To help get you started moving in the right direction, click here to download my free Best Business Practices Guide.

Categories : Financial Management

Tags : Business Finance, Finance, Financial Management, Financial Statements, Profit & Loss, Profit Plan, QuickBooks Tips

Paying yourself last is not a strategy for success

Posted by Linnea Blair on

01/16/2020

How Much to Pay Yourself and How

Paying yourself last is a strategy to get by, not a strategy for success.

Many small business owners end up paying themselves by what’s left over at the end of the month after other expenses are paid. That way, you often end up with a big swing in your monthly take home pay, with some months being very lean and some months being fat. This may work for a young single person with a more flexible lifestyle, but doesn’t work so well for the small business owner who has a family and a mortgage who needs more stability.
Besides, you started a business to make a good living, right?

Start with a plan
Everyone who knows me knows that I coach every business owner to create an annual profit plan or budget. Why is this so important? Creating a detailed annual plan that shows your projected income and expenses for each month helps you to see if what you are setting out to accomplish is reasonable to achieve, and if it will produce the results (profit and cash flow), that you need to compensate yourself appropriately, and invest in growing your company.

What’s an appropriate amount for owner compensation?
First, it starts with your needed and desired personal income. Do your personal financial planning and budgeting, so you’ll know what you need each month to provide for your personal lifestyle. Beyond your normal monthly needs, you may also have a desired income amount that you’d prefer to bring in from the business for investments, travel, etc. It’s important to know these numbers and to factor them into your budget/profit plan for the year.
Not every similarly sized business will have the same number. Your personal financial needs and desired income are your own. One business owner with a $600,000 business may be satisfied with $90,000 in compensation, while another needs $200,000. The business model and structure, not to mention future vision, may look very different for these two individuals.
Make a plan to pay yourself at least the necessary amount to meet your monthly personal income needs each month. Just like you pay your employees on a regular basis for their services to the company, you need to pay yourself. Then you can plan to pay yourself extra amounts in your most profitable months to make up the difference between your necessary income and your desired income.

Best Practices
I have a metric that I like to use called Net Operating Profit before Owner’s Compensation. I believe that 20-25% is a good result for most contracting businesses between $300,000 and $3,000,000 in revenue.
Out of this profit comes the owner’s compensation. In the middle of this revenue range, about 15% – 20% of revenue is reasonable for owner compensation. For example, at $1,000,000 in revenue, this would amount to $150,000 – $200,000 in owner’s compensation. A higher percentage is needed for the lowest revenue range to produce an adequate living compensation, and a lower percentage is needed for the higher end of the range since there is a larger need for bigger companies to invest in growth and infrastructure while still compensating the owner well for his or her investment in the business.

Methods for paying yourself
There are different requirements for how to take owner’s compensation from your business depending on what your legal entity is. It is a good idea to consult with your business attorney and tax advisor to understand the tax laws regarding how you take compensation, and to make the best decision for you.
Typically, if your company is an S-Corporation, you need to take a “reasonable” salary as a W-2 employee and then take the balance of your compensation in draws or distributions, while LLCs and Sole Proprietors usually take their entire compensation as a draw. There are tax ramifications for each, so be sure to consult with your CPA.

The real bottom line is that you started a business to create a better life for yourself, and usually that better life includes a comfortable level of compensation that enables you to live the lifestyle you desire and to provide for your retirement. Achieving this takes vision, planning and implementation of your strategy to grow a profitable and successful business, however you define success.

Categories : Financial Management

Tags : Business Finance, Entrepreneur, Financial Management, Owner Compensation, Small Business, Small Business Coaching, Small Business Consulting

Financing Options for your Business

Posted by Linnea Blair on

09/30/2019

With the seasonality of most home improvement contractor businesses it is not surprising that many business owners feel the pinch of slow cash flow and a smaller than comfortable amount of cash in the bank at some point or another. This is the time when you wish you had access to more working capital or credit. What are some of the ways that you can get access to funds when you need them? What considerations do you need to keep in mind when looking for funding?

One of the most common ways that businesses obtain funding is from the owner’s personal funds when this is a possibility. This is not necessarily a bad idea, but there are good and bad ways to go about it.

