Archive for the ‘Small Business Finances’ Category

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Tax Day: Our Collective Moment of Financial Clarity

April 18, 2011

Financial Clarity CardSome people think April 15th is an icky day. I see it as our collective moment of financial clarity. Tax day is the one day that we all know exactly how much our businesses earned, or didn’t earn, last year.

I hear a lot of people focus on their refund amount. From my perspective, that’s NOT the number you need to focus on. Leave that to your tax accountant. The number that an entrepreneur should focus on is the one that gives you absolute clarity about what your business truly earned.

Employees have financial clarity about their earnings. They know exactly what their hourly wage is. If your value in the workplace is $25/hour, you work for$25/hour. If, due to economic or other circumstances, you take a job at a lower wage, you are usually VERY clear that you are working for less than your value.

Entrepreneurs don’t often have the same clarity. We don’t get paystubs. We often pay ourselves inconsistently. We pay taxes from our business account, so we never get to see the equivalent of ‘gross wages.’ When our businesses need money, we funnel into them from our personal funds. And when our businesses are flush, we sometimes plunder them.

Employees have clarity about time too. A full time employee works 2,080 hours a year. Those that work more, or less, know it. Entrepreneurs don’t have that same clarity. Some of us come in early, stay late, go to evening networking meetings and work weekends. Others spend half of their days doing laundry, running personal errands and picking up kids. When they look back on their week with honesty they they’ve only worked 20 hours.

  • I believe there is great power in simplifying financial data.
  • I believe there is great power in putting pencil to paper.
  • I believe there is great power in saying out loud to yourself and to a trusted adviser “I made $XX/hour last year.”
  • And I believe there is great power in writing about your feelings about your earnings.

Print the Annual Clarity Card, fill it in and share with your fellow Creating Answers readers in the comments, anonymously if you’d like, what you learned from the experience.

If you’d like a free PDF of our Monthly Clarity Cards, send a request to info@creatinganswers.com.

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Entrepreneurial Passion vs. Sales

March 23, 2011

To succeed in business you must sell yourself!I was listening to a new client tell a story that I’ve heard many times.  She is in a creative field and passionate about her work. She really wants to work, but contracts aren’t coming and she is struggling financially. I asked the obvious question: “How are you marketing and selling yourself?” She looked a little blank; and then she scrunched her face; and then she launched into an explanation of the ways in which she was kind-of sort-of maybe marketing herself. Which really was to say: she wasn’t.

Through years of working with small business owners, many have come seeking answers to their financial issues. As an accountant, I would like to think that good accounting would provide the answers. But the truth is that it’s usually not about the numbers. The truth is that the most important component of impacting one’s financial issues is sales and marketing.

If you’re tempted to stop reading because you don’t own a business, please keep reading. I also work with people around their personal finances, and one client comes to mind. She’s a baby boomer with no retirement and no assets. She’s preparing to leap from a $90,000 job to a $115,000 job. How is she going to do that? Selling and marketing herself. I could work with her for the next five years on reducing her spending and building an investment portfolio and blah, blah, blah. Or….I could lovingly push her out of her comfort zone, make her pick up the phone, and start selling herself to headhunters and leaders in her industry.

Fortune 500 companies spend upwards of 10 to 20% of their budgets on sales and marketing. As small business owners, we often spend time, rather than dollars, on those areas of our businesses. What I like to ask every new client is: “How much time are you spending selling and marketing your business?” If the answer is significantly below 20%, they are usually having financial issues, and I have an answer for them. But it’s usually not the answer they wanted to hear. They usually scrunch their face at me. In the case of my new creative client, she quoted an expert in her field who advised that about 75% of a newcomer’s time should be spent on selling, networking and marketing activities. 75%! This expert had built a very successful business, but my client was hoping I’d have a better answer for her. We often know what we need to do; we just don’t want to do it. After all, we opened these businesses of ours to do the work we were passionate about, not so that we could spend 30 hours a week selling!

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My Dad: Lessons In How NOT to Own A Small Business

March 3, 2011

My Dad: Small Business Owner Mickey PowellToday is the anniversary of my dad’s passing. I learned a lot from him, many lessons to share with all of you about small business ownership. In summary: do not do it the way my Dad did!

