Wenatchee Office located at 238 Olds Station Road, Wenatchee. By appointment call 509-888-7252 or email jim.fletcher@wsbdc.org

Thursday, November 15, 2012

Common Financial Ratios for Year End Reviews

Use financial ratios to compare year to year performance. Ratios will indicate a trend of better or worse than last year. Calculating these ratios will require a Balance Sheet and a Profit and Loss statement

  • Current Ratio (Solvency) divide Current Assets by Current Liabilities to measure dollars of assets per dollar of debt shows ability to pay debts.
  • Quick Ratio (Liquidity) divide  Cash plus Accounts Receivable by Current Liabilities to measure CASH available to pay debts show ability to quickly pay debts.
  • Debt-to Worth (Safety) divide Total Liabilities by Net Worth to measure Dollars of Liabilities per dollar of net worth
  • Working Capital divide Current Assets minus Current Liabilities by Sales to measure ability to pay short term debt
  • Cash divide Cash plus equivalents by Total Assets to measure CASH as a percent of total assets

Wednesday, August 22, 2012

Health Care Reform

Here is a useful article entitled “After the Supreme Court’s Health Care Reform Decision:  What Employers Now Need To Do” supplied by the law firm of Schwabe, Williamson & Wyatt:  http://www.schwabe.com/Articles/WhatEmployersNowNeedToDo_July2012.pdf

Perhaps it will answer some questions.

Thursday, August 16, 2012

Small Business Advisory: Crowdfunding

Posted by the North American Securities Administrators Association, June, 2012

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, a series of legislative provisions intended to facilitate capital formation in the United States. Part of this legislation included the CROWDFUND Act, which makes significant changes in current federal and state securities laws.

The CROWDFUND Act will allow entrepreneurs to raise capital by offering to sell interests in their businesses over the Internet. Under the CROWDFUND Act, a small business will be allowed to raise $1 million in a 12-month period by selling its securities to investors without registering that offering with federal or state securities regulators. However, the Act places limitations on how and to whom a small business can sell its securities. The Act directed the Securities and Exchange Commission to adopt rules within 270 days to implement a new exemption to allow securities sales through crowdfunding.

Wednesday, July 25, 2012

Business Plan Step One - The Budget

My preference when starting a business plan is, first develop a cash flow budget.  New business,  growing business or buying a business every action requires some investment of money with the purpose of making a return on that investment.  Therefore, before writing a business plan I want to have an understanding of what financial commitment will be necessary to enable this business to be profitable and finance eligible.

Purpose of a Cash Flow Budget
Preparing a cash flow budget is to understand how money will move through the business over a period of time. Most businesses can plan on a monthly basis while other like construction or manufacturing may need to plan on a weekly basis.

Cash flow budget is to reveal the money needed to fund seasonal sales and operating cycles.  For example, a retailer may need to spend money to buy inventory several months before the inventory is received and sold.  Or, for a landscape business how much of the money earned in the summer must be saved to survive the winter?

Cash Flow helps schedule business activities such as adding labor when sale are strong.

Cash Flow identifies financing needs and structure. A line of credit for short periods, or term loans for capital equipment purchases.

Cash flow planning is all about when money goes out and when money comes in. This is not a profit & loss model, nor concerned with non cash items like depreciation

Compare your budget to actual revenues and expenses. Determine if you are reaching your goals, costs are as expected. If not you can take corrective actions to reduce planned expenses and increase sales activities.

Thursday, June 21, 2012

Crowd Funding?

This nice summary of the business and regulatory aspects of Crowdfunding was published in Xconomy June 12, 2012. It might serve useful when inquiries arrive on our doorstep. Note that a business plan is a requirement.

JOBS Act: Important Benefits for Startups Not on the IPO On-Ramp 

Written by David Westenberg on Jun 12, 2012 03:01 am

The JOBS Act is probably best-known for creating an “IPO on ramp” intended to reduce the cost and complexity of going public, but the act also contains important benefits for startups that are years away from an IPO, or never plan to go public. By loosening decades-old restrictions on private fundraising, permitting a new financing technique known as “crowdfunding,” and increasing the maximum number of stockholders a private company may have, the act should make it easier for startups to obtain financing and remain private if they so choose.