Business Credit vs Personal Credit
Many small businesses start out as a sole proprietor (Schedule C) business. It’s a better idea to create a formal business entity. Most contractors choose to set up their business as either an LLC or and S-Corporation. This does give the business owner a shield in terms of personal risk. This shield can be compromised by mixing personal and business finances, so it is prudent to keep separate bank accounts and credit card accounts for the business.

Rather than using personal credit for your business, consider lending money to your business if you need to personally add a cash infusion to the business. Treat this like any other short or long term loan on your balance sheet and make repayments. In some cases, you may need or want to charge interest to the business for the use of your money.

Credit from Banks
Credit from banks most commonly takes two forms: Business Credit Cards and Business Lines of Credit. When you are starting out or expanding, you may also qualify for an SBA (Small Business Administration) loan.

Apply for business credit before you need it. Most contractors have a busy season and a slow season. Your slow season is typically when you need to dip into your credit. I recommend building a relationship with a business banker who will be able to be a resource for you. Apply for a business line of credit when you are in your busier season and can show profitable results. Most bankers will want to look at your financial statements. So, it is good to have well organized financial statements and to be conversant with your financial results. If you have a budget and can show that you are meeting or exceeding your plan for this year and the prior year, that can be helpful. Banks like to lend to businesses that are making money and growing. In some cases, lenders do require a personal guarantee on credit cards or lines of credit for the business, so be aware of that.

Equipment Financing
If you need to purchase big ticket items like equipment, it’s wise to explore options for equipment loans versus using your business credit card or line of credit for this type of expense. Often you can get better terms for this type of financing and you don’t tie up your credit line or business credit card in the process. There are companies who specialize in this service.

Alternative Lenders
Sometimes if your bank can’t help you, there are other lenders who are willing to lend to businesses that have short term difficulties or have special circumstances that make traditional bank lending not an option. Your business banker, CPA, business coach or advisor may have referral contacts for alternative lenders.

Internet Business Loans
In the short term, some businesses can take advantage of quick loans or lines of credit from companies that advertise online such as Kabbage and other similar companies. You can apply online with a minimal amount of information. Keep in mind that you may be paying a higher rate of interest for the privilege of using this type of service, and the repayment schedule is usually limited to a very short term, so you’ll want to carefully evaluate if you can make the monthly payments.

To summarize, keep in mind three things: Educate yourself on your options, develop a relationship with a good business banker, and apply for credit before you need it.

Categories : Financial Management

Tags : Business Finance, Finance, Financial Management

3 Compelling Reasons to make a Budget for your Business

Posted by Linnea Blair on

11/25/2014

I talk to a lot of business owners every week. It surprises me that more businesses don’t have a budget or as I like to call it, a Profit Plan.

I just spoke with a business owner this week and I was pleasantly surprised to hear him tell me that he had his budget all worked out for 2015. Further into our conversation however, it transpired that will he had listed all his expenses for overhead costs, marketing, salaries and so forth well thought out, he had not included his Revenue projections!

Budget What is a budget? The simple definition is an estimate of income and expenditure for a set period of time. A budget or profit plan includes both projected revenue and projected expenses.

Why should business owners have a budget? Here are 3 compelling reasons:

Achieving your revenue goals
If you don’t know where you are going, you could end up anywhere. If you are shooting for a specific target, you are more likely to achieve it.

It’s not enough to say, I’m planning to double my business next year, or increase by 10% or to have a goal of $1 Million in annual revenue.

How is that Million going to happen? Chances are that every month will not have the same goal, so to just divide $1 Million by 12 does not necessarily make sense unless your monthly revenue is relatively steady month in month out and you are only projecting a small increase in 2015.

What happens if you have a seasonal business? There are bound to be slower months and busier months. You’ll need to project accordingly.

What if you are planning to double your business in 2015? You’ll need to account for a ramp up from where you are performing now to where you project you will be and plan accordingly for increased marketing and increased staffing. Maybe you’ll need to add additional infrastructure in terms of office space, vehicles or equipment.

Planning ahead by making a Profit Plan or budget will also help you to see where you might need to infuse more capital into the business in the form of loans, Lines of Credit.

Profit Plan

Hitting your profit targets
It’s important to hit your revenue targets, but it’s even more important to achieve your profit targets. Creating a budget will help you project your profits, so you can evaluate if your plan will achieve the bottom line you need. After all, those profits are necessary to provide additional compensation to shareholders/owners as well as to provide capital for future growth, repayment of debt, etc. By the way, it’s a good idea to create a personal budget, so you’ll know how much you need each month from the business in terms of salary and draws or distributions.