First, to alleviate any perception that I am speaking ill of him, I want to share what a fine man he was. My love of community service comes from him. His dedication to making this world a better place is clear in this tribute:

http://www.fedflyfishers.org/Default.aspx?tabid=4520

Even his business ownership was, in a way, community service. He was ‘saving the family business.’ http://www.davidlnelson.md/FFF_FlyTyingGroup/Buszeks/BuszekHistory.htm

Now, on to telling the truth. As a child I watched my father work, work, work, and then work some more. He came home late for dinner, went back to work at night, and worked most weekends. Even our few vacations were often spent at work-related fly fishing conclaves or networking conferences. Both of my parents worked, hard, yet we never seemed to have any money. We weren’t destitute; dinner was always on the table. But money was always an uncomfortable issue. Always having a keen sense of numbers and business, even at a young age it was apparent to me that something wasn’t right. I often wondered, weren’t business owners supposed to be rich?

As a teenager, I became the bookkeeper for my dad’s business, and my childhood observations were clarified. The business was barely profitable. My dad either trusted me enough to let me see his truth, or he thought I was so inexperienced I wouldn’t get it. It wasn’t my place to ask.

But the questions I kept to myself then are the exact kinds of questions I ask clients now. And they are questions I want you to ask yourself if you own a business, no matter how large or small. Yes, even a side Tupperware business, or a little consulting gig, or do a bit of wedding photography. These are all businesses, and they do impact your family!

Here are 12 questions to ask yourself.

  • Do you spend less time with your children, spouse, or friends as a result of your business?
  • Have you ever paid an employee late?
  • Are there months that your business doesn’t pay you?
  • Do you ever put off buying basic things your family needs because your business needs the money more?
  • Have you ever lied (or avoided the truth) about your business’ finances to your spouse?
  • When was the last time you took a real vacation?
  • Do you avoid asking for professional advice about your business’ health?
  • Do you truly know how profitable your business is?
  • Is your business contributing to a retirement fund?
  • Do you have partnership agreements that aren’t in writing?
  • How much have you borrowed against your family’s home, retirement, savings, children’s college fund or inheritance?
  • Does your spouse’s income support your business?

If you don’t like your answer to more than a couple of these questions, it’s time to find a trusted advisor, a business coach, an external CFO, or a mastermind group and tell the truth. Print this blog out and put it in the front of a binder titled “Making My Business Better.” Make an action plan. Make it better. In six months, ask yourself the questions again. Then repeat.

What would my dad’s answers to these questions have been? 100% not good. In the 32 years I watched him run his business, I only saw his business run him. I’ve taken these lessons and have been committed to reverse engineer his mistakes into a balanced plan for running my business. I haven’t always been successful, but one of my life’s quests is to be just like my dad when it comes to community service, and exactly opposite my dad when it comes to small business ownership.

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10 Decisions Not to Make Alone

February 11, 2011

We all make financial decisions every single day, some small, some large. Do I cook at home or go out to eat? Do I change banks? Do I clean my own home or hire a housecleaner? Do I buy a used car, a new car or lease a car? Do I start my own business or buy a franchise?

The original title for this blog was “10 things you might want to talk with your CFO about,” but most people don’t have a Chief Financial Officer (though I’m trying to change that.) Many people do, however, have a financial planner, a tax accountant, a business coach, or some trusted advisor. Rising in popularity is the type of financial and money coaching that I believe is so valuable.

Over the years I’ve had many a client announce, during their scheduled monthly appointment, “I leased a building last week,” or “my attorney submitted all the paperwork to change my business to an S corporation,” or “I took out a home equity loan.” I always wonder why they wouldn’t have waited just one more week to discuss the decision with me. I suspect it’s often our subconscious telling us to move forward before someone tells us “no.”

Accountants get accused of being naysayers, and there’s a bit of truth to that. We’re conservative by nature. I’ll be the first to tell you: don’t always take your accountant’s advice. But: do always ask for it. Discussing the facts of major decisions, as well as the feelings and the what-if’s, is invaluable.

What are the 10 things you should discuss before you jump in?
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Creative Brain vs. Business Brain

January 21, 2011

I love working with creatives: artists, actors, healing professionals, writers, photographers, all of them. Our society has created a “right brain vs. left brain” mentality. If you’re creative, you aren’t a strong business person. If you’re a strong business person, you aren’t creative. But we know black and white statements aren’t true. Creatives can make great business people, especially when they provide themselves with structure. Creatives have the ideas, the willingness and the passion to throw themselves full force into their work. And that is what it takes to be successful in business.

One of my inspiring clients decided, as a strategic business decision, that 2010 was going to be her year of “living as an artist.” She had long worked hard on her business; she had tethered herself to do the work, bring in the clients and earn a living. She had been successful enough, but by the time she got to me she wasn’t enjoying it much. Something needed to change.