Elimination of Ban on General Solicitation

Current SEC rules prohibit general solicitation and general advertising to attract investors in private placements. The JOBS Act requires the SEC to amend its rules to permit such activities in placements conducted pursuant to Rule 506 (the SEC rule that allows companies complying with its requirements to raise unlimited amounts of capital http://www.sec.gov/answers/rule506.htm) as long as all purchasers qualify as “accredited” investors. (Accredited investors are high income and high-net-worth individuals and qualifying institutions.) A company must take reasonable steps to verify that purchasers are accredited investors, using methods to be determined by the SEC.

This change does not go into effect until the SEC amends its rules, which is supposed to occur by July 4, 2012 (90 days after enactment of the JOBS Act), but could be delayed.

New Crowdfunding Exemption

The JOBS Act requires the SEC to adopt rules to permit private U.S. companies, without registration, to engage in “crowdfunding” transactions, subject to the following restrictions:

• Within any 12 month period, the maximum offering size is $1 million.

• The amount any individual investor may invest must not exceed (1) the greater of $2,000 or 5 percent of the annual income or net worth of the investor, if either the annual income or net worth of the investor is less than $100,000, and (2) 10 percent of the annual income or net worth of the investor, not to exceed a maximum aggregate investment of $100,000 by the investor, if either the annual income or net worth of the investor is equal to or more than $100,000.

• An intermediary, either a broker or “funding portal,” must be used in the transaction. The intermediary must register with the SEC and any applicable self-regulatory organization; ensure that investors understand the risks of the investment and can bear the burden of possibly losing the investment; conduct a background check on each officer, director, and 20 percent stockholder of the company; make sure that no investment limits are exceeded; and comply with any other requirements the SEC may prescribe.

• Companies have to file with the SEC, and provide to investors and potential investors, an anticipated business plan, the financial condition of the company, a description of the intended use of the proceeds, and a description of the ownership and capital structure of the company.

• Investors can bring rescission claims (claims for refunds) for material misstatements and omissions. Claims may be brought against the company, the company’s directors, and certain officers, and any person who offers or sells the security in the offering.

• Companies need to disclose a target offering amount and the deadline to reach the target offering amount. Companies must provide regular updates regarding their progress in meeting the target offering amount.

• Companies may not advertise the offering, except for notices that direct investors to the intermediary. Companies may not compensate anyone for promoting the offering through the intermediary’s communication channel without taking proper steps to ensure that the promoter discloses that compensation in each promotional communication.

• Companies must file financial statements and ongoing reports with the SEC, subject to rules, exceptions, termination dates, and other requirements to be determined by the SEC.

• Investors may not resell securities for one year, beginning on the date of purchase, except to the company; to an accredited investor, as part of an SEC-registered offering; to family members; or in connection with death or divorce.

• Crowdfunding is available only to U.S. companies (and not foreign companies) that are not already an SEC reporting company.

Crowdfunding will not become available until the SEC issues rules to implement it. The rules are supposed to be adopted by December 31, 2012 (270 days after enactment of the JOBS Act), but this also could be delayed.

Higher Stockholder Threshold for Mandatory SEC Reporting

The JOBS Act increases the stockholder threshold at which a private company must register its securities and become an SEC reporting company. The former limit was 500 holders of any class of equity security; the new limit is 2,000 persons, or 500 persons who are not accredited investors.

For purposes of the new threshold, securities held by persons who received the securities pursuant to an employee compensation plan—such as a stock option plan—in transactions exempt from SEC registration are excluded. Securities issued in crowdfunding transactions will also be excluded, once the SEC adopts crowdfunding rules. The increase in the registration threshold and the exclusion from such calculations of securities issued in employee compensation and crowdfunding transactions should allow some large private companies to remain private longer, and may enable companies to avoid creating new classes of equity security as a workaround to the old 500-person limit. The change may also encourage some companies to grant equity more broadly within the company, or to stop including restrictions on grants that were intended to keep the company below the former 500 person limit.

Wednesday, May 30, 2012

Growth Plan Assessment for Small Businesses

Conduct a self-assessment to identify areas of your business that  need to be improved, set priorities and stimulate your thought about what you are really doing. Take time to think about and answer each of these questions, its an investment in your future.    When completed use this assessment to meet with your  business advisor to priortize discussions and brainstormsing ides for improvements. 

Part One - Measuring Marketing and Sales Results
How Much Growth Do You Want?
1. What is your objective for increasing sales volume in the next 12 months?