Adding infrastructure to your business
As your business grows, you will need to invest in more infrastructure. This may take the form of adding overhead personnel, for example a sales person, administrative support or a supervisor. Other types of infrastructure could be leasing an office or shop (or increasing the size of your facility) or investing in additional equipment, vehicles or technology.

Creating a budget allows you to try out scenarios to see if your revenue projections will support the investment in overhead. You will also want to plan your marketing strategy (and create a marketing budget!) to support the revenue goals you’ve projected.

As you can see, there are many reasons why it makes sense to create a budget for your business. Beyond being sensible, it really is important in my view to do annual strategic planning for your business. Your budget/profit plan is an important piece of your annual strategic plan.

Categories : Financial Management

Tags : Budget, Business Planning, Financial Management, Profit Plan

Chart Your Course to Business Success – 10 Week Intensive

Posted by Linnea Blair on

09/22/2011

Take 10 weeks to leap forward in your business education. This intensive 10 week program is designed to help you learn the important fundamentals of running a best practices business and get you ready to kick off 2012 and make it your best year ever!

This course is a condensed version of our On Target Business Success Program geared for the entrepreneur who wants to get great results with an affordable and accessible group coaching experience.

Chart Your Course to Business Success meets each Tuesday at 10:00 AM Pacific Time for 90 minutes starting October 11, 2011 via online meeting (phone and computer). All sessions are recorded so you can make up if you need to miss a session.

This Intensive is limited to 10 participants only. I want you to have plenty of personal attention. I am excited about this new version of our proven programs. Won’t you join us in October?

Find out more here!

Categories : Events

Tags : Business Planning, Business Strategy, Financial Management, Marketing

Top 10 Cash Flow Tips

Posted by Linnea Blair on

06/30/2010

Know your business’ balance sheet thoroughly. This may sound obvious, but, as your accountant can confirm, many business people don’t know how cash flow works and its significance to keeping their operation afloat. Many owners focus on their business’ profit and loss statement alone. It’s a potentially fatal mistake because healthy profits can mask an impending cash flow crisis. Profit and loss statements don’t usually contain the information required to make an adequate cash flow projection. For that, you’re going to need a structured balance sheet that includes all the influencing factors including debts, interest payments, inventory and so on. This is the basis for your cash flow projection which represents an “educated guess” at the likely inflows and outflows over the period of time you have selected to map out.
Set up a cash flow budget. You need to focus on forward planning to generate a “best guess” about likely future sales and expenses. There are some cash flow software tools around, but you can also set up your own program in Excel. You can also ask us for help. We have financial monitoring tools to help you stay on top of your numbers.
Review and update cash flow budgets regularly. It’s your best insurance against potential cash shortages. If your business has a predictable cash flow, then cash flow budgeting on a quarterly basis is often enough. If you’re already visiting your accountant for other tax related matters, then you can get a cash flow budget prepared at the same time. The rule of thumb is that the greater the cash flow uncertainty a business faces, the more often a new cash flow budget should be prepared.
If cash is really tight, you might need to move to weekly projections, and decide which invoices you’ll pay and whom you need to get payment from as soon as possible. Watch bank balances and make sure you don’t have checks sitting on a desk waiting to be deposited. This can be time consuming, but you won’t be the first business that has had to do that from time to time.
Rapid growth sounds good but, ironically, too much of this good thing can bring on a cash crunch – which takes many business owners by surprise. A sudden spurt in sales is often accompanied by depletion in inventory or an increase in receivables that is not being monitored for overdue collections. Strong sales one month often means a cash shortage next month. By monitoring the business’ cash status you can arrange credit from suppliers and banks to cover the temporary shortfalls. However, these arrangements take time to set up so you need to be prepared in advance.
Set your credit terms carefully. If the nature of your business requires offering credit, then it is important to set clear limits to your terms of credit.
Get payments in quickly. Master the art of receivable management. Let customers know how much time remains before due dates. Stay in close touch with major debtors as payment deadlines approach. Offer small discounts for early payment as an incentive.
Pay your creditors strategically. Take advantage of credit terms and prioritize payments according to the consequences involved in going overdue. Wages, taxes and direct debits are at the top of the list for on-time payment; key suppliers may be prepared to wait a while to keep your business. Don’t pay early just to get a discounted price unless getting the discount is better than being without the cash.
Plan for the ups and downs. Be aware of when lean cash flow periods are coming up and plan accordingly. Avoid funding major purchases from your business’ working capital unless you are sure you have the cash to cover it.
Get finance products working to your benefit. Overdrafts, premium funding, lease facilities and cash flow funding products can all be excellent tools to help match a business’ cash supply with planned outlays. Even the business credit card can be a good way to ease the squeeze as long as you are sure the debt can be paid before interest kicks in.
Don’t incur tax and other statutory penalties. Save yourself the money and the stress!
Keep your hands out of the till. Make cash drawings for personal purposes according to conservative cash flow forecasts.