“Creatives have the ideas, the willingness and the passion to throw themselves full force into their work. And that is what it takes to be successful in business.”

So 2010 was her year of living as an artist. Her mission was to fully embrace her creativity and joy of being an artist. Her goals, strategies and actions all supported that mission. There was still some structure: billable work, marketing, financial coaching and professional development. But the focus was on enjoying her creative talents, not on meeting her monthly revenue goals.

And what were the results? November and December were two of the most profitable months she’s ever had. And, she’s happy. It was a year of transformation and expansion for her. She’s well positioned to focus on revenue growth in 2011. Most important of all, she was well cared for, and she is, after all, the most valuable asset in her business.

Why would I, an accountant, support that kind of strategy? Because I’ve seen its effectiveness and profitability, over and over and over. If it’s done with intention and structure, it can be a very effective business decision for both creatives and for any other kind of business owner.

What’s your mission for 2011? Does it include creativity? Art? Health? If not, weave it in, and then write down what kind of return on investment you expect from giving yourself that gift.

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15 Days til New Year’s Eve…The Time is Now

December 16, 2010

Countdown to New Year'sWhile everyone else is busy counting days until Christmas, accountants are busy counting days until New Year’s Eve. And here’s why:

Do you itemize your deductions? If yes, look at your spending plan for charitable contributions. You have 15 days to maximize your gifts. Plus your favorite nonprofits are busily trying to meet their year-end goals, so gifts that come in during December are hugely appreciated! Have you spent out your Health/Flexible Spending Accounts? Now is the time.

Are you a business owner? If yes (and you file cash basis) then every dollar you spend in the next 15 days saves you in the neighborhood of 25 to 40 cents. Our advice to clients at year end: Any equipment you plan to buy in the next six months, buy it now. Any bills scheduled to pay at the beginning of January? Pay them now. And on the income side, for every dollar you put in the bank, you’ll be sending 25 to 40 cents to the IRS on April 15th. This is the one time of year you ease up on your receivables calls, slow down your invoicing process, walk to the bank very slowly.

And for my nonprofit clients? You have 15 days to maximize contributions for the year. Call one key donor every day until the 31st. You can ask for support, or just wish them a happy holiday and thank them for their support. Craft one last personal email solicitation. People want to give this time of year, and it’s your job to remind them.

Happy New Year!

(The accountant’s disclaimer: this is clearly generalized advice. It’s something to be discussed with your trusted advisor. If you don’t have a trusted advisor, we know some great ones!)

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2011: Is your plan in place?

December 10, 2010

Winter is a time of reflection, both personally and for our businesses. How did this past year go? Did I meet my goals? Um, did I have goals? What do I want next year to look like? What do I have to do to get there?

At Creating Answers, it is the time of year we are busy working with all of our clients on 2011 goals and budgets. It is one of my favorite times of the year because you get to do two really fun things: analyze how last year went, and draw the financial road map to follow next year. It’s financial art at its most fun.

If you think of this work as a chore, I invite you to reframe your beliefs about planning and numbers. I invite you to think of it as a game, or a puzzle. Make it a date with yourself. Go to your favorite coffee house, or pour yourself a bottle of fine wine. And then…start asking yourself questions.

What percentage of your total income goal did you reach this year? 120%? Great! 85%? Not so great. What do you need to do differently in 2011? What amount of marketing dollars would have closed that 15% gap? Do you need to increase your networking time? Upsell existing clients? Raise your prices?

“If you think of this work as a chore, I invite you to reframe your beliefs about planning and numbers.”

Take a look at your discretionary areas of spending? How much did you spend on marketing and advertising? What were the financial results? Professional development? Results? Equipment? Results?

How much did you spend on staffing and/or outside consultants? Did they work at capacity? Did you generate revenue from your staff? How much? A great rule of thumb to start with is three times their cost.

While it is difficult to assign numbers to each of those questions, the exercise of trying will create answers. What if you spent nothing in each of those areas? What if you spent three times as much?

Most importantly, don’t overdo the process. It’s more effective to do a really thorough look at your 15 most critical spending areas consistently than it is to look at all 60 of the expense accounts you have in Quickbooks. (And if you have 60 expense accounts in Quickbooks, you should give us a call!)

Find out more about what we do at http://CreatingAnswers.com.

Here’s to a prosperous new year full of financial clarity!