2. What is your objective for increasing net profit in the next 12 months?

3. Given your firm’s capabilities as well as customer and market conditions, how likely are you to reach the sales and profit objectives given above?

How Good Are Current Sales, Profits and Cash Flow?
4. What have been your firm’s total sales for the last three years?
(Sales refer to dollar revenues actually received by your firm in each fiscal year.)
                            Last FY   2 Years ago   3 Years ago
Net Sales            _______     _________     ________
Net Income         _______     _________     ________

5. Gross Profitability (sales minus total cost of goods) during the past three years has been...
___Increasing    ____Flat        ____Decreasing

6. Do you consider your current cash flow to be?
___Excellent     ____Good     ____Fair    ____Awful

7. Does your balance sheet show a trend?   Last FY?  2 Years ago?  3 Years ago?
  •  Total Current Assets
  • Total Fixed Assets 
  • Total Current Liabilities 
  • Total Long Term Liabilities
  • Net Worth                              
8. If the new plan requires investment are the owners willing to: 
  • Borrow from the bank?
  • Must finance through profits?
  • Can’t make investments at this time?

Part Two - Measuring Marketing and Sales Results

9. Do you maintain current information on profitability, unit sales, and dollar sales for  each of the following?
Customers:                ___Yes   ___No
Products/Services:    ___Yes   ___No
Individual models:    ___ Yes  ___No
Individual jobs:         ___ Yes  ___No

10. Which of the following cost data is used in developing prices or quotations?
Material Costs:      ___Yes   ___No
Labor Costs:          ___Yes   ___No
Overhead Costs:   ___Yes   ___No
No cost data is used ____

11. Do you routinely compare-estimated costs to actual costs after each job or sale?
___Yes ___No

12. What is the frequency of preparing financial statements? 
__Monthly, __Quarterly, __Semi-annually, __Annually, __None

13. How are expenses broken out on your income statement? (Check all that apply)
____Only total expenses are reported
____Production/cost of goods sold are broken out as a separate line item
____Selling costs are broken out as a separate line item
____General/administrative are broken out as a separate line item
____Other (Please describe )

14. Does your firm produce
 ____To inventory  _____ Est.  % of company sales revenue?
 ____To order        _____ Est. % of company sales revenue?

Part Three - Internal Sales/Customer Information
15. Do you have a system for tracking the reasons you lose orders?
____Yes       ____No       ____Don’t know

16. Do you use lost order/customer information to change your sales or marketing strategies?
____Yes       ____No       ____ Don’t know

Most Valuable Customers (MVCs) are the small percentage of customers in most firms that account for the majority of sales or profits.
17. Do you know what % of your customer base accounts for 80% of your sales?.
____Yes       ____No         ____Don’t know
18. Does your single largest customer account for more then 30% of the sales? 
____Yes      ____No          ____Don’t know

19. Are the high volume, MVC customers profitable? 
____Yes      ____No         ____Don’t know

20. Can you identify The Best Customer Profiles to sell to?
____Yes     ____No         ____Don’t know

21. Can you identify the worst customer Profiles that you need to replace?
____Yes      ____No         ____Don’t know

Part Four – Competitor and Market Information

22. Can you list all major direct competitors for each major product, model, or service?
____Yes      ____No       ____Don’t know

23. How do your most important products or services compare to your strongest competitor?  
     Name of competitor _________________________
 ____Better     ____The same     ____Don’t know

24. Do you know how your customers would rate your products or services against specific competitors? 
____Yes           ____No

25. How do your products compete with the direct competitor products in price –model by model?
____Higher price        ____Same price     ____ Lower price

Market Analysis 26. Do you described your customer groups in terms of industries or market niches? 

27. Can you describe the market niches in terms of SIC Codes?
____Yes           ____No

28. Do you know how many prospects are in each market niche?
____Yes           ____No

29. Are these markets growing, stagnant or declining?
__ Growing __Stagnant __Declining __Don’t know

30. To achieve your growth commitments is it possible to increase share of your current markets?
____Yes           ____No

31. If your markets are stagnant or declining will you have to find new markets to grow?
Part Five - Marketing Strategies and Function32. Do you have a current written business plan that includes a sales forecast and budget? 
____Yes       ____No       ____Don’t know

33. Briefly describe your five most important product lines or services in order of their annual sales volume, and enter their approximate percentage of total company sales.