Categories : Financial Management

Tags : Cash Flow, Finance, Financial Management

Get On Top Of Business Forecasting

Posted by Linnea Blair on

10/28/2009

Want to stay in business and be profitable in this economic climate? The answer is to plan, but it is difficult to think in terms of three to five year plans these days. So focus instead on the next 12 to 18 months and use “what if” scenario planning and stress testing along the way.

Build scenarios
Create a forecast for the next 12 months to 2 years. Take your business plan and then impose a series of scenarios. A business-as-usual scenario, for example, might have flat growth. Another scenario might project a 10% drop in revenue and a 20% increase in input costs. These scenarios show you the effect on the business of outside forces, and allow you to develop contingency plans to mitigate their effect if you start to detect their impact through your monthly reports.
You might decide that if revenues decline for two or three consecutive months, then you will implement a stronger marketing and sales program. If that fails, then you might move to significant cost reduction activities. Look at what happens if the company loses customers and suppliers.
You might need to draw up plans to create other ways of drawing revenue, like discounting, or going to other markets or changing production. Identifying a critical threshold means you can start thinking about how to mitigate it.

Develop your business plan
Critical to forecasting is your business plan; it should cover market analysis, organization and management, strategic analysis, marketing and sales, products and services, the amount of funding needed to start or expand the business, and financials. The best business plans are updated every six months, though you should be reviewing it quarterly.

Do you find when it comes to a choice between serving a paying customer and writing a business plan, like most small businesses, you go for the money? Lack of time is a major reason many small companies don’t have plans. The answer for some businesses is to prepare the plan on the weekend. It might take an entire day, but it’s a worthwhile exercise. Read More→

Categories : Business Planning

Tags : Business Planning, Business Strategy, Financial Management, Forecasting

Make Bank Reconcilations Easier Using the “Locate Discrepancies” Feature

Posted by Teri Milligan on

06/30/2008

Over the next few months I’m going to give quick tips about the bank reconciliation feature in QuickBooksTM. There are a lot of wonderful tools that are part of the bank reconciliation feature and learning just a couple of them can make your life a little easier.

One of the little known features in the bank reconciliation feature of QuickBooksTM is the “Locate Discrepancies” button that you see when you are entering your bank statement information. It’s in the first screen, at the bottom, after clicking on “Bank Reconciliation” from the Home Page or from the Banking Menu.

Since it is so easy to delete or change transactions in QuickBooksTM, this button can come in very handy. You would want to click on this button if the beginning balance from your bank statement does not match the beginning balance when you begin your bank reconciliation. If you click on this button, it will alert you to what has changed, in your records, since you last reconciled your bank statement in QuickBooksTM. Using this information, you can re-input the deleted/changed items and clear them through your current bank reconciliation, which will get your back on track.

If what is showing in the discrepancies window is something that really should not be part of your records, then re-input the data as stated above and then correct it in the current period so that your bank reconciliations for past periods always remain correct.

Categories : QuickBooks Tips

Tags : Financial Management

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Archive for Financial Management

Best Time to Make a Business Budget?

Budget your vacation?

Know Your Numbers – What does it mean to you?

Paying yourself last is not a strategy for success

How Much to Pay Yourself and How

Financing Options for your Business

3 Compelling Reasons to make a Budget for your Business

Why should business owners have a budget? Here are 3 compelling reasons:

Chart Your Course to Business Success – 10 Week Intensive

Find out more here!

Top 10 Cash Flow Tips

Get On Top Of Business Forecasting

Make Bank Reconcilations Easier Using the “Locate Discrepancies” Feature

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