A. _________________________________________   ____ %

B. _________________________________________   ____%

C. _________________________________________   ____%

D. _________________________________________   ____%

E. _________________________________________    ____%
34. What is your target gross profit margin for each of the above product lines or services
                       (Fill in first column below)
35. Does the product line fall short, meet, or exceed this target?
                       (Please use the same letters as listed above.)
     Target Margin      Short     Meets    Exceeds     

A. ___________     ______   ____    _____   

B. ___________     ______   ____   _____   

C. ___________    ______    ____   _____ 

D. ___________    ______    ____  _____ 

E. ___________    ______    ____  _____  

36. Does each product line have an advantage over known competitive products or are they simply a “me too” products? (Please describe any specific advantages your products have.)

New Product Development
37. How many new products or services have you introduced in the past four years?

38. Does your company plan to develop new products or services to achieve the growth commitments in questions 1 and 2?

39. If “Yes”, how many?

40. Do you have a system to evaluate the total projected costs of the new product or service?

41. Do you have a system to evaluate the sales potential (future sales year by year) of the new product or service?


42. Who establishes prices in your company?

43. What method do you use, generally, to determine prices? (Check only one)

___Actual cost + desired margin
___Standard cost + desired margin
___Estimated cost + desired margin
___Meet competitive prices
___Whatever the customer will pay

44. Are you having any difficulty establishing and/or maintaining your prices?

___Yes     ____No

45. In general, are your prices higher, lower or about the same as your competitors’ prices for similar products?
___Our prices are generally higher
___Our prices are about the same
___Our prices are generally lower

46. What percent of your orders are discounted in order to get the sale?


Note: The following questions ask whether you use company employed sales personnel, including commissioned reps/agents/distributors, or both. The first set of questions deal with company employed sales personnel and are followed by questions about commissioned reps/agents/distributors.

47. Enter the percent of sales (or estimated percent) produced by each sales channel.

____Company employed inside sales employees
____Company employed outside sales employees
____Commissioned reps/agents/distributors
____Other (describe)
100 %  Total

Company Sales Department

48. How many sales people do you have that are they company employees? (Not outside reps) - (Allocate fractional assignments if applicable, e.g., half time assignments)
____Number of inside sales people
____Number of outside sales people

49. How would you judge the overall performance of your sales force?
50. Does the firm have enough sales people to provide sufficient face-to-face or voice-to-voice contact with the needed number of prospects and customers to produce the desired sales volume?
51. To which of the following goals/measures do you tie compensation/evaluation of sales personnel?
____Not tied to any goals/measurements
____Tied to sales volume goals
____Tied to gross margin goals
____Tied to other profit goals (Please describe)
____Does not apply

Manufacturers’ Reps, Agents, and Distributors

52. Number of  Reps ___  Agents___ Distributors ___

53. How would you judge the overall performance of the rep/agent/distributor network?
___Don’t know

54. How would you judge the sales coverage (the function of contacting the needed number of prospects and customers to produce the desired sales volume) provided by reps/agents/distributors?

55. Do reps/agents/distributors perform enough sales tasks to justify their commissions in most cases?
___Yes      ___No     ___Don’t know

56. Would sales performance improve if you improved factory marketing support and training programs for your reps/agents/distributors?
___Yes ___No ___Don’t know

57. Which of the following advertising/promotional methods do you use?
____Trade journal advertising
____Post card packs
____Coop advertising
____New product releases
____Publicity releases
____Magazine articles
____Radio advertising
____Television advertising
____Trade shows
____Web Site
____Promotional giveaways
____Direct mail
____Email list
____Internet Orders
____Internet advertising
____Yellow Pages
____Google Maps

58. Will these promotional methods be adequate to get a larger share of current markets?
___Yes ___No ___Don’t know

59. Will these promotional methods be adequate to find and penetrate new markets?
___Yes ___No ___Don’t know

Tuesday, April 3, 2012

Why You Can't Afford to Have a Bad Bookkeeper & How to Tell if You Have One in 60 Seconds

As a business owner it is critical that you know where you stand financially and that your financial statements are correct. Reviewing banks statements and financial reports should be a routine you strictly follow every week. - Jim

Published by RestaurantOwner.com, Profit Tip of the Week, April 3, 2012 

Over the years we've seen more than just a few independent restaurant owners get stung, sometimes very badly, by inept bookkeeping practices.

Having an incompetent, careless or unorganized bookkeeper exposes you to all sorts of risks. It puts the accuracy of your financial information in serious question, it can make you an easy target for fines and penalties when you're audited by any number of possible federal and state agencies and it makes your business more susceptible to theft and fraud.

One way to get a quick read on what kind of bookkeeper you have is to ask to see your latest bank reconciliation. You may not have a clue what to look for but stick with us here. This is VERY important.

As the owner of a low margin business that deals with a large number of small (often cash) transactions, you MUST have assurance that your bookkeeper or accountant is preparing accurate and timely bank reconciliations.

First, when you ask for your bank reconciliation, do you get that deer in the headlights look? Do you notice some hesitancy or the "why" question? Do they appear to be a little overly protective of "their" work? (NOTE: The bank reconciliations are YOURS, NOT theirs.)

If you notice any of the above red flags, contact your outside CPA immediately and have them investigate and determine what kind of shape your books are in and the liklihood of fraud.

Next, when was your last bank reconciliation completed? If it has been longer than 30 days, you "may" have a problem. If it has been longer than 90 days, you DEFINITELY have a problem. Again, call your CPA on how to best proceed.

Finally, review a few of the latest bank reconciliations. Ask questions about any adjusting entries, transfers and other reconciling items. Just ask what they are and see what kind of response you get.

Can your bookkeeper explain them to you? Does the response you get make sense? If not, you guessed it, ask your CPA to review the situation. Bookkeepers "should" be able to explain every single number on the bank rec in simple, plain language. It's not rocket science.

Don't get burned by an incompetent or lazy (or dishonest) bookkeeper when you can get a pretty good sense of what's going on with your books, often, in less than a minute.

Wednesday, March 28, 2012

6 Habits of True Strategic Thinkers

by Paul J. H. Schoemaker, Inc. Magazine

You're the boss, but you still spend too much time on the day-to-day. Here's how to become the strategic leader your company needs.

In the beginning, there was just you and your partners. You did every job. You coded, you met with investors, you emptied the trash and phoned in the midnight pizza. Now you have others to do all that and it's time for you to "be strategic."

Whatever that means.

If you find yourself resisting "being strategic," because it sounds like a fast track to irrelevance, or vaguely like an excuse to slack off, you're not alone. Every leader's temptation is to deal with what's directly in front, because it always seems more urgent and concrete. Unfortunately, if you do that, you put your company at risk. While you concentrate on steering around potholes, you'll miss windfall opportunities, not to mention any signals that the road you're on is leading off a cliff.

This is a tough job, make no mistake. "We need strategic leaders!” is a pretty constant refrain at every company, large and small. One reason the job is so tough: no one really understands what it entails. It's hard to be a strategic leader if you don't know what strategic leaders are supposed to do.

After two decades of advising organizations large and small, my colleagues and I have formed a clear idea of what's required of you in this role. Adaptive strategic leaders — the kind who thrive in today’s uncertain environment – do six things well:

Tuesday, March 6, 2012

Every Journey Begins With a Plan

By Janet Hart, SBDC Vancouver,

One of the biggest obstacles to starting or expanding a business is fear of the unknown. If we knew that all of our business decisions guaranteed success, we would be very wealthy. In reality, we know that every decision involves risk. Successful entrepreneurs manage risk to a more acceptable level through planning.

A business plan is very much like a road map that guides your decision-making. The process of preparing a plan helps you anticipate the potential and risk of a business opportunity. What risks would cause you to lose an opportunity? Some examples are: insufficient money to capitalize and operate the business; poor timing and inability to produce a marketable product or service; too few customers (or, conversely, too many competitors); inadequately trained labor pool; inaccurate and poorly managed records; and a lack of business savvy and management skills.

A written business plan is an opportunity to create structure for your ideas. The plan enables you to objectively set goals, focus your energies, develop tactics, and monitor progress. Throughout the process of writing a plan, you will gain an understanding of what is required of you and how you can design the business to fit with your values, lifestyle, abilities, and resources.

Most business plans consist of six components: Purpose and mission, market analysis, product or service and operations, market strategy, management and organizational structure, and finance. A written plan will require a cover page, table of contents, executive summary, and exhibits.